# MOODYS CORP /DE/ (MCO) FY 2022 MD&A Verbatim Item 7 Management's Discussion and Analysis from MOODYS CORP /DE/'s 10-K for fiscal year 2022. SEC filing source: https://www.sec.gov/Archives/edgar/data/1059556/000105955623000016/mco-20221231.htm Accession: 0001059556-23-000016 Filing date: 2023-02-15 Report date: 2022-12-31 Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Confidence: high Company profile: /company/MCO/ All MD&A years: /company/MCO/mda/ Previous year: /company/MCO/mda/fy2021/ (FY 2021) Next year: /company/MCO/mda/fy2023/ (FY 2023) ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This discussion and analysis of financial condition and results of operations should be read in conjunction with the Moody’s Corporation consolidated financial statements and notes thereto included elsewhere in this annual report on Form 10-K. This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains Forward-Looking Statements. See “Forward-Looking Statements” commencing on page 61 and Item 1A. “Risk Factors” commencing on page 23 for a discussion of uncertainties, risks and other factors associated with these statements. The Company Moody’s is a global integrated risk assessment firm that empowers organizations and investors to make better decisions. Moody’s reports in two segments: MIS and MA. MIS publishes credit ratings and provides assessment services on a wide range of debt obligations, programs and facilities, and the entities that issue such obligations in markets worldwide, including various corporate, financial institution and governmental obligations, and structured finance securities. 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. Current Matters Impacting Moody's Business Current Macroeconomic Uncertainties/Market Volatility The Company is monitoring current macroeconomic and geopolitical uncertainties that have contributed to declines in rated issuance volumes in 2022. A substantial portion of MIS’s revenue is impacted by the level of issuance activity in the fixed income capital markets, both in the U.S. and internationally. While market volatility in 2022 has resulted in declines in rated issuance volumes, the Company believes that these declines are predominantly cyclical in nature. However, due to various uncertainties, Moody's is unable to predict the severity and duration of current macroeconomic and geopolitical uncertainties and their potential impact on future ratings issuance volumes. Refer to Item 1A. “Risk Factors” for further disclosure relating to these risks. Russia/Ukraine Conflict The Company is closely monitoring the impact of the ongoing Russia/Ukraine conflict on all aspects of its business. In response to the conflict, the Company is no longer conducting commercial operations in Russia for both MIS and MA and is complying with all applicable regulatory restrictions set forth by the jurisdictions in which Moody's operates. Furthermore, the Company also has withdrawn MIS credit ratings on Russian entities. While Moody's Russian operations and net assets are not material, broader global market volatility, which partially relates to uncertainties surrounding the conflict, has contributed to an adverse impact on rated issuance volumes in 2022. This impact to rated issuance volumes is more fully discussed in the "Results of Operations" section of this MD&A. The Company is unable to predict either the near-term or longer-term impact that the conflict may have on its financial position and operating results due to numerous uncertainties regarding the severity and duration of the conflict and its broader potential macroeconomic impact. COVID-19 The Company continues to closely monitor the impact of the COVID-19 pandemic on all aspects of its business. The Company continues to monitor regional developments relating to the COVID-19 pandemic to inform decisions regarding its offices and its business travel policies. As of the date of the filing of this annual report on Form 10-K, the Company has reopened all of its offices for employees to access. 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 financial outlook. Refer to Item 1A. “Risk Factors” for further disclosure relating to the risks of the COVID-19 pandemic on the Company's business. Critical Accounting Estimates Moody’s discussion and analysis of its financial condition and results of operations are based on the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires Moody’s to make estimates and judgments that affect reported amounts of assets and liabilities and related disclosures of contingent assets and liabilities at the dates of the financial statements and revenue and expenses during the reporting periods. These estimates are based on historical experience and on other assumptions that are believed to be reasonable under the circumstances. On an ongoing basis, Moody’s evaluates its critical accounting estimates. Actual results may differ from these estimates under different assumptions or conditions. The following accounting estimates are considered critical because they are particularly dependent on management’s judgment about matters that are uncertain at the time the accounting estimates are made and changes to those estimates could have a material impact on the Company’s consolidated results of operations or financial condition. MOODY'S 2022 10-K     35 Table of Contents Goodwill and Other Acquired Intangible Assets At July 31st of each year, Moody’s evaluates its goodwill for impairment at the reporting unit level, defined as an operating segment (i.e., MIS and MA), or one level below an operating segment (i.e., a component of an operating segment). 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. The Company evaluates the recoverability of goodwill using a two-step impairment test approach at the reporting unit level. In the first step, the Company assesses various qualitative factors to determine whether the fair value of a reporting unit may be less than its carrying amount. If a determination is made based on the qualitative factors that an impairment does not exist, the Company is not required to perform further testing. If the aforementioned qualitative assessment results in the Company concluding that it is more likely than not that the fair value of a reporting unit may be less than its carrying amount, the fair value of the reporting unit will be quantitatively determined and compared to its carrying value including goodwill. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is not impaired, and the Company is not required to perform further testing. If the fair value of the reporting unit is less than the carrying value, the Company will record a goodwill impairment charge for the amount by which the carrying value exceeds the reporting unit’s fair value. The Company evaluates its reporting units on an annual basis, or more frequently if there are changes in the reporting structure of the Company due to acquisitions, realignments or if there are indicators of potential impairment. For the reporting units where the Company is consistently able to conclude that no impairment exists using only a qualitative approach, the Company’s accounting policy is to perform the second step of the aforementioned goodwill impairment assessment at least once every three years. The Company last performed quantitative assessments on all reporting units at July 31, 2021, pursuant to a change in reporting unit structure in the MA reportable segment. The quantitative assessments performed at July 31, 2021 resulted in fair values that significantly exceeded carrying values for all reporting units. Determining the fair value of a reporting unit involves the use of significant estimates and assumptions, which are more fully described below. In addition, the Company also makes certain judgments and assumptions in allocating shared assets and liabilities to determine the carrying values for each of its reporting units. Other assets and liabilities, including applicable corporate assets, are allocated to the extent they are related to the operation of respective reporting units. Annual goodwill impairment assessment performed at July 31, 2022 At July 31, 2022, the Company performed qualitative assessments for each of the four reporting units. These qualitative assessments resulted in the Company determining that it was not more likely than not that the fair value of any reporting unit was less than its carrying amount. Methodologies and significant estimates utilized in determining the fair value of reporting units: The following is a discussion regarding the Company’s methodology for determining the fair value of its reporting units, excluding ICRA, at July 31, 2021 (the date of the last quantitative assessment). As ICRA is a publicly traded company in India, the Company was able to observe its fair value based on its market capitalization. The fair value of each reporting unit, excluding ICRA, was estimated using a discounted cash flow methodology and comparable public company and precedent transaction multiples. The discounted cash flow analysis requires significant estimates, including projections of future operating results and cash flows of each reporting unit that are based on internal budgets and strategic plans, expected long-term growth rates, terminal values, weighted average cost of capital and the effects of external factors and market conditions. Changes in these estimates and assumptions could materially affect the estimated fair value of each reporting unit that could result in an impairment charge to reduce the carrying value of goodwill, which could be material to the Company’s financial position and results of operations. Moody’s allocates newly acquired goodwill to reporting units based on the reporting unit expected to benefit from the acquisition. The sensitivity analyses on the future cash flows and WACC assumptions are described below. These key assumptions utilized in the discounted cash flow valuation methodology require significant management judgment: –Future cash flow assumptions - The projections for future cash flows utilized in the models are derived from historical experience and assumptions regarding future growth and profitability of each reporting unit. These projections are consistent with the Company’s operating budget and strategic plan. Cash flows for the five years subsequent to the date of the quantitative goodwill impairment test were utilized in the determination of the fair value of each reporting unit. The growth rates assumed a gradual increase in revenue based on new customer acquisition and new products. Beyond five years, a terminal value was determined using a perpetuity growth rate based on inflation and real GDP growth rates. A sensitivity analysis of the revenue growth rates was performed on all reporting units. For each reporting unit analyzed, a 10% reduction in the revenue growth rates used would still result in fair values that significantly exceeded carrying values. –WACC - The WACC is the rate used to discount each reporting unit’s estimated future cash flows. The WACC is calculated based on the proportionate weighting of the cost of debt and equity. The cost of equity is based on a risk-free interest rate and an equity risk factor, which is derived from public companies similar to the reporting unit and which captures the perceived risks and uncertainties associated with the reporting unit’s cash flows. The cost of debt component is calculated as the 36     MOODY'S 2022 10-K Table of Contents weighted average cost associated with all of the Company’s outstanding borrowings as of the date of the impairment test and was immaterial to the computation of the WACC. The cost of debt and equity is weighted based on the debt to market capitalization ratio of publicly traded companies with similarities to the reporting unit being tested. The WACC for all reporting units ranged from 8.0% to 8.5% as of July 31, 2021. Differences in the WACC used between reporting units is primarily due to distinct risks and uncertainties regarding the cash flows of the different reporting units. A sensitivity analysis of the WACC was performed on all reporting units as of July 31, 2021 for each reporting unit. For all reporting units, an increase in the WACC of one percentage point would still result in fair values that significantly exceeded carrying values. Long-lived assets Long-lived assets, which consist primarily of amortizable intangible assets, operating lease ROU assets and property and equipment, are reviewed for recoverability whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Under the first step of the recoverability assessment, Moody's compares the estimated undiscounted future cash flows attributable to the asset or asset group to its carrying value. If the undiscounted future cash flows are greater than the carrying value, no further assessment is required. If the undiscounted future cash flows are less than the carrying value, Moody's proceeds with step two of the assessment. Under step two of this assessment, Moody's is required to determine the fair value of the asset or asset group and recognize an impairment loss if the carrying amount exceeds its fair value. In performing this assessment, Moody's must include assumptions that market participants would use in their estimates of fair value, including the estimated future cash flows and discount rate. Moody's must apply judgment in developing estimated future cash flows and in the determination of market participant assumptions. Income Taxes The Company is subject to income taxes in the U.S. and various foreign jurisdictions. The Company’s tax assets and liabilities are affected by the amounts charged for services provided and expenses incurred as well as other tax matters such as intercompany transactions. The Company accounts for income taxes under the asset and liability method in accordance with ASC Topic 740. Therefore, income tax expense is based on reported income before income taxes, and deferred income taxes reflect the effect of temporary differences between the amounts of assets and liabilities that are recognized for financial reporting purposes and the amounts that are recognized for income tax purposes. The Company is subject to tax audits in various jurisdictions. The Company regularly assesses the likely outcomes of such audits in order to determine the appropriateness of liabilities for UTPs. The Company classifies interest related to income taxes as a component of interest expense in the Company’s consolidated financial statements and associated penalties, if any, as part of other non-operating expenses. For UTPs, ASC Topic 740 requires a company to first determine whether it is more-likely-than-not (defined as a likelihood of more than fifty percent) that a tax position will be sustained based on its technical merits as of the reporting date, assuming that taxing authorities will examine the position and have full knowledge of all relevant information. A tax position that meets this more-likely-than-not threshold is then measured and recognized at the largest amount of benefit that is greater than fifty percent likely to be realized upon effective settlement with a taxing authority. As the determination of liabilities related to UTPs and associated interest and penalties requires significant estimates to be made by the Company, there can be no assurance that the Company will accurately predict the outcomes of these audits, and thus the eventual outcomes could have a material impact on the Company’s operating results or financial condition. Revenue Recognition and Costs to Obtain a Contract with a Customer Revenue is recognized when control of promised goods or services is transferred to the customer, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The discussion below outlines areas of the Company’s revenue recognition process that require significant management judgment and estimates. Refer to Note 2 of the consolidated financial statements for a comprehensive discussion regarding the Company’s accounting policies relating to the recognition of revenue and costs to obtain a contract with a customer. Allocating consideration to performance obligations: Management judgment is required in the determination of the SSP, which is utilized to allocate the transaction price to each distinct performance obligation at contract inception when the contract includes multiple distinct performance obligations. In the MIS segment, the SSP for both ratings and monitoring services is generally based upon directly observable selling prices where the rating or monitoring service is sold separately. In the MA segment, for performance obligations where an observable price exists, such as PCS, the observable price is utilized. If an observable price does not currently exist, the Company will utilize management’s best estimate of SSP for that good or service using estimation methods that maximize the use of observable data points. The SSP in both segments is usually apportioned along the lines of class of customer, nature of product/services, and other attributes related to those products and services. Once SSP is determined for each performance obligation, the transaction price, including any discount, is allocated based on the relative SSP of the separate performance obligations. MOODY'S 2022 10-K     37 Table of Contents Costs to Obtain a Contract with a Customer: Costs incurred to obtain customer contracts, such as sales commissions, are deferred and recorded within other current assets and other assets when such costs are determined to be incremental to obtaining a contract, would not have been incurred otherwise and the Company expects to recover those costs. These costs are amortized to expense on a systematic basis consistent with the transfer of products or services to the customer for which the asset relates. Depending on the line of business to which the contract relates, this amortization period may be based upon the average economic life of the products sold or average period for which services are provided, inclusive of anticipated contract renewals. Contingencies Accounting for contingencies, including those matters described in Note 21 to the consolidated financial statements, is highly subjective and requires the use of judgments and estimates in assessing their magnitude and likely outcome. In many cases, the outcomes of such matters will be determined by third parties, including governmental or judicial bodies. The provisions made in the consolidated financial statements, as well as the related disclosures, represent management’s best estimates of the current status of such matters and their potential outcome based on a review of the facts and in consultation with outside legal counsel where deemed appropriate. The Company regularly reviews contingencies and as new information becomes available may, in the future, adjust its associated liabilities. For claims, litigation and proceedings and governmental investigations and inquiries not related to income taxes, the Company records liabilities in the consolidated financial statements when it is both probable that a liability has been incurred and the amount of loss can be reasonably estimated and periodically adjusts these as appropriate. When the reasonable estimate of the loss is within a range of amounts, the minimum amount of the range is accrued unless some higher amount within the range is a better estimate than another amount within the range. In instances when a loss is reasonably possible but uncertainties exist related to the probable outcome and/or the amount or range of loss, management does not record a liability but discloses the contingency if material. As additional information becomes available, the Company adjusts its assessments and estimates of such matters accordingly. Moody’s also discloses material pending legal proceedings pursuant to SEC rules and other pending matters as it may determine to be appropriate. In view of the inherent difficulty of assessing the potential outcome of legal proceedings, governmental, regulatory and legislative investigations and inquiries, claims and litigation and similar matters and contingencies, particularly when the claimants seek large or indeterminate damages or assert novel legal theories or the matters involve a large number of parties, the Company often cannot predict what the eventual outcome of the pending matters will be or the timing of any resolution of such matters. The Company also may be unable to predict the impact (if any) that any such matters may have on how its business is conducted, on its competitive position or on its financial position, results of operations or cash flows. As the process to resolve any pending matters progresses, management will continue to review the latest information available and assess its ability to predict the outcome of such matters and the effects, if any, on its operations and financial condition and to accrue for and disclose such matters as and when required. However, because such matters are inherently unpredictable and unfavorable developments or resolutions can occur, the ultimate outcome of such matters, including the amount of any loss, may differ from those estimates. Pension and Other Retirement Benefits The expenses, assets and liabilities that Moody’s reports for its Retirement Plans are dependent on many assumptions concerning the outcome of future events and circumstances. These significant assumptions include the following: –future compensation increases based on the Company’s long-term actual experience and future outlook; –long-term expected return on pension plan assets based on historical portfolio results and the expected future average annual return for each major asset class within the plan’s portfolio (which is principally comprised of equity and fixed-income investments); and –discount rates based on current yields on high-grade corporate long-term bonds. The discount rates used to measure the present value of the Company’s benefit obligation for its Retirement Plans as of December 31, 2022 were derived using a cash flow matching method whereby the Company compares each plan’s projected payment obligations by year with the corresponding yield on the FTSE pension discount curve. The cash flows by plan are then discounted back to present value to determine the discount rate applicable to each plan. Moody’s major assumptions vary by plan and assumptions used are set forth in Note 15 to the consolidated financial statements. In determining these assumptions, the Company consults with third-party actuaries and other advisors as deemed appropriate. While the Company believes that the assumptions used in its calculations are reasonable, differences in actual experience or changes in assumptions could have a significant effect on the expenses, assets and liabilities related to the Company’s Retirement Plans. When actual plan experience differs from the assumptions used, actuarial gains or losses arise. Excluding differences between the expected long-term rate of return assumption and actual returns on plan assets, the Company amortizes, as a component of annual pension expense, total outstanding actuarial gains or losses over the estimated average future working lifetime of active plan participants to the extent that the gain/loss exceeds 10% of the greater of the beginning-of-year projected benefit obligation or the market-related value of plan assets. For Moody’s Retirement Plans, the total actuarial losses as of December 31, 2022 that have not been recognized in annual expense are $68 million, and Moody’s expects the net periodic expense related to the amortization of net actuarial (losses)/gains will be immaterial in 2023. 38     MOODY'S 2022 10-K Table of Contents For Moody’s funded U.S. pension plan, the differences between the expected long-term rate of return assumption and actual returns could also affect the net periodic pension expense. As permitted under ASC Topic 715, the Company amortizes the impact of asset returns over a five-year period for purposes of calculating the market-related value of assets that is used in determining the expected return on assets’ component of annual expense and in calculating the total unrecognized gain or loss subject to amortization. As of December 31, 2022, the Company has an unrecognized loss of $106 million, of which $19 million will be recognized in the market-related value of assets that is used to calculate the expected return on assets component of 2023 expense. The table below shows the estimated effect that a one percentage-point decrease in each of these assumptions will have on Moody’s 2023 income before provision for income taxes. These effects have been calculated using the Company’s current projections of 2023 expenses, assets and liabilities related to Moody’s Retirement Plans, which could change as updated data becomes available. [[GREPCENT_TABLE]] [["(dollars in millions)","Assumptions Used for 2023","","Estimated Impact on 2023 Income before Provision for Income Taxes (Decrease)/Increase"],["Weighted Average Discount Rates (1)","4.93%/4.90%","","$","(1)"],["Weighted Average Assumed Compensation Growth Rate","3.63%","","$","1"],["Assumed Long-Term Rate of Return on Pension Assets","6.55%","","$","(5)"]] [[/GREPCENT_TABLE]] (1)Weighted average discount rates of 4.93% and 4.90% for pension plans and Other Retirement Plans, respectively. Based on current projections, the Company estimates that expenses related to Retirement Plans will be immaterial in 2023. Investments in Non-consolidated Affiliates Equity method investments are reviewed for indicators of other-than-temporary impairment on a quarterly basis. These investments are written down to fair value if there is evidence of a loss in value that is other-than-temporary. For equity investments without a readily determinable fair value for which the Company does not have significant influence, Moody's generally elects to measure these investments at cost, less impairment, adjusted for subsequent observable price changes as of the date that an observable transaction takes place. The Company performs an assessment on a quarterly basis to determine if there are indicators of impairment for its investments in non-consolidated affiliates. If there are indicators of impairment, the Company estimates the investment’s fair value and records an impairment if the carrying value of the investment exceeds its fair value. In situations where estimation of fair value is required for investments in non-consolidated affiliates, the Company considers various factors, including: recent observable investee equity transactions, comparable public company/precedent transaction multiples and discounted cash flow models. The estimation of fair value for these investments may involve significant judgment. Other Estimates In addition to the critical accounting estimates described above, there are other accounting estimates within Moody’s consolidated financial statements. Management believes the current assumptions and other considerations used to estimate amounts reflected in Moody’s consolidated financial statements are appropriate. However, if actual experience differs from the assumptions and other considerations used in estimating amounts reflected in Moody’s consolidated financial statements, the resulting changes could have a material adverse effect on Moody’s consolidated results of operations or financial condition. See Note 2 to the consolidated financial statements for further information on significant accounting policies that impact Moody’s. Reportable Segments The Company is organized into two reportable segments at December 31, 2022: MIS and MA, which are more fully described in the section entitled “The Company” above and in Note 22 to the consolidated financial statements. MOODY'S 2022 10-K     39 Table of Contents Results of Operations This section of this Form 10-K generally discusses year ended December 31, 2022 and 2021 financial results and year-to-year comparisons between these years. Discussions related to the year ended December 31, 2020 financial results and year-to-year comparisons between the years ended December 31, 2021 and 2020 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021. Impact of acquisitions/divestitures on comparative results Moody’s completed the following acquisitions, which impact the Company's year-over-year comparative results: –Cortera on March 19, 2021; –RMS on September 15, 2021; –RealXData on September 17, 2021; –PassFort on November 30, 2021; and –kompany on February 28, 2022. Refer to the section entitled "Non-GAAP Financial Measures" of this MD&A for the definitions of how the Company determines certain organic growth measures used in this MD&A that exclude the impact of acquisition activity. The following footnotes are applicable throughout the discussion of the Company's results of operations: (1)Refer to the section entitled "Non-GAAP Financial Measures" of this MD&A for the definition and methodology that the Company utilizes to calculate this metric. (2)Refer to the section entitled "Key Performance Metrics" of this MD&A for the definition and methodology that the Company utilizes to calculate this metric. 40     MOODY'S 2022 10-K Table of Contents Year ended December 31, 2022 compared with year ended December 31, 2021 Executive Summary The following table provides an executive summary of key operating results for the year ended December 31, 2022. Following this executive summary is a more detailed discussion of the Company’s operating results as well as a discussion of the operating results of the Company’s reportable segments. [[GREPCENT_TABLE]] [["","Year Ended December 31,"],["Financial measure:","2022","2021","% Change Favorable / (Unfavorable)","Insight and Key Drivers of Change Compared to Prior Year"],["Moody's total revenue","$","5,468","","$","6,218","","(12","%)","\u2014 reflects lower MIS revenue partially offset by growth in MA"],["MIS external revenue","$","2,699","","$","3,812","","(29","%)","\u2014 credit market activity remained muted across all sectors given ongoing market volatility, central bank actions, high levels of balance sheet cash, as well as heightened inflationary and recessionary concerns"],["MA external revenue","$","2,769","","$","2,406","","15","%","\u2014 inorganic growth from acquisitions; and \u2014 strong organic growth across all LOBs, most notably for KYC and compliance solutions coupled with continued strong retention and demand for credit research, analytics and models"],["Total operating and SG&A expenses","$","3,140","","$","3,117","","(1","%)","\u2014 operational and integration costs associated with recent acquisitions; and\u2014 increases in hiring and salary growth;mostly offset by:\u2014 lower incentive compensation accruals and performance-based equity compensation; and\u2014 favorable changes in FX translation rates"],["Depreciation and amortization","$","331","","$","257","","(29","%)","\u2014 higher amortization of intangible assets reflecting recent M&A activity (most notably RMS); and\u2014 amortization of internally developed software, primarily related to the development of MA SaaS solutions"],["Restructuring","$","114","","$","\u2014","","NM","\u2014 relates to the Company's 2022 - 2023 Geolocation Restructuring Program, more fully discussed in Note 11 to the consolidated financial statements"],["Total non-operating (expense) income, net","$","(123)","","$","(89)","","(38","%)","\u2014 a $45 million benefit in 2021 related to the reversal of tax-related interest accruals pursuant to the resolution of uncertain tax positions;\u2014 a $36 million non-cash gain in 2021 relating to the exchange of the Company's minority investment in VisibleRisk for shares of BitSight;\u2014 a $31 million increase in interest expense in 2022 primarily due to debt issued late in 2021 and in 2022; and \u2014 $20 million in FX translation losses reclassified to earnings in 2022 resulting from the Company no longer conducting commercial operations in Russia; partially offset by:\u2014 a $70 million gain on extinguishment of debt in 2022, as more fully discussed in Note 18 to the consolidated financial statements"],["Operating Margin","34.4","%","45.7","%","(1,130BPS)","\u2014 margin declines are primarily due to the aforementioned decrease in MIS revenue"],["Adjusted Operating Margin(1)","42.6","%","49.9","%","(730BPS)"],["ETR","21.9","%","19.6","%","(230BPS)","\u2014 tax benefits realized upon resolution of uncertain tax positions during 2021 that did not recur to the same extent in 2022; and \u2014 a non-deductible loss in 2022 associated with the Company no longer conducting commercial operations in Russia"],["Diluted EPS","$","7.44","","$","11.78","","(37)","%","\u2014 primarily due to declines in MIS revenue"],["Adjusted Diluted EPS(1)","$","8.57","","$","12.29","","(30)","%"]] [[/GREPCENT_TABLE]] MOODY'S 2022 10-K     41 Table of Contents Moody’s Corporation [[GREPCENT_TABLE]] [["","Year Ended December 31,","","% Change Favorable (Unfavorable)"],["","2022","","2021"],["Revenue:"],["United States","$","2,873","","","$","3,383","","","(15","%)"],["Non-U.S.:"],["EMEA","1,682","","","1,885","","","(11","%)"],["Asia-Pacific","556","","","603","","","(8","%)"],["Americas","357","","","347","","","3","%"],["Total Non-U.S.","2,595","","","2,835","","","(8","%)"],["Total","5,468","","","6,218","","","(12","%)"],["Expenses:"],["Operating","1,613","","","1,637","","","1","%"],["SG&A","1,527","","","1,480","","","(3","%)"],["Depreciation and amortization","331","","","257","","","(29","%)"],["Restructuring","114","","","\u2014","","","NM"],["Total","3,585","","","3,374","","","(6","%)"],["Operating income","1,883","","","2,844","","","(34","%)"],["Adjusted Operating Income (1)","2,328","","","3,101","","","(25","%)"],["Interest expense, net","(231)","","","(171)","","","(35","%)"],["Other non-operating income, net","38","","","82","","","(54","%)"],["Gain on extinguishment of debt","70","","","\u2014","","","NM"],["Non-operating (expense) income, net","(123)","","","(89)","","","(38","%)"],["Net income attributable to Moody\u2019s","$","1,374","","","$","2,214","","","(38","%)"],["Diluted weighted average shares outstanding","184.7","","","187.9","","","2","%"],["Diluted EPS attributable to Moody\u2019s common shareholders","$","7.44","","","$","11.78","","","(37","%)"],["Adjusted Diluted EPS (1)","$","8.57","","","$","12.29","","","(30","%)"],["Operating margin","34.4","%","","45.7","%"],["Adjusted Operating Margin (1)","42.6","%","","49.9","%"],["Effective tax rate","21.9","%","","19.6","%"]] [[/GREPCENT_TABLE]] GLOBAL REVENUE 2022---------------------------------------------------------------------------------------2021 ________________________________________________________________________________________________________ [[GREPCENT_TABLE]] [["Global revenue \u21d3 $750 million","U.S. Revenue \u21d3 $510 million","Non-U.S. Revenue \u21d3 $240 million"]] [[/GREPCENT_TABLE]] The decrease in global revenue reflected declines in MIS in all regions, partially offset by growth in MA in all regions. Refer to the section entitled “Segment Results” of this MD&A for a more fulsome discussion of the Company’s segment revenue. 42     MOODY'S 2022 10-K Table of Contents Changes in foreign currency translation rates unfavorably impacted global revenue by three percent. Organic constant currency revenue(1) for MCO decreased 13%. [[GREPCENT_TABLE]] [["","","Operating Expense \u21d3 $24 million","","","SG&A Expense \u21d1 $47 million"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["Compensation expenses decreased $83 million with the most notable drivers reflecting:","Compensation expenses increased $57 million with the most notable drivers reflecting:"],["\u2014 lower incentive compensation accruals and performance-based equity compensation of approximately $120 million, which aligns with actual/projected financial and operating performance; and","\u2014 higher salaries and benefits of approximately $100 million primarily reflecting hiring and salary increases in MA's sales organization to support continued growth in the business as well as in shared services support functions; and"],["\u2014 approximately $55 million in higher compensation costs capitalized in 2022 reflecting certain product development in the MA operating segment;","\u2014 inorganic growth from acquisitions of approximately $45 million;partially offset by:"],["partially offset by:\u2014 inorganic growth from acquisitions of approximately $100 million.","\u2014 lower incentive compensation accruals and performance-based equity compensation of approximately $70 million, which aligns with actual/projected financial and operating performance."],["Non-compensation expenses increased $59 million with the most notable drivers reflecting:","Non-compensation expenses decreased $10 million with the most notable drivers reflecting:"],["\u2014 inorganic growth from acquisitions of approximately $35 million; and","\u2014 lower consulting and other professional fees of approximately $75 million, which includes deal-related costs associated with acquisitions that closed in 2021;"],["\u2014 higher costs of approximately $15 million relating to strategic initiatives to support business growth coupled with enhancements to technology infrastructure to enable automation, innovation and efficiency."],["partially offset by: \u2014 inorganic growth from acquisitions of approximately $30 million; and"],["","\u2014 higher travel costs of approximately $20 million compared to minimal travel in the prior year in light of COVID-19."]] [[/GREPCENT_TABLE]] Depreciation and amortization The increase in depreciation and amortization expense is driven by higher amortization of intangible assets reflecting recent M&A activity (most notably RMS) coupled with amortization of internally developed software, which is primarily related to the development of MA SaaS solutions. Restructuring The restructuring charge in 2022 relates to the Company's 2022 - 2023 Geolocation Restructuring Program as more fully discussed in Note 11 to the consolidated financial statements. [[GREPCENT_TABLE]] [["","","Operating margin 34.4%, down 1,130 BPS","","","Adjusted Operating Margin 42.6%, down 730 BPS"]] [[/GREPCENT_TABLE]] Overall, margin declines primarily resulted from the aforementioned decrease in MIS revenue. MOODY'S 2022 10-K     43 Table of Contents [[GREPCENT_TABLE]] [["","","Interest Expense, net \u21d1 $60 million","","","Other non-operating income \u21d3 $44 million"]] [[/GREPCENT_TABLE]] [[GREPCENT_TABLE]] [["Increase in expense is primarily due to:","","Decrease in income is primarily due to:"],["\u2014 an approximate $45 million benefit in the prior year related to the reversal of tax-related interest accruals pursuant to the resolution of UTPs; and","","\u2014 a $36 million non-cash gain in 2021 relating to the exchange of the Company's minority investment in VisibleRisk for shares of BitSight; and"],["\u2014 $31 million higher interest on borrowings resulting from the issuance of new long-term debt late in 2021 and in 2022 (refer to the \"Material Cash Requirements\" section of this MD&A for further information on the Company's indebtedness).","","\u2014 $20 million in FX translation losses reclassified to earnings in 2022 resulting from the Company no longer conducting commercial operations in Russia (refer to the section above entitled \"Russia/Ukraine Conflict\" for further information); partially offset by"],["","","\u2014 a $13 million loss in 2021 on a forward contract used to hedge a portion of the GBP-denominated RMS purchase price."]] [[/GREPCENT_TABLE]] Gain on extinguishment of debt The gain in 2022 relates to the early redemption of a portion of the 2.55% 2020 Senior Notes, Due 2060, as more fully discussed in Note 18 to the consolidated financial statements. [[GREPCENT_TABLE]] [["","","ETR \u21d1 230BPS"]] [[/GREPCENT_TABLE]] The primary drivers for the increase in the ETR include: — tax benefits realized upon resolution of uncertain tax positions during 2021 that did not recur to the same extent in 2022; and — a non-deductible loss in 2022 associated with the Company no longer conducting commercial operations in Russia. [[GREPCENT_TABLE]] [["","","Diluted EPS \u21d3 $4.34","","","Adjusted Diluted EPS \u21d3 $3.72"]] [[/GREPCENT_TABLE]] Diluted EPS and Adjusted Diluted EPS declined mainly due to lower operating income and Adjusted Operating Income, respectively. Refer to the section entitled “Non-GAAP Financial Measures” of this MD&A for items excluded in the derivation of Adjusted Diluted EPS. 44     MOODY'S 2022 10-K Table of Contents Segment Results Moody’s Investors Service The table below provides a summary of revenue and operating results, followed by further insight and commentary: [[GREPCENT_TABLE]] [["","Year Ended December 31,","","% Change Favorable (Unfavorable)"],["","2022","","2021"],["Revenue:"],["Corporate finance (CFG)","$","1,269","","","$","2,087","","","(39","%)"],["Structured finance (SFG)","462","","","560","","","(18","%)"],["Financial institutions (FIG)","491","","","602","","","(18","%)"],["Public, project and infrastructure finance (PPIF)","431","","","521","","","(17","%)"],["Total ratings revenue","2,653","","","3,770","","","(30","%)"],["MIS Other","46","","","42","","","10","%"],["Total external revenue","2,699","","","3,812","","","(29","%)"],["Intersegment royalty","174","","","165","","","5","%"],["Total","2,873","","","3,977","","","(28","%)"],["Expenses:"],["Operating and SG&A (external)","1,377","","","1,496","","","8","%"],["Operating and SG&A (intersegment)","8","","","7","","","(14","%)"],["Total operating and SG&A expense","1,385","","","1,503","","","8","%"],["Adjusted Operating Income","$","1,488","","","$","2,474","","","(40","%)"],["Adjusted Operating Margin","51.8","%","","62.2","%"],["Depreciation and amortization","81","","","72","","","(13","%)"],["Restructuring","65","","","(1)","","","NM"]] [[/GREPCENT_TABLE]] The following chart presents changes in rated issuance volumes compared to 2021. To the extent that changes in rated issuance volumes had a material impact to MIS's revenue compared to the prior year, those impacts are discussed below. MOODY'S 2022 10-K     45 Table of Contents MOODY'S INVESTORS SERVICE REVENUE 2022---------------------------------------------------------------------------------------2021 ________________________________________________________________________________________________________ [[GREPCENT_TABLE]] [["MIS: Global revenue \u21d3 $1,113 million","U.S. Revenue \u21d3 $710 million","Non-U.S. Revenue \u21d3 $403 million"]] [[/GREPCENT_TABLE]] The decrease in global MIS revenue primarily relates to a 31% decrease in rated issuance volumes, which resulted in transaction revenue declining $1,128 million compared to the same period in the prior year. The decline in rated issuance volumes compared to 2021 reflected muted credit market activity across all sectors given ongoing market volatility, central bank actions, high levels of balance sheet cash, as well as heightened inflationary and recessionary concerns. Changes in foreign currency translation rates unfavorably impacted MIS revenue by two percentage points. CFG REVENUE 2022---------------------------------------------------------------------------------------2021 ________________________________________________________________________________________________________ [[GREPCENT_TABLE]] [["CFG: Global revenue \u21d3 $818 million","U.S. Revenue \u21d3 $552 million","Non-U.S. Revenue \u21d3 $266 million"]] [[/GREPCENT_TABLE]] 46     MOODY'S 2022 10-K Table of Contents Global CFG revenue for the years ended December 31, 2022 and 2021 was comprised as follows: (1) Other includes: recurring monitoring fees of a rated debt obligation and/or entities that issue such obligations as well as fees from programs such as commercial paper, medium term notes and ICRA corporate finance revenue. The decrease in CFG revenue of 39% reflected declines both in the U.S. (40%) and internationally (38%), which resulted in an $828 million decrease in transaction revenue. The most notable drivers of the decrease compared to 2021 reflected declines in leveraged finance and investment-grade issuance activity resulting from muted credit market activity given ongoing market volatility, central bank actions, high levels of balance sheet cash, as well as heightened inflationary and recessionary concerns compared to a strong prior year period. SFG REVENUE 2022---------------------------------------------------------------------------------------2021 ________________________________________________________________________________________________________ [[GREPCENT_TABLE]] [["SFG: Global revenue \u21d3 $98 million","U.S. Revenue \u21d3 $56 million","Non-U.S. Revenue \u21d3 $42 million"]] [[/GREPCENT_TABLE]] Global SFG revenue for the years ended December 31, 2022 and 2021 was comprised as follows: The decrease in SFG revenue of 18% reflected declines both in the U.S. (15%) and internationally (21%). Transaction revenue decreased $100 million. MOODY'S 2022 10-K     47 Table of Contents The most notable driver of the decline compared to 2021 was a decrease in CLO refinancing activity in the U.S. and EMEA resulting from the widening of credit spreads for this asset class. Changes in foreign currency translation rates unfavorably impacted SFG revenue by three percentage points. FIG REVENUE 2022---------------------------------------------------------------------------------------2021 ________________________________________________________________________________________________________ [[GREPCENT_TABLE]] [["FIG: Global revenue \u21d3 $111 million","U.S. Revenue \u21d3 $66 million","Non-U.S. Revenue \u21d3 $45 million"]] [[/GREPCENT_TABLE]] Global FIG revenue for the years ended December 31, 2022 and 2021 was comprised as follows: The decrease in FIG revenue of 18% reflected declines both in the U.S. (23%) and internationally (14%) which resulted in a $109 million decrease in transaction revenue compared to the prior year. The most notable drivers of the decline reflected lower revenue from banking and insurance issuers primarily due to: –an unfavorable product mix; and –a decline in opportunistic issuance, as banks, insurers and asset management issuers were well capitalized following financing activity in the prior year period ahead of anticipated interest rate increases. Changes in foreign currency translation rates unfavorably impacted FIG revenue by two percentage points. 48     MOODY'S 2022 10-K Table of Contents PPIF REVENUE 2022---------------------------------------------------------------------------------------2021 ________________________________________________________________________________________________________ [[GREPCENT_TABLE]] [["PPIF: Global revenue \u21d3 $90 million","U.S. Revenue \u21d3 $38 million","Non-U.S. Revenue \u21d3 $52 million"]] [[/GREPCENT_TABLE]] Global PPIF revenue for the years ended December 31, 2022 and 2021 was comprised as follows: Transaction revenue decreased $91 million compared to the same period in the prior year. The 17% decrease in PPIF revenue reflected declines both in the U.S. (13%) and internationally (24%) The decrease in revenue was mainly due to: –declines in U.S. public finance revenue resulting from market volatility, which increased funding costs, coupled with issuers in this sector being currently well capitalized; and –declines in sovereign, project finance and infrastructure finance rated issuance volumes in EMEA resulting from market volatility and rising funding costs. Changes in foreign currency translation rates unfavorably impacted PPIF revenue by two percentage points. [[GREPCENT_TABLE]] [["","","MIS: Operating and SG&A Expense \u21d3 $119 million"]] [[/GREPCENT_TABLE]] MOODY'S 2022 10-K     49 Table of Contents The decrease in operating and SG&A expense reflects a $150 million decrease in compensation expense partially offset by a $31 million increase in non-compensation expenses. The most notable drivers of these changes are as follows: [[GREPCENT_TABLE]] [["Compensation costs","","Non-compensation costs"],["The decrease is primarily due to:","","The increase is primarily due to:"],["\u2014 lower incentive compensation accruals and performance-based equity compensation of approximately $165 million, which aligns with actual/projected financial and operating performance.","","\u2014 higher bad debt reserves of approximately $20 million resulting from the impact of the Russia/Ukraine conflict; and"],["","\u2014 higher travel costs of approximately $10 million compared to minimal travel in the prior year in light of COVID-19."]] [[/GREPCENT_TABLE]] Favorable changes in FX translation rates reduced compensation and non-compensation costs by approximately $40 million and approximately $10 million, respectively. [[GREPCENT_TABLE]] [["","","","","","MIS: Adjusted Operating Margin 51.8% \u21d3 1,040BPS"]] [[/GREPCENT_TABLE]] The MIS Adjusted Operating Margin decline primarily reflected the aforementioned 29% decrease in revenue. Restructuring Charge The restructuring charge in 2022 relates to the Company's 2022 - 2023 Geolocation Restructuring Program as more fully discussed in Note 11 to the consolidated financial statements. Moody’s Analytics The table below provides a summary of revenue and operating results, followed by further insight and commentary: [[GREPCENT_TABLE]] [["","Year Ended December 31,","","% Change Favorable (Unfavorable)"],["","2022","","2021"],["Revenue:"],["Decision Solutions (DS)","$","1,324","","","$","1,011","","","31","%"],["Research and Insights (R&I)","733","","","697","","","5","%"],["Data and Information (D&I)","712","","","698","","","2","%"],["Total external revenue","2,769","","","2,406","","","15","%"],["Intersegment revenue","8","","","7","","","14","%"],["Total MA Revenue","2,777","","","2,413","","","15","%"],["Expenses:"],["Operating and SG&A (external)","1,763","","","1,621","","","(9","%)"],["Operating and SG&A (intersegment)","174","","","165","","","(5","%)"],["Total operating and SG&A expense","1,937","","","1,786","","","(8","%)"],["Adjusted Operating Income","$","840","","","$","627","","","34","%"],["Adjusted Operating Margin","30.2","%","","26.0","%"],["Depreciation and amortization","250","","","185","","","(35","%)"],["Restructuring","49","","","1","","","NM"]] [[/GREPCENT_TABLE]] 50     MOODY'S 2022 10-K Table of Contents MOODY'S ANALYTICS REVENUE 2022---------------------------------------------------------------------------------------2021 ________________________________________________________________________________________________________ [[GREPCENT_TABLE]] [["MA: Global revenue \u21d1 $363 million","U.S. Revenue \u21d1 $200 million","Non-U.S. Revenue \u21d1 $163 million"]] [[/GREPCENT_TABLE]] The 15% increase in global MA revenue reflects strong growth both in the U.S. (19%) and internationally (12%) in all LOBs and includes revenue from the acquisitions of RMS, PassFort and kompany. Changes in foreign currency translation rates unfavorably impacted MA revenue by five percentage points. Organic constant currency revenue(1) growth was 10%. ARR(2) increased 10% reflecting strong growth across all LOBs. DECISION SOLUTIONS REVENUE 2022---------------------------------------------------------------------------------------2021 ________________________________________________________________________________________________________ [[GREPCENT_TABLE]] [["DS: Global revenue \u21d1 $313 million","U.S. Revenue \u21d1 $148 million","Non-U.S. Revenue \u21d1 $165 million"]] [[/GREPCENT_TABLE]] Global DS revenue grew 31% compared to 2021 reflecting growth in the U.S. (34%) and internationally (29%). The most notable drivers of the growth include: –inorganic revenue growth from the acquisitions of RMS, PassFort and kompany; –continued demand for KYC and anti-money laundering compliance solutions; –growth in subscription-based revenue for pension and actuarial modeling tools in support of certain international accounting standards relating to insurance contracts; and –growth in subscription-based banking solutions driven by continued product development with a strategic emphasis on cloud-based SaaS solutions. Changes in foreign currency translation rates unfavorably impacted DS revenue by four percentage points. Organic constant currency revenue(1) grew 12%. ARR(2) grew 11% primarily reflecting increased demand for KYC and banking products. MOODY'S 2022 10-K     51 Table of Contents RESEARCH AND INSIGHTS REVENUE 2022---------------------------------------------------------------------------------------2021 ________________________________________________________________________________________________________ [[GREPCENT_TABLE]] [["R&I: Global revenue \u21d1 $36 million","U.S. Revenue \u21d1 $28 million","Non-U.S. Revenue \u21d1 $8 million"]] [[/GREPCENT_TABLE]] Global R&I revenue increased 5% compared to 2021, mainly driven by growth in recurring revenue of 6%, primarily due to continued strong retention and demand for credit research, analytics and models. Changes in foreign currency translation rates unfavorably impacted R&I revenue by three percentage points. Constant currency revenue(1) growth for R&I was 8%. ARR(2) grew 9%, primarily reflecting the aforementioned strong retention and demand for credit research, analytics and models. DATA AND INFORMATION REVENUE 2022---------------------------------------------------------------------------------------2021 ________________________________________________________________________________________________________ [[GREPCENT_TABLE]] [["D&I: Global revenue \u21d1 $14 million","U.S. Revenue \u21d1 $24 million","Non-U.S. Revenue \u21d3 $10 million"]] [[/GREPCENT_TABLE]] Global D&I revenue increased 2% compared to 2021, with the main drivers of the growth reflecting: –continued strong retention and new sales for ratings data feeds coupled with pricing increases; and –increased demand for company data. Changes in foreign currency translation unfavorably impacted D&I revenue by seven percentage points. Organic constant currency revenue(1) growth for D&I was 9%. ARR(2) grew 9% reflecting increasing demand for company data and ratings data feeds products. 52     MOODY'S 2022 10-K Table of Contents [[GREPCENT_TABLE]] [["","","MA: Operating and SG&A Expense \u21d1 $142 million"]] [[/GREPCENT_TABLE]] The increase in operating and SG&A expenses compared to 2021 is primarily due to growth in both compensation and non-compensation costs of $125 million and $17 million, respectively, with the most notable drivers of the increase reflecting: [[GREPCENT_TABLE]] [["Compensation costs","","Non-compensation costs"],["\u2014 inorganic expense growth from acquisitions of approximately $150 million.","","\u2014 operating and integration-related costs associated with recent acquisitions of approximately $65 million;partially offset by:"],["","","\u2014 lower consulting/professional fees of approximately $45 million due in part to a higher proportion of costs capitalized relating to the development of SaaS-based solutions."]] [[/GREPCENT_TABLE]] Favorable changes in FX translation rates reduced compensation and non-compensation costs by approximately $45 million and approximately $20 million, respectively. [[GREPCENT_TABLE]] [["","","MA: Adjusted Operating Margin 30.2% \u21d1 420BPS"]] [[/GREPCENT_TABLE]] The Adjusted Operating Margin increase for MA is primarily due to the 15% increase in global MA revenue partially offset by operational and integration-related costs associated with recent acquisitions. Depreciation and amortization The increase in depreciation and amortization expense is driven by higher amortization of intangible assets reflecting recent M&A activity (most notably RMS) and amortization of internally developed software relating to the development of SaaS-based solutions. Restructuring The restructuring charge in 2022 relates to the Company's 2022 - 2023 Geolocation Restructuring Program as more fully discussed in Note 11 to the consolidated financial statements. Market Risk Foreign exchange risk: Moody’s maintains a presence in more than 40 countries. In 2022, approximately 40% of the Company’s revenue and approximately 38% of the Company's expenses were denominated in functional currencies other than the U.S. dollar, principally in the British pound and the euro. As such, the Company is exposed to market risk from changes in FX rates. As of December 31, 2022, approximately 51% of Moody’s assets were located outside the U.S., making the Company susceptible to fluctuations in FX rates. The effects of translating assets and liabilities of non-U.S. operations with non-U.S. functional currencies to the U.S. dollar are charged or credited to OCI. The effects of revaluing assets and liabilities that are denominated in currencies other than a subsidiary’s functional currency are charged to other non-operating income (expense), net in the Company’s consolidated statements of operations. Accordingly, the Company enters into foreign exchange forwards to partially mitigate the change in fair value on certain assets and liabilities denominated in currencies other than a subsidiary’s functional currency. The following table shows the impact to the fair value of MOODY'S 2022 10-K     53 Table of Contents the forward contracts if currencies being purchased were to weaken by 10%: [[GREPCENT_TABLE]] [["Foreign Currency Forwards (1)","","Impact on fair value of contract"],["Sell","","Buy"],["U.S. dollar","","British pound","","$18 million unfavorable impact"],["U.S. dollar","","Euro","","$12 million unfavorable impact"],["Euro","","U.S. dollar","","$9 million unfavorable impact"],["U.S. dollar","","Canadian dollar","","$8 million unfavorable impact"],["U.S. dollar","","Singapore dollar","","$5 million unfavorable impact"],["U.S. dollar","","Indian rupee","","$2 million unfavorable impact"],["U.S. dollar","","Japanese yen","","$2 million unfavorable impact"],["","","","","$56 million unfavorable impact"]] [[/GREPCENT_TABLE]] (1)Refer to Note 7 to the consolidated financial statements in Item 8 of this Form 10-K for further detail on the forward contracts. The change in fair value of the foreign exchange forward contracts would be offset by FX revaluation gains or losses on underlying assets and liabilities denominated in currencies other than a subsidiary’s functional currency. Derivatives and non-derivatives designated as net investment hedges: The Company designates derivative instruments and foreign currency-denominated debt as hedges of foreign currency risk of net investments in certain foreign subsidiaries (net investment hedges) under ASC Topic 815, Derivatives and Hedging. Cross-currency swaps As of December 31, 2022, the Company had cross-currency swaps designated as hedges of euro denominated net investments in subsidiaries, for which the notional values and corresponding interest rates are disclosed in Note 7 to the consolidated financial statements located in Item 8 of this Form 10-K. If the euro were to strengthen 10% relative to the U.S. dollar, there would be an approximate $310 million unfavorable impact to the fair value of the cross-currency swaps recognized in OCI, which would be offset by favorable currency translation gains on the Company’s euro net investment in foreign subsidiaries. Euro-denominated debt As of December 31, 2022, the Company has designated €500 million of the 2015 Senior Notes and €750 million of the 2019 Senior Notes as a net investment hedge to mitigate FX exposure relating to euro denominated net investments in subsidiaries. If the euro were to strengthen 10% relative to the U.S. dollar, there would be an approximate $133 million unfavorable adjustment to OCI related to these net investment hedges. This adjustment would be offset by favorable translation adjustments on the Company’s euro net investment in subsidiaries. Interest rate and credit risk: Interest rate swaps designated as a fair value hedge: The Company’s interest rate risk management objectives are to reduce the funding cost and volatility to the Company and to alter the interest rate exposure to a desired risk profile. Moody’s uses interest rate swaps as deemed necessary to assist in accomplishing these objectives. The Company is exposed to interest rate risk on its various outstanding fixed-rate debt for which the fair value of the outstanding fixed rate debt fluctuates based on changes in interest rates. The Company has entered into interest rate swaps to convert the fixed interest rate on certain of its long-term debt to a floating interest rate based on the 3-month and 6-month LIBOR as well as SOFR. These swaps are adjusted to fair market value based on prevailing interest rates at the end of each reporting period and fluctuations are recorded as a reduction or addition to the carrying value of the borrowing, while net interest payments are recorded as interest expense/income in the Company’s consolidated statement of operations. A hypothetical change of 100 BPS in the LIBOR/SOFR-based swap rate would result in an approximate $110 million change to the fair value of the swaps, which would be offset by the change in fair value of the hedged item. Additional information on these interest rate swaps is disclosed in Note 7 to the consolidated financial statements located in Item 8 of this Form 10-K. Moody’s cash equivalents consist of investments in high-quality investment-grade securities within and outside the U.S. with maturities of three months or less when purchased. The Company manages its credit risk exposure by allocating its cash equivalents among various money market deposit accounts and certificates of deposit and by limiting the amount it can invest with any single issuer. Short-term investments primarily consist of certificates of deposit. 54     MOODY'S 2022 10-K Table of Contents Liquidity and Capital Resources Moody's remains committed to using its strong cash flow to create value for shareholders by both investing in the Company's employees and growing the business through targeted organic initiatives and inorganic acquisitions aligned with strategic priorities. Additional excess capital is returned to the Company’s shareholders via a combination of dividends and share repurchases. Cash Flow The Company is currently financing its operations, capital expenditures, acquisitions and share repurchases from operating and financing cash flows. The following is a summary of the changes in the Company’s cash flows followed by a brief discussion of these changes: [[GREPCENT_TABLE]] [["","Year Ended December 31,","","$ Change Favorable/ (unfavorable)"],["","2022","","2021"],["Net cash provided by operating activities","$","1,474","","","$","2,005","","","$","(531)"],["Net cash used in investing activities","$","(262)","","","$","(2,619)","","","$","2,357"],["Net cash used in financing activities","$","(1,208)","","","$","(122)","","","$","(1,086)"],["Free Cash Flow (1)","$","1,191","","","$","1,866","","","$","(675)"]] [[/GREPCENT_TABLE]] (1)Free Cash Flow is a non-GAAP measure and is defined by the Company as net cash provided by operating activities minus cash paid for capital expenditures. Refer to the section entitled “Non-GAAP Financial Measures” of this MD&A for further information on this financial measure. Net cash provided by operating activities Net cash flows from operating activities decreased $531 million compared to the prior year primarily reflecting: –a decrease in operating income of $961 million (see section entitled “Results of Operations” of this MD&A for further discussion); –higher incentive compensation payouts in 2022 of approximately $130 million resulting from the Company's strong performance during 2021; and –various changes in working capital; partially offset by: –favorable impact from changes in accounts receivable of $291 million in 2022 resulting from collections in 2022 relating to strong performance in the fourth quarter of 2021; and –lower cash paid for income taxes of $444 million (refer to Note 17 to the consolidated financial statements for further analysis of the Company's income taxes). Net cash used in investing activities The $2,357 million decrease in cash flows used in investing activities compared to 2021 primarily reflects: –higher cash paid of $2,082 million in the prior year for acquisitions, primarily reflecting the acquisition of RMS (refer to Note 9 to the consolidated financial statements for further discussion on the Company's M&A activity); –$250 million of cash paid in the prior year for a minority investment in BitSight (refer to Note 13 to the consolidated financial statements for further discussion on the Company's investments in non-consolidated affiliates); and –higher net cash receipts of $231 million in 2022 relating to the settlement of net investment hedges; partially offset by: –an increase in cash paid for capital additions of $144 million reflecting product development and investments relating to strategic initiatives to support business growth and to enhance technology infrastructure to enable automation, innovation and efficiency. Net cash used in financing activities The $1,086 million increase in cash used in financing activities was primarily attributed to: –higher net issuance (issuance, less repayment) of $810 million in long-term debt in 2021; –higher cash paid for treasury share repurchases in 2022 of $233 million, which includes payment for shares made under an ASR agreement executed in the first quarter of 2022; and –higher dividend payments of $52 million in 2022. MOODY'S 2022 10-K     55 Table of Contents Cash and cash equivalents and short-term investments The Company’s aggregate cash and cash equivalents and short-term investments of $1.9 billion at December 31, 2022 included approximately $1.4 billion located outside of the U.S. Approximately 42% of the Company’s aggregate cash and cash equivalents and short-term investments is denominated in euros and British pounds. The Company manages both its U.S. and non-U.S. cash flow to maintain sufficient liquidity in all regions to effectively meet its operating needs. As a result of the Tax Act, all previously net undistributed foreign earnings have now been subject to U.S. tax. The Company continues to evaluate which entities it will indefinitely reinvest earnings outside the U.S. The Company has provided deferred taxes for those entities whose earnings are not considered indefinitely reinvested. Accordingly, the Company has commenced repatriating a portion of its non-U.S. cash in these subsidiaries and will continue to repatriate certain of its offshore cash in a manner that addresses compliance with local statutory requirements, sufficient offshore working capital and any other factors that may be relevant in certain jurisdictions. Notwithstanding the Tax Act, which generally eliminated federal income tax on future cash repatriation to the U.S., cash repatriation may be subject to state and local taxes or withholding or similar taxes. Material Cash Requirements The Company's material cash requirements consist of the following contractual and other obligations: Financing Arrangements Indebtedness At December 31, 2022, Moody’s had $7.4 billion of outstanding debt and approximately $1 billion of additional capacity available under the Company’s CP program, which is backstopped by the $1.25 billion 2021 Facility. The repayment schedule for the Company’s borrowings outstanding at December 31, 2022 is as follows: Future interest payments and fees associated with the Company's debt and credit facility are expected to be $4.8 billion, of which approximately $316 million is expected to be paid over the next twelve months. For additional information on the Company's outstanding debt, CP program and 2021 Facility, refer to Note 18 to the consolidated financial statements. Management may consider pursuing additional long-term financing when it is appropriate in light of cash requirements for operations, share repurchases and other strategic opportunities, which would result in higher financing costs. Purchase Obligations Purchase obligations generally include multi-year agreements with vendors to purchase goods or services and mainly include data center/cloud hosting fees and fees for information technology licensing and maintenance. As of December 31, 2022, these purchase obligations totaled $218 million, of which $138 million is expected to be paid in the next twelve months. Leases The Company has operating lease obligations of $474 million at December 31, 2022, primarily related to real estate leases, of which approximately $119 million in payments are expected over the next twelve months. For more information on the Company's operating leases, refer to Note 20 to the consolidated financial statements. Pension and Other Retirement Plan Obligations The Company does not anticipate making significant contributions to its funded pension plan in the next twelve months. This plan is overfunded at December 31, 2022, and accordingly holds sufficient investments to fund future benefit obligations. Payments for the Company's unfunded plans are not expected to be material in either the short or long-term. For further information on the Company's pension and other retirement plan obligations, refer to Note 15 to the consolidated financial statements. 56     MOODY'S 2022 10-K Table of Contents Dividends and share repurchases On January 30, 2023, the Board approved the declaration of a quarterly dividend of $0.77 per share for Moody’s common stock, payable March 17, 2023 to shareholders of record at the close of business on February 24, 2023. The continued payment of dividends at this rate, or at all, is subject to the discretion of the Board. On February 9, 2021, the Board approved $1 billion in share repurchase authority, and on February 7, 2022, the Board approved an additional $750 million of share repurchase authority. At December 31, 2022, the Company had approximately $848 million of remaining authority. There is no established expiration date for the remaining authorizations. Restructuring As more fully discussed in Note 11 to the consolidated financial statements, the Company is currently in the process of executing the 2022 - 2023 Geolocation Restructuring Program. This program relates to the Company's post-COVID-19 geolocation strategy and includes the rationalization and exit of certain real estate leases and a reduction in staff, including the relocation of certain job functions from their current locations. Future cash outlays associated with this program are expected to be approximately $60 million to $80 million, which are expected to be paid through 2024. Sources of Funding to Satisfy Material Cash Requirements The Company believes that it has the financial resources needed to meet its cash requirements and expects to have positive operating cash flow in 2023. Cash requirements for periods beyond the next twelve months will depend, among other things, on the Company’s profitability and its ability to manage working capital requirements. The Company may also borrow from various sources as described above. Non-GAAP Financial Measures: In addition to its reported results, Moody’s has included in this MD&A certain adjusted results that the SEC defines as “Non-GAAP financial measures.” Management believes that such adjusted financial measures, when read in conjunction with the Company’s reported results, can provide useful supplemental information for investors analyzing period-to-period comparisons of the Company’s performance, facilitate comparisons to competitors’ operating results and can provide greater transparency to investors of supplemental information used by management in its financial and operational decision-making. These adjusted measures, as defined by the Company, are not necessarily comparable to similarly defined measures of other companies. Furthermore, these adjusted measures should not be viewed in isolation or used as a substitute for other GAAP measures in assessing the operating performance or cash flows of the Company. Below are brief descriptions of the Company’s adjusted financial measures accompanied by a reconciliation of the adjusted measure to its most directly comparable GAAP measure. Adjusted Operating Income and Adjusted Operating Margin: The Company presents Adjusted Operating Income and Adjusted Operating Margin because management deems these metrics to be useful measures to provide additional perspective on Moody's operating performance. Adjusted Operating Income excludes the impact of: i) depreciation and amortization; and ii) restructuring charges/adjustments. Depreciation and amortization are excluded because companies utilize productive assets of different useful lives and use different methods of acquiring and depreciating productive assets. Restructuring charges/adjustments are excluded as the frequency and magnitude of these charges may vary widely across periods and companies. Management believes that the exclusion of the aforementioned items, as detailed in the reconciliation below, allows for an additional perspective on the Company’s operating results from period to period and across companies. The Company defines Adjusted Operating Margin as Adjusted Operating Income divided by revenue. [[GREPCENT_TABLE]] [["","Year ended December 31,"],["","2022","","2021"],["Operating income","$","1,883","","","$","2,844"],["Adjustments:"],["Depreciation and amortization","331","","","257"],["Restructuring","114","","","\u2014"],["Adjusted Operating Income","$","2,328","","","$","3,101"],["Operating margin","34.4","%","","45.7","%"],["Adjusted Operating Margin","42.6","%","","49.9","%"]] [[/GREPCENT_TABLE]] MOODY'S 2022 10-K     57 Table of Contents Adjusted Net Income and Adjusted Diluted EPS attributable to Moody’s common shareholders: The Company presents Adjusted Net Income and Adjusted Diluted EPS because management deems these metrics to be useful measures to provide additional perspective on Moody's operating performance. Adjusted Net Income and Adjusted Diluted EPS exclude the impact of: i) amortization of acquired intangible assets; ii) restructuring charges/adjustments; iii) a gain on the extinguishment of debt; iv) FX translation losses reclassified to earnings resulting from the Company no longer conducting commercial operations in Russia; and v) a non-cash gain relating to the Company’s minority investment in BitSight. The Company excludes the impact of amortization of acquired intangible assets as companies utilize intangible assets with different estimated useful lives and have different methods of acquiring and amortizing intangible assets. These intangible assets were recorded as part of acquisition accounting and contribute to revenue generation. The amortization of intangible assets related to acquisitions will recur in future periods until such intangible assets have been fully amortized. Furthermore, the timing and magnitude of business combination transactions are not predictable and the purchase price allocated to amortizable intangible assets and the related amortization period are unique to each acquisition and can vary significantly from period to period and across companies. Restructuring charges/adjustments, the gain on extinguishment of debt, FX translation losses reclassified to earnings resulting from the Company no longer conducting commercial operations in Russia, and the non-cash gain relating to the Company's minority interest in BitSight are excluded as the frequency and magnitude of these items may vary widely across periods and companies. The Company excludes the aforementioned items to provide additional perspective when comparing net income and diluted EPS from period to period and across companies as the frequency and magnitude of similar transactions may vary widely across periods. [[GREPCENT_TABLE]] [["","Year ended December 31,"],["Amounts in millions","2022","","2021"],["Net income attributable to Moody\u2019s common shareholders","","","$","1,374","","","","","$","2,214"],["Pre-tax Acquisition-Related Intangible Amortization Expenses","$","200","","","","","$","158"],["Tax on Acquisition-Related Intangible Amortization Expenses","(47)","","","","","(36)"],["Net Acquisition-Related Intangible Amortization Expenses","","","153","","","","","122"],["Pre-tax restructuring","$","114","","","","","$","\u2014"],["Tax on restructuring","(26)","","","","","\u2014"],["Net restructuring","","","88","","","","","\u2014"],["Pre-tax gain on extinguishment of debt","$","(70)","","","","","$","\u2014"],["Tax on gain on extinguishment of debt","17","","","","","\u2014"],["Net gain on extinguishment of debt","","","(53)","","","","","\u2014"],["FX losses resulting from the Company no longer conducting commercial operations in Russia","","","20","","","","","\u2014"],["Pre-tax gain relating to minority investment in BitSight","$","\u2014","","","","","$","(36)"],["Tax on gain relating to minority investment in BitSight","\u2014","","","","","9"],["Net gain relating to minority investment in BitSight","","","\u2014","","","","","(27)"],["Adjusted Net Income","","","$","1,582","","","","","$","2,309"]] [[/GREPCENT_TABLE]] 58     MOODY'S 2022 10-K Table of Contents Below is a reconciliation of this measure to its most directly comparable U.S. GAAP amount: [[GREPCENT_TABLE]] [["","Year ended December 31,"],["","2022","","2021"],["Diluted earnings per share attributable to Moody\u2019s common shareholders","","","$","7.44","","","","","$","11.78"],["Pre-tax Acquisition-Related Intangible Amortization Expenses","$","1.08","","","","","$","0.84"],["Tax on Acquisition-Related Intangible Amortization Expenses","(0.25)","","","","","(0.19)"],["Net Acquisition-Related Intangible Amortization Expenses","","","0.83","","","","","0.65"],["Pre-tax restructuring","$","0.62","","","","","$","\u2014"],["Tax on restructuring","(0.14)","","","","","\u2014"],["Net restructuring","","","0.48","","","","","\u2014"],["Pre-tax gain on extinguishment of debt","$","(0.38)","","","","","$","\u2014"],["Tax on gain on extinguishment of debt","0.09","","","","","\u2014"],["Net gain on extinguishment of debt","","","(0.29)","","","","","\u2014"],["FX losses resulting from the Company no longer conducting commercial operations in Russia","","","0.11","","","","","\u2014"],["Pre-tax gain relating to minority investment in BitSight","$","\u2014","","","","","$","(0.19)"],["Tax on gain relating to minority investment in BitSight","\u2014","","","","","0.05"],["Net gain relating to minority investment in BitSight","","","\u2014","","","","","(0.14)"],["Adjusted Diluted EPS","","","$","8.57","","","","","$","12.29"]] [[/GREPCENT_TABLE]] Note: the tax impacts in the table above were calculated using tax rates in effect in the jurisdiction for which the item relates. Free Cash Flow: The Company defines Free Cash Flow as net cash provided by operating activities minus payments for capital additions. Management believes that Free Cash Flow is a useful metric in assessing the Company’s cash flows to service debt, pay dividends and to fund acquisitions and share repurchases. Management deems capital expenditures essential to the Company’s product and service innovations and maintenance of Moody’s operational capabilities. Accordingly, capital expenditures are deemed to be a recurring use of Moody’s cash flow. Below is a reconciliation of the Company’s net cash flows from operating activities to Free Cash Flow: [[GREPCENT_TABLE]] [["","Year ended December 31,"],["","2022","","2021"],["Net cash provided by operating activities","$","1,474","","","$","2,005"],["Capital additions","(283)","","","(139)"],["Free Cash Flow","$","1,191","","","$","1,866"],["Net cash used in investing activities","$","(262)","","","$","(2,619)"],["Net cash used in financing activities","$","(1,208)","","","$","(122)"]] [[/GREPCENT_TABLE]] MOODY'S 2022 10-K     59 Table of Contents Organic Constant Currency Revenue Growth (Decline)/Constant Currency Revenue Growth (Decline): Beginning in the second quarter of 2022, the Company began presenting organic constant currency revenue growth (decline) and constant currency revenue growth (decline) as its non-GAAP measure of revenue growth (decline). Previously, the Company presented organic revenue growth (decline), which excluded only the impact of certain acquisition activity. Management deems this revised measure to be useful in providing additional perspective in assessing the Company's revenue growth (decline) excluding both the inorganic revenue impacts from certain acquisition activity and the impacts of changes in foreign exchange rates. The Company calculates the dollar impact of foreign exchange as the difference between the translation of its current period non-USD functional currency results using comparative prior period weighted average foreign exchange translation rates and current year reported results. Below is a reconciliation of the Company's reported revenue and growth (decline) rates to its organic constant currency revenue growth (decline) and constant currency revenue growth (decline) measures: [[GREPCENT_TABLE]] [["","","Year ended December 31,"],["Amounts in millions","","2022","","2021","","Change","","Growth"],["MA revenue","","$","2,769","","","$","2,406","","","$","363","","","15%"],["FX impact","","113","","","\u2014","","","113"],["Inorganic revenue from acquisitions","","(236)","","","\u2014","","","(236)"],["Organic constant currency MA revenue","","$","2,646","","","$","2,406","","","$","240","","","10%"],["Decision Solutions revenue","","$","1,324","","","$","1,011","","","$","313","","","31%"],["FX impact","","40","","","\u2014","","","40"],["Inorganic revenue from acquisitions","","(234)","","","\u2014","","","(234)"],["Organic constant currency Decision Solutions revenue","","$","1,130","","","$","1,011","","","$","119","","","12%"],["Research and Insights revenue","","$","733","","","$","697","","","$","36","","","5%"],["FX impact","","21","","","\u2014","","","21"],["Constant currency Research and Insights revenue","","$","754","","","$","697","","","$","57","","","8%"],["Data and Information revenue","","$","712","","","$","698","","","$","14","","","2%"],["FX impact","","52","","","\u2014","","","52"],["Inorganic revenue from acquisitions","","(2)","","","\u2014","","","(2)"],["Organic constant currency Data and Information revenue","","$","762","","","$","698","","","$","64","","","9%"],["MCO revenue","","$","5,468","","","$","6,218","","","$","(750)","","","(12)%"],["FX impact","","193","","","\u2014","","","193"],["Inorganic revenue from acquisitions","","(236)","","","\u2014","","","(236)"],["Organic constant currency MCO revenue","","$","5,425","","","$","6,218","","","$","(793)","","","(13)%"]] [[/GREPCENT_TABLE]] 60     MOODY'S 2022 10-K Table of Contents Key Performance Metrics: The Company presents Annualized Recurring Revenue (“ARR”) on a constant currency organic basis for its MA business as a supplemental performance metric to provide additional insight on the estimated value of MA's recurring revenue contracts at a given point in time. The Company uses ARR to manage and monitor performance of its MA operating segment and believes that this metric is a key indicator of the trajectory of MA's recurring revenue base. The Company calculates ARR by taking the total recurring contract value for each active renewable contract as of the reporting date, divided by the number of days in the contract and multiplied by 365 days to create an annualized value. The Company defines renewable contracts as subscriptions, term licenses, maintenance and renewable services. ARR excludes transaction sales including training, one-time services and perpetual licenses. In order to compare period-over-period ARR excluding the effects of foreign currency translation, the Company bases the calculation on currency rates utilized in its current year operating budget and holds these FX rates constant for the duration of all current and prior periods being reported. Additionally, ARR excludes contracts related to acquisitions to provide additional perspective in assessing growth excluding the impacts from certain acquisition activity. The Company’s definition of ARR may differ from definitions utilized by other companies reporting similarly named measures, and this metric should be viewed in addition to, and not as a substitute for, financial measures presented in accordance with U.S. GAAP. [[GREPCENT_TABLE]] [["Amounts in millions","December 31, 2022","","December 31, 2021","","Change","","Growth"],["MA ARR"],["Decision Solutions","$","1,235","","","$","1,110","","","$","125","","","11%"],["Research and Insights","770","","","707","","","63","","","9%"],["Data and Information","768","","","705","","","63","","","9%"],["Total MA ARR","$","2,773","","","$","2,522","","","$","251","","","10%"]] [[/GREPCENT_TABLE]] Recently Issued Accounting Pronouncements Refer to Note 2 to the consolidated financial statements located in Part II, Item 8 on this Form 10-K for a discussion on the impact to the Company relating to recently issued accounting pronouncements. Contingencies Legal proceedings in which the Company is involved also may impact Moody’s liquidity or operating results. No assurance can be provided as to the outcome of such proceedings. In addition, litigation inherently involves significant costs. For information regarding legal proceedings, see Part II, Item 8 – “Financial Statements”, Note 21 “Contingencies” in this Form 10-K. Forward-Looking Statements Certain statements contained in this annual report on Form 10-K are forward-looking statements and are based on future expectations, plans and prospects for the Company's business and operations that involve a number of risks and uncertainties. Such statements involve estimates, projections, goals, forecasts, assumptions and uncertainties that could cause actual results or outcomes to differ materially from those contemplated, expressed, projected, anticipated or implied in the forward-looking statements. Those statements appear at various places throughout this annual report on Form 10-K, including in the sections entitled “Contingencies” under Item 7, “MD&A”, commencing on page 35 of this annual report on Form 10-K, under “Legal Proceedings” in Part I, Item 3, of this Form 10-K, and elsewhere in the context of statements containing the words “believe,” “expect,” “anticipate,” “intend,” “plan,” “will,” “predict,” “potential,” “continue,” “strategy,” “aspire,” “target,” “forecast,” “project,” “estimate,” “should,” “could,” “may,” and similar expressions or words and variations thereof relating to the Company’s views on future events, trends and contingencies or otherwise convey the prospective nature of events or outcomes generally indicative of forward-looking statements. Stockholders and investors are cautioned not to place undue reliance on these forward-looking statements. The forward-looking statements and other information in this document are made as of the date of this annual report on Form 10-K, and the Company undertakes no obligation (nor does it intend) to publicly supplement, update or revise such statements on a going-forward basis, whether as a result of subsequent developments, changed expectations or otherwise, except as required by applicable law or regulation. In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, the Company is identifying certain factors that could cause actual results to differ, perhaps materially, from those indicated by these forward-looking statements. Those factors, risks and uncertainties include, but are not limited to: –the impact of general economic conditions, including inflation and related monetary policy actions by governments in response to inflation, on worldwide credit markets and economic activity and its effect on the volume of debt and other securities issued in domestic and/or global capital markets; –the global impacts of each of the conflict in Ukraine and the COVID-19 pandemic on volatility in world financial markets, on general economic conditions and GDP in the U.S. and worldwide, on global relations and on the Company's own operations and personnel; MOODY'S 2022 10-K     61 Table of Contents –other matters that could affect the volume of debt and other securities issued in domestic and/or global capital markets, including regulation, credit quality concerns, changes in interest rates, inflation and other volatility in the financial markets, as well as the number of issuances of securities without ratings or securities which are rated or evaluated by non-traditional parties; –the level of merger and acquisition activity in the U.S. and abroad; –the uncertain effectiveness and possible collateral consequences of U.S. and foreign government actions affecting credit markets, international trade and economic policy, including those related to tariffs, tax agreements and trade barriers; –the impact of MIS’s withdrawal of its credit ratings on Russian entities and of Moody’s no longer conducting commercial operations in Russia; –concerns in the marketplace affecting our credibility or otherwise affecting market perceptions of the integrity or utility of independent credit agency ratings; –the introduction of competing products or technologies by other companies; –pricing pressure from competitors and/or customers; –the level of success of new product development and global expansion; –the impact of regulation as an NRSRO, the potential for new U.S., state and local legislation and regulations; –the potential for increased competition and regulation in the EU and other foreign jurisdictions; –exposure to litigation related to our rating opinions, as well as any other litigation, government and regulatory proceedings, investigations and inquiries to which Moody’s may be subject from time to time; –provisions in U.S. legislation modifying the pleading standards and EU regulations modifying the liability standards applicable to credit rating agencies in a manner adverse to credit rating agencies; –provisions of EU regulations imposing additional procedural and substantive requirements on the pricing of services and the expansion of supervisory remit to include non-EU ratings used for regulatory purposes; –uncertainty regarding the future relationship between the U.S. and China; –the possible loss of key employees and the impact of the global labor environment; –failures or malfunctions of our operations and infrastructure; –any vulnerabilities to cyber threats or other cybersecurity concerns; –the timing and effectiveness of our restructuring programs, such as the 2022 - 2023 Geolocation Restructuring Program; –currency and foreign exchange volatility; –the outcome of any review by controlling tax authorities of Moody’s global tax planning initiatives; –exposure to potential criminal sanctions or civil remedies if Moody’s fails to comply with foreign and U.S. laws and regulations that are applicable in the jurisdictions in which Moody’s operates, including data protection and privacy laws, sanctions laws, anti-corruption laws, and local laws prohibiting corrupt payments to government officials; –the impact of mergers, acquisitions, such as our acquisition of RMS, or other business combinations and the ability of Moody’s to successfully integrate acquired businesses; –the level of future cash flows; –the levels of capital investments; and –a decline in the demand for credit risk management tools by financial institutions. These factors, risks and uncertainties as well as other risks and uncertainties that could cause Moody’s actual results to differ materially from those contemplated, expressed, projected, anticipated or implied in the forward-looking statements are described in greater detail under “Risk Factors” in Part I, Item 1A of Moody’s annual report on Form 10-K for the year ended December 31, 2022, and in other filings made by the Company from time to time with the SEC or in materials incorporated herein or therein. Stockholders and investors are cautioned that the occurrence of any of these factors, risks and uncertainties may cause the Company’s actual results to differ materially from those contemplated, expressed, projected, anticipated or implied in the forward-looking statements, which could have a material and adverse effect on the Company’s business, results of operations and financial condition. New factors may emerge from time to time, and it is not possible for the Company to predict new factors, nor can the Company assess the potential effect of any new factors on it. Forward-looking and other statements in this document may also address our corporate responsibility progress, plans, and goals (including sustainability and environmental matters), and the inclusion of such statements is not an indication that these contents are necessarily material to investors or required to be disclosed in the Company’s filings with the Securities and Exchange Commission. In addition, historical, current, and forward-looking sustainability-related statements may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve, and assumptions that are subject to change in the future. 62     MOODY'S 2022 10-K Table of Contents