NOTE 12

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 35.6 million shares, of which not more than 15.0 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 eligibility, 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, 0.8 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,

	2012		2011		2010
Stock-based compensation expense	$	64.5	$	56.7	$	56.6
Tax benefit	$	23.3	$	18.1	$	23.9

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,

	2012			2011			2010
Expected dividend yield		1.66	%		1.53	%		1.58	%
Expected stock volatility		44	%		41	%		44	%
Risk-free interest rate		1.55	%		3.33	%		2.73	%
Expected holding period		7.4 years			7.6 years			5.9 years
Grant date fair value	$	15.19		$	12.49		$	10.38

A summary of option activity as of December 31, 2012 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, 2011		17.4		$	39.60
Granted		0.5			38.68
Exercised		(4.4	)		28.77
Forfeited		(0.1	)		27.66
Expired		(0.4	)		57.28

Outstanding, December 31, 2012		13.0		$	42.82		4.6 yrs	$	163.9

Vested and expected to vest, December 31, 2012		12.8		$	43.05		4.5 yrs	$	159.2

Exercisable, December 31, 2012		10.4		$	46.14		3.9 yrs	$	109.9

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, 2012 and the exercise prices, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options as of December 31, 2012. This amount varies based on the fair value of Moody’s stock. As of December 31, 2012 there was $11.9 million of total unrecognized compensation expense related to options. The expense is expected to be recognized over a weighted average period of 1.3 years.

The following table summarizes information relating to stock option exercises:


	Year Ended December 31,

	2012		2011		2010
Proceeds from stock option exercises	$	127.4	$	50.3	$	36.4
Aggregate intrinsic value	$	61.3	$	25.3	$	19.7
Tax benefit realized upon exercise	$	23.4	$	9.6	$	7.8

A summary of the status of the Company’s nonvested restricted stock as of December 31, 2012 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, 2011		2.8		$	30.65
Granted		1.3			38.62
Vested		(1.0	)		33.82
Forfeited		(0.1	)		32.07

Balance, December 31, 2012		3.0		$	33.08

As of December 31, 2012, there was $56.5 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,

	2012		2011		2010
Fair value of vested shares	$	37.8	$	18.9	$	12.4
Tax benefit realized upon vesting	$	13.4	$	6.9	$	4.7

A summary of the status of the Company’s performance-based restricted stock as of December 31, 2012 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, 2011		1.0		$	26.92
Granted		0.3			36.78
Vested		(0.5	)		25.27
Adjustment to shares expected to vest*		0.2			33.67

Balance, December 31, 2012		1.0		$	30.06

*	The adjustment reflects additional shares expected to vest based on the Company’s projected achievement of certain non-market based performance metrics as of December 31, 2012.

As of December 31, 2012, there was $15.5 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 2012, 2011 and 2010 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 2012 , 2011, and 2010. 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.