MOODYS CORP /DE/ (Form: 10-K, Received: 02/27/2014 06:04:51)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(MARK ONE)

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2013

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO .

COMMISSION FILE NUMBER 1-14037

MOODY’S CORPORATION

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


DELAWARE		13-3998945
(STATE OF INCORPORATION)		(I.R.S. EMPLOYER IDENTIFICATION NO.)

7 World Trade Center at 250 Greenwich Street, NEW YORK, NEW YORK 10007

(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

(ZIP CODE)

REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 553-0300.

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:


TITLE OF EACH CLASS		NAME OF EACH EXCHANGE ON WHICH REGISTERED
COMMON STOCK, PAR VALUE $.01 PER SHARE		NEW YORK STOCK EXCHANGE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

NONE

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No þ

Indicate by check mark whether the Registrant: (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer (see definition of “accelerated filer and large accelerated filer” in Exchange Act Rule 12b-2).

Large Accelerated Filer þ Accelerated Filer ¨ Non-accelerated Filer ¨ Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No þ

The aggregate market value of Moody’s Corporation Common Stock held by nonaffiliates* on June 30, 2013 (based upon its closing transaction price on the Composite Tape on such date) was approximately $13.4 billion.

As of January 31, 2014, 213.7 million shares of Common Stock of Moody’s Corporation were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s definitive proxy statement for use in connection with its annual meeting of stockholders scheduled to be held on April 15, 2014, are incorporated by reference into Part III of this Form 10-K.

The Index to Exhibits is included as Part IV, Item 15(3) of this Form 10-K.

*	Calculated by excluding all shares held by executive officers and directors of the Registrant without conceding that all such persons are “affiliates” of the Registrant for purposes of federal securities laws.


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MOODY’S CORPORATION

INDEX TO FORM 10-K


		Page(s)
	Glossary of Terms and Abbreviations		4-9

PART I.
Item 1.	BUSINESS		10
	Background		10
	The Company		10
	Prospects for Growth		10-12
	Competition		12
	Moody’s Strategy		12-13
	Regulation		13-14
	Intellectual Property		14
	Employees		14
	Available Information		14
	Executive Officers of the Registrant		15-16
Item 1A.	RISK FACTORS		17-21
Item 1B.	UNRESOLVED STAFF COMMENTS		21
Item 2.	PROPERTIES		21
Item 3.	LEGAL PROCEEDINGS		22-23
Item 4.	MINE SAFETY DISCLOSURES		23

PART II.
Item 5.	MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES		24
	Moody’s Purchase of Equity Securities		24
	Common Stock Information and Dividends		25
	Equity Compensation Plan Information		25
	Performance Graph		26
Item 6.	SELECTED FINANCIAL DATA		27
Item 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		28
	The Company		28
	Critical Accounting Estimates		28-35
	Operating Segments		35
	Results of Operations		36-46
	Market Risk		46-47
	Liquidity and Capital Resources		47-55
	2014 Outlook		55-56
	Recently Issued Accounting Pronouncements		56
	Contingencies		56-58
	Forward-Looking Statements		58-59
Item 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		59
Item 8.	FINANCIAL STATEMENTS		60-112
Item 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE		113
Item 9A.	CONTROLS AND PROCEDURES		113
Item 9B.	OTHER INFORMATION		113


2		MOODY’S 2013 10K


		Page(s)

PART III.
Item 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATION GOVERNANCE		114
Item 11.	EXECUTIVE COMPENSATION		114
Item 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS		114
Item 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE		114
Item 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES		114

	PART IV.
Item 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES		115

SIGNATURES			116

INDEX TO EXHIBITS			117-120


Exhibits filed Herewith
10.25		Moody’s Corporation Retirement Account, amended and restated as of December 18, 2013
10.32		Sixth Amendment to the Profit Participation Plan of Moody’s Corporation
21		SUBSIDIARIES OF THE REGISTRANT
23.1		CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM – 2013 and 2012
31.1		Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Chief Executive Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Chief Financial Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.DEF		XBRL Definitions Linkbase Document
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB		XBRL Taxonomy Extension Labels Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document


		MOODY’S 2013 10K			3

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, depreciation and amortization and a goodwill impairment charge

Adjusted Operating Margin		Adjusted Operating Income divided by revenue

Amba		Amba Investment Services; a provider of investment research and quantitative analytics for global financial institutions; a subsidiary of the Company acquired 100% of Amba in December 2013.

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

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); includes accumulated gains & losses on cash flow and net investment hedges, certain gains and losses relating to pension and other retirement benefits obligations and foreign currency translation adjustments.

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 Updates to the ASC. It also provides background information for accounting guidance and the bases for conclusions on the changes in the ASC. ASUs are not considered authoritative until codified into the ASC

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

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

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 obligations

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, which comprised the IMS Health and NMR businesses

Commission		European Commission

Common Stock		The Company’s common stock

Company		Moody’s Corporation and its subsidiaries; MCO; Moody’s


4		MOODY’S 2013 10K


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

COSO		Committee of Sponsoring Organizations of the Treadway Commission

CP		Commercial paper

CP Notes		Unsecured CP notes

CP Program		The Company’s CP program entered into on October 3, 2007

CRAs		Credit rating agencies

CREF		Commercial real estate finance which includes REITs, commercial real estate collateralized debt obligations and CMBS; part of SFG

CreditView		Research product offered by MA that provides credit professionals a comprehensive, consolidated and streamlined view of credit information

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

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

DBPPs		Defined benefit pension plans

DCF		Discounted cash flow; a fair value calculation methodology whereby future projected cash flows are discounted back to their present value

Debt/EBITDA		Ratio of Total Debt to EBITDA

Directors’ Plan		The 1998 Moody’s Corporation Non-Employee Directors’ Stock Incentive Plan

Distribution Date		September 30, 2000; the date which Old D&B separated into two publicly traded companies – Moody’s Corporation and New D&B

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); offers risk management software products as well as software implementation services and related risk management advisory engagements

ESMA		European Securities and Market Authority

ESP		Estimated Selling Price; estimate of selling price, as defined in the ASC, at which the vendor would transact if the deliverable were sold by the vendor regularly on a stand-alone basis

ESPP		The 1999 Moody’s Corporation Employee Stock Purchase Plan

ETR		Effective tax rate

EU		European Union

EUR		Euros

Eurosystem		The monetary authority of the Eurozone, the collective of European Union member states that have adopted the euro as their official currency. The Eurosystem consists of the European Central Bank and the central banks of the member states that belong to the Eurozone

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

FDIC		Federal Deposit Insurance Corporation


		MOODY’S 2013 10K			5


Term		Definition

FIG		Financial institutions group; an LOB of MIS

Fitch		Fitch Ratings, a part of the Fitch Group

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

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

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

FX		Foreign exchange

GAAP		U.S. Generally Accepted Accounting Principles

GBP		British pounds

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

Intellectual Property		The Company’s intellectual property, including but not limited to proprietary information, trademarks, research, software tools and applications, models and methodologies, databases, domain names, and other proprietary materials

IRS		Internal Revenue Service

IT		Information technology

KIS		Korea Investors Service, Inc.; a leading Korean rating agency and consolidated subsidiary of the Company

KIS Pricing		Korea Investors Service Pricing, Inc.; a Korean provider of fixed income securities pricing and consolidated subsidiary of the Company

Korea		Republic of South Korea

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 relating to the Series 2005-1 Notes and Series 2007-1 Notes; a premium based on the excess, if any, of the discounted value of the remaining scheduled payments over the prepaid principal

MCO		Moody’s Corporation and its subsidiaries; the Company; Moody’s

MD&A		Management’s Discussion and Analysis of Financial Condition and Results of Operations

MIS		Moody’s Investors Service – a reportable segment of MCO

Moody’s		Moody’s Corporation and its subsidiaries; MCO; the Company

Net Income		Earnings attributable to Moody’s Corporation, which excludes the portion of net income from consolidated entities attributable to non-controlling shareholders

New D&B		The New D&B Corporation – which comprises the D&B business after September 30, 2000

NM		Not-meaningful percentage change (over 400%)

NMR		Nielsen Media Research, Inc.; a spin-off of Cognizant; a leading source of television audience measurement services

NRSRO		Nationally Recognized Statistical Rating Organization


6		MOODY’S 2013 10K


Term		Definition

OCI		Other comprehensive income (loss); includes gains and losses on cash flow and net investment hedges, certain gains and losses relating to pension and other retirement benefit obligations and foreign currency translation adjustments.

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

Other Retirement Plans		The U.S. retirement healthcare and U.S. retirement life insurance plans

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

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

PPP		Profit Participation Plan

PS		Professional Services ; an LOB of MA

RD&A		Research, Data and Analytics; an LOB within MA that distributes investor-oriented research and data, including in-depth research on major debt issuers, industry studies, commentary on topical credit events, economic research and analytical tools such as quantitative risk scores, and other analytical tools that are produced within MA

Redeemable Noncontrolling Interest		Represents minority shareholders’ interest in entities which are controlled but not wholly-owned by Moody’s and for which Moody’s obligation to redeem the minority shareholders’ interest is represented by a put/call relationship

Reform Act		Credit Rating Agency Reform Act of 2006

REITs		Real estate investment trusts

Relationship Revenue		In MIS, relationship revenue represents the recurring monitoring of a rated debt obligation and/or entities that issue such obligations, as well as revenue from programs such as commercial paper, medium-term notes and shelf registrations. For MA, revenue represents subscription-based revenue and maintenance revenue

Reorganization		The Company’s business reorganization announced in August 2007 which resulted in two new reportable segments (MIS and MA) beginning in January 2008

Retirement Plans		Moody’s funded and unfunded U.S. pension plans, the U.S. post-retirement healthcare plans and the U.S. post-retirement life insurance plans

RMBS		Residential mortgage-backed securities; part of SFG

RMS		The Risk Management Software LOB within MA which provides both economic and regulatory capital risk management software and implementation services. Now referred to as “ERS”

S&P		Standard & Poor’s, a division of McGraw-Hill Financial, Inc.

SEC		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

SIV		Structured Investment Vehicle

Stock Plans		The Old D&B’s 1998 Key Employees’ Stock Incentive Plan and the Restated 2001 Moody’s Corporation Key Employees’ Stock Incentive Plan

T&E		Travel and entertainment expenses


		MOODY’S 2013 10K			7


Term		Definition

Total Debt		Current and long-term portion of debt as reflected on the consolidated balance sheets, excluding current accounts payable and accrued liabilities incurred in the ordinary course of business

TPE		Third party evidence, as defined in the ASC, used to determine selling price based on a vendor’s or any competitor’s largely interchangeable products or services in standalone sales transactions to similarly situated customers

Transaction Revenue		For MIS, revenue representing the initial rating of a new debt issuance as well as other one-time fees. For MA, revenue represents software license fees and revenue from risk management advisory projects, training and certification services, and knowledge outsourcing engagements

U.K.		United Kingdom

U.S.		United States

USD		U.S. dollar

UTBs		Unrecognized tax benefits

UTPs		Uncertain tax positions

VSOE		Vendor specific objective evidence; evidence, as defined in the ASC, of selling price limited to either of the following: the price charged for a deliverable when it is sold separately, or for a deliverable not yet being sold separately, the price established by management having the relevant authority

WACC		Weighted average cost of capital

1998 Plan		Old D&B’s 1998 Key Employees’ Stock Incentive Plan

2000 Distribution		The distribution by Old D&B to its shareholders of all of the outstanding shares of New D&B common stock on September 30, 2000

2000 Distribution Agreement		Agreement governing certain ongoing relationships between the Company and New D&B after the 2000 Distribution including the sharing of any liabilities for the payment of taxes, penalties and interest resulting from unfavorable IRS determinations on certain tax matters and certain other potential tax liabilities

2001 Plan		The Amended and Restated 2001 Moody’s Corporation Key Employees’ Stock Incentive Plan

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

2007 Agreement		Note purchase agreement dated September 7, 2007 relating to the Series 2007-1 Notes

2007 Facility		Revolving credit facility of $1 billion entered into on September 28, 2007, expiring in 2012

2007 Restructuring Plan		The Company’s 2007 restructuring plan approved December 31, 2007

2008 Term Loan		Five-year $150.0 million senior unsecured term loan entered into by the Company on May 7, 2008

2009 Restructuring Plan		The Company’s 2009 restructuring plan approved March 27, 2009

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

2010 Senior Notes		Principal amount of $500.0 million, 5.50% senior unsecured notes due in September 2020 pursuant to the 2010 Indenture

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

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

2013 Indenture		Supplemental indenture and related agreements dated August 12, 2013, relating to the 2013 Senior Notes

2013 Senior Notes		Principal amount of $500 million, 4.875% senior unsecured notes due in February 2024 pursuant to the 2013 Indenture


8		MOODY’S 2013 10K


Term		Definition

7WTC		The Company’s corporate headquarters located at 7 World Trade Center

7WTC Lease		Operating lease agreement entered into on October 20, 2006


		MOODY’S 2013 10K			9

PART I

ITEM 1.

BUSINESS

BACKGROUND

As used in this report, except where the context indicates otherwise, the terms “Moody’s” or the “Company” refer to Moody’s Corporation, a Delaware corporation, and its subsidiaries. The Company’s executive offices are located at 7 World Trade Center at 250 Greenwich Street, New York, NY 10007 and its telephone number is (212) 553-0300.

THE COMPANY

Moody’s is a provider of (i) credit ratings, (ii) credit, capital markets and economic related 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 reports in two reportable segments: MIS and MA. The MIS segment consists of all credit rating activity. All of Moody’s other non-rating commercial activities are included within the MA segment. Financial information and operating results of these segments, including revenue, expenses and operating income, are included in Part II, Item 8. Financial Statements of this annual report, and are herein incorporated by reference.

MIS publishes credit ratings on a wide range of debt obligations and the entities that issue such obligations in markets worldwide, including various corporate and governmental obligations, structured finance securities and commercial paper programs. Revenue is derived from the originators and issuers of such transactions who use MIS ratings to support the distribution of their debt issues to investors. MIS provides ratings in more than 120 countries. Ratings are disseminated via press releases to the public through a variety of print and electronic media, including the Internet and real-time information systems widely used by securities traders and investors. As of December 31, 2013, MIS had ratings relationships with approximately 11,000 corporate issuers and approximately 21,000 public finance issuers. Additionally, the Company has rated and currently monitors ratings on approximately 76,000 structured finance obligations (representing approximately 12,000 transactions). The aforementioned amounts relating to the number of issuers and transactions represent issuers or transactions that had an active rating at any point during the year ended December 31, 2013.

The MA segment 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, commentary on topical credit related events and also provides economic research and credit data and analytical tools such as quantitative credit risk scores. Within its Enterprise Risk Solutions business, MA provides software solutions as well as related risk management services. Within its Professional Services business it provides outsourced research and analytical services along with financial training and certification programs. MA customers represent more than 3,900 institutions worldwide operating in approximately 120 countries. During 2013 Moody’s research web site was accessed by over 230,000 individuals including 31,000 client users.

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.

PROSPECTS FOR GROWTH

Over recent decades, global fixed-income markets have grown significantly both in terms of the amount and the types of securities or other obligations outstanding. Beginning in mid-2007, there was a severe market disruption and associated financial crisis both in the


10		MOODY’S 2013 10K

developed and emerging markets resulting in a global decline in issuance activity for some significant asset classes and weak economic performance in advanced economies. Since this financial crisis, many markets and economies have recovered and Moody’s believes that the overall long-term outlook remains favorable for continued growth of the global fixed-income market and related financial information market, which includes information such as credit opinions, research, data, analytics, risk management tools and related services.

Moody’s growth is influenced by a number of trends that impact financial information markets including:

Health of the world’s major economies;

Debt capital markets activity;

Disintermediation of credit markets;

Fiscal and monetary policy of governments;

Changing regulatory requirements; and

Business investment spending.

Moody’s is well positioned to benefit from a continued recovery in global fixed-income market activity and a more informed use of credit ratings as well as research and related analytical products in an environment with heightened attention to credit risk analysis and management. Moody’s expects that these developments will support continued long-term demand for high-quality, independent credit opinions, research, data, analytics, risk management tools and related services.

Strong secular trends will continue to provide long-term growth opportunities. Moody’s key growth drivers include debt market issuance driven by global GDP growth, continued disintermediation of fixed-income markets in both developed and emerging economies that drives issuance and demand for new products and services, growth in MA driven by further penetration of MA’s client base and expansion of bank and insurance risk regulatory requirements, pricing opportunities aligned with value and advances in information technology.

Growth in global fixed income markets in a given year is dependent on many macroeconomic and capital market factors including interest rates, business investment spending, corporate refinancing needs, merger and acquisition activity, issuer profits, consumer borrowing levels and securitization activity. Rating fees paid by debt issuers account for most of the revenue of MIS. Therefore, a substantial portion of MIS’s revenue is dependent upon the dollar-equivalent volume and number of ratable debt securities issued in the global capital markets. MIS’s results can be affected by factors such as the performance and the prospects for growth of the major world economies, the fiscal and monetary policies pursued by their governments and the decisions of issuers to request MIS ratings to aid investors in their investment decisions. However, annual fee arrangements with frequent debt issuers, annual debt monitoring fees and annual fees from commercial paper and medium-term note programs, bank and insurance company financial strength ratings, mutual fund ratings, and other areas partially mitigate MIS’s dependence on the volume or number of new debt securities issued in the global fixed-income markets. Furthermore, the strong growth trend seen in the issuance of structured finance securities from the mid-1990’s reversed dramatically in 2008 due to market turmoil, with continued declines seen in 2009 and 2010, before stabilizing in 2011 with Moody’s experiencing revenue growth in this market in 2012. In 2013, Moody’s experienced revenue growth in the U.S. structured credit and commercial real estate subsectors of the structured finance market, but also experienced a decline in non-U.S. structured finance revenue, most notably in EMEA. Despite significant declines from peak market issuance levels, Moody’s believes that structured finance securities will continue to play a role in global fixed-income markets and will provide opportunities for longer term revenue growth. Moody’s will continue to monitor this market and adapt to meet the changing needs of its participants.

The pace of change in technology and communication over the past two decades makes information about investment alternatives widely available throughout the world and facilitates issuers’ ability to place securities outside their national markets and investors’ capacity to obtain information about securities issued outside their national markets. Technology also allows issuers and investors the ability to more readily obtain information about new financing techniques and new types of securities that they may wish to purchase or sell, which in the absence of the appropriate technology may not be readily or easily obtainable. This availability of information promotes the ongoing integration and expansion of financial markets worldwide giving issuers and investors access to a wider range of established and newer capital markets. As technology provides broader access to worldwide markets, it also results in a greater need for credible, globally comparable opinions about credit risk, data, analytics and related services. Additionally, information technology also provides opportunities to further build a global platform to support Moody’s continued expansion in developing markets.

An ongoing trend in the world’s capital markets is the disintermediation of financial systems. Issuers increasingly raise capital in the global public capital markets, in addition to, or in substitution for, traditional financial intermediaries. Moreover, financial intermediaries have sold assets in the global public capital markets, in addition to, or instead of, retaining those assets. Credit market disruptions, which began in mid-2007, temporarily slowed the trend of disintermediation globally. Moody’s believes that debt capital markets offer advantages in capacity and efficiency compared to the traditional banking systems and that the trend of increased disintermediation will continue. In fact, disintermediation continued in the past year because of the ongoing low interest rate environment and ongoing


		MOODY’S 2013 10K			11

bank deleveraging, which has encouraged a number of corporations and other entities to seek alternative funding in the bond markets. Moody’s also observes disintermediation in key emerging markets where economic growth may outpace internal banking system capacity. Thus, disintermediation is expected to continue over the longer-term, with Moody’s continuing to target investment and resources to those markets where disintermediation and bond issuance is expected to remain robust.

In response to the credit market disruptions beginning in mid-2007 and, ongoing volatility in the global capital markets, and new regulatory requirements, financial institutions are investing in people, processes and systems to enhance risk management and compliance functions. Regulations such as the Dodd-Frank Wall Street Reform and Consumer Protection Act, Basel II, Basel III, Solvency II and others may stimulate demand for MA products. Financial institutions are also investing in advanced qualitative and quantitative tools and services to support their management of complex balance sheets and diverse portfolios. MA offers a suite of risk management products and services to address these needs, including but not limited to risk management software, economic analysis, training and professional services.

Legislative bodies and regulators in the U.S., Europe and selective other jurisdictions continue to conduct regulatory reviews of CRAs, which may result in, for example, an increased number of competitors, changes to the business model or restrictions on certain business activities of MIS, removal of references to ratings in certain regulations, or increased costs of doing business for MIS. Therefore, in order to broaden the potential for expansion of non-ratings services, Moody’s reorganized in January 2008 into two distinct businesses: MIS, consisting solely of the ratings business, and MA, which conducts all non-ratings activities including the sale of credit research produced by MIS and the production and sale of other economic and credit-related products and services. The reorganization broadens the opportunities for expansion by MA into activities that may have otherwise been restricted for MIS, due to the potential for conflicts of interest with the ratings business. At present, Moody’s is unable to assess the nature and effect that any regulatory changes may have on future growth opportunities.

Moody’s operations are subject to various risks, as more fully described in Part I, Item 1A “Risk Factors,” inherent in conducting business on a global basis. Such risks include currency fluctuations and possible nationalization, expropriation, exchange and price controls, changes in the availability of data from public sector sources, limits on providing information across borders and other restrictive governmental actions.

COMPETITION

The MIS business competes with other CRAs and with investment banks and brokerage firms that offer credit opinions and research. Many users of MIS’s ratings also have in-house credit research capabilities. MIS’s largest competitor in the global credit rating business is Standard & Poor’s Ratings Services (S&P), a division of McGraw Hill Financial. There are some rating markets, based on industry, geography and/or instrument type, in which Moody’s has made investments and obtained market positions superior to S&P, while in other markets, the reverse is true.

In addition to S&P, MIS’s competitors include Fitch Ratings, Dominion Bond Rating Service, A.M. Best Company, Japan Credit Rating Agency Ltd., Kroll Bond Rating Agency Inc., Morningstar Inc. and Egan-Jones Ratings Company. In Europe, examples of competitors include Euler Hermes Rating, Feri EuroRating Services AG, Creditreform Rating AG, ICAP Group and Companhia Portuguesa de Rating. There are additional competitors in other regions and countries, for example, in China, where Moody’s operates through a joint venture. These competitors include China Lianhe Credit Rating Co Ltd., Shanghai Brilliance Credit Rating & Investors Service Co Ltd., Dagong Global Credit Rating Co Ltd. and Pengyuan Credit Rating Co Ltd.

MA competes broadly in the financial information industry against diversified competitors such as Thomson Reuters, Bloomberg, S&P Capital IQ, Fitch Solutions, Dun & Bradstreet, IBM, Wolters Kluwer, Sungard, SAS, Fiserv, MSCI and Markit Group among others. MA’s main competitors within RD&A include S&P Capital IQ, CreditSights, Thomson Reuters, Intex, IHS Global Insight, BlackRock Solutions, FactSet and other providers of fixed income analytics, valuations, economic data and research. In ERS, MA faces competition from both large software providers such as IBM Algorithmics, SunGard, SAS, Oracle, Misys, Oliver Wyman, Verisk and various other vendors and in-house solutions. Within PS, MA competes with Omega Performance, DC Gardner, and a host of financial training and education firms, and with Evalueserve, CRISIL Global Research & Analytics, and other providers of outsourced research and professional services.

MOODY’S STRATEGY

Moody’s corporate strategy is to be the world’s most respected authority servicing financial risk-sensitive markets. The key aspects to implement this strategy are to:

Defend and enhance the core ratings and research business of MIS;

Build MA’s position as a leading provider of risk management solutions to financial institutions; and

Invest in strategic growth opportunities.


12		MOODY’S 2013 10K

Moody’s will make investments to defend and enhance its core businesses in an attempt to position the Company to fully capture market opportunities resulting from global debt capital market expansion and increased business investment spending. Moody’s will also make strategic investments to achieve scale in attractive financial information markets, move into attractive product and service adjacencies where the Company can leverage its brand, extend its thought leadership and expand its geographic presence in high growth emerging markets.

To broaden the Company’s potential, MA provides a wide range of products and services to enable financial institutions to better manage risk. As such, MA adds to the Company’s value proposition in three ways. First, MA’s subscription businesses provide a significant base of recurring revenue to offset cyclicality in ratings issuance volumes that may result in volatility to MIS revenues. Second, MA products and services, such as financial training and professional services on research and risk management best practices, provide opportunities for entry into emerging markets before debt capital markets fully develop and present growth opportunities for the ratings business. Finally, MA’s integrated risk management software platform embeds Moody’s solutions deep into the technology infrastructure of banks and insurance companies worldwide.

Moody’s invests in initiatives to implement the Company’s strategy, including internally-led organic development and targeted acquisitions. Example initiatives include:

Enhancements to ratings quality and product extensions;

Investments that extend ownership and participation in JVs and strategic alliances;

Headcount growth to meet customer demand for new products and services;

Selective, bolt-on acquisitions that accelerate the ability to grow Moody’s businesses; and

Expansion in emerging markets.

The 2013 acquisition of Amba Investment Services is illustrative of Moody’s strategy to pursue selective, bolt-on acquisitions and expand product and service offerings for our customers. Founded in 2003, Amba provides outsourced investment research and analytics to financial institutions, including asset managers, investment banks, broker-dealers, insurance and alternative investment firms. The acquisition bolsters the research and analytical capabilities offered by MA through Copal.

REGULATION

MIS and many of the securities that it rates are subject to extensive regulation in both the U.S. and in other countries (including by state and local authorities). Thus, existing and proposed laws and regulations can impact the Company’s operations and the markets for securities that it rates. Additional laws and regulations have been adopted but not yet implemented or have been proposed or are being considered. Each of the existing, adopted, proposed and potential laws and regulations can increase the costs and legal risk associated with the issuance of credit ratings and may negatively impact Moody’s operations or profitability, the Company’s ability to compete, or result in changes in the demand for credit ratings, in the manner in which ratings are utilized and in the manner in which Moody’s operates.

In the EU, the CRA industry is registered and supervised through a pan-European regulatory framework which is a compilation of three sets of legislative actions. In 2009, the European Parliament passed a new regulation (“CRA1”) that established an oversight regime for the CRA industry in the EU. CRA1, which required the registration, formal regulation and periodic inspection of CRAs operating in the EU, became fully effective in September 2010. MIS applied for registration in August 2010 and was granted registration in October 2011. In January 2011, CRA2 established the European Securities and Markets Authority. ESMA has had direct supervisory responsibility for the registered CRA industry throughout the EU since July 2011.

In the summer of 2013, a new set of rules that augmented the CRAs’ supervisory framework went into effect. Commonly referred to as CRA3, these new rules, among other things:

impose various additional procedural requirements with respect to ratings of sovereign issuers;

require member states to adopt laws imposing liability on CRAs for an intentional or grossly negligent failure to abide by the applicable regulations;

impose mandatory rotation requirements on CRAs hired by issuers of securities for ratings of resecuritizations, which may limit the number of years a CRA can issue ratings for such securities of a particular issuer;

impose restrictions on CRAs or their shareholders if certain ownership thresholds are crossed; and

impose additional procedural and substantive requirements on the pricing of services.


		MOODY’S 2013 10K			13

Certain of the provisions of CRA3 will be subject to ESMA rule-making and it is expected that process will happen within the year.

In December 2012, the Staff of the SEC’s Trading and Markets Division published a “Report to Congress on Assigned Credit Ratings.” In the report, commonly referred to as the Franken Amendment Study, the SEC Staff identified several potential courses of action without endorsing any of them and noted that any changes through SEC rulemaking would require additional study of relevant information. The timing regarding the remainder of the SEC’s rulemaking under the Financial Reform Act remains uncertain.

In light of the regulations that have gone into effect in both the EU and the US (as well as many other countries), from time to time and as a matter of course pursuant to their enabling legislation these regulatory authorities have and will continue to publish reports that describe their oversight activities over the industry. In addition, other legislation and regulation relating to credit rating and research services is being considered by local, national and multinational bodies and this type of activity is likely to continue in the future. Finally, in certain countries, governments may provide financial or other support to locally-based rating agencies. For example, governments may from time to time establish official rating agencies or credit ratings criteria or procedures for evaluating local issuers. If enacted, any such legislation and regulation could change the competitive landscape in which MIS operates. The legal status of rating agencies has been addressed by courts in various decisions and is likely to be considered and addressed in legal proceedings from time to time in the future. Management of the Company cannot predict whether these or any other proposals will be enacted, the outcome of any pending or possible future legal proceedings, or regulatory or legislative actions, or the ultimate impact of any such matters on the competitive position, financial position or results of operations of Moody’s.

INTELLECTUAL PROPERTY

Moody’s and its affiliates own and control a variety of intellectual property, including but not limited to proprietary information, trademarks, research, software tools and applications, models and methodologies, databases, domain names, and other proprietary materials that, in the aggregate, are of material importance to Moody’s business. Management of Moody’s believes that each of the trademarks and related corporate names, marks and logos containing the term “Moody’s” are of material importance to the Company.

The Company, primarily through MA, licenses certain of its databases, software applications, credit risk models, training courses in credit risk and capital markets, research and other publications and services that contain Intellectual Property to its customers. These licenses are provided pursuant to standard fee-bearing agreements containing customary restrictions and intellectual property protections.

In addition, Moody’s licenses certain technology and other intellectual property rights owned and controlled by others. Specifically, Moody’s licenses financial information (such as market and index data, financial statement data, third party research, default data, and security identifiers) as well as software development tools and libraries. The Company obtains such technology and intellectual property rights from generally available commercial sources. Most of such technology and intellectual property is available from a variety of sources. Although certain financial information (particularly security identifiers and certain pricing or index data) is available only from a limited number of sources, Moody’s does not believe it is dependent on any one data source for a material aspect of its business.

The Company considers its Intellectual Property to be proprietary, and Moody’s relies on a combination of copyright, trademark, trade secret, patent, non-disclosure and other contractual safeguards for protection. Moody’s also pursues instances of third-party infringement of its Intellectual Property in order to protect the Company’s rights. The Company owns a single, non-material patent. None of the Intellectual Property is subject to a specific expiration date, except to the extent that the copyright in items that the Company authors (such as credit reports, research, and other written opinions) expires pursuant to relevant law, currently 95 years from first publication in the US; and the single patent that Moody’s owns expires in 2028.

The names of Moody’s products and services referred to herein are trademarks, service marks or registered trademarks or service marks owned by or licensed to Moody’s or one or more of its subsidiaries.

EMPLOYEES

As of December 31, 2013 the number of full-time equivalent employees of Moody’s was approximately 8,400.

AVAILABLE INFORMATION

Moody’s investor relations Internet website is http://ir.moodys.com/. Under the “SEC Filings” tab at this website, the Company makes available free of charge its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports as soon as reasonably practicable after they are filed with, or furnished to, the SEC.

The SEC maintains an internet site that contains annual, quarterly and current reports, proxy and other information statements that the Company files electronically with the SEC. The SEC’s internet site is http://www.sec.gov/.


14		MOODY’S 2013 10K

Executive Officers of the Registrant


Name, Age and Position		Biographical Data

Mark E. Almeida, 54 President, Moody’s Analytics		Mr. Almeida has served as President of Moody’s Analytics since January 2008. Prior to this position, Mr. Almeida was Senior Vice President of Moody’s Corporation from August 2007 to January 2008, Senior Managing Director of the Investor Services Group (ISG) at Moody’s Investors Service, Inc. from December 2004 to January 2008 and was Group Managing Director of ISG from June 2000 to December 2004. Mr. Almeida joined Moody’s Investors Service, Inc. in April 1988 and has held a variety of positions with the company in both the U.S. and overseas.

Richard Cantor, 56 Chief Risk Officer		Mr. Cantor has served as Chief Risk Officer of Moody’s Corporation since December 2008 and as Chief Credit Officer of Moody’s Investors Service, Inc. since November 2008. From July 2008 to November 2008, Mr. Cantor served as Acting Chief Credit Officer. Prior thereto, Mr. Cantor was Managing Director of Moody’s Credit Policy Research Group from June 2001 to July 2008, after serving as Senior Vice President in the Financial Guarantors Rating Group. Mr. Cantor joined Moody’s in 1997 from the Federal Reserve Bank of New York, where he served as Assistant Vice President in the Research Group and was Staff Director at the Discount Window. Prior to the Federal Reserve, Mr. Cantor taught Economics at UCLA and Ohio State and has taught on an adjunct basis at the business schools of Columbia University and New York University.

Robert Fauber, 43 Senior Vice President, Corporate Development		Mr. Fauber has served as Senior Vice President—Corporate Development of Moody’s Corporation since April 2009 and Head of the MIS Commercial Group since January 2013. Mr. Fauber served as Vice President-Corporate Development from September 2005 to April 2009. Prior to joining Moody’s, Mr. Fauber served in several roles at Citigroup from 1999 to 2005, including most recently, Director of Planning and Business Development for Citigroup’s Alternative Investments division. Prior to that, Mr. Fauber worked as a Director in Corporate Strategy & Business Development for Citigroup and a Vice President and Associate in the Financial Sponsor and Telecom investment banking groups at the firm’s Salomon Smith Barney subsidiary. From 1992-1996, Mr. Fauber worked at NationsBank (now Bank of America), working in the middle market commercial banking group and also ran the firm’s Global Finance college recruiting program in 1997.

John J. Goggins, 53 Executive Vice President and General Counsel		Mr. Goggins has served as the Company’s Executive Vice President and General Counsel since April 2011 and the Company’s Senior Vice President and General Counsel from October 2000 until April 2011. Mr. Goggins joined Moody’s Investors Service, Inc. in February 1999 as Vice President and Associate General Counsel. Prior thereto, he served as counsel at Dow Jones & Company from 1995 to 1999, where he was responsible for securities, acquisitions and general corporate matters. Prior to Dow Jones, he was an associate at Cadwalader, Wickersham & Taft from 1985 to 1995, where he specialized in mergers and acquisitions.

Linda S. Huber, 55 Executive Vice President and Chief Financial Officer		Ms. Huber has served as the Company’s Executive Vice President and Chief Financial Officer since May 2005. Prior thereto, she served as Executive Vice President and Chief Financial Officer at U.S. Trust Company, a subsidiary of Charles Schwab & Company, Inc., from 2003 to 2005. Prior to U.S. Trust, she was Managing Director at Freeman & Co. from 1998 through 2002. She served PepsiCo as Vice President of Corporate Strategy and Development from 1997 until 1998 and as Vice President and Assistant Treasurer from 1994 until 1997. She served as Vice President in the Energy Investment Banking Group at Bankers Trust Company from 1991 until 1994 and as an Associate in the Energy Group at First Boston Corporation from 1986 through 1990. She also held the rank of Captain in the U.S. Army where she served from 1980 to 1984.


		MOODY’S 2013 10K			15


Name, Age and Position		Biographical Data

Michel Madelain, 58 President and Chief Operating Officer, Moody’s Investors Service		Mr. Madelain has served as President of Moody’s Investors Service Inc. since November 2010 and as Chief Operating Officer since May 2008. Prior to this, Mr. Madelain served as Executive Vice President, Fundamental Ratings from September 2007 to May 2008, with responsibility for all Global Fundamental Ratings, including Corporate Finance, Financial Institutions, Public Finance and Infrastructure Finance. He managed the Financial Institutions group from March 2007 until September 2007. Mr. Madelain served as Group Managing Director, EMEA Corporate Ratings from November 2000 to March 2007 and prior thereto held several Managing Director positions in the U.S. and U.K. Fundamental Rating Groups. Prior to joining Moody’s in 1994, Mr. Madelain served as a Partner of Ernst & Young, Auditing Practice. Mr. Madelain is qualified as a Chartered Accountant in France.

Joseph (Jay) McCabe, 63 Senior Vice President, Corporate Controller		Mr. McCabe has served as the Company’s Senior Vice President—Corporate Controller since December 2005. Mr. McCabe joined Moody’s in July 2004 as Vice President and Corporate Controller. Before joining the Company, he served as Vice President—Corporate Controller at PPL Corporation, an energy and utility holding company, from 1994 to 2003. Prior to PPL Corporation, he served Deloitte & Touche as Partner from 1984 to 1993 and as a member of the firm’s audit practice from 1973 to 1984.

Raymond W. McDaniel, Jr., 56 President and Chief Executive Officer		Mr. McDaniel has served as the President and Chief Executive Officer of the Company since April 2012, and served as the Chairman and Chief Executive Officer from April 2005 until April 2012. He currently serves on the MIS Committee of the Board of Directors. Mr. McDaniel served as the Company’s President from October 2004 until April 2005 and the Company’s Chief Operating Officer from January 2004 until April 2005. He has served as Chairman and Chief Executive Officer of Moody’s Investors Service, Inc., a subsidiary of the Company, since October 2007 and held the additional title of President from November 2001 to August 2007 and December 2008 to November 2010. Mr. McDaniel served as the Company’s Executive Vice President from April 2003 to January 2004, and as Senior Vice President, Global Ratings and Research from November 2000 until April 2003. He served as Senior Managing Director, Global Ratings and Research, of Moody’s Investors Service from November 2000 until November 2001 and as Managing Director, International from 1996 to November 2000. Mr. McDaniel currently is a Director of John Wiley & Sons, Inc.

Lisa S. Westlake, 52 Senior Vice President and Chief Human Resource Officer		Ms. Westlake has served as the Company’s Senior Vice President and Chief Human Resources Officer since November 2008. Prior to this position, Ms. Westlake served as Vice President—Investor Relations from December 2006 to November 2008 and Managing Director—Finance from September 2004 to December 2006. Prior to joining the Company, Ms. Westlake was a senior consultant with the Schiff Consulting Group from 2003 to 2004. From 1996 to 2003 Ms. Westlake worked at American Express Company where she held several different positions such as Vice President and Chief Financial Officer for the OPEN Small Business Network, Vice President and Chief Financial Officer for Establishment Services and Vice President and Chief Financial Officer for Relationship Services. From 1989 to 1995 Ms. Westlake held a range of financial management positions at Dun & Bradstreet Corporation and its subsidiary at the time, IMS International. From 1984 to 1987 Ms. Westlake served at Lehman Brothers in both the investment banking and municipal trading areas.

Blair L. Worrall, 57 Senior Vice President, Ratings Delivery and Data		Mr. Worrall has served as Senior Vice President—Ratings Delivery and Data since February 2013 and Head of MIS Ratings Transaction Services since January 2014. Mr. Worrall served as Senior Vice President—Internal Audit from April 2011 to February 2013 and as Vice President—Internal Audit from September 2007 to April 2011. He served as the Controller for MIS from November 2004 until September 2007. Prior to joining the Company, Mr. Worrall was Vice President, Accounting for RCN Corporation from 2002 to 2004 and held various finance positions at Dow Jones & Company, Inc. from 1979 to 2001.


16		MOODY’S 2013 10K

ITEM 1A.

RISK FACTORS

The following risk factors and other information included in this annual report on Form 10-K should be carefully considered. The risks and uncertainties described below are not the only ones the Company faces. Additional risks and uncertainties not presently known to the Company or that the Company’s management currently deems minor or insignificant also may impair its business operations. If any of the following risks occur, Moody’s business, financial condition, operating results and cash flows could be materially and adversely affected. These risk factors should be read in conjunction with the other information in this annual report on Form 10-K.

U.S. Laws and Regulations Affecting the Credit Rating Industry are Rapidly Evolving and May Negatively Impact the Nature and Economics of the Company’s Business

Moody’s operates in a highly regulated industry and is subject to extensive regulation by federal, state and local authorities in the U.S., including the Reform Act and the Financial Reform Act. These regulations are complex, continually evolving and have tended to become more stringent over time. See “Regulation” in Part 1, Item 1 of this annual report on Form 10-K for more information. These laws and regulations:

seek to encourage, and may result in, increased competition among rating agencies and in the credit rating business;

may result in alternatives to credit ratings or changes in the pricing of credit ratings;

restrict the use of information in the development or maintenance of credit ratings;

increase regulatory oversight of the credit markets and CRA operations;

limit the number of years a CRA can rate the securities of a particular issuer;

provide for direct jurisdiction of the SEC over CRAs that seek NRSRO status, and grant authority to the SEC to inspect the operations of CRAs; and

authorize the adoption of enhanced oversight standards, new pleading standards and enhanced liability for CRAs, which may result in increases in the number of legal proceedings claiming liability for losses suffered by investors on rated securities and aggregate legal defense costs.

These laws and regulations, and any future rulemaking, could result in reduced demand for credit ratings and increased costs, which Moody’s may be unable to pass through to customers. In addition, there may be uncertainty over the scope, interpretation and administration of such laws and regulations. The Company may be required to incur significant expenses in order to ensure compliance and mitigate the risk of fines, penalties or other sanctions. Legal proceedings could become increasingly lengthy and there may be uncertainty over and exposure to liability. It is difficult to accurately assess the future impact of legislative and regulatory requirements on Moody’s business and its customers’ businesses, and they may affect MIS’s communications with issuers as part of the rating assignment process, alter the manner in which MIS’s ratings are developed, assigned and communicated, affect the manner in which MIS or its customers or users of credit ratings operate, impact the demand for MIS’s ratings and alter the economics of the credit ratings business, including by restricting or mandating business models for rating agencies. Further, speculation concerning the impact of legislative and regulatory initiatives and the increased uncertainty over potential liability and adverse legal or judicial determinations may affect Moody’s stock price. Although these recent and pending legislative and regulatory initiatives apply to rating agencies and credit markets generally, they may affect Moody’s in a disproportionate manner. Each of these developments increase the costs and legal risk associated with the issuance of credit ratings and may have a material adverse effect on Moody’s operations, profitability and competitiveness, the demand for credit ratings and the manner in which such ratings are utilized.

Financial Reforms Outside the U.S. Affecting the Credit Rating Industry May Negatively Impact the Nature and Economics of the Company’s Business

In addition to the extensive and evolving U.S. laws and regulations governing the industry, foreign jurisdictions have taken measures to increase regulation of rating agencies and the markets for ratings. In particular, the EU has adopted a new regulatory framework for rating agencies operating in the EU, and introduced a common EU regulatory approach to oversight of CRAs. The EU has established conditions for the issuance of credit ratings, rules on the organization and conduct of CRAs—including restrictions on certain activities deemed to create a conflict of interest—and special requirements for the rating of structured finance instruments. ESMA has direct supervisory authority for CRAs in the EU.

The amendments adopted by the European Parliament to its existing CRA regulations (generally referred to as CRA3) became effective on June 20, 2013. As adopted, CRA3, among other things, imposes: (i) various additional procedural requirements with respect to ratings of sovereign issuers; (ii) requirements that member states to adopt laws imposing liability on CRAs for an intentional or grossly negligent failure to abide by the applicable regulations; (iii) mandatory rotation requirements on CRAs hired by issuers of securities for ratings on resecuritizations, which may limit the number of years a CRA can issue ratings for such securities of a particular issuer; (iv) restrictions on CRAs or their shareholders if certain ownership thresholds are crossed; (v) additional procedural and substantive requirements on the pricing of services.


		MOODY’S 2013 10K			17

EU financial reforms could have a significant negative effect on Moody’s operations, profitability or ability to compete, or the markets for its products and services, including in ways that Moody’s presently is unable to predict. In particular, exposure to increased liability under the EU regulations may further increase costs and legal risks associated with the issuance of credit ratings and materially and adversely impact Moody’s results of operations. In addition, compliance with the amended EU regulations may increase costs of operations.

Further, Moody’s believes there is still potential for additional rulemaking by the EU and other jurisdictions that can significantly impact operations or the markets for Moody’s products and services, such as regulations affecting the need for debt securities to be rated, establishing criteria for credit ratings or limiting the entities authorized to provide credit ratings. Moody’s cannot predict the extent of such future laws and regulations, and the effect that they will have on Moody’s business or the potential for increased exposure to liability could be significant. Financial reforms in the EU and other foreign jurisdictions may have a material adverse effect on Moody’s business, operating results and financial condition.

The Company Faces Exposure to Litigation Related to Rating Opinions

Moody’s faces exposure to litigation related to MIS’s ratings actions, as well as other business practices. As a result of difficult economic times and turbulent markets in recent years, the market value of credit-dependent instruments has declined and defaults have increased. This development has led to a significant increase in the number of legal proceedings that Moody’s is facing, including class actions and other litigation, government investigations and inquiries concerning events in the U.S. subprime residential mortgage sector and the credit markets more broadly. Legal proceedings impose additional expenses on the Company and require the attention of senior management to an extent that may significantly reduce their ability to devote time addressing other business issues. Risks relating to legal proceedings may be heightened in foreign jurisdictions that lack the legal protections or liability standards comparable to those that exist in the U.S. In addition, new laws and regulations have been and may continue to be enacted that establish lower liability standards, shift the burden of proof or relax pleading requirements, thereby increasing the risk of successful litigations in the U.S. and in foreign jurisdictions. These litigation risks are often difficult to assess or quantify. Moody’s may not have adequate insurance or reserves to cover these risks, and the existence and magnitude of these risks often remains unknown for substantial periods of time. Furthermore, to the extent that Moody’s is unable to achieve dismissals at an early stage and litigation matters proceed to trial, the aggregate legal defense costs incurred by Moody’s increase substantially, as does the risk of an adverse outcome. See “Contingencies” for more information regarding ongoing investigations and civil litigation that the Company currently faces. Due to the number of these proceedings and the significant amount of damages sought, there is a risk that Moody’s will be subject to judgments, settlements, fines, penalties or other adverse results that could have a material adverse effect on its business, operating results and financial condition.

The Company is Exposed to Legal, Economic and Regulatory Risks of Operating in Foreign Jurisdictions

Moody’s conducts operations in various countries outside the U.S. and derives a significant portion of its revenue from foreign sources. Changes in the economic condition of the various foreign economies in which the Company operates may have an impact on the Company’s business. For example, economic uncertainty in the Eurozone or elsewhere could affect the number of securities offerings undertaken within those particular areas. In addition, operations abroad expose Moody’s to a number of legal, economic and regulatory risks such as:

restrictions on the ability to convert local currency into USD;

exposure to exchange rate movements between foreign currencies and USD;

the costs of repatriating cash held by entities outside the U.S.;

U.S. laws affecting overseas operations including domestic and foreign export and import restrictions, tariffs and other trade barriers;

differing legal or civil liability, compliance and regulatory standards;

uncertain and evolving laws and regulations applicable to the financial services industries;

economic, political and geopolitical market conditions;

the possibility of nationalization, expropriation, price controls and other restrictive governmental actions;

competition with local rating agencies that have greater familiarity, longer operating histories and/or support from local governments or other institutions;

reduced protection for intellectual property rights;

longer payment cycles and possible problems in collecting receivables;

differing accounting principles and standards;

difficulties and delays in translating documentation into foreign languages; and

potentially adverse tax consequences.


18		MOODY’S 2013 10K

Additionally, Moody’s is subject to complex U.S. and foreign laws and regulations, such as the Foreign Corrupt Practices Act, the U.K. Bribery Act and other anti-bribery and anti-corruption laws. Although the Company has implemented internal controls, policies and procedures and employee training and compliance programs to deter prohibited practices, such measures may not be effective in preventing employees, contractors or agents from violating or circumventing such internal policies and violating applicable laws and regulations. Any determination that the Company has violated anti-bribery or anti-corruption laws could have a material adverse effect on Moody’s financial condition. Compliance with international and U.S. laws and regulations that apply to the Company’s international operations increases the cost of doing business in foreign jurisdictions. Violations of such laws and regulations may result in fines and penalties, criminal sanctions, administrative remedies, restrictions on business conduct and could have a material adverse effect on Moody’s reputation, its ability to attract and retain employees, its business, operating results and financial condition.

Moody’s Operations and Infrastructure May Malfunction or Fail

Moody’s ability to conduct business may be materially and adversely impacted by a disruption in the infrastructure that supports its businesses and the communities in which Moody’s is located, including New York City, the location of Moody’s headquarters, and major cities worldwide in which Moody’s has offices. This may include a disruption involving physical or technological infrastructure used by the Company or third parties with or through whom Moody’s conducts business, whether due to human error, natural disasters, power loss, telecommunication failures, break-ins, sabotage, intentional acts of vandalism, acts of terrorism, political unrest, war or otherwise. Moody’s efforts to secure and plan for potential disruptions of its major operating systems may not be successful. The Company relies on third-party providers to provide certain essential services. While the Company believes that such providers are reliable, the Company has limited control over the performance of such providers. To the extent any of the Company’s third-party providers ceases to provide these services in an efficient, cost-effective manner or fail to adequately expand its services to meet the Company’s needs and the needs of the Company’s customers, the Company could experience lower revenues and higher costs. The Company also does not have fully redundant systems for most of its smaller office locations and low-risk systems, and its disaster recovery plan does not include restoration of non-essential services. If a disruption occurs in one of Moody’s locations or systems and its personnel in those locations or those who rely on such systems are unable to utilize other systems or communicate with or travel to other locations, such persons’ ability to service and interact with Moody’s clients and customers may suffer. We cannot predict with certainty all of the adverse effects that could result from our failure, or the failure of a third party, to efficiently address and resolve these delays and interruptions. A disruption to Moody’s operations or infrastructure may have a material adverse effect on its business, operating results and financial condition.

The Company is Exposed to Risks Related to Cybersecurity and Protection of Confidential Information

The Company’s operations rely on the secure processing, storage and transmission of confidential, sensitive and other types of information in the Company’s computer systems and networks and those of its third party vendors. The cyber risks we face range from cyber-attacks common to most industries, to more advanced threats that target the Company because of its prominence in the global marketplace, or due to its ratings of sovereign debt. Breaches of our or our vendors’ technology and systems, whether from circumvention of security systems, denial-of-service attacks or other cyber-attacks, hacking, computer viruses or malware, employee error, malfeasance, physical breaches or other actions, may cause material interruptions or malfunctions in the Company’s or such vendors’ web sites, applications or data processing, or may compromise the confidentiality and integrity of material information regarding the Company or our business or customers. Measures that Moody’s takes to avoid or mitigate material incidents can be expensive, and may be insufficient, circumvented, or may become obsolete. Any material incidents could cause the Company to experience reputational harm, loss of customers, regulatory actions, sanctions or other statutory penalties, litigation or financial losses that are either not insured against or not fully covered through any insurance maintained by the Company. Any of the foregoing may have a material adverse effect on Moody’s business, operating results or financial condition.

Changes in the Volume of Debt Securities Issued in Domestic and/or Global Capital Markets and Changes in Interest Rates and Other Volatility in the Financial Markets May Negatively Impact the Nature and Economics of the Company’s Business

Moody’s business is impacted by general economic conditions and volatility in the U.S. and world financial markets. Furthermore, issuers of debt securities may elect to issue securities without ratings or securities which are rated or evaluated by non-traditional parties such as financial advisors, rather than traditional CRAs, such as MIS. A majority of Moody’s credit-rating-based revenue is transaction-based, and therefore it is especially dependent on the number and dollar volume of debt securities issued in the capital markets. Accordingly, any market volatility or conditions that either reduce investor demand for debt securities or issuers’ willingness or ability to issue such securities could reduce the number and dollar-equivalent volume of debt issuances for which Moody’s provides ratings services and thereby have an adverse effect on the fees derived from the issuance of ratings. Therefore, no assurance can be given as to the amount of revenues that may be derived from Moody’s ratings services.

Credit market disruptions and economic slowdown and uncertainty have in the past negatively impacted the volume of debt securities issued in global capital markets and the demand for credit ratings. Economic and government factors such as a long-term continuation of difficult economic conditions, uncertainty regarding the U.S. debt ceiling and a worsening of the sovereign debt crisis in Europe may have an adverse impact on the Company’s business. Future debt issuances could be negatively affected by a sharp increase in long-term


		MOODY’S 2013 10K			19

interest rates or factors which cause instability or volatility in the global capital markets, such as significant regulatory, political or economic events, the use of alternative sources of credit, including financial institutions and government sources, and defaults of significant issuers. Changes in the markets for such securities and in the role and regulation of rating agencies may materially and adversely affect the Company.

The timing, nature, extent and sustainability of any recovery in the credit and other financial markets is uncertain, and a prolonged period of market decline or weakness could have a material adverse effect on the business. Moody’s initiatives to reduce costs may not be sufficient and further cost reductions may be difficult or impossible to obtain in the short term, due in part to rent, technology, compliance and other fixed costs associated with some of the Company’s operations as well as the need to monitor outstanding ratings. Further, the cost-reduction initiatives undertaken to date could make it difficult for the Company to rapidly expand operations in order to accommodate any unexpected increase in the credit markets and the resulting demand for ratings. Volatility in the financial markets, including changes in the volumes of debt securities and changes in interest rates, may have a material adverse effect on the business, operating results and financial condition.

The Company Faces Increased Pricing Pressure from Competitors and/or Customers

There is intense price competition in the credit rating, research, credit risk management markets, outsourced research and analytical services and financial training and certification services. Competition for customers and market share has spurred more aggressive tactics by some competitors in areas such as pricing and services, as well as increased competition from non-NRSROs that evaluate debt risk for issuers or investors. At the same time, bankruptcies, consolidation of customers, particularly those involved in structured finance products, and other factors affecting demand may enhance the market power of competitors. Tepid economic growth is also intensifying the competitive pressures as to pricing. While Moody’s seeks to compete primarily on the basis of the quality of its products and services, it may lose market share if its pricing is not sufficiently competitive with its current and future competitors. In addition, the Reform Act was designed to encourage competition among rating agencies. The formation of additional NRSROs may increase pricing, as well as other competitive, pressures. Any inability of Moody’s to compete successfully with respect to the pricing of its products and services could have a material adverse impact on its business, operating results and financial condition.

The Company is Exposed to Reputation and Credibility Concerns

Moody’s reputation and the strength of its brand are key competitive strengths. To the extent that the rating agency business as a whole or Moody’s, relative to its competitors, suffers a loss in credibility, Moody’s business could be significantly impacted. Factors that may have already affected credibility and could potentially continue to have an impact in this regard include the appearance of a conflict of interest, the performance of securities relative to the rating assigned to such securities, the timing and nature of changes in ratings, a major compliance failure, negative perceptions or publicity and increased criticism by users of ratings, regulators and legislative bodies, including as to the ratings process and its implementation with respect to one or more securities. Operational errors, whether by Moody’s or a Moody’s competitor, could also harm the reputation of the Company or the credit rating industry. Damage to reputation and credibility could have a material adverse impact on Moody’s business, operating results and financial condition.

The Introduction of Competing Products or Technologies by Other Companies May Negatively Impact the Nature and Economics of the Company’s Business

The markets for credit ratings, research, credit risk management services, outsourced research and analytical services and financial training and certification services are highly competitive. The ability to provide innovative products and technologies that anticipate customers’ changing requirements and utilize emerging technological trends is a key factor in maintaining market share. Moody’s competitors include both established companies with significant financial resources, brand recognition, market experience and technological expertise, and smaller companies which may be better poised to quickly adopt new or emerging technologies or respond to customer requirements. Competitors may develop quantitative methodologies or related services for assessing credit risk that customers and market participants may deem preferable, more cost-effective or more valuable than the credit risk assessment methods currently employed by Moody’s, or may price or market their products in manners that differ from those utilized by Moody’s. Customers or others may develop alternative, proprietary systems for assessing credit risk. Such developments could affect demand for Moody’s products and services and its growth prospects. In addition, the increased availability in recent years of free or relatively inexpensive Internet information may reduce the demand for Moody’s products and services. Moody’s growth prospects also could be adversely affected by Moody’s failure to make necessary or optimal capital infrastructure expenditures and improvements and the inability of its information technologies to provide adequate capacity and capabilities to meet increased demands of producing quality ratings and research products at levels achieved by competitors. Any inability of Moody to compete successfully may have a material adverse effect on its business, operating results and financial condition.

The Company Has a Significant Amount of Intangible Assets

At December 31, 2013, Moody’s had $665.2 million of goodwill and $221.6 million of intangible assets on its balance sheet. Approximately 99% of these intangibles reside in the MA business and are allocated to the four reporting units within MA: RD&A; ERS; Financial Services Training and Certifications; and Copal Amba. Failure to achieve business objectives and financial projections in any of these reporting units could result in an asset impairment charge, which would result in a non-cash charge to operating expenses. Goodwill


20		MOODY’S 2013 10K

and intangible assets with indefinite lives are tested for impairment on an annual basis and also when events or changes in circumstances indicate that impairment may have occurred. Determining whether an impairment of goodwill exists can be difficult as a result of increased uncertainty and current market dynamics, and requires significant management estimates and judgment. In addition, the potential for goodwill impairment is increased during periods of economic uncertainty. An asset impairment charge could have a material adverse effect on Moody’s business, operating results and financial condition.

Possible Loss of Key Employees and Related Compensation Cost Pressures May Negatively Impact the Company

Moody’s success depends upon its ability to recruit, retain and motivate highly skilled, experienced financial analysts and other professionals. Competition for skilled individuals in the financial services industry is intense, and Moody’s ability to attract high quality employees could be impaired if it is unable to offer competitive compensation and other incentives or if the regulatory environment mandates restrictions on or disclosures about individual employees that would not be necessary in competing analytical industries. As greater focus has been placed on executive compensation at public companies, in the future, Moody’s may be required to alter its compensation practices in ways that could adversely affect its ability to attract and retain talented employees. Investment banks, investors and competitors may seek to attract analyst talent by providing more favorable working conditions or offering significantly more attractive compensation packages than Moody’s. Moody’s also may not be able to identify and hire the appropriate qualified employees in some markets outside the U.S. with the required experience or skills to perform sophisticated credit analysis. There is a risk that even if the Company invests significant resources in attempting to attract, train and retain qualified personnel, it will not succeed in its efforts, and its business could be harmed.

Moody’s is highly dependent on the continued services of Raymond W. McDaniel, Jr., the President and Chief Executive Officer, and other senior officers and key employees. The loss of the services of skilled personnel for any reason and Moody’s inability to replace them with suitable candidates quickly or at all, as well as any negative market perception resulting from such loss, could have a material adverse effect on Moody’s business, operating results and financial condition.

Moody’s Acquisitions and Other Strategic Transactions May Not Produce Anticipated Results

Moody’s has made and expects to continue to make acquisitions or enter into other strategic transactions to strengthen its business and grow the Company. Such transactions present significant challenges and risks. The market for acquisition targets and other strategic transactions is highly competitive, especially in light of industry consolidation, which may affect Moody’s ability to complete such transactions. If Moody’s is unsuccessful in completing such transactions or if such opportunities for expansion do not arise, its business, operating results and financial condition could be materially adversely affected.

If such transactions are completed, the anticipated growth and other strategic objectives of such transactions may not be fully realized, and a variety of factors may adversely affect any anticipated benefits from such transactions. For instance, the process of integration may require more resources than anticipated, the Company may assume unintended liabilities, there may be unexpected regulatory and operating difficulties and expenditures, the Company may fail to retain key personnel of the acquired business and such transactions may divert management’s focus from other business operations. The anticipated benefits from an acquisition or other strategic transaction may not be realized fully, or may take longer to realize than expected. As a result, the failure of acquisitions and other strategic transactions to perform as expected may have a material adverse effect on Moody’s business, operating results and financial condition.

The Trading Price of Moody’s Stock Could be Affected by Third Party Actions

Ownership of Moody’s stock is highly concentrated with a significant portion of shares held by a few institutional stockholders. Due to this concentrated stockholder base, the trading price of Moody’s stock could be affected considerably by actions of significant stockholders to increase or decrease their positions in Moody’s stock. As a result, the actions of these institutional stockholders could create high stock volatility.

ITEM 1B.

UNRESOLVED STAFF COMMENTS

None.

ITEM 2.

PROPERTIES

Moody’s corporate headquarters is located at 7 World Trade Center at 250 Greenwich Street, New York, New York 10007, with approximately 797,537 square feet of leased space. As of December 31, 2013, Moody’s operations were conducted from 15 U.S. offices and 60 non-U.S. office locations, all of which are leased. These properties are geographically distributed to meet operating and sales requirements worldwide. These properties are generally considered to be both suitable and adequate to meet current operating requirements.


		MOODY’S 2013 10K			21

ITEM 3.

LEGAL PROCEEDINGS

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

Following the global credit crisis of 2008, MIS and other credit rating agencies have been the subject of intense scrutiny, increased regulation, ongoing inquiry and governmental investigations, 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 domestic and foreign governmental authorities and is responding to such investigations and inquiries.

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 following the events in the U.S. subprime residential mortgage sector and global credit markets more broadly over the last several years.

Two purported class action complaints were 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 United States District Court for the Southern District of New York on September 26, 2007. Both actions were 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 alleged 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 sought 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. On January 22, 2010, plaintiffs moved to certify a class of individuals who purchased Moody’s Corporation common stock between February 3, 2006 and October 24, 2007, which the Company opposed. On March 31, 2011, the court issued an opinion denying plaintiffs’ motion to certify the proposed class. On April 14, 2011, plaintiffs filed a petition in the United States Court of Appeals for the Second Circuit seeking discretionary permission to appeal the decision. The Company filed its response to the petition on April 25, 2011. On July 20, 2011, the Second Circuit issued an order denying plaintiffs’ petition for leave to appeal. On September 14, 2012, the Company filed a motion for summary judgment, which was fully briefed on December 21, 2012. On August 23, 2013, the court issued an opinion granting defendants’ motion for summary judgment. Judgment was entered in Moody’s favor on August 26, 2013. On September 23, 2013, plaintiffs filed a notice of appeal from the judgment and from the March 2011 decision denying class certification. On December 19, 2013, that appeal was voluntarily dismissed with prejudice pursuant to a confidential settlement agreement, thereby concluding this litigation.

On August 25, 2008, Abu Dhabi Commercial Bank filed a purported class action in the United States District Court for the Southern District of New York asserting numerous common-law causes of action against two subsidiaries of the Company, another rating agency, and Morgan Stanley & Co. The action related to securities issued by a structured investment vehicle called Cheyne Finance (the “Cheyne SIV”) and sought, among other things, compensatory and punitive damages. The central allegation against the rating agency defendants was that the credit ratings assigned to the securities issued by the Cheyne SIV were false and misleading. In early proceedings, the court dismissed all claims against the rating agency defendants except those for fraud and aiding and abetting fraud. In June 2010, the court denied plaintiff’s motion for class certification, and additional plaintiffs were subsequently added to the complaint. In January 2012, the rating agency defendants moved for summary judgment with respect to the fraud and aiding and abetting fraud claims. Also in January 2012, in light of new New York state case law, the court permitted the plaintiffs to file an amended complaint that reasserted previously dismissed claims against all defendants for breach of fiduciary duty, negligence, negligent misrepresentation, and related aiding and abetting claims. In May 2012, the court, ruling on the rating agency defendants’ motion to dismiss, dismissed all of the reasserted claims except for the negligent misrepresentation claim, and on September 19, 2012, after further proceedings, the court also dismissed the negligent misrepresentation claim. On August 17, 2012, the court ruled on the rating agencies’ motion for summary judgment on the plaintiffs’ remaining claims for fraud and aiding and abetting fraud. The court dismissed, in whole or in part, the fraud claims of four plaintiffs as against Moody’s but allowed the fraud claims to proceed with respect to certain claims of one of those plaintiffs and the claims of the remaining 11 plaintiffs. The court also dismissed all claims against Moody’s for aiding and abetting fraud. Three of the plaintiffs whose claims were dismissed filed motions for reconsideration, and on November 7, 2012, the court granted two of these motions, reinstating the claims of two plaintiffs that were previously dismissed. On February 1, 2013, the court dismissed the claims of one additional plaintiff on jurisdictional grounds. Trial on the remaining fraud claims against the rating agencies,


22		MOODY’S 2013 10K

and on claims against Morgan Stanley for aiding and abetting fraud and for negligent misrepresentation, was scheduled for May 2013. On April 24, 2013, pursuant to confidential settlement agreements, the 14 plaintiffs with claims that had been ordered to trial stipulated to the voluntary dismissal, with prejudice, of these claims as against all defendants, and the Court so ordered that stipulation on April 26, 2013. The settlement did not cover certain claims of two plaintiffs that were previously dismissed by the Court. On May 23, 2013, these two plaintiffs filed a Notice of Appeal to the Second Circuit, seeking reversal of the dismissal of their claims and also seeking reversal of the Court’s denial of class certification. According to pleadings filed by plaintiffs in earlier proceedings, they seek approximately $76 million in total compensatory damages in connection with the two claims at issue on the appeal.

In October 2009, plaintiffs King County, Washington and Iowa Student Loan Liquidity Corporation each filed substantially identical putative class actions in the Southern District of New York against two subsidiaries of the Company and several other defendants, including two other rating agencies and IKB Deutsche Industriebank AG. These actions arose out of investments in securities issued by a structured investment vehicle called Rhinebridge Plc (the “Rhinebridge SIV”) and sought, among other things, compensatory and punitive damages. Each complaint asserted a claim for common law fraud against the rating agency defendants, alleging, among other things, that the credit ratings assigned to the securities issued by the Rhinebridge SIV were false and misleading. The case was assigned to the same judge presiding over the litigation concerning the Cheyne SIV, described above. In April 2010, the court denied the rating agency defendants’ motion to dismiss. In June 2010, the court consolidated the two cases and the plaintiffs filed an amended complaint that, among other things, added Morgan Stanley & Co. as a defendant. In January 2012, in light of new New York state case law, the court permitted the plaintiffs to file an amended complaint that asserted claims against the rating agency defendants for breach of fiduciary duty, negligence, negligent misrepresentation, and aiding and abetting claims. In May 2012, the court, ruling on the rating agency defendants’ motion to dismiss, dismissed all of the new claims except for the negligent misrepresentation claim and a claim for aiding and abetting fraud; on September 28, 2012, after further proceedings, the court also dismissed the negligent misrepresentation claim. Plaintiffs did not seek class certification. On September 7, 2012 the rating agencies filed a motion for summary judgment dismissing the remaining claims against them. On January 3, 2013, the Court issued an order dismissing the claim for aiding and abetting fraud against the rating agencies but allowing the claim for fraud to proceed to trial. In June 2012 and March 2013, respectively, defendants IKB Deutsche Industriebank AG (and a related entity) and Fitch, Inc. informed the court that they had executed confidential settlement agreements with the plaintiffs. On April 24, 2013, pursuant to a confidential settlement agreement, the plaintiffs stipulated to the voluntary dismissal, with prejudice, of all remaining claims as against the remaining defendants, including Moody’s, and the Court so ordered that stipulation on April 26, 2013.

For claims, litigation and proceedings and governmental investigations and inquiries not related to income taxes, where it is both probable that a liability has been 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. When the reasonable estimate of the loss is within a range of amounts, the minimum amount of the range is accrued unless some higher amount within the range is a better estimate than another amount within the range. In 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. In view of the inherent difficulty of predicting the outcome of litigation, regulatory, governmental investigations and inquiries, enforcement and similar matters and contingencies, particularly where the claimants seek large or indeterminate damages or where the parties assert novel legal theories or the matters involve a large number of parties, the Company cannot predict what the eventual outcome of the pending matters will be or the timing of any resolution of such matters. The Company also cannot predict the impact (if any) that any such matters may have on how its business is conducted, on its competitive position or on its financial position, results of operations or cash flows. As the process to resolve any pending matters progresses, management will continue to review the latest information available and assess its ability to predict the outcome of such matters and the effects, if any, on its operations and financial condition. However, in light of the large or indeterminate damages sought in some of them, the absence of similar court rulings on the theories of law asserted and uncertainties regarding apportionment of any potential damages, an estimate of the range of possible losses cannot be made at this time.

ITEM 4.

MINE SAFETY DISCLOSURES

Not applicable.


		MOODY’S 2013 10K			23

PART II

ITEM 5.

MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Information in response to this Item is set forth under the captions below.

MOODY’S PURCHASES OF EQUITY SECURITIES

For the Three Months Ended December 31, 2013


Period	Total Number of Shares Purchased ⁽¹⁾		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Program		Approximate Dollar Value of Shares That May yet be Purchased Under the Program ⁽²⁾
October 1 – 31		1,148,051	$	70.56		1,147,301	$	848.7 million
November 1 – 30		324,646	$	73.98		323,759	$	824.7 million
December 1 – 31		547,183	$	74.21		546,536	$	784.1 million

Total		2,019,880	$	72.10		2,017,596

(1)	Includes the surrender to the Company of 750 shares, 887 shares and 647 shares of common stock in October, November and December, respectively, to satisfy tax withholding obligations in connection with the vesting of restricted stock issued to employees.

(2)

As of the last day of each of the months. On February 12, 2013, the Board authorized a $1 billion share repurchase program. Also, on February 11, 2014, the Board authorized a new $1 billion share repurchase program which will commence following the completion of the existing program. There is no established expiration date for either of the remaining authorizations.

During the fourth quarter of 2013, Moody’s issued 0.9 million shares under employee stock-based compensation plans.


24		MOODY’S 2013 10K

COMMON STOCK INFORMATION AND DIVIDENDS

The Company’s common stock trades on the New York Stock Exchange under the symbol “MCO”. The table below indicates the high and low sales price of the Company’s common stock and the dividends declared and paid for the periods shown. The number of registered shareholders of record at January 31, 2014 was 2,557. A substantially greater number of the Company’s common stock is held by beneficial holders whose shares are held of record by banks, brokers and other financial institutions.


	Price Per Share				Dividends Per Share

	High		Low		Declared		Paid
2013:
First quarter	$	55.58	$	40.67	$	—	$	0.20
Second quarter	$	69.70	$	51.31		0.20		0.20
Third quarter	$	71.74	$	59.69		0.25		0.25
Fourth quarter	$	79.15	$	66.91		0.53		0.25

Year ended December 31, 2013					$	0.98	$	0.90

2012:
First quarter	$	42.67	$	34.35	$	—	$	0.16
Second quarter	$	43.05	$	33.86		0.16		0.16
Third quarter	$	46.26	$	35.13		0.16		0.16
Fourth quarter	$	51.63	$	43.23		0.36		0.16

Year Ended December 31, 2012					$	0.68	$	0.64

During 2011, the Company paid a quarterly dividend of $0.115 per share of Moody’s common stock in the first quarter and $0.14 per share of Moody’s common stock in each of the remaining quarters, resulting in dividends paid per share during the year ended December 31, 2011 of $0.535.

On December 17, 2013, the Board of the Company approved the declaration of a quarterly dividend of $0.28 per share of Moody’s common stock, payable on March 10, 2014 to shareholders of record at the close of business on February 20, 2014. The continued payment of dividends at the rate noted above, or at all, is subject to the discretion of the Board.

EQUITY COMPENSATION PLAN INFORMATION

The table below sets forth, as of December 31, 2013, certain information regarding the Company’s equity compensation plans.


	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights			Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights ⁽²⁾		Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (excluding Securities Reflected in Column (a)

Plan Category	(a)			(b)		(c)
Equity compensation plans approved by security holders		13,935,606	⁽¹⁾	$	45.00		25,767,878	⁽³⁾
Equity compensation plans not approved by security holders		—		$	—		—

Total		13,935,606		$	45.00		25,767,878

(1)

Includes 11,080,277 options and unvested restricted shares outstanding under the Company’s 2001 Key Employees’ Stock Incentive Plan, 835,364 options and unvested restricted shares outstanding under the Company’s 1998 Key Employees’ Stock Incentive Plan, and 23,477 options and unvested restricted shares outstanding under the 1998 Non-Employee Directors’ Stock Incentive Plan. This number also includes a maximum of 1,996,488 performance shares outstanding under the Company’s 2001 Key Employees’ Stock Incentive Plan, which is the maximum number of shares issuable pursuant to performance share awards assuming the maximum payout at 200% of the target award for performance shares granted in 2011 and the maximum payout at 225% of the target award for performance shares granted in 2012 and 2013. Assuming payout at target, the number of shares to be issued upon the vesting of outstanding performance share awards is 924,834.

(2)	Does not reflect unvested restricted shares or performance share awards included in column (a) because these awards have no exercise price.

(3)

Includes 21,777,186 shares available for issuance as under the 2001 Stock Incentive Plan, of which all may be issued as options and 14,000,000 may be issued as restricted stock, performance shares or other stock-based awards under the 2001 Stock Incentive Plan and 975,208 shares available for issuance as options, shares of restricted stock or performance shares under the 1998 Directors Plan, and 3,015,484 shares available for issuance under the Company’s Employee Stock Purchase Plan. No new grants may be made under the 1998 Stock Incentive Plan, which expired by its terms in June 2008.


		MOODY’S 2013 10K			25

PERFORMANCE GRAPH

The following graph compares the total cumulative shareholder return of the Company to the performance of Standard & Poor’s Stock 500 Composite Index and the Russell 3000 Financial Services Index. Both of the aforementioned indexes are easily accessible to the Company’s shareholders in newspapers, the internet and other readily available sources for purposes of the following graph.

The comparison assumes that $100.00 was invested in the Company’s common stock and in each of the foregoing indices on December 31, 2008. The comparison also assumes the reinvestment of dividends, if any. The total return for the common stock was 323% during the performance period as compared with a total return during the same period of 99% for the Russell 3000 Financial Services Index and 128% for the S&P 500 Composite Index.

Comparison of Cumulative Total Return

Moody’s Corporation, Russell 3000 Financial Services Index and S&P 500 Composite Index

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN

Among Moody’s Corporation, the S&P 500 Index,

and the Russell 3000 Financial Services Index

LOGO


	Year Ended December 31,

	2008		2009		2010		2011		2012		2013
Moody’s Corporation	$	100.00	$	135.58	$	136.62	$	176.18	$	267.54	$	423.30
S&P 500 Composite Index	$	100.00	$	126.46	$	145.51	$	148.59	$	172.37	$	228.18
Russell 3000—Financial Services Index	$	100.00	$	117.61	$	132.42	$	116.64	$	147.64	$	198.52

The comparisons in the graph above are provided in response to disclosure requirements of the SEC and are not intended to forecast or be indicative of future performance of the Company’s common stock.


26		MOODY’S 2013 10K

ITEM 6.

SELECTED FINANCIAL DATA

The Company’s selected consolidated financial data should be read in conjunction with Item 7. “MD&A” and the Moody’s Corporation consolidated financial statements and notes thereto.


	Year Ended December 31,

amounts in millions, except per share data	2013			2012			2011			2010			2009
Results of operations
Revenue	$	2,972.5		$	2,730.3		$	2,280.7		$	2,032.0		$	1,797.2
Operating and SG&A expenses		1,644.5			1,547.2			1,313.1			1,192.8			1,028.1
Depreciation and amortization		93.4			93.5			79.2			66.3			64.1
Goodwill impairment		—			12.2			—			—			—
Restructuring		—			—			—			0.1			17.5

Operating income		1,234.6			1,077.4			888.4			772.8			687.5
Non-operating (expense) income, net ⁽¹⁾		(65.3	)		(53.4	)		(48.6	)		(58.4	)		(41.3	)

Income before provision for income taxes		1,169.3			1,024.0			839.8			714.4			646.2
Provision for income taxes		353.4			324.3			261.8			201.0			239.1

Net income ⁽²⁾		815.9			699.7			578.0			513.4			407.1
Less: Net income attributable to noncontrolling interests		11.4			9.7			6.6			5.6			5.1

Net income attributable to Moody’s ⁽²⁾	$	804.5		$	690.0		$	571.4		$	507.8		$	402.0

Earnings per share
Basic	$	3.67		$	3.09		$	2.52		$	2.16		$	1.70
Diluted	$	3.60		$	3.05		$	2.49		$	2.15		$	1.69
Weighted average shares outstanding
Basic		219.4			223.2			226.3			235.0			236.1
Diluted		223.5			226.6			229.4			236.6			237.8
Dividends declared per share	$	0.98		$	0.68		$	0.58		$	0.43		$	0.405
Operating margin		41.5	%		39.5	%		39.0	%		38.0	%		38.3	%

	December 31,

	2013			2012			2011			2010			2009
Balance sheet data
Total assets	$	4,395.1		$	3,960.9		$	2,876.1		$	2,540.3		$	2,003.3
Long-term debt	$	2,101.8		$	1,607.4		$	1,172.5		$	1,228.3		$	746.2
Total shareholders’ equity (deficit)	$	347.9		$	396.6		$	(158.4	)	$	(298.4	)	$	(596.1	)

		NON-GAAP FINANCIAL MEASURES ⁽³⁾
	Year Ended

	2013			2012			2011			2010			2009
Adjusted Operating Income	$	1,328.0		$	1,183.1		$	967.6		$	839.2		$	769.1
Adjusted Operating Margin		44.7	%		43.3	%		42.4	%		41.3	%		42.8	%
Non-GAAP Diluted EPS attributable to Moody’s common shareholders	$	3.65		$	2.99		$	2.46		$	2.13		$	1.70
Free cash flow	$	884.5		$	778.1		$	735.6		$	574.3		$	553.1

(1)	The 2013, 2012, 2011, 2010 and 2009 amounts include benefits of $22.8 million, $17.2 million, $10.1 million, $2.5 million, and $6.5 million, respectively, related to the favorable resolution of certain Legacy Tax Matters.

(2)	The 2013, 2012, 2011, 2010 and 2009 amounts include benefits of $21.3 million, $12.8 million, $7.0 million, $4.6 million and $8.2 million, respectively, related to the resolution of certain Legacy Tax Matters.

(3)	Refer to “Non-GAAP measures” in Item 7 of this Form 10K for a discussion of the Company’s non-GAAP financial measures


		MOODY’S 2013 10K			27

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This discussion and analysis of financial condition and results of operations should be read in conjunction with the Moody’s Corporation consolidated financial statements and notes thereto included elsewhere in this annual report on Form 10-K.

This MD&A contains Forward-Looking Statements. See “Forward-Looking Statements” commencing on page 58 and Item 1A. “Risk Factors” commencing on page 17 for a discussion of uncertainties, risks and other factors associated with these statements.

THE COMPANY

Moody’s is a provider of (i) credit ratings, (ii) credit and economic related 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 primarily support financial analysis and risk management activities of institutional participants in global financial markets. Within its RD&A 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. It also provides fixed income pricing services in the Asia-Pacific region. The RD&A business also produces economic research as well as data and analytical tools such as quantitative credit risk scores. Within its ERS business, MA provides software solutions as well as related risk management services. The PS business provides outsourced research and analytical services and financial training and certification programs.

CRITICAL ACCOUNTING ESTIMATES

Moody’s discussion and analysis of its financial condition and results of operations are based on the Company’s consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires Moody’s to make estimates and judgments that affect reported amounts of assets and liabilities and related disclosures of contingent assets and liabilities at the dates of the financial statements and revenue and expenses during the reporting periods. These estimates are based on historical experience and on other assumptions that are believed to be reasonable under the circumstances. On an ongoing basis, Moody’s evaluates its estimates, including those related to revenue recognition, accounts receivable allowances, contingencies, goodwill and intangible assets, pension and other retirement benefits, UTPs and stock-based compensation. Actual results may differ from these estimates under different assumptions or conditions. The following accounting estimates are considered critical because they are particularly dependent on management’s judgment about matters that are uncertain at the time the accounting estimates are made and changes to those estimates could have a material impact on the Company’s consolidated results of operations or financial condition.

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.

Pursuant to the guidance of ASC Topic 605, 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 if available, third party evidence if VSOE is not available, or estimated selling price if neither VSOE nor TPE is available.

The Company’s products and services will generally continue to qualify as separate units of accounting under ASC Topic 605. 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 delivered item is combined with the undelivered items and revenue recognition is determined as one single unit.


28		MOODY’S 2013 10K

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 the Company’s 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 its pricing practices such as costs and margin objectives, standalone sales prices of similar products, percentage of the fee charged for a primary product or service relative to a related product or service, and customer segment and geography. Additional consideration is also given to market conditions such as competitor pricing strategies and market trend. The Company reviews its determination of VSOE, TPE and ESP on an annual basis or more frequently as needed.

In the MIS segment, revenue attributed to initial ratings of issued securities is recognized when the rating is issued. Revenue attributed to monitoring of issuers or issued securities is recognized ratably over the period in which the monitoring is performed, generally one year. In the case of commercial mortgage-backed securities, derivatives, international residential mortgage-backed and asset-backed securities, issuers can elect to pay the monitoring fees upfront. These fees are deferred and recognized over the future monitoring periods based on the expected lives of the rated securities, which was approximately 30 years on a weighted average basis at December 31, 2013. At December 31, 2013, 2012 and 2011, deferred revenue related to these securities was approximately $97 million, $82 million and $79 million, respectively.

Multiple element revenue arrangements in the MIS segment are generally comprised of an initial rating and the related monitoring service. 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.

MIS estimates revenue for ratings of commercial paper for which, in addition to a fixed annual monitoring fee, issuers are billed quarterly based on amounts outstanding. Revenue is accrued each quarter based on estimated amounts outstanding and is billed when actual data is available. The estimate is determined based on the issuers’ most recent reported quarterly data. At December 31, 2013, 2012 and 2011, accounts receivable included approximately $21 million, $22 million and $24 million, respectively, related to accrued commercial paper revenue. Historically, MIS has not had material differences between the estimated revenue and the actual billings. Furthermore, for certain annual monitoring services, fees are not invoiced until the end of the monitoring period, however, revenue is recognized ratably over the monitoring period.

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

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 previously described.

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. In cases where software implementation services are considered essential and VSOE of fair value exists for post-contract customer support (“PCS”), once the delivery criteria has been met on the standard software, license and service revenue is recognized on a percentage-of-completion basis as implementation services are performed, while PCS is recognized


		MOODY’S 2013 10K			29

over the coverage period. If VSOE of fair value does not exist for PCS, once the delivery criteria has been met on the standard software, service revenue is recognized on a zero profit margin basis until essential services are complete, at which point total arrangement revenue is then spread ratably over the remaining PCS coverage period.

Accounts Receivable Allowance

Moody’s records an allowance for estimated future adjustments to customer billings as a reduction of revenue, based on historical experience and current conditions. Such amounts are reflected as additions to the accounts receivable allowance. Additionally, estimates of uncollectible accounts are recorded as bad debt expense and are reflected as additions to the accounts receivable allowance. Actual billing adjustments and uncollectible account write-offs are charged against the allowance. Moody’s evaluates its accounts receivable allowance by reviewing and assessing historical collection and adjustment experience and the current aging status of customer accounts. Moody’s also considers the economic environment of the customers, both from an industry and geographic perspective, in evaluating the need for allowances. Based on its analysis, Moody’s adjusts its allowance as considered appropriate in the circumstances. This process involves a high degree of judgment and estimation and could involve significant dollar amounts. Accordingly, Moody’s results of operations can be affected by adjustments to the allowance. Management believes that the allowance for uncollectible accounts receivable is adequate to cover anticipated adjustments and write-offs under current conditions. However, significant changes in any of the above factors, or actual write-offs or adjustments that differ from the estimated amounts could impact the Company’s consolidated results of operations.

Contingencies

Accounting for contingencies, including those matters described in the “Contingencies” section of this “MD&A”, commencing on page 56 is highly subjective and requires the use of judgments and estimates in assessing their magnitude and likely outcome. In many cases, the outcomes of such matters will be determined by third parties, including governmental or judicial bodies. The provisions made in the consolidated financial statements, as well as the related disclosures, represent management’s best estimates of the then current status of such matters and their potential outcome based on a review of the facts and in consultation with outside legal counsel where deemed appropriate. The Company regularly reviews contingencies and as new information becomes available may, in the future, adjust its associated liabilities.

The Company’s wholly-owned insurance subsidiary insures the Company against certain risks including but not limited to deductibles for worker’s compensation, employment practices litigation, employee medical claims and terrorism, for which the claims are not material to the Company. In addition, for claim years 2008 and 2009, the insurance subsidiary insured the Company for defense costs related to professional liability claims. For matters insured by the Company’s insurance subsidiary, Moody’s records liabilities based on the estimated total claims expected to be paid and total projected costs to defend a claim through its anticipated conclusion. The Company determines liabilities based on an assessment of management’s best estimate of claims to be paid and legal defense costs as well as actuarially determined estimates. The Cheyne SIV and Rhinebridge SIV matters, more fully discussed in the “Contingencies” section of this MD&A, were both cases from the 2008/2009 claims period, and accordingly the defense cost for these matters were insured by the Company’s insurance subsidiary. Defense costs for matters not self-insured by the Company’s wholly-owned insurance subsidiary are expensed as services are provided.


30		MOODY’S 2013 10K

edge 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.

Goodwill and Other Acquired Intangible Assets

On July 31 of each year, Moody’s evaluates its goodwill for impairment at the reporting unit level, defined as an operating segment or one level below an operating segment.

At July 31, 2013, the Company had five primary reporting units: one in MIS that encompasses all of Moody’s ratings operations and four reporting units within MA: RD&A, ERS, FSTC and Copal. The RD&A reporting unit encompasses the distribution of investor-oriented research and data developed by MIS as part of its ratings process, in-depth research on major debt issuers, industry studies, economic research and commentary on topical events and credit analytic tools. The ERS reporting unit consists of credit risk management and compliance software licenses and related maintenance and implementation services. The FSTC reporting unit consists of the portion of the MA business that offers both credit training as well as other professional development training and certification services. Copal, which was acquired in the fourth quarter of 2011, provides outsourced research and analytical services and was a separate reporting unit since its acquisition. On December 10, 2013, a subsidiary of the Company acquired Amba Investment Services which was combined with Copal to form the Copal Amba reporting unit.

The Company evaluates the recoverability of goodwill using a three-step impairment test approach at the reporting unit level. In the first step, the Company assesses various qualitative factors to determine whether the fair value of a reporting unit may be less than its carrying amount. If a determination is made that, based on the qualitative factors, an impairment does not exist, the Company is not required to perform further testing. If the aforementioned qualitative assessment results in the Company concluding that it is more likely than not that the fair value of a reporting unit may be less than its carrying amount, the fair value of the reporting unit will be determined and compared to its carrying value including goodwill. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is not impaired and the Company is not required to perform further testing. If the fair value of the reporting unit is less than the carrying value, the Company must perform a third step of the impairment test to determine the implied fair value of the reporting unit’s goodwill. The implied fair value of the goodwill is determined based on the difference between the fair value of the reporting unit and the net fair value of the identifiable assets and liabilities of the reporting unit. If the implied fair value of the goodwill is less than its carrying value, the difference is recognized as an impairment charge. For the reporting units where the Company is consistently able to conclude on impairment using only a qualitative approach, the Company’s accounting policy is to perform the second step of the aforementioned goodwill impairment assessment at least once every three years. At July 31, 2013, the Company performed the second step of the goodwill impairment test on all reporting units, which resulted in no impairment of goodwill.

Determining the fair value of a reporting unit or an indefinite-lived acquired intangible asset involves the use of significant estimates and assumptions. These estimates and assumptions include revenue growth rates and operating margins used to calculate projected future cash flows, risk-adjusted discount rates, future economic and market conditions, and appropriate comparable market metrics. The Company bases its fair value estimates on reasonable assumptions. However, as these estimates and assumptions are unpredictable and inherently uncertain, actual future results may differ from these estimates. In addition, the Company also makes certain judgments and assumptions in allocating shared assets and liabilities to determine the carrying values for each of its reporting units.

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


		MOODY’S 2013 10K			31

Sensitivity Analyses and Key Assumptions for Deriving the Fair Value of a Reporting Unit

The following table identifies the amount of goodwill allocated to each reporting unit as of December 31, 2013 as well as the amount by which the net assets of each reporting unit would exceed the fair value under Step 2 of the goodwill impairment test as prescribed in ASC Topic 350 as of July 31, 2013, assuming hypothetical reductions in their fair values.


			Sensitivity Analysis

			Deficit Caused by a Hypothetical Reduction to Fair Value

	Goodwill		10%			20%			30%			40%
MIS	$	11.8	$	—		$	—		$	—		$	—
RD&A		163.7		—			—			—			—
ERS		219.4		—			—			(43.7	)		(92.3	)
FSTC		107.6		(11.6	)		(28.7	)		(45.9	)		(63.0	)
Copal Amba *		162.7		—			—			—			—

Totals	$	665.2	$	(11.6	)	$	(28.7	)	$	(89.6	)	$	(155.3	)

*	Prior to the acquisition of Amba, a hypothetical reduction to the fair value of the Copal reporting unit of up to 40% would not have resulted in the reporting unit’s carrying value to exceed its fair value.

As can be seen from the table above, the reporting unit most at risk for potential impairment is the FSTC reporting unit and failure to meet its financial projections could result in further goodwill impairment (there was a goodwill impairment charge of $12.2 million for this reporting unit in the fourth quarter of 2012). This business is, in part, sensitive to the staffing levels and profitability of the global financial services industry, particularly in Canada and EMEA.

The ERS reporting unit also carries some risk of potential impairment. Management of the ERS reporting unit is currently focused on expanding market penetration as well as enhancing the scalability of its products and services. While the business continues to expand its customer footprint, operating margins are expected to remain lower than previously anticipated.

There could be a future goodwill impairment charge if FSTC fails or ERS significantly fails to meet its current financial projections.

Methodologies and significant estimates utilized in determining the fair value of reporting units:

The following is a discussion regarding the Company’s methodology for determining the fair value of its reporting units as of July 31, 2013.

The fair value of each reporting unit was estimated using a discounted cash flow methodology and comparable public company and precedent transaction multiples. The DCF analysis requires significant estimates, including projections of future operating results and cash flows of each reporting unit, which is based on internal budgets and strategic plans, expected long-term growth rates, terminal values, weighted average cost of capital and the effects of external factors and market conditions. Changes in these estimates and assumptions could materially affect the estimated fair value of each reporting unit which could result in an impairment charge to reduce the carrying value of goodwill, which could be material to the Company’s financial position and results of operations. Moody’s allocates newly acquired goodwill to reporting units based on the reporting unit expected to benefit from the acquisition. The Company evaluates its reporting units on an annual basis, or more frequently if there are changes in the reporting structure of the Company due to acquisitions or realignments.


32		MOODY’S 2013 10K

The sensitivity analyses on the future cash flows and WACC assumptions described below are as of July 31, 2013. The following discusses the key assumptions utilized in the discounted cash flow valuation methodology which requires significant management judgment:

Future cash flow assumptions : The projections for future cash flows utilized in the models are derived from historical experience and assumptions regarding future growth and profitability of each reporting unit. These projections are consistent with the Company’s operating and strategic plan. Cash flows for the five years subsequent to the date of the quantitative goodwill impairment analysis were utilized in the determination of fair value for each reporting unit. The growth rates utilized in the projections assumed a gradual increase in revenue from financial service customers based on a continued improvement in the global economy and capital markets, new customer acquisition and new products. Beyond five years a terminal value was determined using a perpetuity growth rate based on inflation and real GDP growth rates. A sensitivity analysis of the growth rates was performed on all reporting units. For all reporting units, a 10% decrease in the growth rates used would not have resulted in the carrying value of the reporting unit exceeding its respective estimated fair value.

WACC : The WACC is the rate used to discount each reporting unit’s estimated future cash flows. The WACC is calculated based on the proportionate weighting of the cost of debt and equity. The cost of equity is based on a risk-free interest rate adjusted for an equity risk factor which is derived from public companies similar to the reporting unit and which captures the perceived risks and uncertainties associated with the reporting unit’s cash flows. The cost of debt component is calculated as the weighted average cost associated with all of the Company’s outstanding borrowings as of the date of the impairment test and was immaterial to the computation of the WACC. The cost of debt and equity is weighted based on the debt to market capitalization ratio of publicly traded companies with similarities to the reporting unit being tested. The WACC for all reporting units ranged from 10% to 11.5% as of July 31, 2013. Differences in the WACC used between reporting units is primarily due to distinct risks and uncertainties regarding the cash flows of the different reporting units. A sensitivity analysis of the WACC was performed on all reporting units as of July 31, 2013. For the FSTC reporting unit, an increase in the WACC of one percentage point would have resulted in the carrying value of the reporting unit exceeding its estimated fair value by approximately $5 million under step one of the goodwill impairment test as prescribed in ASC Topic 350. For the remaining reporting units, an increase in the WACC of one percentage point would not result in the carrying value of the reporting unit exceeding its fair value

Amortizable intangible assets are reviewed for recoverability whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. There were no such events or changes during 2013 that would indicate that the carrying amount of amortizable intangible assets in any of the Company’s reporting units may not be recoverable. This determination was made based on improving market conditions for the reporting unit where the intangible asset resides and an assessment of projected cash flows for all reporting units. Additionally, there were no events or circumstances during the 2013 that would indicate the need for an adjustment of the remaining useful lives of these amortizable intangible assets.

Pension and Other Retirement Benefits

The expenses, assets and liabilities that Moody’s reports for its Retirement Plans are dependent on many assumptions concerning the outcome of future events and circumstances. These assumptions include the following:

future compensation increases, based on the Company’s long-term actual experience and future outlook

long-term return on pension plan assets, based on historical portfolio results and the expected future average annual return for each major asset class within the plan’s portfolio (which is principally comprised of equity and fixed-income investments)

future healthcare cost trends, based on historical market data, near-term outlooks and assessments of likely long-term trends

discount rates, based on current yields on high-grade corporate long-term bonds

The discount rates selected to measure the present value of the Company’s benefit obligation for its Retirement Plans as of December 31, 2013 were derived using a cash flow matching method whereby the Company compares each plan’s projected payment obligations by year with the corresponding yield on the Citibank pension discount curve. The cash flows by plan are then discounted back to present value to determine the discount rate applicable to each plan.

Moody’s major assumptions vary by plan and assumptions used are set forth in Note 12 to the consolidated financial statements. In determining these assumptions, the Company consults with outside actuaries and other advisors as deemed appropriate. While the Company believes that the assumptions used in its calculations are reasonable, differences in actual experience or changes in assumptions could have a significant effect on the expenses, assets and liabilities related to the Company’s Retirement Plans.

When actual plan experience differs from the assumptions used, actuarial gains or losses arise. Excluding differences between the expected long-term rate of return assumption and actual experience on plan assets, the Company amortizes, as a component of annual pension expense, total outstanding gains or losses over the estimated average future working lifetime of active plan participants to the extent that the gain/loss exceeds 10% of the greater of the beginning-of-year projected benefit obligation or the market-related value


		MOODY’S 2013 10K			33

of plan assets. For Moody’s Retirement Plans, the total actuarial losses as of December 31, 2013 that have not been recognized in annual expense are $95.2 million, and Moody’s expects to recognize a net periodic expense of $6.0 million in 2014 related to the amortization of actuarial losses.

For Moody’s funded U.S. pension plan, the differences between the expected long-term rate of return assumption and actual experience could also affect the net periodic pension expense. As permitted under ASC Topic 715, the Company spreads the impact of asset experience over a five-year period for purposes of calculating the market-related value of assets that is used in determining the expected return on assets’ component of annual expense and in calculating the total unrecognized gain or loss subject to amortization. As of December 31, 2013, the Company has an unrecognized asset gain of $8.2 million, of which $1.8 million will be recognized in the market-related value of assets that is used to calculate the expected return on assets’ component of 2015 expense.

The table below shows the estimated effect that a one percentage-point decrease in each of these assumptions will have on Moody’s 2014 operating income. These effects have been calculated using the Company’s current projections of 2014 expenses, assets and liabilities related to Moody’s Retirement Plans, which could change as updated data becomes available.


	Assumption Used for 2014		Estimated Impact on 2014 Operating Income (Decrease)/Increase
Weighted Average Discount Rates*		4.71%/4.45%	$	(9.8	)
Weighted Average Assumed Compensation Growth Rate		4.00%	$	2.0
Assumed Long-Term Rate of Return on Pension Assets		6.80%	$	(2.1	)

*	Weighted average discount rates of 4.71% and 4.45% for pension plans and Other Retirement Plans, respectively.

A one percentage-point increase in assumed healthcare cost trend rates will not affect 2014 projected expenses. Based on current projections, the Company estimates that expenses related to Retirement Plans will be $29.6 million in 2014 compared with $34.6 million in 2013. The expected expense decrease in 2014 reflects the effects of lower benefit obligations primarily due to higher discount rate assumptions, and lower amortization of actuarial losses.

Stock-Based Compensation

The Company records compensation expense for all share-based payment award transactions granted to employees based on the fair value of the equity instrument at the time of grant. This includes stock options and restricted stock. The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option pricing model that uses assumptions and estimates that the Company believes are reasonable. Some of the assumptions and estimates, such as share price volatility and expected option holding period, are based in part on Moody’s experience during the period since becoming a public company. The use of different assumptions and estimates in the Black-Scholes option pricing model could produce materially different estimated fair values for option awards and related expense.

An increase in the following assumptions would have had the following estimated effect on operating income in 2013 (dollars in millions):


	Assumption Used for 2009-2013 employee stock options		Increase in Assumption		Estimated impact on Operating Income in 2013 Increase/(Decrease)
Average Expected Dividend Yield		1.4% - 2.1%		0.1%	$	0.1
Average Expected Share Price Volatility		37.7% - 48.7%		5%	$	(1.2	)
Expected Option Holding Period		5.6 - 7.6 years		1.0 year	$	(0.6	)

Income Taxes

The Company is subject to income taxes in the U.S. and various foreign jurisdictions. The Company’s tax assets and liabilities are affected by the amounts charged for services provided and expenses incurred as well as other tax matters such as intercompany transactions. The Company accounts for income taxes under the asset and liability method in accordance with ASC Topic 740. Therefore, income tax expense is based on reported income before income taxes, and deferred income taxes reflect the effect of temporary differences between the amounts of assets and liabilities that are recognized for financial reporting purposes and the amounts that are recognized for income tax purposes.

The Company is subject to tax audits in various jurisdictions which involve Legacy Tax and other tax matters. The Company regularly assesses the likely outcomes of such audits in order to determine the appropriateness of liabilities for UTPs. The Company classifies interest related to income taxes as a component of interest expense in the Company’s consolidated financial statements and associated penalties, if any, as part of other non-operating expenses.


34		MOODY’S 2013 10K

For UTPs, ASC Topic 740 requires a company to first determine whether it is more-likely-than-not (defined as a likelihood of more than fifty percent) that a tax position will be sustained based on its technical merits as of the reporting date, assuming that taxing authorities will examine the position and have full knowledge of all relevant information. A tax position that meets this more-likely-than-not threshold is then measured and recognized at the largest amount of benefit that is greater than fifty percent likely to be realized upon effective settlement with a taxing authority. As the determination of liabilities related to UTPs and associated interest and penalties requires significant estimates to be made by the Company, there can be no assurance that the Company will accurately predict the outcomes of these audits, and thus the eventual outcomes could have a material impact on the Company’s operating results or financial condition.

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

Other Estimates

In addition, there are other accounting estimates within Moody’s consolidated financial statements, including recoverability of deferred tax assets, anticipated dividend distributions from non-U.S. subsidiaries and valuation of investments in affiliates. Management believes the current assumptions and other considerations used to estimate amounts reflected in Moody’s consolidated financial statements are appropriate. However, if actual experience differs from the assumptions and other considerations used in estimating amounts reflected in Moody’s consolidated financial statements, the resulting changes could have a material adverse effect on Moody’s consolidated results of operations or financial condition.

See Note 2 to the consolidated financial statements for further information on significant accounting policies that impact Moody’s.

OPERATING SEGMENTS

The Company is organized into two reportable segments at December 31, 2013: MIS and MA. The MIS segment is comprised of all of the Company’s ratings activities. All of Moody’s other non-rating commercial activities are included in the MA segment.

The MIS segment consists of four lines of business – corporate finance, structured finance, financial institutions and public, project and infrastructure finance – that generate revenue principally from fees for the assignment and ongoing monitoring of credit ratings on debt obligations and the entities that issue such obligations in markets worldwide.

The 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. The MA segment consists of three lines of business – RD&A, ERS and PS. In the first quarter of 2013, a portion of a division within the PS LOB that provides solutions for structured finance securities was transferred to the RD&A LOB. Additionally, in the first quarter of 2012, a division within the PS LOB that provides various financial modeling services was transferred to the ERS LOB. Accordingly, the prior year revenue by LOB for MA has been reclassified to reflect these transfers.

In December 2013, a subsidiary of the Company acquired Amba, a provider of investment research and quantitative analytics for global financial institutions. In the fourth quarter of 2011, subsidiaries of the Company acquired B&H and a majority interest in Copal. B&H is a provider of insurance risk management tools. Copal is an outsourced research and consulting business. Amba, B&H and Copal are part of the MA segment and B&H’s revenue is included in the ERS LOB while Amba and Copal’s revenue is included in the PS LOB.

The following is a discussion of the results of operations of these segments, including the intersegment royalty revenue for MIS and expense charged to MA for the rights to use and distribute content, data and products developed by MIS. The royalty rate charged by MIS approximates the fair value of the aforementioned content, data and products developed by MIS. The discussion also includes intersegment fees charged to MIS from MA for the use of certain MA products and services in MIS’s ratings process. These fees charged by MA are generally equal to the costs incurred by MA to provide these products and services. Overhead charges and corporate expenses which exclusively benefit one segment are fully charged to that segment. Additionally, overhead costs and corporate expenses of the Company which benefit both segments are generally 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 resources and information technology.

Beginning on January 1, 2013, the Company refined its methodology for allocating certain overhead departments to its segments to better align the costs allocated based on each segment’s usage of the overhead service. The refined methodology is reflected in the segment results for the year ended December 31, 2013, and accordingly, the segment results for the prior year comparative periods have been reclassified to conform to the new presentation. These reclassifications were not material.


		MOODY’S 2013 10K			35

Year ended December 31, 2013 compared with year ended December 31, 2012

Executive Summary

Moody’s revenue in 2013 totaled $2,972.5 million, an increase of $242.2 million compared to 2012 and reflected good growth in both reportable segments, most notably in the high-yield and bank loan sectors of CFG within MIS and within all LOBs within MA. Total expenses, which included the settlement of the Abu Dhabi and Rhinebridge litigation matters more fully discussed in the “Contingencies” section of this MD&A, increased $85.0 million compared to the prior year which included a $12.2 million goodwill impairment charge relating to the Company’s FSTC reporting unit within MA. The increase in expenses also reflected higher salaries and benefit costs of $56.2 million primarily relating to headcount growth and annual compensation increases. These increases were partially offset by lower incentive compensation costs of $30.3 million. Operating income of $1,234.6 million increased $157.2 million compared to 2012 and resulted in an operating margin of 41.5% in 2013, compared to 39.5% in the prior year. Adjusted Operating Income of $1,328.0 million in 2013 increased $144.9 million compared to 2012 resulting in an Adjusted Operating Margin of 44.7% compared to 43.3% in the prior year period. Diluted EPS of $3.60 in 2013, which includes a $0.14 charge in the first quarter related to the aforementioned settlement of two litigation matters and a $0.09 benefit from a Legacy Tax Matter in the fourth quarter of 2013, increased $0.55 over the prior year period, which included a $0.06 benefit relating to a Legacy Tax Matter. Excluding the litigation settlement in the first quarter of 2013 and the benefits from Legacy Tax Matters in both years, Non-GAAP Diluted EPS was $3.65, or $0.66 higher than $2.99 in 2012.


	Year Ended December 31,						% Change Favorable (Unfavorable)
	2013			2012			% Change Favorable (Unfavorable)
Revenue:
United States	$	1,626.5		$	1,472.4			10	%

International:
EMEA		862.8			800.2			8	%
Asia-Pacific		286.1			266.5			7	%
Americas		197.1			191.2			3	%

Total International		1,346.0			1,257.9			7	%

Total		2,972.5			2,730.3			9	%

Expenses:
Operating		822.4			795.0			(3	%)
SG&A		822.1			752.2			(9	%)
Goodwill impairment charge		—			12.2			100	%
Depreciation and amortization		93.4			93.5			—

Total		1,737.9			1,652.9			(5	%)

Operating income	$	1,234.6		$	1,077.4			15	%

Adjusted Operating Income ⁽¹⁾	$	1,328.0		$	1,183.1			12	%

Interest income (expense), net	$	(91.8	)	$	(63.8	)		(44	%)
Other non-operating income (expense), net	$	26.5		$	10.4			155	%
Net income attributable to Moody’s	$	804.5		$	690.0			17	%
Diluted EPS attributable to Moody’s common shareholders	$	3.60		$	3.05			18	%
Non-GAAP Diluted EPS attributable to Moody’s common shareholders	$	3.65		$	2.99			22	%
Operating margin		41.5	%		39.5	%
Adjusted Operating Margin ⁽¹⁾		44.7	%		43.3	%

(1)

Adjusted Operating Income, Adjusted Operating Margin and Non-GAAP Diluted EPS attributable to Moody’s common shareholders are non-GAAP financial measures. Refer to the section entitled “Non-GAAP Financial Measures” of this Management Discussion and Analysis for further information regarding these measures.


36		MOODY’S 2013 10K

The table below shows Moody’s global staffing by geographic area:


	December 31,					% Change
	2013			2012		% Change
United States		2,847			2,609		9	%
International		5,517	*		4,149		33	%

Total		8,364			6,758		24	%

Total as of December 31, 2013 includes 971 staff from the fourth quarter 2013 acquisition of Amba, of which a significant portion are based in low cost jurisdictions.

Global revenue of $2,972.5 million in 2013 increased $242.2 million compared to 2012 reflecting good growth in both reportable segments. The increase in ratings revenue reflects benefits from changes in the mix of fee type, new fee initiatives and certain pricing increases, primarily in the U.S., coupled with higher global rated issuance volumes for high-yield corporate debt and bank loans. The growth in MA reflects higher revenue across all LOBs, most notably in RD&A, which benefited from solid demand for data and analytic products, and in ERS which was driven by the completion of certain software implementations. Transaction revenue accounted for 50% of global MCO revenue in both 2013 and 2012.

U.S. revenue of $1,626.5 million increased $154.1 million over 2012, reflecting growth across all ratings LOBs, most notably in CFG and SFG, coupled with growth in all LOBs within MA.

Non-U.S. revenue increased $88.1 million compared to 2012, reflecting higher CFG revenue in all regions coupled with increases in MA revenue within the EMEA and Asia-Pacific regions. These increases were partially offset by declines in all asset classes in SFG within the EMEA region.

Operating expenses were $822.4 million in 2013, an increase of $27.4 million from 2012 and reflected growth in both compensation and non-compensation costs. The increase in compensation costs of approximately $11 million reflects higher salaries and related employee benefits of approximately $30 million primarily resulting from increases in headcount as well as the impact of annual compensation increases. These increases were partially offset by lower incentive compensation of approximately $21 million due to lower achievement against full-year targeted results in 2013 compared to 2012. The growth in non-compensation expenses of approximately $17 million is primarily due to an increase in costs relating to ongoing IT initiatives coupled with higher variable costs correlated with business growth.

SG&A expenses of $822.1 million in 2013 increased $69.9 million from 2012 with the primary driver of the expense growth reflecting the settlement of the Abu Dhabi and Rhinebridge litigation matters more fully discussed in the “Contingencies” section of this MD&A. The remaining increase in SG&A expenses reflects growth in compensation costs of approximately $18 million primarily due to higher salaries and related employee benefits of approximately $26 million resulting from annual compensation increases and headcount growth in sales personnel within MA as well as in overhead support areas. The growth in salaries and related employee benefits was partially offset by lower incentive compensation of $10 million due to lower achievement against full-year targeted results in 2013 compared to 2012. Additionally, there was a decline in non-compensation expenses (excluding the aforementioned settlement for litigation matters) which primarily reflected lower legal defense costs in 2013 following the first quarter litigation settlement. These declines were partially offset by higher costs for ongoing IT initiatives coupled with higher contingent consideration costs of approximately $7 million relating to the acquisition of Copal.

Operating income of $1,234.6 million increased $157.2 million from 2012. Adjusted Operating Income was $1,328.0 million in 2013 and increased $144.9 million compared to 2012. Operating margin and Adjusted Operating Margin of 41.5% and 44.7%, respectively, increased 200bps and 140bps, respectively, compared to the prior year. The increased margins reflected good revenue growth in both reportable segments outpacing operating expense growth.

Interest income (expense), net in 2013 was ($91.8) million, a $28.0 million increase in expense compared to 2012. This increase is due to higher interest on borrowings reflecting the issuance of the 2012 Senior Notes and the 2013 Senior Notes in August 2012 and 2013, respectively, partially offset by lower interest expense due to the final repayment of the 2008 Term Loan in May 2013. Also, the increase in expense reflects an approximate $7 million reversal of interest on UTPs in 2012 related to the settlement of state and local tax audits.

Other non-operating income (expense), net was $26.5 million in 2013, a $16.1 million increase in income compared to 2012 and reflected approximately $6 million in FX losses in 2012 compared to immaterial gains in 2013. The FX losses in 2012 primarily related to the decline of the euro relative to the British pound in the prior year. Also contributing to the increase in income was a higher Legacy Tax benefit in 2013 compared to 2012 ($19.2 million in 2013 compared to $12.8 million in 2012).


		MOODY’S 2013 10K			37

The Company’s ETR was 30.2% in 2013, down from 31.7% in 2012. The decrease was primarily due to U.S. tax legislation enacted in early 2013 which retroactively extended certain tax benefits to the 2012 tax year and prospectively extended these benefits to the 2013 tax year as well as tax benefits on the aforementioned litigation settlement charge.

Net Income in 2013 was $804.5 million, or $3.60 per diluted share, and included a $0.14 charge related to the aforementioned litigation settlement in the first quarter of 2013 as well as a $0.09 benefit relating to the resolution of a Legacy Tax Matter. This is an increase of $114.5 million, or $0.55 per diluted share, compared to 2012, which included a $0.06 benefit relating to a Legacy Tax Matter. Excluding the charge for the litigation settlement in 2013 and the Legacy Tax benefits in both years, Non-GAAP Diluted EPS of $3.65 in 2013 was $0.66 higher than in the same period of the prior year.

SEGMENT RESULTS

Moody’s Investors Service

The table below provides a summary of revenue and operating results, followed by further insight and commentary:


	Year Ended December 31,						% Change Favorable (Unfavorable)
	2013			2012			% Change Favorable (Unfavorable)
Revenue:
Corporate finance (CFG)	$	996.8		$	857.6			16	%
Structured finance (SFG)		382.5			381.0			—
Financial institutions (FIG)		338.8			325.5			4	%
Public, project and infrastructure finance (PPIF)		341.3			322.7			6	%

Total external revenue		2,059.4			1,886.8			9	%

Intersegment royalty		78.6			71.5			10	%

Total MIS Revenue		2,138.0			1,958.3			9	%

Expenses:
Operating and SG&A (external)		1,011.0			955.8			(6	%)
Operating and SG&A (intersegment)		11.6			11.8			2	%

Adjusted Operating Income		1,115.4			990.7			13	%

Depreciation and amortization		46.6			44.2			(5	%)

Operating income	$	1,068.8		$	946.5			13	%

Adjusted Operating Margin		52.2	%		50.6	%
Operating margin		50.0	%		48.3	%

The following is a discussion of external MIS revenue and operating expenses:

Global MIS revenue of $2,059.4 million in 2013 increased $172.6 million compared to 2012, reflecting growth in all ratings LOBs excluding SFG, which was flat compared to the prior year. The drivers of the growth include changes in the mix of fee type, new fee initiatives and certain pricing increases, primarily in the U.S. and an increase in rated issuance volumes for speculative-grade corporate debt and bank loans, particularly in the first half of 2013, coupled with higher U.S. CMBS and REIT issuance. These increases were partially offset by declines across all asset classes within SFG in EMEA. Transaction revenue for MIS was 62% of total MIS revenue in both 2013 and 2012.

In the U.S., revenue was $1,216.7 million in 2013, an increase of $103.9 million, or 9% compared to 2012 reflecting changes in the mix of fee type, new fee initiatives and certain pricing increases as well as strong growth in rated issuance volumes for bank loans, CMBS, REITs and CLOs. Higher revenue from monitoring fees in CFG also contributed to the growth.

Non-U.S. revenue was $842.7 million in 2013, an increase of $68.7 million compared to 2012 reflecting changes in the mix of fee type, new fee initiatives and certain pricing increases as well as higher revenue from rating high-yield corporate debt and bank loans across all regions. Partially offsetting these increases were declines in rated issuance volumes across most asset classes in SFG within the EMEA region.

Global CFG revenue of $996.8 million in 2013 increased $139.2 million from 2012 reflecting changes in the mix of fee type, new fee initiatives and certain pricing increases, primarily in the U.S. as well as growth in rated issuance volumes for high-yield corporate debt and bank loans, particularly in the first half of 2013. The increase in high-yield corporate debt and bank loans largely reflected issuers taking advantage of the overall low interest rate environment to issue new debt as well as to refinance existing borrowings combined


38		MOODY’S 2013 10K

with increased investor appetite for higher-yielding fixed income securities. Monitoring and program fee revenue also increased due to growth in the number of outstanding rated issuances. Transaction revenue represented 73% of total CFG revenue in 2013, compared to 74% in 2012. In the U.S., revenue in 2013 was $613.2 million, or $51.4 million higher than 2012. Internationally, revenue of $383.6 million in 2013 increased $87.8 million compared to 2012.

Global SFG revenue of $382.5 million in 2013 was flat compared to 2012 reflecting an increase in rated issuance volumes for CMBS, REITs and CLOs in the U.S. coupled with the favorable impact of changes in the mix of fee type, new fee initiatives and certain pricing increases. These increases were offset by declines across all asset classes in EMEA. Transaction revenue was 60% of total SFG revenue in 2013 compared to 58% in 2012. In the U.S., revenue of $244.7 million increased $37.3 million compared to the same period in 2012, reflecting the aforementioned growth in CLO, CMBS and REIT rated issuance volumes due to favorable market conditions. Non-U.S. revenue in 2013 of $137.8 million decreased $35.8 million compared to 2012 reflecting declines across all asset classes in the EMEA region, most notably in RMBS and ABS. The decline in EMEA RMBS and ABS was primarily due to depressed issuance levels reflecting banks use of unsecured financing in preference to securitized funding conduits, coupled with their balance sheets being well funded from the ECB and other government sponsored funding programs (e.g. the ECB’s long-term refinancing operation).

Global FIG revenue of $338.8 million in 2013 was $13.3 million higher compared to 2012 due to benefits from changes in the mix of fee type, new fee initiatives and pricing increases as well as growth in banking-related revenue in the U.S. The growth in banking-related revenue reflects higher issuance volumes from specialty finance, financial leasing and securities holding companies due to favorable market conditions. Additionally, the increase reflected higher insurance revenue, most notably in EMEA, primarily reflecting issuers opportunistically refinancing debt amidst favorable interest rate conditions coupled with issuance to fund M&A activity in the sector, particularly in the first half of 2013. Transaction revenue was 35% of total FIG revenue in 2013 compared to 37% in the same period in 2012. In the U.S. and internationally, revenue was $143.4 million and $195.4 million, respectively, in 2013, or 6% and 3% higher, respectively, compared to 2012.

Global PPIF revenue was $341.3 million in 2013, an increase of $18.6 million compared to 2012, reflecting benefits from changes in the mix of fee type, new fee initiatives and pricing increases as well as increases in U.S. project and infrastructure finance rated issuance volumes. Partially offsetting these increases was a decline in U.S. public finance issuance reflecting lower municipal bond refunding volumes due to higher borrowing costs associated with increases in benchmark interest rates for U.S. Treasury Bonds beginning in May 2013. Transaction revenue was 60% and 61% of total PPIF revenue in 2013 and 2012, respectively. In the U.S., revenue in 2013 was $215.4 million and increased $6.8 million compared to 2012. Outside the U.S., PPIF revenue increased $11.8 million compared to 2012.

Operating and SG&A expenses in 2013 increased $55.2 million compared to 2012 primarily due to growth in non-compensation costs of approximately $56 million, for which the primary driver was the settlement of the Abu Dhabi and Rhinebridge litigation matters more fully discussed in the “Contingencies” section of this MD&A. Compensation costs were flat compared to the prior year reflecting higher salaries and related employee benefits costs of approximately $31 million resulting from annual compensation increases, headcount growth in the ratings LOBs as well as in support areas such as IT, finance and human resources for which the costs are allocated to each segment based on a revenue-split methodology. This increase was offset by an approximate $32 million decline in incentive compensation which was primarily due to lower achievement against full-year targeted results in 2013 compared to 2012.

Adjusted Operating Income in 2013, which includes intersegment royalty revenue, intersegment expenses and the aforementioned litigation settlement charge was $1,115.4 million, an increase of $124.7 million compared to 2012. Operating income in 2013 of $1,068.8 million increased $122.3 million from 2012. Adjusted Operating Margin and operating margin were 52.2% and 50.0%, respectively, or 160bps and 170 bps higher compared to 2012.


		MOODY’S 2013 10K			39

Moody’s Analytics

The table below provides a summary of revenue and operating results, followed by further insight and commentary:


	Year Ended December 31,						% Change Favorable (Unfavorable)
	2013			2012			% Change Favorable (Unfavorable)
Revenue:
Research, data and analytics (RD&A)	$	532.0		$	493.2			8	%
Enterprise risk solutions (ERS)		262.5			242.6			8	%
Professional services (PS)		118.6			107.7			10	%

Total external revenue		913.1			843.5			8	%

Intersegment revenue		11.6			11.8			(2	%)

Total MA Revenue		924.7			855.3			8	%

Expenses:
Operating and SG&A (external)		633.5			591.4			(7	%)
Operating and SG&A (intersegment)		78.6			71.5			(10	%)

Adjusted Operating Income		212.6			192.4			10	%

Depreciation and amortization		46.8			49.3			5	%
Goodwill impairment charge		—			12.2			100	%

Operating income	$	165.8		$	130.9			27	%

Adjusted Operating Margin		23.0	%		22.5	%
Operating margin		17.9	%		15.3	%

The following is a discussion of external MA revenue and operating expenses:

Global MA revenue increased $69.6 million compared to 2012, with good growth across all LOBs. Recurring revenue comprised 78% and 77% of total MA revenue in 2013 and 2012, respectively.

In the U.S., revenue of $409.8 million in 2013 increased $50.2 million, and reflected growth across all three LOBs. International revenue of $503.3 million in 2013 was $19.4 million higher than in 2012.

Global RD&A revenue, which comprised 58% of total external MA revenue in both 2013 and 2012, increased $38.8 million over the prior year period. The growth was primarily due to increased sales of the CreditView product and solid growth from other data and analytic products as well as general market price increases.

Global ERS revenue in 2013 increased $19.9 million over 2012, primarily due to revenue from the sale and implementation of regulatory and compliance software to various financial institutions. This growth is primarily due to demand for solutions to comply with an increasingly complex regulatory environment in the banking industry. Revenue in ERS is subject to quarterly volatility resulting from the variable nature of project timing and the concentration of revenue in a relatively small number of engagements.

Revenue from PS, which included approximately $2 million in revenue from the acquisition of Amba, increased $10.9 million compared to 2012, reflecting growth in revenue from Copal being partially offset by softness in the FSTC reporting unit. This growth in revenue from Copal reflects further penetration into the market for outsourced research and analytical services. If the FSTC reporting unit does not achieve its financial forecast it could result in a goodwill impairment charge in future quarters.

Operating and SG&A expenses in 2013 increased $42.1 million compared to 2012 reflecting both higher compensation and non-compensation costs of approximately $29 million and $13 million, respectively. The increase in compensation costs reflects higher headcount to support business growth coupled with annual compensation increases as well as higher headcount in support areas for which the costs are allocated to each segment based on a revenue-split methodology. The increase in non-compensation expenses is primarily due to higher contingent consideration costs of approximately $7 million relating to the acquisition of Copal and higher professional service fees of approximately $7 million related to product delivery.

Adjusted Operating Income was $212.6 million in 2013 and increased $20.2 million compared to the same period in 2012. Operating income of $165.8 million in 2013, which includes intersegment revenue and expenses, increased $34.9 million compared to the same period in 2012, which included a $12.2 million goodwill impairment charge. Adjusted Operating Margin for 2013 was 23.0%, compared


40		MOODY’S 2013 10K

to 22.5% in 2012. Operating margin was 17.9%, or 260bps higher compared to the prior year, with the higher margin in 2013 reflecting the absence of the aforementioned goodwill impairment charge and good revenue growth outpacing expense growth.

Year ended December 31, 2012 compared with year ended December 31, 2011

Executive Summary

Moody’s revenue in 2012 totaled $2,730.3 million, an increase of $449.6 million compared to 2011 and reflected strong growth in both reportable segments. Excluding the unfavorable impact from changes in FX translation rates, revenue in 2012 increased $495.5 million compared to 2011. Total expenses were $1,652.9 million, and increased $260.6 million compared to the prior year and reflected both higher compensation and non-compensation costs, a full-year of expenses related to the fourth quarter 2011 acquisitions of Copal and B&H and a $12.2 million goodwill impairment charge relating to the Company’s FSTC reporting unit within MA. Operating income of $1,077.4 million in 2012, which included the aforementioned goodwill impairment charge, increased $189.0 million compared to 2011 and resulted in an operating margin of 39.5% in 2012 compared to 39.0% in the prior year period. Adjusted Operating Income of $1,183.1 million in 2012 increased $215.5 million compared to 2011 resulting in an Adjusted Operating Margin of 43.3% compared to 42.4% in the prior year period. Diluted EPS of $3.05 in 2012, which included a $0.06 per share benefit related to the favorable resolution of a Legacy Tax Matter, increased $0.56 over the prior year period, which included a $0.03 per share benefit related to favorable resolutions of Legacy Tax Matters as well as other tax benefits totaling $0.09 per share. Excluding the aforementioned impacts related to the favorable resolutions of Legacy Tax Matters in both years, Non-GAAP Diluted EPS in 2012 increased $0.53 per share compared to the prior year.

Moody’s Corporation

The table below provides a summary of revenue and operating results, followed by further insight and commentary:


	Year Ended December 31,

	2012			2011			% Change Favorable (Unfavorable)
Revenue:
United States	$	1,472.4		$	1,177.0			25	%

International:
EMEA		800.2			708.4			13	%
Asia-Pacific		266.5			233.0			14	%
Americas		191.2			162.3			18	%

Total International	$	1,257.9		$	1,103.7			14	%

Total		2,730.3			2,280.7			20	%

Expenses:
Operating		795.0			683.5			(16	%)
SG&A		752.2			629.6			(19	%)
Goodwill impairment charge		12.2			—			NM
Depreciation and amortization		93.5			79.2			(18	%)

Total		1,652.9			1,392.3			(19	%)

Operating income	$	1,077.4		$	888.4			21	%

Adjusted Operating Income ⁽¹⁾	$	1,183.1		$	967.6			22	%

Interest income (expense), net	$	(63.8	)	$	(62.1	)		(3	%)
Other non-operating income (expense), net	$	10.4		$	13.5			(23	%)
Net income attributable to Moody’s	$	690.0		$	571.4			21	%
Diluted EPS attributable to Moody’s common shareholders	$	3.05		$	2.49			22	%
Non-GAAP Diluted EPS attributable to Moody’s common shareholders ⁽¹⁾	$	2.99		$	2.46			22	%
Operating margin		39.5	%		39.0	%
Adjusted Operating Margin ⁽¹⁾		43.3	%		42.4	%

(1)

Adjusted Operating Income, Adjusted Operating Margin and Non-GAAP Diluted EPS attributable to Moody’s Common Shareholders are non-GAAP financial measures. Refer to the section entitled “Non-GAAP Financial Measures” of this Management Discussion and Analysis for further information regarding these measures.


		MOODY’S 2013 10K			41

The table below shows Moody’s global staffing by geographic area:


	December 31,

	2012			2011			% Change
United States		2,609			2,465			6	%
International		4,149			3,661			13	%

Total		6,758	*		6,126	*		10	%

Includes approximately 1,600 and 1,300 personnel as of December 31, 2012 and 2011, respectively, relating to the 2011 MA acquisitions, of which a majority are in low-cost jurisdictions.

Global revenue of $2,730.3 million in 2012 increased $449.6 million compared to 2011 reflecting strong growth in both segments. The increase in ratings revenue compared to 2011 reflects growth across all ratings LOBs, most notably in CFG. The growth in MA reflects higher revenue across all LOBs and includes revenue from Copal and B&H, which were acquired in the fourth quarter of 2011. Transaction revenue accounted for 50% and 46% of global MCO revenue in 2012 and 2011, respectively.

U.S. revenue of $1,472.4 million increased $295.4 million over 2011, primarily reflecting growth across all ratings LOBs, most notably in CFG, coupled with growth in all LOBs within MA. Also contributing to the growth were changes in the mix of fee type, new fee initiatives and certain pricing increases in the MIS segment.

Non-U.S. revenue increased $154.2 million over 2011, reflecting strong growth in PS and ERS revenue within MA due to the acquisitions of Copal and B&H in the fourth quarter of 2011 as well as higher MIS revenue from rating investment-grade and speculative-grade corporate debt. Changes in FX translation rates had an approximate $45 million unfavorable impact on non-U.S. revenue in 2012.

Operating expenses were $795.0 million in 2012, an increase of $111.5 million from 2011 and reflected an increase in both compensation and non-compensation costs. The increase in compensation costs of approximately $96 million reflects higher salaries and related employee benefits resulting from increases in headcount which includes the fourth quarter 2011 acquisitions of Copal and B&H as well as higher headcount in both the MIS and MA base business. Also contributing to the increase in salaries and related employee benefits was the impact of annual merit increases. Additionally, the increase in compensation expense is due to higher incentive compensation reflecting greater achievement against full-year targeted results compared to achievement in the prior year period. The increase in non-compensation costs of approximately $16 million is primarily due to higher costs to support investment in IT infrastructure.

SG&A expenses of $752.2 million in 2012 increased $122.6 million from 2011 and reflected increases in both compensation and non-compensation expenses. Compensation costs increased approximately $73 million primarily due to higher salaries and related employee benefits which reflects annual merit increases and headcount growth in sales personnel within MA as well as in the support areas of compliance and IT. Also, the growth in compensation expenses reflects a full-year of costs for Copal and B&H which were acquired in the fourth quarter of 2011. Additionally, the increase in compensation expense is due to higher incentive compensation reflecting greater achievement against full-year targeted results compared to achievement in the prior year period. Non-compensation expenses increased approximately $49 million over 2011 primarily reflecting higher legal defense costs for certain matters which are more fully discussed in the “Contingencies” section of this MD&A below. The increase compared to 2011 also reflects a full-year of expenses relating to the fourth quarter 2011 acquisitions of Copal and B&H as well as investments in IT infrastructure and higher variable costs to support business growth.

The goodwill impairment charge of $12.2 million relates to the FSTC reporting unit within MA. This impairment resulted from a decline in projected cash flows for this reporting unit as many individuals and global financial institutions have reduced spending on training and certification services amidst macroeconomic uncertainties in North America and EMEA.

Depreciation and amortization of $93.5 million in 2012 increased $14.3 million from 2011 reflecting higher amortization of: i) internal use software; and ii) intangible assets acquired as part of the fourth quarter 2011 acquisitions of Copal and B&H.

Operating income of $1,077.4 million increased $189.0 million from 2011, reflecting revenue growth outpacing the increase in total expenses. Adjusted Operating Income was $1,183.1 million in 2012 and increased $215.5 million compared to 2011. Operating margin and Adjusted Operating Margin in 2012 of 39.5% and 43.3%, respectively, increased 50bps and 90bps, respectively, compared to the prior year, and reflected revenue growth exceeding expense growth. Changes in FX translation rates had an approximate $30 million unfavorable impact on both operating income and Adjusted Operating Income in 2012.

Interest income (expense), net in 2012 was ($63.8) million, a $1.7 million increase in expense compared to 2011. This increase is primarily due to higher interest on borrowings reflecting the issuance of the 2012 Senior Notes in the third quarter of 2012 partially offset by an approximate $7 million reversal of interest on UTPs in 2012 due to the settlement of state and local tax audits.


42		MOODY’S 2013 10K

Other non-operating income (expense), net was $10.4 million in 2012, or $3.1 million lower compared to 2011 and reflected approximately $6 million in FX losses in 2012 compared to FX gains of approximately $3 million in 2011. The FX losses in 2012 related primarily to the decline of the euro relative to the British pound. The FX losses were partially offset by a higher Legacy Tax benefit in 2012 compared to 2011 ($12.8 million in 2012 compared to $6.4 million in 2011).

The Company’s ETR was 31.7% in 2012, up slightly from 31.2% in 2011. The increase was primarily due to the reversal of UTPs in the prior year resulting from a foreign tax ruling as well as benefits from the settlement of state tax audits in 2011. These items were partially offset by the favorable impact of tax planning initiatives in 2012.

Net Income in 2012 was $690.0 million, or $3.05 per diluted share and included a $12.8 million benefit from the favorable settlement of a Legacy Tax Matter and a $12.2 million goodwill impairment charge. This is an increase of $118.6 million, or $0.56 per diluted share, compared to 2011 when Net Income included a $7.0 million net benefit, or $0.03 per diluted share, relating to the favorable resolution of a Legacy Tax Matter as well as other tax benefits totaling $0.09. Excluding benefits from the favorable resolutions of Legacy Tax Matters in both 2012 and 2011, Non-GAAP Diluted EPS increased $0.53 per diluted share, compared to the prior year.

SEGMENT RESULTS

Moody’s Investors Service

The table below provides a summary of revenue and operating results, followed by further insight and commentary:


	Year Ended December 31,

	2012			2011			% Change Favorable (Unfavorable)
Revenue:
Corporate finance (CFG)	$	857.6		$	652.1			32	%
Structured finance (SFG)		381.0			344.6			11	%
Financial institutions (FIG)		325.5			294.9			10	%
Public, project and infrastructure finance (PPIF)		322.7			277.3			16	%

Total external revenue		1,886.8			1,568.9			20	%
Intersegment royalty		71.5			65.8			9	%

Total MIS Revenue		1,958.3			1,634.7			20	%
Expenses:
Operating and SG&A (external)		955.8			821.7			(16	%)
Operating and SG&A (intersegment)		11.8			10.6			(11	%)

Adjusted Operating Income		990.7			802.4			23	%

Depreciation and amortization		44.2			41.2			(7	%)

Operating income	$	946.5		$	761.2			24	%

Adjusted Operating Margin		50.6	%		49.1	%
Operating margin		48.3	%		46.6	%

The following is a discussion of external MIS revenue and operating expenses:

Global MIS revenue of $1,886.8 million in 2012 increased $317.9 million compared to 2011 and reflected growth in all ratings LOBs. The growth over the prior year period reflected robust rated issuance volumes for high-yield corporate debt and bank loans as well as investment-grade corporate debt. Additionally, the growth reflects higher rated issuance within public finance. The growth also reflected changes in the mix of fee type, new fee initiatives and certain pricing increases, primarily in the U.S. Transaction revenue for MIS was 62% and 58% in 2012 and 2011, respectively.

In the U.S., revenue was $1,112.9 million in 2012, an increase of $233.8 million, or 27% compared to 2011. The increase reflects the aforementioned robust rated issuance volumes in the high-yield and investment-grade corporate debt sectors as well as the public finance sector. The increase also reflects growth in rated issuance volumes for CMBS within SFG and the aforementioned changes in the mix of fee type, new fee initiatives and certain pricing increases.


		MOODY’S 2013 10K			43

Non-U.S. revenue was $773.9 million in 2012, an increase of $84.1 million compared to 2011. The growth over 2011 reflects higher rated issuance volumes for investment grade corporate debt as well as high-yield corporate debt and bank loans across all regions. Additionally, there was higher banking-related revenue across all regions coupled with higher infrastructure finance issuance in EMEA. Also contributing to the growth over 2011 were benefits from changes in the mix of fee type, new fee initiatives and certain pricing increases. Partially offsetting these increases were declines across most asset classes within SFG in the EMEA region. Changes in FX translation rates had an approximate $37 million unfavorable impact on non-U.S. MIS revenue in 2012.

Global CFG revenue of $857.6 million in 2012 increased $205.5 million from 2011 reflecting growth in rated issuance volumes for high-yield and investment-grade corporate debt across all regions as well as an increase in both monitoring fees as well as fees for commercial paper and medium term note programs. Also contributing to the growth in revenue were changes in the mix of fee type, new fee initiatives and certain pricing increases, primarily in the U.S. The aforementioned higher rated issuance volumes for investment grade corporate debt largely reflected issuers taking advantage of the overall low interest rate environment to issue new debt as well as refinance existing borrowings. The increase in U.S. rated issuance volumes in the high-yield sector reflects the current low interest rate environment coupled with an increase in investor demand for higher-yielding securities. Transaction revenue represented 74% of total CFG revenue in 2012, compared to 71% in 2011. In the U.S., revenue in 2012 was $561.8 million, or $139.5 million higher than 2011. Internationally, revenue of $295.8 million in 2012 increased $66.0 million compared to 2011. Unfavorable changes in FX translation rates had an approximate $14 million impact on international CFG revenue in 2012.

Global SFG revenue of $381.0 million in 2012 increased $36.4 million compared to 2011 and reflected higher rated issuance volumes across most asset classes in the U.S. These increases were partially offset by revenue declines in all asset classes in the EMEA region. The aforementioned increases in the U.S. resulted in transaction revenue increasing to 58% of total SFG revenue in 2012 compared to 52% in 2011. In the U.S., revenue of $207.4 million increased $45.8 million compared to 2011, reflecting growth in REIT, CMBS, collateralized loan obligation and asset-backed securities rated issuance volumes. The growth in these asset classes reflects the current low interest rate environment and narrow credit spreads for these securities. The growth in CMBS rated issuance volumes also reflects increasing activity in bank conduit operations. Non-U.S. revenue in 2012 of $173.6 million decreased $9.4 million compared to 2011. This decrease was primarily due to lower asset-backed securities issuance in EMEA reflecting strong issuance in 2011 when issuers were requesting a second rating for these securities in the first quarter of 2011, which was a new requirement by the ECB for existing asset-backed securities that could be used as collateral in Eurosystem credit operations. The decrease also reflects lower covered bond issuance in the EMEA region reflecting continued macroeconomic uncertainties in Europe. Unfavorable changes in FX translation rates had an approximate $11 million impact on international SFG revenue in 2012.

Global FIG revenue of $325.5 million in 2012 was $30.6 million higher compared to 2011 reflecting higher banking-related issuance in the U.S. as well as the Asia and Americas regions coupled with benefits from changes in the mix of fee type, new fee initiatives and pricing increases, primarily in the U.S. Also contributing to the increase was higher insurance revenue in the U.S. reflecting issuers opportunistically refinancing debt amidst favorable interest rate conditions coupled with issuance to fund M&A activity in the sector. Transaction revenue was 37% of total FIG revenue in 2012 compared to 34% in 2011. In the U.S. and internationally, revenue was $135.0 million and $190.5 million, respectively, for 2012, or 14% and 8% higher, respectively, compared to 2011. Unfavorable changes in FX translation rates had an approximate $8 million impact on international FIG revenue in 2012.

Global PPIF revenue was $322.7 million in 2012, an increase of $45.4 million compared to 2011, primarily reflecting both increases in U.S. public and project finance rated issuance volumes as well as the favorable impact of the aforementioned changes in the mix of fee type, new fee initiatives and pricing increases, primarily in the U.S. Revenue generated from new transactions was 61% and 58% of total PPIF revenue in 2012 and 2011, respectively. In the U.S., revenue in 2012 was $208.7 million and increased $32.2 million compared to 2011 and reflected higher rated issuance volumes in PFG and project finance as well as the aforementioned pricing increases. The increase in rated issuance volumes within PFG reflects issuers opportunistically refinancing obligations ahead of scheduled maturities in the current low interest rate environment as well as a challenging prior year period when issuance had declined reflecting the expiration of the Build America Bond Program in the fourth quarter of 2010. Outside the U.S., PPIF revenue increased 13% compared to 2011 due to growth in infrastructure finance rated issuance volumes in the EMEA region which reflects a partial easing of macroeconomic concerns following the ECB’s bond purchasing program announced in the third quarter of 2012. Unfavorable changes in FX translation rates had an approximate $5 million impact on international PPIF revenue in 2012.

Operating and SG&A expenses in 2012 increased $134.1 million compared to 2011 and reflected increases in compensation and non-compensation costs of approximately $87 million and $47 million, respectively. The increase in compensation costs reflects higher salaries and employee benefits resulting from annual merit increases, headcount growth in the ratings LOBs as well as in support areas such as IT, finance and human resources for which the costs are allocated to each segment based on a revenue-split methodology. The increase in compensation costs is also due to higher incentive compensation which reflects greater achievement against full-year 2012 targeted results compared to achievement in 2011. Compensation costs also increased due to higher pension expense resulting from a decrease in the discount rate used to value the Company’s obligation and higher amortization of actuarial losses. The increase in non-


44		MOODY’S 2013 10K

compensation expenses reflected higher costs resulting from the Company’s continued investment in improving IT infrastructure and regulatory and compliance initiatives coupled with higher variable costs reflecting improving business conditions. Additionally, the increase in non-compensation expenses reflects higher legal defense costs relating to ongoing matters, which are more fully discussed in the “Contingencies” section of this MD&A.

Adjusted Operating Income in 2012 was $990.7 million, an increase of $188.3 million compared to 2011. Operating income in 2012 of $946.5 million, which includes intersegment royalty revenue and intersegment expenses, increased $185.3 million from 2011 and reflects the $323.6 million increase in total MIS revenue outpacing the $135.3 million increase in total expenses. Adjusted Operating Margin and operating margin and were 50.6% and 48.4%, respectively, or 150bps and 180bps higher compared to 2011 reflecting revenue growth exceeding the increase in expenses.

Moody’s Analytics

The table below provides a summary of revenue and operating results, followed by further insight and commentary:


	Year Ended December 31,						% Change Favorable (Unfavorable)
	2012			2011			% Change Favorable (Unfavorable)
Revenue:
Research, data and analytics (RD&A)	$	493.2		$	453.9			9	%
Enterprise risk solutions (ERS)		242.6			196.1			24	%
Professional services (PS)		107.7			61.8			74	%

Total external revenue		843.5			711.8			19	%

Intersegment revenue		11.8			10.6			11	%

Total MA Revenue		855.3			722.4			18	%

Expenses:
Operating and SG&A (external)		591.4			491.4			(20	%)
Operating and SG&A (intersegment)		71.5			65.8			(9	%)

Adjusted Operating Income		192.4			165.2			16	%

Depreciation and amortization		49.3			38.0			(30	%)
Goodwill impairment charge		12.2			—			NM

Operating income	$	130.9		$	127.2			3	%

Adjusted Operating Margin		22.5	%		22.9	%
Operating margin		15.3	%		17.6	%

The following is a discussion of external MA revenue and operating expenses:

Global MA revenue increased $131.7 million compared to 2011, with 60% of the growth generated internationally, and included revenue from Copal and B&H which were acquired in the fourth quarter of 2011. Recurring revenue comprised 77% of total MA revenue in 2012 compared to 80% in 2011.

In the U.S., revenue of $359.6 million in 2012 increased $61.6 million, and reflected growth across all three LOBs. International revenue of $483.9 million in 2012 was $70.1 million higher than in 2011, and reflected growth across all LOBs.

Global RD&A revenue, which comprised 58% and 64% of MA external revenue in 2012 and 2011, respectively, increased $39.3 million in 2012. The growth was primarily due to increased sales of credit research via the CreditView product and solid growth from other data and analytic products. Global ERS revenue in 2012 increased $46.5 million over 2011, due to revenue from the acquisition of B&H in the fourth quarter of 2011 coupled with good growth in the base business. Revenue from the PS LOB increased $45.9 million compared to 2011, with substantially all of the growth reflecting the acquisition of Copal in the fourth quarter of 2011. Revenue in the ERS and PS LOBs are subject to quarterly volatility resulting from the variable nature of project timing and the concentration of revenue in a relatively small number of engagements.

Operating and SG&A expenses in 2012 increased $100.0 million compared to 2011 reflecting both higher compensation and non-compensation costs of approximately $82 million and $18 million, respectively. The increase in compensation costs reflects an increase in headcount relating to the acquisitions of Copal and B&H in the fourth quarter of 2011 as well as to support business growth coupled with annual merit increases. The increase in non-compensation costs reflects expenses related to the acquisitions of Copal and B&H which were acquired in the fourth quarter of 2011, as well as increases in certain variable costs that are correlated with business growth.


		MOODY’S 2013 10K			45

Depreciation and amortization of $49.3 million in 2012 increased $11.3 million from 2011 reflecting higher amortization related to intangible assets acquired as part of the fourth quarter 2011 acquisitions of Copal and B&H.

The goodwill impairment charge of $12.2 million relates to the FSTC reporting unit within MA. This impairment resulted from lower than expected projected growth for this reporting unit as many individuals and global financial institutions have reduced spending on training and certification services amidst macroeconomic uncertainties in North America and EMEA.

Adjusted Operating Income was $192.4 million in 2012, including intersegment revenue and expenses, and increased $27.2 million compared to 2011. Adjusted Operating Margin for 2012 was 22.5%, compared to 22.9% in 2011. Operating income of $130.9 million in 2012, which includes intersegment revenue and expenses, increased $3.7 million compared to 2011 and resulted in an operating margin of 15.3%, a decline of 230bps from the prior year reflecting the aforementioned increase in depreciation and amortization and goodwill impairment charge being partially offset by strong total revenue growth.

MARKET RISK

Foreign exchange risk:

Moody’s maintains a presence in 30 countries outside the U.S. In 2013, approximately 48% and 59% of the Company’s revenue and expenses, respectively, were in currencies other than the U.S. dollar, principally in the GBP and the euro. As such, the Company is exposed to market risk from changes in FX rates. As of December 31, 2013, approximately 55% of Moody’s assets were located outside the U.S. making the Company susceptible to fluctuations in FX rates. The effects of translating assets and liabilities of non-U.S. operations with non-U.S. functional currencies to the U.S. dollar are charged or credited to the cumulative translation adjustment account in the consolidated statements of shareholders’ equity (deficit).

The effects of revaluing assets and liabilities that are denominated in currencies other than an entity’s functional currency are charged to other non-operating income (expense), net in the Company’s consolidated statements of operations. Accordingly, the Company enters into foreign exchange forwards to mitigate the change in fair value on certain assets and liabilities denominated in currencies other than an entity’s functional currency. If foreign currencies in the Company’s foreign exchange forward portfolio were to devalue 10% compared to the U.S. dollar, there would be an approximate $7 million unfavorable impact to the fair value of the forward contracts. Additionally, if foreign currencies in the Company’s foreign exchange forward portfolio were to devalue 10% compared to the euro, there would be an approximate $4 million favorable impact to the fair value of the forward contracts. The change in fair value of the foreign exchange forward contracts would be offset by FX revaluation gains or losses in future earnings on underlying assets and liabilities denominated in currencies other than an entity’s functional currency. Additional information on the Company’s forward contracts can be found in Note 5 to the consolidated financial statements located in Item 8 of this Form 10K.

Additionally, 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. 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 statements of operations. For the year ended December 31, 2013 all gains and losses on these derivatives designated as net investment hedges were recognized in OCI. If all foreign currencies in the Company’s net investment hedge portfolio were to appreciate 10% compared to the U.S. dollar, there would be an approximate $29 million unfavorable impact to the currency translation adjustment component of AOCI.

Moody’s aggregate cash and cash equivalents and short term investments of $2,106.3 million at December 31, 2013 consisted of approximately $881 million denominated in currencies other than the U.S. dollar. As such, a decrease in the value of foreign currencies against the U.S. dollar, particularly the euro and GBP, could reduce the reported amount of cash and cash equivalents and short-term investments.

Credit and Interest rate risk:

The Company’s interest rate risk management objective is to reduce the funding cost and volatility to the Company and to alter the interest rate exposure to the desired risk profile. Moody’s uses interest rate swaps as deemed necessary to assist in accomplishing this objective.

The Company is exposed to interest rate risk on its various outstanding fixed rate debt for which the fair value of the outstanding fixed rate debt fluctuates based on changes in interest rates. The Company entered into interest rate swaps with a total notional amount of $300 million in the fourth quarter of 2010 to convert the fixed rate of interest on its $300 million Series 2005-1 Notes to a floating interest rate based on the 3 month LIBOR. These swaps are adjusted to fair market value based on prevailing interest rates at the end of each reporting period and fluctuations are recorded as a reduction or addition to the carrying value of the Series 2005-1 Notes, while net interest payments are recorded as interest expense/income in the Company’s consolidated statement of operations. A hypothetical change of 100bps in the LIBOR-based swap rate would result in an approximate $5 million change to the fair value of these interest rate swaps. Additional information on this interest rate swap is disclosed in Note 5 to the consolidated financial statements located in Item 8 of this Form 10K.


46		MOODY’S 2013 10K

Moody’s cash equivalents consist of investments in high-quality investment-grade securities within and outside the U.S. with maturities of three months or less when purchased. The Company manages its credit risk exposure by allocating its cash equivalents among various money market mutual funds and issuers of high-grade commercial paper and by limiting the amount it can invest with any single issuer. Short-term investments primarily consist of certificates of deposit.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flow

The Company is currently financing its operations, capital expenditures and share repurchases from operating and financing cash flow.

The following is a summary of the changes in the Company’s cash flows followed by a brief discussion of these changes:


	Year Ended December 31,									Year Ended December 31,

	2013			2012			$ Change Favorable (unfavorable)			2012			2011			$ Change Favorable (unfavorable)
Net cash provided by operating activities	$	926.8		$	823.1		$	103.7		$	823.1		$	803.3		$	19.8
Net cash used in investing activities	$	(261.9	)	$	(50.2	)	$	(211.7	)	$	(50.2	)	$	(267.6	)	$	217.4
Net cash provided by (used in) financing activities	$	(498.8	)	$	202.6		$	(701.4	)	$	202.6		$	(417.7	)	$	620.3
Free cash flow*	$	884.5		$	778.1		$	106.4		$	778.1		$	735.6		$	42.5

*	Free cash flow is a non-GAAP measure and is defined by the Company as net cash provided by operating activities minus cash paid for capital additions. Refer to the section “Non-GAAP Financial Measures” of this MD&A for further information on this financial measure.

Net Cash Provided By Operating Activities

Year ended December 31, 2013 compared to the year ended December 31, 2012:

The following changes in non-cash items impacted cash provided by operating activities in 2013 compared to 2012, relative to net income:

A $63.3 million decrease in deferred income taxes primarily due to the utilization of deferred tax assets relating to the settlement of UTPs in the first quarter of 2012;

a $12.2 million goodwill impairment charge in 2012 related to the FSTC reporting unit within MA;

In addition to the non-cash items discussed above and an increase in net income of $116.2 million, the change in net cash flows provided by operating activities also reflected:

Payments of approximately $121 million in the first quarter of 2012, reflecting the settlement of state and local tax audits;

a $61.2 million increase in cash flow from changes in accounts receivable balances primarily reflecting a larger increase in accounts receivable balances in 2012 compared to 2013. The increase in 2012 reflected lower accounts receivable balances at December 31, 2011 resulting from declines in corporate finance issuance in the fourth quarter of 2011. Approximately 26% and 23% of the Company’s accounts receivable balance at December 31, 2013 and 2012, respectively, represents unbilled receivables which primarily reflect certain annual fees in MIS which are invoiced in arrears;

a $45.2 million increase in cash flows from changes in deferred revenue balances primarily reflecting overall growth in both segments;

Partially offset by:

an approximate $100 million decrease relating to higher incentive compensation payouts (including profit sharing and related payroll taxes) in 2013 compared to 2012 reflecting higher achievement against full-year targeted results in 2012 compared to achievement in the prior year period;

an approximate $45 million decrease in cash flows relating to the timing of income tax payments primarily resulting from IRS relief due to Hurricane Sandy which allowed for the delay of fourth quarter 2012 estimated tax payments to the first quarter of 2013;

a $23.1 million decrease relating to greater excess tax benefits from stock-based compensation plans primarily due to a higher intrinsic value of awards exercised in 2013 resulting from a higher Moody’s stock price.


		MOODY’S 2013 10K			47

Y ear ended December 31, 2012 compared to the year ended December 31, 2011:

The following changes in non-cash items impacted cash provided by operating activities in 2012 compared to 2011, relative to net income:

A $14.3 million increase in depreciation and amortization expense reflecting higher amortization of intangible assets due to the fourth quarter 2011 acquisitions of Copal and B&H as well as higher amortization related to the Company’s continued investment in IT infrastructure;

A $25.8 million increase in deferred income taxes primarily due to the utilization of deferred tax assets relating to the settlement of UTPs in the first quarter of 2012;

A $12.8 million non-cash reduction of a liability related to the resolution of a Legacy Tax Matter in 2012 compared to a $6.4 million non-cash reduction of a Legacy Tax liability in 2011;

$12.2 million non-tax deductible goodwill impairment charge in 2012 related to the FSTC reporting unit within MA.

In addition to the non-cash items discussed above and an increase in net income of $121.7 million, the change in net cash flows provided by operating activities also reflected:

Payments of approximately $121 million in the first quarter of 2012, reflecting the settlement of state and local tax audits;

A $145.3 million decrease in cash flow from changes in accounts receivable balances primarily reflecting higher billings in both reportable segments. The higher accounts receivable balances in the ratings segment reflect an increase in rated issuance volumes compared to the prior year. The higher balances in MA primarily reflect the timing of billings for annual software maintenance fees. Approximately 23% and 25% of the Company’s accounts receivable balance at December 31, 2012 and 2011, respectively, represent unbilled receivables which primarily reflect certain annual fees in MIS which are invoiced in arrears;

Partially offset by:

An approximate $69 million increase in cash flows reflecting higher incentive compensation accruals compared to the prior year period resulting from greater achievement against targeted results compared to achievement in 2011;

An approximate $25 million increase in cash flows reflecting higher accruals for legal defense costs which is primarily due to two matters related to SIVs rated by MIS which are more fully discussed in the “Contingencies” section of this MD&A.

Net Cash Used In Investing Activities

Year ended December 31, 2013 compared to the year ended December 31, 2012:

The $211.7 million increase in cash flows used in investing activities compared to 2012 primarily reflects :

A $169.7 million increase in cash used to purchase short-term investments with excess non-U.S. cash;

cash paid, net of cash acquired, of $50.7 million relating to the acquisition of Amba in December 2013.

Year ended December 31, 2012 compared to the year ended December 31, 2011:

The $217.4 million decrease in cash flows used in investing activities compared to 2011 primarily reflects payments in 2011, net of cash acquired, for the Copal and B&H acquisitions. The decrease also reflects lower capital additions of $22.7 million due to project timing of certain of the Company’s IT infrastructure initiatives.

Net Cash Used In Financing Activities

Year ended December 31, 2013 compared to the year ended December 31, 2012:

The $701.4 million increase in cash used in financing activities was primarily attributed to:

Treasury shares repurchased of $893.1 million in 2013 compared to $196.5 million repurchased in the prior year period;

Higher dividends paid to MCO shareholders of $54.3 million reflecting $0.90 per share paid in 2013 compared to $0.64 per share paid in the prior year;

Partially offset by:

an increase in net proceeds from stock-based compensation plans of $19.3 million reflecting higher strike prices for options exercised in 2013 compared to the prior year. These proceeds were partially offset by a greater number of shares repurchased from employees to satisfy tax withholding obligations in connection with the vesting of restricted stock in March 2013;

Higher excess tax benefits from stock-based compensation plans of $23.1 million due to due to a higher intrinsic value of awards exercised in 2013 resulting from a higher Moody’s stock price.


48		MOODY’S 2013 10K

Year ended December 31, 2012 compared to the year ended December 31, 2011:

The $620.3 million increase in cash provided by financing activities was primarily attributed to:

A $496.1 million increase relating to proceeds received from the issuance of the 2012 Senior Notes;

Treasury shares repurchased of $196.5 million in 2012 compared to $333.8 million in 2011;

Higher net proceeds from stock-based compensation plans of $70.3 million reflecting a greater number of stock option exercises in 2012 compared to the prior year due to the Company’s higher trading price for its common stock;

Partially offset by:

Higher dividends paid of $22.0 million due to an increase in the Company’s annual dividend paid per share from $0.535 cents in 2011 to $0.64 cents in 2012;

Repayments on the 2008 Term Loan of $71.3 million in 2012 compared to $11.3 million in 2011.

Cash held in non-U.S. jurisdictions

The Company’s aggregate cash and cash equivalents and short-term investments of $2.1 billion at December 31, 2013 consisted of approximately $1.2 billion located outside of the U.S., a majority of which is denominated in euros and British pounds. Over 95% of the cash and short-term investments in the Company’s non-U.S. operations are held by entities whose undistributed earnings are indefinitely reinvested in the Company’s foreign operations. Accordingly, the Company has not provided deferred income taxes on these indefinitely reinvested earnings. A future distribution or change in assertion regarding reinvestment by the foreign subsidiaries relating to these earnings could result in additional tax liability to the Company. It is not practicable to determine the amount of the potential additional tax liability due to complexities in the tax laws and in the hypothetical calculations that would have to be made. The Company manages both its U.S. and international cash flow to maintain sufficient liquidity in all regions to effectively meet its operating needs.

Future Cash Requirements

The Company believes that it has the financial resources needed to meet its cash requirements and expects to have positive operating cash flow for the next twelve months. Cash requirements for periods beyond the next twelve months will depend, among other things, on the Company’s profitability and its ability to manage working capital requirements. The Company may also borrow from various sources.

The Company remains committed to using its strong cash flow to create value for shareholders by investing in growing areas of the business, reinvesting in ratings quality initiatives, making selective acquisitions in related businesses, repurchasing stock and paying a dividend, all in the manner consistent with maintaining sufficient liquidity. In December 2013, the Board of Directors of the Company declared a quarterly dividend of $0.28 per share of Moody’s common stock, payable on March 10, 2014 to shareholders of record at the close of business on February 20, 2014. The continued payment of dividends at this rate, or at all, is subject to the discretion of the Board. On February 12, 2013, the Board approved an additional $1.0 billion of share repurchase authority. At December 31, 2013, the Company had $0.8 billion of share repurchase authority remaining under this program, which does not have an established expiration. On February 11, 2014, the Board approved an additional $1.0 billion of share repurchase authority which will be utilized once the February 12, 2013 authorization is exhausted. The Company expects to complete approximately $1 billion of share repurchases in 2014. Share repurchase activity in the near term is subject to available cash flow, market conditions and other capital allocation decisions.

As part of the Copal acquisition in November 2011, Moody’s and the non-controlling shareholders entered into a put/call arrangement whereby the noncontrolling shareholders have the option to sell the portion of Copal that Moody’s does not currently own and Moody’s has the option to purchase this portion from the noncontrolling shareholders. The exercise price of this option was valued at $68 million at the time of acquisition and will fluctuate based on the entity’s financial results subject to a floor exercise price of approximately $46 million. The redemption value of this redeemable noncontrolling interest was $80.0 million at December 31, 2013. There is no limit as to the amount of the strike price on the put/call option. It is estimated that the exercise of the put/call arrangement will take place in the next one to four years based on a Monte Carlo simulation. This put/call arrangement expires on the sixth anniversary date of the acquisition.

At December 31, 2013, Moody’s had $2.1 billion of outstanding debt, which is further described in the “Indebtedness” section of this MD&A below, with $1.0 billion of additional capacity available under the 2012 Facility. Principal payments on the Company’s borrowings will be made in accordance with the schedule of payments outlined in the “Indebtedness” section of this MD&A below.

On February 6, 2008, the Company entered into a 17.5 year operating lease agreement to occupy six floors of an office tower located in the Canary Wharf district of London, England. The total base rent of the Canary Wharf Lease over its 17.5-year term is approximately £134 million, and the Company began making base rent payments in 2011. In addition to the base rent payments the Company will be obligated to pay certain customary amounts for its share of operating expenses and tax obligations. The total remaining lease payments as of December 31, 2013 are approximately £109 million, of which approximately £10 million will be paid in the next twelve months.


		MOODY’S 2013 10K			49

On October 20, 2006, the Company entered into an operating lease agreement with 7 World Trade Center, LLC for 589,945 square-feet of an office building located at 7WTC at 250 Greenwich Street, New York, New York, which is serving as Moody’s headquarters. The 7WTC Lease has an initial term of 21 years with a total of 20 years of renewal options. The total base rent of 7WTC Lease over its initial 21-year term is approximately $536 million including rent credits from the World Trade Center Rent Reduction Program promulgated by the Empire State Development Corporation. On March 28, 2007, the 7WTC lease agreement was amended for the Company to lease an additional 78,568 square-feet at 7WTC. The additional base rent is approximately $106 million over a 20-year term. The total remaining lease payments as of December 31, 2013, including the aforementioned rent credits, are approximately $479 million, of which approximately $33 million will be paid during the next twelve months.

On October 21, 2013, the Company entered into a fourteen-year lease for three additional floors at its 7WTC headquarters. The total net commitment for this lease is approximately $74 million, including capital expenditures to build-out the space. The lease became effective in January 2014.

During the year ending December 31, 2014, the Company anticipates making contributions of approximately $20 million to its funded U.S. pension plan and anticipates making payments of $6.2 million related to its unfunded U.S. pension plans and $0.8 million related to its Other Retirement Plans.

On February 21, 2014, the Company made a conditional open offer to acquire up to 2,650,000 equity shares of ICRA Limited, a leading provider of credit ratings and research in India. The offer is conditional upon acquiring at least 2,149,101 equity shares, which would increase Moody’s ownership stake from 28.5% to just over 50.0%. Full acceptance of the offer would increase Moody’s ownership stake in ICRA to approximately 55.0%. The offer price, payable in cash, is 2,000 Indian rupees per share. The tender period is expected to begin in April 2014, subject to completion of a review of the transaction by Indian regulatory authorities. Subject to completion of the offer and based on exchange rates in effect as of the date of the offer, the cash payment would be between $69 million and $85 million depending on the number of shares acquired.

INDEBTEDNESS

The following table summarizes total indebtedness:


	December 31,

	2013		2012
2012 Facility	$	—	$	—
Notes payable:
Series 2005-1 Notes due 2015, including fair value of interest rate swap of $10.3 million at 2013 and $13.8 million at 2012		310.3		313.8
Series 2007-1 Notes due in 2017		300.0		300.0
2010 Senior Notes, due 2020, net of unamortized discount of $2.2 million and $2.6 million in 2013 and 2012, respectively		497.8		497.4
2012 Senior Notes, due 2022, net of unamortized discount of $3.5 million in 2013 and $3.8 million in 2012		496.5		496.2
2013 Senior Notes, due 2024, net of unamortized discount of $2.8 million in 2013		497.2		—
2008 Term Loan, various payments through 2013		—		63.8

Total debt		2,101.8		1,671.2
Current portion		—		(63.8	)

Total long-term debt	$	2,101.8	$	1,607.4

2012 Facility

On April 18, 2012, the Company and certain of its subsidiaries entered into a $1 billion five-year senior, unsecured revolving credit facility in an aggregate principal amount of $1 billion that expires in April 2017. The 2012 Facility replaced the $1 billion 2007 Facility that was scheduled to expire in September 2012. The proceeds from the 2012 Facility will be used for general corporate purposes, including, without limitation, share repurchases and acquisition financings. Interest on borrowings under the facility is payable at rates that are based on LIBOR plus a premium that can range from 77.5 basis points to 120 basis points per annum of the outstanding amount, depending on the Company’s Debt/EBITDA ratio. The Company also pays quarterly facility fees, regardless of borrowing activity under the 2012 Facility. These quarterly fees can range from 10 basis points of the facility amount to 17.5 basis points, depending on the Company’s Debt/ EBITDA Ratio.

The 2012 Facility contains covenants that, among other things, restrict the ability of the Company and 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 set forth in the facility agreement. The 2012 Facility also contains a financial covenant that requires the Company to maintain a Debt to EBITDA Ratio of not more than 4 to 1 at the end of any fiscal quarter. Upon the occurrence of certain financial or economic events, significant corporate events or certain other events constituting an event of default under the 2012 Facility, all loans outstanding under the facility (including accrued interest and fees payable thereunder) may be declared immediately due and payable and all commitments under the facility may be terminated.


50		MOODY’S 2013 10K

Commercial Paper

On October 3, 2007, the Company entered into a private placement commercial paper program under which the Company could issue CP notes up to a maximum amount of $1.0 billion. In October 2013, the Company terminated its CP program.

Notes Payable

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.

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 August 19, 2010, the Company issued $500 million aggregate principal amount of senior unsecured notes in a public offering. The 2010 Senior Notes bear interest at a fixed rate of 5.50% and mature on September 1, 2020. Interest on the 2010 Senior Notes will be due semi-annually on September 1 and March 1 of each year, commencing March 1, 2011. The Company may prepay the 2010 Senior 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. Additionally, at the option of the holders of the notes, the Company may be required to purchase all or a portion of the notes upon occurrence of a “Change of Control Triggering Event,” as defined in the 2010 Indenture, at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest to the date of purchase. The 2010 Indenture contains covenants that limit the ability of the Company and certain of its subsidiaries to, among other things, incur or create liens and enter into sale and leaseback transactions. In addition, the 2010 Indenture contains a covenant that limits the ability of the Company to consolidate or merge with another entity or to sell all or substantially all of its assets to another entity. The 2010 Indenture contains customary default provisions. In addition, an event of default will occur if the Company or certain of its subsidiaries fail to pay the principal of any indebtedness (as defined in the 2010 Indenture) when due at maturity in an aggregate amount of $50 million or more, or a default occurs that results in the acceleration of the maturity of the Company’s or certain of its subsidiaries’ indebtedness in an aggregate amount of $50 million or more. Upon the occurrence and during the continuation of an event of default under the 2010 Indenture, the notes may become immediately due and payable either automatically or by the vote of the holders of more than 25% of the aggregate principal amount of all of the notes then outstanding.

On November 4, 2011, in connection with the acquisition of Copal, a subsidiary of the Company issued a $14.2 million non-interest bearing note to the sellers which represented a portion of the consideration transferred to acquire the Copal entities. If a seller subsequently transfers to the Company all of its shares, the Company must repay the seller its proportion of the principal on the later of (i) the fourth anniversary date of the note or (ii) within a time frame set forth in the acquisition agreement relating to the resolution of certain income tax uncertainties pertaining to the transaction. Otherwise, the Company must repay any amount outstanding on the earlier of (i) two business days subsequent to the exercise of the put/call option to acquire the remaining shares of Copal of (ii) the tenth anniversary date of the issuance of the note. The Company has the right to offset payment of the note against certain indemnification assets associated with UTPs related to the acquisition, which are more fully discussed in Note 7 to the consolidated financial statements. Accordingly, the Company has offset the liability for this note against the indemnification asset, thus no balance for this note is carried on the Company’s consolidated balance sheet at December 31, 2013 and 2012. In the event that the Company would not be required to settle amounts related to the UTPs, the Company would be required to pay the sellers the principal in accordance with the note agreement. The Company may prepay the note in accordance with certain terms set forth in the acquisition agreement.


		MOODY’S 2013 10K			51

semi-annually on September 1 and March 1 of each year, commencing March 1, 2013. The Company may prepay the 2012 Senior 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. Additionally, at the option of the holders of the notes, the Company may be required to purchase all or a portion of the notes upon occurrence of a “Change of Control Triggering Event,” as defined in the 2012 Indenture, at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest to the date of purchase. The 2012 Indenture contains covenants that limit the ability of the Company and certain of its subsidiaries to, among other things, incur or create liens and enter into sale and leaseback transactions. In addition, the 2012 Indenture contains a covenant that limits the ability of the Company to consolidate or merge with another entity or to sell all or substantially all of its assets to another entity. The 2012 Indenture contains customary default provisions. In addition, an event of default will occur if the Company or certain of its subsidiaries fail to pay the principal of any indebtedness (as defined in the 2012 Indenture) when due at maturity in an aggregate amount of $50 million or more, or a default occurs that results in the acceleration of the maturity of the Company’s or certain of its subsidiaries’ indebtedness in an aggregate amount of $50 million or more. Upon the occurrence and during the continuation of an event of default under the 2012 Indenture, the 2012 Senior notes may become immediately due and payable either automatically or by the vote of the holders of more than 25% of the aggregate principal amount of all of the notes then outstanding.

On August 12, 2013, the Company issued $500 million aggregate principal amount of senior unsecured notes in a public offering. The 2013 Senior Notes bear interest at a fixed rate of 4.875% and mature on February 15, 2024. Interest on the 2013 Senior Notes will be due semi-annually on February 15 and August 15 of each year, commencing February 15, 2014. The Company may prepay the 2013 Senior 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. Notwithstanding the immediately preceding sentence, the Company may redeem the 2013 Senior Notes, in whole or in part, at any time or from time to time on or after November 15, 2023 (three months prior to their maturity), at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding the redemption date. Additionally, at the option of the holders of the notes, the Company may be required to purchase all or a portion of the notes upon occurrence of a “Change of Control Triggering Event,” as defined in the 2013 Indenture, at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest to the date of purchase. The 2013 Indenture contains covenants that limit the ability of the Company and certain of its subsidiaries to, among other things, incur or create liens and enter into sale and leaseback transactions. In addition, the 2013 Indenture contains a covenant that limits the ability of the Company to consolidate or merge with another entity or to sell all or substantially all of its assets to another entity. The 2013 Indenture contains customary default provisions. In addition, an event of default will occur if the Company or certain of its subsidiaries fail to pay the principal of any indebtedness (as defined in the 2013 Indenture) when due at maturity in an aggregate amount of $50 million or more, or a default occurs that results in the acceleration of the maturity of the Company’s or certain of its subsidiaries’ indebtedness in an aggregate amount of $50 million or more. Upon the occurrence and during the continuation of an event of default under the 2013 Indenture, the 2013 Senior Notes may become immediately due and payable either automatically or by the vote of the holders of more than 25% of the aggregate principal amount of all of the notes then outstanding.

2008 Term Loan

On May 7, 2008, Moody’s entered into a five-year, $150.0 million senior unsecured term loan with several lenders due at various times through May 7, 2013. Proceeds from the loan were used to pay off a portion of the CP outstanding. Interest on borrowings under the 2008 Term Loan was payable quarterly at rates that were based on LIBOR plus a margin that could range from 125 basis points to 175 basis points depending on the Company’s Debt/EBITDA ratio.

The 2008 Term Loan contained restrictive covenants that, among other things, restricted 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 limited the amount of debt that subsidiaries of the Company may incur. In addition, the 2008 Term Loan contained 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 2008 Term Loan was repaid in full in May 2013.


52		MOODY’S 2013 10K

The principal payments due on the Company’s long-term borrowings for each of the next five years are presented in the table below:


Year Ending December 31,	Series 2005-1 Notes		Series 2007-1 Notes		2010 Senior Notes		2012 Senior Notes		2013 Senior Notes		Total
2014	$	—	$	—	$	—	$	—	$	—	$	—
2015		300.0		—		—		—		—		300.0
2016		—		—		—		—		—		—
2017		—		300.0		—		—		—		300.0
2018		—		—		—		—		—		—
Thereafter		—		—		500.0		500.0		500.0		1,500.0

Total	$	300.0	$	300.0	$	500.0	$	500.0	$	500.0	$	2,100.0

In the fourth quarter of 2010, the Company entered into interest rate swaps with a total notional amount of $300 million which will convert the fixed rate of interest on the Series 2005-1 Notes to a floating LIBOR-based interest rate.

At December 31, 2013, the Company was in compliance with all covenants contained within all of the debt agreements. In addition to the covenants described above, the 2012 Facility, the 2005 Agreement, the 2007 Agreement, the 2013 Indenture, the 2012 Indenture and the 2010 Indenture 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 December 31, 2013, there are no such cross defaults.

INTEREST EXPENSE, NET

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


	Year Ended December 31,

	2013			2012			2011
Income	$	5.5		$	5.2		$	5.3
Expense on borrowings		(92.3	)		(73.8	)		(65.5	)
(Expense) income on UTPs and other tax related liabilities		(8.6	)		0.4			(8.7	)
Legacy Tax ^(a)		3.6			4.4			3.7
Interest capitalized		—			—			3.1

Total	$	(91.8	)	$	(63.8	)	$	(62.1	)

Interest paid ^(b)	$	81.9		$	94.4		$	67.2

(a)	Represents a reduction of accrued interest related to the favorable resolution of Legacy Tax Matters, further discussed in Note 18 to the consolidated financial statements.

(b)	Interest paid includes payments of interest relating to the settlement of income tax audits in the first quarter of 2012 as well as net settlements on interest rate swaps more fully discussed in Note 5.

The Company’s long-term debt, including the current portion, is recorded at cost except for the Series 2005-1 Notes which is carried at cost adjusted for the fair value of an interest rate swap used to hedge the fair value of the note. The fair value and carrying value of the Company’s long-term debt as of December 31, 2013 and 2012 is as follows:


	December 31, 2013				December 31, 2012

	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Series 2005-1 Notes*	$	310.3	$	319.2	$	313.8	$	326.1
Series 2007-1 Notes		300.0		334.7		300.0		348.3
2010 Senior Notes		497.8		536.6		497.4		562.8
2012 Senior Notes		496.5		497.0		496.2		528.8
2013 Senior Notes		497.2		501.2		—		—
2008 Term Loan		—		—		63.8		63.8

Total	$	2,101.8	$	2,188.7	$	1,671.2	$	1,829.8

*	The carrying amount includes a $10.3 million and $13.8 million fair value adjustment on an interest rate hedge at December 31, 2013 and 2012, respectively.


		MOODY’S 2013 10K			53

The fair value of the long-term debt is estimated using discounted cash flows based on prevailing interest rates available to the Company for borrowings with similar maturities.

Management may consider pursuing additional long-term financing when it is appropriate in light of cash requirements for operations, share repurchases and other strategic opportunities which would result in higher financing costs.

Off-Balance Sheet Arrangements

At December 31, 2013, Moody’s did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as special purpose or variable interest entities where Moody’s is the primary beneficiary, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As such, Moody’s is not exposed to any financing, liquidity, market or credit risk that could arise if it had engaged in such relationships.

Contractual Obligations

The following table presents payments due under the Company’s contractual obligations as of December 31, 2013:


			Payments Due by Period

(in millions)	Total		Less Than 1 Year		1-3 Years		3-5 Years		Over 5 Years
Indebtedness ⁽¹⁾	$	2,849.6	$	104.6	$	498.6	$	467.3	$	1,779.1
Operating lease obligations		805.6		78.0		127.6		116.0		484.0
Purchase obligations		118.9		71.7		47.2		—		—
Contingent consideration related to acquisitions ⁽²⁾		6.7		4.3		2.4		—		—
Pension obligations ⁽³⁾		131.0		27.7		11.1		36.6		55.6
Conditional open offer to acquire shares of ICRA Limited ⁽⁴⁾		69.2		69.2		—		—		—

Total ⁽⁵⁾	$	3,981.0	$	355.5	$	686.9	$	619.9	$	2,318.7

(1)	Reflects principal payments, related interest and applicable fees due on the Series 2005-1 Notes, the Series 2007-1 Notes, the 2010 Senior Notes, the 2012 Senior Notes, the 2013 Senior Notes, and the 2012 Facility as described in Note 15 to the consolidated financial statements

(2)

Reflects a $4.3 million contingent cash payment related to the December 10, 2013 acquisition of Amba that is dependent on the acquired entity achieving certain revenue targets for its fiscal year ended March 31, 2014. Also, reflects a $2.4 million contingent cash payment related to the November 18, 2010 acquisition of CSI Global Education, Inc. The cash payment is dependent upon the achievement of a certain contractual milestone by January 2016.

(3)	Reflects projected benefit payments for the next ten years relating to the Company’s U.S. unfunded Retirement Benefit Plans described in Note 12 to the condensed consolidated financial statements

(4)

Reflects the minimum number of shares to be acquired pursuant to the Company’s open offer to acquire additional shares of ICRA Limited, which is more fully discussed in Note 24 to the consolidated financial statements. If the Company were to acquire the maximum amount of 2.7 million shares set forth in the open offer, the total cash payment in 2014 would be approximately $85 million. The estimated commitments were calculated using exchange rates on the day of the offer.

(5)

The table above does not include the Company’s net long-term tax liabilities of $211.0 million relating to UTP and Legacy Tax Matters, since the expected cash outflow of such amounts by period cannot be reasonably estimated. This amount is excluded as the exact amount of the payment is still uncertain. The table above does not include the following relating to the acquisition of Copal; (i) the $14.2 million note payable as described in Note 7 to the consolidated financial statements, (ii) the $10.8 million contingent consideration obligation and the (iii) the $80.0 million Redeemable Non Controlling Interest, as the expected cash outflow of such amounts by period cannot be reasonably estimated

Non-GAAP Financial Measures:

In addition to its reported results, Moody’s has included in this MD&A certain adjusted results that the SEC defines as “non-GAAP financial measures.” Management believes that such non-GAAP financial measures, when read in conjunction with the Company’s reported results, can provide useful supplemental information for investors analyzing period to period comparisons of the Company’s performance, facilitate comparisons to competitors’ operating results and can provide greater transparency to investors of supplemental information used by management in its financial and operational decision-making. These non-GAAP measures, as defined by the Company, are not necessarily comparable to similarly defined measures of other companies. Furthermore, these non-GAAP measures should not be viewed in isolation or used as a substitute for other GAAP measures in assessing the operating performance or cash flows of the Company. Below are brief descriptions of the Company’s non-GAAP financial measures accompanied by a reconciliation of the non-GAAP measure to its most directly comparable GAAP measure:

Adjusted Operating Income and Adjusted Operating Margin :

The Company presents Adjusted Operating Income because management deems this metric to be a useful measure of assessing the operating performance of Moody’s, measuring the Company’s ability to service debt, fund capital expenditures, and expand its business. Adjusted Operating Income excludes depreciation and amortization as well as goodwill impairment charges because companies utilize productive assets of different ages and use different methods of acquiring productive assets including goodwill. Companies also have different methods of depreciating and amortizing productive assets as well as different methods of valuing goodwill. Management


54		MOODY’S 2013 10K

believes that the exclusion of certain items, detailed in the reconciliation below, allows for a more meaningful comparison of the Company’s operating results from period to period and across companies. Below is a reconciliation of the Company’s operating income and operating margin to Adjusted Operating Income and Adjusted Operating Margin:


	Year Ended December 31,

	2013			2012			2011			2010			2009
Operating income	$	1,234.6		$	1,077.4		$	888.4		$	772.8		$	687.5
Adjustments:
Depreciation and amortization		93.4			93.5			79.2			66.3			64.1
Goodwill impairment charge		—			12.2			—			—			—
Restructuring		—			—			—			0.1			17.5

Adjusted Operating Income	$	1,328.0		$	1,183.1		$	967.6		$	839.2		$	769.1

Operating Margin		41.5	%		39.5	%		39.0	%		38.0	%		38.3	%
Adjusted Operating Margin		44.7	%		43.3	%		42.4	%		41.3	%		42.8	%

Non-GAAP Diluted EPS

The Company presents this non-GAAP measure to exclude the impact of litigation settlements, Legacy Tax Matters and restructuring items to allow for a more meaningful comparison of Moody’s diluted earnings per share from period to period. The Legacy Tax items are specific to the Company resulting from the 2000 Distribution. The restructuring items relate to the certain costs incurred in connection with the 2007 Restructuring Plan and the 2009 Restructuring Plan. The impact of litigation settlement relates to the settlement of two legal matters in the first quarter of 2013 which are more fully discussed in the “Contingences” section of this MD&A. Below is a reconciliation of these measures to their most directly comparable U.S. GAAP amount:


	Year Ended December 31,

	2013			2012			2011			2010			2009
Diluted EPS attributable to Moody’s common shareholders—GAAP	$	3.60		$	3.05		$	2.49		$	2.15		$	1.69
Legacy Tax		(0.09	)		(0.06	)		(0.03	)		(0.02	)		(0.04	)
Restructuring		—			—			—			—			0.05
Impact of litigation settlement		0.14			—			—			—			—

Diluted EPS attributable to Moody’s common shareholders—Non-GAAP	$	3.65		$	2.99		$	2.46		$	2.13		$	1.70

Free Cash Flow:

The Company defines free cash flow as net cash provided by operating activities minus payments for capital additions. Management believes that free cash flow is a useful metric in assessing the Company’s cash flows to service debt, pay dividends and to fund acquisitions and share repurchases. Management deems capital expenditures essential to the Company’s product and service innovations and maintenance of Moody’s operational capabilities. Accordingly, capital expenditures are deemed to be a recurring use of Moody’s cash flow. Below is a reconciliation of the Company’s net cash flows from operating activities to free cash flow:


	Year Ended December 31,

	2013			2012			2011			2010			2009
Net cash provided by operating activities	$	926.8		$	823.1		$	803.3		$	653.3		$	643.8
Capital additions		(42.3	)		(45.0	)		(67.7	)		(79.0	)		(90.7	)

Free cash flow	$	884.5		$	778.1		$	735.6		$	574.3		$	553.1

Net cash used in investing activities	$	(261.9	)	$	(50.2	)	$	(267.6	)	$	(228.8	)	$	(93.8	)
Net cash provided by (used in) financing activities	$	(498.8	)	$	202.6		$	(417.7	)	$	(241.3	)	$	(348.8	)

2014 OUTLOOK

Moody’s outlook for 2014 is based on assumptions about many macroeconomic and capital market factors, including interest rates, corporate profitability and business investment spending, merger and acquisition activity, consumer borrowing and securitization, and the amount of debt issued. There is an important degree of uncertainty surrounding these assumptions, and, if actual conditions differ, Moody’s results for the year may differ materially from the current outlook. Our guidance assumes foreign currency translation at end-of-quarter exchange rates.


		MOODY’S 2013 10K			55

For Moody’s overall, the Company expects full-year 2014 revenue to grow in the high-single-digit percent range. Full-year 2014 operating expenses are projected to increase in the mid-single-digit percent range. Full-year 2014 operating margin is projected to be between 42 and 43 percent and adjusted operating margin for the year is expected to be between 45 and 46 percent. The effective tax rate is expected to be approximately 33 percent due to various tax law changes. The Company expects diluted earnings per share for full-year 2014 of $3.90 to $4.00. Full-year 2014 share repurchases are expected to be approximately $1.0 billion, subject to available cash, market conditions and other ongoing capital allocation decisions. Capital expenditures are projected to be approximately $90 million, reflecting ongoing infrastructure maintenance, fit-out of additional floors at 7 World Trade Center and investments in our business for efficiency and growth. The Company expects approximately $100 million in depreciation and amortization expense. Growth in compliance and regulatory expense in 2014 is projected to be less than $5 million. Free cash flow is expected to be approximately $900 million.

For the global MIS business, revenue for full-year 2014 is expected to increase in the mid-single-digit percent range. Within the U.S., MIS revenue is expected to increase in the low-single-digit percent range, while non-U.S. revenue is expected to increase in the low-double-digit percent range. Corporate finance revenue is projected to grow in the high-single-digit percent range. Revenue from structured finance is expected to grow in the low-single-digit percent range. Financial institutions revenue is expected to grow in the mid-single-digit percent range. Public, project and infrastructure finance revenue is expected to increase in the high-single-digit percent range.

For MA, full-year 2014 revenue including the recent acquisition of Amba Investment Services is expected to increase in the low-teens percent range. Within the U.S., MA revenue is expected to increase in the high-single-digit percent range. Non-U.S. revenue is expected to increase in the high-teens percent range. Revenue from research, data and analytics is projected to grow in the high-single-digit percent range, while revenue for enterprise risk solutions is expected to grow in the low-teens percent range. Professional services revenue, including Amba Investment Services, is projected to grow in the mid-forties percent range. Excluding the acquisition of Amba Investment Services, organic revenue for professional services and MA is expected to grow in the low-double-digit and high-single-digit percent ranges, respectively.

Recently Issued Accounting Pronouncements

In February 2013, the FASB issued ASU No. 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income”. The objective of this ASU is to improve reporting by requiring entities to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in the statement of operations. The amendments in this ASU are required to be applied prospectively and are effective for reporting periods beginning after December 15, 2012. The Company has fully adopted all provisions of this ASU as of January 1, 2013, and the implementation did not have any impact on the Company’s consolidated financial statements other than to provide additional footnote disclosure which in included in Note 11.

CONTINGENCIES


56		MOODY’S 2013 10K

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 sought 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. On January 22, 2010, plaintiffs moved to certify a class of individuals who purchased Moody’s Corporation common stock between February 3, 2006 and October 24, 2007, which the Company opposed. On March 31, 2011, the court issued an opinion denying plaintiffs’ motion to certify the proposed class. On April 14, 2011, plaintiffs filed a petition in the United States Court of Appeals for the Second Circuit seeking discretionary permission to appeal the decision. The Company filed its response to the petition on April 25, 2011. On July 20, 2011, the Second Circuit issued an order denying plaintiffs’ petition for leave to appeal. On September 14, 2012, the Company filed a motion for summary judgment, which was fully briefed on December 21, 2012. On August 23, 2013, the court issued an opinion granting defendants’ motion for summary judgment. Judgment was entered in Moody’s favor on August 26, 2013. On September 23, 2013, plaintiffs filed a notice of appeal from the judgment and from the March 2011 decision denying class certification. On December 19, 2013, that appeal was voluntarily dismissed with prejudice pursuant to a confidential settlement agreement, thereby concluding this litigation.


		MOODY’S 2013 10K			57

ting fraud against the rating agencies but allowing the claim for fraud to proceed to trial. In June 2012 and March 2013, respectively, defendants IKB Deutsche Industriebank AG (and a related entity) and Fitch, Inc. informed the court that they had executed confidential settlement agreements with the plaintiffs. On April 24, 2013, pursuant to a confidential settlement agreement, the plaintiffs stipulated to the voluntary dismissal, with prejudice, of all remaining claims as against the remaining defendants, including Moody’s, and the Court so ordered that stipulation on April 26, 2013.

Legacy Tax Matters

Moody’s continues to have exposure to potential liabilities arising from Legacy Tax Matters. As of December 31, 2013, Moody’s has recorded liabilities for Legacy Tax Matters totaling $17.6 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.

In the fourth quarter of 2013, certain Legacy Tax Matters were resolved, resulting in a $19.2 million reduction of Legacy Tax liabilities and a $3.6 million reduction of related accrued interest expense. Similarly, in the third quarter of 2012, certain Legacy Tax Matters were resolved, resulting in a $12.8 million reduction of Legacy Tax liabilities and a $4.4 million reduction of related accrued interest expense.

Forward-Looking Statements

Certain statements contained in this annual report on Form 10-K are forward-looking statements and are based on future expectations, plans and prospects for the Company’s business and operations that involve a number of risks and uncertainties. Such statements involve estimates, projections, goals, forecasts, assumptions and uncertainties that could cause actual results or outcomes to differ materially from those contemplated, expressed, projected, anticipated or implied in the forward-looking statements. Those statements appear at various places throughout this annual report on Form 10-K, including in the sections entitled “2014 Outlook” and “Contingencies” under Item 7. “MD&A”, commencing on page 28 of this annual report on Form 10-K, under “Legal Proceedings” in Part I, Item 3, of this Form 10-K, and elsewhere in the context of statements containing the words “believe”, “expect”, “anticipate”, “intend”, “plan”, “will”, “predict”, “potential”, “continue”, “strategy”, “aspire”, “target”, “forecast”, “project”, “estimate”, “should”, “could”, “may” and similar expressions or words and variations thereof relating to the Company’s views on future events, trends and contingencies. Stockholders and investors are cautioned not to place undue reliance on these forward-looking statements. The forward-looking statements and other information are made as of the date of this annual report on Form 10-K, and the Company undertakes no obligation (nor does it intend) to publicly supplement, update or revise such statements on a going-forward basis, whether as a result of subsequent developments, changed expectations or otherwise. In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, the Company is identifying examples of factors, risks and uncertainties that could cause actual results to differ, perhaps materially, from those indicated by these forward-looking statements.

Those factors, risks and uncertainties include, but are not limited to, the current world-wide credit market disruptions and economic slowdown, which is affecting and could continue to affect the volume of debt and other securities issued in domestic and/or global capital markets; other matters that could affect the volume of debt and other securities issued in domestic and/or global capital markets, including credit quality concerns, changes in interest rates and other volatility in the financial markets; the uncertain effectiveness and possible collateral consequences of U.S. and foreign government initiatives to respond to the current world-wide credit market disruptions and economic slowdown; concerns in the marketplace affecting our credibility or otherwise affecting market perceptions of the integrity or utility of independent credit agency ratings; the introduction of competing products or technologies by other companies; pricing pressure from competitors and/or customers; the impact of regulation as an NRSRO, the potential for new U.S., state and local legislation and regulations, including provisions in the Financial Reform Act and anticipated regulations resulting from that Act; the potential for increased competition and regulation in the EU and other foreign jurisdictions; exposure to litigation related to our rating opinions, as well as any other litigation to which the Company may be subject from time to time; provisions in the Financial Reform Act legislation modifying the pleading standards, and EU regulations modifying the liability standards, applicable to credit rating agencies in a manner adverse to credit rating agencies; provisions of EU regulations imposing additional procedural and substantive requirements on the pricing of services; the possible loss of key employees; failures or malfunctions of our operations and infrastructure; any vulnerabilities to cyber threats or other cybersecurity concerns; the outcome of any review by controlling tax authorities of the Company’s global tax planning initiatives; the outcome of those Legacy Tax Matters and legal contingencies that relate to the Company, its predecessors and their affiliated companies for which Moody’s has assumed portions of the financial responsibility; the ability of the Company to successfully integrate acquired businesses; currency and foreign exchange volatility; and a decline in the demand for credit risk management tools by financial institutions. These factors, risks and uncertainties as well as other risks and uncertainties that could cause Moody’s actual results to differ materially from those contemplated, expressed, projected, anticipated or implied in the forward-looking statements are described in greater detail under “Risk Factors” in Part I, Item 1A of this annual report on Form 10-K, and in other filings made by the Company from time to time with the SEC or in materials incorporated herein or therein. Stockholders and investors are cautioned that the occurrence of any of these factors, risks and uncertainties may cause the Company’s actual results


58		MOODY’S 2013 10K

to differ materially from those contemplated, expressed, projected, anticipated or implied in the forward-looking statements, which could have a material and adverse effect on the Company’s business, results of operations and financial condition. New factors may emerge from time to time, and it is not possible for the Company to predict new factors, nor can the Company assess the potential effect of any new factors on it.

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Information in response to this Item is set forth under the caption “Market Risk” in Part II, Item 7 on page 46-47 of this annual report on Form 10-K.


		MOODY’S 2013 10K			59

ITEM 8.

FINANCIAL STATEMENTS

Index to Financial Statements


	Page(s)
Management’s Report on Internal Control Over Financial Reporting		61
Report of Independent Registered Public Accounting Firm		62
Consolidated Financial Statements:
Consolidated Statements of Operations		63
Consolidated Statements of Comprehensive Income		64
Consolidated Balance Sheets		65
Consolidated Statements of Cash Flows		66
Consolidated Statements of Shareholders’ Equity (Deficit)		67-69
Notes to Consolidated Financial Statements		70-112

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


60		MOODY’S 2013 10K

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management of Moody’s Corporation is responsible for establishing and maintaining adequate internal control over financial reporting and for the assessment of the effectiveness of internal control over financial reporting. As defined by the SEC in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, internal control over financial reporting is a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the Company’s Board, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

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

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

Management of the Company has undertaken an assessment of the design and operational effectiveness of the Company’s internal control over financial reporting as of December 31, 2013 based on criteria established in Internal Control – Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The COSO framework is based upon five integrated components of control: risk assessment, control activities, control environment, information and communications and ongoing monitoring.

Based on the assessment performed, management has concluded that Moody’s maintained effective internal control over financial reporting as of December 31, 2013.

The effectiveness of our internal control over financial reporting as of December 31, 2013 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report which appears herein.

/s/ RAYMOND W. MCDANIEL, JR.

Raymond W. McDaniel, Jr.

President and Chief Executive Officer

/s/ LINDA S. HUBER

Linda S. Huber

Executive Vice President and Chief Financial Officer

February 26, 2014


		MOODY’S 2013 10K			61

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of Moody’s Corporation:

We have audited the accompanying consolidated balance sheets of Moody’s Corporation (the Company) as of December 31, 2013 and 2012, and the related consolidated statements of income, comprehensive income, shareholders’ equity (deficit), and cash flows for each of the years in the three-year period ended December 31, 2013. We also have audited Moody’s Corporation’s internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control – Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Moody’s Corporation’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on these consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Moody’s Corporation as of December 31, 2013 and 2012, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2013, in conformity with U.S. generally accepted accounting principles. Also in our opinion, Moody’s Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control – Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

/s/ KPMG LLP

New York, New York

February 26, 2013


62		MOODY’S 2013 10K

MOODY’S CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(amounts in millions, except per share data)


	Year Ended December 31,

	2013			2012			2011
Revenue	$	2,972.5		$	2,730.3		$	2,280.7

Expenses
Operating		822.4			795.0			683.5
Selling, general and administrative		822.1			752.2			629.6
Goodwill impairment charge		—			12.2			—
Depreciation and amortization		93.4			93.5			79.2

Total expenses		1,737.9			1,652.9			1,392.3

Operating income		1,234.6			1,077.4			888.4

Interest income (expense), net		(91.8	)		(63.8	)		(62.1	)
Other non-operating income (expense), net		26.5			10.4			13.5

Non-operating income (expense), net		(65.3	)		(53.4	)		(48.6	)

Income before provision for income taxes		1,169.3			1,024.0			839.8
Provision for income taxes		353.4			324.3			261.8

Net income		815.9			699.7			578.0
Less: Net income attributable to noncontrolling interests		11.4			9.7			6.6

Net income attributable to Moody’s	$	804.5		$	690.0		$	571.4

Earnings per share
Basic	$	3.67		$	3.09		$	2.52

Diluted	$	3.60		$	3.05		$	2.49

Weighted average shares outstanding
Basic		219.4			223.2			226.3

Diluted		223.5			226.6			229.4

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


		MOODY’S 2013 10K			63

MOODY’S CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(amounts in millions)


	Year Ended December 31, 2013									Year Ended December 31, 2012									Year Ended December 31, 2011

	Pre-tax Amounts			Tax Amounts			After-tax Amounts			Pre-tax Amounts			Tax Amounts			After-tax Amounts			Pre-tax Amounts			Tax Amounts			After-tax Amounts
Net income							$	815.9								$	699.7								$	578.0
Other Comprehensive Income (loss):
Foreign currency adjustments:
Foreign currency translation adjustments	$	(15.8	)	$	0.6			(15.2	)	$	35.4		$	(0.2	)		35.2		$	(50.3	)	$	1.6			(48.7	)
Foreign currency translation adjustments – reclassification of losses included in net income due to liquidation of foreign subsidiaries		1.4			—			1.4			—			—			—			—			—			—
Cash flow and net investment hedges:
Net realized and unrealized (loss) gain on cash flow and net investment hedges		6.3			(2.6	)		3.7			(3.9	)		1.6			(2.3	)		(1.0	)		0.4			(0.6	)
Reclassification of losses included in net income		1.2			(0.5	)		0.7			4.1			(1.7	)		2.4			5.3			(2.1	)		3.2
Pension and Other Retirement Benefits:
Amortization of actuarial losses and prior service costs included in net income		11.9			(4.9	)		7.0			10.0			(4.1	)		5.9			7.4			(3.0	)		4.4
Net actuarial gains (losses) and prior service costs		50.9			(21.0	)		29.9			(26.0	)		11.2			(14.8	)		(56.3	)		22.1			(34.2	)

Total other comprehensive income (loss)	$	55.9		$	(28.4	)		27.5		$	19.6		$	6.8			26.4		$	(94.9	)	$	19.0			(75.9	)

Comprehensive Income								843.4									726.1									502.1
Less: comprehensive income attributable to noncontrolling interests and redeemable noncontrolling interest								11.4									10.7									4.8

Comprehensive income attributable to Moody’s							$	832.0								$	715.4								$	497.3

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


64		MOODY’S 2013 10K

MOODY’S CORPORATION

CONSOLIDATED BALANCE SHEETS

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


	December 31,

	2013			2012
ASSETS
Current assets:
Cash and cash equivalents	$	1,919.5		$	1,755.4
Short-term investments		186.8			17.9
Accounts receivable, net of allowances of $28.9 in 2013 and $29.1 in 2012		694.2			621.8
Deferred tax assets, net		53.9			38.7
Other current assets		114.4			91.9

Total current assets		2,968.8			2,525.7
Property and equipment, net		278.7			307.1
Goodwill		665.2			637.1
Intangible assets, net		221.6			226.5
Deferred tax assets, net		148.7			168.5
Other assets		112.1			96.0

Total assets	$	4,395.1		$	3,960.9

LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	538.9		$	555.3
Deferred tax liabilities, net		4.0			—
Current portion of long-term debt		—			63.8
Deferred revenue		598.4			545.8

Total current liabilities		1,141.3			1,164.9
Non-current portion of deferred revenue		109.2			94.9
Long-term debt		2,101.8			1,607.4
Deferred tax liabilities, net		59.1			58.1
Unrecognized tax benefits		195.6			156.6
Other liabilities		360.2			410.1

Total liabilities		3,967.2			3,492.0
Contingencies (Note 18)
Redeemable noncontrolling interest		80.0			72.3

Shareholders’ equity:
Preferred stock, par value $.01 per share; 10,000,000 shares authorized; no shares issued and outstanding		—			—
Series common stock, par value $.01 per share; 10,000,000 shares authorized; no shares issued and outstanding		—			—
Common stock, par value $.01 per share; 1,000,000,000 shares authorized; 342,902,272 shares issued at December 31, 2013 and December 31, 2012, respectively.		3.4			3.4
Capital surplus		405.8			365.1
Retained earnings		5,302.1			4,713.3
Treasury stock, at cost; 128,941,621 and 119,650,254 shares of common stock at December 31, 2013 and December 31, 2012, respectively		(5,319.7	)		(4,614.5	)
Accumulated other comprehensive loss		(54.6	)		(82.1	)

Total Moody’s shareholders’ equity		337.0			385.2
Noncontrolling interests		10.9			11.4

Total shareholders’ equity		347.9			396.6

Total liabilities, redeemable noncontrolling interest and shareholders’ equity	$	4,395.1		$	3,960.9

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


		MOODY’S 2013 10K			65

MOODY’S CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in millions)


	Year Ended December 31,

	2013			2012			2011
Cash flows from operating activities
Net income	$	815.9		$	699.7		$	578.0
Reconciliation of net income to net cash provided by operating activities:
Depreciation and amortization		93.4			93.5			79.2
Stock-based compensation expense		67.1			64.5			56.7
Goodwill impairment charge		—			12.2			—
Deferred income taxes		(27.2	)		36.1			10.3
Excess tax benefits from settlement of stock-based compensation awards		(38.8	)		(15.7	)		(7.4	)
Legacy Tax Matters		(19.2	)		(12.8	)		(6.4	)
Changes in assets and liabilities:
Accounts receivable		(67.0	)		(128.2	)		17.1
Other current assets		(21.7	)		(14.1	)		53.5
Other assets		(0.7	)		5.1			7.5
Accounts payable and accrued liabilities		(2.9	)		101.7			23.9
Deferred revenue		66.1			20.9			8.8
Unrecognized tax benefits		30.9			(49.2	)		3.9
Other liabilities		30.9			9.4			(21.8	)

Net cash provided by operating activities		926.8			823.1			803.3

Cash flows from investing activities
Capital additions		(42.3	)		(45.0	)		(67.7	)
Purchases of short-term investments		(225.9	)		(56.2	)		(43.3	)
Sales and maturities of short-term investments		57.0			54.5			40.9
Cash paid for acquisitions and investment in affiliates, net of cash acquired		(50.7	)		(3.5	)		(197.5	)

Net cash used in investing activities		(261.9	)		(50.2	)		(267.6	)

Cash flows from financing activities
Issuance of notes		497.2			496.1			—
Repayment of notes		(63.8	)		(71.3	)		(11.3	)
Net proceeds from stock plans		136.0			116.7			46.4
Excess tax benefits from settlement of stock-based compensation awards		38.8			15.7			7.4
Cost of treasury shares repurchased		(893.1	)		(196.5	)		(333.8	)
Payment of dividends		(197.3	)		(143.0	)		(121.0	)
Payment of dividends to noncontrolling interests		(12.2	)		(8.3	)		(5.1	)
Contingent consideration paid		(0.3	)		(0.5	)		(0.3	)
Debt issuance costs and related fees		(4.1	)		(6.3	)		—

Net cash provided by (used in) financing activities		(498.8	)		202.6			(417.7	)
Effect of exchange rate changes on cash and cash equivalents		(2.0	)		19.9			(17.6	)

Increase in cash and cash equivalents		164.1			995.4			100.4
Cash and cash equivalents, beginning of period		1,755.4			760.0			659.6

Cash and cash equivalents, end of period	$	1,919.5		$	1,755.4		$	760.0

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


66		MOODY’S 2013 10K

MOODY’S CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)

(amounts in millions)


	Shareholders’ of Moody’s Corporation
	Common Stock										Treasury Stock						Accumulated Other Comprehensive Income (Loss)			Total Moody’s Shareholders’ Equity (Deficit)			Non- Controlling Interests			Total Shareholders’ Equity (Deficit)

	Shares		Amount		Capital Surplus			Retained Earnings			Shares			Amount
Balance at December 31, 2010		342.9	$	3.4	$	391.5		$	3,736.2			(112.1	)	$	(4,407.3	)	$	(33.4	)	$	(309.6	)	$	11.2		$	(298.4	)
Net income									571.4												571.4			5.6			577.0
Dividends									(131.5	)											(131.5	)		(5.1	)		(136.6	)
Stock-based compensation						56.9															56.9						56.9
Shares issued for stock-based compensation plans, net						(59.2	)					2.6			105.6						46.4						46.4
Net excess tax benefit upon settlement of stock-based compensation awards						7.2															7.2						7.2
Excess of consideration paid over carrying value of additional investment in KIS Pricing						(1.9	)														(1.9	)					(1.9	)
Purchase of KIS Pricing shares from noncontrolling interest																								(1.0	)		(1.0	)
Treasury shares repurchased												(11.0	)		(333.8	)					(333.8	)					(333.8	)
Currency translation adjustment, (net of tax of $1.6 million)																		(46.9	)		(46.9	)		(0.1	)		(47.0	)
Net actuarial losses and prior service cost (net of tax of $22.1 million)																		(34.2	)		(34.2	)					(34.2	)
Amortization and recognition of prior service costs and actuarial gains (losses), (net of tax of $3.0 million)																		4.4			4.4						4.4
Net realized and unrealized gain on cash flow hedges (net of tax of $1.7 million)																		2.6			2.6						2.6

Balance at December 31, 2011		342.9	$	3.4	$	394.5		$	4,176.1			(120.5	)	$	(4,635.5	)	$	(107.5	)	$	(169.0	)	$	10.6		$	(158.4	)

(continued on next page)


		MOODY’S 2013 10K			67

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT) continued

(amounts in millions)


	Shareholders’ of Moody’s Corporation
	Common Stock										Treasury Stock						Accumulated Other Comprehensive Income (Loss)			Total Moody’s Shareholders’ Equity (Deficit)			Non- Controlling Interests			Total Shareholders’ Equity (Deficit)

	Shares		Amount		Capital Surplus			Retained Earnings			Shares			Amount
Balance at December 31, 2011		342.9	$	3.4	$	394.5		$	4,176.1			(120.5	)	$	(4,635.5	)	$	(107.5	)	$	(169.0	)	$	10.6		$	(158.4	)
Net income									690.0												690.0			6.1			696.1
Dividends									(152.8	)											(152.8	)		(4.7	)		(157.5	)
Stock-based compensation						64.6															64.6						64.6
Shares issued for stock-based compensation plans, net						(100.9	)					5.6			217.5						116.6						116.6
Net excess tax benefit upon settlement of stock-based compensation awards						10.3															10.3						10.3
Adjustment to redemption value of redeemable noncontrolling interest						(3.4	)														(3.4	)					(3.4	)
Treasury shares repurchased												(4.8	)		(196.5	)					(196.5	)					(196.5	)
Currency translation adjustment, (net of tax of $0.2 million)									`									34.2			34.2			(0.6	)		33.6
Net actuarial losses and prior service cost (net of tax of $11.2 million)																		(14.8	)		(14.8	)					(14.8	)
Amortization and recognition of prior service costs and actuarial gains (losses), (net of tax of $4.1 million)																		5.9			5.9						5.9
Net realized and unrealized gain on cash flow and net investment hedges (net of tax of $0.1 million)																		0.1			0.1						0.1

Balance at December 31, 2012		342.9	$	3.4	$	365.1		$	4,713.3			(119.7	)	$	(4,614.5	)	$	(82.1	)	$	385.2		$	11.4		$	396.6

(continued on next page)


68		MOODY’S 2013 10K

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT) continued

(amounts in millions)


	Shareholders’ of Moody’s Corporation
	Common Stock										Treasury Stock						Accumulated Other Comprehensive Income (Loss)			Total Moody’s Shareholders’ Equity			Non- Controlling Interests			Total Shareholders’ Equity

	Shares		Amount		Capital Surplus			Retained Earnings			Shares			Amount
Balance at December 31, 2012		342.9	$	3.4	$	365.1		$	4,713.3			(119.7	)	$	(4,614.5	)	$	(82.1	)	$	385.2		$	11.4		$	396.6
Net income									804.5												804.5			5.7			810.2
Dividends									(215.7	)											(215.7	)		(6.2	)		(221.9	)
Stock-based compensation						67.2															67.2						67.2
Shares issued for stock-based compensation plans, net						(51.9	)					5.0			187.9						136.0						136.0
Net excess tax benefits upon settlement of stock-based compensation awards						33.3															33.3						33.3
Adjustment to redemption value of redeemable noncontrolling interest						(7.9	)														(7.9	)					(7.9	)
Treasury shares repurchased												(14.2	)		(893.1	)					(893.1	)					(893.1	)
Currency translation adjustment, (net of tax of $0.6 million)																		(13.8	)		(13.8	)		—			(13.8	)
Net actuarial gains and prior service cost (net of tax of $21.0 million)																		29.9			29.9						29.9
Amortization and recognition of prior service costs and actuarial gains (losses), (net of tax of $4.9 million)																		7.0			7.0						7.0
Net realized and unrealized gain on cash flow and net investment hedges (net of tax of $3.1 million)																		4.4			4.4						4.4

Balance at December 31, 2013		342.9	$	3.4	$	405.8		$	5,302.1			(128.9	)	$	(5,319.7	)	$	(54.6	)	$	337.0		$	10.9		$	347.9

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


		MOODY’S 2013 10K			69

MOODY’S CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 1

DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Moody’s is a 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.

MA, 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. Within its Enterprise Risk Solutions business (formerly referred to as Risk Management Software), 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.

NOTE 2

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Consolidation

The consolidated financial statements include those of Moody’s Corporation and its majority- and wholly-owned subsidiaries. The effects of all intercompany transactions have been eliminated. Investments in companies for which the Company has significant influence over operating and financial policies but not a controlling interest are accounted for on an equity basis whereby the Company records its proportional share of the investment’s net income or loss as part of other non-operating income (expense), net and any dividends received reduce the carrying amount of the investment. The Company applies the guidelines set forth in Topic 810 of the ASC in assessing its interests in variable interest entities to decide whether to consolidate that entity. The Company has reviewed the potential variable interest entities and determined that there are no consolidation requirements under Topic 810 of the ASC.

Cash and Cash Equivalents

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

Property and Equipment

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

Research and Development Costs

All research and development costs are expensed as incurred. These costs primarily reflect the development of credit processing software and quantitative credit risk assessment products sold by the MA segment.

Research and development costs were $22.8 million, $16.1 million, and $29.8 million for the years ended December 31, 2013, 2012 and 2011, respectively, and are included in operating expenses within the Company’s consolidated statements of operations. These costs generally consist of professional services provided by third parties and compensation costs of employees.

Costs for internally developed computer software that will be sold, leased or otherwise marketed are capitalized when technological feasibility has been established. These costs primarily relate to the development or enhancement of credit processing software and quantitative credit risk assessment products sold by the MA segment, to be licensed to customers and generally consist of professional services provided by third parties and compensation costs of employees that develop the software. Judgment is required in determining


70		MOODY’S 2013 10K

when technological feasibility of a product is established and the Company believes that technological feasibility for its software products is reached after all high-risk development issues have been resolved through coding and testing. Generally, this occurs shortly before the products are released to customers. Accordingly, costs for internally developed computer software that will be sold, leased or otherwise marketed that were eligible for capitalization under Topic 985 of the ASC as well as the related amortization expense related to such costs were immaterial for the years ended December 31, 2013, 2012 and 2011.

Computer Software Developed or Obtained for Internal Use

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

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

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

The Company evaluates the recoverability of goodwill using a three-step impairment test approach at the reporting unit level. In the first step, the Company assesses various qualitative factors to determine whether the fair value of a reporting unit may be less than its carrying amount. If a determination is made that, based on the qualitative factors, an impairment does not exist, the Company is not required to perform further testing. If the aforementioned qualitative assessment results in the Company concluding that it is more likely than not that the fair value of a reporting unit may be less than its carrying amount, the fair value of the reporting unit will be determined and compared to its carrying value including goodwill. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is not impaired and the Company is not required to perform further testing. If the fair value of the reporting unit is less than the carrying value, the Company must perform a third step of the impairment test to determine the implied fair value of the reporting unit’s goodwill. The implied fair value of the goodwill is determined based on the difference between the fair value of the reporting unit and the net fair value of the identifiable assets and liabilities of the reporting unit. If the implied fair value of the goodwill is less than its carrying value, the difference is recognized as an impairment charge. For the reporting units where the Company is consistently able to conclude on impairment using only a qualitative approach, the Company’s accounting policy is to perform the second step of the aforementioned goodwill impairment assessment at least once every three years. Goodwill is assigned to a reporting unit at the date when an acquisition is integrated into one of the established reporting units, and is based on which reporting unit is expected to benefit from the synergies of the acquisition.

For purposes of assessing the recoverability of goodwill, the Company has five reporting units at December 31, 2013: one in MIS that encompasses all of Moody’s ratings operations and four reporting units within MA: RD&A, ERS, Financial Services Training and Certifications and Copal Amba. The RD&A reporting unit encompasses the distribution of investor-oriented research and data developed by MIS as part of its ratings process, in-depth research on major debt issuers, industry studies, economic research and commentary on topical events and credit analytic tools. The ERS reporting unit consists of credit risk management and compliance software that is sold on a license or subscription basis as well as related advisory services for implementation and maintenance. The FSTC reporting unit consists of the portion of the MA business that offers both credit training as well as other professional development training and certification services. The Company acquired Copal and Amba in the fourth quarter of 2011 and 2013, respectively. On the date of the acquisition of Amba, it was combined with the Copal reporting unit to form the new Copal Amba reporting unit.

Amortizable intangible assets are reviewed for recoverability whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

Rent Expense

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

Stock-Based Compensation

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


		MOODY’S 2013 10K			71

Derivative Instruments and Hedging Activities

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

Revenue Recognition

Pursuant to ASC Topic 605, 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 if available, third party evidence if VSOE is not available, or estimated selling price if neither VSOE nor TPE is available.

The Company’s products and services will generally continue to qualify as separate units of accounting under ASC Topic 605. 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 and 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 ASC Topic 605, 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.

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.


72		MOODY’S 2013 10K

MIS estimates revenue for ratings of commercial paper for which, in addition to a fixed annual monitoring fee, issuers are billed quarterly based on amounts outstanding. Revenue is accrued each quarter based on estimated amounts outstanding and is billed when actual data is available. The estimate is determined based on the issuers’ most recent reported quarterly data. At December 31, 2013, 2012 and 2011, accounts receivable included approximately $21 million, $22 million, and $24 million, respectively, related to accrued commercial paper revenue. Historically, MIS has not had material differences between the estimated revenue and the actual billings. Furthermore, for certain annual monitoring services, fees are not invoiced until the end of the annual monitoring period and revenue is accrued ratably over the monitoring period.

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

Accounts Receivable Allowances

Contingencies

For claims, litigation and proceedings and governmental investigations and inquires not related to income taxes, where it is both probable that a liability has been 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. When the reasonable estimate of the loss is within a range of amounts, the minimum amount of the range is accrued unless some higher amount within the range is a better estimate than another amount within the range. In 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


		MOODY’S 2013 10K			73

available, the Company adjusts its assessments and estimates of such matters accordingly. In view of the inherent difficulty of predicting the outcome of litigation, regulatory, governmental investigations and inquiries, enforcement and similar matters , particularly where the claimants seek large or indeterminate damages or where the parties assert novel legal theories or the matters involve a large number of parties, the Company cannot predict what the eventual outcome of the pending matters will be or the timing of any resolution of such matters. The Company also cannot predict the impact (if any) that any such matters may have on how its business is conducted, on its competitive position or on its financial position, results of operations or cash flows. As the process to resolve any pending matters progresses, management will continue to review the latest information available and assess its ability to predict the outcome of such matters and the effects, if any, on its operations and financial condition. However, in light of the large or indeterminate damages sought in some of them, the absence of similar court rulings on the theories of law asserted and uncertainties regarding apportionment of any potential damages, an estimate of the range of possible losses cannot be made at this time.

The Company’s wholly-owned insurance subsidiary insures the Company against certain risks including but not limited to deductibles for worker’s compensation, employment practices litigation and employee medical claims and terrorism, for which the claims are not material to the Company. In addition, for claim years 2008 and 2009, the insurance subsidiary insured the Company for defense costs related to professional liability claims. For matters insured by the Company’s insurance subsidiary, Moody’s records liabilities based on the estimated total claims expected to be paid and total projected costs to defend a claim through its anticipated conclusion. The Company determines liabilities based on an assessment of management’s best estimate of claims to be paid and legal defense costs as well as actuarially determined estimates. The Cheyne SIV and Rhinebridge SIV matters more fully discussed in Note 18 are both cases from the 2008/2009 claims period, and accordingly these matters are covered by the Company’s insurance subsidiary. Defense costs for matters not self-insured by the Company’s wholly-owned insurance subsidiary are expensed as services are provided.

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.

Operating Expenses

Operating expenses include costs associated with the development and production of the Company’s products and services and their delivery to customers. These expenses principally include employee compensation and benefits and travel costs that are incurred in connection with these activities. Operating expenses are charged to income as incurred, except for certain costs related to software implementation services which are deferred until related revenue is recognized. Additionally, certain costs incurred to develop internal use software are capitalized and depreciated over their estimated useful life.

Selling, General and Administrative Expenses

SG&A expenses include such items as compensation and benefits for corporate officers and staff and compensation and other expenses related to sales of products. They also include items such as office rent, business insurance, professional fees and gains and losses from sales and disposals of assets. SG&A expenses are charged to income as incurred, except for certain expenses incurred to develop internal use software are capitalized and depreciated over their estimated useful life.

Redeemable Noncontrolling Interest

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

Foreign Currency Translation

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


74		MOODY’S 2013 10K

Comprehensive Income

Comprehensive income represents the change in net assets of a business enterprise during a period due to transactions and other events and circumstances from non-owner sources including foreign currency translation impacts, net actuarial losses and net prior service costs related to pension and other retirement plans and gains and losses on derivative instruments.

Income Taxes

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

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

Fair Value of Financial Instruments

The Company’s financial instruments include cash, cash equivalents, trade receivables and payables, all of which are short-term in nature and, accordingly, approximate fair value. Additionally, the Company invests in short-term investments that are carried at cost, which approximates fair value due to their short-term maturities. Also, the Company uses derivative instruments, as further described in Note 5, to manage certain financial exposures that occur in the normal course of business. These derivative instruments are carried at fair value on the Company’s consolidated balance sheets. The Company also is subject to contingent consideration obligations related to certain of its acquisitions as more fully discussed in Note 9. These obligations are carried at their estimated fair value within the Company’s consolidated balance sheets.

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

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

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

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

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

Concentration of Credit Risk

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

Cash equivalents consist of investments in high quality investment-grade securities within and outside the U.S. The Company manages its credit risk exposure by allocating its cash equivalents among various money market mutual funds and issuers of high- grade commercial paper. Short-term investments primarily consist of certificates of deposit as of December 31, 2013 and 2012. The Company manages its credit risk exposure on cash equivalents and short-term investments by limiting the amount it can invest with any single issuer. No customer accounted for 10% or more of accounts receivable at December 31, 2013 or 2012.


		MOODY’S 2013 10K			75

Earnings per Share of Common Stock

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

Pension and Other Retirement Benefits

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

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

Use of Estimates

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

Recently Issued Accounting Pronouncements

NOTE 3

RECONCILIATION OF WEIGHTED AVERAGE SHARES OUTSTANDING

Below is a reconciliation of basic to diluted shares outstanding:


	Year Ended December 31,

	2013		2012		2011
Basic		219.4		223.2		226.3
Dilutive effect of shares issuable under stock-based compensation plans		4.1		3.4		3.1

Diluted		223.5		226.6		229.4

Antidilutive options to purchase common shares and restricted stock as well as contingently issuable restricted stock which are excluded from the table above		4.0		7.5		10.6

The calculation of diluted EPS requires certain assumptions regarding the use of both cash proceeds and assumed proceeds that would be received upon the exercise of stock options and vesting of restricted stock outstanding as of December 31, 2013, 2012 and 2011. These assumed proceeds include Excess Tax Benefits and any unrecognized compensation on the awards.

NOTE 4

SHORT-TERM INVESTMENTS

Short-term investments are securities with maturities greater than 90 days at the time of purchase that are available for use in the Company’s operations in the next twelve months. The short-term investments, primarily consisting of certificates of deposit, are classified as held-to-maturity and therefore are carried at cost. The remaining contractual maturities of the short-term investments were one to nine months and one to 11 months as of December 31, 2013 and 2012, respectively. Interest and dividends are recorded into income when earned.


76		MOODY’S 2013 10K

NOTE 5

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

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

Interest Rate Swaps

In the fourth quarter of 2010, the Company entered into interest rate swaps with a total notional amount of $300 million to convert the fixed interest rate on the Series 2005-1 Notes to a floating interest rate based on the 3-month LIBOR. The purpose of this hedge was to mitigate the risk associated with changes in the fair value of the Series 2005-1 Notes, thus the Company has designated these swaps as fair value hedges. The fair value of the swaps is 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 statements 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 15. 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 was effective, and such amounts were reclassified to earnings in the same period during which the hedged transaction affected income. The 2008 Term Loan was repaid in full in May 2013 and the interest rate swaps have matured. Accordingly, all amounts in AOCI 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 income (expense), net in the Company’s consolidated statements of operations along with the FX gain or loss recognized on the assets and liabilities denominated in a currency other than the subsidiary’s functional currency. These contracts have expiration dates at various times through March 2014.

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



	December 31, 2013		December 31, 2012
Notional amount of Currency Pair:
Contracts to purchase USD with euros	$	14.2	$	34.3
Contracts to sell USD for euros	$	53.2	$	48.4
Contracts to purchase USD with GBP	$	—	$	2.1
Contracts to sell USD for GBP	$	—	$	1.7
Contracts to purchase USD with other foreign currencies	$	—	$	6.7
Contracts to sell USD for other foreign currencies	$	—	$	5.1
Contracts to purchase euros with other foreign currencies	€	13.1	€	14.4
Contracts to purchase euros with GBP	€	22.1	€	—
Contracts to sell euros for GBP	€	—	€	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 fair value for the hedge is recorded in OCI. 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 statements of operations. These outstanding contracts expire in March 2014 for contracts to sell euros for USD and in November 2014 for contracts to sell Japanese yen for USD.


		MOODY’S 2013 10K			77

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



	December 31,		December 31,

	2013		2012
Notional amount of Currency Pair:
Contracts to sell euros for USD	€	50.0	€	50.0
Contracts to sell Japanese yen for USD	¥	19,700	¥	—

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

	Balance Sheet Location	December 31, 2013		December 31, 2012
Assets:
Derivatives designated as accounting hedges:
Interest rate swaps	Other assets	$	10.3	$	13.8
FX forwards on net investment in certain foreign subsidiaries	Other current assets		9.3		—

Total derivatives designated as accounting hedges			19.6		13.8
Derivatives not designated as accounting hedges:
FX forwards on certain assets and liabilities	Other current assets		0.9		1.4

Total		$	20.5	$	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		1.0

Total derivatives designated as accounting hedges			1.0		1.7
Derivatives not designated as accounting hedges:
FX forwards on certain assets and liabilities	Accounts payable and accrued liabilities		0.7		0.7

Total		$	1.7	$	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 Consolidated Statement of Operations
		Year Ended December 31,
		2013		2012		2011
Derivatives designated as accounting hedges	Location on Consolidated Statements of Operations
Interest rate swaps	Interest Expense (expense), net	$	4.2	$	3.6	$	4.1

Derivatives not designated as accounting hedges
Foreign exchange forwards	Other non-operating (expense) income	$	2.1	$	0.9	$	(1.4	)


78		MOODY’S 2013 10K

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


Derivatives in Cash Flow Hedging Relationships	Amount of Gain/(Loss) Recognized in AOCI on Derivative (Effective Portion)								Location of Gain/(Loss) Reclassified from AOCI into Income (Effective Portion)	Amount of Gain/(Loss) Reclassified from AOCI into Income (Effective Portion)									Location of Gain/(Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)		Amount of Gain/(Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
	Year Ended December 31,									Year Ended December 31,											Year Ended December 31,

	2013		2012			2011				2013			2012			2011					2013		2012		2011
FX options	$	—	$	—		$	—		Revenue	$	—		$	—		$	(0.2	)		Revenue	$	—	$	—	$	—
Interest rate swaps		—		(0.1	)		(0.6	)	Interest income (expense), net		(0.7	)		(2.4	)		(3.0	)		N/A		—		—		—

Total	$	—	$	(0.1	)	$	(0.6	)		$	(0.7	)	$	(2.4	)	$	(3.2	)			$	—	$	—	$	—

All gains and losses on derivatives designated as cash flow hedges are initially recognized through OCI. Realized gains and losses reported in AOCI are reclassified into earnings (into revenue for FX options and into interest income (expense), net for the interest rate swaps) 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)		Amount of Gain/(Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
	Year Ended December 31,							Year Ended December 31,						Year Ended December 31,

	2013		2012					2013		2012				2013		2012
FX forwards	$	3.7	$	(2.2	)		N/A	$	—	$	—		N/A	$	—	$	—

Total	$	3.7	$	(2.2	)			$	—	$	—			$	—	$	—

All gains and losses on derivatives designated as net investment hedges are recognized through OCI.

The cumulative amount of hedge gain (losses) recorded in AOCI relating to derivative instruments is as follows:


	Gains (Losses), net of tax

	December 31, 2013		December 31, 2012
FX forwards on net investment hedges	$	1.5	$	(2.2	)
Interest rate swaps		—		(0.7	)

Total	$	1.5	$	(2.9	)


		MOODY’S 2013 10K			79

NOTE 6

PROPERTY AND EQUIPMENT, NET

Property and equipment, net consisted of:


	December 31,
	2013			2012
Office and computer equipment (2 – 20 year estimated useful life)	$	129.7		$	119.7
Office furniture and fixtures (5 – 10 year estimated useful life)		40.6			40.3
Internal-use computer software (3 – 5 year estimated useful life)		284.9			263.9
Leasehold improvements (3 – 20 year estimated useful life)		199.2			197.5

Total property and equipment, at cost		654.4			621.4
Less: accumulated depreciation and amortization		(375.7	)		(314.3	)

Total property and equipment, net	$	278.7		$	307.1

Depreciation and amortization expense related to the above assets was $65.4 million, $63.4 million, and $58.7 million for the years ended December 31, 2013, 2012 and 2011, respectively.

NOTE 7

ACQUISITIONS

All of the acquisitions described below were accounted for using the acquisition method of accounting whereby assets acquired and liabilities assumed were recognized at their acquisition date fair value. Any excess of the purchase price over the fair value of the assets acquired and liabilities assumed was recorded to goodwill. For all of the acquisitions described below, the Company has not presented proforma combined results for the acquisitions because the impact on previously reported statements of operations would not have been material. Furthermore, for all acquisitions described below, the amount of revenue and expenses in the year of acquisition from the acquisition date through the end of the year was not material. These acquisitions are discussed below in more detail.

Amba Investment Services

On December 10, 2013, Copal Partners Limited, a majority-owned subsidiary of the Company, acquired 100% of Amba Investment Services, a provider of investment research and quantitative analytics for global financial institutions. Amba currently operates within the PS LOB of MA and will bolster the research and analytical capabilities offered by MA through Copal, a majority of which was acquired in December 2011.

The table below details the total consideration transferred to the sellers of Amba:


Cash paid	$	67.2
Contingent consideration liability assumed		4.3
Additional purchase price to be paid in 2014 based on final working capital acquired		0.1

Total fair value of consideration transferred	$	71.6

The cash payment to the sellers was funded by using Moody’s non-U.S. cash on hand.

The purchase agreement contains a provision for a contingent cash payment to the sellers valued at $4.3 million at the acquisition date. This contingent cash payment is dependent on Amba achieving certain revenue targets for the period from the acquisition date through March 31, 2014. At December 31, 2013, financial projections for Amba indicate that it will achieve the revenue targets set forth in the purchase agreement. Any contingent consideration arising from the acquisition of Amba will be paid to the sellers during 2014.

The Company incurred approximately $1 million of costs directly related to the acquisition of Amba during the year ended December 31, 2013. These costs, which primarily consist of consulting and legal fees, are recorded within selling, general and administrative expenses in the Company’s consolidated statements of operations.


80		MOODY’S 2013 10K

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


Current assets			$	23.7
Property and equipment, net				0.4
Intangible assets:
Trade name (7 year weighted average life)	$	3.3
Client relationships (12 year weighted average life)		26.7
Other (3 year weighted average life)		1.6

Total intangible assets (11 year weighted average life)				31.6
Goodwill				34.5
Indemnification asset				10.4
Other assets				2.0
Liabilities assumed				(31.0	)

Net assets acquired			$	71.6

Current assets include acquired cash of approximately $16 million. Additionally, current assets includes gross accounts receivable of approximately $6 million, of which an immaterial amount is not expected to be collectible. The acquired goodwill, which has been assigned to the MA segment, will not be deductible for tax.

In connection with the acquisition, the Company assumed liabilities relating to certain UTPs. These UTPs are included in the liabilities assumed in the table above. The sellers have contractually indemnified the Company against any potential payments that may have to be made regarding these UTPs. Accordingly, the Company carries an indemnification asset on its consolidated balance sheet at December 31, 2013.

As of the date of the acquisition, Amba was integrated with Copal to form the Copal Amba reporting unit.

Barrie & Hibbert, Limited

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

The aggregate purchase price was $79.5 million in cash payments to the sellers and was funded by using Moody’s non-U.S. cash on hand.

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


Current assets			$	15.2
Property and equipment, net				0.7
Intangible assets:
Trade name (5 year weighted average life)	$	1.9
Client relationships (18 year weighted average life)		8.3
Software (7 year weighted average life)		16.8
Other intangibles (2 year weighted average life)		0.1

Total intangible assets (12 year weighted average life)				27.1
Goodwill				54.6
Liabilities assumed				(18.1	)

Net assets acquired			$	79.5

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

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


		MOODY’S 2013 10K			81

Copal Partners

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


Cash paid	$	125.0
Put/call option for non-controlling interest		68.0
Contingent consideration liability assumed		6.8

Total fair value of consideration transferred	$	199.8

In conjunction with the purchase, the Company and the non-controlling shareholders entered into a put/call option agreement whereby the Company has the option to purchase from the non-controlling shareholders and the non-controlling shareholders have the option to sell to the Company the remaining 33% ownership interest of Copal Partners Limited 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. In connection with the acquisition of Amba in December 2013, which was combined with Copal to form the Copal Amba reporting unit, the aforementioned revenue and EBITDA multiples set forth in the original put/call option agreement were modified to include the results of Amba. 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.

Additionally, as part of the consideration transferred, the Company issued a note payable of $14.2 million to the sellers which is more fully discussed in Note 15. The Company has a right to reduce the amount payable under this note in accordance with certain indemnification arrangements which are more fully discussed below. Accordingly, this note payable is not carried on the consolidated balance sheet as of December 31, 2013 and 2012 in accordance with these indemnification arrangements.

Also, the purchase agreement contains several different provisions for contingent cash payments to the sellers valued at $6.8 million at the acquisition date. A portion of the contingent cash payments are based on revenue and EBITDA growth for certain of the acquired Copal entities. This growth is calculated by comparing revenue and EBITDA in the year immediately prior to the exercise of the aforementioned put/call option to revenue and EBITDA in the year ended December 31, 2011. There are no limitations set forth in the acquisition agreement relating to the amount payable under this contingent payment arrangement. Payments under this arrangement, if any, would be made upon the exercise of the put/call option. Other contingent cash payments, which have been fully settled as of December 31, 2013, were based on the achievement of revenue targets for 2012 and 2013, with certain limits on the amount of revenue that can be applied to the calculation of the contingent payment. Further information on the inputs and methodologies utilized to derive the fair value of these contingent consideration liabilities outstanding at December 31, 2013 are discussed in Note 9.

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


82		MOODY’S 2013 10K

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


Current assets			$	15.5
Property and equipment, net				0.5
Intangible assets:
Trade name (15 year weighted average life)	$	8.6
Client relationships (16 year weighted average life)		66.2
Other (2 year weighted average life)		4.4

Total intangible assets (15 year weighted average life)				79.2
Goodwill				136.9
Indemnification asset				18.8
Other assets				6.6
Liabilities assumed				(57.7	)

Net assets acquired			$	199.8

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

In connection with the acquisition, the Company assumed liabilities relating to UTPs. These UTPs are included in the liabilities assumed in the table above. The sellers have contractually indemnified the Company against any potential payments that may have to be made regarding these UTPs. Under the terms of the acquisition agreement, a portion of the purchase price was remitted to an escrow agent for various uncertainties associated with the transaction of which a portion relates to these UTPs. Additionally, the Company is contractually indemnified for payments in excess of the amount paid into escrow via a reduction to the amount payable under the aforementioned note payable issued to the sellers. Accordingly, the Company carries an indemnification asset on its consolidated balance sheet at December 31, 2013 and 2012 for which a portion has been offset by the note payable in the amount of $14.2 million.

As of the date of this acquisition through the Amba acquisition date, Copal operated as its own reporting unit. Accordingly, goodwill associated with the acquisition was part of the Copal reporting unit within the MA segment through December 10, 2013. On December 10, 2013, Amba was combined with the Copal reporting unit to form the new Copal Amba reporting unit.

NOTE 8

GOODWILL AND OTHER ACQUIRED INTANGIBLE ASSETS

The following table summarizes the activity in goodwill:

Year Ended December 31, 2013

MIS

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

—

34.5

—

34.5

—

34.5

Foreign currency translation adjustments

(0.1

)

—

(0.1

)

(6.3

)

—

(6.3

)

(6.4

)

—

(6.4

)

—

Ending balance

11.4

—

11.4

666.0

(12.2

)

653.8

677.4

(12.2

)

665.2


		MOODY’S 2013 10K			83


	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 2013 additions for the MA segment relate to the acquisition of Amba in the fourth quarter of 2013. The 2012 additions/adjustments for the MA segment relate to the acquisitions of Copal and B&H in the fourth quarter of 2011, more fully discussed in Note 7.

The 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 at the time for many individuals and global financial institutions amidst macroeconomic uncertainties in the prior year. 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 was no goodwill impairment in 2013.

Acquired intangible assets consisted of:


	December 31,

	2013			2012
Customer relationships	$	237.4		$	219.6
Accumulated amortization		(86.6	)		(74.0	)

Net customer relationships		150.8			145.6

Trade secrets		31.1			31.4
Accumulated amortization		(18.5	)		(16.0	)

Net trade secrets		12.6			15.4

Software		71.0			73.2
Accumulated amortization		(38.8	)		(33.7	)

Net software		32.2			39.5

Trade names		31.3			28.3
Accumulated amortization		(11.7	)		(10.3	)

Net trade names		19.6			18.0

Other		26.1			24.9
Accumulated amortization		(19.7	)		(16.9	)

Net other		6.4			8.0

Total	$	221.6		$	226.5


84		MOODY’S 2013 10K

Other intangible assets primarily consist of databases and covenants not to compete. Amortization expense relating to intangible assets is as follows:


	Year Ended December 31,

	2013		2012		2011
Amortization expense	$	28.0	$	30.1	$	20.5

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


Year Ended December 31,
2014	$	25.9
2015		24.3
2016		23.7
2017		21.0
2018		16.0
Thereafter		110.7

Amortizable intangible assets are reviewed for recoverability whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. In conjunction with the assessment of goodwill impairment at July 31, 2012, the Company reviewed the recoverability of certain customer lists within its FSTC reporting unit. This review resulted in an impairment of approximately $1 million in the third quarter of 2012 which is recorded in depreciation and amortization expense in the consolidated statement of operations. The fair value of these customer lists was determined using a discounted cash flow analysis. The Company again reviewed the recoverability of these customer lists in the fourth quarter of 2012 in conjunction with the quantitative goodwill impairment test performed at December 31, 2012 for the FSTC reporting unit. Based on this assessment, there was no further impairment of the customer lists in the fourth quarter of 2012. For all intangible assets, there were no such events or changes during 2013 that would indicate that the carrying amount of amortizable intangible assets in any of the Company’s reporting units may not be recoverable. This determination was made based on improving market conditions for the reporting unit where the intangible asset resides and an assessment of projected cash flows for all reporting units. Additionally, there were no events or circumstances during 2013 that would indicate the need for an adjustment of the remaining useful lives of these amortizable intangible assets.

NOTE 9

FAIR VALUE

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

Fair Value Measurement as of December 31, 2013

Description

Balance

Level 1

Level 2

Level 3

Assets:

Derivatives ^(a)

20.5

—

20.5

—

Total

20.5

—

20.5

—

Liabilities:

Derivatives ^(a)

1.7

—

1.7

—

Contingent consideration arising from acquisitions ^(b)

17.5

—

17.5

Total

19.2

—

1.7

17.5


		MOODY’S 2013 10K			85

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 more fully discussed in Note 5

(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:


	Contingent Consideration Year Ended December 31,

	2013			2012
Balance as of January 1	$	9.0		$	9.1
Contingent consideration assumed in acquisition of Amba		4.3			—
Contingent consideration payments		(2.5	)		(0.5	)
Losses included in earnings		6.9			0.1
Foreign currency translation adjustments		(0.2	)		0.3

Balance as of December 31	$	17.5		$	9.0

The losses included in earnings in the table above are recorded within SG&A expenses in the Company’s consolidated statements of operations and relate to contingent consideration obligations outstanding at December 31, 2013.

Of the $17.5 million of contingent consideration obligations as of December 31, 2013, $4.3 million is classified in accounts payable and accrued liabilities and $13.2 million 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 December 31, 2013, the Company has contingent consideration obligations related to the acquisitions of CSI, Copal and Amba which are carried at estimated fair value, and are based on certain financial and non-financial metrics set forth in the acquisition agreements. These obligations are measured using Level 3 inputs as defined in the ASC. The Company has recorded the obligations for these contingent consideration arrangements on the date of each respective acquisition based on management’s best estimates of the achievement of the metrics 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 December 31, 2013, the Company expects that this milestone will be reached by the aforementioned date.


86		MOODY’S 2013 10K

For certain of the 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, which expires in November 2017. Other contingent cash payments were 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 could 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 December 31, 2013. The Company utilizes discounted cash flow methodologies to value these obligations. The expected future cash flows for the outstanding 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, the remaining outstanding obligations are dependent upon the exercise of the call/put option and the Company has utilized a Monte Carlo simulation model to estimate when the option will be exercised, thus triggering the payment of contingent consideration.

For the contingent consideration obligations relating to the acquisition of Amba, the payment is based on the acquired entity achieving a revenue target for its fiscal year ended March 31, 2014. The Company has utilized a discounted cash flow methodology to value this obligation. Due to the short proximity from the Company’s year end to the anticipated payment date in 2014, the expected gross payments of $4.3 million due to the sellers approximates fair value at December 31, 2013. The most significant unobservable input involved in the measurement of this obligation is the probability that Amba will meet the aforementioned revenue target. At December 31, 2013, the Company expects that Amba will meet this revenue target and that $4.3 million in contingent consideration payments will be made in 2014.

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.


		MOODY’S 2013 10K			87

NOTE 10

DETAIL OF CERTAIN BALANCE SHEET INFORMATION

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


	December 31,

	2013		2012
Other current assets:
Prepaid taxes	$	40.0	$	31.8
Prepaid expenses		48.1		47.3
Other		26.3		12.8

Total other current assets	$	114.4	$	91.9


	December 31,

	2013		2012
Other assets:
Investments in joint ventures	$	37.5	$	38.3
Deposits for real-estate leases		10.3		10.0
Indemnification assets related to acquisitions		27.0		18.7
Other		37.3		29.0

Total other assets	$	112.1	$	96.0


	December 31,

	2013		2012
Accounts payable and accrued liabilities:
Salaries and benefits	$	77.1	$	79.2
Incentive compensation		135.9		162.6
Profit sharing contribution		—		12.6
Customer credits, advanced payments and advanced billings		21.7		21.5
Self-insurance reserves		27.6		55.8
Dividends		65.5		47.7
Professional service fees		32.9		30.2
Interest accrued on debt		36.3		23.4
Accounts payable		16.4		14.3
Income taxes (see Note 14)		47.5		56.1
Pension and other retirement employee benefits (see Note 12)		7.0		4.4
Other		71.0		47.5

Total accounts payable and accrued liabilities	$	538.9	$	555.3


	December 31,

	2013		2012
Other liabilities:
Pension and other retirement employee benefits (see Note 12)	$	164.0	$	213.3
Deferred rent-non-current portion		106.3		110.2
Interest accrued on UTPs		18.0		10.6
Legacy and other tax matters		15.4		37.1
Other		56.5		38.9

Total other liabilities	$	360.2	$	410.1


88		MOODY’S 2013 10K

Redeemable Noncontrolling Interest:

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


	Year Ended December 31,

	2013			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		5.8			3.6
Dividends		(6.0	)		(3.6	)
FX translation		—			1.6
Adjustment to redemption value		7.9			3.4

Balance December 31,	$	80.0		$	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. See Note 7 for further detail on this arrangement.

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


	Year Ended December 31,

(in millions)	2013			2012			2011
Balance January 1,	$	55.8		$	27.1		$	30.0
Accruals (reversals), net		(0.9	)		38.1			10.9
Payments		(27.3	)		(9.4	)		(13.8	)

Balance December 31,	$	27.6		$	55.8		$	27.1

Refer to the “Contingencies” accounting policy in Note 2 for further information on the Company’s self-insurance reserves. These reserves primarily relate to legal defense costs for claims from 2008 and 2009.

NOTE 11

COMPREHENSIVE INCOME AND ACCUMULATED OTHER COMPREHENSIVE INCOME

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



	Year Ended December 31,			Affected Line in the Consolidated Statement of Operation
	2013			Affected Line in the Consolidated Statement of Operation
Gains/(losses) on foreign translation adjustments
Liquidation of foreign subsidiary	$	(1.4	)	Other non-operating income (expense), net

Total gains/(losses) on foreign translation adjustments		(1.4	)

Gains/(losses) on cash flow hedges
Interest rate swap derivative contracts		(1.2	)	Interest income (expense), net

Income tax effect of item above		0.5		Provision for income taxes

Total gains/(losses) on cash flow hedges		(0.7	)

Pension and other retirement benefits
Amortization of actuarial losses and prior service costs included in net income		(7.6	)	Operating expense
Amortization of actuarial losses and prior service costs included in net income		(4.3	)	SG&A expense

Total before income taxes		(11.9	)
Income tax effect of item above		4.9		Provision for income tax

Total pension and other retirement benefits		(7.0	)

Total losses included in Net Income attributable to reclassifications out of AOCI	$	(9.1	)


		MOODY’S 2013 10K			89

Changes in AOCI by component (net of tax) for the period ended December 31, 2013:


	Year Ended December 31, 2013

	Gains/(losses) on Cash Flow and Net Investment Hedges			Pension and Other Retirement Benefits			Foreign Currency Translation Adjustments			Total
Balance December 31, 2012	$	(2.9	)	$	(90.1	)	$	10.9		$	(82.1	)
Other comprehensive income/(loss) before reclassification		3.7			29.9			(15.2	)		18.4
Amounts reclassified from AOCI		0.7			7.0			1.4			9.1

Other comprehensive income/(loss)		4.4			36.9			(13.8	)		27.5

Balance December 31, 2013	$	1.5		$	(53.2	)	$	(2.9	)	$	(54.6	)

NOTE 12

PENSION AND OTHER RETIREMENT BENEFITS

U.S. Plans

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

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


90		MOODY’S 2013 10K

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


	Pension Plans						Other Retirement Plans

	2013			2012			2013			2012
Change in benefit obligation:
Benefit obligation, beginning of the period	$	(356.3	)	$	(298.8	)	$	(21.8	)	$	(20.2	)
Service cost		(19.8	)		(18.9	)		(1.7	)		(1.5	)
Interest cost		(13.5	)		(13.1	)		(0.8	)		(0.7	)
Plan participants’ contributions		—			—			(0.3	)		(0.3	)
Benefits paid		5.3			5.7			0.6			1.0
Actuarial gain (loss)		(0.7	)		(11.0	)		1.0			1.1
Assumption changes		37.9			(20.2	)		2.3			(1.2	)

Benefit obligation, end of the period		(347.1	)		(356.3	)		(20.7	)		(21.8	)

Change in plan assets:
Fair value of plan assets, beginning of the period		167.6			133.0			—			—
Actual return on plan assets		23.0			19.0			—			—
Benefits paid		(5.3	)		(5.7	)		(0.6	)		(1.0	)
Employer contributions		19.3			21.3			0.3			0.7
Plan participants’ contributions		—			—			0.3			0.3

Benefit obligation, end of the period		204.6			167.6			—			—

Funded Status of the plans		(142.5	)		(188.7	)		(20.7	)		(21.8	)

Amounts recorded on the consolidated balance sheets:
Pension and retirement benefits liability – current		(6.2	)		(3.6	)		(0.8	)		(0.8	)
Pension and retirement benefits liability – non current		(136.3	)		(185.1	)		(19.9	)		(21.0	)

Net amount recognized	$	(142.5	)	$	(188.7	)	$	(20.7	)	$	(21.8	)

Accumulated benefit obligation, end of the period	$	(298.5	)	$	(298.4	)

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


	December 31,

	2013		2012
Aggregate projected benefit obligation	$	347.1	$	356.3
Aggregate accumulated benefit obligation	$	298.5	$	298.4
Aggregate fair value of plan assets	$	204.6	$	167.6

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


	Pension Plans						Other Retirement Plans

	2013			2012			2013			2012
Net actuarial losses	$	(84.6	)	$	(142.7	)	$	(2.4	)	$	(6.0	)
Net prior service costs		(3.3	)		(4.0	)		—			—

Total recognized in AOCI- pretax	$	(87.9	)	$	(146.7	)	$	(2.4	)	$	(6.0	)


		MOODY’S 2013 10K			91

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



	Pension Plans		Other Retirement Plans
Net actuarial losses	$	6.0	$	—
Net prior service costs		0.7		—

Total to be recognized as components of net periodic expense	$	6.7	$	—

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


	Pension Plans									Other Retirement Plans

	2013			2012			2011			2013		2012		2011
Components of net periodic expense
Service cost	$	19.8		$	18.9		$	15.1		$	1.7	$	1.5	$	1.1
Interest cost		13.5			13.1			13.1			0.8		0.7		0.8
Expected return on plan assets		(12.9	)		(12.5	)		(11.9	)		—		—		—
Amortization of net actuarial loss from earlier periods		10.8			9.1			5.0			0.3		0.3		0.3
Amortization of net prior service costs from earlier periods		0.6			0.7			0.6			—		—		—
Settlement charges		—			—			1.6			—		—		—

Net periodic expense	$	31.8		$	29.3		$	23.5		$	2.8	$	2.5	$	2.2

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


	Pension Plans					Other Retirement Plans

	2013		2012			2013		2012
Amortization of net actuarial losses	$	10.8	$	9.1		$	0.3	$	0.3
Amortization of prior service costs		0.6		0.7			—		—
Net actuarial loss arising during the period		47.3		(24.7	)		3.3		(0.2	)

Total recognized in OCI – pre-tax	$	58.7	$	(14.9	)	$	3.6	$	0.1

ADDITIONAL INFORMATION:

Assumptions – Retirement Plans

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


	Pension Plans						Other Retirement Plans

	2013			2012			2013			2012
Discount rate		4.71	%		3.82	%		4.45	%		3.55	%
Rate of compensation increase		4.00	%		4.00	%		—			—


92		MOODY’S 2013 10K

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


	Pension Plans									Other Retirement Plans

	2013			2012			2011			2013			2012			2011
Discount rate		3.82	%		4.25	%		5.39	%		3.55	%		4.05	%		5.15	%
Expected return on plan assets		7.30	%		7.85	%		8.35	%		—			—			—
Rate of compensation increase		4.00	%		4.00	%		4.00	%		—			—			—

The expected rate of return on plan assets represents the Company’s best estimate of the long-term return on plan assets and is determined by using a building block approach, which generally weighs the underlying long-term expected rate of return for each major asset class based on their respective allocation target within the plan portfolio, net of plan paid expenses. As the assumption reflects a long-term time horizon, the plan performance in any one particular year does not, by itself, significantly influence the Company’s evaluation. For 2013, the expected rate of return used in calculating the net periodic benefit costs was 7.30%. For 2014, the Company reduced the expected rate of return assumption to 6.80% to reflect the Company’s current view of long-term capital market outlook and is commensurate with the returns expected to be generated by the plan assets under Company’s current investment strategy.

Assumed Healthcare Cost Trend Rates at December 31:


	2013						2012						2011

	Pre-age 65			Post-age 65			Pre-age 65			Post-age 65			Pre-age 65			Post-age 65
Healthcare cost trend rate assumed for the following year		8.2	%		7.3	%		6.9	%		7.9	%		7.4	%		8.4	%
Ultimate rate to which the cost trend rate is assumed to decline (ultimate trend rate)		5.0%						5.0%						5.0%
Year that the rate reaches the ultimate trend rate		2028			2026			2020						2020

The assumed health cost trend rate reflects different expectations for the medical and prescribed medication components of health care costs for pre and post-65 retirees. As the Company subsidies for retiree healthcare coverage are capped at the 2005 level, for the majority of the retirement health plan participants, retiree contributions are assumed to increase at the same rate as the healthcare cost trend rates. In 2013, the Company revised its trend rates to reflect current expectations of future health care inflation. A one percentage-point increase or decrease in assumed healthcare cost trend rates would not have affected total service and interest cost and would have a minimal impact on the retiree medical benefit obligation.

In 2012, the Company amended its retiree medical plan to modify its current design. Effective January 1, 2013, the newly implemented plan design provides current retirees age 65 and older with the option over the next three years to either enroll in a new Health Reimbursement Account (HRA) Program and receive a fixed amount annual subsidy or continue to stay in the current retiree medical plan. All future retirees age 65 and older will have to participate in the new HRA Program. There is no change to pre-65 coverage. As the new plan was designed to be cost neutral to the Company, the amendment of the plan had no significant impact to the plan.

Plan Assets

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

The Company’s current target asset allocation is approximately 60% (range of 50% to 70%) in equity securities, 30% (range of 25% to 35%) in fixed income securities and 10% (range of 7% to 13% ) in other investments and the plan will use a combination of active and passive investment strategies and different investment styles for its investment portfolios within each asset class. The plan’s equity investments are diversified across U.S. and non-U.S. stocks of small, medium and large capitalization. The plan’s fixed income investments are diversified principally across U.S. and non-U.S. government and corporate bonds which are expected to help reduce plan exposure to


		MOODY’S 2013 10K			93

interest rate variation and to better align assets with obligations. Approximately 3% of total plan assets may be invested in funds which invest in debts rated below investment grade and 3% may be invested in emerging market debt. The plan’s other investments are made through private real estate and convertible securities funds and these investments are expected to provide additional diversification benefits and absolute return enhancement to the plan assets. The Company does not use derivatives to leverage the portfolio. The overall allocation is expected to help protect the plan’s funded status while generating sufficiently stable returns over the long-term.

Fair value of the assets in the Company’s funded pension plan by asset category at December 31, 2013 and 2012 are as follows:


	Fair Value Measurement as of December 31, 2013

	Balance		Level 1		Level 2		Level 3		% of total assets
Asset Category
Cash and cash equivalent	$	0.4	$	—	$	0.4	$	—		—

Emerging markets equity fund		14.6		14.6		—		—		7	%
Common/collective trust funds — equity securities
U.S. large-cap		44.5		—		44.5		—		22	%
U.S. small and mid-cap		15.3		—		15.3		—		7	%
International		58.2		—		58.2		—		29	%

Total equity investments		132.6		14.6		118.0		—		65	%

Common/collective trust funds — fixed income securities
Long-term government/treasury bonds		13.7		—		13.7		—		7	%
Long-term investment grade corporate bonds		15.4		—		15.4		—		7	%
U.S. Treasury Inflation-Protected Securities (TIPs)		8.7		—		8.7		—		4	%
Emerging markets bonds		5.8		—		5.8		—		3	%
High yield bonds		6.1		—		6.1		—		3	%

Total fixed-income investments		49.7		—		49.7		—		24	%

Common/collective trust funds — convertible securities		6.3		—		6.3		—		3	%
Private real estate fund		15.6		—		—		15.6		8	%

Total other investment		21.9		—		6.3		15.6		11	%

Total Assets	$	204.6	$	14.6	$	174.4	$	15.6		100	%


94		MOODY’S 2013 10K


	Fair Value Measurement as of December 31, 2012

	Balance		Level 1		Level 2		Level 3		% of Total Assets
Asset Category
Cash and cash equivalent	$	0.2	$	—	$	0.2	$	—		—

Emerging markets equity fund		13.3		13.3		—		—		8	%
Common/collective trust funds — equity securities
U.S. large-cap		32.0		—		32.0		—		19	%
U.S. small and mid-cap		10.7		—		10.7		—		6	%
International		44.1		—		44.1		—		27	%

Total equity investments		100.1		13.3		86.8		—		60	%

Common/collective trust funds — fixed income securities
Long-term government/treasury bonds		13.8		—		13.8		—		8	%
Long-term investment grade corporate bonds		17.5		—		17.5		—		11	%
U.S. Treasury Inflation-Protected Securities (TIPs)		8.5		—		8.5		—		5	%
Emerging markets bonds		5.4		—		5.4		—		3	%
High yield bonds		5.2		—		5.2		—		3	%

Total fixed-income investments		50.4		—		50.4		—		30	%

Common/collective trust funds — convertible securities		4.8		—		4.8		—		3	%
Private real estate fund		12.1		—		—		12.1		7	%

Total other investment		16.9		—		4.8		12.1		10	%

Total Assets	$	167.6	$	13.3	$	142.2	$	12.1		100	%

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

The table below is a summary of changes in the fair value of the Plan’s Level 3 assets:


Real estate investment fund:
Balance as of December 31, 2012	$	12.1
Return on plan assets related to assets held as of December 31, 2013		1.5
Purchases (sales), net		2.0

Balance as of December 31, 2013	$	15.6

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

Cash Flows

The Company contributed $16.8 million and $17.8 million to its U.S. funded pension plan during the years ended December 31, 2013 and 2012, respectively. The Company made payments of $2.5 million and $3.5 million related to its U.S. unfunded pension plan obligations during the years ended December 31, 2013 and 2012, respectively. The Company made payments of $0.6 million and $0.7 million to its Other Retirement Plans during the years ended December 31, 2013 and 2012, respectively. The Company presently anticipates making contributions of $20.4 million to its funded pension plan and anticipates making payments of $6.2 million related to its unfunded U.S. pension plans and $0.8 million related to its Other Retirement Plans during the year ended December 31, 2014.


		MOODY’S 2013 10K			95

Estimated Future Benefits Payable

Estimated future benefits payments for the Retirement Plans are as follows at ended December 31, 2013:


Year Ending December 31,	Pension Plans		Other Retirement Plans
2014	$	9.5	$	0.8
2015	$	7.6	$	1.0
2016	$	10.5	$	1.1
2017	$	10.9	$	1.2
2018	$	35.4	$	1.3
2019 – 2023	$	96.8	$	8.8

Defined Contribution Plans

Moody’s has a Profit Participation Plan covering substantially all U.S. employees. The Profit Participation Plan provides for an employee salary deferral and the Company matches employee contributions equal to 50% of employee contribution up to a maximum of 3% of the employee’s pay. Moody’s also makes additional contributions to the Profit Participation Plan based on year-to-year growth in the Company’s EPS. Effective January 1, 2008, all new hires are automatically enrolled in the Profit Participation Plan when they meet eligibility requirements unless they decline participation. As the Company’s U.S. DBPPs are closed to new entrants effective January 1, 2008, all eligible new hires will instead receive a retirement contribution into the Profit Participation Plan in value similar to the pension benefits. Additionally, effective January 1, 2008, the Company implemented a deferred compensation plan in the U.S., which is unfunded and provides for employee deferral of compensation and Company matching contributions related to compensation in excess of the IRS limitations on benefits and contributions under qualified retirement plans. Total expenses associated with U.S. defined contribution plans were $18.8 million, $24.5 million and $14.9 million in 2013, 2012, and 2011, respectively.

Effective January 1, 2008, Moody’s has designated the Moody’s Stock Fund, an investment option under the Profit Participation Plan, as an Employee Stock Ownership Plan and, as a result, participants in the Moody’s Stock Fund may receive dividends in cash or may reinvest such dividends into the Moody’s Stock Fund. Moody’s paid approximately $0.5 million and $0.4 million in dividends during

the years ended December 31, 2013 and 2012, respectively, for the Company’s common shares held by the Moody’s Stock Fund. The Company records the dividends as a reduction of retained earnings in the Consolidated Statements of Shareholders’ Equity (Deficit). The Moody’s Stock Fund held approximately 520,000 and 580,000 shares of Moody’s common stock at December 31, 2013 and 2012, respectively.

International Plans

Certain of the Company’s international operations provide pension benefits to their employees. For defined contribution plans, company contributions are primarily determined as a percentage of employees’ eligible compensation. Moody’s also makes contributions to non-U.S. employees under a profit sharing plan which is based on year-to-year growth in the Company’s diluted EPS. Expenses related to these defined contribution plans for the years ended December 31, 2013, 2012 and 2011 were $19.7 million, $18.8 million and $16.3 million, respectively.

For defined benefit plans, the Company maintains various unfunded DBPPs and retirement health benefit plan for certain of its non-U.S. subsidiaries located in Germany, France and Canada. These unfunded DBPPs are generally based on each eligible employee’s years of credited service and on compensation levels as specified in the plans. The DBPP in Germany was closed to new entrants in 2002. Total defined benefit pension liabilities recorded related to non-U.S. pension plans was $7.8 million, $7.2 million and $5.3 million based on a weighted average discount rate of 3.58%, 3.53% and 4.79% at December 31, 2013, 2012 and 2011, respectively. The pension liabilities recorded as of December 31, 2013 represent the unfunded status of these pension plans and were recognized in the consolidated balance sheet as mostly non-current liabilities. Total pension expense recorded for the years ended December 31, 2013, 2012 and 2011 was approximately $0.6 million for each year. These amounts are not included in the tables above. As of December 31, 2013, the amount of net actuarial losses included in AOCI related to non-U.S. pension plans was immaterial. The Company’s non-U.S. other retirement benefit obligation was also immaterial as of December 31, 2013.

NOTE 13

STOCK-BASED COMPENSATION PLANS

Under the 1998 Plan, 33.0 million shares of the Company’s common stock have been reserved for issuance. The 2001 Plan, which is shareholder approved, permits the granting of up to 50.6 million shares, of which not more than 14.0 million shares are available for grants of awards other than stock options. The Stock Plans also provide for the granting of restricted stock. The Stock Plans provide that options are exercisable not later than ten years from the grant date. The vesting period for awards under the Stock Plans is generally determined by the Board at the date of the grant and has been four years except for employees who are at or near retirement eligi-


96		MOODY’S 2013 10K

bility, as defined, for which vesting is between one and four years. Additionally, the vesting period is three years for certain performance-based restricted stock that contain a condition whereby the number of shares that ultimately vest are based on the achievement of certain non-market based performance metrics of the Company. Options may not be granted at less than the fair market value of the Company’s common stock at the date of grant.

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

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


	Year Ended December 31,

	2013		2012		2011
Stock-based compensation expense	$	67.1	$	64.5	$	56.7
Tax benefit	$	24.7	$	23.3	$	18.1

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

The following weighted average assumptions were used for options granted:


	Year Ended December 31,

	2013			2012			2011
Expected dividend yield		1.72	%		1.66	%		1.53	%
Expected stock volatility		43	%		44	%		41	%
Risk-free interest rate		1.53	%		1.55	%		3.33	%
Expected holding period		7.2 years			7.4 years			7.6 years
Grant date fair value	$	17.58		$	15.19		$	12.49

A summary of option activity as of December 31, 2013 and changes during the year then ended is presented below:


Options	Shares			Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding, December 31, 2012		13.0		$	42.82
Granted		0.5		$	46.45
Exercised		(4.3	)	$	37.55
Forfeited		(0.1	)	$	35.53
Expired		(0.2	)	$	69.01

Outstanding, December 31, 2013		8.9		$	45.00		4.4 years	$	296.4

Vested and expected to vest, December 31, 2013		8.7		$	45.11		4.3 years	$	290.7

Exercisable, December 31, 2013		7.2		$	47.11		3.7 years	$	225.7

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between Moody’s closing stock price on the last trading day of the year ended December 31, 2013 and the exercise prices, multiplied by the number of in-the-


		MOODY’S 2013 10K			97

money options) that would have been received by the option holders had all option holders exercised their options as of December 31, 2013. This amount varies based on the fair value of Moody’s stock. As of December 31, 2013 there was $8.1 million of total unrecognized compensation expense related to options. The expense is expected to be recognized over a weighted average period of 1.4 years.

The following table summarizes information relating to stock option exercises:


	Year Ended December 31,

	2013		2012		2011
Proceeds from stock option exercises	$	163.3	$	127.4	$	50.3
Aggregate intrinsic value	$	112.4	$	61.3	$	25.3
Tax benefit realized upon exercise	$	41.1	$	23.4	$	9.6

A summary of the status of the Company’s nonvested restricted stock as of December 31, 2013 and changes during the year then ended is presented below:


Nonvested Restricted Stock	Shares			Weighted Average Grant Date Fair Value Per Share
Balance, December 31, 2012		3.0		$	33.08
Granted		1.3		$	46.52
Vested		(1.1	)	$	31.60
Forfeited		(0.1	)	$	37.72

Balance, December 31, 2013		3.1		$	39.30

As of December 31, 2013, there was $70.3 million of total unrecognized compensation expense related to nonvested restricted stock. The expense is expected to be recognized over a weighted average period of 1.7 years.

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


	Year Ended December 31,

	2013		2012		2011
Fair value of vested shares	$	54.6	$	37.8	$	18.9
Tax benefit realized upon vesting	$	19.3	$	13.4	$	6.9

A summary of the status of the Company’s performance-based restricted stock as of December 31, 2013 and changes during the year then ended is presented below:


Performance-based restricted stock	Shares			Weighted Average Grant Date Fair Value Per Share
Balance, December 31, 2012		1.0		$	30.06
Granted		0.3		$	44.07
Adjustment to shares expected to vest *		(0.1	)	$	33.31

Balance, December 31, 2013		1.2		$	31.17

*	Reflects an adjustment to shares expected to vest based on the Company’s projected achievement of certain non-market based performance metrics as of December 31, 2013.

In the year ended December 2013, the fair value of the delivered shares for the performance-based restricted stock plan was $25.5 million for which the tax benefit realized was $9.7 million. These delivered shares vested in December 2012.

As of December 31, 2013, there was $13.6 million of total unrecognized compensation expense related to this plan. The expense is expected to be recognized over a weighted average period of 0.9 years.

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

In addition, the Company also sponsors the ESPP. Under the ESPP, 6.0 million shares of common stock were reserved for issuance. The ESPP allows eligible employees to purchase common stock of the Company on a monthly basis at a discount to the average of the high and the low trading prices on the New York Stock Exchange on the last trading day of each month. This discount was 5% in 2013, 2012


98		MOODY’S 2013 10K

and 2011 resulting in the ESPP qualifying for non-compensatory status under Topic 718 of the ASC. Accordingly, no compensation expense was recognized for the ESPP in 2013, 2012, and 2011. The employee purchases are funded through after-tax payroll deductions, which plan participants can elect from one percent to ten percent of compensation, subject to the annual federal limit.

NOTE 14

INCOME TAXES

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


	Year Ended December 31,

	2013			2012			2011
Current:
Federal	$	226.2		$	168.1		$	133.6
State and Local		57.6			33.7			28.1
Non-U.S.		96.8			86.4			89.8

Total current		380.6			288.2			251.5

Deferred:
Federal		(13.1	)		35.7			9.3
State and Local		(5.6	)		4.5			7.0
Non-U.S.		(8.5	)		(4.1	)		(6.0	)

Total deferred		(27.2	)		36.1			10.3

Total provision for income taxes	$	353.4		$	324.3		$	261.8

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


	Year Ended December 31,

	2013			2012			2011
U.S. statutory tax rate		35.0	%		35.0	%		35.0	%
State and local taxes, net of federal tax benefit		2.9			2.4			2.7
Benefit of foreign operations		(6.4	)		(6.1	)		(6.3	)
Legacy tax items		(0.6	)		(0.4	)		(0.2	)
Other		(0.7	)		0.8			—

Effective tax rate		30.2	%		31.7	%		31.2	%

Income tax paid	$	335.7	⁽¹⁾	$	293.3	⁽²⁾	$	191.4

⁽¹⁾	Includes fourth quarter 2012 estimated federal tax payment made in 2013 due to IRS relief for companies affected by Hurricane Sandy

⁽²⁾	Includes approximately $92 million in payments for tax audit settlements in the first quarter of 2012

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


	Year Ended December 31,

	2013		2012		2011
United States	$	836.1	$	694.2	$	469.1
International		333.2		329.8		370.7

Income before provision for income taxes	$	1,169.3	$	1,024.0	$	839.8


		MOODY’S 2013 10K			99

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


	December 31,

	2013			2012
Deferred tax assets:
Current:
Account receivable allowances	$	8.2			8.2
Accrued compensation and benefits		12.8			13.3
Deferred revenue		7.3			6.1
Legal and professional fees		10.9			8.4
Restructuring		3.5			1.5
Uncertain tax positions		7.5			—
Other		0.7			3.1

Total current		50.9			40.6

Non-current:
Accumulated depreciation and amortization		2.6			0.4
Stock-based compensation		73.7			86.9
Benefit plans		78.9			96.6
Deferred rent and construction allowance		30.4			31.3
Deferred revenue		33.4			34.3
Foreign net operating loss ⁽¹⁾		10.6			13.0
Uncertain tax positions		26.8			25.9
Self-insured related reserves		20.4			33.8
Other		4.3			4.5

Total non-current		281.1			326.7

Total deferred tax assets		332.0			367.3

Deferred tax liabilities:
Current:
Other		—			(0.2	)

Total Current		—			(0.2	)

Non-current:
Accumulated depreciation and amortization of intangible assets and capitalized software		(153.7	)		(154.7	)
Foreign earnings to be repatriated		(3.7	)		(4.7	)
Self-insured related income		(24.0	)		(39.7	)
Other liabilities		(2.7	)		(3.9	)

Total non-current		(184.1	)		(203.0	)

Total deferred tax liabilities		(184.1	)		(203.2	)

Net deferred tax asset		147.9			164.1
Valuation allowance		(8.4	)		(15.2	)

Total net deferred tax assets	$	139.5			148.9

(1)	Amounts are primarily set to expire beginning in 2017, if unused.

As of December 31, 2013, the Company had approximately $1,574.6 million of undistributed earnings of foreign subsidiaries that it intends to indefinitely reinvest in foreign operations. The Company has not provided deferred income taxes on these indefinitely reinvested earnings. It is not practicable to determine the amount of deferred taxes that might be required to be provided if such earnings were distributed in the future, due to complexities in the tax laws and in the hypothetical calculations that would have to be made.

The Company had valuation allowances of $8.4 million and $15.2 million at December 31, 2013 and 2012, respectively, related to foreign net operating losses for which realization is uncertain. The decrease in the valuation allowances for 2013 primarily resulted from the expected utilization of losses in certain jurisdictions based on the Company’s evaluation of these future benefits.


100		MOODY’S 2013 10K

As of December 31, 2013 the Company had $195.6 million of UTPs of which $136.3 million represents the amount that, if recognized, would impact the effective tax rate in future periods.

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


	Year Ended December 31,

	2013			2012			2011
Balance as of January 1	$	156.6		$	205.4		$	180.8
Additions for tax positions related to the current year		67.8			49.1			48.9
Additions for tax positions of prior years		6.1			18.9			15.3
Reductions for tax positions of prior years		(10.1	)		(20.6	)		(27.3	)
Settlements with taxing authorities		(21.4	)		(91.5	)		(2.1	)
Lapse of statute of limitations		(3.4	)		(4.7	)		(10.2	)

Balance as of December 31	$	195.6		$	156.6		$	205.4

The Company classifies interest related to UTPs in interest expense in its consolidated statements of operations. Penalties, if incurred, would be recognized in other non-operating expenses. During 2013, the Company incurred a net interest expense of $7.6 million related to UTPs. As of December 31, 2013 and 2012, the amount of accrued interest recorded in the Company’s consolidated balance sheets related to UTPs was $17.9 million and $10.6 million, respectively.

Moody’s Corporation and subsidiaries are subject to U.S. federal income tax as well as income tax in various state, local and foreign jurisdictions. The Company’s U.S. federal income tax returns for the years 2008 through 2010 are under examination and its 2011 and 2012 returns remain open to examination. The Company’s New York State income tax returns for 2011 and 2012 remain open to examination. The Company’s New York City income tax returns have been examined through 2012. Tax filings in the U.K. remain open to examination for tax years 2008 through 2012.

For current ongoing audits related to open tax years, the Company estimates that it is possible that the balance of UTPs could decrease in the next twelve months as a result of the effective settlement of these audits, which might involve the payment of additional taxes, the adjustment of certain deferred taxes and/or the recognition of tax benefits. It is also possible that new issues might be raised by tax authorities which might necessitate increases to the balance of UTPs. As the Company is unable to predict the timing of conclusion of these audits, the Company is unable to estimate the amount of changes to the balance of UTPs at this time.

NOTE 15

INDEBTEDNESS

The following table summarizes total indebtedness:


	December 31,

	2013		2012
2012 Facility	$	—	$	—
Notes payable:
Series 2005-1 Notes due 2015, including fair value of interest rate swap of $10.3 million at 2013 and $13.8 million at 2012		310.3		313.8
Series 2007-1 Notes due in 2017		300.0		300.0
2010 Senior Notes, due 2020, net of unamortized discount of $2.2 million and $2.6 million in 2013 and 2012, respectively		497.8		497.4
2012 Senior Notes, due 2022, net of unamortized discount of $3.5 million in 2013 and $3.8 million in 2012		496.5		496.2
2013 Senior Notes, due 2024, net of unamortized discount of $2.8 million in 2013		497.2		—
2008 Term Loan, various payments through 2013		—		63.8

Total debt		2,101.8		1,671.2
Current portion		—		(63.8	)

Total long-term debt	$	2,101.8	$	1,607.4


		MOODY’S 2013 10K			101

2012 Facility

Commercial Paper

Notes Payable


102		MOODY’S 2013 10K

Indenture, the notes may become immediately due and payable either automatically or by the vote of the holders of more than 25% of the aggregate principal amount of all of the notes then outstanding.

On August 20, 2012, the Company issued $500 million aggregate principal amount of unsecured notes in a public offering. The 2012 Senior Notes bear interest at a fixed rate of 4.50% and mature on September 1, 2022. Interest on the 2012 Senior Notes will be due semi-annually on September 1 and March 1 of each year, commencing March 1, 2013. The Company may prepay the 2012 Senior 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. Additionally, at the option of the holders of the notes, the Company may be required to purchase all or a portion of the notes upon occurrence of a “Change of Control Triggering Event,” as defined in the 2012 Indenture, at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest to the date of purchase. The 2012 Indenture contains covenants that limit the ability of the Company and certain of its subsidiaries to, among other things, incur or create liens and enter into sale and leaseback transactions. In addition, the 2012 Indenture contains a covenant that limits the ability of the Company to consolidate or merge with another entity or to sell all or substantially all of its assets to another entity. The 2012 Indenture contains customary default provisions. In addition, an event of default will occur if the Company or certain of its subsidiaries fail to pay the principal of any indebtedness (as defined in the 2012 Indenture) when due at maturity in an aggregate amount of $50 million or more, or a default occurs that results in the acceleration of the maturity of the Company’s or certain of its subsidiaries’ indebtedness in an aggregate amount of $50 million or more. Upon the occurrence and during the continuation of an event of default under the 2012 Indenture, the 2012 Senior notes may become immediately due and payable either automatically or by the vote of the holders of more than 25% of the aggregate principal amount of all of the notes then outstanding.

2008 Term Loan


		MOODY’S 2013 10K			103

2008 Term Loan was payable quarterly at rates that were based on LIBOR plus a margin that could range from 125 basis points to 175 basis points depending on the Company’s Debt/EBITDA ratio.

The principal payments due on the Company’s long-term borrowings for each of the next five years are presented in the table below:


Year Ending December 31,	Series 2005-1 Notes		Series 2007-1 Notes		2010 Senior Notes		2012 Senior Notes		2013 Senior Notes		Total
2014	$	—	$	—	$	—	$	—	$	—	$	—
2015		300.0		—		—		—		—		300.0
2016		—		—		—		—		—		—
2017		—		300.0		—		—		—		300.0
2018		—		—		—		—		—		—
Thereafter		—		—		500.0		500.0		500.0		1,500.0

Total	$	300.0	$	300.0	$	500.0	$	500.0	$	500.0	$	2,100.0

INTEREST EXPENSE, NET

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


	Year Ended December 31,

	2013			2012			2011
Income	$	5.5		$	5.2		$	5.3
Expense on borrowings		(92.3	)		(73.8	)		(65.5	)
(Expense) income on UTPs and other tax related liabilities		(8.6	)		0.4			(8.7	)
Legacy Tax ^(a)		3.6			4.4			3.7
Interest capitalized		—			—			3.1

Total	$	(91.8	)	$	(63.8	)	$	(62.1	)

Interest paid ^(b)	$	81.9		$	94.4		$	67.2

(a)	Represents a reduction of accrued interest related to the favorable resolution of Legacy Tax Matters, further discussed in Note 18 to the consolidated financial statements.

(b)	Interest paid includes payments of interest relating to the settlement of income tax audits in the first quarter of 2012 as well as net settlements on interest rate swaps more fully discussed in Note 5.


104		MOODY’S 2013 10K


	December 31, 2013				December 31, 2012

	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Series 2005-1 Notes*	$	310.3	$	319.2	$	313.8	$	326.1
Series 2007-1 Notes		300.0		334.7		300.0		348.3
2010 Senior Notes		497.8		536.6		497.4		562.8
2012 Senior Notes		496.5		497.0		496.2		528.8
2013 Senior Notes		497.2		501.2		—		—
2008 Term Loan		—		—		63.8		63.8

Total	$	2,101.8	$	2,188.7	$	1,671.2	$	1,829.8

*	The carrying amount includes a $10.3 million and $13.8 million fair value adjustment on an interest rate hedge at December 31, 2013 and 2012, respectively.

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

NOTE 16

CAPITAL STOCK

Authorized Capital Stock

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

Share Repurchase Program

The Company implemented a systematic share repurchase program in the third quarter of 2005 through an SEC Rule 10b5-1 program. Moody’s may also purchase opportunistically when conditions warrant. On July 30, 2007, the Board of the Company authorized a $2.0 billion share repurchase program, which the Company began utilizing in January 2008. The company completed this program in the third quarter of 2013. On February 12, 2013, the Board authorized a new $1 billion share repurchase program. On February 11, 2014, the Board authorized a new $1 billion share repurchase program which will commence following the completion of the existing program. There is no established expiration date for both the February 12, 2013 and February 11, 2014 authorizations. The Company’s intent is to return capital to shareholders in a way that serves their long-term interests. As a result, Moody’s share repurchase activity will continue to vary from quarter to quarter.

During 2013, Moody’s repurchased 14.2 million shares of its common stock under its share repurchase program and issued 5.5 million shares under employee stock-based compensation plans.

Dividends

During the years ended December 31, 2013, 2012 and 2011, the Company’s cash dividends declared and paid were:


	Dividends Per Share
	Year ended December 31,
	2013				2012				2011

	Declared		Paid		Declared		Paid		Declared		Paid
First quarter	$	—	$	0.20	$	—	$	0.16	$	—	$	0.115
Second quarter		0.20		0.20		0.16		0.16		0.14		0.14
Third quarter		0.25		0.25		0.16		0.16		0.14		0.14
Fourth quarter		0.53		0.25		0.36		0.16		0.30		0.14

Total	$	0.98	$	0.90	$	0.68	$	0.64	$	0.58	$	0.535


		MOODY’S 2013 10K			105

NOTE 17

LEASE COMMITMENTS

Moody’s operates its business from various leased facilities, which are under operating leases that expire over the next 14 years. Moody’s also leases certain computer and other equipment under operating leases that expire over the next four years. Rent expense, including lease incentives, is amortized on a straight-line basis over the related lease term. Rent expense under operating leases for the years ended December 31, 2013, 2012 and 2011 was $74.2 million, $75.8 million and $73.1 million, respectively.

The minimum rent for operating leases that have remaining or original non-cancelable lease terms in excess of one year at December 31, 2013 is as follows:


Year Ending December 31,	Operating Leases
2014	$	78.0
2015		68.0
2016		59.6
2017		58.0
2018		58.0
Thereafter		484.0

Total minimum lease payments	$	805.6

Future minimum operating lease payments have been reduced by future minimum sublease income of $7.1 million.

On October 20, 2006, the Company entered into a 21-year operating lease agreement to occupy 15 floors of an office building at 7WTC which includes a total of 20 years of renewal options. On March 28, 2007 the 7WTC lease agreement was amended for the Company to lease an additional two floors for a term of 20 years. On October 21, 2013, the Company entered into a 14-year lease for an additional three floors at its 7WTC headquarters which became effective on January 2, 2014. The total net commitment for the additional three floors is approximately $74 million, including capital expenditures to build-out the space. The total base rent for the entire lease term, including rent credits, for the 7WTC lease and the additional floors is approximately $703 million. As of December 31, 2013, the company has a remaining obligation of $539.9 million.

On February 6, 2008, the Company entered into a 17.5 year operating lease agreement to occupy six floors of an office tower located in the Canary Wharf district of London, England. The total base rent of the Canary Wharf Lease over its 17.5-year term is approximately 134 million GBP, and the Company began making base rent payments in 2011. As of December 31, 2013, the Company has a remaining obligation of $181.4 million. In addition to the base rent payments the Company is obligated to pay certain customary amounts for its share of operating expenses and tax obligation.

NOTE 18

CONTINGENCIES


106		MOODY’S 2013 10K

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 alleged 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 sought 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. On January 22, 2010, plaintiffs moved to certify a class of individuals who purchased Moody’s Corporation common stock between February 3, 2006 and October 24, 2007, which the Company opposed. On March 31, 2011, the court issued an opinion denying plaintiffs’ motion to certify the proposed class. On April 14, 2011, plaintiffs filed a petition in the United States Court of Appeals for the Second Circuit seeking discretionary permission to appeal the decision. The Company filed its response to the petition on April 25, 2011. On July 20, 2011, the Second Circuit issued an order denying plaintiffs’ petition for leave to appeal. On September 14, 2012, the Company filed a motion for summary judgment, which was fully briefed on December 21, 2012. On August 23, 2013, the court issued an opinion granting defendants’ motion for summary judgment. Judgment was entered in Moody’s favor on August 26, 2013. On September 23, 2013, plaintiffs filed a notice of appeal from the judgment and from the March 2011 decision denying class certification. On December 19, 2013, that appeal was voluntarily dismissed with prejudice pursuant to a confidential settlement agreement, thereby concluding this litigation.


		MOODY’S 2013 10K			107

claim. Plaintiffs did not seek class certification. On September 7, 2012 the rating agencies filed a motion for summary judgment dismissing the remaining claims against them. On January 3, 2013, the Court issued an order dismissing the claim for aiding and abetting fraud against the rating agencies but allowing the claim for fraud to proceed to trial. In June 2012 and March 2013, respectively, defendants IKB Deutsche Industriebank AG (and a related entity) and Fitch, Inc. informed the court that they had executed confidential settlement agreements with the plaintiffs. On April 24, 2013, pursuant to a confidential settlement agreement, the plaintiffs stipulated to the voluntary dismissal, with prejudice, of all remaining claims as against the remaining defendants, including Moody’s, and the Court so ordered that stipulation on April 26, 2013.

Legacy Tax Matters

NOTE 19

SEGMENT INFORMATION

The Company is organized into three operating segments: (i) MIS, (ii) MA and (iii) an immaterial operating segment that provides fixed income pricing services in the Asia-Pacific region. This aforementioned immaterial operating segment has been aggregated with the MA operating segment based on the fact that it has similar economic characteristics to MA. Accordingly, the Company reports in two reportable segments: MIS and MA. The MIS segment is comprised of all of the Company’s ratings activities. All of Moody’s other non-rating commercial activities are included in the MA segment.

The MA segment, which includes all of the Company’s non-rating commercial activities, develops a wide range of products and services that support the risk management activities of institutional participants in global financial markets. The MA segment consists of three lines of business – RD&A, ERS and PS.

In the first quarter of 2013, a portion of a division within the PS LOB that provides solutions for structured finance securities was transferred to the RD&A LOB. Additionally, in the first quarter of 2012, a division within the PS LOB that provides various financial modeling services was transferred to the ERS LOB. Accordingly, the prior year revenue by LOB for MA has been reclassified to reflect these transfers.

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. The royalty rate charged by MIS approximates the fair value of the aforementioned content, data and products and is generally based on comparable market transactions. Also, revenue for MA and expenses for MIS include an intersegment fee charged to MIS from MA for certain MA products and services utilized in MIS’s ratings process. These fees charged by MA are generally equal to the costs incurred by MA to produce these products and services. Additionally, overhead costs and corporate expenses of the Company which exclusively benefit only one segment, are fully charged to that segment. Overhead costs and corporate expenses of the Company which benefit both segments 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 resources and information technology. Beginning on January 1, 2013, the Company refined its methodology for allocating certain overhead departments to its segments to better align the costs allocated based on each segment’s usage of the overhead service. The refined methodology is reflected in the segment results for the year ended December 31, 2013 and accordingly, the segment results for the years ended December 31, 2012 and 2011 have been reclassified to conform to the new presentation. These reclassifications were not material. “Eliminations” in the table below represent intersegment revenue/expense.

Moody’s does not report the Company’s assets by reportable segment as this metric is not used by the chief operating decision maker to allocate resources to the segments. Consequently, it is not practical to show assets by reportable segment.


108		MOODY’S 2013 10K

FINANCIAL INFORMATION BY SEGMENT:

The table below shows revenue, Adjusted Operating Income and operating income by reportable segment. Adjusted Operating Income is a financial metric utilized by the Company’s chief operating decision maker to assess the profitability of each reportable segment.


	Year Ended December 31,
	2013									2012

	MIS		MA		Eliminations			Consolidated		MIS		MA		Eliminations			Consolidated
Revenue	$	2,138.0	$	924.7	$	(90.2	)	$	2,972.5	$	1,958.3	$	855.3	$	(83.3	)	$	2,730.3
Operating, SG&A		1,022.6		712.1		(90.2	)		1,644.5		967.6		662.9		(83.3	)		1,547.2

Adjusted Operating Income		1,115.4		212.6		—			1,328.0		990.7		192.4		—			1,183.1

Depreciation and amortization		46.6		46.8		—			93.4		44.2		49.3		—			93.5
Goodwill impairment charge		—		—					—		—		12.2		—			12.2

Operating income	$	1,068.8	$	165.8	$	—		$	1,234.6	$	946.5	$	130.9	$	—		$	1,077.4


	Year Ended December 31,
	2011

	MIS		MA		Eliminations			Consolidated
Revenue	$	1,634.7	$	722.4	$	(76.4	)	$	2,280.7
Operating, SG&A		832.3		557.2		(76.4	)		1,313.1

Adjusted Operating Income		802.4		165.2		—			967.6

Depreciation and amortization		41.2		38.0		—			79.2

Operating income	$	761.2	$	127.2	$	—		$	888.4

MIS AND MA REVENUE BY LINE OF BUSINESS

The tables below present revenue by LOB:


	Year Ended December 31,

	2013			2012			2011
MIS:
Corporate finance (CFG)	$	996.8		$	857.6		$	652.1
Structured finance (SFG)		382.5			381.0			344.6
Financial institutions (FIG)		338.8			325.5			294.9
Public, project and infrastructure finance (PPIF)		341.3			322.7			277.3

Total external revenue		2,059.4			1,886.8			1,568.9
Intersegment royalty		78.6			71.5			65.8

Total		2,138.0			1,958.3			1,634.7

MA:
Research, data and analytics (RD&A)		532.0			493.2			453.9
Enterprise risk solutions (ERS)		262.5			242.6			196.1
Professional services (PS)		118.6			107.7			61.8

Total external revenue		913.1			843.5			711.8
Intersegment revenue		11.6			11.8			10.6

Total		924.7			855.3			722.4

Eliminations		(90.2	)		(83.3	)		(76.4	)

Total MCO	$	2,972.5		$	2,730.3		$	2,280.7


		MOODY’S 2013 10K			109

CONSOLIDATED REVENUE AND LONG-LIVED ASSETS INFORMATION BY GEOGRAPHIC AREA


	Year Ended December 31,

	2013		2012		2011
Revenue:
U.S.	$	1,626.5	$	1,472.4	$	1,177.0

International:
EMEA		862.8		800.2		708.4
Asia-Pacific		286.1		266.5		233.0
Americas		197.1		191.2		162.3

Total International		1,346.0		1,257.9		1,103.7

Total	$	2,972.5	$	2,730.3	$	2,280.7

Long-lived assets at December 31:
United States	$	547.1	$	498.4		495.8
International		618.0		672.3		727.5

Total	$	1,165.1	$	1,170.7	$	1,223.3

In January 2014, the Company revised its operating segments to create the new Copal Amba operating segment. The new operating segment will consist of all operations from Copal, a majority of which was acquired in December 2011, and the operations of Amba. The Copal Amba operating segment provides offshore research and analytic services to the global financial and corporate sectors. The Company is currently in the process of determining whether the new Copal Amba segment has similar economic characteristics to MA as defined in ASC 280, and whether it will be combined with the MA segment into one reportable segment beginning in 2014.

NOTE 20

VALUATION AND QUALIFYING ACCOUNTS

Accounts receivable allowances primarily represent adjustments to customer billings that are estimated when the related revenue is recognized and also represents an estimate for uncollectible accounts. The valuation allowance on deferred tax assets relates to foreign net operating losses for which realization is uncertain. Below is a summary of activity for both allowances:


Year Ended December 31,	Balance at Beginning of the Year			Additions			Write-offs and Adjustments		Balance at End of the Year
2013
Accounts receivable allowance	$	(29.1	)		(44.5	)		44.7	$	(28.9	)
Deferred tax assets – valuation allowance	$	(15.2	)		(0.1	)		6.9	$	(8.4	)
2012
Accounts receivable allowance	$	(28.0	)		(44.3	)		43.2		(29.1	)
Deferred tax assets – valuation allowance	$	(13.9	)		(3.1	)		1.8		(15.2	)
2011
Accounts receivable allowance	$	(33.0	)		(40.6	)		45.6	$	(28.0	)
Deferred tax assets – valuation allowance	$	(12.8	)		(4.0	)		2.9	$	(13.9	)


110		MOODY’S 2013 10K

NOTE 21

OTHER NON-OPERATING INCOME (EXPENSE), NET

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


	Year Ended December 31,

	2013			2012			2011
FX gain(loss)	$	—		$	(5.9	)	$	2.6
Legacy Tax ^(a)		19.2			12.8			6.4
Joint venture income		8.8			4.8			6.8
Other		(1.5	)		(1.3	)		(2.3	)

Total	$	26.5		$	10.4		$	13.5

(a)

The 2013 amount represents a reversal a liability relating to favorable resolution of a Legacy Tax Matter for the 2007 – 2009 tax years. The 2012 amount represents a reversal of a liability relating to the favorable resolution of a Legacy tax Matter for the 2005 and 2006 tax years. The 2011 amounts represent a reversal of a liability relating to the lapse of the statute of limitations for a 2004 Legacy Tax Matter.

NOTE 22

RELATED PARTY TRANSACTIONS

Moody’s Corporation made grants of $8 million to The Moody’s Foundation during the year ended December 31, 2013. Grants of $10 million and $5 million were made during the years ended December 31, 2012 and 2011, respectively. The Foundation carries out philanthropic activities primarily in the areas of education and health and human services. Certain members of Moody’s senior management are on the board of the Foundation.

NOTE 23

QUARTERLY FINANCIAL DATA (UNAUDITED)


	Three Months Ended

(amounts in millions, except EPS)	March 31		June 30		September 30		December 31
2013
Revenue	$	731.8	$	756.0	$	705.5	$	779.2
Operating Income	$	280.4	$	350.8	$	291.5	$	311.9
Net income attributable to Moody’s	$	188.4	$	225.5	$	183.9	$	206.7
EPS:
Basic	$	0.84	$	1.01	$	0.84	$	0.96
Diluted	$	0.83	$	1.00	$	0.83	$	0.94
2012
Revenue	$	646.8	$	640.8	$	688.5	$	754.2
Operating income	$	269.0	$	278.5	$	269.7	$	260.2
Net income attributable to Moody’s	$	173.5	$	172.5	$	183.9	$	160.1
EPS:
Basic	$	0.78	$	0.77	$	0.83	$	0.72
Diluted	$	0.76	$	0.76	$	0.81	$	0.70

Basic and diluted EPS are computed for each of the periods presented. The number of weighted average shares outstanding changes as common shares are issued pursuant to employee stock-based compensation plans and for other purposes or as shares are repurchased. Therefore, the sum of basic and diluted EPS for each of the four quarters may not equal the full year basic and diluted EPS.

Additionally, the quarterly financial data includes benefits of $21.3 million and $12.8 million to net income related to the resolution of Legacy Tax Matters for the three months December 31, 2013 and the three months ended September 30, 2012, respectively. There was a $0.14 share charge in the first quarter of 2013 related to the settlement of litigation matters more fully discussed in Note 18. There was a $12.2 million non-tax deductible goodwill impairment charge in the fourth quarter of 2012 relating to the Company’s FTSC reporting unit.


		MOODY’S 2013 10K			111

NOTE 24

SUBSEQUENT EVENT

On February 21, 2014, the Company made a conditional open offer to acquire up to 2,650,000 equity shares of ICRA Limited, a leading provider of credit ratings and research in India. The offer is conditional upon acquiring at least 2,149,101 equity shares, which would increase Moody’s ownership stake from 28.5% to just over 50.0%. Full acceptance of the offer would increase Moody’s ownership stake in ICRA to approximately 55.0%. Upon the closing of the offer, the Company anticipates that it would consolidate the results of ICRA Limited into its financial statements subsequent to the acquisition of the shares.

The offer price, payable in cash, is 2,000 Indian rupees per share which, based on exchange rates on the date of the offer, would result in a cash payment to the sellers ranging between approximately $69 million and $85 million depending on the number of shares acquired. The tender period is expected to begin in April 2014, subject to completion of a review of the transaction by Indian regulatory authorities.


112		MOODY’S 2013 10K

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable

ITEM 9A.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company carried out an evaluation, as required by Rule 13a-15(b) under the Exchange Act, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as defined in Rule 13a-15(e) of the Exchange Act, as of the end of the period covered by this report (the “Evaluation Date”). Based on such evaluation, such officers have concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the times periods specified in the communication to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes In Internal Control Over Financial Reporting

Information in response to this Item is set forth under the caption “Management’s Report on Internal Control Over Financial Reporting”, in Part II, Item 8 of this annual report on Form 10-K.

In addition, the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, has determined that there were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, these internal controls over financial reporting during the period covered by this report.

ITEM 9B.

OTHER INFORMATION

Not applicable.


		MOODY’S 2013 10K			113

PART III

Except for the information relating to the executive officers of the Company set forth in Part I of this annual report on Form 10-K, the information called for by Items 10-13 is contained in the Company’s definitive proxy statement for use in connection with its annual meeting of stockholders scheduled to be held on April 15, 2014, and is incorporated herein by reference.

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

ITEM 11.

EXECUTIVE COMPENSATION

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

ITEM 14.

PRINCIPAL ACCOUNTING FEES AND SERVICES

The Audit Committee has established a policy setting forth the requirements for the pre-approval of audit and permissible non-audit services to be provided by the Company’s independent registered public accounting firm. Under the policy, the Audit Committee pre-approves the annual audit engagement terms and fees, as well as any other audit services and specified categories of non-audit services, subject to certain pre-approved fee levels. In addition, pursuant to the policy, the Audit Committee has authorized its chair to pre-approve other audit and permissible non-audit services up to $50,000 per engagement and a maximum of $250,000 per year. The policy requires that the Audit Committee chair report any pre-approval decisions to the full Audit Committee at its next scheduled meeting. For the year ended December 31, 2013, the Audit Committee approved all of the services provided by the Company’s independent registered public accounting firm, which are described below.

AUDIT FEES

The aggregate fees for professional services rendered for (i) the integrated audit of the Company’s annual financial statements for the years ended December 31, 2013 and 2012, (ii) the review of the financial statements included in the Company’s Reports on Forms 10-Q and 8-K, and (iii) statutory audits of subsidiaries, were approximately $2.8 million and $2.4 million in 2013 and 2012, respectively. These fees included amounts accrued but not billed of $1.9 million and $1.6 million in the years ended December 31, 2013 and 2012, respectively.

AUDIT-RELATED FEES

The aggregate fees billed for audit-related services rendered to the Company were approximately $0.1 million in both of the years ended December 31, 2013 and 2012. Such services included employee benefit plan audits.

TAX FEES

The aggregate fees billed for professional services rendered for tax services rendered by the auditors for the years ended December 31, 2013 and 2012 were approximately $0 and $0, respectively.

ALL OTHER FEES

The aggregate fees billed for all other services rendered to the Company by KPMG LLP for the years ended December 31, 2013 and 2012 were approximately $0 and $0, respectively.


114		MOODY’S 2013 10K

PART IV

ITEM 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

LIST OF DOCUMENTS FILED AS PART OF THIS REPORT.

(1) Financial Statements.

See Index to Financial Statements on page 60, in Part II. Item 8 of this Form 10-K.

(2) Financial Statement Schedules.

None.

(3) Exhibits.

See Index to Exhibits on pages 117-120 of this Form 10-K.


		MOODY’S 2013 10K			115

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

MOODY’S CORPORATION

(Registrant)

By: /s/ RAYMOND W. MCDANIEL, JR.

Raymond W. McDaniel, Jr.

President and Chief Executive Officer

Date: February 26, 2014

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.

/s/ RAYMOND W. MCDANIEL, JR.

Raymond W. McDaniel, Jr.,

President and Chief Executive Officer

(principal executive officer)

/s/ LINDA S. HUBER

Linda S. Huber,

Executive Vice President and Chief Financial Officer

(principal financial officer)

/s/ JOSEPH MCCABE

Joseph McCabe,

Senior Vice President – Corporate

Controller (principal accounting officer)

/s/ BASIL L. ANDERSON

Basil L. Anderson,

Director

/s/ JORGE A. BERMUDEZ

Jorge A. Bermudez,

Director

/s/ DARRELL DUFFIE

Darrell Duffie,

Director

/s/ ROBERT R. GLAUBER

Robert R. Glauber,

Director

/s/ KATHRYN M. HILL

Kathryn M. Hill,

Director

/s/ EWALD KIST

Ewald Kist,

Director

/s/ HENRY A. MCKINNELL, JR.

Henry A. McKinnell, Jr. Ph.D.,

Chairman

/s/ LESLIE F. SEIDMAN

Leslie F. Seidman,

Director

/s/ JOHN K. WULFF

John K. Wulff,

Director

Date: February 26, 2014


116		MOODY’S 2013 10K

INDEX TO EXHIBITS


S-K EXHIBIT NUMBER

3	Articles Of Incorporation And By-laws

	.1	Restated Certificate of Incorporation of the Registrant, effective April 17, 2013 (incorporated by reference to Exhibit 3.2 to the Report on Form 8-K of the Registrant, file number 1-14037, filed April 22, 2013).

	.2	Amended and Restated By-laws of Moody’s Corporation, effective April 17, 2013 (incorporated by reference to Exhibit 3.2 to the Report on Form 8-K of the Registrant, file number 1-14037, filed April 22, 2013).

4	Instruments Defining The Rights Of Security Holders, Including Indentures

	.1	Specimen Common Stock certificate (incorporated by reference to Exhibit 4.1 to the Report on Form 8-K of the Registrant, file number 1-14037, filed October 4, 2000)

	.2	Note Purchase Agreement, dated as of September 30, 2005, by and among Moody’s Corporation and the note purchasers party thereto, including the form of the 4.98% Series 2005-1 Senior Unsecured Note due 2015 (incorporated by reference to Exhibit 4.1 to the Report on Form 8-K of the Registrant, file number 1-14037, filed October 5, 2005).

	.3	Note Purchase Agreement, dated as of September 7, 2007, by and among Moody’s Corporation and the note purchasers party thereto, including the form of the 6.06% Series 2007-1 Senior Unsecured Note due 2017 (incorporated by reference to Exhibit 4.1 to the Report on Form 8-K of the Registrant, file number 1-14037, filed September 13, 2007)

	.4	Five-Year Credit Agreement dated as of April 18, 2012, among Moody’s Corporation, the Borrowing Subsidiaries Party Hereto, the Lenders Party Thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, Bank of America, N.A. and Citibank, N.A. as Co-Syndication Agents, and RBS Citizens, N.A. and The Bank of Tokyo-Mitsubishi UFJ, Ltd., as Co-Documentation Agents (incorporated by reference to Exhibit 4.1 to the Report on Form 8-K of the Registrant, file number 1-14037, filed April 24, 2012)

	.5	Five-Year Credit Agreement, dated as of May 7, 2008, with JPMorgan Chase Bank, N.A., as administrative agent, Bank of China and Fifth Third Bank, as co-syndication agents, Barclays Commercial Bank, as documentation agent, The Bank of Tokyo-Mitsubishi UFJ, Ltd. and Commerce Bank, N.A., as co-agents, J.P. Morgan Securities, Inc., as lead arranger and bookrunner, and the lenders party thereto (incorporated by reference to Exhibit 4.1 to the Registrant’s Quarterly Report on Form 10-Q, file number 1-14037, filed May 8, 2008)

	.6	Indenture, dated as of August 19, 2010, between Moody’s Corporation and Wells Fargo, National Association, as trustee (incorporated by reference to Exhibit 4.1 to the Report on Form 8-K of the Registrant, file number 1-14037, filed August 19, 2010)

	.7	Supplemental Indenture, dated as of August 19, 2010, between Moody’s Corporation and Wells Fargo, National Association, as trustee, including the form of the 5.50% Senior Notes due 2020 (incorporated by reference to Exhibit 4.2 to the Report on Form 8-K of the Registrant, file number 1-14037, filed August 19, 2010)

	.8	Second Supplemental Indenture, dated as of August 20, 2012, between Moody’s Corporation and Wells Fargo, National Association, as trustee, including the form of the 4.50% Senior Notes due 2022 (incorporated by reference to Exhibit 4.1 to the Report on Form 8-K of the Registrant, file number 1-14037, filed August 20, 2012)

	.9	Third Supplemental Indenture, dated as of August 12, 2013, between Moody’s Corporation and Wells Fargo, National Association, as trustee, including the form of the 4.875% Senior Notes due 2023 (incorporated by reference to Exhibit 4.1 to the Report on Form 8-K of the Registrant, file number 1-14037, filed August 20, 2013)

10	Material Contracts

	.1	Distribution Agreement, dated as of September 30, 2000, between the Registrant and The Dun & Bradstreet Corporation (f.k.a. The New D&B Corporation) (incorporated by reference to Exhibit 10.1 to the Report on Form 8-K of the Registrant, file number 1-14037, filed October 4, 2000)

	.2	Tax Allocation Agreement, dated as of September 30, 2000, between the Registrant and The Dun & Bradstreet Corporation (f.k.a. The New D&B Corporation) (incorporated by reference to Exhibit 10.2 to the Report on Form 8-K of the Registrant, file number 1-14037, filed October 4, 2000)


		MOODY’S 2013 10K			117


S-K EXHIBIT NUMBER

10	.3†	The Moody’s Corporation Nonfunded Deferred Compensation Plan for Non-Employee Directors (as amended December 16, 2008) (incorporated by reference to Exhibit 10.6 to the Registrant’s Annual Report on Form 10-K, file number 1-14037, filed February 27, 2009)

	.4†	1998 Moody’s Corporation Non-Employee Directors’ Stock Incentive Plan (Adopted September 8, 2000; Amended and Restated as of December 11, 2012) (incorporated by reference to Exhibit 10.2 to the Registrant’s Annual Report on Form 8-K, file number 1-14037, filed April 22, 2013)

	.5†	1998 Moody’s Corporation Key Employees’ Stock Incentive Plan (incorporated by reference to Exhibit 10.16 to the Registrant’s Quarterly Report on Form 10-Q, file number 1-14037, filed November 14, 2000)

	.6	Distribution Agreement, dated as of June 30, 1998, between R.H. Donnelley Corporation (f.k.a. The Dun & Bradstreet Corporation) and the Registrant (f.k.a. The New Dun & Bradstreet Corporation) (incorporated by reference to Exhibit 10.1 to Registrant’s Quarterly Report on Form 10-Q, file number 1-14037, filed August 14, 1998)

	.7†	Moody’s Corporation Deferred Compensation Plan, effective as of January 1, 2008 (incorporated by reference to Exhibit 10.1 to the Report on Form 8-K of the Registrant, file number 1-14037, filed October 26, 2007)

	.8	Form of Separation Agreement and General Release used by the Registrant with its Career Transition Plan. (incorporated by reference to Exhibit 99.1 to the Report on Form 8-K of the Registrant, file number 1-14037, filed November 20, 2007)

	.9†	Amended and Restated 2001 Moody’s Corporation Key Employees’ Stock Incentive Plan (as amended, December 11, 2012) (incorporated by reference to Exhibit 10.1 to the Report on Form 8-K of the Registrant, file number 1-14037, filed April 22, 2013)

	.10	Tax Allocation Agreement, dated as of June 30, 1998, between R.H. Donnelley Corporation (f.k.a. The Dun & Bradstreet Corporation) and the Registrant (f.k.a. The New Dun & Bradstreet Corporation) (incorporated by reference to Exhibit 10.2 to Registrant’s Quarterly Report on Form 10-Q, file number 1-14037, filed August 14, 1998)

	.11	Distribution Agreement, dated as of October 28, 1996, among R.H. Donnelley Corporation (f.k.a. The Dun & Bradstreet Corporation), Cognizant Corporation and ACNielsen Corporation (incorporated by reference to Exhibit 10(x) to R.H. Donnelley Corporation’s (f.k.a. The Dun & Bradstreet Corporation) Annual Report on Form 10-K, file number 1-7155, filed March 27, 1997)

	.12	Tax Allocation Agreement, dated as of October 28, 1996, among R.H. Donnelley Corporation (f.k.a. The Dun & Bradstreet Corporation), Cognizant Corporation and ACNielsen Corporation (incorporated by reference to Exhibit 10(y) to R.H. Donnelley Corporation’s (f.k.a. The Dun & Bradstreet Corporation) Annual Report on Form 10-K, file number 1-7155, filed March 27, 1997)

	.13†	Form of Employee Non-Qualified Stock Option and Restricted Stock Grant Agreement for the Amended and Restated 2001 Moody’s Corporation Key Employees’ Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q, file number 1-14037, filed November 3, 2004)

	.14†	Form of Non-Employee Director Restricted Stock Grant Agreement for the 1998 Moody’s Corporation Non-Employee Directors’ Stock Incentive Plan (as amended on April 23, 2001) (incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q, file number 1-14037, filed November 3, 2004)


118		MOODY’S 2013 10K


S-K EXHIBIT NUMBER

10	.15†	2004 Moody’s Corporation Covered Employee Cash Incentive Plan (as amended on December 15,2009) (incorporated by reference to Exhibit 10.2 to the Report on Form 8-K of the Registrant, file number 1-14037, filed April 26, 2010)

	.16†	Description of Bonus Terms under the 2004 Moody’s Corporation Covered Employee Cash Incentive Plan (as amended, December 15, 2009) (incorporated by reference to Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q, file number 1-14037, filed November 3, 2004)

	.17†	Director Compensation Arrangements (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q, file number 1-14037, filed May 2, 2006)

	.18	Agreement of Lease, dated September 7, 2006, between Moody’s Corporation and 7 World Trade Center, LLC (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q, file number 1-14037, filed November 2, 2006)

	.19	Agreement for Lease, dated February 6, 2008, among CWCB Properties (DS7) Limited, CWCB Properties (DS7) Limited and CW Leasing DS7F Limited, Canary Wharf Holdings Limited, Moody’s Investors Service Limited, and Moody’s Corporation (incorporated by reference to Exhibit 10.1 to the Report on Form 8-K of the Registrant, file number 1-14037, filed February 12, 2008)

	.20	Agreement for Lease, dated February 6, 2008, among Canary Wharf (Car Parks) Limited, Canary Wharf Holdings Limited, Canary Wharf Management Limited, Moody’s Investors Service Limited, and Moody’s Corporation (incorporated by reference to Exhibit 10.2 to the Report on Form 8-K of the Registrant, file number 1-14037, filed February 12, 2008)

	.21	Storage Agreement for Lease dated February 6, 2008 among Canary Wharf (Car Parks) Limited, Canary Wharf Holdings Limited, Canary Wharf Management Limited, Moody’s Investors Service Limited, and Moody’s Corporation (incorporated by reference to Exhibit 10.2 to the Report on Form 8-K of the Registrant file number 1-14037, filed February 12, 2008)

	.22	Moody’s Corporation 1999 Employee Stock Purchase Plan (as amended and restated December 15, 2008) (formerly, The Dun & Bradstreet Corporation 1999 Employee Stock Purchase Plan) (incorporated by reference to Exhibit 10.38 to the Registrant’s Annual Report on Form 10-K, file number 1-14037, filed February 27, 2009)

	.23†	Supplemental Executive Benefit Plan of Moody’s Corporation, amended and restated as of January 1, 2008 (incorporated by reference to Exhibit 10.38 to the Registrant’s Annual Report on Form 10-K, file number 1-14037, filed February 29, 2008)

	.24†	Pension Benefit Equalization Plan of Moody’s Corporation, amended and restated as of January 1, 2008 (incorporated by reference to Exhibit 10.39 to the Registrant’s Annual Report on Form 10-K, file number 1-14037, filed February 29, 2008)

	.25†*	Moody’s Corporation Retirement Account, amended and restated as of December 18, 2013

	.26†	Profit Participation Plan of Moody’s Corporation (amended and restated as of January 1, 2010) (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q, file number 1-14037, filed May 3, 2011)

	.27†	First Amendment to the Profit Participation Plan of Moody’s Corporation (as amended and restated as of January 1, 2010) (incorporated by reference to Exhibit 10.44 to the Registrant’s Annual Report on Form 10-K, file number 1-14037, filed February 27, 2012)

	.28†	Second Amendment to the Profit Participation Plan of Moody’s Corporation (as amended and restated as of January 1, 2010) (incorporated by reference to Exhibit 10.45 to the Registrant’s Annual Report on Form 10-K, file number 1-14037, filed February 27, 2012)

	.29†	Third Amendment to the Profit Participation Plan of Moody’s Corporation (as amended and restated as of January 1, 2010) (incorporated by reference to Exhibit 10.46 to the Registrant’s Annual Report on Form 10-K, file number 1-14037, filed February 27, 2012)

	.30†	Fourth Amendment to the Profit Participation Plan of Moody’s Corporation (incorporated by reference to Exhibit 10.39 to the Registrant’s Annual Report on Form 10-K, file number 1-14037, filed February 26, 2013)

	.31†	Fifth Amendment to the Profit Participation Plan of Moody’s Corporation (incorporated by reference to Exhibit 10.39 to the Registrant’s Annual Report on Form 10-K, file number 1-14037, filed February 26, 2013)


		MOODY’S 2013 10K			119


S-K EXHIBIT NUMBER

10	.32†*	Sixth Amendment to the Profit Participation Plan of Moody’s Corporation

	.33†	Moody’s Corporation Career Transition Plan (incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q, file number 1-14037, filed May 8, 2008)

	.34†	First Amendment to the Moody’s Corporation Career Transition Plan (incorporated by reference to Exhibit 10.42 to the Registrant’s Annual Report on Form 10-K, file number 1-14037, filed February 26, 2013)

	.35†	Moody’s Corporation Cafeteria Plan, effective January 1, 2008 (incorporated by reference to Exhibit 10.46 to the Registrant’s Annual Report on Form 10-K, file number 1-14037, filed February 27, 2009)

	.36†	Separation Agreement and general release between the Company and Brian M. Clarkson, dated May 7, 2008 (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q, file number 1-14037, filed August 4, 2008)

	.37†	Moody’s Corporation Change in Control Severance Plan (incorporated by reference to Exhibit 10.1 to the Report on Form 8-K of the Registrant, file number 1-14037, filed December 20, 2010)

	.38†	Form of Performance Share Award Letter for the Amended and Restated 2001 Moody’s Corporation Key Employees’ Stock Incentive Plan (incorporated by reference to Exhibit 10.48 to the Registrant’s Annual Report on Form 10-K, file number 1-14037, filed February 28, 2011)

21*		SUBSIDIARIES OF THE REGISTRANT

		List of Active Subsidiaries as of December 31, 2013

23		CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

	.1*	Consent of KPMG LLP

31		CERTIFICATIONS 302 OF THE SARBANES-OXLEY ACT OF 2002

	.1*	Chief Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

	.2*	Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32		CERTIFICATIONS PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

	.1*	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (The Company has furnished this certification and does not intend for it to be considered filed under the Securities Exchange Act of 1934 or incorporated by reference into future filings under the Securities Act of 1933 or the Securities Exchange Act of 1934)

	.2*	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (The Company has furnished this certification and does not intend for it to be considered filed under the Securities Exchange Act of 1934 or incorporated by reference into future filings under the Securities Act of 1933 or the Securities Exchange Act of 1934)

101	.DEF*	XBRL Definitions Linkbase Document

101	.INS*	XBRL Instance Document

101	.SCH*	XBRL Taxonomy Extension Schema Document

101	.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document

101	.LAB*	XBRL Taxonomy Extension Labels Linkbase Document

101	.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document

*	Filed herewith

†	Management contract of compensatory plan or arrangement


120		MOODY’S 2013 10K

Exhibit 10.25

THE MOODY’S CORPORATION

RETIREMENT ACCOUNT

Amended and Restated as of December 18, 2013

INTRODUCTION

The Moody’s Corporation Retirement Account (“the Plan”) was effective as of the Effective Time, as such term is defined in the Employee Benefits Agreement entered into as of September 30, 2000, between The Dun & Bradstreet Corporation and The New D&B Corporation, following its adoption by the Board of Directors of Moody’s Corporation (the “Corporation”). The Plan is a spin-off from The Dun & Bradstreet Corporation Retirement Account (the “D&B Plan”) and covers employees who are in active service at the Effective Time. The Accrued Benefit of each such employee under the Plan as of the Effective Time shall equal the accrued benefit under the D&B Plan as of such date. In general, the Plan as in effect prior to the effective date of any amendment continued to apply to those who terminated employment prior to such date. The Plan is intended to be a defined benefit pension plan, and the provisions of the Plan will be submitted for a determination by the Internal Revenue Service that the Plan is “qualified” under Section 401(a) of the Internal Revenue Code.

The Plan was previously amended and restated effective as of January 1, 2009 and is hereby again amended and restated effective as of January 1, 2013. This amendment and restatement includes good faith amendments of the Plan that are adopted by the Board of Directors with respect to the Pension Protection Act of 2006 and other statutes with respect to which good faith amendments are required through the date of this amendment and restatement. Except as otherwise specifically provided herein, a Member who is not an Employee at any time after December 31, 2012 shall be entitled to benefits, if any, under the Plan based upon the provisions of the Plan in effect on or prior to that date.

ARTICLE I

DEFINITIONS

SECTION 1.1. “ Accrued Benefit ” shall mean the benefit for a Member as determined from time to time in accordance with the provisions of Article 4 (including Interest Credits described in Section 4.1(a)), but subject to the limitations set forth in Article 14 and Article 15 of this Plan and any other limitation imposed as a condition of the Plan’s qualification under ERISA or other applicable law.

SECTION 1.2. “ Actuarial Equivalent Value ” shall mean a benefit of equivalent value computed on the basis of the appropriate mortality table and interest rate, as follows:

(a) For the purpose of determining the Opening Balance described in Section 4.4, the applicable mortality table prescribed by the Internal Revenue Service under Section 417(e)(3) of the Code and 6.65% interest;

(b) For the purposes of determining the Accrued Benefit and Early Retirement Benefit described in Section 4.1 and Section 4.2, respectively, all forms of benefit under Article VIII to the extent based on the Participant’s Account, and the Lump Sum Payment under Section 8.8: (i) the applicable mortality table prescribed by the Internal Revenue Service under Section 417(e)(3) of the Code (which currently is the GAR94 blended mortality table or such successor mortality table as is issued by the Internal Revenue Service), and (ii) an interest rate equal to (A) for periods prior to March 1, 2002, the annual yield on thirty (30) year Treasury Bonds for the first day of the month, (B) for periods between March 1, 2002 and December 31, 2007, the average of the annual yield on thirty (30) year Treasury Bonds published by the Internal Revenue Service, and (C) for periods beginning on or after January 1, 2008, the 30-year corporate bond “yield curve” enacted by the Pension Protection Act of 2006, implemented in 20% annual increments beginning in 2008, in each case using (A) a stability period of one month (the month in which the Benefit Commencement Date occurs), and (B) a lookback period of the three consecutive months immediately preceding the stability period; and

(c) For the purpose of determining the optional forms of benefit payment described in Section 8.6 for Members with respect to the Frozen Accrued Benefit described in Section 4.8 and the Grandfather Benefit described in Section 4.9, mortality rates shown in Attachment A of the Plan and six and seventy-five one hundredths percent (6.75%) interest.

SECTION 1.3. “ Actuary ” shall mean that individual who is an “enrolled actuary” (as defined in Section 7701(a)(35) of the Code) or that firm of actuaries which has on its staff such an actuary, appointed by the Management Benefits and Compensation Committee.

SECTION 1.4. “ Affiliated Employer ” shall mean the Company and any other employer which is treated with the Company as a single employer pursuant to Section 414 of the Code or, solely for purposes of Article 15, Section 415(h) of the Code.

SECTION 1.5. “ Ameritech ” means Ameritech Publishing, Inc. and/or Ameritech Publishing of Illinois, Inc.

SECTION 1.6. “ Average Final Compensation ” means an Employee’s average annual Compensation during the five (5) consecutive twelve (12) month periods in the last ten (10) consecutive twelve (12) month periods of his or her Credited Service (or during the total number of consecutive twelve (12) month periods if fewer than five (5)), prior to the relevant date of calculation under this Plan, affording the highest such average annual Compensation. If actual monthly Compensation for any month during the one hundred twenty (120) month computational period is unavailable, Compensation for such month shall be determined by dividing the Member’s Compensation for the twelve (12) month period in which such month occurs by twelve (12). For the sole purpose of determining an Employee’s average annual Compensation, service with a Non-Participating Affiliated Company shall be deemed Credited Service. In the event any Employee is regularly employed for at least one thousand (1,000) hours but less than eighteen hundred (1,800) hours, his or her earnings shall be annualized under uniform rules adopted by the Management Benefits and Compensation Committee.

SECTION 1.7. “ Beneficiary ” shall mean the person designated by a Member in accordance with the procedures set forth in Section 6.2 as entitled to receive benefits payable pursuant to the provisions of this Plan by virtue of such Member’s death. Only natural persons may be a Beneficiary; a partnership, corporation, trust, estate or other legal entity is not eligible to be a Beneficiary under this Plan.

SECTION 1.8. “ Benefit Commencement Date ” shall mean the first day of the first month for which a benefit is payable to an individual, even though the first payment may not actually have been made at that date.

SECTION 1.9. “ Board of Directors ” shall mean the Board of Directors of Moody’s Corporation. Any action authorized hereunder to be taken by the Board of Directors may be also taken by a duly authorized committee of the Board of Directors or a duly authorized delegates of the Board of Directors or such a committee.

SECTION 1.10. “ Change in Control ” means:

(a) Any “Person,” as such term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (other than the Corporation, any trustee or other fiduciary holding securities under an employee benefit plan of the Corporation, or any Corporation owned, directly or indirectly, by the shareholders of the Corporation in substantially the same proportions as their ownership of stock of the Corporation), is or becomes the “Beneficial Owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation representing twenty percent (20%) or more of the combined voting power of the Corporation’s then outstanding securities;

(b) during any period of twenty-four (24) months (not including any period prior to the effective date of this provision), individuals who at the beginning of such period constitute the Board of Directors, and any new director (other than (i) a director designated by a person who has entered into an agreement with the Corporation to effect a transaction described in clause (a), (c) or (d) of this Section), (ii) a director designated by any Person (including the Corporation) who publicly announces an intention to take or to consider taking actions (including, but not limited to, an actual or threatened proxy contest) which if consummated would constitute a Change in Control, or (iii) a director designated by any Person who is the Beneficial Owner, directly or indirectly, of securities of the Corporation representing ten percent (10%) or more of the combined voting power of the Corporation’s securities) whose election by the Board of Directors or nomination for election by the Corporation’s shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved cease for any reason to constitute at least a majority thereof;

(c) the shareholders of the Corporation approve a merger or consolidation of the Corporation with any other company, other than (i) a merger or consolidation which would result in the voting securities of the Corporation outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the combined voting power of the voting securities of the Corporation or such surviving entity outstanding immediately after such merger or consolidation, and (ii) after which no Person holds twenty percent (20%) or more of the combined voting power of the then outstanding securities of the Corporation or such surviving entity; or

(d) the shareholders of the Corporation approve a plan of complete liquidation of the Corporation or an agreement for the sale or disposition by the Corporation of all or substantially all of the Corporation’s assets.

SECTION 1.11. “ Code ” shall mean the Internal Revenue Code of 1986, as amended from time to time.

SECTION 1.12. “ Company ” shall mean Moody’s Corporation.

SECTION 1.13. “ Company Credits ” shall mean additions to the Retirement Account determined in accordance with the procedures of Section 4.5.

SECTION 1.14. “ Compensation ” shall mean the total amount paid by the Employer to a Member with respect to any period of Credited Service as salary, wages, overtime, regular cash bonuses and commissions, lump sum payments in lieu of foregone merit increases, “bonus buyouts” as the result of job changes, and any portion of such amounts voluntarily deferred or reduced by the Member under any employee benefit plan of the Company available to all levels of Employees of the Company on a non-discriminatory basis upon satisfaction of eligibility requirements and voluntarily deferred or reduced under any executive deferral plan of the Company (provided such amounts otherwise would not have been excluded had they not been deferred), but excluding any pension, retainers, severance pay, special stay-on bonus payments, income derived from stock options, stock appreciation rights and dispositions of stock acquired thereunder, payments dependent upon any contingency after the period of Credited Service and other special remunerations (including performance units).

In the case of a Member who is transferred to an Affiliated Employer which is not an Employer during a year, Compensation shall be the amount received by the Member prior to such transfer. If a Member’s Service with the Company is continued during a period of authorized leave of absence, for the purposes of determining Average Final Compensation and Company Credits, the Member shall be deemed to continue to receive the salary he or she was receiving at the time such leave commenced if the leave of absence was for the purposes of military service. In all cases of paid leave, the Member’s Compensation during such period of leave shall be included for the purposes of determining Average Final Compensation and Retirement Credits.

In no event, however, for any twelve (12) month period to which Section 401(a)(17) of the Code applies, will the Compensation in a twelve (12) month period taken into account under the Plan exceed Two Hundred Thousand Dollars ($200,000), or such indexed amount as may have been in effect under Section 401(a)(17) of the Code for the beginning of the twelve (12) month period, or as may be prescribed under Section 401(a)(17) of the Code for any twelve (12) month period by the Secretary of the Treasury from time to time.

Unless otherwise provided under the Plan, each Section 401(a)(17) Employee’s accrued benefit under this Plan shall be the greater of the accrued benefit determined for the Employee under (a) or (b) below:

(a) the Employee’s accrued benefit determined with respect to the benefit formula applicable under the Prior Plan for the Plan Year beginning on or after January 1, 1994, as applied to the Employee’s total years of service taken into account under the Plan for the purposes of benefit accruals, or

(b) the sum of:

(i) the Employee’s accrued benefit as of the last day of the last Plan Year beginning before January 1, 1994, frozen in accordance with Section 1.401(a)(4)-13 of the Treasury Regulations, and

(ii) the Employee’s accrued benefit determined under the benefit formula applicable for the Plan Year beginning on or after January 1, 1994, as applied to the Employee’s years of service credited to the Employee for Plan Years beginning on or after January 1, 1994, for purposes of benefit accruals.

A Section 401(a)(17) Employee means an Employee whose current accrued benefit as of a date on or after the first day of the Plan Year beginning on or after January 1, 1994, is based on compensation for a year beginning prior to the first day of the first Plan Year beginning on or after January 1, 1994, that exceeded One Hundred Fifty Thousand Dollars ($150,000).

SECTION 1.15. “ Computation Period ” shall mean the Plan Year, except for purposes of determining eligibility, in which case, it shall mean the twelve (12) month period commencing with the Employee’s Employment Commencement Date or Re-employment Commencement Date. If the Eligible Employee fails to satisfy the requirements for eligibility in that twelve (12) month period, the Computation Period for determining eligibility for that Eligible Employee shall thereafter be the Plan Year that begins within such twelve (12) month period and each Plan Year thereafter.

SECTION 1.16. “ Credited Service ” shall mean Years of Service as an Employee and a Member, as determined in accordance with Article 2, including all Years of “Credited Service” under The Dun & Bradstreet Retirement Account; Credited Service shall not include (a) any period of service with respect to which a distribution shall have been made pursuant to Section 16.2 which shall not have been restored as provided therein; or (b) any period of Service with the Partnership or Ameritech.

SECTION 1.17. “ Deferred Vested Benefit ” shall mean the benefit to which a vested Member would be entitled after a Severance Date, if the Member is not eligible to receive an Early Retirement Benefit as of such date under the terms of the Plan.

SECTION 1.18. “ Defined Benefit Dollar Limitation ” shall mean the limitation set forth in Section 415(b)(1) of the Code.

SECTION 1.19. “ Early Retirement Benefit ” shall mean the benefit to which a Member would be entitled in the event of his or her retirement on his or her Early Retirement Date.

SECTION 1.20. “ Early Retirement Date ” shall mean the first day of the calendar month coincident with or next following the Member’s Severance Date, if such date is earlier than his or her Normal Retirement Date and if the Member is eligible for Early Retirement under the terms of the Plan as described in Article 5.

SECTION 1.21. “ Effective Date ” shall mean the Effective Time, as such term is defined in the Employee Benefits Agreement entered into as of September 30, 2000, between The Dun & Bradstreet Corporation and The New D&B Corporation, following its adoption by the Board of Directors of the Company.

SECTION 1.22. “ Eligibility Service ” shall mean Service as counted for determining an Employee’s right to become a Member in the Plan, as determined in accordance with the provisions of Article 2.

SECTION 1.23. “ Eligible Employee ” shall mean an Employee of an Employer, who is entitled to participate in the Plan upon meeting the requirements of Section 3.1, other than (a) an Employee whose terms and conditions of employment are the subject of a collective bargaining agreement except to the extent that participation in the Plan is expressly provided for in writing pursuant to such agreement, (b) a Leased Employee, or (c) any Employee on temporary assignment to the United States who continues to participate in one or more retirement plans maintained by an Affiliated Employer. Notwithstanding the foregoing, no Employee who commences or recommences employment with an Employer on or after January 1, 2008 shall accrue any benefit under the Plan (provided, however, that an Employee who directly transfers employment from an Employer to an Affiliated Entity and who was eligible to accrue benefits under the Plan immediately prior to such transfer shall continue to accrue benefits pursuant to the terms of the Plan while continuously employed by such Affiliated Employer).

SECTION 1.24. “ Employee ” shall mean any person who is a common-law employee or a Leased Employee of an Employer or an Affiliated Employer, any United States citizen who is employed by a “foreign affiliate” (as defined in Section 3121(l)(8) of the Code), provided that such person is covered by an agreement entered into by the Company under Section 3121(l) of the Code, and any United States citizen who is employed by a “domestic subsidiary” as defined in Section 407(a)(2) of the Code.

SECTION 1.25. “ Employer ” shall mean Moody’s Corporation or any successor company, and such of its partially or wholly-owned subsidiary companies as may from time to time, be authorized by the Board of Directors to participate in the Plan with respect to all or some of its Eligible Employees and which have adopted the Plan (either under the provisions of the Plan as then constituted or under whatever modifications to such provisions as the Board of Directors may determine in its sole discretion).

SECTION 1.26. “ Employment Commencement Date ” shall mean the date on which an Employee is first credited with an Hour of Service.

SECTION 1.27. “ ERISA ” shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time.

SECTION 1.28. “ Former Employee ” shall mean a person who was an Employee and who is no longer in the employment of the Employer or an Affiliated Employer.

SECTION 1.29. “ Frozen Accrued Benefit ” shall mean the benefit described in Section 4.8.

SECTION 1.30. “ Fund ” shall mean any fund provided for in a trust arrangement, or a combination of a trust arrangement and one or more insurance company contracts, which is held by a funding agent, to which contributions under the Plan are made, and out of which benefits are paid to Members or otherwise provided for.

SECTION 1.31. “ Grandfather Benefit Amount ” shall mean the minimum benefit amount to which certain Members are entitled as described in Section 4.9.

SECTION 1.32. “ Highly Compensated Employee ” shall mean an Eligible Employee who performs service during the Determination Year and is described in one or more of the following groups in accordance with applicable Treasury regulations:

(a) was a five percent (5%) owner as defined in Section 416(i)(1)(B)(i) of the Code, at any time during the Determination Year or the Look-back Year; or

(b) received Compensation in excess of Eighty Thousand Dollars ($80,000) (as adjusted annually for increases in the cost of living in accordance with Section 415(d) of the Code) during the Look-back Year.

A Former Employee shall be treated as a Highly Compensated Employee if such former Employee had a separation year prior to the Determination Year and was a Highly Compensated active Employee for either (i) such Employee’s separation year or (ii) any Determination Year ending on or after the Employee’s fifty-fifth (55th) birthday. For this purpose, a separation year is the Determination Year in which the Employee separates from service.

Notwithstanding anything to the contrary in this Plan, Sections 414(b), (c), (m), (n) and (o) of the Code are applied prior to determining whether an Employee is a Highly Compensated Employee.

For purposes of this Section,

(A)

“Compensation” shall mean compensation as defined in Section 414(q)(7) of the Code.

(B)

“Determination Year” shall mean the Plan Year for which the determination of who is Highly Compensated is being made.

(C)

“Look-back Year” shall mean the twelve (12) month period preceding the Determination Year.

SECTION 1.33. “ Hour of Service ” shall mean an hour of service calculated in accordance with the provisions of Article 2.

SECTION 1.34. “ Integrated Amount ” shall mean any amounts transferred to the Prior Plan under the provisions of the Employee Retirement Plan of Dun & Bradstreet Companies, Inc. (including interest thereon as provided in the Predecessor Plan) attributable to amounts vested in a Member under a qualified plan maintained by a business entity merged into or otherwise acquired by The Dun & Bradstreet Corporation prior to December 31, 1975.

SECTION 1.35. “ Interest Credit ” shall mean additions to the Retirement Account determined in accordance with the procedures of Section 4.7.

SECTION 1.36. “ Leased Employee ” shall mean any person (other than an employee of the recipient) who pursuant to an agreement between the recipient and any other person (“leasing organization”) has performed services for the recipient (or for the recipient and related persons determined in accordance with Section 414(n)(6) of the Code) on a substantially full time basis for a period of at least one year, and such services are performed under primary direction or control by the recipient. Contributions or benefits provided a leased employee by the leasing organization which are attributable to services performed for the recipient employer shall be treated as provided by the recipient employer. A leased employee shall not be considered an employee of the recipient if: (i) such employee is covered by a money purchase pension plan providing: (1) a nonintegrated employer contribution rate of at least 10 percent of compensation, as defined in Section 415(c)(3) of the Code, but including amounts contributed pursuant to a salary reduction agreement which are excludable from the employee’s gross income under Section 125, Section 402(e)(3), Section 402(h)(1)(B) or Section 403(b) of the Code, (2) immediate participation, and (3) full and immediate vesting; and (ii) leased employees do not constitute more than 20 percent of the recipient’s nonhighly compensated work force.

SECTION 1.37. “ Limitation Year ” shall mean the twelve (12) month period ending on each December 31.

SECTION 1.38. “ Management Benefits and Compensation Committee ” shall mean the Board of Directors and the Management Benefits and Compensation Committee appointed pursuant to Section 10.1.

SECTION 1.39. “ Member ” shall mean an Eligible Employee who meets the requirements for membership and begins participation in the Plan pursuant to Article 3 and who is entitled or may become entitled to the payment of benefits under the Plan.

SECTION 1.40. “ Minimum Benefit ” means:

(a) with respect to Members who were participating in the Employee Retirement Plan of Dun & Bradstreet Companies, Inc. on December 31, 1975, the provisions which were applicable to such Members participating in such plan on December 31, 1966;

(b) with respect to Members who were participating in the Employees Retirement Plan of The Reuben H. Donnelley Corporation on December 31, 1975, the provisions which were applicable to such Members participating in such plan on December 1968.

(c) with respect to Members participating in the Nielsen Plan on December 31, 1987, who become Members of the Prior Plan on January 1, 1988, the benefit accrued through December 31, 1987 determined in accordance with the provisions of the Nielsen Plan as in effect on such date; provided, however, the Member is vested in such benefit as of such date or becomes vested by reason of Service under the Prior Plan after January 1, 1988; and

(d) with respect to Members participating in the I.M.S. Plan on December 31, 1992, who remained Members of the Prior Plan on January 1, 1993, the benefit accrued through December 31, 1992 determined in accordance with the provisions of the I.M.S. Plan as in effect on such date; provided, however, the Member is vested in such benefit as of such date or became vested by reason of Service under the Prior Plan after January 1, 1993.

SECTION 1.41. “ Named Fiduciary ” shall mean a fiduciary designated as such under the provisions of Article 13.

SECTION 1.42. “ Normal Retirement Age ” shall mean the time a Member attains age sixty-five (65).

SECTION 1.43. “ Normal Retirement Benefit ” shall mean the benefit to which a Member would be entitled in the event of his or her retirement on his or her Normal Retirement Date.

SECTION 1.44. “ Normal Retirement Date ” means the first day of the calendar month coincident with or next following the Member’s attainment of Normal Retirement Age.

SECTION 1.45. “ Opening Balance ” shall mean, for those Members who were members of the Prior Plan, the single sum amount described in Section 4.4.

SECTION 1.46. “ Partnership ” shall mean DonTech General Partnership, an Illinois general partnership.

SECTION 1.47. “ Period of Service ” shall mean the period of time commencing on the Employee’s Employment Commencement Date or Re-employment Commencement Date, whichever is applicable, and ending on the Severance Date following such Employment Commencement Date or Re-employment Commencement Date. Period of Service shall be computed in one twelfths (1/12ths) of a year, with a full month being granted for each completed and partial month.

SECTION 1.48. “ Period of Severance ” shall mean the period of time commencing on the Severance Date and ending on the date the Employee again performs an Hour of Service for an Employer.

SECTION 1.49. “ Plan ” shall mean The Moody’s Corporation Retirement Account, as embodied herein, and any amendments thereto.

SECTION 1.50. “ Plan Sponsor ” shall mean Moody’s Corporation.

SECTION 1.51. “ Plan Year ” shall mean the period beginning on January 1 and ending on December 31.

SECTION 1.52. “ Postponed Retirement Benefit ” shall mean the benefit to which a Member would be entitled in the event of his or her retirement after his or her Normal Retirement Date.

SECTION 1.53. “ Postponed Retirement Date ” shall mean the first day of the month coincident with or next following the Member’s Severance Date, if such date is later than the Member’s Normal Retirement Date.

SECTION 1.54. “ Predecessor Plan ” shall mean the Employee Retirement Plan of The Dun & Bradstreet Companies, Inc. or the Employees Retirement Plan of The Reuben H. Donnelley Corporation, as such plan shall have been in effect on December 31, 1975.

SECTION 1.55. “ Prior Plan ” shall mean the Master Retirement Plan of The Dun & Bradstreet Corporation, which was amended and restated to become The Dun & Bradstreet Retirement Account (the “D&B Plan”).

SECTION 1.56. “ Qualified Joint and Survivor Annuity ” shall have the meaning ascribed to such term in Section 8.3.

SECTION 1.57. “ Re-employment Commencement Date ” shall mean the first date, following a Period of Severance, that the Employee again performs an Hour of Service for an Affiliated Employer.

SECTION 1.58. “ Retirement Account ” shall mean the notional account used to calculate benefits under this Plan in accordance with the procedures of Article 4.

SECTION 1.59. “ Service ” shall mean an Employee’s period of employment with an Employer or an Affiliated Employer that is counted as “Service” in accordance with Article 2. Service shall include employment with any other corporation, company or business which has become or may become related to the Company by purchase, acquisition, merger, consolidation, or otherwise to the extent such service has been approved as Service by the Board of Directors, and solely for the purpose of determining eligibility for benefits under Article 5, the Employee’s period of employment with the Partnership or Ameritech. In the case of any Employee employed by Wall Street Analytics, Inc. (subsequently renamed Moody’s Wall Street Analytics, Inc.) on December 18, 2006, Service shall also include the Employee’s period of employment with Wall Street Analytics, Inc. prior to December 18, 2006, for purposes of determining: (i) Eligibility Service (provided, however, that in no event may an Eligible Employee of Wall Street Analytics, Inc. become a Member prior to January 1, 2007), (ii) Credited Service in computing Company Credits under Plan Section 4.5, and (iii) Vesting Service in determining eligibility for benefits under Article 5.

SECTION 1.60. “ Severance Date ” shall mean the earlier of:

(a) the date on which the Employee resigns, is discharged or dies; or

(b) the date following a twelve (12) month period in which the Employee remains absent from employment (with or without pay) for any reason other than maternity or paternity leave of absence, resignation, discharge or death (such as vacation, holiday, sickness, disability, leave of absence or layoff); or

(c) the date following a twenty-four (24) month period in which the Employee remains absent from employment (with or without pay) for a maternity or paternity leave including:

(i)

the individual’s pregnancy; or

(ii)

childbirth; or

(iii)

adoption of a child; or

(iv)

child care immediately after the birth or adoption of a child;

provided, however, the period between the first and second anniversary will be treated as neither a Period of Severance nor a Period of Service.

SECTION 1.61. “ Spouse ” shall mean the spouse of a Member. Effective as of September 16, 2013 (or, if a different date is permitted or required by Internal Revenue Service guidance for any particular purpose, the date specified in such guidance for such purpose), such determination shall be made based on the laws of the state where the marriage is initially established as provided in Revenue Ruling 2013-17.

SECTION 1.62. “ Trust ” shall mean any trust established under an agreement between the Company and a Trustee under which any portion of the Fund is held, and shall include any and all amendments to the trust agreement.

SECTION 1.63. “ Trustee ” shall mean any trustee holding any portion of the Fund under a Trust agreement forming a part of the Plan.

SECTION 1.64. “ Vesting Service ” shall mean Service as counted for determining an Employee’s right to benefits under the Plan, as determined in accordance with Article 2 and Article 5.

SECTION 1.65. “ Year of Service ” shall mean a Computation Period during which the Employee is credited with one thousand (1,000) or more Hours of Service, under the rules of Article 2.

ARTICLE II

SERVICE COUNTING RULES

SECTION 2.1. Hours of Service General Rule An Employee shall be credited with an Hour of Service for:

(a) Each hour for which a person is directly or indirectly paid by, or entitled to payment from, the Employer or an Affiliated Employer for the performance of duties. These hours shall be credited to the person during the appropriate Computation Period in which the duties are performed;

(b) Each hour for which a person is directly or indirectly paid by, or entitled to payment from, the Employer or an Affiliated Employer for reasons other than for the performance of duties (such as vacation, holiday, illness, incapacity (including disability), jury duty, military duty, leave of absence or layoff). These hours shall be credited to the Employee during the Computation Period in which the nonperformance of duties occurs. The computation of non-work hours described in this subsection will be computed in accordance with the provisions of the Department of Labor Regulation Section 2530.200b-2;

(c) Each hour for which back pay, irrespective of mitigation of damages, has been either awarded or agreed to by the Employer or an Affiliated Employer. These hours will be credited to the person for the Plan Year to which the award or agreement pertains; and

(d) Each hour for which an Employee is not paid or entitled to pay but during which the Employee is absent for a period of military service or otherwise and during which reemployment rights are protected by law, but only if the Employee returns to employment within the time required by law.

SECTION 2.2. Eligibility Service An Eligible Employee who is a full-time associate shall be credited with one (1) year of Eligibility Service for each Computation Period during which he or she completes a coincident period of Service. An Eligible Employee who is a part-time associate shall be credited with one (1) year of Eligibility Service for each Computation Period during which he or she is credited with one thousand (1,000) or more Hours of Service. For this purpose, Hours of Service shall include Hours of Service with the Employer and any Affiliated Employer, regardless of whether the Affiliated Employer is an Employer for the purpose of this Plan. Hours of Service shall include Hours of Service with the Employer and any Affiliated Employer prior to the Effective Date.

SECTION 2.3. Vesting Service - General Rule : An Employee shall be credited with Vesting Service equal to the total of (i) his or her Period(s) of Service with an Employer or an Affiliated Employer and (ii) any Period(s) of Severance that are less than twelve (12) months, less any Period(s) of Service or Severance during any calendar year which ends prior to the Employee’s attainment of age eighteen (18). Vesting Service shall be computed in one-twelfths (1/12ths) of a year, with a full month being granted for each completed and partial calendar month.

(a) Special Rules for Vesting Service Prior to Effective Date An Eligible Employee who became a Member of the Plan as of the Effective Date, shall be credited with Vesting Service for the period of time prior to the Effective Date in accordance with the terms of The Dun & Bradstreet Corporation Retirement Account as of such date.

(b) Special Rules for Vesting Service during Leaves of Absence A period of authorized leave of absence for a purpose approved by the Management Benefits and Compensation Committee under uniform rules, or absence for the purpose of military service pursuant to the requirements of law or by enlistment for not longer than the minimum period required by law, or, to the extent protected by applicable law, absence for any other purpose, shall be counted as Vesting Service if the Employee resumes his or her service as an Employee at the end of such leave of absence or within the period prescribed by law for the exercise of reemployment rights.

(c) Break in Vesting Service . Notwithstanding anything to the contrary in this Section 2.3, a former Member who incurs a Severance Date, and who is later re-employed by an Employer as an Employee after incurring a Period of Severance equal to the greater of five (5) or the number of Years of Service the former Member had as of his Severance Date, shall not be receive credit for any Vesting Service earned prior to the Member’s Re-Employment Commencement Date for purposes of continuing to vest in any benefits earned prior to the Re-Employment Commencement Date or for vesting in any benefits earned after the Re-Employment Commencement Date.

SECTION 2.4. Credited Service A full-time Employee shall be credited with Credited Service equal to his or her Period(s) of Service as a Member. Credited Service shall be computed in one-twelfths (1/12ths) of a year, with a full month being granted for each completed and partial calendar month. An Employee who is a part-time Employee will be entitled to a full or fractional year of Credited Service for each year during which he or she is a Member under this Plan, as follows:


Hours of Service		Years of Credited Service
1,800 and over		1.0
1,600 to 1,799		0.9
1,400 to 1,599		0.8
1,200 to 1,399		0.7
1,000 to 1,199		0.6
less than 1,000		0.0

Notwithstanding the above, for purposes of determining Credited Service for Periods of Service prior to January 1, 1997, Credited Service shall be determined in accordance with the provisions of the Prior Plan.

ARTICLE III

MEMBERSHIP AND TRANSFERS

SECTION 3.1. Eligibility Each Eligible Employee who was a member in The D&B Plan immediately prior to the Effective Date shall become a Member as of the Effective Date, in accordance with the provisions hereof. Each other Eligible Employee shall become a Member in the Plan on the first day of the month coincident with or next following the date the Eligible Employee attains age 21 and completes one (1) year of Eligibility Service. Notwithstanding any other provision of the Plan to the contrary, no Employee who commences employment with an Employer on or after January 1, 2008 shall participate in the Plan (provided, however, that an Employee who directly transfers employment from an Employer to an Affiliated Entity and who was eligible to accrue benefits under the Plan immediately prior to such transfer shall continue to actively participate in the Plan while continuously employed by such Affiliated Employer).

SECTION 3.2. Eligibility upon Re-employment

(a) A former Member, whether or not vested as described in Article 5, who incurs a Severance Date, and who is later re-employed by an Employer as an Eligible Employee prior to incurring a Period of Severance equal to the greater of five (5) or the number of Years of Service the former Member had as of his Severance Date (or, with respect to a part-time Eligible Employee, before experiencing five (5) consecutive One-Year Breaks in Service), shall participate in the Plan as of the first day of the first calendar month following his or her Re-Employment Commencement Date.

(b) A former Member who was not previously vested in his or her Accrued Benefit pursuant to Article 5 and who is subsequently reemployed by an Employer as an Eligible Employee after incurring a Period of Severance of five (5) years or more (or, with respect to a part-time Eligible Employee, after experiencing five (5) consecutive One-Year Breaks in Service), shall become a Member and begin participation in the Plan in accordance with Section 3.1.

(c) A former Eligible Employee who did not satisfy the eligibility requirements of Section 3.1 prior to his or her Severance Date and who is subsequently reemployed by an Employer as an Eligible Employee shall become a Member and begin participation in the Plan in accordance with Section 3.1.

(d) For purposes hereof, a “One-Year Break in Service” means each one-year Computation Period during which an Employee is credited with less than 501 Hours of Service.

(e) Notwithstanding any other provision of the Plan to the contrary, no Employee who commences reemployment with an Employer on or after January 1, 2008 shall accrue any additional benefit under the Plan (provided, however, that an Employee who directly transfers employment from an Employer to an Affiliated Entity and who was eligible to accrue benefits under the Plan immediately prior to such transfer shall continue to accrue benefits pursuant to the terms of the Plan while continuously employed by such Affiliated Employer).

SECTION 3.3. Termination of Membership A Member who incurs a Severance Date at a time when he or she is not entitled to a vested Accrued Benefit shall cease to be a Member at such time, and shall be deemed to have received a distribution of the value of his or her vested benefits hereunder. A Member who incurs a Severance Date and who is entitled to a vested Accrued Benefit shall cease Membership upon receipt of all payments to which he or she is entitled hereunder.

SECTION 3.4. Suspension of Membership A Member who ceases to be an Eligible Employee without incurring a Severance Date shall be deemed to have incurred a Severance Date for purposes of Section 4.5 on the date on which he or she ceased to be an Eligible Employee; provided, however, that except to the extent otherwise provided herein, such Employee shall continue to be treated as a Member for all other purposes under the Plan and shall continue to earn Vesting Service for as long as he or she continues to remain in the employ of an Affiliated Employer.

SECTION 3.5. Restoration of Membership after Suspension If a Member’s membership is suspended for purposes of Section 4.5 pursuant to Section 3.4 above, such suspension shall terminate as of the first day of the first calendar month following the date on which the Member again becomes an Eligible Employee.

ARTICLE IV

BENEFIT AMOUNTS

SECTION 4.1. Accrued Benefit A Member’s Accrued Benefit, as determined from time to time hereunder, shall be the largest of the following amounts:

(a) the amount of a single life annuity commencing as of the Member’s Normal Retirement Date (or on the date of determination if such date is after the Normal Retirement Date), which is the Actuarial Equivalent Value of the amount credited to such Member’s Retirement Account as provided in this Article 4 (including Interest Credits pursuant to Section 4.7 through Normal Retirement Date if the date of determination is before such date);

(b) the Member’s Frozen Accrued Benefit (as such term is defined in Section 4.8 below) commencing as of the Member’s Normal Retirement Date (or on the date of determination if such date is after the Normal Retirement Date); or

(c) for a Member who, as of January 1, 1997: (i) had attained age fifty (50) and was credited with at least ten (10) Years of Vesting Service; (ii) had attained an age which, when added to his or her years of Vesting Service, was equal to or greater than seventy (70); or (iii) had attained age sixty-five (65), the Grandfather Benefit Amount (as such term is defined in Section 4.9 below) commencing as of the Member’s Normal Retirement Date (or on the date of determination if such date is after the Normal Retirement Date).

A Member’s Accrued Benefit as determined pursuant to this Section 4.1 from time to time shall be subject to the limitations set forth in Article 14 and Article 15 or otherwise as may be specified under the terms of the Plan or under any other limitations imposed as a condition of the Plan’s qualification or continued qualification under the Code, ERISA, or other applicable law.

SECTION 4.2. Early Retirement Benefit A Member’s Early Retirement Benefit, as determined from time to time hereunder, shall be the largest of the following amounts:

(a) the amount of a single life annuity commencing as of the Member’s Early Retirement Date, which is the Actuarial Equivalent Value of the amount credited to such Member’s Retirement Account as provided in this Article 4;

(b) the Member’s Frozen Accrued Benefit (as such term is defined in Section 4.8), commencing as of the Member’s Early Retirement Date, multiplied by the percentage determined in accordance with the following table:


If Benefit Commencement is month following attainment of Age:	% of Accrued Benefit if less than 35 Years of Service:			% of Accrued Benefit if 35 or more Years of Service:
64		97.0	%		100.0	%
63		94.0	%		100.0	%
62		91.0	%		100.0	%
61		88.0	%		100.0	%
60		85.0	%		100.0	%
59		82.0	%		97.0	%
58		79.0	%		94.0	%
57		76.0	%		91.0	%
56		73.0	%		88.0	%
55		70.0	%		85.0	%

If the commencement date is a month other than the month immediately following the Member’s birth date, an interpolated percentage shall be used.

(c) for a Member who, as of January 1, 1997, had satisfied the age and service conditions of paragraph 4.1(c), the Grandfather Benefit Amount (as such term is defined in Section 4.9) commencing as of the Member’s Normal Retirement Date (or on the date of determination if such date is after the Normal Retirement Date) or Early Retirement Date, multiplied by the percentage determined in accordance with the table set forth below. For purposes of this paragraph 4.2(c), a full month is credited for each completed and partial month of attained age.


Commencement Date is month following Attainment of Age:	% of Accrued Benefit if less than 35 Years of Service:			% of Accrued Benefit if 35 or more Years of Service:
64		97.0	%		100.0	%
63		94.0	%		100.0	%
62		91.0	%		100.0	%
61		88.0	%		100.0	%
60		85.0	%		100.0	%
59		82.0	%		97.0	%
58		79.0	%		94.0	%
57		76.0	%		91.0	%
56		73.0	%		88.0	%
55		70.0	%		85.0	%

If the commencement date is a month other than the month immediately following the Member’s birth date, an interpolated percentage shall be used.

SECTION 4.3. Retirement Account A notional Retirement Account shall be created and maintained for each Member. The amount credited to such account shall be equal to the sum of the Opening Balance, if any, Company Credits, and monthly Interest Credits thereon, as provided in this Article 4. A Member’s Retirement Account shall be created and maintained solely for the purpose of calculating benefits under this Plan, and shall not represent any share of the Fund nor entitle the Member to any share in the earnings of the Fund.

SECTION 4.4. Opening Balance For a Member who was a Member of the Prior Plan and who was an Employee as of January 1, 1997, the “Opening Balance” of the Retirement Account shall be a single sum amount equal to the Actuarial Equivalent Value, as of December 31, 1996, of the Normal Retirement Benefit such Member had accrued under the terms of the Prior Plan as of December 31, 1996. The Opening Balance shall be determined using the Member’s Credited Service, Average Final Compensation and age as of December 31, 1996. For all other Members, the Opening Balance shall equal zero (0).

SECTION 4.5. Company Credits For each calendar month beginning on and after January 1, 1997, a Member’s Retirement Account shall be credited with monthly Company Credits in an amount determined pursuant to the table set forth below, multiplied by his or her Compensation for such month. For purposes of determining Credited Service under this Section 4.5, a full month shall be credited for each completed and partial month.


Age and Credited Service as of End of Month	Company Credits
Less than 26		3.00	%
27-28		3.05	%
29-30		3.20	%
31-32		3.35	%
33-34		3.50	%
35-40		4.00	%
41-42		4.15	%
43-44		4.35	%
45-50		5.00	%
51		5.20	%
52-54		5.40	%
55-64		7.50	%
65-74		9.00	%
75-84		10.50	%
85 or more		12.50	%

Notwithstanding any other provision of the Plan to the contrary, no Employee who commences or recommences employment with an Employer on or after January 1, 2008 shall be credited with any Company Credits (provided, however, that an Employee who directly transfers employment from an Employer to an Affiliated Entity and who was eligible to accrue benefits under the Plan immediately prior to such transfer shall continue to be credited with Company Credits while continuously employed by such Affiliated Employer).

SECTION 4.6. Monthly Allocation of Company Credits A Member’s Company Credits shall be allocated to his or her Retirement Account as of the end of each calendar month.

SECTION 4.7. Interest Credits A Member’s Retirement Account, including the Retirement Account of a Member who is no longer actively employed by an Employer or an Affiliated Employer, shall be credited as of the last day of each calendar month with a notional Interest Credit calculated by multiplying the Member’s Retirement Account as of the last day of the prior calendar month by one-twelfth (1/12th) of the annual yield on thirty (30) Year Treasury Bonds published by the Internal Revenue Service for the month immediately prior to the month with respect to which such Interest Credit is being made. However, in no event shall the compounded annual Interest Credit be less than four and one-half percent (4.5%).

Interest Credits will cease to be added to a Member’s Retirement Account as of the Member’s Benefit Commencement Date.

SECTION 4.8. Preservation of Accrued Benefit of Prior Plan If the Member was a Member of the Prior Plan, the accrued benefit under the Prior Plan of such Member shall be calculated as of December 31, 1996, and shall be the Member’s Frozen Accrued Benefit. The Frozen Accrued Benefit shall be calculated using the Credited Service and Average Final Compensation used in Section 4.4 above to determine the Opening Balance in the Member’s Retirement Account. The Member shall be entitled, notwithstanding any other provision to the contrary, to receive as a minimum benefit under this Plan his or her Frozen Accrued Benefit in any of the optional forms of benefit that were available to the Member under the terms of the Prior Plan, including any early retirement subsidies to which the Member might be entitled under the Prior Plan. If the Member’s Accrued Benefit exceeds the Actuarial Equivalent Value of the Member’s Frozen Accrued Benefit, the difference shall be paid to him or her in the manner provided in Article 8.

SECTION 4.9. Grandfather Benefit Amount A Member who, as of January 1, 1997, had satisfied the age and service requirements set forth in paragraph 4.1(c) hereof, shall be entitled to a minimum benefit equal to the amount such Member would have received had the terms of the Prior Plan remained in effect and had the Member remained a Member of the Prior Plan until his or her Severance Date. The determination of a Member’s Grandfather Benefit Amount shall be based upon the Member’s actual Credited Service and Average Final Compensation at the time of such determination. Except as otherwise provided in Section 8.6, a Member who is entitled to the Grandfather Benefit Amount may elect only those optional forms of benefit which were available to the Member under the Prior Plan.

SECTION 4.10. Restoration of Retirement Account If a Member who incurs a Severance Date and is subsequently rehired by an Employer (a) was not fully vested in his or her Retirement Account in accordance with Article 5 hereof as of such Severance Date and (b) has a Period of Severance of less than five (5) years, such Member shall have his or her Retirement Account reinstated as of his or her Re-employment Commencement Date, and shall thereafter continue to vest in such Account in accordance with Article 5 hereof. The reinstated Retirement Account shall be equal to the Retirement Account as of the Severance Date. For any Member who has a Severance Date prior to the January 1, 1997, the reinstated Retirement Account is the Actuarial Equivalent Value as of the Re-employment Commencement Date of the Normal Retirement Benefit such Member had accrued under the terms of the Prior Plan as of his or her Severance Date. The reinstated Retirement Account shall be determined using the Member’s age as of the Re-employment Commencement Date, and the Actuarial Equivalent basis as of the Re-employment Commencement Date, as defined in Section 1.2(a), except that the interest rate shall be equal to the annual yield on thirty (30) Year Treasury Bonds published by the Internal Revenue Service for the immediately prior month.

ARTICLE V

ENTITLEMENT TO BENEFITS

SECTION 5.1. Normal Retirement A Member who retires from employment with the Employer at Normal Retirement Age shall be entitled to receive one hundred percent (100%) of his or her Accrued Benefit as of his or her Normal Retirement Date in the manner provided under Article 8.

SECTION 5.2. Postponed Retirement A Member who remains an Eligible Employee after his or her Normal Retirement Date shall continue to participate in this Plan, and his or her Retirement Account shall continue to be credited with Company Credits and Interest Credits, until his or her Postponed Retirement Date. Such Member shall be entitled to receive one hundred percent (100%) of his or her Accrued Benefit as of his or her Postponed Retirement Date in the manner provided under Article 8.

SECTION 5.3. Early Retirement A Member who has attained age fifty-five (55) and completed ten (10) years of Vesting Service may retire at any time and may elect to receive one hundred percent (100%) of his or her Early Retirement Benefit as of his or her Early Retirement Date in the manner provided under Article 8. As an alternative, a Member may elect to defer receipt of his or her benefit to a later Benefit Commencement Date (but in no event later than the time specified in Section 8.2 hereof), in which case the Member’s Retirement Account shall continue to be credited with Interest Credits until such Benefit Commencement Date. The Member then shall be entitled to receive one hundred percent (100%) of his or her Accrued Benefit as of such later Benefit Commencement Date in the manner provided in Article 8.

SECTION 5.4. Disability If a Member who has at least five (5) Years of Vesting Service becomes totally and permanently disabled while in the active service of the Employer or an Affiliated Employer, he or she shall become entitled to benefits under the provisions of Article 7 hereof provided that satisfactory evidence of such disability is furnished to the Management Benefits and Compensation Committee.

SECTION 5.5. Termination of Employment A Member whose employment with the Employer and an Affiliated Employer is terminated for any reason other than retirement in accordance with Sections 5.1, 5.2 or 5.3, disability in accordance with Section 5.4, or death in accordance with Section 5.7, shall be entitled to receive a percentage of his or her Accrued Benefit in accordance with the following schedule:


If the Member’s Years of Vesting Service are:		The Vested Portion of the Accrued Benefit is:
Less than 5 (Less than 3 for Members who complete at least one Hour of Service on or after January 1, 2008)		0%

5 or more (3 or more for Members who complete at least one Hour of Service on or after January 1, 2008)		100%

Notwithstanding the foregoing, a Member shall be one hundred percent (100%) vested in his or her Accrued Benefit as of the date a Change in Control occurs. The vested portion of the Accrued Benefit shall be payable as of the Member’s Normal Retirement Age in the manner provided in Article 8. As an alternative, such Member may elect to begin receipt of his or her benefits at an earlier Benefit Commencement Date that follows the Member’s attainment of age fifty-five (55), as provided in Article 8.

SECTION 5.6. Vesting on Plan Termination Notwithstanding anything contained herein to the contrary, in the event of the termination of the Plan, no further contributions shall be made hereunder, and the right of each Member to benefits accrued to the date of termination, to the extent funded, shall be nonforfeitable, and the assets of the Plan in the even of such termination shall be allocated among Members and their beneficiaries in accordance with the provisions of Section 4044 of ERISA. In the event of a partial termination of the Plan, the right of each member to benefits accrued to the date of such partial termination, to the extent funded, shall be nonforfeitable.

SECTION 5.7. Death If, after having earned five (5) or more years of Vesting Service, a Member dies (a) while actively employed by the Employer or an Affiliated Employer, or (b) while being credited with notional Company Credits and Interest Credits pursuant to Section 7.3 hereof, a death benefit shall be payable to the Member’s Beneficiary in accordance with the provisions of Article 6.

SECTION 5.8. Suspension of Benefits Subject to the provisions of Section 8.2 of this Plan, a Member who continues in active service of the Employer after such Member’s Normal Retirement Age, or who is receiving payments from this Plan and is re-employed by an Employer, shall have his or her payments suspended in accordance with uniform rules adopted by the Committee and the provisions set forth below:

(a) If such Member is expected to work less than one thousand (1,000) Hours of Service during any calendar year in a period of active service during his or her re-employment, then such Member shall be deemed to have retired and such Member shall commence or continue to receive distribution of such Member’s benefits under the Plan.

(b) If such Member is expected to work one thousand (1,000) or more Hours of Service during any calendar year in a period of active service during his or her reemployment and performs at least one (1) Hour of Service during each of eight (8) or more days in any calendar month that occurs during such period of active service, such Member’s benefits under this Plan shall be suspended until the earlier of (i) such Member’s actual retirement from the active service of an Employer or (ii) such Member’s satisfaction of the conditions of paragraph 5.8(a).

(c) If benefit payments have been suspended, payments shall resume no later than the first day of the third calendar month after the calendar month in which the Employee ceases to be employed. The initial payment upon resumption shall be calculated as the sum of the amount that had been payable prior to suspension of benefits and the amount of benefit earned under this Plan during the period of employment between suspension of payments and resumption of payments.

(d) No payment shall be withheld by the Plan pursuant to this Section unless the Plan notifies the Member by personal delivery or first class mail during the first calendar month or payroll period in which the Plan withholds payments that his or her benefits are suspended. Such notification shall contain a description of the specific reasons why benefit payments are being suspended, a general description of the provisions of this Article relating to the suspension of payments, a copy of such provisions, and a statement of the effect that applicable Department of Labor regulations may be found in Section 2530.203-3 of the code of Federal Regulations. In addition, the suspension notification shall inform the Member of the Plan’s procedures for affording a review of the suspension of benefits. Requests for such reviews may be considered in accordance with the claims procedure set forth in Article 10 of the Plan. Any benefits to which any Member would be entitled to under the Plan shall be actuarially reduced by the amounts previously received by such Member upon an earlier termination of employment by retirement or otherwise, pursuant to uniform rules adopted by the Management Benefits and Compensation Committee.

SECTION 5.9. USERRA/HEART Act Notwithstanding any provision of this Plan to the contrary, contributions, benefits and service credit with respect to military service will be provided in accordance with Code Section 414(u). In addition: (a) effective January 1, 2007, the Plan shall apply the requirements of Code Section 401(a)(37) (relating to death benefits for Members who die while performing qualified military service) and Code Section 414(u)(9) (relating to treatment in the event of death or disability resulting from active military service), and (b) effective January 1, 2009, differential wage payments shall be treated as provided in Code Section 414(u)(12).

ARTICLE VI

DEATH BENEFITS

SECTION 6.1. Payment of Death Benefits If, upon the death of a Member prior to the commencement of benefits hereunder, he or she (a) has been credited with less than five (5) years of Vesting Service or (b) has no Spouse and, on the Effective Date, was neither an active Employee nor being credited with notional Company Credits pursuant to Section 7.3 hereof, such Member’s Accrued Benefit shall be forfeited. If, upon the death of a Member prior to the commencement of benefits hereunder, he or

she has been credited with five (5) or more years of Vesting Service, the Member’s Beneficiary (or contingent Beneficiary, as the case may be) shall be entitled to receive the Actuarial Equivalent Value of the deceased Member’s Retirement Account in accordance with Section 6.3, except to the extent otherwise required pursuant to a “qualified domestic relations order,” as such term is defined in Code Section 414(p).

SECTION 6.2. Designation of Beneficiary All Beneficiary designations shall be made on forms supplied by and in accordance with procedures established by the Management Benefits and Compensation Committee. An unmarried Member may designate any one individual person as his or her Beneficiary. If the Member is married, such Member’s Beneficiary shall be his or her Spouse, unless (a) the Member designates a different Beneficiary in accordance with procedures established by the Management Benefits and Compensation Committee and (b) the Member’s Spouse provide his or her written consent to such designation, which written consent shall have been witnessed by either a notary public or a representative of the Plan. If (i) the Member has not made a valid Beneficiary designation election at the time of his or her death, or (ii) the Member’s Beneficiary (and contingent Beneficiary) shall have predeceased the Member, or (iii) the Beneficiary (or contingent Beneficiary) shall have elected to defer receipt of benefits and died prior to commencement of payment of such benefits, then the benefits shall be paid as a single life annuity to the person with the shortest life expectance in the class consisting of such person or persons to whom the personal administrator of the Member (or of the Beneficiary or contingent Beneficiary, as the case may be) would be required to distribute the estate of the Member (or Beneficiary or contingent Beneficiary) if such Member (or Beneficiary or contingent Beneficiary) had died intestate, as determined under applicable state law.

SECTION 6.3. Benefit Commencement The Beneficiary (or contingent Beneficiary, as the case may be) may elect to begin receipt of his or her benefit on the first of the month following the death of the Member. The Beneficiary (or contingent Beneficiary) may elect to defer the receipt of his or her benefit beyond such date in accordance with the requirements of Code Section 401(a)(9) and the Treasury Regulations promulgated thereunder, but not later than the first day of the calendar month following the date on which the Member would have attained Normal Retirement Age. The deceased Member’s Retirement Account which was not forfeited shall continue to be credited with Interest Credits, but not with Company Credits, until the Benefit Commencement Date.

SECTION 6.4. Spousal Death Benefit Notwithstanding any other provision of this Plan, upon the death of a vested Member prior to the commencement of benefit payments under the Plan, such Member’s surviving Spouse shall be entitled to a minimum preretirement death benefit, provided such surviving Spouse has not waived his or her rights under the terms of the Plan. Such minimum preretirement death benefit shall be based upon the amount of such Member’s Accrued Benefit as of the date of the Member’s death, and shall be payable in the form of a single life annuity over such surviving Spouse’s life, commencing on the first day of the month following the later of the date of the Member’s death or the date the Member would have attained age fifty-five (55). The Spousal death benefit shall be equal to the greater of (a) fifty percent (50%) of the amount the Member would have received had he or she (i) retired on the later of the date of the Member’s death or the date he or she would have attained age fifty-five (55) and (ii) elected to receive his or benefit in the form of a 50% Joint and Survivor Annuity Option or (b) the benefit to which the surviving Spouse is entitled under the provisions of Section 6.1 hereof.

ARTICLE VII

DISABILITY

SECTION 7.1. Disability Retirement A Member who has at least five (5) years of Vesting Service may retire because of disability, if evidence of such disability is given to the satisfaction of the Management Benefits and Compensation Committee.

SECTION 7.2. Immediate Benefit A disabled Member as defined in Section 7.1 may elect to begin receipt of the Actuarial Equivalent Value of his or her Retirement Account on the first of the month following the date of disability as determined under Section 7.1 by the Management Benefits and Compensation Committee provided such Member is not receiving benefits under the Long-Term Disability Plan of Moody’s Corporation. The Member may elect to defer the receipt of his or her benefit beyond such date, but not later than the Member’s Normal Retirement Date. The Member’s Retirement Account shall continue to be credited with Interest Credits until the Benefit Commencement Date.

SECTION 7.3. Deferred Benefit A disabled Member who is receiving benefits under the Long-Term Disability Plan of Moody’s Corporation shall be entitled to a benefit payable on his or her Normal Retirement Date. Such Member’s Retirement Account shall continue to be maintained and credited with notional Company Credits (as determined under the rules prescribed in Section 7.4) and Interest Credits until he or she attains Normal Retirement Age. A Member who, as of the Effective Date, has satisfied the age and service requirements set forth in paragraph 4.1(c) hereof will continue to earn Credited Service for the purpose of determining the special Grandfather Benefit Amount under Section 4.9. Upon attainment of Normal Retirement Age, Company Credits, Interest Credits and Credited Service, if any, will no longer be credited to such Member’s Retirement Account and the Accrued Benefit shall be paid to him or her under the terms of Article 8.

Notwithstanding the foregoing provisions of this Section 7.3, a Disabled Member may elect to begin the receipt of his or her vested Accrued Benefit at an earlier Benefit Commencement Date. In such event, the Member’s Company Credits, Interest Credits and Credited Service will cease to be credited as of the Benefit Commencement Date.

SECTION 7.4. Disability Company Credits If a Disabled Member (a) has five (5) years of Vesting Service on the date he or she first becomes disabled (as determined in accordance with Section 7.1) and (b) has not elected to begin receiving benefit payments under the Plan, then, for each month during the period of disability until the earlier of (i) such Member’s Normal Retirement Date, (ii) such Member’s Benefit Commencement Date, or (iii) the date on which the Member no longer is entitled to benefits under the Long Term Disability Plan of Moody’s Corporation and has not returned to work with the Employer, such disabled Member will continue to earn Credited Service and his or her Retirement Account will be credited with Company Credits based on one-twelfth (1/12) of the Member’s Compensation received by the Member during the twelve (12) consecutive month period prior to the disability.

ARTICLE VIII

PAYMENT OF BENEFIT

SECTION 8.1. Date of Payment Commencement Ninety (90) days prior to an Early Retirement Date, Normal Retirement Date, or Postponed Retirement Date, or as soon as practical after a Severance Date, the Management Benefits and Compensation Committee shall furnish each Member with an Election Form in accordance with the procedures of this Article 8. A Member’s Benefit Commencement Date shall be the first day of the calendar month that the benefit selected will commence, but in no event earlier than one hundred eighty (180) days after the furnishing of that form. On a Member’s Benefit Commencement Date, a Member’s Accrued Benefit shall be paid in the manner provided in this Article 8. Except as provided in Section 8.2, a Member may elect to defer payment of the normal form of benefit or any of the optional benefit forms described below until any specified future date.

SECTION 8.2. Required Commencement at Age 70 ¹ ⁄ ₂ The following provisions shall apply with respect to determining minimum distributions for calendar years beginning with the 2003 calendar year:

(a) The Member’s entire interest will be distributed, or begin to be distributed, to the Member no later than the Member’s required beginning date.

(b) If the Member dies before distributions begin, the Member’s entire interest will be distributed, or begin to be distributed, no later than as follows:

(i) If the Member’s surviving Spouse is the Member’s sole designated beneficiary, distributions to the surviving Spouse will begin by December 31 of the calendar year immediately following the calendar year in which the Member died, or by December 31 of the calendar year in which the Member would have attained age 70 1/2, if later.

(ii) If the Member’s surviving Spouse is not the Member’s sole designated beneficiary, distributions to the designated beneficiary will begin by December 31 of the calendar year immediately following the calendar year in which the Member died.

(iii) If there is no designated beneficiary as of September 30 of the year following the year of the Member’s death, the Member’s entire interest will be distributed by December 31 of the calendar year containing the fifth anniversary of the Member’s death.

(iv) If the Member’s surviving Spouse is the Member’s sole designated beneficiary and the surviving Spouse dies after the Member but before distributions to the surviving Spouse begin, this provision shall apply as if the surviving Spouse were the Member.

For purposes of this Section 8.2, distributions are considered to begin on the Member’s required beginning date (or, if Section 9.1(b)(iv) applies, the date distributions are required to begin to the surviving Spouse. If annuity payments irrevocably commence to the Member before the Member’s required beginning date (or to the Member’s surviving Spouse before the date distributions are required to begin to the surviving Spouse under Section 9.1(b)(iv)), the date distributions are considered to begin is the date distributions actually commence.

(c) Unless the Member’s interest is distributed in the form of an annuity purchased from an insurance company or in a single sum on or before the required beginning date, as of the first distribution calendar year distributions will be made in accordance herewith. If the Member’s interest is distributed in the form of an annuity purchased from an insurance company, distributions thereunder will be made in accordance with the requirements of Section 401(a)(9) Code and the Treasury regulations. Any part of the Member’s interest which is in the form of an individual account described in Section 414(k) of the Code will be distributed in a manner satisfying the requirements of Section 401(a)(9) of the Code and the Treasury regulations that apply to individual accounts.

(d) If the Member’s interest is paid in the form of annuity distributions under the Plan, payments under the annuity will satisfy the following requirements:

(i) The annuity distributions will be paid in periodic payments made at intervals not longer than one year;

(ii) The distribution period will be over a life (or lives) or over a period certain not longer than the period described in Section 9.1(b)(iv);

(iii) Once payments have begun over a period certain, the period certain will not be changed even if the period certain is shorter than the maximum permitted;

(iv) Payments will either be nonincreasing or increase only as follows:

(A) By an annual percentage increase that does not exceed the annual percentage increase in a cost-of-living index that is based on prices of all items and issued by the Bureau of Labor Statistics;

(B) To the extent of the reduction in the amount of the Member’s payments to provide for a survivor benefit upon death, but only if the beneficiary whose life was being used to determine the distribution period described above dies or is no longer the Member’s beneficiary pursuant to a qualified domestic relations order within the meaning of Section 414(p) of the Code;

(D) To pay increased benefits that result from a plan amendment.

(e) The amount that must be distributed on or before the Member’s required beginning date (or, if the Member dies before distributions begin, the date distributions are required to begin above) is the payment that is required for one payment interval. The second payment need not be made until the end of the next payment interval even if that payment interval ends in the next calendar year. Payment intervals are the periods for which payments are received, e.g., bi-monthly, monthly, semi-annually, or annually. All of the Member’s benefit accruals as of the last day of the first distribution calendar year will be included in the calculation of the amount of the annuity payments for payment intervals ending on or after the Member’s required beginning date.

(f) Any additional benefits accruing to the Member in a calendar year after the first distribution calendar year will be distributed beginning with the first payment interval ending in the calendar year immediately following the calendar year in which such amount accrues.

(g) If the Member’s interest is being distributed in the form of a joint and survivor annuity for the joint lives of the Member and a nonspouse beneficiary, annuity payments to be made on or after the Member’s required beginning date to the designated beneficiary after the Member’s death must not at any time exceed the applicable percentage of the annuity payment for such period that would have been payable to the Member using the table set forth in Q&A-2 of section 1.401(a)(9)-6 of the Treasury regulations. If the form of distribution combines a joint and survivor annuity for the joint lives of the Member and a nonspouse beneficiary and a period certain annuity, the requirement in the preceding sentence will apply to annuity payments to be made to the designated beneficiary after the expiration of the period certain.

(h) Unless the Member’s Spouse is the sole designated beneficiary and the form of distribution is a period certain and no life annuity, the period certain for an annuity distribution commencing during the Member’s lifetime may not exceed the applicable distribution period for the Member under the Uniform Lifetime Table set forth in section 1.401(a)(9)-9 of the Treasury regulations for the calendar year that contains the annuity starting date. If the annuity starting date precedes the year in which the Member reaches age 70, the applicable distribution period for the Member is the distribution period for age 70 under the Uniform Lifetime Table set forth in section 1.401(a)(9)-9 of the Treasury regulations plus the excess of 70 over the age of the Member as of the Member’s birthday in the year that contains the annuity starting date. If the Member’s Spouse is the Member’s sole designated beneficiary and the form of distribution is a period certain and no life annuity, the period certain may not exceed the longer of the Member’s applicable distribution period, as determined under this Section, or the joint life and last survivor expectancy of the Member and the Member’s Spouse as determined under the Joint and Last Survivor Table set forth in section 1.401(a)(9)-9 of the Treasury regulations, using the Member’s and Spouse’s attained ages as of the Member’s and Spouse’s birthdays in the calendar year that contains the annuity starting date.

(i) If the Member dies before the date distribution of his or her interest begins and there is a designated beneficiary, the Member’s entire interest will be distributed, beginning no later than the time described herein, over the life of the designated beneficiary or over a period certain not exceeding:

(i) Unless the annuity starting date is before the first distribution calendar year, the life expectancy of the designated beneficiary determined using the beneficiary’s age as of the beneficiary’s birthday in the calendar year immediately following the calendar year of the Member’s death; or

(ii) If the annuity starting date is before the first distribution calendar year, the life expectancy of the designated beneficiary determined using the beneficiary’s age as of the beneficiary’s birthday in the calendar year that contains the annuity starting date.

(j) If the Member dies before the date distributions begin and there is no designated beneficiary as of September 30 of the year following the year of the Member’s death, distribution of the Member’s entire interest will be completed by December 31 of the calendar year containing the fifth anniversary of the Member’s death.

(k) If the Member dies before the date distribution of his or her interest begins, the Member’s surviving Spouse is the Member’s sole designated beneficiary, and the surviving Spouse dies before distributions to the surviving Spouse begin, this Section 9.1 will apply as if the surviving Spouse were the Member, except that the time by which distributions must begin will be determined without regard to Section 9.1(b)(iv).

(l) For purposes of this Section 9.1, the following terms have the following meanings:

(i) “Designated beneficiary” means the individual who is designated as the beneficiary under the Plan and is the designated beneficiary under Section 401(a)(9) of the Code and section 1.401(a)(9)-1, Q&A-4, of the Treasury regulations.

(ii) “Distribution calendar year” means a calendar year for which a minimum distribution is required. For distributions beginning before the Member’s death, the first distribution calendar year is the calendar year immediately preceding the calendar year which contains the Member’s required beginning date. For distributions beginning after the Member’s death, the first distribution calendar year is the calendar year in which distributions are required to begin pursuant to this Section 9.1(b)(iv).

(iii) “Life expectancy” means life expectancy as computed by use of the Single Life Table in section 1.401(a)(9)-9 of the Treasury Regulations.

(iv) “Required beginning date” means April 1 of the calendar year following the calendar year in which the Member (A) attains age 70 ¹ ⁄ ₂ or (B) retires, whichever is later; except that, in the case of a Member who is a five percent owner (as defined in Section 416 of the Code) of an Employer Company with respect to the calendar year in which he attains age 70 ¹ ⁄ ₂ , required beginning date means April 1 following the calendar year in which the Member attains age 70 ¹ ⁄ ₂ .

SECTION 8.3. Normal Form of Benefit The normal form of benefit for an unmarried Member shall be a single life annuity. The normal form of benefit for a married Member shall be a Qualified Joint and Survivor Annuity (as defined below) unless such Member, with the consent of his or her Spouse, elects otherwise. A Qualified Joint and Survivor Annuity shall mean a retirement benefit which is the Actuarial Equivalent Value of a single life annuity based on the Member’s Early Retirement, Normal Retirement or Postponed Retirement Benefit (as the case may be), under which equal monthly installments are payable during the lifetime of the Member, and, should the Member predecease his or her Spouse, fifty percent (50%) (or, effective for distributions with annuity starting dates on or after January 1, 2008, seventy five percent (75%) if elected by the Spouse) of the amount of such installments will continue to be paid monthly to the Spouse for the remainder of the Spouse’s lifetime.

SECTION 8.4. Right to Elect Alternate Form of Benefit In lieu of the benefits provided by Section 8.3, a Member shall have the right to elect, prior to his or her Benefit Commencement Date, an alternative form of benefit, in accordance with the terms of Section 8.6. If the Member is married, any such election may be made only with the written consent of his or her Spouse, executed as provided under Section 8.5. Any alternative form of benefit shall be the Actuarial Equivalent of the Member’s Accrued Benefit. The Employer and the Management Benefits and Compensation Committee shall be entitled to rely conclusively upon documentation presented to its or their satisfaction that a Member is not married or, if a Member is married at the time of reference, that such Member’s Spouse cannot be located or that the consent of such Spouse is not obtainable, for whatever circumstances the Secretary of the Treasury prescribes by regulations as sufficient to justify the commencement or waiver of benefits without Spousal consent.

Regardless of the form of payment, all distributions shall comply with Section 401(a)(9) of the Code and the regulations promulgated thereunder, including the minimum distribution incidental death benefit requirements of Section 401(a)(9)(G) of the Code and the regulations promulgated thereunder, and such provisions shall override any Plan provisions otherwise inconsistent therewith.

SECTION 8.5. Form of Election A Member may make or revoke an election of any form of benefit to which the Member is entitled under this Article 8 in writing to the Management Benefits and Compensation Committee, and such election or revocation shall be subject to the following conditions:

(a) The Management Benefits and Compensation Committee shall furnish to each Member a general written explanation in nontechnical terms of the availability of the various optional forms of payment under the Plan within a reasonable period of time prior to the earliest date the Member could retire under the Plan. A Member has a right to receive, within thirty (30) days after filing a written request with the Management Benefits and Compensation Committee, a written explanation of the terms and conditions of the Qualified Joint and Survivor Annuity and the financial effect upon the Member, given in terms of dollars per annuity payment. Requests for additional information may be made by the Member at any time before the ninetieth (90th) day prior to the Benefit Commencement Date.

(b) An election to receive an optional form of benefit may be made at any time during the Election Period. The Election Period is a period of one hundred eighty (180) days prior to the Member’s Benefit Commencement Date. Subject to subparagraph (c) below, a Member may make an election not to receive the Qualified Joint and Survivor Annuity, revoke any previous election, and if the Member so desires, make a new election, until the expiration of the Election Period.

(c) If a Member is married, an election of a form of benefit other than the Qualified Joint and Survivor Annuity will require the written consent of the Spouse, and such written consent must be witnessed by a notary public or a representative of the Plan.

SECTION 8.6. Optional Forms of Retirement Benefit Unless otherwise provided below, a Member may elect to receive his or her Accrued Benefit in any one of the following optional forms of benefit, each of which shall be the Actuarial Equivalent Value of such Member’s Accrued Benefit:

(a) Joint and Survivor Annuity Option Any Member (other than a Member who terminates employment with the Employer or an Affiliated Employer prior to his or her Early Retirement Date) may elect to receive a monthly benefit payable to the Member for life, and after the Member’s death in an amount equal to one hundred percent (100%), or seventy-five percent (75%), or fifty percent (50%) of such amount as specified by the Member, to the joint annuitant for life. Should the joint annuitant die prior to the Member’s Benefit Commencement Date, any election of this option shall be automatically canceled and the benefit hereunder shall be payable in the normal form of benefit as described under Section 8.3.

(b) Months Certain and Life Income Annuity Option Any Member who terminates employment with the Employer on or after such Member’s Early Retirement Date may elect to receive his or her benefit in the form of monthly payments over the Member’s lifetime with a guaranteed minimum period (“Period Certain”) of either one hundred twenty (120) or one hundred eighty (180) months, as designated by the Member. Notwithstanding the above, a Member who was a participant in the Master Retirement Plan of the Dun & Bradstreet Corporation for Employees of I.M.S. International, Inc. as of December 31, 1992 may elect to receive his or her benefit in monthly payments over a Period Certain of sixty (60) months. In the event of the death of the Member after the Benefit Commencement Date, but prior to the Member’s receiving benefit payments for the full Period Certain he or she has elected, the monthly payments remaining for the Period Certain shall be paid to the Member’s Beneficiary (or contingent Beneficiary) designated in accordance with Section 6.2 In no event shall a Member be permitted to elect a Period Certain extending beyond the life expectancy of the Member and his or her designated Beneficiary, if any.

(c) Straight Life Annuity Option A Member may elect to receive a single life annuity payable in equal unreduced monthly payments during the Member’s lifetime, with no further payments to any other person after the Member’s death.

(d) 50% Lump Sum Option A Member (other than a Member who is entitled to receive the Frozen Accrued Benefit described in Section 4.8 or the Grandfather Benefit Amount described in Section 4.9) may elect to receive fifty percent (50%) of his or her vested Retirement Account balance in a lump sum payment as of his or her Severance Date (“50% Lump Sum Option”); provided, however, that for distributions with an annuity starting date prior to January 1, 2008, the 50% Lump Sum Option shall equal fifty percent (50%) of the actuarial present value of the Member’s vested Accrued Benefit using the definition of Actuarial Equivalent Value in Section 1.2(b) if that results in a larger lump sum distribution. Such election may be made at any time up to and including the Member’s Postponed Retirement Date. The remaining fifty percent (50%) of the Retirement Account Balance will continue to be credited with Interest Credits to the Benefit

Commencement Date. The benefit payable in a form other than a lump sum as of the Benefit Commencement Date will be the Actuarial Equivalent Value of the remaining Retirement Account balance as of that date in a form of benefit provided under Sections 8.3 and 8.6. In no event may the Benefit Commencement Date for the remaining Retirement Account balance be prior to the Member’s Early Retirement Date. Notwithstanding the foregoing provisions of this paragraph 8.6(d), if an actuarial adjustment is made to the Normal Retirement Benefit of a Member due to the application of the suspension of benefit notification rules of Section 411 of the Code and Section 203 of ERISA in 1995 and 1996, such Member may elect a 50% Lump Sum Option if, absent such adjustment, the Member would not be entitled to the Grandfather Benefit Amount. For purposes of determining eligibility for Members to receive the 50% Lump Sum Option, a determination shall be made using a comparison of the Actuarial Equivalent Benefit under the Retirement Account at Early Retirement Age (or current age, if later) and the Grandfather Benefit Amount payable at age fifty-five (55).

(e) Level Income Annuity Option . Any Member (other than a Member who terminates employment with the Employer prior to his or her Early Retirement Date) may elect a monthly benefit providing for a level combined income from the Plan and the Member’s primary Social Security benefit, both before and after the date Social Security benefits are payable. For purposes of this option, the Benefit Commencement Date for the Member’s primary Social Security benefits shall be the first day of the month next following his or her attainment of age sixty-two (62) A Member may not revoke his or her election of this option or otherwise change the provisions of his or her election in any way after his or her Benefit Commencement Date. A Level Income Annuity Option may be elected in the form of a Joint and Survivor Annuity Option, a Straight Life Annuity Option, or a Months Certain and Life Income Annuity Option.

SECTION 8.7. Beneficiary(ies) Subject to the provisions of Section 6.2:

(a) a Member may designate his or her Spouse, or, with the consent of the Member’s Spouse (if any), any individual to be the joint annuitant under the Joint and Survivor Annuity Option described in Section 8.6(a); and

(b) with respect to the Months Certain and Life Income Option described in Section 8.6(b), in the event the Beneficiary predeceases the Member, benefits shall continue to be paid over the full Period Certain to such Member’s contingent Beneficiary as shall have been designated by the Member on his or her Beneficiary designation election form.

SECTION 8.8. Lump Sum Payment If the Actuarial Equivalent Value of a Member’s Accrued Benefit as described under Section 4.1 or 4.9 as of his or her Benefit Commencement Date does not exceed $1,000, such amount shall be automatically paid in the form of a lump sum payment as soon as reasonably practicable following the Member’s termination of employment.

SECTION 8.9 Direct Rollover Treatment for Certain Distributions Notwithstanding any provision of the Plan to the contrary that would otherwise limit a distributee’s election under this Section 8.9, a distributee may elect, at the time and in the manner prescribed by the Management Benefits and Compensation Committee, to have any portion of an eligible rollover distribution paid directly to an eligible retirement plan specified by the distributee in a direct rollover.

An eligible rollover distribution is a distribution of all or any portion of the balance to the credit of the distributee, except that an eligible rollover distribution does not include:

(a) any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the distributee or the joint lives (or the joint life expectancies) of the distributee and the distributee’s designated Beneficiary, or for a specified period of ten (10) years or more;

(b) any distribution to the extent such distribution is required under Section 401(a)(9) of the Code; and

An eligible retirement plan is an individual retirement account described in Section 408(a) of the Code, an individual retirement annuity described in Section 408(b) of the Code, an annuity plan described in Section 403(a) of the Code, a qualified trust described in Section 401(a) of the Code, a plan described in Section 403(b) of the Code, or an eligible plan under Section 457(b) of the Code which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state and which agrees to separately account for amounts transferred into such plan from this Plan, that accepts the distributee’s eligible rollover distribution. However, in the case of an eligible rollover distribution to the surviving Spouse, an eligible retirement plan is an individual retirement account or individual retirement annuity.

A distributee is an Employee or former Employee. In addition, the Employee’s or former Employee’s Spouse or former Spouse who is the alternate payee under a qualified domestic relations order, as defined in Section 414(p) of the Code, is a distributee with regard to the interest of the Spouse or former Spouse.

A direct rollover is a payment by the Plan to the eligible retirement plan specified by the distributee.

In addition, a Beneficiary who is not the Member’s Spouse but who is a “designated beneficiary” within the meaning of Section 401(a)(9)(E) of the Code may elect to have the portion of the distribution that otherwise is an eligible rollover distribution transferred in a trustee-to-trustee transfer to an individual retirement account or an individual retirement annuity that has been established for purposes of receiving such distribution.

With respect to distributions after December 31, 2007, a distributee who is a Member, a Spouse of a Member or an alternate payee may elect to directly roll over all or a portion of the eligible rollover distribution to a Roth IRA in a manner permitted by guidance issued by the Internal Revenue Service.

In the event that the provisions of this Section 8.9 or any part thereof cease to be required by law as a result of subsequent legislation or otherwise, this Section 8.9 or applicable part thereof shall be ineffective without necessity of further amendment of the Plan.

Any such election shall be made (i) on forms approved by and filed with the Management Benefits and Compensation Committee, (ii) by telephonic, electronic or other data transmission in a manner approved by the Management Benefits and Compensation Committee, or (iii) in any other manner approved by the Management Benefits and Compensation Committee in its sole discretion.

SECTION 8.10 Retroactive Benefit Commencement Dates To the extent otherwise permitted by the Plan, a Member or a Beneficiary may elect a Retroactive Benefit Commencement Date. For purposes hereof, the term “Retroactive Benefit Commencement Date” shall have the same meaning as “retroactive annuity starting date” in Treasury Regulation Section 1.417(e)-1(b)(3)(iv)(B). If such a Retroactive Benefit Commencement Date is elected by a Member or Beneficiary, the distribution shall be administered in accordance with the rules set forth in Treasury Regulation Sections 1.417(e)-1(b)(3)(v) and (vi).

ARTICLE IX

FUNDING

SECTION 9.1. Funding Policy All contributions under the Plan shall be made by the Employer and shall only be made if such contributions are deductible by the Employer under Code Section 404. Such contributions will be determined on the basis of actuarial valuations of the assets and liabilities of the Plan by an independent actuary, who also may perform actuarial or consulting services for the Employer. Such contributions shall be voluntary and the Employer shall be under no legal obligation except as otherwise provided under this Plan or under ERISA or other applicable law to any person interested in the Plan to make or continue them. Contributions made by the Employer to the Plan may be used for the purposes of the payment of any benefits and the proper expenses of administering the Plan.

SECTION 9.2. Trust Fund The assets of the Plan shall be held in Trust by one or more corporate trustees pursuant to the terms of a trust agreement or trust agreements between Moody’s Corporation and each corporate trustee. Such Trust agreement or agreements shall provide that the assets of the Plan shall be invested and reinvested in such investments as either the corporate Trustee or an investment manager or managers appointed by the Management Benefits and Compensation Committee may deem advisable. Any investment manager appointed by the Management Benefits and Compensation Committee shall be an investment adviser registered under the Investment Advisers Act of 1940, a bank as defined in that Act, or an insurance company qualified to perform investment management services under the laws of more than one State, or any other entity which qualifies as an investment manager pursuant to Section 3(38) of ERISA, as may be amended from time to time, which investment manager shall have acknowledged in writing that it is a fiduciary with respect to the Plan (each, an “Investment Manager”). Investment decisions with respect to the Fund, including the authority to acquire and dispose of Plan assets shall be, to the extent determined by the Management Benefits and Compensation Committee, the exclusive responsibility of the corporate Trustee or the Investment Manager having discretionary investment authority under the terms of the governing Trust agreement.

SECTION 9.3. Non-Diversion of the Fund The Fund shall never inure to the benefit of the Employer and shall be held for the exclusive purposes of providing benefits to Members and their Beneficiaries and defraying reasonable expenses of administering the Plan; provided, however, that assets of the Plan may revert to the Employer in the event of a Plan termination to the extent that assets of the Plan exceed all benefit liabilities of the Plan or in the event of a contribution made by a mistake of fact if such mistaken contribution is returned within one year of its payment to the Fund. Contributions, which are conditioned on their being deductible under the Code, also may be returned within one year of the deduction being disallowed by the Internal Revenue Service. To the extent permitted by applicable law, the Company may elect to pay all (or its pro rata portion) of the administrative expenses of the Plan and fees and retainers of the Plan’s trustee, actuary, accountant, counsel, consultant, administrator, or other specialist so long as the Plan or Fund remains in effect. To the extent that the Company does not elect to pay such expenses directly, the Company may direct the Trustee to pay the proper expenses of administering the Plan out of the Fund.

SECTION 9.4. Rights of Members and Others No Employee, Member or Beneficiary under this Plan or any other persons shall have any interest in or right to any part of the corpus, income or earnings of the Fund, except as and to the extent provided in this Plan.

SECTION 9.5. Contingent Nature of Contributions Unless the Employer notifies the Management Benefits and Compensation Committee and the Trustee in writing to the contrary, all contributions made to this Plan are expressly conditioned upon their deductibility under Section 404 of the Code.

ARTICLE X

PLAN ADMINISTRATION

SECTION 10.1. Named Fiduciary . The Management Benefits and Compensation Committee shall be the named fiduciary (the “Named Fiduciary”) which shall have authority to control and manage the operation and administration of the Plan and to manage and control its assets. The Management Benefits and Compensation Committee shall consist of not less than three (3) nor more than seven (7) members, as may be appointed by the Board of Directors from time to time. Any member of the Management Benefits and Compensation Committee may resign at will by notice to the Board of Directors or be removed at any time (with or without cause) by the Board of Directors.

SECTION 10.2. Allocation of Duties . The Named Fiduciary may from time to time allocate fiduciary responsibilities among its members and may designate persons other than members of the Named Fiduciary to carry out fiduciary responsibilities under the Plan, and such persons shall be deemed to be fiduciaries under the Plan with respect to such delegated responsibilities. Fiduciaries may employ one or more persons to render advice with regard to any responsibility such fiduciary has under the Plan.

SECTION 10.3. Authority . The Named Fiduciary (and its delegees) shall have the exclusive right to interpret any and all of the provisions of the Plan and to determine any questions arising thereunder or in connection with the administration of the Plan. Any decision or action by the Named Fiduciary (and its delegees) shall be conclusive and binding upon all Employees, Members and Beneficiaries. In all instances the Named Fiduciary (and its delegees) shall have complete discretionary authority to determine eligibility for participation and benefits under the Plan, and to construe and interpret all provisions of the Plan and all documents relating thereto including, without limitation, all disputed and uncertain terms. All deference permitted by law shall be given to such constructions, interpretations and determinations.

SECTION 10.4. Action . Any action to be taken by the Named Fiduciary shall be taken by a majority of its members either at a meeting or by written instrument approved by such majority in the absence of a meeting. A written resolution or memorandum signed by one member of the Management Benefits and Compensation Committee member and the secretary of the Management Benefits and Compensation Committee shall be sufficient evidence to any person of any action taken pursuant to the Plan.

SECTION 10.5. Fiduciary Capacity . Any person, corporation or other entity may serve in more than one fiduciary capacity under the Plan.

SECTION 10.6. Determination of Benefits and Benefit Claims Procedures All benefits payable under the Plan shall be authorized in writing by the Management Benefits and Compensation Committee (or by such person or committee to whom such responsibility may have been delegated by the Management Benefits and Compensation Committee pursuant to the power vested in it herein) and shall be communicated in writing to the Member or Beneficiary. Any Member or Beneficiary may apply to the Management Benefits and Compensation Committee for payment of any benefit that may be due to him or her under the Plan. Such application shall set forth the nature of the claim and any information as the Management Benefits and Compensation Committee may reasonably request. Upon receipt of any such application, the Management Benefits and Compensation Committee shall determine whether or not the Member or Beneficiary is entitled to the benefit hereunder.

If an application for benefits is denied, in whole or in part, the Management Benefits and Compensation Committee shall give written notice to any Member of Beneficiary of the denial. The notice shall be given within ninety (90) days after receipt of the Member’s or Beneficiary’s application unless special circumstances require an extension for processing the claim. In no event shall such extension exceed a period of ninety (90) days from the end of such initial review period. The notice will be delivered to the claimant or sent to the claimant’s last known address and will include the specific reason or reasons for the denial, a specific reference or references to pertinent Plan provisions on which the denial is based, a description of any additional material or information necessary for the claimant to perfect the claim (which will indicate why such material or information is needed), and an explanation of the Plan’s claims review procedure.

If the claimant wishes to appeal the denial of the application for benefits, the claimant or a duly authorized representative must file a written request with the Committee for a subsequent review. This request must be made by the claimant within sixty (60) days after receiving notice of the claim’s denial. The claimant or representative may review pertinent documents relating to the claim

and its denial, may submit issues and comments in writing to the Management Benefits and Compensation Committee. Within sixty (60) days after receipt of such a request for review, the Management Benefits and Compensation Committee shall reconsider the claim, and make a decision on the merits of the claim. If circumstances require an extension of time for processing the claim, the sixty (60) day period may be extended but in no event more than one hundred and twenty (120) days after the receipt of a request for review. The decision on review will be in writing and include specific reasons and references to the pertinent Plan provisions on which the decision is based.

ARTICLE XI

MERGERS, CONSOLIDATIONS AND ASSETS OR LIABILITY TRANSFERS

SECTION 11.1. Mergers, Consolidations and Transfers The merger or consolidation with, or transfer of the allocable portion of the assets and liabilities of the Fund to any other qualified retirement plan trust shall be permitted in the sole discretion of the Management Benefits and Compensation Committee; provided, however, that such merger, consolidation or transfer shall occur only if the benefit each Member would receive, if the Plan were terminated immediately after such merger or consolidation of such transfer of the allocable portion of the assets and liabilities, would be at least as great as the benefits he or she would have received had the Plan been terminated immediately before the date of such merger, consolidation or transfer. No such merger, consolidation, or transfer shall be effected until and unless an actuarial statement satisfactory to the Management Benefits and Compensation Committee is filed with the Committee evidencing compliance with the foregoing requirements of this Section 11.1.

ARTICLE XII

AMENDMENT OF PLAN

SECTION 12.1. Right to Amend the Plan By action of its Board of Directors, the Management Benefits and Compensation Committee or any delegate thereof, the Company reserves the right to modify, alter or amend this Plan on behalf of itself and any other Employer from time to time to any extent that it may deem advisable including, but without limiting the generality of the foregoing, any amendment deemed necessary to ensure the continued qualification of the Plan under Section 401 of the Code or the appropriate provisions of any subsequent revenue law. Except as provided in Section 13.1, no such amendment(s) shall have the effect of reverting to the Employer the whole or any part of the principal or income for purposes other than for the exclusive benefit of Members or Beneficiaries at any time prior to the satisfaction of all the liabilities under the Plan with respect to such persons. No amendment shall reduce a Member’s Accrued Benefit on the effective date of the Plan amendment or eliminate an optional form of benefit under the Plan with respect to the Member’s Accrued Benefit on the date of the amendment.

SECTION 12.2. Prior Plan Provisions The Plan as in effect prior to the effective date of any amendment (heretofore or hereafter adopted) will continue to apply to those who terminated employment on account of death, retirement, or any other reason, prior to such date unless the context of the Plan as amended from and after any such date is clearly made applicable to those who terminated prior to such date.

SECTION 12.3. Plan Qualification Notwithstanding the provisions of Sections 12.1 and 12.2, any amendment may be retroactive to the extent necessary to preserve the tax-qualified status of the Plan.

ARTICLE XIII

TERMINATION OF THE PLAN

SECTION 13.1. Right to Terminate The Plan The Board of Directors may at any time, in accordance with its established rules of procedure, terminate or permanently discontinue contributions under the Plan at any time on behalf of itself and/or any Employer. The assets of the Plan shall never inure to the benefit of any Employer and shall be held for the exclusive purposes of providing benefits to Members and their Beneficiaries and defraying reasonable expenses of administering the Plan; provided, however, assets of the Plan may revert to an Employer in the event of a Plan termination to the extent that assets of the Plan exceed all liabilities of the Plan or pursuant to Section 18.2.

SECTION 13.2. Vesting Upon Plan Termination or Partial Termination In the event of termination of the Plan, no further contributions shall be made hereunder and the right of each Member to benefits accrued to the date of termination to the extent funded shall be nonforfeitable. In the event of partial termination, the following provisions of this paragraph shall apply only to the portion of the Plan terminated. In the event of termination of the Plan by action of the Board of Directors or otherwise, the assets of the Plan shall be allocated among Members and their Beneficiaries in accordance with the provisions of Section 4044 of ERISA; provided, however, if the application of said provisions of Section 4044 results in the reduction or elimination of any benefits under any predecessor plan which were vested on December 31, 1975, and which would have been distributed under the termination priorities set forth in such Plans as of such date, the Company shall request the Pension Benefit Guaranty Corporation to initiate or shall on its own initiate an appropriate legal proceeding in accordance with the provisions of Section 4042 of ERISA.

SECTION 13.3. Residual Assets Returned to Company The residual assets of the Plan shall be returned to the Company after all liabilities of the Plan to Members and their Beneficiaries have been satisfied.

SECTION 13.4. Settlement of Termination Liabilities Upon termination of the Plan, and subject to regulations of the Pension Benefit Guaranty Corporation or other applicable laws, any amount allocated for the benefit of a Member or Beneficiary shall be applied for his or her benefit, as the Management Benefits and Compensation Committee determines in its sole discretion, either by cash payment or by the purchase of an insurance company contract, or by any combination of the foregoing.

ARTICLE XIV

LIMITATION OF RETIREMENT BENEFITS

SECTION 14.1. Special Limitation for Twenty-Five Highest Paid The provisions of this Article 14 shall apply (a) in the event the Plan is terminated, to any Member who is a Highly Compensated Employee or Highly Compensated Former Employee of the Company or any Affiliated Employer and (b) in any other event, to any Member who is one of the twenty-five (25) highest compensated Employees or former Employees of the Company or any Affiliated Employer for a Plan Year. The amount of the annual payments under the Plan to any Member to whom this Article 14 applies shall not exceed an amount equal to the payment that would be made under the Plan during the Plan Year on behalf of the Member under a single life annuity which is the Actuarial Equivalent to the sum of the Member’s Accrued Benefit and any other benefits under the Plan.

SECTION 14.2. Exception To Special Limitations The provisions of Section 14.1 shall not apply if (a) the value of the benefits which would be payable under the Plan to a Member described in Section 14.1 is less than one percent (1%) of the value of the current liabilities (as defined in Section 412(l)(7) of the Code) under the Plan or (b) the value of the Plan’s assets equals or exceeds, immediately after payment of a benefit under the Plan to a Member described in Section 14.1 one hundred ten percent (110%) of the value of the current liabilities under the Plan.

SECTION 14.3. Plan Termination Limit Notwithstanding the provisions of Sections 14.1 and 14.2, in the event the Plan is terminated, the restrictions contained in Section 14.1 shall not be applicable if the benefits payable under the Plan to any Member who is a Highly Compensated Employee or a Highly Compensated Former Employee are limited to benefits which are non-discriminatory under Section 401(a)(4) of the Code.

SECTION 14.4. Interpretation The foregoing provisions of this Article 14 are intended to conform the Plan to the requirements of Section 1.401(a)(4)-5(b) of the Treasury Regulations, and shall be construed accordingly. In the event that under any statute, regulation or ruling the conditions of this Section are no longer required for the Plan to comply with the requirements of Section 401 (or any other provisions with respect to qualification for tax exemption of retirement plans and trusts) of the Code, such conditions shall immediately become void and shall no longer apply without the necessity of an amendment to the Plan.

ARTICLE XV

LIMITATIONS ON BENEFITS

SECTION 15.1. Code Section 415 Limits In no event may a Member’s Projected Annual Benefit (as defined below) in any Limitation Year (as defined below) exceed the maximum permitted under Section 415 of the Code. For this purpose:

(a) “Limitation Year” means the calendar year.

(b) “Defined Benefit Plan” means this Plan or any retirement plan maintained by the Company or any Affiliated Employer within the meaning of Section 415(h) of the Code that is not a Defined Contribution Plan.

(c) “Defined Contribution Plan” means any retirement plan maintained by the Company or any Affiliated Employer within the meaning of Section 415(h) of the Code which provides for an individual account for each participant and for benefits based solely on the amount contributed to such account and any income, expense, gains and losses, and forfeitures of accounts of other participants which may be allocated to such account.

(d) (i) A Member’s “Projected Annual Benefit” under a Defined Benefit Plan shall be equal to the annual retirement benefit to which he or she would be entitled under such plan if he or she were to continue employment until his or her Social Security Retirement Age (as defined below) under such plan, and all other relevant factors used to determine benefits under the Plan were to remain the same as in the current Plan Year for all future Plan Years.

(ii) For purposes of this Subparagraph (e)

(A)

a Member’s benefit that is payable in a form other than a straight life annuity and that is subject to Section 417(e)(3) of the Code shall be converted into the form of an annual retirement benefit which is provided in the form of a straight life annuity, as follows. If the annuity starting date is in a Plan Year beginning after 2005, the converted amount shall equal annual amount of the straight life annuity commencing at the same annuity starting date that has the same actuarial present value as the Member’s form of benefit, using whichever of the following produces the greatest annual amount: (x) the interest rate and the mortality table otherwise used under the Plan for adjusting

benefits in the same form; (y) a 5.5% interest rate and the applicable mortality table; and (z) the applicable interest rate under Section 417(e)(3) of the Code and the applicable mortality table, divided by 1.05. If the annuity starting date is in a Plan Year beginning in 2004 or 2005, the converted amount shall equal the annual amount of the straight life annuity commencing at the same annuity starting date that has the same actuarial present value as the Member’s form of benefit payable, using whichever of the following produces the greater annual amount: (xx) the interest rate and the mortality table or other tabular factor used under the Plan for adjusting benefits in the same form; and (yy) a 5.5% interest rate and the applicable mortality table. In determining the actuarially equivalent straight life annuity for a benefit form other than a nondecreasing annuity payable for a period of not less than the life of the Member (or, in the case of a qualified pre-retirement survivor annuity, the life of the surviving Spouse), or decreases during the life of the Member merely because of (a) the death of the survivor annuitant (but only if the reduction is not below 50% of the annual benefit payable before the death of the survivor annuitant), or (b) the cessation or reduction of Social Security supplements of qualified disability payments (as defined in Section 401(a)(11) of the Code, the interest rate as set forth in Section 1.2 of the Plan will be substituted for “a 5.5% interest rate” in the preceding sentence. No actuarial adjustment to the benefit is required for (a) the value of a qualified joint and survivor annuity, (b) benefits that are not directly related to retirement benefits (such as the qualified disability benefit, pre-retirement death benefits, and post-retirement medical benefits), and (c) the value of post-retirement cost-of-living increases made in accordance with Section 415(d) of the Code and section 1.415-3(c)(2)(iii) of the Income Tax Regulations. The annual benefit does not include any benefits attributable to employee contributions or rollover contributions, or the assets transferred from a qualified plan that was not maintained by the Employer;

(B)

if the annual benefit of the Member commences before the Member’s Social Security Retirement Age, but on or after age 62, the limitation in Section 15.2(a) (as reduced in (A) above, if necessary), shall be determined as follows:

(i)

If a Member’s Social Security Retirement Age is 65, the limitation for benefits commencing on or after age 62 is determined by reducing the limitation by 5/9 of one percent for each month by which benefits commence before the month in which the Member attains age 65.

(ii)

If a Member’s Social Security Retirement Age is greater than 65, the limitation in Section 15.2(a) for benefits commencing on or after age 62 is determined by reducing the limitation by 5/9 of one percent for each of the first 36 months and 5/12 of one percent for each of the additional months (up to 24 months) by which benefit commence before the month of the Member’s Social Security Retirement Age;

(C)

if the benefit of a Member commences prior to age 62, the limitation in Section 15.2(a) shall be an annual benefit that is the actuarial equivalent of the defined benefit dollar limitation for age 62, as determined above, reduced for each month by which benefits commence before the month in which the Member attains age 62. The annual benefit beginning prior to age 62 shall be determined as the lesser of the equivalent annual benefit computed using the interest rate and mortality table (or other tabular factor) equivalence for early retirement benefits, and the equivalent annual benefit computed using a 5 percent interest rate and the mortality table from Section 1.2. Any decrease in the adjusted limitation determined in accordance with this subparagraph (C) shall not reflect any mortality decrement to the extent that benefits will not be forfeited upon the death of the Member.

If the annual benefit of a Member commences after the member’s Social Security Retirement Age, the limitation as reduced in (B) above, if necessary, shall be adjusted so that it is the actuarial equivalent of an annual benefit of such limitation beginning at the Member’s Social Security Retirement Age. The equivalent annual benefit beginning after Social Security Retirement Age shall be determined as the lesser of the equivalent annual benefit computed using the interest rate and mortality table (or other tabular factor) specified in the Plan for purposes of determining actuarial equivalence for delayed retirement benefits, and the equivalent annual benefit computed using a 5 percent interest rate assumption and the mortality table as set forth in Section 1.2 of the Plan.

(D)

if an annual retirement benefit begins after age 65, the otherwise applicable dollar limitation shall be adjusted so that it is the Actuarial Equivalent of an annual retirement benefit commencing at age 65 using an interest assumption equal to the lesser of five percent (5%) or the interest rate used by the Plan;

(E)

an annual retirement benefit which is attributable all or in part to employee or rollover contributions (as defined in Section 402(c), 403(a)(4) or 408(d)(3) of the Code) shall be reduced so that it will be the equivalent of an annual retirement benefit derived solely from Employer contributions; and

(F)

if any Member has completed (I) fewer than ten (10) years of Plan participation, the dollar limitation under Section 15.2(a) otherwise applicable to him or her shall be reduced by multiplying it by a fraction, the numerator of which is his or her years of Plan participation as of the close of the Limitation Year and the denominator of which is ten (10), and/or (II) fewer than ten (10) Years of Service with the Company and or any Affiliated Employer, the limitations under Sections 15.3 otherwise applicable to him or her shall be reduced by multiplying it by a fraction, the numerator of which is his or her Years of Service as of the close of the Limitation Year and the denominator of which is ten (10).

(e) “Social Security Retirement Age” means the social security retirement age as defined under Section 415(b)(8) of the Code which shall mean age sixty-five (65) in the case of a Member attaining age sixty-two (62) before January 1, 2000 (i.e., born before January 1, 1938), age sixty-six (66) for a Member attaining age sixty-two (62) after December 31, 1999, and before January 1, 2017 (i.e., born after December 31, 1937, but before January 1, 1955), and age sixty-seven (67) for a Member attaining age sixty-two (62) after December 31, 2016 (i.e., born after December 31, 1954).

(f) “415 Compensation” means the Member’s compensation, within the meaning of Treas. Reg. § 1.415-2(d)(1) and (2), for a Limitation Year from the Company and all Affiliated Employers, including, to the extent includible in gross income, the Member’s wages, salary, and other amounts (including fringe benefits, reimbursements, expense allowances, vacation pay, and long-term disability benefits) received or made available or, as applicable, accrued for personal services actually rendered, earned income from sources outside the United States whether or not excluded from taxable gross income, non-deductible moving expenses paid on behalf of or reimbursed to the Member, non-qualified stock options taxable in the year granted, and, as applicable, amounts previously not included which are earned but not paid in such period because of the timing of pay periods and pay days but are paid during the first few weeks following the end of such period, but excluding deferred compensation, stock options and other distributions that receive special tax benefits. In addition, 415 Compensation also includes any amounts deferred pursuant to Section 402(g)(3) of the Code, excludable from the gross income of the Member pursuant to Section 125 of the Code, and qualified transportation fringe benefits described in Section 132(f)(4) of the Code.

SECTION 15.2. Maximum Projected Benefit In no event may a Member’s Projected Annual Benefit under Defined Benefit Plans for any Limitation Year exceed the amount prescribed by Section 415 of the Code. For purposes of determining the Projected Annual Benefit payable, subject to the adjustments hereinafter set forth, the Projected Annual Benefit of a Member who completes at least ten (10) Years of Service and to whom payments commence on or after his or her Social Security Retirement Age at any time within a Limitation Year shall not exceed the lesser of:

(a) One Hundred Sixty Thousand Dollars ($160,000) or such indexed amount as shall be prescribed by the Secretary of the Treasury as of the first day of a Limitation Year in accordance with Section 415(b) of the Code; or

(b) One hundred percent (100%) of the Member’s highest average annual 415 Compensation determined over three (3) years of employment in which such average is highest; or

(c) Notwithstanding the foregoing, if the Member has never participated in any Defined Contribution Plans, his or her Projected Annual Benefit shall be not less than Ten Thousand Dollars ($10,000) or such proportional amount thereof as shall be applicable because fewer than ten (10) Years of Service have been completed.

(d) If the applicable Section 415 limits are increased after a benefit is in pay status by virtue of an adjustment to those limits reflecting a change in the cost of living index, benefit payments to a Member shall be increased automatically to the maximum extent permitted under the revised limits. In addition, if the applicable Section 415 limits are increased after a Member’s termination of employment, a Member’s Accrued Benefit shall be increased automatically to the maximum extent permitted under the revised limits. These increases shall occur only to the extent it would not cause the benefit to exceed the benefit to which the Member would have been entitled in the absence of the Section 415 limits.

SECTION 15.3. Interpretation This Section shall be interpreted in accordance with regulations under Section of 415 of the Code, and any applicable dollar limitations (whether higher or lower than the amounts specifically stated herein) imposed by such legislation if different from the dollar amounts specified herein shall be incorporated herein and shall supersede such stated dollar amounts as though the Plan had been amended accordingly. In the event that under any statute, regulation or ruling the conditions of this Section are no longer required for the Plan to comply with the requirements of Section 401 (or any other provisions with respect to qualification for tax exemption of retirement plans and trusts) of the Code, such conditions shall immediately become void and shall no longer apply without the necessity of an amendment to the Plan.

ARTICLE XVI

PARTICIPANTS IN PREDECESSOR PLANS

SECTION 16.1. No Duplication of Benefits Except as may be expressly provided to the contrary in the Plan, the amount and form of retirement benefits provided to a Member under the Plan shall be in lieu of any such benefits payable to such Member or his or her Beneficiary under the terms of any Predecessor Plan for any service with The Dun & Bradstreet Corporation prior to the Effective Date or any business entity merged into or otherwise acquired by The Dun & Bradstreet Corporation prior to January 1, 1985; provided, however, if any amounts are payable with respect to Service with such a merged or acquired business from a source other than the Fund, such benefits shall reduce the amount of any benefit payable to such Member or his or her Beneficiary

for such Service under the Plan, the Prior Plan or The Dun & Bradstreet Retirement Account as in effect from and after January 1, 1985, whether or not such amounts are payable to the same person entitled to benefits under the Plan. Notwithstanding anything hereinabove to the contrary, entitlement of a Member or any Beneficiary to benefits under the Plan, the Prior Plan or The Dun & Bradstreet Retirement Account with respect to any period of Service with any business entity merged into or otherwise acquired by the Company prior to January 1, 1985, or any limitation on or reduction of benefits under the Plan as a result of such Service or otherwise shall continue to be determined in accordance with the schedule attached to the Predecessor Plan applicable to such Member or with the schedule, if any, applicable to such Predecessor Plan which was attached to and made a part of the Prior Plan prior to January 1, 1985.

SECTION 16.2. Payment of Integrated Amounts If any Member or his or her Beneficiary would have been entitled to a refund of any Integrated Amount under the terms of the Predecessor Plan, such Integrated Amount shall continue to be payable in accordance with the provisions of such Predecessor Plan, subject to the following:

(a) Unless a Member waives payment of such refund upon termination of Service (other than by death or retirement), any deferred benefits payable under the Plan to such Member or his or her Beneficiary shall be reduced by the Integrated Amount refunded. For purposes of computing such reduction, the actuarial value of the Normal Retirement Benefit payable at Normal Retirement Age calculated as of such date shall be reduced by the Integrated Amount distributed to such Member. If such Member is reemployed, he or she shall receive no credit for Service prior to the date of reemployment unless he or she repays to the Fund within five years of reemployment an amount equal to the amount received by him or her as a lump sum distribution plus interest at the rate earned by such Integrated Amount under the terms of such Predecessor Plan (not in excess of five percent (5%)) compounded annually; and

(b) Any Integrated Amount payable on the death of a Member (whether prior or subsequent to retirement) or his or her Beneficiary shall be payable only when there is no person thereafter entitled to any retirement benefits under the Plan and shall be reduced by the amount of any benefits previously paid to such Member or his or her Beneficiary under the Plan or Predecessor Plan.

ARTICLE XVII

TOP-HEAVY CONTINGENCY

SECTION 17.1. General Rule The provisions of this Article 17 shall apply only in a Plan Year in respect of which the Plan becomes top-heavy as herein defined and thereafter to the extent provided herein.

SECTION 17.2. Aggregation Group The Plan shall be considered to be top-heavy in any Plan Year if the aggregation group of which the Plan is required to be a part becomes top-heavy for such year; provided, however, the Plan shall not be considered to be top-heavy in such Plan Year if by the inclusion of additional plans permitted to be included in such required aggregation group the resulting permissive aggregation group is not top-heavy for such year.

(a) The required aggregation group as to the Plan shall include the Plan and any pension, profit sharing or stock bonus plan of the Company or any Affiliated Employer, its subsidiaries and any other corporation or entity under common control by or with the Company if such plan is intended to be a qualified plan under Section 401(a) of the Code, and either (i) includes or has included any Key Employee (as defined below) as a participant in the Plan Year for which a determination is being made or in the five (5) immediately preceding Plan Years or (ii) enables the Plan or any such plan to meet the anti-discrimination requirements or minimum participation standards applicable to qualified plans under the Code.

(b) The permissive aggregation group shall include plans in the required aggregation group and any other comparable plan of an Employer in the controlled group specified in subparagraph (a) or to which such Employer contributes if such plan is intended to be qualified under Section 401(a) of the Code and continues to meet the anti-discrimination requirements and minimum participation standards of the Code when considered together with the plans in the required aggregation group.

A terminated or frozen plan shall be treated as part of the required or permissive aggregation group only in accordance with regulations promulgated under Code Section 416.

SECTION 17.3. Top-Heavy Definition A required aggregation group or a permissive aggregation group shall be considered to be top-heavy if, as of the applicable determination dates, the sum of the present value of the cumulative accrued benefits for Key Employees under all defined benefit plans in such group and the aggregate value of the accounts of Key Employees under all defined contribution plans in such group exceed sixty percent (60%) of the sum of such values for all Employees participating in or eligible for participation in such plans.

(a) The applicable determination date for each plan shall be the last day of its plan year which immediately precedes the plan year for which such plan is being tested or, in the case of a new plan, the last day of its first plan year.

(b) The present value of accrued benefits of Employees under each defined benefit plan shall be determined as of the plan’s most recent valuation date within the twelve (12) month period ending on the determination date (or, in the case of a new plan, as of the determination date) and shall be based upon the assumption that each Employee terminated his or her Service on the determination date with a fully vested accrued benefit on such date and elected a lump sum distribution in an amount equal to the present value of such benefit based upon the actuarial assumptions, mortality rates and assumed earnings used to maintain the plan’s minimum funding account as defined in Section 412 of the Code. If the plans in the required aggregation group use different actuarial assumptions for purposes of determining the present value of cumulative accrued benefits, (i) for Key Employees, the actuarial assumptions used shall be the actuarial funding assumptions used to maintain the funding standard account under a selected plan in the required aggregation group, computed as if the Member voluntarily terminated Service as of the most recent valuation date, and (ii) for Members who are not Key Employees, the actuarial assumptions used shall be such assumptions so that the benefit shall accrue not more rapidly than the slowest accrual rate permitted under Section 411(b)(1)(C) of the Code.

(c) With respect to a defined contribution plan which is included in the required aggregation group or permissive aggregation group, the sum of a Member’s aggregate value of account balances attributable to employer and employee contributions under such plans as of the most recent valuation date under the plan ending within the twelve (12) month period ending on the applicable determination date shall be adjusted for contributions due as of such determination date. If the Plan is not subject to the funding requirements of Section 412 of the Code, the adjustment is the amount of contributions actually made after the valuation date and on or before the determination date and, in the first plan year of any plan, also shall include contributions allocated as of a date in such plan year but made after the determination date. If a plan is subject to the funding requirements of Section 412 of the Code, a Member’s account balance shall include contributions not yet required to be contributed, but which would be allocated as of a date not later than the determination date, and the adjustment shall reflect any contributions made or due after the valuation date but prior to the expiration of the extended payment period of Section 412(c)(10) of the Code.

(d) Present value shall also include any related rollovers and transfers. A determination as to whether a rollover or transfer is related or unrelated shall be made in accordance with the Code and applicable Treasury Regulations.

(e) The present values of accrued benefits and the values of accounts used in the sixty percent (60%) calculation described herein shall be increased by all distributions made within the five (5) year period ending on the determination date to Employees covered by plans in the aggregation group.

(f) Employer matching contributions shall be taken into account for purposes of satisfying the minimum contribution requirements of Section 416(c)(2) of the Code and the Plan. The preceding sentence shall apply with respect to matching contributions under the Plan or, if the Plan provides that the minimum contribution requirement shall be met in another plan, such other plan. Employer matching contributions that are used to satisfy the minimum contribution requirements shall be treated as matching contributions for purposes of the actual contribution percentage test and other requirements of Section 401(m) of the Code.

(g) Notwithstanding the foregoing, the present values of accrued benefits and the amounts of account balances of an employee as of the determination date shall be increased by the distributions made with respect to the employee under the plan and any plan aggregated with the plan under Section 416(g)(2) of the Code during the 1-year period ending on the determination date. The preceding sentence shall also apply to distributions under a terminated plan which, had it not been terminated, would have been aggregated with the plan under Section 416(g)(2)(A)(i) of the Code. In the case of a distribution made for a reason other than severance from employment, death, or disability, this provision shall be applied by substituting “5-year period” for “1-year period.” The accrued benefits and accounts of any individual who has not performed services for the employer during the 1-year period ending on the determination date shall not be taken into account.

SECTION 17.4. Key Employee The term key employee means any employee or former employee (including any deceased employee) who at any time during the plan year that includes the determination date was an officer of the employer having annual compensation greater than $ 130,000 (as adjusted under Section 416(i)(1) of the Code for plan years beginning after December 31, 2002), a 5-percent owner of the employer, or a 1-percent owner of the employer having annual compensation of more than $ 150,000. For this purpose, annual compensation means compensation within the meaning of Section 415(c)(3) of the Code. The determination of who is a key employee will be made in accordance with Section 416(i)(1) of the Code and the applicable regulations and other guidance of general applicability issued thereunder.

SECTION 17.5. Non-key Employee A non-key Employee shall be any Employee who is not a Key Employee.

SECTION 17.6. Minimum Benefit Provision In the event the Plan becomes top-heavy for any Plan Year, all plans in the required aggregation group will also be top-heavy for such year and all non-key Employees will be participating in more than one (1) top-heavy plan. In such event there shall be provided to each non-key Employee a minimum benefit under this Plan equal to:

(a) an annual retirement benefit (with no ancillary benefits) commencing at normal retirement at or after age sixty-five (65) equal to three percent (3%) of his or her average annual compensation for each Year of Service from and after December 31, 1983 during which the Prior Plan or The Dun & Bradstreet Retirement Account was top-heavy, excluding any such Service in excess of ten (10) years; minus

(b) the amount of such retirement benefit which could be purchased for such Employee by application of all amounts allocated to his or her accounts under each defined contribution plan of the Company or an Affiliated Employer as the result of Employer contributions and forfeitures for all Plan Years during which such Employee was a participant, but excluding any such allocations which were forfeited by such Employee. The determination of the amount of such retirement benefit which could be purchased for each non-key Employee shall be made by the Company’s independent actuaries as of the date of such Employee’s termination of Service and shall utilize the earnings and actuarial assumptions most recently published by the Pension Benefit Guaranty Corporation.

(c) Average annual compensation of a non-key Employee for purposes of the foregoing shall mean his or her average annual aggregate compensation, as determined under Section 415(c)(3) of the Code, for the five (5) consecutive years of his or her Service resulting in the highest such average, or for the actual years of his or her Service if fewer than five (5). For purposes hereof, the term average annual compensation shall not include such compensation after the last Plan Year in which a plan is a top-heavy plan or a super top-heavy plan.

Any benefit which is payable as other than a life annuity, or which commences at other than the Member’s Normal Retirement Date shall be adjusted to an amount which is actuarially equivalent to such benefit. For purposes hereof, such Actuarially Equivalent determination shall be based on such actuarial assumptions set forth in Section 1.2.

SECTION 17.7. Vesting Provision Notwithstanding any provision in the Plan to the contrary, if the Plan becomes top-heavy in any Plan Year the accrued benefits of all Employees in active service from and after such year shall vest and become nonforfeitable after three (3) Years of Vesting Service. If the Plan is no longer top-heavy in a later Plan Year, the foregoing vesting schedule shall continue to apply with respect to all Employees having three (3) or more Years of Vesting Service, but shall no longer apply to Employees with less than three (3) Years of Vesting Service except to the extent their benefits have already vested by application of such schedule.

SECTION 17.8. Interpretation The foregoing provisions of this Article 17 are intended to conform the Plan to the requirements of Section 416 of the Code and any regulations, rulings or other pronouncements issued pursuant thereto, and shall be construed accordingly. In the event that under any statute, regulation or ruling all or a portion of the conditions of this Section are no longer required for the Plan to comply with the requirements of Section 401 of the Code (or any other provisions with respect to qualification for tax exemption of retirement plans and trusts), to the extent possible such conditions shall become void and shall no longer apply without the necessity of an amendment to the Plan.

ARTICLE XVIII

MISCELLANEOUS

SECTION 18.1. Limitation on Distributions Notwithstanding any provision of this Plan regarding payment to Beneficiaries or Members, or any other person, the Management Benefits and Compensation Committee may withhold payment to any person if the Management Benefits and Compensation Committee determines that such payment may expose the Plan to conflicting claims for payment. As a condition for any payments, the Management Benefits and Compensation Committee may require such consent, representations, releases, waivers or other information as it deems appropriate. To the extent required by law, the Management Benefits and Compensation Committee shall comply with the terms of any judgment or other judicial decree, order, settlement or agreement including, but not limited to, a “qualified domestic relations order,” as such term is defined in Code Section 414(p).

SECTION 18.2. Exclusive Benefit; Limitation on Reversion of Contributions Except as provided in subsections (a) through (c) below, Employer contributions made under the Plan will be held for the exclusive benefit of Members or Beneficiaries and may not revert to the Employer.

(a) A contribution made by the Employer under a mistake of fact may be returned to the Employer within one (1) year after it is contributed to the Plan.

(b) A contribution conditioned on the Plan’s initial qualification under Sections 401(a) and 501(a) of the Code may be returned to the Employer, if the Plan does not qualify, within one (1) year after the date the Plan is denied qualification.

(c) A contribution conditioned upon its deductibility under Section 404 of the Code may be returned, to the extent the deduction is disallowed, to the Employer within one (1) year after the disallowance.

The maximum contribution that may be returned to the Employer will not exceed the amount actually contributed to the Plan, or the value of such contribution on the date it is returned to the Employer, if less.

SECTION 18.3. Voluntary Plan The Plan is purely voluntary on the part of the Employer and neither the establishment of the Plan nor any Plan amendment nor the creation of any fund or account, nor the payment of any benefits will be construed as giving any Employee or any person legal or equitable right against the Employer, any trustee or other agent, or the Management Benefits and Compensation Committee unless specifically provided for in this Plan or conferred by affirmative action of the Management Benefits and Compensation Committee or the Employer according to the terms and provisions of this Plan (or required by law). Such actions will not be construed as giving any Employee or Member the right to be retained in the service of the Employer. All Employees and/or Members will remain subject to discharge to the same extent as though this Plan had not been established.

SECTION 18.4. Nonalienation of Benefits Members and Beneficiaries are entitled to all the benefits specifically set out under the terms of the Plan, but neither those benefits nor any of the property rights in the Plan are assignable or distributable to any creditor or other claimant of a Member or Beneficiary. A Member will not have the right to anticipate, assign, pledge, accelerate, or in any way dispose of or encumber any of the monies or benefits or other property that may be payable or become payable to such Member or his or her Beneficiary; provided, however, the Committee shall recognize and comply with a valid qualified domestic relations order, as defined in Section 414(p) of the Code.

SECTION 18.5. Inability to Receive Benefits If the Management Benefits and Compensation Committee receives evidence that a person entitled to receive any payment under the Plan is physically or mentally incompetent to receive payment and to give a valid release, and another person or any institution is maintaining or has custody of such person, and no guardian, committee, or other representative of the estate of such person has been duly appointed by a court of competent jurisdiction, then any distribution made under the Plan may be made to such other person or institution. The release of such other person or institution will be a valid and complete discharge for the payment of such distribution.

SECTION 18.6. Missing Persons If, after reasonable and diligent effort, the Management Benefits and Compensation Committee is unable to locate a Member, the distribution due such person will be forfeited after five (5) years. In the event that a distribution is due a Beneficiary and the Management Benefits and Compensation Committee, after reasonable and diligent effort, is unable to locate the Beneficiary, then (a) where a contingent Beneficiary has been designated in accordance with the terms of the Plan, the benefit shall be payable to the contingent Beneficiary, and such non-locatable Beneficiary shall have no further claim or interest hereunder, and (b) if no contingent Beneficiary has been designated or, if designated, the contingent Beneficiary cannot be located after reasonable and diligent effort, the distribution due such Beneficiary (or contingent Beneficiary) will be forfeited after five (5) years. If, however, such Member, Beneficiary or contingent Beneficiary, as the case may be, later files a claim for such benefit, the benefit will be reinstated without any interest earned thereon. Notification by certified or registered mail to the last known address of the Member, Beneficiary or contingent Beneficiary, as the case may be, will be deemed a reasonable and diligent effort to locate such person.

SECTION 18.7. Limitation of Third Party Rights Nothing expressed or implied in the Plan is intended or will be construed to confer upon or give to any person, firm, or association other than the Employer, the Members or Beneficiaries, and their successors in interest, any right, remedy, or claim under or by reason of this Plan except pursuant to a “qualified domestic relations order,” as such term is defined in Code Section 414(p).

SECTION 18.8. Invalid Provisions If any provision of this Plan is held illegal or invalid for any reason, the illegality or invalidity will not affect the remaining parts of the Plan. The Plan will be construed and enforced as if the illegal and invalid provisions had never been included.

SECTION 18.9. Use and Form of Words Whenever any words are used herein in the masculine gender, they will be construed as though they were also used in the feminine gender in all cases where that gender would apply, and vice versa. Whenever any words are used herein in the singular form, they will be construed as though they were also used in the plural form in all cases where the plural form would apply, and vice versa.

SECTION 18.10. Headings Headings to Articles and Sections are inserted solely for convenience and reference, and in the case of any conflict, the text, rather than the headings, shall control.

SECTION 18.11. Governing Law The Plan will be governed by and construed according to the federal law governing employee benefit plans qualified under the Code and according to the laws of the state of New York (where such laws are not preempted by federal law).

SECTION 18.12. Funding-Related Benefit Restrictions In accordance with Code Section 436, if a Member is entitled to an unpredictable contingent event benefit (as defined in Code Section 436(b)(3)) payable with respect to any event occurring during any Plan Year, such benefit may not be provided if the adjusted funding target attainment percentage for such Plan Year (determined in accordance with Code Section 436) (a) is less than 60 percent, or (b) would be less than 60 percent taking into account such occurrence. The preceding sentence shall not apply with respect to any Plan Year, effective as of the first day of the Plan Year, upon payment by the Company of a contribution equal to either the amount of the increase in the funding target of the Plan for the Plan Year (as provided in Code Section 430) or the amount sufficient to result in an adjusted funding target attainment of 60 percent, as required by section 436(b)(2) of the Code.

In any case in which the Plan’s adjusted funding target attainment percentage is less than 60 percent, the Plan may not pay any prohibited payment (as defined in Code Section 436(d)(5)) after the valuation date for the Plan Year and benefit accruals under the Plan shall cease as of the valuation date for the Plan Year, unless the Company makes a contribution equal to the amount sufficient to result in an adjusted funding target attainment percentage of 60 percent.

During any period in which the Company is a debtor in a case under title 11 of the United States Code, or similar federal or state law, the Plan may not pay any prohibited payment, unless the enrolled actuary of the Plan certified that the adjusted funding target attainment percentage of the Plan is not less than 100 percent.

In any case in which the Plan’s adjusted funding target attainment percentage is 60 percent or greater but less than 80 percent, the Plan may not pay any prohibited payment after the valuation date for the Plan Year to the extent the amount of the payment exceeds the lesser of (i) 50 percent of the amount of the payment that could be made without regard to this section, or (ii) the present value (determined in accordance with PBGC guidance) of the maximum guarantee with respect to the Member under ERISA Section 4022. Only one (1) prohibited payment meeting the above requirements may be made with respect to any Member during any period of consecutive Plan Years during which the Plan’s adjusted funding target attainment percentage is less than 60 percent or during which the Company is a debtor in a case under title 11 of the United States Code, or similar federal or state law.

This Section 18.12 is intended to comply with IRS Notice 2011-96 and shall be interpreted accordingly.

MOODY’S CORPORATION

RETIREMENT ACCOUNT

Amended and Restated as of December 18, 2013

Table of Contents


			Page
ARTICLE I DEFINITIONS

	SECTION 1.1.	“Accrued Benefit”		1

	SECTION 1.2.	“Actuarial Equivalent Value”		1

	SECTION 1.3.	“Actuary”		1

	SECTION 1.4.	“Affiliated Employer”		1

	SECTION 1.5.	“Ameritech”		2

	SECTION 1.6.	“Average Final Compensation”		2

	SECTION 1.7.	“Beneficiary”		2

	SECTION 1.8.	“Benefit Commencement Date”		2

	SECTION 1.9.	“Board of Directors”		2

	SECTION 1.10.	“Change in Control”		2

	SECTION 1.11.	“Code”		2

	SECTION 1.12.	“Company”		2

	SECTION 1.13.	“Company Credits”		3

	SECTION 1.14.	“Compensation”		3

	SECTION 1.15.	“Computation Period”		3

	SECTION 1.16.	“Credited Service”		3

	SECTION 1.17.	“Deferred Vested Benefit”		3

	SECTION 1.18.	“Defined Benefit Dollar Limitation”		4

	SECTION 1.19.	“Early Retirement Benefit”		4

	SECTION 1.20.	“Early Retirement Date”		4

	SECTION 1.21.	“Effective Date”		4

	SECTION 1.22.	“Eligibility Service”		4



SECTION 1.23.	“Eligible Employee”	4

SECTION 1.24.	“Employee”	4

SECTION 1.25.	“Employer”	4

SECTION 1.26.	“Employment Commencement Date”	4

SECTION 1.27.	“ERISA”	4

SECTION 1.28.	“Former Employee”	4

SECTION 1.29.	“Frozen Accrued Benefit”	4

SECTION 1.30.	“Fund”	4

SECTION 1.31.	“Grandfather Benefit Amount”	4

SECTION 1.32.	“Highly Compensated Employee”	4

SECTION 1.33.	“Hour of Service”	5

SECTION 1.34.	“Integrated Amount”	5

SECTION 1.35.	“Interest Credit”	5

SECTION 1.36.	“Leased Employee”	5

SECTION 1.37.	“Limitation Year”	5

SECTION 1.38.	“Management Benefits and Compensation Committee”	5

SECTION 1.39.	“Member”	5

SECTION 1.40.	“Minimum Benefit”	5

SECTION 1.41.	“Named Fiduciary”	6

SECTION 1.42.	“Normal Retirement Age”	6

SECTION 1.43.	“Normal Retirement Benefit”	6

SECTION 1.44.	“Normal Retirement Date”	6

SECTION 1.45.	“Opening Balance”	6

SECTION 1.46.	“Partnership”	6

SECTION 1.47.	“Period of Service”	6

SECTION 1.48.	“Period of Severance”	6

SECTION 1.49.	“Plan”	6

SECTION 1.50.	“Plan Sponsor”	6

SECTION 1.51.	“Plan Year”	6

SECTION 1.52.	“Postponed Retirement Benefit”	6

SECTION 1.53.	“Postponed Retirement Date”	6


	SECTION 1.54.	“Predecessor Plan”	6

	SECTION 1.55.	“Prior Plan”	6

	SECTION 1.56.	“Qualified Joint and Survivor Annuity”	6

	SECTION 1.57.	“Re-employment Commencement Date”	7

	SECTION 1.58.	“Retirement Account”	7

	SECTION 1.59.	“Service”	7

	SECTION 1.60.	“Severance Date”	7

	SECTION 1.61.	“Spouse”	7

	SECTION 1.62.	“Trust”	7

	SECTION 1.63.	“Trustee”	7

	SECTION 1.64.	“Vesting Service”	7

	SECTION 1.65.	“Year of Service”	7

ARTICLE II SERVICE COUNTING RULES			8

	SECTION 2.1.	Hours of Service General Rule	8

	SECTION 2.2.	Eligibility Service	8

	SECTION 2.3.	Vesting Service - General Rule:	8

	SECTION 2.4.	Credited Service	9

ARTICLE III MEMBERSHIP AND TRANSFERS			10

	SECTION 3.1.	Eligibility	10

	SECTION 3.2.	Eligibility upon Re-employment	10

	SECTION 3.3.	Termination of Membership	10

	SECTION 3.4.	Suspension of Membership	10

	SECTION 3.5.	Restoration of Membership after Suspension	10

ARTICLE IV BENEFIT AMOUNTS			10

	SECTION 4.1.	Accrued Benefit	10

	SECTION 4.2.	Early Retirement Benefit	11

	SECTION 4.3.	Retirement Account	12

	SECTION 4.4.	Opening Balance	12

	SECTION 4.5.	Company Credits	13

	SECTION 4.6.	Monthly Allocation of Company Credits	13

	SECTION 4.7.	Interest Credits	13


	SECTION 4.8.	Preservation of Accrued Benefit of Prior Plan	13

	SECTION 4.9.	Grandfather Benefit Amount	13

	SECTION 4.10.	Restoration of Retirement Account	14

ARTICLE V ENTITLEMENT TO BENEFITS			14

	SECTION 5.1.	Normal Retirement	14

	SECTION 5.2.	Postponed Retirement	14

	SECTION 5.3.	Early Retirement	14

	SECTION 5.4.	Disability	14

	SECTION 5.5.	Termination of Employment	14

	SECTION 5.6.	Vesting on Plan Termination	15

	SECTION 5.7.	Death	15

	SECTION 5.8.	Suspension of Benefits	15

	SECTION 5.9.	USERRA	15

ARTICLE VI DEATH BENEFITS			15

	SECTION 6.1.	Payment of Death Benefits	15

	SECTION 6.2.	Designation of Beneficiary	16

	SECTION 6.3.	Benefit Commencement	16

	SECTION 6.4.	Spousal Death Benefit	16

ARTICLE VII DISABILITY			16

	SECTION 7.1.	Disability Retirement	16

	SECTION 7.2.	Immediate Benefit	16

	SECTION 7.3.	Deferred Benefit	16

	SECTION 7.4.	Disability Company Credits	17

ARTICLE VIII PAYMENT OF BENEFIT			17

	SECTION 8.1.	Date of Payment Commencement	17

	SECTION 8.2.	Required Commencement at Age 70 ¹ ⁄ ₂	17

	SECTION 8.3.	Normal Form of Benefit	19

	SECTION 8.4.	Right to Elect Alternate Form of Benefit	19

	SECTION 8.5.	Form of Election	20

	SECTION 8.6.	Optional Forms of Retirement Benefit	20

	SECTION 8.7.	Beneficiary(ies)	21



	SECTION 8.8.	Lump Sum Payment	21

	SECTION 8.9	Direct Rollover Treatment for Certain Distributions	21

	SECTION 8.10	Retroactive Benefit Commencement Dates	22

ARTICLE IX FUNDING			22

	SECTION 9.1.	Funding Policy	22

	SECTION 9.2.	Trust Fund	22

	SECTION 9.3.	Non-Diversion of the Fund	22

	SECTION 9.4.	Rights of Members and Others	23

	SECTION 9.5.	Contingent Nature of Contributions	23

ARTICLE X PLAN ADMINISTRATION			23

	SECTION 10.1.	Named Fiduciary	23

	SECTION 10.2.	Allocation of Duties	23

	SECTION 10.3.	Authority	23

	SECTION 10.4.	Action	23

	SECTION 10.5.	Fiduciary Capacity	23

	SECTION 10.6.	Determination of Benefits and Benefit Claims Procedures	23

ARTICLE XI MERGERS, CONSOLIDATIONS AND ASSETS OR LIABILITY TRANSFERS			24

	SECTION 11.1.	Mergers, Consolidations and Transfers	24

ARTICLE XII AMENDMENT OF PLAN			24

	SECTION 12.1.	Right to Amend the Plan	24

	SECTION 12.2.	Prior Plan Provisions	24

	SECTION 12.3.	Plan Qualification	24

ARTICLE XIII TERMINATION OF THE PLAN			24

	SECTION 13.1.	Right to Terminate The Plan	24

	SECTION 13.2.	Vesting Upon Plan Termination or Partial Termination	24

	SECTION 13.3.	Residual Assets Returned to Company	24

	SECTION 13.4.	Settlement of Termination Liabilities	25

ARTICLE XIV LIMITATION OF RETIREMENT BENEFITS			25

	SECTION 14.1.	Special Limitation for Twenty-Five Highest Paid	25

	SECTION 14.2.	Exception To Special Limitations	25

	SECTION 14.3.	Plan Termination Limit	25


	SECTION 14.4.	Interpretation	25

ARTICLE XV LIMITATIONS ON BENEFITS			25

	SECTION 15.1.	Code Section 415 Limits	25

	SECTION 15.2.	Maximum Projected Benefit	27

	SECTION 15.3.	Interpretation	27

ARTICLE XVI PARTICIPANTS IN PREDECESSOR PLANS			27

	SECTION 16.1.	No Duplication of Benefits	27

	SECTION 16.2.	Payment of Integrated Amounts	28

ARTICLE XVII TOP-HEAVY CONTINGENCY			28

	SECTION 17.1.	General Rule	28

	SECTION 17.2.	Aggregation Group	28

	SECTION 17.3.	Top-Heavy Definition	28

	SECTION 17.4.	Key Employee	29

	SECTION 17.5.	Non-key Employee	29

	SECTION 17.6.	Minimum Benefit Provision	30

	SECTION 17.7.	Vesting Provision	30

	SECTION 17.8.	Interpretation	30

ARTICLE XVIII MISCELLANEOUS			30

	SECTION 18.1.	Limitation on Distributions	30

	SECTION 18.2.	Exclusive Benefit; Limitation on Reversion of Contributions	30

	SECTION 18.3.	Voluntary Plan	31

	SECTION 18.4.	Nonalienation of Benefits	31

	SECTION 18.5.	Inability to Receive Benefits	31

	SECTION 18.6.	Missing Persons	31

	SECTION 18.7.	Limitation of Third Party Rights	31

	SECTION 18.8.	Invalid Provisions	31

	SECTION 18.9.	Use and Form of Words	31

	SECTION 18.10.	Headings	31

	SECTION 18.11.	Governing Law	32

	SECTION 18.12.	Information Required in Writing	32

EXHIBIT 10.32

SIXTH AMENDMENT TO THE PROFIT PARTICIPATION PLAN OF MOODY’S CORPORATION

The Profit Participation Plan of Moody’s Corporation is hereby amended as follows, effective as of the date this Sixth Amendment is adopted:

Section 1.41A is amended to read as follows:

“Spouse” shall mean the spouse of a Member. Effective as of September 16, 2013 (or, if a different date is permitted or required by Internal Revenue Service guidance for any particular purpose, the date specified in such guidance for such purpose), such determination shall be made based on the laws of the state where the marriage is initially established as provided in Revenue Ruling 2013-17.

All references in the Plan to “spouse” are amended to read “Spouse”.


		MOODY’S 2013 ANNUAL REPORT			10.36

EXHIBIT 21

SUBSIDIARIES OF MOODY’S CORPORATION

The following is a list of active subsidiaries of Moody’s Corporation as of December 31, 2013.

U.S. Entities


Amba Research USA Inc.		Delaware
Copal Partners (US) Inc.		Delaware
CSI Global Education, US, Inc.		Delaware
Exevo Inc.		Delaware
Foundation for Fiduciary Studies, Inc.		Delaware
MIS Asset Holdings, Inc.		Delaware
MIS Quality Management Corp.		Delaware
Moody’s Advisors Inc.		Delaware
Moody’s Analytics, Inc.		Delaware
Moody’s Assurance Company, Inc.		New York
Moody’s Assureco, Inc.		Delaware
Moody’s Capital Markets Research, Inc.		Delaware
Moody’s Credit Assessment Holdings, LLC		Delaware
Moody’s Credit Assessment Inc.		Delaware
Moody’s Holdings LLC		Delaware
Moody’s International LLC		Delaware
Moody’s Investors Service, Inc.		Delaware
Moody’s Overseas Holdings, Inc.		Delaware
Moody’s Risk Services Corp.		Delaware
Moody’s Shared Services, Inc.		Delaware

Non U.S. Entities


Administración de Calificadoras S.A.		Mexico
Amba Investment Services Limited		British Virgin Islands
Amba Holdings Inc.		Mauritius
Amba Independent Ltd.		British Virgin Islands
Amba Research Costa Rica SA		Costa Rica
Amba Research HongKong Limited		Hong Kong
Amba Research (India) Private Limited		India
Amba Research Lanka (Private) Limited		Sri Lanka
Amba Research Singapore Pte. Ltd.		Singapore
Amba Research UK Limited		United Kingdom
Barrie & Hibbert Asia Limited		Hong Kong
Copal Business Consulting (Beijing) Co Ltd		China
Copal Market Research Ltd.		Mauritius
Copal Partners (HK) Limited		Hong Kong
Copal Partners Ltd. (Jersey)		Jersey
Copal Partners (UK) Ltd.		United Kingdom
Copal Research India Private Limited		India
Copal Research Ltd.		Mauritius
Dornoch 2011 Limited		United Kingdom
ENB Consulting (Asia) Limited.		Hong Kong
ENB Consulting Asia (Singapore) Pte. Ltd.		Singapore
Exevo India Private Limited		India
Exevo Research Pte. Ltd.		Singapore
Fermat Finance SPRL		Belgium
Fermat GmbH		Germany
Fermat International SA		Belgium


		MOODY’S 2013 ANNUAL REPORT			21-1


Fermat Limited		Hong Kong
Fermat Spzoo		Poland
Korea Investors Service, Inc.		South Korea
KIS Pricing, Inc.		South Korea
Midroog Ltd.		Israel
Moody’s America Latina Ltda.		Brazil
Moody’s Analytics Australia Pty Ltd		Australia
Moody’s Analytics Canada Inc.		Canada
Moody’s Analytics Czech Republic s.r.o.		Czech Republic
Moody’s Analytics (DIFC) Limited		Dubai International Finance Centre
Moody’s Analytics Deutschland GmbH		Germany
Moody’s Analytics do Brasil Ltda.		Brazil
Moody’s Analytics Global Education (Canada) Inc.		Canada
Moody’s Analytics Holdings (UK) Ltd.		United Kingdom
Moody’s Analytics Hong Kong Limited		Hong Kong
Moody’s Analytics International Licensing GmbH		Switzerland
Moody’s Analytics Japan K.K.		Japan
Moody’s Analytics Korea Co., Ltd.		South Korea
Moody’s Analytics SAS		France
Moody’s Analytics Singapore Pte. Ltd.		Singapore
Moody’s Analytics Technical Services (Hong Kong) Ltd.		Hong Kong
Moody’s Analytics Technical Services (UK) Limited		United Kingdom
Moodys Analytics (Thailand) Co. Ltd.		Thailand
Moody’s Analytics UK Ltd.		United Kingdom
Moody’s Asia-Pacific Group (Singapore) Pte. Ltd.		Singapore
Moody’s Asia Pacific Limited		Hong Kong
Moody’s Canada, Inc.		Canada
Moody’s Canada LP		Canada
Moody’s China (B.V.I.) Limited		British Virgin Islands
Moody’s Company Hong Kong Limited		Hong Kong
Moody’s Credit Assessment India Private Limited		India
Moody’s de Mexico S.A. de C.V.		Mexico
Moody’s Deutschland GmbH		Germany
Moody’s Eastern Europe LLC		Russia
Moody’s EMEA Holdings Limited		United Kingdom
Moody’s EMEA Ltd.		United Kingdom
Moody’s Finance Company Limited		United Kingdom
Moody’s France S.A.S.		France
Moody’s Group Australia Pty Ltd		Australia
Moody’s Group Cyprus Ltd.		Cyprus
Moody’s Group Deutschland GmbH		Germany
Moody’s Group Finance Ltd.		United Kingdom
Moody’s Group France SAS		France
Moody’s Group (Holdings) Ltd.		United Kingdom
Moody’s Group Japan G.K.		Japan
Moody’s Group UK Ltd.		United Kingdom
Moody’s Holdings (BVI) Ltd.		British Virgin Islands
Moody’s Holdings Ltd.		United Kingdom
Moody’s Indonesia (BVI) Limited		British Virgin Islands
Moody’s Information Consulting (Shenzhen) Co., Ltd.		China
Moody’s Interfax Rating Agency Ltd.		Russia
Moody’s International (UK) Limited		United Kingdom
Moody’s Investment Company India Private Limited		India
Moody’s Investors Service Asia Pacific Pty Ltd		Australia
Moody’s Investors Service (Beijing), Ltd.		China
Moody’s Investors Service (BVI) Ltd.		British Virgin Islands


21-2		MOODY’S 2013 ANNUAL REPORT


Moody’s Investors Service Cyprus Ltd.		Cyprus
Moody’s Investors Service Espana, S.A.		Spain
Moody’s Investors Service Hong Kong Limited		Hong Kong
Moody’s Investors Service (Korea) Inc.		South Korea
Moody’s Investors Service Ltd.		United Kingdom
Moody’s Investors Service Middle East Limited		Dubai International Finance Centre
Moody’s Investors Service India Private Limited		India
Moody’s Investors Service Pty Limited		Australia
Moody’s Investors Service Singapore Pte. Ltd.		Singapore
Moody’s Investors Service South Africa (Pty.) Ltd.		South Africa
Moody’s Israel Holdings, Inc.		British Virgin Islands
Moody’s Italia S.r.l.		Italy
Moody’s (Japan) K.K.		Japan
Moody’s Latin America Calificadora de Riesgo S.A.		Argentina
Moody’s Latin America Holding Corp.		British Virgin Islands
Moody’s Mauritius Holdings Limited.		Mauritius
Moody’s Servicios Latino-America SA de CV		Mexico
Moody’s Shared Services India Private Limited		India
Moody’s Shared Services UK Limited		United Kingdom
Moody’s SF Japan K.K.		Japan
Moody’s Singapore Pte Ltd		Singapore
Moody’s South Africa (BVI) Ltd.		British Virgin Islands
Moody’s (UK) Limited		United Kingdom
PT Moody’s Indonesia		Indonesia


		MOODY’S 2013 ANNUAL REPORT			21-3

EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We consent to the incorporation by reference in the registration statements on Forms S-3 and S-8 (No. 333-168453, No. 333-170727, No. 333-170753, No. 333-145127, No. 333-126564, No. 333-103496, No. 333-47848, No. 333-81121, No. 333-68555, No. 333-64653, No. 333-60737, No. 333-57915, No. 333-57267, No. 333-190259, No. 333-192333, No. 333-192334) of Moody’s Corporation of our report dated February 26, 2014, with respect to the consolidated balance sheets of Moody’s Corporation as of December 31, 2013 and 2012, and the related consolidated statements of operations, shareholders’ equity (deficit), comprehensive income and cash flows, for each of the years in the three-year period ended December 31, 2013 and the effectiveness of internal control over financial reporting as of December 31, 2013, which report appears in the December 31, 2013 annual report on Form 10-K of Moody’s Corporation.

/s/ KPMG LLP

New York, New York

February 26, 2014


		MOODY’S 2013 ANNUAL REPORT			EX23.1

EXHIBIT 31.1

CHIEF EXECUTIVE OFFICER CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Raymond W. McDaniel, Jr., President and Chief Executive Officer of Moody’s Corporation, certify that:

1.	I have reviewed this annual report on Form 10-K of Moody’s Corporation;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periods covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ RAYMOND W. MCDANIEL, JR.

Raymond W. McDaniel, Jr.

President and Chief Executive Officer

February 26, 2014


		MOODY’S 2013 ANNUAL REPORT			EX31.1

EXHIBIT 31.2

CHIEF FINANCIAL OFFICER CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Linda S. Huber, Executive Vice President and Chief Financial Officer of Moody’s Corporation, certify that:

1.	I have reviewed this annual report on Form 10-K of Moody’s Corporation;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the periods covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ LINDA S. HUBER

Linda S. Huber

Executive Vice President and Chief Financial Officer

February 26, 2014


		MOODY’S 2013 ANNUAL REPORT			EX31.2

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Moody’s Corporation on Form 10-K for the year ended December 31, 2013 as filed with the SEC on the date hereof (the “Report”), I, Raymond W. McDaniel, Jr., President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1)

the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ RAYMOND W. MCDANIEL, JR.

Raymond W. McDaniel, Jr.

President and Chief Executive Officer

February 26, 2014


		MOODY’S 2013 ANNUAL REPORT			EX32.1

EXHIBIT 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Moody’s Corporation on Form 10-K for the year ended December 31, 2013 as filed with the SEC on the date hereof (the “Report”), I, Linda S. Huber, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1)

the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ LINDA S. HUBER

Linda S. Huber

Executive Vice President and Chief Financial Officer

February 26, 2014


		MOODY’S 2013 ANNUAL REPORT			EX32.2