UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
						
Form	10-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)	
	Glossary of Terms and Abbreviations	3-7	
	PART I. FINANCIAL INFORMATION		
Item 1.	Financial Statements		
	Consolidated Statements of Operations (Unaudited) for the Three and Six Months Ended June 30, 2020 and 2019	8	
	Consolidated Statements of Comprehensive Income (Unaudited) for the Three and Six Months Ended June 30, 2020 and 2019	9	
	Consolidated Balance Sheets (Unaudited) at June 30, 2020 and December 31, 2019	10	
	Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2020 and 2019	11	
	Consolidated Statements of Shareholders’ Equity (Unaudited) for the Three and Six Months Ended June 30, 2020 and 2019	12-15	
	Notes to Condensed Consolidated Financial Statements (Unaudited)	16-47	
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		
	The Company	48	
	Corporate Social Responsibility and Sustainability	48	
	Critical Accounting Estimates	49-51	
	Reportable Segments	51	
	Results of Operations	52-77	
	Liquidity and Capital Resources	78-84	
	Recently Issued Accounting Standards	85	
	Contingencies	85	
	Regulation	85-86	
	Forward-Looking Statements	87	
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	88	
Item 4.	Controls and Procedures	88	
	PART II. OTHER INFORMATION		
Item 1.	Legal Proceedings	89	
Item 1A.	Risk Factors	89	
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	89	
Item 5.	Other Information	89	
Item 6.	Exhibits	90	
			
SIGNATURES		
	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		
104	Cover 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	
COLI	Corporate-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-19	An 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	
3

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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 Amount	The 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	
4

Table of Contents
						
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	
5

Table of Contents
						
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	
6

Table of Contents
						
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 Notes	Principal amount of €750 million, 0.950% senior unsecured notes due February 25, 2030	
2020 Senior Notes Due 2025	Principal amount of $700 million, 3.75% senior unsecured notes due March 24, 2025	
2020 Senior Notes Due 2050	Principal amount of $300 million, 3.25% senior unsecured notes due May 20, 2050	

7

Table of Contents
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,	
	2020		2019		2020		2019	
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	— 	 		2 	 		— 	 		3 	 	
Loss pursuant to the divestiture of MAKS	— 	 		9 	 		9 	 		9 	 	
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 	 		2 	 	
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 	 		(1)	 		2 	 	
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.
8

Table of Contents
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 	 		$	1 	 		79 	 		$	42 	 		$	— 	 		42 	 	
Net losses on net investment hedges	(97)	 		24 	 		(73)	 		(36)	 		7 	 		(29)	 	
Cash Flow Hedges:												
Net losses on cash flow hedges	(20)	 		6 	 		(14)	 		— 	 		— 	 		— 	 	
	
Pension and Other Retirement Benefits:												
Amortization of actuarial losses and prior service costs included in net income	1 	 		— 	 		1 	 		1 	 		— 	 		1 	 	
Net actuarial gains (losses) and prior service costs	9 	 		(2)	 		7 	 		(3)	 		1 	 		(2)	 	
Total other comprehensive (loss) income	$	(29)	 		$	29 	 		$	— 	 		$	4 	 		$	8 	 		$	12 	 	
Comprehensive income					509 	 						323 	 	
Less: comprehensive (loss) income attributable to noncontrolling interests					(11)	 						4 	 	
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)	 		$	6 	 		(91)	 		$	15 	 		$	— 	 		15 	 	
Net gains (losses) on net investment hedges	22 	 		(6)	 		16 	 		(6)	 		1 	 		(5)	 	
	
Cash Flow Hedges:												
Net losses on cash flow hedges	(68)	 		18 	 		(50)	 		— 	 		— 	 		— 	 	
Reclassification of losses included in net income	1 	 		— 	 		1 	 		— 	 		— 	 		— 	 	
Pension and Other Retirement Benefits:												
Amortization of actuarial losses and prior service costs included in net income	3 	 		(1)	 		2 	 		2 	 		(1)	 		1 	 	
Net actuarial gains (losses) and prior service costs	8 	 		(2)	 		6 	 		(2)	 		1 	 		(1)	 	
Total other comprehensive (loss) income	$	(131)	 		$	15 	 		(116)	 		$	9 	 		$	1 	 		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.

9

Table of Contents
MOODY’S CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Amounts in millions, except per share data)
												
	June 30, 2020		December 31, 2019	
ASSETS				
Current assets:				
Cash and cash equivalents	$	2,099 	 		$	1,832 	 	
Short-term investments	100 	 		98 	 	
Accounts receivable, net of allowance for credit losses of $41 in 2020 and $20 in 2019	1,401 	 		1,419 	 	
Other current assets	363 	 		330 	 	
	
Total current assets	3,963 	 		3,679 	 	
Property and equipment, net of accumulated depreciation of $880 in 2020 and $839 in 2019	298 	 		292 	 	
Operating lease right-of-use assets	429 	 		456 	 	
Goodwill	4,162 	 		3,722 	 	
Intangible assets, net	1,697 	 		1,498 	 	
Deferred tax assets, net	188 	 		229 	 	
Other assets	561 	 		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 liabilities	90 	 		89 	 	

Deferred revenue	1,001 	 		1,050 	 	
	
Total current liabilities	1,886 	 		1,912 	 	
Non-current portion of deferred revenue	104 	 		112 	 	
Long-term debt	6,333 	 		5,581 	 	
Deferred tax liabilities, net	414 	 		357 	 	
Uncertain tax positions	455 	 		477 	 	
Operating lease liabilities	451 	 		485 	 	
Other liabilities	418 	 		504 	 	
Total liabilities	10,061 	 		9,428 	 	
Contingencies (Note 19)				
Redeemable noncontrolling interest	5 	 		6 	 	
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.	3 	 		3 	 	
Capital surplus	651 	 		642 	 	
Retained earnings	10,442 	 		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' equity	1,041 	 		612 	 	
Noncontrolling interests	191 	 		219 	 	
Total shareholders' equity	1,232 	 		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,	
	2020		2019	
Cash flows from operating activities		
Net income	$	996 	 		$	685 	 	
Reconciliation of net income to net cash provided by operating activities:				
Depreciation and amortization	107 	 		102 	 	
Stock-based compensation	72 	 		70 	 	
Deferred income taxes	46 	 		(3)	 	
ROU Asset impairment & other non-cash restructuring/impairment charges	— 	 		29 	 	
Loss pursuant to the divestiture of MAKS	9 	 		9 	 	
Changes in assets and liabilities:				
Accounts receivable	11 	 		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 activities	977 	 		755 	 	
Cash flows from investing activities	
Capital additions	(62)	 		(39)	 	
Purchases of investments	(108)	 		(70)	 	
Sales and maturities of investments	45 	 		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 notes	995 	 		— 	 	
Repayment of notes	(300)	 		(450)	 	
Issuance of commercial paper	789 	 		942 	 	
Repayment of commercial paper	(792)	 		(815)	 	
Proceeds from stock-based compensation plans	29 	 		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 activities	123 	 		(1,186)	 	
Reclassification of cash to assets held for sale	— 	 		(8)	 	
Effect of exchange rate changes on cash and cash equivalents	(10)	 		3 	 	
Increase (decrease) in cash and cash equivalents	267 	 		(489)	 	
Cash and cash equivalents, beginning of period	1,832 	 		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, 2019	342.9 	 		$	3 	 		$	436 	 		$	8,893 	 		(153.3)	 		$	(8,754)	 		$	(455)	 		$	123 	 		$	202 	 		$	325 	 	
Net income							310 	 								310 	 		1 	 		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 	 		3 	 		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													1 	 		1 	 				1 	 	
Balance at June 30, 2019	342.9 	 		$	3 	 		$	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, 2018	342.9 	 		$	3 	 		$	601 	 		$	8,594 	 		(151.6)	 		$	(8,313)	 		$	(426)	 		$	459 	 		$	197 	 		$	656 	 	
Net income							683 	 								683 	 		2 	 		685 	 	
Dividends ($1.00 per share)							(189)	 								(189)	 		(1)	 		(190)	 	
Adoption of ASU 2018-02, relating to the Tax Act							20 	 						(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													1 	 		1 	 				1 	 	
	
Balance at June 30, 2019	342.9 	 		$	3 	 		$	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, 2020	342.9 	 		$	3 	 		$	616 	 		$	10,041 	 		(155.4)	 		$	(9,524)	 		$	(554)	 		$	582 	 		$	217 	 		$	799 	 	
Net income							509 	 								509 	 		1 	 		510 	 	
Dividends ($0.56 per share)							(108)	 								(108)	 		— 	 		(108)	 	
Stock-based compensation					35 	 										35 	 				35 	 	
Shares issued for stock-based compensation plans at average cost, net					2 	 				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)	 		6 	 	
Net actuarial gains and prior service cost (net of tax of $2 million)													7 	 		7 	 				7 	 	
Amortization of prior service costs and actuarial losses													1 	 		1 	 				1 	 	
Net realized gain on cash flow hedges (net of tax of $6 million)													(14)	 		(14)	 				(14)	 	
Balance at June 30, 2020	342.9 	 		$	3 	 		$	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, 2019	342.9 	 		$	3 	 		$	642 	 		$	9,656 	 		(155.2)	 		$	(9,250)	 		$	(439)	 		$	612 	 		$	219 	 		$	831 	 	
Net income							997 	 								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)													6 	 		6 	 				6 	 	
Amortization of prior service costs and actuarial losses (net of tax of $1 million)													2 	 		2 	 				2 	 	
Net realized and unrealized gain on cash flow hedges (net of tax of $18 million)													(49)	 		(49)	 				(49)	 	
Balance at June 30, 2020	342.9 	 		$	3 	 		$	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,	
	2020		2019		2020		2019	
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	1 	 		1 	 		2 	 		2 	 	
Total SFG	81 	 		112 	 		177 	 		213 	 	
Financial institutions (FIG)	
Banking	88 	 		84 	 		174 	 		164 	 	
Insurance	44 	 		28 	 		74 	 		57 	 	
Managed investments	8 	 		10 	 		14 	 		14 	 	
Other accounts	2 	 		3 	 		5 	 		6 	 	
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 	 		6 	 		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	2 	 		3 	 		4 	 		5 	 	
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, 2020		Three 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	1 	 		9 	 		10 	 		1 	 		5 	 		6 	 	
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, 2020		Six 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	1 	 		20 	 		21 	 		1 	 		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,	
	2020		2019		2020		2019	
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,	
	2020		2019	
	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 	 		$	— 	 		$	6 	 		$	6 	 	
	— 	%		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 	 		$	4 	 		$	311 	 		$	315 	 	
	4 	%		96 	%		100 	%		1 	%		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 	 	
	8 	%		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,	
	2020		2019	
	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	$	2 	 		$	19 	 		$	21 	 		$	1 	 		$	10 	 		$	11 	 	
	10 	%		90 	%		100 	%		9 	%		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 	 		$	9 	 		$	614 	 		$	623 	 	
	5 	%		95 	%		100 	%		1 	%		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 	 	
	9 	%		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, 2020		Six 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, 2019		Six 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	1 	 		4 	 		5 	 	
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 	 		$	4 	 		$	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	1 	 		(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	1 	 		2 	 		3 	 	
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 	 		$	4 	 		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,	
	2020		2019		2020		2019	
Stock-based compensation cost	$	35 	 		$	34 	 		$	72 	 		$	70 	 	
Tax benefit	$	7 	 		$	7 	 		$	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,	
	2020		2019	
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,	
				
	2020		2019		2020		2019	
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 	 		$	3 	 	
Mutual funds	$	46 	 		$	— 	 		$	46 	 		$	— 	 		$	3 	 		$	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	$	3 	 		$	— 	 		$	3 	 		$	— 	 		$	3 	 		$	— 	 	
(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)		2 	 	
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)	3 	 			
Total intangible assets (19 year weighted average life)			280 	 	
Goodwill			494 	 	
Other assets			2 	 	
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 Item		Nature of Swap		As of June 30,
2020		As of December 31,
2019		Floating Interest Rate	
2012 Senior Notes due 2022		Pay Floating/Receive Fixed		$	330 	 		$	330 	 		3-month USD LIBOR	
2017 Senior Notes due 2021		Pay Floating/Receive Fixed		$	500 	 		$	500 	 		3-month USD LIBOR	
2017 Senior Notes due 2023		Pay Floating/Receive Fixed		$	250 	 		$	250 	 		3-month USD LIBOR	
2017 Senior Notes due 2028		Pay 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 recorded		Amount of income/(loss) recognized in the consolidated statements of operations	
		Three Months Ended June 30,		Six Months Ended
June 30,	
		2020		2019		2020		2019	
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		$	5 	 		$	— 	 		$	8 	 		$	— 	 	
Fair value changes on interest rate swaps		Interest expense, net		$	2 	 		$	20 	 		$	60 	 		$	31 	 	
Fair value changes on hedged debt		Interest 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 Floating		1,381 	 		Based on 3-month EURIBOR		1,580 	 		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 EURIBOR		1,080 	 		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 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)	
		Three Months Ended
June 30,		Three Months Ended
June 30,		Three Months Ended
June 30,	
		2020		2019		2020		2019		2020		2019	
	
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,	
		2020		2019		2020		2019		2020		2019	
	
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, 2020		December 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	2 	 		2 	 	
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, 2020		December 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	$	8 	 		₽	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,	
				2020		2019		2020		2019	
Foreign exchange forwards		Other non-operating expense, net		$	5 	 		$	(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, 2020		December 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		8 	 		9 	 	
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		3 	 		— 	 	
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	4 	 		— 	 		4 	 		(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	1 	 		1 	 	
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,	
	2020		2019		2020		2019	
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 	 	
2021		117 	 	
2022		117 	 	
2023		112 	 	
2024		105 	 	
Thereafter		1,186 	 	
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,	
	2020		2019		2020		2019	
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	3 	 		3 	 		— 	 	
Total	$	95 	 		$	3 	 		$	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, 2020		December 31, 2019	
Other current assets:				
Prepaid taxes	$	127 	 		$	79 	 	
Prepaid expenses	71 	 		71 	 	
Capitalized costs to obtain and fulfill sales contracts	79 	 		91 	 	
Other	86 	 		89 	 	
Total other current assets	$	363 	 		$	330 	 	
Other assets:				
Investments in non-consolidated affiliates	$	125 	 		$	117 	 	
Deposits for real-estate leases	14 	 		13 	 	
Indemnification assets related to acquisitions	16 	 		16 	 	
Mutual funds and fixed deposits	46 	 		10 	 	
Company owned life insurance (at contract value)	13 	 		— 	 	
Costs to obtain sales contracts	116 	 		119 	 	
Cross currency and interest rate swaps	179 	 		83 	 	
Other	52 	 		31 	 	
Total other assets	$	561 	 		$	389 	 	
Accounts payable and accrued liabilities:				
Salaries and benefits	$	137 	 		$	152 	 	
Incentive compensation	89 	 		208 	 	
Customer credits, advanced payments and advanced billings	44 	 		28 	 	
	
Dividends	6 	 		7 	 	
Professional service fees	43 	 		43 	 	
Interest accrued on debt	67 	 		63 	 	
Accounts payable	36 	 		38 	 	
Income taxes	199 	 	(1)	73 	 	
Pension and other retirement employee benefits	7 	 		7 	 	
Accrued royalties	13 	 		25 	 	
Foreign exchange forwards on certain assets and liabilities	3 	 		— 	 	
Restructuring liability	5 	 		21 	 	
	
Other	146 	 		108 	 	
Total accounts payable and accrued liabilities	$	795 	 		$	773 	 	

	

	

	

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	June 30, 2020		December 31, 2019	

	

	

	

	

	

	

	

	

	

	

	

Other liabilities:				
Pension and other retirement employee benefits	$	197 	 		$	299 	 	
	
Interest accrued on UTPs	98 	 		82 	 	
MAKS indemnification provisions	32 	 		43 	 	
Income tax liability - non-current portion	51 	 		51 	 	
Cross currency and interest rate swaps	13 	 		— 	 	
Restructuring liability	2 	 		3 	 	
Other	25 	 		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,	
	2020		2019		2020		2019	
FX (loss) gain	$	(8)	 		$	(10)	 		$	5 	 		$	(16)	 	
Net periodic pension costs - other components	4 	 		5 	 		7 	 		9 	 	
Income from investments in non-consolidated affiliates	3 	 		6 	 		— 	 		7 	 	
Other	17 	 		(1)	 		16 	 		2 	 	
Total	$	16 	 		$	— 	 		$	28 	 		$	2 	 	

NOTE 15. COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE INCOME
The following table provides details about the reclassifications out of AOCI:

Losses on cash flow hedges	Three 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	— 	 		1 	 		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	— 	 		1 	 		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, 2020		June 30, 2019	
Gains/(Losses)	Pension and Other Retirement Benefits	Cash Flow Hedges	Foreign Currency Translation Adjustments	Net Investment Hedges	Total		Pension and Other Retirement Benefits	Cash Flow Hedges	Foreign Currency Translation Adjustments	Net Investment Hedges	Total	
Balance March 31,	$	(92)	 	$	(35)	 	$	(570)	 	$	143 	 	$	(554)	 		$	(69)	 	$	— 	 	$	(440)	 	$	54 	 	$	(455)	 	
Other comprehensive income/(loss) before reclassifications	7 	 	(14)	 	91 	 	(73)	 	11 	 		(2)	 	— 	 	39 	 	(29)	 	8 	 	
Amounts reclassified from AOCI	1 	 	— 	 	— 	 	— 	 	1 	 		1 	 	— 	 	— 	 	— 	 	1 	 	
Other comprehensive income/(loss)	8 	 	(14)	 	91 	 	(73)	 	12 	 		(1)	 	— 	 	39 	 	(29)	 	9 	 	
Balance June 30,	$	(84)	 	$	(49)	 	$	(479)	 	$	70 	 	$	(542)	 		$	(70)	 	$	— 	 	$	(401)	 	$	25 	 	$	(446)	 	

	Six Months Ended	
	June 30, 2020	June 30, 2019	
Gains/(Losses)	Pension and Other Retirement Benefits	Cash Flow Hedges	Foreign Currency Translation Adjustments	Net Investment Hedges	Total		Pension and Other Retirement Benefits	Cash Flow Hedges	Foreign Currency Translation Adjustments	Net Investment Hedges	Total	
Balance December 31,	$	(92)	 	$	— 	 	$	(401)	 	$	54 	 	$	(439)	 		$	(53)	 	$	— 	 	$	(406)	 	$	33 	 	$	(426)	 	
Other comprehensive income/(loss) before reclassifications	6 	 	(50)	 	(78)	 	16 	 	(106)	 		(1)	 	— 	 	5 	 	(5)	 	(1)	 	
Amounts reclassified from AOCI	2 	 	1 	 	— 	 	— 	 	3 	 		1 	 	— 	 	— 	 	— 	 	1 	 	
Adoption of ASU 2018-02	— 	 	— 	 	— 	 	— 	 	— 	 		(17)	 	— 	 	— 	 	(3)	 	(20)	 	
Other comprehensive income/(loss)	8 	 	(49)	 	(78)	 	16 	 	(103)	 		(17)	 	— 	 	5 	 	(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	
	2020		2019		2020		2019	
Components of net periodic expense								
Service cost	$	3 	 		$	4 	 		$	1 	 		$	1 	 	
Interest cost	5 	 		5 	 		— 	 		— 	 	
Expected return on plan assets	(5)	 		(5)	 		— 	 		— 	 	
Amortization of net actuarial loss from earlier periods	1 	 		1 	 		— 	 		— 	 	
	
Net periodic expense	$	4 	 		$	5 	 		$	1 	 		$	1 	 	

	Six Months Ended June 30,	
	Pension Plans		Other Retirement Plans	
	2020		2019		2020		2019	
Components of net periodic expense								
Service cost	$	8 	 		$	8 	 		$	2 	 		$	1 	 	
Interest cost	9 	 		10 	 		— 	 		1 	 	
Expected return on plan assets	(10)	 		(10)	 		— 	 		— 	 	
Amortization of net actuarial loss from earlier periods	3 	 		2 	 		— 	 		— 	 	
	
Net periodic expense	$	10 	 		$	10 	 		$	2 	 		$	2 	 	
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 	 		— 	 		4 	 		(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 	 		$	9 	 		$	(1)	 		$	(1)	 		$	507 	 	
4.875% 2013 Senior Notes, due 2024	500 	 		— 	 		(1)	 		(2)	 		497 	 	
5.25% 2014 Senior Notes (30-Year), due 2044	600 	 		— 	 		4 	 		(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 	 		7 	 		(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 2022		2013 Senior Notes due 2024		2014 Senior Notes (30-Year) due 2044		2015 Senior Notes due 2027		2017 Senior Notes due 2021		2017 Senior Notes due 2023		2017 Senior Notes due 2028		2018 Senior Notes due 2029		2018 Senior Notes due 2048		2019 Senior Notes due 2030		2020 Senior Notes due 2025		2020 Senior Notes due 2050		Total	
2020 (After June 30,)	$	— 	 		$	— 	 		$	— 	 		$	— 	 		$	— 	 		$	— 	 		$	— 	 		$	— 	 		$	— 	 		$	— 	 		$	— 	 		$	— 	 		$	— 	 	
2021	— 	 		— 	 		— 	 		— 	 		500 	 		— 	 		— 	 		— 	 		— 	 		— 	 		— 	 		— 	 		$	500 	 	
2022	500 	 		— 	 		— 	 		— 	 		— 	 		— 	 		— 	 		— 	 		— 	 		— 	 		— 	 		— 	 		$	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,	
	2020		2019		2020		2019	
Income	$	3 	 		$	4 	 		$	7 	 		$	9 	 	
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,	
	2020		2019	
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, 2020		December 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,	
	2020		2019		2020		2019	
								
Operating lease cost	$	24 	 		$	24 	 		$	48 	 		$	49 	 	
Sublease income	(1)	 		— 	 		(2)	 		— 	 	
Variable lease cost	5 	 		4 	 		10 	 		8 	 	
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,	
	2020		2019		2020		2019	
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 	 		$	7 	 		$	20 	 		$	16 	 	

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	June 30, 2020		June 30, 2019	
Weighted-average remaining lease term	6.5 years		7.3 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 	 	
2021		105 	 	
2022		93 	 	
2023		87 	 	
2024		80 	 	
After 2024		188 	 	
Total lease payments (undiscounted)		607 	 	
Less: Interest		66 	 	
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,	
	2020		2019	
	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	— 	 		— 	 		— 	 		— 	 		— 	 		2 	 		— 	 		2 	 	
Loss pursuant to the divestiture of MAKS	— 	 		— 	 		— 	 		— 	 		— 	 		9 	 		— 	 		9 	 	
	
Adjusted Operating Income	$	623 	 		$	143 	 		$	— 	 		$	766 	 		$	464 	 		$	135 	 		$	— 	 		$	599 	 	
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	Six Months Ended June 30,	
	2020		2019	
	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	— 	 		— 	 		— 	 		— 	 		— 	 		3 	 		— 	 		3 	 	
Loss pursuant to the divestiture of MAKS	— 	 		9 	 		— 	 		9 	 		— 	 		9 	 		— 	 		9 	 	
	
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,	
	2020		2019		2020		2019	
United States	$	837 	 		$	638 	 		$	1,551 	 		$	1,250 	 	
Non-U.S.:								
EMEA	373 	 		362 	 		736 	 		695 	 	
Asia-Pacific	144 	 		141 	 		280 	 		273 	 	
Americas	81 	 		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	
	Goodwill		10%		20%		30%		40%	
MIS	$	95 	 		$	— 	 		$	— 	 		$	— 	 		$	— 	 	
Content	363 	 		— 	 		— 	 		— 	 		— 	 	
ERS	726 	 		— 	 		— 	 		— 	 		— 	 	
MALS	121 	 		— 	 		— 	 		(12)	 		(37)	 	
ICRA	206 	 		— 	 		(2)	 		(44)	 		(85)	 	
Bureau van Dijk	2,504 	 		— 	 		— 	 		— 	 		(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:	2020	2019	% 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 	 	5 	%	— 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 	 	9 	%	— 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 Margin	49.5 	%	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 Margin	53.4 	%	49.3 	%	410BPS		
ETR	23.6 	%	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)	
	2020		2019			
Revenue:						
United States	$	837 	 		$	638 	 		31 	%	
Non-U.S.:						
EMEA	373 	 		362 	 		3 	%	
Asia-Pacific	144 	 		141 	 		2 	%	
Americas	81 	 		73 	 		11 	%	
Total Non-U.S.	598 	 		576 	 		4 	%	
Total	1,435 	 		1,214 	 		18 	%	
Expenses:						
Operating	362 	 		340 	 		(6 	%)	
SG&A	307 	 		275 	 		(12 	%)	
Restructuring	(2)	 		53 	 		104 	%	
Depreciation and amortization	58 	 		52 	 		(12 	%)	
Acquisition-Related Expenses	— 	 		2 	 		100 	%	
Loss pursuant to the divestiture of MAKS	— 	 		9 	 		100 	%	
	
Total	725 	 		731 	 		1 	%	
Operating income	$	710 	 		$	483 	 		47 	%	
Adjusted Operating Income (1)	$	766 	 		$	599 	 		28 	%	
Interest expense, net	$	(60)	 		$	(51)	 		(18 	%)	
Other non-operating income, net	16 	 		— 	 		NM	
Non-operating (expense) income, net	$	(44)	 		$	(51)	 		14 	%	
						
Net income attributable to Moody's	$	509 	 		$	310 	 		64 	%	
Diluted weighted average shares outstanding	189.0 	 		191.3 	 		1 	%	
Diluted EPS attributable to Moody's common shareholders	$	2.69 	 		$	1.62 	 		66 	%	
Adjusted Diluted EPS (1)	$	2.81 	 		$	2.07 	 		36 	%	
Operating margin	49.5 	%		39.8 	%			
Adjusted Operating Margin(1)	53.4 	%		49.3 	%			
Effective tax rate	23.6 	%		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	
	2020		2019			
United States	4,052 	 		3,903 	 		4 	%	
Non-U.S.	7,227 	 		9,319 	 		(22 	%)	
Total	11,279 	 	(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
__________________________________________________________________________________________________________________________________________________________

																		
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	
 -------------------------------------   

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)	
	2020		2019			
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 revenue	928 	 		733 	 		27 	%	
MIS Other	10 	 		6 	 		67 	%	
Total external revenue	938 	 		739 	 		27 	%	
Intersegment royalty	35 	 		33 	 		6 	%	
Total MIS revenue	973 	 		772 	 		26 	%	
Expenses:		
Operating and SG&A (external)	348 	 		305 	 		(14 	%)	
Operating and SG&A (intersegment)	2 	 		3 	 		33 	%	
Restructuring	— 	 		26 	 		(100 	%)	
Depreciation and amortization	19 	 		18 	 		(6 	%)	
Total expense	369 	 		352 	 		(5 	%)	
Operating Income	$	604 	 		$	420 	 		44 	%	
Restructuring	— 	 		26 	 		(100 	%)	
Depreciation and amortization	19 	 		18 	 		(6 	%)	
	
Adjusted Operating Income	$	623 	 		$	464 	 		34 	%	
						
Operating margin	62.1 	%		54.4 	%			
Adjusted Operating Margin	64.0 	%		60.1 	%			

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MOODY'S INVESTORS SERVICE REVENUE
2020----------------------------------------------------------------------------------------------------------------------2019
__________________________________________________________________________________________________________________________________________________________

									
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
__________________________________________________________________________________________________________________________________________________________

									
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:

(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
__________________________________________________________________________________________________________________________________________________________

									
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:

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
__________________________________________________________________________________________________________________________________________________________

									
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:

The 14% increase in FIG revenue was mainly due to U.S. insurance companies and banks seeking opportunistic funding.

PPIF REVENUE
2020----------------------------------------------------------------------------------------------------------------------2019
__________________________________________________________________________________________________________________________________________________________

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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:

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	
  
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 costs		Non-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)	
	2020		2019			
Revenue:						
Research, data and analytics (RD&A)	$	366 	 		$	315 	 		16 	%	
Enterprise risk solutions (ERS)	131 	 		117 	 		12 	%	
Professional services (PS)	— 	 		43 	 		(100 	%)	
Total external revenue	497 	 		475 	 		5 	%	
Intersegment revenue	2 	 		3 	 		(33 	%)	
Total MA revenue	499 	 		478 	 		4 	%	
Expenses:						
Operating and SG&A (external)	321 	 		310 	 		(4 	%)	
Operating and SG&A (intersegment)	35 	 		33 	 		(6 	%)	
Restructuring	(2)	 		27 	 		107 	%	
Depreciation and amortization	39 	 		34 	 		(15 	%)	
Acquisition-Related Expenses	— 	 		2 	 		100 	%	
Loss pursuant to the divestiture of MAKS	— 	 		9 	 		100 	%	
Total expense	393 	 		415 	 		5 	%	
Operating income	$	106 	 		$	63 	 		68 	%	
Restructuring	(2)	 		27 	 		(107 	%)	
Depreciation and amortization	39 	 		34 	 		(15 	%)	
Acquisition-Related Expenses	— 	 		2 	 		100 	%	
Loss pursuant to the divestiture of MAKS	— 	 		9 	 		100 	%	
Adjusted Operating Income	$	143 	 		$	135 	 		6 	%	
						
Operating margin	21.2 	%		13.2 	%			
Adjusted Operating Margin	28.7 	%		28.2 	%			

MOODY'S ANALYTICS REVENUE
2020----------------------------------------------------------------------------------------------------------------------2019
__________________________________________________________________________________________________________________________________________________________

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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
__________________________________________________________________________________________________________________________________________________________

									
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
__________________________________________________________________________________________________________________________________________________________

									
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	

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 costs		Non-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:	2020	2019	% 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 	 	5 	%	— 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 Margin	47.8 	%	40.1 	%	770 BPS	— margin expansion reflects strong revenue growth partially offset by increases in operating expenses	
Adjusted Operating Margin	51.9 	%	47.5 	%	440 BPS		
ETR	19.0 	%	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)	
	2020		2019			
Revenue:						
United States	$	1,551 	 		$	1,250 	 		24 	%	
Non-U.S.:						
EMEA	736 	 		695 	 		6 	%	
Asia-Pacific	280 	 		273 	 		3 	%	
Americas	158 	 		138 	 		14 	%	
Total Non-U.S.	1,174 	 		1,106 	 		6 	%	
Total	2,725 	 		2,356 	 		16 	%	
Expenses:						
Operating	702 	 		682 	 		(3 	%)	
SG&A	608 	 		556 	 		(9 	%)	
Restructuring	(3)	 		59 	 		105 	%	
Depreciation and amortization	107 	 		102 	 		(5 	%)	
Acquisition-Related Expenses	— 	 		3 	 		100 	%	
Loss pursuant to the divestiture of MAKS	9 	 		9 	 		— 	%	
Total	1,423 	 		1,411 	 		(1 	%)	
Operating income	1,302 	 		945 	 		38 	%	
Adjusted Operating Income (1)	1,415 	 		1,118 	 		27 	%	
Interest expense, net	(100)	 		(103)	 		3 	%	
Other non-operating income, net	28 	 		2 	 		NM	
Non-operating (expense) income, net	(72)	 		(101)	 		29 	%	
						
Net income attributable to Moody’s	$	997 	 		$	683 	 		46 	%	
Diluted weighted average shares outstanding	189.3 	 		192.1 	 		1 	%	
Diluted EPS attributable to Moody’s common shareholders	$	5.27 	 		$	3.56 	 		48 	%	
Adjusted Diluted EPS (1)	$	5.55 	 		$	4.14 	 		34 	%	
Operating margin	47.8 	%		40.1 	%			
Adjusted Operating Margin (1)	51.9 	%		47.5 	%			
Effective tax rate	19.0 	%		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
__________________________________________________________________________________________________________________________________________________________

																		
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	
 -------------------------------------   

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)	
	2020		2019			
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 revenue	1,711 	 		1,398 	 		22 	%	
MIS Other	21 	 		11 	 		91 	%	
Total external revenue	1,732 	 		1,409 	 		23 	%	
Intersegment royalty	72 	 		65 	 		11 	%	
Total	1,804 	 		1,474 	 		22 	%	
Expenses:						
Operating and SG&A (external)	674 	 		619 	 		(9 	%)	
Operating and SG&A (intersegment)	4 	 		5 	 		20 	%	
Restructuring	(1)	 		29 	 		103 	%	
Depreciation and amortization	35 	 		35 	 		— 	%	
Total expense	712 	 		688 	 		(3 	%)	
Operating income	$	1,092 	 		$	786 	 		39 	%	
Restructuring	(1)	 		29 	 		103 	%	
Depreciation and amortization	35 	 		35 	 		— 	%	
Adjusted Operating Income	$	1,126 	 		$	850 	 		32 	%	
Operating margin	60.5 	%		53.3 	%			
Adjusted Operating Margin	62.4 	%		57.7 	%			

MOODY'S INVESTORS SERVICE REVENUE
2020----------------------------------------------------------------------------------------------------------------------2019
__________________________________________________________________________________________________________________________________________________________

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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
__________________________________________________________________________________________________________________________________________________________

									
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:

(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
__________________________________________________________________________________________________________________________________________________________

									
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:

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
__________________________________________________________________________________________________________________________________________________________

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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:

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
__________________________________________________________________________________________________________________________________________________________

									
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:

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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	
  
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 costs		Compensation 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)	
	2020		2019			
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 revenue	993 	 		947 	 		5 	%	
Intersegment revenue	4 	 		5 	 		(20 	%)	
Total MA Revenue	997 	 		952 	 		5 	%	
Expenses:						
Operating and SG&A (external)	636 	 		619 	 		(3 	%)	
Operating and SG&A (intersegment)	72 	 		65 	 		(11 	%)	
Restructuring	(2)	 		30 	 		107 	%	
Depreciation and amortization	72 	 		67 	 		(7 	%)	
Acquisition-Related Expenses	— 	 		3 	 		100 	%	
Loss pursuant to the divestiture of MAKS	9 	 		9 	 		— 	%	
Total expense	787 	 		793 	 		1 	%	
Operating income	$	210 	 		$	159 	 		32 	%	
Restructuring	(2)	 		30 	 		107 	%	
Depreciation and amortization	72 	 		67 	 		(7 	%)	
Acquisition-Related Expenses	— 	 		3 	 		100 	%	
Loss pursuant to the divestiture of MAKS	9 	 		9 	 		— 	 	
	
Adjusted Operating Income	$	289 	 		$	268 	 		8 	%	
Operating margin	21.1 	%		16.7 	%			
Adjusted Operating Margin	29.0 	%		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
__________________________________________________________________________________________________________________________________________________________

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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
__________________________________________________________________________________________________________________________________________________________

									
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
__________________________________________________________________________________________________________________________________________________________
   
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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	

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)	
	2020		2019			
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:

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 	 		0 	 	
Pension obligations (2)	147 	 		3 	 		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,	
	2020		2019		2020		2019	
Operating income	$	710 	 		$	483 	 		$	1,302 	 		$	945 	 	
Adjustments:								
Restructuring	(2)	 		53 	 		(3)	 		59 	 	
Depreciation and amortization	58 	 		52 	 		107 	 		102 	 	
Acquisition-Related Expenses	— 	 		2 	 		— 	 		3 	 	
Loss pursuant to the divestiture of MAKS	— 	 		9 	 		9 	 		9 	 	
	
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	2020		2019		2020		2019	
Net income attributable to Moody's common shareholders		$	509 	 			$	310 	 			$	997 	 			$	683 	 	
Pre-Tax Acquisition-Related Expenses	$	— 	 			$	2 	 			$	— 	 			$	3 	 		
Tax on Acquisition-Related Expenses	— 	 			— 	 			— 	 			— 	 		
Net Acquisition-Related Expenses		— 	 			2 	 			— 	 			3 	 	
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	1 	 			(12)	 			1 	 			(14)	 		
Net Restructuring		(1)	 			41 	 			(2)	 			45 	 	

	
Tax charge pursuant to the divestiture of MAKS		— 	 			15 	 			— 	 			15 	 	
	
Loss pursuant to the divestiture of MAKS		— 	 			9 	 			9 	 			9 	 	
Adjusted Net Income		$	532 	 			$	396 	 			$	1,050 	 			$	795 	 	
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	Three Months Ended June 30,		Six Months Ended June 30,	
	2020		2019		2020		2019	
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 Expenses		0.13 	 			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,	
	2020		2019	
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	

Acquisition		Acquisition Date		Three Months Ended June 30		Six Months Ended June 30	
RiskFirst		July 25, 2019		April 1, 2020 - June 30, 2020		January 1, 2020 - June 30, 2020	
ABS Suite		October 1, 2019		April 1, 2020 - June 30, 2020		January 1, 2020 - June 30, 2020	
Regulatory DataCorp		February 13, 2020		April 1, 2020 - June 30, 2020		February 13, 2020 - June 30, 2020	
											
Divestiture		Divestiture Date									
MAKS		November 7, 2019		April 1, 2019 - June 30, 2019		January 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 millions	2020		2019		Change		Growth		2020		2019		Change		Growth	
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 millions	2020		2019		Change		Growth		2020		2019		Change		Growth	
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 millions	2020		2019		Change		Growth		2020		2019		Change		Growth	
ERS revenue	$	131 	 		$	117 	 		$	14 	 		12%		$	269 	 		$	239 	 		$	30 	 		13%	
RiskFirst	(6)	 		— 	 		(6)	 				(10)	 		— 	 		(10)	 			
Organic ERS revenue	$	125 	 		$	117 	 		$	8 	 		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- 30		839 	 		$	— 	 		$	— 	 		$	1,081 	 million	
May 1- 31		540 	 		$	— 	 		$	— 	 		$	1,081 	 million	
June 1- 30		923 	 		$	— 	 		$	— 	 		$	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		Restated Certificate of Incorporation of the Registrant, effective April 22, 2020 (incorporated by reference to Exhibit 3.3 to the Report on Form 8-K of the Registrant, file number 1-14037, filed April 27, 2020)	
			
.2		Amended and Restated By-laws of Moody’s Corporation, effective April 22, 2020 (incorporated by reference to Exhibit 3.2 to the Report on Form 8-K of the Registrant, file number 1-14037, filed April 27, 2020)	

	

4		INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES	
			
.1		Eleventh Supplement Indenture, dated as of March 24, 2020, between the Company and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.1 to the Report on Form 8-K of the Registrant, file number 1-14037, filed March 25, 2020)	
			
.2		Form of 3.750% Senior Note due 2025 (incorporated by reference to Exhibit 4.1 to the Report on Form 8-K of the Registrant, file number 1-14037, filed March 25, 2020)	
			
.3		Twelfth Supplemental Indenture, dated as of May 20, 2020, between the Company and Wells Fargo Bank, National Association, as Trustee. (incorporated by reference to Exhibit 4.1 to the Report on Form 8-K of the Registrant, file number 1-14037, filed May 20, 2020)	
			
.4		Form of 3.250% Note due 2050 (incorporated by reference to Exhibit 4.1 to the Report on Form 8-K of the Registrant, file number 1-14037, filed May 20, 2020)	
			
31		CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002	
			
.1*		Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	
			
.2*		Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	
			
32		CERTIFICATIONS PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002	
			
.1*		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. The Company has furnished this certification and does not intend for it to be considered filed under the Securities Exchange Act of 1934 or incorporated by reference into future filings under the Securities Act of 1933 or the Securities Exchange Act of 1934.	
			
.2*		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. The Company has furnished this certification and does not intend for it to be considered filed under the Securities Exchange Act of 1934 or incorporated by reference into future filings under the Securities Act of 1933 or the Securities Exchange Act of 1934.	
			
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	

90

Table of Contents
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			

91

Exhibit 31.1
CHIEF EXECUTIVE OFFICER CERTIFICATION
PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Raymond W. McDaniel, Jr., certify that:
1.I have reviewed this quarterly report on Form 10-Q of Moody’s Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periods covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/ S / RAYMOND W. MCDANIEL, JR.		
Raymond W. McDaniel, Jr.		
President and Chief Executive Officer		
July 31, 2020

 Exhibit 31.2
CHIEF FINANCIAL OFFICER CERTIFICATION
PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Mark Kaye, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Moody’s Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periods covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/ S / MARK KAYE	
Mark Kaye	
Senior Vice President and Chief Financial Officer	
July 31, 2020

Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Moody’s Corporation (the “Company”) on Form 10-Q for the period ended June 30, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Raymond W. McDaniel, Jr., certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/ S /  RAYMOND W. MCDANIEL, JR.		
Raymond W. McDaniel, Jr.		
President and Chief Executive Officer		
July 31, 2020

Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Moody’s Corporation (the “Company”) on Form 10-Q for the period ended June 30, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Mark Kaye, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1) the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/ S / MARK KAYE		
Mark Kaye		
Senior Vice President and Chief Financial Officer		
July 31, 2020