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 and ongoing monitoring 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 credit 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.

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

Results of Operations

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

Executive Summary

Moody's revenue in 2009 of $451.8 million, which included a $10 million negative impact from FX translation, increased $18.4 million from $433.4 million in 2008. Total expenses of $279.3 million increased $35.7 million from prior year and included a $7 million favorable benefit related to FX translation. Operating income for the quarter was $172.5 million, a 9.1% decline from $189.8 million for the same period in 2008. Moody's operating margin was 38.2% compared to 43.8% in the prior year. Excluding the impact of restructuring in both years, operating margin was 39.0% in 2009 compared to 43.4% in 2008. Net Income for the quarter was $100.6 million, a decrease of $12.4 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 $0.42 in 2009, and included a $0.01 charge related to restructuring actions. Excluding the aforementioned impact related to restructuring in 2009, diluted EPS was $0.43, a decrease from $0.45 in 2008 which excludes a $0.01 impact related to a favorable resolution of a Legacy Tax Matter.

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
                                                 September 30,           (Unfavorable)
                                              2009           2008
Revenue:

United States                               $   229.7       $ 218.3                5.2 %


International:

EMEA                                            156.7         155.9                0.5 %

Other                                            65.4          59.2               10.5 %


Total International                             222.1         215.1                3.3 %


Total                                           451.8         433.4                4.2 %


Expenses:

Operating                                       135.1         122.7              (10.1 )%

SG&A                                            124.3         108.1              (15.0 )%

Restructuring                                     3.7          (1.8 )           (305.6 )%

Depreciation and amortization                    16.2          14.6              (11.0 )%


Total                                           279.3         243.6              (14.7 )%


Operating income                            $   172.5       $ 189.8               (9.1 )%


Interest (expense) income, net              $   (11.5 )     $ (12.6 )              8.7 %

Other non-operating (expense) income, net   $     1.7       $   7.5              (77.3 )%

Net income attributable to Moody's          $   100.6       $ 113.0              (11.0 )%

Revenue in the U.S. accounted for 51% of global MCO, which is consistent with 2008. U.S. revenue increased $11.4 million from the prior year reflecting strong growth in ratings from investment and speculative-grade issuance within CFG due to narrowing credit spreads and increased investor confidence within both the investment-grade and high-yield markets.

International revenue of $222.1 million in the third quarter of 2009 was $7 million higher than 2008. Excluding the negative impact of FX translation, international revenue increased $16.5 million compared to the same period in 2008.

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

                                      September 30,    % change
                                      2009     2008
                     United States    2,158    2,088        3.4 %

                     International    1,815    1,494       21.5 %


                     Total            3,973    3,582       10.9 %

The increase in international staffing as shown in the table above is due primarily to the fourth quarter 2008 acquisitions within the MA segment.

Operating expenses of $135.1 million in 2009 were $12.4 million higher than the same period in 2008 due to increases in compensation expenses. Compensation costs of $115.2 million were $12.4 million higher than the prior year primarily due to additional headcount from acquisitions, as well as an increase in accruals for incentive compensation reflecting greater achievement against targeted results in 2009 compared to the prior year, partially offset by favorable changes in FX translation. Non-compensation expenses were flat compared to 2008, reflecting higher costs associated with the fourth quarter 2008 acquisitions, offset by favorable changes in FX translation.

SG&A expenses of $124.3 million were $16.2 million higher than the prior year, reflecting increases in both compensation and non-compensation costs, partially offset by favorable changes in FX translation. Non-compensation costs of $63.0 million increased $12.1 million from the prior year reflecting an increase in professional fees which includes legal and IT consulting costs, as well as higher rent and occupancy costs relating to the January 1, 2009 commencement of the Canary Wharf Lease in London. Additionally, non-compensation costs for the third quarter of 2009 include approximately $3 million relating to an international VAT tax matter. Compensation costs were $61.3 million, up $4.1 million compared to 2008, due primarily to higher incentive compensation accruals reflecting greater achievement against targeted results in 2009 compared to the prior year, partially offset by the favorable impact in FX translation.

Restructuring expenses of $3.7 million increased from the prior year reflecting costs associated with headcount reductions, the divestiture of non-strategic assets and contract termination costs 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 third quarter of 2009 of $16.2 million increased $1.6 million compared to the same period in 2008. The increase is due primarily to amortization of intangible assets associated with business acquisitions made in the fourth quarter of 2008.

Operating income of $172.5 million was $17.3 million lower than the prior year reflecting the 4.2% increase in global revenue that was more than offset by the 14.7% increase in total expenses. Changes in FX translation rates had an unfavorable $2 million effect on operating income in 2009.

Net interest expense of $11.5 million decreased $1.1 million compared to the third quarter of 2009 due to lower interest expense resulting from favorable borrowing rates and lower debt balances partially offset by lower interest income resulting from lower 2009 average cash balances coupled with lower interest rate yields.

Moody's ETR for the three months ended September 30, 2009 was 37.5%, or 90 bps lower than the same period in 2008, reflecting a higher amount of taxable income generated in lower tax jurisdictions outside of the U.S.

Net Income of $100.6 million was down $12.4 million compared to 2008, reflecting the $18.4 million increase in revenue more than offset by increases in both operating and non-operating expenses, partially offset by a lower provision for income taxes. Excluding the impact of restructuring and Legacy Tax in both years, Net Income was $102.9 million, a decrease of $6.2 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
                                                 September 30,           (Unfavorable)
                                                2009         2008
Revenue:
Structured finance                           $     79.2    $   95.7              (17.2 )%
Corporate finance                                 101.4        77.0               31.7 %
Financial institutions                             62.9        64.4               (2.3 )%
Public, project and infrastructure finance         61.8        59.7                3.5 %


Total                                             305.3       296.8                2.9 %


Expenses:
Operating and SG&A                                173.7       157.2              (10.5 )%
Restructuring                                       1.0        (1.4 )           (171.4 )%
Depreciation and amortization                       7.9         8.5                7.1 %


Total                                             182.6       164.3              (11.1 )%


Operating income                             $    122.7    $  132.5               (7.4 )%

Global MIS revenue of $305.3 million in 2009 increased $8.5 million, or $14.0 million excluding the unfavorable changes in FX translation rates, compared to 2008. The increase reflects good growth in investment-grade corporate debt issuance in the U.S. and EMEA and speculative-grade corporate debt issuance in the U.S., partially offset by declines in both U.S. and non-U.S. SFG revenue. Transaction revenue for total MIS was 49% in the third quarter of 2009 compared to 48% for the same period in 2008.

In the U.S., revenue was $164.8 million, an increase of $11.5 million, or 8% from prior year, reflecting good growth in investment-grade and speculative-grade issuance within CFG being partially offset by declines in all other LOBs. Outside the U.S., revenue of $140.5 million declined 2%, primarily reflecting declines in SFG in EMEA, partially offset by strong growth in investment-grade corporate debt issuance within CFG.

Global SFG revenue of $79.2 million decreased $16.5 million reflecting the continued slowdown in new issuance in the securitization markets due to reduced investor appetite, continued high credit spreads and higher credit enhancements. As a result, transaction revenue declined to 43% of total SFG compared to 48% in the same period of 2008. In the U.S., revenue of $37.0 million decreased $3.0 million, or 8% against prior year, and represented 47% of total SFG revenue, compared to 42% in the prior year period. The decline was most notable within the Derivatives sector of the business. Internationally, revenue of $42.2 million declined $13.5 million, with approximately 59% of the decline occurring within EMEA Derivatives. Changes in FX translation rates had a negative $1 million impact on international SFG revenue in 2009.

Global CFG revenue of $101.4 million increased $24.4 million from the prior year with good growth in both the U.S. and non-U.S. regions. Transaction revenue was 63% for the third quarter of 2009, up from 53% in the same period of 2008. In the U.S., revenue of $62.6 million increased $16.2 million, or 35% from 2008, reflecting strong growth in issuance in both the speculative-grade and investment-grade markets. The increases are due to narrowing interest rate spreads, increases in investor confidence and issuers' refinancing debt ahead of expected maturities possibly in anticipation of future interest rate increases, potential future volatility in interest rate

Global FIG decreased $1.5 million, or was flat excluding the unfavorable impact of FX translation, compared to prior year. Transaction revenue represented 27% of total FIG revenue, down from 30% in the third quarter of 2008. In the U.S., revenue of $26.0 million decreased $1.1 million from the prior year reflecting challenging markets within the banking sector partially offset by growth in the insurance sector which is due to insurers taking advantage of favorable market conditions to refinance existing debt and recapitalize their balance sheets. Internationally, revenue in the third quarter of 2009 of $36.9 million was flat compared to the same period in 2008.

Global PPIF revenue of $61.8 million increased $2.1 million from the prior year, reflecting modest growth internationally. U.S. revenue of $39.2 million was flat compared to 2008 due primarily to low issuance volumes for municipal structured products, particularly in variable-rate and auction-rate securities. Partially offsetting this decrease was a modest increase in both the U.S. public finance and project finance sectors compared to the prior year. Outside the U.S., revenue increased $2.7 million, reflecting strong growth in the EMEA infrastructure finance sector due to higher issuance coupled with increases in the project finance sector primarily resulting from two large debt issues in the region during the third quarter of 2009. Transaction revenue in the third quarter of 2009 represented 57% of total PPIF, down from 60% in 2008. Changes in FX translation rates had a negative $1 million impact on international PPIF revenue in 2009.

Operating and SG&A expense for the quarter increased $16.5 million, primarily reflecting increases in compensation costs of $12 million partially offset by favorable changes in FX translation rates. The increase in compensation expense is primarily due to higher accruals for incentive compensation reflecting greater achievement against targeted results in 2009 compared to the prior year. Non-compensation expenses increased approximately $5 million compared to 2008 primarily due to higher professional service fees which included legal and IT consulting.

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

Operating income of $122.7 million was $9.8 million lower than in 2008 reflecting the 11.1% increase in expenses outpacing the 2.9% increase in revenue.

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
                                           September 30,           (Unfavorable)
                                          2009         2008
       Revenue:
       Subscriptions                   $    118.9    $  118.7                0.2 %
       Software                              20.2        11.1               82.0 %
       Professional services                  7.4         6.8                8.9 %


       Total                                146.5       136.6                7.2 %


       Expenses:
       Operating and SG&A                    85.7        73.6              (16.4 )%
       Restructuring                          2.7        (0.4 )               NM
       Depreciation and amortization          8.3         6.1              (36.1 )%


       Total                                 96.7        79.3              (21.9 )%


       Operating income                $     49.8    $   57.3              (13.1 )%

Global MA revenue of $146.5 million, including a $4 million negative impact from changes in FX translation rates, increased $9.9 million from the prior year. The increase is due to contributions from business acquisitions made in the fourth quarter of 2008. Relationship revenue accounted for 88% of total MA revenue, down from 91% in the third quarter of 2008.

In the U.S., revenue of $64.9 million was flat compared to prior year with growth in subscriptions and software completely offset by declines in professional services. Internationally, revenue of $81.6 million increased $10 million compared to the same period of 2008, driven by the strong growth in software revenue from business acquisitions. Changes in FX translation rates had a negative $4 million impact on international MA revenue in 2009.

Within global subscriptions, modestly higher attrition due to contraction among capital markets customers was offset by demand for products that support analysis for investment and commercial credit applications. The $9.1 million increase in software was almost entirely attributable to acquisitions made in the fourth quarter of 2008. Third quarter 2009 professional services revenue increased modestly reflecting an increase in demand for portfolio analysis and risk modeling services.

Operating and SG&A expenses of $85.7 million were $12.1 million higher than 2008 due to increases in both compensation and non-compensation expenses. The $5 million increase in compensation is due primarily to higher salaries relating to increased headcount resulting from the fourth quarter 2008 business acquisitions partially offset by lower incentive compensation which reflects lower achievement against targeted results compared to the prior year and favorable changes in FX translation. Non-compensation expenses increased $7 million from the prior year in areas such as rent, T&E, marketing and subscriptions due primarily to the aforementioned business acquisitions.

Restructuring expenses increased $3.1 million from the prior year, primarily due to severance and contract termination costs associated with the divestiture of non-strategic assets as well as adjustments made to previous estimates for the 2009 and 2007 Restructuring Plans.

Depreciation and amortization expenses increased $2.2 million from prior year, primarily reflecting additional amortization for intangible assets acquired through business acquisitions in the fourth quarter of 2008.

Operating income of $49.8 million decreased $7.5 million compared to 2008, due to the 21.9% increase in expenses outpacing the 7.2% increase in revenue. Excluding restructuring in both years, operating income in 2009 was $52.6 million, a decrease of $4.3 million from the same period in 2008.

Nine Months Ended September 30, 2009 compared with Nine Months Ended September 30, 2008

Executive Summary

Moody's revenue for the first nine months of 2009 totaled $1,311.4 million, a decrease of $40.3 million from 2008. Excluding the negative impact from changes in FX translation rates, revenue for the first nine months of 2009 increased $6.6 million compared to the same period in 2008. Total expenses for the year-to-date period were $802.8 million, an increase of $73.9 from 2008, and included approximately $40 million in favorable impact from changes in FX translation rates. Operating income of $508.6 million in the first nine months of 2009 decreased $114.2 million compared to the same period in 2008. Excluding the impact of restructuring in both years, operating income was $527.2 million, a decrease of $92.9 million from the prior year. Diluted EPS of $1.26 for the first nine months of 2009 included a $0.05 unfavorable impact from restructuring actions and a $0.03 favorable impact relating to the resolution of a Legacy Tax Matter. Excluding the aforementioned items in 2009, diluted EPS of $1.28 decreased $0.16, or 11.1%, from $1.44 in 2008, which excludes the favorable per share impacts of $0.01 and $0.04 for restructuring and the resolution of Legacy Tax Matters, respectively.

Moody's Corporation

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



                                                                            % change
                                               Nine Months Ended            Favorable
                                                 September 30,            (Unfavorable)
                                              2009           2008
Revenue:
United States                               $   675.7      $   714.6               (5.4 )%


. . .