MOODYS CORP /DE/, 10-K filed on 2/27/2012
Annual Report
Document And Entity Information (USD $)
In Billions, except Share data in Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Jan. 31, 2012
Jun. 30, 2011
Document And Entity Information [Abstract]
 
 
 
Document Type
10-K 
 
 
Amendment Flag
false 
 
 
Document Period End Date
Dec. 31, 2011 
 
 
Document Fiscal Year Focus
2011 
 
 
Document Fiscal Period Focus
FY 
 
 
Trading Symbol
MCO 
 
 
Entity Registrant Name
MOODYS CORP /DE/ 
 
 
Entity Central Index Key
0001059556 
 
 
Current Fiscal Year End Date
--12-31 
 
 
Entity Filer Category
Large Accelerated Filer 
 
 
Entity Voluntary Filers
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Well-known Seasoned Issuer
Yes 
 
 
Entity Public Float
 
 
$ 8.7 
Entity Common Stock, Shares Outstanding
 
222.9 
 
Consolidated Statements Of Operations (USD $)
In Millions, except Per Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
Consolidated Statements Of Operations [Abstract]
 
 
 
Revenue
$ 2,280.7 
$ 2,032.0 
$ 1,797.2 
Expenses
 
 
 
Operating
683.5 
604.8 
532.4 
Selling, general and administrative
629.6 
588.0 
495.7 
Restructuring
   
0.1 
17.5 
Depreciation and amortization
79.2 
66.3 
64.1 
Total expenses
1,392.3 
1,259.2 
1,109.7 
Operating income
888.4 
772.8 
687.5 
Interest income (expense), net
(62.1)
(52.5)
(33.4)
Other non-operating income (expense), net
13.5 
(5.9)
(7.9)
Non-operating income (expense), net
(48.6)
(58.4)
(41.3)
Income before provision for income taxes
839.8 
714.4 
646.2 
Provision for income taxes
261.8 
201.0 
239.1 
Net income
578.0 
513.4 
407.1 
Less: Net income attributable to noncontrolling interests
6.6 
5.6 
5.1 
Net income attributable to Moody's
$ 571.4 
$ 507.8 
$ 402.0 
Earnings per share
 
 
 
Basic
$ 2.52 
$ 2.16 
$ 1.70 
Diluted
$ 2.49 
$ 2.15 
$ 1.69 
Weighted average shares outstanding
 
 
 
Basic
226.3 
235.0 
236.1 
Diluted
229.4 
236.6 
237.8 
Consolidated Balance Sheets (USD $)
In Millions, unless otherwise specified
Dec. 31, 2011
Dec. 31, 2010
Current assets:
 
 
Cash and cash equivalents
$ 760.0 
$ 659.6 
Short-term investments
14.8 
12.7 
Accounts receivable, net of allowances of $28.0 in 2011 and $33.0 in 2010
489.8 
497.5 
Deferred tax assets, net
82.2 
45.3 
Other current assets
77.6 
127.9 
Total current assets
1,424.4 
1,343.0 
Property and equipment, net
326.8 
319.3 
Goodwill
642.9 
465.5 
Intangible assets, net
253.6 
168.8 
Deferred tax assets, net
146.4 
187.9 
Other assets
82.0 
55.8 
Total assets
2,876.1 
2,540.3 
Current liabilities:
 
 
Accounts payable and accrued liabilities
452.3 
414.4 
Unrecognized tax benefits
90.0 
 
Current portion of long-term debt
71.3 
11.3 
Deferred revenue
520.4 
508.1 
Total current liabilities
1,134.0 
933.8 
Non-current portion of deferred revenue
97.7 
96.6 
Long-term debt
1,172.5 
1,228.3 
Deferred tax liabilities, net
49.6 
36.9 
Unrecognized tax benefits
115.4 
180.8 
Other liabilities
404.8 
362.3 
Total liabilities
2,974.0 
2,838.7 
Contingencies (Note 18)
   
   
Redeemable noncontrolling interest
60.5 
 
Shareholders' deficit:
 
 
Preferred stock, par value $.01 per share; 10,000,000 shares authorized; no shares issued and outstanding
   
   
Capital surplus
394.5 
391.5 
Retained earnings
4,176.1 
3,736.2 
Treasury stock, at cost; 120,462,232 and 112,116,581 shares of common stock at December 31, 2011 and December 31, 2010, respectively
(4,635.5)
(4,407.3)
Accumulated other comprehensive loss
(107.5)
(33.4)
Total Moody's shareholders' deficit
(169.0)
(309.6)
Noncontrolling interests
10.6 
11.2 
Total shareholders' deficit
(158.4)
(298.4)
Total liabilities, redeemable noncontrolling interest and shareholders' deficit
2,876.1 
2,540.3 
Series Common Stock [Member]
 
 
Shareholders' deficit:
 
 
Common stock
   
   
Common Stock [Member]
 
 
Shareholders' deficit:
 
 
Common stock
$ 3.4 
$ 3.4 
Consolidated Balance Sheets (Parenthetical) (USD $)
In Millions, except Share data, unless otherwise specified
Dec. 31, 2011
Dec. 31, 2010
Accounts receivable, allowances
$ 28.0 
$ 33.0 
Preferred stock, par value
$ 0.01 
$ 0.01 
Preferred stock, shares authorized
10,000,000 
10,000,000 
Preferred stock, shares issued
Preferred stock, shares outstanding
Treasury stock, shares
120,462,232 
112,116,581 
Common stock, shares authorized
10,000,000 
 
Series Common Stock [Member]
 
 
Common stock, par value
$ 0.01 
$ 0.01 
Common stock, shares authorized
10,000,000 
10,000,000 
Common stock, shares issued
Common stock, shares outstanding
Common Stock [Member]
 
 
Common stock, par value
$ 0.01 
$ 0.01 
Common stock, shares authorized
1,000,000,000 
1,000,000,000 
Common stock, shares issued
342,902,272 
342,902,272 
Consolidated Statements Of Cash Flows (USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
Cash flows from operating activities
 
 
 
Net income
$ 578.0 
$ 513.4 
$ 407.1 
Reconciliation of net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
79.2 
66.3 
64.1 
Stock-based compensation expense
56.7 
56.6 
57.4 
Deferred income taxes
10.3 
(10.6)
16.5 
Excess tax benefits from settlement of stock-based compensation awards
(7.4)
(7.0)
(5.0)
Legacy Tax Matters
(6.4)
 
 
Changes in assets and liabilities:
 
 
 
Accounts receivable
17.1 
(54.4)
(14.9)
Other current assets
53.5 
(73.5)
55.3 
Other assets
7.5 
3.7 
(7.4)
Accounts payable and accrued liabilities
24.4 
83.5 
50.4 
Restructuring liability
(0.5)
(5.2)
2.6 
Deferred revenue
8.8 
19.6 
17.9 
Unrecognized tax benefits and other non-current tax liabilities
3.9 
30.8 
(21.0)
Deferred rent
7.4 
12.0 
21.1 
Other liabilities
(29.2)
18.1 
(0.3)
Net cash provided by operating activities
803.3 
653.3 
643.8 
Cash flows from investing activities
 
 
 
Capital additions
(67.7)
(79.0)
(90.7)
Purchases of short-term investments
(43.3)
(26.2)
(17.6)
Sales and maturities of short-term investments
40.9 
25.0 
15.4 
Cash paid for acquisitions and investment in affiliates, net of cash acquired
(197.5)
(148.6)
(0.9)
Net cash used in investing activities
(267.6)
(228.8)
(93.8)
Cash flows from financing activities
 
 
 
Borrowings under revolving credit facilities
 
250.0 
2,412.0 
Repayments of borrowings under revolving credit facilities
 
(250.0)
(3,025.0)
Issuance of commercial paper
 
2,232.8 
11,075.5 
Repayment of commercial paper
 
(2,676.4)
(10,736.5)
Issuance of notes
 
496.9 
 
Repayment of notes
(11.3)
(3.8)
 
Net proceeds from stock plans
46.4 
34.7 
19.8 
Excess tax benefits from settlement of stock-based compensation awards
7.4 
7.0 
5.0 
Cost of treasury shares repurchased
(333.8)
(223.6)
 
Payment of dividends
(121.0)
(98.6)
(94.5)
Payment of dividends to noncontrolling interests
(5.1)
(4.8)
(3.7)
Payments under capital lease obligations
 
(1.2)
(1.4)
Contingent consideration paid
(0.3)
 
 
Debt issuance costs and related fees
 
(4.3)
 
Net cash used in financing activities
(417.7)
(241.3)
(348.8)
Effect of exchange rate changes on cash and cash equivalents
(17.6)
2.5 
26.8 
Increase in cash and cash equivalents
100.4 
185.7 
228.0 
Cash and cash equivalents, beginning of period
659.6 
473.9 
245.9 
Cash and cash equivalents, end of period
$ 760.0 
$ 659.6 
$ 473.9 
Consolidated Statements Of Shareholders' Equity (Deficit) (USD $)
In Millions
Common Stock [Member]
Capital Surplus [Member]
Retained Earnings [Member]
Treasury Stock [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Total Moody's Shareholders' Equity (Deficit) [Member]
Non-Controlling Interests [Member]
Comprehensive Income (Loss) Shareholders' Of Moody's Corporation [Member]
Comprehensive Income (Loss) Non-Controlling Interests [Member]
Total Comprehensive Income (Loss) [Member]
Total
Beginning balance at Dec. 31, 2008
$ 3.4 
$ 392.7 
$ 3,023.2 
$ (4,361.6)
$ (52.1)
$ (994.4)
$ 8.3 
 
 
 
$ (986.1)
Beginning balance, shares at Dec. 31, 2008
342.9 
 
 
(107.8)
 
 
 
 
 
 
 
Net income
 
 
402.0 
 
 
402.0 
5.1 
402.0 
5.1 
407.1 
407.1 
Dividends
 
 
(96.2)
 
 
(96.2)
(3.7)
 
 
 
(99.9)
Stock-based compensation
 
57.9 
 
 
 
57.9 
 
 
 
 
57.9 
Shares issued for stock-based compensation plans, net
 
(53.4)
 
73.1 
 
19.7 
 
 
 
 
19.7 
Shares issued for stock-based compensation plans, net, shares
 
 
 
1.8 
 
 
 
 
 
 
 
Net excess tax benefit (shortfalls) upon settlement of stock-based compensation awards
 
(6.1)
 
 
 
(6.1)
 
 
 
 
(6.1)
Currency translation adjustment, (net of tax)
 
 
 
 
22.2 
22.2 
0.4 
22.2 
0.4 
22.6 
22.6 
Net actuarial losses and prior service cost (net of tax)
 
 
 
 
(10.4)
(10.4)
 
(10.4)
 
(10.4)
(10.4)
Amortization and recognition of prior service costs and actuarial losses, (net of tax)
 
 
 
 
0.6 
0.6 
 
0.6 
 
0.6 
0.6 
Net unrealized gain (loss) on cash flow hedges (net of tax)
 
 
 
 
(1.5)
(1.5)
 
(1.5)
 
(1.5)
(1.5)
Comprehensive income
 
 
 
 
 
 
 
412.9 
5.5 
418.4 
 
Ending balance at Dec. 31, 2009
3.4 
391.1 
3,329.0 
(4,288.5)
(41.2)
(606.2)
10.1 
 
 
 
(596.1)
Ending balance, shares at Dec. 31, 2009
342.9 
 
 
(106.0)
 
 
 
 
 
 
 
Net income
 
 
507.8 
 
 
507.8 
5.6 
507.8 
5.6 
513.4 
513.4 
Dividends
 
 
(100.6)
 
 
(100.6)
(4.8)
 
 
 
(105.4)
Stock-based compensation
 
56.9 
 
 
 
56.9 
 
 
 
 
56.9 
Shares issued for stock-based compensation plans, net
 
(70.2)
 
104.8 
 
34.6 
 
 
 
 
34.6 
Shares issued for stock-based compensation plans, net, shares
 
 
 
2.5 
 
 
 
 
 
 
 
Net excess tax benefit (shortfalls) upon settlement of stock-based compensation awards
 
13.7 
 
 
 
13.7 
 
 
 
 
13.7 
Treasury shares repurchased
 
 
 
(223.6)
 
(223.6)
 
 
 
 
(223.6)
Treasury shares repurchased, shares
 
 
 
(8.6)
 
 
 
 
 
 
 
Currency translation adjustment, (net of tax)
 
 
 
 
11.5 
11.5 
0.3 
11.5 
0.3 
11.8 
11.8 
Net actuarial losses and prior service cost (net of tax)
 
 
 
 
(7.3)
(7.3)
 
(7.3)
 
(7.3)
(7.3)
Amortization and recognition of prior service costs and actuarial losses, (net of tax)
 
 
 
 
2.9 
2.9 
 
2.9 
 
2.9 
2.9 
Net unrealized gain (loss) on cash flow hedges (net of tax)
 
 
 
 
0.7 
0.7 
 
0.7 
 
0.7 
0.7 
Comprehensive income
 
 
 
 
 
 
 
515.6 
5.9 
521.5 
 
Ending balance at Dec. 31, 2010
3.4 
391.5 
3,736.2 
(4,407.3)
(33.4)
(309.6)
11.2 
 
 
 
(298.4)
Ending balance, shares at Dec. 31, 2010
342.9 
 
 
(112.1)
 
 
 
 
 
 
 
Net income
 
 
571.4 
 
 
571.4 
5.6 
571.4 
5.6 
577.0 
577.0 
Dividends
 
 
(131.5)
 
 
(131.5)
(5.1)
 
 
 
(136.6)
Stock-based compensation
 
56.9 
 
 
 
56.9 
 
 
 
 
56.9 
Shares issued for stock-based compensation plans, net
 
(59.2)
 
105.6 
 
46.4 
 
 
 
 
46.4 
Shares issued for stock-based compensation plans, net, shares
 
 
 
2.6 
 
 
 
 
 
 
 
Net excess tax benefit (shortfalls) upon settlement of stock-based compensation awards
 
7.2 
 
 
 
7.2 
 
 
 
 
7.2 
Excess of consideration paid over carrying value of additional investment in KIS Pricing
 
(1.9)
 
 
 
(1.9)
 
 
 
 
(1.9)
Purchase of KIS Pricing shares from noncontrolling interest
 
 
 
 
 
 
(1.0)
 
 
 
(1.0)
Treasury shares repurchased
 
 
 
(333.8)
 
(333.8)
 
 
 
 
(333.8)
Treasury shares repurchased, shares
 
 
 
(11.0)
 
 
 
 
 
 
 
Currency translation adjustment, (net of tax)
 
 
 
 
(46.9)
(46.9)
(0.1)
(46.9)
(0.1)
(47.0)
(47.0)
Net actuarial losses and prior service cost (net of tax)
 
 
 
 
(34.2)
(34.2)
 
(34.2)
 
(34.2)
(34.2)
Amortization and recognition of prior service costs and actuarial losses, (net of tax)
 
 
 
 
4.4 
4.4 
 
4.4 
 
4.4 
4.4 
Net unrealized gain (loss) on cash flow hedges (net of tax)
 
 
 
 
2.6 
2.6 
 
2.6 
 
2.6 
2.6 
Comprehensive income
 
 
 
 
 
 
 
497.3 
5.5 
502.8 
 
Ending balance at Dec. 31, 2011
$ 3.4 
$ 394.5 
$ 4,176.1 
$ (4,635.5)
$ (107.5)
$ (169.0)
$ 10.6 
 
 
 
$ (158.4)
Ending balance, shares at Dec. 31, 2011
342.9 
 
 
(120.5)
 
 
 
 
 
 
 
Consolidated Statements Of Shareholders' Equity (Deficit) (Parenthetical) (USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
Consolidated Statements Of Shareholders' Equity (Deficit) [Abstract]
 
 
 
Currency translation adjustment, tax
$ 1.6 
$ 11.7 
$ 18.5 
Net actuarial gains and prior service cost, tax
22.1 
5.2 
8.9 
Amortization and recognition of prior service costs and actuarial losses, tax
3.0 
2.1 
0.4 
Net unrealized loss on cash flow hedges, tax
$ 1.7 
$ 0.4 
$ 1.5 
Glossary Of Terms And Abbreviations
Glossary Of Terms And Abbreviations

 

GLOSSARY OF TERMS AND ABBREVIATIONS

The following terms, abbreviations and acronyms are used to identify frequently used terms in this report:

 

TERM

  

DEFINITION

ACNielsen    ACNielsen Corporation – a former affiliate of Old D&B
Analytics    Moody's Analytics – a reportable segment of MCO formed in January 2008 which includes the non-rating commercial activities of MCO
AOCI    Accumulated other comprehensive income (loss); a separate component of shareholders' equity (deficit)
ASC   

The FASB Accounting Standards Codification; the sole source of authoritative

GAAP as of July 1, 2009 except for rules and interpretive releases of the SEC, which are also sources of authoritative GAAP for SEC registrants

ASU    The FASB Accounting Standards Updates to the ASC. It also provides background information for accounting guidance and the bases for conclusions on the changes in the ASC. ASUs are not considered authoritative until codified into the ASC
B&H    Barrie & Hibbert Limited, an acquisition completed in December 2011; part of the MA segment, a leading provider of risk management modeling tools for insurance companies worldwide
Basel II    Capital adequacy framework published in June 2004 by the Basel Committee on Banking Supervision
Board    The board of directors of the Company
Bps    Basis points
Canary Wharf Lease    Operating lease agreement entered into on February 6, 2008 for office space in London, England, occupied by the Company in the second half of 2009
CFG    Corporate finance group; an LOB of MIS
CMBS    Commercial mortgage-backed securities; part of CREF
Cognizant    Cognizant Corporation – a former affiliate of Old D&B, which comprised the IMS Health and NMR businesses
Commission    European Commission
Common Stock    The Company's common stock
Company    Moody's Corporation and its subsidiaries; MCO; Moody's
Copal    Copal Partners; an acquisition completed in November 2011; part of the MA segment; leading provider of outsourced research and analytical services to institutional investors.
Corporate Family Ratings    Rating opinion of a corporate family's ability to honor all of its financial obligations which is assigned to the corporate family as if it had a single class of debt and a single consolidated legal entity structure. This rating is often issued in connection with ratings of leveraged finance transactions
COSO    Committee of Sponsoring Organizations of the Treadway Commission
Council    Council of European Finance Ministers
CP    Commercial paper
CP Notes    Unsecured CP notes
CP Program    The Company's CP program entered into on October 3, 2007
CRAs    Credit rating agencies
CREF    Commercial real estate finance which includes REITs, commercial real estate collateralized debt obligations and CMBS; part of SFG
CSI    CSI Global Education, Inc., an acquisition completed in November 2010; part of the MA segment; a provider of financial learning, credentials, and certification in Canada
D&B Business    Old D&B's Dun & Bradstreet operating company
DBPPs    Defined benefit pension plans
DCF    Discounted cash flow; a fair value calculation methodology whereby future projected cash flows are discounted back to their present value using a discount rate
Debt/EBITDA    Ratio of Total Debt to EBITDA
Directors' Plan    The 1998 Moody's Corporation Non-Employee Directors' Stock Incentive Plan
Distribution Date    September 30, 2000; the date which Old D&B separated into two publicly traded companies – Moody's Corporation and New D&B
ECAIs    External Credit Assessment Institutions
ECB    European Central Bank
EMEA    Represents countries within Europe, the Middle East and Africa
EPS    Earnings per share
ESPP    The 1999 Moody's Corporation Employee Stock Purchase Plan
ETR    Effective tax rate
EU    European Union
EUR    Euros
Excess Tax Benefit    The difference between the tax benefit realized at exercise of an option or delivery of a restricted share and the tax benefit recorded at the time that the option or restricted share is expensed under GAAP
Exchange Act    The Securities Exchange Act of 1934, as amended
FASB    Financial Accounting Standards Board
FIG    Financial institutions group; an LOB of MIS
Fitch    Fitch Ratings, a part of the Fitch Group
Financial Reform Act    Dodd-Frank Wall Street Reform and Consumer Protection Act
FX    Foreign exchange
GAAP    U.S. Generally Accepted Accounting Principles
GBP    British pounds
G-8    The finance ministers and central bank governors of the group of eight countries consisting of Canada, France, Germany, Italy, Japan, Russia, U.S. and U.K.
G-20    The G-20 is an informal forum that promotes open and constructive discussion between industrial and emerging-market countries on key issues related to global economic stability. By contributing to the strengthening of the international financial architecture and providing opportunities for dialogue on national policies, international co-operation, and international financial institutions, the G-20 helps to support growth and development across the globe. The G-20 is comprised of: Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, U.K., U.S. and the EU, which is represented by the rotating Council presidency and the ECB
IMS Health    A spin-off of Cognizant, which provides services to the pharmaceutical and healthcare industries
Indenture    Indenture and supplemental indenture dated August 19, 2010, relating to the 2010 Senior Notes
Indicative Ratings    These are ratings which are provided as of a point in time, and not published or monitored. They are primarily provided to potential or current issuers to indicate what a rating may be based on business fundamentals and financial conditions as well as based on proposed financings
Intellectual Property    The Company's intellectual property, including but not limited to proprietary information, trademarks, research, software tools and applications, models and methodologies, databases, domain names, and other proprietary materials
IOSCO    International Organization of Securities Commissions
IOSCO Code    Code of Conduct Fundamentals for CRAs issued by IOSCO
IRS    Internal Revenue Service
Korea    Republic of South Korea
LIBOR    London Interbank Offered Rate
LOB    Line of Business
MA    Moody's Analytics – a reportable segment of MCO formed in January 2008 which includes the non-rating commercial activities of MCO
Make Whole Amount    The prepayment penalty relating to the Series 2005-1 Notes and Series 2007-1 Notes; a premium based on the excess, if any, of the discounted value of the remaining scheduled payments over the prepaid principal
MCO    Moody's Corporation and its subsidiaries; the Company; Moody's
MD&A    Management's Discussion and Analysis of Financial Condition and Results of Operations
MIS    Moody's Investors Service – a reportable segment of MCO
MIS Code    Moody's Investors Service Code of Professional Conduct
Moody's    Moody's Corporation and its subsidiaries; MCO; the Company
Net Income    Earnings attributable to Moody's Corporation, which excludes the portion of net income from consolidated entities attributable to non-controlling shareholders
New D&B    The New D&B Corporation – which comprises the D&B business after September 30, 2000
NM    Not-meaningful percentage change (over 400%)
NMR    Nielsen Media Research, Inc.; a spin-off of Cognizant; a leading source of television audience measurement services
NRSRO    Nationally Recognized Statistical Rating Organization
Old D&B    The former Dun and Bradstreet Company which distributed New D&B shares on September 30, 2000, and was renamed Moody's Corporation
Post-Retirement Plans    Moody's funded and unfunded U.S. pension plans, the U.S. post-retirement healthcare plans and the U.S. post-retirement life insurance plans
PPIF    Public, project and infrastructure finance; an LOB of MIS
Profit Participation Plan    Defined contribution profit participation plan that covers substantially all U.S. employees of the Company
PPP    Profit Participation Plan
RD&A    Research, Data and Analytics; an LOB within MA that distributes investor-oriented research and data, including in-depth research on major debt issuers, industry studies, commentary on topical credit events, economic research and analytical tools such as quantitative risk scores
Redeemable
Noncontrolling Interest
   Represents minority shareholders' interest in entities which are controlled but not wholly-owned by Moody's and for which Moody's obligation to redeem the minority shareholders' interest is in the control of the minority shareholders
Reform Act    Credit Rating Agency Reform Act of 2006
REITs    Real estate investment trusts
Reorganization    The Company's business reorganization announced in August 2007 which resulted in two new reportable segments (MIS and MA) beginning in January 2008
RMBS    Residential mortgage-backed securities; part of SFG
RMS    The Risk Management Software LOB within MA which provides both economic and regulatory capital risk management software and implementation services
S&P    Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc.
SEC    Securities and Exchange Commission
Series 2005-1 Notes    Principal amount of $300 million, 4.98% senior unsecured notes due in September 2015 pursuant to the 2005 Agreement
SFG    Structured finance group; an LOB of MIS
SG&A    Selling, general and administrative expenses
Stock Plans    The Old D&B's 1998 Key Employees' Stock Incentive Plan and the Restated 2001 Moody's Corporation Key Employees' Stock Incentive Plan
T&E    Travel and entertainment expenses
TPE    Third party evidence, as defined in the ASC, used to determine selling price based on a vendor's or any competitor's largely interchangeable products or services in standalone sales transactions to similarly situated customers
Total Debt    Current and long-term portion of debt as reflected on the consolidated balance sheets, excluding current accounts payable and accrued liabilities incurred in the ordinary course of business
U.S.    United States
USD    U.S. dollar
UTBs    Unrecognized tax benefits
UTPs    Uncertain tax positions
VSOE    Vendor specific objective evidence; evidence, as defined in the ASC, of selling price limited to either of the following: the price charged for a deliverable when it is sold separately, or for a deliverable not yet being sold separately, the price established by management having the relevant authority
WACC    Weighted average cost of capital
1998 Plan    Old D&B's 1998 Key Employees' Stock Incentive Plan
2000 Distribution    The distribution by Old D&B to its shareholders of all of the outstanding shares of New D&B common stock on September 30, 2000

2000 Distribution

Agreement

   Agreement governing certain ongoing relationships between the Company and New D&B after the 2000 Distribution including the sharing of any liabilities for the payment of taxes, penalties and interest resulting from unfavorable IRS determinations on certain tax matters and certain other potential tax liabilities
2001 Plan    The Amended and Restated 2001 Moody's Corporation Key Employees' Stock Incentive Plan
2005 Agreement    Note purchase agreement dated September 30, 2005 relating to the Series 2005-1 Notes
2007 Agreement    Note purchase agreement dated September 7, 2007 relating to the Series 2007-1 Notes
2007 Facility    Revolving credit facility of $1 billion entered into on September 28, 2007, expiring in 2012
2007 Restructuring Plan    The Company's 2007 restructuring plan approved December 31, 2007
2008 Term Loan    Five-year $150.0 million senior unsecured term loan entered into by the Company on May 7, 2008
2009 Restructuring Plan    The Company's 2009 restructuring plan approved March 27, 2009
2010 Senior Notes    Principal amount of $500.0 million, 5.50% senior unsecured notes due in September 2010 pursuant to the Indenture
7WTC    The Company's corporate headquarters located at 7 World Trade Center
7WTC Lease    Operating lease agreement entered into on October 20, 2006

 

 

Description Of Business And Basis Of Presentation
Description Of Business And Basis Of Presentation
NOTE 1 DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Moody's is a provider of (i) credit ratings, (ii) credit and economic related research, data and analytical tools, (iii) risk management software, (iv) quantitative credit risk measures, credit portfolio management solutions, training and financial credentialing and certification services and (v) outsourced research and analytical services to institutional customers. Moody's operates in two reportable segments: MIS and MA.

MIS, the credit rating agency, publishes credit ratings on a wide range of debt obligations and the entities that issue such obligations in markets worldwide. Revenue is derived from the originators and issuers of such transactions who use MIS ratings in the distribution of their debt issues to investors.

The MA segment, which includes all of the Company's non-rating commercial activities, develops a wide range of products and services that support the risk management activities of institutional participants in global financial markets. Within its RD&A business, MA distributes investor-oriented research and data developed by MIS as part of its ratings process, including in-depth research on major debt issuers, industry studies and commentary on topical credit related events. The RD&A business also produces and provides economic research and credit data and analytical tools such as quantitative credit risk scores. Within its RMS business, MA provides both economic and regulatory capital risk management software solutions. Within its professional services business it provides quantitative credit risk measures, credit portfolio management solutions, training, financial credentialing and certification services as well as outsourced research and analytical services to institutional investors.

The Company operated as part of Old D&B until September 30, 2000, when Old D&B separated into two publicly traded companies – Moody's Corporation and New D&B. At that time, Old D&B distributed to its shareholders shares of New D&B stock. New D&B comprised the business of Old D&B's Dun & Bradstreet operating company. The remaining business of Old D&B consisted solely of the business of providing ratings and related research and credit risk management services and was renamed Moody's Corporation. For purposes of governing certain ongoing relationships between the Company and New D&B after the 2000 Distribution and to provide for an orderly transition, the Company and New D&B entered into various agreements including a distribution agreement, tax allocation agreement and employee benefits agreement.

Summary Of Significant Accounting Policies
Summary Of Significant Accounting Policies
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Consolidation

The consolidated financial statements include those of Moody's Corporation and its majority- and wholly-owned subsidiaries. The effects of all intercompany transactions have been eliminated. Investments in companies for which the Company has significant influence over operating and financial policies but not a controlling interest are accounted for on an equity basis.

The Company applies the guidelines set forth in Topic 810 of the ASC in assessing its interests in variable interest entities to decide whether to consolidate that entity. The Company has reviewed the potential variable interest entities and determined that there are no consolidation requirements under Topic 810 of the ASC.

Cash and Cash Equivalents

Cash equivalents principally consist of investments in money market mutual funds and high-grade commercial paper with maturities of three months or less when purchased.

Property and Equipment

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

Research and Development Costs

All research and development costs are expensed as incurred. These costs primarily reflect the development of credit processing software and quantitative credit risk assessment products sold by the MA segment. These costs also reflect expenses for new quantitative research and business ideas that potentially warrant near-term investment within MIS or MA which could potentially result in commercial opportunities for the Company.

 

Research and development costs were $29.8 million, $20.3 million, and $14.3 million for the years ended December 31, 2011, 2010 and 2009, respectively, and are included in operating expenses within the Company's consolidated statements of operations. These costs generally consist of professional services provided by third parties and compensation costs of employees.

Costs for internally developed computer software that will be sold, leased or otherwise marketed are capitalized when technological feasibility has been established. These costs primarily relate to the development or enhancement of credit processing software and quantitative credit risk assessment products sold by the MA segment, to be licensed to customers and generally consist of professional services provided by third parties and compensation costs of employees that develop the software. Judgment is required in determining when technological feasibility of a product is established and the Company believes that technological feasibility for its software products is reached after all high-risk development issues have been resolved through coding and testing. Generally, this occurs shortly before the products are released to customers. Accordingly, costs for internally developed computer software that will be sold, leased or otherwise marketed that were eligible for capitalization under Topic 985 of the ASC as well as the related amortization expense related to such costs were immaterial for the years ended December 31, 2011, 2010 and 2009.

Computer Software Developed or Obtained for Internal Use

The Company capitalizes costs related to software developed or obtained for internal use. These assets, included in property and equipment in the consolidated balance sheets, relate to the Company's accounting, product delivery and other systems. Such costs generally consist of direct costs of third-party license fees, professional services provided by third parties and employee compensation, in each case incurred either during the application development stage or in connection with upgrades and enhancements that increase functionality. Such costs are depreciated over their estimated useful lives on a straight-line basis. Costs incurred during the preliminary project stage of development as well as maintenance costs are expensed as incurred.

Long-Lived Assets, Including Goodwill and Other Acquired Intangible Assets

Moody's evaluates its goodwill for impairment at the reporting unit level, defined as an operating segment or one level below an operating segment, annually as of November 30 or more frequently if impairment indicators arise in accordance with ASC Topic 350. These impairment indicators could include significant events or circumstances that would reduce the fair value of a reporting unit below its carrying value. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition or sale or disposition of a significant portion of a reporting unit.

At November 30, 2011, the Company had six primary reporting units: one in MIS that encompasses all of Moody's ratings operations and five reporting units within MA: RD&A, RMS, training, CSI and Copal. The RD&A reporting unit encompasses the distribution of investor-oriented research and data developed by MIS as part of its ratings process, in-depth research on major debt issuers, industry studies, economic research and commentary on topical events and credit analytic tools. The RMS reporting unit consists of credit risk management and compliance software that is sold on a license or subscription basis as well as related advisory services for implementation and maintenance. The training reporting unit consists of the portion of the MA business that offers both credit training as well as other professional development training. In November 2010, the Company acquired CSI, which was assessed separately as its own reporting unit for the annual goodwill impairment assessment as of November 30, 2011 as the entity has not yet been integrated with one of the aforementioned MA reporting units. In the fourth quarter of 2011, the Company acquired Copal and B&H, for which Copal is deemed to be a separate reporting unit and B&H is part of the RMS reporting unit at December 31, 2011.

In 2011, the FASB issued an ASU which permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount before proceeding with a quantitative assessment. The Company has adopted the provisions of this ASU and accordingly, the Company evaluates the recoverability of goodwill using a three-step impairment test approach at the reporting unit level. In the first step, the Company assesses various qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit may be less than its carrying amount. If a determination is made that, based on the qualitative factors, 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 is 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 must perform a third step of the impairment test to determine the implied fair value of the reporting unit's goodwill. The implied fair value of the goodwill is determined based on the difference between the fair value of the reporting unit and the net fair value of the identifiable assets and liabilities of the reporting unit. If the implied fair value of the goodwill is less than the carrying value, the difference is recognized as an impairment charge. For the reporting units where the Company is consistently able to conclude on impairment 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.

Determining the fair value of a reporting unit or an indefinite-lived acquired intangible asset involves the use of significant estimates and assumptions. These estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, future economic and market conditions, and appropriate market comparables. The Company bases its fair value estimates on assumptions believed to be reasonable. However, as these estimates and assumptions are unpredictable and inherently uncertain, actual future results may differ from these estimates. 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.

Goodwill is assigned to a reporting unit at the date when an acquisition is integrated into one of the established reporting units, and is based on which reporting unit is expected to benefit from the synergies of the acquisition. Other assets and liabilities, including applicable corporate assets, are allocated to the extent they are related to the operation of respective reporting units.

Rent Expense

The Company records rent expense on a straight-line basis over the life of the lease. In cases where there is a free rent period or future fixed rent escalations the Company will record a deferred rent liability. Additionally, the receipt of any lease incentives will be recorded as a deferred rent liability which will be amortized over the lease term as a reduction of rent expense.

Stock-Based Compensation

The Company records compensation expense for all share-based payment award transactions granted to employees based on the fair value of the equity instrument at the time of grant. This includes shares issued under employee stock purchase plans, stock options, restricted stock and stock appreciation rights. The Company has also established a pool of additional paid-in capital related to the tax effects of employee share-based compensation ("APIC Pool"), which is available to absorb any recognized tax deficiencies.

Derivative Instruments and Hedging Activities

Based on the Company's risk management policy, from time to time the Company may use derivative financial instruments to reduce exposure to changes in foreign exchange rates and interest rates. The Company does not enter into derivative financial instruments for speculative purposes. All derivative financial instruments are recorded on the balance sheet at their respective fair values. The changes in the value of derivatives that qualify as fair value hedges are recorded currently into earnings. Changes in the derivative's fair value that qualify as cash flow hedges are recorded as other comprehensive income or loss, to the extent the hedge is effective, and such amounts are reclassified to earnings in the same period or periods during which the hedged transaction affects income.

Revenue Recognition

Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or the services have been provided and accepted by the customer when applicable, fees are determinable and the collection of resulting receivables is considered probable.

In October 2009, the FASB issued ASU No. 2009-13, "Multiple-Deliverable Revenue Arrangements" ("ASU 2009-13"). The standard changes the requirements for establishing separate units of accounting in a multiple element arrangement and requires the allocation of arrangement consideration based on the relative selling price of each deliverable. The Company adopted ASU 2009-13 on a prospective basis for applicable transactions originating or materially modified on or after January 1, 2010. If applied in the same manner to the year ended December 31, 2009, ASU 2009-13 would not have had a material impact on net revenue reported for both its MIS and MA segments in terms of the timing and pattern of revenue recognition. The adoption of ASU 2009-13 did not have a significant effect on the Company's net revenue in the period of adoption and is also not expected to have a significant effect on the Company's net revenue in periods after the initial adoption when applied to multiple element arrangements based on the currently anticipated business volume and pricing.

For 2010 and future periods, pursuant to the guidance of ASU 2009-13, when a sales arrangement contains multiple deliverables, the Company allocates revenue to each deliverable based on its relative selling price which is determined based on its vendor specific objective evidence ("VSOE") if available, third party evidence ("TPE") if VSOE is not available, or estimated selling price ("ESP") if neither VSOE nor TPE is available.

The Company's products and services will generally continue to qualify as separate units of accounting under ASU 2009-13. The Company evaluates each deliverable in an arrangement to determine whether it represents a separate unit of accounting. A deliverable constitutes a separate unit of accounting when it has stand-alone value to the customers and if the arrangement includes a customer refund or return right relative to the delivered item, the delivery and performance of the undelivered item is considered probable and substantially in the Company's control. In instances where the aforementioned criteria are not met, the deliverable is combined with the undelivered items and revenue recognition is determined as one single unit.

The Company determines whether its selling price in a multi-element transaction meets the VSOE criteria by using the price charged for a deliverable when sold separately. In instances where the Company is not able to establish VSOE for all deliverables in a multiple element arrangement, which may be due to the Company infrequently selling each element separately, not selling products within a reasonably narrow price range, or only having a limited sales history, the Company attempts to establish TPE for deliverables. The Company determines whether TPE exists by evaluating largely similar and interchangeable competitor products or services in standalone sales to similarly situated customers. However, due to the difficulty in obtaining third party pricing, possible differences -in its market strategy from that of its peers and the potential that products and services offered by the Company may contain a significant level of differentiation and/or customization such that the comparable pricing of products with similar functionality cannot be obtained, the Company generally is unable to reliably determine TPE. Based on the selling price hierarchy established by ASU 2009-13, when the Company is unable to establish selling price using VSOE or TPE, the Company will establish an ESP. ESP is the price at which the Company would transact a sale if the product or service were sold on a stand-alone basis. The Company establishes its best estimate of ESP considering internal factors relevant to is pricing practices such as costs and margin objectives, standalone sales prices of similar products, percentage of the fee charged for a primary product or service relative to a related product or service, and customer segment and geography. Additional consideration is also given to market conditions such as competitor pricing strategies and market trend. The Company reviews its determination of VSOE, TPE and ESP on an annual basis or more frequently as needed.

In the MIS segment, revenue attributed to initial ratings of issued securities is recognized when the rating is issued. Revenue attributed to monitoring of issuers or issued securities is recognized ratably over the period in which the monitoring is performed, generally one year. In the case of commercial mortgage-backed securities, derivatives, international residential mortgage-backed and asset-backed securities, issuers can elect to pay the monitoring fees upfront. These fees are deferred and recognized over the future monitoring periods based on the expected lives of the rated securities, which ranged from two to 51 years at December 31, 2011. At December 31, 2011, 2010 and 2009, deferred revenue related to these securities was approximately $79 million, $76 million, and $78 million.

Multiple element revenue arrangements in the MIS segment are generally comprised of an initial rating and the related monitoring service. Beginning January 1, 2010, in instances where monitoring fees are not charged for the first year monitoring effort, fees are allocated to the initial rating and monitoring services based on the relative selling price of each service to the total arrangement fees. The Company generally uses ESP in determining the selling price for its initial ratings as the Company rarely sells initial ratings separately without providing related monitoring services and thus is unable to establish VSOE or TPE for initial ratings. Prior to January 1, 2010 and pursuant to the previous accounting standards, for these types of arrangements the initial rating fee was first allocated to the monitoring service determined based on the estimated fair market value of monitoring services, with the residual amount allocated to the initial rating. Under ASU 2009-13 this practice can no longer be used for non-software deliverables upon the adoption of ASU 2009-13.

MIS estimates revenue for ratings of commercial paper for which, in addition to a fixed annual monitoring fee, issuers are billed quarterly based on amounts outstanding. Revenue is accrued each quarter based on estimated amounts outstanding and is billed when actual data is available. The estimate is determined based on the issuers' most recent reported quarterly data. At December 31, 2011, 2010 and 2009, accounts receivable included approximately $24 million, $25 million, and $27 million, respectively, related to accrued commercial paper revenue. Historically, MIS has not had material differences between the estimated revenue and the actual billings. Furthermore, for certain annual monitoring services, fees are not invoiced until the end of the annual monitoring period and revenue is accrued ratably over the monitoring period.

In the MA segment, products and services offered by the Company include software licenses and related maintenance, subscriptions, and professional services. Revenue from subscription based products, such as research and data subscriptions and certain software-based credit risk management subscription products, is recognized ratably over the related subscription period, which is principally one year. Revenue from sale of perpetual licenses of credit processing software is generally recognized at the time the product master or first copy is delivered or transferred to and accepted by the customer. Software maintenance revenue is recognized ratably over the annual maintenance period. Revenue from services rendered within the professional services line of business is generally recognized as the services are performed. If uncertainty exists regarding customer acceptance of the product or service, revenue is not recognized until acceptance occurs. A large portion of annual research and data subscriptions and annual software maintenance are invoiced in the months of November, December and January.

Products and services offered within the MA segment are sold either stand-alone or together in various combinations. In instances where a multiple element arrangement includes software and non-software deliverables, revenue is allocated to the non-software deliverables and to the software deliverables, as a group, using the relative selling prices of each of the deliverables in the arrangement based on the aforementioned selling price hierarchy. Revenue is recognized for each element based upon the conditions for revenue recognition noted above.

If the arrangement contains more than one software deliverable, the arrangement consideration allocated to the software deliverables as a group is allocated to each software deliverable using VSOE. In the instances where the Company is not able to determine VSOE for all of the deliverables of an arrangement, the Company allocates the revenue to the undelivered elements equal to its VSOE and the residual revenue to the delivered elements. If the Company is unable to determine VSOE for an undelivered element, the Company defers all revenue allocated to the software deliverables until the Company has delivered all of the elements or when VSOE has been determined for the undelivered elements.

Prior to January 1, 2010 and pursuant to the previous accounting standards, the Company allocated revenue in a multiple element arrangement to each deliverable based on its relative fair value, or for software elements, based on VSOE. If the fair value was not available for an undelivered element, the revenue for the entire arrangement was deferred.

Accounts Receivable Allowances

Moody's records an allowance for estimated future adjustments to customer billings as a reduction of revenue, based on historical experience and current conditions. Such amounts are reflected as additions to the accounts receivable allowance. Additionally, estimates of uncollectible accounts are recorded as bad debt expense and are reflected as additions to the accounts receivable allowance. Billing adjustments and uncollectible account write-offs are recorded against the allowance. Moody's evaluates its accounts receivable allowance by reviewing and assessing historical collection and adjustment experience and the current status of customer accounts. Moody's also considers the economic environment of the customers, both from an industry and geographic perspective, in evaluating the need for allowances. Based on its analysis, Moody's adjusts its allowance as considered appropriate in the circumstances.

Operating Expenses

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

Restructuring

The Company's restructuring accounting follows the provisions of: Topic 712 of the ASC for severance relating to employee terminations, Topic 715 of the ASC for pension settlements and curtailments, and Topic 420 of the ASC for contract termination costs and other exit activities.

Selling, General and Administrative Expenses

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

Redeemable noncontrolling interest

The Company records its redeemable noncontrolling interest at fair value on the date of the related business combination transaction. The redeemable noncontrolling interest represents noncontrolling shareholders' interest in entities which are controlled but not wholly-owned by Moody's and for which Moody's obligation to redeem the minority shareholders' interest is in the control of the minority shareholders. Subsequent to the initial measurement, the redeemable noncontrolling interest is recorded at the greater of its redemption value or its carrying value at the end of each reporting period. At December 31, 2011, the carrying value of the redeemable noncontrolling interest exceeded its redemption value. Accordingly, the redeemable noncontrolling interest is recorded at its carrying value. If the redeemable noncontrolling interest is carried at its redemption value, the difference between the redemption value and the carrying value would be adjusted through capital surplus at the end of each reporting period. The Company also performs a quarterly assessment to determine if the aforementioned redemption value exceeds the fair value of the redeemable noncontrolling interest. If the redemption value of the redeemable noncontrolling interest were to exceed its fair value, the excess would reduce the net income attributable to Moody's shareholders.

Foreign Currency Translation

For all operations outside the U.S. where the Company has designated the local currency as the functional currency, assets and liabilities are translated into U.S. dollars using end of year exchange rates, and revenue and expenses are translated using average exchange rates for the year. For these foreign operations, currency translation adjustments are accumulated in a separate component of shareholders' equity.

Comprehensive Income

Comprehensive income represents the change in net assets of a business enterprise during a period due to transactions and other events and circumstances from non-owner sources including foreign currency translation impacts, net actuarial losses and net prior service costs related to pension and other post-retirement plans and derivative instruments. Accumulated other comprehensive (loss) income is primarily comprised of:

 

     December 31,  
(in millions)    2011     2010  
Currency translation adjustments, net of tax      $(23.3 )    $ 23.6  
Net actuarial losses and net prior service costs related to Post-Retirement Plans, net of tax      (81.2 )      (51.4
Realized and unrealized losses on cash flow hedges, net of tax      (3.0 )      (5.6
  

 

 

   

 

 

 

Total accumulated other comprehensive loss

     $(107.5     (33.4
  

 

 

   

 

 

 

Income Taxes

The Company accounts for income taxes under the asset and liability method in accordance with Topic 740 of the ASC. Therefore, income tax expense is based on reported income before income taxes, and deferred income taxes reflect the effect of temporary differences between the amounts of assets and liabilities that are recognized for financial reporting purposes and the amounts that are recognized for income tax purposes.

The Company classifies interest related to unrecognized tax benefits in interest expense in its consolidated statements of operations. Penalties are recognized in other non-operating expenses. For UTPs, the Company first determines whether it is more-likely-than-not (defined as a likelihood of more than fifty percent) that a tax position will be sustained based on its technical merits as of the reporting date, assuming that taxing authorities will examine the position and have full knowledge of all relevant information. A tax position that meets this more-likely-than-not threshold is then measured and recognized at the largest amount of benefit that is greater than fifty percent likely to be realized upon effective settlement with a taxing authority.

For certain of its non-U.S. subsidiaries, the Company has deemed its undistributed earnings relating to these subsidiaries to be indefinitely reinvested within its foreign operations. Accordingly, the Company has not provided deferred income taxes on these indefinitely reinvested earnings. It is not practicable to determine the amount of deferred taxes that might be required to be provided if such earnings were distributed in the future due to complexities in the tax laws and in the hypothetical calculations that would have to be made.

Fair Value of Financial Instruments

The Company's financial instruments include cash, cash equivalents, trade receivables and payables, all of which are short-term in nature and, accordingly, approximate fair value. Additionally, the Company invests in short-term investments that are carried at cost, which approximates fair value due to their short-term maturities. Also, the Company uses derivative instruments, as further described in Note 5, to manage certain financial exposures that occur in the normal course of business. These derivative instruments are carried at fair value on the Company's consolidated balance sheets. The Company also is subject to contingent consideration obligations related to certain of its acquisitions as more fully discussed in Note 7. These obligations are carried at their estimated fair value within the Company's consolidated balance sheets.

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

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

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

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

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

Concentration of Credit Risk

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

Cash equivalents consist of investments in high quality investment-grade securities within and outside the U.S. The Company manages its credit risk exposure by allocating its cash equivalents among various money market mutual funds and issuers of high- grade commercial paper. Short-term investments primarily consist of certificates of deposit and high-grade corporate bonds in Korea as of December 31, 2011 and 2010. The Company manages its credit risk exposure on cash equivalents and short-term investments by limiting the amount it can invest with any single issuer. No customer accounted for 10% or more of accounts receivable at December 31, 2011 or 2010.

Earnings per Share of Common Stock

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

Pension and Other Post-Retirement Benefits

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

The Company recognizes as an asset or liability in its statement of financial position the funded status of its defined benefit post-retirement plans, measured on a plan-by-plan basis. Changes in the funded status are recorded as part of other comprehensive income during the period the changes occur.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the period. Actual results could differ from those estimates. Estimates are used for, but not limited to, revenue recognition, accounts receivable allowances, income taxes, contingencies, valuation of long-lived and intangible assets, goodwill, pension and other post-retirement benefits, stock-based compensation, and depreciation and amortization rates for property and equipment and computer software.

The financial market volatility and poor economic conditions beginning in the third quarter of 2007 and continuing into 2011, both in the U.S. and in many other countries where the Company operates, have impacted and will continue to impact Moody's business. If such conditions were to recur they could have a material impact to the Company's significant accounting estimates discussed above, in particular those around accounts receivable allowances, valuations of investments in affiliates, goodwill and other acquired intangible assets, and pension and other post-retirement benefits.

Recently Issued Accounting Pronouncements

Adopted:

In January 2010, the FASB issued ASU No. 2010-06, "Improving Disclosures about Fair Value Measurements". The standard requires disclosure regarding transfers in and out of Level 1 and Level 2 classifications within the fair value hierarchy as well as requiring further detail of activity within the Level 3 category of the fair value hierarchy. The standard also requires disclosures regarding the fair value for each class of assets and liabilities, which is a subset of assets or liabilities within a line item in a company's balance sheet. Additionally, the standard requires further disclosures surrounding inputs and valuation techniques used in fair value measurements. The disclosures and clarifications of existing disclosures set forth in this ASU are effective for interim and annual reporting periods beginning after December 15, 2009, except for the additional disclosures regarding Level 3 fair value measurements, for which the effective date is for fiscal years and interim periods within those years beginning after December 15, 2010. The Company has fully adopted all provisions of this ASU as of January 1, 2011 and the implementation did not have a material impact on the Company's consolidated financial statements.

In December 2010, the FASB issued ASU No. 2010-29, "Disclosure of Supplementary Pro Forma Information for Business Combinations". The objective of this ASU is to address diversity in practice regarding proforma disclosures for revenue and earnings of the acquired entity. The amendments in this ASU specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments in this ASU also expand the supplemental pro forma disclosures under ASC Topic 805 to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments in this ASU are effective for fiscal years beginning on or after December 15, 2010. The Company will conform to the disclosure requirements set forth in this ASU for any future business combinations for which the impact to the consolidated statement of operations would be material.

In September 2011, the FASB issued ASU No. 2011-08, "Intangibles - Goodwill and Other (Topic 350)". The objective of this ASU is to simplify how entities test goodwill for impairment. This ASU permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350 of the ASC. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. Prior to the issuance of this ASU, an entity was required to test goodwill for impairment, on at least an annual basis, by comparing the fair value of a reporting unit with its carrying amount, including goodwill (step one). If the fair value of a reporting unit was less than its carrying amount, then the second step of the test would be performed to measure the amount of the impairment loss, if any. Under the amendments in this ASU, an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount. The amendments in this ASU are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011 with early adoption permitted. The Company adopted this ASU in the fourth quarter of 2011 and applied its provisions in assessing the potential goodwill impairment which is performed at least annually as of November 30.

Not yet adopted:

In May 2011, the FASB issued ASU No. 2011-04, "Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs". The objective of this ASU is to achieve common fair value measurement and disclosure requirements in U.S. GAAP and IFRS. The amendments in this ASU change the wording used to describe current requirements in U.S. GAAP for measuring fair value and for financial statement disclosure about fair value measurements. Some of the amendments in the ASU clarify the FASB's intent or change a particular principle or requirement pertaining to the application of existing fair value measurement requirements or for disclosing information about fair value measurements. The amendments in this ASU are required to be applied prospectively and are effective for fiscal years beginning after December 15, 2011. Early adoption is not permitted. The Company is currently evaluating the potential impact, if any, of the implementation of this ASU on its consolidated financial statements.

In June 2011, the FASB issued ASU No. 2011-05, "Presentation of Comprehensive Income". Under the amendments in this ASU, an entity has two options for presenting its total comprehensive income: to show its components along with the components of net income in a single continuous statement, or in two separate but consecutive statements. The amendments in this ASU are required to be applied retrospectively and are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted. In December 2011, the FASB issued ASU No. 2011-12, "Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income", which indefinitely defers the requirement in ASU No. 2011-05 to present on the face of the financial statements reclassification adjustments for items that are reclassified from OCI to net income in the statement(s) where the components of net income and the components of OCI are presented. All other provisions of this ASU, which are to be applied retrospectively, are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company intends to adopt all provisions that were not deferred beginning with its Form 10Q for the three months ended March 31, 2012. The adoption of this ASU will not have any impact on the Company's consolidated financial statements other than revising the presentation of the components of comprehensive income.

Reconciliation Of Weighted Average Shares Outstanding
Reconciliation Of Weighted Average Shares Outstanding
NOTE 3 RECONCILIATION OF WEIGHTED AVERAGE SHARES OUTSTANDING

Below is a reconciliation of basic to diluted shares outstanding:

 

     Year Ended December 31,  
     2011      2010      2009  
Basic      226.3        235.0        236.1  
Dilutive effect of shares issuable under stock-based compensation plans      3.1        1.6        1.7  
  

 

 

    

 

 

    

 

 

 
Diluted      229.4        236.6        237.8  
  

 

 

    

 

 

    

 

 

 

Antidilutive options to purchase common shares and restricted stock excluded from the table above

     10.6        15.5        15.6  
  

 

 

    

 

 

    

 

 

 

The calculation of diluted EPS requires certain assumptions regarding the use of both cash proceeds and assumed proceeds that would be received upon the exercise of stock options and vesting of restricted stock outstanding as of December 31, 2011, 2010 and 2009. These assumed proceeds include Excess Tax Benefits and any unrecognized compensation on the awards.

Short-Term Investments
Short-Term Investments
NOTE 4 SHORT-TERM INVESTMENTS

Short-term investments are securities with maturities greater than 90 days at the time of purchase that are available for use in the Company's operations in the next twelve months. The short-term investments, primarily consisting of certificates of deposit, are classified as held-to-maturity and therefore are carried at cost. The remaining contractual maturities of the short-term investments were one to seven months and one to six months as of December 31, 2011 and 2010, respectively. Interest and dividends are recorded into income when earned.

Derivative Instruments And Hedging Activities
Derivative Instruments And Hedging Activities
NOTE 5 DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Company is exposed to global market risks, including risks from changes in FX rates and changes in interest rates. Accordingly, the Company uses derivatives in certain instances to manage the aforementioned financial exposures that occur in the normal course of business. The Company does not hold or issue derivatives for speculative purposes.

 

Interest Rate Swaps

In the fourth quarter of 2010, the Company entered into interest rate swaps with a total notional amount of $300 million to convert the fixed interest rate on the Series 2005-1 Notes to a floating interest rate based on the 3-month LIBOR. The purpose of this hedge was to mitigate the risk associated with changes in the fair value of the Series 2005-1 Notes, thus the Company has designated these swaps as fair value hedges. The fair value of the swaps is reported in other assets at December 31, 2011 and in other liabilities at December 31, 2010 in the Company's consolidated balance sheets with a corresponding adjustment to the carrying value of the Series 2005-1 Notes. The changes in the fair value of the hedges and the underlying hedged item generally offset and the net cash settlements on the swaps are recorded each period within interest expense, net in the Company's consolidated statement of operations. The net interest income recognized in interest income (expense), net within the Company's consolidated statement of operations on these swaps was $4.1 million in 2011 and was immaterial in 2010.

In May 2008, the Company entered into interest rate swaps with a total notional amount of $150 million to protect against fluctuations in the LIBOR-based variable interest rate on the 2008 Term Loan. These interest rate swaps are designated as cash flow hedges. Accordingly, changes in the fair value of these swaps are recorded to other comprehensive income or loss, to the extent that the hedge is effective, and such amounts are reclassified to earnings in the same period during which the hedged transaction affects income. The fair value of the swaps is reported in other liabilities in the Company's consolidated balance sheets at December 31, 2011 and 2010.

Foreign Exchange Forwards and Options

The Company engaged in hedging activities to protect against FX risks from forecasted billings and related revenue denominated in the euro and the GBP. FX options and forward exchange contracts were utilized to hedge exposures related to changes in FX rates. As of December 31, 2010, these FX options and forward exchange contracts have matured and as of December 31, 2011 all realized gains and losses have been reclassified from AOCI into earnings. These FX options and forward exchange contracts were designated as cash flow hedges.

The Company also enters into foreign exchange forwards to mitigate the change in fair value on certain assets and liabilities denominated in currencies other than the entity's functional currency. These forward contracts are not designated as hedging instruments under the applicable sections of Topic 815 of the ASC. Accordingly, changes in the fair value of these contracts are recognized immediately in other non-operating income (expense), net in the Company's consolidated statements of operations along with the FX gain or loss recognized on the assets and liabilities denominated in a currency other than the entity's functional currency. These contracts have expiration dates at various times through March 2012.

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

 

     December 31,
2011
     December 31,
2010
 
Notional amount of Currency Pair:      
Contracts to purchase USD with euros    $   27.5      $   11.7  
Contracts to sell USD for euros    $ 47.7      $ 55.5  
Contracts to purchase USD with GBP    $ 2.4      $   
Contracts to sell USD for GBP    $ 17.6      $ 20.7  
Contracts to purchase USD with other foreign currencies    $ 3.2      $ 5.4  
Contracts to sell USD for other foreign currencies    $ 7.6      $ 19.5  
Contracts to purchase euros with other foreign currencies    13.6      10.5  
Contracts to purchase euros with GBP    1.6        
Contracts to sell euros for GBP    7.2      14.0  

The net gains (losses) on these instruments recognized in other non-operating income (expense), net in the Company's consolidated statements of operations for the years ended December 31, 2011, 2010 and 2009 were ($1.4) million, ($2.2) million and $3.0 million, respectively.

 

The table below shows the classification between assets and liabilities on the Company's consolidated balance sheets of the fair value of derivative instruments:

 

     Fair Value of Derivative Instruments  
     Asset      Liability  
     December 31,
2011
     December 31,
2010
     December 31,
2011
     December 31,
2010
 
Derivatives designated as accounting hedges:            
Interest rate swaps    $ 11.5      $       $ 4.5      $ 12.2  
  

 

 

    

 

 

    

 

 

    

 

 

 
Derivatives not designated as accounting hedges:            
FX forwards on certain assets and liabilities      1.1        2.0        2.3        0.7  
  

 

 

    

 

 

    

 

 

    

 

 

 
Total    $ 12.6      $ 2.0      $ 6.8      $ 12.9  
  

 

 

    

 

 

    

 

 

    

 

 

 

The fair value for the interest rate swaps is included in other assets and other liabilities in the consolidated balance sheets at December 31, 2011 and in other liabilities at December 31, 2010. The fair value of the FX forwards is included in other current assets and account payable and accrued liabilities as of December 31, 2011 and December 31, 2010, respectively. Refer to Note 9 for further information on the fair value of derivatives.

The following table provides information on gains (losses) on the company's cash flow hedges:

 

Derivatives in Cash Flow

Hedging Relationships

   Amount of
Gain/(Loss)
Recognized in
AOCI on
Derivative
(Effective
Portion)
    Location of
Gain/(Loss)
Reclassified from
AOCI into
Income
(Effective
Portion)
     Amount of
Gain/(Loss)
Reclassified
from AOCI
into Income
(Effective
Portion)
    Location of Gain/(Loss)
Recognized in Income
on Derivative
(Ineffective Portion and
Amount Excluded from
Effectiveness Testing)
   Amount of
Gain/(Loss)
Recognized in
Income on
Derivative
(Ineffective
Portion
and Amount
Excluded from
Effectiveness
Testing)
 
     Year Ended
December 31,
           Year Ended
December 31,
         Year Ended
December 31,
 
     2011     2010            2011     2010          2011      2010  
FX options    $      $        Revenue       $ (0.2   $ (1.0   Revenue    $       $   
Interest rate swaps      (0.6     (3.1     Interest expense         (3.0     (2.8   N/A                
  

 

 

   

 

 

      

 

 

   

 

 

      

 

 

    

 

 

 
Total    $ (0.6   $ (3.1      $ (3.2   $ (3.8      $       $   
  

 

 

   

 

 

      

 

 

   

 

 

      

 

 

    

 

 

 

All gains and losses on derivatives designated as cash flow hedges for accounting purposes are initially recognized through AOCI. Realized gains and losses reported in AOCI are reclassified into earnings (into revenue for the FX options and into interest expense, net for the interest rate swaps) as the underlying transaction is recognized.

The cumulative amount of unrecognized hedge losses recorded in AOCI is as follows:

 

     Unrecognized
Losses, net of tax
 
     December 31,
2011
    December 31,
2010
 
FX options    $      $ (0.2
Interest rate swaps      (3.0     (5.4
  

 

 

   

 

 

 

Total

   $ (3.0   $ (5.6
  

 

 

   

 

 

 

 

Property And Equipment, Net
Property And Equipment, Net
NOTE 6 PROPERTY AND EQUIPMENT, NET

Property and equipment, net consisted of:

 

     December 31,  
     2011     2010  
Office and computer equipment (3 – 20 year estimated useful life)    $ 106.8     $ 92.2  
Office furniture and fixtures (5 – 10 year estimated useful life)      40.6       40.2  
Internal-use computer software (3 – 5 year estimated useful life)      241.8       199.1  
Leasehold improvements (3 – 17 year estimated useful life)      195.8       188.6  
  

 

 

   

 

 

 

Total property and equipment, at cost

     585.0       520.1  
Less: accumulated depreciation and amortization      (258.2     (200.8
  

 

 

   

 

 

 
Total property and equipment, net    $ 326.8     $ 319.3  
  

 

 

   

 

 

 

Depreciation and amortization expense related to the above assets was $58.7 million, $49.9 million, and $47.7 million for the years ended December 31, 2011, 2010 and 2009, respectively.

Acquisitions
Acquisitions
NOTE 7 ACQUISITIONS

All of the acquisitions described below were accounted for using the purchase method of accounting whereby the purchase price is allocated first to the net assets of the acquired entity based on the fair value of its net assets. Any excess of the purchase price over the fair value of the net assets acquired is recorded to goodwill. These acquisitions are discussed below in more detail.

Barrie & Hibbert Limited

On December 16, 2011, a subsidiary of the Company acquired Barrie & Hibbert Limited, a provider of risk management modeling tools for insurance companies worldwide. B&H operates within the RMS LOB of MA, broadening MA's suite of software solutions for the insurance and pension sectors.

The aggregate purchase price was $79.5 million in cash payments to the sellers and was funded with cash on hand.

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

 

Current assets       $ 15.2  
Property and equipment, net         0.7  
Intangible assets:      

Trade name (5 year weighted average life)

   $ 1.9     

Client relationships (18 year weighted average life)

     10.4     

Software (7 year weighted average life)

     16.8      

Other intangibles (2 year weighted average life)

     0.1     
  

 

 

    

Total intangible assets (11 year weighted average life)

        29.2  
Goodwill         52.5  
Liabilities assumed         (18.1
     

 

 

 
Net assets acquired       $ 79.5  
     

 

 

 

Current assets include acquired cash of approximately $10 million. The acquired goodwill, which has been assigned to the MA segment, will not be amortized and will not be deductible for tax. B&H operates within the RMS reporting unit and goodwill associated with the acquisition was part of the RMS reporting unit within the MA segment as of the acquisition date.

The Company incurred approximately $1 million of costs directly related to the acquisition of B&H during the year ended December 31, 2011. These costs, which primarily consisted of consulting and legal fees, are recorded within selling, general and administrative expenses in the Company's consolidated statements of operations.

The amount of revenue and expenses included in the Company's consolidated statement of operations for B&H from the acquisition date through December 31, 2011 was not material. The near term impact to operations and cash flow from this acquisition is not expected to be material to the Company's consolidated financial statements. Due to the close proximity of this acquisition to December 31, 2011, the Company is still in the process of evaluating the fair values of the assets and liabilities acquired relating to B&H.

Copal Partners

On November 4, 2011, subsidiaries of the Company acquired a 67% interest in Copal Partners Limited and a 100% interest in two related entities that were wholly-owned by Copal Partners Limited (together herein referred to as "Copal"). These acquisitions resulted in the Company obtaining an approximate 75% economic ownership interest in the Copal group of companies. Copal is a provider of outsourced research and consulting services to the financial services industry. Copal will operate within the professional services LOB of MA and will complement the research, data, software and education services offered by MA. The table below details the total consideration transferred to the sellers of Copal:

 

Cash paid    $ 125.0  
Put/call option for non-controlling interest      61.2  
Contingent consideration liability assumed      6.8  
  

 

 

 
Total fair value of consideration transferred    $ 193.0  
  

 

 

 

In conjunction with the purchase, the Company and the non-controlling shareholders entered into a put/call option agreement whereby the Company has the option to purchase from the non-controlling shareholders and the non-controlling shareholders have the option to sell to the Company the remaining 33% ownership interest of Copal Partners Limited at a later date based on a strike price to be calculated on pre-determined formulas using a combination of revenue and EBITDA multiples when exercised. The derivation of the estimated put/call option strike price on the date of acquisition utilized a Monte Carlo simulation model. This model contemplated multiple scenarios which simulated certain of Copal's revenue, EBITDA margins and equity values to estimate the present value of the expected strike price of the option. There is no limit as to the amount of the strike price on the put/call option. It is estimated that the exercise of the put/call arrangement will take place in the next three to six years based on a Monte Carlo simulation. This put/call arrangement expires on the sixth anniversary date of the acquisition.

Additionally, as part of the consideration transferred, the Company issued a note payable of $14.2 million to the sellers which is more fully discussed in Note 15 to these consolidated financial statements. The Company has a right to reduce the amount payable under this note with payments that it may be required to make relating to certain UTPs associated with the acquisition, which is more fully discussed below. Accordingly, this note payable is not carried on the consolidated balance sheet as of December 31, 2011 in accordance with certain indemnification arrangements relating to these UTP's which are more fully discussed below.

Also, the purchase agreement contains several different provisions for contingent cash payments to the sellers valued at $6.8 million at the acquisition date. A portion of the contingent cash payments are based on revenue and EBITDA growth for certain of the acquired Copal entities. This growth is calculated by comparing revenue and EBITDA in the year immediately prior to the exercise of the aforementioned put/call option to revenue and EBITDA in the year ended December 31, 2011. There are no limitations set forth in the acquisition agreement relating to the amount payable under this contingent payment arrangement and payments under the arrangement, if any, would be made upon the exercise of the put/call option. Other contingent cash payments are based on the achievement of revenue targets for 2012 and 2013, with certain limits on the amount of revenue that can be applied to the derivation of the contingent payment. Each of these contingent payments has a maximum payout of $2.5 million. The Company has recorded the fair value of these arrangements within other liabilities in its consolidated balance sheet. Further information on the inputs and methodologies utilized to derive the fair value of these contingent consideration liabilities are discussed in Note 9.

The Company incurred approximately $7 million of costs directly related to the acquisition of Copal during the year ended December 31, 2011. These costs which primarily consisted of consulting and legal fees, are recorded within selling, general and administrative expenses in the Company's consolidated statements of operations.

 

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

 

Current assets       $ 15.5  
Property and equipment, net         0.5  
Intangible assets:      

Trade name (15 year weighted average life)

   $ 8.6     

Client relationships (16 year weighted average life)

     66.2     

Other (2 year weighted average life)

     4.4     
  

 

 

    

Total intangible assets (15 year weighted average life)

        79.2  
Goodwill         143.4  
Indemnification asset         12.0   
Other assets         6.6  
Liabilities assumed         (64.2
     

 

 

 
Net assets acquired       $ 193.0  
     

 

 

 

Current assets include acquired cash of approximately $7 million. The acquired goodwill, which has been assigned to the MA segment, will not be amortized and will not be deductible for tax.

In connection with the acquisition, the Company assumed liabilities relating to UTPs, which are included in the liabilities assumed in the table above and for which the sellers have contractually indemnified the Company against any potential payments. Under the terms of the acquisition agreement, a portion of the purchase price was remitted to an escrow agent for certain uncertainties associated with the transaction. Additionally, the Company is contractually indemnified for payments in excess of the amount paid into escrow via a reduction to the amount payable under the aforementioned note payable issued to the sellers and the amount payable under the put/call option to acquire the remaining 33% interest in the Copal entity not wholly-owned. Accordingly, the Company carries an indemnification asset on its consolidated balance sheet at December 31, 2011 for which a portion has been offset by the note payable and the put/call arrangement in the amount of $14.2 million and $6.8 million, respectively.

As of December 31, 2011, Copal operates as its own reporting unit. Accordingly, goodwill associated with the acquisition is part of the Copal reporting unit within the MA segment. Copal will remain a separate reporting unit until MA management completes its assessment on how to integrate the entity into the MA operating segment.

The amount of revenue and expenses for Copal from the acquisition date through December 31, 2011 was not material. The near term impact to operations and cash flow from this acquisition is not expected to be material to the Company's consolidated financial statements. Due to the close proximity of this acquisition to December 31, 2011, the Company is still in the process of evaluating the fair values of the assets and liabilities acquired relating to Copal.

KIS Pricing, Inc.

On May 6, 2011, a subsidiary of the Company acquired a 16% additional direct equity investment in KIS Pricing from a shareholder with a non-controlling interest in the entity. The additional interest adds to the Company's existing indirect ownership of KIS Pricing through its controlling equity stake in Korea Investors Service (KIS). The aggregate purchase price was not material and the near term impact to operations and cash flow is not expected to be material. KIS Pricing is part of the MA segment.

CSI Global Education, Inc.

On November 18, 2010, a subsidiary of the Company acquired CSI Global Education, Inc., Canada's leading provider of financial learning, credentials, and certification. CSI operates within MA, strengthening the Company's capabilities for delivering credit and other financial training programs to financial institutions worldwide and bolsters Moody's efforts to serve as an essential resource to financial market participants.

The aggregate purchase price was $151.4 million in net cash payments to the sellers. There is a 2.5 million Canadian dollar contingent cash payment which is dependent upon the achievement of a certain contractual milestone by January 2016. The Company has recognized the fair value of the contingent payment of $2.0 million as a long-term liability at the acquisition date using a discounted cash flow methodology which assumes that the entire 2.5 million Canadian dollar payment will be made by January 2016. That measure is based on significant inputs that are not observable in the market, which ASC 820 refers to as Level 3 inputs. Subsequent fair value changes, which will be measured quarterly, up to the ultimate amount paid, will be recognized in earnings. The purchase price was funded with cash on hand.

 

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

 

Current assets       $ 5.1  
Property and equipment, net         0.8  
Intangible assets:      

Trade name (30 year weighted average life)

   $ 9.0     

Client relationships (21 year weighted average life)

     63.1     

Trade secret (13 year weighted average life)

     5.8     
  

 

 

    

Total intangible assets (21 year weighted average life)

        77.9  
Goodwill         104.6  
Liabilities assumed         (37.0
     

 

 

 
Net assets acquired         151.4  
     

 

 

 

Current assets include acquired cash of approximately $2.8 million. The acquired goodwill, which has been assigned to the MA segment, will not be amortized and will not be deductible for tax. As of December 31, 2011, CSI operates as its own reporting unit and thus goodwill associated with the acquisition of CSI is all part of the CSI reporting unit within the MA segment. CSI will remain a separate reporting unit until MA management completes its evaluation as to how the acquired entity will be integrated into the MA segment.

The near term impact to operations and cash flow from this acquisition was not material to the Company's consolidated financial statements.

For all acquisitions completed during the year ended December 31, 2011, the Company has not presented proforma combined results for these acquisitions because the impact on the previously reported statements of operations would not have been material.

Goodwill And Other Acquired Intangible Assets
Goodwill And Other Acquired Intangible Assets
NOTE 8 GOODWILL AND OTHER ACQUIRED INTANGIBLE ASSETS

The following table summarizes the activity in goodwill:

 

     Year Ended December 31,  
     2011     2010  
     MIS     MA     Consolidated     MIS      MA      Consolidated  
Beginning balance    $ 11.4     $ 454.1     $ 465.5     $ 11.1      $ 338.1      $ 349.2  
Additions/adjustments             198.5       198.5               104.6        104.6  
Foreign currency translation adjustments      (0.4     (20.7     (21.1     0.3        11.4        11.7  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 
Ending balance    $ 11.0     $ 631.9     $ 642.9     $ 11.4      $ 454.1      $ 465.5  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

The additions/adjustments for the MA segment in the table above relate to the acquisitions of CSI in 2010 and Copal and B&H in 2011 as further described in Note 7 above.

 

Acquired intangible assets consisted of:

 

     December 31,  
     2011     2010  
Customer relationships    $ 217.9     $ 145.1  
Accumulated amortization      (58.6     (49.2
  

 

 

   

 

 

 

Net customer relationships

     159.3       95.9  
  

 

 

   

 

 

 
Trade secrets      31.3       31.4  
Accumulated amortization      (13.4     (10.9
  

 

 

   

 

 

 

Net trade secrets

     17.9       20.5  
  

 

 

   

 

 

 
Software      70.9       54.8  
Accumulated amortization      (25.1     (20.3
  

 

 

   

 

 

 

Net software

     45.8       34.5  
  

 

 

   

 

 

 
Trade names      28.1        17.9   
Accumulated amortization      (9.0     (8.3
  

 

 

   

 

 

 

Net trade names

     19.1        9.6   
  

 

 

   

 

 

 
Other      24.6       19.6  
Accumulated amortization      (13.1     (11.3
  

 

 

   

 

 

 

Net other

     11.5       8.3  
  

 

 

   

 

 

 

Total

   $ 253.6     $ 168.8  
  

 

 

   

 

 

 

The amounts as of December 31, 2011 in the table above include intangible assets acquired in the 2011 purchases of Copal and B&H, and the amounts as of December 31, 2010 include intangible assets acquired in the 2010 purchase of CSI, as more fully discussed in Note 7 above. Other intangible assets primarily consist of databases and covenants not to compete. Amortization expense relating to intangible assets is as follows:

 

     Year Ended December 31,  
     2011      2010      2009  
Amortization Expense    $ 20.5      $ 16.4      $ 16.4  

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

 

Year Ended December 31,

      
2012    $ 28.0  
2013      27.2  
2014      22.1  
2015      20.7  
2016      19.5  
Thereafter      136.1  

Intangible assets are reviewed for recoverability whenever circumstances indicate that the carrying amount may not be recoverable. If the estimated undiscounted future cash flows are lower than the carrying amount of the related asset, a loss is recognized for the difference between the carrying amount and the estimated fair value of the asset. Goodwill is analyzed for impairment annually or more frequently if circumstances indicate the assets may be impaired.

For the years ended December 31, 2011, 2010 and 2009 there were no impairments to goodwill or to intangible assets except for an immaterial $0.2 million impairment of intangible assets in 2009 which was included in the restructuring charge as further discussed in Note 11 below. The Company measured the amount of the impairment loss by comparing the carrying amount of the related assets to their fair value. The fair value was determined by utilizing the expected present value technique which uses multiple cash flow scenarios that reflect the range of possible outcomes and a risk-free rate.

Fair Value
Fair Value
NOTE 9 FAIR VALUE

The table below presents information about items, which are carried at fair value on a recurring basis at December 31, 2011 and 2010:

 

The following table summarizes the changes in the fair value of the Company's Level 3 liabilities:

 

     Contingent Consideration
Year Ended  December 31,
 
     2011     2010  
Balance as of January 1    $ 2.1     $   
Issuances      7.4       2.0  
Settlements      (0.3       
Total losses (realized and unrealized):     

Included in earnings

     0.3         
Foreign currency translation adjustments      (0.4     0.1  
  

 

 

   

 

 

 
Balance as of December 31    $ 9.1     $ 2.1  
  

 

 

   

 

 

 

The losses included in earnings in the table above are recorded within SG&A expenses in the Company's consolidated statement of operations. During the year ended December 31, 2011, there were gains of $0.3 million relating to contingent consideration obligations that were settled during the year. The remaining losses of $0.6 million relate to contingent consideration obligations outstanding at December 31, 2011.

The following are descriptions of the methodologies utilized by the Company to estimate the fair value of its derivative contracts and contingent consideration obligations:

Derivatives:

In determining the fair value of the derivative contracts in the table above, the Company utilizes industry standard valuation models when active market quotes are not available. Where applicable, these models project future cash flows and discount the future amounts to a present value using spot rates, forward points, currency volatilities, interest rates as well as the risk of non-performance of the Company and the counterparties with whom it has derivative contracts. The Company has established strict counterparty credit guidelines and only enters into transactions with financial institutions that adhere to these guidelines. Accordingly, the risk of counterparty default is deemed to be minimal.

Contingent consideration:

At December 31, 2011, the Company has contingent consideration obligations related to the acquisitions of CSI and Copal which are based on certain financial and non-financial metrics set forth in the acquisition agreements. These obligations are measured using Level 3 inputs as defined in the ASC. The Company has recorded the obligations for these contingent consideration arrangements on the date of each respective acquisition based on management's best estimates of the achievement of the metrics.

The contingent consideration obligation for CSI is based on the achievement of a certain contractual milestone by January 2016. The Company utilizes a discounted cash flow methodology to value this obligation. The future expected cash flow for this obligation is discounted using an interest rate available to borrowers with similar credit risk profiles to that of the Company. The most significant estimate involved in the measurement of this obligation is the probability that the milestone will be reached by January 2016. At December 31, 2011, the Company expects that this milestone will be reached by the aforementioned date.

There are several contingent consideration obligations relating to the acquisition of Copal which are more fully discussed in Note 7. The Company utilizes discounted cash flow methodologies to value these obligations. The expected future cash flows for these obligations are discounted using a risk-free interest rate plus a credit spread based on the option adjusted spread of the Company's publicly traded debt as of the valuation date. The most significant estimate involved in the measurement of these obligations is the projected future results of the applicable Copal entities. Also, for the portion of the obligations which are dependent upon the exercise of the call/put option, the Company has utilized a Monte Carlo simulation model to estimate when the option will be exercised, thus triggering the payment of contingent consideration.

Other Balance Sheet Information
Other Balance Sheet Information
NOTE 10 OTHER BALANCE SHEET INFORMATION

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

 

     December 31,  
     2011      2010  
Other current assets:      

Prepaid taxes

   $ 27.6      $ 82.3  

Prepaid expenses

     44.6        39.8  

Other

     5.4        5.8  
  

 

 

    

 

 

 

Total other current assets

   $ 77.6      $ 127.9  
  

 

 

    

 

 

 
     December 31,  
     2011      2010  
Other assets:      

Investments in joint ventures

   $ 37.2      $ 30.8  

Deposits for real-estate leases

     12.2        11.4  

Other

     32.6        13.6  
  

 

 

    

 

 

 

Total other assets

   $ 82.0      $ 55.8  
  

 

 

    

 

 

 
     December 31,  
     2011      2010  
Accounts payable and accrued liabilities:      

Salaries and benefits

   $ 73.8      $ 69.6  

Incentive compensation

     114.1        116.8  

Profit sharing contribution

     7.1        12.6  

Customer credits, advanced payments and advanced billings

     17.6        15.3  

Dividends

     38.2        27.9  

Professional service fees

     50.5        50.6  

Interest accrued on debt

     15.1        17.6  

Accounts payable

     16.4        14.3  

Income taxes (see Note 14)

     23.4        26.9  

Restructuring (see Note 11)

     0.2        0.7  

Deferred rent-current portion

     1.7        2.7  

Pension and other post retirement employee benefits (see Note 12)

     3.8        9.5  

Interest accrued on UTPs

     29.7          

Other

     60.7        49.9  
  

 

 

    

 

 

 

Total accounts payable and accrued liabilities

   $ 452.3      $ 414.4  
  

 

 

    

 

 

 
     December 31,  
     2011      2010  
Other liabilities:      

Pension and other post retirement employee benefits (see Note 12)

   $ 187.5      $ 132.8  

Deferred rent-non-current portion

     108.8        100.4  

Interest accrued on UTPs

     11.8        33.7  

Legacy and other tax matters

     52.6        57.3  

Other

     44.1        38.1  
  

 

 

    

 

 

 

Total other liabilities

   $ 404.8      $ 362.3  
  

 

 

    

 

 

 

 

REDEEMABLE NONCONTROLLING INTEREST:

The following table shows changes in the redeemable noncontrolling interest related to the acquisition of Copal for the year ended December 31, 2011:

 

(in millions)    Redeemable
Noncontrolling
Interest
 
Balance January 1, 2011    $   

Fair value at date of acquisition

     68.0  

Reduction due to right of offset for UTPs *

     (6.8

Net earnings

     1.0  

Distributions

       

Translation adjustment

     (1.7
  

 

 

 
Balance December 31, 2011    $ 60.5  
  

 

 

 

 

Restructuring
Restructuring
NOTE 11 RESTRUCTURING

On March 27, 2009 the Company approved the 2009 Restructuring Plan to reduce costs in response to a strategic review of its business in certain jurisdictions and weak global economic and market conditions. The 2009 Restructuring Plan consisted of headcount reductions of approximately 150 positions representing approximately 4% of the Company's workforce at December 31, 2008 as well as contract termination costs and the divestiture of non-strategic assets. The Company's plan included closing offices in South Bend, Indiana; Jakarta, Indonesia and Taipei, Taiwan. There was $0.2 million in accelerated amortization for intangible assets recognized in the first quarter of 2009 relating to the closure of the Jakarta, Indonesia office. The cumulative amount of expense incurred from inception through December 31, 2011 for the 2009 Restructuring Plan was $14.7 million. The 2009 Restructuring Plan was substantially complete at September 30, 2009.

On December 31, 2007, the Company approved the 2007 Restructuring Plan that reduced global headcount by approximately 275 positions, or approximately 7.5% of the workforce at December 31, 2007, in response to the Company's reorganization announced in August 2007 and a decline in the then current and anticipated issuance of rated debt securities in some market sectors. Included in the 2007 Restructuring Plan was a reduction of staff as a result of: (i) consolidation of certain corporate staff functions, (ii) the integration of businesses comprising MA and (iii) an anticipated decline in new securities issuance in some market sectors. The 2007 Restructuring Plan also called for the termination of technology contracts as well as the outsourcing of certain technology functions. The cumulative amount of expense incurred from inception through December 31, 2011 for the 2007 Restructuring Plan was $50.4 million. The 2007 Restructuring Plan was substantially complete as of December 31, 2008.

Total expenses included in the accompanying consolidated statements of operations are as follows:

 

     Year Ended December 31,  
     2011      2010     2009  
2007 Restructuring Plan    $       $ 1.0     $ 1.9  
2009 Restructuring Plan              (0.9     15.6  
  

 

 

    

 

 

   

 

 

 

Total

   $       $ 0.1     $ 17.5  
  

 

 

    

 

 

   

 

 

 

The expense in 2010 and 2009 related to the 2007 Restructuring Plan and the expense in 2010 related to the 2009 Restructuring Plan primarily reflects adjustments to previous estimates.

As of December 31, 2011 and 2010, the remaining liabilities related to both the 2007 Restructuring Plan and the 2009 Restructuring Plan were immaterial.

Pension And Other Post-Retirement Benefits
Pension And Other Post-Retirement Benefits
NOTE 12 PENSION AND OTHER POST-RETIREMENT BENEFITS

U.S. Plans

Moody's maintains funded and unfunded noncontributory Defined Benefit Pension Plans. The U.S. plans provide defined benefits using a cash balance formula based on years of service and career average salary or final average pay for selected executives. The Company also provides certain healthcare and life insurance benefits for retired U.S. employees. These post-retirement healthcare plans are contributory with participants' contributions adjusted annually; the life insurance plans are noncontributory. Moody's funded and unfunded U.S. pension plans, the U.S. post-retirement healthcare plans and the U.S. post-retirement life insurance plans are collectively referred to herein as the "Post-Retirement Plans". Effective at the Distribution Date, Moody's assumed responsibility for the pension and other post-retirement benefits relating to its active employees. New D&B has assumed responsibility for the Company's retirees and vested terminated employees as of the Distribution Date.

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

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

 

     Pension Plans     Other Post-Retirement Plans  
     2011     2010     2011     2010  
Change in Benefit Obligation:         

Benefit obligation, beginning of the period

   $ (242.5 )    $ (213.0   $ (15.6 )    $ (13.1

Service cost

     (15.1 )      (13.5     (1.1 )      (0.9

Interest cost

     (13.1 )      (12.0     (0.8 )      (0.8

Plan participants' contributions

                   (0.2 )      (0.2

Benefits paid

     13.6       10.5       0.8       0.7  

Actuarial gain (loss)

     (4.9 )      7.4       (0.9 )      (0.4

Assumption changes

     (36.8 )      (21.9     (2.4 )      (0.9
  

 

 

   

 

 

   

 

 

   

 

 

 
Benefit obligation, end of the period      (298.8 )     (242.5     (20.2     (15.6
  

 

 

   

 

 

   

 

 

   

 

 

 
Change in Plan Assets:         

Fair value of plan assets, beginning of the period

     120.4        108.2                

Actual return on plan assets

     0.8        13.9              

Benefits paid

     (13.6 )      (10.5     (0.8 )      (0.7

Employer contributions

     25.4        8.8       0.6       0.5  

Plan participants' contributions

                   0.2       0.2  
  

 

 

   

 

 

   

 

 

   

 

 

 

Fair value of plan assets, end of period

     133.0       120.4                
  

 

 

   

 

 

   

 

 

   

 

 

 
Funded status of the plans      (165.8 )      (122.1     (20.2 )      (15.6
  

 

 

   

 

 

   

 

 

   

 

 

 
Amounts Recorded on the Consolidated Balance Sheets:         

Pension and post-retirement benefits liability-current

     (3.0 )      (8.9     (0.8 )      (0.6

Pension and post-retirement benefits liability-non current

     (162.8 )      (113.2     (19.4 )      (15.0
  

 

 

   

 

 

   

 

 

   

 

 

 
Net amount recognized    $ (165.8 )    $ (122.1   $ (20.2 )   $ (15.6
  

 

 

   

 

 

   

 

 

   

 

 

 
Accumulated benefit obligation, end of the period    $ (256.1   $ (214.6    
  

 

 

   

 

 

     

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

 

     December 31,  
     2011      2010  
Aggregate projected benefit obligation    $ 298.8       $ 242.5  
Aggregate accumulated benefit obligation    $ 256.1       $ 214.6  
Aggregate fair value of plan assets    $ 133.0       $ 120.4  

 

The following table summarizes the pre-tax net actuarial losses and prior service cost recognized in AOCI for the Company's Post-Retirement Plans as of December 31:

 

     Pension Plans      Other Post-Retirement Plans  
     2011     2010      2011      2010  
Net actuarial (losses)    $ (127.1   $ (80.9    $ (6.1    $ (3.1
Net prior service costs      (4.7     (5.3                
  

 

 

   

 

 

    

 

 

    

 

 

 

Total recognized in AOCI- pretax

   $ (131.8 )   $ (86.2    $ (6.1 )    $ (3.1
  

 

 

   

 

 

    

 

 

    

 

 

 

The following table summarizes the estimated pre-tax net actuarial losses and prior service cost for the Company's Post-Retirement Plans that will be amortized from AOCI and recognized as components of net periodic expense during the next fiscal year:

 

     Pension Plans      Other Post-Retirement Plans  
Net actuarial losses    $ 8.9       $ 0.5   
Net prior service costs      0.7           
  

 

 

    

 

 

 

Total to be recognized as components of net periodic expense

   $ 9.6      $ 0.5  
  

 

 

    

 

 

 

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

 

     Pension Plans     Other Post-Retirement Plans  
     2011     2010     2009     2011      2010      2009  
Components of net periodic expense               
Service cost    $ 15.1     $ 13.5     $ 12.1     $ 1.1      $ 0.9      $ 0.8  
Interest cost      13.1       12.0       9.9       0.8        0.8        0.7  
Expected return on plan assets      (11.9     (10.5     (10.0                       
Amortization of net actuarial loss from earlier periods      5.0        2.8       0.6       0.3        0.1          
Amortization of net prior service costs from earlier periods      0.6       0.7       0.4                         
Settlement charges      1.6       1.3                                
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 
Net periodic expense    $ 23.5     $ 19.8     $ 13.0     $ 2.2      $ 1.8      $ 1.5  
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

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

 

     Pension Plans      Other Post-Retirement Plans  
   2011     2010      2011      2010  
Amortization of net actuarial losses    $ 5.0     $ 2.8      $ 0.3       $ 0.1  
Amortization of prior service costs      0.6       0.7                  
Accelerated recognition of actuarial loss due to settlement      1.6        1.3                  
Net actuarial (loss) arising during the period      (52.8     (11.2      (3.3      (1.2
  

 

 

   

 

 

    

 

 

    

 

 

 

Total recognized in Other Comprehensive Income – pre-tax

   $ (45.6 )   $ (6.4    $ (3.0 )    $ (1.1
  

 

 

   

 

 

    

 

 

    

 

 

 

 

ADDITIONAL INFORMATION:

Assumptions – Post-Retirement Plans

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

 

     Pension Plans     Other Post-Retirement Plans  
     2011     2010     2011     2010  
Discount rate      4.25     5.39     4.05     5.15
Rate of compensation increase      4.00     4.00              

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

 

     Pension Plans     Other Post-Retirement Plans  
   2011     2010     2009     2011     2010     2009  
Discount rate      5.39     5.95     6.00     5.15     5.75     6.25
Expected return on plan assets      8.35     8.35     8.35                     
Rate of compensation increase      4.00     4.00     4.00                     

For 2011, the Company continued to use an expected rate of return on assets of 8.35% for Moody's funded pension plan. The expected rate of return on plan assets represents the Company's best estimate of the long-term return on plan assets and is determined by using a building block approach, which generally weighs the underlying long-term expected rate of return for each major asset class based on their respective allocation target within the plan portfolio. As the assumption reflects a long-term time horizon, the plan performance in any one particular year does not, by itself, significantly influence the Company's evaluation. For 2012, the expected rate of return used in calculating the net periodic benefit costs is 7.85%, which reflects the Company's most recent view of long-term capital market outlook and is commensurate with the returns expected to be generated by the plan assets under Company's current investment strategy, net of expenses.

Assumed Healthcare Cost Trend Rates at December 31:

 

     2011     2010     2009  
     Pre-age 65     Post-age 65     Pre-age 65     Post-age 65     Pre-age 65     Post-age 65  

Healthcare cost trend rate assumed

for the following year

     7.4     8.4     7.9     8.9     8.4     9.4

Ultimate rate to which the cost trend

rate is assumed to decline (ultimate

trend rate)

  

 

5.0%

 

    5.0%        5.0%   
Year that the rate reaches the ultimate trend rate      2020        2020        2020   

The assumed health cost trend rate reflects different expectations for the medical and prescribed medication components of health care costs for pre and post-65 retirees. As the Company subsidies for retiree healthcare coverage are capped at the 2005 level, for the majority of the post-retirement health plan participants, retiree contributions are assumed to increase at the same rate as the healthcare cost trend rates. As such, a one percentage-point increase or decrease in assumed healthcare cost trend rates would not have affected total service and interest cost and would have a minimal impact on the post-retirement benefit obligation.

In March 2010, the Patient Protection and Affordable Care Act (the "Act") and the related reconciliation measure, which modifies certain provisions of the Act, were signed into law. The Act repeals the current rule permitting deduction of the portion of the drug coverage expense that is offset by the Medicare Part D subsidy. The provision of the Act is effective for taxable years beginning after December 31, 2010 and the reconciliation measure delays the aforementioned repeal of the drug coverage expense reduction by two years to December 31, 2012. The Company has accounted for the enactment of the two laws in the first quarter of 2010, for which the impact to the Company's income tax expense and net income was immaterial. Other key provisions of the Act, such as coverage mandates, early retiree reinsurance program, and excise tax are also considered and their impacts on the benefit plan obligation of the Company's Other Post-Retirement Plans are deemed immaterial.

Plan Assets

Moody's investment objective for the assets in the funded pension plan is to earn total returns that will minimize future contribution requirements over the long-term within a prudent level of risk. The Company works with its independent investment consultants to determine asset allocation targets for its pension plan investment portfolio based on its assessment of business and financial conditions, demographic and actuarial data, funding characteristics, and related risk factors. Other relevant factors, including historical and forward –looking views of inflation and capital market returns, are also considered. Risk management practices include monitoring of the plan, diversification across asset classes and investment styles, and periodic rebalancing toward asset allocation targets. The Company's monitoring of the plan includes ongoing reviews of investment performance, annual liability measurements, periodic asset/liability studies, and investment portfolio reviews.

Prior to 2009, the Company's target asset allocation was approximately 70% in diversified U.S. and non-U.S. equity securities, 20% in long-duration investment grade government and corporate bonds, and 10% in private real estate funds. In 2009, the Company revised its target asset allocation to approximately 60% (range of 50% to 70%) in equity securities, 30% (range of 25% to 35%) in fixed income securities and 10% (range of 7% to 13%) in other investments based on the Company's pension asset-liability study conducted. The revised asset allocation policy is expected to earn a return comparable to the Company's prior allocation target over the long-term and the Company has rebalanced its pension plan assets in 2010 to comply with the revised policy.

In accordance with the revised asset allocation policy, the funded plan will use a combination of active and passive investment strategies and different investment styles for its investment portfolios within each asset class. The plan's equity investments are diversified across U.S. and non-U.S. stocks of small, medium and large capitalization. The plan's fixed income investments are diversified principally across U.S. and non-U.S. government and corporate bonds which are expected to help reduce plan exposure to interest rate variation and to better align assets with obligations. Approximately 3% of total plan assets may be invested in funds which invest in debts rated below investment grade and 3% may be invested in emerging market debt. The plan's other investments are made through private real estate and convertible securities funds and these investments are expected to provide additional diversification benefits and absolute return enhancement to the plan assets. The Company does not use derivatives to leverage the portfolio. The overall allocation is expected to help protect the plan's funded status while generating sufficiently stable returns over the long-term.

The fair value of the Company' pension plan assets by asset category at December 31, 2011, determined based on the hierarchy of fair value measurements as defined in Footnote 2, and at December 31, 2010 are as follows:

 

     Fair Value Measurement as of December 31, 2011  

Asset Category

   Balance      Level 1      Level 2      Level 3      % of total
assets
 
Cash and cash equivalents    $ 0.2       $       $ 0.2       $         0
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
Emerging markets equity fund      7.7       $ 7.7       $                 6
Common/collective trust funds – equity securities               

U.S. large-cap

     26.4                 26.4                 20

U.S. small and mid-cap

     9.3                 9.3                 7

International

     30.4                 30.4                 23
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
Total equity investments      73.8         7.7         66.1                 56
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
Common/collective trust funds – fixed income securities               

Long-term investment grade government/corporate bonds

     28.8                 28.8                 21

U.S. Treasury Inflation-Protected Securities (TIPs)

     7.6                 7.6                 6

Emerging markets bonds

     4.5                 4.5                 3

High yield bonds

     3.6                 3.6                 3
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
Total fixed-income investments      44.5                 44.5                 33
Common/collective trust funds – convertible securities      4.8                 4.8                 4
Private real estate fund      9.7                         9.7         7
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
Total other investment      14.5                 4.8         9.7         11
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
Total Assets    $ 133.0       $ 7.7      $ 115.6       $ 9.7         100
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     Fair Value Measurement as of December 31, 2010  

Asset Category

   Balance      Level 1      Level 2      Level 3      % of total
assets
 
Emerging markets equity fund    $ 10.3      $ 10.3      $       $         9
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
Common/collective trust funds – equity securities               

U.S. large-cap

     26.0                26.0                21

U.S. small and mid-cap

     9.6                9.6                8

International

     32.1                32.1                27
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
Total equity investments      78.0        10.3        67.7                65
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
Common/collective trust funds-fixed income securities               

Long-term investment grade government/corporate bonds

     18.8                18.8                15

U.S. Treasury Inflation-Protected Securities (TIPs)

     5.4                5.4                4

Emerging markets bonds

     3.2                3.2                3

High yield bonds

     3.3                3.3                3
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
Total fixed-income investments      30.7                30.7                25
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
Common/collective trust funds – convertible securities      3.4                3.4                3
Private real estate fund      8.3                        8.3        7
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
Total other investment      11.7                3.4        8.3        10
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
Total Assets    $ 120.4      $ 10.3      $ 101.8      $ 8.3        100
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash and cash equivalent is primarily comprised of investment in money market mutual funds. In determining fair value, Level 1 investments are valued based on quoted market prices in active markets. Investments in common/collective trust funds are valued using the net asset value (NAV) per unit in each fund. The NAV is based on the value of the underlying investments owned by each trust, minus its liabilities, and then divided by the number of shares outstanding. Common/collective trust funds are categorized in Level 2 to the extent that they are readily redeemable at their NAV or else they are categorized in Level 3 of the fair value hierarchy. The Company's investment in a private real estate fund is valued using the NAV per unit of funds that are invested in real property, and the real property is valued using independent market appraisals. Since appraisals involve utilization of significant unobservable inputs and the private real estate fund is not readily redeemable for cash, the Company's investment in the private real estate fund is categorized in Level 3.