# MOODYS CORP /DE/ (MCO) FY 2023 MD&A Verbatim Item 7 Management's Discussion and Analysis from MOODYS CORP /DE/'s 10-K for fiscal year 2023. SEC filing source: https://www.sec.gov/Archives/edgar/data/1059556/000105955624000017/mco-20231231.htm Accession: 0001059556-24-000017 Filing date: 2024-02-14 Report date: 2023-12-31 Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Confidence: high Company profile: /company/MCO/ All MD&A years: /company/MCO/mda/ Previous year: /company/MCO/mda/fy2022/ (FY 2022) Next year: /company/MCO/mda/fy2024/ (FY 2024) ITEM 7. 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 consolidated financial statements and notes thereto included elsewhere in this annual report on Form 10-K. This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains Forward-Looking Statements. See “Forward-Looking Statements” commencing on page 65 and Item 1A. “Risk Factors” commencing on page 25 for a discussion of uncertainties, risks and other factors associated with these statements. The Company Moody’s is a global integrated risk assessment firm that empowers organizations to anticipate, adapt and thrive in a new era of exponential risk. Moody’s reports in two segments: MA and MIS. MA is a global provider of: i) research and insights; ii) data and information; and iii) decision solutions, which help companies make better and faster decisions. MA leverages its industry expertise across multiple risks such as credit, market, financial crime, supply chain, catastrophe and climate to deliver integrated risk assessment solutions that enable business leaders to identify, measure and manage the implications of interrelated risks and opportunities. MIS publishes credit ratings and provides assessment services on a wide range of debt obligations, programs and facilities, and the entities that issue such obligations in markets worldwide, including various corporate, financial institution and governmental obligations, and structured finance securities. Current Matters Impacting Moody's Business Current Macroeconomic Uncertainties/Market Volatility The Company continues to monitor current macroeconomic and geopolitical uncertainties that have contributed to volatility in rated issuance volumes, which began in 2022 and have continued into 2023. These uncertainties include, but are not limited to: i) inflation levels; ii) higher interest rates; and iii) volatility in the global capital markets partly resulting from the ongoing military conflicts further discussed below and the failures of certain banking institutions in the first half of 2023. A substantial portion of MIS’s revenue is impacted by the level of issuance activity in the fixed income capital markets, both in the U.S. and internationally. While market volatility has resulted in suppressed rated issuance volumes in certain sectors, the Company believes that these suppressed volumes are predominantly transitory in nature. However, due to various uncertainties, Moody's is unable to predict the severity and duration of current macroeconomic and geopolitical uncertainties and their potential impact on future rated issuance volumes. Refer to Item 1A. “Risk Factors” for further disclosure relating to these risks. Military Conflicts The Company continues to closely monitor the impact of the ongoing Russia-Ukraine military conflict and the military conflict in Israel and surrounding areas on all aspects of its business. In response to the Russia-Ukraine military conflict, the Company is no longer conducting commercial operations in Russia for both MA and MIS and is complying with all applicable regulatory restrictions set forth by authorities in the jurisdictions in which Moody's operates. Furthermore, the Company also has withdrawn MIS credit ratings on Russian entities. While Moody's operations and net assets in Russia and Israel and surrounding areas are not material, broader global market volatility, which partially relates to uncertainties surrounding these military conflicts, has contributed and may continue to contribute to volatility in rated issuance volumes. This impact on rated issuance volumes is more fully discussed in the "Results of Operations" section of this MD&A. The Company is unable to predict either the near-term or longer-term impact that the conflicts may have on its financial position and operating results due to numerous uncertainties regarding the severity and duration of the conflicts and their broader potential macroeconomic impact. 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 critical accounting estimates. Actual results may differ from these estimates under different assumptions or conditions. The following accounting estimates are considered critical because they are particularly dependent on management’s judgment about matters that are uncertain at the time the accounting estimates are made and changes to those estimates could have a material impact on the Company’s consolidated results of operations or financial condition. Goodwill and Other Acquired Intangible Assets At July 31st of each year, Moody’s evaluates its goodwill for impairment at the reporting unit level, defined as an operating segment (i.e., MA and MIS), or one level below an operating segment (i.e., a component of an operating segment). 40     MOODY'S 2023 10-K Table of Contents The Company has four reporting units: two reporting units within MA consisting of businesses that offer: i) data and data-driven analytical solutions; and ii) risk-management software, workflow and CRE solutions, and two within the Company’s ratings business (one for the ICRA business and one that encompasses all of Moody’s other ratings operations). The Company evaluates the recoverability of goodwill using a two-step impairment test approach at the reporting unit level. In the first step, the Company assesses various qualitative factors to determine whether the fair value of a reporting unit may be less than its carrying amount. If a determination is made based on the qualitative factors that an impairment does not exist, the Company is not required to perform further testing. If the aforementioned qualitative assessment results in the Company concluding that it is more likely than not that the fair value of a reporting unit may be less than its carrying amount, the fair value of the reporting unit will be quantitatively determined and compared to its carrying value including goodwill. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is not impaired, and the Company is not required to perform further testing. If the fair value of the reporting unit is less than the carrying value, the Company will record a goodwill impairment charge for the amount by which the carrying value exceeds the reporting unit’s fair value. The Company evaluates its reporting units on an annual basis, or more frequently if there are changes in the reporting structure of the Company due to acquisitions, realignments or if there are indicators of potential impairment. For the reporting units where the Company is consistently able to conclude that no impairment exists using only a qualitative approach, the Company’s accounting policy is to perform the second step of the aforementioned goodwill impairment assessment at least once every three years. The Company last performed quantitative assessments on all reporting units at July 31, 2021, pursuant to a change in reporting unit structure in the MA reportable segment. The quantitative assessments performed at July 31, 2021 resulted in fair values that significantly exceeded carrying values for all reporting units. Determining the fair value of a reporting unit involves the use of significant estimates and assumptions, which are more fully described below. In addition, the Company also makes certain judgments and assumptions in allocating shared assets and liabilities to determine the carrying values for each of its reporting units. Other assets and liabilities, including applicable corporate assets, are allocated to the extent they are related to the operation of respective reporting units. Annual goodwill impairment assessment performed at July 31, 2023 At July 31, 2023, the Company performed qualitative assessments for each of the four reporting units. These qualitative assessments resulted in the Company determining that it was not more likely than not that the fair value of any reporting unit was less than its carrying amount. 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, at July 31, 2021 (the date of the last quantitative assessment). As ICRA is a publicly traded company in India, the Company was able to observe its fair value based on its market capitalization. The fair value of each reporting unit, excluding ICRA, was estimated using a discounted cash flow methodology and comparable public company and precedent transaction multiples. The discounted cash flow analysis requires significant estimates, including projections of future operating results and cash flows of each reporting unit that are based on internal budgets and strategic plans, expected long-term growth rates, terminal values, weighted average cost of capital and the effects of external factors and market conditions. Changes in these estimates and assumptions could materially affect the estimated fair value of each reporting unit that could result in an impairment charge to reduce the carrying value of goodwill, which could be material to the Company’s financial position and results of operations. Moody’s allocates newly acquired goodwill to reporting units based on the reporting unit expected to benefit from the acquisition. The sensitivity analyses on the future cash flows and WACC assumptions are described below. These key assumptions utilized in the discounted cash flow valuation methodology require significant management judgment: –Future cash flow assumptions - The projections for future cash flows utilized in the models are derived from historical experience and assumptions regarding future growth and profitability of each reporting unit. These projections are consistent with the Company’s operating budget and strategic plan. Cash flows for the five years subsequent to the date of the quantitative goodwill impairment test were utilized in the determination of the fair value of each reporting unit. The growth rates assumed a gradual increase in revenue based on new customer acquisition and new products. Beyond five years, 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 still result in fair values that significantly exceeded carrying values. –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 8.0% to 8.5% as of July 31, 2021. Differences in the WACC used between reporting units is primarily due to MOODY'S 2023 10-K     41 Table of Contents 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 as of July 31, 2021 for each reporting unit. For all reporting units, an increase in the WACC of one percentage point would still result in fair values that significantly exceeded carrying values. Long-lived assets Long-lived assets, which consist primarily of amortizable intangible assets, operating lease ROU Assets and property and equipment, are reviewed for recoverability whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Under the first step of the recoverability assessment, Moody's compares the estimated undiscounted future cash flows attributable to the asset or asset group to its carrying value. If the undiscounted future cash flows are greater than the carrying value, no further assessment is required. If the undiscounted future cash flows are less than the carrying value, Moody's proceeds with step two of the assessment. Under step two of this assessment, Moody's is required to determine the fair value of the asset or asset group and recognize an impairment loss if the carrying amount exceeds its fair value. In performing this assessment, Moody's must include assumptions that market participants would use in their estimates of fair value, including the estimated future cash flows and discount rate. Moody's must apply judgment in developing estimated future cash flows and in the determination of market participant assumptions. Income Taxes The Company is subject to income taxes in the U.S. and various foreign jurisdictions. The Company’s tax assets and liabilities are affected by the amounts charged for services provided and expenses incurred as well as other tax matters such as intercompany transactions. The Company accounts for income taxes under the asset and liability method in accordance with ASC Topic 740. Therefore, income tax expense is based on reported income before income taxes, and deferred income taxes reflect the effect of temporary differences between the amounts of assets and liabilities that are recognized for financial reporting purposes and the amounts that are recognized for income tax purposes. The Company is subject to tax audits in the U.S. and various foreign jurisdictions. The Company regularly assesses the likely outcomes of such audits in order to determine the appropriateness of liabilities for UTPs. The Company classifies interest related to income taxes as a component of interest expense in the Company’s consolidated financial statements and associated penalties, if any, as part of other non-operating expenses. For UTPs, ASC Topic 740 requires a company to first determine whether it is more-likely-than-not (defined as a likelihood of more than fifty percent) that a tax position will be sustained based on its technical merits as of the reporting date, assuming that taxing authorities will examine the position and have full knowledge of all relevant information. A tax position that meets this more-likely-than-not threshold is then measured and recognized at the largest amount of benefit that is greater than fifty percent likely to be realized upon effective settlement with a taxing authority. As the determination of liabilities related to UTPs and associated interest and penalties requires significant estimates to be made by the Company, there can be no assurance that the Company will accurately predict the outcomes of these audits, and thus the eventual outcomes could have a material impact on the Company’s operating results or financial condition. Revenue Recognition and Costs to Obtain a Contract with a Customer Revenue is recognized when control of promised goods or services is transferred to the customer, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The discussion below outlines areas of the Company’s revenue recognition process that require significant management judgment and estimates. Refer to Note 2 of the consolidated financial statements for a comprehensive discussion regarding the Company’s accounting policies relating to the recognition of revenue and costs to obtain a contract with a customer. Allocating consideration to performance obligations: Management judgment is required in the determination of the SSP, which is utilized to allocate the transaction price to each distinct performance obligation at contract inception when the contract includes multiple distinct performance obligations. In the MA segment, for performance obligations where an observable price exists, such as PCS, the observable price is utilized. If an observable price does not currently exist, the Company will utilize management’s best estimate of SSP for that good or service using estimation methods that maximize the use of observable data points. In the MIS segment, the SSP for both ratings and monitoring services is generally based upon directly observable selling prices where the rating or monitoring service is sold separately. The SSP in both segments is usually apportioned along the lines of class of customer, nature of product/services, and other attributes related to those products and services. Once SSP is determined for each performance obligation, the transaction price, including any discount, is allocated based on the relative SSP of the separate performance obligations. Costs to Obtain a Contract with a Customer: Costs incurred to obtain customer contracts, such as sales commissions, are deferred and recorded within other current assets and other assets when such costs are determined to be incremental to obtaining a contract, would not have been incurred otherwise and the Company expects to recover those costs. These costs are amortized to expense on a systematic basis consistent with the 42     MOODY'S 2023 10-K Table of Contents transfer of products or services to the customer for which the asset relates. Depending on the line of business to which the contract relates, this amortization period may be based upon the average economic life of the products sold or average period for which services are provided, inclusive of anticipated contract renewals. Contingencies Accounting for contingencies, including those matters described in Note 21 to the consolidated financial statements, is highly subjective and requires the use of judgments and estimates in assessing their magnitude and likely outcome. In many cases, the outcomes of such matters will be determined by third parties, including governmental or judicial bodies. The provisions made in the consolidated financial statements, as well as the related disclosures, represent management’s best estimates of the current status of such matters and their potential outcome based on a review of the facts and in consultation with outside legal counsel where deemed appropriate. The Company regularly reviews contingencies and as new information becomes available may, in the future, adjust its associated liabilities. For claims, litigation and proceedings and governmental investigations and inquiries not related to income taxes, the Company records liabilities in the consolidated financial statements when it is both probable that a liability has been incurred and the amount of loss can be reasonably estimated and periodically adjusts these as appropriate. When the reasonable estimate of the loss is within a range of amounts, the minimum amount of the range is accrued unless some higher amount within the range is a better estimate than another amount within the range. In instances when a loss is reasonably possible but uncertainties 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. Pension and Other Retirement Benefits The expenses, assets and liabilities that Moody’s reports for its Retirement Plans are dependent on many assumptions concerning the outcome of future events and circumstances. These significant assumptions include the following: –future compensation increases based on the Company’s long-term actual experience and future outlook; –long-term expected return on pension plan assets based on historical portfolio results and the expected future average annual return for each major asset class within the plan’s portfolio (which is principally comprised of equity and fixed-income investments); and –discount rates based on current yields on high-grade corporate long-term bonds. The discount rates used to measure the present value of the Company’s benefit obligation for its Retirement Plans as of December 31, 2023 were derived using a cash flow matching method whereby the Company compares each plan’s projected payment obligations by year with the corresponding yield on the FTSE pension discount curve. The cash flows by plan are then discounted back to present value to determine the discount rate applicable to each plan. Moody’s major assumptions vary by plan and assumptions used are set forth in Note 15 to the consolidated financial statements. In determining these assumptions, the Company consults with third-party actuaries and other advisors as deemed appropriate. While the Company believes that the assumptions used in its calculations are reasonable, differences in actual experience or changes in assumptions could have a significant effect on the expenses, assets and liabilities related to the Company’s Retirement Plans. When actual plan experience differs from the assumptions used, actuarial gains or losses arise. Excluding differences between the expected long-term rate of return assumption and actual returns on plan assets, the Company amortizes, as a component of annual pension expense, total outstanding actuarial gains or losses over the estimated average future working lifetime of active plan participants to the extent that the gain/loss exceeds 10% of the greater of the beginning-of-year projected benefit obligation or the market-related value of plan assets. For Moody’s Retirement Plans, the total actuarial losses as of December 31, 2023 that have not been recognized in annual expense are $72 million, and Moody’s expects the net periodic expense related to the amortization of net actuarial (losses)/gains will be immaterial in 2024. For Moody’s funded U.S. pension plan, the differences between the expected long-term rate of return assumption and actual returns could also affect the net periodic pension expense. As permitted under ASC Topic 715, the Company amortizes the impact of asset returns over a five-year period for purposes of calculating the market-related value of assets that is used in determining the expected return on assets’ component of annual expense and in calculating the total unrecognized gain or loss subject to MOODY'S 2023 10-K     43 Table of Contents amortization. As of December 31, 2023, the Company has an unrecognized loss of $71 million, of which $10 million will be recognized in the market-related value of assets that is used to calculate the expected return on assets component of 2024 expense. The table below shows the estimated effect that a one percentage-point decrease in each of these assumptions will have on Moody’s 2024 income before provision for income taxes. These effects have been calculated using the Company’s current projections of 2024 expenses, assets and liabilities related to Moody’s Retirement Plans, which could change as updated data becomes available. [[GREPCENT_TABLE]] [["(dollars in millions)","Assumptions Used for 2024","","Estimated Impact on 2024 Income before Provision for Income Taxes (Decrease)/Increase"],["Weighted Average Discount Rates (1)","4.73%/4.75%","","$","(4)"],["Weighted Average Assumed Compensation Growth Rate","3.60%","","$","1"],["Assumed Long-Term Rate of Return on Pension Assets","6.10%","","$","(5)"]] [[/GREPCENT_TABLE]] (1)Weighted average discount rates of 4.73% and 4.75% for pension plans and Other Retirement Plans, respectively. Based on current projections, the Company estimates that expenses related to Retirement Plans will be immaterial in 2024. Investments in Non-consolidated Affiliates Equity method investments are reviewed for indicators of other-than-temporary impairment on a quarterly basis. These investments are written down to fair value if there is evidence of a loss in value that is other-than-temporary. For equity investments without a readily determinable fair value for which the Company does not have significant influence, Moody's generally elects to measure these investments at cost, less impairment, adjusted for subsequent observable price changes as of the date that an observable transaction takes place. The Company performs an assessment on a quarterly basis to determine if there are indicators of impairment for its investments in non-consolidated affiliates. If there are indicators of impairment, the Company estimates the investment’s fair value and records an impairment if the carrying value of the investment exceeds its fair value. In situations where estimation of fair value is required for investments in non-consolidated affiliates, the Company considers various factors, including: recent observable investee equity transactions, comparable public company/precedent transaction multiples and discounted cash flow models. The estimation of fair value for these investments may involve significant judgment. Other Estimates In addition to the critical accounting estimates described above, there are other accounting estimates within Moody’s consolidated financial statements. Management believes the current assumptions and other considerations used to estimate amounts reflected in Moody’s consolidated financial statements are appropriate. However, if actual experience differs from the assumptions and other considerations used in estimating amounts reflected in Moody’s consolidated financial statements, the resulting changes could have a material adverse effect on Moody’s consolidated results of operations or financial condition. See Note 2 to the consolidated financial statements for further information on significant accounting policies that impact Moody’s. Reportable Segments The Company is organized into two reportable segments at December 31, 2023: MA and MIS, which are more fully described in the section entitled “The Company” above and in Note 22 to the consolidated financial statements. 44     MOODY'S 2023 10-K Table of Contents Results of Operations This section of this Form 10-K generally discusses the year ended December 31, 2023 and 2022 financial results and year-to-year comparisons between these years. Discussions related to the year ended December 31, 2021 financial results and year-to-year comparisons between the years ended December 31, 2022 and 2021 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022. The following footnotes are applicable throughout the discussion of the Company's results of operations: (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. (2)Refer to the section entitled "Key Performance Metrics" of this MD&A for the definition and methodology that the Company utilizes to calculate this metric. MOODY'S 2023 10-K     45 Table of Contents Year ended December 31, 2023 compared with year ended December 31, 2022 Executive Summary The following table provides an executive summary of key operating results for the year ended December 31, 2023. 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. [[GREPCENT_TABLE]] [["","Year Ended December 31,"],["Financial measure:","2023","2022","% Change Favorable / (Unfavorable)","Insight and Key Drivers of Change Compared to Prior Year"],["Moody's total revenue","$","5,916","","$","5,468","","8","%","\u2014 reflects growth in both segments"],["MA external revenue","$","3,056","","$","2,769","","10","%","\u2014 sustained demand for KYC solutions, as well as continued growth from insurance products and SaaS-based banking offerings;\u2014 ongoing strong retention for ratings data feeds; and\u2014 elevated usage and demand for credit and economic research"],["MIS external revenue","$","2,860","","$","2,699","","6","%","\u2014 increased investment-grade/speculative-grade corporate debt issuance coupled with higher infrastructure finance issuance relative to suppressed activity in the prior year; and\u2014 increases in banking-related revenue mainly due to favorable mix of infrequent issuers, as well as higher issuance volumes; partially offset by\u2014 declines across most asset classes in SFG reflecting a decrease in securitization activity amidst capital market volatility"],["Total operating and SG&A expenses","$","3,319","","$","3,140","","(6","%)","\u2014 higher incentive compensation accruals and performance-based equity compensation aligned with actual/expected financial and operating performance; and\u2014 higher salaries and benefits, primarily reflecting hiring and salary increases in MA to support business growth"],["Depreciation and amortization","$","373","","$","331","","(13","%)","\u2014 higher amortization relating to internally developed software, primarily related to the development of MA SaaS solutions"],["Restructuring","$","87","","$","114","","24","%","\u2014 relates to the Company's 2022 - 2023 Geolocation Restructuring Program, more fully discussed in Note 11 to the consolidated financial statements"],["Total non-operating (expense) income, net","$","(202)","","$","(123)","","(64","%)","\u2014 higher realized losses of $81 million on fixed-to-floating interest rate swaps resulting from higher interest rates (more fully discussed in Note 7 to the consolidated financial statements); \u2014 a $70 million gain on extinguishment of debt in in the prior year; and\u2014 a $20 million net increase in foreign exchange losses recorded during the year; partially offset by\u2014 an increase in interest income of $48 million related to higher cash balances and interest yields;\u2014 higher gains on certain of the Company's investments of $28 million; and \u2014 a $22 million benefit related to the resolutions of tax matters in the first quarter of 2023"],["Operating Margin","36.1","%","34.4","%","170BPS","\u2014 operating margin and Adjusted Operating Margin(1) expansion is primarily due to revenue growth, partially offset by increases in operating and SG&A costs"],["Adjusted Operating Margin(1)","43.9","%","42.6","%","130BPS"],["ETR","16.9","%","21.9","%","500BPS","\u2014 lower ETR primarily reflects tax benefits recognized in the first quarter of 2023, which resulted from the resolutions of UTPs in various U.S. and non-U.S. tax jurisdictions"],["Diluted EPS","$","8.73","","$","7.44","","17","%","\u2014 increase in Diluted EPS and Adjusted Diluted EPS(1) is mostly attributable to growth in operating income/Adjusted Operating Income(1) coupled with a $0.76/share benefit related to the resolutions of tax matters in the first quarter of 2023, compared to $0.12/share for similar matters in the first quarter of 2022"],["Adjusted Diluted EPS(1)","$","9.90","","$","8.57","","16","%"]] [[/GREPCENT_TABLE]] 46     MOODY'S 2023 10-K Table of Contents Moody’s Corporation [[GREPCENT_TABLE]] [["","Year Ended December 31,","","% Change Favorable (Unfavorable)"],["","2023","","2022"],["Revenue:"],["United States","$","3,098","","","$","2,873","","","8","%"],["Non-U.S.:"],["EMEA","1,848","","","1,682","","","10","%"],["Asia-Pacific","577","","","556","","","4","%"],["Americas","393","","","357","","","10","%"],["Total Non-U.S.","2,818","","","2,595","","","9","%"],["Total","5,916","","","5,468","","","8","%"],["Expenses:"],["Operating","1,687","","","1,613","","","(5","%)"],["SG&A","1,632","","","1,527","","","(7","%)"],["Depreciation and amortization","373","","","331","","","(13","%)"],["Restructuring","87","","","114","","","24","%"],["Total","3,779","","","3,585","","","(5","%)"],["Operating income","2,137","","","1,883","","","13","%"],["Adjusted Operating Income (1)","2,597","","","2,328","","","12","%"],["Interest expense, net","(251)","","","(231)","","","(9","%)"],["Other non-operating income, net","49","","","38","","","29","%"],["Gain on extinguishment of debt","\u2014","","","70","","","(100","%)"],["Non-operating (expense) income, net","(202)","","","(123)","","","(64","%)"],["Net income attributable to Moody\u2019s","$","1,607","","","$","1,374","","","17","%"],["Diluted weighted average shares outstanding","184.0","","","184.7","","","\u2014","%"],["Diluted EPS attributable to Moody\u2019s common shareholders","$","8.73","","","$","7.44","","","17","%"],["Adjusted Diluted EPS (1)","$","9.90","","","$","8.57","","","16","%"],["Operating margin","36.1","%","","34.4","%"],["Adjusted Operating Margin (1)","43.9","%","","42.6","%"],["ETR","16.9","%","","21.9","%"]] [[/GREPCENT_TABLE]] GLOBAL REVENUE 2023---------------------------------------------------------------------------------------2022 ________________________________________________________________________________________________________ [[GREPCENT_TABLE]] [["Global revenue \u21d1 $448 million","U.S. Revenue \u21d1 $225 million","Non-U.S. Revenue \u21d1 $223 million"]] [[/GREPCENT_TABLE]] Growth in global revenue reflected increases in both MA and MIS, both in the U.S. and internationally. Refer to the section entitled “Segment Results” of this MD&A for a more fulsome discussion of the Company’s segment revenue. MOODY'S 2023 10-K     47 Table of Contents [[GREPCENT_TABLE]] [["","","Operating Expense \u21d1 $74 million"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["Compensation expenses of $1,224 million increased $73 million primarily reflecting:","Non-compensation expenses of $463 million increased $1 million:"],["\u2014 an increase in incentive compensation accruals and performance-based equity compensation that aligns with actual/projected financial and operating performance; and","\u2014 expenses were generally in line with the prior year and reflective of disciplined cost management"],["\u2014 higher salaries and benefits that reflects hiring and salary increases, primarily in MA to support continued growth in the business."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","","SG&A Expense \u21d1 $105 million"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["Compensation expenses of $1,016 million increased $111 million reflecting:","Non-compensation expenses of $616 million decreased $6 million:"],["\u2014 an increase in incentive compensation accruals and performance-based equity compensation that aligns with actual/projected financial and operating performance; and","\u2014 expenses were generally in line with prior year and reflective of disciplined cost management"],["\u2014 an increase in salaries and benefits that reflects headcount growth and annual salary increases, primarily to support business growth in MA"]] [[/GREPCENT_TABLE]] 48     MOODY'S 2023 10-K Table of Contents Depreciation and amortization The increase in depreciation and amortization expense is driven by amortization of internally developed software, which is primarily related to the development of MA SaaS solutions. Restructuring The restructuring charge in both periods relates to the Company's 2022 - 2023 Geolocation Restructuring Program as more fully discussed in Note 11 to the consolidated financial statements. [[GREPCENT_TABLE]] [["","","Operating margin 36.1%, up 170 BPS","","","Adjusted Operating Margin 43.9%, up 130 BPS"]] [[/GREPCENT_TABLE]] Operating Margin and Adjusted Operating Margin(1) expansion primarily reflects revenue growth offset by an increase in operating and SG&A expenses. [[GREPCENT_TABLE]] [["","","Interest Expense, net \u21d1 $20 million","","","Other non-operating income \u21d1 $11 million"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["Increase in expense is primarily due to:","","The most notable drivers of the increase in income are:"],["\u2014 higher realized losses of $81 million on fixed-to-floating interest rate swaps resulting from higher interest rates (more fully discussed in Note 7 to the consolidated financial statements); partially offset by","","\u2014 higher gains on certain of the Company's investments of $28 million; partially offset by"],["","\u2014 a $20 million net increase in foreign currency losses mainly attributable to an immaterial out-of-period adjustment relating to the 2022 fiscal year, partially offset by foreign currency translation losses reclassified to earnings in 2022 resulting from the Company no longer conducting commercial operations in Russia."],["\u2014 higher interest income of $48 million reflecting higher cash balances and interest yields; and"],["\u2014 a $22 million benefit related to the resolutions of tax matters in the first quarter of 2023."]] [[/GREPCENT_TABLE]] Gain on extinguishment of debt The gain in the prior year relates to the early redemption of a portion of the 2.55% 2020 Senior Notes, Due 2060. [[GREPCENT_TABLE]] [["","","ETR \u21d3 500BPS"]] [[/GREPCENT_TABLE]] The decrease in the ETR primarily reflects the resolutions of UTPs in various U.S. and non-U.S. tax jurisdictions in the first quarter of 2023, which resulted in a decrease to the provision for income taxes of $113 million. [[GREPCENT_TABLE]] [["","","Diluted EPS \u21d1 $1.29","","","Adjusted Diluted EPS \u21d1 $1.33"]] [[/GREPCENT_TABLE]] Both diluted EPS and Adjusted Diluted EPS(1) growth is mostly attributable to higher operating income and Adjusted Operating Income(1), the components of which are more fully described above. This is coupled with a $0.76/share benefit related to the resolutions of tax matters in the first quarter of 2023, compared to $0.12/share for similar matters in the first quarter of 2022. MOODY'S 2023 10-K     49 Table of Contents Segment Results Moody’s Analytics The table below provides a summary of revenue and operating results, followed by further insight and commentary: [[GREPCENT_TABLE]] [["","Year Ended December 31,","","% Change Favorable (Unfavorable)"],["","2023","","2022"],["Revenue:"],["Decision Solutions (DS)","$","1,383","","","$","1,245","","","11","%"],["Research and Insights (R&I)","884","","","812","","","9","%"],["Data and Information (D&I)","789","","","712","","","11","%"],["Total external revenue","3,056","","","2,769","","","10","%"],["Intersegment revenue","13","","","8","","","63","%"],["Total MA Revenue","3,069","","","2,777","","","11","%"],["Expenses:"],["Operating and SG&A (external)","1,946","","","1,763","","","(10","%)"],["Operating and SG&A (intersegment)","186","","","174","","","(7","%)"],["Total operating and SG&A expense","2,132","","","1,937","","","(10","%)"],["Adjusted Operating Income","$","937","","","$","840","","","12","%"],["Adjusted Operating Margin","30.5","%","","30.2","%"],["Depreciation and amortization","298","","","250","","","(19","%)"],["Restructuring","59","","","49","","","(20","%)"]] [[/GREPCENT_TABLE]] MOODY'S ANALYTICS REVENUE 2023---------------------------------------------------------------------------------------2022 ________________________________________________________________________________________________________ [[GREPCENT_TABLE]] [["MA: Global revenue \u21d1 $287 million","U.S. Revenue \u21d1 $109 million","Non-U.S. Revenue \u21d1 $178 million"]] [[/GREPCENT_TABLE]] The 10% increase in global MA revenue reflects growth both in the U.S. (9%) and internationally (12%) across all LOBs. –ARR(2) increased 10% reflecting strong growth across all LOBs. 50     MOODY'S 2023 10-K Table of Contents DECISION SOLUTIONS REVENUE 2023---------------------------------------------------------------------------------------2022 ________________________________________________________________________________________________________ [[GREPCENT_TABLE]] [["DS: Global revenue \u21d1 $138 million","U.S. Revenue \u21d1 $58 million","Non-U.S. Revenue \u21d1 $80 million"]] [[/GREPCENT_TABLE]] Global DS revenue for the for the years ended December 31, 2023 and 2022 was comprised as follows: Global DS revenue grew 11% and reflects increases in both the U.S. (11%) and internationally (11%). The most notable drivers of the growth reflect: –continued demand for KYC solutions reflecting increased counterparty risk data usage, including new sales growth from corporates, governments, and insurers, which also drove ARR(2) growth of 17%; –growth in subscription-based revenue for actuarial modeling and regulatory reporting tools that support customers' compliance with certain international accounting standards relating to insurance contracts, which resulted in ARR(2) growth of 11%; and –growth across banking offerings following Moody's investments in SaaS-based solutions, which also resulted in ARR(2) growth of 9%. The aforementioned factors contributed to overall ARR(2) growth for DS of 11%. MOODY'S 2023 10-K     51 Table of Contents RESEARCH AND INSIGHTS REVENUE 2023---------------------------------------------------------------------------------------2022 ________________________________________________________________________________________________________ [[GREPCENT_TABLE]] [["R&I: Global revenue \u21d1 $72 million","U.S. Revenue \u21d1 $20 million","Non-U.S. Revenue \u21d1 $52 million"]] [[/GREPCENT_TABLE]] Global R&I revenue increased 9% compared to 2022 and reflects growth in both the U.S. (4%) and internationally (15%). The most notable drivers of growth reflect: –increased demand for credit default models and economic analytics, partially due to banking stress events in the first quarter; and –steady sales growth and strong retention from the CreditView product offering. The aforementioned factors contributed to overall ARR(2) growth for R&I of 7%. DATA AND INFORMATION REVENUE 2023---------------------------------------------------------------------------------------2022 ________________________________________________________________________________________________________ [[GREPCENT_TABLE]] [["D&I: Global revenue \u21d1 $77 million","U.S. Revenue \u21d1 $31 million","Non-U.S. Revenue \u21d1 $46 million"]] [[/GREPCENT_TABLE]] Global D&I revenue increased 11% compared to 2022 and reflects growth in both the U.S. (12%) and internationally (10%), mainly driven by: –continued strong retention and new sales for ratings feeds coupled with higher price realization; and –increased demand for company data. The aforementioned factors also contributed to ARR(2) growth of 10% for D&I. 52     MOODY'S 2023 10-K Table of Contents [[GREPCENT_TABLE]] [["","","MA: Operating and SG&A Expense \u21d1 $183 million"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["Compensation expenses of $1,238 million increased $122 million:","","Non-compensation expenses of $708 million increased $61 million:"],["\u2014 the growth in salaries and benefits reflects higher headcount and annual salary increases to support business growth; and","","\u2014 the increase is mostly attributable to operating growth, including investments to support technology, innovation and product development."],["\u2014 the increase in incentive and performance-based equity compensation aligns with actual/expected financial and operational performance as well as headcount growth."]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["","","MA: Adjusted Operating Margin 30.5% \u21d1 30BPS"]] [[/GREPCENT_TABLE]] The modest Adjusted Operating Margin expansion for MA is primarily due to the 10% increase in global MA revenue, offset by a 10% increase in operating and SG&A expenses. Depreciation and amortization The increase in depreciation and amortization expense primarily reflects higher amortization of internally developed software relating to the development of SaaS-based solutions. Restructuring The restructuring charges in both periods relate to the Company's 2022 - 2023 Geolocation Restructuring Program as more fully discussed in Note 11 to the consolidated financial statements. MOODY'S 2023 10-K     53 Table of Contents Moody’s Investors Service The table below provides a summary of revenue and operating results, followed by further insight and commentary: [[GREPCENT_TABLE]] [["","Year Ended December 31,","","% Change Favorable (Unfavorable)"],["","2023","","2022"],["Revenue:"],["Corporate finance (CFG)","$","1,404","","","$","1,269","","","11","%"],["Structured finance (SFG)","405","","","462","","","(12","%)"],["Financial institutions (FIG)","545","","","491","","","11","%"],["Public, project and infrastructure finance (PPIF)","476","","","431","","","10","%"],["Total ratings revenue","2,830","","","2,653","","","7","%"],["MIS Other","30","","","46","","","(35","%)"],["Total external revenue","2,860","","","2,699","","","6","%"],["Intersegment royalty","186","","","174","","","7","%"],["Total","3,046","","","2,873","","","6","%"],["Expenses:"],["Operating and SG&A (external)","1,373","","","1,377","","","\u2014","%"],["Operating and SG&A (intersegment)","13","","","8","","","(63","%)"],["Total operating and SG&A expense","1,386","","","1,385","","","\u2014","%"],["Adjusted Operating Income","$","1,660","","","$","1,488","","","12","%"],["Adjusted Operating Margin","54.5","%","","51.8","%"],["Depreciation and amortization","75","","","81","","","7","%"],["Restructuring","28","","","65","","","57","%"]] [[/GREPCENT_TABLE]] The following chart presents changes in rated issuance volumes compared to 2022. To the extent that changes in rated issuance volumes had a material impact to MIS's revenue compared to the prior year, those impacts are discussed below. 54     MOODY'S 2023 10-K Table of Contents MOODY'S INVESTORS SERVICE REVENUE 2023---------------------------------------------------------------------------------------2022 ________________________________________________________________________________________________________ [[GREPCENT_TABLE]] [["MIS: Global revenue \u21d1 $161 million","U.S. Revenue \u21d1 $116 million","Non-U.S. Revenue \u21d1 $45 million"]] [[/GREPCENT_TABLE]] The increase in global MIS revenue reflects growth in CFG, FIG and PPIF revenue being partly offset by declines in SFG activity across most asset classes. CFG REVENUE 2023---------------------------------------------------------------------------------------2022 ________________________________________________________________________________________________________ [[GREPCENT_TABLE]] [["CFG: Global revenue \u21d1 $135 million","U.S. Revenue \u21d1 $120 million","Non-U.S. Revenue \u21d1 $15 million"]] [[/GREPCENT_TABLE]] Global CFG revenue for the years ended December 31, 2023 and 2022 was comprised as follows: * 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. MOODY'S 2023 10-K     55 Table of Contents The growth in CFG revenue reflected increases in both the U.S (14%) and internationally (3%). Transaction revenue increased $115 million compared to the prior year, with the most notable drivers reflecting: –higher leveraged finance (speculative-grade bonds and bank loans) and investment-grade rated issuance volumes reflecting both refinancing activity and issuance to fund M&A transactions compared to suppressed issuance activity in these sectors in the prior year. SFG REVENUE 2023---------------------------------------------------------------------------------------2022 ________________________________________________________________________________________________________ [[GREPCENT_TABLE]] [["SFG: Global revenue \u21d3 $57 million","U.S. Revenue \u21d3 $56 million","Non-U.S. Revenue \u21d3 $1 million"]] [[/GREPCENT_TABLE]] Global SFG revenue for the years ended December 31, 2023 and 2022 was comprised as follows: The decrease in SFG revenue of 12% reflected declines in both the U.S. (18%) and internationally (1%). Transaction revenue decreased $72 million compared to 2022. The decline in SFG revenue reflected lower securitization activity across most asset classes, most notably in CMBS, resulting from higher credit spreads and market volatility given ongoing geopolitical and macroeconomic uncertainties. 56     MOODY'S 2023 10-K Table of Contents FIG REVENUE 2023---------------------------------------------------------------------------------------2022 ________________________________________________________________________________________________________ [[GREPCENT_TABLE]] [["FIG: Global revenue \u21d1 $54 million","U.S. Revenue \u21d1 $30 million","Non-U.S. Revenue \u21d1 $24 million"]] [[/GREPCENT_TABLE]] Global FIG revenue for the years ended December 31, 2023 and 2022 was comprised as follows: The increase in FIG revenue of 11% reflected growth in both the U.S. (13%) and internationally (9%) which resulted in a $43 million increase in transaction revenue compared to 2022. The most notable drivers of the increase reflected: –a favorable mix of infrequent issuers within the banking sector coupled with higher rated issuance volumes; and –higher rated issuance volumes in the insurance sector. PPIF REVENUE 2023---------------------------------------------------------------------------------------2022 ________________________________________________________________________________________________________ MOODY'S 2023 10-K     57 Table of Contents [[GREPCENT_TABLE]] [["PPIF: Global revenue \u21d1 $45 million","U.S. Revenue \u21d1 $26 million","Non-U.S. Revenue \u21d1 $19 million"]] [[/GREPCENT_TABLE]] Global PPIF revenue for the years ended December 31, 2023 and 2022 was comprised as follows: The 10% increase in PPIF revenue reflected growth in both the U.S. (10%) and internationally (12%), which resulted in an increase in transaction revenue of $38 million compared to 2022. The most notable drivers of the growth were: –increases in investment-grade infrastructure finance activity in the U.S. and internationally; and –higher U.S. and international public finance activity. [[GREPCENT_TABLE]] [["","","MIS: Operating and SG&A Expense \u21d3 $4 million"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["Compensation expenses of $1,003 million increased $63 million:","","Non-compensation expenses of $370 million decreased $67 million:"],["\u2014 the increase in incentive compensation accruals and stock-based compensation is aligned with actual/projected financial and operating performance.","","\u2014 the decrease in non-compensation costs is primarily due to ongoing disciplined cost management."]] [[/GREPCENT_TABLE]] Restructuring The restructuring charges in both periods relate to the Company's 2022 - 2023 Geolocation Restructuring Program as more fully discussed in Note 11 to the consolidated financial statements. [[GREPCENT_TABLE]] [["","","","","","MIS: Adjusted Operating Margin 54.5% \u21d1 270BPS"]] [[/GREPCENT_TABLE]] The MIS Adjusted Operating Margin expansion primarily reflected the aforementioned 6% increase in revenue coupled with ongoing disciplined cost management. 58     MOODY'S 2023 10-K Table of Contents Market Risk FX risk: Moody’s maintains a presence in more than 40 countries. In 2023, approximately 41% of the Company’s revenue and approximately 38% of the Company's expenses were denominated in functional currencies other than the U.S. dollar, principally in the British pound and the euro. As such, the Company is exposed to market risk from changes in FX rates. As of December 31, 2023, approximately 52% of Moody’s assets were located outside the U.S., making the Company susceptible to fluctuations in FX rates. The effects of translating assets and liabilities of non-U.S. operations with non-U.S. functional currencies to the U.S. dollar are charged or credited to OCI. The effects of revaluing assets and liabilities that are denominated in currencies other than a subsidiary’s functional currency are charged to other non-operating income, net in the Company’s consolidated statements of operations. Accordingly, the Company enters into foreign exchange forward contracts to partially mitigate the change in fair value on certain assets and liabilities denominated in currencies other than a subsidiary’s functional currency. The following table shows the impact to the fair value of the forward contracts if currencies being purchased were to weaken by 10%: [[GREPCENT_TABLE]] [["Foreign Currency Forwards (1)","","Impact on fair value of contract"],["Sell","","Buy"],["U.S. dollar","","British pound","","$52 million unfavorable impact"],["U.S. dollar","","Canadian dollar","","$14 million unfavorable impact"],["U.S. dollar","","Euro","","$6 million unfavorable impact"],["U.S. dollar","","Singapore dollar","","$5 million unfavorable impact"],["U.S. dollar","","Indian rupee","","$2 million unfavorable impact"],["U.S. dollar","","Japanese yen","","$1 million unfavorable impact"],["Canadian dollar","","U.S. dollar","","$2 million favorable impact"],["","","","","$78 million unfavorable impact"]] [[/GREPCENT_TABLE]] (1)Refer to Note 7 to the consolidated financial statements in Item 8 of this Form 10-K for further detail on the forward contracts. The change in fair value of the foreign exchange forward contracts would be offset by FX revaluation gains or losses on underlying assets and liabilities denominated in currencies other than a subsidiary’s functional currency. Derivatives and non-derivatives designated as net investment hedges: The Company designates derivative instruments and foreign currency-denominated debt as hedges of foreign currency risk of net investments in certain foreign subsidiaries (net investment hedges) under ASC Topic 815, Derivatives and Hedging. Cross-currency swaps As of December 31, 2023, the Company had cross-currency swaps designated as hedges of euro denominated net investments in subsidiaries, for which the notional values and corresponding interest rates are disclosed in Note 7 to the consolidated financial statements located in Item 8 of this Form 10-K. If the euro were to strengthen 10% relative to the U.S. dollar, there would be an approximate $321 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. Euro-denominated debt As of December 31, 2023, the Company has designated €500 million of the 2015 Senior Notes and €750 million of the 2019 Senior Notes as a net investment hedge to mitigate FX exposure relating to euro denominated net investments in subsidiaries. If the euro were to strengthen 10% relative to the U.S. dollar, there would be an approximate $138 million unfavorable adjustment to OCI related to these net investment hedges. This adjustment would be offset by favorable translation adjustments on the Company’s euro net investment in subsidiaries. MOODY'S 2023 10-K     59 Table of Contents Interest rate and credit risk: Interest rate swaps designated as a fair value hedge: The Company’s interest rate risk management objectives are to reduce the funding cost and volatility to the Company and to alter the interest rate exposure to a desired risk profile. Moody’s uses interest rate swaps as deemed necessary to assist in accomplishing these objectives. The Company is exposed to interest rate risk on its various outstanding fixed-rate debt for which the fair value of the outstanding fixed rate debt fluctuates based on changes in interest rates. The Company has entered into interest rate swaps to convert the fixed interest rate on certain of its long-term debt to a floating interest rate based on the SOFR. These swaps are adjusted to fair market value based on prevailing interest rates at the end of each reporting period and fluctuations are recorded as a reduction or addition to the carrying value of the borrowing, while net interest payments are recorded as interest expense/income in the Company’s consolidated statement of operations. A hypothetical change of 100 BPS in the SOFR-based swap rate would result in an approximate $275 million change to the fair value of the swaps, which would be offset by the change in fair value of the hedged item. Additional information on these interest rate swaps is disclosed in Note 7 to the consolidated financial statements located in Item 8 of this Form 10-K. Moody’s cash equivalents consist of investments in high-quality investment-grade securities within and outside the U.S. with maturities of three months or less when purchased. The Company manages its credit risk exposure by allocating its cash equivalents among various money market deposit accounts and certificates of deposit and by limiting the amount it can invest with any single issuer. Short-term investments primarily consist of certificates of deposit. Liquidity and Capital Resources Moody's remains committed to using its strong cash flow to create value for shareholders by both investing in the Company's employees and growing the business through targeted organic initiatives and inorganic acquisitions aligned with strategic priorities. Additional excess capital is returned to the Company’s shareholders via a combination of dividends and share repurchases. Cash Flow The Company is currently financing its operations, capital expenditures, acquisitions and share repurchases from operating and financing cash flows. The following is a summary of the changes in the Company’s cash flows followed by a brief discussion of these changes: [[GREPCENT_TABLE]] [["","Year Ended December 31,","","$ Change Favorable/ (unfavorable)"],["","2023","","2022"],["Net cash provided by operating activities","$","2,151","","","$","1,474","","","$","677"],["Net cash used in investing activities","$","(247)","","","$","(262)","","","$","15"],["Net cash used in financing activities","$","(1,584)","","","$","(1,208)","","","$","(376)"],["Free Cash Flow (1)","$","1,880","","","$","1,191","","","$","689"]] [[/GREPCENT_TABLE]] (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 additions. Refer to the section entitled “Non-GAAP Financial Measures” of this MD&A for further information on this financial measure. Net cash provided by operating activities Net cash flows from operating activities increased by $677 million compared to the prior year, partly related to an increase in net income of $234 million (see section entitled “Results of Operations” of this MD&A for further discussion). Additionally, the increase in operating cash flow reflects: –higher income tax payments in the prior year of $144 million; –approximately $140 million in higher incentive compensation payments in 2022 (based on full-year 2021 financial and operating results) compared to payments made in the current year (based on full-year 2022 financial and operating results); and –the remaining increase is primarily due to various changes in working capital. Net cash used in investing activities The $15 million decrease in cash flows used in investing activities compared to 2022 primarily reflects: –higher cash paid of $94 million in the prior year for acquisitions, primarily reflecting the acquisition of kompany in 2022; –higher net purchases of investments in non-consolidated affiliates in the prior year of $80 million, reflecting the purchase of Moody's equity interest in GCR in the prior year; and –higher net sales of investments in 2023 of $49 million; mostly offset by: 60     MOODY'S 2023 10-K Table of Contents –higher net cash receipts of $220 million in 2022 relating to the settlement of net investment hedges. Net cash used in financing activities The $376 million increase in cash used in financing activities was primarily attributed to: –debt repayments of $500 million in 2023, compared to net issuance of $362 million in the prior year (refer to the section "Material Cash Requirements" below for further discussion on the Company's financing arrangements); partially offset by: –higher cash paid for treasury share repurchases in 2022 of $493 million, which includes payment for shares made under an ASR agreement executed in the first quarter of 2022. Cash and cash equivalents and short-term investments The Company’s aggregate cash and cash equivalents and short-term investments of $2.2 billion at December 31, 2023 included approximately $1.7 billion located outside of the U.S. Approximately 43% of the Company’s aggregate cash and cash equivalents and short-term investments is denominated in EUR and GBP. 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 continues to repatriate 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. Material Cash Requirements The Company's material cash requirements consist of the following contractual and other obligations: Financing Arrangements Indebtedness At December 31, 2023, Moody’s had $7.0 billion of outstanding debt and approximately $1 billion of additional capacity available under the Company’s CP program, which is backstopped by the $1.25 billion 2021 Facility. The repayment schedule for the Company’s borrowings outstanding at December 31, 2023 is as follows: Future interest payments and fees associated with the Company's debt and credit facility are expected to be $5.0 billion, of which approximately $300 million is expected to be paid in each of the next five years, and the remaining amount expected to be paid thereafter. For additional information on the Company's outstanding debt, CP program and 2021 Facility, refer to Note 18 to the consolidated financial statements. Management may consider pursuing additional long-term financing when it is appropriate in light of cash requirements for operations, share repurchases and other strategic opportunities, which could result in higher financing costs. Purchase Obligations Purchase obligations generally include multi-year agreements with vendors to purchase goods or services and mainly include data center/cloud hosting fees and fees for information technology licensing and maintenance. As of December 31, 2023, these purchase obligations totaled $788 million, of which approximately 40% is expected to be paid in the next twelve months and another approximate 45% expected to be paid over the next two subsequent years, with the remainder to be paid thereafter. MOODY'S 2023 10-K     61 Table of Contents Leases The Company has remaining payments related to its operating leases of $442 million at December 31, 2023, primarily related to real estate leases, of which $118 million in payments are expected over the next twelve months. For more information on the expected cash flows relating to the Company's operating leases, refer to Note 20 to the consolidated financial statements. Pension and Other Retirement Plan Obligations The Company does not anticipate making significant contributions to its funded pension plan in the next twelve months. This plan is overfunded at December 31, 2023, and accordingly holds sufficient investments to fund future benefit obligations. Payments for the Company's unfunded plans are not expected to be material in either the short or long-term. For further information on the Company's pension and other retirement plan obligations, refer to Note 15 to the consolidated financial statements. Dividends and share repurchases On February 5, 2024, the Board approved the declaration of a quarterly dividend of $0.85 per share for Moody’s common stock, payable March 15, 2024 to shareholders of record at the close of business on February 23, 2024. The continued payment of dividends at this rate, or at all, is subject to the discretion of the Board. On February 7, 2022, the Board approved $750 million in share repurchase authority. At December 31, 2023, the Company had approximately $359 million of remaining authority. On February 5, 2024, the Board of Directors authorized an additional $1 billion in share repurchase authority. There is no established expiration date for the remaining authorizations. Restructuring As more fully discussed in Note 11 to the consolidated financial statements, the Company has substantially completed the 2022 - 2023 Geolocation Restructuring Program. Future cash outlays associated with this program, which will consist of personnel-related costs, are expected to be $36 million, substantially all of which are expected to be paid through 2024. Sources of Funding to Satisfy Material Cash Requirements The Company believes that it has the financial resources needed to meet its cash requirements and expects to have positive operating cash flow in 2024. 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 as described above. 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 Moody's operating performance. Adjusted Operating Income excludes the impact of: i) depreciation and amortization; and ii) restructuring charges/adjustments. Depreciation and amortization are excluded because companies utilize productive assets of different useful lives and use different methods of acquiring and depreciating productive assets. Restructuring charges/adjustments are excluded as the frequency and magnitude of these charges may vary widely across periods and 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. 62     MOODY'S 2023 10-K Table of Contents [[GREPCENT_TABLE]] [["","Year ended December 31,"],["","2023","","2022"],["Operating income","$","2,137","","","$","1,883"],["Adjustments:"],["Depreciation and amortization","373","","","331"],["Restructuring","87","","","114"],["Adjusted Operating Income","$","2,597","","","$","2,328"],["Operating margin","36.1","%","","34.4","%"],["Adjusted Operating Margin","43.9","%","","42.6","%"]] [[/GREPCENT_TABLE]] 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 Moody's operating performance. Adjusted Net Income and Adjusted Diluted EPS exclude the impact of: i) amortization of acquired intangible assets; ii) restructuring charges/adjustments; iii) a gain on the extinguishment of debt; and iv) FX translation losses reclassified to earnings resulting from the Company no longer conducting commercial operations in Russia. The Company excludes the impact of amortization of acquired intangible assets as companies utilize intangible assets with different estimated useful lives and have different methods of acquiring and amortizing intangible assets. These intangible assets were recorded as part of acquisition accounting and contribute to revenue generation. The amortization of intangible assets related to acquisitions will recur in future periods until such intangible assets have been fully amortized. Furthermore, the timing and magnitude of business combination transactions are not predictable and the purchase price allocated to amortizable intangible assets and the related amortization period are unique to each acquisition and can vary significantly from period to period and across companies. Restructuring charges/adjustments, the gain on extinguishment of debt, and FX translation losses reclassified to earnings resulting from the Company no longer conducting commercial operations in Russia are excluded as the frequency and magnitude of these items may vary widely across periods and 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. [[GREPCENT_TABLE]] [["","Year ended December 31,"],["Amounts in millions","2023","","2022"],["Net income attributable to Moody\u2019s common shareholders","","","$","1,607","","","","","$","1,374"],["Pre-tax Acquisition-Related Intangible Amortization Expenses","$","198","","","","","$","200"],["Tax on Acquisition-Related Intangible Amortization Expenses","(48)","","","","","(47)"],["Net Acquisition-Related Intangible Amortization Expenses","","","150","","","","","153"],["Pre-tax restructuring","$","87","","","","","$","114"],["Tax on restructuring","(22)","","","","","(26)"],["Net restructuring","","","65","","","","","88"],["Pre-tax gain on extinguishment of debt","$","\u2014","","","","","$","(70)"],["Tax on gain on extinguishment of debt","\u2014","","","","","17"],["Net gain on extinguishment of debt","","","\u2014","","","","","(53)"],["FX losses resulting from the Company no longer conducting commercial operations in Russia","","","\u2014","","","","","20"],["Adjusted Net Income","","","$","1,822","","","","","$","1,582"]] [[/GREPCENT_TABLE]] MOODY'S 2023 10-K     63 Table of Contents [[GREPCENT_TABLE]] [["","Year ended December 31,"],["","2023","","2022"],["Diluted earnings per share attributable to Moody\u2019s common shareholders","","","$","8.73","","","","","$","7.44"],["Pre-tax Acquisition-Related Intangible Amortization Expenses","$","1.08","","","","","$","1.08"],["Tax on Acquisition-Related Intangible Amortization Expenses","(0.26)","","","","","(0.25)"],["Net Acquisition-Related Intangible Amortization Expenses","","","0.82","","","","","0.83"],["Pre-tax restructuring","$","0.47","","","","","$","0.62"],["Tax on restructuring","(0.12)","","","","","(0.14)"],["Net restructuring","","","0.35","","","","","0.48"],["Pre-tax gain on extinguishment of debt","$","\u2014","","","","","$","(0.38)"],["Tax on gain on extinguishment of debt","\u2014","","","","","0.09"],["Net gain on extinguishment of debt","","","\u2014","","","","","(0.29)"],["FX losses resulting from the Company no longer conducting commercial operations in Russia","","","\u2014","","","","","0.11"],["Adjusted Diluted EPS","","","$","9.90","","","","","$","8.57"]] [[/GREPCENT_TABLE]] Note: the tax impacts in the table above were calculated using tax rates in effect in the jurisdiction for which the item relates. Free Cash Flow: The Company defines Free Cash Flow as net cash provided by operating activities minus cash paid for capital additions. Management believes that Free Cash Flow is a useful metric in assessing the Company’s cash flows to service debt, pay dividends and to fund acquisitions and share repurchases. Management deems capital expenditures essential to the Company’s product and service innovations and maintenance of Moody’s operational capabilities. Accordingly, capital expenditures are deemed to be a recurring use of Moody’s cash flow. Below is a reconciliation of the Company’s net cash flows from operating activities to Free Cash Flow: [[GREPCENT_TABLE]] [["","Year ended December 31,"],["","2023","","2022"],["Net cash provided by operating activities","$","2,151","","","$","1,474"],["Capital additions","(271)","","","(283)"],["Free Cash Flow","$","1,880","","","$","1,191"],["Net cash used in investing activities","$","(247)","","","$","(262)"],["Net cash used in financing activities","$","(1,584)","","","$","(1,208)"]] [[/GREPCENT_TABLE]] 64     MOODY'S 2023 10-K Table of Contents Key Performance Metrics: The Company presents ARR on a constant currency organic basis for its MA business as a supplemental performance metric to provide additional insight on the estimated value of MA's recurring revenue contracts at a given point in time. The Company uses ARR to manage and monitor performance of its MA operating segment and believes that this metric is a key indicator of the trajectory of MA's recurring revenue base. The Company calculates ARR by taking the total recurring contract value for each active renewable contract as of the reporting date, divided by the number of days in the contract and multiplied by 365 days to create an annualized value. The Company defines renewable contracts as subscriptions, term licenses, maintenance and renewable services. ARR excludes transaction sales including training, one-time services and perpetual licenses. In order to compare period-over-period ARR excluding the effects of foreign currency translation, the Company bases the calculation on currency rates utilized in its current year operating budget and holds these FX rates constant for the duration of all current and prior periods being reported. Additionally, ARR excludes contracts related to acquisitions to provide additional perspective in assessing growth excluding the impacts from certain acquisition activity. The Company’s definition of ARR may differ from definitions utilized by other companies reporting similarly named measures, and this metric should be viewed in addition to, and not as a substitute for, financial measures presented in accordance with GAAP. [[GREPCENT_TABLE]] [["Amounts in millions","December 31, 2023","","December 31, 2022","","Change","","Growth"],["MA ARR"],["Decision Solutions"],["Banking","$","418","","","$","385","","","$","33","","","9%"],["Insurance","533","","","482","","","51","","","11%"],["KYC","326","","","279","","","47","","","17%"],["Total Decision Solutions","$","1,277","","","$","1,146","","","$","131","","","11%"],["Research and Insights","879","","","819","","","60","","","7%"],["Data and Information","806","","","733","","","73","","","10%"],["Total MA ARR","$","2,962","","","$","2,698","","","$","264","","","10%"]] [[/GREPCENT_TABLE]] Recently Issued Accounting Pronouncements Refer to Note 2 to the consolidated financial statements located in Part II, Item 8 on this Form 10-K for a discussion on the impact to the Company relating to recently issued accounting pronouncements. Contingencies Legal proceedings in which the Company is involved also may impact Moody’s liquidity or operating results. No assurance can be provided as to the outcome of such proceedings. In addition, litigation inherently involves significant costs. For information regarding legal proceedings, see Part II, Item 8 – “Financial Statements,” Note 21 “Contingencies” in this Form 10-K. Forward-Looking Statements Certain statements contained in this annual report on Form 10-K are forward-looking statements and are based on future expectations, plans and prospects for the Company's business and operations that involve a number of risks and uncertainties. Such statements involve estimates, projections, goals, forecasts, assumptions and uncertainties that could cause actual results or outcomes to differ materially from those contemplated, expressed, projected, anticipated or implied in the forward-looking statements. Those statements appear at various places throughout this annual report on Form 10-K, including in the sections entitled “Contingencies” under Item 7, “MD&A”, commencing on page 40 of this annual report on Form 10-K, under “Legal Proceedings” in Part I, Item 3, of this Form 10-K, and elsewhere in the context of statements containing the words “believe,” “expect,” “anticipate,” “intend,” “plan,” “will,” “predict,” “potential,” “continue,” “strategy,” “aspire,” “target,” “forecast,” “project,” “estimate,” “should,” “could,” “may,” and similar expressions or words and variations thereof relating to the Company’s views on future events, trends and contingencies or otherwise convey the prospective nature of events or outcomes generally indicative of forward-looking statements. Stockholders and investors are cautioned not to place undue reliance on these forward-looking statements. The forward-looking statements and other information in this document are made as of the date of this annual report on Form 10-K, and the Company undertakes no obligation (nor does it intend) to publicly supplement, update or revise such statements on a going-forward basis, whether as a result of subsequent developments, changed expectations or otherwise, except as required by applicable law or regulation. In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, the Company is identifying certain factors 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 general economic conditions (including significant government debt and deficit levels, and inflation and related monetary policy actions by governments in response to inflation) on worldwide credit markets and on economic activity, including on the volume of mergers and acquisitions, and their effects on the volume of debt and other securities issued in domestic and/or global capital markets; MOODY'S 2023 10-K     65 Table of Contents –the uncertain effectiveness and possible collateral consequences of U.S. and foreign government initiatives and monetary policy to respond to the current economic climate, including instability of financial institutions, credit quality concerns, and other potential impacts of volatility in financial and credit markets; –the global impacts of the Russia-Ukraine military conflict and the military conflict in Israel and the surrounding areas on volatility in world financial markets, on general economic conditions and GDP in the U.S. and worldwide, on global relations and on the Company's own operations and personnel; –other matters that could affect the volume of debt and other securities issued in domestic and/or global capital markets, including regulation, increased utilization of technologies that have the potential to intensify competition and accelerate disruption and disintermediation in the financial services industry, as well as the number of issuances of securities without ratings or securities which are rated or evaluated by non-traditional parties; –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, tax agreements and trade barriers; –the impact of MIS’s withdrawal of its credit ratings on countries or entities within countries and of Moody’s no longer conducting commercial operations in countries where political instability warrants such actions; –concerns in the marketplace affecting our credibility or otherwise affecting market perceptions of the integrity or utility of independent credit agency ratings; –the introduction or development of competing and/or emerging technologies and products; –pricing pressure from competitors and/or customers; –the level of success of new product development and global expansion; –the impact of regulation as an NRSRO, the potential for new U.S., state and local legislation and regulations; –the potential for increased competition and regulation in the jurisdictions in which we operate, including the EU; –exposure to litigation related to our rating opinions, as well as any other litigation, government and regulatory proceedings, investigations and inquiries to which Moody’s may be subject from time to time; –provisions in U.S. legislation modifying the pleading standards and EU regulations modifying the liability standards applicable to CRAs in a manner adverse to CRAs; –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; –uncertainty regarding the future relationship between the U.S. and China; –the possible loss of key employees and the impact of the global labor environment; –failures or malfunctions of our operations and infrastructure; –any vulnerabilities to cyber threats or other cybersecurity concerns; –the timing and effectiveness of our restructuring programs, such as the 2022 - 2023 Geolocation Restructuring Program; –currency and foreign exchange volatility; –the outcome of any review by tax authorities of Moody’s global tax planning initiatives; –exposure to potential criminal sanctions or civil remedies if Moody’s fails to comply with foreign and U.S. laws and regulations that are applicable in the jurisdictions in which Moody’s 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, such as our acquisition of RMS, or other business combinations and the ability of Moody’s to successfully integrate acquired businesses; –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 described in greater detail under “Risk Factors” in Part I, Item 1A of Moody’s annual report on Form 10-K for the year ended December 31, 2023, 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 66     MOODY'S 2023 10-K Table of Contents Company assess the potential effect of any new factors on it. Forward-looking and other statements in this document may also address our corporate responsibility progress, plans, and goals (including sustainability and environmental matters), and the inclusion of such statements is not an indication that these contents are necessarily material to investors or required to be disclosed in the Company’s filings with the Securities and Exchange Commission. In addition, historical, current, and forward-looking sustainability-related statements may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve, and assumptions that are subject to change in the future.