INCOME TAXES

12 Months Ended

Dec. 31, 2013

INCOME TAXES

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			0.0
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

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.

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.