ACQUISITIONS

9 Months Ended

Sep. 30, 2014

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ACQUISITIONS

NOTE 7. ACQUISITIONS

The acquisitions described below are accounted for using the acquisition method of accounting whereby assets acquired and liabilities assumed were recognized at their acquisition date fair value.  Any excess of the purchase price over the fair value of the assets acquired and liabilities assumed was recorded to goodwill. For the acquisitions described below, the Company has not presented proforma combined results because the impact on previously reported statements of operations would not have been material. These acquisitions are discussed below in more detail.

Cash paid	$	86.0
Fair value of equity interest in ICRA prior to obtaining a controlling interest		124.9
Total consideration	$	210.9
The cash paid in the table above was funded by using Moody's non-U.S. cash on hand.

Current assets				$	26.0
Property and equipment, net					15.1
Intangible assets:
	Trade name (36 year weighted average life)	$	46.8
	Client relationships (19 year weighted average life)		33.8
	Other (17 year weighted average life)*		18.5
	Total intangible assets (26 year weighted average life)				99.1
Goodwill					291.1
Other assets					56.3
Liabilities					(57.9)
Fair value of non-controlling interest assumed					(218.8)
Net assets acquired				$	210.9
* Primarily consists of acquired technical knowhow and ratings methodologies

As of the date of the filing of this Form 10Q, the Company is still in the process of determining the fair value of certain real estate utilized by ICRA and deferred revenue. Current assets include acquired cash of approximately $5 million. Additionally, current assets includes gross accounts receivable of approximately $14 million, of which an immaterial amount is not expected to be collectible. Goodwill, which has been assigned to the MIS segment, is not deductible for tax.

The fair value of the non-controlling interest was determined based on the quoted market price per share of ICRA on the date that the Company acquired the controlling stake.

ICRA will operate as its own reporting unit.

WebEquity Solutions, LLC

AmbaInvestment Services

On December 10, 2013, Copal Partners Limited, a majority-owned subsidiary of the Company, acquired 100% of Amba Investment Services, a provider of outsourced investment research and quantitative analytics for global financial institutions. Amba currently operates within the PS LOB of MA and will bolster the research and analytical capabilities offered by MA through Copal, a majority owned subsidiary which was acquired in December 2011.

The table below details the total consideration transferred to the sellers of Amba:

Cash paid	$	67.2
Contingent consideration liability assumed		4.3
Additional purchase price to be paid in 2014 based on final working capital acquired		0.1
Total fair value of consideration transferred	$	71.6

The cash payment to the sellers was funded by using Moody’s non-U.S. cash.

The purchase agreement contained a provision for a contingent cash payment to the sellers valued at $4.3 million at the acquisition date which was dependent on Amba achieving certain revenue targets for the period from the acquisition date through March 31, 2014. The target was met and a $4.3 million paymentwas made to the sellers in the third quarter of 2014.

Shown below is the purchase price allocation, which summarizes the fair value of the assets acquired and the liabilities assumed, at the date of acquisition:

Current assets				$	23.7
Property and equipment, net					0.4
Intangible assets:
	Trade name (7 year weighted average life)	$	3.3
	Client relationships (12 year weighted average life)		26.7
	Other (3 year weighted average life)		1.6
	Total intangible assets (11 year weighted average life)				31.6
Goodwill					29.2
Indemnification asset					10.4
Other assets					2.0
Liabilities assumed					(25.7)
Net assets acquired				$	71.6

Current assets include acquired cash of approximately $16 million. Additionally, current assets includes gross accounts receivable of approximately $6million, of which an immaterial amount is not expected to be collectible. The acquired goodwill, which has been assigned to the MA segment, will not be deductible for tax.

In connection with the acquisition, the Company assumed liabilities relating to certain UTPs. These UTPs are included in the liabilities assumed in the table above. The sellers have contractually indemnified the Company against any potential payments that may have to be made regarding these UTPs. Accordingly, the Company carries an indemnification asset on its consolidated balance sheet at September 30, 2014 and December 31, 2013.

As of the date of the acquisition, Amba was combined with Copal to form the Copal Amba reporting unit.

Current assets				$	3.0
Property and equipment, net					2.3
Intangible assets:
	Client relationships (18 year weighted average life)	$	44.6
	Software (15 year weighted average life)		11.5
	Trade name (4 year weighted average life)		0.5
	Total intangible assets (17 year weighted average life)				56.6
Goodwill					76.3
Liabilities assumed					(7.6)
Net assets acquired				$	130.6

WebEquity Solutions, LLC

On July 17, 2014, a subsidiary of the Company acquired 100% of WebEquity Solutions, LLC, a leading provider of cloud-based loan origination solutions for financial institutions. The cash payment to the sellers of $130.6 million was funded using Moody’s U.S. cash. This acquisition will enhance MA’s risk management product portfolio.

The Company incurred approximately $2 million of costs directly related to this acquisition in the nine months ended September 30, 2014, which are recorded within selling, general and administrative expenses in the Company’s consolidated statements of operations.

Shown below is the purchase price allocation, which summarizes the fair value of the assets and liabilities assumed, at the date of the acquisition:

Current assets include acquired cash of $0.6 million. Additionally, current assets includes gross accounts receivable of $0.7 million, of which an immaterial amount is not expected to be collectible. The acquired goodwill, which has been assigned to the MA segment, will be deductible for tax.

As of the date of the acquisition, WebEquity is part of the ERS reporting unit.

The amount of revenue and expenses for WebEquity from the date of acquisition through September 30, 2014 was not material.

ICRA Limited

On June 26, 2014, a subsidiary of the Company acquired 2,154,722additional shares of ICRA Limited, a publicly traded company in India, pursuant to a conditional open tender offer which was initiated in February 2014. ICRA is a leading provider of credit ratings and research in India and will extendMIS’s reach in the growing domestic debt market in India as well as other emerging markets in the region. The acquisition of the additional shares increased Moody’s ownership stake in ICRA from 28.5% to 50.06%, resulting in a controlling interest in ICRA. Accordingly, the Company will consolidate ICRA’s financial statements and as of September 30, 2014, ICRA’s balance sheet was consolidated. Moody’s will consolidate ICRA’s financial statements on a three month lag, and accordingly, did not consolidate ICRA’s operating results for the third quarter and will consolidate only one quarter of ICRA’s operating results in 2014.

Prior to the acquisition of the additional shares, Moody’s accounted for its investment in ICRA on an equity basis whereby the Company recorded its proportional share of the investment’s net income or loss as part of other non-operating income (expense), net. The acquisition of the additional shares has resulted in the Company consolidating ICRA into its financial statements. As a result of this consolidation and in accordance with ASC 805, the carrying value of the Company’s equity investment in ICRA was remeasured to fair value as of the acquisition date resulting in a pre-tax gain of $102.8 million ($78.5 million after-tax) in the nine months ended September 30, 2014. The fair value of the Company’s equity investment was based on ICRA’s quoted market price on the date of acquisition.

The Company incurred approximately $2 million of costs directly related to the acquisition of ICRA during the nine months ended September 30, 2014 which are recorded within selling, general and administrative expenses in the Company’s consolidated statements of operations.

The table below details the total consideration relating to the ICRA step-acquisition: