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MOODYS CORP /DE/ - Quarter Report: 2020 June (Form 10-Q)



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form10-Q
(Mark one)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
Or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-14037
____________________
Moody’s Corporation
(Exact name of registrant as specified in its charter)
Delaware
13-3998945
(State of Incorporation)(I.R.S. Employer Identification No.)
7 World Trade Center at 250 Greenwich Street, New York, New York 10007
(Address of Principal Executive Offices)
(Zip Code)

Registrant’s telephone number, including area code:
(212) 553-0300
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.01 per share
MCO
New York Stock Exchange
1.75% Senior Notes Due 2027
MCO 27
New York Stock Exchange
0.950% Senior Notes Due 2030
MCO 30
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months, or for such shorter period that the registrant was required to submit such files. Yes No 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
Shares Outstanding at June 30, 2020
187.7 million



Table of Contents

MOODY’S CORPORATION
INDEX TO FORM 10-Q
Page(s)
3-7
12-15
16-47
49-51
52-77
78-84
85-86

Exhibits Filed Herewith
31.1
Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2
Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1
Chief Executive Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2
Chief Financial Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS
Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)
101.SCH
Inline XBRL Taxonomy Extension Schema Document
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
Inline XBRL Definitions Linkbase Document
101.LAB
Inline XBRL Taxonomy Extension Labels Linkbase Document
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
104Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)



Table of Contents
GLOSSARY OF TERMS AND ABBREVIATIONS
The following terms, abbreviations and acronyms are used to identify frequently used terms in this report:
TERM
DEFINITION
ABS Suite
Business acquired by the Company in October 2019 which includes a software platform used by issuers and trustees for administration of asset-backed and mortgage-backed securities programs
Acquisition-Related Amortization
Amortization of definite-lived intangible assets acquired by the Company from all business combination transactions
Acquisition-Related Expenses
Consists of expenses incurred to complete and integrate the acquisition of Bureau van Dijk for which the integration will be a multi-year effort
Adjusted Diluted EPS
Diluted EPS excluding the impact of certain items as detailed in the section entitled “Non-GAAP Financial Measures”
Adjusted Net Income
Net Income excluding the impact of certain items as detailed in the section entitled “Non-GAAP Financial Measures”
Adjusted Operating Income
Operating income excluding the impact of certain items as detailed in the section entitled “Non-GAAP Financial Measures”
Adjusted Operating Margin
Adjusted Operating Income divided by revenue
Americas
Represents countries within North and South America, excluding the U.S.
AOCI
Accumulated other comprehensive income (loss); a separate component of shareholders’ equity
ASC
The FASB Accounting Standards Codification; the sole source of authoritative GAAP as of July 1, 2009 except for rules and interpretive releases of the SEC, which are also sources of authoritative GAAP for SEC registrants
Asia-Pacific
Represents Australia and countries in Asia including but not limited to: China, India, Indonesia, Japan, Korea, Malaysia, Singapore, Sri Lanka and Thailand
ASR
Accelerated Share Repurchase
ASU
The FASB Accounting Standards Update to the ASC. It also provides background information for accounting guidance and the bases for conclusions on the changes in the ASC. ASUs are not considered authoritative until codified into the ASC
Board
The board of directors of the Company
BPS
Basis points
Bureau van Dijk
Bureau van Dijk Electronic Publishing, B.V., a global provider of business intelligence and company information; acquired by the Company on August 10, 2017 via the acquisition of Yellow Maple I B.V., an indirect parent of Bureau van Dijk
CFG
Corporate finance group; an LOB of MIS
CLO
Collateralized loan obligation
CMBS
Commercial mortgage-backed securities; an asset class within SFG
COLICorporate-Owned Life Insurance
Common Stock
The Company’s common stock
Company
Moody’s Corporation and its subsidiaries; MCO; Moody’s
Content
A reporting unit within the MA segment that 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, and commercial real estate data and analytical tools
COVID-19An outbreak of a novel strain of coronavirus resulting in an international public health crisis and a global pandemic
CP
Commercial Paper
CP Program
A program entered into on August 3, 2016 allowing the Company to privately place CP up to a maximum of $1 billion for which the maturity may not exceed 397 days from the date of issue and which is backstopped by the 2018 Facility
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TERM
DEFINITION
CRAs
Credit rating agencies
DBPP
Defined benefit pension plans
Dodd-Frank Act
Dodd-Frank Wall Street Reform and Consumer Protection Act
EMEA
Represents countries within Europe, the Middle East and Africa
EPS
Earnings per share
ERS
The Enterprise Risk Solutions LOB within MA, which offers risk management software solutions as well as related risk management advisory engagements services
ESG
Environmental, Social, and Governance
ESMA
European Securities and Markets Authority
ETR
Effective tax rate
EU
European Union
EUR
Euros
EURIBOR
The Euro Interbank Offered Rate
Excess Tax Benefits
The difference between the tax benefit realized at exercise of an option or delivery of a restricted share and the tax benefit recorded at the time the option or restricted share is expensed under GAAP
Exchange Act
The Securities Exchange Act of 1934, as amended
External Revenue
Revenue excluding any intersegment amounts
FASB
Financial Accounting Standards Board
FIG
Financial institutions group; an LOB of MIS
Four Twenty Seven
A provider of data, intelligence, and analysis related to physical climate risks; acquired by the Company in July 2019
Free Cash Flow
Net cash provided by operating activities less cash paid for capital additions
FX
Foreign exchange
GAAP
U.S. Generally Accepted Accounting Principles
GBP
British pounds
ICRA
ICRA Limited; a provider of credit ratings and research in India. ICRA is a public company with its shares listed on the Bombay Stock Exchange and the National Stock Exchange of India. The Company previously held 28.5% equity ownership and in June 2014, increased that ownership stake to over 50% through the acquisition of additional shares
IRS
Internal Revenue Service
IT
Information technology
KIS Pricing
Korea Investors Service Pricing, Inc; a Korean provider of fixed income securities pricing and consolidated subsidiary of the Company
KIS Research
Korea Investors Service Research; a Korean provider of financial research and consolidated subsidiary of the Company
Korea
Republic of South Korea
LIBOR
London Interbank Offered Rate
LOB
Line of business
MA
Moody’s Analytics - a reportable segment of MCO which provides a wide range of products and services that support financial analysis and risk management activities of institutional participants in global financial markets; consists of two LOBs - RD&A and ERS
Make Whole AmountThe prepayment penalty amount relating to the 2018 Senior Notes due 2021 which is a premium based on the excess, if any, of the discounted value of the remaining scheduled payments over the prepaid principal
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TERM
DEFINITION
MAKS
Moody’s Analytics Knowledge Services; formerly known as Copal Amba; provided offshore research and analytic services to the global financial and corporate sectors; business was divested in the fourth quarter of 2019 and was formerly part of the PS LOB and a reporting unit within the MA reportable segment
MALS
Moody’s Analytics Learning Solutions; a reporting unit within the MA segment that includes on-line and classroom-based training services as well as credentialing and certification services
MCO
Moody’s Corporation and its subsidiaries; the Company; Moody’s
MD&A
Management’s Discussion and Analysis of Financial Condition and Results of Operations
MIS
Moody’s Investors Service - a reportable segment of MCO; consists of five LOBs - SFG, CFG, FIG, PPIF and MIS Other
MIS Other
Consists of non-ratings revenue from ICRA, KIS Pricing, KIS Research and revenue from providing ESG research, data and assessments. These businesses are components of MIS; MIS Other is an LOB of MIS
Moody’s
Moody’s Corporation and its subsidiaries; MCO; the Company
Net Income
Net income attributable to Moody’s Corporation, which excludes net income from consolidated noncontrolling interests belonging to the minority interest holder
New Credit Losses Accounting Standard
Updates to the ASC pursuant to ASU No. 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. This new accounting guidance requires the use of an “expected credit loss” impairment model for most financial assets reported at amortized cost, which will require entities to estimate expected credit losses over the lifetime of the instrument.
New Internal Use Software Accounting Standard
Updates to the ASC pursuant to ASU No. 2018-15, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract”. This new accounting guidance requires implementation costs incurred by customers in cloud computing arrangements (i.e., hosting arrangements) to be capitalized under the same premises of authoritative guidance for internal-use software.
NM
Percentage change is not meaningful
Non-GAAP
A financial measure not in accordance with GAAP; these 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 to provide greater transparency to investors of supplemental information used by management in its financial and operational decision making
NRSRO
Nationally Recognized Statistical Rating Organization, which is a credit rating agency registered with the SEC.
OCI
Other comprehensive income (loss); includes gains and losses on cash flow and net investment hedges, unrealized gains and losses on available for sale securities (in periods prior to January 1, 2018), certain gains and losses relating to pension and other retirement benefit obligations and foreign currency translation adjustments
Operating segment
Term defined in the ASC relating to segment reporting; the ASC defines an operating segment as a component of a business entity that has each of the three following characteristics: i) the component engages in business activities from which it may recognize revenue and incur expenses; ii) the operating results of the component are regularly reviewed by the entity’s chief operating decision maker; and iii) discrete financial information about the component is available
Other Retirement Plan
The U.S. retirement healthcare and U.S. retirement life insurance plans
PPIF
Public, project and infrastructure finance; an LOB of MIS
Profit Participation Plan
Defined contribution profit participation plan that covers substantially all U.S. employees of the Company
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TERM
DEFINITION
PS
Professional Services, a former LOB within MA which consisted of MAKS and MALS that provided offshore analytical and research services as well as learning solutions and certification programs. Subsequent to the divestiture of MAKS in 2019, revenue from the MALS reporting 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.
RBA International (RBA)A provider of online retail bank training and certifications; the Company acquired RBA in March 2020
RD&A
An LOB within MA that 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, and commercial real estate data and analytical tools
Redeemable Non-controlling Interest
Represents minority shareholders' interest in entities which are controlled but not wholly-owned by Moody's and for which Moody's obligation to redeem the minority shareholders' interest is represented by a put/call relationship
Reform Act
Credit Rating Agency Reform Act of 2006
Regulatory DataCorp Inc. (RDC)A global leader in risk and compliance intelligence; the Company acquired RDC in February 2020
Reis, Inc. (Reis)
A provider of U.S. commercial real estate data; acquired by the Company in October 2018
Relationship Revenue
For MIS, represents recurring monitoring fees of a rated debt obligation and/or entities that issue such obligations, as well as revenue from programs such as commercial paper, medium-term notes and shelf registrations. For MIS Other, represents subscription-based revenue. For MA, represents subscription-based revenue and software maintenance revenue
Reporting unit
The level at which Moody’s evaluates its goodwill for impairment under U.S. GAAP; defined as an operating segment or one level below an operating segment
Retirement Plans
Moody’s funded and unfunded pension plans, the healthcare plans and life insurance plans
Revenue Accounting Standard
Updates to the ASC pursuant to ASU No. 2014-09, “Revenue from Contracts with Customers (ASC Topic 606)”. This new accounting guidance significantly changes the accounting framework under U.S. GAAP relating to revenue recognition and to the accounting for the deferral of incremental costs of obtaining or fulfilling a contract with a customer
RiskFirst
A company providing risk analytic solutions for the asset management and pension fund communities; acquired by the Company in July 2019
RMBS
Residential mortgage-backed securities; an asset class within SFG
SEC
U.S. Securities and Exchange Commission
SFG
Structured finance group; an LOB of MIS
SG&A
Selling, general and administrative expenses
Tax Act
The “Tax Cuts and Jobs Act” enacted into U.S. law on December 22, 2017 which significantly amends the tax code in the U.S.
Transaction Revenue
For MIS, represents the initial rating of a new debt issuance as well as other one-time fees. For MIS Other, represents revenue from professional services as well as data services, research and analytical engagements. For MA, represents perpetual software license fees and revenue from software implementation services, risk management advisory projects, training and certification services, and research and analytical engagements
U.K.
United Kingdom
U.S.
United States
USD
U.S. dollar
UTPs
Uncertain tax positions
Vigeo Eiris
A provider of in ESG research, data and assessments; acquired by the Company on April 12, 2019
2012 Senior Notes
Principal amount of $500 million, 4.50% senior unsecured notes due in September 2022
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TERM
DEFINITION
2013 Senior Notes
Principal amount of the $500 million, 4.875% senior unsecured notes due in February 2024
2014 Senior Notes (30-Year)
Principal amount of $600 million, 5.25% senior unsecured notes due in July 2044
2015 Senior Notes
Principal amount of €500 million, 1.75% senior unsecured notes due in March 2027
2017 Senior Notes Due 2023
Principal amount of $500 million, 2.625% senior unsecured notes due January 15, 2023
2017 Senior Notes Due 2028
Principal amount of $500 million, 3.250% senior unsecured notes due January 15, 2028
2017 Senior Notes Due 2021
Principal amount of $500 million, 2.75% senior unsecured notes due in December 2021
2018 Facility
Five-year unsecured revolving credit facility, with capacity to borrow up to $1 billion; backstops CP issued under the CP Program
2018 Senior Notes
Principal amount of $300 million, 3.25% senior unsecured notes, repaid in 2020
2018 Senior Notes (10-year)
Principal amount of $400 million, 4.25% senior unsecured notes due February 1, 2029
2018 Senior Notes (30-year)
Principal amount of $400 million, 4.875% senior unsecured notes due December 17, 2048
2019 Senior NotesPrincipal amount of €750 million, 0.950% senior unsecured notes due February 25, 2030
2020 Senior Notes Due 2025Principal amount of $700 million, 3.75% senior unsecured notes due March 24, 2025
2020 Senior Notes Due 2050Principal amount of $300 million, 3.25% senior unsecured notes due May 20, 2050


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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements
MOODY’S CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Amounts in millions, except per share data)

Three Months Ended
June 30,
Six Months Ended
June 30,
2020201920202019
Revenue
$1,435  $1,214  $2,725  $2,356  
Expenses
Operating
362  340  702  682  
Selling, general and administrative
307  275  608  556  
Restructuring
(2) 53  (3) 59  
Depreciation and amortization
58  52  107  102  
Acquisition-Related Expenses
—   —   
Loss pursuant to the divestiture of MAKS—     
Total expenses
725  731  1,423  1,411  
Operating income
710  483  1,302  945  
Non-operating (expense) income, net
Interest expense, net
(60) 

(51) 

(100) 

(103) 
Other non-operating income, net
16  

—  

28  

 
Total non-operating expense, net
(44) (51) (72) (101) 
Income before provisions for income taxes
666  432  1,230  844  
Provision for income taxes
157  121  234  159  
Net income
509  311  996  685  
Less: Net (loss) income attributable to noncontrolling interests—   (1)  
Net income attributable to Moody's
$509  $310  $997  $683  
Earnings per share attributable to Moody's common shareholders
Basic
$2.71  

$1.64  

$5.31  

$3.60  
Diluted
$2.69  

$1.62  

$5.27  

$3.56  
Weighted average number of shares outstanding
Basic
187.7  

189.4  

187.6  

189.9  
Diluted
189.0  

191.3  

189.3  

192.1  
The accompanying notes are an integral part of the condensed consolidated financial statements.
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MOODY’S CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(Amounts in millions)

Three Months Ended
June 30, 2020
Three Months Ended
June 30, 2019
Pre-tax
amounts
Tax
amounts
After-tax
amounts
Pre-tax
amounts
Tax
amounts
After-tax
amounts
Net Income
$509  $311  
Other Comprehensive Income (loss):
Foreign Currency Adjustments:
Foreign currency translation adjustments, net
$78  $ 79  $42  $—  42  
Net losses on net investment hedges(97) 24  (73) (36)  (29) 
Cash Flow Hedges:
Net losses on cash flow hedges(20)  (14) —  —  —  
Pension and Other Retirement Benefits:
Amortization of actuarial losses and prior service costs included in net income
 —    —   
Net actuarial gains (losses) and prior service costs (2)  (3)  (2) 
Total other comprehensive (loss) income $(29) $29  $—  $ $ $12  
Comprehensive income
509  323  
Less: comprehensive (loss) income attributable to noncontrolling interests(11)  
Comprehensive Income Attributable to Moody's
$520  $319  

Six Months Ended
June 30, 2020
Six Months Ended
June 30, 2019
Pre-tax
amounts
Tax
amounts
After-tax
amounts
Pre-tax
amounts
Tax
amounts
After-tax
amounts
Net Income
$996  $685  
Other Comprehensive Income (loss):
Foreign Currency Adjustments:
Foreign currency translation adjustments, net
$(97) $ (91) $15  $—  15  
Net gains (losses) on net investment hedges22  (6) 16  (6)  (5) 
Cash Flow Hedges:
Net losses on cash flow hedges(68) 18  (50) —  —  —  
Reclassification of losses included in net income —   —  —  —  
Pension and Other Retirement Benefits:
Amortization of actuarial losses and prior service costs included in net income
 (1)   (1)  
Net actuarial gains (losses) and prior service costs (2)  (2)  (1) 
Total other comprehensive (loss) income$(131) $15  (116) $ $ 10  
Comprehensive income
880  695  
Less: comprehensive (loss) income attributable to noncontrolling interests(13) 12  
Comprehensive Income Attributable to Moody's
$893  $683  
The accompanying notes are an integral part of the condensed consolidated financial statements.

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MOODY’S CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Amounts in millions, except per share data)
June 30, 2020December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents$2,099  $1,832  
Short-term investments100  98  
Accounts receivable, net of allowance for credit losses of $41 in 2020 and $20 in 2019
1,401  1,419  
Other current assets363  330  
Total current assets3,963  3,679  
Property and equipment, net of accumulated depreciation of $880 in 2020 and $839 in 2019
298  292  
Operating lease right-of-use assets429  456  
Goodwill4,162  3,722  
Intangible assets, net1,697  1,498  
Deferred tax assets, net188  229  
Other assets561  389  
Total assets$11,298  $10,265  
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities$795  $773  
Current portion of operating lease liabilities90  89  
Deferred revenue1,001  1,050  
Total current liabilities1,886  1,912  
Non-current portion of deferred revenue104  112  
Long-term debt6,333  5,581  
Deferred tax liabilities, net414  357  
Uncertain tax positions455  477  
Operating lease liabilities451  485  
Other liabilities418  504  
Total liabilities10,061  9,428  
Contingencies (Note 19)
Redeemable noncontrolling interest  
Shareholders' equity:
Preferred stock, par value $.01 per share; 10,000,000 shares authorized; no shares issued and outstanding
—  —  
Series Common Stock, par value $.01 per share; 10,000,000 shares authorized; no shares issued and outstanding
—  —  
Common stock, par value $.01 per share; 1,000,000,000 shares authorized; 342,902,272 shares issued at June 30, 2020 and December 31, 2019, respectively.
  
Capital surplus651  642  
Retained earnings10,442  9,656  
Treasury stock, at cost; 155,206,451 and 155,215,143 shares of shares of common stock at June 30, 2020 and December 31, 2019
(9,513) (9,250) 
Accumulated other comprehensive loss(542) (439) 
Total Moody's shareholders' equity1,041  612  
Noncontrolling interests191  219  
Total shareholders' equity1,232  831  
Total liabilities, noncontrolling interests and shareholders' equity$11,298  $10,265  
The accompanying notes are an integral part of the condensed consolidated financial statements.
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MOODY’S CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Amounts in millions)
Six Months Ended June 30,
20202019
Cash flows from operating activities
Net income$996  $685  
Reconciliation of net income to net cash provided by operating activities:
Depreciation and amortization107  102  
Stock-based compensation72  70  
Deferred income taxes46  (3) 
ROU Asset impairment & other non-cash restructuring/impairment charges—  29  
Loss pursuant to the divestiture of MAKS  
Changes in assets and liabilities:
Accounts receivable11  30  
Other current assets(45) (58) 
Other assets(39) (33) 
Accounts payable and accrued liabilities(37) (96) 
Deferred revenue(60) (8) 
Unrecognized tax benefits and other non-current tax liabilities(13) (15) 
Other liabilities(70) 43  
Net cash provided by operating activities977  755  
Cash flows from investing activities
Capital additions(62) (39) 
Purchases of investments(108) (70) 
Sales and maturities of investments45  93  
Cash paid for acquisitions, net of cash acquired(698) (37) 
Net cash used in investing activities(823) (53) 
Cash flows from financing activities
Issuance of notes995  —  
Repayment of notes(300) (450) 
Issuance of commercial paper789  942  
Repayment of commercial paper(792) (815) 
Proceeds from stock-based compensation plans29  29  
Repurchase of shares related to stock-based compensation(100) (75) 
Treasury shares(253) (615) 
Dividends(210) (189) 
Debt issuance costs, extinguishment costs and related fees(17) —  
Dividends to noncontrolling interest(1) (1) 
Payment to acquire noncontrolling interests(17) (12) 
Net cash provided by (used in) financing activities123  (1,186) 
Reclassification of cash to assets held for sale—  (8) 
Effect of exchange rate changes on cash and cash equivalents(10)  
Increase (decrease) in cash and cash equivalents267  (489) 
Cash and cash equivalents, beginning of period1,832  1,685  
Cash and cash equivalents, end of period$2,099  $1,196  
The accompanying notes are an integral part of the condensed consolidated financial statements.
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MOODY’S CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)
(Amounts in millions, except per share data)
Shareholders of Moody's Corporation
Common Stock
Capital Surplus
Retained Earnings
Treasury Stock
Accumulated
Other
Comprehensive
Loss
Total Moody's
Shareholders'
Equity
Non- Controlling
Interests
Total
Shareholders'
Equity
Shares
Amount
Shares
Amount
Balance at March 31, 2019342.9  $ $436  $8,893  (153.3) $(8,754) $(455) $123  $202  $325  
Net income
310  310   311  
Dividends ($0.50 per share)
(95) (95) (1) (96) 
Stock-based compensation
34  34  34  
Shares issued for stock-based compensation plans at average cost, net
(4) 0.3  18  14  14  
Non-controlling interest resulting from majority acquisition of Vigeo Eiris—  17  17  
Treasury shares repurchased
109  (0.7) (151) (42) (42) 
Currency translation adjustment and net gain on net investment hedges (net of tax of $8 million)
10  10   13  
Net actuarial gains and prior service cost (net of tax of $1 million)
(2) (2) (2) 
Amortization of prior service costs and actuarial losses   
Balance at June 30, 2019342.9  $ $575  $9,108  (153.7) $(8,887) $(446) $353  $222  $575  
The accompanying notes are an integral part of the condensed consolidated financial statements.
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MOODY'S CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
(Amounts in millions, except per share data)
Shareholders of Moody's Corporation
Common Stock
Capital
Surplus
Retained
Earnings
Treasury Stock
Accumulated
Other
Comprehensive
Loss
Total Moody's
Shareholders'
Equity
Non- Controlling
Interests
Total
Shareholders'
Equity
Shares
Amount
Shares
Amount
Balance at December 31, 2018342.9  $ $601  $8,594  (151.6) $(8,313) $(426) $459  $197  $656  
Net income
683  683   685  
Dividends ($1.00 per share)
(189) (189) (1) (190) 
Adoption of ASU 2018-02, relating to the Tax Act20  (20) —  —  
Stock-based compensation
70  70  70  
Shares issued for stock-based compensation plans at average cost, net
(71) 1.3  25  (46) (46) 
Purchase of noncontrolling interest(9) (9) (3) (12) 
Non-controlling interest resulting from majority acquisition of Vigeo Eiris—  17  17  
Treasury shares repurchased
(16) (3.4) (599) (615) (615) 
Currency translation adjustment, net of
net investment hedge activity (net of tax
of $1 million)
—  —  10  10  
Net actuarial gains and prior service cost(1) (1) (1) 
Amortization of prior service costs and actuarial losses   
Balance at June 30, 2019342.9  $ $575  $9,108  (153.7) $(8,887) $(446) $353  $222  $575  
The accompanying notes are an integral part of the condensed consolidated financial statements.


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MOODY'S CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
(Amounts in millions, except per share data)
Shareholders of Moody's Corporation
Common Stock
Capital
Surplus
Retained
Earnings
Treasury Stock
Accumulated
Other
Comprehensive
Loss
Total Moody's
Shareholders'
Equity
 Non- Controlling
Interests
Total
Shareholders'
Equity
Shares
Amount
Shares
Amount
Balance at March 31, 2020342.9  $ $616  $10,041  (155.4) $(9,524) $(554) $582  $217  $799  
Net income509  509   510  
Dividends ($0.56 per share)
(108) (108) —  (108) 
Stock-based compensation35  35  35  
Shares issued for stock-based compensation plans at average cost, net 0.2  11  13  13  
Purchase of noncontrolling interest(2) (2) (15) (17) 
Currency translation adjustment, net of net investment hedge activity (net of tax of $25 million)
18  18  (12)  
Net actuarial gains and prior service cost (net of tax of $2 million)
   
Amortization of prior service costs and actuarial losses   
Net realized gain on cash flow hedges (net of tax of $6 million)
(14) (14) (14) 
Balance at June 30, 2020342.9  $ $651  $10,442  (155.2) $(9,513) $(542) $1,041  $191  $1,232  
The accompanying notes are an integral part of the condensed consolidated financial statements.

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MOODY'S CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY UNAUDITED)
(Amounts in millions, except per share data)
Shareholders of Moody's Corporation
Common Stock
Capital
Surplus
Retained
Earnings
Treasury Stock
Accumulated
Other
Comprehensive
Loss
Total Moody's
Shareholders'
Equity
Non- Controlling
Interests
Total
Shareholders'
Equity
Shares
Amount
Shares
Amount
Balance at December 31, 2019342.9  $ $642  $9,656  (155.2) $(9,250) $(439) $612  $219  $831  
Net income997  997  —  997  
Dividends ($1.12 per share)
(209) (209) —  (209) 
Adoption of New Credit Losses Accounting Standard(2) (2) (2) 
Stock-based compensation
72  72  72  
Shares issued for stock-based compensation plans at average cost, net
(61) 1.1  (10) (71) (71) 
Purchase of noncontrolling interest
(2) (2) (15) (17) 
Treasury shares repurchased
(1.1) (253) (253) (253) 
Currency translation adjustment, net of net investment hedge activity(62) (62) (13) (75) 
Net actuarial gains and prior service cost (net of tax of $2 million)
   
Amortization of prior service costs and actuarial losses (net of tax of $1 million)
   
Net realized and unrealized gain on cash flow hedges (net of tax of $18 million)
(49) (49) (49) 
Balance at June 30, 2020342.9  $ $651  $10,442  (155.2) $(9,513) $(542) $1,041  $191  $1,232  
The accompanying notes are an integral part of the condensed consolidated financial statements.
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MOODY’S CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(tabular dollar and share amounts in millions, except per share data)
NOTE 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Moody’s is a provider of (i) credit ratings and assessment services; (ii) credit, capital markets and economic research, data and analytical tools; (iii) software solutions that support financial risk management activities; (iv) quantitatively derived credit scores; (v) learning solutions and certification services; and (vi) company information and business intelligence products. Moody’s reports in two reportable segments: MIS and MA.
MIS, the credit rating agency, publishes credit ratings and provides assessment services on a wide range of debt obligations and the entities that issue such obligations in markets worldwide. 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 the Asia-Pacific region, revenue from ICRA’s non-ratings operations and revenue from providing ESG research, data and assessments. The revenue from these operations is included in the MIS Other LOB and is not material to the results of the MIS segment.
MA provides financial intelligence and analytical tools to assist businesses in making decisions. MA’s portfolio of solutions consists of specialized research, data, software, and professional services, which are assembled to support the financial analysis and risk management activities of institutional customers worldwide.
These interim financial statements have been prepared in accordance with the instructions to Form 10-Q and should be read in conjunction with the Company’s consolidated financial statements and related notes in the Company’s 2019 annual report on Form 10-K filed with the SEC on February 24, 2020. The results of interim periods are not necessarily indicative of results for the full year or any subsequent period. In the opinion of management, all adjustments (including normal recurring accruals) considered necessary for a fair presentation of financial position, results of operations and cash flows at the dates and for the periods presented have been included. The year-end consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.
Certain reclassifications have been made to prior period amounts to conform to the current presentation.
Adoption of New Accounting Standards
On January 1, 2020, the Company adopted ASU No. 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The Company has implemented policies and procedures in compliance with the “expected credit loss” impairment model, which included (1) refinement of the grouping of receivables with similar risk characteristics; and (2) processes to identify information that can be used to develop reasonable and supportable forecasts of factors that could affect the collectability of the reported amount of the receivable. 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. Refer to Note 2 for further information on how the Company determines its reserves for expected credit losses. The Company recorded a $2 million cumulative-effect adjustment to retained earnings to increase its allowance for credit losses upon adoption.
On January 1, 2020, the Company adopted ASU No. 2018-15, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract.” This ASU requires implementation costs incurred by customers in cloud computing arrangements (i.e., hosting arrangements) to be capitalized under the same provisions of authoritative guidance for internal-use software, and amortized over the non-cancellable term of the cloud computing arrangements plus any option renewal periods that are reasonably certain to be exercised by the customer or for which the exercise is controlled by the service provider. The Company will be required to present the amortization of capitalized implementation costs in the same line item in the statement of operations as the fees associated with the hosting service (i.e. operating and SG&A expense) and classify the related payments in the statement of cash flows in the same manner as payments made for fees associated with the hosting service (i.e. cash flows from operating activities). This ASU also requires capitalization of implementation costs in the balance sheet to be consistent with the location of prepayment of fees for the hosting element (i.e. within other current assets or other assets).The Company adopted this ASU prospectively to all implementation costs incurred after the date of adoption and it did not have a material impact on the Company's current financial statements. The future impact to the Company's financial statements will relate to the aforementioned classification of these capitalized costs and related amortization.
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In March 2020, FASB issued ASU No. 2020-04, "Facilitation of the Effects of Reference Rate Reform on Financial Reporting". The ASU provides temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. This guidance was effective beginning on March 12, 2020, and the Company may elect to apply the amendments prospectively through December 31, 2022 as the transition from LIBOR is completed.
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. The Company continues to monitor regional developments relating to the COVID-19 pandemic to inform decisions on office re-openings.
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 quarterly report on Form 10-Q, 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. 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 will have a material impact on the results of operations and cash flows of the Company in 2020, Moody's believes that it has adequate liquidity to maintain its operations with minimal disruption in the near term and to maintain compliance with its debt covenants.
In the first half of 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 and began borrowing under its CP Program as more fully discussed in Note 17 . At June 30, 2020, the Company had repaid all CP outstanding. In addition, the Company is reducing discretionary spending, including suspending its share repurchase program until further notice.
The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted on March 27, 2020 in the United States. The Company will utilize certain provisions in the CARES Act and other IRS guidance which permit the deferral of certain income and payroll tax remittances.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
On January 1, 2020, the Company adopted the New Credit Losses Accounting Standard as more fully discussed in Note 1. Accordingly, the Company revised its accounts receivable allowances accounting policy to reflect the provisions of the new standard, which is discussed below along with the capitalized software accounting policy, which was also updated to reflect the New Internal Use Software Accounting Standard. All other significant accounting policies described in the Form 10-K for the year ended December 31, 2019 remain unchanged.
Accounts Receivable Allowances
On January 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. 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 stratified based on aging category. A reserve rate is calculated for each aging category which is generally based on historical information. The reserve rate 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.
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As of June 30, 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 expected severity and duration of the market disruption caused by the COVID-19 pandemic, as well as judgment regarding which industries, classes of customers and geographies would be most significantly impacted.
During the six months ended June 30, 2020, the Company recorded a net provision for expected credit losses of $28 million. The increase in the provision for expected credit losses for the current period was primarily attributable to the aforementioned estimated effects of COVID-19.
Computer Software Developed or Obtained for Internal Use
The Company capitalizes costs related to software developed or obtained for internal use. These assets, included in property and equipment in the consolidated balance sheets, relate to the Company’s financial systems, website and other systems. Such costs generally consist of direct costs for third-party perpetual license fees, professional services provided by third parties and employee compensation, in each case incurred either during the application development stage or in connection with upgrades and enhancements that increase functionality. Such costs are depreciated over their estimated useful lives on a straight-line basis. Costs incurred during the preliminary project stage of development as well as maintenance costs are expensed as incurred.
The Company also capitalizes implementation costs incurred in cloud computing arrangements (i.e., hosting arrangements) and depreciates the costs over the non-cancellable term of the cloud computing arrangements plus any option renewal periods that are reasonably certain to be exercised or for which the exercise is controlled by the service provider. Following the January 1, 2020 adoption of ASU No. 2018-15, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract" (as further discussed in Note 1), the Company classifies the amortization of capitalized implementation costs in the same line item in the statement of operations as the fees associated with the hosting service (i.e., operating and SG&A expense) and classifies the related payments in the statement of cash flows in the same manner as payments made for fees associated with the hosting service (i.e. cash flows from operating activities). In addition, the capitalization of implementation costs is reflected in the balance sheet consistent with the location of prepayment of fees for the hosting element (i.e., within other current assets or other assets). The implementation costs incurred prior to adoption of this ASU have been included within property and equipment, net in the balance sheet with the amortization of such balance included within depreciation and amortization in the statement of operations.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the period. Actual results could differ from those estimates.
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NOTE 3. REVENUES
Revenue by Category
The following table presents the Company’s revenues disaggregated by LOB:
Three Months Ended
June 30,
Six Months Ended
June 30,
2020201920202019
MIS:
Corporate finance (CFG)
Investment-grade
$291  $96  $435  $193  
High-yield
99  69  174  126  
Bank loans
43  83  132  156  
Other accounts (1)
139  140  284  268  
Total CFG
572  388  1,025  743  
Structured finance (SFG)
Asset-backed securities
23  26  45  49  
RMBS
23  24  50  48  
CMBS
13  20  30  38  
Structured credit
21  41  50  76  
Other accounts
    
Total SFG
81  112  177  213  
Financial institutions (FIG)
Banking
88  84  174  164  
Insurance
44  28  74  57  
Managed investments
 10  14  14  
Other accounts
    
Total FIG
142  125  267  241  
Public, project and infrastructure finance (PPIF)
Public finance / sovereign
64  53  121  99  
Project and infrastructure
69  55  121  102  
Total PPIF
133  108  242  201  
Total ratings revenue
928  733  1,711  1,398  
MIS Other
10   21  11  
Total external revenue
938  739  1,732  1,409  
Intersegment royalty
35  33  72  65  
Total MIS
973  772  1,804  1,474  
MA:
Research, data and analytics (RD&A) 366  315  724  623  
Enterprise risk solutions (ERS)
131  117  269  239  
Professional services (PS) (2)
—  43  —  85  
Total external revenue
497  475  993  947  
Intersegment revenue
    
Total MA
499  478  997  952  
Eliminations
(37) (36) (76) (70) 
Total MCO
$1,435  $1,214  $2,725  $2,356  
(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.
(2) Subsequent to the divestiture of MAKS in 2019, revenue from the MALS reporting 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.




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The following table presents the Company’s revenues disaggregated by LOB and geographic area:
Three Months Ended June 30, 2020Three Months Ended June 30, 2019
U.S.
Non-U.S
Total
U.S.
Non-U.S
Total
MIS:
Corporate finance (CFG)
$413  $159  $572  $242  $146  $388  
Structured finance (SFG)45  36  81  72  40  112  
Financial institutions (FIG)
70  72  142  52  73  125  
Public, project and infrastructure finance (PPIF)
87  46  133  69  39  108  
Total ratings revenue
615  313  928  435  298  733  
MIS Other  10     
Total MIS
616  322  938  436  303  739  
MA:
Research, data and analytics (RD&A)167  199  366  138  177  315  
Enterprise risk solutions (ERS)
54  77  131  46  71  117  
Professional services (PS) (1)
—  —  —  18  25  43  
Total MA
221  276  497  202  273  475  
Total MCO
$837  $598  $1,435  $638  $576  $1,214  

Six Months Ended June 30, 2020Six Months Ended June 30, 2019
U.S.
Non-U.S
Total
U.S.
Non-U.S
Total
MIS:
Corporate finance (CFG)
$727  $298  $1,025  $485  $258  $743  
Structured finance (SFG) 106  71  177  134  79  213  
Financial institutions (FIG)
130  137  267  98  143  241  
Public, project and infrastructure finance (PPIF)
155  87  242  129  72  201  
Total ratings revenue
1,118  593  1,711  846  552  1,398  
MIS Other 20  21   10  11  
Total MIS
1,119  613  1,732  847  562  1,409  
MA:
Research, data and analytics (RD&A) 325  399  724  273  350  623  
Enterprise risk solutions (ERS)
107  162  269  94  145  239  
Professional services (PS) (1)
—  —  —  36  49  85  
Total MA
432  561  993  403  544  947  
Total MCO
$1,551  $1,174  $2,725  $1,250  $1,106  $2,356  
(1) Subsequent to the divestiture of MAKS in 2019, the RD&A LOB now includes revenue from MALS beginning in the first quarter of 2020. MALS revenue was previously reported as part of the PS LOB and prior year revenue by LOB has not been reclassified as the amounts were not material.
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The following table presents the Company’s reportable segment revenues disaggregated by segment and geographic region:
Three Months Ended
June 30,
Six Months Ended
June 30,
2020201920202019
MIS:
U.S.
$616  $436  $1,119  $847  
Non-U.S.:
EMEA
183  178  354  327  
Asia-Pacific
90  84  171  163  
Americas
49  41  88  72  
Total Non-U.S.
322  303  613  562  
Total MIS
938  739  1,732  1,409  
MA:
U.S.
221  202  432  403  
Non-U.S.:
EMEA
190  184  382  368  
Asia-Pacific
54  57  109  110  
Americas
32  32  70  66  
Total Non-U.S.
276  273  561  544  
Total MA
497  475  993  947  
Total MCO
$1,435  $1,214  $2,725  $2,356  
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The following tables summarize the split between transaction and relationship revenue. In the MIS segment, excluding MIS Other, transaction revenue represents the initial rating of a new debt issuance as well as other one-time fees while relationship revenue represents the recurring monitoring fees of a rated debt obligation and/or entities that issue such obligations, as well as revenue from programs such as commercial paper, medium-term notes and shelf registrations. In MIS Other, transaction revenue represents revenue from professional services and outsourcing engagements and relationship revenue represents subscription-based revenues. In the MA segment, relationship revenue represents subscription-based revenues and software maintenance revenue. Transaction revenue in MA represents perpetual software license fees and revenue from software implementation services, risk management advisory projects, training and certification services, and outsourced research and analytical engagements.
Three Months Ended June 30,
20202019
Transaction
Relationship
Total
Transaction
Relationship
Total
Corporate Finance
$457  $115  $572  $277  $111  $388  
80 %20 %100 %71 %29 %100 %
Structured Finance
$35  $46  $81  $69  $43  $112  
43 %57 %100 %62 %38 %100 %
Financial Institutions
$76  $66  $142  $61  $64  $125  
54 %46 %100 %49 %51 %100 %
Public, Project and Infrastructure Finance
$96  $37  $133  $71  $37  $108  
72 %28 %100 %66 %34 %100 %
MIS Other
$—  $10  $10  $—  $ $ 
— %100 %100 %— %100 %100 %
Total MIS
$664  $274  $938  $478  $261  $739  
71 %29 %100 %65 %35 %100 %
Research, data and analytics$16  $350  $366  $ $311  $315  
%96 %100 %%99 %100 %
Enterprise risk solutions$26  $105  $131  $23  $94  $117  
20 %80 %100 %20 %80 %100 %
Professional services$—  $—  $—  $43  $—  $43  
— %— %— %100 %— %100 %
Total MA$42  $455  $497  $70  $405  $475  
%92 %100 %15 %85 %100 %
Total Moody's Corporation$706  $729  $1,435  $548  $666  $1,214  
49 %51 %100 %45 %55 %100 %

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Six Months Ended June 30,
20202019
Transaction
Relationship
Total
Transaction
Relationship
Total
Corporate Finance
$795  $230  $1,025  $526  $217  $743  
78 %22 %100 %71 %29 %100 %
Structured Finance
$85  $92  $177  $126  $87  $213  
48 %52 %100 %59 %41 %100 %
Financial Institutions
$136  $131  $267  $109  $132  $241  
51 %49 %100 %45 %55 %100 %
Public, Project and Infrastructure Finance
$165  $77  $242  $126  $75  $201  
68 %32 %100 %63 %37 %100 %
MIS Other
$ $19  $21  $ $10  $11  
10 %90 %100 %%91 %100 %
Total MIS
$1,183  $549  $1,732  $888  $521  $1,409  
68 %32 %100 %63 %37 %100 %
Research, data and analytics$34  $690  $724  $ $614  $623  
%95 %100 %%99 %100 %
Enterprise risk solutions$58  $211  $269  47  $192  $239  
22 %78 %100 %20 %80 %100 %
Professional services$—  $—  $—  $85  $—  $85  
— %— %— %100 %— %100 %
Total MA$92  
(1)
$901  $993  $141  
(1)
$806  $947  
%91 %100 %15 %85 %100 %
Total Moody's Corporation$1,275  $1,450  $2,725  $1,029  $1,327  $2,356  
47 %53 %100 %44 %56 %100 %
(1) Revenue from software implementation services and risk management advisory projects, while classified by management as transactional revenue, is recognized over time under the Revenue Accounting Standard (please also refer to the following table).

The following table presents the timing of revenue recognition:
Three Months Ended June 30, 2020Six Months Ended June 30, 2020
MIS
MA
Total
MIS
MA
Total
Revenue recognized at a point in time
$664  $20  $684  $1,183  $59  $1,242  
Revenue recognized over time
274  477  751  549  934  1,483  
Total
$938  $497  $1,435  $1,732  $993  $2,725  

Three Months Ended June 30, 2019Six Months Ended June 30, 2019
MIS
MA
Total
MIS
MA
Total
Revenue recognized at a point in time
$478  $22  $500  $888  $52  $940  
Revenue recognized over time
261  453  714  521  895  1,416  
Total
$739  $475  $1,214  $1,409  $947  $2,356  
Unbilled receivables, deferred revenue and remaining performance obligations
Unbilled receivables
At June 30, 2020 and December 31, 2019, accounts receivable, net included $437 million and $346 million, respectively, of unbilled receivables, net related to the MIS segment. Certain MIS arrangements contain contractual terms whereby the customers are billed in arrears for annual monitoring services, requiring revenue to be accrued as an unbilled receivable as such services are provided.
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In addition, for certain MA arrangements, the timing of when the Company has the unconditional right to consideration and recognizes revenue occurs prior to invoicing the customer. Consequently, at June 30, 2020 and December 31, 2019, accounts receivable, net included $63 million and $53 million, respectively, of unbilled receivables, net related to the MA segment.
Deferred revenue
The Company recognizes deferred revenue when a contract requires a customer to pay consideration to the Company in advance of when revenue related to that contract is recognized. This deferred revenue is relieved when the Company satisfies the related performance obligation and revenue is recognized.
Significant changes in the deferred revenue balances during the three and six months ended June 30, 2020 are as follows:
Three Months Ended June 30, 2020
MIS
MA
Total
Balance at March 31, 2020$379  $843  $1,222  
Changes in deferred revenue
Revenue recognized that was included in the deferred revenue balance at the beginning of the period
(115) (341) (456) 
Increases due to amounts billable excluding amounts recognized as revenue during the period
100  234  334  
Effect of exchange rate changes
   
Total changes in deferred revenue(14) (103) (117) 
Balance at June 30, 2020$365  $740  $1,105  

Six Months Ended June 30, 2020
MIS
MA
Total
Balance at January 1, 2020$322  $840  $1,162  
Changes in deferred revenue
Revenue recognized that was included in the deferred revenue balance at the beginning of the period
(167) (677) (844) 
Increases due to amounts billable excluding amounts recognized as revenue during the period
213  577  790  
Increases due to RDC acquisition during the period—  20  20  
Effect of exchange rate changes
(3) (20) (23) 
Total changes in deferred revenue
43  (100) (57) 
Balance at June 30, 2020$365  $740  $1,105  
Deferred revenue - current
$265  $736  $1,001  
Deferred revenue - noncurrent
$100  $ $104  

Three Months Ended June 30, 2019
MIS
MA
Total
Balance at March 31, 2019$388  $795  $1,183  
Changes in deferred revenue

Revenue recognized that was included in the deferred revenue balance at the beginning of the period
(114) (340) (454) 
Increases due to amounts billable excluding amounts recognized as revenue during the period
101  246  347  
Amount included in liabilities reclassified as held for sale—  (3) (3) 
Effect of exchange rate changes
 (3) (2) 
Total changes in deferred revenue
(12) (100) (112) 
Balance at June 30, 2019$376  $695  $1,071  
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Six Months Ended June 30, 2019
MIS
MA
Total
Balance at January 1, 2019
$326  $750  $1,076  
Changes in deferred revenue

Revenue recognized that was included in the deferred revenue balance at the beginning of the period
(161) (533) (694) 
Increases due to amounts billable excluding amounts recognized as revenue during the period
210  479  689  
Amount included in liabilities reclassified as held for sale—  (3) (3) 
Effect of exchange rate changes
   
Total changes in deferred revenue
50  (55) (5) 
Balance at June 30, 2019$376  $695  $1,071  
Deferred revenue - current
$262  $691  953  
Deferred revenue - noncurrent
$114  $ 118  

For the MIS segment, the changes in the deferred revenue balance during the three and six months ended June 30, 2020 were primarily related to the significant portion of contract renewals that occur during the first quarter of 2020 and are generally recognized over a one year period.
For the MA segment, the decrease in deferred revenue for the three months ended June 30, 2020 was primarily due to the recognition of annual subscription and maintenance billings from December 2019 and January 2020. For the six months ended June 30, 2020, the decrease in the deferred revenue balance is attributable to recognition of revenues related to the aforementioned December 2019 billings being partially offset by the impact of the high concentration of January 2020 billings.
Remaining performance obligations
Remaining performance obligations in the MIS segment largely reflect deferred revenue related to monitoring fees for certain structured finance products, primarily CMBS, where the issuers can elect to pay the monitoring fees for the life of the security in advance. As of June 30, 2020, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $136 million. The Company expects to recognize into revenue approximately 20% of this balance within one year, approximately 50% of this balance between one to five years and the remaining amount thereafter. With respect to the remaining performance obligations for the MIS segment, the Company has applied a practical expedient set forth in ASC Topic 606 permitting the omission from the amounts stated above relating to unsatisfied performance obligations for contracts with an original expected length of one year or less.

Remaining performance obligations in the MA segment include both amounts recorded as deferred revenue on the balance sheet as of June 30, 2020 as well as amounts not yet invoiced to customers as of June 30, 2020, largely reflecting future revenue related to signed multi-year arrangements for hosted and installed subscription based products. As of June 30, 2020, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $1.8 billion. The Company expects to recognize into revenue approximately 65% of this balance within one year, approximately 20% of this balance between one to two years and the remaining amount thereafter.

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NOTE 4. STOCK-BASED COMPENSATION
Presented below is a summary of the stock-based compensation cost and associated tax benefit included in the accompanying consolidated statements of operations:

Three Months Ended
June 30,
Six Months Ended
June 30,
2020201920202019
Stock-based compensation cost
$35  $34  $72  $70  
Tax benefit
$ $ $14  $15  
During the first six months of 2020, the Company granted 0.1 million employee stock options, which had a weighted average grant date fair value of $60.53 per share based on the Black-Scholes option-pricing model. The Company also granted 0.5 million shares of restricted stock in the first six months of 2020, which had a weighted average grant date fair value of $275.11 per share. Both the employee stock options and restricted stock generally vest ratably over four years. Additionally, the Company granted 0.1 million shares of performance-based awards whereby the number of shares that ultimately vest are based on the achievement of certain non-market based performance metrics of the Company over three years. The weighted average grant date fair value of these awards was $273.85 per share.
The following weighted average assumptions were used in determining the fair value for options granted in 2020:
Expected dividend yield
0.80 %
Expected stock volatility
22.43 %
Risk-free interest rate
1.45 %
Expected holding period
5.7 years
Unrecognized stock-based compensation expense at June 30, 2020 was $9 million and $222 million for stock options and unvested restricted stock, respectively, which is expected to be recognized over a weighted average period of 2.4 years and 2.6 years, respectively. Additionally, there was $29 million of unrecognized stock-based compensation expense relating to the aforementioned non-market based performance-based awards, which is expected to be recognized over a weighted average period of 2.1 years.
The following tables summarize information relating to stock option exercises and restricted stock vesting:
Six Months Ended
June 30,
2020
2019
Exercise of stock options:
Proceeds from stock option exercises
$23  $23  
Aggregate intrinsic value
$74  $83  
Tax benefit realized upon exercise
$18  $20  
Number of shares exercised
0.4  0.6  
Vesting of restricted stock:
Fair value of shares vested
$193  $150  
Tax benefit realized upon vesting
$45  $36  
Number of shares vested
0.8  0.8  
Vesting of performance-based restricted stock:
Fair value of shares vested
$70  $48  
Tax benefit realized upon vesting
$17  $12  
Number of shares vested
0.3  0.3  

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NOTE 5. INCOME TAXES
Moody’s ETR was 23.6% and 28.0% for the three months ended June 30, 2020 and 2019, respectively, and 19.0% and 18.8% for the six months ended June 30, 2020 and 2019, respectively. The decrease in the ETR for the three month period ended June 30, 2020 was primarily due to taxes incurred and a non-deductible loss relating to the divestiture of MAKS in 2019 which will not recur to the same extent in 2020. The Company’s quarterly tax expense differs from the tax computed by applying its estimated annual effective tax rate to this quarter’s pre-tax earnings due to Excess Tax Benefits from stock compensation of $46 million and net reductions to tax positions of $24 million.
The Company classifies interest related to UTPs in interest expense, net in its consolidated statements of operations. Penalties, if incurred, would be recognized in other non-operating (expense) income, net. The Company had a decrease in its UTPs of $6 million ($6 million, net of federal tax) during the second quarter of 2020 and a net increase in UTPs during the first six months of 2020 of $22 million ($23 million, net of federal tax).
Moody’s Corporation and subsidiaries are subject to U.S. federal income tax as well as income tax in various state, local and foreign jurisdictions. The Company’s U.S. federal income tax return for 2016 remains open to examination and 2017 and 2018 are currently under examination. The Company’s New York State tax returns for 2011 through 2016 are currently under examination and the Company’s New York City tax return for 2014 through 2017 are currently under examination. The Company’s U.K. tax return for 2012 is currently under examination and its returns for 2013 through 2018 remain open to examination.
For ongoing audits, it is possible the balance of UTPs could decrease in the next twelve months as a result of the settlement of these audits, which might involve the payment of additional taxes, the adjustment of certain deferred taxes and/or the recognition of tax benefits. It is also possible that new issues might be raised by tax authorities which could necessitate increases to the balance of UTPs. As the Company is unable to predict the timing or outcome of these audits, it is therefore unable to estimate the amount of changes to the balance of UTPs at this time. However, the Company believes that it has adequately provided for its financial exposure relating to all open tax years by tax jurisdiction in accordance with the applicable provisions of Topic 740 of the ASC regarding UTPs.
The following table shows the amount the Company paid for income taxes:
Six Months Ended June 30,
20202019
Income taxes paid (1)
$111  $198  
(1) The decrease compared to prior year relates to estimated income tax payment timing extensions (to July 15, 2020) provided by the Internal Revenue Service and several states in response to the COVID-19 crisis.
NOTE 6. WEIGHTED AVERAGE SHARES OUTSTANDING
Below is a reconciliation of basic to diluted shares outstanding:
Three Months Ended
June 30,
Six Months Ended June 30,
2020201920202019
Basic
187.7  189.4  187.6  189.9  
Dilutive effect of shares issuable under stock-based compensation plans
1.3  1.9  1.7  2.2  
Diluted
189.0  191.3  189.3  192.1  
Anti-dilutive options to purchase common shares and restricted stock as well as contingently issuable restricted stock which are excluded from the table above
0.3  0.3  0.3  0.3  
The calculation of diluted EPS requires certain assumptions regarding the use of both cash proceeds and assumed proceeds that would be received upon the exercise of stock options and vesting of restricted stock outstanding as of June 30, 2020 and 2019.
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NOTE 7. ACCELERATED SHARE REPURCHASE PROGRAM
On February 20, 2019, the Company entered into an ASR agreement with a financial institution counterparty to repurchase $500 million of its outstanding common stock. The Company paid $500 million to the counterparty and received an initial delivery of 2.2 million shares of its common stock. Final settlement of the ASR agreement was completed on April 26, 2019 and the Company received delivery of an additional 0.6 million shares of the Company’s common stock.
In total, the Company repurchased 2.8 million shares of the Company’s common stock during the term of the ASR Agreement, based on the volume-weighted average price (net of discount) of $180.33 per share over the duration of the program. The initial share repurchase and final share settlement were recorded as a reduction to shareholders’ equity.
NOTE 8. CASH EQUIVALENTS AND INVESTMENTS
The table below provides additional information on the Company’s cash equivalents and investments:
As of June 30, 2020
Balance sheet location
Cost
Gains/(Losses)
Fair Value
Cash and cash equivalents
Short-term
investments
Other
assets
Certificates of deposit and money market deposit accounts (1)
$1,128  $—  $1,128  $1,028  $97  $ 
Mutual funds$46  $—  $46  $—  $ $43  

As of December 31, 2019
Balance sheet location

Cost
Gains/(Losses)

Fair Value
Cash and cash
equivalents
Short-term
investments
Other
assets
Certificates of deposit and money market deposit accounts (1)
$971  $—  $971  $866  $95  $10  
Mutual funds$ $—  $ $—  $ $—  
(1) Consists of time deposits and money market deposit accounts. The remaining contractual maturities for the certificates of deposits classified as short-term investments were one month to 12 months at both June 30, 2020 and December 31, 2019. The remaining contractual maturities for the certificates of deposits classified in other assets are 13 months to 23 months at June 30, 2020 and 13 months to 18 months at December 31, 2019. Time deposits with a maturity of less than 90 days at time of purchase are classified as cash and cash equivalents.
In addition, the Company invested in Corporate-Owned Life Insurance (COLI) in the first quarter of 2020. As of June 30, 2020, the cash surrender value of the COLI was $13 million.
NOTE 9. ACQUISITIONS AND OTHER STRATEGIC INITIATIVES
The business combinations described below are accounted for using the acquisition method of accounting whereby assets acquired and liabilities assumed were recognized at fair value on the date of the transaction. Any excess of the purchase price over the fair value of the assets acquired and liabilities assumed was recorded to goodwill. Goodwill typically results through expected synergies from combining operations of an acquiree and an acquirer, anticipated new customer acquisition and products, as well as from intangible assets that do not qualify for separate recognition.
RDC
On February 13, 2020, the Company acquired 100% of RDC, a provider of anti-money laundering and know-your-customer data and due diligence services.
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The table below details the total consideration relating to the acquisition:
Cash paid at closing $700  
Additional consideration paid to sellers in 2020 (1)
 
Total consideration$702  
(1) Represents additional consideration paid to the sellers following finalization of customary post-closing completion adjustments.
Shown below is the preliminary purchase price allocation, which summarizes the fair value of the assets and liabilities assumed, at the date of acquisition:
(Amounts in millions)
Current assets$24  
Intangible assets:
Customer relationships (25 year weighted average life)
$174  
Database (10 year weighted average life)
86  
Product technology (4 year weighted average life)
17  
Trade name (3 year weighted average life)
 
Total intangible assets (19 year weighted average life)
280  
Goodwill494  
Other assets 
Liabilities:
Accounts payable and accrued liabilities$(5) 
Deferred revenue(20) 
Deferred tax liabilities(71) 
Other liabilities(2) 
Total liabilities(98) 
Net assets acquired$702  
The Company has performed a preliminary valuation analysis of the fair market value of assets and liabilities of the RDC business. The final purchase price allocation will be determined when the Company has completed and fully reviewed the detailed valuations. The final allocation could differ materially from the preliminary allocation. The final allocation may include changes in allocations to acquired intangible assets as well as goodwill and other changes to assets and liabilities including reserves for UTPs and deferred tax liabilities. The estimated useful lives of acquired intangibles assets are also preliminary.
Current assets in the table above include acquired cash of $6 million. Additionally, current assets include accounts receivable of approximately $14 million.
Goodwill
The goodwill recognized as a result of this acquisition includes, among other things, the value of combining the complementary product portfolios of the Company and RDC, which is expected to extend the Company’s reach to new and evolving market segments as well as cost savings synergies, expected new customer acquisitions and products.
Goodwill, which has been assigned to the MA segment, is not deductible for tax purposes.
RDC will be subsumed into the Bureau van Dijk reporting unit for purposes of the Company’s annual goodwill impairment assessment.
Transaction costs
Transaction costs directly related to the RDC acquisition were not material.
Other Acquisitions and Strategic Initiatives
During the second quarter of 2020, the Company increased its stake in Vigeo Eiris, a provider of ESG research, data and assessments, from 69.2% to 99.8%. The purchase price for the additional stake was not material. Vigeo Eiris revenue is reported in the MIS Other LOB.
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NOTE 10. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company is exposed to global market risks, including risks from changes in FX rates and changes in interest rates. Accordingly, the Company uses derivatives in certain instances to manage the aforementioned financial exposures that occur in the normal course of business. The Company does not hold or issue derivatives for speculative purposes.
Derivatives and non-derivative instruments designated as accounting hedges:
Fair Value Hedges
Interest Rate Swaps
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 LIBOR. The purpose of these hedges is to mitigate the risk associated with changes in the fair value of the long-term debt, thus the Company has designated these swaps as fair value hedges. The fair value of the swaps is adjusted quarterly with a corresponding adjustment to the carrying value of the debt. The changes in the fair value of the swaps and the underlying hedged item generally offset and the net cash settlements on the swaps are recorded each period within interest expense, net in the Company’s consolidated statement of operations.
The following table summarizes the Company’s interest rate swaps designated as fair value hedges:
Notional Amount
Hedged ItemNature of SwapAs of June 30,
2020
As of December 31,
2019
Floating Interest Rate
2012 Senior Notes due 2022Pay Floating/Receive Fixed$330  $330  3-month USD LIBOR
2017 Senior Notes due 2021Pay Floating/Receive Fixed$500  $500  3-month USD LIBOR
2017 Senior Notes due 2023Pay Floating/Receive Fixed$250  $250  3-month USD LIBOR
2017 Senior Notes due 2028Pay Floating/Receive Fixed$500  $—  3-month USD LIBOR
Total$1,580  $1,080  
Refer to Note 17 for information on the cumulative amount of fair value hedging adjustments included in the carrying amount of the above hedged items.
The following table summarizes the impact to the statement of operations of the Company’s interest rate swaps designated as fair value hedges:
Total amounts of financial statement line item presented in the statements of operations in which the effects of fair value hedges are recordedAmount of income/(loss) recognized in the consolidated statements of operations
Three Months Ended June 30,Six Months Ended
June 30,
2020201920202019
Interest expense, net$(60) $(51) $(100) $(103) 

Descriptions
Location on Consolidated Statements of Operations
Net interest settlements and accruals on interest rate swaps

Interest expense, net
$ $—  $ $—  
Fair value changes on interest rate swapsInterest expense, net$ $20  $60  $31  
Fair value changes on hedged debtInterest expense, net$(2) $(20) $(60) $(31) 
Net investment hedges
The Company has designated €500 million of the 2015 Senior Notes Due 2027 and €750 million of the 2019 Senior Notes due 2030 as net investment hedges to mitigate FX exposure related to a portion of the Company’s euro net investment in certain foreign subsidiaries against changes in euro/USD exchange rates. These hedges are designated as accounting hedges under the applicable sections of ASC Topic 815 and will end upon the repayment of the notes in 2027 and 2030, respectively, unless terminated early at the discretion of the Company.
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The Company enters into cross-currency swaps to mitigate FX exposure related to a portion of the Company’s euro net investment in certain foreign subsidiaries against changes in euro/USD exchange rates. The following table provides information on the cross-currency swaps designated as net investment hedges under ASC Topic 815:
June 30, 2020
Pay
Receive
Nature of Swap
Notional Amount
Weighted Average Interest Rate
Notional Amount
Weighted Average Interest Rate
Pay Fixed/Receive Fixed
1,079  1.43%$1,220  3.96%
Pay Floating/Receive Floating1,381  Based on 3-month EURIBOR1,580  Based on 3-month USD LIBOR
Total
2,460  $2,800  

December 31, 2019
Pay
Receive
Nature of Swap
Notional Amount
Weighted Average Interest Rate
Notional Amount
Weighted Average Interest Rate
Pay Fixed/Receive Fixed
1,079  1.43%$1,220  3.96%
Pay Floating/Receive Floating
931  Based on 3-month EURIBOR1,080  Based on 3-month USD LIBOR
Total
2,010  $2,300  
As of June 30, 2020, these hedges will expire and be settled in 2021, 2022, 2023, 2024, and 2026 for €687 million, €438 million, €442 million, €443 million, and €450 million of the total notional amount, respectively, unless terminated early at the discretion of the Company.
Cash Flow Hedge
Interest Rate Forward Contracts
In January 2020, the Company entered into $300 million notional amount treasury rate locks with an average locked-in U.S. 30-year Treasury rate of 2.0103%, which were designated as cash flow hedges and used to manage the Company’s interest rate risk during the period prior to an anticipated issuance of 30-year debt. The treasury lock interest rate forward contracts matured on April 30, 2020, resulting in a cumulative loss of $68 million, which was recognized in AOCI. The loss on the Treasury rate lock will be reclassified from AOCI to earnings in the same period that the hedged transaction (i.e. interest payments on the 3.25% 2020 Senior Notes, due 2050) impacts earnings.
The following tables provide information on the gains/(losses) on the Company’s net investment and cash flow hedges:
Derivative and Non-Derivative Instruments in Net Investment Hedging RelationshipsAmount of Gain/(Loss) Recognized in AOCI on Derivative, net of TaxAmount of Gain/(Loss) Reclassified from AOCI into Income, net of TaxGain/(Loss) Recognized in Income on Derivative (Amount Excluded from Effectiveness Testing)
Three Months Ended
June 30,
Three Months Ended
June 30,
Three Months Ended
June 30,
202020192020201920202019
Cross currency swaps
$(49) $(20) $—  $—  $14  $14  
Long-term debt
(24) (9) —  —  —  —  
Total net investment hedges
$(73) $(29) $—  $—  $14  $14  
Derivatives in Cash Flow Hedging Relationships
Interest rate contracts
(14) —  —  —  —  —  
Total cash flow hedges$(14) $—  $—  $—  $—  $—  
Total$(87) $(29) $—  $—  $14  $14  

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Derivative and Non-Derivative Instruments in Net Investment Hedging Relationships
Amount of Gain/(Loss) Recognized in AOCI on Derivative, net of Tax
Amount of Gain/(Loss) Reclassified from AOCI into Income, net of Tax
Gain/(Loss) Recognized in Income on Derivative (Amount Excluded from Effectiveness Testing)
Six Months Ended
June 30,
Six Months Ended
June 30,
Six Months Ended
June 30,
202020192020201920202019
Cross currency swaps
$17  $(5) $—  $—  $30  $22  
Long-term debt
(1) 

—  —  —  —  —  
Total net investment hedges
$16  $(5) $—  $—  $30  $22  
Derivatives in Cash Flow Hedging Relationships
Interest rate contracts(50) —  (1) —  —  —  
Total cash flow hedges$(50) $—  $(1) $—  $—  $—  
Total$(34) $(5) $(1) $—  $30  $22  

The cumulative amount of net investment hedge and cash flow hedge gains (losses) remaining in AOCI is as follows:

Cumulative Gains/(Losses), net of tax
June 30, 2020December 31, 2019
Net investment hedges
Cross currency swaps
$58  $41  
FX forwards
26  26  
Long-term debt
(14) (13) 
Total net investment hedges
$70  $54  
Cash flow hedges
Interest rate contracts
$(51) $(2) 
Cross currency swaps  
Total cash flow hedges
(49) —  
Total net gain in AOCI
$21  $54  
Derivatives not designated as accounting hedges:
Foreign exchange forwards
The Company also enters into foreign exchange forward contracts to mitigate the change in fair value on certain assets and liabilities denominated in currencies other than a subsidiary’s functional currency. These forward contracts are not designated as accounting hedges under the applicable sections of Topic 815 of the ASC. Accordingly, changes in the fair value of these contracts are recognized immediately in other non-operating (expense) income, net in the Company’s consolidated statements of operations along with the FX gain or loss recognized on the assets and liabilities denominated in a currency other than the subsidiary’s functional currency. These contracts have expiration dates at various times through October 2020.
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The following table summarizes the notional amounts of the Company’s outstanding foreign exchange forwards:
June 30, 2020December 31, 2019
Notional amount of currency pair:
Sell
Buy
Sell
Buy
Contracts to sell USD for GBP
$458  £369  $235  £178  
Contracts to sell USD for Japanese Yen
$23  ¥2,500  $29  ¥3,200  
Contracts to sell USD for Canadian dollars
$93  C$130  $83  $110  
Contracts to sell USD for Singapore dollars
$79  S$112  $41  S$56  
Contracts to sell USD for Euros
$324  291  $421  378  
Contracts to sell Euros for GBP—  £—  25  £21  
Contracts to sell USD for Russian Ruble$ 580  $—  —  
Contracts to sell USD for Indian Rupee$15  1,200  $—  —  
NOTE: € = Euro, £ = British pound, $ = U.S. dollar, ¥ = Japanese Yen, C$ = Canadian dollar, S$= Singapore dollars, = Russian Ruble, ₹= Indian Rupee
The following table summarizes the impact to the consolidated statements of operations relating to the net losses on the Company’s derivatives which are not designated as hedging instruments:
Derivatives not designated as accounting hedges
Location on Statement of Operations
Three Months Ended
June 30,
Six Months Ended
June 30,
2020201920202019
Foreign exchange forwards
Other non-operating expense, net
$ $(10) $(35) $(9) 
The table below shows the classification between assets and liabilities on the Company’s consolidated balance sheets for the fair value of the derivative instrument as well as the carrying value of its non-derivative debt instruments designated and qualifying as net investment hedges:
Derivative and Non-Derivative Instruments
Balance Sheet Location
June 30, 2020December 31, 2019
Assets:
Derivatives designated as accounting hedges:
Cross-currency swaps designated as net investment hedges
Other assets
$92  $56  
Interest rate swaps designated as fair value hedges
Other assets
87  27  
Total derivatives designated as accounting hedges
179  83  
Derivatives not designated as accounting hedges:
FX forwards on certain assets and liabilities
Other current assets
  
Total assets
$187  $92  
Liabilities:
Derivatives designated as accounting hedges:
Cross-currency swaps designated as net investment hedges
Other liabilities
$13  $—  
Total derivatives designated as accounting hedges
13  —  
Non-derivatives designated as accounting hedges:
Long-term debt designated as net investment hedge
Long-term debt
1,404  1,403  
Derivatives not designated as accounting hedges:
FX forwards on certain assets and liabilities
Accounts payable and accrued liabilities
 —  
Total liabilities
$1,420  $1,403  

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NOTE 11. GOODWILL AND OTHER ACQUIRED INTANGIBLE ASSETS
The following table summarizes the activity in goodwill for the periods indicated:
Six Months Ended June 30, 2020
MIS
MA
Consolidated
Gross goodwill
Accumulated impairment
charge
Net
goodwill
Gross goodwill
Accumulated
impairment
charge
Net
goodwill
Gross goodwill
Accumulated
impairment
charge
Net
goodwill
Balance at beginning
of year
$315  $—  $315  $3,419  $(12) $3,407  $3,734  $(12) $3,722  
Additions/
adjustments (1)
—  —  —  497  —  497  497  —  497  
Foreign currency translation adjustments
(16) —  (16) (41) —  (41) (57) —  (57) 
Ending balance
$299  $—  $299  $3,875  $(12) $3,863  $4,174  $(12) $4,162  

Year Ended December 31, 2019
MIS
MA
Consolidated
Gross goodwill
Accumulated impairment
charge
Net
goodwill
Gross goodwill
Accumulated
impairment
charge
Net
goodwill
Gross goodwill
Accumulated
impairment
charge
Net
goodwill
Balance at beginning
of year
$258  $—  $258  $3,535  $(12) $3,523  $3,793  $(12) $3,781  
Additions/
adjustments (2)
53  —  53  61  —  61  114  —  114  
Foreign currency translation
adjustments
 —   (14) —  (14) (10) —  (10) 
Divestiture of MAKS—  —  —  (163) —  (163) (163) —  (163) 
Ending balance
$315  $—  $315  $3,419  $(12) $3,407  $3,734  $(12) $3,722  
(1) The 2020 additions/adjustments for the MA segment in the table above relate to the acquisition of RDC and RBA.
(2) The 2019 additions/adjustments for the MIS segment in the table above relate to the acquisitions of Vigeo Eiris and Four Twenty Seven. The 2019 additions/adjustments for the MA segment in the table above relate to the acquisition of RiskFirst and ABS Suite.
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Acquired intangible assets and related amortization consisted of:
June 30,
2020
December 31,
2019
Customer relationships
$1,479  $1,325  
Accumulated amortization
(263) (235) 
Net customer relationships
1,216  1,090  
Trade secrets
30  30  
Accumulated amortization
(29) (29) 
Net trade secrets
  
Software/product technology
368  372  
Accumulated amortization
(143) (131) 
Net software/product technology
225  241  
Trade names
148  150  
Accumulated amortization
(33) (30) 
Net trade names
115  120  
Other (1)
181  80  
Accumulated amortization
(41) (34) 
Net other
140  46  
Total acquired intangible assets, net
$1,697  $1,498  
(1) Other intangible assets primarily consist of databases, covenants not to compete, and acquired ratings methodologies and models.
Amortization expense relating to acquired intangible assets is as follows:
Three Months Ended
June 30,
Six Months Ended
June 30,
2020201920202019
Amortization expense
$31  $27  $59  $53  
Estimated future amortization expense for acquired intangible assets subject to amortization is as follows:
Year Ending December 31,
2020 (After June 30,)
$60  
2021117  
2022117  
2023112  
2024105  
Thereafter1,186  
Total estimated future amortization$1,697  
Matters concerning the ICRA reporting unit
On August 29, 2019, the board of directors of ICRA terminated the employment of ICRA's CEO and on September 28, 2019, the shareholders of ICRA voted to remove the former CEO from his position on ICRA's board of directors. ICRA has reported that the Securities and Exchange Board of India (SEBI) issued an adjudication order dated December 26, 2019 imposing a penalty of INR 25 lakh (approximately $35,000) on ICRA in connection with credit ratings assigned to one of ICRA’s customers and the customer’s subsidiaries. ICRA has further reported that: (i) it is appealing that order; and (ii) it has received a related "show cause" notice from SEBI asking ICRA to demonstrate why the penalty imposed should not be increased. In addition, ICRA has disclosed that it has completed its internal examinations into anonymous allegations that were forwarded to ICRA by SEBI and certain additional allegations made during the course of that examination while an examination into a separate anonymous complaint is ongoing. ICRA reported that its Board of Directors is in the process of taking appropriate actions based on the findings of the completed examinations. As of the date of this quarterly report on Form 10-Q, 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.
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NOTE 12. RESTRUCTURING
On October 26, 2018, the chief executive officer of Moody’s approved a restructuring program (the “2018 Restructuring Program”) that the Company estimates will result in annualized savings of approximately $60 million per year. The 2018 Restructuring Program, the scope of which was expanded in the second quarter of 2019, is estimated to result in total pre-tax charges of $105 to $110 million. The 2018 Restructuring Program included 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 leases due to consolidation of various business activities. The exit from certain leased office space began in the fourth quarter of 2018 and will entail approximately $50 million of the charges to either terminate or sublease the affected real estate leases. The 2018 Restructuring Program also includes approximately $60 million of personnel-related restructuring charges, an amount that includes severance and related costs primarily determined under the Company’s existing severance plans. Cash outlays associated with the employee termination cost component of the 2018 Restructuring Program are anticipated to be approximately $60 million, which will be paid through 2021.
Total expenses included in the accompanying consolidated statements of operations relating to the 2018 Restructuring Program are as follows:
Three Months Ended
June 30,
Six Months Ended
June 30,
2020201920202019
Restructuring
$(2) $53  $(3) $59  

NOTE 13. FAIR VALUE 
The table below presents information about items that are carried at fair value at June 30, 2020 and December 31, 2019:
Fair value Measurement as of June 30, 2020
Description
Balance
Level 1
Level 2
Assets:
Derivatives (1)
$187  $—  $187  
Mutual funds
46  46  —  
Total
$233  $46  $187  
Liabilities:
Derivatives (1)
$16  $—  $16  
Total
$16  $—  $16  

Fair value Measurement as of December 31, 2019
Description
Balance
Level 1
Level 2
Assets:
Derivatives (1)
$92  $—  $92  
Mutual funds
  —  
Total
$95  $ $92  
(1)Represents FX forwards on certain assets and liabilities as well as interest rate swaps, cross-currency swaps and forward contracts as more fully described in Note 10 to the condensed consolidated financial statements.
The following are descriptions of the methodologies utilized by the Company to estimate the fair value of its derivative contracts, mutual funds and money market mutual funds:
Derivatives:
In determining the fair value of the derivative contracts in the table above, the Company utilizes industry standard valuation models. Where applicable, these models project future cash flows and discount the future amounts to a present value using spot rates, forward points, currency volatilities, interest rates as well as the risk of non-performance of the Company and the counterparties with whom it has derivative contracts. The Company established strict counterparty credit guidelines and only enters into transactions with financial institutions that adhere to these guidelines. Accordingly, the risk of counterparty default is deemed to be minimal.
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Mutual funds and money market mutual funds:
The mutual funds in the table above are deemed to be equity securities with readily determinable fair values with changes in the fair value recognized through net income under ASC Topic 321. The fair value of these instruments is determined using Level 1 inputs as defined in the ASC Topic 820.
NOTE 14. OTHER BALANCE SHEET AND STATEMENT OF OPERATIONS INFORMATION
The following tables contain additional detail related to certain balance sheet captions:
June 30, 2020December 31, 2019
Other current assets:
Prepaid taxes$127  $79  
Prepaid expenses71  71  
Capitalized costs to obtain and fulfill sales contracts79  91  
Other86  89  
Total other current assets$363  $330  
Other assets:
Investments in non-consolidated affiliates$125  $117  
Deposits for real-estate leases14  13  
Indemnification assets related to acquisitions16  16  
Mutual funds and fixed deposits46  10  
Company owned life insurance (at contract value)13  —  
Costs to obtain sales contracts116  119  
Cross currency and interest rate swaps179  83  
Other52  31  
Total other assets$561  $389  
Accounts payable and accrued liabilities:
Salaries and benefits$137  $152  
Incentive compensation89  208  
Customer credits, advanced payments and advanced billings44  28  
Dividends  
Professional service fees43  43  
Interest accrued on debt67  63  
Accounts payable36  38  
Income taxes199  
(1)
73  
Pension and other retirement employee benefits  
Accrued royalties13  25  
Foreign exchange forwards on certain assets and liabilities —  
Restructuring liability 21  
Other146  108  
Total accounts payable and accrued liabilities$795  $773  

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June 30, 2020December 31, 2019
Other liabilities:
Pension and other retirement employee benefits$197  $299  
Interest accrued on UTPs98  82  
MAKS indemnification provisions32  43  
Income tax liability - non-current portion51  51  
Cross currency and interest rate swaps13  —  
Restructuring liability  
Other25  26  
Total other liabilities$418  $504  
(1) The increase from December 31, 2019 relates to estimated income tax payment timing extensions (to July 15, 2020) provided by the Internal Revenue Service and several states in response to the COVID-19 crisis.
Loss pursuant to the Divestiture of MAKS:
The $9 million loss in the second quarter of 2019 and in the first six months of 2020 relates to the strategic divestiture of MAKS.
Other Non-Operating Income (Expense):
The following table summarizes the components of other non-operating income (expense):
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
FX (loss) gain $(8) $(10) $ $(16) 
Net periodic pension costs - other components    
Income from investments in non-consolidated affiliates  —   
Other17  (1) 16   
Total$16  $—  $28  $ 

NOTE 15. COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE INCOME
The following table provides details about the reclassifications out of AOCI:
Losses on cash flow hedgesThree Months Ended
June 30, 2020
Six Months Ended
June 30, 2020
Location in the consolidated statement of operations
Interest rate contract$—  $(1) Other non-operating expense, net
Income tax effect of items above—  —  Provision for income taxes
Total net gains (losses) on cash flow hedges—  (1) 
Pension and other retirement benefits
Amortization of actuarial losses and prior service costs included in net income(1) (2) Operating expense
Amortization of actuarial losses and prior service costs included in net income—  (1) SG&A expense
Total before income taxes(1) (3) 
Income tax effect of item above—   Provision for income taxes
Total pension and other retirement benefits(1) (2) 
Total net losses included in Net Income attributable to reclassifications out of AOCI$(1) $(3) 
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Location in the consolidated statement of operations
Three Months Ended
June 30, 2019
Six Months Ended
June 30, 2019
Pension and other retirement benefits
Amortization of actuarial losses and prior service costs included in net income—  (1) Operating expense
Amortization of actuarial losses and prior service costs included in net income(1) (1) SG&A expense
Total before income taxes(1) (2) 
Income tax effect of item above—   Provision for income taxes
Total pension and other retirement benefits(1) (1) 
Total net losses included in Net Income attributable to reclassifications out of AOCI$(1) $(1) 

The following tables show changes in AOCI by component (net of tax):
Three Months Ended
June 30, 2020June 30, 2019
Gains/(Losses)Pension and Other Retirement BenefitsCash Flow HedgesForeign Currency Translation AdjustmentsNet Investment HedgesTotalPension and Other Retirement BenefitsCash Flow HedgesForeign Currency Translation AdjustmentsNet Investment HedgesTotal
Balance March 31,$(92) $(35) $(570) $143  $(554) $(69) $—  $(440) $54  $(455) 
Other comprehensive income/(loss) before reclassifications (14) 91  (73) 11  (2) —  39  (29)  
Amounts reclassified from AOCI —  —  —    —  —  —   
Other comprehensive income/(loss) (14) 91  (73) 12  (1) —  39  (29)  
Balance June 30,$(84) $(49) $(479) $70  $(542) $(70) $—  $(401) $25  $(446) 

Six Months Ended
June 30, 2020June 30, 2019
Gains/(Losses)Pension and Other Retirement BenefitsCash Flow HedgesForeign Currency Translation AdjustmentsNet Investment HedgesTotalPension and Other Retirement BenefitsCash Flow HedgesForeign Currency Translation AdjustmentsNet Investment HedgesTotal
Balance December 31,$(92) $—  $(401) $54  $(439) $(53) $—  $(406) $33  $(426) 
Other comprehensive income/(loss) before reclassifications (50) (78) 16  (106) (1) —   (5) (1) 
Amounts reclassified from AOCI  —  —    —  —  —   
Adoption of ASU 2018-02—  —  —  —  —  (17) —  —  (3) (20) 
Other comprehensive income/(loss) (49) (78) 16  (103) (17) —   (8) (20) 
Balance June 30,$(84) $(49) $(479) $70  $(542) $(70) $—  $(401) $25  $(446) 

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NOTE 16. PENSION AND OTHER RETIREMENT BENEFITS
Moody’s maintains funded and unfunded noncontributory DBPPs. The U.S. plans provide defined benefits using a cash balance formula based on years of service and career average salary for its employees or final average pay for selected executives. The Company also provides certain healthcare and life insurance benefits for retired U.S. employees. The retirement healthcare plans are contributory; the life insurance plans are noncontributory. Moody’s funded and unfunded U.S. pension plans, the U.S. retirement healthcare plans and the U.S. retirement life insurance plans are collectively referred to herein as the “Retirement Plans”. The U.S. retirement healthcare plans and the U.S. retirement life insurance plans are collectively referred to herein as the “Other Retirement Plans”. The non-U.S. defined benefit pension plans are immaterial.
Effective January 1, 2008, the Company no longer offers DBPPs to U.S. employees hired or rehired on or after January 1, 2008. New U.S. employees will instead receive a retirement contribution of similar benefit value under the Company’s Profit Participation Plan. Current participants of the Company’s DBPPs continue to accrue benefits based on existing plan formulas.
The components of net periodic benefit expense related to the Retirement Plans are as follows:
Three Months Ended June 30,
Pension Plans
Other Retirement Plans
2020201920202019
Components of net periodic expense
Service cost$ $ $ $ 
Interest cost
  —  —  
Expected return on plan assets
(5) (5) —  —  
Amortization of net actuarial loss from earlier periods
  —  —  
Net periodic expense
$ $ $ $ 

Six Months Ended June 30,
Pension Plans
Other Retirement Plans
2020201920202019
Components of net periodic expense
Service cost$ $ $ $ 
Interest cost
 10  —   
Expected return on plan assets
(10) (10) —  —  
Amortization of net actuarial loss from earlier periods
  —  —  
Net periodic expense
$10  $10  $ $ 
The Company made a contribution of $99 million to its funded pension plan, $4 million related to its unfunded U.S. DBPPs and $1 million to its U.S other retirement plans during the six months ended June 30, 2020. Additionally, the Company anticipates making payments of $5 million to its unfunded U.S. DBPPs, during the remainder of 2020.
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NOTE 17. INDEBTEDNESS
The Company’s debt is recorded at its carrying amount, which represents the issuance amount plus or minus any issuance premium or discount, except for the 2012 Senior Notes, the 2017 Senior Notes due 2021, the 2017 Senior Notes due 2023, and the 2017 Senior Notes due 2028 which are recorded at the carrying amount adjusted for the fair value of an interest rate swap used to hedge the fair value of the note.
The following table summarizes total indebtedness:
June 30, 2020
Notes Payable:
Principal Amount
Fair Value of Interest Rate Swaps (1)
Unamortized (Discount) Premium
Unamortized Debt Issuance Costs
Carrying Value
4.50% 2012 Senior Notes, due 2022
$500  $18  $(1) $(1) $516  
4.875% 2013 Senior Notes, due 2024
500  —  (1) (1) 498  
5.25% 2014 Senior Notes (30-Year), due 2044
600  —   (5) 599  
1.75% 2015 Senior Notes, due 2027
562  —  —  (3) 559  
2.75% 2017 Senior Notes, due 2021
500  19  —  (1) 518  
2.625% 2017 Senior Notes, due 2023
500  15  (1) (2) 512  
3.25% 2017 Senior Notes, due 2028
500  35  (4) (3) 528  
4.25% 2018 Senior Notes, due 2029
400  —  (3) (3) 394  
4.875% 2018 Senior Notes, due 2048
400  —  (7) (4) 389  
0.950% 2019 Senior Notes, due 2030
842  —  (3) (6) 833  
3.75% 2020 Senior Notes, due 2025
700  —  (1) (5) 694  
3.25% 2020 Senior Notes, due 2050
300  —  (4) (3) 293  
Total long-term debt$6,304  $87  $(21) $(37) $6,333  

December 31, 2019
Notes Payable:
Principal Amount
Fair Value of Interest Rate Swaps (1)
Unamortized (Discount) Premium
Unamortized Debt Issuance Costs
Carrying Value
4.50% 2012 Senior Notes, due 2022
$500  $ $(1) $(1) $507  
4.875% 2013 Senior Notes, due 2024
500  —  (1) (2) 497  
5.25% 2014 Senior Notes (30-Year), due 2044
600  —   (5) 599  
1.75% 2015 Senior Notes, due 2027
561  —  —  (3) 558  
2.75% 2017 Senior Notes, due 2021
500  11  (1) (2) 508  
2.625% 2017 Senior Notes, due 2023
500   (1) (2) 504  
3.25% 2017 Senior Notes, due 2028
500  —  (4) (3) 493  
3.25% 2018 Senior Notes, due 2021
300  —  —  (1) 299  
4.25% 2018 Senior Notes, due 2029
400  —  (3) (3) 394  
4.875% 2018 Senior Notes, due 2048
400  —  (7) (4) 389  
0.950% 2019 Senior Notes, due 2030
842  —  (3) (6) 833  
Total long-term debt$5,603  $27  $(17) $(32) $5,581  
(1) The Company has entered into interest rate swaps on the 2012 Senior Notes, the 2017 Senior Notes due 2021, the 2017 Senior Notes due 2023 and the 2017 Senior Notes due 2028 which are more fully discussed in Note 10 above. These amounts represent the cumulative amount of fair value hedging adjustments included in the carrying amount of the hedged debt.
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Notes Payable
On March 25, 2020, the Company issued $700 million aggregate principal amount of senior unsecured rate notes in a public offering. The 2020 Senior Notes (5-year) bear interest at an annual fixed rate of 3.75% and mature on March 24, 2025.
On May 20, 2020, the Company issued $300 million aggregate principal amount of senior unsecured rate notes in a public offering. The 2020 Senior Notes (30-year) bear interest at an annual fixed rate of 3.25% and mature on May 20, 2050.
The Company may prepay certain amounts of its senior notes, in whole or in part, but may incur a Make-Whole Amount penalty. In the second quarter of 2020, the Company fully repaid $300 million of the 2018 Senior Notes due 2021 along with a Make-Whole Amount of approximately $8 million.
At June 30, 2020, the Company was in compliance with all covenants contained within all of the debt agreements. All the 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. As of June 30, 2020, there were no such cross defaults.
The repayment schedule for the Company’s borrowings is as follows:
Year Ending December 31,2012 Senior Notes due 20222013 Senior Notes due 2024
2014 Senior Notes (30-Year) due 2044
2015 Senior Notes due 20272017 Senior Notes due 20212017 Senior Notes due 20232017 Senior Notes due 20282018 Senior Notes due 20292018 Senior Notes due 20482019 Senior Notes due 20302020 Senior Notes due 20252020 Senior Notes due 2050Total
2020 (After June 30,)
$—  $—  $—  $—  $—  $—  $—  $—  $—  $—  $—  $—  $—  
2021—  —  —  —  500  —  —  —  —  —  —  —  $500  
2022500  —  —  —  —  —  —  —  —  —  —  —  $500  
2023—  —  —  —  —  500  —  —  —  —  —  —  $500  
2024—  500  —  —  —  —  —  —  —  —  —  —  $500  
Thereafter—  —  600  562  —  —  500  400  400  842  700  300  $4,304  
Total$500  $500  $600  $562  $500  $500  $500  $400  $400  $842  $700  $300  $6,304  
Interest expense, net
The following table summarizes the components of interest as presented in the consolidated statements of operations:
Three Months Ended
June 30,
Six Months Ended
June 30,
2020201920202019
Income$ $ $ $ 
Expense on borrowings(48) (42) (79) (88) 
UTPs and other tax related liabilities(10) (8) (18) (13) 
Net periodic pension costs - interest component(5) (5) (10) (11) 
Total$(60) $(51) $(100) $(103) 
The following table shows the cash paid for interest:
Six Months Ended
June 30,
20202019
Interest paid
$72  $98  
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The fair value and carrying value of the Company’s debt as of June 30, 2020 and December 31, 2019 are as follows:
June 30, 2020December 31, 2019
Carrying Amount
Estimated Fair Value
Carrying Amount
Estimated Fair Value
4.50% 2012 Senior Notes, due 2022
$516  $537  $507  $531  
4.875% 2013 Senior Notes, due 2024
498  565  497  551  
5.25% 2014 Senior Notes (30-Year), due 2044
599  830  599  757  
1.75% 2015 Senior Notes, due 2027
559  606  558  604  
2.75% 2017 Senior Notes, due 2021
518  515  508  507  
2.625% 2017 Senior Notes, due 2023
512  523  504  507  
3.25% 2017 Senior Notes, due 2028
528  543  493  523  
3.25% 2018 Senior Notes, due 2021
—  —  299  306  
4.25% 2018 Senior Notes, due 2029
394  475  394  453  
4.875% 2018 Senior Notes, due 2048
389  532  389  492  
0.950% 2019 Senior Notes, due 2030
833  859  833  847  
3.75% 2020 Senior Notes, due 2025
694  790  —  —  
3.25% 2020 Senior Notes, due 2050
293  322  —  —  
Total
$6,333  $7,097  $5,581  $6,078  
The fair value of the Company’s long-term debt is estimated based on quoted market prices for similar instruments. Accordingly, the inputs used to estimate the fair value of the Company’s long-term debt are classified as Level 2 inputs within the fair value hierarchy.
NOTE 18. LEASES
The Company has operating leases, substantially all of which relate to the lease of office space. The Company’s leases which are classified as finance leases are not material to the consolidated financial statements. Certain of the Company’s leases include options to renew, with renewal terms that can extend the lease term from one year to 20 years at the Company’s discretion.
The following table presents the components of the Company’s lease cost:
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Operating lease cost$24  $24  $48  $49  
Sublease income(1) —  (2) —  
Variable lease cost  10   
Total lease cost$28  $28  $56  $57  
The following tables present other information related to the Company’s operating leases:
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Cash paid for amounts included in the measurement of operating lease liabilities$27  $27  $53  $53  
Right-of-use assets obtained in exchange for new operating lease liabilities
$11  $ $20  $16  

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June 30, 2020June 30, 2019
Weighted-average remaining lease term
6.5 years7.3 years
Weighted-average discount rate applied to operating leases
3.6 %3.6 %
The following table presents a maturity analysis of the future minimum lease payments included within the Company’s operating lease liabilities at June 30, 2020:
Year Ending December 31,Operating Leases
2020 (After June 30)
$54  
2021105  
202293  
202387  
202480  
After 2024188  
Total lease payments (undiscounted)607  
Less: Interest66  
Present value of lease liabilities:$541  
Lease liabilities - current$90  
Lease liabilities - noncurrent$451  

NOTE 19. CONTINGENCIES
Given the nature of the Company's activities, Moody’s and its subsidiaries are subject to legal and tax proceedings, governmental, regulatory and legislative investigations, subpoenas and other inquiries, and claims and litigation by governmental and private parties that are based on ratings assigned by MIS or that are otherwise incidental to the Company’s business. Moody’s and MIS also are subject to periodic reviews, inspections, examinations and investigations by regulators in the U.S. and other jurisdictions, any of which may result in claims, legal proceedings, assessments, fines, penalties or restrictions on business activities. Moody’s also is subject to ongoing tax audits as addressed in Note 5 to the consolidated financial statements.
Management periodically assesses the Company’s liabilities and contingencies in connection with these matters based upon the latest information available. 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 exist 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 to SEC rules and other pending matters as it may determine to be appropriate.
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.
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NOTE 20. SEGMENT INFORMATION
The Company is organized into two operating segments: MIS and MA and accordingly, the Company reports in two reportable segments: MIS and MA.
The MIS segment consists of five LOBs. The CFG, SFG, FIG and PPIF LOBs generate revenue principally from fees for the assignment and ongoing monitoring of credit ratings on debt obligations and the entities that issue such obligations in markets worldwide. The MIS Other LOB primarily consists of financial instruments pricing services in the Asia-Pacific region, ICRA non-ratings revenue and revenue from providing ESG research, data and assessments.
The MA segment develops a wide range of products and services that support the risk management activities of institutional participants in global financial markets. Beginning in the first quarter of 2020, the MA segment now consists of two LOBs - RD&A and ERS. Subsequent to the divestiture of MAKS in the fourth quarter of 2019, the MALS business, which was historically part of the PS LOB through December 31, 2019, was reclassified to the RD&A LOB. Prior year revenue by LOB has not been reclassified as the amounts relating to the MALS business were not material.
Revenue for MIS and expenses for MA include an intersegment royalty charged to MA for the rights to use and distribute content, data and products developed by MIS. The royalty rate charged by MIS approximates the fair value of the aforementioned content, data and products and is generally based on comparable market transactions. Also, revenue for MA and expenses for MIS include an intersegment fee charged to MIS from MA for certain MA products and services utilized in MIS’s ratings process. These fees charged by MA are generally equal to the costs incurred by MA to produce these products and services.
Overhead expenses include costs such as rent and occupancy, information technology and support staff such as finance, human resources and legal. Such costs and corporate expenses that exclusively benefit one segment are fully charged to that segment.
For overhead costs and corporate expenses that benefit both segments, costs are allocated to each segment based on the segment’s share of full-year 2018 actual revenue which comprises a “Baseline Pool” that will remain fixed over time. In subsequent periods, incremental overhead costs (or reductions thereof) will be allocated to each segment based on the prevailing shares of total revenue represented by each segment.
“Eliminations” in the following table represent intersegment revenue/expense. Moody’s does not report the Company’s assets by reportable segment, as this metric is not used by the chief operating decision maker to allocate resources to the segments. Consequently, it is not practical to show assets by reportable segment.
Financial Information by Segment
The table below shows revenue, operating income and Adjusted Operating Income by reportable segment. Adjusted Operating Income is a financial metric utilized by the Company’s chief operating decision maker to assess the profitability of each reportable segment. Refer to Note 3 for further details on the components of the Company’s revenue.
Three Months Ended June 30,
20202019
MIS
MA
Eliminations
Consolidated
MIS
MA
Eliminations
Consolidated
Revenue
$973  $499  $(37) $1,435  $772  $478  $(36) $1,214  
Total Expense
369  393  (37) 725  352  415  (36) 731  
Operating income
604  106  —  710  420  63  —  483  
Add:
Restructuring—  (2) —  (2) 26  27  —  53  
Depreciation and
amortization
19  39  —  58  18  34  —  52  
Acquisition-Related
Expenses
—  —  —  —  —   —   
Loss pursuant to the divestiture of MAKS—  —  —  —  —   —   
Adjusted Operating Income$623  $143  $—  $766  $464  $135  $—  $599  
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Six Months Ended June 30,
20202019
MIS
MA
Eliminations
Consolidated
MIS
MA
Eliminations
Consolidated
Revenue
$1,804  $997  $(76) $2,725  $1,474  $952  $(70) $2,356  
Total Expenses
712  787  (76) 1,423  688  793  (70) 1,411  
Operating income
1,092  210  —  1,302  786  159  —  945  
Add:

Restructuring(1) (2) —  (3) 29  30  —  59  
Depreciation and
amortization
35  72  —  107  35  67  —  102  
Acquisition-Related
Expenses
—  —  —  —  —   —   
Loss pursuant to the divestiture of MAKS—   —   —   —   
Adjusted Operating Income$1,126  $289  $—  $1,415  $850  $268  $—  $1,118  

Consolidated Revenue Information by Geographic Area
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
United States$837  $638  $1,551  $1,250  
Non-U.S.:
EMEA373  362  736  695  
Asia-Pacific144  141  280  273  
Americas81  73  158  138  
Total Non-U.S.598  576  1,174  1,106  
Total$1,435  $1,214  $2,725  $2,356  

NOTE 21. RECENTLY ISSUED ACCOUNTING STANDARDS
In August 2018, the FASB issued ASU No. 2018-14, “Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715- 20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans”. This ASU eliminates requirements for certain disclosures and requires additional disclosures under defined benefit pension plans and other postretirement plans. The ASU is effective for all entities for fiscal years beginning after December 15, 2020 on a retrospective basis to all periods presented, with early adoption permitted. The Company will comply with the new disclosure requirements set forth in this ASU upon adoption.
In April 2019, the FASB issued ASU No. 2019-04, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825 Financial Instruments”. This ASU clarifies and improves guidance related to the recently issued standards updates on credit losses, hedging, and recognition and measurement of financial instruments. This ASU is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. The Company does not anticipate that the adoption of this ASU will have a significant impact on its consolidated financial statements.
In December 2019, the FASB issued ASU No. 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes". This ASU simplifies the accounting for income taxes by eliminating certain exceptions to the general principles in Topic 740, Income Taxes, and clarifies certain aspects of the existing guidance to promote consistency among reporting entities. Most amendments within this ASU are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. This ASU is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. The Company does not anticipate that the adoption of this ASU will have a significant impact on its consolidated financial statements.
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NOTE 22. SUBSEQUENT EVENTS
On July 28, 2020, the Board approved the declaration of a quarterly dividend of $0.56 per share of Moody’s common stock, payable on September 10, 2020 to shareholders of record at the close of business on August 20, 2020.
On July 29, 2020, the chief executive officer of Moody’s approved a restructuring program primarily in response to the COVID-19 pandemic which revolves around the rationalization and exit of certain real estate leases. The exit from certain leased office space is anticipated to begin in the third quarter of 2020 and be substantially completed during the first half of 2021, and is expected to result in an estimated annualized savings of approximately $5 million to $6 million a year. The Program is estimated to result in total pre-tax charges of $25 to $35 million, which primarily reflects a non-cash charge related to operating lease right-of-use assets. Approximately $20 to $30 million of this amount is expected to be recorded in the second half of 2020.
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Item 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion and analysis of financial condition and results of operations should be read in conjunction with the Moody’s Corporation condensed consolidated financial statements and notes thereto included elsewhere in this quarterly report on Form 10-Q.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains Forward-Looking Statements. See “Forward-Looking Statements” commencing on page 87 for a discussion of uncertainties, risks and other factors associated with these statements.
THE COMPANY
Moody’s is a provider of (i) credit ratings and assessment services; (ii) credit, capital markets and economic research, data and analytical tools; (iii) software solutions that support financial risk management activities; (iv) quantitatively derived credit scores; (v) learning solutions and certification services; and (vi) company information and business intelligence products. Moody’s reports in two reportable segments: MIS and MA.
MIS, the credit rating agency, publishes credit ratings and provides assessment services on a wide range of debt obligations and the entities that issue such obligations in markets worldwide. 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 the Asia-Pacific region, revenue from ICRA’s non-ratings operations and revenue from providing ESG research, data and assessments. The revenue from these operations is included in the MIS Other LOB and is not material to the results of the MIS segment.
MA provides financial intelligence and analytical tools to assist businesses in making decisions. MA’s portfolio of solutions consists of specialized research, data, software, and professional services, which are assembled to support the financial analysis and risk management activities of institutional customers worldwide.
Corporate Social Responsibility
Moody’s believes that knowledge fuels opportunity. The core of Moody’s business is to provide credit ratings, research, tools and analysis that help to equip participants in the global financial markets to understand risks and make important investment decisions with critical insight. Moody’s global corporate social responsibility (CSR) efforts are rooted in that same approach. Moody’s is committed to working to empower people with the knowledge, resources and confidence they need to create a better future – for themselves, their communities and the environment.
The CSR Council, chaired by President and CEO Raymond W. McDaniel, Jr. and comprised of members of the management team, evaluates the Company’s CSR progress and generates recommendations on its CSR strategy. The CSR Working Group, comprised of senior executives, is then charged with implementing the Company’s CSR strategy. In addition, the Company’s Board of Directors oversees sustainability matters, with assistance from the Governance & Nominating Committee, as part of its oversight of management and the Company’s overall strategy. For more information on Moody’s approach to CSR, see moodys.com/csr. The content of this website is not incorporated by reference herein.
Sustainability
Moody’s advances sustainability by considering Environmental, Social, and Governance (ESG) factors throughout its operations and two business segments. It uses its expertise and assets to make a positive difference through technology tools, research and analytical services that help other organizations and the investor community better understand the links between sustainability considerations and the global markets. Moody’s efforts to promote sustainability-related thought leadership, assessments and data to market participants include following the policies of recognized sustainability and corporate social responsibility parties that develop standards or frameworks and/or evaluate and assess performance, including Global Reporting Initiative (GRI) and Sustainability Accounting Standards Board (SASB). Moody’s sustainability-related achievements have included the following: (i) reporting using recommendations from SASB; (ii) becoming a signatory to the Principles for Responsible Investment; (iii) joining the United Nations Global Compact; and (iv) issuing annual reports on how the Company has implemented the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).
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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 office re-openings.
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 quarterly report on Form 10-Q, 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. 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 will have a material impact on the results of operations and cash flows of the Company in 2020, Moody's believes that it has adequate liquidity to maintain its operations with minimal disruption in the near term and to maintain compliance with its debt covenants.
In the first half of 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 and began borrowing under its CP Program as more fully discussed in the section entitled "Liquidity and Capital Resources" below and in Note 17 to the condensed consolidated financial statements. In addition, the Company is reducing discretionary spending, including suspending its share repurchase program until further notice.
The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted on March 27, 2020 in the United States. The Company intends on utilizing certain provisions in the CARES Act and other IRS guidance which permit the deferral of certain income and payroll tax remittances.
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 in the 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 and acquired intangible assets, pension and other retirement benefits, stock-based compensation, and income taxes. Actual results may differ from these estimates under different assumptions or conditions. Item 7, MD&A, in the Company’s annual report on Form 10-K for the year ended December 31, 2019, includes descriptions of some of the judgments that Moody’s makes in applying its accounting estimates in these areas. Since the date of the annual report on Form 10-K, there have been no material changes to the Company’s critical accounting estimates other than: i) the critical accounting estimate disclosures relating to goodwill to update the Company's impairment sensitivity analysis in light of a further decline in the market capitalization of ICRA and interim impairment assessment of Reis; and ii) to update the critical accounting estimate disclosures for the Company's accounts receivable allowances to align with the adoption of ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments".
Goodwill
This update should be read in conjunction with the critical accounting estimate disclosures made in the Company's Form 10-K for the year ended December 31, 2019, and relates to the Company’s ICRA and Reis reporting units.
ICRA is a publicly traded company in India, 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. During the first half of 2020, the average 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 ended December 31, 2019. While the current estimate of the fair value of the ICRA reporting unit results in no impairment of goodwill at June 30, 2020, further declines in ICRA's average market capitalization could result in impairment in future quarters.
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Additionally, as discussed in further detail in Note 11 to the Company's condensed consolidated financial statements, ICRA has reported that it has completed its internal examinations into anonymous allegations that were forwarded to ICRA by SEBI and certain additional allegations made during the course of that examination while an examination into a separate anonymous complaint is ongoing. ICRA reported that its Board of Directors is in the process of taking appropriate actions based on the findings of the completed examinations. As of the date of this quarterly report on Form 10-Q, 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.
At June 30, 2020, the Company performed an interim quantitative goodwill impairment assessment on the Reis reporting unit (acquired in October 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 at June 30, 2020 of the Reis reporting unit exceeds carrying value, further declines in its financial projections could result in impairment in future quarters.
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 of June 30, 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
Goodwill10%20%30%40%
MIS$95  $—  $—  $—  $—  
Content363  —  —  —  —  
ERS726  —  —  —  —  
MALS121  —  —  (12) (37) 
ICRA206  —  (2) (44) (85) 
Bureau van Dijk2,504  —  —  —  (266) 
Reis 147  —  (22) (48) (74) 
Totals$4,162  $—  $(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, excluding ICRA, as of the date of each reporting unit’s last quantitative assessment (June 30, 2020 for Reis and July 31, 2019 for the remaining reporting units). Reis was not quantitatively assessed as of July 31, 2019 due to the close proximity of its acquisition date to the assessment date. 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.
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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 requires 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. Cash flows for the five to six years subsequent to the date of the quantitative goodwill impairment analysis were utilized in the determination of the fair value of each reporting unit. 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.
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 for all reporting units ranged from 8.5% to 9.0% as of June 30, 2020. 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.
Accounts Receivable Allowances
On January 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 condensed 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. The reserve rate 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.
Reportable Segments
The Company is organized into two reportable segments at June 30, 2020: MIS and MA, which are more fully described in the section entitled “The Company” above and in Note 20 to the condensed consolidated financial statements.
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RESULTS OF OPERATIONS
Expected 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 quarterly 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 quarterly report on Form 10-Q, the Company believes the most significant near-term impacts to Moody's business may be:
MIS: within the MIS segment, the most notable near-term impacts are likely to 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 in the second quarter of 2020. Future market volatility and widening of credit spreads could have a material impact on MIS's operating results in the second half of 2020;
investment-grade issuance in the second half of 2020 may moderate compared to issuance levels observed in the first half of 2020. While investment-grade issuance has been strong in the first half of 2020, a portion of this activity has resulted from corporate issuers bolstering their balance sheets in light of uncertainties regarding the COVID-19 pandemic;
potential full-year 2020 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 near-term impacts are likely to be:
reductions in discretionary spending by MA’s customer base and social distancing measures could result in reduced sales opportunities and extension of sales cycles on existing opportunities;
postponement of certain compliance deadlines (e.g., CECL for financial institutions and IFRS 17 for insurers) may delay sales for MA solutions that address these requirements;
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 on April 12, 2019;
Four Twenty Seven on July 22, 2019;
RiskFirst on July 25, 2019;
ABS Suite on October 1, 2019;
Regulatory DataCorp on February 13, 2020.
On November 8, 2019, the Company sold its MAKS business to Equistone Partners Europe Limited, a European private equity firm. The operating results of MAKS are reported within the MA segment (and PS LOB) through the November 8, 2019 closing of the transaction. Beginning in 2020, revenue from the Moody's Analytics Learning Solutions ("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.
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Three months ended June 30, 2020 compared with three months ended June 30, 2019
Executive Summary
The following table provides an executive summary of key operating results for the quarter ended June 30, 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.

Three Months Ended June 30,
Financial measure:
20202019
% Change
Insight and Key Drivers of Change Compared to Prior Year
Moody's total revenue
$1,435  $1,214  18 %
— reflects strong growth in both segments
MIS External Revenue
$938  $739  27 %
— growth driven by higher corporate debt issuance (both investment-grade and speculative-grade) as issuers took advantage of low borrowing costs and bolstered their balance sheets in light of uncertainties relating to the COVID-19 crisis
MA External Revenue
$497  $475  %
— growth in know-your-customer (KYC) and compliance solutions, as well as research and data feeds;
— 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
expenses
$669  $615  %
— higher legal accruals;
— higher costs to support the Company’s initiative to enhance technology infrastructure to enable automation, innovation and efficiency as well as to support business growth;
— additional compensation expense resulting from hiring activity and merit increases; partially offset by
— lower travel costs and disciplined cost management in light of the COVID-19 crisis
Restructuring$(2) $53  (104 %)
— charges/adjustments pursuant to the 2018 Restructuring Program
Operating Margin49.5 %39.8 %970BPS
— margin expansion reflects strong revenue growth (most notably in MIS) outpacing expense growth
— second quarter 2019 operating margin was suppressed by the aforementioned restructuring charge
Adjusted Operating Margin53.4 %49.3 %410BPS
ETR23.6 %28.0 %(440BPS)
— decrease primarily due to a tax charge in 2019 pursuant to the divestiture of MAKS
Diluted EPS$2.69  $1.62  66 %
— increase reflects strong operating income/Adjusted Operating Income growth as described above
Adjusted Diluted EPS$2.81  $2.07  36 %
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Moody's Corporation
Three Months Ended June 30,
% Change Favorable
(Unfavorable)
20202019
Revenue:
United States$837  $638  31 %
Non-U.S.:
EMEA373  362  %
Asia-Pacific144  141  %
Americas81  73  11 %
Total Non-U.S.598  576  %
Total1,435  1,214  18 %
Expenses:
Operating362  340  (6 %)
SG&A307  275  (12 %)
Restructuring(2) 53  104 %
Depreciation and amortization58  52  (12 %)
Acquisition-Related Expenses—   100 %
Loss pursuant to the divestiture of MAKS—   100 %
Total725  731  %
Operating income$710  $483  47 %
Adjusted Operating Income (1)
$766  $599  28 %
Interest expense, net$(60) $(51) (18 %)
Other non-operating income, net16  —  NM
Non-operating (expense) income, net$(44) $(51) 14 %
Net income attributable to Moody's$509  $310  64 %
Diluted weighted average shares outstanding189.0  191.3  %
Diluted EPS attributable to Moody's common shareholders$2.69  $1.62  66 %
Adjusted Diluted EPS (1)
$2.81  $2.07  36 %
Operating margin49.5 %39.8 %
Adjusted Operating Margin(1)
53.4 %49.3 %
Effective tax rate23.6 %28.0 %
(1) Adjusted Operating Income, Adjusted Operating Margin and Adjusted Diluted EPS 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.
The table below shows Moody’s global staffing by geographic area:
June 30,% Change
20202019
United States4,052  3,903  %
Non-U.S.7,227  9,319  (22 %)
Total11,279  
(1)
13,222  (15 %)
(1)The divestiture of the MAKS business resulted in a reduction of approximately 2,700 employees, most of which were in low-cost jurisdictions. Additionally, Moody’s global staffing increased by approximately 500 employees relating to acquisitions completed subsequent to June 30, 2019.







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GLOBAL REVENUE
2020----------------------------------------------------------------------------------------------------------------------2019
__________________________________________________________________________________________________________________________________________________________
mco-20200630_g1.jpg mco-20200630_g2.jpg mco-20200630_g3.jpg mco-20200630_g4.jpg


Global revenue 221 million
U.S. Revenue 199 million
Non-U.S. Revenue 22 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.
The increase in U.S. revenue reflects strong growth in MIS (most notably in CFG revenue) coupled with strong growth in MA (most notably in RD&A).
The increase in non-U.S. revenue primarily reflects strong growth in MIS (most notably in CFG revenue)
Foreign currency translation unfavorably impacted non-U.S. revenue by two percent.
Operating Expense 22 million
SG&A Expense $32 million
mco-20200630_g5.jpg-------------------------------------mco-20200630_g6.jpg 

Compensation expenses increased $20 million reflecting:
Compensation expenses increased $10 million reflecting:
— hiring activity, salary increases and higher incentive compensation accruals, partially offset by benefits from the 2018 Restructuring Program.
— hiring activity, salary increases and higher incentive compensation accruals, partially offset by benefits from the 2018 Restructuring Program.
Non-compensation expenses increased $2 million reflecting:
Non-compensation expenses increased $22 million reflecting:
— higher costs to support the Company’s initiative to enhance technology infrastructure to enable automation, innovation and efficiency as well as to support business growth; mostly offset by:
— higher legal accruals; and
— higher costs to support the Company’s initiative 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 cost management in light of the COVID-19 crisis.
— lower travel costs and disciplined cost management in light of the COVID-19 crisis.

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Other Expenses
The restructuring charge of $53 million in the second quarter of 2019 relates to actions pursuant to the Company’s 2018 Restructuring Program, which is more fully discussed in Note 12 to the condensed consolidated financial statements.
The $9 million loss pursuant to the divestiture of MAKS relates to the Company's strategic divestiture of this business.

Operating margin 49.5%, up 970 BPS
Adjusted Operating Margin 53.4%, up 410 BPS

— Operating margin expansion reflects strong revenue growth partially offset by modest increases in operating expense. Operating margin in the second quarter of 2019 was suppressed by the aforementioned restructuring charge and loss pursuant to the divestiture of MAKS.
— Adjusted Operating Margin expansion reflects strong revenue growth partially offset by modest increases in operating expenses.

Interest Expense, net $9 million
Other non-operating income $16 million

Increase is primarily due to:The increase is primarily due to:
— an $8 million prepayment penalty on the early redemption of the 2018 Senior Notes.
— a $9 million benefit relating to statute of limitations lapses on certain indemnification obligations relating to the MAKS divestiture; and
— $7 million in gains on mutual funds held by the Company.

ETR 440 BPS
The decrease in the ETR is primarily due to an approximate $15 million charge in the second quarter of 2019 relating to the pre-sale reorganization pursuant to the divestiture of MAKS.
Diluted EPS $1.07
Adjusted Diluted EPS $0.74

Diluted EPS in the second quarter of 2020 of $2.69 increased $1.07 compared to the same period in 2019, which included the aforementioned restructuring charge as well as the loss and tax-related charge pursuant to the divestiture of MAKS.
Adjusted Diluted EPS of $2.81 in the second quarter of 2020 increased $0.74 compared to the same period in 2019 (refer to the section entitled “Non-GAAP Financial Measures” of this MD&A for items excluded in the derivation of Adjusted Diluted EPS).



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Segment Results
Moody’s Investors Service
The table below provides a summary of revenue and operating results, followed by further insight and commentary:
Three Months Ended June 30,
% Change Favorable
(Unfavorable)
20202019
Revenue:
Corporate finance (CFG)$572  $388  47 %
Structured finance (SFG)81  112  (28 %)
Financial institutions (FIG)142  125  14 %
Public, project and infrastructure finance (PPIF)133  108  23 %
Total ratings revenue928  733  27 %
MIS Other10   67 %
Total external revenue938  739  27 %
Intersegment royalty35  33  %
Total MIS revenue973  772  26 %
Expenses:
Operating and SG&A (external)348  305  (14 %)
Operating and SG&A (intersegment)  33 %
Restructuring—  26  (100 %)
Depreciation and amortization19  18  (6 %)
Total expense369  352  (5 %)
Operating Income$604  $420  44 %
Restructuring—  26  (100 %)
Depreciation and amortization19  18  (6 %)
Adjusted Operating Income$623  $464  34 %
Operating margin62.1 %54.4 %
Adjusted Operating Margin64.0 %60.1 %




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MOODY'S INVESTORS SERVICE REVENUE
2020----------------------------------------------------------------------------------------------------------------------2019
__________________________________________________________________________________________________________________________________________________________
mco-20200630_g7.jpg mco-20200630_g8.jpg mco-20200630_g9.jpg mco-20200630_g10.jpg

MIS: Global revenue $199 million
U.S. Revenue $180 million
Non-U.S. Revenue $19 million

The increase in global MIS revenue reflected growth across all LOBs excluding SFG.
The growth in U.S. revenue mainly reflected higher CFG revenue being partially offset by declines in SFG.
The increase in non-U.S. revenue reflected growth in CFG and PPIF being partially offset by declines in SFG.
Foreign currency translation unfavorably impacted non-U.S. MIS revenue by two percentage points.

CFG REVENUE
2020----------------------------------------------------------------------------------------------------------------------2019
__________________________________________________________________________________________________________________________________________________________
mco-20200630_g11.jpg mco-20200630_g12.jpg mco-20200630_g13.jpg mco-20200630_g14.jpg

CFG: Global revenue $184 million
U.S. Revenue $171 million
Non-U.S. Revenue $13 million
Global CFG revenue for the three months ended June 30, 2020 and 2019 was comprised as follows:
mco-20200630_g15.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.

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The increase in CFG revenue of 47% reflected growth both in the U.S. (71%) and internationally (9%) with the most notable drivers consisting of:
strong growth in investment-grade rated issuance volumes as large corporate issuers opportunistically bolstered their liquidity positions in light of both uncertainties regarding the duration and severity of the COVID-19 crisis and current favorable market conditions;
growth in speculative-grade bond issuance as credit spreads tightened following severe disruption in the high-yield markets late in the first quarter of 2020; and
benefits from favorable changes in product mix and pricing increases;
partially offset by:
a decline in rated issuance volumes in U.S. bank loans reflecting rising defaults on leveraged loans resulting in issuers utilizing the bond markets which provided more favorable borrowing rates.

SFG REVENUE
2020----------------------------------------------------------------------------------------------------------------------2019
__________________________________________________________________________________________________________________________________________________________
mco-20200630_g16.jpg mco-20200630_g17.jpg mco-20200630_g18.jpgmco-20200630_g19.jpg

SFG: Global revenue $31 million
U.S. Revenue $27 million
Non-U.S. Revenue $4 million
Global SFG revenue for the three months ended June 30, 2020 and 2019 was comprised as follows:
mco-20200630_g20.jpg
The decrease in SFG revenue of 28% reflected declines both in the U.S. (38%) and internationally (10%) and primarily reflected:
lower revenue from the CLO asset class in the U.S. and internationally, as rising leveraged loan downgrades and defaults resulted in reduced securitization activity. Additionally, an increasingly competitive landscape in this asset class has resulted in reduced activity; and
declines in U.S. CMBS securitization activity as retail and hotel properties have been significantly impacted by the COVID-19 crisis.






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FIG REVENUE
2020----------------------------------------------------------------------------------------------------------------------2019
__________________________________________________________________________________________________________________________________________________________
mco-20200630_g21.jpg mco-20200630_g22.jpg mco-20200630_g23.jpg mco-20200630_g2.jpg

FIG: Global revenue $17 million
U.S. Revenue $18 million
Non-U.S. Revenue $1 million
Global FIG revenue for the three months ended June 30, 2020 and 2019 was comprised as follows:
mco-20200630_g24.jpg
The 14% increase in FIG revenue was mainly due to U.S. insurance companies and banks seeking opportunistic funding.


PPIF REVENUE
2020----------------------------------------------------------------------------------------------------------------------2019
__________________________________________________________________________________________________________________________________________________________
mco-20200630_g25.jpg mco-20200630_g26.jpg mco-20200630_g27.jpg mco-20200630_g28.jpg



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PPIF: Global revenue $25 million
U.S. Revenue $18 million
Non-U.S. Revenue $7 million
Global PPIF revenue for the three months ended June 30, 2020 and 2019 was comprised as follows:
mco-20200630_g29.jpg
The 23% increase in PPIF revenue consisted mainly of growth in the U.S. reflecting:
higher infrastructure finance rated issuance volumes as investment-grade issuers bolstered liquidity positions in light of the COVID-19 crisis; and
higher rated issuance volumes in public finance reflecting favorable market conditions, including refinancing by way of taxable transactions.
MIS: Operating and SG&A Expense $43 million
mco-20200630_g30.jpg 
The increase is primarily due to growth in compensation and non-compensation expenses of $20 million and $23 million, respectively, with the most notable drivers reflecting:

Compensation costsNon-compensation costs
— higher costs reflecting hiring activity and salary increases partially offset by savings from the 2018 Restructuring Program; and
— higher legal accruals;
— higher costs to support the Company’s initiative to enhance technology infrastructure to enable automation, innovation and efficiency as well as to support business growth; partially offset by
— inorganic expense growth relating to the acquisitions of Vigeo Eiris and Four Twenty Seven.
— lower travel costs and disciplined expense management in light of the COVID-19 crisis.

Other Expenses
The restructuring charge of $26 million in the second quarter of 2019 relates to actions pursuant to the Company’s 2018 Restructuring Program, which are more fully discussed in Note 12 to the condensed consolidated financial statements.
MIS: Operating Margin 62.1% 770BPS
Adjusted Operating Income 64.0% 390BPS
MIS operating margin and Adjusted Operating Margin both increased reflecting strong revenue growth partially offset by expense growth. The second quarter 2019 operating margin was suppressed by the aforementioned restructuring charge.

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Moody’s Analytics
The table below provides a summary of revenue and operating results, followed by further insight and commentary:
Three Months Ended June 30,
% Change Favorable
(Unfavorable)
20202019
Revenue:
Research, data and analytics (RD&A)$366  $315  16 %
Enterprise risk solutions (ERS)131  117  12 %
Professional services (PS)—  43  (100 %)
Total external revenue497  475  %
Intersegment revenue  (33 %)
Total MA revenue499  478  %
Expenses:
Operating and SG&A (external)321  310  (4 %)
Operating and SG&A (intersegment)35  33  (6 %)
Restructuring(2) 27  107 %
Depreciation and amortization39  34  (15 %)
Acquisition-Related Expenses—   100 %
Loss pursuant to the divestiture of MAKS—   100 %
Total expense393  415  %
Operating income$106  $63  68 %
Restructuring(2) 27  (107 %)
Depreciation and amortization39  34  (15 %)
Acquisition-Related Expenses—   100 %
Loss pursuant to the divestiture of MAKS—   100 %
Adjusted Operating Income$143  $135  %
Operating margin21.2 %13.2 %
Adjusted Operating Margin28.7 %28.2 %

MOODY'S ANALYTICS REVENUE
2020----------------------------------------------------------------------------------------------------------------------2019
__________________________________________________________________________________________________________________________________________________________
mco-20200630_g31.jpg mco-20200630_g32.jpg mco-20200630_g33.jpg mco-20200630_g34.jpg

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MA: Global revenue $22 million
U.S. Revenue $19 million
Non-U.S. Revenue $3 million
The 5% increase in global MA revenue reflects strong growth in RD&A and ERS, which includes revenue from the acquisitions of RDC, RiskFirst and ABS Suite. These increases were partially offset by a decline in revenue resulting from the divestiture of the MAKS business in the fourth quarter of 2019.
Organic revenue growth (1) was 6%.
Foreign currency translation unfavorably impacted MA revenue by two percent.
The increase in U.S. revenue reflected growth in both RD&A and ERS.
Non-U.S. revenue was flat compared to the same period in the prior year and was negatively impacted by the divestiture of the MAKS business in the fourth quarter of 2019.
Foreign currency translation unfavorably impacted non-U.S. MA revenue by three percent.
The increase in relationship revenue as a percentage of total revenue from 85% in the second quarter of 2019 to 92% in the same period of 2020 reflects the divestiture of the transaction revenue-based MAKS business in 2019.
(1) refer to the section entitled "Non-GAAP Financial Measures" of this MD&A for the definition and methodology that the Company utilizes to calculate this metric
RD&A REVENUE
2020----------------------------------------------------------------------------------------------------------------------2019
__________________________________________________________________________________________________________________________________________________________

mco-20200630_g35.jpg  mco-20200630_g36.jpgmco-20200630_g37.jpg mco-20200630_g38.jpg

RD&A: Global revenue $51 million
U.S. Revenue $29 million
Non-U.S. Revenue $22 million
Global RD&A revenue grew 16% compared to the second quarter of 2019 with the most notable drivers of the change reflecting:
inorganic revenue growth from the acquisitions of RDC and ABS Suite;
strong renewals and new sales of credit research and data feeds in the trailing twelve month period; and
strong demand for solutions that address customer identity requirements, such as know-your-customer, anti-money laundering, anti-bribery and sanctions compliance over the trailing twelve month period.
Foreign currency translation unfavorably impacted RD&A revenue by two percent.
Organic revenue growth for RD&A was 7%.

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ERS REVENUE
2020----------------------------------------------------------------------------------------------------------------------2019
__________________________________________________________________________________________________________________________________________________________
mco-20200630_g39.jpgmco-20200630_g40.jpgmco-20200630_g41.jpg mco-20200630_g40.jpg

ERS: Global revenue $14 million
U.S. Revenue $8 million
Non-U.S. Revenue $6 million
Global ERS revenue increased 12% compared to the second quarter of 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.
Foreign currency translation unfavorably impacted ERS revenue by two percent.
Organic revenue growth for ERS was 7%.
MA: Operating and SG&A Expense $11 million
mco-20200630_g42.jpg
The increase in operating and SG&A expenses compared to the second quarter of 2019 reflected modest growth in both compensation and non-compensation costs of approximately $9 million and $2 million, respectively. The most notable drivers of this growth were:
Compensation costsNon-compensation costs
— higher costs reflecting hiring activity, salary increases, higher incentive compensation accruals and inorganic expense growth from acquisitions; partially offset by,
— higher costs to support the Company’s initiative to enhance technology infrastructure to enable automation, innovation and efficiency as well as to support business growth; partially offset by,
— lower expenses resulting from the divestiture of MAKS in the fourth quarter of 2019 and benefits from the 2018 Restructuring Program
— lower travel costs and disciplined expense management in light of the COVID-19 crisis

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Other Expenses
The restructuring charge of $27 million in the second quarter of 2019 relates to actions pursuant to the Company’s 2018 Restructuring Plan, which are more fully discussed in Note 12 to the consolidated financial statements.
The $9 million loss pursuant to the divestiture of MAKS in the second quarter of 2019 relates to the Company's strategic divestiture of this business.
MA: Operating Margin 21.2% 800BPS
Adjusted Operating Margin 28.7% 50BPS
The operating margin and Adjusted Operating Margin expansion for MA both reflect revenue growth outpacing expense growth. Operating margin in 2019 was suppressed by the aforementioned restructuring charge and the loss pursuant to the divestiture of MAKS.
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Six months ended June 30, 2020 compared with six months ended June 30, 2019
Executive Summary

The following table provides an executive summary of key operating results for the six months ended June 30, 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.

Six Months Ended June 30,
Financial measure:20202019% Change
Insight and Key Drivers of Change Compared to Prior Year
Moody's total revenue$2,725  $2,356  16 %
— reflects strong growth in both segments
MIS External Revenue$1,732  $1,409  23 %
— higher investment-grade rated issuance volumes as corporate issuers bolstered liquidity positions in response to COVID-19 uncertainties coupled with strong speculative-grade issuance despite a severe market disruption late in the first quarter
MA External Revenue$993  $947  %
— strong renewals and new sales of credit research and data feeds, as well as demand for know-your-customer (KYC) and compliance solutions;
— strong 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 expenses$1,310  $1,238  (6 %)
— costs to enhance technology infrastructure to enable automation, innovation and efficiency as well as to support business growth;
— higher estimates for bad debt reserves resulting from the COVID-19 crisis; partially offset by
— lower travel costs and disciplined expense management in light of the COVID-19 crisis coupled with benefits from the 2018 Restructuring Program
Restructuring$(3) $59  105 %
— charges/adjustments pursuant to the 2018 Restructuring Program
Operating Margin47.8 %40.1 %770 BPS
— margin expansion reflects strong revenue growth partially offset by increases in operating expenses
Adjusted Operating Margin51.9 %47.5 %440 BPS
ETR19.0 %18.8 %20BPS
— generally in line with prior year
Diluted EPS$5.27  $3.56  48 %
— growth reflects higher operating income/Adjusted Operating Income
Adjusted Diluted EPS$5.55  $4.14  34 %


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Moody’s Corporation
Six Months Ended June 30,% Change Favorable
(Unfavorable)
20202019
Revenue:
United States$1,551  $1,250  24 %
Non-U.S.:
EMEA736  695  %
Asia-Pacific280  273  %
Americas158  138  14 %
Total Non-U.S.
1,174  1,106  %
Total2,725  2,356  16 %
Expenses:
Operating702  682  (3 %)
SG&A608  556  (9 %)
Restructuring(3) 59  105 %
Depreciation and amortization107  102  (5 %)
Acquisition-Related Expenses—   100 %
Loss pursuant to the divestiture of MAKS  — %
Total1,423  1,411  (1 %)
Operating income1,302  945  38 %
Adjusted Operating Income (1)
1,415  1,118  27 %
Interest expense, net(100) (103) %
Other non-operating income, net28   NM
Non-operating (expense) income, net
(72) (101) 29 %
Net income attributable to Moody’s$997  $683  46 %
Diluted weighted average shares outstanding189.3  192.1  %
Diluted EPS attributable to Moody’s common shareholders$5.27  $3.56  48 %
Adjusted Diluted EPS (1)
$5.55  $4.14  34 %
Operating margin47.8 %40.1 %
Adjusted Operating Margin (1)
51.9 %47.5 %
Effective tax rate19.0 %18.8 %
(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.


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GLOBAL REVENUE
2020----------------------------------------------------------------------------------------------------------------------2019
__________________________________________________________________________________________________________________________________________________________
mco-20200630_g43.jpg mco-20200630_g44.jpg mco-20200630_g3.jpg mco-20200630_g45.jpg

Global revenue $369 million
U.S. Revenue $301 million
Non-U.S. Revenue $68 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.
The increase in U.S. revenue reflects strong growth in MIS (most notably in CFG) coupled with good growth in MA.
The increase in non-U.S. revenue reflects strong growth in both segments.
Foreign currency translation unfavorably impacted non-U.S. revenue by two percent.
Operating Expense $20 million
SG&A Expense $52 million
mco-20200630_g46.jpg-------------------------------------mco-20200630_g47.jpg 

Compensation expenses increased modestly and reflected:
Compensation expenses increased $7 million reflecting:
— hiring activity and salary increases mostly offset by benefits from the 2018 Restructuring Program.
— hiring activity and salary increases partially offset by benefits from the 2018 Restructuring Program.
Non-compensation expenses increased $18 million reflecting:
Non-compensation expenses increased $45 million reflecting:
— higher costs to support the Company’s initiative to enhance technology infrastructure to enable automation, innovation and efficiency as well as to support business growth; partially offset by:
— higher legal accruals;
— higher estimates for bad debt reserves of approximately $20 million primarily resulting from the anticipated impact of the COVID-19 crisis on the Company's customers; and
— lower travel costs and disciplined expense management in light of the COVID-19 crisis.
— higher costs to support the Company’s initiative 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.

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Other Expenses
The restructuring charge of $59 million in the first six months of 2019 relates to actions pursuant to the Company’s 2018 Restructuring Program, which are more fully discussed in Note 12 to the condensed consolidated financial statements.
Operating margin 47.8%, up 770 BPS
Adjusted Operating Margin 51.9%, up 440 BPS
Operating margin and Adjusted Operating Margin expansion reflects strong revenue growth partially offset by growth in expenses. Operating margin in the first six months of 2019 was suppressed by the aforementioned restructuring charge.
Interest Expense, net $3 million
Other non-operating income $26 million

Decrease is primarily due to:The increase is primarily due to:
— a $16 million higher combined benefit from the interest element of cross-currency swaps and fixed-to-floating interest rate swaps (more fully discussed in Note 10 to the condensed consolidated financial statements); partially offset by
— FX gains of $5 million in the first six months of 2020 compared to $16 million in FX losses in the same period of the prior year.
 — an $8 million prepayment penalty in the first six months of 2020 on the early redemption of the 2018 Senior Notes.

ETR 20 BPS
The ETR is generally in line with the prior year.
Diluted EPS $1.71
Adjusted Diluted EPS $1.41

Diluted EPS in the first six months of 2020 of $5.27 increased $1.71 compared to the same period in 2019, which included the aforementioned restructuring charge. The growth in EPS is mainly due to the aforementioned growth in operating income.
Adjusted Diluted EPS of $5.55 in 2020 increased $1.41 compared to the first six months of 2019 (refer to the section entitled “Non-GAAP Financial Measures” of this MD&A for items excluded in the derivation of Adjusted Diluted EPS). The growth in Adjusted Diluted EPS is primarily due to the aforementioned growth in Adjusted Operating Income.



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Segment Results
Moody’s Investors Service
The table below provides a summary of revenue and operating results, followed by further insight and commentary:
Six Months Ended June 30,% Change Favorable
(Unfavorable)
20202019
Revenue:
Corporate finance (CFG)$1,025  $743  38 %
Structured finance (SFG)177  213  (17 %)
Financial institutions (FIG)267  241  11 %
Public, project and infrastructure finance (PPIF)242  201  20 %
Total ratings revenue1,711  1,398  22 %
MIS Other21  11  91 %
Total external revenue1,732  1,409  23 %
Intersegment royalty72  65  11 %
Total1,804  1,474  22 %
Expenses:
Operating and SG&A (external)674  619  (9 %)
Operating and SG&A (intersegment)  20 %
Restructuring(1) 29  103 %
Depreciation and amortization35  35  — %
Total expense712  688  (3 %)
Operating income$1,092  $786  39 %
Restructuring(1) 29  103 %
Depreciation and amortization35  35  — %
Adjusted Operating Income$1,126  $850  32 %
Operating margin60.5 %53.3 %
Adjusted Operating Margin62.4 %57.7 %


MOODY'S INVESTORS SERVICE REVENUE
2020----------------------------------------------------------------------------------------------------------------------2019
__________________________________________________________________________________________________________________________________________________________
mco-20200630_g48.jpg mco-20200630_g49.jpg mco-20200630_g50.jpg mco-20200630_g51.jpg



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MIS: Global revenue $323 million
U.S. Revenue $272 million
Non-U.S. Revenue $51 million
The increase in global MIS revenue reflected growth across all LOBs excluding SFG.
The growth in U.S. revenue reflected increases in all ratings LOBs excluding SFG.
The increase in non-U.S. revenue primarily reflected growth in CFG and PPIF being partially offset by declines in SFG and FIG.
Foreign currency translation unfavorably impacted non-U.S. MIS revenue by two percentage points.

CFG REVENUE
2020----------------------------------------------------------------------------------------------------------------------2019
__________________________________________________________________________________________________________________________________________________________
mco-20200630_g52.jpg mco-20200630_g53.jpg mco-20200630_g54.jpg mco-20200630_g14.jpg

CFG: Global revenue $282 million
U.S. Revenue $242 million
Non-U.S. Revenue $40 million
Global CFG revenue for the six months ended June 30, 2020 and 2019 was comprised as follows:
mco-20200630_g55.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.

The increase in CFG revenue of 38% reflected growth both in the U.S. (50%) and internationally (16%) with the most notable drivers consisting of:
strong growth in investment-grade rated issuance volumes as large corporate issuers bolstered their liquidity positions in light of uncertainties regarding the duration and severity of the COVID-19 crisis;
strong growth in speculative-grade rated issuance volumes despite severe market disruption in this sector in March relating to the COVID-19 crisis. In the second quarter of 2020, high-yield market sentiment improved and credit spreads tightened resulting in strong growth in rated issuance volumes compared to the first six months of 2019; and
benefits from favorable changes in product mix and pricing increases;
partially offset by:
a decline in U.S. bank loan revenue primarily reflecting rising defaults on leveraged loans which resulted in issuers utilizing the bond markets which provided more favorable borrowing rates.
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SFG REVENUE
2020----------------------------------------------------------------------------------------------------------------------2019
__________________________________________________________________________________________________________________________________________________________
mco-20200630_g56.jpg mco-20200630_g57.jpg mco-20200630_g58.jpgmco-20200630_g59.jpg

SFG: Global revenue $36 million
U.S. Revenue $28 million
Non-U.S. Revenue $8 million
Global SFG revenue for the six months ended June 30, 2020 and 2019 was comprised as follows:
mco-20200630_g60.jpg
The decrease in SFG revenue of 17% reflected declines both in the U.S. (21%) and internationally (10%), mainly due to:
reduced activity in the CLO asset class in the U.S. and EMEA resulting from challenges in the leveraged loan market (refer to CFG discussion above) and widening credit spreads in response to uncertainties relating to the COVID-19 crisis as well as an increasingly competitive landscape; and
declines in U.S. CMBS securitization activity as retail and hotel properties have been significantly impacted by the COVID-19 crisis.
FIG REVENUE
2020----------------------------------------------------------------------------------------------------------------------2019
__________________________________________________________________________________________________________________________________________________________
mco-20200630_g61.jpg mco-20200630_g62.jpg mco-20200630_g63.jpg mco-20200630_g64.jpg

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FIG: Global revenue $26 million
U.S. Revenue $32 million
Non-U.S. Revenue $6 million
Global FIG revenue for the six months ended June 30, 2020 and 2019 was comprised as follows:
mco-20200630_g65.jpg
The 11% increase in FIG revenue was mainly due to:
growth in U.S. banking and insurance rated issuance volumes as large financial institutions and insurers fortified their balance sheets in light of uncertainties relating to the COVID-19 crisis and anticipated volatility around the U.S. presidential election later in the year; and
benefits from favorable changes in product mix and pricing increases;
partially offset by:
lower rated issuance volumes in the banking sector in EMEA reflecting financial institutions in the region being currently well funded after raising capital in the prior year to meet certain regulatory capitalization requirements.

PPIF REVENUE
2020----------------------------------------------------------------------------------------------------------------------2019
__________________________________________________________________________________________________________________________________________________________
mco-20200630_g18.jpg mco-20200630_g66.jpg mco-20200630_g27.jpg mco-20200630_g67.jpg


PPIF: Global revenue $41 million
U.S. Revenue $26 million
Non-U.S. Revenue $15 million
Global PPIF revenue for the six months ended June 30, 2020 and 2019 was comprised as follows:
mco-20200630_g68.jpg
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The 20% 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 $55 million
mco-20200630_g69.jpg 
The growth reflects a $43 million and $12 million increase in non-compensation and compensation expenses, respectively. The most notable drivers of these increases is as follows:
Non-compensation costsCompensation costs
The increase is primarily due to:The increase is primarily due to:
— higher legal accruals;
— annual salary increases and hiring; partially offset by;
— higher estimates for bad debt reserves of $14 million primarily resulting from the anticipated impact of the COVID-19 crisis on the Company's customers; partially offset by:
— lower incentive compensation accruals reflecting lower projected achievement against full-year 2020 targeted results compared to the prior year.
— lower travel costs and disciplined expense management in light of the COVID-19 crisis

MIS: Operating Margin of 60.5% 720BPS
Adjusted Operating Income of 62.4% 470BPS

MIS operating margin and Adjusted Operating Margin both increased reflecting strong revenue growth outpacing expense growth.








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Moody’s Analytics
The table below provides a summary of revenue and operating results, followed by further insight and commentary:
Six Months Ended June 30,% Change Favorable
(Unfavorable)
20202019
Revenue:
Research, data and analytics (RD&A) (1)
$724  $623  16 %
Enterprise risk solutions (ERS)269  239  13 %
Professional services (PS) (1)
—  85  (100 %)
Total external revenue993  947  %
Intersegment revenue  (20 %)
Total MA Revenue997  952  %
Expenses:
Operating and SG&A (external)636  619  (3 %)
Operating and SG&A (intersegment)72  65  (11 %)
Restructuring(2) 30  107 %
Depreciation and amortization72  67  (7 %)
Acquisition-Related Expenses—   100 %
Loss pursuant to the divestiture of MAKS  — %
Total expense787  793  %
Operating income$210  $159  32 %
Restructuring(2) 30  107 %
Depreciation and amortization72  67  (7 %)
Acquisition-Related Expenses—   100 %
Loss pursuant to the divestiture of MAKS  —  
Adjusted Operating Income$289  $268  %
Operating margin21.1 %16.7 %
Adjusted Operating Margin29.0 %28.2 %

(1) Subsequent to the divestiture of MAKS in 2019, revenue from the Moody's Analytics Learning Solutions ("MALS") unit, which previous to 2020 was reported in the Professional Services line of business ("LOB"), is now reported as part of the RD&A LOB. Prior periods have not been reclassified as the amounts were not material.

MOODY'S ANALYTICS REVENUE
2020----------------------------------------------------------------------------------------------------------------------2019
__________________________________________________________________________________________________________________________________________________________
mco-20200630_g31.jpg mco-20200630_g70.jpg mco-20200630_g33.jpg mco-20200630_g34.jpg

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MA: Global revenue $46 million
U.S. Revenue $29 million
Non-U.S. Revenue $17 million
The 5% 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.
Organic revenue growth was 8%.
The increase in U.S. revenue reflected growth in both RD&A and ERS.
The increase in non-U.S. revenue reflected growth in RD&A and ERS, partially offset by a decline in revenue resulting from the divestiture of MAKS in the fourth quarter of 2019.
Foreign currency translation unfavorably impacted non-U.S. MA revenue by two percent.
The increase in relationship revenue as a percentage of total revenue from 85% in the first six months of 2019 to 91% in the same period of 2020 reflects the divestiture of the transaction revenue-based MAKS business in 2019.
RD&A REVENUE
2020----------------------------------------------------------------------------------------------------------------------2019
__________________________________________________________________________________________________________________________________________________________
mco-20200630_g71.jpg  mco-20200630_g72.jpgmco-20200630_g37.jpg mco-20200630_g38.jpg

RD&A: Global revenue $101 million
U.S. Revenue $52 million
Non-U.S. Revenue $49 million
Global RD&A revenue grew 16% compared to the first half of 2019 with the most notable drivers of the increase reflecting:
strong renewals and new sales of credit research and data feeds;
inorganic revenue growth from the acquisitions of RDC and ABS Suite; and
strong demand for solutions that address customer identity requirements, such as know-your-customer, anti-money laundering, anti-bribery and sanctions compliance.
Organic revenue growth for RD&A was 8%.

ERS REVENUE
2020----------------------------------------------------------------------------------------------------------------------2019
__________________________________________________________________________________________________________________________________________________________
mco-20200630_g73.jpgmco-20200630_g74.jpgmco-20200630_g41.jpg mco-20200630_g40.jpg
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ERS: Global revenue $30 million
U.S. Revenue $13 million
Non-U.S. Revenue $17 million
Global ERS revenue increased 13% compared to the first half of 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 8%.

MA: Operating and SG&A Expense $17 million
mco-20200630_g75.jpg
The increase in operating and SG&A expenses compared to the first half of 2019 is primarily due to growth in non-compensation costs reflecting:
higher costs of approximately $30 million to support the Company’s initiative to enhance technology infrastructure to enable automation, innovation and efficiency as well as to support business growth;
higher estimates for bad debt reserves of $9 million which included the anticipated impact of the COVID-19 crisis on the Company's customers;
partially offset by:
lower travel costs of $15 million in light of the COVID-19 crisis; and
continued disciplined expense management.

Other Expenses
The restructuring charge of $30 million in the first half of 2019 relates to actions pursuant to the Company’s 2018 Restructuring Plan, which are more fully discussed in Note 12 to the condensed consolidated financial statements.
The $9 million loss in both the first half of 2020 and 2019 is pursuant to the divestiture of MAKS.
MA: Operating Margin 21.1% 440BPS
Adjusted Operating Margin 29.0% 80BPS
The operating margin and Adjusted Operating Margin expansion for MA both reflect RD&A and ERS revenue growth partially offset by modest expense growth. Both the operating margin and Adjusted Operating Margin were suppressed by higher bad debt reserves in the first half of 2020. Operating margin in the first half of 2019 was suppressed by the aforementioned restructuring charge.
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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:
Six Months Ended June 30,
$ Change
Favorable (Unfavorable)
20202019
Net cash provided by operating activities$977  $755  $222  
Net cash used in investing activities$(823) $(53) $(770) 
Net cash provided by (used in) financing activities$123  $(1,186) $1,309  
Free Cash Flow (1)
$915  $716  $199  
(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 in the six months ended June 30, 2020 increased $222 million compared to same period in 2019 primarily due to:
the increase in Adjusted Operating Income compared to the same period in the prior year (see section entitled “Results of Operations” for further discussion); and
the extension of payment terms for approximately $115 million in estimated federal tax payments as a result of relief provided by the IRS in response to the COVID-19 crisis;
partially offset by:
a $99 million contribution to the Company's funded pension plan in the first quarter of 2020; and
approximately $70 million in higher incentive compensation payments (based on full-year 2019 financial results) compared to the prior year.
Net cash used in investing activities
The $770 million increase in cash used in investing activities in the six months ended June 30, 2020 compared to the same period in 2019 primarily reflects:
the acquisition of RDC in the first quarter of 2020 for approximately $700 million; and
$86 million in higher net purchases of investments in the first half of 2020 compared to the same period in the prior year.
Net cash provided by (used in) financing activities
The $1,309 million increase in cash flows provided by financing activities in the six months ended June 30, 2020 compared to the same period in the prior year was primarily attributed to:
the net issuance of $700 million in long-term debt during the first half of 2020 compared to repayment of long-term debt of $450 million in the same period of the prior year; and
lower cash paid for treasury share repurchases of $362 million compared to the first half of 2019.
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Cash and short-term investments held in non-U.S. jurisdictions
The Company’s aggregate cash and cash equivalents and short-term investments of $2.2 billion at June 30, 2020 consisted of approximately $1 billion located outside of the U.S. Approximately 15% 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.
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 for the next twelve months. 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.
The Company remains committed to using its strong cash flow to create value for shareholders by investing in growing areas of the business, reinvesting in ratings quality initiatives, making selective acquisitions, repurchasing stock and paying dividends, all in a manner consistent with maintaining sufficient liquidity after giving effect to any additional indebtedness that may be incurred.
Dividends and share repurchases
On July 28, 2020, the Board of Directors of the Company declared a quarterly dividend of $0.56 per share of Moody’s common stock, payable September 10, 2020 to shareholders of record at the close of business on August 20, 2020. The continued payment of dividends at this rate, or at all, is subject to the discretion of the Board.
In October 2018, the Board authorized a $1.0 billion share repurchase program, which at June 30, 2020 had a remaining authority of approximately $81 million. Additionally, in December 2019, the Board authorized an additional $1.0 billion share repurchase program, which may commence following the completion of the existing program.
Late in the first 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 consideration of the resumption of share repurchase activity in the future will be dependent on close monitoring of the COVID-19 pandemic and its effect on both the Company's business and the broader economic environment. Moody's will also closely review market indicators and volatility, along with the prospects for, and certainty surrounding, the Company's free cash flow generation.
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 the first half of 2020, in response to uncertainties relating to the severity and duration of the COVID-19 crisis, the Company issued $700 million in 5-year unsecured senior notes and $300 million in 30-year unsecured senior notes via public offerings to bolster liquidity. The terms of these transactions are more fully discussed in Note 17 to the condensed consolidated financial statements.
At June 30, 2020, Moody’s had $6.3 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. At June 30, 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. At June 30, 2020, there were no such cross defaults.
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The repayment schedule for the Company’s borrowings outstanding at June 30, 2020 is as follows:
mco-20200630_g76.jpg
For additional information on the Company's outstanding debt, refer to Note 17 to the condensed 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.
Off-Balance Sheet Arrangements
At June 30, 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 of June 30, 2020:
Payments Due by Period
Payments Due by Period
(in millions)
Total
Less Than 1 Year
1 - 3 Years
3 - 5 Years
Over 5 Years
Indebtedness (1)
$8,968  $204  $2,181  $1,499  $5,084  
Operating lease obligations
607  107  190  161  149  
Purchase obligations
128  80  32  16   
Pension obligations (2)
147   45  27  72  
Total (3)
$9,850  $394  $2,448  $1,703  $5,305  
(1)Reflects principal payments, related interest and applicable fees due on all indebtedness outstanding as described in Note 17 to the condensed 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 16 to the condensed consolidated financial statements.
(3)The table above does not include the Company's long-term tax liabilities of $455 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 $32 million relating to indemnification liability resulting from the divestiture of MAKS and approximately $51 million relating to the remaining unpaid deemed repatriation liability resulting from the Tax Act enacted into law in the U.S. in December 2017.
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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; and iv) loss pursuant to the divestiture of MAKS. 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 ages 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.
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.
Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Operating income
$710  $483  $1,302  $945  
Adjustments:
Restructuring
(2) 53  (3) 59  
Depreciation and amortization
58  52  107  102  
Acquisition-Related Expenses
—   —   
Loss pursuant to the divestiture of MAKS—     
Adjusted Operating Income
$766  $599  $1,415  $1,118  
Operating margin
49.5 %39.8 %47.8 %40.1 %
Adjusted Operating Margin
53.4 %49.3 %51.9 %47.5 %
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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; and iv) loss and a tax charge pursuant to the divestiture of MAKS.
Acquisition-Related Expenses consist of expenses incurred to complete and integrate the acquisition of Bureau van 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 ages and have different methods of acquiring and amortizing intangible assets. 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 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.
Below is a reconciliation of this measure to its most directly comparable U.S. GAAP amount:
Three Months Ended June 30,Six Months Ended June 30,
Amounts in millions
2020201920202019
Net income attributable to Moody's common shareholders
$509  $310  $997  $683  
Pre-Tax Acquisition-Related Expenses $—  $ $—  $ 
Tax on Acquisition-Related Expenses—  —  —  —  
Net Acquisition-Related Expenses

—  

 

—  

 
Pre-Tax Acquisition-Related Intangible Amortization Expenses$31  $27  $59  $53  
Tax on Acquisition-Related Intangible Amortization Expenses(7) (8) (13) (13) 
Net Acquisition-Related Intangible Amortization Expenses

24  

19  

46  

40  
Pre-Tax Restructuring $(2) $53  $(3) $59  
Tax on Restructuring (12)  (14) 
Net Restructuring(1) 41  (2) 45  
Tax charge pursuant to the divestiture of MAKS—  15  —  15  
Loss pursuant to the divestiture of MAKS—     
Adjusted Net Income

$532  

$396  

$1,050  

$795  
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Three Months Ended June 30,Six Months Ended June 30,
2020201920202019
Diluted earnings per share attributable to Moody's common shareholders$2.69  $1.62  $5.27  $3.56  
Pre-Tax Acquisition-Related Expenses $—  $0.01  $—  $0.02  
Tax on Acquisition-Related Expenses—  —  —  (0.01) 
Net Acquisition-Related Expenses—  0.01  —  0.01  
Pre-Tax Acquisition-Related Intangible Amortization Expenses$0.16  $0.14  $0.31  $0.27  
Tax on Acquisition-Related Intangible Amortization Expenses(0.03) (0.04) (0.07) (0.06) 
Net Acquisition-Related Intangible Amortization Expenses0.13  0.10  0.24  0.21  
Pre-Tax Restructuring $(0.01) $0.28  $(0.02) $0.31  
Tax on Restructuring—  (0.07) 0.01  (0.08) 
Net Restructuring(0.01) 0.21  (0.01) 0.23  
Tax charge pursuant to the divestiture of MAKS—  0.08  —  0.08  
Loss pursuant to the divestiture of MAKS—  0.05  0.05  0.05  
Adjusted Diluted EPS$2.81  $2.07  $5.55  $4.14  
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:
Six Months Ended June 30,
20202019
Net cash flows provided by operating activities
$977  $755  
Capital additions
(62) (39) 
Free Cash Flow
$915  $716  
Net cash flows used in investing activities
$(823) $(53) 
Net cash flows provided by (used in) financing activities$123  $(1,186) 
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Organic Revenue:
The Company presents the organic revenue and 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 growth
AcquisitionAcquisition DateThree Months Ended June 30Six Months Ended June 30
RiskFirstJuly 25, 2019April 1, 2020 - June 30, 2020January 1, 2020 - June 30, 2020
ABS SuiteOctober 1, 2019April 1, 2020 - June 30, 2020January 1, 2020 - June 30, 2020
Regulatory DataCorpFebruary 13, 2020April 1, 2020 - June 30, 2020February 13, 2020 - June 30, 2020
DivestitureDivestiture Date
MAKSNovember 7, 2019April 1, 2019 - June 30, 2019January 1, 2019 - June 30, 2019
Additionally, subsequent to the divestiture of MAKS in 2019, revenue from the Moody's Analytics Learning Solutions ("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:
Three Months Ended June 30,Six Months Ended June 30,
Amounts in millions20202019ChangeGrowth20202019ChangeGrowth
MA revenue$497  $475  $22  5%$993  $947  $46  5%
RiskFirst(6) —  (6) (10) —  (10) 
ABS Suite(2) —  (2) (3) —  (3) 
Regulatory DataCorp(14) —  (14) (21) —  (21) 
MAKS—  (28) 28  —  (55) 55  
Organic MA revenue$475  $447  $28  6%$959  $892  $67  8%
Three Months Ended June 30,Six Months Ended June 30,
Amounts in millions20202019ChangeGrowth20202019ChangeGrowth
RD&A revenue$366  $315  $51  16%$724  $623  $101  16%
ABS Suite(2) —  (2) (3) —  (3) 
Regulatory DataCorp(14) —  (14) (21) —  (21) 
MALS(12) —  (12) (27) —  (27) 
Organic RD&A revenue$338  $315  $23  7%$673  $623  $50  8%
Three Months Ended June 30,Six Months Ended June 30,
Amounts in millions20202019ChangeGrowth20202019ChangeGrowth
ERS revenue$131  $117  $14  12%$269  $239  $30  13%
RiskFirst(6) —  (6) (10) —  (10) 
Organic ERS revenue$125  $117  $ 7%$259  $239  $20  8%

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Recently Issued Accounting Standards
Refer to Note 21 to the condensed consolidated financial statements located in Part I on this Form 10-Q 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 Item 1 - "Financial Statements", Note 19 "Contingencies” in this Form 10-Q.
Regulation
MIS and many of the securities that it rates are subject to extensive regulation in both the U.S. and in other countries (including by state and local authorities). Existing and proposed laws and regulations can impact the Company’s operations and the markets for securities that it rates. Additional laws and regulations have been proposed or are being considered. Each of the existing, adopted, proposed and potential laws and regulations can increase the costs and legal risk associated with the Company’s operations, including the issuance of credit ratings, and may negatively impact the Company’s profitability and ability to compete, or result in changes in the demand for credit ratings, in the manner in which credit ratings are utilized and in the manner in which the Company operates.
The regulatory landscape continues to evolve. In the U.S., CRAs are subject to extensive regulation primarily pursuant to the Reform Act and the Dodd-Frank Act. The Reform Act added Section 15E to the Exchange Act and provided the SEC with the authority to establish a registration and oversight program for credit rating agencies registered as NRSROs. Among other things, the Reform Act requires the SEC to submit an annual report to Congress providing an overview of SEC activities with respect to NRSROs, and detailing the SEC’s views on the state of competition, transparency and conflicts of interests among NRSROs. The Dodd-Frank Act enhanced the SEC’s oversight of the regulation of NRSROs, and includes a requirement that the SEC publish an annual report summarizing the results of its annual examinations of NRSROs. To date, through a series of rulemakings, the SEC has implemented several Exchange Act provisions related to NRSROs. These include, for example, provisions addressing disclosure of data and assumptions underlying credit ratings, conflicts of interest with respect to sales and marketing practices, disclosure of performance statistics, application and disclosure of credit rating methodologies, analyst training and testing and consistent application of rating symbols and definitions. The Company has made and continues to make substantial IT and other investments, and has implemented the relevant compliance obligations.
In the EU, the CRA industry is registered and supervised through a pan-European regulatory framework. The European Securities and Markets Authority (ESMA) has direct supervisory responsibility for the registered CRA industry throughout the EU. MIS’ EU CRA subsidiaries are registered and are subject to formal regulation and periodic inspection. Applicable rules include procedural requirements with respect to use of credit ratings, independence and avoidance of conflicts of interest, conflicts of interest concerning investments in CRAs, CRA rotation, methodologies, models and key rating assumptions, use of multiple CRAs, outsourcing, disclosures, credit ratings of sovereign issuers, liability for intentional or grossly negligent failure to abide by applicable regulations, reporting requirements to ESMA regarding fees, and additional procedural and substantive requirements on the pricing of services. From time to time, ESMA publishes interpretive guidance, or thematic reports regarding various aspects of the regulation and, annually, sets out its work program for the forthcoming year. ESMA’s 2020 work program includes supervisory work on the credit rating process, methodology development and validation, governance, and internal controls.
In 2016, the European Commission published a report concluding that no new EU legislation was necessary at that time, but that it would continue to monitor the credit rating industry and analyze approaches that may strengthen existing regulation. In April 2020, the Commission published a consultation on a Sustainable Finance strategy for the EU. The new strategy is expected to be published in either the fourth quarter of 2020 or first quarter of 2021 and could include proposals on the integration of Environmental, Social, and Governance criteria in the credit rating process. The Commission is also expected to publish a report in 2021 on CRAs and the integration of sustainability factors into their credit rating opinions and in the fourth quarter of 2020 on Sustainability Research and Ratings.
Separately, on June 23, 2016, the U.K. voted to exit the E.U. and on January 31, 2020 formally left the E.U. There is now a transition period of 11 months until December 31, 2020 when most EU law will remain applicable in the U.K.. The longer-term impact of the decision to leave the E.U. on the overall regulatory framework for the U.K. will depend, in part, on the relationship that the U.K. negotiates with the E.U. During the transition period, the E.U. CRA regulatory framework will remain in place in the U.K. and firms must continue to abide by their existing obligations with ESMA as the regulator of EU-registered CRAs. It is expected that from the start of 2021, legislation for CRAs under the supervision of the Financial Conduct Authority will come into force in the U.K.
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In light of the regulations that have gone into effect in both the E.U. and the U.S. (as well as many other countries), periodically and as a matter of course pursuant to their enabling legislation, regulatory authorities have and will continue to publish reports that describe their oversight activities over the industry. In addition, other legislation and/or interpretation of existing regulation relating to the Company’s operations, including credit rating, ancillary and research services is being considered by local, national and multinational bodies and this type of activity is likely to continue in the future. Finally, in certain countries, governments may provide financial or other support to locally-based CRAs. For example, governments may from time to time establish official CRAs or credit ratings criteria or procedures for evaluating local issuers. If enacted, any such legislation and regulation could change the competitive landscape in which MIS operates. The legal status of CRAs has been addressed by courts in various decisions and is likely to be considered and addressed in legal proceedings from time to time in the future. Management of the Company cannot predict whether these or any other proposals will be enacted, the outcome of any pending or possible future legal proceedings, or regulatory or legislative actions, or the ultimate impact of any such matters on the competitive position, financial position or results of operations of the Company.
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Forward-Looking Statements
Certain statements contained in this quarterly report on Form 10-Q 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 quarterly report on Form 10-Q, including in the sections entitled “Contingencies” under Item 2, “MD&A”, commencing on page 48 of this quarterly report on Form 10-Q, under “Legal Proceedings” in Part II, Item 1, of this Form 10-Q, 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 quarterly report on Form 10-Q, 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 growth 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 uncertainty as companies transition away from LIBOR and Brexit; 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, including provisions in the Dodd-Frank Act and regulations resulting from that Act; 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; provisions in the Dodd-Frank Act 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, 2019, its quarterly report on Form 10-Q for the quarter ended March 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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Item 3. Quantitative and Qualitative Disclosures about Market Risk
The following discussion outlines changes in Moody’s derivative instrument portfolio subsequent to the filing of the Company’s Form 10-K for the year ended December 31, 2019:
Interest rate swaps designated as fair value hedges:
In the first quarter of 2020, the Company entered into interest rate swaps with a notional amount of $500 million to convert the fixed rate of interest on the 3.25% 2017 Senior Notes due 2028 to a floating interest rate based on the 3-month USD LIBOR. The hedges will be settled in 2026. A hypothetical change of 100 BPS in the USD LIBOR-based swap rate would result in an approximate $30 million change to the fair value of the swap, which would be offset by the change in fair value of the hedged item.
Cross-currency swaps designated as net investment hedges:
In the first quarter of 2020, the Company entered into cross-currency swaps to exchange an aggregate amount of €450 million with corresponding interest based on the floating 3-month EURIBOR for an aggregate amount of $500 million with corresponding interest based on the floating 3-month USD LIBOR. These swaps were designated as net investment hedges under ASC Topic 815. The purpose of these cross-currency swaps is to mitigate FX exposure related to a portion of the Company’s euro net investments in certain foreign subsidiaries against changes in euro/USD exchange rates. If the euro were to strengthen 10% relative to the U.S. dollar, there would be an approximate $51 million unfavorable impact to the fair value of the cross-currency swaps recognized in OCI, which would be offset by favorable currency translation gains on the Company’s euro net investment in foreign subsidiaries.
Refer to Note 10 to the condensed consolidated financial statements in this Form 10-Q and Item 7A. “Quantitative and Qualitative Disclosures about Market Risk”, contained in the Company’s annual report on Form 10-K for the year ended December 31, 2019 for further discussion on the Company’s derivative financial instruments.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures: The Company carried out an evaluation, as required by Rule 13a-15(b) under the Exchange Act, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as defined in Rule 13a-15(e) of the Exchange Act, as of the end of the period covered by this report (the “Evaluation Date”). Based on such evaluation, such officers have concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the communication to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
The Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, has determined that there were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, these internal controls over financial reporting during the three-month period ended June 30, 2020. Although a significant portion of the Company’s workforce began working remotely in mid-March 2020 due to the COVID-19 pandemic, Moody’s has not experienced any material impact to its internal controls over financial reporting.

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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
For information regarding legal proceedings, see Item 1 – “Financial Statements – Notes to Condensed Consolidated Financial Statements (Unaudited),” Note 19 “Contingencies” in this Form 10-Q.
Item 1A. Risk Factors
There have been no material changes from the significant risk factors and uncertainties previously disclosed under the heading "Risk Factors" in the Company's annual report on Form 10-K for the year ended December 31, 2019, as updated in the Company's quarterly report on Form 10-Q for the quarter ended March 31, 2020, that if they were to occur, could materially adversely affect the Company’s business, financial condition, operating results and/or cash flow. For a discussion of the Company’s risk factors, refer to Item 1A. “Risk Factors”, contained in the Company’s annual report on Form 10-K for the year ended December 31, 2019 and its quarterly report on Form 10-Q for the quarter ended March 31, 2020.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

MOODY'S PURCHASES OF EQUITY SECURITIES
For the three months ended June 30, 2020
Period
Total Number of Shares Purchased (1)

Average Price Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Program
Approximate Dollar Value of Shares That May Yet be Purchased Under the Program(2)
April 1- 30839  $—  $—  $1,081  million
May 1- 31540  $—  $—  $1,081  million
June 1- 30923  $—  $—  $1,081  million
Total
2,302  $—  $—  
(1)Includes surrender to the Company of 839, 540 and 923 shares of common stock in April, May and June, respectively, to satisfy tax withholding obligations in connection with the vesting of restricted stock issued to employees.
(2)As of the last day of each of the months. On October 22, 2018, the Board authorized a $1 billion share repurchase program, which at June 30, 2020 had approximately $81 million of remaining authority. On December 16, 2019, the Board approved an additional $1 billion for the share repurchase program, which may commence following the completion of the existing program. There is no established expiration date for the remaining authorization.
During the second quarter of 2020, Moody’s issued a net 0.2 million shares under employee stock-based compensation plans.
Item 5. Other Information
Costs Associated with Exit or Disposal Activities.
On July 29, 2020, the chief executive officer of Moody’s approved a restructuring program primarily in response to the COVID-19 pandemic which revolves around the rationalization and exit of certain real estate leases. The exit from certain leased office space is anticipated to begin in the third quarter of 2020 and be substantially completed during the first half of 2021, and is expected to result in an estimated annualized savings of approximately $5 million to $6 million a year. The Program is estimated to result in total pre-tax charges of $25 to $35 million, which primarily reflects a non-cash charge related to operating lease right-of-use assets. Approximately $20 to $30 million of this amount is expected to be recorded in the second half of 2020.



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Item 6. Exhibits
Exhibit No
Description
3
ARTICLES OF INCORPORATION AND BY-LAWS
.1
.2
4
INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES
.1
.2
.3
.4
31
CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
.1*
.2*
32
CERTIFICATIONS PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
.1*
.2*
101.INS*
Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)
101.SCH*Inline XBRL Taxonomy Extension Schema Document
101.CAL*
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*
Inline XBRL Definitions Linkbase Document
101.LAB*
Inline XBRL Taxonomy Extension Labels Linkbase Document
101.PRE*Inline XBRL Taxonomy Extension Presentation Linkbase Document
104*
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
* Filed herewith

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
MOODY’S CORPORATION
By:/ S / MARK KAYE
Mark Kaye
Senior Vice President and Chief Financial Officer
(principal financial officer)
By:/ S / CAROLINE SULLIVAN
Caroline Sullivan
Senior Vice President and Corporate Controller
(principal accounting officer)
Date: July 31, 2020

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