MOODYS CORP /DE/, 10-Q filed on 8/2/2010
Quarterly Report
Document and Entity Information
6 Months Ended
Jun. 30, 2010
Document Type
10-Q 
Amendment Flag
FALSE 
Document Period End Date
06/30/2010 
Document Fiscal Year Focus
2010 
Document Fiscal Period Focus
Q2 
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 Common Stock, Shares Outstanding
234,300,000 
CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)
In Millions, except Per Share data
3 Months Ended
Jun. 30, 2010
6 Months Ended
Jun. 30, 2010
3 Months Ended
Jun. 30, 2009
6 Months Ended
Jun. 30, 2009
Revenue
$ 477.8 
$ 954.4 
$ 450.7 
$ 859.6 
Expenses
 
 
 
 
Operating
134.3 
270.2 
128.0 
250.4 
Selling, general and administrative
137.5 
266.3 
116.7 
226.9 
Restructuring
0.3 
(0.4)
3.1 
14.9 
Depreciation and amortization
15.2 
31.0 
15.7 
31.3 
Total
287.3 
567.1 
263.5 
523.5 
Operating income
190.5 
387.3 
187.2 
336.1 
Non-operating (expense) income, net
 
 
 
 
Interest (expense) income, net
(9.0)
(22.3)
(6.1)
(9.4)
Other non-operating (expense) income, net
(3.6)
(4.6)
(6.5)
(10.5)
Total non-operating (expense) income, net
(12.6)
(26.9)
(12.6)
(19.9)
Income before provision for income taxes
177.9 
360.4 
174.6 
316.2 
Provision for income taxes
55.3 
123.1 
63.6 
114.1 
Net income
122.6 
237.3 
111.0 
202.1 
Less: Net income attributable to noncontrolling interests
1.6 
2.9 
1.7 
2.6 
Net income attributable to Moody's
121.0 
234.4 
109.3 
199.5 
Earnings per share attributable to Moody's common shareholders
 
 
 
 
Basic
0.51 
0.99 
0.46 
0.85 
Diluted
0.51 
0.99 
0.46 
0.84 
Weighted average number of shares outstanding
 
 
 
 
Basic
235.3 
236.1 
236.1 
235.8 
Diluted
236.5 
237.8 
238.1 
237.3 
Dividends declared per share attributable to Moody's common shareholders
$ 0.105 
$ 0.105 
$ 0.10 
$ 0.10 
CONSOLIDATED BALANCE SHEETS (USD $)
In Millions
Jun. 30, 2010
Dec. 31, 2009
ASSETS
 
 
Current assets:
 
 
Cash and cash equivalents
$ 485.9 
$ 473.9 
Short-term investments
7.7 
10.0 
Accounts receivable, net of allowances of $27.9 in 2010 and $24.6 in 2009
389.1 
444.9 
Deferred tax assets, net
42.5 
32.3 
Other current assets
34.8 
51.8 
Total current assets
960.0 
1,012.9 
Property and equipment, net of accumulated depreciation of $183.1 in 2010 and $164.8 in 2009
298.3 
293.0 
Goodwill
345.1 
349.2 
Intangible assets, net
93.1 
104.9 
Deferred tax assets, net
208.2 
192.6 
Other assets
53.0 
50.7 
Total assets
1,957.7 
2,003.3 
LIABILITIES AND SHAREHOLDERS' DEFICIT
 
 
Current liabilities:
 
 
Accounts payable and accrued liabilities
248.6 
317.2 
Commercial paper
356.4 
443.7 
Current portion of long-term debt
7.5 
3.8 
Deferred revenue
481.7 
471.3 
Total current liabilities
1,094.2 
1,236.0 
Non-current portion of deferred revenue
99.4 
103.8 
Long-term debt
742.5 
746.2 
Deferred tax liabilities, net
21.1 
31.4 
Unrecognized tax benefits
171.0 
164.2 
Other liabilities
321.4 
317.8 
Total liabilities
2,449.6 
2,599.4 
Contingencies (Note 12)
 
 
Shareholders' deficit:
 
 
Preferred stock, par value $.01 per share; 10,000,000 shares authorized; no shares issued and outstanding
 
 
Capital surplus
372.7 
391.1 
Retained earnings
3,538.9 
3,329.0 
Treasury stock, at cost; 108,652,215 and 106,044,833 shares of common stock at June 30, 2010 and December 31, 2009, respectively
(4,331.8)
(4,288.5)
Accumulated other comprehensive loss
(83.3)
(41.2)
Total Moody's shareholders' deficit
(500.1)
(606.2)
Noncontrolling interests
8.2 
10.1 
Total shareholders' deficit
(491.9)
(596.1)
Total liabilities and shareholders' deficit
1,957.7 
2,003.3 
Series common stock
 
 
Shareholders' deficit:
 
 
Common stock
 
 
Common stock
 
 
Shareholders' deficit:
 
 
Common stock
$ 3.4 
$ 3.4 
CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
In Millions, except Share and Per Share data
Jun. 30, 2010
Dec. 31, 2009
Accounts receivable, allowances
$ 27.9 
$ 24.6 
Property and equipment, accumulated depreciation
183.1 
164.8 
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
108,652,215 
106,044,833 
Series common stock
 
 
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
 
 
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 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
In Millions
6 Months Ended
Jun. 30,
2010
2009
Cash flows from operating activities
 
 
Net income
$ 237.3 
$ 202.1 
Reconciliation of net income to net cash provided by operating activities:
 
 
Depreciation and amortization
31.0 
31.3 
Stock-based compensation expense
27.7 
30.6 
Excess tax benefits from stock-based compensation plans
(3.3)
(2.9)
Changes in assets and liabilities:
 
 
Accounts receivable
45.8 
15.9 
Other current assets
6.0 
42.6 
Other assets
(23.2)
(2.7)
Accounts payable and accrued liabilities
(55.0)
(11.2)
Restructuring
(4.3)
9.4 
Deferred revenue
12.1 
15.5 
Unrecognized tax benefits
6.9 
3.8 
Other liabilities
23.0 
(9.9)
Net cash provided by operating activities
304.0 
324.5 
Cash flows from investing activities
 
 
Capital additions
(35.3)
(34.8)
Purchases of short-term investments
(14.3)
(2.3)
Sales and maturities of short-term investments
16.3 
4.4 
Cash paid for acquisitions, net of cash acquired
 
(0.9)
Net cash used in investing activities
(33.3)
(33.6)
Cash flows from financing activities
 
 
Borrowings under revolving credit facilities
 
2,232.0 
Repayments of borrowings under revolving credit facilities
 
(2,635.0)
Issuance of commercial paper
1,909.9 
5,013.6 
Repayments of commercial paper
(1,997.1)
(4,747.9)
Net proceeds from stock-based compensation plans
14.3 
12.4 
Cost of treasury shares repurchased
(99.9)
 
Excess tax benefits from stock-based compensation plans
3.3 
2.9 
Payment of dividends
(49.5)
(47.2)
Payment of dividends to noncontrolling interests
(4.1)
(2.9)
Payments under capital lease obligations
(0.7)
(0.8)
Net cash used in financing activities
(223.8)
(172.9)
Effect of exchange rate changes on cash and cash equivalents
(34.9)
28.9 
Net increase in cash and cash equivalents
12.0 
146.9 
Cash and cash equivalents, beginning of the period
473.9 
245.9 
Cash and cash equivalents, end of the period
$ 485.9 
$ 392.8 
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 – 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.
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.
CDOs    Collateralized debt obligations
CESR    Committee of European Securities Regulators
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; comprised the IMS Health and NMR businesses
Commission    European Commission
Company    Moody’s Corporation and its subsidiaries; MCO; Moody’s
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
CP    Commercial paper
CP Notes    Unsecured commercial paper notes
CP Program    The Company’s commercial paper program entered into on October 3, 2007
CRAs    Credit rating agencies
CRA Reform Act    Credit Rating Agency Reform Act of 2006
CREF    Commercial real estate finance which includes REITs, commercial real estate CDOs and MBS; part of SFG
D&B Business    Old D&B’s Dun & Bradstreet operating company
DBPP    Defined benefit pension plans
Debt/EBITDA    Ratio of Total Debt to EBITDA
Directors’ Plan    The 1998 MCO 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
EBITDA    Earnings before interest, taxes, depreciation and amortization
ECAIs    External Credit Assessment Institutions
ECB    European Central Bank
EMEA   Represents countries within Europe, the Middle East and Africa
EPS   Earnings per share
ESP   Estimated selling price; price, as defined by the ASC, at which a vendor would transact if a deliverable were sold by the vendor regularly on a standalone basis
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 division of the Fitch Group which is a majority-owned subsidiary of Fimalac, S.A.
Financial Reform Act   Dodd-Frank Wall Street Reform and Consumer Protection Act
FSF   Financial Stability Forum
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., that meet annually
G-20   The G-20 is an informal forum of industrial and emerging-market countries on key issues related to global economic stability. 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, the U.K. and the U.S. and The EU who is represented by the rotating Council presidency and the ECB
HFSC   House Financial Services Committee
IMS Health   A spin-off of Cognizant; provides services to the pharmaceutical and healthcare industries
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
IOSCO   International Organization of Securities Commissions
IOSCO Code   Code of Conduct Fundamentals for Credit Rating Agencies
IRS   Internal Revenue Service
Legacy Tax Matter(s)   Exposures to certain potential tax liabilities assumed in connection with the 2000 Distribution
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 amount relating to the Series 2005-1 Notes and Series 2007-1 Notes, which is 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; consists of four LOBs – SFG, CFG, FIG and PPIF
MIS Code    Moody’s Investors Service Code of Professional Conduct
Moody’s    Moody’s Corporation and its subsidiaries; MCO; the Company
Net Income    Net income attributable to Moody’s Corporation, which excludes net income from consolidated noncontrolling interests belonging to the minority interest holder
New D&B    The New D&B Corporation - which comprises the D&B business
NM    Percentage change is not meaningful
NMR    Nielsen Media Research, Inc.; a spin-off of Cognizant; a leading source of television audience measurement services
Notices    IRS Notices of Deficiency for 1997-2002
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 pension plans, the post-retirement healthcare plans and the 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
RD&A   

Research, Data and Analytics; an LOB within MA that produces, sells and distributes research, data and related content. Includes products generated by MIS, such as analyses on major debt issuers, industry studies, and commentary on topical credit events, as well as economic research, data, quantitative risk scores, and other analytical tools that are produced within MA

Reform Act    Credit Rating Agency Reform Act of 2006
REITs    Real estate investment trusts
RMBS    Residential mortgage-backed security; 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    U.S. Securities and Exchange Commission
Securities Act    Securities Act of 1933
Series 2005-1 Notes    Principal amount of $300.0 million, 4.98% senior unsecured notes due in September 2015 pursuant to the 2005 Agreement
Series 2007-1 Notes    Principal amount of $300.0 million, 6.06% senior unsecured notes due in September 2017 pursuant to the 2007 Agreement
SFG    Structured finance group; an LOB of MIS
SG&A    Selling, general and administrative expenses
Stock Plans    The 1998 Plan and the 2001 Plan
T&E    Travel and entertainment expenses
TALF    A Federal Reserve credit facility authorized under section 13(3) of the Federal Reserve Act. The TALF is intended to make credit available to consumers and businesses on more favorable terms by facilitating the issuance of asset-backed securities (ABS) and improving the market conditions for ABS more generally
TPE    Third party evidence; 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    All indebtedness of the Company as reflected on the consolidated balance sheets, excluding current accounts payable and deferred revenue incurred in the ordinary course of business
U.K.    United Kingdom
U.S.    United States
USD    U.S. dollar
UTBs    Unrecognized tax benefits
UTPs    Uncertain tax positions
VAT    Value added tax
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
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 rulings on certain tax matters and certain other potential tax liabilities
2001 Plan    The Amended and Restated 2001 MCO 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 on 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 on March 27, 2009
7WTC    The Company’s corporate headquarters located at 7 World Trade Center in New York, NY
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 and (iv) quantitative credit risk measures, credit portfolio management solutions and training services. In 2007 and prior years, Moody’s operated in two reportable segments: Moody’s Investors Service and Moody’s KMV. Beginning in January 2008, Moody’s segments were changed to reflect the Reorganization announced in August 2007 and Moody’s now reports in two new reportable segments: MIS and MA. As a result of the Reorganization, the rating agency remains in the MIS operating segment and several ratings business lines have been realigned. All of Moody’s other non-rating commercial activities are included within the new Moody’s Analytics segment. The MIS segment 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’s ratings to support the distribution of their debt issues to investors. The MA segment develops a wide range of products and services that support the credit risk management activities of institutional participants in global financial markets. These offerings include quantitative credit risk scores, credit processing software, economic research, analytical models, financial data, and specialized advisory and training services. MA also distributes investor-oriented research and data developed by MIS as part of its rating process, including in-depth research on major debt issuers, industry studies and commentary on topical events.

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.

These interim financial statements have been prepared in accordance with the instructions to Form 10-Q and should be read in conjunction with the Company’s consolidated financial statements and related notes in the Company’s 2009 annual report on Form 10-K filed with the SEC on March 1, 2010. The results of interim periods are not necessarily indicative of results for the full year or any subsequent period. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of financial position, results of operations and cash flows at the dates and for the periods presented have been included. The year-end consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. Certain prior year amounts have been reclassified to conform to the current year presentation.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Other than the update to the Company’s revenue recognition policy pursuant to the early adoption of ASU No. 2009-13, “Multiple-Deliverable Revenue Arrangements” further described below, there have been no material changes to the Company’s significant accounting policies from those disclosed in its Form 10-K filed with the SEC for the year ended December 31, 2009.

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 new 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 has elected to early adopt 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.

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.

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.

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.

 

STOCK-BASED COMPENSATION
STOCK-BASED COMPENSATION

NOTE 3. STOCK-BASED COMPENSATION

Presented below is a summary of the stock-based compensation cost and associated tax benefit included in the accompanying consolidated statements of operations:

 

     Three Months Ended
June  30,
   Six Months Ended
June  30,
     2010    2009    2010    2009

Stock compensation cost

   $ 12.9    $ 16.1    $ 27.7    $ 30.6

Tax benefit

   $ 4.7    $ 5.9    $ 10.6    $ 11.3

During the first half of 2010, the Company granted 2.3 million employee stock options, which had a weighted average grant date fair value of $10.43 per share based on the Black-Scholes option-pricing model. The Company also granted 1.1 million shares of restricted stock in the first six months of 2010, which had a weighted average grant date fair value of $26.40 per share. Of the shares granted, approximately 0.3 million contained a condition whereby the number of shares that ultimately vest are based on the achievement of certain non-market based performance metrics of the Company over a three year period.

The following weighted average assumptions were used in determining the fair value for options granted in 2010:

 

Expected dividend yield

     1.57%

Expected stock volatility

     44%

Risk-free interest rate

     2.74%

Expected holding period

     5.9 years

Grant date fair value

   $ 10.43

On April 20, 2010, the shareholders of the Company approved an increase in the number of shares which may be issued with respect to awards granted under the 2001 Plan. The 2001 Plan, which is shareholder approved, now permits the granting of up to 35.6 million shares, of which not more than 15.0 million shares are available for grants of awards other than stock options.

Unrecognized compensation expense at June 30, 2010 was $47.0 million and $42.2 million for stock options and nonvested restricted stock, respectively, which is expected to be recognized over a weighted average period of 1.6 years and 1.5 years, respectively.

The following tables summarize information relating to stock option exercises and restricted stock vesting:

 

     Six Months Ended
June  30,
Stock option exercises:    2010    2009

Proceeds from stock option exercises

   $ 17.5    $ 12.1

Aggregate intrinsic value

   $ 9.1    $ 8.0

Tax benefit realized upon exercise

   $ 3.7    $ 3.2
     Six Months Ended
June  30,
Restricted stock vesting:    2010    2009

Fair value of shares vested

   $ 12.4    $ 7.9

Tax benefit realized upon vesting

   $ 4.6    $ 2.9
INCOME TAXES
INCOME TAXES

NOTE 4. INCOME TAXES

Moody’s effective tax rate was 31.1% and 36.4% for the three month periods ended June 30, 2010 and 2009, respectively and 34.2% and 36.1% for the six month periods ended June 30, 2010 and 2009, respectively. The decrease in the effective tax rate in both periods was primarily due to the completion of various tax audits resulting in the recognition of UTBs and lower taxes on foreign income. A favorable resolution of a Legacy Tax Matter in both the second quarter of 2010 and 2009 resulted in a tax benefit of $3.1 million and $4.3 million, respectively.

The Company classifies interest related to UTBs in interest expense in its consolidated statements of operations. Penalties, if incurred, would be recognized in other non-operating expenses. During the second quarter of 2010, the Company had an overall decrease in its UTBs of $1.9 million ($3.0 million, net of federal tax benefit), and an overall increase in its UTBs during the first six months of 2010 of $6.8 million ($2.4 million, net of federal tax benefit).

 

Prepaid taxes of $3.0 million and $18.6 million at June 30, 2010 and December 31, 2009, respectively, are included in other current assets in the consolidated balance sheets.

Moody’s Corporation and subsidiaries are subject to U.S. federal income tax as well as income tax in various state, local and foreign jurisdictions. Moody’s U.S. federal tax returns filed for the years 2006 through 2008 remain subject to examination by the IRS. The Company’s tax filings in New York State for the years 2004 through 2007 are currently under examination. The income tax returns for 2008 remain open to examination for both New York State and New York City. Tax filings in the U.K. for 2006 are currently under examination by the U.K. taxing authorities and for 2007 and 2008 remain open to examination.

For ongoing audits related to open tax years, it is possible the balance of UTBs could decrease in the next twelve months as a result of the settlement of these audits, which might involve the payment of additional taxes, the adjustment of certain deferred taxes and/or the recognition of tax benefits. It is also possible that new issues might be raised by tax authorities which could necessitate increases to the balance of UTBs. As the Company is unable to predict the timing or outcome of these audits, it is therefore unable to estimate the amount of changes to the balance of UTBs at this time. However, the Company believes that it has adequately provided for its financial exposure for all open tax years by tax jurisdiction in accordance with the applicable provisions of topic 740 of the ASC regarding UTBs. Additionally, the Company is seeking tax rulings on certain tax positions that, if granted, could decrease the balance of UTPs over the next twelve months however, due to the uncertainty involved with this process, the Company is unable to estimate the amount of changes to the balance of UTPs at this time.

WEIGHTED AVERAGE SHARES OUTSTANDING
WEIGHTED AVERAGE SHARES OUTSTANDING

NOTE 5. WEIGHTED AVERAGE SHARES OUTSTANDING

Below is a reconciliation of basic to diluted shares outstanding:

 

     Three Months Ended
June  30,
   Six Months Ended
June  30,
     2010    2009    2010    2009

Basic

   235.3    236.1    236.1    235.8

Dilutive effect of shares issuable under stock-based compensation plans

   1.2    2.0    1.7    1.5
                   

Diluted

   236.5    238.1    237.8    237.3
                   

Anti-dilutive options to purchase common shares and restricted stock excluded from the table above

   16.6    15.1    16.5    16.7
                   

The calculation of diluted EPS requires certain assumptions regarding the use of both cash proceeds and assumed proceeds that would be received upon the exercise of stock options and vesting of restricted stock outstanding as of June 30, 2010 and 2009. These assumed proceeds include Excess Tax Benefits and any unrecognized compensation on the awards.

SHORT-TERM INVESTMENTS
SHORT-TERM INVESTMENTS

NOTE 6. SHORT-TERM INVESTMENTS

Short-term investments are securities with maturities greater than 90 days at the time of purchase that are available for operations in the next 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 month to 11 months and one month to three months as of June 30, 2010 and December 31, 2009, respectively. Interest and dividends are recorded into income when earned.

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

NOTE 7. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

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

The Company engages 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 are utilized to hedge exposures related to changes in FX rates. As of June 30, 2010, all FX options and forward exchange contracts had maturities between one and five months. The hedging program mainly utilizes FX options. The forward exchange contracts are immaterial. Both the FX options and forward exchange contracts are designated as cash flow hedges.

 

The following table summarizes the notional amounts of the Company’s outstanding FX options:

 

     June 30,
2010
   December  31,
2009

Notional amount of Currency Pair:

     

GBP/USD

   £   1.6    £ 5.0

EUR/USD

     3.7    9.9

EUR/GBP

     6.8      21.0

In May 2008, the Company entered into interest rate swaps with a total notional amount of $150.0 million to protect against fluctuations in the LIBOR-based variable interest rate on the 2008 Term Loan, further described in Note 11. These interest rate swaps are designated as cash flow hedges.

The Company also enters into foreign exchange forwards to mitigate the change in fair value on certain intercompany loans denominated in currencies other than a subsidiary’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 (expense) income, net in the Company’s consolidated statements of operations along with the FX gain or loss recognized on the intercompany loan.

The tables below show the classification between assets and liabilities on the Company’s consolidated balance sheets of the fair value of derivative instruments as well as information on gains/(losses) on those instruments:

 

     Fair Value of Derivative Instruments
     Asset    Liability
     June 30,
2010
   December 31,
2009
   June 30,
2010
   December  31,
2009

Derivatives designated as hedging instruments:

           

FX options

   $ 1.3    $ 1.2    $ —      $ —  

Interest rate swaps

     —        —        9.5      7.6
                           

Total derivatives designated as hedging instruments

     1.3      1.2      9.5      7.6

Derivatives not designated as hedging instruments:

           

FX forwards on intercompany loans

     0.5      0.3      1.6      1.0
                           

Total

   $ 1.8    $ 1.5    $ 11.1    $ 8.6
                           

The fair value of FX options and interest rate swaps are included in other current assets and other liabilities, respectively, in the consolidated balance sheets at June 30, 2010 and December 31, 2009. The fair value of the FX forwards are included in other current assets and accounts payable and accrued liabilities, respectively, in the consolidated balance sheets at June 30, 2010 and December 31, 2009. All of the above derivative instruments are valued using Level 2 inputs as defined in Topic 820 of the ASC. 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.

 

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)

   Gain / (Loss)
Recognized in Income on
Derivative (Ineffective

Portion and Amount
Excluded from
Effectiveness Testing)
 
    Three Months  Ended
June 30,
         Three Months Ended
June 30,
         Three Months  Ended
June 30,
 
    2010     2009          2010     2009          2010     2009  

FX options

  $ 0.4      $ (0.2  

Revenue

   $ (0.3 )   $ 0.6     

Revenue

   $ (0.2   $ —     

Interest rate swaps

    (1.3 )     1.2     

Interest expense

     (0.8 )     (0.6  

N/A

     —          —     
                                                     

Total

  $ (0.9 )   $ 1.0         $ (1.1 )   $ —           $ (0.2   $ —     
                                                     
    Six Months Ended
June 30,
         Six Months Ended
June 30,
         Six Months Ended
June 30,
 
    2010     2009          2010     2009          2010     2009  

FX options

  $ 0.5      $ 0.2     

Revenue

   $ (0.5 )   $ 0.9     

Revenue

   $ (0.2   $ (0.2 )

Interest rate swaps

    (2.5 )     0.9     

Interest expense

     (1.6 )     (1.1  

N/A

     —          —     
                                                     

Total

  $ (2.0 )   $ 1.1         $ (2.1 )   $ (0.2      $ (0.2   $ (0.2 )
                                                     

All gains and losses on derivatives designated as hedging instruments 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 existing realized gains as of June 30, 2010 expected to be reclassified to earnings in the next twelve months are $0.2 million, net of tax.

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

 

     Unrecognized
Losses, net of tax
 
     June 30,
2010
    December 31,
2009
 

FX options

   $ —        $ (1.2 )

Interest rate swaps

     (6.0 )     (5.1 )
                

Total

   $ (6.0 )   $ (6.3 )
                
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 for the periods indicated:

 

     Six Months Ended
June 30, 2010
    Year Ended
December 31, 2009
     MIS     MA     Consolidated     MIS     MA    Consolidated

Beginning balance

   $ 11.1      $ 338.1      $ 349.2      $ 10.6      $ 327.4    $ 338.0

Additions/adjustments

     —          —          —          (0.3     5.0      4.7

FX translation

     (0.6 )     (3.5 )     (4.1 )     0.8        5.7      6.5
                                             

Ending balance

   $ 10.5      $ 334.6      $ 345.1      $ 11.1      $ 338.1    $ 349.2
                                             

The 2009 additions/adjustments for the MA segment in the table above relate primarily to adjustments made to the purchase accounting associated with the December 2008 acquisitions.

 

Acquired intangible assets and related amortization consisted of:

 

     June 30,
2010
    December 31,
2009
 

Customer lists

   $ 79.0      $ 80.6   

Accumulated amortization

     (45.4 )     (42.8
                

Net customer lists

     33.6        37.8   
                

Trade secret

     25.5        25.5   

Accumulated amortization

     (9.7 )     (8.7
                

Net trade secret

     15.8        16.8   
                

Software

     49.9        55.0   

Accumulated amortization

     (16.0 )     (14.8
                

Net software

     33.9        40.2   
                

Other

     27.6        26.8   

Accumulated amortization

     (17.8 )     (16.7
                

Net other

     9.8        10.1   
                

Total acquired intangible assets, net

   $ 93.1      $ 104.9   
                

Other intangible assets primarily consist of databases, trade names and covenants not to compete.

Amortization expense is as follows:

 

     Three Months Ended
June  30,
   Six Months Ended
June  30,
     2010    2009    2010    2009

Amortization expense

   $ 3.9    $ 4.2    $ 7.9    $ 8.2

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

 

Year Ending December 31,

    

2010 (after June 30)

   $ 7.5

2011

     14.2

2012

     13.7

2013

     13.5

2014

     10.3

Thereafter

     33.9

Intangible assets are reviewed for impairment 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 tested for impairment annually as of November 30th, or more frequently if circumstances indicate the assets may be impaired. For the six months ended June 30, 2010 there were no impairments to goodwill or intangible assets. For the six months ended June 30, 2009, there were no impairments to goodwill, however $0.2 million of intangible assets was included in the restructuring charge as further described in Note 9 below.

 

RESTRUCTURING
RESTRUCTURING

NOTE 9. 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 remaining liability relating to this charge will result in cash outlays that will be substantially paid out over the next twelve months. The cumulative amount of expense incurred from inception through June 30, 2010 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 September 30, 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 June 30, 2010 for the 2007 Restructuring Plan was $49.9 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:

 

     Three Months Ended
June  30,
   Six Months Ended
June  30,
      2010    2009    2010     2009
     (in millions)

2007 Restructuring Plan

   $ 0.2    $ 0.3    $ 0.5      $ 0.9

2009 Restructuring Plan

     0.1    $ 2.8      (0.9     14.0
                            

Total

   $ 0.3    $ 3.1    $ (0.4   $ 14.9
                            

The amount related to the 2009 Restructuring Plan for the three months and six months ended June 30, 2009 reflects costs associated with initial estimates for this plan. All other amounts in the table above reflect adjustments to previous estimates for both plans.

Changes to the restructuring liability during the first six months of 2010 were as follows:

 

     Employee Termination Costs           Total
Restructuring
Liability
 
     Severance     Pension
Settlements
   Total     Contract
Termination Costs
   

Balance at December 31, 2009

   $ 4.4      $ 8.1    $ 12.5      $ 1.5      $ 14.0   

2007 Restructuring Plan

           

Cost incurred and adjustments

     (0.2     —        (0.2     0.6        0.4   

Cash payments

     —          —        —          (0.6     (0.6

2009 Restructuring Plan

           

Cost incurred and adjustments

     (1.0     —        (1.0     —          (1.0

Cash payments

     (2.6     —        (2.6     (0.4     (3.0

FX Translation

     (0.1     —        (0.1     —          (0.1
                                       

Balance at June 30, 2010

   $ 0.5      $ 8.1    $ 8.6      $ 1.1      $ 9.7   
                                       

As of June 30, 2010, the remaining restructuring liability of $1.6 million relating to severance and contract termination costs is expected to be paid out before the end of 2010. Payments related to the $8.1 million unfunded pension liability will be paid in accordance with the Post-Retirement Plans when certain of the affected employees reach retirement age.

 

Severance and contract termination costs of $1.6 million and $5.9 million as of June 30, 2010 and December 31, 2009, respectively, are recorded in accounts payable and accrued liabilities in the Company’s consolidated balance sheets. Additionally, the amount for pension settlements is recorded within other liabilities as of June 30, 2010 and December 31, 2009.

PENSION AND OTHER POST-RETIREMENT BENEFITS
PENSION AND OTHER POST-RETIREMENT BENEFITS

NOTE 10. PENSION AND OTHER POST-RETIREMENT BENEFITS

Moody’s maintains funded and unfunded noncontributory Defined Benefit Pension Plans primarily for U.S. based employees. The DBPPs provide defined benefits using a cash balance formula based on years of service and career average salary for its U.S. employees or final average pay for selected executives. The Company also provides certain healthcare and life insurance benefits for retired U.S. employees. The post-retirement healthcare plans are contributory with participants’ contributions adjusted annually; the life insurance plans are noncontributory. Moody’s funded and unfunded pension plans, the post-retirement healthcare plans and the post-retirement life insurance plans are collectively referred to herein as the Post-Retirement Plans.

Effective January 1, 2008, the Company no longer offers DBPPs to U.S. employees hired or rehired on or after January 1, 2008. New U.S. employees will instead receive a retirement contribution of similar benefit value under the Company’s Profit Participation Plan. Current participants of the Company’s U.S. DBPPs continue to accrue benefits based on existing plan benefit formulas.

The components of net periodic benefit expense related to the Post-Retirement Plans are as follows:

 

     Three Months Ended June 30,
     Pension Plans     Other
Post-Retirement
Plans
     2010     2009     2010    2009

Components of net periodic expense

         

Service cost

   $ 3.3      $ 3.0      $ 0.2    $ 0.2

Interest cost

     2.9        2.4        0.2      0.2

Expected return on plan assets

     (2.6 )     (2.5     —        —  

Amortization of net actuarial loss from earlier periods

     0.6        0.1        —        —  

Amortization of net prior service costs from earlier periods

     0.1        0.1        —        —  
                             

Net periodic expense

   $ 4.3      $ 3.1      $ 0.4    $ 0.4
                             
     Six Months Ended June 30,
     Pension Plans     Other
Post-Retirement
Plans
     2010     2009     2010    2009

Components of net periodic expense

         

Service cost

   $ 6.8      $ 6.1      $ 0.4    $ 0.4

Interest cost

     6.0        4.9        0.4      0.4

Expected return on plan assets

     (5.3 )     (5.0     —        —  

Amortization of net actuarial loss from earlier periods

     1.4        0.3        —        —  

Amortization of net prior service costs from earlier periods

     0.3        0.2        —        —  
                             

Net periodic expense

   $ 9.2      $ 6.5      $ 0.8    $ 0.8
                             

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.

The Company made payments of $0.9 million to its unfunded DBPPs and $0.2 million to its other post-retirement plans during the six months ended June 30, 2010. The Company presently anticipates making additional payments of $7.5 million to its unfunded DBPPs and $0.4 million to its other post-retirement plans during the remainder of 2010.

 

INDEBTEDNESS
INDEBTEDNESS

NOTE 11. INDEBTEDNESS

The following table summarizes total indebtedness:

 

     June 30,
2010
    December 31,
2009
 

2007 Facility

   $ —        $ —     

Commercial paper, net of unamortized discount of $0.1 million at both 2010 and 2009

     356.4        443.7   

Notes payable:

    

Series 2005-1 Notes

     300.0        300.0   

Series 2007-1 Notes

     300.0        300.0   

2008 Term Loan

     150.0        150.0   
                

Total Debt

     1,106.4        1,193.7   

Current portion

     (363.9 )     (447.5 )
                

Total long-term debt

   $ 742.5      $ 746.2   
                

2007 Facility

On September 28, 2007, the Company entered into a $1.0 billion five-year senior, unsecured revolving credit facility, expiring in September 2012. The 2007 Facility will serve, in part, to support the Company’s CP Program described below. Interest on borrowings is payable at rates that are based on LIBOR plus a premium that can range from 16.0 to 40.0 basis points of the outstanding borrowing amount depending on the Debt/EBITDA ratio. The Company also pays quarterly facility fees, regardless of borrowing activity under the 2007 Facility. The quarterly fees for the 2007 Facility can range from 4.0 to 10.0 basis points per annum of the facility amount, depending on the Company’s Debt/EBITDA ratio. The Company also pays a utilization fee of 5.0 basis points on borrowings outstanding when the aggregate amount outstanding exceeds 50% of the total facility. The 2007 Facility contains certain covenants that, among other things, restrict the ability of the Company and certain of its subsidiaries, without the approval of the lenders, to engage in mergers, consolidations, asset sales, transactions with affiliates and sale-leaseback transactions or to incur liens, as defined in the related agreement. The 2007 Facility also contains financial covenants that, among other things, require the Company to maintain a Debt/EBITDA ratio of not more than 4.0 to 1.0 at the end of any fiscal quarter.

Commercial Paper

On October 3, 2007, the Company entered into a private placement commercial paper program under which the Company may issue CP notes up to a maximum amount of $1.0 billion. Amounts available under the CP Program may be re-borrowed. The CP Program is supported by the Company’s 2007 Facility. The maturities of the CP Notes will vary, but may not exceed 397 days from the date of issue. The CP Notes are sold at a discount from par or, alternatively, sold at par and bear interest at rates that will vary based upon market conditions at the time of issuance. The rates of interest will depend on whether the CP Notes will be a fixed or floating rate. The interest on a floating rate may be based on the following: (a) certificate of deposit rate; (b) commercial paper rate; (c) federal funds rate; (d) LIBOR; (e) prime rate; (f) Treasury rate; or (g) such other base rate as may be specified in a supplement to the private placement agreement. The weighted average interest rate on CP borrowings outstanding was 0.4% and 0.3% as of June 30, 2010 and December 31, 2009, respectively. The CP Program contains certain events of default including, among other things: non-payment of principal, interest or fees; entrance into any form of moratorium; and bankruptcy and insolvency events, subject in certain instances to cure periods.

Notes Payable

On September 7, 2007, the Company issued and sold through a private placement transaction, $300.0 million aggregate principal amount of its 6.06% Series 2007-1 Senior Unsecured Notes due 2017 pursuant to the 2007 Agreement. The Series 2007-1 Notes have a ten-year term and bear interest at an annual rate of 6.06%, payable semi-annually on March 7 and September 7. Under the terms of the 2007 Agreement, the Company may, from time to time within five years, in its sole discretion, issue additional series of senior notes in an aggregate principal amount of up to $500.0 million pursuant to one or more supplements to the 2007 Agreement. The Company may prepay the Series 2007-1 Notes, in whole or in part, at any time at a price equal to 100% of the principal amount being prepaid, plus accrued and unpaid interest and a Make Whole Amount. The 2007 Agreement contains covenants that limit the ability of the Company, and certain of its subsidiaries to, among other things: enter into transactions with affiliates, dispose of assets, incur or create liens, enter into any sale-leaseback transactions, or merge with any other corporation or convey, transfer or lease substantially all of its assets. The Company must also not permit its Debt/EBITDA ratio to exceed 4.0 to 1.0 at the end of any fiscal quarter.

 

On September 30, 2005, the Company issued and sold through a private placement transaction, $300.0 million aggregate principal amount of its Series 2005-1 Senior Unsecured Notes due 2015 pursuant to the 2005 Agreement. The Series 2005-1 Notes have a ten-year term and bear interest at an annual rate of 4.98%, payable semi-annually on March 30 and September 30. Proceeds from the sale of the Series 2005-1 Notes were used to refinance $300.0 million aggregate principal amount of the Company’s outstanding 7.61% senior notes which matured on September 30, 2005. In the event that Moody’s pays all, or part, of the Series 2005-1 Notes in advance of their maturity, such prepayment will be subject to a Make Whole Amount. The Series 2005-1 Notes are subject to certain covenants that, among other things, restrict the ability of the Company and certain of its subsidiaries, without the approval of the lenders, to engage in mergers, consolidations, asset sales, transactions with affiliates and sale-leaseback transactions or to incur liens, as defined in the related agreements.

2008 Term Loan

On May 7, 2008, Moody’s entered into a five-year, $150.0 million senior unsecured term loan with several lenders. Proceeds from the loan were used to pay off a portion of the CP outstanding. Interest on borrowings under the 2008 Term Loan is payable quarterly at rates that are based on LIBOR plus a margin that can range from 125 basis points to 175 basis points depending on the Company’s Debt/EBITDA ratio. The outstanding borrowings shall amortize beginning in 2010 in accordance with the schedule of payments set forth in the 2008 Term Loan outlined in the table below.

The 2008 Term Loan contains restrictive covenants that, among other things, restrict the ability of the Company to engage or to permit its subsidiaries to engage in mergers, consolidations, asset sales, transactions with affiliates and sale-leaseback transactions or to incur, or permit its subsidiaries to incur, liens, in each case, subject to certain exceptions and limitations. The 2008 Term Loan also limits the amount of debt that subsidiaries of the Company may incur. In addition, the 2008 Term Loan contains a financial covenant that requires the Company to maintain a Debt/EBITDA ratio of not more than 4.0 to 1.0 at the end of any fiscal quarter.

The principal payments due on the 2008 Term Loan through its maturity are as follows:

 

Year Ending December 31,

    

2010

   $ 3.8

2011

     11.3

2012

     71.2

2013

     63.7
      

Total

   $ 150.0
      

At June 30, 2010, the Company was in compliance with all covenants contained within all of the debt agreements. In addition to the covenants described above, the 2007 Facility, the 2005 Agreement, the 2007 Agreement and the 2008 Term Loan contain cross default provisions. These provisions state that default under one of the aforementioned debt instruments could in turn permit lenders under other debt instruments to declare borrowings outstanding under those instruments to be immediately due and payable. As of June 30, 2010, there were no such cross defaults.

Interest (expense) income, net

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

 

     Three Months Ended
June  30,
    Six Months Ended
June  30,
 
     2010     2009     2010     2009  

Expense on borrowings

   $ (10.6   $ (12.5   $ (21.4   $ (24.4

Income

     0.5        0.6        1.1        1.4   

Expense on UTBs and other tax related liabilities

     (1.6     (0.7     (5.1     6.7   

Capitalized

     0.2        —          0.6        0.4   

Legacy Tax (a)

     2.5        6.5        2.5        6.5   
                                

Total interest expense, net

   $ (9.0   $ (6.1   $ (22.3   $ (9.4
                                

 

(a) The amounts in both years represent interest income related to the favorable settlement of Legacy Tax Matters, as further discussed in Note 12 below.

Net interest expense of $9.4 million for the first six months of 2009 reflects a reduction of approximately $12 million related to tax and tax-related liabilities.

 

The Company’s long-term debt, including the current portion, is recorded at cost. The fair value and carrying value of the Company’s long-term debt as of June 30, 2010 and December 31, 2009 is as follows:

 

     June 30, 2010    December 31, 2009
     Carrying
Amount
   Estimated
Fair
Value
   Carrying
Amount
   Estimated
Fair
Value

Series 2005-1 Notes

   $ 300.0    $ 309.8    $ 300.0    $ 291.1

Series 2007-1 Notes

     300.0      321.4      300.0      298.6

2008 Term Loan

     150.0      150.0      150.0      150.0
                           

Total

   $ 750.0    $ 781.2    $ 750.0    $ 739.7
                           

The fair value of the Company’s long-term debt was estimated using discounted cash flow analyses based on prevailing interest rates available to the Company for borrowings with similar maturities.

CONTINGENCIES
CONTINGENCIES

NOTE 12. CONTINGENCIES

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

Following the events in the U.S. subprime residential mortgage sector and the credit markets more broadly over the last several years, MIS and other credit rating agencies are the subject of intense scrutiny, increased regulation, ongoing investigation, and civil litigation. Legislative, regulatory and enforcement entities around the world are considering additional legislation, regulation and enforcement actions, including with respect to MIS’s compliance with newly imposed regulatory standards. Moody’s has received subpoenas and inquiries from states attorneys general and other governmental authorities and is responding to such investigations and inquiries.

On July 1, 2008, Moody’s publicly announced the results of the Company’s investigation into the issues raised in a May 21, 2008 report by a newspaper concerning a coding error in a model used in the rating process for certain constant-proportion debt obligations. The Company’s investigation determined that, in April 2007, members of a European rating surveillance committee engaged in conduct contrary to Moody’s Code of Professional Conduct. On March 18, 2010, MIS received a “Wells Notice” from the Staff of the SEC stating that the Staff is considering recommending that the Commission institute administrative and cease-and-desist proceedings against MIS in connection with MIS’s initial June 2007 application on SEC Form NRSRO to register as a nationally recognized statistical rating organization under the Credit Rating Agency Reform Act of 2006 (the “CRA Reform Act”). That application, which is publicly available on the Regulatory Affairs page of http://www.moodys.com, included a description of MIS’s procedures and principles for determining credit ratings. The Staff has informed Moody’s that the recommendation it is considering is based on the theory that MIS’s descriptions of its procedures and principles were rendered false and misleading as of the time the application was filed with the SEC because of the Company’s later finding that a rating committee policy had been violated. MIS disagrees with the Staff that the violation of a company policy by a company employee renders the policy itself false and misleading and has submitted a response to the Wells Notice explaining why its initial application was accurate and why it believes enforcement charges are unwarranted.

In addition, the Company is facing litigation from market participants relating to the performance of MIS rated securities. Although Moody’s in the normal course experiences such litigation, the volume and cost of defending such litigation has significantly increased in the current economic environment.

On June 27, 2008, the Brockton Contributory Retirement System, a purported shareholder of the Company’s securities, filed a purported shareholder derivative complaint on behalf of the Company against its directors and certain senior officers, and the Company as nominal defendant, in the Supreme Court of the State of New York, County of New York. The plaintiff asserts various causes of action relating to the named defendants’ oversight of MIS’s ratings of RMBS and constant-proportion debt obligations, and their participation in the alleged public dissemination of false and misleading information about MIS’s ratings practices and/or a failure to implement internal procedures and controls to prevent the alleged wrongdoing. The plaintiff seeks compensatory damages, restitution, disgorgement of profits and other equitable relief. On July 2, 2008, Thomas R. Flynn, a purported shareholder of the Company’s securities, filed a similar purported shareholder derivative complaint on behalf of the Company against its directors and certain senior officers, and the Company as nominal defendant, in the Supreme Court of the State of New York, County of New York, asserting similar claims and seeking the same relief. The cases have been consolidated and plaintiffs filed an amended consolidated complaint in November 2008. The Company removed the consolidated action to the United States District Court for the Southern District of New York in December 2008. In January 2009, the plaintiffs moved to remand the case to the Supreme Court of the State of New York, which the Company opposed. On February 23, 2010, the court issued an opinion remanding the case to the Supreme Court of New York. On October 30, 2008, the Louisiana Municipal Police Employees Retirement System, a purported shareholder of the Company’s securities, also filed a shareholder derivative complaint on behalf of the Company against its directors and certain officers, and the Company as a nominal defendant, in the U.S. District Court for the Southern District of New York. This complaint also asserts various causes of action relating to the Company’s ratings of RMBS, CDO and constant-proportion debt obligations, and named defendants’ participation in the alleged public dissemination of false and misleading information about MIS’s ratings practices and/or a failure to implement internal procedures and controls to prevent the alleged wrongdoing. On December 9, 2008, Rena Nadoff, a purported shareholder of the Company, filed a shareholder derivative complaint on behalf of the Company against its directors and its CEO, and the Company as a nominal defendant, in the Supreme Court of the State of New York. The complaint asserts a claim for breach of fiduciary duty in connection with alleged overrating of asset-backed securities and underrating of municipal securities. On October 20, 2009, the Company moved to dismiss or stay the action in favor of related federal litigation. On January 26, 2010, the court entered a stipulation and order, submitted jointly by the parties, staying the Nadoff litigation pending coordination and prosecution of similar claims in the above and below described federal derivative actions. On July 6, 2009, W. A. Sokolowski, a purported shareholder of the Company, filed a purported shareholder derivative complaint on behalf of the Company against its directors and current and former officers, and the Company as a nominal defendant, in the United States District Court for the Southern District of New York. The complaint asserts claims relating to alleged mismanagement of the Company’s processes for rating structured finance transactions, alleged insider trading and causing the Company to buy back its own stock at artificially inflated prices.

Two purported class action complaints have been filed by purported purchasers of the Company’s securities against the Company and certain of its senior officers, asserting claims under the federal securities laws. The first was filed by Raphael Nach in the U.S. District Court for the Northern District of Illinois on July 19, 2007. The second was filed by Teamsters Local 282 Pension Trust Fund in the U.S. District Court for the Southern District of New York on September 26, 2007. Both actions have been consolidated into a single proceeding entitled In re Moody’s Corporation Securities Litigation in the U.S. District Court for the Southern District of New York. On June 27, 2008, a consolidated amended complaint was filed, purportedly on behalf of all purchasers of the Company’s securities during the period February 3, 2006 through October 24, 2007. Plaintiffs allege that the defendants issued false and/or misleading statements concerning the Company’s business conduct, business prospects, business conditions and financial results relating primarily to MIS’s ratings of structured finance products including RMBS, CDO and constant-proportion debt obligations. The plaintiffs seek an unspecified amount of compensatory damages and their reasonable costs and expenses incurred in connection with the case. The Company moved for dismissal of the consolidated amended complaint in September 2008. On February 23, 2009, the court issued an opinion dismissing certain claims and sustaining others.

Moody’s Wall Street Analytics unit is cooperating with an investigation by the SEC and the Department of Justice concerning services provided by that unit to certain financial institutions in connection with the valuations used by those institutions with respect to certain financial instruments held by such institutions.

For claims, litigation and proceedings not related to income taxes, where it is both probable that a liability is expected to be incurred and the amount of loss can be reasonably estimated, the Company records liabilities in the consolidated financial statements and periodically adjusts these as appropriate. In other instances, because of uncertainties related to the probable outcome and/or the amount or range of loss, management does not record a liability but discloses the contingency if significant. As additional information becomes available, the Company adjusts its assessments and estimates of such matters accordingly. For income tax matters, the Company employs the prescribed methodology of Topic 740 of the ASC which requires a company to first determine whether it is more-likely-than-not (defined as a likelihood of more than fifty percent) that a tax position will be sustained based on its technical merits as of the reporting date, assuming that taxing authorities will examine the position and have full knowledge of all relevant information. A tax position that meets this more-likely-than-not threshold is then measured and recognized at the largest amount of benefit that is greater than fifty percent likely to be realized upon effective settlement with a taxing authority.

The Company cannot predict the ultimate impact that any of the legislative, regulatory, enforcement or litigation matters may have on how its business is conducted and thus its competitive position, financial position or results of operations. Based on its review of the latest information available, in the opinion of management, the ultimate monetary liability of the Company for the pending matters referred to above (other than the Legacy Tax Matters that are discussed below) is not likely to have a material adverse effect on the Company’s consolidated financial position, although it is possible that the effect could be material to the Company’s consolidated results of operations for an individual reporting period.

Legacy Tax Matters

Moody’s continues to have exposure to potential liabilities arising from Legacy Tax Matters. As of June 30, 2010, Moody’s has recorded liabilities for Legacy Tax Matters totaling $57.0 million. This includes liabilities and accrued interest due to New D&B arising from the 2000 Distribution Agreement. It is possible that the ultimate liability for Legacy Tax Matters could be greater than the liabilities recorded by the Company, which could result in additional charges that may be material to Moody’s future reported results, financial position and cash flows.

The following summary of the relationships among Moody’s, New D&B and their predecessor entities is important in understanding the Company’s exposure to the Legacy Tax Matters.

 

In November 1996, The Dun & Bradstreet Corporation separated into three separate public companies: The Dun & Bradstreet Corporation, ACNielsen Corporation and Cognizant Corporation. In June 1998, The Dun & Bradstreet Corporation separated into two separate public companies: Old D&B and R.H. Donnelley Corporation. During 1998, Cognizant separated into two separate public companies: IMS Health Incorporated and Nielsen Media Research, Inc. In September 2000, Old D&B separated into two separate public companies: New D&B and Moody’s.

Old D&B and its predecessors entered into global tax planning initiatives in the normal course of business. These initiatives are subject to normal review by tax authorities. Old D&B and its predecessors also entered into a series of agreements covering the sharing of any liabilities for payment of taxes, penalties and interest resulting from unfavorable IRS determinations on certain tax matters, and certain other potential tax liabilities, all as described in such agreements. Further, in connection with the 2000 Distribution and pursuant to the terms of the 2000 Distribution Agreement, New D&B and Moody’s have agreed on the financial responsibility for any potential liabilities related to these Legacy Tax Matters.

Settlement agreements were executed with the IRS in 2005 regarding the Legacy Tax Matters for the years 1989-1990 and 1993-1996. These settlements represent substantially all of the total potential liability to the IRS, including penalties. As of June 30, 2010, the Company continues to carry a liability of $2.0 million for the remaining potential exposure. In addition, with respect to these settlement agreements, Moody’s and New D&B believe that IMS Health and NMR did not pay their full share of the liability to the IRS pursuant to the terms of the applicable separation agreements among the parties. Moody’s and New D&B paid these amounts to the IRS on their behalf, and attempted to resolve this dispute with IMS Health and NMR. As a result, Moody’s and New D&B commenced arbitration proceedings against IMS Health and NMR in connection with the 1989-1990 matter. This matter was resolved during the third quarter of 2008 in favor of Moody’s and New D&B, resulting in IMS Health and NMR having paid a total of $6.7 million to Moody’s. In the second quarter of 2009, Moody’s and New D&B reached a settlement with IMS Health and NMR with respect to the 1993-1996 matter, resulting in $10.8 million of cash proceeds paid to Moody’s of which $6.5 million represents interest and $4.3 million is a reduction of tax expense.

Amortization Expense Deductions

This Legacy Tax Matter, which was affected by developments in June 2007 and 2008 as further described below, involves a partnership transaction which resulted in amortization expense deductions on the tax returns of Old D&B since 1997. IRS audits of Old D&B’s and New D&B’s tax returns for the years 1997 through 2002 concluded in June 2007 without any disallowance of the amortization expense deductions, or any other adjustments to income related to this partnership transaction. These audits resulted in the IRS issuing the Notices for other tax issues for the 1997-2000 years aggregating $9.5 million in tax and penalties, plus statutory interest of approximately $6 million, which should be apportioned among Moody’s, New D&B, IMS Health and NMR pursuant to the terms of the applicable separation agreements. Moody’s share of this assessment was $6.6 million including interest, net of tax. In November 2007, the IRS assessed the tax and penalties and used a portion of the deposit discussed below to satisfy the assessment, together with interest. As noted below, the Company has challenged the IRS’s actions and recovered a portion of these amounts. The absence of any tax deficiencies in the Notices for the amortization expense deductions for the years 1997 through 2002, combined with the expiration of the statute of limitations for 1997 through 2002, for issues not assessed, resulted in Moody’s recording an earnings benefit of $52.3 million in the second quarter of 2007. This is comprised of two components, as follows: (i) a reversal of a tax liability of $27.3 million related to the period from 1997 through the Distribution Date, reducing the provision for income taxes; and (ii) a reduction of accrued interest expense of $17.5 million ($10.6 million, net of tax) and an increase in other non-operating income of $14.4 million, relating to amounts due to New D&B. In June 2008, the statute of limitations for New D&B relating to the 2003 tax year expired. As a result, in the second quarter of 2008, Moody’s recorded a reduction of accrued interest expense of $2.3 million ($1.4 million, net of tax) and an increase in other non-operating income of $6.4 million, relating to amounts due to New D&B.

On the Distribution Date, New D&B paid Moody’s $55.0 million for 50% of certain anticipated future tax benefits of New D&B through 2012. It is possible that IRS audits of New D&B for tax years after 2003 could result in income adjustments with respect to the amortization expense deductions of this partnership transaction. In the event that these tax benefits are not claimed or otherwise not realized by New D&B, or there is an audit adjustment, Moody’s would be required, pursuant to the terms of the 2000 Distribution Agreement, to repay to New D&B an amount equal to the discounted value of its share of the related future tax benefits and its share of any tax liability that New D&B incurs. As of June 30, 2010, Moody’s liability with respect to this matter totaled $55.1 million.

In March 2006, New D&B and Moody’s each deposited $39.8 million with the IRS in order to stop the accrual of statutory interest on potential tax deficiencies with respect to the 1997 through 2002 tax years. In July 2007, New D&B and Moody’s commenced procedures to recover approximately $57 million of these deposits ($24.6 million for New D&B and $31.9 million for Moody’s), which represents the excess of the original deposits over the total of the deficiencies asserted in the Notices. As noted above, in November 2007 the IRS used a portion of Moody’s share of the deposit to satisfy an assessment and related interest; it subsequently returned the balance of the deposit with interest. The Company has pursued a refund of a portion of the outstanding amount. In May 2010, the IRS refunded $5.2 million to the Company for the 1997 tax year, which included interest of approximately $2.5 million.

 

COMPREHENSIVE INCOME AND NONCONTROLLING INTERESTS
COMPREHENSIVE INCOME AND NONCONTROLLING INTERESTS

NOTE 13. COMPREHENSIVE INCOME AND NONCONTROLLING INTERESTS

The components of total comprehensive income, net of tax, are as follows:

 

     Three months ended June 30,
     2010     2009
     Shareholders’
of Moody’s
Corporation
    Noncontrolling
Interests
    Total     Shareholders’
of Moody’s
Corporation
   Noncontrolling
Interests
    Total

Net income

   $ 121.0      $ 1.6      $ 122.6      $ 109.3    $ 1.7      $ 111.0

Net realized and unrealized gain/(loss) on cash flow hedges (net of tax of $0.1 million and $0.3 million in 2010 and 2009, respectively)

     0.3        —          0.3        1.0      —          1.0

FX translation (net of tax of $11.8 million and $2.1 million in 2010 and 2009, respectively)

     (2.5     (0.7     (3.2     49.2      (0.9     48.3

Net actuarial gains and prior service costs (net of tax of $2.9 million and $2.1 million in 2010 and 2009, respectively)

     4.1        —          4.1        3.1      —          3.1

Amortization and recognition of actuarial losses and prior service costs (net of tax of $0.3 million and $0.1 million in 2010 and 2009, respectively)

     0.5        —          0.5        0.1      —          0.1
                                             

Total comprehensive income

   $ 123.4      $ 0.9      $ 124.3      $ 162.7    $ 0.8      $ 163.5
                                             
     Six months ended June 30,
     2010     2009
     Shareholders’
of Moody’s
Corporation
    Noncontrolling
Interests
    Total     Shareholders’
of Moody’s
Corporation
   Noncontrolling
Interests
    Total

Net income

   $ 234.4      $ 2.9      $ 237.3      $ 199.5    $ 2.6      $ 202.1

Net realized and unrealized gain/ (loss) on cash flow hedges, net of tax of $0.2 million and $0.3 million in 2010 and 2009, respectively.

     0.3        —          0.3        1.5      —          1.5

FX translation, net of tax of $8.6 million and $11.7 million in 2010 and 2009, respectively.

     (47.3     (0.4     (47.7     17.3      (0.2     17.1

Net actuarial gains and prior service costs (net of tax of $2.9 million and $2.1 million in 2010 and 2009, respectively)

     4.1        —          4.1        3.1      —          3.1

Amortization and recognition of actuarial losses and prior service costs (net of tax of $1.0 million and $0.2 million in 2010 and 2009, respectively)

     0.8        —          0.8        0.3      —          0.3
                                             

Total comprehensive income

   $ 192.3      $ 2.5      $ 194.8      $ 221.7    $ 2.4      $ 224.1
                                             

 

The following tables summarize the activity in the Company’s noncontrolling interests:

 

     Six months ended
June  30,
 
     2010     2009  

Beginning Balance

     10.1      $ 8.3   

Net income attributable to noncontrolling interests

     2.9        2.6   

Dividends declared to noncontrolling interests

     (4.4     (2.9

FX translation

     (0.4     (0.2
                

Ending Balance

   $ 8.2      $ 7.8   
                
SEGMENT INFORMATION
SEGMENT INFORMATION

NOTE 14. SEGMENT INFORMATION

The Company operates in two reportable segments: MIS and MA.

Revenue for MIS and expenses for MA include an intersegment royalty charged to MA for the rights to use and distribute content, data and products developed by MIS. Additionally, overhead costs and corporate expenses of the Company are allocated to each segment based on a revenue-split methodology. Overhead expenses include costs such as rent and occupancy, information technology and support staff such as finance, human resource, information technology and legal. “Eliminations” in the table below represent intersegment royalty revenue/expense.

Below is financial information by segment, MIS and MA revenue by line of business and consolidated revenue information by geographic area, each of which is for the three and six month periods ended June 30, 2010, and total assets by segment as of June 30, 2010 and December 31, 2009.

Financial Information by Segment

 

     Three Months Ended June 30,
     2010     2009
     MIS     MA     Eliminations     Consolidated     MIS    MA    Eliminations     Consolidated

Revenue

   $ 344.1      $ 149.2      $ (15.5   $ 477.8      $ 324.7    $ 140.4    $ (14.4 )   $ 450.7

Expenses:

                  

Operating, SG&A

     179.6        107.7        (15.5     271.8        163.2      95.9      (14.4 )     244.7

Restructuring

     0.2        0.1        —          0.3        0.5      2.6      —          3.1

Depreciation and amortization

     7.5        7.7        —          15.2        7.5      8.2      —          15.7
                                                            

Total

     187.3        115.5        (15.5     287.3        171.2      106.7      (14.4 )     263.5
                                                            

Operating income

   $ 156.8      $ 33.7      $ —        $ 190.5      $ 153.5    $ 33.7    $ —        $ 187.2
                                                            
     Six Months Ended June 30,
     2010     2009
     MIS     MA     Eliminations     Consolidated     MIS    MA    Eliminations     Consolidated

Revenue

   $ 694.9      $ 290.3      $ (30.8   $ 954.4      $ 609.6    $ 279.1    $ (29.1 )   $ 859.6

Expenses:

                  

Operating, SG&A

     357.1        210.2        (30.8     536.5        315.8      190.6      (29.1 )     477.3

Restructuring

     (0.3     (0.1     —          (0.4     8.1      6.8      —          14.9

Depreciation and amortization

     15.6        15.4        —          31.0        15.2      16.1      —          31.3
                                                            

Total

     372.4        225.5        (30.8     567.1        339.1      213.5      (29.1 )     523.5
                                                            

Operating income

   $ 322.5      $ 64.8      $ —        $ 387.3      $ 270.5    $ 65.6    $ —        $ 336.1
                                                            

 

The cumulative restructuring charges incurred since the fourth quarter of 2007 through June 30, 2010 for both restructuring plans, which is further described in Note 9 above, are $48.5 million and $16.1 million for the MIS and MA operating segments, respectively.

In the fourth quarter of 2009, the MA businesses were realigned and renamed to reflect the reporting unit structure for the MA segment at December 31, 2009. Pursuant to this realignment, the subscriptions business was renamed RD&A and the software business was renamed RMS. The revised groupings classify certain subscription-based risk management software revenue and advisory services relating to software sales to the redefined RMS business.

The tables below present revenue by LOB by segment and reflect the aforementioned MA business realignment:

MIS and MA Revenue by Line of Business

The table below presents revenue by LOB within each reportable segment:

 

     Three Months Ended June 30,     Six Months Ended June 30,  
     2010     2009     2010     2009  

MIS:

        

Structured finance (SFG)

   $ 73.1      $ 74.6      $ 144.6      $ 147.0   

Corporate finance (CFG)

     127.9        107.5        254.3        191.6   

Financial institutions (FIG)

     63.2        67.3        139.4        123.6   

Public, project and infrastructure finance (PPIF)

     64.4        60.9        125.8        118.3   
                                

Total external revenue

     328.6        310.3        664.1        580.5   

Intersegment royalty

     15.5        14.4        30.8        29.1   
                                

Total MIS

     344.1        324.7        694.9        609.6   
                                

MA:

        

Research, data and analytics (RD&A)

     105.2        102.3        209.8        204.3   

Risk management software (RMS)

     39.2        33.9        72.5        66.0   

Professional Services

     4.8        4.2        8.0        8.8   
                                

Total MA

     149.2        140.4        290.3        279.1   
                                

Eliminations

     (15.5     (14.4     (30.8     (29.1
                                

Total MCO

   $ 477.8      $ 450.7      $ 954.4      $ 859.6   
                                
     Three Months Ended June 30,     Six Months Ended June 30,  
     2010     2009     2010     2009  

United States

   $ 261.5      $ 237.1      $ 516.1      $ 446.0   
                                

International:

        

EMEA

     144.9        152.1        298.4        296.6   

Other

     71.4        61.5        139.9        117.0   
                                

Total International

     216.3        213.6        438.3        413.6   
                                

Total

   $ 477.8      $ 450.7      $ 954.4      $ 859.6   
                                

 

     June 30, 2010    December 31, 2009
     MIS    MA    Corporate
Assets (a)
   Consolidated    MIS    MA    Corporate
Assets (a)
   Consolidated

Total Assets by Segment:

                       

Total Assets

   $ 619.6    647.2    690.9    $ 1,957.7    $ 579.4    724.9    699.0    $ 2,003.3
                                               

 

(a) Represents common assets that are shared between each segment or utilized by the corporate entity. Such assets primarily include cash and cash equivalents, short-term investments, unallocated property and equipment and deferred taxes.

 

RECENTLY ISSUED ACCOUNTING STANDARDS
RECENTLY ISSUED ACCOUNTING STANDARDS

NOTE 15. RECENTLY ISSUED ACCOUNTING STANDARDS

Adopted:

In June 2009, the FASB issued a new accounting standard related to the consolidation of variable interest entities. This new standard eliminates the quantitative approach previously required for determining the primary beneficiary of a variable interest entity and requires ongoing qualitative reassessments of whether an enterprise is the primary beneficiary of a variable interest entity. This new standard also requires enhanced disclosures regarding an enterprise's involvement in variable interest entities. The Company has adopted this new accounting standard as of January 1, 2010 and the implementation did not impact its consolidated financial statements.

In October 2009, the FASB issued ASU No. 2009-13, “Multiple-Deliverable Revenue Arrangements” (“ASU 2009-13”). The new standard changes the requirements for establishing separate units of accounting in a multiple element arrangement and requires the allocation of arrangement consideration to each deliverable based on the relative selling price. The selling price for each deliverable is based on vendor-specific objective evidence of selling price (“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 has elected to early adopt ASU 2009-13 on a prospective basis for applicable transactions originating or materially modified on or after January 1, 2010. The early adoption of this ASU did not have a material impact on the Company’s consolidated financial statements. Further information on the early adoption of this standard is set forth in Note 2 to the condensed consolidated financial statements.

In January 2010, the FASB issued ASU No. 2010-06, “Improving Disclosures about Fair Value Measurements”. The new 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 new 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 will require further disclosures surrounding inputs and valuation techniques used in fair value measurements. The new 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 partially adopted the provisions of this ASU as of January 1, 2010 for all new disclosure requirements except for the aforementioned requirements regarding Level 3 fair-value measurements, for which the Company will adopt that portion of the ASU on January 1, 2011. The portion of this ASU that was adopted on January 1, 2010 did not have a material impact on the Company’s consolidated financial statements. The Company is currently evaluating the potential impacts, if any, of the implementation of the portion of this ASU that relates to Level 3 fair value measurements.

SUBSEQUENT EVENT
SUBSEQUENT EVENT

NOTE 16. SUBSEQUENT EVENT

On July 26, 2010, the Board approved the declaration of a quarterly dividend of $0.105 per share of Moody’s common stock, payable on September 10, 2010 to shareholders of record at the close of business on August 20, 2010.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)
Revenue Recognition

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 new 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 has elected to early adopt 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.

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.

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.

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.

STOCK-BASED COMPENSATION (Tables)
6 Months Ended
Jun. 30, 2010
Stock-Based Compensation Cost And Associated Tax Benefit
Weighted Average Assumptions Used in Determining the Fair Value for Options Granted
Stock Option Exercises
Restricted Stock Vesting

Presented below is a summary of the stock-based compensation cost and associated tax benefit included in the accompanying consolidated statements of operations:

 

     Three Months Ended
June  30,
   Six Months Ended
June  30,
     2010    2009    2010    2009

Stock compensation cost

   $ 12.9    $ 16.1    $ 27.7    $ 30.6

Tax benefit

   $ 4.7    $ 5.9    $ 10.6    $ 11.3

The following weighted average assumptions were used in determining the fair value for options granted in 2010:

 

Expected dividend yield

     1.57%

Expected stock volatility

     44%

Risk-free interest rate

     2.74%

Expected holding period

     5.9 years

Grant date fair value

   $ 10.43
Six Months Ended
June  30,
Stock option exercises:    2010    2009

Proceeds from stock option exercises

   $ 17.5    $ 12.1

Aggregate intrinsic value

   $ 9.1    $ 8.0

Tax benefit realized upon exercise

   $ 3.7    $ 3.2
Six Months Ended
June  30,
Restricted stock vesting:    2010    2009

Fair value of shares vested

   $ 12.4    $ 7.9

Tax benefit realized upon vesting

   $ 4.6    $ 2.9
WEIGHTED AVERAGE SHARES OUTSTANDING (Tables)
Reconciliation Of Basic To Diluted Shares Outstanding

Below is a reconciliation of basic to diluted shares outstanding:

 

     Three Months Ended
June  30,
   Six Months Ended
June  30,
     2010    2009    2010    2009

Basic

   235.3    236.1    236.1    235.8

Dilutive effect of shares issuable under stock-based compensation plans

   1.2    2.0    1.7    1.5
                   

Diluted

   236.5    238.1    237.8    237.3
                   

Anti-dilutive options to purchase common shares and restricted stock excluded from the table above

   16.6    15.1    16.5    16.7
                   
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (Tables)
6 Months Ended
Jun. 30, 2010
Notional Amounts of Outstanding Foreign Exchange Options
Fair Value of Derivative Instruments
Gains and Losses on Derivatives Designated as Hedging instruments
Cumulative Amount of Unrecognized Hedge Losses Recorded in AOCI

The following table summarizes the notional amounts of the Company’s outstanding FX options:

 

     June 30,
2010
   December  31,
2009

Notional amount of Currency Pair:

     

GBP/USD

   £   1.6    £ 5.0

EUR/USD

     3.7    9.9

EUR/GBP

     6.8      21.0

The tables below show the classification between assets and liabilities on the Company’s consolidated balance sheets of the fair value of derivative instruments as well as information on gains/(losses) on those instruments:

 

     Fair Value of Derivative Instruments
     Asset    Liability
     June 30,
2010
   December 31,
2009
   June 30,
2010
   December  31,
2009

Derivatives designated as hedging instruments:

           

FX options

   $ 1.3    $ 1.2    $ —      $ —  

Interest rate swaps

     —        —        9.5      7.6
                           

Total derivatives designated as hedging instruments

     1.3      1.2      9.5      7.6

Derivatives not designated as hedging instruments:

           

FX forwards on intercompany loans

     0.5      0.3      1.6      1.0
                           

Total

   $ 1.8    $ 1.5    $ 11.1    $ 8.6
                           

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.

 

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)

   Gain / (Loss)
Recognized in Income on
Derivative (Ineffective

Portion and Amount
Excluded from
Effectiveness Testing)
 
    Three Months  Ended
June 30,
         Three Months Ended
June 30,
         Three Months  Ended
June 30,
 
    2010     2009          2010     2009          2010     2009  

FX options

  $ 0.4      $ (0.2  

Revenue

   $ (0.3 )   $ 0.6     

Revenue

   $ (0.2   $ —     

Interest rate swaps

    (1.3 )     1.2     

Interest expense

     (0.8 )     (0.6  

N/A

     —          —     
                                                     

Total

  $ (0.9 )   $ 1.0         $ (1.1 )   $ —           $ (0.2   $ —     
                                                     
    Six Months Ended
June 30,
         Six Months Ended
June 30,
         Six Months Ended
June 30,
 
    2010     2009          2010     2009          2010     2009  

FX options

  $ 0.5      $ 0.2     

Revenue

   $ (0.5 )   $ 0.9     

Revenue

   $ (0.2   $ (0.2 )

Interest rate swaps

    (2.5 )     0.9     

Interest expense

     (1.6 )     (1.1  

N/A

     —          —     
                                                     

Total

  $ (2.0 )   $ 1.1         $ (2.1 )   $ (0.2      $ (0.2   $ (0.2 )
                                                     

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

 

     Unrecognized
Losses, net of tax
 
     June 30,
2010
    December 31,
2009
 

FX options

   $ —        $ (1.2 )

Interest rate swaps

     (6.0 )     (5.1 )
                

Total

   $ (6.0 )   $ (6.3 )
                
GOODWILL AND OTHER ACQUIRED INTANGIBLE ASSETS (Tables)
6 Months Ended
Jun. 30, 2010
Activity in Goodwill
Acquired Intangible Assets and Related Amortization
Amortization Expense
Estimated Future Amortization Expense

The following table summarizes the activity in goodwill for the periods indicated:

 

     Six Months Ended
June 30, 2010
    Year Ended
December 31, 2009
     MIS     MA     Consolidated     MIS     MA    Consolidated

Beginning balance

   $ 11.1      $ 338.1      $ 349.2      $ 10.6      $ 327.4    $ 338.0

Additions/adjustments

     —          —          —          (0.3     5.0      4.7

FX translation

     (0.6 )     (3.5 )     (4.1 )     0.8        5.7      6.5
                                             

Ending balance

   $ 10.5      $ 334.6      $ 345.1      $ 11.1      $ 338.1    $ 349.2
                                             

Acquired intangible assets and related amortization consisted of:

 

     June 30,
2010
    December 31,
2009
 

Customer lists

   $ 79.0      $ 80.6   

Accumulated amortization

     (45.4 )     (42.8
                

Net customer lists

     33.6        37.8   
                

Trade secret

     25.5        25.5   

Accumulated amortization

     (9.7 )     (8.7
                

Net trade secret

     15.8        16.8   
                

Software

     49.9        55.0   

Accumulated amortization

     (16.0 )     (14.8
                

Net software

     33.9        40.2   
                

Other

     27.6        26.8   

Accumulated amortization

     (17.8 )     (16.7
                

Net other

     9.8        10.1   
                

Total acquired intangible assets, net

   $ 93.1      $ 104.9   
                

Amortization expense is as follows:

 

     Three Months Ended
June  30,
   Six Months Ended
June  30,
     2010    2009    2010    2009

Amortization expense

   $ 3.9    $ 4.2    $ 7.9    $ 8.2

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

 

Year Ending December 31,

    

2010 (after June 30)

   $ 7.5

2011

     14.2

2012

     13.7

2013

     13.5

2014

     10.3

Thereafter

     33.9
RESTRUCTURING (Tables)
6 Months Ended
Jun. 30, 2010
Restructuring Plan Expense
Changes to Restructuring Liability

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

 

     Three Months Ended
June  30,
   Six Months Ended
June  30,
      2010    2009    2010     2009
     (in millions)

2007 Restructuring Plan

   $ 0.2    $ 0.3    $ 0.5      $ 0.9

2009 Restructuring Plan

     0.1    $ 2.8      (0.9     14.0
                            

Total

   $ 0.3    $ 3.1    $ (0.4   $ 14.9
                            

Changes to the restructuring liability during the first six months of 2010 were as follows:

 

     Employee Termination Costs           Total
Restructuring
Liability
 
     Severance     Pension
Settlements
   Total     Contract
Termination Costs
   

Balance at December 31, 2009

   $ 4.4      $ 8.1    $ 12.5      $ 1.5      $ 14.0   

2007 Restructuring Plan

           

Cost incurred and adjustments

     (0.2     —        (0.2     0.6        0.4   

Cash payments

     —          —        —          (0.6     (0.6

2009 Restructuring Plan

           

Cost incurred and adjustments

     (1.0     —        (1.0     —          (1.0

Cash payments

     (2.6     —        (2.6     (0.4     (3.0

FX Translation

     (0.1     —        (0.1     —          (0.1
                                       

Balance at June 30, 2010

   $ 0.5      $ 8.1    $ 8.6      $ 1.1      $ 9.7   
                                       
PENSION AND OTHER POST-RETIREMENT BENEFITS (Tables)
Net Periodic Benefit Expense Related to Post-Retirement Plans

The components of net periodic benefit expense related to the Post-Retirement Plans are as follows:

 

     Three Months Ended June 30,
     Pension Plans     Other
Post-Retirement
Plans
     2010     2009     2010    2009

Components of net periodic expense

         

Service cost

   $ 3.3      $ 3.0      $ 0.2    $ 0.2

Interest cost

     2.9        2.4        0.2      0.2

Expected return on plan assets

     (2.6 )     (2.5     —        —  

Amortization of net actuarial loss from earlier periods

     0.6        0.1        —        —  

Amortization of net prior service costs from earlier periods

     0.1        0.1        —        —  
                             

Net periodic expense

   $ 4.3      $ 3.1      $ 0.4    $ 0.4
                             
     Six Months Ended June 30,
     Pension Plans     Other
Post-Retirement
Plans
     2010     2009     2010    2009

Components of net periodic expense

         

Service cost

   $ 6.8      $ 6.1      $ 0.4    $ 0.4

Interest cost

     6.0        4.9        0.4      0.4

Expected return on plan assets

     (5.3 )     (5.0     —        —  

Amortization of net actuarial loss from earlier periods

     1.4        0.3        —        —  

Amortization of net prior service costs from earlier periods

     0.3        0.2        —        —  
                             

Net periodic expense

   $ 9.2      $ 6.5      $ 0.8    $ 0.8
                             
INDEBTEDNESS (Tables)
6 Months Ended
Jun. 30, 2010
Summary of Total Indebtedness
Principal Payments Due on 2008 Term Loan Through Maturity
Summary of Components of Interest as Presented in Consolidated Statements of Operations
Fair Value and Carrying Value of Long-Term Debt

The following table summarizes total indebtedness:

 

     June 30,
2010
    December 31,
2009
 

2007 Facility

   $ —        $ —     

Commercial paper, net of unamortized discount of $0.1 million at both 2010 and 2009

     356.4        443.7   

Notes payable:

    

Series 2005-1 Notes

     300.0        300.0   

Series 2007-1 Notes

     300.0        300.0   

2008 Term Loan

     150.0        150.0   
                

Total Debt

     1,106.4        1,193.7   

Current portion

     (363.9 )     (447.5 )
                

Total long-term debt

   $ 742.5      $ 746.2   
                

The principal payments due on the 2008 Term Loan through its maturity are as follows:

 

Year Ending December 31,

    

2010

   $ 3.8

2011

     11.3

2012

     71.2

2013

     63.7
      

Total

   $ 150.0
      

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

 

     Three Months Ended
June  30,
    Six Months Ended
June  30,
 
     2010     2009     2010     2009  

Expense on borrowings

   $ (10.6   $ (12.5   $ (21.4   $ (24.4

Income

     0.5        0.6        1.1        1.4   

Expense on UTBs and other tax related liabilities

     (1.6     (0.7     (5.1     6.7   

Capitalized

     0.2        —          0.6        0.4   

Legacy Tax (a)

     2.5        6.5        2.5        6.5   
                                

Total interest expense, net

   $ (9.0   $ (6.1   $ (22.3   $ (9.4
                                

 

(a) The amounts in both years represent interest income related to the favorable settlement of Legacy Tax Matters, as further discussed in Note 12 below.

The Company’s long-term debt, including the current portion, is recorded at cost. The fair value and carrying value of the Company’s long-term debt as of June 30, 2010 and December 31, 2009 is as follows:

 

     June 30, 2010    December 31, 2009
     Carrying
Amount
   Estimated
Fair
Value
   Carrying
Amount
   Estimated
Fair
Value

Series 2005-1 Notes

   $ 300.0    $ 309.8    $ 300.0    $ 291.1

Series 2007-1 Notes

     300.0      321.4      300.0      298.6

2008 Term Loan

     150.0      150.0      150.0      150.0
                           

Total

   $ 750.0    $ 781.2    $ 750.0    $ 739.7
                           
COMPREHENSIVE INCOME AND NONCONTROLLING INTERESTS (Tables)
6 Months Ended
Jun. 30, 2010
Components of Total Comprehensive Income, Net of Tax
Activity in the Company's Noncontrolling Interests

The components of total comprehensive income, net of tax, are as follows:

 

     Three months ended June 30,
     2010     2009
     Shareholders’
of Moody’s
Corporation
    Noncontrolling
Interests
    Total     Shareholders’
of Moody’s
Corporation
   Noncontrolling
Interests
    Total

Net income

   $ 121.0      $ 1.6      $ 122.6      $ 109.3    $ 1.7      $ 111.0

Net realized and unrealized gain/(loss) on cash flow hedges (net of tax of $0.1 million and $0.3 million in 2010 and 2009, respectively)

     0.3        —          0.3        1.0      —          1.0

FX translation (net of tax of $11.8 million and $2.1 million in 2010 and 2009, respectively)

     (2.5     (0.7     (3.2     49.2      (0.9     48.3

Net actuarial gains and prior service costs (net of tax of $2.9 million and $2.1 million in 2010 and 2009, respectively)

     4.1        —          4.1        3.1      —          3.1

Amortization and recognition of actuarial losses and prior service costs (net of tax of $0.3 million and $0.1 million in 2010 and 2009, respectively)

     0.5        —          0.5        0.1      —          0.1
                                             

Total comprehensive income

   $ 123.4      $ 0.9      $ 124.3      $ 162.7    $ 0.8      $ 163.5
                                             
     Six months ended June 30,
     2010     2009
     Shareholders’
of Moody’s
Corporation
    Noncontrolling
Interests
    Total     Shareholders’
of Moody’s
Corporation
   Noncontrolling
Interests
    Total

Net income

   $ 234.4      $ 2.9      $ 237.3      $ 199.5    $ 2.6      $ 202.1

Net realized and unrealized gain/ (loss) on cash flow hedges, net of tax of $0.2 million and $0.3 million in 2010 and 2009, respectively.

     0.3        —          0.3        1.5      —          1.5

FX translation, net of tax of $8.6 million and $11.7 million in 2010 and 2009, respectively.

     (47.3     (0.4     (47.7     17.3      (0.2     17.1

Net actuarial gains and prior service costs (net of tax of $2.9 million and $2.1 million in 2010 and 2009, respectively)

     4.1        —          4.1        3.1      —          3.1

Amortization and recognition of actuarial losses and prior service costs (net of tax of $1.0 million and $0.2 million in 2010 and 2009, respectively)

     0.8        —          0.8        0.3      —          0.3
                                             

Total comprehensive income

   $ 192.3      $ 2.5      $ 194.8      $ 221.7    $ 2.4      $ 224.1
                                             

The following tables summarize the activity in the Company’s noncontrolling interests:

 

     Six months ended
June  30,
 
     2010     2009  

Beginning Balance

     10.1      $ 8.3   

Net income attributable to noncontrolling interests

     2.9        2.6   

Dividends declared to noncontrolling interests

     (4.4     (2.9

FX translation

     (0.4     (0.2
                

Ending Balance

   $ 8.2      $ 7.8   
                
SEGMENT INFORMATION (Tables)
6 Months Ended
Jun. 30, 2010
Financial Information by Segment
MIS and MA Revenue by Line of Business
Consolidated Revenue Information by Geographic Area
Total Assets By Segment

Below is financial information by segment, MIS and MA revenue by line of business and consolidated revenue information by geographic area, each of which is for the three and six month periods ended June 30, 2010, and total assets by segment as of June 30, 2010 and December 31, 2009.

Financial Information by Segment

 

     Three Months Ended June 30,
     2010     2009
     MIS     MA     Eliminations     Consolidated     MIS    MA    Eliminations     Consolidated

Revenue

   $ 344.1      $ 149.2      $ (15.5   $ 477.8      $ 324.7    $ 140.4    $ (14.4 )   $ 450.7

Expenses:

                  

Operating, SG&A

     179.6        107.7        (15.5     271.8        163.2      95.9      (14.4 )     244.7

Restructuring

     0.2        0.1        —          0.3        0.5      2.6      —          3.1

Depreciation and amortization

     7.5        7.7        —          15.2        7.5      8.2      —          15.7
                                                            

Total

     187.3        115.5        (15.5     287.3        171.2      106.7      (14.4 )     263.5
                                                            

Operating income

   $ 156.8      $ 33.7      $ —        $ 190.5      $ 153.5    $ 33.7    $ —        $ 187.2
                                                            
     Six Months Ended June 30,
     2010     2009
     MIS     MA     Eliminations     Consolidated     MIS    MA    Eliminations     Consolidated

Revenue

   $ 694.9      $ 290.3      $ (30.8   $ 954.4      $ 609.6    $ 279.1    $ (29.1 )   $ 859.6

Expenses:

                  

Operating, SG&A

     357.1        210.2        (30.8     536.5        315.8      190.6      (29.1 )     477.3

Restructuring

     (0.3     (0.1     —          (0.4     8.1      6.8      —          14.9

Depreciation and amortization

     15.6        15.4        —          31.0        15.2      16.1      —          31.3
                                                            

Total

     372.4        225.5        (30.8     567.1        339.1      213.5      (29.1 )     523.5
                                                            

Operating income

   $ 322.5      $ 64.8      $ —        $ 387.3      $ 270.5    $ 65.6    $ —        $ 336.1
                                                            

The table below presents revenue by LOB within each reportable segment:

 

     Three Months Ended June 30,     Six Months Ended June 30,  
     2010     2009     2010     2009  

MIS:

        

Structured finance (SFG)

   $ 73.1      $ 74.6      $ 144.6      $ 147.0   

Corporate finance (CFG)

     127.9        107.5        254.3        191.6   

Financial institutions (FIG)

     63.2        67.3        139.4        123.6   

Public, project and infrastructure finance (PPIF)

     64.4        60.9        125.8        118.3   
                                

Total external revenue

     328.6        310.3        664.1        580.5   

Intersegment royalty

     15.5        14.4        30.8        29.1   
                                

Total MIS

     344.1        324.7        694.9        609.6   
                                

MA:

        

Research, data and analytics (RD&A)

     105.2        102.3        209.8        204.3   

Risk management software (RMS)

     39.2        33.9        72.5        66.0   

Professional Services

     4.8        4.2        8.0        8.8   
                                

Total MA

     149.2        140.4        290.3        279.1   
                                

Eliminations

     (15.5     (14.4     (30.8     (29.1
                                

Total MCO

   $ 477.8      $ 450.7      $ 954.4      $ 859.6   
                              
     Three Months Ended June 30,     Six Months Ended June 30,  
     2010     2009     2010     2009  

United States

   $ 261.5      $ 237.1      $ 516.1      $ 446.0   
                                

International:

        

EMEA

     144.9        152.1        298.4        296.6   

Other

     71.4        61.5        139.9        117.0   
                                

Total International

     216.3        213.6        438.3        413.6   
                                

Total

   $ 477.8      $ 450.7      $ 954.4      $ 859.6   
                                
June 30, 2010    December 31, 2009
     MIS