Item 8. FINANCIAL STATEMENTS

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Item 8. FINANCIAL STATEMENTS

Index to Financial Statements


						Page(s)
Management’s Report on Internal Control Over Financial Reporting						69
Report of Independent Registered Public Accounting Firm						70-71
Consolidated Financial Statements:
Consolidated Statements of Operations						72
Consolidated Statements of Comprehensive Income						73
Consolidated Balance Sheets						74
Consolidated Statements of Cash Flows						75
Consolidated Statements of Shareholders’ Equity						76-78
Notes to Consolidated Financial Statements						79-129

Schedules are omitted as not required or inapplicable or because the required information is provided in the consolidated financial statements, including the notes thereto.

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MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management of Moody’s Corporation is responsible for establishing and maintaining adequate internal control over financial reporting and for the assessment of the effectiveness of internal control over financial reporting. As defined by the SEC in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, internal control over financial reporting is a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the Company’s Board, management and other personnel, 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.

Moody’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of Moody’s management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management of the Company evaluated and assessed the design and operational effectiveness of the Company’s internal control over financial reporting as of December 31, 2021 based on criteria established in the Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Our assessment of and conclusion on the effectiveness of our internal control over financial reporting as of December 31, 2021 did not include the internal controls of RMS, which was acquired during our fiscal year ended December 31, 2021 and will be included in our assessment of and conclusion on the effectiveness of our internal control over financial reporting for the fiscal year ending December 31, 2022. The total assets (excluding acquired goodwill and intangible assets which are included within the scope of this assessment) and revenues of RMS represent approximately $333 million and $81 million, respectively, of the corresponding amounts in our consolidated financial statements for the fiscal year ended December 31, 2021.

Based on the assessment performed, management has concluded that Moody’s maintained effective internal control over financial reporting as of December 31, 2021.

The effectiveness of our internal control over financial reporting as of December 31, 2021 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their accompanying report which expresses an unqualified opinion on the effectiveness of Moody's internal control over financial reporting as of December 31, 2021.

/s/ ROBERT FAUBER

Robert Fauber

President and Chief Executive Officer

/s/ MARK KAYE

Mark Kaye

Executive Vice President and Chief Financial Officer

February 18, 2022

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Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of Moody’s Corporation:

Opinions on the Consolidated Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Moody’s Corporation and subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2021 in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

The Company acquired RMS during 2021, and management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021, RMS’s internal control over financial reporting associated with total assets of $333 million and total revenues of $81 million included in the consolidated financial statements of the Company as of and for the year ended December 31, 2021. Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of RMS.

Basis for Opinions

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Carrying value of goodwill

As discussed in Note 10 to the consolidated financial statements, the goodwill balance as of December 31, 2021 was $5,999 million. The Company evaluates its reporting units for impairment on an annual basis, or more frequently if there are changes in the reporting structure of the Company or indicators of potential impairment. The Company has four primary reporting units as of December 31, 2021: two within the Company’s Moody’s Investors Service segment and two within the Moody’s Analytics segment.

We identified the assessment of the carrying value of goodwill in the reporting units within the Moody’s Analytics segment as a critical audit matter due to the significant degree of judgment required in evaluating assumptions about revenue growth rates and the discount rates used to measure the reporting unit fair values.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s goodwill impairment process, including controls related to revenue growth rates and the discount rates used to measure the reporting unit fair values. We evaluated management’s judgments relating to the assumed revenue growth rates by comparing the Company’s revenue growth rates to the Company’s underlying business strategies and growth plans. We evaluated management’s judgments relating to the Company’s discount rates by comparing them to appropriate benchmark interest rates. We also performed sensitivity analyses to assess the impact of alternative assumptions on management’s impairment conclusion. We compared the Company’s historical revenue forecasts to actual results to assess the Company’s ability to accurately forecast. We involved valuation professionals with specialized skills and knowledge, who assisted in assessing the significant assumptions used to develop the discount rates, including the relevance and reliability of the information used.

Gross uncertain tax positions

As discussed in Note 17 to the consolidated financial statements, the Company has recorded uncertain tax positions (UTPs), excluding associated interest, of $388 million as of December 31, 2021. The Company determines whether it is more-likely-than-not that a tax position will be sustained based on its technical merits as of the reporting date. 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.

We identified the assessment of the Company’s gross UTPs as a critical audit matter because complex judgment was required in evaluating the Company’s interpretation of tax law and its estimate of the ultimate resolution of the tax positions.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of internal controls over the Company’s tax process, including those related to the timely identification of UTPs, the assessment of new information related to previously identified UTPs, and the measurement of UTPs. We involved valuation professionals with specialized skills and knowledge, who assisted in assessing transfer pricing studies for compliance with applicable laws and regulations. Additionally, we involved tax professionals with specialized skills and knowledge, who assisted in:

evaluating the Company’s interpretation of tax laws and judgments about the administrative practices of tax authorities
inspecting settlement documents with applicable taxing authorities
assessing the expiration of statutes of limitations
performing an assessment of the Company’s tax positions and comparing the results to the Company’s assessment.

In addition, we evaluated the Company’s ability to accurately estimate its gross UTPs by comparing historical gross UTPs to actual results upon conclusion of tax audits or expiration of the statute of limitations.

/s/ KPMG LLP

We have served as the Company’s auditor since 2008.

New York, New York

February 18, 2022

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MOODY’S CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in millions, except per share data)


	Year Ended December 31,
	2021		2020		2019
Revenue	$	6,218	$	5,371	$	4,829
Expenses
Operating	1,637		1,475		1,387
Selling, general and administrative	1,480		1,229		1,167
Restructuring	—		50		60
Depreciation and amortization	257		220		200
Acquisition-Related Expenses	—		—		3
Loss pursuant to the divestiture of MAKS	—		9		14
Total expenses	3,374		2,983		2,831
Operating income	2,844		2,388		1,998
Non-operating (expense) income, net
Interest expense, net	(171)		(205)		(208)
Other non-operating income, net	82		46		20
Non-operating (expense) income, net	(89)		(159)		(188)
Income before provision for income taxes	2,755		2,229		1,810
Provision for income taxes	541		452		381
Net income	2,214		1,777		1,429
Less: Net (loss) income attributable to noncontrolling interests	—		(1)		7
Net income attributable to Moody’s	$	2,214	$	1,778	$	1,422
Earnings per share
Basic	$	11.88	$	9.48	$	7.51
Diluted	$	11.78	$	9.39	$	7.42
Weighted average shares outstanding
Basic	186.4		187.6		189.3
Diluted	187.9		189.3		191.6

The accompanying notes are an integral part of the consolidated financial statements.

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MOODY’S CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Amounts in millions)


	Year Ended December 31, 2021						Year Ended December 31, 2020						Year Ended December 31, 2019
	Pre-tax amounts		Tax amounts		After-tax amounts		Pre-tax amounts		Tax amounts		After-tax amounts		Pre-tax amounts		Tax amounts		After-tax amounts
Net Income					$	2,214					$	1,777					$	1,429
Other Comprehensive Income (Loss):
Foreign Currency Adjustments:
Foreign currency translation adjustments, net	$	(303)	$	11	$	(292)	$	361	$	(13)	$	348	$	(22)	$	(1)	$	(23)
Foreign currency translation adjustments - reclassification of losses included in net income	—		—		—		—		—		—		32		—		32
Net gains (losses) on net investment hedges	319		(77)		242		(364)		91		(273)		35		(9)		26
Net investment hedges - reclassification of gains included in net income	(2)		1		(1)		(1)		—		(1)		(3)		1		(2)
Cash Flow Hedges:
Net losses on cash flow hedges	—		—		—		(68)		17		(51)		—		—		—
Reclassification of losses included in net income	2		—		2		3		(1)		2		—		—		—



Pension and Other Retirement Benefits:
Amortization of actuarial losses/prior service costs and settlement charge included in net income	19		(5)		14		8		(2)		6		3		(1)		2
Net actuarial gains (losses) and prior service costs	73		(18)		55		(42)		10		(32)		(32)		8		(24)
Total Other Comprehensive Income (Loss)	$	108	$	(88)	$	20	$	(103)	$	102	$	(1)	$	13	$	(2)	$	11
Comprehensive Income					2,234						1,776						1,440
Less: comprehensive (loss) income attributable to noncontrolling interests					(2)						(8)						11
Comprehensive Income Attributable to Moody’s					$	2,236					$	1,784					$	1,429

The accompanying notes are an integral part of the consolidated financial statements.

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MOODY’S CORPORATION

CONSOLIDATED BALANCE SHEETS

(Amounts in millions, except share and per share data)


	December 31,
	2021		2020
ASSETS
Current assets:
Cash and cash equivalents	$	1,811	$	2,597
Short-term investments	91		99
Accounts receivable, net of allowances for credit losses of $32 in 2021 and $34 in 2020	1,720		1,430
Other current assets	389		383

Total current assets	4,011		4,509
Property and equipment, net	347		278
Operating lease right-of-use assets	438		393
Goodwill	5,999		4,556
Intangible assets, net	2,467		1,824
Deferred tax assets, net	384		334
Other assets	1,034		515
Total assets	$	14,680	$	12,409
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	1,142	$	1,039
Current portion of operating lease liabilities	105		94

Deferred revenue	1,249		1,089

Total current liabilities	2,496		2,222
Non-current portion of deferred revenue	86		98
Long-term debt	7,413		6,422
Deferred tax liabilities, net	488		404
Uncertain tax positions	388		483
Operating lease liabilities	455		427
Other liabilities	438		590
Total liabilities	11,764		10,646
Contingencies (Note 21)
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 December 31, 2021 and December 31, 2020, respectively.	3		3
Capital surplus	885		735
Retained earnings	12,762		11,011
Treasury stock, at cost; 157,262,484 and 155,808,563 shares of common stock at December 31, 2021 and December 31, 2020, respectively	(10,513)		(9,748)
Accumulated other comprehensive loss	(410)		(432)
Total Moody’s shareholders’ equity	2,727		1,569
Noncontrolling interests	189		194
Total shareholders’ equity	2,916		1,763
Total liabilities and shareholders’ equity	$	14,680	$	12,409

The accompanying notes are an integral part of the consolidated financial statements.

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MOODY’S CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in millions)


	Year Ended December 31,
	2021		2020		2019
Cash flows from operating activities
Net income	$	2,214	$	1,777	$	1,429
Reconciliation of net income to net cash provided by operating activities:
Depreciation and amortization	257		220		200
Stock-based compensation	175		154		136
Deferred income taxes	(218)		(44)		(38)
Prepayment penalty relating to early redemption of debt	13		24		12
Non-cash gain related to minority interest in BitSight	(36)		—		—
Settlement of treasury rate lock	—		(68)		—
ROU asset impairment & other non-cash restructuring/impairment charges	—		36		38
Loss pursuant to the divestiture of MAKS	—		9		14
Changes in assets and liabilities:
Accounts receivable	(257)		31		(134)
Other current assets	(12)		(38)		(88)
Other assets	(26)		(49)		(69)
Lease obligations	(11)		(10)		(16)
Accounts payable and accrued liabilities	80		247		65

Deferred revenue	65		(29)		76
Unrecognized tax positions and other non-current tax liabilities	(184)		(12)		8
Other liabilities	(55)		(102)		42
Net cash provided by operating activities	2,005		2,146		1,675
Cash flows from investing activities
Capital additions	(139)		(103)		(69)
Purchases of investments	(437)		(181)		(138)
Sales and maturities of investments	147		104		174

Cash received upon disposal of a business, net of cash transferred to purchaser	—		—		226
Cash paid for acquisitions, net of cash acquired	(2,179)		(897)		(162)
Receipts from settlements of net investment hedges	37		2		12
Payments for settlements of net investment hedges	(48)		(2)		(7)
Net cash (used in) provided by investing activities	(2,619)		(1,077)		36
Cash flows from financing activities
Issuance of notes	1,672		1,491		824
Repayment of notes	(500)		(800)		(950)
Issuance of commercial paper	—		789		1,317
Repayment of commercial paper	—		(792)		(1,320)
Proceeds from stock-based compensation plans	38		51		45
Repurchase of shares related to stock-based compensation	(83)		(104)		(77)
Treasury shares	(750)		(503)		(991)
Dividends	(463)		(420)		(378)
Dividends to noncontrolling interests	(5)		(1)		(3)
Payment for noncontrolling interest	—		(23)		(12)

Debt issuance costs, extinguishment costs and related fees	(31)		(39)		(18)
Net cash used in financing activities	(122)		(351)		(1,563)
Effect of exchange rate changes on cash and cash equivalents	(50)		47		(1)
(Decrease) increase in cash and cash equivalents	(786)		765		147
Cash and cash equivalents, beginning of period	2,597		1,832		1,685
Cash and cash equivalents, end of period	$	1,811	$	2,597	$	1,832

The accompanying notes are an integral part of the consolidated financial statements.

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MOODY’S CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Amounts in millions, except per share data)


	Shareholders of Moody’s Corporation
	Common Stock							Treasury Stock			Accumulated Other Comprehensive Loss		Total Moody’s Shareholders’ Equity		Non- Controlling Interests		Total Shareholders’ Equity
	Shares	Amount		Capital Surplus		Retained Earnings		Shares	Amount
Balance at December 31, 2018	342.9	$	3	$	601	$	8,594	(151.6)	$	(8,313)	$	(426)	$	459	$	197	$	656
Net income						1,422							1,422		7		1,429
Dividends ($2.00 per share)						(380)							(380)		(3)		(383)

Adoption of ASU 2018-02, relating to the Tax Act						20					(20)		—				—
Stock-based compensation				136									136				136
Shares issued for stock-based compensation plans at average cost, net				(70)				1.6	38				(32)				(32)
Purchase of noncontrolling interest				(9)									(9)		(3)		(12)
Non-controlling interest resulting from majority acquisition of Vigeo Eiris													—		17		17
Treasury shares repurchased				(16)				(5.2)	(975)				(991)				(991)
Currency translation adjustment, net of net investment hedge activity (net of tax of $9 million)											29		29		4		33
Net actuarial losses and prior service cost (net of tax of $8 million)											(24)		(24)				(24)
Amortization of prior service costs and actuarial losses (net of tax of $1 million)											2		2				2


Balance at December 31, 2019	342.9	$	3	$	642	$	9,656	(155.2)	$	(9,250)	$	(439)	$	612	$	219	$	831

The accompanying notes are an integral part of the consolidated financial statements.

(continued on next page)

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MOODY’S CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY continued

(Amounts in millions, except per share data)


	Shareholders of Moody’s Corporation
	Common Stock							Treasury Stock			Accumulated Other Comprehensive Loss		Total Moody’s Shareholders’ Equity		Non- Controlling Interests		Total Shareholders’ Equity
	Shares	Amount		Capital Surplus		Retained Earnings		Shares	Amount
Balance at December 31, 2019	342.9	$	3	$	642	$	9,656	(155.2)	$	(9,250)	$	(439)	$	612	$	219	$	831
Net income						1,778							1,778		—		1,778
Dividends ($2.24 per share)						(421)							(421)		(3)		(424)
Adoption of New Credit Losses Accounting Standard						(2)							(2)				(2)

Stock-based compensation				154									154				154
Shares issued for stock-based compensation plans at average cost, net				(58)				1.4	5				(53)				(53)
Purchase of noncontrolling interest				(3)									(3)		(14)		(17)

Treasury shares repurchased				—				(2.0)	(503)				(503)				(503)
Currency translation adjustment, net of net investment hedge activity (net of tax of $78 million)											82		82		(8)		74
Net actuarial losses and prior service cost (net of tax of $10 million)											(32)		(32)				(32)
Amortization of prior service costs and actuarial losses (net of tax of $2 million)											6		6				6
Net realized and unrealized loss on cash flow hedges (net of tax of $16 million)											(49)		(49)				(49)
Balance at December 31, 2020	342.9	$	3	$	735	$	11,011	(155.8)	$	(9,748)	$	(432)	$	1,569	$	194	$	1,763

The accompanying notes are an integral part of the consolidated financial statements.

(continued on next page)

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MOODY’S CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY continued

(Amounts in millions, except per share data)


	Shareholders of Moody’s Corporation
	Common Stock							Treasury Stock			Accumulated Other Comprehensive Loss		Total Moody’s Shareholders’ Equity		Non- Controlling Interests		Total Shareholders’ Equity
	Shares	Amount		Capital Surplus		Retained Earnings		Shares	Amount
Balance at December 31, 2020	342.9	$	3	$	735	$	11,011	(155.8)	$	(9,748)	$	(432)	$	1,569	$	194	$	1,763
Net income						2,214							2,214		—		2,214
Dividends ($2.48 per share)						(463)							(463)		(3)		(466)


Stock-based compensation				175									175				175
Shares issued for stock-based compensation plans at average cost, net				(25)				0.7	(15)				(40)				(40)


Treasury shares repurchased				—				(2.2)	(750)				(750)				(750)
Currency translation adjustment, net of net investment hedge activity (net of tax of $65 million)											(49)		(49)		(2)		(51)
Net actuarial gains and prior service cost (net of tax of $18 million)											55		55				55
Amortization of prior service costs/ actuarial losses and settlement charge (net of tax of $5 million)											14		14				14
Net realized and unrealized gain on cash flow hedges											2		2				2
Balance at December 31, 2021	342.9	$	3	$	885	$	12,762	(157.3)	$	(10,513)	$	(410)	$	2,727	$	189	$	2,916

The accompanying notes are an integral part of the consolidated financial statements.

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MOODY’S CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(tabular dollar and share amounts in millions, except per share data)

NOTE 1 DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Moody’s is a global integrated risk assessment firm that empowers organizations and investors to make better decisions. Moody’s reports in two reportable segments: MIS and MA.

MIS publishes credit ratings and provides assessment services on a wide range of debt obligations, programs and facilities, and the entities that issue such obligations in markets worldwide, including various corporate, financial institution and governmental obligations, and structured finance securities.

MA is a global provider of: i) data and information; ii) research and insights; 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.

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 is now 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.

In January 2021, the FASB issued ASU 2021-01, “Reference Rate Reform - Scope,” which clarified the scope and application of the original guidance, ASU No. 2020-04, "Facilitation of the Effects of Reference Rate Reform on Financial Reporting" ("ASU No. 2020-04"), issued in March 2020. ASU No. 2020-04 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. Both ASU's were effective upon issuance, and the Company may elect to apply the amendments prospectively through December 31, 2022 as the transition from LIBOR is completed. Refer to Recently Issued Accounting Pronouncements in Note 2 for further information.

On December 31, 2020, the Company adopted 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 Company is also now required to present a narrative description of significant gains or losses in the benefit obligation over the past year. The Company adopted this ASU retrospectively for all periods presented with the new required disclosures presented in Note 15.

On January 1, 2021, the Company adopted 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. The Company adopted this ASU prospectively and it did not have a material impact on the Company's financial statements.

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On January 1, 2021, the Company adopted 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. The Company adopted this ASU prospectively and it did not have a material impact on the Company's current financial statements.

COVID-19

The COVID-19 pandemic has not had a material adverse impact on the Company's reported results to date and is currently not expected to have a material adverse impact on its near-term outlook. However, Moody's is unable to predict the longer-term impact that the pandemic may have on its business, future results of operations, financial position or cash flows due to numerous uncertainties.

NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Consolidation

The consolidated financial statements include those of Moody’s Corporation and its majority- and wholly-owned subsidiaries. The effects of all intercompany transactions have been eliminated. Investments in companies for which the Company has significant influence over operating and financial policies but not a controlling interest are accounted for on an equity basis whereby the Company records its proportional share of the investment’s net income or loss as part of other non-operating income (expense), net and any dividends received reduce the carrying amount of the investment. Equity investments without a readily determinable fair value for which the Company does not have significant influence are accounted for under the ASC 321 measurement alternative; these investments are recorded at initial cost, less impairment, adjusted upward or downward for any observable price changes in similar investments. The Company applies the guidelines set forth in Topic 810 of the ASC in assessing its interests in variable interest entities to decide whether to consolidate an entity. The Company has reviewed the potential variable interest entities and determined that there are no consolidation requirements under Topic 810 of the ASC. The Company consolidates its ICRA subsidiaries on a three month lag.

Cash and Cash Equivalents

Cash equivalents principally consist of investments in money market deposit accounts as well as certificates of deposit with maturities of three months or less when purchased.

Short-term Investments

Short-term investments are securities with maturities greater than 90 days at the time of purchase that are available for operations in the next 12 months. The Company’s short-term investments primarily consist of certificates of deposit and their cost approximates fair value due to the short-term nature of the instruments. Interest and dividends on these investments are recorded into income when earned.

Property and Equipment

Property and equipment are stated at cost and are depreciated using the straight-line method over their estimated useful lives. Expenditures for maintenance and repairs that do not extend the economic useful life of the related assets are charged to expense as incurred.

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, website and other systems. Such costs generally consist of direct costs for third-party 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. 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).

Goodwill and Other Acquired Intangible Assets

Moody’s evaluates its goodwill for impairment at the reporting unit level, defined as an operating segment (i.e., MIS and MA), or one level below an operating segment (i.e., a component of an operating segment), annually as of July 31 or more frequently if impairment indicators arise in accordance with ASC Topic 350.

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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, reporting unit 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. Goodwill is assigned to a reporting unit at the date when an acquisition is integrated into one of the established reporting units, and is based on which reporting unit is expected to benefit from the synergies of the acquisition.

For purposes of assessing the recoverability of goodwill, the Company has four reporting units: two within the Company’s ratings business (one for the ICRA business and one that encompasses all of Moody’s other ratings operations) and 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.

Impairment of long-lived assets and definite-lived intangible assets

Long-lived assets (including ROU Assets) and amortizable intangible assets 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, the Company compares the estimated undiscounted future cash flows attributable to the asset or asset group to their 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 (reduced by the estimated cost to sell the asset for assets or disposal groups classified as held-for-sale) and recognize an impairment loss if the carrying amount exceeds its fair value.

Stock-Based Compensation

The Company records compensation expense over the requisite service period for all share-based payment award transactions granted to employees based on the fair value of the equity instrument at the time of grant. This includes shares issued under stock option and restricted stock plans.

Derivative Instruments and Hedging Activities

Based on the Company’s risk management policy, the Company may use derivative financial instruments to reduce exposure to changes in foreign exchange rates and interest rates. The Company does not enter into derivative financial instruments for speculative purposes. All derivative financial instruments are recorded on the balance sheet at their respective fair values on a gross basis. The changes in the value of derivatives that qualify as fair value hedges are recorded in the same income statement line item in earnings in which the corresponding adjustment to the carrying value of the hedged item is presented. The entire change in the fair value of derivatives that qualify as cash flow hedges is recorded to OCI and such amounts are reclassified from AOCI(L) to the same income statement line in earnings in the same period or periods during which the hedged transaction affects income. The Company assesses effectiveness for net investment hedges using the spot-method. The entire change in the fair value of derivatives that qualify as net investment hedges is initially recorded to OCI. Those changes in fair value attributable to components included in the assessment of hedge effectiveness in a net investment hedge are recorded in the currency translation adjustment component of OCI and remain in AOCI(L) until the period in which the hedged item affects earnings. Those changes in fair value attributable to components excluded from the assessment of hedge effectiveness in a net investment hedge are recorded to OCI and amortized to earnings using a systematic and rational method over the duration of the hedge. Any changes in the fair value of derivatives that the Company does not designate as hedging instruments under Topic 815 of the ASC are recorded in the consolidated statements of operations in the period in which they occur.

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Revenue Recognition and Costs to Obtain or Fulfill a Contract with a Customer

Revenue recognition:

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.

When contracts with customers contain multiple performance obligations, the Company accounts for individual performance obligations separately if they are distinct. The transaction price is allocated to each distinct performance obligation on a relative SSP basis. The Company determines the SSP by using the price charged for a deliverable when sold separately or uses management’s best estimate of SSP for goods or services not sold separately using estimation techniques that maximize observable data points, including: internal factors relevant to its pricing practices such as costs and margin objectives; standalone sales prices of similar products; pricing policies; percentage of the fee charged for a primary product or service relative to a related product or service; and customer segment and geography. Additional consideration is also given to market conditions such as competitor pricing strategies and market trends.

Sales, usage-based, value added and other taxes are excluded from revenues.

MIS Revenue

In the MIS segment, revenue arrangements with multiple elements are generally comprised of two distinct performance obligations, a rating and the related monitoring service. Revenue attributed to ratings of issued securities is generally recognized when the rating is delivered to the issuer. Revenue attributed to monitoring of issuers or issued securities is recognized ratably over the period in which the monitoring is performed, generally one year. In the case of certain structured finance products, primarily CMBS, issuers can elect to pay all of the annual monitoring fees upfront. These fees are deferred and recognized over the future monitoring periods based on the expected lives of the rated securities.

MIS arrangements generally have standard contractual terms for which the stated payments are due at conclusion of the ratings process for ratings and either upfront or in arrears for monitoring services; and are signed by customers either on a per issue basis or at the beginning of the relationship with the customer. In situations when customer fees for an arrangement may be variable, the Company estimates the variable consideration at inception using the expected value method based on analysis of similar contracts in the same line of business, which is constrained based on the Company’s assessment of the realization of the adjustment amount.

The Company allocates the transaction price within arrangements that include multiple performance obligations based upon the relative SSP of each service. The SSP for both rating and monitoring services is generally based upon observable selling prices where the rating or monitoring service is sold separately to similar customers.

MA Revenue

In the MA segment, products and services offered by the Company include hosted research and data subscriptions, installed and hosted software subscriptions, perpetual installed software licenses and related maintenance, or PCS, and professional services. Subscription and PCS contracts are generally invoiced in advance of the contractual coverage period, which is principally one year, but can range from 3-5 years; while perpetual software licenses are generally invoiced upon delivery and professional services are invoiced as those services are provided. Payment terms and conditions vary by contract type, but primarily include a requirement of payment within 30 to 60 days.

Revenue from research, data and other hosted subscriptions is recognized ratably over the related subscription period as MA's performance obligation to provide access to these products is progressively fulfilled over the stated term of the contract. A large portion of these services are invoiced in the months of November, December and January.

Revenue from the sale of a software license, when considered distinct from the related software implementation services, is generally recognized at the time the product master or first copy is delivered or transferred to the customer. PCS is generally recognized ratably over the contractual period commencing when the software license is fully delivered. Revenue from installed software subscriptions, which includes PCS, is bifurcated into a software license performance obligation and a PCS performance obligation, which follow the patterns of recognition described above.

For implementation services and other service projects within the ERS and ESA businesses for which fees are fixed, the Company determined progress towards completion is most accurately measured on a percentage-of-completion basis (input method) as this approach utilizes the most directly observable data points and is therefore used to recognize the related revenue. For implementation services where price varies based on time expended, a time-based measure of progress towards completion of the performance obligation is utilized.

Revenue from professional services rendered is generally recognized as the services are performed over time.

Products and services offered within the MA segment are sold either stand-alone or together in various combinations. In instances where an arrangement contains multiple performance obligations, the Company accounts for the individual performance obligations separately if they are considered distinct. Revenue is generally allocated to all performance obligations based upon the relative SSP at contract inception. For certain performance obligations, judgment is required to determine the SSP. Revenue is recognized for each performance obligation based upon the conditions for revenue recognition noted above.

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In the MA segment, customers usually pay a fixed fee for the products and services based on signed contracts. However, accounting for variable consideration is applied mainly for: i) estimates for cancellation rights and price concessions and ii) T&M based services.

The Company estimates the variable consideration associated with cancellation rights and price concessions based on the expected amount to be provided to customers and reduces the amount of revenue to be recognized. T&M based contracts represent about half of MA’s service projects within the ERS and ESA businesses. The Company provides agreed upon services at a contracted daily or hourly rate. The commitment represents a series of goods and services that are substantially the same and have the same pattern of transfer to the customer. As such, if T&M services are sold with other MA products, the Company allocates the variable consideration entirely to the T&M performance obligation if the services are sold at standard pricing or at a similar discount level compared to other performance obligations in the same revenue contract. If these criteria are not met, the Company estimates variable consideration for each performance obligation upfront. Each form of variable consideration is included in the transaction price only to the extent that it is probable that a significant reversal of any incremental revenue will not occur.

Costs to Obtain or Fulfill a Contract with a Customer:

Costs to obtain a contract with a customer

Costs incurred to obtain customer contracts, such as sales commissions, are deferred and recorded within other current assets and other assets when such costs are determined to be incremental to obtaining a contract, would not have been incurred otherwise and the Company expects to recover those costs. These costs are amortized to expense on a systematic basis consistent with the transfer of the products or services to the customer. Depending on the line of business to which the contract relates, this 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. Determining the estimated economic life of the products sold requires judgment with respect to anticipated future technological changes. Costs to obtain customer contracts are only incurred in the MA segment.

Cost to fulfill a contract with a customer

Costs incurred to fulfill customer contracts, are deferred and recorded within other current assets and other assets when such costs relate directly to a contract, generate or enhance resources of the Company that will be used in satisfying performance obligations in the future and the Company expects to recover those costs.

The Company capitalizes work-in-process costs for in-progress MIS ratings, which is recognized consistent with the rendering of the related services to the customers, as ratings are issued.

In addition, within the MA segment, the Company capitalizes royalty costs related to third-party information data providers associated with hosted company information and business intelligence products. These costs are amortized to expense consistent with the recognition pattern of the related revenue over time.

Accounts Receivable Allowances

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, and is adjusted, when necessary, for current conditions (e.g., macroeconomic or industry related) and reasonable and supportable forecasts about the future. The Company also considers customer specific information (e.g., bankruptcy or financial difficulty) when estimating its expected credit losses, as well as the economic environment of the customers, both from an industry and geographic perspective, in evaluating the need for allowances. Expected credit losses are reflected as additions to the accounts receivable allowance. Actual uncollectible account write-offs are recorded against the allowance.

Leases

The Company has operating leases, of which substantially all 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.

The Company determines if an arrangement meets the definition of a lease at contract inception. The Company recognizes in its consolidated balance sheet a lease liability and an ROU Asset for all leases with a lease term greater than 12 months. In determining the length of the lease term, the Company utilizes judgment in assessing the likelihood of whether it is reasonably certain that it will exercise an option to extend or early-terminate a lease, if such options are provided in the lease agreement.

ROU Assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU Assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As substantially all of the Company’s leases do not provide an implicit interest rate, the Company uses its estimated secured incremental borrowing rates at the lease commencement date in determining the present value of lease payments. These secured incremental borrowing rates are attributable to the currency in which the lease is denominated.

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At commencement, the Company’s initial measurement of the ROU Asset is calculated as the present value of the remaining lease payments (i.e., lease liability), with additive adjustments reflecting: initial direct costs (e.g., broker commissions) and prepaid lease payments (if any); and reduced by any lease incentives provided by the lessor if: (i) received before lease commencement or (ii) receipt of the lease incentive is contingent upon future events for which the occurrence is both probable and within the Company’s control.

Lease expense for minimum operating lease payments is recognized on a straight-line basis over the lease term. This straight-line lease expense represents a single lease cost which is comprised of both an interest accretion component relating to the lease liability and amortization of the ROU Assets. The Company records this single lease cost in operating and SG&A expenses. However, in situations where an operating lease ROU Asset has been impaired, the subsequent amortization of the ROU Asset is then recorded on a straight-line basis over the remaining lease term and is combined with accretion expense on the lease liability to result in single operating lease cost (which subsequent to impairment will no longer follow a straight-line recognition pattern).

The Company has lease agreements which include lease and non-lease components. For the Company’s office space leases, the lease components (e.g., fixed rent payments) and non-lease components (e.g., fixed common-area maintenance costs) are combined and accounted for as a single lease component.

Variable lease payments (e.g. variable common-area-maintenance costs) are only included in the initial measurement of the lease liability to the extent those payments depend on an index or a rate. Variable lease payments not included in the lease liability are recognized in net income in the period in which the obligation for those payments is incurred.

Contingencies

Moody’s is involved in legal and tax proceedings, governmental, regulatory and legislative investigations and inquiries, claims and litigation that are incidental to the Company’s business, including claims based on ratings assigned by MIS. Moody’s is also subject to ongoing tax audits in the normal course of business. Management periodically assesses the Company’s liabilities and contingencies in connection with these matters based upon the latest information available. Moody’s discloses material pending legal proceedings pursuant to SEC rules and other pending matters as it may determine to be appropriate.

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.

Operating Expenses

Operating expenses include costs associated with the development and production of the Company’s products and services and their delivery to customers. These expenses principally include employee compensation and benefits and travel costs that are incurred in connection with these activities. Operating expenses are charged to income as incurred.

Selling, General and Administrative Expenses

SG&A expenses include such items as compensation and benefits for corporate officers and staff and compensation and other expenses related to sales. They also include items such as office rent, business insurance, professional fees and gains and losses from sales and disposals of assets. SG&A expenses are charged to income as incurred.

Foreign Currency Translation

For all operations outside the U.S. where the Company has designated the local currency as the functional currency, assets and liabilities are translated into U.S. dollars using end of year exchange rates, and revenue and expenses are translated using average exchange rates for the year. For these foreign operations, currency translation adjustments are recorded to other comprehensive income.

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Comprehensive Income

Comprehensive income represents the change in net assets of a business enterprise during a period due to transactions and other events and circumstances from non-owner sources including: foreign currency translation impacts; net actuarial gains and losses and net prior service costs related to pension and other retirement plans; and gains and losses on derivative instruments designated as net investment hedges or cash flow hedges. Comprehensive income items, including cumulative translation adjustments of entities that are less-than-wholly-owned subsidiaries, will be reclassified to noncontrolling interests and thereby, adjusting accumulated other comprehensive income proportionately in accordance with the percentage of ownership interest of the non-controlling shareholder.

Income Taxes

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 classifies interest related to unrecognized tax benefits as a component of interest expense in its consolidated statements of operations. Penalties are recognized in other non-operating expenses. For UTPs, the Company first determines 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.

On December 22, 2017, the Tax Act was signed into law, resulting in all previously undistributed foreign earnings being subject to U.S. tax. The Company has provided deferred taxes for those entities whose earnings are not considered indefinitely reinvested.

Fair Value of Financial Instruments

The Company’s financial instruments include cash, cash equivalents, trade receivables and payables, and certain short-term investments consisting primarily of certificates of deposit and money market deposits, all of which are short-term in nature and, accordingly, approximate fair value.

The Company also invests in mutual funds, which are accounted for as equity securities with readily determinable fair values under ASC Topic 321. The Company measures these investments at fair value with both realized gains and losses and unrealized holding gains and losses for these investments included in net income.

Also, the Company uses derivative instruments to manage certain financial exposures that occur in the normal course of business. These derivative instruments are carried at fair value in the Company’s consolidated balance sheets.

Fair value is defined by the ASC 820 as the price that would be received from selling an asset or paid to transfer a liability (i.e., an exit price) in an orderly transaction between market participants at the measurement date. The determination of this fair value is based on the principal or most advantageous market in which the Company could commence transactions and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions and risk of nonperformance. Also, determination of fair value assumes that market participants will consider the highest and best use of the asset.

The ASC establishes a fair value hierarchy whereby the inputs contained in valuation techniques used to measure fair value are categorized into three broad levels as follows:

Level 1: quoted market prices in active markets that the reporting entity has the ability to access at the date of the fair value measurement;

Level 2: inputs other than quoted market prices described in Level 1 that are observable for the asset or liability, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities;

Level 3: unobservable inputs that are supported by little or no market activity and that are significant to the fair value measurement of the assets or liabilities.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentration of credit risk principally consist of cash and cash equivalents, short-term investments, trade receivables and derivatives.

The Company manages its credit risk exposure by allocating its cash equivalents among various money market deposit accounts and certificates of deposits. Short-term investments primarily consist of certificates of deposit as of December 31, 2021 and 2020. The Company manages its credit risk exposure on cash equivalents and short-term investments by limiting the amount it can invest with any single entity. No customer accounted for 10% or more of accounts receivable at December 31, 2021 or 2020.

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Earnings per Share of Common Stock

Basic shares outstanding is calculated based on the weighted average number of shares of common stock outstanding during the reporting period. Diluted shares outstanding is calculated giving effect to all potentially dilutive common shares, assuming that such shares were outstanding and dilutive during the reporting period.

Pension and Other Retirement Benefits

Moody’s maintains various noncontributory DBPPs as well as other contributory and noncontributory retirement plans. The expense and assets/liabilities that the Company reports for its pension and other retirement benefits are dependent on many assumptions concerning the outcome of future events and circumstances. These assumptions represent the Company’s best estimates and may vary by plan. The differences between the assumptions for the expected long-term rate of return on plan assets and actual experience is spread over a five-year period to the market-related value of plan assets, which is used in determining the expected return on assets component of annual pension expense. All other actuarial gains and losses are generally deferred and amortized over the estimated average future working life of active plan participants.

The Company recognizes as an asset or liability in its consolidated balance sheet the funded status of its defined benefit retirement plans, measured on a plan-by-plan basis. Changes in the funded status due to actuarial gains/losses are recorded as part of other comprehensive income during the period the changes occur.

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.

Recently Issued Accounting Pronouncements

In January 2021, the FASB issued ASU 2021-01, “Reference Rate Reform - Scope,” which clarified the scope and application of the original guidance, ASU No. 2020-04, "Facilitation of the Effects of Reference Rate Reform on Financial Reporting" ("ASU No. 2020-04"), issued in March 2020 (codified into ASC Topic 848 "Reference Rate Reform"). ASU No. 2020-04 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. Both ASU's were effective upon issuance, and the Company may elect to apply the amendments prospectively through December 31, 2022 as the transition from LIBOR is completed.

As of December 31, 2021, the Company has interest rate swaps designated as fair value hedges and cross currency swaps designated as net investment hedges referencing three-month or six-month USD LIBOR with aggregate notional amounts as disclosed in Note 6. For derivative instruments that will be outstanding at the transition date, the Company intends to modify the contractual terms of the instruments to replace LIBOR with another reference rate, such as SOFR. Pursuant to the modification of the contractual terms of these instruments, the Company intends to utilize the various optional expedients set forth in ASC Topic 848 relating to derivative instruments used in hedging relationships.

In October 2021, the FASB issued ASU 2021-08, "Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers" ("ASU No. 2021-08"). ASU No. 2021-08 will require companies to apply the definition of a performance obligation under ASC Topic 606 to recognize and measure contract assets and contract liabilities (i.e., deferred revenue) relating to contracts with customers that are acquired in a business combination. Under current GAAP, an acquirer generally recognizes assets acquired and liabilities assumed in a business combination, including contract assets and contract liabilities arising from revenue contracts with customers, at fair value on the acquisition date. ASU No. 2021-08 will result in the acquirer recording acquired contract assets and liabilities on the same basis that would have been recorded by the acquiree before the acquisition under ASC Topic 606. ASU No. 2021-08 is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company intends to early adopt this ASU effective January 1, 2022.

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NOTE 3 REVENUES

Revenue by Category

The following table presents the Company’s revenues disaggregated by LOB:


	Year Ended December 31,
	2021		2020		2019
MIS:
Corporate finance (CFG)
Investment-grade	$	439	$	636	$	379
High-yield	411		352		258
Bank loans	606		287		313
Other accounts (CFG) (1)	631		582		547
Total CFG	2,087		1,857		1,497
Financial institutions (FIG)
Banking	411		355		320
Insurance	145		137		119
Managed investments	36		28		25
Other accounts (FIG)	10		10		12
Total FIG	602		530		476
Public, project and infrastructure finance (PPIF)
Public finance / sovereign	244		250		222
Project and infrastructure	277		246		224
Total PPIF	521		496		446
Structured finance (SFG)
Asset-backed securities	118		98		99
RMBS	123		96		95
CMBS	102		61		81
Structured credit	215		105		148
Other accounts (SFG)	2		2		4
Total SFG	560		362		427
Total ratings revenue	3,770		3,245		2,846
MIS Other	42		47		29
Total external revenue	3,812		3,292		2,875
Intersegment royalty	165		148		134
Total MIS	3,977		3,440		3,009
MA:
Research, data and analytics (RD&A)	1,745		1,514		1,273
Enterprise risk solutions (ERS)	661		565		522
Professional services (PS)(2)	—		—		159
Total external revenue	2,406		2,079		1,954
Intersegment revenue	7		7		9
Total MA	2,413		2,086		1,963
Eliminations	(172)		(155)		(143)
Total MCO	$	6,218	$	5,371	$	4,829

(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:


	Year Ended December 31, 2021						Year Ended December 31, 2020						Year Ended December 31, 2019
	U.S.		Non-U.S.		Total		U.S.		Non-U.S.		Total		U.S.		Non-U.S.		Total
MIS:
Corporate finance	$	1,384	$	703	$	2,087	$	1,291	$	566	$	1,857	$	968	$	529	$	1,497
Financial institutions	289		313		602		250		280		530		200		276		476
Public, project and infrastructure finance	304		217		521		311		185		496		282		164		446
Structured finance	364		196		560		214		148		362		270		157		427
Total ratings revenue	2,341		1,429		3,770		2,066		1,179		3,245		1,720		1,126		2,846
MIS Other	3		39		42		2		45		47		1		28		29
Total MIS	2,344		1,468		3,812		2,068		1,224		3,292		1,721		1,154		2,875
MA:
Research, data and analytics	758		987		1,745		668		846		1,514		558		715		1,273
Enterprise risk solutions	314		347		661		219		346		565		201		321		522
Professional services (PS)(1)	—		—		—		—		—		—		64		95		159
Total MA	1,072		1,334		2,406		887		1,192		2,079		823		1,131		1,954
Total MCO	$	3,416	$	2,802	$	6,218	$	2,955	$	2,416	$	5,371	$	2,544	$	2,285	$	4,829

(1)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.

The following table presents the Company's reportable segment revenues disaggregated by segment and geographic region:


	Year Ended December 31,
	2021		2020		2019
MIS:
U.S.	$	2,344	$	2,068	$	1,721
Non-U.S.:
EMEA	930		727		686
Asia-Pacific	357		345		320
Americas	181		152		148
Total Non-U.S.	1,468		1,224		1,154
Total MIS	3,812		3,292		2,875
MA:
U.S.	1,072		887		823
Non-U.S.:
EMEA	936		818		760
Asia-Pacific	239		226		231
Americas	159		148		140
Total Non-U.S.	1,334		1,192		1,131
Total MA	2,406		2,079		1,954
Total MCO	$	6,218	$	5,371	$	4,829

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The following tables summarize the split between transaction and recurring 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 recurring 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 recurring revenue represents subscription-based revenues. In the MA segment, recurring 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, and training and certification services.


	Year Ended December 31,
	2021									2020									2019
	Transaction			Recurring			Total			Transaction			Recurring			Total			Transaction			Recurring			Total
Corporate Finance	$	1,600		$	487		$	2,087		$	1,401		$	456		$	1,857		$	1,057		$	440		$	1,497
	77		%	23		%	100		%	75		%	25		%	100		%	71		%	29		%	100		%
Financial Institutions	$	320		$	282		$	602		$	265		$	265		$	530		$	212		$	264		$	476
	53		%	47		%	100		%	50		%	50		%	100		%	45		%	55		%	100		%
Public, Project and Infrastructure Finance	$	354		$	167		$	521		$	337		$	159		$	496		$	292		$	154		$	446
	68		%	32		%	100		%	68		%	32		%	100		%	65		%	35		%	100		%
Structured Finance	$	362		$	198		$	560		$	175		$	187		$	362		$	246		$	181		$	427
	65		%	35		%	100		%	48		%	52		%	100		%	58		%	42		%	100		%
MIS Other	$	4		$	38		$	42		$	4		$	43		$	47		$	2		$	27		$	29
	10		%	90		%	100		%	9		%	91		%	100		%	7		%	93		%	100		%
Total MIS	$	2,640		$	1,172		$	3,812		$	2,182		$	1,110		$	3,292		$	1,809		$	1,066		$	2,875
	69		%	31		%	100		%	66		%	34		%	100		%	63		%	37		%	100		%
Research, data and analytics	$	91		$	1,654		$	1,745		$	80		$	1,434		$	1,514		$	16		$	1,257		$	1,273
	5		%	95		%	100		%	5		%	95		%	100		%	1		%	99		%	100		%
Enterprise risk solutions	$	79		$	582		$	661		$	117		$	448		$	565		$	118		$	404		$	522
	12		%	88		%	100		%	21		%	79		%	100		%	23		%	77		%	100		%
Professional services(1)	$	—		$	—		$	—		$	—		$	—		$	—		$	159		$	—		$	159
	—		%	—		%	—		%	—		%	—		%	—		%	100		%	—		%	100		%
Total MA	$	170		$	2,236		$	2,406		$	197		$	1,882		$	2,079		$	293		$	1,661		$	1,954
	7		%	93		%	100		%	9		%	91		%	100		%	15		%	85		%	100		%
Total Moody’s Corporation	$	2,810		$	3,408		$	6,218		$	2,379		$	2,992		$	5,371		$	2,102		$	2,727		$	4,829
	45		%	55		%	100		%	44		%	56		%	100		%	44		%	56		%	100		%

(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 timing of revenue recognition:


	Year Ended December 31, 2021						Year Ended December 31, 2020						Year Ended December 31, 2019
	MIS		MA		Total		MIS		MA		Total		MIS		MA		Total
Revenue recognized at a point in time	$	2,640	$	101	$	2,741	$	2,182	$	121	$	2,303	$	1,809	$	132	$	1,941
Revenue recognized over time	1,172		2,305		3,477		1,110		1,958		3,068		1,066		1,822		2,888
Total	$	3,812	$	2,406	$	6,218	$	3,292	$	2,079	$	5,371	$	2,875	$	1,954	$	4,829

Unbilled Receivables, Deferred Revenue and Remaining Performance Obligations

Unbilled receivables

At December 31, 2021 and December 31, 2020, accounts receivable included approximately $386 million and $361 million, respectively, of unbilled receivables related to the MIS segment. Certain MIS arrangements contain contractual terms whereby the customers are billed in arrears for annual monitoring services and rating fees, requiring revenue to be accrued as an unbilled receivable as such services are provided.

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 December 31, 2021 and December 31, 2020, accounts receivable included approximately $152 million and $98 million, respectively, of unbilled receivables related to the MA segment. The increase in unbilled receivables is driven by organic growth and the integration of recent acquisitions.

Deferred revenue

The Company recognizes deferred revenue when a contract requires a customer to pay consideration to the Company in advance of when revenue 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 year ended December 31, 2021 are as follows:


	Year Ended December 31, 2021
	MIS		MA		Total
Balance at December 31, 2020	$	313	$	874	$	1,187
Changes in deferred revenue
Revenue recognized that was included in the deferred revenue balance at the beginning of the period	(220)		(810)		(1,030)
Increases due to amounts billable excluding amounts recognized as revenue during the period	207		884		1,091
Increases due to acquisitions during the period	—		94		94
Effect of exchange rate changes	(4)		(3)		(7)
Total changes in deferred revenue	(17)		165		148
Balance at December 31, 2021	$	296	$	1,039	$	1,335
Deferred revenue - current	$	214	$	1,035	$	1,249
Deferred revenue - noncurrent	$	82	$	4	$	86

For the MA segment, for the year ended December 31, 2021, the increase in the deferred revenue balance was primarily due to acquisitions (Cortera, RMS, and PassFort) and organic growth.

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Significant changes in the deferred revenue balances during the year ended December 31, 2020 are as follows:


	Year Ended December 31, 2020
	MIS		MA		Total
Balance at December 31, 2019	$	322	$	840	$	1,162
Changes in deferred revenue
Revenue recognized that was included in the deferred revenue balance at the beginning of the period	(229)		(800)		(1,029)
Increases due to amounts billable excluding amounts recognized as revenue during the period	215		792		1,007
Increases due to acquisitions during the period	—		24		24
Effect of exchange rate changes	5		18		23
Total changes in deferred revenue	(9)		34		25
Balance at December 31, 2020	$	313	$	874	$	1,187
Deferred revenue—current	$	216	$	873	$	1,089
Deferred revenue—noncurrent	$	97	$	1	$	98

For the MA segment, for the year ended December 31, 2020, the increase in the deferred revenue balance was primarily due to acquisitions (RDC, Acquire Media, ZMFS, and Catylist) and changes in FX translation rates.

Significant changes in the deferred revenue balances during the year ended December 31, 2019 are as follows:


	Year Ended December 31, 2019
	MIS		MA		Total
Balance at December 31, 2018	$	325	$	750	$	1,075
Changes in deferred revenue
Revenue recognized that was included in the deferred revenue balance at the beginning of the period	(209)		(714)		(923)
Increases due to amounts billable excluding amounts recognized as revenue during the period	202		789		991
Increases due to acquisitions during the period	3		6		9
Effect of exchange rate changes	1		9		10
Total changes in deferred revenue	(3)		90		87
Balance at December 31, 2019	$	322	$	840	$	1,162
Deferred revenue—current	$	214	$	836	$	1,050
Deferred revenue—noncurrent	$	108	$	4	$	112

For the MA segment, for the year ended December 31, 2019, the increase in the deferred revenue balance was primarily due to organic growth.

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 December 31, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $112 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 of unsatisfied performance obligations relating to 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 December 31, 2021 as well as amounts not yet invoiced to customers as of December 31, 2021 largely reflecting future revenue related to signed multi-year arrangements for hosted and installed subscription-based products. As of December 31, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations was approximately $3.0 billion. The Company expects to recognize into revenue approximately 65% of this balance within one year, approximately 25% of this balance between one to two years and the remaining amount thereafter.

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Costs to Obtain or Fulfill a Contract with a Customer

MA Costs to Obtain a Contract with a Customer


	As of December 31,
	2021		2020

Capitalized costs to obtain sales contracts	$	183	$	180


	Year ended December 31,
	2021		2020		2019
Amortization of capitalized costs to obtain sales contracts	$	60	$	59	$	53

Amortization of costs incurred to obtain customer contracts is included within SG&A expenses in the consolidated statements of operations. Costs incurred to obtain customer contracts are only in the MA segment.

MIS and MA Costs to Fulfill a Contract with a Customer


	As of December 31, 2021						As of December 31, 2020
	MIS		MA		Total		MIS		MA		Total

Capitalized costs to fulfill sales contracts	$	14	$	44	$	58	$	12	$	35	$	47


	Year Ended December 31, 2021						Year Ended December 31, 2020						Year Ended December 31, 2019
	MIS		MA		Total		MIS		MA		Total		MIS		MA		Total
Amortization of capitalized costs to fulfill sales contracts	$	48	$	76	$	124	$	47	$	66	$	113	$	42	$	56	$	98

Amortization of costs to fulfill customer contracts is included within operating expenses in the consolidated statements of operations.

NOTE 4 RECONCILIATION OF WEIGHTED AVERAGE SHARES OUTSTANDING

Below is a reconciliation of basic to diluted shares outstanding:


	Year Ended December 31,
	2021	2020	2019
Basic	186.4	187.6	189.3
Dilutive effect of shares issuable under stock-based compensation plans	1.5	1.7	2.3
Diluted	187.9	189.3	191.6
Antidilutive options to purchase common shares and restricted stock as well as contingently issuable restricted stock which are excluded from the table above	0.2	0.2	0.2

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 December 31, 2021, 2020 and 2019.

NOTE 5 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/share over the duration of the program. The initial share repurchase and final share settlement were recorded as a reduction to shareholders’ equity.

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NOTE 6 CASH EQUIVALENTS AND INVESTMENTS

The table below provides additional information on the Company’s cash equivalents and investments:


	As of December 31, 2021
	Cost		Gross Unrealized Gains		Fair Value		Balance sheet location
	Cash and cash equivalents		Short-term investments		Other assets
Certificates of deposit and money market deposit accounts (1)	$	691	$	—	$	691	$	584	$	91	$	16
Mutual funds	$	65	$	8	$	73	$	—	$	—	$	73


	As of December 31, 2020
	Cost		Gross Unrealized Gains		Fair Value		Balance sheet location
	Cash and cash equivalents		Short-term investments		Other assets

Certificates of deposit and money market deposit accounts (1)	$	1,430	$	—	$	1,430	$	1,325	$	99	$	6
Mutual funds	$	54	$	6	$	60	$	—	$	—	$	60

(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 to 12 months at December 31, 2021 and at December 31, 2020. The remaining contractual maturities for the certificates of deposits classified in other assets are 13 to 29 months at December 31, 2021 and 13 to 23 months at December 31, 2020. 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 December 31, 2021 and December 31, 2020, the contract value of the COLI was $37 million and $17 million, respectively.

NOTE 7 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:

Interest Rate Swaps Designated as Fair Value Hedges

The Company has entered into interest rate swaps to convert the fixed interest rate on certain of its long-term debt to a floating interest rate based on the 3-month and 6-month LIBOR. 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 statements of operations.

The following table summarizes the Company’s interest rate swaps designated as fair value hedges:


	Nature of Swap	Notional Amount As of December 31,				Floating Interest Rate
Hedged Item	2021	2020
2012 Senior Notes due 2022(1)	Pay Floating/Receive Fixed	$	—	$	330	3-month LIBOR
2017 Senior Notes due 2023	Pay Floating/Receive Fixed	$	250	$	250	3-month LIBOR
2017 Senior Notes due 2028	Pay Floating/Receive Fixed	$	500	$	500	3-month LIBOR
2020 Senior Notes due 2025	Pay Floating/Receive Fixed	$	300	$	300	6-month LIBOR
2014 Senior Notes due 2044(2)	Pay Floating/Receive Fixed	$	300	$	—	3-month LIBOR
2018 Senior Notes due 2048(2)	Pay Floating/Receive Fixed	$	300	$	—	3-month LIBOR
Total		$	1,650	$	1,380

(1) Terminated in conjunction with the repayment of the 2012 Senior Notes due 2022 in the fourth quarter of 2021.

(2) Executed in the third quarter of 2021.

Refer to Note 18 for information on the cumulative amount of fair value hedging adjustments included in the carrying amount of the above hedged items.

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The following table summarizes the impact to the statements 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 (Expense) Recognized in the Consolidated Statements of Operations
	Year Ended December 31,
	2021		2020			2019
Interest expense, net				$	(171)		$	(205)	$	(208)
Descriptions		Location on Consolidated Statements of Operations
Net interest settlements and accruals on interest rate swaps		Interest expense, net		$	23		$	19	$	3
Fair value changes on interest rate swaps		Interest expense, net		$	(60)		$	47	$	25
Fair value changes on hedged debt		Interest expense, net		$	60		$	(47)	$	(25)

Net Investment Hedges

Debt designated as 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.

Cross currency swaps designated as net investment hedges

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:


December 31, 2021
	Pay			Receive
Nature of Swap	Notional Amount		Weighted Average Interest Rate	Notional Amount		Weighted Average Interest Rate
Pay Fixed/Receive Fixed	€	909	2.16%	$	1,050	4.45%
Pay Floating/Receive Floating	1,179		Based on 3-month EURIBOR	1,350		Based on 3-month USD LIBOR
Total	€	2,088		$	2,400


December 31, 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	959		Based on 3-month EURIBOR	1,080		Based on 3-month USD LIBOR
Total	€	2,038		$	2,300

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As of December 31, 2021, these hedges will expire and the notional amounts will be settled as follows unless terminated early at the discretion of the Company:


Year Ending December 31,
2023	€	442
2024	€	443
2026	€	450
2027	€	246
2028	€	507
Total	€	2,088

Forward contracts designated as net investment hedges

The Company also entered into forward contracts to mitigate FX exposure related to a portion of the Company’s euro and GBP net investment in certain foreign subsidiaries against changes in euro/USD and GBP/euro exchange rates. The following table summarizes the notional amounts of the Company's outstanding forward contracts that were designated as net investment hedges:


	December 31, 2021				December 31, 2020
Notional amount of net investment hedges	Sell		Buy		Sell		Buy
Contract to sell EUR for USD	€	—	$	—	€	524	$	627
Contract to sell GBP for EUR	£	—	€	—	£	134	€	148

These forward contracts expired in August 2021.

Cash Flow Hedges

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 AOCL. The loss on the Treasury rate lock will be reclassified from AOCL 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 table provides information on the gains/(losses) on the Company’s net investment and cash flow hedges:


	Amount of Gain/(Loss) Recognized in AOCL on Derivative, net of Tax									Amount of Gain/(Loss) Reclassified from AOCL into Income, net of tax									Gain/(Loss) Recognized in Income on Derivative (Amount Excluded from Effectiveness Testing)
Derivative and Non-Derivative Instruments in Net Investment Hedging Relationships	Year Ended December 31,									Year Ended December 31,									Year Ended December 31,
2021			2020			2019			2021			2020			2019			2021			2020			2019
FX forward contracts	$	18		$	(14)		$	4		$	1		$	—		$	2		$	—		$	—		$	—
Cross currency swaps	143			(165)			29			—			—			—			35			50			52
Long-term debt	81			(95)			(7)		(1)	—			—			—			—			—			—
Total net investment hedges	$	242		$	(274)		$	26		$	1		$	—		$	2		$	35		$	50		$	52
Derivatives in Cash Flow Hedging Relationships
Interest rate contracts	—			(51)			—			(2)			(2)			—			—			—			—
Total cash flow hedges	—			(51)			—			(2)			(2)			—			—			—			—
Total	$	242		$	(325)		$	26		$	(1)		$	(2)		$	2		$	35		$	50		$	52

(1)Due to the Company's adoption of ASU 2018-02 during 2019, $3 million related to the tax effect of this net investment hedge was reclassified to retained earnings.

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


	Cumulative Gains/(Losses), net of tax
	December 31, 2021		December 31, 2020
Net investment hedges
FX forwards	$	29	$	12
Cross currency swaps	19		(124)
Long-term debt	(27)		(108)
Total net investment hedges	21		(220)
Cash flow hedges
Interest rate contracts	(49)		(51)
Cross-currency swap	2		2
Total cash flow hedges	(47)		(49)
Total net (loss) gain in AOCL	$	(26)	$	(269)

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 April 2022.

The following table summarizes the notional amounts of the Company’s outstanding foreign exchange forwards:


	December 31, 2021				December 31, 2020
Notional Amount of Currency Pair:	Sell		Buy		Sell		Buy
Contracts to sell USD for GBP	$	126	£	92	$	295	£	222
Contracts to sell USD for Japanese Yen	$	22	¥	2,500	$	15	¥	1,600
Contracts to sell USD for Canadian dollars	$	120	C$	150	$	107	C$	140
Contracts to sell USD for Singapore dollars	$	67	S$	90	$	59	S$	79
Contracts to sell USD for Euros	$	364	€	315	$	447	€	376
Contracts to sell Euros for GBP	€	—	£	—	€	135	£	121
Contracts to sell USD for Russian Ruble	$	16	₽	1,200	$	13	₽	1,000
Contracts to sell USD for Indian Rupee	$	7	₹	500	$	18	₹	1,350
Contracts to sell GBP for USD	£	172	$	231	£	—	$	—

NOTE: € = Euro, £ = British pound, S$ = Singapore dollar, $ = U.S. dollar, ¥ = Japanese yen, C$ = Canadian dollar, ₽= Russian Ruble, ₹= Indian Rupee

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The following table summarizes the impact to the consolidated statements of operations relating to the net gain (loss) on the Company’s derivatives which are not designated as hedging instruments:


		Year Ended December 31,
Derivatives Not Designated as Accounting Hedges	Location on Statement of Operations	2021		2020		2019
FX forwards	Other non-operating expense, net	$	(27)	$	41	$	(11)
Foreign exchange forwards relating to RMS acquisition(1)	Other non-operating income, net	$	(13)	$	—	$	—

(1) The Company entered into forward contracts to sell $1,675 million for €1,200 to hedge a portion of the GBP denominated RMS purchase price. The contract was terminated on September 14, 2021 and resulted in a $13 million loss.

The table below shows the classification between assets and liabilities on the Company’s consolidated balance sheets for the fair value of derivative instruments 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	December 31, 2021		December 31, 2020
Assets:
Derivatives designated as accounting hedges:
Cross-currency swaps designated as net investment hedges	Other assets	$	53	$	—
Interest rate swaps designated as fair value hedges	Other assets	13		57
Total derivatives designated as accounting hedges		66		57
Derivatives not designated as accounting hedges:
FX forwards on certain assets and liabilities	Other current assets	1		31
Total assets		$	67	$	88
Liabilities:
Derivatives designated as accounting hedges:
FX forwards designated as net investment hedges	Accounts payable and accrued liabilities	$	—	$	16
Cross-currency swaps designated as net investment hedges	Accounts payable and accrued liabilities	—		23
Cross-currency swaps designated as net investment hedges	Other liabilities	17		144
Interest rate swaps designated as fair value hedges	Other liabilities	23		1
Total derivatives designated as accounting hedges		40		184
Non-derivative instruments designated as accounting hedge:
Long-term debt designated as net investment hedge	Long-term debt	1,421		1,530
Derivatives not designated as accounting hedges:
FX forwards on certain assets and liabilities	Accounts payable and accrued liabilities	12		2
Total liabilities		$	1,473	$	1,716

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NOTE 8 PROPERTY AND EQUIPMENT, NET

Property and equipment, net consisted of:


	December 31,
	2021		2020
Office and computer equipment (3 - 10 year estimated useful life)	$	300	$	260
Office furniture and fixtures (3 - 10 year estimated useful life)	52		49
Internal-use computer software (1 - 10 year estimated useful life)	771		666
Leasehold improvements and building (1 - 20 year estimated useful life)	234		231
Total property and equipment, at cost	1,357		1,206
Less: accumulated depreciation and amortization	(1,010)		(928)
Total property and equipment, net	$	347	$	278

Depreciation and amortization expense related to the above assets was $99 million, $96 million, and $97 million for the years ended December 31, 2021, 2020 and 2019, respectively.

NOTE 9 ACQUISITIONS AND DIVESTITURE

The following is a discussion of material acquisitions completed by the Company. 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.

With the exception of RMS, the Company has not presented pro forma combined results for these acquisitions because the impact on previously reported statements of operations would not have been material.

PassFort

On November 30, 2021, the Company acquired 100% of PassFort, a U.K. SaaS-based workflow platform for identity verification, customer onboarding, and risk analysis.

The table below details the total consideration relating to the acquisition:


Cash paid at closing	$	157
Additional consideration to be paid to sellers in 2022 (1)	1
Total consideration	$	158

(1) Represents additional consideration to be 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:


Cash			$	10
Accounts receivable			1
Intangible assets:
Product technology (5 year useful life)	$	14
Customer relationships (16 year useful life)	8
Trade name (4 year useful life)	1
Total intangible assets (9 year weighted average useful life)			23
Goodwill			138


Liabilities:
Accounts payable and accrued liabilities	$	(7)
Deferred revenue	(1)
Deferred tax liabilities	(6)
Total liabilities			(14)
Net assets acquired			$	158

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The Company has performed a preliminary valuation analysis of the fair market value of the assets and liabilities of the PassFort 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 deferred tax liabilities. The estimated useful lives of acquired intangible assets are also preliminary.

Goodwill

The goodwill recognized as a result of this acquisition includes, among other things, value created by combining the complementary risk assessment products of the Company and PassFort. The integration of PassFort’s platform into Moody’s suite of KYC and compliance offerings is expected to create a holistic workflow solution to benefit both new and existing Moody's customers.

Goodwill, which has been assigned to the MA segment, is not deductible for tax purposes.

Transaction costs

Transaction costs directly related to the PassFort acquisition were not material.

RMS

On September 15, 2021, the Company acquired 100% of RMS, a global provider of climate and natural disaster risk modeling and analytics. The cash payment was funded with new debt financing and a combination of U.S. and offshore cash on hand. The acquisition will expand Moody’s insurance data and analytics business and accelerate the development of the Company’s global integrated risk capabilities to address the next generation of risk assessment.

The table below details the total consideration relating to the acquisition:


Cash paid at closing	$	1,922




Replacement equity compensation awards	5
Total consideration	$	1,927

Shown below is the preliminary purchase price allocation, which summarizes the fair value of the assets and liabilities assumed, at the date of acquisition:


Cash			$	60
Accounts receivable			38
Other current assets			11
Property and equipment			13
Operating lease right-of-use assets			64
Intangible assets:
Customer relationships (23 year useful life)	$	518
Product technology (7 year useful life)	212
Trade name (9 year useful life)	49
Total intangible assets (18 year weighted average useful life)			779
Goodwill			1,376
Deferred tax assets, net			48
Other assets			99
Liabilities:
Accounts payable and accrued liabilities	$	(92)
Deferred revenue	(89)
Operating lease liabilities	(68)
Deferred tax liabilities, net	(214)
Uncertain tax positions	(96)
Other liabilities	(2)
Total liabilities			(561)
Net assets acquired			$	1,927

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The Company has performed a preliminary valuation analysis of the fair market value of the assets and liabilities of the RMS business. The final purchase price allocation will be determined when the Company has completed and fully reviewed all information necessary to finalize the fair value of the acquired assets and liabilities, including deferred revenue. The final allocation could differ materially from the preliminary allocation and may include changes in allocations to acquired intangible assets (including estimated useful lives of these assets), as well as goodwill and other changes to assets and liabilities including reserves for UTPs and deferred tax liabilities.

Goodwill

The goodwill recognized as a result of this acquisition includes, among other things, the value of combining the complementary product portfolios of Moody's and RMS, which is expected to extend the Company's reach into new market segments. The goodwill also includes the combined company's ability to accelerate technology innovations into new product adjacencies (leveraging RMS's team of data scientists, modelers and software engineers) as well as combining RMS's products with Moody’s core data and analytics offerings to provide holistic integrated risk solutions.

Goodwill, of which $1,286 million and $90 million has been assigned to the MA and MIS segments, respectively, is not deductible for tax purposes. The amount of goodwill allocated to the MIS segment relates to the integration of certain of RMS's models/processes into the Company's ESG solutions offerings.

Other assets in the table above includes an indemnification asset of $95 million related to uncertain tax positions assumed in the transaction, for which the Company expects to be indemnified by the sellers in the event of an unfavorable outcome.

Transaction costs

Transaction costs directly related to the RMS acquisition were $22 million and were recorded in SG&A expenses in the statement of operations.

Supplementary Unaudited Pro Forma Information

Supplemental information on an unaudited pro forma basis is presented below for the twelve months ended December 31, 2021 and 2020 as if the acquisition of RMS occurred on January 1, 2020. The pro forma financial information is presented for comparative purposes only, based on certain estimates and assumptions, which the Company believes to be reasonable but not necessarily indicative of future results of operations or the results that would have been reported if the acquisition had been completed at January 1, 2020. The unaudited pro forma information includes amortization of acquired intangible assets, based on the preliminary purchase price allocation and an estimate of useful lives reflected above, and incremental financing costs resulting from the acquisition, net of income tax, which was estimated using the weighted average statutory tax rates in effect in the jurisdiction for which the pro forma adjustment relates.


	Year Ended December 31,
Unaudited	2021		2020
Pro forma Revenue	$	6,463	$	5,667
Pro forma Net Income attributable to Moody's	$	2,244	$	1,666

The unaudited pro forma results do not include any anticipated cost savings or other effects of the planned integration of RMS. Accordingly, the pro forma results above are not necessarily indicative of the results that would have been reported if the acquisition had occurred on the dates indicated, nor are the pro forma results indicative of results which may occur in the future. The RMS results included in the above have been converted to U.S. GAAP from IFRS as issued by the IASB and have been translated to USD at rates in effect for the periods presented. The RMS amounts in the pro forma results include an addition to revenue of approximately $18 million and a reduction to revenue of approximately $22 million relating to a fair value adjustment to deferred revenue required as part of acquisition accounting for the years ended December 31, 2021 and 2020, respectively.

Cortera

On March 19, 2021, the Company acquired 100% of Cortera, a provider of North American credit data and workflow solutions.

The table below details the total consideration relating to the acquisition:


Cash paid at closing	$	138
Additional consideration paid to sellers in 2021 (1)	1
Total consideration	$	139

(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:

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Current assets			$	7
Intangible assets:
Database (10 year useful life)	$	38
Customer relationships (18 year useful life)	9
Product technology (8 year useful life)	9
Trade name (5 year useful life)	1
Total intangible assets (11 year weighted average useful life)			57
Goodwill(1)			79
Deferred tax assets(1)			16
Other assets			2
Liabilities:
Accounts payable and accrued liabilities	$	(1)
Deferred revenue	(4)
Deferred tax liabilities	(15)
Other liabilities	(2)
Total liabilities			(22)
Net assets acquired			$	139

(1) During the third quarter of 2021, the Company received further information, that existed as of the acquisition date, with respect to Cortera’s deferred taxes. Accordingly, the Company recorded a measurement period adjustment of $16 million to its preliminary estimate for deferred tax assets.

Current assets in the table above include acquired cash of $4 million and accounts receivable of approximately $2 million.

Goodwill

The goodwill recognized as a result of this acquisition includes, among other things, the value of combining the complementary risk assessment products of the Company and Cortera, 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.

Transaction costs

Transaction costs directly related to the Cortera acquisition were not material.

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.

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 purchase price allocation, which summarizes the fair value of the assets and liabilities assumed, at the date of acquisition:

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(Amounts in millions)
Current assets			$	24
Intangible assets:
Customer relationships (25 year useful life)	$	174
Database (10 year useful life)	86
Product technology (4 year useful life)	17
Trade name (3 year useful 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

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.

Transaction costs

Transaction costs directly related to the RDC acquisition were not material.

Other Acquisitions

During the fourth quarter of 2020, the Company acquired three additional businesses within the MA reportable segment, which were not individually material, but are material in aggregate, to Moody's consolidated financial statements:

–In December 2020, the Company acquired 100% of Catylist, Inc., a provider of commercial real estate solutions for brokers. Catylist revenue is reported in the RD&A LOB.

–In December 2020, the Company acquired 100% of ZM Financial Systems, a provider of financial management software for the U.S. banking sector. ZMFS revenue is reported in the ERS LOB.

–In October 2020, the Company acquired 100% of Acquire Media, an aggregator and distributor of curated real-time news, multimedia, data, and alerts. AM revenue is reported in the RD&A LOB.

The aggregate consideration transferred for the aforementioned acquisitions of $205 million was funded by cash on hand.

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The following table summarizes the aggregate fair value of the assets acquired and liabilities assumed as of the respective closing dates for each acquisition.


(Amounts in millions)
Current assets			$	5
Intangible assets:
Customer relationships (18 year useful life)	$	47
Product technology (8 year useful life)	23
Database (10 year useful life)	8
Trade name (14 year useful life)	4
Total intangible assets (14 year weighted average life)			82
Goodwill			131
Other assets			3

Liabilities:
Current liabilities	$	(8)
Long-term liabilities	(8)
Total liabilities			(16)
Net assets acquired			$	205

Divestiture

On November 8, 2019, the Company completed the sale of MAKS to Equistone Partners Europe Limited (Equistone), a European private equity firm for $227 million in net cash proceeds.

This divestiture resulted in a loss of $23 million ($9 million in 2020 and $14 million in 2019), which included $32 million of currency translation losses reclassified from AOCL to the statements of operations. Additionally, in connection with this divestiture, the Company has recorded certain indemnification provisions. These provisions totaled $33 million as of both December 31, 2021 and December 31, 2020. These amounts are included in other liabilities at December 31, 2021 and 2020 in the consolidated balance sheets of the Company.

NOTE 10 GOODWILL AND OTHER ACQUIRED INTANGIBLE ASSETS

The following table summarizes the activity in goodwill:


	Year Ended December 31, 2021
	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	$	311	$	—	$	311	$	4,257	$	(12)	$	4,245	$	4,568	$	(12)	$	4,556
Additions/ adjustments (1)	90		—		90		1,525		—		1,525		1,615		—		1,615
Foreign currency translation adjustments	(5)		—		(5)		(167)		—		(167)		(172)		—		(172)

Ending Balance	$	396	$	—	$	396	$	5,615	$	(12)	$	5,603	$	6,011	$	(12)	$	5,999

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	Year Ended December 31, 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 (2)	(2)		—		(2)		628		—		628		626		—		626
Foreign currency translation adjustments	(2)		—		(2)		210		—		210		208		—		208

Ending balance	$	311	$	—	$	311	$	4,257	$	(12)	$	4,245	$	4,568	$	(12)	$	4,556

(1) The 2021 additions/adjustments for the MA segment in the table above relate to the acquisitions of Cortera, RMS, RealXData, Bogard, and PassFort. The 2021 additions/adjustments for the MIS segment relate to certain revenue synergies from the RMS acquisition that are expected to benefit the ESG solutions group within the MIS Other LOB.

(2) The 2020 additions/adjustments for the MA segment in the table above relate to the acquisitions of RDC, AM, ZMFS, and Catylist.

Acquired intangible assets and related accumulated amortization consisted of:


	December 31,
	2021		2020
Customer relationships	$	2,101	$	1,623
Accumulated amortization	(381)		(313)
Net customer relationships	1,720		1,310
Software/product technology	663		441
Accumulated amortization	(219)		(177)
Net software/product technology	444		264
Database	179		144
Accumulated amortization	(46)		(29)
Net database	133		115
Trade names	207		161
Accumulated amortization	(47)		(38)
Net trade names	160		123
Other (1)	54		55
Accumulated amortization	(44)		(43)
Net other	10		12
Total	$	2,467	$	1,824

(1)Other intangible assets primarily consist of trade secrets, covenants not to compete, and acquired ratings methodologies and models.

Amortization expense relating to acquired intangible assets is as follows:


	Year Ended December 31,
	2021		2020		2019
Amortization expense	$	158	$	124	$	103

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Estimated future annual amortization expense for intangible assets subject to amortization is as follows:


Year Ending December 31,
2022	$	191
2023	189
2024	185
2025	180
2026	177
Thereafter	1,545
Total estimated future amortization	$	2,467

Matters concerning the ICRA reporting unit

ICRA has reported various matters relating to: (i) an adjudication order and fine imposed (and subsequently enhanced) by the Securities and Exchange Board of India (SEBI) in connection with credit ratings assigned to one of ICRA’s customers and the customer’s subsidiaries, which are being appealed by ICRA; (ii) the completion of internal examinations regarding various anonymous complaints, and actions taken by ICRA’s board based on the examinations’ findings; and (iii) a separate internal examination of certain allegations against two former senior ICRA officials. An unfavorable resolution of the aforementioned matters may negatively impact ICRA’s future operating results, which could result in an impairment of goodwill and amortizable intangible assets in future quarters.

NOTE 11 RESTRUCTURING

On December 22, 2020, the chief executive officer of Moody’s approved a restructuring program (the “2020 MA Strategic Reorganization Restructuring Program”) that the Company estimates will result in annualized savings of $20 million per year. This program relates to a strategic reorganization in the MA reportable segment consisting of severance and related costs primarily determined under the Company’s existing severance plans. The 2020 MA Strategic Reorganization Restructuring Program resulted in a total of $20 million in pre-tax charges and was substantially completed in the first half of 2021. Cash outlays associated with this program are expected to be $20 million, which will be paid through 2022.

On July 29, 2020, the chief executive officer of Moody’s approved a restructuring program (the “2020 Real Estate Rationalization Restructuring Program”) primarily in response to the COVID-19 pandemic which revolved around the rationalization and exit of certain real estate leases. The exit from certain leased office space began in the third quarter of 2020 and was substantially completed at December 31, 2020. The 2020 Real Estate Rationalization Restructuring Program primarily reflected non-cash charges related to the impairment of operating lease right-of-use assets and leasehold improvements. The 2020 Restructuring Program is expected to result in an estimated annualized savings of approximately $5 to $6 million a year.

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, was substantially completed at December 31, 2020. 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 due to consolidation of various business activities. The exit from certain leased office space began in the fourth quarter of 2018 and resulted in approximately $50 million of the charges to either terminate or sublease the affected real estate leases. The 2018 Restructuring Program also included $55 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 were $55 million.

Total expenses included in the accompanying consolidated statements of operations relating to the Company's restructuring programs are as follows:


	Year Ended December 31,
	2021		2020		2019
2018 Restructuring Program	$	(2)	$	(4)	$	60
2020 Real Estate Rationalization Restructuring Program	—		36		—
2020 MA Strategic Reorganization Restructuring Program	2		18		—
Total Restructuring	$	—	$	50	$	60

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Cumulative expense incurred through December 31, 2021	Employee Termination Costs		Contract Termination Costs
2018 Restructuring Program	$	55	$	48
2020 Real Estate Rationalization Restructuring Program:	$	—	$	36
2020 MA Strategic Reorganization Restructuring Program:	$	20	$	—

The restructuring liability for the aforementioned plans was not material at December 31, 2021, December 31, 2020, and December 31, 2019.

NOTE 12 FAIR VALUE

The table below presents information about items which are carried at fair value on a recurring basis at December 31, 2021 and 2020:


		Fair value Measurement as of December 31, 2021
	Description	Balance		Level 1		Level 2
Assets:
	Derivatives (1)	$	67	$	—	$	67

	Mutual funds	73		73		—
	Total	$	140	$	73	$	67
Liabilities:
	Derivatives (1)	$	52	$	—	$	52
	Total	$	52	$	—	$	52


		Fair Value Measurement as of December 31, 2020
	Description	Balance		Level 1		Level 2
Assets:
	Derivatives (1)	$	88	$	—	$	88

	Mutual funds	60		60		—
	Total	$	148	$	60	$	88
Liabilities:
	Derivatives (1)	$	186	$	—	$	186
	Total	$	186	$	—	$	186

(1)Represents FX forwards on certain assets and liabilities as well as interest rate swaps and cross-currency swaps as more fully described in Note 7 to the consolidated financial statements.

The following are descriptions of the methodologies utilized by the Company to estimate the fair value of its derivative contracts and 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.

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.

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NOTE 13. OTHER BALANCE SHEET INFORMATION

The following tables contain additional detail related to certain balance sheet captions:


	December 31,
	2021		2020
Other current assets:
Prepaid taxes	$	112	$	94
Prepaid expenses	99		91
Capitalized costs to obtain and fulfill sales contracts	103		93
Foreign exchange forwards on certain assets and liabilities	1		31
Other	74		74
Total other current assets	$	389	$	383


	December 31,
	2021		2020
Other assets:
Investments in non-consolidated affiliates	$	443	$	135
Deposits for real-estate leases	14		19
Indemnification assets related to acquisitions	106		15
Mutual funds and fixed deposits	89		66
Company owned life insurance (at contract value)	37		17
Costs to obtain sales contracts	138		134
Derivative instruments designated as accounting hedges	66		57
Pension and other retirement employee benefits	77		21
Other	64		51
Total other assets	$	1,034	$	515


	December 31,
	2021		2020
Accounts payable and accrued liabilities:
Salaries and benefits	$	211	$	197
Incentive compensation	324		226
Customer credits, advanced payments and advanced billings	100		42
Dividends	6		11
Professional service fees	75		53
Interest accrued on debt	85		82
Accounts payable	47		39
Income taxes	115		128
Pension and other retirement employee benefits	7		45
Accrued royalties	36		19
Foreign exchange forwards on certain assets and liabilities	12		2
Restructuring liability	4		18
Derivative instruments designated as accounting hedges	—		39
Other	120		138
Total accounts payable and accrued liabilities	$	1,142	$	1,039

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	December 31,
	2021		2020
Other liabilities:
Pension and other retirement employee benefits	$	235	$	244

Interest accrued on UTPs	59		113
MAKS indemnification provisions	33		33
Income tax liability – non-current portion	23		18
Derivative instruments designated as accounting hedges	40		145

Other	48		37
Total other liabilities	$	438	$	590

The following table provides additional detail regarding Moody's investments in non-consolidated affiliates, as included within other assets in the consolidated balance sheets:


	December 31,
	2021		2020
Investments in non-consolidated affiliates:
Equity method investments (1)	$	121	$	118
Investments measured using the measurement alternative (2)	318		16
Other	4		1
Total investments in non-consolidated affiliates	$	443	$	135

**(1)**Equity securities in which the Company has significant influence over the investee but does not have a controlling financial interest in accordance with ASC Topic 323

**(2)**Equity securities without readily determinable fair value for which the Company has elected to apply the measurement alternative in accordance with ASC Topic 321, which is more fully discussed in Note 2.

Moody's holds various investments accounted for under the equity method, the most significant of which is the Company's minority investment in CCXI. Moody's also holds various investments measured using the measurement alternative, the most significant of which is the Company's minority interest in BitSight.

Refer to Note 24 for disclosure on earnings from non-consolidated affiliates, which is included within other non-operating income, net.

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NOTE 14 COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE INCOME

The following table provides details about the reclassifications out of AOCL:


	Year Ended December 31,						Location in the consolidated statements of operations
	2021		2020		2019
Currency translation adjustment losses
Sale of foreign subsidiaries	$	—	$	—	$	(32)	Loss pursuant to the divestiture of MAKS
Total currency translation adjustment losses	—		—		(32)
Losses on cash flow hedges

Interest rate contract	(2)		(3)		—		Other non-operating income, net

Income tax effect of item above	—		1		—		Provision for income taxes
Total net losses on cash flow hedges	(2)		(2)		—
Gains on net investment hedges
Cross currency swaps	—		1		—		Other non-operating income, net
FX forwards	2		—		3		Other non-operating income, net
Total before income taxes	2		1		3
Income tax effect of item above	(1)		—		(1)		Provision for income taxes
Total net gains on net investment hedges	1		1		2




Pension and other retirement benefits
Amortization of actuarial losses and prior service costs included in net income	(11)		(6)		(3)		Other non-operating income, net
Accelerated recognition of loss due to settlement	(8)		(2)		—		Other non-operating income, net
Total before income taxes	(19)		(8)		(3)
Income tax effect of item above	5		2		1		Provision for income taxes
Total pension and other retirement benefits	(14)		(6)		(2)
Total net losses included in Net Income attributable to reclassifications out of AOCL	$	(15)	$	(7)	$	(32)

The following table shows changes in AOCL by component (net of tax):


	Year Ended December 31, 2021
	Pension and Other Retirement Benefits		Gains / (Losses) on Cash Flow Hedges		Foreign Currency Translation Adjustments		Net Investment Hedges		Total
Balance December 31, 2020	$	(118)	$	(49)	$	(45)	$	(220)	$	(432)
Other comprehensive income/(loss) before reclassifications	55		—		(290)		242		7
Amounts reclassified from AOCL	14		2		—		(1)		15
Other comprehensive income/(loss)	69		2		(290)		241		22
Balance December 31, 2021	$	(49)	$	(47)	$	(335)	$	21	$	(410)

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	Year Ended December 31, 2020
	Pension and Other Retirement Benefits		Gains / (Losses) on Cash Flow Hedges		Foreign Currency Translation Adjustments		Net Investment Hedges		Total
Balance December 31, 2019	$	(92)	$	—	$	(401)	$	54	$	(439)
Other comprehensive income/(loss) before reclassifications	(32)		(51)		356		(273)		—
Amounts reclassified from AOCL	6		2		—		(1)		7
Other comprehensive income/(loss)	(26)		(49)		356		(274)		7
Balance December 31, 2020	$	(118)	$	(49)	$	(45)	$	(220)	$	(432)


	Year Ended December 31, 2019
	Pension and Other Retirement Benefits		Gains / (Losses) on Cash Flow Hedges		Foreign Currency Translation Adjustments		Net Investment Hedges		Total
Balance December 31, 2018	$	(53)	$	—	$	(406)	$	33	$	(426)
Adoption of ASU 2018-02	(17)		—		—		(3)		(20)
Other comprehensive income/(loss) before reclassifications	(24)		—		(27)		26		(25)
Amounts reclassified from AOCL	2		—		32		(2)		32
Other comprehensive income/(loss)	(39)		—		5		21		(13)
Balance December 31, 2019	$	(92)	$	—	$	(401)	$	54	$	(439)

NOTE 15 PENSION AND OTHER RETIREMENT BENEFITS

U.S. Plans

Moody’s maintains funded and unfunded noncontributory Defined Benefit Pension Plans ("DBPPs"). The DBPPs provide defined benefits using a cash balance formula based on years of service and career average salary 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”.

Through 2007, substantially all U.S. employees were eligible to participate in the Company’s DBPPs. Effective January 1, 2008, the Company no longer offers DBPPs to U.S. employees hired or rehired on or after January 1, 2008 and new hires in the U.S. instead will receive a retirement contribution in similar benefit value under the Company’s Profit Participation Plan. Current participants of the Company’s Retirement Plans and Other Retirement Plans continue to accrue benefits based on existing plan benefit formulas.

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Following is a summary of changes in benefit obligations and fair value of plan assets for the Retirement Plans for the years ended December 31:


	Pension Plans				Other Retirement Plans
	2021		2020		2021		2020
Change in benefit obligation:
Benefit obligation, beginning of the period	$	(663)	$	(589)	$	(48)	$	(42)
Service cost	(19)		(17)		(4)		(3)
Interest cost	(14)		(17)		(1)		(1)
Plan participants’ contributions	—		—		(1)		(1)
Benefits paid	68		22		2		2
Actuarial (loss) gain	(6)		6		(3)		2
Assumption changes	64		(68)		7		(5)
Benefit obligation, end of the period	$	(570)	$	(663)	$	(48)	$	(48)
Change in plan assets:
Fair value of plan assets, beginning of the period	$	528	$	395	$	—	$	—
Actual return on plan assets	34		45		—		—
Benefits paid	(68)		(22)		(2)		(2)
Employer contributions	50		110		1		1
Plan participants’ contributions	—		—		1		1
Fair value of plan assets, end of the period	$	544	$	528	$	—	$	—
Funded Status of the plans	$	(26)	$	(135)	$	(48)	$	(48)
Amounts recorded on the consolidated balance sheets:
Pension and retirement benefits asset – non current	$	74	$	21	$	—	$	—
Pension and retirement benefits liability – current	(5)		(44)		(1)		(1)
Pension and retirement benefits liability – non current	(95)		(112)		(47)		(47)
Net amount recognized	$	(26)	$	(135)	$	(48)	$	(48)
Accumulated benefit obligation, end of the period	$	(524)	$	(601)

The net decrease in the pension benefit obligation from assumption changes and actuarial losses in 2021 primarily resulted from increases to the discount rates and changes to certain actuarial assumptions, including increased rates of retirement at younger ages. The net increase in the benefit obligation in 2020 primarily resulted from reductions in discount rates, partially offset by a decrease related to lower cash balance conversion interest rates.

The following information is for those pension plans with an accumulated benefit obligation in excess of plan assets:


	December 31,
	2021		2020
Aggregate projected benefit obligation	$	101	$	156
Aggregate accumulated benefit obligation	$	86	$	138

The following table summarizes the pre-tax net actuarial losses and prior service costs recognized in AOCL for the Company’s Retirement Plans as of December 31:


	Pension Plans				Other Retirement Plans
	2021		2020		2021		2020
Net actuarial losses	$	(61)	$	(144)	$	(4)	$	(8)
Net prior service credits	3		3		—		—
Total recognized in AOCL – pretax	$	(58)	$	(141)	$	(4)	$	(8)

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Net periodic benefit expenses recognized for the Retirement Plans for years ended December 31:


	Pension Plans						Other Retirement Plans
	2021		2020		2019		2021		2020		2019
Components of net periodic expense
Service cost	$	19	$	17	$	17	$	4	$	3	$	3
Interest cost	14		17		21		1		1		1
Expected return on plan assets	(27)		(20)		(20)		—		—		—
Amortization of net actuarial loss and prior service credits from earlier periods	11		7		4		1		—		—
Loss on settlement of pension obligations	8		2		—		—		—		—
Net periodic expense	$	25	$	23	$	22	$	6	$	4	$	4

The following table summarizes the pre-tax amounts recorded in OCI related to the Company’s Retirement Plans for the years ended December 31:


	Pension Plans						Other Retirement Plans
	2021		2020		2019		2021		2020		2019
Amortization of net actuarial losses and prior service credit	$	11	$	7	$	4	$	1	$	—	$	—
Settlement loss	8		2		—		—		—		—
Net actuarial (loss)/gain arising during the period	65		(37)		(24)		4		(3)		(6)
Total recognized in OCI – pre-tax	$	84	$	(28)	$	(20)	$	5	$	(3)	$	(6)

ADDITIONAL INFORMATION:

Assumptions—Retirement Plans

Weighted-average assumptions used to determine benefit obligations at December 31:


	Pension Plans				Other Retirement Plans
	2021		2020		2021		2020
Discount rate	2.60	%	2.24	%	2.65	%	2.30	%
Rate of compensation increase	3.63	%	3.62	%	—		—

Weighted-average assumptions used to determine net periodic benefit expense for years ended December 31:


	Pension Plans									Other Retirement Plans
2021			2020			2019			2021			2020			2019
Discount rate	2.24	%		3.04	%		4.07	%		2.30	%		3.05	%		4.10	%
Expected return on plan assets	5.45	%		4.45	%		5.65	%		—			—			—
Rate of compensation increase	3.62	%		3.64	%		3.69	%		—			—			—
Cash balance plan interest crediting rate	4.50	%		4.50	%		4.50	%		—			—			—

The expected rate of return on plan assets represents the Company’s best estimate of the long-term return on plan assets and is determined by using a building block approach, which generally weighs the underlying long-term expected rate of return for each major asset class based on their respective allocation target within the plan portfolio, net of plan paid expenses. As the assumption reflects a long-term time horizon, the plan performance in any one particular year does not, by itself, significantly influence the Company’s evaluation. For 2021, the expected rate of return used in calculating the net periodic benefit costs was 5.45%. For 2022, the Company’s expected rate of return assumption is 5.05% to reflect the Company’s current view of long-term capital market outlook. In addition, the Company has updated its mortality assumption by adopting the newly released mortality improvement scale MP-2021 to accompany the Pri2012 mortality tables to reflect the latest information regarding future mortality expectations by the Society of Actuaries.

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Plan Assets

Moody’s investment objective for the assets in the funded pension plan is to earn total returns that will minimize future contribution requirements over the long-term within a prudent level of risk. The Company works with its independent investment consultants to determine asset allocation targets for its pension plan investment portfolio based on its assessment of business and financial conditions, demographic and actuarial data, funding characteristics, and related risk factors. Other relevant factors, including historical and forward looking views of inflation and capital market returns, are also considered. Risk management practices include monitoring plan asset performance, diversification across asset classes and investment styles and periodic rebalancing toward asset allocation targets. The Company’s Asset Management Committee is responsible for overseeing the investment activities of the plan, which includes selecting acceptable asset classes, defining allowable ranges of holdings by asset class and by individual investment managers, defining acceptable securities within each asset class, and establishing investment performance expectations. Ongoing monitoring of the plan includes reviews of investment performance and managers on a regular basis, annual liability measurements, and periodic asset/liability studies.

The Company’s investment policy uses risk-controlled investment strategies by increasing the plan’s asset allocation to fixed income securities and specifying ranges of acceptable target allocation by asset class based on different levels of the plan’s accounting funded status. In addition, the investment policy also requires the investment-grade fixed income assets be rebalanced between shorter and longer duration bonds as the interest rate environment changes. This investment policy is designed to help protect the plan’s funded status and to limit volatility of the Company’s contributions. Based on the policy, the Company’s current target asset allocation is approximately 33% (range of 28% to 38%) in equity securities, 62% (range of 57% to 67%) in fixed income securities and 5% (range of 2% to 8%) in other investments and the plan will use a combination of active and passive investment strategies and different investment styles for its investment portfolios within each asset class. The plan’s equity investments are diversified across U.S. and non-U.S. stocks of small, medium and large capitalization. The plan’s fixed income investments are diversified principally across U.S. and non-U.S. government and corporate bonds, which are expected to help reduce plan exposure to interest rate variation and to better align assets with obligations. The plan also invests in other fixed income investments such as debts rated below investment grade, emerging market debt, and convertible securities. The plan’s other investment, which is made through a private real estate debt fund, is expected to provide additional diversification benefits and absolute return enhancement to the plan assets.

Fair value of the assets in the Company’s funded pension plan by asset category at December 31, 2021 and 2020 are as follows:


	Fair Value Measurement as of December 31, 2021
Asset Category	Balance		Level 1		Level 2		Measured using NAV practical expedient (1)		% of total assets
Cash and cash equivalent	$	4	$	—	$	4	$	—	1	%
Common/collective trust funds—equity securities
U.S. large-cap	135		—		135		—		25	%
U.S. small and mid-cap	23		—		23		—		4	%
Emerging markets	27		—		27		—		5	%
Total equity investments	185		—		185		—		34	%
Emerging markets bond fund	30		—		—		30		6	%
Common/collective trust funds—fixed income securities
Intermediate-term investment grade U.S. government/ corporate bonds	245		—		245		—		45	%
Mutual funds
U.S. Treasury Inflation-Protected Securities (TIPs)	24		24		—		—		4	%
Convertible securities	17		17		—		—		3	%
Private investment fund—high yield securities	14		—		—		14		3	%
Total fixed-income investments	330		41		245		44		61	%
Other investment—private real estate fund	25		—		—		25		4	%
Total Assets	$	544	$	41	$	434	$	69	100	%

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	Fair Value Measurement as of December 31, 2020
Asset Category	Balance		Level 1		Level 2		Measured using NAV practical expedient (1)		% of total assets
Cash and cash equivalent	$	4	$	—	$	4	$	—	1	%
Common/collective trust funds—equity securities
U.S. large-cap	143		—		143		—		27	%
U.S. small and mid-cap	28		—		28		—		5	%
Emerging markets	32		—		32		—		6	%
Total equity investments	203		—		203		—		38	%
Emerging markets bond fund	32		—		—		32		6	%
Common/collective trust funds—fixed income securities
Intermediate-term investment grade U.S. government/ corporate bonds	214		—		214		—		41	%
Mutual funds
U.S. Treasury Inflation-Protected Securities (TIPs)	23		23		—		—		4	%
Convertible securities	16		16		—		—		3	%
Private investment fund—high yield securities	12		—		—		12		2	%
Total fixed-income investments	297		39		214		44		56	%
Other investment—private real estate debt fund	24		—		—		24		5	%
Total Assets	$	528	$	39	$	421	$	68	100	%

(1)Investments are measured using the net asset value per share (or its equivalent) practical expedient and have not been categorized in the fair value hierarchy. The fair value amounts presented in the table are intended to permit a reconciliation of the fair value hierarchy to the value of the total plan assets.

Cash and cash equivalents are primarily comprised of investments in money market mutual funds. In determining fair value, Level 1 investments are valued based on quoted market prices in active markets. Investments in common/collective trust funds are valued using the NAV per unit in each fund. The NAV is based on the value of the underlying investments owned by each trust, minus its liabilities, and then divided by the number of shares outstanding. Common/collective trust funds are categorized in Level 2 to the extent that they are considered to have a readily determinable fair value. Investments for which fair value is estimated by using the NAV per share (or its equivalent) as a practical expedient are not categorized in the fair value hierarchy.

Except for the Company’s U.S. funded pension plan, all of Moody’s Retirement Plans are unfunded and therefore have no plan assets.

Cash Flows

The Company did not contribute to its U.S. funded pension plan during 2021, but contributed $99 million to this plan during the year ended December 31, 2020. The Company made payments of $50 million and $11 million related to its U.S. unfunded pension plan obligations during the years ended December 31, 2021 and 2020, respectively. The Company currently does not anticipate making a contribution to its funded pension plan in 2022, and does not anticipate making payments related to its unfunded U.S. pension plans and other Retirement Plans during the year ended December 31, 2022 that would be material to the Company's financial statements.

Estimated Future Benefits Payable

Estimated future benefits payments for the Retirement Plans are as follows as of year ended December 31, 2021:


Year Ending December 31,	Pension Plans		Other Retirement Plans
2022	$	21	$	1
2023	23		2
2024	32		2
2025	26		2
2026	30		2
2027 - 2031	157		15

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Defined Contribution Plans

Moody’s has a Profit Participation Plan covering substantially all U.S. employees. The Profit Participation Plan provides for an employee salary deferral and the Company matches employee contributions, equal to 50% of employee contribution up to a maximum of 3% of the employee’s pay. Effective January 1, 2008, all new hires are automatically enrolled in the Profit Participation Plan when they meet eligibility requirements unless they decline participation. As the Company’s U.S. DBPPs are closed to new entrants effective January 1, 2008, all eligible new hires will instead receive a retirement contribution into the Profit Participation Plan in value similar to the pension benefits. Additionally, effective January 1, 2008, the Company implemented a deferred compensation plan in the U.S., which is unfunded and provides for employee deferral of compensation and Company matching contributions related to compensation in excess of the IRS limitations on benefits and contributions under qualified retirement plans. Total expenses associated with U.S. defined contribution plans were $54 million, $44 million and $43 million in the years ended December 31, 2021, 2020, and 2019, respectively.

Effective January 1, 2008, Moody’s has designated the Moody’s Stock Fund, an investment option under the Profit Participation Plan, as an Employee Stock Ownership Plan and, as a result, participants in the Moody’s Stock Fund may receive dividends in cash or may reinvest such dividends into the Moody’s Stock Fund. Moody’s paid approximately $1 million during each of the years ended December 31, 2021, 2020 and 2019, respectively, for the Company’s common shares held by the Moody’s Stock Fund. The Company records the dividends as a reduction of retained earnings in the Consolidated Statements of Shareholders’ Equity (Deficit). The Moody’s Stock Fund held approximately 328,500 and 360,600 shares of Moody’s common stock at December 31, 2021 and 2020, respectively.

Non-U.S. Plans

Certain of the Company’s non-U.S. operations provide pension benefits to their employees. The non-U.S. defined benefit pension plans are immaterial. For defined contribution plans, company contributions are primarily determined as a percentage of employees’ eligible compensation. Expenses related to these defined contribution plans for the years ended December 31, 2021, 2020 and 2019 were $32 million, $29 million and $25 million, respectively.

NOTE 16 STOCK-BASED COMPENSATION PLANS

Under the 1998 Plan, 33.0 million shares of the Company’s common stock have been reserved for issuance. The 2001 Plan, which is shareholder approved, permits the granting of up to 50.6 million shares, of which not more than 14.0 million shares are available for grants of awards other than stock options. The Stock Plans also provide for the granting of restricted stock. The Stock Plans provide that options are exercisable not later than ten years from the grant date. The vesting period for awards under the Stock Plans is generally determined by the Board at the date of the grant and has been four years except for employees who are at or near retirement eligibility, as defined, for which vesting is between one and four years. Additionally, the vesting period is three years for certain performance-based restricted stock that contain a condition whereby the number of shares that ultimately vest are based on the achievement of certain non-market based performance metrics of the Company. Options may not be granted at less than the fair market value of the Company’s common stock at the date of grant.

The Company maintains the Directors’ Plan for its Board, which permits the granting of awards in the form of non-qualified stock options, restricted stock or performance shares. The vesting period is determined by the Board at the date of the grant and is generally one year for both options and restricted stock. Under the Directors’ Plan, 1.7 million shares of common stock were reserved for issuance. Any director of the Company who is not an employee of the Company or any of its subsidiaries as of the date that an award is granted is eligible to participate in the Directors’ Plan.

On September 15, 2021, the Company acquired RMS, which is discussed in more detail in Note 9. As part of the acquisition, the Company registered the RMS 2014 Equity Award Plan and the RMS 2015 Equity Incentive Plan (collectively, "RMS Plans") as part of the purchase agreement to acquire RMS. Under the RMS Plans, 1.2 million shares of the Company’s common stock have been reserved for issuance. The RMS Plans provide that options are exercisable not later than ten years from the grant date. The vesting period is generally determined by the Board at the date of the grant and is four years for both options and restricted stock granted during 2021.

As a result of the acquisition, certain RMS employees' unvested equity awards (employee stock options and restricted stock) with an acquisition-date fair value of $33 million were converted into equity awards of the Company based on an exchange ratio as defined in the purchase agreement. The portion of the fair value of the replacement awards related to services provided prior to the acquisition was $5 million and was accounted for as consideration transferred (See Note 9). The remaining portion of the replacement awards of $28 million, which is associated with a future service requirement, will be recognized as compensation expense over the remaining vesting period.

Presented below is a summary of the stock-based compensation expense and associated tax benefit in the accompanying Consolidated Statements of Operations:


	Year Ended December 31,
	2021		2020		2019
Stock-based compensation expense	$	175	$	154	$	136
Tax benefit	$	42	$	30	$	29

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The fair value of each employee stock option award is estimated on the date of grant using the Black-Scholes option-pricing model that uses the assumptions noted below. The expected dividend yield is derived from the annual dividend rate on the date of grant. The expected stock volatility is based on an assessment of historical weekly stock prices of the Company as well as implied volatility from Moody’s traded options. The risk-free interest rate is based on U.S. government zero coupon bonds with maturities similar to the expected holding period. The expected holding period was determined by examining historical and projected post-vesting exercise behavior activity.

The following weighted average assumptions were used for options granted (excluding the aforementioned RMS replacement awards):


	Year Ended December 31,
	2021		2020		2019
Expected dividend yield	0.89	%	0.80 %		1.14 %
Expected stock volatility	28	%	23	%	24	%
Risk-free interest rate	0.82	%	1.43 %		2.56 %
Expected holding period -in years	5.6		5.7		6.2

Due to the RMS replacement option awards being heavily in-the-money at the acquisition date, the Company utilized a binomial valuation approach to determine the fair value of the options, which approximated the intrinsic value of the replaced awards at the acquisition date.

The following represents the fair value of the options at grant date, including RMS replacement option awards:


	Year Ended December 31,
	2021		2020		2019




Weighted average grant date fair value per share (including RMS replacement option awards)	$	121.14	$	60.66	$	43.29

A summary of option activity as of December 31, 2021 and changes during the year then ended is presented below:


Options	Shares	Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding, December 31, 2020	1.0	$	132.80
Granted (including RMS replacement awards)	0.2	$	249.99
Exercised	(0.2)	$	101.03
Outstanding, December 31, 2021	1.0	$	166.16	5.8 years	$	224
Vested and expected to vest, December 31, 2021	1.0	$	165.26	5.7 years	$	221
Exercisable, December 31, 2021	0.6	$	119.88	4.4 years	$	159

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between Moody’s closing stock price on the last trading day of the year ended December 31, 2021 and the exercise prices, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options as of December 31, 2021. This amount varies based on the fair value of Moody’s stock. As of December 31, 2021, there was $22 million of total unrecognized compensation expense related to options. The expense is expected to be recognized over a weighted average period of 2.2 years.

The following table summarizes information relating to stock option exercises:


	Year Ended December 31,
	2021		2020		2019
Proceeds from stock option exercises	$	24	$	39	$	36
Aggregate intrinsic value	$	55	$	132	$	114
Tax benefit realized upon exercise	$	13	$	32	$	27

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A summary of nonvested restricted stock activity for the year ended December 31, 2021 is presented below:


Nonvested Restricted Stock	Shares	Weighted Average Grant Date Fair Value Per Share
Balance, December 31, 2020	1.5	$	201.30
Granted (including RMS replacement awards)	0.7	$	296.84
Vested	(0.7)	$	177.96
Forfeited	(0.1)	$	242.12
Balance, December 31, 2021	1.4	$	253.85

As of December 31, 2021, there was $209 million of total unrecognized compensation expense related to nonvested restricted stock. The expense is expected to be recognized over a weighted average period of 2.6 years.

The following table summarizes information relating to the vesting of restricted stock awards:


	Year Ended December 31,
	2021		2020		2019
Fair value of shares vested	$	194	$	202	$	156
Tax benefit realized upon vesting	$	46	$	46	$	36

A summary of performance-based restricted stock activity for the year ended December 31, 2021 is presented below:


Performance-based restricted stock	Shares	Weighted Average Grant Date Fair Value Per Share
Balance, December 31, 2020	0.3	$	197.19
Granted	0.2	$	329.71
Vested	(0.1)	$	162.06
Balance, December 31, 2021	0.4	$	266.89

The following table summarizes information relating to the vesting of the Company’s performance-based restricted stock awards:


	Year Ended December 31,
	2021		2020		2019
Fair value of shares vested	$	28	$	70	$	47
Tax benefit realized upon vesting	$	7	$	17	$	11

As of December 31, 2021, there was $63 million of total unrecognized compensation expense related to this plan. The expense is expected to be recognized over a weighted average period of 2.1 years.

The Company has a policy of issuing treasury stock to satisfy shares issued under stock-based compensation plans.

In addition, the Company also sponsors the ESPP. Under the ESPP, 6 million shares of common stock were reserved for issuance. The ESPP permits eligible employees to purchase common stock of the Company on a monthly basis at a discount to the average of the high and the low trading prices on the New York Stock Exchange on the last trading day of each month. This discount was 5% in 2021, 2020, and 2019 resulting in the ESPP qualifying for non-compensatory status under Topic 718 of the ASC. Accordingly, no compensation expense was recognized for the ESPP in 2021, 2020, and 2019. The employee purchases are funded through after-tax payroll deductions, which plan participants can elect from one percent to ten percent of compensation, subject to the annual federal limit.

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NOTE 17 INCOME TAXES

Components of the Company’s income tax provision are as follows:


	Year Ended December 31,
	2021		2020		2019
Current:
Federal	$	404	$	213	$	179
State and Local	106		68		59
Non-U.S.	249		215		181
Total current	759		496		419
Deferred:
Federal	(172)		6		(19)
State and Local	(45)		—		(3)
Non-U.S.	(1)		(50)		(16)
Total deferred	(218)		(44)		(38)
Total provision for income taxes	$	541	$	452	$	381

A reconciliation of the U.S. federal statutory tax rate to the Company’s effective tax rate on income before provision for income taxes is as follows:


	Year Ended December 31,
	2021			2020			2019
U.S. statutory tax rate	21.0		%	21.0		%	21.0		%
State and local taxes, net of federal tax benefit	1.5		%	2.3		%	2.2		%
Benefit of foreign operations	(1.5)		%	(1.5)		%	(0.1)		%



Other	(1.4)		%	(1.5)		%	(2.1)		%
Effective tax rate	19.6		%	20.3		%	21.0		%
Income tax paid	$	932		$	514		$	458

The source of income before provision for income taxes is as follows:


	Year Ended December 31,
	2021		2020		2019
U.S.	$	1,563	$	1,349	$	1,039
Non-U.S.	1,192		880		771
Income before provision for income taxes	$	2,755	$	2,229	$	1,810

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The components of deferred tax assets and liabilities are as follows:


	December 31,
	2021		2020
Deferred tax assets:
Account receivable allowances	$	8	$	9
Accumulated depreciation and amortization	10		2
Stock-based compensation	50		42
Accrued compensation and benefits	101		99
Capitalized costs	33		39
Operating lease liabilities	134		122
Deferred revenue	252		30
Net operating loss	33		17
Restructuring	1		3
Uncertain tax positions	86		98
Self-insured related reserves	10		10
Loss on net investment hedges - OCI	11		93
Other	16		10
Total deferred tax assets	745		574
Deferred tax liabilities:
Accumulated depreciation and amortization of intangible assets and capitalized software	(659)		(468)
ROU Assets	(102)		(90)
Capital Gains	(31)		(23)
Self-insured related income	(10)		(10)

Revenue Accounting Standard - ASC 606	(7)		(10)
Deferred tax on unremitted foreign earnings	(12)		(16)
Gain on net investment hedges - OCI	(4)		(8)
Other	(6)		(4)
Total deferred tax liabilities	(831)		(629)
Net deferred tax liabilities	(86)		(55)
Valuation allowance	(18)		(15)
Total net deferred tax liabilities	$	(104)	$	(70)

On December 22, 2017, the Tax Act was signed into law, which resulted in significant changes to U.S. corporate tax laws. The Tax Act includes a mandatory one-time deemed repatriation tax (“transition tax”) on previously untaxed accumulated earnings of foreign subsidiaries and beginning in 2018 reduces the statutory federal corporate income tax rate from 35% to 21%. Due to the complexities of the Tax Act, the SEC issued guidance requiring that companies provide a reasonable estimate of the impact of the Tax Act to the extent such reasonable estimate has been determined. Accordingly, as of December 31, 2017, the Company recorded a provisional estimate for the transition tax of $247 million. In September, 2018, the Company filed its 2017 federal income tax return and revised its determination of the transition tax to $236 million, a reduction of $11 million from the estimate at December 31, 2017. The revised determination of transition tax may be impacted by a number of additional considerations, including but not limited to the issuance of additional regulations.

As a result of the Tax Act, all previously net undistributed foreign earnings have now been subject to U.S. tax. The Company regularly evaluates which entities it will indefinitely reinvest earnings. The Company has provided deferred taxes for those entities whose earnings are not considered indefinitely reinvested.

The Company’s annual tax expense for the year ended December 31, 2021 includes Excess Tax Benefits from stock compensation of $31 million, benefits from the resolution of certain UTPs of $70 million and other net decreases to tax positions of $25 million.

The Company had valuation allowances of $18 million and $15 million at December 31, 2021 and 2020, respectively, related to foreign net operating losses for which realization is uncertain.

As of December 31, 2021, the Company had $388 million of UTPs of which $353 million represents the amount that, if recognized, would impact the effective tax rate in future periods. The decrease in 2021 resulted primarily from the resolutions of uncertain tax positions. The increase in 2020 was primarily due to the additional reserves established for non-U.S. tax exposures.

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A reconciliation of the beginning and ending amount of UTPs is as follows:


	Year Ended December 31,
	2021		2020		2019
Balance as of January 1	$	483	$	477	$	495
Additions for tax positions related to the current year	102		37		35
Additions for tax positions of prior years	18		17		22
Reductions for tax positions of prior years	—		(2)		(2)
Settlements with taxing authorities	(134)		(5)		(1)
Lapse of statute of limitations	(81)		(41)		(44)
Reclassification to indemnification liability related to MAKS divestiture	—		—		(28)
Balance as of December 31	$	388	$	483	$	477

The Company classifies interest related to UTPs in interest expense in its consolidated statements of operations. Penalties are recognized in other non-operating expenses. During the year ended December 31, 2021 the Company accrued net interest income of $21 million related to UTPs. During the years ended December 31, 2020 and 2019 the Company incurred net interest expense of $34 million and $28 million, respectively, related to UTPs. As of December 31, 2021, 2020 and 2019 the amount of accrued interest recorded in the Company’s consolidated balance sheets related to UTPs was $59 million, $113 million and $82 million, respectively.

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 returns for 2017 through 2019 are currently under examination and 2020 remains open to examination. The Company’s New York State tax returns for 2017 through 2018 are currently under examination and New York City tax returns for 2014 through 2017 are currently under examination. After the resolution of a tax audit for 2012, certain of the Company’s U.K. subsidiaries’ returns from 2012 to 2020 remain open to examination.

For current ongoing audits related to open tax years, the Company estimates that it is possible that the balance of UTPs could decrease in the next twelve months as a result of the effective 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 might necessitate increases to the balance of UTPs. As the Company is unable to predict the timing of conclusion of these audits, the Company is unable to estimate the amount of changes to the balance of UTPs at this time.

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NOTE 18 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 certain debt as depicted in the table below, 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:


	December 31, 2021
	Principal Amount		Fair Value of Interest Rate Swaps(1)		Unamortized (Discount) Premium		Unamortized Debt Issuance Costs		Carrying Value
Notes Payable:

4.875% 2013 Senior Notes, due 2024	$	500	$	—	$	(1)	$	(1)	$	498
5.25% 2014 Senior Notes, due 2044	600		(7)		3		(5)		591
1.75% 2015 Senior Notes, due 2027	568		—		—		(2)		566

2.625% 2017 Senior Notes, due 2023	500		5		—		(1)		504
3.25% 2017 Senior Notes, due 2028	500		8		(3)		(2)		503

4.25% 2018 Senior Notes, due 2029	400		—		(2)		(2)		396
4.875% 2018 Senior Notes, due 2048	400		(7)		(6)		(4)		383
0.950% 2019 Senior Notes, due 2030	853		—		(2)		(5)		846
3.75% 2020 Senior Notes, due 2025	700		(9)		(1)		(4)		686
3.25% 2020 Senior Notes, due 2050	300		—		(4)		(3)		293
2.55% 2020 Senior Notes, due 2060	500		—		(4)		(5)		491
2.00% 2021 Senior Notes, due 2031	600		—		(8)		(5)		587
2.75% 2021 Senior Notes, due 2041	600		—		(13)		(6)		581
3.10% 2021 Senior Notes, due 2061	500		—		(7)		(5)		488
Total long-term debt	$	7,521	$	(10)	$	(48)	$	(50)	$	7,413


	December 31, 2020
	Principal Amount		Fair Value of Interest Rate Swaps (1)		Unamortized (Discount) Premium		Unamortized Debt Issuance Costs		Carrying Value
Notes Payable:

4.50% 2012 Senior Notes, due 2022	$	500	$	14	$	(1)	$	(1)	$	512
4.875% 2013 Senior Notes, due 2024	500		—		(1)		(1)		498
5.25% 2014 Senior Notes, due 2044	600		—		3		(5)		598
1.75% 2015 Senior Notes due 2027	612		—		—		(2)		610

2.625% 2017 Senior Notes, due 2023	500		12		—		(2)		510
3.25% 2017 Senior Notes, due 2028	500		31		(4)		(3)		524

4.25% 2018 Senior Notes, due 2029	400		—		(3)		(3)		394
4.875% 2018 Senior Notes, due 2048	400		—		(6)		(4)		390
0.950% 2019 Senior Notes, due 2030	918		—		(3)		(6)		909
3.75% 2020 Senior Notes, due 2025	700		(1)		(1)		(5)		693
3.25% 2020 Senior Notes, due 2050	300		—		(4)		(3)		293
2.55% 2020 Senior Notes, due 2060	500		—		(4)		(5)		491
Total long-term debt	$	6,430	$	56	$	(24)	$	(40)	$	6,422

(1)The fair value of interest rate swaps in the table above represents the cumulative amount of fair value hedging adjustments included in the carrying amount of the hedged debt.

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Credit Facility

On December 17, 2021, the Company entered into a five-year senior, unsecured revolving credit facility with the capacity to borrow up to $1.25 billion, which expires December 2026. The 2021 Facility replaces the Company’s $1 billion 2018 Credit Facility that was scheduled to mature in November 2023. Further information on the key terms of these credit facilities is below.

The following summarizes information relating to the Company's revolving credit facilities:


					December 31, 2021				December 31, 2020
	Issue Date	Capacity		Maturity	Drawn		Undrawn		Drawn		Undrawn
2018 Credit Facility	November 14, 2018	$	1,000	November 13, 2023 (Terminated in 2021)	$	—	$	—	$	—	$	1,000
2021 Credit Facility	December 17, 2021	$	1,250	December 17, 2026	$	—	$	1,250	$	—	$	—

2018 Credit Facility

Interest on borrowings under the 2018 Credit Facility ranged from 0 BPS to 22.5 BPS per annum for Alternate Base Rate loans (as defined in the 2018 Facility agreement) or payable at rates based on the London InterBank Offered Rate (“LIBOR”) plus a premium that ranged from 80.5 BPS to 122.5 BPS depending on the Company’s index debt ratings, as set forth in the 2018 Facility agreement. The Company also paid quarterly facility fees, regardless of borrowing activity under the facility. The quarterly fees for the 2018 Facility ranged from 7 BPS of the facility amount to 15 BPS, depending on the Company’s index debt ratings. The 2018 Facility contained certain customary covenants including a financial covenant that required the Company to maintain a total debt to EBITDA ratio of (i) not more than 4 to 1 at the end of any fiscal quarter or (ii) not more than 4.5 to 1 as of the end of the first three consecutive quarters immediately following any acquisition with consideration in excess of $500 million, subject to certain conditions as set forth in the 2018 Facility agreement.

2021 Credit Facility

Interest on borrowings under the 2021 Credit Facility is payable at rates that are based on an adjusted term SOFR Rate plus a premium that can range from 80.5 basis points to 122.5 basis points, depending on the Company’s index debt ratings, as set forth in the 2021 Facility Agreement. The Company also has the option to choose other rates, such as those based on adjusted Daily Simple SOFR or an alternate base rate as set forth in the 2021 Facility Agreement. The Company also pays quarterly facility fees, regardless of borrowing activity under the Facility. The quarterly fees for the 2021 Facility can range from 7 basis points of the 2021 Credit Facility amount to 15 basis points, depending on the Company’s index debt ratings. The facility fees for the 2021 Credit Facility are subject to sustainability-based pricing adjustments based on the Company’s annual performance with respect to certain spending with vendors who have committed to and publicly announced the setting of science-based targets to reduce greenhouse gas emissions. The 2021 Facility contains a financial covenant that requires the Company to maintain a total debt to EBITDA Ratio of (i) not more than 4 to 1 at the end of any fiscal quarter or (ii) not more than 4.5 to 1 as of the end of the first three consecutive quarters immediately following any acquisition with consideration in excess of $500 million, subject to certain conditions as set forth in the 2021 Facility.

Commercial Paper

On August 3, 2016, the Company entered into a private placement commercial paper program under which the Company may issue CP notes up to a maximum amount of $1.0 billion. Borrowings under the CP Program are backstopped by the 2021 Facility. Amounts under the CP Program may be re-borrowed. The maturity of the CP Notes will vary, but may not exceed 397 days from the date of issue. The CP Notes are sold at a discount from par, or alternatively, sold at par and bear interest at rates that will vary based upon market conditions. The rates of interest will depend on whether the CP Notes will be a fixed or floating rate. The interest on a floating rate may be based on the following: (a) certificate of deposit rate; (b) commercial paper rate; (c) the federal funds rate; (d) the LIBOR; (e) prime rate; (f) Treasury rate; or (g) such other base rate as may be specified in a supplement to the private placement agreement. The CP Program contains certain events of default including, among other things: non-payment of principal, interest or fees; entrance into any form of moratorium; and bankruptcy and insolvency events, subject in certain instances to cure periods. As of December 31, 2021, the Company has no CP borrowings outstanding.

Notes Payable

The Company may prepay certain of its senior notes, in whole or in part, but may incur a Make-Whole Amount penalty.

During 2021, the Company issued the 2021 Senior Notes due 2031, the 2021 Senior Notes due 2041, and the 2021 Senior Notes due 2061. The key terms of these debt issuances are set forth in the table above.

Additionally, in 2021, the Company fully repaid $500 million of the 2012 Senior Notes due 2022 (along with a Make-Whole Amount of approximately $13 million). The Company also recognized in interest expense, net, an $8 million benefit relating to carrying value adjustments pursuant to the early termination of interest rate swaps designated as fair value hedges that were associated with the 2012 Senior Notes due 2022.

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At December 31, 2021, the Company was in compliance with all covenants contained within all of the debt agreements. All of 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 December 31, 2021, there were no such cross defaults.

The repayment schedule for the Company’s borrowings is as follows:


Year Ending December 31,	2013 Senior Notes due 2024		2014 Senior Notes due 2044		2015 Senior Notes due 2027		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		2020 Senior Notes due 2060		2021 Senior Notes due 2031		2021 Senior Notes due 2041		2021 Senior Notes due 2061		Total
2022	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
2023	—		—		—		500		—		—		—		—		—		—		—		—		—		—		$	500
2024	500		—		—		—		—		—		—		—		—		—		—		—		—		—		$	500
2025	—		—		—		—		—		—		—		—		700		—		—		—		—		—		$	700
2026	—		—		—		—		—		—		—		—		—		—		—		—		—		—		$	—
Thereafter	—		600		568		—		500		400		400		853		—		300		500		600		600		500		5,821
Total	$	500	$	600	$	568	$	500	$	500	$	400	$	400	$	853	$	700	$	300	$	500	$	600	$	600	$	500	$	7,521

Interest expense, net

The following table summarizes the components of interest as presented in the consolidated statements of operations:


	Year Ended December 31,
	2021		2020		2019
Expense on borrowings	$	(185)	$	(163)	$	(176)
Expense on UTPs and other tax related liabilities(1)	21		(34)		(28)
Net periodic pension costs—interest component	(16)		(19)		(22)
Income	9		11		17
Capitalized	—		—		1
Total	$	(171)	$	(205)	$	(208)
Interest paid (2)	$	162	$	132	$	167

(1)The amount for the year ended December 31, 2021 includes a $45 million benefit relating to the reversal of tax-related interest accruals pursuant to the resolution of tax matters.

(2)Interest paid includes net settlements on interest rate swaps more fully discussed in Note 7.

The fair value and carrying value of the Company’s debt as of December 31, 2021 and 2020 are as follows:


	December 31, 2021				December 31, 2020
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
4.50% 2012 Senior Notes, due 2022	$	—	$	—	$	512	$	530
4.875% 2013 Senior Notes, due 2024	498		538		498		562
5.25% 2014 Senior Notes, due 2044	591		805		598		828
1.75% 2015 Senior Notes, due 2027	566		607		610		674

2.625% 2017 Senior Notes, due 2023	504		509		510		522
3.25% 2017 Senior Notes, due 2028	503		539		524		561

4.25% 2018 Senior Notes, due 2029	396		451		394		480
4.875% 2018 Senior Notes, due 2048	383		526		390		544
0.950% 2019 Senior Notes, due 2030	846		866		909		974
3.75% 2020 Senior Notes, due 2025	686		750		693		785
3.25% 2020 Senior Notes, due 2050	293		311		293		329
2.55% 2020 Senior Notes, due 2060	491		432		491		467
2.00% 2021 Senior Notes, due 2031	587		581		—		—
2.75% 2021 Senior Notes, due 2041	581		579		—		—
3.10% 2021 Senior Notes, due 2061	488		488		—		—
Total	$	7,413	$	7,982	$	6,422	$	7,256

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The fair value of the Company’s 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 19 CAPITAL STOCK

Authorized Capital Stock

The total number of shares of all classes of stock that the Company has authority to issue under its Restated Certificate of Incorporation is 1.02 billion shares with a par value of $0.01, of which 1.0 billion are shares of common stock, 10.0 million are shares of preferred stock and 10.0 million are shares of series common stock. The preferred stock and series common stock can be issued with varying terms, as determined by the Board.

Share Repurchase Program

The Company implemented a systematic share repurchase program in the third quarter of 2005 through an SEC Rule 10b5-1 program. Moody’s may also purchase opportunistically when conditions warrant. As a result, Moody’s share repurchase activity will continue to vary from quarter to quarter. The table below summarizes the Company’s remaining authority under its share repurchase program as of December 31, 2021:


Date Authorized	Amount Authorized		Remaining Authority
February 9, 2021	$	1,000	$	1,000
December 16, 2019	$	1,000	$	81
Total Remaining Authority at December 31, 2021			$	1,081

Additionally, on February 7, 2022, the Board of Directors approved an additional $750 million of share repurchase authority.

During 2021, Moody’s repurchased 2.2 million shares of its common stock under its share repurchase program and issued a net 0.8 million shares under employee stock-based compensation plans. The net amount includes shares withheld for employee payroll taxes.

Dividends

The Company’s cash dividends were:


	Dividends Per Share
	Year ended December 31,
	2021				2020				2019
	Declared		Paid		Declared		Paid		Declared		Paid
First quarter	$	0.62	$	0.62	$	0.56	$	0.56	$	0.50	$	0.50
Second quarter	0.62		0.62		0.56		0.56		0.50		0.50
Third quarter	0.62		0.62		0.56		0.56		0.50		0.50
Fourth quarter	0.62		0.62		0.56		0.56		0.50		0.50
Total	$	2.48	$	2.48	$	2.24	$	2.24	$	2.00	$	2.00

On February 7, 2022, the Board approved the declaration of a quarterly dividend of $0.70 per share of Moody’s common stock, payable on March 18, 2022 to shareholders of record at the close of business on February 25, 2022. The continued payment of dividends at the rate noted above, or at all, is subject to the discretion of the Board.

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NOTE 20 LEASE COMMITMENTS

The Company has operating leases, substantially all of which relate to the lease of office space. The Company's leases 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 from one to 20 years at the Company's discretion.

The following table presents the components of the Company’s lease cost:


	Year Ended December 31,
	2021		2020		2019

Operating lease cost	$	98	$	96	$	97

Sublease income	(6)		(5)		(2)
Variable lease cost	19		19		17
Total lease cost	$	111	$	110	$	112

The following tables present other information related to the Company’s operating leases:


	Year Ended December 31,
	2021		2020		2019
Cash paid for amounts included in the measurement of operating lease liabilities	$	113	$	108	$	106
Right-of-use assets obtained in exchange for new operating lease liabilities	$	137	$	36	$	41


	Year Ended December 31,
	2021		2020		2019
Weighted-average remaining lease term (in years)	5.6		6.0		6.8
Weighted-average discount rate applied to operating leases	3.1	%	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 December 31, 2021:


Year Ending December 31,	Operating Leases
2022	$	121
2023	118
2024	109
2025	93
2026	74
Thereafter	95
Total lease payments (undiscounted)	610
Less: Interest	50
Present value of lease liabilities:	$	560
Lease liabilities - current	$	105
Lease liabilities - noncurrent	$	455

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NOTE 21 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 17 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.

NOTE 22 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. The MA segment consists of two LOBs - RD&A and ERS.

Revenue for MIS and expenses for MA include intersegment fees charged to MA for the rights to use and distribute content, data and products developed by MIS. Additionally, 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 intersegment fees are generally based on the market value of the products and services being transferred between the segments.

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 2019 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.

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Financial Information by Segment

The table below shows revenue 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.


	Year Ended December 31,
	2021								2020
	MIS		MA		Eliminations		Consolidated		MIS		MA		Eliminations		Consolidated
Revenue	$	3,977	$	2,413	$	(172)	$	6,218	$	3,440	$	2,086	$	(155)	$	5,371
Operating, SG&A	1,503		1,786		(172)		3,117		1,387		1,472		(155)		2,704
Adjusted Operating Income	2,474		627		—		3,101		2,053		614		—		2,667

Depreciation and amortization	72		185		—		257		70		150		—		220
Restructuring	(1)		1		—		—		19		31		—		50

Loss pursuant to the divestiture of MAKS	—		—		—		—		—		9		—		9

Operating Income							$	2,844							$	2,388


	Year Ended December 31, 2019
	MIS		MA		Eliminations		Consolidated
Revenue	$	3,009	$	1,963	$	(143)	$	4,829
Operating, SG&A	1,264		1,417		(143)		2,538
Adjusted Operating Income	1,745		546		—		2,291

Depreciation and amortization	71		129		—		200
Restructuring	31		29		—		60
Acquisition-Related Expenses	—		3		—		3
Loss pursuant to the divestiture of MAKS	—		14		—		14
Captive insurance company settlement	10		6		—		16
Operating income							$	1,998

The cumulative restructuring charges related to the 2018 Restructuring Program for the MIS and MA reportable segments are $60 million and $43 million, respectively. The cumulative restructuring charges related to the 2020 Restructuring Program for the MIS and MA reportable segments were $21 million and $15 million, respectively. The cumulative restructuring charge for the MA reportable segment related to the 2020 MA Strategic Reorganization Restructuring Program is $20 million. The restructuring programs are more fully discussed in Note 11.

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CONSOLIDATED REVENUE AND LONG-LIVED ASSETS INFORMATION BY GEOGRAPHIC AREA


	Year Ended December 31,
	2021		2020		2019
Revenue:
U.S.	$	3,416	$	2,955	$	2,544
Non-U.S.:
EMEA	1,866		1,545		1,446
Asia-Pacific	596		571		551
Americas	340		300		288
Total Non-U.S.	2,802		2,416		2,285
Total	$	6,218	$	5,371	$	4,829

Long-lived assets at December 31:
U.S.	$	4,449	$	2,162	$	1,290
Non-U.S.	4,802		4,889		4,678
Total	$	9,251	$	7,051	$	5,968

NOTE 23 VALUATION AND QUALIFYING ACCOUNTS

Accounts receivable allowances represent estimates for uncollectible accounts. The valuation allowance on deferred tax assets relates to foreign net operating tax losses for which realization is uncertain. Below is a summary of activity:


Year Ended December 31,	Balance at Beginning of the Year		Adoption of New Expected Credit Losses Accounting Standard		Charged to costs and expenses		Deductions (1)		Balance at End of the Year
2021
Allowances for credit losses	$	(34)	$	—	$	(13)	$	15	$	(32)
Deferred tax assets—valuation allowance	$	(15)	$	—	$	(4)	$	1	$	(18)
2020
Allowances for credit losses	$	(20)	$	(2)	$	(26)	$	14	$	(34)
Deferred tax assets—valuation allowance	$	(9)	$	—	$	(6)	$	—	$	(15)
2019
Allowances for credit losses	$	(20)	$	—	$	(10)	$	10	$	(20)
Deferred tax assets—valuation allowance	$	(5)	$	—	$	(4)	$	—	$	(9)

(1)Reflects write-off of uncollectible accounts receivable or expiration of foreign net operating tax losses.

NOTE 24 OTHER NON-OPERATING INCOME, NET

The following table summarizes the components of other non-operating income, net as presented in the consolidated statements of operations:


	Year Ended December 31,
	2021		2020		2019
FX (loss) gain	$	(1)	$	2	$	(18)
Purchase price hedge loss(1)	(13)		—		—
Net periodic pension costs—other components(2)	9		13		18
Income from investments in non-consolidated affiliates(3)	60		6		13
Other	27		25		7
Total	$	82	$	46	$	20

(1)Reflects a loss on a forward contract to hedge a portion of the RMS British pound-denominated purchase price.

(2)The amount for the year ended December 31, 2021 includes an $8 million loss related to a settlement of pension obligations.

(3)The amount for the year ended December 31, 2021 includes a $36 million non-cash gain relating to the exchange of Moody’s minority investment in VisibleRisk (accounted for under the equity method) for shares of BitSight, a cybersecurity ratings company.

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NOTE 25 SUBSEQUENT EVENT

On February 7, 2022, the Board approved the declaration of a quarterly dividend of $0.70 per share for Moody’s common stock, payable March 18, 2022 to shareholders of record at the close of business on February 25, 2022.

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