MOODYS CORP /DE/, 10-Q filed on 7/31/2013
Quarterly Report
Document and Entity Information
In Millions, unless otherwise specified
6 Months Ended
Jun. 30, 2013
Document Information [Line Items]
 
Document Type
10-Q 
Amendment Flag
false 
Document Period End Date
Jun. 30, 2013 
Document Fiscal Year Focus
2013 
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
220.4 
CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)
In Millions, except Per Share data, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2013
Jun. 30, 2012
Jun. 30, 2013
Jun. 30, 2012
Revenue
$ 756.0 
$ 640.8 
$ 1,487.8 
$ 1,287.6 
Expenses
 
 
 
 
Operating
197.1 
180.6 
397.9 
366.1 
Selling, general and administrative
185.0 
159.6 
412.0 
328.4 
Depreciation and amortization
23.1 
22.1 
46.7 
45.6 
Total expenses
405.2 
362.3 
856.6 
740.1 
Operating Income
350.8 
278.5 
631.2 
547.5 
Non-operating (expense) income, net
 
 
 
 
Interest expense, net
(21.7)
(16.6)
(43.7)
(26.9)
Other non-operating income (expense), net
7.7 
2.7 
16.5 
2.6 
Total non-operating (expense) income, net
(14.0)
(13.9)
(27.2)
(24.3)
Income before provisions for income taxes
336.8 
264.6 
604.0 
523.2 
Provision for income taxes
108.4 
88.9 
184.5 
172.0 
Net income
228.4 
175.7 
419.5 
351.2 
Less: Net income attributable to noncontrolling interests
2.9 
3.2 
5.6 
5.2 
Net income attributable to Moody's
$ 225.5 
$ 172.5 
$ 413.9 
$ 346.0 
Earnings per share attributable to Moody's common shareholders
 
 
 
 
Basic
$ 1.01 
$ 0.77 
$ 1.86 
$ 1.55 
Diluted
$ 1.00 
$ 0.76 
$ 1.83 
$ 1.52 
Weighted average number of shares outstanding
 
 
 
 
Basic
222.3 
223.9 
222.8 
223.7 
Diluted
226.2 
227.2 
226.7 
227.3 
Dividends declared per share attributable to Moody's common shareholders
$ 0.20 
$ 0.16 
$ 0.20 
$ 0.16 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (USD $)
In Millions, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2013
Jun. 30, 2012
Jun. 30, 2013
Jun. 30, 2012
Net income
$ 228.4 
$ 175.7 
$ 419.5 
$ 351.2 
Foreign currency translation adjustment-Pre Tax Amount
(13.0)
(37.9)
(72.8)
(9.3)
Foreign currency translation adjustment-Tax Amount
Foreign currency translation adjustments-Net of Tax
(13.0)
(37.9)
(72.8)
(9.3)
Cash Flow And Net Investment Hedges [Abstract]
 
 
 
 
Net unrealized gain (losses) on cash flow and net investment hedges- Pre Tax
(0.4)
(2.5)
1.0 
(2.7)
Net unrealized gain (losses) on cash flow and net investment hedges-Tax Amount
(0.1)
(1.0)
0.5 
(1.1)
Net unrealized losses on cash flow and net investment hedges
(0.3)
(1.5)
0.5 
(1.6)
Reclassification of losses included in net income-Pre Tax
0.1 
1.1 
0.7 
2.2 
Reclassification of losses included in net income-Tax Amount
0.4 
0.2 
0.9 
Reclassification of losses included in net income- Net of Tax
0.1 
0.7 
0.5 
1.3 
Pension and Other Retirement Benefits Net of Tax [Abstract]
 
 
 
 
Amortization Of Actuarial Losses And Prior Service Costs Included In Net Income Pre Tax
2.8 
2.2 
5.9 
5.0 
Amortization Of Actuarial Losses And Prior Service Costs Included In Net Income Tax
1.2 
0.9 
2.4 
2.0 
Amortization Of Actuarial Losses And Prior Service Costs Included In Net Income Net Of Tax
1.6 
1.3 
3.5 
3.0 
Net Actuarial Losses And Prior Service Costs Pre Tax
0.9 
(9.5)
0.9 
(8.0)
Net Actuarial Losses And Prior Service Costs Tax Effect
0.4 
(3.9)
0.4 
(2.4)
Net Actuarial Losses And Prior Service Costs Net Of Tax
0.5 
(5.6)
0.5 
(5.6)
Total other comprehensive income (loss)-Pre Tax
(9.6)
(46.6)
(64.3)
(12.8)
Net current period other comprehensive income/(loss)
1.5 
(3.6)
3.5 
(0.6)
Total other comprehensive income (loss)-Net of Tax
(11.1)
(43.0)
(67.8)
(12.2)
Comprehensive income (loss)
217.3 
132.7 
351.7 
339.0 
comprehensive income attributable to noncontrolling interests and redeemable noncontrolling interest
2.9 
2.3 
5.6 
6.3 
Comprehensive income attributable to Moody's
$ 214.4 
$ 130.4 
$ 346.1 
$ 332.7 
CONSOLIDATED BALANCE SHEETS (USD $)
In Millions, unless otherwise specified
Jun. 30, 2013
Dec. 31, 2012
Current assets:
 
 
Cash and cash equivalents
$ 1,633.0 
$ 1,755.4 
Short-term investments
17.9 
17.9 
Accounts receivable, net of allowances of $30.0 in 2012 and $28.0 in 2011
607.7 
621.8 
Deferred tax assets, net
36.5 
38.7 
Other current assets
147.6 
91.9 
Total current assets
2,442.7 
2,525.7 
Property and equipment, net of accumulated depreciation of $286.6 in 2012 and $258.2 in 2011
287.4 
307.1 
Goodwill
619.8 
637.1 
Intangible assets, net
202.0 
226.5 
Deferred tax assets, net
152.5 
168.5 
Other assets
89.9 
96.0 
Total assets
3,794.3 
3,960.9 
Current liabilities:
 
 
Accounts payable and accrued liabilities
312.8 
555.3 
Unrecognized tax benefits
Current portion of long-term debt
63.8 
Deferred revenue
584.3 
545.8 
Total current liabilities
897.1 
1,164.9 
Non-current portion of deferred revenue
104.8 
94.9 
Long-term debt
1,605.0 
1,607.4 
Deferred tax liabilities, net
54.4 
58.1 
Unrecognized tax benefits
184.6 
156.6 
Other liabilities
412.9 
410.1 
Total liabilities
3,258.8 
3,492.0 
Contingencies (Note 14)
   
   
Redeemable noncontrolling interest
78.7 
72.3 
Shareholders' equity(deficit):
 
 
Preferred stock, par value $.01 per share; 10,000,000 shares authorized; no shares issued and outstanding
Capital surplus
358.7 
365.1 
Retained earnings
5,082.1 
4,713.3 
Treasury stock, at cost; 120,619,040 and 120,462,232 shares of common stock at June 30, 2012 and December 31, 2011, respectively
(4,846.7)
(4,614.5)
Accumulated other comprehensive loss
(149.9)
(82.1)
Total Moody's shareholders' equity (deficit)
447.6 
385.2 
Noncontrolling interests
9.2 
11.4 
Total shareholders' equity (deficit)
456.8 
396.6 
Total liabilities, redeemable noncontrolling interest and shareholders' equity (deficit)
3,794.3 
3,960.9 
Nonvoting Common Stock [Member]
 
 
Shareholders' equity(deficit):
 
 
Common stock
Common Stock [Member]
 
 
Shareholders' equity(deficit):
 
 
Common stock
$ 3.4 
$ 3.4 
CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
In Millions, except Share data, unless otherwise specified
Jun. 30, 2013
Dec. 31, 2012
Accounts receivable, allowances
$ 30.2 
$ 29.1 
Property and equipment, accumulated depreciation
$ 343.4 
$ 314.3 
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
Common stock, shares authorized
 
1,000,000,000 
Treasury stock, shares
122,470,202 
119,650,254 
Nonvoting Common Stock [Member]
 
 
Common stock, par value
$ 0.01 
$ 0.01 
Common stock, shares authorized
10,000,000 
10,000,000 
Common stock, shares issued
Common stock, shares outstanding
Common Stock [Member]
 
 
Common stock, par value
$ 0.01 
$ 0.01 
Common stock, shares authorized
1,000,000,000 
 
Common stock, shares issued
342,902,272 
342,902,272 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
In Millions, unless otherwise specified
6 Months Ended
Jun. 30, 2013
Jun. 30, 2012
Cash flows from operating activities
 
 
Net income
$ 419.5 
$ 351.2 
Reconciliation of net income to net cash provided by operating activities:
 
 
Depreciation and amortization
46.7 
45.6 
Stock-based compensation expense
33.3 
29.9 
Deferred income taxes
10.8 
47.5 
Excess tax benefits from stock-based compensation plans
(27.0)
(9.2)
Legacy Tax Matters
Changes in assets and liabilities:
 
 
Accounts receivable
2.4 
(40.5)
Other current assets
(56.6)
(32.4)
Other assets
(0.8)
(3.2)
Accounts payable and accrued liabilities
(168.4)
(115.8)
Deferred revenue
59.6 
45.6 
Unrecognized tax benefits
34.5 
(73.9)
Other liabilities
15.1 
(9.3)
Net cash provided by operating activities
369.1 
235.5 
Cash flows from investing activities
 
 
Capital additions
(18.1)
(21.9)
Purchases of short-term investments
(17.5)
(24.7)
Sales and maturities of short-term investments
16.6 
24.2 
Cash paid for acquisitions
3.5 
Net cash used in investing activities
(19.0)
(25.9)
Cash flows from financing activities
 
 
Repayments of notes
63.8 
7.5 
Net proceeds from stock-based compensation plans
(60.8)
(34.9)
Cost of treasury shares repurchased
350.4 
100.0 
Excess tax benefits from stock-based compensation plans
(27.0)
(9.2)
Payment of dividends
(89.1)
(71.6)
Payment of dividends to noncontrolling interests
(8.2)
(4.5)
Contingent consideration paid
(2.5)
(0.5)
Debt issuance costs and related fees
(2.5)
Net cash used in financing activities
(426.2)
(142.5)
Effect of exchange rate changes on cash and cash equivalents
(46.3)
(3.0)
Net increase in cash and cash equivalents
(122.4)
64.1 
Cash and cash equivalents, beginning of the period
1,755.4 
760.0 
Cash and cash equivalents, end of the period
$ 1,633.0 
$ 824.1 
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

Adjusted Operating Income Operating income excluding restructuring and depreciation and amortization

Adjusted Operating Margin Operating margin excluding restructuring and depreciation and amortization

Americas       Represents countries within North and South America, excluding the U.S.

Analytics       Moody's Analytics – a reportable segment of MCO formed in January 2008, which includes the non-rating commercial activities of MCO

AOCI       Accumulated other comprehensive income (loss); a separate component of shareholders' equity (deficit)

ASC       The FASB Accounting Standards Codification; the sole source of authoritative GAAP as of July 1, 2009 except for rules and interpretive releases of the SEC, which are also sources of authoritative GAAP for SEC registrants

Asia-Pacific       Represents countries in Asia also including but not limited to: Australia and its proximate islands, China, India, Indonesia, Japan, Korea, Malaysia, Singapore and Thailand

ASU       The FASB Accounting Standards Update to the ASC. It also provides background information for accounting guidance and the bases for conclusions on the changes in the ASC. ASUs are not considered authoritative until codified into the ASC

B&H       Barrie & Hibbert Limited, an acquisition completed in December 2011; part of the MA segment, a leading provider of risk management modeling tools for insurance companies worldwide

Basel II       Capital adequacy framework published in June 2004 by the Basel Committee on Banking Supervision

Basel III       A new global regulatory standard on bank capital adequacy and liquidity agreed by the members of the Basel Committee on Banking Supervision. Basel III was developed in a response to the deficiencies in financial regulation revealed by the global financial crisis. Basel III strengthens bank capital requirements and introduces new regulatory requirements on bank liquidity and bank leverage.

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 obligation

CFG       Corporate finance group; an LOB of MIS

CLO       Collateralized loan obligation

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

TERM                             DEFINITION

Copal       Copal Partners; an acquisition completed in November 2011; part of the MA segment; leading provider of outsourced research and analytical services to institutional investors

CP       Commercial paper

CP Program       The Company's commercial paper program entered into on October 3, 2007

CRAs       Credit rating agencies

CRA1       Regulation (EC) No 1060/2009 of the European Parliament and of the Council, establishing an oversight regime for the CRA industry in the EU

CRA2       Regulation (EU) No 513/2011 of the European Parliament and of the Council, which transferred direct supervisory responsibility for the registered CRA industry in the EU to ESMA

CRA3       Regulation (EU) No 462/2013 of the European Parliament and of the Council, which updated the regulatory regimes imposing additional procedural requirements on CRAs

CREF       Commercial real estate finance which includes REITs, commercial real estate CDOs and mortgage-backed securities; part of SFG

CSI       CSI Global Education, Inc.; an acquisition completed in November 2010; part of the MA segment; a provider of financial learning, credentials, and certification in Canada

D&B Business       Old D&B's Dun & Bradstreet operating company

DBPP       Defined benefit pension plans

Debt/EBITDA       Ratio of Total Debt to EBITDA

EBITDA       Earnings before interest, taxes, depreciation and amortization

ECB       European Central Bank

EMEA       Represents countries within Europe, the Middle East and Africa

EPS       Earnings per share

ERS       The enterprise risk solutions LOB within MA (formerly RMS); which offers risk management software products as well as software implementation services and related risk management advisory engagements

ESMA       European Securities and Markets Authority

ESPP       The 1999 Moody's Corporation Employee Stock Purchase Plan

ETR       Effective tax rate

EU       European Union

EUR       Euros

Excess Tax Benefits       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 the option or restricted share is expensed under GAAP

Exchange Act       The Securities Exchange Act of 1934, as amended

FASB       Financial Accounting Standards Board

FDIC       Federal Deposit Insurance Corporation

FIG       Financial institutions group; an LOB of MIS

Financial Reform Act       Dodd-Frank Wall Street Reform and Consumer Protection Act

Free Cash Flow       Net cash provided by operating activities less cash paid for capital additions

              TERM                                          DEFINITION

FSTC       Financial Services Training and Certifications; a reporting unit within the MA segment that includes classroom-based training services and CSI

FX       Foreign exchange

GAAP       U.S. Generally Accepted Accounting Principles

GBP       British pounds

G-8       The finance minister 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 who comment 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 ECB

IMS Health       A spin-off of Cognizant; provides services to the pharmaceutical and healthcare industries

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

M&A       Mergers and acquisitions

Make Whole Amount       The prepayment penalty amount relating to the Series 2005-1 Notes, Series 2007-1 Notes, 2010 Senior Notes and 2012 Senior 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

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

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

PPIF       Public, project and infrastructure finance; an LOB of MIS

              TERM                                          DEFINITION

Profit Participation Plan       Defined contribution profit participation plan that covers substantially all U.S. employees of the Company

PS       Professional Services, an LOB within MA that provides outsourced research and analytical services as well as financial training and certification programs

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

Redeemable Noncontrolling       Represents minority shareholders' interest in entities which are controlled but not

Interest       wholly-owned by Moody's and for which Moody's obligation to redeem the minority shareholders' interest is in the control of the minority shareholders       

Reform Act                      Credit Rating Agency Reform Act of 2006

RMBS       Residential mortgage-backed security; part of SFG

Retirement Plans       Moody's funded and unfunded pension plans, the retirement healthcare plans and retirement life insurance plans

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 million, 4.98% senior unsecured notes due in September 2015 pursuant to the 2005 Agreement

Series 2007-1 Notes       Principal amount of $300 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

T&E       Travel and entertainment expenses

Total Debt       All indebtedness of the Company as reflected on the consolidated balance sheets

U.K.       United Kingdom

U.S.       United States

USD       U.S. dollar

UTBs       Unrecognized tax benefits

UTPs       Uncertain tax positions

2000 Distribution       The distribution by Old D&B to its shareholders of all 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

2005 Agreement       Note purchase agreement dated September 30, 2005, relating to the Series 2005-1 Notes

TERM                                   DEFINITION

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

2008 Term Loan       Five-year $150 million senior unsecured term loan entered into by the Company on May 7, 2008

2010 Indenture       Supplemental indenture and related agreements dated August 19, 2010, relating to the 2010 Senior Notes

2010 Senior Notes       Principal amount of $500 million, 5.50% senior unsecured notes due in September 2020 pursuant to the 2010 Indenture

2012 Indenture       Supplemental indenture and related agreements dated August 18, 2012, relating to the 2012 Senior Notes

2012 Senior Notes        Principal amount of $500 million, 4.50% senior unsecured notes due in September 2022 pursuant to the 2012 Indenture

2012 Facility       Revolving credit facility of $1 billion entered into on April 18, 2012, expiring in 2017

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, capital markets and economic research, data and analytical tools, (iii) software solutions and related risk management services, (iv) quantitative credit risk measures, financial services training and certification services and (v) outsourced research and analytical services to institutional customers. Moody's has two reportable segments: MIS and MA.

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

The MA segment, which includes all of the Company's non-rating commercial activities, develops a wide range of products and services that support financial analysis and risk management activities of institutional participants in global financial markets. Within its Research, Data and Analytics business, MA distributes research and data developed by MIS as part of its ratings process, including in-depth research on major debt issuers, industry studies and commentary on topical credit-related events. The RD&A business also produces economic research as well as data and analytical tools such as quantitative credit risk scores. It also provides fixed income pricing in the Asia-Pacific region. Within its Enterprise Risk Solutions business, MA provides software solutions as well as related risk management services. The Professional Services business provides outsourced research and analytical services along with financial training and certification programs.

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 2012 annual report on Form 10-K filed with the SEC on February 26, 2013. 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.

STOCK-BASED COMPENSATION
STOCK-BASED COMPENSATION

NOTE 2. 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 Six Months Ended
 June 30, June 30,
 2013 2012 2013 2012
Stock-based compensation cost$ 16.1 $ 14.9 $ 33.3 $ 29.9
Tax benefit$ 5.8 $ 5.4 $ 12.0 $ 10.8

During the first six months of 2013, the Company granted 0.5 million employee stock options, which had a weighted average grant date fair value of $17.58 per share based on the Black-Scholes option-pricing model. The Company also granted 1.3 million shares of restricted stock in the first six months of 2013, which had a weighted average grant date fair value of $46.51 per share and generally vest ratably over a four-year period. Additionally, the Company granted approximately 0.3 million shares of performance-based awards 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 weighted average grant date fair value of these awards was $44.07 per share.

       The following weighted average assumptions were used in determining the fair value for options granted in 2013:

Expected dividend yield 1.72%
Expected stock volatility 42.6%
Risk-free interest rate 1.53%
Expected holding period7.2 years
Grant date fair value$ 17.58

Unrecognized compensation expense at June 30, 2013 was $14.6 million and $94.8 million for stock options and unvested restricted stock, respectively, which is expected to be recognized over a weighted average period of 1.4 years and 1.8 years, respectively. Additionally, there was $18.8 million of unrecognized compensation expense relating to the aforementioned non-market based performance-based awards, which is expected to be recognized over a weighted average period of 1.0 years.

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

  Six Months Ended
  June 30,
Stock option exercises: 2013 2012
Proceeds from stock option exercises $ 89.2 $ 46.7
Aggregate intrinsic value $ 66.7 $ 26.6
Tax benefit realized upon exercise $ 24.4 $ 10.1
Number of shares exercised   2.7   1.9
       
  Six Months Ended
  June 30,
Restricted stock vesting: 2013 2012
Fair value of shares vested $ 53.8 $ 37.5
Tax benefit realized upon vesting $ 19.1 $ 13.2
Number of shares vested   1.1   1.0
       
  Six Months Ended
  June 30,
Performance-based awards vesting: 2013 2012
Fair value of shares vested $ 25.5 $ -
Tax benefit realized upon vesting $ 9.7 $ -
Number of shares vested   0.5   -
INCOME TAXES
INCOME TAXES

NOTE 3. INCOME TAXES

Moody's effective tax rate was 32.2% and 33.6% for the three months ended June 30, 2013 and 2012, respectively and 30.5% and 32.9% for the six months ended June 30, 2013 and 2012, respectively. The decrease in the effective tax rate in both periods is primarily due to U.S. tax legislation enacted in the first quarter of 2013 which retroactively extended certain favorable tax benefits to the 2012 tax year and lower taxes on foreign income. The decrease in the ETR for the six months ended June 30, 2013 also reflects the tax effect of the litigation settlement in the first quarter of 2013.

The Company classifies interest related to UTPs in interest expense, net in its consolidated statements of operations. Penalties, if incurred, would be recognized in other non-operating (expense) income, net. The Company had an overall increase in its UTPs of $17.4 million ($14.7 million net of federal tax benefit) during the second quarter of 2013 and an overall increase in its UTPs during the first six months of 2013 of $28.0 million ($23.0 million net of federal tax benefits).

Moody's Corporation and subsidiaries are subject to U.S. federal income tax as well as income tax in various state, local and foreign jurisdictions. The Company's U.S. federal income tax returns for the years 2008 through 2010 are under examination and its 2011 return remains open to examination. The Company's New York State and New York City income tax returns for 2011 remain open to examination. Income tax filings in the U.K. for 2007 through 2010 are under examination and 2011 remains open to examination.

For ongoing audits, 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 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 relating to all open tax years by tax jurisdiction in accordance with the applicable provisions of Topic 740 of the ASC regarding UTBs.

 The following table shows the amount the Company paid for income taxes:

   Six Months Ended
   June 30,
     2013 2012
Income Taxes Paid*      $ 231.6 $ 235.0
* Includes approximately $92 million in payments for tax audit settlements in the first quarter of 2012.  
            
WEIGHTED AVERAGE SHARES OUTSTANDING
WEIGHTED AVERAGE SHARES OUTSTANDING

NOTE 4. WEIGHTED AVERAGE SHARES OUTSTANDING

       Below is a reconciliation of basic to diluted shares outstanding:

  Three Months Ended Six Months Ended
  June 30, June 30,
  2013 2012 2013 2012
Basic  222.3   223.9   222.8   223.7
 Dilutive effect of shares issuable under stock-based compensation plans  3.9   3.3   3.9   3.6
Diluted  226.2   227.2   226.7   227.3
             
Anti-dilutive options to purchase common shares and restricted stock as well as contingently issuable restricted stock which are excluded from the table above  4.4   7.2   4.7   7.1

       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, 2013 and 2012. These assumed proceeds include Excess Tax Benefits and any unrecognized compensation of the awards.

SHORT-TERM INVESTMENTS
SHORT-TERM INVESTMENTS

NOTE 5. 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 twelve months and one month to 11 months as of June 30, 2013 and December 31, 2012, respectively. Interest and dividends are recorded into income when earned.

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

NOTE 6. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

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

Interest Rate Swaps

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

       In May 2008, the Company entered into interest rate swaps with a total notional amount of $150 million to protect against fluctuations in the LIBOR-based variable interest rate on the 2008 Term Loan, further described in Note 12. These interest rate swaps were designated as cash flow hedges. Accordingly, changes in the fair value of these swaps were recorded to other comprehensive income or loss, to the extent that the hedge is effective, and such amounts were reclassified to earnings in the same period during which the hedged transaction affects income. At June 30, 2013, the 2008 Term Loan has been repaid in full in accordance with the payment terms set forth in Note 12. Accordingly, all amounts in accumulated other comprehensive income have been reclassified to interest income (expense), net in the Company's consolidated statements of operations.

Foreign Exchange Forwards

       The Company also enters into foreign exchange forwards to mitigate the change in fair value on certain assets and liabilities denominated in currencies other than the 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 assets and liabilities denominated in a currency other than the subsidiary's functional currency. These contracts have expiration dates at various times through September 2013.

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

 June 30, December 31,
 2013 2012
Notional amount of currency pair:     
Contracts to purchase USD with euros$ 25.7 $ 34.3
Contracts to sell USD for euros$ 49.6 $ 48.4
Contracts to purchase USD with GBP$ 3.5 $ 2.1
Contracts to sell USD for GBP$ 0.1 $ 1.7
Contracts to purchase USD with other foreign currencies$ 7.0 $ 6.7
Contracts to sell USD for other foreign currencies$ 11.4 $ 5.1
Contracts to purchase euros with other foreign currencies 14.2  14.4
Contracts to purchase euros with GBP 2.0  -
Contracts to sell euros for GBP 18.3  8.9

Net Investment Hedges

The Company enters into foreign currency forward contracts to hedge the exposure related to non-U.S. dollar net investments in certain foreign subsidiaries against adverse changes in foreign exchange rates. These forward contracts are designated as hedging instruments under the applicable sections of Topic 815 of the ASC. Hedge effectiveness is assessed based on the overall changes in the fair value of the forward contracts on a pre-tax basis. For hedges that meet the effectiveness requirements, any change in the fair value for the hedge is recorded in the currency translation adjustment component of AOCI. Any change in the fair value of these hedges that is the result of ineffectiveness would be recognized immediately in other non-operating (expense) income in the Company's consolidated statement of operations. These outstanding contracts expire in September 2013.

The following table summarizes the notional amounts of the Company's outstanding foreign exchange forward contracts that are designated as net investment hedges:

 June 30, December 31,
 2013 2012
Notional amount of currency pair:     
Contracts to sell euros for USD 50.0  50.0

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

  Fair Value of Derivative Instruments
Derivatives Instruments Balance Sheet Location June 30,2013 December 31, 2012
Assets:        
Derivatives designated as accounting hedges:        
Interest rate swaps Other assets $ 11.2 $ 13.8
Total derivatives designated as accounting hedges     11.2   13.8
Derivatives not designated as accounting hedges:        
FX forwards on certain assets and liabilities Other current assets   1.2   1.4
Total assets   $ 12.4 $ 15.2
         
Liabilities:        
Derivatives designated as accounting hedges:        
Interest rate swaps Accounts payable and accrued liabilities $ - $ 0.7
FX forwards on net investment in certain foreign subsidiaries Accounts payable and accrued liabilities   -   1.0
Total derivatives designated as accounting hedges     -   1.7
Derivatives not designated as accounting hedges:        
FX forwards on certain assets and liabilities Accounts payable and accrued liabilities   0.5   0.7
Total liabilities   $ 0.5 $ 2.4
         

       The following table summarizes the net gain (loss) on the Company's foreign exchange forwards which are not designated as hedging instruments as well as the gain (loss) on the interest rate swaps designated as fair value hedges:

 

      Amount of Gain (Loss) Recognized in the consolidated statements of operations
      Three Months Ended  Six Months Ended
      June 30,   June 30,
Derivatives designated as accounting hedges Location on Income Statement 2013  2012  2013  2012
Interest rate swaps Interest income(expense), net$1.0 $0.9 $2.1 $1.7
                
Derivatives not designated as accounting hedges             
Foreign exchange forwards Other non-operating income (expense), net$1.0 $(1.4) $ (0.1) $(0.4)
                

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

Derivatives in Cash Flow Hedging Relationships Amount of Gain/(Loss) Recognized in AOCI on Derivative (Effective Portion) Location of Gain/(Loss) Reclassified from AOCI into Income (Effective Portion) Amount of Gain/(Loss) Reclassified from AOCI into Income (Effective Portion) Location of Gain/(Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing) Gain/(Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
   Three Months Ended   Three Months Ended   Three Months Ended
   June 30,   June 30,   June 30,
   2013 2012   2013 2012   2013 2012
Interest rate swaps   -   - Interest income (expense), net   (0.1)   (0.7) N/A   -   -
 Total $ - $ -   $ (0.1) $ (0.7)   $ - $ -
                        
   Six Months Ended   Six Months Ended   Six Months Ended
   June 30,   June 30,   June 30,
   2013 2012   2013 2012   2013 2012
Interest rate swaps   -   (0.1) Interest income (expense), net   (0.5)   (1.3) N/A   -   -
 Total $ - $ (0.1)   $ (0.5) $ (1.3)   $ - $ -

       All gains and losses on interest rate swaps designated as cash flow hedges are initially recognized through AOCI. Realized gains and losses reported in AOCI are reclassified into interest income (expense), net as the underlying transaction is recognized.

The following table provides information on gains/(losses) on the Company's net investment hedges:

Derivatives in Net Investment 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   Three Months Ended   Three Months Ended
   June 30,   June 30,   June 30,
   2013 2012   2013 2012   2013 2012
FX forwards $ (0.3) $ (1.5) N/A $ - $ - N/A $ - $ -
 Total $ (0.3) $ (1.5)   $ - $ -   $ - $ -
                        
   Six Months Ended   Six Months Ended   Six Months Ended
   June 30,   June 30,   June 30,
   2013 2012   2013 2012   2013 2012
FX forwards $ 0.5 $ (1.5) N/A $ - $ - N/A $ - $ -
 Total $ 0.5 $ (1.5)   $ - $ -   $ - $ -

All gains and losses on derivatives designated as net investment hedges are recognized in the currency translation adjustment component of AOCI.

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

  Unrecognized Losses, net of tax
  June 30, December 31,
  2013 2012
FX forwards on net investment hedges$ (1.7) $ (2.2)
Interest rate swaps  (0.2)   (0.7)
 Total$ (1.9) $ (2.9)

  • The unrecognized hedge losses relating to the cash flow hedges on the 2008 Term Loan are expected to be reclassified into earnings within the next two months as the underlying hedge ends with the full repayment of the Term Loan in May of 2013.
GOODWILL AND OTHER ACQUIRED INTANGIBLE ASSETS
GOODWILL AND OTHER ACQUIRED INTANGIBLE ASSETS

NOTE 7. GOODWILL AND OTHER ACQUIRED INTANGIBLE ASSETS

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

  Six Months Ended June 30, 2013
  MIS MA Consolidated
  Gross goodwill Accumulated impairment charge Net goodwill Gross goodwill Accumulated impairment charge Net goodwill Gross goodwill Accumulated impairment charge Net goodwill
Balance at beginning of year$ 11.5 $ - $ 11.5 $ 637.8 $ (12.2) $ 625.6 $ 649.3 $ (12.2) $ 637.1
                            
Additions/adjustments  -   -   -   -   -   -   -   -   -
Foreign currency translation adjustments  (0.6)   -   (0.6)   (16.7)   -   (16.7)   (17.3)   -   (17.3)
                            
Ending balance$ 10.9 $ - $ 10.9 $ 621.1 $ (12.2) $ 608.9 $ 632.0 $ (12.2) $ 619.8
                            
  Year Ended December 31, 2012
  MIS MA Consolidated
  Gross goodwill Accumulated impairment charge Net goodwill Gross goodwill Accumulated impairment charge Net goodwill Gross goodwill Accumulated impairment charge Net goodwill
Balance at beginning of year$ 11.0 $ - $ 11.0 $ 631.9 $ - $ 631.9 $ 642.9 $ - $ 642.9
                            
Additions/adjustments  -   -   -   (4.4)   -   (4.4)   (4.4)   -   (4.4)
Impairment charge  -   -   -   -   (12.2)   (12.2)   -   (12.2)   (12.2)
Foreign currency translation adjustments  0.5   -   0.5   10.3   -   10.3   10.8   -   10.8
                            
Ending balance$ 11.5 $ - $ 11.5 $ 637.8 $ (12.2) $ 625.6 $ 649.3 $ (12.2) $ 637.1

The 2012 additions/adjustments for the MA segment in the table above relate to the acquisitions of Copal and B&H in the fourth quarter of 2011.

The 2012 impairment charge in the table above relates to goodwill in the FSTC reporting unit within MA. The Company evaluates its goodwill for potential impairment annually on July 31 or more frequently if impairment indicators arise throughout the year. Projected operating results for the FSTC reporting unit at December 31, 2012 were lower than projections utilized for the annual impairment analysis performed at July 31, 2012 reflecting a contraction in spending for training and certification services for many individuals and global financial institutions amidst macroeconomic uncertainties. Based on this trend and overall macroeconomic uncertainties at the time, the Company lowered its cash flow forecasts for this reporting unit in the fourth quarter of 2012. Accordingly, the Company performed another goodwill impairment assessment as of December 31, 2012 which resulted in an impairment charge of $12.2 million. The fair value of the FSTC reporting unit utilized in the impairment assessment was estimated using a discounted cash flow methodology and comparable public company and precedent transaction multiples. There were no impairments to goodwill in the three and six months ended June 30, 2013 and 2012. However, a failure of the FSTC reporting unit to meet its financial projections could result in further goodwill impairment.

       Acquired intangible assets and related amortization consisted of:

   June 30, December 31,
   2013 2012
Customer relationships $ 210.3 $ 219.6
Accumulated amortization   (79.5)   (74.0)
 Net customer relationships   130.8   145.6
        
Trade secrets   31.1   31.4
Accumulated amortization   (17.2)   (16.0)
 Net trade secrets   13.9   15.4
        
Software   67.6   73.2
Accumulated amortization   (33.4)   (33.7)
 Net software   34.2   39.5
        
Trade names   27.7   28.3
Accumulated amortization   (10.8)   (10.3)
 Net trade names   16.9   18.0
        
Other  24.2   24.9
Accumulated amortization   (18.0)   (16.9)
 Net other  6.2   8.0
        
Total acquired intangible assets, net $ 202.0 $ 226.5

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

Amortization expense relating to acquired intangible assets is as follows:

 Three Months Ended Six Months Ended
 June 30, June 30,
 2013 2012 2013 2012
Amortization expense$ 6.9 $ 7.1 $ 14.0 $ 14.4

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

Year Ending December 31,  
2013 (after June 30,)$ 16.8
2014  28.9
2015  24.1
2016  17.8
2017  13.1
Thereafter  101.3

Amortizable intangible assets are reviewed for recoverability whenever events or changes in 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. There were no impairments to intangible assets during the three and six months ended June 30, 2013 and 2012.

 

FAIR VALUE
FAIR VALUE

NOTE 8. FAIR VALUE

The table below presents information about items, which are carried at fair value on a recurring basis at June 30, 2013 and December 31, 2012:

 

    Fair Value Measurement as of June 30, 2013
 Description Balance Level 1 Level 2 Level 3
Assets:            
 Derivatives (a) $ 12.4 $ - $ 12.4 $ -
 Total $ 12.4 $ - $ 12.4 $ -
               
Liabilities:            
 Derivatives (a) $ 0.5 $ - $ 0.5 $ -
 Contingent consideration arising from acquisitions (b)  10.5   -   -   10.5
 Total $ 11.0 $ - $ 0.5 $ 10.5
               
    Fair Value Measurement as of December 31, 2012
 Description Balance Level 1 Level 2 Level 3
Assets:            
 Derivatives (a) $ 15.2 $ - $ 15.2 $ -
 Total $ 15.2 $ - $ 15.2 $ -
Liabilities:            
 Derivatives (a) $ 2.4 $ - $ 2.4 $ -
 Contingent consideration arising from acquisitions (b)  9.0   -   -   9.0
 Total $ 11.4 $ - $ 2.4 $ 9.0
               
               
(a) Represents interest rate swaps and FX forwards on certain assets and liabilities as well as on certain non-U.S. dollar net investments in certain foreign subsidiaries as more fully described in Note 6 to the financial statements
               
(b) Represents contingent consideration liabilities pursuant to the agreements for certain MA acquisitions.
               
The following table summarizes the changes in the fair value of the Company's Level 3 liabilities:

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

        Contingent Consideration
        Six Months Ended June 30,
        2013  2012
 Balance as of January 1 $ 9.0 $ 9.1
 Settlements   (2.5)   (0.5)
 Total losses (realized and unrealized):      
  Included in earnings   4.1   (2.5)
 Foreign currency translation adjustments   (0.1)   0.3
 Balance as of June 30 $ 10.5 $ 6.4

The losses included in earnings in the table above are recorded within operating expenses in the Company's consolidated statements of operations. These losses relate to contingent consideration obligations outstanding at June 30, 2013.

The $10.5 million of contingent consideration obligations as of June 30, 2013 is classified in other liabilities within the Company's consolidated balance sheet.

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

Derivatives:

In determining the fair value of the derivative contracts in the table above, the Company utilizes industry standard valuation models. Where applicable, these models project future cash flows and discount the future amounts to a present value using spot rates, forward points, currency volatilities, interest rates as well as the risk of non-performance of the Company and the counterparties with whom it has derivative contracts. The Company established strict counterparty credit guidelines and only enters into transactions with financial institutions that adhere to these guidelines. Accordingly, the risk of counterparty default is deemed to be minimal.

Contingent consideration:

At June 30, 2013, the Company has contingent consideration obligations related to the acquisitions of CSI and Copal which are based on certain financial and non-financial metrics set forth in the acquisition agreements. These obligations are measured using Level 3 inputs as defined in the ASC. The Company recorded the obligations for these contingent consideration arrangements on the date of each respective acquisition based on management's best estimates of the achievement of the metrics and the value of the obligations are adjusted quarterly.

The contingent consideration obligation for CSI is based on the achievement of a certain contractual milestone by January 2016. The Company utilizes a discounted cash flow methodology to value this obligation. The future expected cash flow for this obligation is discounted using an interest rate available to borrowers with similar credit risk profiles to that of the Company. The most significant unobservable input involved in the measurement of this obligation is the probability that the milestone will be reached by January 2016. At June 30, 2013, the Company expects that this milestone will be reached by the aforementioned date.

There are several contingent consideration obligations relating to the acquisition of Copal. A portion of the contingent cash payments are based on revenue and EBITDA growth for certain of the Copal entities. This growth is calculated by comparing revenue and EBITDA in the year immediately prior to the exercise of the put/call option to acquire the remaining 33% ownership interest of Copal Partners Limited which the Company does not currently own, to revenue and EBITDA in Copal's fiscal year ended March 31, 2011. There are no limitations set forth in the acquisition agreement relating to the amount payable under this contingent consideration arrangement. Payments under this arrangement, if any, would be made upon the exercise of the aforementioned put/call option. Other contingent cash payments are based on the achievement of revenue targets for Copal's fiscal year ended March 31, 2012 and 2013, with certain limits on the amount of revenue that can be applied to the calculation of these contingent payments. Each of these contingent payments had a maximum payout of $2.5 million and have been settled as of June 30, 2013. The Company utilizes discounted cash flow methodologies to value these obligations. The expected future cash flows for these obligations are discounted using a risk-free interest rate plus a credit spread based on the option adjusted spread of the Company's publicly traded debt as of the valuation date. The most significant unobservable input involved in the measurement of these obligations is the projected future financial results of the applicable Copal entities. Also, for the portion of the obligations which are dependent upon the exercise of the call/put option, the Company has utilized a Monte Carlo simulation model to estimate when the option will be exercised, thus triggering the payment of contingent consideration.

A significant increase or decrease in any of the aforementioned significant unobservable inputs related to the fair value measurement of the Company's contingent consideration obligations would result in a significantly higher or lower reported fair value for these obligations.

OTHER BALANCE SHEET INFORMATION
OTHER BALANCE SHEET INFORMATION

NOTE 9. OTHER BALANCE SHEET AND STATEMENT OF OPERATIONS INFORMATION

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

  June 30, December 31,
  2013 2012
Other current assets:     
 Prepaid taxes$ 94.0 $ 31.8
 Prepaid expenses  42.8   47.3
 Other  10.8   12.8
       
Total other current assets$ 147.6 $ 91.9
       
  June 30, December 31,
  2013 2012
Other assets:     
 Investments in joint ventures$ 35.1 $ 38.3
 Deposits for real-estate leases  9.0   10.0
 Other  45.8   47.7
       
Total other assets$ 89.9 $ 96.0
       
  June 30, December 31,
  2013 2012
Accounts payable and accrued liabilities:     
 Salaries and benefits$ 63.2 $ 79.2
 Incentive compensation  62.0   162.6
 Profit sharing contribution  -   12.6
 Customer credits, advanced payments and advanced billings  23.0   21.5
 Self-insurance reserves  36.1   55.8
 Dividends  3.4   47.7
 Professional service fees  35.5   30.2
 Interest accrued on debt  23.1   23.4
 Accounts payable  14.9   14.3
 Income taxes  2.4   56.1
 Deferred rent-current portion  1.0   1.1
 Pension and other retirement employee benefits  4.4   4.4
 Other  43.8   46.4
       
 Total accounts payable and accrued liabilities$ 312.8 $ 555.3
       
  June 30, December 31,
  2013 2012
Other liabilities:     
 Pension and other retirement employee benefits$ 206.8 $ 213.3
 Deferred rent-non-current portion  105.7   110.2
 Interest accrued on UTPs  14.4   10.6
 Legacy and other tax matters  38.1   37.1
 Other  47.9   38.9
       
 Total other liabilities$ 412.9 $ 410.1

Redeemable Noncontrolling Interest:

In connection with the acquisition of Copal, the Company and the non-controlling shareholders entered into a put/call option agreement whereby the Company has the option to purchase from the non-controlling shareholders and the non-controlling shareholders have the option to sell to the Company the remaining 33% ownership interest of Copal Partners Limited based on a strike price to be calculated on pre-determined formulas using a combination of revenue and EBITDA multiples when exercised. The value of the estimated put/call option strike price on the date of acquisition was based on a Monte Carlo simulation model. This model contemplated multiple scenarios which simulated certain of Copal's revenue, EBITDA margins and equity values to estimate the present value of the expected strike price of the option. The option is subject to a minimum exercise price of $46 million. There is no limit as to the maximum amount of the strike price on the put/call option.

The following table shows changes in the redeemable noncontrolling interest related to the acquisition of Copal:

       
       
  Six Months Ended June 30, 2013 Year Ended December 31, 2012
     
     
(in millions)Redeemable Noncontrolling Interest
       
Balance January 1,$ 72.3 $ 60.5
 Adjustment due to right of offset for UTPs*  -   6.8
 Net earnings  2.3   3.6
 Dividends  (3.0)   (3.6)
 FX translation  -   1.6
 Adjustment to redemption value  7.1   3.4
Balance $ 78.7 $ 72.3
       
 * Relates to an adjustment for the right of offset pursuant to the Copal acquisition agreement whereby the amount due to the sellers under the put/call arrangement is reduced by the amount of UTPs that the Company may be required to pay.

Noncontrolling Interests:

The following table summarizes the changes in the Company's noncontrolling interests:

        
        
   Six Months Ended June 30, 2013 Year Ended December 31, 2012
      
 (in millions)Noncontrolling Interests
        
 Balance January 1,$ 11.4 $ 10.6
  Net earnings  3.4   6.1
  Dividends  (5.6)   (4.7)
  FX translation  -   (0.6)
 Balance $ 9.2 $ 11.4

Other Non-Operating (Expense) Income:

       The following table summarizes the components of other non-operating (expense) income:

  Three Months Ended Six Months Ended
  June 30, June 30,
  2013 2012 2013 2012
FX gain/(loss)$ 5.3 $ 0.3 $ 12.7 $ (1.2)
Joint venture income  3.2   2.6   4.9   4.6
Other  (0.8)   (0.2)   (1.1)   (0.8)
Total$ 7.7 $ 2.7 $ 16.5 $ 2.6

Changes in the Company's self-insurance reserves are as follows:

       
       
       
  Six Months Ended June 30, Year Ended December 31,
(in millions)2013 2012
Beginning balance$ 55.8 $ 27.1
 Accruals (reversals), net  (9.3)   38.1
 Payments  (10.4)   (9.4)
Ending balance*$ 36.1 $ 55.8
       
* These reserves primarily relate to legal defense costs for claims from prior years.
STOCK-BASED COMPENSATION (Tables)
 Three Months Ended Six Months Ended
 June 30, June 30,
 2013 2012 2013 2012
Stock-based compensation cost$ 16.1 $ 14.9 $ 33.3 $ 29.9
Tax benefit$ 5.8 $ 5.4 $ 12.0 $ 10.8
Expected dividend yield 1.72%
Expected stock volatility 42.6%
Risk-free interest rate 1.53%
Expected holding period7.2 years
Grant date fair value$ 17.58
  Six Months Ended
  June 30,
Stock option exercises: 2013 2012
Proceeds from stock option exercises $ 89.2 $ 46.7
Aggregate intrinsic value $ 66.7 $ 26.6
Tax benefit realized upon exercise $ 24.4 $ 10.1
Number of shares exercised   2.7   1.9
       
  Six Months Ended
  June 30,
Restricted stock vesting: 2013 2012
Fair value of shares vested $ 53.8 $ 37.5
Tax benefit realized upon vesting $ 19.1 $ 13.2
Number of shares vested   1.1   1.0
       
  Six Months Ended
  June 30,
Performance-based awards vesting: 2013 2012
Fair value of shares vested $ 25.5 $ -
Tax benefit realized upon vesting $ 9.7 $ -
Number of shares vested   0.5   -
INCOME TAXES (Tables)
Income Taxes Paid
   Six Months Ended
   June 30,
     2013 2012
Income Taxes Paid*      $ 231.6 $ 235.0
* Includes approximately $92 million in payments for tax audit settlements in the first quarter of 2012.  
            
WEIGHTED AVERAGE SHARES OUTSTANDING (Tables)
Reconciliation of Basic to Diluted Shares Outstanding
  Three Months Ended Six Months Ended
  June 30, June 30,
  2013 2012 2013 2012
Basic  222.3   223.9   222.8   223.7
 Dilutive effect of shares issuable under stock-based compensation plans  3.9   3.3   3.9   3.6
Diluted  226.2   227.2   226.7   227.3
             
Anti-dilutive options to purchase common shares and restricted stock as well as contingently issuable restricted stock which are excluded from the table above  4.4   7.2   4.7   7.1
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (Tables)
  Fair Value of Derivative Instruments
Derivatives Instruments Balance Sheet Location June 30,2013 December 31, 2012
Assets:        
Derivatives designated as accounting hedges:        
Interest rate swaps Other assets $ 11.2 $ 13.8
Total derivatives designated as accounting hedges     11.2   13.8
Derivatives not designated as accounting hedges:        
FX forwards on certain assets and liabilities Other current assets   1.2   1.4
Total assets   $ 12.4 $ 15.2
         
Liabilities:        
Derivatives designated as accounting hedges:        
Interest rate swaps Accounts payable and accrued liabilities $ - $ 0.7
FX forwards on net investment in certain foreign subsidiaries Accounts payable and accrued liabilities   -   1.0
Total derivatives designated as accounting hedges     -   1.7
Derivatives not designated as accounting hedges:        
FX forwards on certain assets and liabilities Accounts payable and accrued liabilities   0.5   0.7
Total liabilities   $ 0.5 $ 2.4
         
      Amount of Gain (Loss) Recognized in the consolidated statements of operations
      Three Months Ended  Six Months Ended
      June 30,   June 30,
Derivatives designated as accounting hedges Location on Income Statement 2013  2012  2013  2012
Interest rate swaps Interest income(expense), net$1.0 $0.9 $2.1 $1.7
                
Derivatives not designated as accounting hedges             
Foreign exchange forwards Other non-operating income (expense), net$1.0 $(1.4) $ (0.1) $(0.4)
                
  Unrecognized Losses, net of tax
  June 30, December 31,
  2013 2012
FX forwards on net investment hedges$ (1.7) $ (2.2)
Interest rate swaps  (0.2)   (0.7)
 Total$ (1.9) $ (2.9)
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   Three Months Ended   Three Months Ended
   June 30,   June 30,   June 30,
   2013 2012   2013 2012   2013 2012
Interest rate swaps   -   - Interest income (expense), net   (0.1)   (0.7) N/A   -   -
 Total $ - $ -   $ (0.1) $ (0.7)   $ - $ -
                        
   Six Months Ended   Six Months Ended   Six Months Ended
   June 30,   June 30,   June 30,
   2013 2012   2013 2012   2013 2012
Interest rate swaps   -   (0.1) Interest income (expense), net   (0.5)   (1.3) N/A   -   -
 Total $ - $ (0.1)   $ (0.5) $ (1.3)   $ - $ -
 June 30, December 31,
 2013 2012
Notional amount of currency pair:     
Contracts to sell euros for USD 50.0  50.0
Derivatives in Net Investment 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   Three Months Ended   Three Months Ended
   June 30,   June 30,   June 30,
   2013 2012   2013 2012   2013 2012
FX forwards $ (0.3) $ (1.5) N/A $ - $ - N/A $ - $ -
 Total $ (0.3) $ (1.5)   $ - $ -   $ - $ -
                        
   Six Months Ended   Six Months Ended   Six Months Ended
   June 30,   June 30,   June 30,
   2013 2012   2013 2012   2013 2012
FX forwards $ 0.5 $ (1.5) N/A $ - $ - N/A $ - $ -
 Total $ 0.5 $ (1.5)   $ - $ -   $ - $ -
 June 30, December 31,
 2013 2012
Notional amount of currency pair:     
Contracts to purchase USD with euros$ 25.7 $ 34.3
Contracts to sell USD for euros$ 49.6 $ 48.4
Contracts to purchase USD with GBP$ 3.5 $ 2.1
Contracts to sell USD for GBP$ 0.1 $ 1.7
Contracts to purchase USD with other foreign currencies$ 7.0 $ 6.7
Contracts to sell USD for other foreign currencies$ 11.4 $ 5.1
Contracts to purchase euros with other foreign currencies 14.2  14.4
Contracts to purchase euros with GBP 2.0  -
Contracts to sell euros for GBP 18.3  8.9
GOODWILL AND OTHER ACQUIRED INTANGIBLE ASSETS (Tables)
  Six Months Ended June 30, 2013
  MIS MA Consolidated
  Gross goodwill Accumulated impairment charge Net goodwill Gross goodwill Accumulated impairment charge Net goodwill Gross goodwill Accumulated impairment charge Net goodwill
Balance at beginning of year$ 11.5 $ - $ 11.5 $ 637.8 $ (12.2) $ 625.6 $ 649.3 $ (12.2) $ 637.1
                            
Additions/adjustments  -   -   -   -   -   -   -   -   -
Foreign currency translation adjustments  (0.6)   -   (0.6)   (16.7)   -   (16.7)   (17.3)   -   (17.3)
                            
Ending balance$ 10.9 $ - $ 10.9 $ 621.1 $ (12.2) $ 608.9 $ 632.0 $ (12.2) $ 619.8
                            
  Year Ended December 31, 2012
  MIS MA Consolidated
  Gross goodwill Accumulated impairment charge Net goodwill Gross goodwill Accumulated impairment charge Net goodwill Gross goodwill Accumulated impairment charge Net goodwill
Balance at beginning of year$ 11.0 $ - $ 11.0 $ 631.9 $ - $ 631.9 $ 642.9 $ - $ 642.9
                            
Additions/adjustments  -   -   -   (4.4)   -   (4.4)   (4.4)   -   (4.4)
Impairment charge  -   -   -   -   (12.2)   (12.2)   -   (12.2)   (12.2)
Foreign currency translation adjustments  0.5   -   0.5   10.3   -   10.3   10.8   -   10.8
                            
Ending balance$ 11.5 $ - $ 11.5 $ 637.8 $ (12.2) $ 625.6 $ 649.3 $ (12.2) $ 637.1
   June 30, December 31,
   2013 2012
Customer relationships $ 210.3 $ 219.6
Accumulated amortization   (79.5)   (74.0)
 Net customer relationships   130.8   145.6
        
Trade secrets   31.1   31.4
Accumulated amortization   (17.2)   (16.0)
 Net trade secrets   13.9   15.4
        
Software   67.6   73.2
Accumulated amortization   (33.4)   (33.7)
 Net software   34.2   39.5
        
Trade names   27.7   28.3
Accumulated amortization   (10.8)   (10.3)
 Net trade names   16.9   18.0
        
Other  24.2   24.9
Accumulated amortization   (18.0)   (16.9)
 Net other  6.2   8.0
        
Total acquired intangible assets, net $ 202.0 $ 226.5
 Three Months Ended Six Months Ended
 June 30, June 30,
 2013