MOODY'S CORPORATION This discussion and analysis of financial condition and results of operations should be read in conjunction with theMoody's Corporation consolidated financial statements and notes thereto included elsewhere in this annual report on Form 10-K. This Management's Discussion and Analysis of Financial Condition and Results of Operations contains Forward-Looking Statements. See "Forward-Looking Statements" commencing on page 71 and Item 1A. "Risk Factors" commencing on page 29 for a discussion of uncertainties, risks and other factors associated with these statements. THE COMPANY Moody's is a global integrated risk assessment firm that empowers organizations and investors to make better decisions. Moody's reports in two segments: MIS and MA. MIS publishes credit ratings and provides assessment services on a wide range of debt obligations, programs and facilities, and the entities that issue such obligations in markets worldwide, including various corporate, financial institution and governmental obligations, and structured finance securities. Revenue is primarily derived from the originators and issuers of such transactions who use MIS ratings in the distribution of their debt issues to investors. Additionally, MIS earns revenue from certain non-ratings-related operations, which consist primarily of financial instrument pricing services in theAsia-Pacific region , revenue from providing ESG research, data and assessments and revenue from ICRA's non-ratings operations. The revenue from these operations is included in the MIS Other LOB and is not material to the results of the MIS segment. MA is a global provider of data and analytic solutions which help companies make better and faster decisions. MA's analytic models, industry insights, software tools and proprietary data assets allow companies to inform and perform many critical business activities with trust and confidence. MA's approach to aggregating, broadening and deepening available data, research, analytic tools and software solutions fosters a more integrated and efficient delivery to MA's customers resulting in better decisions around risks and opportunities. COVID-19 The Company is closely monitoring the impact of the COVID-19 pandemic on all aspects of its business. While the Company has selectively reopened certain of its offices, Moody's continues to require remote work for most employees globally and has operated effectively to date. The Company continues to monitor regional developments relating to the COVID-19 pandemic to inform decisions on the reopening of its offices. The Company experienced disruption in certain sectors of its business beginning late in the first quarter of 2020 resulting from market volatility associated with the COVID-19 crisis. However, at the date of the filing of this annual report on Form 10-K, the Company is unable to predict either the potential near-term or longer-term impact that the COVID-19 crisis may have on its financial position and operating results due to numerous uncertainties regarding the duration and severity of the crisis, including the length of time to distribute a vaccine. As a result, it is reasonably possible that the Company could experience material impacts including, but not limited to: reductions in revenue and cash flows; additional credit losses related to accounts receivables; asset impairment charges; and changes in the funded status of defined benefit pension plans. While it is reasonably possible that the COVID-19 crisis could impact the results of operations and cash flows of the Company in the near term, Moody's believes that it has adequate liquidity to maintain its operations with minimal disruption and to maintain compliance with its debt covenants. In 2020, in order to maximize liquidity and to increase available cash on hand through this period of uncertainty, the Company added$700 million in additional long-term borrowings as more fully discussed in the section entitled "Liquidity and Capital Resources" below and in Note 18 to the consolidated financial statements. In addition, the Company reduced discretionary spending, including temporarily suspending its share repurchase program beginning late in the first quarter of 2020 and spanning through the third quarter. The Company resumed its share repurchase program in the fourth quarter of 2020. The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted onMarch 27, 2020 inthe United States . The Company utilized certain provisions in the CARES Act and otherIRS guidance which permit the deferral of certain income and payroll tax remittances. MOODY'S 2020 10-K
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Table of Contents CRITICAL ACCOUNTING ESTIMATES Moody's discussion and analysis of its financial condition and results of operations are based on the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted inthe United States . The preparation of these financial statements requires Moody's to make estimates and judgments that affect reported amounts of assets and liabilities and related disclosures of contingent assets and liabilities at the dates of the financial statements and revenue and expenses during the reporting periods. These estimates are based on historical experience and on other assumptions that are believed to be reasonable under the circumstances. On an ongoing basis, Moody's evaluates its estimates, including those related to revenue recognition, accounts receivable allowances, contingencies, restructuring, goodwill, long-lived assets (including acquired intangible assets), leases, pension and other retirement benefits and income taxes. Actual results may differ from these estimates under different assumptions or conditions. The following accounting estimates are considered critical because they are particularly dependent on management's judgment about matters that are uncertain at the time the accounting estimates are made and changes to those estimates could have a material impact on the Company's consolidated results of operations or financial condition.Goodwill OnJuly 31st of each year, Moody's evaluates its goodwill for impairment at the reporting unit level, defined as an operating segment (i.e., MIS and MA), or one level below an operating segment (i.e., a component of an operating segment). The Company has seven primary reporting units atDecember 31, 2020 : two within the Company's ratings business (one for the ICRA business and one that encompasses all of Moody's other ratings operations) and five reporting units within MA: Content, ERS, MALS, Bureauvan Dijk and Reis. The Content reporting unit offers subscription-based research, data and analytical products, including credit ratings produced by MIS, credit research, quantitative credit scores and other analytical tools, economic research and forecasts, business intelligence and company information products. The ERS reporting unit provides products and services that support the credit risk management and regulatory compliance activities of financial institutions and also provides advanced actuarial software for the life insurance industry. These products and services are primarily delivered via software that is licensed on a perpetual basis or sold on a subscription basis. The MALS reporting unit consists of the portion of the MA business that offers both credit training as well as other professional development training. The Bureauvan Dijk reporting unit primarily consists of the Bureauvan Dijk business and the newly acquired RDC and AM businesses, and provides business intelligence and company information products. The Reis reporting unit, which consists of the Reis business and newly acquired Catylist business, provides commercial real estate market information and analytical tools. The Company evaluates the recoverability of goodwill using a two-step impairment test approach at the reporting unit level. In the first step, the Company assesses various qualitative factors to determine whether the fair value of a reporting unit may be less than its carrying amount. If a determination is made based on the qualitative factors that an impairment does not exist, the Company is not required to perform further testing. If the aforementioned qualitative assessment results in the Company concluding that it is more likely than not that the fair value of a reporting unit may be less than its carrying amount, the fair value of the reporting unit will be quantitatively determined and compared to its carrying value including goodwill. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is not impaired. If the fair value of the reporting unit is less than the carrying value, the Company will record a goodwill impairment charge for the amount by which the carrying value exceeds the reporting unit's fair value. The Company evaluates its reporting units on an annual basis, or more frequently if there are changes in the reporting structure of the Company due to acquisitions, realignments of reporting units or if there are indicators of potential impairment. For the reporting units where the Company is consistently able to conclude that no impairment exists using only a qualitative approach, the Company's accounting policy is to perform the second step of the aforementioned goodwill impairment assessment at least once every three years. Interim goodwill impairment assessments performed in 2020 in advance of the Company's annual assessment During the first half of 2020, the observable market capitalization of ICRA declined to a level that resulted in a significant decline in headroom (the amount by which the fair value of a reporting unit exceeds its carrying value) from amounts reported in the Company's Form 10-K for the year endedDecember 31, 2019 . ICRA is a publicly traded company inIndia , and accordingly the Company is able to derive its fair value based on its observable average market capitalization (plus a control premium) over a relatively short duration of time. While the estimate of the fair value of the ICRA reporting unit resulted in no impairment of goodwill in the first half of 2020, further declines in ICRA's average market capitalization could result in impairment in future quarters. As of the date of the filing of this annual report on Form 10-K, the ICRA market capitalization reflects a level that does not result in impairment. As discussed in further detail in Note 10 to the Company's consolidated financial statements, ICRA has disclosed that it completed the internal examinations it conducted into anonymous allegations that were forwarded to ICRA by SEBI, certain additional allegations made during the course of that examination, and a separate anonymous complaint. ICRA reported that its Board of Directors have taken appropriate actions based on the findings of the completed examinations. As of the date of this annual report on Form 10-K, the Company is unable to estimate the financial impact, if any, that may result from a potential unfavorable conclusion of these matters or any other ICRA inquiry. An unfavorable resolution of such matters may negatively impact ICRA's future operating results, which could result in an impairment of goodwill and amortizable intangible assets in future quarters. 44 MOODY'S 2020 10-K -------------------------------------------------------------------------------- Table of Contents AtJune 30, 2020 , the Company performed an interim quantitative goodwill impairment assessment on the Reis reporting unit (acquired inOctober 2018 ), which resulted in no impairment of goodwill. The Company performed this quantitative assessment in response to a decline in projected cash flows relative to Reis' acquisition case projections and included the estimated impact of the COVID-19 crisis on the business. While the fair value atJune 30, 2020 of the Reis reporting unit exceeded its carrying value, further declines in its financial projections could result in impairment in future quarters. Annual goodwill impairment assessment performed atJuly 31, 2020 AtJuly 31, 2020 , the Company performed qualitative assessment for each of the reporting units. The qualitative analyses resulted in the Company determining that it was not more likely than not that the fair value of any reporting unit was less than its carrying amount. Determining the fair value of a reporting unit or an indefinite-lived acquired intangible asset involves the use of significant estimates and assumptions, which are more fully described below. In addition, the Company also makes certain judgments and assumptions in allocating shared assets and liabilities to determine the carrying values for each of its reporting units. Other assets and liabilities, including applicable corporate assets, are allocated to the extent they are related to the operation of respective reporting units. Sensitivity Analysis and Key Assumptions for Deriving the Fair Value of a Reporting Unit The following table identifies the amount of goodwill allocated to each reporting unit as ofDecember 31, 2020 and the amount by which the net assets of each reporting unit would exceed the fair value under Step 2 of the goodwill impairment test as prescribed in ASC Topic 350, assuming hypothetical reductions in their fair values as of the date of the last quantitative goodwill impairment assessment for each reporting unit (June 30, 2020 for ICRA and Reis;July 31, 2019 for all remaining reporting units).
Sensitivity Analysis
Deficit Caused by a Hypothetical Reduction to Fair Value
Goodwill 10 % 20 % 30 % 40 %
MIS $ 99 $ - $ - $ - $ -
Content 381 - - - -
ERS 800 - - - -
MALS 127 - - (12) (37)
ICRA 212 - (2) (44) (85)
Bureau van Dijk 2,746 - - - (266)
Reis 191 - (22) (48) (74)
Totals $ 4,556 $ - $ (24) $ (104) $ (462)
Methodologies and significant estimates utilized in determining the fair value
of reporting units:
The following is a discussion regarding the Company's methodology for
determining the fair value of its reporting units as of the date of each
reporting unit's last quantitative assessment (June 30, 2020 for Reis and ICRA;
and July 31, 2019 for the remaining reporting units). As ICRA is a publicly
traded company in India , the Company estimates its fair value using its
observable market capitalization.
The fair value of each reporting unit, excluding ICRA, was estimated using a
discounted cash flow methodology and comparable public company and precedent
transaction multiples. The discounted cash flow analysis requires significant
estimates, including projections of future operating results and cash flows of
each reporting unit that are based on internal budgets and strategic plans,
expected long-term growth rates, terminal values, weighted average cost of
capital and the effects of external factors and market conditions. Changes in
these estimates and assumptions could materially affect the estimated fair value
of each reporting unit that could result in an impairment charge to reduce the
carrying value of goodwill, which could be material to the Company's financial
position and results of operations. Moody's allocates newly acquired goodwill to
reporting units based on the reporting unit expected to benefit from the
acquisition.
The sensitivity analysis on the future cash flows and WACC assumptions described
below are as of each reporting unit's last quantitative goodwill impairment
assessment. The following discusses the key assumptions utilized in the
discounted cash flow valuation methodology that require significant management
judgment:
-Future cash flow assumptions - The projections for future cash flows utilized
in the models are derived from historical experience and assumptions regarding
future growth and profitability of each reporting unit. These projections are
consistent with the Company's operating budget and strategic plan. Beyond the
forecasted period, a terminal value was determined using a perpetuity growth
rate based on inflation and real GDP growth rates. A sensitivity analysis of the
revenue growth rates was performed on all reporting units. For each reporting
unit analyzed, a 10% reduction in the revenue growth rates used would not have
resulted in its carrying value exceeding its estimated fair value.
MOODY'S 2020 10-K 45
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Table of Contents -WACC - The WACC is the rate used to discount each reporting unit's estimated future cash flows. The WACC is calculated based on the proportionate weighting of the cost of debt and equity. The cost of equity is based on a risk-free interest rate and an equity risk factor, which is derived from public companies similar to the reporting unit and which captures the perceived risks and uncertainties associated with the reporting unit's cash flows. The cost of debt component is calculated as the weighted average cost associated with all of the Company's outstanding borrowings as of the date of the impairment test and was immaterial to the computation of the WACC. The cost of debt and equity is weighted based on the debt to market capitalization ratio of publicly traded companies with similarities to the reporting unit being tested. The WACC applied in each reporting unit's last quantitative test ranged from 8.5% to 9.0%. Differences in the WACC used between reporting units is primarily due to distinct risks and uncertainties regarding the cash flows of the different reporting units. A sensitivity analysis of the WACC was performed on all reporting units. For each reporting unit analyzed, an increase in the WACC of one percentage point would not result in the carrying value of the reporting unit exceeding its fair value. Long-lived assets Long-lived assets, which consist primarily of amortizable intangible assets, operating lease ROU assets and property and equipment, are reviewed for recoverability whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Under the first step of the recoverability assessment, Moody's compares the estimated undiscounted future cash flows attributable to the asset or asset group to its carrying value. If the undiscounted future cash flows are greater than the carrying value, no further assessment is required. If the undiscounted future cash flows are less than the carrying value, Moody's proceeds with step two of the assessment. Under step two of this assessment, Moody's is required to determine the fair value of the asset or asset group and recognize an impairment loss if the carrying amount exceeds its fair value. In performing this assessment, Moody's must include assumptions that market participants would use in their estimates of fair value, including the estimated future cash flows and discount rate. Moody's must apply judgment in developing estimated future cash flows and in the determination of market participant assumptions. Income Taxes The Company is subject to income taxes in theU.S. and various foreign jurisdictions. The Company's tax assets and liabilities are affected by the amounts charged for services provided and expenses incurred as well as other tax matters such as intercompany transactions. The Company accounts for income taxes under the asset and liability method in accordance with ASC Topic 740. Therefore, income tax expense is based on reported income before income taxes, and deferred income taxes reflect the effect of temporary differences between the amounts of assets and liabilities that are recognized for financial reporting purposes and the amounts that are recognized for income tax purposes. The Company is subject to tax audits in various jurisdictions. The Company regularly assesses the likely outcomes of such audits in order to determine the appropriateness of liabilities for UTPs. The Company classifies interest related to income taxes as a component of interest expense in the Company's consolidated financial statements and associated penalties, if any, as part of other non-operating expenses. For UTPs, ASC Topic 740 requires a company to first determine whether it is more-likely-than-not (defined as a likelihood of more than fifty percent) that a tax position will be sustained based on its technical merits as of the reporting date, assuming that taxing authorities will examine the position and have full knowledge of all relevant information. A tax position that meets this more-likely-than-not threshold is then measured and recognized at the largest amount of benefit that is greater than fifty percent likely to be realized upon effective settlement with a taxing authority. As the determination of liabilities related to UTPs and associated interest and penalties requires significant estimates to be made by the Company, there can be no assurance that the Company will accurately predict the outcomes of these audits, and thus the eventual outcomes could have a material impact on the Company's operating results or financial condition. OnDecember 22, 2017 , the Tax Act was signed into law, which resulted in significant changes toU.S. corporate tax laws. The Tax Act includes a mandatory one-time deemed repatriation tax ("transition tax") on previously untaxed accumulated earnings of foreign subsidiaries and reduces the statutory federal corporate income tax rate from 35% to 21%. From enactment of the Tax Act throughDecember 31, 2018 , the Company recorded a provision of$236 million related to the transition tax. In addition, the Company has recorded a deferred tax asset of$50 million related to potential foreign tax credits which could be realized if certain UTPs resulted in tax assessments. The transition tax liability reported on the Company's 2017 and 2018 tax returns is payable over eight years starting in 2018 and will not accrue interest. Pursuant to the Tax Act being signed into law, all previously undistributed foreign earnings became subject toU.S. tax. In light ofU.S. tax reform, the Company has reassessed its capital allocation strategy, including reevaluating its global cash position and revising its plans for repatriating or reinvesting foreign earnings. The Company regularly evaluates in which entities it will indefinitely reinvest earnings outside theU.S. The Company has provided deferred taxes for those entities whose earnings are not considered indefinitely reinvested outside of theU.S. Revenue Recognition and Costs to Obtain a Contract with a Customer Revenue is recognized when control of promised goods or services is transferred to the customer, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. 46 MOODY'S 2020 10-K -------------------------------------------------------------------------------- Table of Contents The discussion below outlines areas of the Company's revenue recognition process that require significant management judgment and estimates. Refer to Note 2 of the consolidated financial statements for a comprehensive discussion regarding the Company's accounting policies relating to the recognition of revenue and costs to obtain a contract with a customer. Determination of performance obligations: When contracts with customers contain multiple performance obligations, the Company accounts for individual performance obligations separately if they are distinct. In the Company's MIS segment, revenue arrangements with multiple elements are generally comprised of two distinct performance obligations; the initial rating and the related monitoring services. Revenue attributed to initial ratings of issued securities is generally recognized when the rating is delivered to the issuer, whereas revenue from monitoring related to MIS's ratings is recognized ratably over the period in which the monitoring is performed. In the MA segment, contracts with customers often include promises to transfer multiple products and services to a customer. When arrangements for software, content or SaaS licenses also include related implementation services, the Company may be required to exercise significant judgment in determining the level of integration and interdependency between the promise to grant the software license and the promise to deliver the related implementation services. This determination influences whether the software license is considered distinct and accounted for separately (with revenue generally being recognized at the time the product master or first copy is delivered or transferred to the customer), or not distinct and accounted for together with the implementation services (with revenue being recognized on a percentage-of-completion basis as implementation services are performed). Allocating consideration to performance obligations: Management judgment is also required in the determination of the SSP, which is utilized to allocate the transaction price to each distinct performance obligation at contract inception when the contract includes multiple distinct performance obligations. In the MIS segment, the SSP for both ratings and monitoring services is generally based upon directly observable selling prices where the rating or monitoring service is sold separately. In the MA segment, for performance obligations where an observable price exists, such as PCS, the observable price is utilized. If an observable price does not currently exist, the Company will utilize management's best estimate of SSP for that good or service using estimation methods that maximize the use of observable data points. The SSP in both segments is usually apportioned along the lines of class of customer, nature of product/services, and other attributes related to those products and services. Once SSP is determined for each performance obligation, the transaction price, including any discount, is allocated based on the relative SSP of the separate performance obligations. Costs to Obtain a Contract with a Customer: Costs incurred to obtain customer contracts, such as sales commissions, are deferred and recorded within other current assets and other assets when such costs are determined to be incremental to obtaining a contract, would not have been incurred otherwise and the Company expects to recover those costs. These costs are amortized to expense on a systematic basis consistent with the transfer of products or services to the customer for which the asset relates. Depending on the line of business to which the contract relates, this amortization period may be based upon the average economic life of the products sold or average period for which services are provided, inclusive of anticipated contract renewals. Contingencies Accounting for contingencies, including those matters described in Note 21 to the consolidated financial statements, is highly subjective and requires the use of judgments and estimates in assessing their magnitude and likely outcome. In many cases, the outcomes of such matters will be determined by third parties, including governmental or judicial bodies. The provisions made in the consolidated financial statements, as well as the related disclosures, represent management's best estimates of the current status of such matters and their potential outcome based on a review of the facts and in consultation with outside legal counsel where deemed appropriate. The Company regularly reviews contingencies and as new information becomes available may, in the future, adjust its associated liabilities. For claims, litigation and proceedings and governmental investigations and inquiries not related to income taxes, the Company records liabilities in the consolidated financial statements when it is both probable that a liability has been incurred and the amount of loss can be reasonably estimated and periodically adjusts these as appropriate. When the reasonable estimate of the loss is within a range of amounts, the minimum amount of the range is accrued unless some higher amount within the range is a better estimate than another amount within the range. In instances, when a loss is reasonably possible but uncertainties related to the probable outcome and/or the amount or range of loss, management does not record a liability but discloses the contingency if material. As additional information becomes available, the Company adjusts its assessments and estimates of such matters accordingly. Moody's also discloses material pending legal proceedings pursuant toSEC rules and other pending matters as it may determine to be appropriate. MOODY'S 2020 10-K
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Table of Contents In view of the inherent difficulty of assessing the potential outcome of legal proceedings, governmental, regulatory and legislative investigations and inquiries, claims and litigation and similar matters and contingencies, particularly when the claimants seek large or indeterminate damages or assert novel legal theories or the matters involve a large number of parties, the Company often cannot predict what the eventual outcome of the pending matters will be or the timing of any resolution of such matters. The Company also may be unable to predict the impact (if any) that any such matters may have on how its business is conducted, on its competitive position or on its financial position, results of operations or cash flows. As the process to resolve any pending matters progresses, management will continue to review the latest information available and assess its ability to predict the outcome of such matters and the effects, if any, on its operations and financial condition and to accrue for and disclose such matters as and when required. However, because such matters are inherently unpredictable and unfavorable developments or resolutions can occur, the ultimate outcome of such matters, including the amount of any loss, may differ from those estimates. Accounts Receivable Allowances OnJanuary 1, 2020 , the Company adopted ASU No. 2016-13, "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" as more fully described in Note 1 to the consolidated financial statements. As the Company's accounts receivable are short-term in nature, the adoption of this ASU did not have a material impact to the Company's allowance for bad debts or its policies and procedures for determining the allowance. In order to determine an estimate of expected credit losses, receivables are segmented based on similar risk characteristics including historical credit loss patterns and industry or class of customers to calculate reserve rates. The Company uses an aging method for developing its allowance for credit losses by which receivable balances are grouped based on aging category. A reserve rate is calculated for each aging category which is generally based on historical information, and is adjusted, when necessary, for current conditions (e.g., macroeconomic or industry related) and reasonable and supportable forecasts about the future. The Company also considers customer specific information (e.g., bankruptcy or financial difficulty) when estimating its expected credit losses, as well as the economic environment of the customers, both from an industry and geographic perspective, in evaluating the need for allowances. Expected credit losses are reflected as additions to the accounts receivable allowance. Actual uncollectible account write-offs are recorded against the allowance. In 2020, Moody's assessment included consideration of the current COVID-19 pandemic and its estimated impact on the Company's accounts receivable allowances. This assessment involved the utilization of significant judgment regarding the severity and duration of the market disruption caused by the pandemic, as well as judgment regarding which industries, classes of customers and geographies would be most significantly impacted. Pension and Other Retirement Benefits The expenses, assets and liabilities that Moody's reports for its Retirement Plans are dependent on many assumptions concerning the outcome of future events and circumstances. These significant assumptions include the following: -future compensation increases based on the Company's long-term actual experience and future outlook; -long-term expected return on pension plan assets based on historical portfolio results and the expected future average annual return for each major asset class within the plan's portfolio (which is principally comprised of equity and fixed-income investments); and -discount rates based on current yields on high-grade corporate long-term bonds. The discount rates used to measure the present value of the Company's benefit obligation for its Retirement Plans as ofDecember 31, 2020 were derived using a cash flow matching method whereby the Company compares each plan's projected payment obligations by year with the corresponding yield on theFTSE pension discount curve. The cash flows by plan are then discounted back to present value to determine the discount rate applicable to each plan. Moody's major assumptions vary by plan and assumptions used are set forth in Note 15 to the consolidated financial statements. In determining these assumptions, the Company consults with third-party actuaries and other advisors as deemed appropriate. While the Company believes that the assumptions used in its calculations are reasonable, differences in actual experience or changes in assumptions could have a significant effect on the expenses, assets and liabilities related to the Company's Retirement Plans. Additionally, the Company has updated its mortality assumption by adopting the newly released mortality improvement scale MP-2020 to accompany the Pri2012 mortality tables to reflect the latest information regarding future mortality expectations by theSociety of Actuaries . When actual plan experience differs from the assumptions used, actuarial gains or losses arise. Excluding differences between the expected long-term rate of return assumption and actual returns on plan assets, the Company amortizes, as a component of annual pension expense, total outstanding actuarial gains or losses over the estimated average future working lifetime of active plan participants to the extent that the gain/loss exceeds 10% of the greater of the beginning-of-year projected benefit obligation or the market-related value of plan assets. For Moody's Retirement Plans, the total actuarial losses as ofDecember 31, 2020 that have not been recognized in annual expense are$152 million , and Moody's expects to recognize a net periodic expense of$11 million in 2021 related to the amortization of actuarial losses. For Moody's fundedU.S. pension plan, the differences between the expected long-term rate of return assumption and actual returns could also affect the net periodic pension expense. As permitted under ASC Topic 715, the Company amortizes the 48 MOODY'S 2020 10-K -------------------------------------------------------------------------------- Table of Contents impact of asset returns over a five-year period for purposes of calculating the market-related value of assets that is used in determining the expected return on assets' component of annual expense and in calculating the total unrecognized gain or loss subject to amortization. As ofDecember 31, 2020 , the Company has an unrecognized asset gain of$49 million , of which$13 million will be recognized in the market-related value of assets that is used to calculate the expected return on assets component of 2021 expense. The table below shows the estimated effect that a one percentage-point decrease in each of these assumptions will have on Moody's 2021 income before provision for income taxes. These effects have been calculated using the Company's current projections of 2021 expenses, assets and liabilities related to Moody's Retirement Plans, which could change as updated data becomes available. Estimated Impact on 2021 Income before Provision for Income Taxes (dollars in millions) Assumptions Used for 2021 (Decrease)/Increase Weighted Average Discount Rates (1) 2.24%/2.30% $ (11) Weighted Average Assumed Compensation Growth Rate 3.62 % $ 2 Assumed Long-Term Rate of Return on Pension Assets 5.45 % $ (5) (1)Weighted average discount rates of 2.24% and 2.30% for pension plans and Other Retirement Plans, respectively. Based on current projections, the Company estimates that expenses related to Retirement Plans will be approximately$31 million in 2021, an increase compared to the$27 million recognized in 2020. Leases The Company's operating leases do not provide an implicit interest rate. Accordingly, the Company must estimate the secured incremental borrowing rate attributable to the currency in which the lease is denominated in the derivation of operating lease liabilities and related operating lease ROU Assets. This secured incremental borrowing rate is based on the information available at the lease commencement date and is utilized in the determination of the present value of lease payments. In addition, certain of Moody's leases have the option to extend the lease beyond the initial term or terminate the lease prior to the end of the term. For these leases, Moody's may be required to exercise significant judgment to determine when that option is reasonably certain of being exercised, which will impact the lease term and determination of the lease liability and corresponding ROU Asset. Restructuring The Company has engaged, and may continue to engage, in restructuring actions, which require management to utilize significant estimates related to expenses for severance and other employee benefit costs, contract termination costs and asset impairments. If the actual amounts differ from these estimates, the amount of the restructuring charge could be impacted. For a full description of Moody's restructuring actions, refer to Note 11 to the consolidated financial statements. Other Estimates In addition, there are other accounting estimates within Moody's consolidated financial statements, including recoverability of deferred tax assets, valuation of investments in affiliates and the estimated lives of amortizable intangible assets. Management believes the current assumptions and other considerations used to estimate amounts reflected in Moody's consolidated financial statements are appropriate. However, if actual experience differs from the assumptions and other considerations used in estimating amounts reflected in Moody's consolidated financial statements, the resulting changes could have a material adverse effect on Moody's consolidated results of operations or financial condition. See Note 2 to the consolidated financial statements for further information on significant accounting policies that impact Moody's. REPORTABLE SEGMENTS The Company is organized into two reportable segments atDecember 31, 2020 : MIS and MA, which are more fully described in the section entitled "The Company" above and in Note 22 to the consolidated financial statements. MOODY'S 2020 10-K
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Table of Contents
RESULTS OF OPERATIONS This section of this Form 10-K generally discusses year endedDecember 31, 2020 and 2019 financial results and year-to-year comparisons between these years. Discussions related to the year endedDecember 31, 2018 financial results and year-to-year comparisons between the years endedDecember 31, 2019 and 2018 that are not included in this Form 10-K can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Company's Annual Report on Form 10-K for the fiscal year endedDecember 31, 2019 . Potential Impact of COVID-19 on the Company's future operating results -The Company is closely monitoring the impact of COVID-19 on all aspects of its business (refer to the section above entitled "COVID-19" for further detail). The operating results discussed below may not be indicative of future results of the Company due to uncertainties relating to the duration and severity of the pandemic and its potential impact on Moody's. The Company remains committed to disciplined cost management through this period of uncertainty. -As of the date of the filing of this annual report on Form 10-K, the Company believes that the most significant risks to its 2021 financial results relating to COVID-19 uncertainties are as follows: -MIS: within the MIS segment, the most notable risks to near-term financial performance may be: -the potential for continued volatility in issuance. The Company observed significant market disruption and a widening of credit spreads late in the first quarter of 2020, followed by strong corporate bond issuance activity during the remainder of 2020. Future market volatility and widening of credit spreads could have a material impact on MIS's near-term operating results; -corporate debt issuance (both investment-grade and speculative-grade) may moderate compared to issuance levels observed in 2020. While issuance was strong in 2020, a portion of the 2020 activity was elevated as a result of corporate issuers bolstering their balance sheets in light of uncertainties regarding the COVID-19 pandemic; and - declines in leveraged loan issuance could result in a decrease in availability of collateral for securitization activity, which could then result in further declines in CLO activity. -MA: within the MA segment, the most notable risks to near-term financial performance may be: -reductions in discretionary spending by MA's customer base and social distancing measures could result in fewer new sales opportunities being identified and an extension of sales cycles on existing opportunities, particularly related to software sales; and -higher attrition rates and/or lower yields on renewable contracts. Impact of acquisitions/divestitures on comparative results -Moody's completed the following acquisitions, which impact the Company's year-over-year comparative results: -Vigeo Eiris onApril 12, 2019 ; -Regulatory DataCorp onFebruary 13, 2020 ; -Four Twenty Seven onJuly 22, 2019 ; -Acquire Media onOctober 21, 2020 ; -RiskFirst onJuly 25, 2019 ; -ABS Suite onOctober 1, 2019 ; -OnNovember 8, 2019 , the Company sold its MAKS business toEquistone Partners Europe Limited , a European private equity firm. The operating results of MAKS are reported within the MA segment (and PS LOB) through theNovember 8, 2019 closing of the transaction. Beginning in 2020, revenue from the MALS unit, which previous to 2020 was reported in the PS LOB, is now reported as part of the RD&A LOB. Prior periods have not been reclassified as the amounts were not material. -Refer to the section entitled "Non-GAAP Financial Measures" of this MD&A for the definitions of how the Company determines certain organic growth measures used in this MD&A that exclude the impact of acquisition/divestiture activity. 50 MOODY'S 2020 10-K -------------------------------------------------------------------------------- Table of Contents Year endedDecember 31, 2020 compared with year endedDecember 31, 2019 Executive Summary -The following table provides an executive summary of key operating results for the year endedDecember 31, 2020 . Following this executive summary is a more detailed discussion of the Company's operating results as well as a discussion of the operating results of the Company's reportable segments. Year EndedDecember 31 , % Change
Favorable / Insight and
2020 2019 (Unfavorable) Year
Moody's total revenue $ 5,371 $ 4,829 11 % - reflects strong growth in both segments
MIS External Revenue $ 3,292 $ 2,875 15 % - primary driver of growth reflects higher corporate
debt issuance (both investment-grade and high-yield)
as issuers bolstered liquidity positions in response
to COVID-19 uncertainties and issued
opportunistically for refinancing needs
MA External Revenue $ 2,079 $ 1,954 6 % - strong renewals and new sales of credit research
and data feeds, as well as demand for KYC and
compliance solutions;
- demand for insurance compliance products along with
credit assessment and loan origination solutions in
ERS; and
- inorganic growth from acquisitions.
Total operating and SG&A $ 2,704 $ 2,554 (6 %) - additional compensation expense resulting from expenses
hiring activity and merit increases coupled with
higher incentive compensation aligned with financial
and operating performance;
- higher costs to support strategic initiatives to
enhance technology infrastructure to enable
automation, innovation and efficiency as well as to
support business growth; partially offset by:
- lower travel costs and disciplined expense
management in light of the COVID-19 crisis coupled
with benefits from the 2018 Restructuring Program
Restructuring $ 50 $ 60 17 % - charges are pursuant to the Company's
restructuring programs, more fully discussed in Note
11 to the consolidated financial statements
Operating Margin 44.5 % 41.4 %
310BPS - margin expansion reflects strong revenue growth Adjusted Operating Margin 49.7 % 47.4 %
230BPS partially offset by growth in operating expenses ETR
20.3 % 21.0 % 70BPS - decrease primarily due to a deferred tax benefit in
2020 resulting from a non-
reorganization
Diluted EPS$ 9.39 $ 7.42 27
% - increase reflects strong operating income/Adjusted
Adjusted Diluted EPS
22 % Operating Income growth as described above
MOODY'S 2020 10-K 51
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Table of ContentsMoody's Corporation Year Ended December 31, % Change Favorable 2020 2019 (Unfavorable) Revenue: United States$ 2,955 $ 2,544 16 % Non-U.S.: EMEA 1,545 1,446 7 % Asia-Pacific 571 551 4 % Americas 300 288 4 % Total Non-U.S. 2,416 2,285 6 % Total 5,371 4,829 11 % Expenses: Operating 1,475 1,387 (6 %) SG&A 1,229 1,167 (5 %) Restructuring 50 60 17 % Depreciation and amortization 220 200 (10 %) Acquisition-Related Expenses - 3 100 % Loss pursuant to the divestiture of MAKS 9 14 36 % Total 2,983 2,831 (5 %) Operating income 2,388 1,998 20 % Adjusted Operating Income (1) 2,667 2,291 16 % Interest expense, net (205) (208) 1 % Other non-operating income, net 46 20 130 % Non-operating (expense) income, net (159) (188) 15 % Net income attributable to Moody's$ 1,778 $ 1,422 25 % Diluted weighted average shares outstanding 189.3 191.6 1 % Diluted EPS attributable to Moody's common shareholders$ 9.39 $ 7.42 27 % Adjusted Diluted EPS (1)$ 10.15 $ 8.29 22 % Operating margin 44.5 % 41.4 % Adjusted Operating Margin (1) 49.7 % 47.4 % Effective tax rate 20.3 % 21.0 % (1)Adjusted Operating Income, Adjusted Operating Margin and Adjusted Diluted EPS attributable to Moody's common shareholders are non-GAAP financial measures. Refer to the section entitled "Non-GAAP Financial Measures" of this Management Discussion and Analysis for further information regarding these measures. 52 MOODY'S 2020 10-K -------------------------------------------------------------------------------- Table of Contents GLOBAL REVENUE 2020----------------------------------------------------------------------------------------------------------------------2019 __________________________________________________________________________________________________________________________________________________________ [[Image Removed: mco-20201231_g126.jpg]] [[Image Removed: mco-20201231_g127.jpg]] [[Image Removed: mco-20201231_g128.jpg]] [[Image Removed: mco-20201231_g129.jpg]] Global revenue ?$542 million U.S. Revenue ?$411 million Non-U.S. Revenue ?$131 million The increase in global revenue reflected growth in both reportable segments. Refer to the section entitled "Segment Results" of this MD&A for a more fulsome discussion of the Company's segment revenue. Operating Expense ?$88 million SG&A Expense ?$62 million
[[Image Removed: mco-20201231_g130.jpg]]-------------------------------------[[Image Removed: mco-20201231_g131.jpg]]-----------
Compensation expenses increased$69 million Compensation expenses increased$43 million reflecting: reflecting: - hiring activity and salary increases; and - hiring activity
and salary increases partially
offset by benefits from the 2018 Restructuring
Program; and
- higher incentive compensation accruals aligned with - an increase in incentive compensation aligned with financial and operating performance.
financial and operating performance.
Non-compensation expenses increased
reflecting:
- higher costs to support strategic initiatives to - higher costs to support the Company's initiative to enhance technology infrastructure to enable
enhance technology infrastructure to enable
automation, innovation and efficiency as well as to automation, innovation and efficiency; and
support business growth;
partially offset by: - higher estimates for credit losses of approximately
$18 million
primarily resulting from the anticipated
impact of the COVID-19 crisis on the Company's
customers;
- lower travel costs and disciplined expense
management in light of the COVID-19 crisis. partially offset by:
- lower travel costs and disciplined expense
management in light of the COVID-19 crisis; and
- a $16 million captive insurance company settlement
in 2019.
MOODY'S 2020 10-K 53--------------------------------------------------------------------------------
Table of Contents Other Expenses The restructuring charge of$50 million in 2020 primarily relates to: ?the non-cash impairment of certain leased real estate assets (ROU Assets and leasehold improvements) pursuant to the rationalization of certain real estate in response to the COVID-19 pandemic; and ?severance costs associated with a strategic realignment in the MA segment. The$60 million restructuring charge in 2019 relates to actions pursuant to the Company's 2018 Restructuring Program which consisted of relocation of certain functions from high-cost to lower-cost jurisdictions, a reduction of staff, including from acquisitions and pursuant to a review of the business criticality of certain positions, and the rationalization and exit of certain real estate due to consolidation of various business activities. Further detail on the Company's restructuring programs are more fully discussed in Note 11 to the consolidated financial statements. The loss pursuant to the divestiture of MAKS in both years relates to the Company's strategic divestiture of this business. Operating margin 44.5%, up 310 BPS Adjusted
Operating Margin 49.7%, up 230 BPS
Operating margin and Adjusted Operating Margin expansion reflects strong revenue growth partially offset by growth in expenses.
Interest Expense, net ? $3 million Other non-operating income ? $26 million
Primarily reflects: The increase was primarily due to:
- a $17 million benefit from a fair value hedge - FX gains of approximately $2 million in 2020
settled in connection with the early redemption compared to $18 million in FX losses in the same
of the 2017 Senior Notes; period of the prior year.
- a$16 million higher benefit from fair value swaps (more fully discussed in Note 7 to the consolidated financial statements); partially offset by: - a combined$24 million prepayment penalty in 2020 on the early redemption of the 2018 Senior Notes and 2017 Senior Notes ETR ? 70BPS
The decrease in the ETR is primarily due to a deferred tax benefit resulting
from a non-
Diluted EPS ? $1.97 Adjusted Diluted EPS ? $1.86
Diluted EPS in 2020 of $9.39 increased $1.97 Adjusted Diluted EPS of $10.15 in 2020 increased
compared to 2019, with both periods including $1.86 compared to 2019 (refer to the section
the aforementioned restructuring charges. The entitled "Non-GAAP Financial Measures" of this
growth in EPS is mainly due to the MD&A for items excluded in the derivation of
aforementioned growth in operating income. Adjusted Diluted EPS). The growth in Adjusted
Diluted EPS is primarily due to the
aforementioned growth in Adjusted Operating
Income.
54 MOODY'S 2020 10-K
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Table of Contents
Segment Results
Moody's Investors Service
The table below provides a summary of revenue and operating results, followed by
further insight and commentary:
Year Ended December 31, % Change Favorable
2020 2019 (Unfavorable)
Revenue:
Corporate finance (CFG) $ 1,857 $ 1,497 24 %
Structured finance (SFG) 362 427 (15 %)
Financial institutions (FIG) 530 476 11 %
Public, project and infrastructure finance
(PPIF) 496 446 11 %
Total ratings revenue 3,245 2,846 14 %
MIS Other 47 29 62 %
Total external revenue 3,292 2,875 15 %
Intersegment royalty 148 134 10 %
Total 3,440 3,009 14 %
Expenses:
Operating and SG&A (external) 1,380 1,265 (9 %)
Operating and SG&A (intersegment) 7 9 22 %
Restructuring 19 31 39 %
Depreciation and amortization 70 71 1 %
Total expense 1,476 1,376 (7 %)
Operating income $ 1,964 $ 1,633 20 %
Restructuring 19 31 39 %
Depreciation and amortization 70 71 1 %
Captive insurance company settlement - 10 100 %
Adjusted Operating Income $ 2,053 $ 1,745 18 %
Operating margin 57.1 % 54.3 %
Adjusted Operating Margin 59.7 % 58.0 %
MOODY'S 2020 10-K 55--------------------------------------------------------------------------------
Table of Contents
MOODY'S INVESTORS SERVICE REVENUE
2020----------------------------------------------------------------------------------------------------------------------2019
__________________________________________________________________________________________________________________________________________________________
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[[Image Removed: mco-20201231_g133.jpg]]
[[Image Removed: mco-20201231_g134.jpg]]
[[Image Removed: mco-20201231_g135.jpg]]
MIS: Global revenue ?
-The increase in global MIS revenue (and in both
CFG REVENUE 2020----------------------------------------------------------------------------------------------------------------------2019 __________________________________________________________________________________________________________________________________________________________
[[Image Removed: mco-20201231_g136.jpg]]
[[Image Removed: mco-20201231_g137.jpg]]
[[Image Removed: mco-20201231_g138.jpg]]
[[Image Removed: mco-20201231_g139.jpg]]
CFG: Global revenue ?
Global CFG revenue for the years ended
[[Image Removed: mco-20201231_g140.jpg]]
(1) Other includes: recurring monitoring fees of a rated debt obligation and/or entities that issue such obligations as well as fees from programs such as commercial paper, medium term notes, and ICRA corporate finance revenue.
56 MOODY'S 2020 10-K -------------------------------------------------------------------------------- Table of Contents The increase in CFG revenue of 24% reflected growth both in theU.S. (33%) and internationally (7%), which resulted in a$344 million increase in transaction revenue. The most notable drivers of the CFG revenue growth were: -strong growth in investment-grade rated issuance volumes reflecting: -corporate issuers bolstering their liquidity positions in light of uncertainties regarding the duration and severity of the COVID-19 crisis; -opportunistic issuance for refinancing in light of the current ongoing favorable market conditions. -strong growth in speculative-grade rated issuance volumes despite severe market disruption in this sector inMarch 2020 relating to the COVID-19 crisis. Subsequent to this disruption in the first quarter of 2020, high-yield market sentiment improved and credit spreads tightened resulting in strong growth in rated issuance volumes; and -benefits from favorable changes in product mix and pricing increases.
SFG REVENUE 2020----------------------------------------------------------------------------------------------------------------------2019 __________________________________________________________________________________________________________________________________________________________
[[Image Removed: mco-20201231_g141.jpg]]
[[Image Removed: mco-20201231_g142.jpg]]
[[Image Removed: mco-20201231_g143.jpg]][[Image Removed: mco-20201231_g144.jpg]]
SFG: Global revenue ?
Global SFG revenue for the years ended
[[Image Removed: mco-20201231_g145.jpg]]
The decrease in SFG revenue of 15% reflected declines both in the U.S. (21%) and
internationally (6%). Transaction revenue
declined $71 million . The most notable factors contributing to the decline in
SFG revenue were:
-reduced activity in the CLO asset class resulting from:
-challenges in the leveraged loan market resulting in lower loan supply (refer
to CFG discussion above);
-wider credit spreads through much of the year in response to uncertainties
relating to the COVID-19 crisis; and
-an increasingly competitive landscape.
-declines in U.S. CMBS securitization activity as commercial retail and hotel
properties have been negatively impacted by the COVID-19 crisis.
MOODY'S 2020 10-K 57
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Table of Contents
FIG REVENUE
2020----------------------------------------------------------------------------------------------------------------------2019
__________________________________________________________________________________________________________________________________________________________
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[[Image Removed: mco-20201231_g147.jpg]]
[[Image Removed: mco-20201231_g148.jpg]]
[[Image Removed: mco-20201231_g149.jpg]]
FIG: Global revenue ?
Global FIG revenue for the years ended
[[Image Removed: mco-20201231_g150.jpg]]
Transaction revenue grew by $53 million compared to the same period in the prior
year.
The 11% increase in FIG revenue was mainly due to:
-growth in U.S. banking and insurance rated issuance volumes as financial
institutions and insurers fortified their balance sheets in light of
uncertainties relating to the COVID-19 crisis and favorable market conditions;
-issuance in advance of anticipated volatility around the U.S. presidential
election in the fourth quarter of 2020; and
-benefits from favorable changes in product mix and pricing increases.
PPIF REVENUE
2020----------------------------------------------------------------------------------------------------------------------2019
__________________________________________________________________________________________________________________________________________________________
[[Image Removed: mco-20201231_g151.jpg]]
[[Image Removed: mco-20201231_g152.jpg]]
[[Image Removed: mco-20201231_g151.jpg]]
[[Image Removed: mco-20201231_g153.jpg]]
58 MOODY'S 2020 10-K
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Table of Contents
PPIF: Global revenue ?
Global PPIF revenue for the years ended
[[Image Removed: mco-20201231_g154.jpg]]
Transaction revenue increased $45 million compared to the same period in the
prior year.
The 11% increase in PPIF revenue resulted primarily from:
-higher U.S. public finance refunding volumes resulting from continued low
benchmark interest rates, including refinancing by way of taxable transactions;
-higher infrastructure finance revenue resulting from investment-grade issuers
bolstering their balance sheets in light of uncertainties regarding the duration
and severity of the COVID-19 crisis; and
-benefits from favorable changes in product mix and pricing increases.
MIS: Operating and SG&A Expense ?
[[Image Removed: mco-20201231_g155.jpg]]
The growth reflects a
Compensation costs Non-compensation costs
The increase is primarily due to: The increase is primarily due to:
- annual salary increases and hiring; - approximately $27 million in higher costs to
support the
Company's initiative to enhance technology
- higher incentive compensation aligned with infrastructure to enable automation, innovation
financial and operating performance; and efficiency as well as to support business
growth;
- inorganic expense growth from the - higher estimates for bad debt reserves of $11
aforementioned million
acquisitions; partially offset by primarily resulting from the anticipated impact of
the
COVID-19 crisis on the Company's customers;
partially
- benefits from the 2018 Restructuring Program offset by:
- lower travel
costs of
disciplined expense
management in light of the COVID-19 crisis; and
- a $10 million charge in the prior year for a
captive
insurance company settlement
MOODY'S 2020 10-K 59--------------------------------------------------------------------------------
Table of Contents Other Expenses
The restructuring charges in both years relate to the Company's restructuring programs, which are more fully discussed in Note 11 to the consolidated financial statements.
MIS: Operating Margin 57.1% ? 280BPS Adjusted Operating Margin 59.7% ? 170BPS
MIS operating margin and Adjusted Operating Margin both increased reflecting strong revenue growth outpacing expense growth.Moody's Analytics The table below provides a summary of revenue and operating results, followed by further insight and commentary: Year Ended December 31, % Change Favorable 2020 2019 (Unfavorable) Revenue: Research, data and analytics (RD&A)$ 1,514 $ 1,273 19 % Enterprise risk solutions (ERS) 565 522 8 % Professional services (PS) - 159 (100 %) Total external revenue 2,079 1,954 6 % Intersegment revenue 7 9 (22 %) Total MA Revenue 2,086 1,963 6 % Expenses: Operating and SG&A (external) 1,324 1,289 (3 %) Operating and SG&A (intersegment) 148 134 (10 %) Restructuring 31 29 (7 %) Depreciation and amortization 150 129 (16 %) Acquisition-Related Expenses - 3 100 % Loss pursuant to the divestiture of MAKS 9 14 36 % Total expense 1,662 1,598 (4 %) Operating income$ 424 $ 365 16 % Restructuring 31 29 (7 %) Depreciation and amortization 150 129 (16 %) Acquisition-Related Expenses - 3 100 % Loss pursuant to the divestiture of MAKS 9 14 36 % Captive insurance company settlement - 6 100 % Adjusted Operating Income$ 614 $ 546 12 % Operating margin 20.3 % 18.6 % Adjusted Operating Margin 29.4 % 27.8 % 60 MOODY'S 2020 10-K -------------------------------------------------------------------------------- Table of Contents MOODY'S ANALYTICS REVENUE 2020----------------------------------------------------------------------------------------------------------------------2019 __________________________________________________________________________________________________________________________________________________________ [[Image Removed: mco-20201231_g156.jpg]] [[Image Removed: mco-20201231_g157.jpg]] [[Image Removed: mco-20201231_g158.jpg]] [[Image Removed: mco-20201231_g159.jpg]]
MA: Global revenue ?
The 6% increase in global MA revenue reflects strong growth in RD&A and ERS, partially offset by a decline in revenue resulting from the divestiture of the MAKS business in the fourth quarter of 2019. -The increase in revenue for both theU.S. and non-U.S regions reflected growth in both RD&A and ERS and included the impact of 2020 acquisitions. -The increase in non-U.S. revenue was partially offset by a decline in revenue resulting from the divestiture of MAKS in the fourth quarter of 2019. -The increase in relationship revenue as a percentage of total revenue from 85% in 2019 to 91% in 2020 reflects the divestiture of the transaction revenue-based MAKS business in 2019. -Organic revenue growth was 8%.
RD&A REVENUE 2020----------------------------------------------------------------------------------------------------------------------2019 __________________________________________________________________________________________________________________________________________________________
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[[Image Removed: mco-20201231_g161.jpg]][[Image Removed: mco-20201231_g162.jpg]]
[[Image Removed: mco-20201231_g163.jpg]]
RD&A: Global revenue ?
Global RD&A revenue grew 19% compared to 2019 with the most notable drivers of
the growth reflecting:
-inorganic revenue growth from the acquisitions of RDC, ABS Suite and Acquire
Media;
-strong renewals and new sales as well as benefits of pricing increases related
to credit research and data feeds; and
-strong demand for solutions that address customer identity requirements, such
as know-your-customer and compliance solutions.
Organic revenue growth for RD&A was 10%.
MOODY'S 2020 10-K 61
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Table of Contents
ERS REVENUE
2020----------------------------------------------------------------------------------------------------------------------2019
__________________________________________________________________________________________________________________________________________________________
[[Image Removed: mco-20201231_g164.jpg]][[Image Removed: mco-20201231_g165.jpg]][[Image Removed: mco-20201231_g164.jpg]]
[[Image Removed: mco-20201231_g166.jpg]]
ERS: Global revenue ?
Global ERS revenue increased 8% compared to 2019 with the most notable drivers of the growth reflecting: -continued strong demand for credit assessment and loan origination solutions; -increased demand for actuarial modeling tools in support of certain international accounting standards relating to insurance contracts; and -inorganic revenue growth from the acquisition of RiskFirst. Organic revenue growth for ERS was 6%.
MA: Operating and SG&A Expense ?
[[Image Removed: mco-20201231_g167.jpg]]
The increase in operating and SG&A expenses compared to 2019 reflected growth in
both compensation and non-compensation costs of approximately $14 million and
$21 million , respectively. The most notable drivers of this growth were:
Compensation costs Non-compensation costs
- annual salary increases and hiring; partially - approximately $75 million in higher costs to
offset by: support
strategic initiatives to enhance technology - benefits from the 2018 Restructuring Program infrastructure to enable automation, innovation and
efficiency as well as to support business growth;
partially offset by:
- lower travel costs
of approximately
coupled with disciplined expense management across
other expense categories in light of the COVID-19
crisis
62 MOODY'S 2020 10-K
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Table of Contents
Other Expenses
The restructuring charges in both years relate to the Company's restructuring
programs as more fully discussed in Note 11 to the consolidated financial
statements.
The $9 million and $14 losses pursuant to the divestiture of MAKS in both 2020
and 2019 relate to the Company's strategic divestiture of this business.
MA: Operating Margin 20.3% ? 170BPS Adjusted Operating Margin 29.4% ? 160BPS
The operating margin and Adjusted Operating Margin expansion for MA both reflect RD&A and ERS revenue growth partially offset by modest expense growth. MARKET RISK Foreign exchange risk: Moody's maintains a presence in more than 40 countries. In 2020, approximately 42% of the Company's revenue and approximately 39% of the Company expenses were denominated in functional currencies other than theU.S. dollar, principally in the British pound and the euro. As such, the Company is exposed to market risk from changes in FX rates. As ofDecember 31, 2020 , approximately 61% of Moody's assets were located outside theU.S. , making the Company susceptible to fluctuations in FX rates. The effects of translating assets and liabilities of non-U.S. operations with non-U.S. functional currencies to theU.S. dollar are charged or credited to OCI. The effects of revaluing assets and liabilities that are denominated in currencies other than a subsidiary's functional currency are charged to other non-operating income (expense), net in the Company's consolidated statements of operations. Accordingly, the Company enters into foreign exchange forwards to partially mitigate the change in fair value on certain assets and liabilities denominated in currencies other than a subsidiary's functional currency. The following table shows the impact to the fair value of the forward contracts if foreign currencies weakened against theU.S. dollar or euro: Foreign Currency Forwards (1) Impact on fair value of contract if foreign Sell Buy currency weakened by 10% U.S. dollar British pound$30 million unfavorable impact U.S. dollar Canadian dollar$10 million unfavorable impact U.S. dollar Euro$45 million unfavorable impact U.S. dollar Japanese yen$1 million unfavorable impact U.S. dollar Singapore dollar$5 million unfavorable impact U.S. dollar Indian Rupee$2 million unfavorable impact U.S. dollar Russian Ruble$1 million unfavorable impact Euro British pound$14 million unfavorable impact (1)Refer to Note 7 to the consolidated financial statements in Item 8 of this Form 10-K for further detail on the forward contracts. The change in fair value of the foreign exchange forward contracts would be offset by FX revaluation gains or losses on underlying assets and liabilities denominated in currencies other than a subsidiary's functional currency. Derivatives and non-derivatives designated as net investment hedges: The Company designates derivative instruments and foreign currency-denominated debt as hedges of foreign currency risk of net investments in certain foreign subsidiaries (net investment hedges) under ASC Topic 815, Derivatives and Hedging. Cross-currency swaps and forward contracts As ofDecember 31, 2020 , the Company had the following derivative instruments designated as hedges of euro denominated net investments in subsidiaries: •Cross-currency swaps to exchange an aggregate amount of €1,079 million with corresponding euro fixed interest rates for an aggregate amount of$1,220 million with corresponding USD fixed interest rates. •Cross-currency swaps to exchange an aggregate amount of €959 million with corresponding interest based on the floating 3-month EURIBOR for an aggregate amount of$1,080 million with corresponding interest based on the floating 3-monthU.S. LIBOR. •Foreign currency forward contracts to sell euro with the aggregate notional amount of €524 million and buyU.S. dollar in the aggregate notional amount of$627 million . MOODY'S 2020 10-K
63
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Table of Contents If the euro were to strengthen 10% relative to theU.S. dollar, there would be an approximate$313 million unfavorable impact to the fair value of the cross-currency swaps and forward contracts recognized in OCI, which would be offset by favorable currency translation gains on the Company's euro net investment in foreign subsidiaries. As ofDecember 31, 2020 , the Company also had a foreign currency forward contract to hedge the foreign currency risk related to a British pound dominated net investment in subsidiaries. The foreign currency forward contract is to sell British pound with the notional amount of £134 million and buy euro in the aggregate notional amount of €148 million. If the British pound were to strengthen 10% relative to the euro, there would be an approximate$20 million unfavorable impact to the fair value of the forward contract recognized in OCI, which would be offset by favorable currency translation gains on the Company's euro net investment in foreign subsidiaries. Euro-denominated debt As ofDecember 31, 2020 , the Company has designated €500 million of the 2015 Senior Notes and €750 million of the 2019 Senior Notes as a net investment hedge to mitigate FX exposure relating to euro denominated net investments in subsidiaries. If the euro were to strengthen 10% relative to theU.S. dollar, there would be an approximate$153 million unfavorable adjustment to OCI related to this net investment hedge. This adjustment would be offset by favorable translation adjustments on the Company's euro net investment in subsidiaries. Interest rate and credit risk: Interest rate swaps designated as a fair value hedge: The Company's interest rate risk management objectives are to reduce the funding cost and volatility to the Company and to alter the interest rate exposure to the desired risk profile. Moody's uses interest rate swaps as deemed necessary to assist in accomplishing these objectives. The Company is exposed to interest rate risk on its various outstanding fixed-rate debt for which the fair value of the outstanding fixed rate debt fluctuates based on changes in interest rates. The Company has entered into interest rate swaps to convert the fixed interest rate on certain of its long-term debt to a floating interest rate based on the 3-month and 6-month LIBOR. These swaps are adjusted to fair market value based on prevailing interest rates at the end of each reporting period and fluctuations are recorded as a reduction or addition to the carrying value of the borrowing, while net interest payments are recorded as interest expense/income in the Company's consolidated statement of operations. A hypothetical change of 100 BPS in the LIBOR-based swap rate would result in an approximate$52 million change to the fair value of the swap, which would be offset by the change in fair value of the hedged item. Additional information on these interest rate swaps is disclosed in Note 7 to the consolidated financial statements located in Item 8 of this Form 10-K. Moody's cash equivalents consist of investments in high-quality investment-grade securities within and outside theU.S. with maturities of three months or less when purchased. The Company manages its credit risk exposure by allocating its cash equivalents among various money market mutual funds, money market deposit accounts, certificates of deposit and issuers of high-grade commercial paper and by limiting the amount it can invest with any single issuer. Short-term investments primarily consist of certificates of deposit. 64 MOODY'S 2020 10-K --------------------------------------------------------------------------------
Table of Contents
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow
The Company is currently financing its operations, capital expenditures,
acquisitions and share repurchases from operating and financing cash flows.
The following is a summary of the changes in the Company's cash flows followed
by a brief discussion of these changes:
Year Ended December 31, $ Change
Favorable
2020 2019 (unfavorable)
Net cash provided by operating activities $ 2,146 $ 1,675 $ 471
Net cash (used in) provided by investing
activities $ (1,077) $ 36 $ (1,113)
Net cash used in financing activities $ (351) $ (1,563) $ 1,212
Free Cash Flow (1) $ 2,043 $ 1,606 $ 437
(1)Free Cash Flow is a non-GAAP measure and is defined by the Company as net
cash provided by operating activities minus cash paid for capital expenditures.
Refer to "Non-GAAP Financial Measures" of this MD&A for further information on
this financial measure.
Net cash provided by operating activities
Net cash flows from operating activities increased $471 million compared to the
prior year reflecting:
-an increase in net income compared to the same period in the prior year (see
section entitled "Results of Operations" for further discussion) coupled with
various changes in working capital;
partially offset by:
-a $99 million contribution to the Company's funded pension plan in the first
quarter of 2020; and
-a $68 million payment made in conjunction with the settlement of treasury lock
interest rate forward contracts as more fully described in Note 7 to the
consolidated financial statements.
Net cash (used in) provided by investing activities
The $1,113 million increase in cash flows used in investing activities compared
to 2019 primarily reflects:
-an increase in cash paid for acquisitions of $735 million (refer to Note 9 to
the consolidated financial statements for further discussion on the Company's
M&A activity);
-$226 million of net cash received relating to the MAKS divestiture in 2019; and
-$113 million in higher net purchases of investments in 2020 compared to the
same period in the prior year (refer to Note 6 to the consolidated financial
statements for further information on the Company's investments).
Net cash used in financing activities
The $1,212 million decrease in cash used in financing activities was primarily
attributed to:
-the net issuance of $691 million in long-term debt during 2020 compared to a
net repayment of $126 million in long-term debt in 2019; and
-lower cash paid for treasury share repurchases of $488 million compared to the
same period in the prior year.
Cash and short-term investments held in non-U.S. jurisdictions
The Company's aggregate cash and cash equivalents and short-term investments of
$2.7 billion at December 31, 2020 included approximately $1.5 billion located
outside of the U.S. Approximately 14% of the Company's aggregate cash and cash
equivalents and short-term investments is denominated in euros and British
pounds. The Company manages both its U.S. and non-U.S. cash flow to maintain
sufficient liquidity in all regions to effectively meet its operating needs.
As a result of the Tax Act, all previously net undistributed foreign earnings
have now been subject to U.S. tax. The Company continues to evaluate which
entities it will indefinitely reinvest earnings outside the U.S. The Company has
provided deferred taxes for those entities whose earnings are not considered
indefinitely reinvested. Accordingly, the Company has commenced repatriating a
portion of its non-U.S. cash in these subsidiaries and will continue to
repatriate certain of its offshore cash in a manner that addresses compliance
with local statutory requirements, sufficient offshore working capital and any
other factors that may be relevant in certain jurisdictions. Notwithstanding the
Tax Act, which generally eliminated federal income tax on future cash
repatriation to the U.S. , cash repatriation may be subject to state and local
taxes or withholding or similar taxes.
MOODY'S 2020 10-K 65
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Table of Contents Other Material Future Cash Requirements The Company believes that it has the financial resources needed to meet its cash requirements and expects to have positive operating cash flow in 2021. Cash requirements for periods beyond the next twelve months will depend, among other things, on the Company's profitability and its ability to manage working capital requirements. The Company may also borrow from various sources. Moody's remains committed to using its strong cash flow to create value for shareholders by both investing in the Company's employees and growing the business through targeted organic initiatives and inorganic acquisitions aligned with strategic priorities. Additional excess capital is returned to the Company's shareholders via a combination of dividends and share repurchases. Dividends and Share Repurchases OnFebruary 9, 2021 , the Board approved the declaration of a quarterly dividend of$0.62 per share for Moody's common stock, payableMarch 18, 2021 to shareholders of record at the close of business onFebruary 25, 2021 . The continued payment of dividends at this rate, or at all, is subject to the discretion of the Board. OnDecember 16, 2019 , the Board approved$1 billion in share repurchase authority, which atDecember 31, 2020 had approximately$831 million of remaining authority. Also, onFebruary 9, 2021 , the Board approved an additional$1 billion in share repurchase authority, which may be utilized following the completion of the authority granted onDecember 16, 2019 . Beginning late in the first quarter of 2020 and through the third quarter of 2020, the Company suspended its share repurchase activity to preserve liquidity in light of uncertainties regarding the severity and duration of the COVID-19 crisis. The Company resumed its share repurchase program in the fourth quarter of 2020. Other cash requirements The Company has future cash requirements, including operating leases and debt service and payments, as noted in the tables that follow as well as future payments related to the transition tax under the Tax Act. Indebtedness During 2020, in response to uncertainties relating to the severity and duration of the COVID-19 crisis, the Company increased its long-term debt position by$700 million via public offerings to bolster liquidity. The key terms of these transactions are more fully discussed in Note 18 to the consolidated financial statements in Item 8 of this Form 10-K. AtDecember 31, 2020 , Moody's had$6.4 billion of outstanding debt and approximately$1 billion of additional capacity available under the Company's CP program, which is backstopped by the 2018 Facility as more fully discussed in Note 18 to the consolidated financial statements. AtDecember 31, 2020 , the Company was in compliance with all covenants contained within all of the debt agreements. All of the Company's long-term debt agreements contain cross default provisions which state that default under one of the aforementioned debt instruments could in turn permit lenders under other debt instruments to declare borrowings outstanding under those instruments to be immediately due and payable. AtDecember 31, 2020 , there were no such cross defaults. The repayment schedule for the Company's borrowings outstanding atDecember 31, 2020 is as follows: [[Image Removed: mco-20201231_g168.jpg]] For additional information on the Company's outstanding debt, refer to Note 18 to the consolidated financial statements. Management may consider pursuing additional long-term financing when it is appropriate in light of cash requirements for operations, share repurchases and other strategic opportunities, which would result in higher financing costs. 66 MOODY'S 2020 10-K -------------------------------------------------------------------------------- Table of Contents Off-Balance Sheet Arrangements AtDecember 31, 2020 , Moody's did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as special purpose or variable interest entities where Moody's is the primary beneficiary, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, Moody's is not exposed to any financing, liquidity, market or credit risk that could arise if it had engaged in such relationships. Contractual Obligations The following table presents payments due under the Company's contractual obligations as ofDecember 31, 2020 : Payments Due by Period (in millions) Total Less Than 1 Year 1-3 Years 3-5 Years Over 5 Years Indebtedness (1)$ 9,167 $ 192
579 110 192 160 117
Purchase obligations 224 108 107 9 -
Pension obligations (2) 149 46 22 21 60
Total (3) $ 10,119 $ 456 $ 1,694 $ 1,682 $ 6,287
(1)Reflects principal payments, related interest and applicable fees due on all
indebtedness outstanding as described in Note 18 to the consolidated financial
statements.
(2)Reflects projected benefit payments relating to the Company's U.S. unfunded
DBPPs and Retirement and Other Plans described in Note 15 to the consolidated
financial statements.
(3)The table above does not include the Company's net long-term tax liabilities
of $483 million relating to UTPs, since the expected cash outflow of such
amounts by period cannot be reasonably estimated. Additionally, the table above
does not include approximately $33 million relating to indemnification liability
resulting from the divestiture of MAKS and approximately $18 million relating to
the remaining unpaid deemed repatriation liability resulting from the Tax Act
enacted into law in the U.S. in December 2017 .
Non-GAAP Financial Measures:
In addition to its reported results, Moody's has included in this MD&A certain
adjusted results that the SEC defines as "non-GAAP financial measures."
Management believes that such adjusted financial measures, when read in
conjunction with the Company's reported results, can provide useful supplemental
information for investors analyzing period-to-period comparisons of the
Company's performance, facilitate comparisons to competitors' operating results
and can provide greater transparency to investors of supplemental information
used by management in its financial and operational decision-making. These
adjusted measures, as defined by the Company, are not necessarily comparable to
similarly defined measures of other companies. Furthermore, these adjusted
measures should not be viewed in isolation or used as a substitute for other
GAAP measures in assessing the operating performance or cash flows of the
Company. Below are brief descriptions of the Company's adjusted financial
measures accompanied by a reconciliation of the adjusted measure to its most
directly comparable GAAP measure:
Adjusted Operating Income and Adjusted Operating Margin:
The Company presents Adjusted Operating Income and Adjusted Operating Margin
because management deems these metrics to be useful measures to provide
additional perspective on the operating performance of Moody's. Adjusted
Operating Income excludes the impact of: i) restructuring; ii) depreciation and
amortization; iii) Acquisition-Related Expenses; iv) loss pursuant to the
divestiture of MAKS; and v) a captive insurance company settlement.
Restructuring charges are excluded as the frequency and magnitude of these
charges may vary widely across periods and companies. Depreciation and
amortization are excluded because companies utilize productive assets of
different estimated useful lives and use different methods of acquiring and
depreciating productive assets. Acquisition-Related Expenses consist of expenses
incurred to complete and integrate the acquisition of Bureau van Dijk . These
expenses were excluded in the prior years due to the material nature of the
cumulative costs incurred over the multi-year integration effort.
Acquisition-related expenses from other acquisitions were not material. The loss
pursuant to the divestiture of MAKS is excluded as the frequency and magnitude
of divestiture activity may vary widely from period to period and across
companies. The captive insurance company settlement relates to the resolution of
a matter that is not expected to recur in the future at this magnitude.
Management believes that the exclusion of the aforementioned items, as detailed
in the reconciliation below, allows for an additional perspective on the
Company's operating results from period to period and across companies. The
Company defines Adjusted Operating Margin as Adjusted Operating Income divided
by revenue.
MOODY'S 2020 10-K 67
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Year ended December 31,
2020 2019
Operating income $ 2,388 $ 1,998
Adjustments:
Restructuring 50 60
Depreciation and amortization 220 200
Acquisition-Related Expenses - 3
Loss pursuant to the divestiture of MAKS 9 14
Captive insurance company settlement - 16 Adjusted Operating Income$ 2,667 $ 2,291 Operating margin 44.5 % 41.4 % Adjusted Operating Margin 49.7 % 47.4 % Adjusted Net Income and Adjusted Diluted EPS attributable to Moody's common shareholders: The Company presents Adjusted Net Income and Adjusted Diluted EPS because management deems these metrics to be useful measures to provide additional perspective on the operating performance of Moody's. Adjusted Net Income and Adjusted Diluted EPS exclude the impact of: i) Acquisition-Related Expenses; ii) amortization of acquired intangible assets; iii) restructuring charges/adjustments; iv) loss and a tax charge pursuant to the divestiture of MAKS; and v) a captive insurance company settlement. Acquisition-Related Expenses consist of expenses incurred to complete and integrate the acquisition of Bureauvan Dijk . These expenses were excluded in prior years due to the material nature of the cumulative costs incurred over the multi-year integration effort. Acquisition-related expenses from other acquisitions were not material. The Company excludes the impact of amortization of acquired intangible assets as companies utilize intangible assets with different estimated useful lives and have different methods of acquiring and amortizing intangible assets. These intangible assets were recorded as part of acquisition accounting and contribute to revenue generation. The amortization of intangible assets related to acquisitions will recur in future periods until such intangible assets have been fully amortized. Furthermore, the timing and magnitude of business combination transactions are not predictable and the purchase price allocated to amortizable intangible assets and the related amortization period are unique to each acquisition and can vary significantly from period to period and across companies. Restructuring charges are excluded as the frequency and magnitude of these charges may vary widely across periods and companies. The loss and tax charge pursuant to the divestiture of MAKS are excluded as the frequency and magnitude of divestiture activity may vary widely from period to period and across companies. The captive insurance company settlement relates to the resolution of a matter that is not expected to recur in the future at this magnitude. The Company excludes the aforementioned items to provide additional perspective when comparing net income and diluted EPS from period to period and across companies as the frequency and magnitude of similar transactions may vary widely across periods. Year ended December 31, Amounts in millions 2020 2019 Net income attributable to Moody's common shareholders$ 1,778 $ 1,422 Pre-Tax Acquisition-Related Expenses $ -$ 3 Tax on Acquisition-Related Expenses - - Net Acquisition-Related Expenses - 3
Pre-Tax Acquisition-Related Intangible Amortization Expenses
$ 124 $ 103
Tax on Acquisition-Related Intangible Amortization Expenses
(28) (24)
Net Acquisition-Related Intangible Amortization Expenses 96 79
Pre-Tax Restructuring $ 50 $ 60
Tax on Restructuring (12) (15)
Net Restructuring 38 45
Pre-tax captive insurance company settlement $ - $ 16
Tax on captive insurance company settlement - (4)
Net captive insurance company settlement - 12
Tax charge pursuant to the divestiture of MAKS - 13
Loss pursuant to the divestiture of MAKS 9 14
Adjusted Net Income $ 1,921 $ 1,588
68 MOODY'S 2020 10-K
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Below is a reconciliation of this measure to its most directly comparable U.S.
GAAP amount:
Year ended December 31,
2020 2019Diluted earnings per share attributable to Moody's common shareholders
$ 9.39 $ 7.42 Pre-Tax Acquisition-Related Expenses $ -$ 0.02 Tax on Acquisition-Related Expenses - - Net Acquisition-Related Expenses - 0.02
Pre-Tax Acquisition-Related Intangible Amortization Expenses
$ 0.66 $ 0.54
Tax on Acquisition-Related Intangible Amortization Expenses
(0.15) (0.12)
Net Acquisition-Related Intangible Amortization Expenses 0.51 0.42
Pre-Tax Restructuring $ 0.26 $ 0.31
Tax on Restructuring (0.06) (0.08)
Net Restructuring 0.20 0.23
Pre-tax captive insurance company settlement $ - $ 0.08
Tax on captive insurance company settlement - (0.02)
Net captive insurance company settlement - 0.06
Tax charge pursuant to the divestiture of MAKS - 0.07
Loss pursuant to the divestiture of MAKS 0.05 0.07
Adjusted Diluted EPS $ 10.15 $ 8.29 Note: the tax impacts in the table above were calculated using tax rates in effect in the jurisdiction for which the item relates.
Free Cash Flow:
The Company defines Free Cash Flow as net cash provided by operating activities
minus payments for capital additions. Management believes that Free Cash Flow is
a useful metric in assessing the Company's cash flows to service debt, pay
dividends and to fund acquisitions and share repurchases. Management deems
capital expenditures essential to the Company's product and service innovations
and maintenance of Moody's operational capabilities. Accordingly, capital
expenditures are deemed to be a recurring use of Moody's cash flow. Below is a
reconciliation of the Company's net cash flows from operating activities to Free
Cash Flow:
Year ended December 31,
2020 2019
Net cash provided by operating activities $ 2,146 $ 1,675
Capital additions (103) (69)
Free Cash Flow $ 2,043 $ 1,606
Net cash (used in) provided by investing activities $ (1,077) $ 36
Net cash used in financing activities $ (351) $ (1,563)
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Organic Revenue:
The Company presents organic revenue and organic revenue growth because
management deems this metric to be a useful measure which provides additional
perspective in assessing the revenue growth excluding the inorganic revenue
impacts from certain acquisitions and divestiture activity. The following table
details the periods excluded from each acquisition/divestiture to determine
organic revenue.
Period excluded to determine organic revenue
Acquisition Acquisition Date growth
RiskFirst July 25, 2019 January 1, 2020 - July 24, 2020
ABS Suite October 1, 2019 January 1, 2020 - September 30, 2020
Regulatory DataCorp February 13, 2020 February 13, 2020 - December 31, 2020
Acquire Media October 21, 2020
Divestiture Divestiture Date
MAKS November 7, 2019
Additionally, subsequent to the divestiture of MAKS in 2019, revenue from the
MALS unit, which previous to 2020 was reported in the Professional Services LOB,
is now reported as part of the RD&A LOB. Prior periods have not been
reclassified as the amounts were not material. For purposes of determining
organic RD&A revenue growth, MALS revenue has been excluded from 2020 RD&A
revenue.
Below is a reconciliation of MA's reported revenue and growth rates to its
organic revenue and organic growth rates:
Year Ended December 31,
Amounts in millions 2020 2019 Change Growth
MA revenue $ 2,079 $ 1,954 $ 125 6%
RiskFirst (12) - (12)
ABS Suite (6) - (6)
Regulatory Data Corp (52) - (52)
Acquire Media (2) - (2)
MAKS - (94) 94
Organic MA revenue $ 2,007 $ 1,860 $ 147 8%
Year Ended December 31,
Amounts in millions 2020 2019 Change Growth
RD&A revenue $ 1,514 $ 1,273 $ 241 19%
ABS Suite (6) - (6)
Regulatory Data Corp (52) - (52)
Acquire Media (2) - (2)
MALS (56) - (56)
Organic RD&A revenue $ 1,398 $ 1,273 $ 125 10%
Year Ended December 31,
Amounts in millions 2020 2019 Change Growth
ERS revenue $ 565 $ 522 $ 43 8%
RiskFirst revenue (12) - (12)
Organic ERS revenue $ 553 $ 522 $ 31 6%
70 MOODY'S 2020 10-K
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Recently Issued Accounting Pronouncements
Refer to Note 2 to the consolidated financial statements located in Part II,
Item 8 on this Form 10-K for a discussion on the impact to the Company relating
to recently issued accounting pronouncements.
CONTINGENCIES
Legal proceedings in which the Company is involved also may impact Moody's
liquidity or operating results. No assurance can be provided as to the outcome
of such proceedings. In addition, litigation inherently involves significant
costs. For information regarding legal proceedings, see Part II, Item 8 -
"Financial Statements", Note 21 "Contingencies" in this Form 10-K.
Forward-Looking Statements
Certain statements contained in this annual report on Form 10-K are
forward-looking statements and are based on future expectations, plans and
prospects for the business and operations of the Company that involve a number
of risks and uncertainties. Such statements involve estimates, projections,
goals, forecasts, assumptions and uncertainties that could cause actual results
or outcomes to differ materially from those contemplated, expressed, projected,
anticipated or implied in the forward-looking statements. Those statements
appear at various places throughout this annual report on Form 10-K, including
in the sections entitled "Contingencies" under Item 7, "MD&A", commencing on
page 43 of this annual report on Form 10-K, under "Legal Proceedings" in Part I,
Item 3, of this Form 10-K, and elsewhere in the context of statements containing
the words "believe", "expect", "anticipate", "intend", "plan", "will",
"predict", "potential", "continue", "strategy", "aspire", "target", "forecast",
"project", "estimate", "should", "could", "may" and similar expressions or words
and variations thereof relating to the Company's views on future events, trends
and contingencies or otherwise convey the prospective nature of events or
outcomes generally indicative of forward-looking statements. Stockholders and
investors are cautioned not to place undue reliance on these forward-looking
statements. The forward-looking statements and other information are made as of
the date of this annual report on Form 10-K, and the Company undertakes no
obligation (nor does it intend) to publicly supplement, update or revise such
statements on a going-forward basis, whether as a result of subsequent
developments, changed expectations or otherwise, except as required by
applicable law or regulation. In connection with the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995, the Company is identifying
examples of factors, risks and uncertainties that could cause actual results to
differ, perhaps materially, from those indicated by these forward-looking
statements.
Those factors, risks and uncertainties include, but are not limited to, the
impact of COVID-19 on volatility in the U.S. and world financial markets, on
general economic conditions and GDP in the U.S. and worldwide, and on the
Company's own operations and personnel. Many other factors could cause actual
results to differ from Moody's outlook, including credit market disruptions or
economic slowdowns, which could affect the volume of debt and other securities
issued in domestic and/or global capital markets; other matters that could
affect the volume of debt and other securities issued in domestic and/or global
capital markets, including regulation, credit quality concerns, changes in
interest rates and other volatility in the financial markets such as that due to
Brexit and uncertainty as companies transition away from LIBOR; the level of
merger and acquisition activity in the U.S. and abroad; the uncertain
effectiveness and possible collateral consequences of U.S. and foreign
government actions affecting credit markets, international trade and economic
policy, including those related to tariffs and trade barriers; concerns in the
marketplace affecting our credibility or otherwise affecting market perceptions
of the integrity or utility of independent credit agency ratings; the
introduction of competing products or technologies by other companies; pricing
pressure from competitors and/or customers; the level of success of new product
development and global expansion; the impact of regulation as an NRSRO, the
potential for new U.S. , state and local legislation and regulations; the
potential for increased competition and regulation in the EU and other foreign
jurisdictions; exposure to litigation related to Moody's Investors Service's
rating opinions, as well as any other litigation, government and regulatory
proceedings, investigations and inquiries to which the Company may be subject
from time to time; U.S. legislation modifying the pleading standards and EU
regulations modifying the liability standards applicable to credit rating
agencies in a manner adverse to credit rating agencies; provisions of EU
regulations imposing additional procedural and substantive requirements on the
pricing of services and the expansion of supervisory remit to include non-EU
ratings used for regulatory purposes; the possible loss of key employees;
failures or malfunctions of our operations and infrastructure; any
vulnerabilities to cyber threats or other cybersecurity concerns; the outcome of
any review by controlling tax authorities of the Company's global tax planning
initiatives; exposure to potential criminal sanctions or civil remedies if the
Company fails to comply with foreign and U.S. laws and regulations that are
applicable in the jurisdictions in which the Company operates, including data
protection and privacy laws, sanctions laws, anti-corruption laws, and local
laws prohibiting corrupt payments to government officials; the impact of
mergers, acquisitions or other business combinations and the ability of the
Company to successfully integrate such acquired businesses; currency and foreign
exchange volatility; the level of future cash flows; the levels of capital
investments; and a decline in the demand for credit risk management tools by
financial institutions. These factors, risks and uncertainties as well as other
risks and uncertainties that could cause Moody's actual results to differ
materially from those contemplated, expressed, projected, anticipated or implied
in the forward-looking statements are currently, or in the future could be,
amplified by the COVID-19 outbreak, and are described in greater detail under
"Risk Factors" in Part I, Item 1A of the Company's annual report on Form 10-K
for the year ended December 31, 2020 , and in other filings made by the Company
from time to time with the SEC or in materials incorporated herein or therein.
Stockholders and investors are cautioned that the occurrence of any of these
factors, risks and uncertainties may cause the Company's actual results to
differ materially from those contemplated, expressed, projected, anticipated or
implied in the forward-looking statements, which could have a material and
adverse effect on the Company's business, results of operations and financial
condition. New factors may emerge from time to time, and it is not possible for
the Company to predict new factors, nor can the Company assess the potential
effect of any new factors on it.
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Table of Contents ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Information in response to this item is set forth under the caption "Market Risk" in Part II, Item 7 on page 63 of this annual report on Form 10-K. 72 MOODY'S 2020 10-K --------------------------------------------------------------------------------
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