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 50 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 professional services, including credit training. 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 professional services. During the second quarter of 2009 the Company renamed its 'consulting' line of business within the MA operating segment to 'professional services.' The new name more accurately reflects the type of services rendered in this area, primarily training and other specialized projects undertaken at the request of customers. 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 professional services business primarily includes 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 and to Legacy Tax Matters, further described in Note 11.

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

Results of Operations

Three Months Ended June 30, 2009 compared with Three Months Ended June 30, 2008

Executive Summary

Moody's revenue in 2009 of $450.7 million, which included a $17 million negative impact from FX translation, decreased $36.9 million from $487.6 million in 2008. Total expenses of $263.5 million increased $9.6 million from the prior year and included a $14 million favorable benefit related to FX translation. Operating income for the quarter was $187.2 million, a 20% decline from $233.7 million for the same period in 2008. Moody's operating margin in 2009 was 41.5% compared to 47.9% in the prior year. Excluding the impact of restructuring in both years, operating margin was 42.2% in 2009 compared to 47.9% in 2008. Net Income for the quarter was $109.3 million, a decrease of $25.9 million, reflecting the decline in operating income combined with the increase in interest and other non-operating expenses, partially offset by a lower provision for income taxes. Diluted EPS was $0.46 in 2009, and included a benefit of $0.03 which incorporates the resolution of a Legacy Tax Matter and a charge relating to the previously disclosed 2009 Restructuring Plan. Excluding the impact of restructuring and Legacy Tax in both years, diluted EPS was $0.43, a decrease of $0.08 from 2008.

Moody's Corporation

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



                                                                           % change
                                              Three Months Ended           Favorable
                                                   June 30,              (Unfavorable)
                                              2009           2008
Revenue:

United States                               $   237.1       $ 263.5              (10.0 )%


International:

EMEA                                            152.1         158.8               (4.2 )%

Other                                            61.5          65.3               (5.8 )%


Total International                             213.6         224.1               (4.7 )%


Total                                           450.7         487.6               (7.6 )%


Expenses:

Operating                                       128.0         123.3               (3.8 )%

SG&A                                            116.7         114.0               (2.4 )%

Restructuring                                     3.1          (0.2 )              (NM )

Depreciation and amortization                    15.7          16.8                6.5 %


Total                                           263.5         253.9               (3.8 )%


Operating income                            $   187.2       $ 233.7              (19.9 )%


Interest (expense) income, net              $    (6.1 )     $ (12.4 )             50.8 %

Other non-operating (expense) income, net   $    (6.5 )     $   2.5             (360.0 )%

Net income attributable to Moody's          $   109.3       $ 135.2              (19.2 )%

Global MCO revenue for the three months ended June 30, 2009 of $450.7 million declined $36.9 million from the same period in 2008. Approximately $17 million of the decrease is attributable to the negative impact of FX translation relating to the weakening of the euro to the British pound and the strengthening of the U.S. dollar to the euro and British pound. The continued decline in global MIS revenue was partially offset by some growth within the MA operating segment. Recurring revenue in 2009 was 62% of total revenue, an increase from 57% in the prior year.

Revenue in the U.S. accounted for 53% of global MCO, which is consistent with 2008. U.S. revenue declined $26.4 million from the prior year, as turbulent capital markets continued to negatively impact investors' risk appetite and institutional and consumer borrowing.

International revenue of $213.6 million was $10.5 million lower than 2008, primarily reflecting the negative impact of FX translation, partially offset by growth from PPIF within MIS and in the MA operating segment.

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

                                        June 30,      % change
                                      2009    2008
                      United States   2,093   2,073        1.0 %

                      International   1,804   1,448       25.0 %


                      Total           3,897   3,521       11.0 %

Operating expenses of $128.0 million in 2009 were $4.7 million higher than the same period in 2008 due to increases in both compensation and non-compensation expenses reflecting acquisitions made in the fourth quarter of 2008. Compensation costs of $108.3 million were $3.1 million higher than the prior year primarily due to additional headcount from acquisitions, as well as an increase in incentive compensation reflecting better than expected results, partially offset by favorable changes in FX translation. Non-compensation expenses were $19.7, or a 9% increase over prior year, primarily reflecting higher costs associated with acquisitions, as well as some additional costs associated with professional services.

SG&A expenses of $116.7 million were $2.7 million higher than the prior year, reflecting an increase in non-compensation costs, partially offset by a decrease in compensation expenses and favorable changes in FX translation. Non-compensation costs of $58.8 million increased $5.4 million from the prior year due primarily to higher rent & occupancy costs in 2009 relating to the January 1, 2009 commencement of the Canary Wharf Lease in London and an increase in the allowance for uncollectible accounts due to a deterioration of liquidity caused by general economic conditions. Compensation costs were $57.9 million, down $2.7 million from the prior year primarily due to benefits realized from the 2007 and 2009 Restructuring Plans. Additionally, compensation costs in 2009 were down from the prior year due to $6 million of senior executive severance recorded in 2008. These decreases were partially offset by the impact of acquisitions made in the fourth quarter of 2008 as well as favorable changes in FX translation.

Restructuring expenses of $3.1 million increased from prior year reflecting costs associated with headcount reductions, divestiture of non-strategic assets and contract termination costs relating to office closures in accordance with the 2009 Restructuring Plan, as well as adjustments to previous estimates for the 2007 and 2009 Restructuring Plans.

Depreciation and amortization for the second quarter of 2009 of $15.7 million includes amortization of intangible assets associated with business acquisitions made in the fourth quarter of 2008. The 2008 amount reflects accelerated depreciation for the closure of the New Jersey facility of approximately $4 million.

Operating income of $187.2 million was $46.5 million lower than the prior year reflecting the 7.6% decrease in global revenue coupled with the 3.8% increase in total expenses. Changes in FX translation rates had a negative $3 million effect on operating income in 2009.

Net interest expense of $6.1 million decreased $6.3 million from the prior year. The 2009 amount reflects $6.5 million of interest income related to the favorable resolution of a Legacy Tax Matter during the quarter. Higher debt balances in 2009 were more than offset by favorable borrowing rates in the current year which reduced interest expense. Lower 2009 cash balances coupled with lower interest rate yields reduced interest income by $2.6 million.

Other non-operating (expense) income, net, was $(6.5) million in the second quarter of 2009, an increase of $9.0 million compared to the second quarter of 2008. The 2009 amount reflects $6.4 million of FX losses which was $5.5 million higher than 2008 resulting from the weakening of the euro to the British pound and the U.S. dollar. Additionally, the 2008 amount reflects a $6.4 million benefit for the reversal of a Legacy Tax Matter.

Moody's Effective Tax Rate for the three months ended June 30, 2009 was 36.4%, or 210 bps lower than the same period in 2008. The rate in 2009 was positively impacted by $4.3 million due to the favorable resolution of a Legacy Tax Matter, as well as a higher proportion of taxable income generated in lower tax jurisdictions outside the U.S. Excluding the impact of Legacy Tax Matters and restructuring, Moody's ETR was 38.8% for the second quarter of 2009 compared with 39.6% in the same period of 2008.

Net Income of $109.3 million was down $25.9 million compared to 2008 due to revenue declines combined with operating and non-operating expense increases, partially offset by a lower provision for income taxes. Excluding the impact of restructuring and Legacy Tax in both years, Net Income was $103.0 million in 2009, a decrease of $24.3 million from 2008.

Segment Results

Moody's Investors Service

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



                                                                         % change
                                                Three Months Ended       Favorable
                                                     June 30,          (Unfavorable)
                                                 2009         2008
 Revenue:
 Structured finance                           $     74.6    $  115.6           (35.5 )%
 Corporate finance                                 107.5        98.9             8.7 %
 Financial institutions                             67.3        75.1           (10.4 )%
 Public, project and infrastructure finance         60.9        66.2            (8.0 )%


 Total                                             310.3       355.8           (12.8 )%


 Expenses:
 Operating and SG&A                                163.2       170.4             4.2 %
 Restructuring                                       0.5         0.2          (150.0 )%
 Depreciation and amortization                       7.5        10.4            27.9 %


 Total                                             171.2       181.0             5.4 %


 Operating income                             $    139.1    $  174.8           (20.4 )%

Global MIS revenue of $310.3 million in 2009 was $45.5 million lower than 2008 due to declines in both the U.S. and international regions. International revenue accounted for 44% of total MIS in 2009, which is in-line with 2008. Changes in FX translation had a negative $13 million impact on MIS revenue for the second quarter of 2009. Transaction-based revenue in 2009 represented 52% of total MIS revenue compared to 56% in 2008.

In the U.S., 2009 revenue was $173.7 million and decreased $25.3 million from 2008 with SFG accounting for 75% of the decline, followed by lower revenue from PPIF and FIG, partially offset by some growth from CFG.

Outside the U.S., revenue of $136.6 million was 13% lower than the prior year primarily reflecting the $13 million negative impact of changes in FX translation rates. Revenue declines continued mostly in SFG and FIG while CFG was flat and PPIF showed some growth.

Global SFG revenue decreased $41.0 million from prior year primarily due to lower revenue from Derivatives, CREF, RMBS and ABS which reflects continued declines in new issuance volumes as a result of lower securitization activity. The decrease in new issuance reflects the on-going reduced investor appetite for structured investments as well as continued high interest rate spreads and higher credit enhancements in the structured finance credit markets. In the U.S., SFG revenue was $38.2 million, a decrease of approximately $19 million from the prior year reflecting new issuance declines in all asset classes, but most significantly in Derivatives, CREF and ABS. The decline in ABS reflected lower credit card issuance due to ongoing credit concerns combined with wide interest rate spreads and a reduction in auto issuance due to lower auto sales driven by increased unemployment, a difficult consumer financing market and concerns about U.S. automaker bankruptcy proceedings. The same underlying credit and market concerns affecting U.S. ABS has also negatively impacted U.S. CREF and U.S. Derivatives. The lack of commercial real estate loan originations has significantly limited CMBS issuance. Low investor confidence in CDOs and collateralized loan obligations has greatly reduced issuance within the Derivatives sector. Internationally, revenue of $36.4 million declined $22.1 million, or 38%, from 2008 mainly attributed to Derivatives, RMBS and ABS as well as a $4 million negative FX impact.

The decrease in international SFG revenue was exacerbated by the fact that a large number of banks have moved more towards utilizing the European Central Bank for funding securitized assets since the credit crisis has removed liquidity from the market. Furthermore, the ECB only accepts Aaa-rated tranches and only requires a rating from one CRA. Transaction revenue in 2009 for global SFG was 41% compared to 56% in the prior year.

Global CFG revenue of $107.5 million increased $8.6 million from prior year reflecting strength in global investment-grade activity and in U.S. high-yield bond issuance. In the U.S., revenue was $66.7 million, an increase of $8.5 million due primarily to new issuance in speculative-grade securities which has seen lower interest rate spreads as investor confidence in the high-yield market has increased. U.S. investment-grade issuance was also up compared to prior year as investors' refinanced debt ahead of expected maturities possibly in anticipation of increasing interest rates, potential future volatility in interest rate spreads and concerns about availability of future funding. Outside the U.S., revenue of $40.8 million was flat with the prior year as the increase in revenue from investment-grade issuance within the EMEA region was equally offset by declines in revenue from national-scale and indicative ratings within EMEA and speculative-grade ratings in the Americas region. Transaction revenue represented 67% of total CFG in 2009, an increase from 63% in 2008.

Global FIG revenue was $67.3 million for the quarter, a decrease of $7.8 million from the prior year, including a $4 million negative impact from changes in FX translation rates. Recurring revenue represented 67% of total FIG revenue, up from 61% in the same period of 2008. In the U.S., revenue of $28.6 million declined $5.7 million from the prior year, most notably in the insurance sector where the 2008 comparable issuance levels were more robust. Additionally, there was decreased revenue from the financial guarantor sector due to industry consolidation and reduced market access. Internationally, revenue in 2009 of $38.7 million decreased 5% from 2008 as increases in the insurance sector within the EMEA region were more than offset by steep declines within the EMEA and Asian banking sectors.

Global PPIF revenue of $60.9 million decreased $5.3 million from the prior year, as declines within the U.S. were only partially offset by growth internationally. U.S. revenue was $40.2 million and decreased $9.1 million, or 18%, from 2008 due primarily to low issuance volumes for municipal structured products compared to a strong prior year comparable period. Outside the U.S., revenue increased $3.8 million, or 22%, from the prior year reflecting strong growth in the EMEA infrastructure finance sector due to robust issuance in 2009. The cost of bank financing in the European markets remains high which is resulting in issuers refinancing their existing bank loans through the bond market to improve their cash flow positions. Relationship revenue in 2009 represented 41% of total PPIF, up from 36% in 2008. Changes in FX translation rates had a negative $2 million impact on international PPIF revenue in 2009.

Operating and SG&A expenses for the quarter decreased $7.2 million, primarily reflecting declines in compensation costs of $7 million and the favorable impact of changes in FX translation rates. The decrease in compensation costs was due to $6 million of senior executive severance costs included in 2008, coupled with lower stock-based compensation expense reflecting a lower Black-Scholes fair value for the 2009 awards compared to the value of the 2006-2008 awards. These were partially offset by an increase in incentive compensation during the second quarter of 2009 compared to the prior year, reflecting stronger than expected operating results. Additionally, there was an increase in the allowance for uncollectible accounts due to the deterioration of liquidity caused by general economic conditions.

Restructuring expenses reflect adjustments made to previous estimates for the 2007 and 2009 Restructuring Plans.

Depreciation and amortization expense of $7.5 million decreased $2.9 million from prior year, due primarily to accelerated depreciation for the NJ office facility closure in 2008.

Operating income of $139.1 million was $35.7 million lower than 2008 reflecting the 12.8% decline in revenue outpacing the 5.4% reduction in total expenses. Changes in FX translation rates had a negative $3 million impact on operating income for the quarter.

Moody's Analytics

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



                                                                    % change
                                        Three Months Ended          Favorable
                                             June 30,             (Unfavorable)
                                         2009         2008
      Revenue:
      Subscriptions                   $    117.8    $  117.1                0.6 %
      Software                              17.4         9.5               83.2 %
      Professional Services                  5.2         5.2                 -


      Total                                140.4       131.8                6.5 %


      Expenses:
      Operating and SG&A                    81.5        66.9              (21.8 )%
      Restructuring                          2.6        (0.4 )              (NM )
      Depreciation and amortization          8.2         6.4              (28.1 )%


      Total                                 92.3        72.9              (26.6 )%


      Operating income                $     48.1    $   58.9              (18.3 )%

Global MA revenue of $140.4 million, including a $4 million negative impact from changes in FX translation rates, increased $8.6 million from the prior year. The increase is primarily due to contributions from business acquisitions made in the fourth quarter of 2008. Relationship revenue accounted for 91% of total MA in 2009, compared to 93% in the prior year.

In the U.S., revenue of $63.4 million decreased 2% from the prior year, with declines in subscriptions and software revenue only partially offset by an increase in professional services revenue. Internationally, revenue was $77.0 million, an increase of $9.7 million, or 14%, from 2008, driven by the strong growth in software revenue from business acquisitions.

Global subscriptions revenue was relatively flat with prior year as lower demand for historical ratings and credit default data was replaced with higher demand for subscriptions that provide institutions the information necessary to manage their investments, analyze macroeconomic conditions and measure credit risk for a borrower or transaction. The $7.9 million increase in software is almost entirely attributable to business acquisitions made in the fourth quarter of 2008. In professional services, 2009 revenue was flat with 2008 reflecting reduced customer spending on training services, offset by an increase in specialized project services.

Operating and SG&A expenses of $81.5 million were $14.6 million higher than 2008 due primarily to the increase in compensation expenses reflecting approximately 400 additional headcount at June 30, 2009 compared to 2008. The increase in headcount and corresponding increase in compensation expense is attributable to the business acquisitions made in the fourth quarter of 2008, partially offset by benefits realized from the 2009 Restructuring Plan and favorable changes in FX translation. Non-compensation expenses of $28 million in 2009 increased approximately $7 million from the prior year in areas such as rent, T&E, marketing and subscriptions due primarily to business acquisitions.
Additionally, non-compensation expense increased due to additional allowance for uncollectible accounts resulting from the deterioration of liquidity caused by general economic conditions.

Restructuring expenses increased $3.0 million from prior year, primarily due to costs associated with the divestiture of non-strategic assets and contract termination costs for office closures in accordance with the 2009 Restructuring Plan. Additionally, restructuring expenses for the three-months ended June 30, 2009 and 2008 reflect adjustments made to previous estimates for the 2009 and 2007 Restructuring Plans.

Depreciation and amortization expenses increased $1.8 million from prior year, reflecting additional amortization for intangible assets obtained from 2008 business acquisitions.

. . .