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

This Management's Discussion and Analysis of Financial Condition and Results of Operations contains Forward-Looking Statements. See "Forward-Looking Statements" commencing on page 42 for a discussion of uncertainties, risks and other factors associated with these statements.

The Company

Moody's is a provider of (i) credit ratings and related research, data and analytical tools, (ii) quantitative credit risk measures, risk scoring software and credit portfolio management solutions and (iii) software for fixed income pricing data and valuation models. Moody's operates in two reportable segments:
MIS and MA.

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

The MA segment develops a wide range of products and services that support the risk management activities of institutional participants in global financial markets. These offerings include quantitative credit risk scores, credit processing software, economic research, analytical models, financial data, securities pricing and valuation services, and specialized consulting services. MA also distributes investor-oriented research and data developed by MIS as part of its rating process, including in-depth research on major debt issuers, industry studies, and commentary on topical events.

Critical Accounting Estimates

Moody's discussion and analysis of its financial condition and results of operations are based on the Company's condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires Moody's to make estimates and judgments that affect reported amounts of assets and liabilities and related disclosures of contingent assets and liabilities at the dates of the financial statements and revenue and expenses during the reporting periods. These estimates are based on historical experience and on other assumptions that are believed to be reasonable under the circumstances. On an ongoing basis, Moody's evaluates its estimates, including those related to revenue recognition, accounts receivable allowances, contingencies, restructuring, goodwill and acquired intangible assets, pension and other post-retirement benefits, stock-based compensation, and income taxes. Actual results may differ from these estimates under different assumptions or conditions. Item 7, MD&A, in the Company's annual report on Form 10-K for the year ended December 31, 2008, includes descriptions of some of the judgments that Moody's makes in applying its accounting estimates in these areas. Since the date of the annual report on Form 10-K, there have been no material changes to the Company's critical accounting estimates.

Operating Segments

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

The MA segment consists of three lines of business - subscriptions, software and consulting. The subscriptions business includes credit and economic research, data and analytical models that are sold on a subscription basis for an initial 12-month term, with renewal features for subsequent annual periods; the software business includes license and maintenance fees for credit risk, securities pricing and valuation software products, and the consulting business includes professional services and credit training associated with risk modeling, credit scorecard development, and other specialized analytical projects, as well as credit education services that are typically sold on a per-engagement basis.

The following is a discussion of the results of operations of these segments, excluding 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. Additionally, overhead costs and corporate expenses of the Company are allocated to each segment based on a revenue-split methodology. Overhead expenses include costs such as rent and occupancy, information technology and support staff such as finance, human resources, information technology and legal.

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. These non-GAAP financial measures relate to adjustments made to the Company's 2007 and 2009 Restructuring Plans, further described in Note 8 to the Company's consolidated financial statements.

Certain prior year amounts have been reclassified to conform to the current presentation.

Results of Operations

Three Months Ended March 31, 2009 compared with Three Months Ended March 31, 2008

Executive Summary

Moody's revenue for the first quarter of 2009 totaled $408.9 million, a decrease from the first quarter of 2008 of $21.8 million, or 5%, including a $19 million negative impact from changes in FX translation rates. Total operating expenses of $260.0 million, which included $11.8 million of restructuring charges, increased $28.6 million from the prior year. Operating income for the quarter was $148.9 million, a decline of 25% from $199.3 million for the same period in 2008. Moody's operating margin for the first quarter of 2009 was 36.4%, 990 bps lower than 46.3% in the first quarter of 2008. Excluding the impact of restructuring in 2009 and 2008, operating margin was 39.3% and 46.1%, respectively. Net Income of $90.2 million was down $30.5 million from 2008, reflecting the decrease in operating income combined with an increase in interest and other non-operating expenses. Diluted EPS of $0.38 for the first quarter of 2009, which included a $0.03 charge relating to restructuring actions, decreased $0.10 from prior year, reflecting the impact of 25.3% lower Net Income, partially offset by approximately 6% fewer diluted shares outstanding in the first quarter of 2009 compared to the same period in 2008. Excluding the impact of restructuring, diluted EPS of $0.41 declined 15% in the first quarter of 2009 from $0.48 in the prior year.

Moody's Corporation

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




                                               Three Months Ended          % change
                                                    March 31,              Favorable
                                                2009          2008       (Unfavorable)
 Revenue:
 United States                               $    208.9      $ 232.9             (10.3 )%

 International:
 EMEA                                             144.5        140.4               2.9 %
 Other                                             55.5         57.4              (3.3 )%

 Total International                              200.0        197.8               1.1 %

 Total                                            408.9        430.7              (5.1 )%

 Expenses:
 Operating                                        122.4        119.9              (2.1 )%
 SG&A                                             110.2         99.7             (10.5 )%
 Restructuring                                     11.8         (0.7 )             (NM )
 Depreciation and amortization                     15.6         12.5             (24.8 )%

 Total                                            260.0        231.4             (12.4 )%

 Operating income                            $    148.9      $ 199.3             (25.3 )%

 Interest (expense) income, net              $     (3.3 )    $ (11.5 )            71.3 %
 Other non-operating (expense) income, net   $     (4.0 )    $   8.9            (144.9 )%
 Net income attributable to Moody's          $     90.2      $ 120.7             (25.3 )%

Global revenue of $408.9 million for the first quarter of 2009 was $21.8 million lower than the same period of 2008, reflecting declines in MIS mostly due to the $19 million negative impact of changes in FX translation rates resulting from the strengthening of the U.S. dollar relative to the British pound and the euro. The split between relationship and transaction revenue in 2009 of 66% and 34%, respectively, is in-line with 2008.

U.S. revenue was $208.9 million in the first quarter of 2009, down $24.0 million compared to the first quarter of 2008 with 89% of the decline from MIS.

Outside the U.S., revenue of $200.0 million was $2.2 million higher than the first quarter of 2008, reflecting a 13% increase in MA revenue partially offset by a 5% decrease from MIS. International revenue in the first quarter of 2009 accounted for 49% of total MCO compared to 46% in the first quarter of 2008. Changes in FX translation rates reduced international revenue growth by approximately $19 million, or 9.4%, in 2009.

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

                                        March 31,
                                      2009    2008    % change
                      United States   2,111   2,106        0.2 %
                      International   1,799   1,409       27.7 %

                      Total           3,910   3,515       11.2 %

Operating expenses were $122.4 million in 2009, an increase of $2.5 million from the first quarter of 2008. The increase primarily reflects $3.7 million higher non-compensation costs associated with business acquisitions in the fourth quarter of 2008, as well as an increase in bad debt expense. Compensation costs of $103.3 million in 2009 were relatively flat with the prior year period, as benefits realized in the first quarter of 2008 from the 2007 Restructuring Plan, were offset by increases relating to approximately 400 additional head count in 2009 due primarily to business acquisitions in the fourth quarter of 2008.

SG&A expenses of $110.2 million for the first quarter of 2009 increased $10.5 million from the same quarter in 2008. Compensation costs were $59.3 million, an increase of $2.3 million from the first quarter of 2008 as a result of additional headcount, mostly outside the U.S. from business acquisitions in the fourth quarter of 2008. Non-compensation costs in 2009 of $50.9 million increased more than $8 million from 2008, reflecting higher rent & occupancy, T&E, insurance, marketing to support business growth and additional expenses from companies acquired in the fourth quarter of 2008. Additionally, non-compensation expense increased from prior year due to the absence in 2009 of a $2.7 million insurance recovery received in the first quarter of 2008.

Restructuring expense of $11.8 million in 2009 reflects approximately $11 million of severance costs associated with the 2009 Restructuring Plan approved on March 27, 2009, and adjustments to the previous estimate for contract termination costs associated with the closure of the Company's New Jersey office as part of the 2007 Restructuring Plan.

Depreciation and amortization expense of $15.6 million increased $3.1 million from the first quarter of 2008 due primarily to the additional expense associated with acquired intangible assets from business acquisitions in the fourth quarter of 2008.

Operating income for the quarter was $148.9 million, down $50.4 million from the first quarter of 2008, reflecting the 5% decrease in revenue coupled with the 12% increase in total expenses. Changes in FX translation rates had a negligible effect on operating income in 2009 as the negative impact on revenue was offset by the positive effect on operating expenses. Excluding costs associated with restructuring, operating income for the first quarter of 2009 was $160.7 million, a decrease of $37.9 million, or 19%, from the comparable period in 2008.

Net interest expense was $3.3 million, a decrease of $8.2 million from the first quarter of 2008. This change reflects an interest expense reduction of approximately $12 million for tax and tax-related liabilities and approximately $4 million lower interest expense on borrowings due to significantly lower CP rates. These expense decreases were partially offset by approximately $6 million less interest income in 2009 compared to the first quarter of 2008 due to lower average cash and investment balances coupled with lower yields.

Other non-operating expense of $4.0 million increased $12.9 million from 2008, when there was $8.9 million of other non-operating income. This increase in expense reflects FX losses of $5 million for the first quarter of 2009 compared to $9 million in FX gains in the first quarter of 2008 resulting from the strengthening of the U.S. dollar relative to the euro and the British pound.

Moody's effective tax rate was 35.7% for the quarter, down from 38.4% in 2008 due primarily to a higher proportion of taxable income generated in lower tax jurisdictions outside the U.S. and net reductions to tax and tax-related liabilities.

Net Income was $90.2 million, down $30.5 million from prior year reflecting the decrease in operating income, combined with the increase in interest and other non-operating expenses.

Segment Results

Moody's Investors Service

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




                                                Three Months Ended         % change
                                                    March 31,              Favorable
                                                 2009         2008       (Unfavorable)
 Revenue:
 Structured finance                           $     72.4    $  102.4             (29.3 )%
 Corporate finance                                  84.1        73.3              14.7 %
 Financial institutions                             56.3        67.0             (16.0 )%
 Public, project and infrastructure finance         57.4        55.5               3.4 %

 Total                                             270.2       298.2              (9.4 )%

 Expenses:
 Operating and SG&A                                152.6       153.4               0.5 %
 Restructuring                                       7.6        (0.6 )             (NM )
 Depreciation and amortization                       7.7         7.0             (10.0 )%

 Total                                             167.9       159.8              (5.1 )%

 Operating income                             $    102.3    $  138.4             (26.1 )%

Global revenue was $270.2 million for the first quarter of 2009, a decrease of $28.0 million, or $10.9 million excluding changes in FX translation rates, compared to the first quarter of 2008 and was led by a 13% decline in the U.S. Transaction-based revenue represented 46% of global MIS in 2009, a decrease from 49% in 2008, resulting primarily from the continued decline in new issuance from SFG.

In the U.S., revenue was $145.4 million for the first quarter of 2009, down $21.4 million compared to the first quarter of 2008 resulting from the worsening economic and credit market conditions. Decreases in SFG and FIG of $21.9 million and $8.2 million, respectively, were partially offset by growth in CFG of $8.2 million.

International revenue was $124.8 million for the first quarter of 2009, a decrease of $6.6 million from 2008 reflecting an approximate $16 million negative impact from FX translation. Excluding changes in FX translation rates, total international revenue would have increased $9.9 million, or 8% from prior year, led by CFG and PPIF which grew by 25% and 23%, respectively, based mainly on increased investment-grade issuance within CFG and infrastructure within PPIF as companies/issuers took advantage of favorable market conditions to refinance debt ahead of expected maturity dates. Excluding the negative impact from changes in FX translation rates, SFG revenue decreased by 5% and FIG increased 4%. International revenue accounted for 46% of total MIS revenue in 2009, an increase from 44% in 2008.

Global SFG revenue of $72.4 million decreased $30.0 million, or $24.5 million excluding FX translation, reflecting the decrease in new issuance volumes as a result of lower securitization activity and higher interest rate spreads. The decrease in SFG was mostly within the ABS, CREF and Derivatives sectors both in the U.S. and internationally. Transaction revenue in 2009 dropped to 36% of total SFG from 50% in the first quarter of 2008. In the U.S., revenue was $30.4 million, compared to $52.3 million in the same quarter of the prior year. Approximately $12 million of the revenue decrease came from the continued decline in ABS issuance and ratings, coupled with no new issuance within RMBS and CREF. Internationally, revenue was down 16% mainly due to a decline of approximately $7 million from ratings for European credit derivatives that was partially offset by ongoing asset-backed securitization activity supported by the European Central Bank facilities. Excluding the changes in FX translation rates, international SFG revenue decreased $2.6 million, or 5%, in 2009 from the prior year.

Global CFG revenue totaled $84.1 million for the quarter, up $10.8 million from the same quarter of 2008. The growth was due to $18.5 million higher revenue from rating investment-grade securities, primarily reflecting the increase in companies refinancing debt ahead of expected maturity dates, partially offset by a decrease of approximately $7 million in bank loan ratings

resulting from reduced lending to the corporate sector. Transaction revenue for the quarter represented 60% of total CFG, up from 54% in the first quarter of 2008, reflecting the increase in refinancing activity which is primarily transaction-based. In the U.S., revenue was $53.6 million, an increase of $8.2 million, or 18%, from the first quarter of 2008, reflecting the strong growth in high-grade issuance due to narrowing interest rate spreads. Revenue generated outside the U.S. totaled $30.5 million in 2009, an increase of $2.6 million, or 9%, from the prior year, and represented 36% of global CFG revenue in the first quarter of 2009 compared to 38% in the same period of 2008. The majority of international growth came from rating investment-grade securities. The change in FX translation rates in 2009 from 2008 reduced international revenue growth by $4.3 million.

Global FIG revenue of $56.3 million was down $10.7 million from the first quarter of 2008. Declines within the global insurance/financial guarantors and banking sectors accounted for the decrease in the quarter. Relationship revenue was 76% of total FIG for the first quarter of 2009, up from 64% in the prior year. In the U.S., revenue of $22.9 million decreased $8.2 million, or 26%, from the same period in the prior year, while non-U.S. revenue declined $2.5 million from 2008 as issuance growth was more than offset by the unfavorable FX translation impact. International revenue represented 59% of global revenue compared to 54% in the prior year period. The change in FX translation rates in 2009 from 2008 accounted for approximately $4 million of the decrease in international FIG revenue. Excluding the effects of translation, international revenue in 2009 increased $1.6 million, or 4%, from 2008, due primarily to higher issuance activity within the European banking sector.

Global PPIF revenue was $57.4 million in 2009, up modestly from the first quarter of 2008 with 74% of the increase generated outside the U.S., primarily within EMEA. Transaction revenue represented 58% of total PPIF in 2009, which was consistent with 2008. U.S. revenue of $38.5 million was flat with prior year, as growth in the project & infrastructure finance sectors was offset by continuing declines in revenue from rating municipal structured products. Internationally, revenue increased 8% mostly from within the public finance and project & infrastructure sectors of EMEA, partially offset by declines in project & infrastructure finance within the Asia-Pacific region. Changes in FX translation rates reduced international revenue growth by $2.7 million.

Operating and SG&A expenses of $152.6 million in 2009, were flat with the first quarter of 2008 due to decreases in compensation expense of approximately $3 million offset by the same increase in non-compensation expenses. The decrease in compensation costs reflects the benefits realized from the 2007 Restructuring Plan, while the increase in non-compensation expenses was due primarily to additional rent and occupancy costs for the Canary Wharf location and higher expense for uncollectible accounts receivable resulting from the worsening global economic conditions that are causing liquidity and solvency issues for many institutions.

Restructuring expense of $7.6 million increased $8.2 million from prior year reflecting costs associated with the 2009 Restructuring Plan approved during the first quarter, partially offset by adjustments made in the first quarter of 2008 to initial cost estimates for the 2007 Restructuring Plan.

Operating income of $102.3 million was down $36.1 million from the prior year reflecting the 9% decline in revenue coupled with the 5% increase in expenses. Changes in FX translation rates had a negative $4 million impact on operating income in 2009. Operating income in 2009, excluding the impact from restructuring, was $109.9 million, a decrease of $27.9 million, or 20%, from the prior year, primarily due to the $28.0 million decline in revenue.

Moody's Analytics

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




                                         Three Months Ended         % change
                                             March 31,              Favorable
                                          2009         2008       (Unfavorable)
       Revenue:
       Subscriptions                   $    117.0    $  118.2              (1.0 )%
       Software                              16.1         9.5              69.5 %
       Consulting                             5.6         4.8              16.7 %

       Total                                138.7       132.5               4.7 %

       Expenses:
       Operating and SG&A                    80.0        66.2             (20.8 )%
       Restructuring                          4.2        (0.1 )             (NM )
       Depreciation and amortization          7.9         5.5             (43.6 )%

       Total                                 92.1        71.6             (28.6 )%

       Operating income                $     46.6    $   60.9             (23.5 )%

Global MA revenue of $138.7 million in the first quarter of 2009 increased $6.2 million due to higher software and consulting revenue of $6.6 million and approximately $1 million, respectively, partially offset by a minimal decrease in subscription revenue. The increase in software revenue is primarily due to business acquisitions in the fourth quarter of 2008. Changes in FX translation rates reduced MA revenue growth by approximately $2 million in the first quarter of 2009.

In the U.S., MA revenue was $63.5 million, down $3 million from prior year primarily due to declines within the subscriptions LOB. Weakness among financial services customers resulted in higher customer attrition that was partially offset by new subscription contracts, sales of software licenses for credit risk analysis products, and additional consulting engagements.

International revenue of $75.2 million increased $8.8 million compared to the first quarter of 2008 driven primarily by the software LOB which benefited from business acquisitions in the fourth quarter of 2008, combined with some growth within the subscriptions and consulting LOBs. International revenue accounted for 54% of total MA revenue in the first quarter of 2009 compared to 50% in the first quarter of 2008. Changes in FX translation rates reduced international MA revenue growth by $2.3 million, or 3.5%, in 2009.

Operating and SG&A expenses were $80.0 million in 2009, an increase of $13.8 million from the first quarter of 2008, primarily reflecting the impact from business acquisitions in the fourth quarter of 2008. Compensation expense in 2009 was $54.4 million, up from $50.0 million in the same quarter of the prior year. Non-compensation costs were $25.6 million, an increase of $9.4 million from 2008, reflecting additional professional fees associated with ongoing technology projects as well as rent, T&E and marketing costs as a result of recent business acquisitions.

Depreciation and amortization expense was $7.9 million for the first quarter of 2009, an increase of $2.4 million from the prior year, reflecting the impact of intangible assets acquired in the fourth quarter of 2008.

Operating income of $46.6 million in 2009 decreased $14.3 million from the first quarter of 2008, primarily reflecting the $20.5 million increase in total expenses outpacing the $6.2 million increase in revenue. The decrease was partially offset by a $2.6 million positive impact from FX translation during the quarter. Excluding the impact from restructuring, operating income totaled $50.8 million in 2009, a decrease of $10.0 million from the same quarter in 2008.

Liquidity and Capital Resources

Cash Flow

The Company is currently financing its operations and capital expenditures through cash flow from operations and from financing activities. The Company had net repayments on borrowings of $57.2 million during the three months ended March 31, 2009.

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

                                                Three Months Ended           $ Change
                                                     March 31,               Favorable
                                                2009           2008        (Unfavorable)
  Net cash provided by operating activities   $   192.1      $  184.9     $           7.2
  Net cash used in investing activities       $   (13.6 )    $  (52.7 )   $          39.1
  Net cash used in financing activities       $   (79.4 )    $ (238.1 )   $         158.7

Net cash provided by operating activities

The following changes in non-cash and other one-time items impacted cash . . .