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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-K

Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2008
Commission file number: 001-33928

RiskMetrics Group, Inc.(Exact name of registrant as specified in its charter)

Delaware(State or other jurisdiction of
incorporation or organization)

20-8175809(IRS Employer Identification No.)One Chase Manhattan Plaza, 44th Floor
New York, New York(Address of principal executive offices)

10005(Zip Code)


(212) 981-7475(Registrant's telephone number, including area code)

Securities
registered pursuant to Section 12(b) of the Act:

Title of each class:

Name of Each Exchange on which RegisteredCommon Stock $.01 par value

New York Stock Exchange


Securities
registered pursuant to Section 12(g) of the Act: None

Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o    No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o    No ý

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past
90 days. Yes ý    No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. o

Indicate by check mark whether registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definitions of "large accelerated filer, accelerated filer" in Rule 12b-2 of the Exchange Act. (check one):

Large accelerated filer o

Accelerated filer ý

Non-accelerated filer o (Do not check if a smaller reporting company)

Smaller reporting company o


Indicate
by check mark whether the Registrant is a shell company (as defined in rule 12b-2 of the
Act). Yes o    No ý

The aggregate market value of the registrant's voting stock held by non-affiliates of the registrant, computed by reference to the closing sales price
as quoted on June 30, 2008 was approximately $464,635,794.

The
number of shares outstanding of each of the registrant's classes of common stock, as of February 24, 2009 was:

Class

OutstandingCommon stock $.01 par value

61,482,922


DOCUMENTS INCORPORATED BY REFERENCE

Certain
information required by Items 10, 11, 12, 13 and 14 of this Annual Report on Form 10-K is incorporated by reference from our definitive Proxy Statement
for our 2009 Annual Meeting of Stockholders which will be filed not later than 120 days after the close of our year ended December 31, 2008.



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RiskMetrics Group
Index to Form 10-K



Table of Contents



Page NumberPART IItem 1Business

2Item 1ARisk Factors

20Item 1BUnresolved Staff Comments

28Item 2Properties

28Item 3Legal Proceedings

28Item 4Submission of Matters to a Vote of Security Holders

28PART IIItem 5Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities

29Item 6Selected Consolidated Financial Data

30Item 7Management's Discussion and Analysis of Financial Condition and Results of Operations

34Item 7AQuantitative and Qualitative Disclosures About Market Risk

60Item 8Consolidated Financial Statements and Supplementary Data

61Item 9Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

61Item 9AControls and Procedures

61Item 9BOther Information

63PART IIIItem 10Directors, Executive Officers and Corporate Governance

63Item 11Executive Compensation

63Item 12Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

63Item 13Certain Relationships and Related Transactions, and Director Independence

63Item 14Principal Accounting Fees and Services

63PART IVItem 15Exhibits, Financial Statement Schedules

64SIGNATURES

66


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Unless the context otherwise indicates or requires, as used in this Annual Report on Form 10-K, references to "we,"
"us," "our" or the "company" refer to RiskMetrics Group, Inc and its subsidiaries. References to "RiskMetrics" refer only to our subsidiary, RiskMetrics Solutions, Inc. and its subsidiaries,
references to "ISS" refer only to our subsidiary Institutional Shareholder Services Inc. and its subsidiary.

In this annual report on Form 10-K, all dollar amounts are expressed in thousands, unless indicated otherwise. References to our "clients"
include each business unit, division or wholly-owned subsidiary of a parent company which has entered into a separate customer contract with us.

THIS
ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND OTHER FEDERAL
SECURITIES LAWS. THESE FORWARD LOOKING STATEMENTS ARE BASED ON OUR PRESENT INTENT, BELIEFS OR EXPECTATIONS, AND MAY NOT OCCUR. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTAINED IN OR IMPLIED
BY OUR FORWARD LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS. SEE ALSO "ITEM 1A. RISK FACTORS." EXCEPT AS REQUIRED BY LAW, WE UNDERTAKE NO OBLIGATION TO UPDATE OR RELEASE ANY FORWARD LOOKING
STATEMENTS AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.

Item 1.    Business

Our Company

RiskMetrics Group is a leading provider of risk management and corporate governance products and services to participants in the global
financial markets. We enable clients to better understand and manage the risks associated with their financial holdings, to provide greater transparency to their internal and external constituencies,
to satisfy regulatory and reporting requirements and to make more informed investment decisions. Our offerings address multiple asset classes, markets and geographies and are sold to a diverse client
base including asset managers, hedge funds, pension funds, banks, insurance companies, financial advisors and corporations. As of December 31, 2008, we had approximately 3,400 clients located
in 56 countries. Among our clients are 69 of the 100 largest investment managers, 42 of the 50 largest mutual fund companies and 41 of the 50 largest hedge funds, in each case measured by assets under
management.

Our
company consists of two industry leading businesses: RiskMetrics and ISS (Institutional Shareholder Services). Together, these businesses offer what we believe is the most
comprehensive suite of risk management and corporate governance products and services available in our industry, covering the market, credit, portfolio, governance, accounting, legal and environmental
risks associated with our clients' financial holdings.

RiskMetrics.The RiskMetrics segment is a leading global provider, as measured by revenues, of multi-asset, position-based risk
and wealth management
products and services. We provide our clients with comprehensive, interactive products and services that allow them to measure and quantify portfolio risk across security types, geographies and
markets. Our flagship RiskManager mark-to-market risk system integrates consistently-modeled market data with our widely adopted analytical models and robust processing
capabilities to address our clients' risk reporting requirements. Our clients generally license RiskManager as a secure, interactive web-based application service or as a fully-outsourced
risk reporting service. In similar fashion, we provide clients with solutions based on credit-event risk (through our CreditManager application) as well as proposal-generated solutions for financial
advisors at private banks (through our WealthBench application). The breadth, performance and scalability of our hosted systems are the result of nearly a decade of investment in research and
development, which we believe provides us with a significant competitive advantage. On October 3, 2008, in order to expand our suite of solutions to further address client needs in the area of
multi-asset performance

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attribution,
we acquired Applied4 Technology Ltd. RiskMetrics serves a diverse group of approximately 600 clients worldwide.

ISS.ISS is a leading provider, as measured by revenues, of corporate governance and specialized financial research and analysis
services to
institutional investors and corporations around the world. Through ISS, which we acquired on January 11, 2007, we provide our clients with a fully-outsourced proxy research, voting and vote
reporting service to assist them with their proxy voting responsibilities. Through our web-based delivery platform, clients can access our in-depth research reports and proxy
voting recommendations. We offer both global security coverage and a comprehensive proxy voting solution, from policy creation to comprehensive research, vote recommendations, reliable vote execution,
post-vote disclosure and reporting and analytical tools. Our Financial Research and Analysis products also provide our clients with research reports and analytical tools covering many
investment criteria that have become increasingly important to investors, including companies' environmental, social and governance attributes and accounting and compensation practices. On
August 1, 2007, in order to further supplement the Financial Research and Analysis product and service offerings of the ISS business, we acquired the Center for Financial Research and Analysis
("CFRA"), a forensic accounting research firm. ISS serves approximately 2,800 clients.

We
sell our products and services primarily on an annual subscription basis and generally receive upfront subscription payments from our clients. As of December 31, 2008 our
annualized contract value ("ACV") was approximately $286.0 million. For the year ended December 31, 2008, we generated approximately 93.9% of our revenues from annual subscriptions to
our products and services, for which our clients generally pay us in advance. In addition, during the year ended December 31, 2008, we had a renewal rate of approximately 86.3%. Our products
and services are generally priced based on the access to our applications and services, including volume of data, research, voting and reports purchased. Our experience has been that, over time, our
clients have often added users and purchased
additional products and services from us, which has led to increases in our revenues per client. Refer to "Selected Consolidated Financial Data", for a further discussion regarding annualized contract
value, recurring revenue and renewal rate.

RiskMetrics'
hallmarks are significant collaboration with the world's foremost financial institutions, transparency of key analytics, broad academic feedback and client testing.
Similarly, ISS actively works with institutional investors and industry professionals around the world to formulate its recommended policies on key corporate governance and accounting issues. We
believe that our collaborative business processes and the breadth of our products and services will help establish common standards to quantify, assess, understand and articulate many aspects of
financial risk.

We
serve our global client base through a network of 19 offices in 11 countries. For the year ended December 31, 2008, approximately 39% of our revenues were generated from
clients outside the Americas.

Company History and Acquisitions

At RiskMetrics Group, we help people understand and manage a broad spectrum of risk across their financial portfolios. Originally
founded upon a measurement of market risk in a portfolio, our business today is built upon a more global, multi-dimensional view that is unique in the marketplace. RiskMetrics Group offers investors
and other financial market participants multiple views and access into the risk profile of a company, security or portfolio of financial assets, and the expertise to better understand them. We believe
profoundly that effective risk mitigation and management hinges on the ability to fully understand it.

The
RiskMetrics methodology was developed within JPMorgan in 1992 and was published publicly in 1994. In 1998, RiskMetrics was spun off and became an independent company providing risk
management products and services.

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On
January 11, 2007, recognizing that our clients' view of risk needed to broaden beyond market and credit risk, we acquired ISS in order to increase the scale and scope of our
risk management product and service offerings. ISS was founded in 1985 with the goal of promoting good corporate governance practices in the private sector. It was the pioneer in the development of
policy-based proxy voting
recommendations and today is a leader in corporate governance with the broadest research coverage in the market.

On
August 1, 2007, we completed the acquisition of CFRA. CFRA was founded in 1994 and provides forensic accounting risk research, legal and regulatory risk assessment, due
diligence and educational products and services. Our acquisition of CFRA further increased the range of specialized financial research and analysis products and services that we are able to offer to
our clients.

In
January 2008, we completed our initial public offering of 14,000,000 shares of our common stock, which included 4,035,816 shares sold by selling stockholders. We did not receive any
proceeds from the sale of the shares by the selling stockholders. In addition, we granted the underwriters an option to purchase a maximum of 2,100,000 additional shares of common stock from us to
cover over-allotments, which was exercised in full in January 2008. Our net proceeds from the offering, including the exercise of the underwriters' allotment, were $193.9 million,
after deducting underwriting discounts and commissions and approximately $3.5 million of offering expenses.

On
October 3, 2008 we acquired all of the outstanding stock of Applied4 Technology Ltd. ("Applied4") for approximately $1.8 million in cash. Additional purchase
price consideration of between approximately $1.4 million and $1.7 million may be paid for the acquisition of Applied4 if certain earning targets are achieved during 2009 through 2011.
The purpose of this acquisition was to broaden the performance attribution analytical tools we can offer our clients.

In
2008, we recorded a non-cash impairment charge for goodwill and intangible asset totaling $160.1 million as a result of the Company' annual goodwill and
indefinite-lived intangible asset impairment review. The impairment charge included a $154.2 million write-down to ISS goodwill primarily as a result of the negative equity market
conditions which caused a material decline in industry market multiples in the second half of 2008. In addition, the impairment charge also included a $5.9 million writedown to an ISS product
tradename as a result of an integration plan for the tradename which reduced its expected life.

On
February 13, 2009, we signed a definitive stock purchase agreement to acquire Innovest Strategic Value Advisors for approximately $16 million in cash, subject to working
capital adjustments. Headquartered in New York, Innovest is a leading provider of sustainability research for the institutional investment community. The purpose of this acquisition is to enhance the
product offerings and services we may offer our customers in assessing risk within the environmental, social and governance sectors. The acquisition is expected to close March 2, 2009.

Our Growth Strategy

We intend to continue to develop and sell products and services that enable investors to make more informed investment decisions,
monitor and comply with exposure and risk limits, provide greater transparency to both internal audiences and external constituencies and meet regulatory and reporting requirements. Most of our
clients are in the financial services industry. In 2008, stock market volatility and lack of available credit led to the closure or consolidation of a number of our clients. We expect these 2008
events to impact our financial results, including our renewal rate and new sales growth in the near term.

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The
major components of our growth strategy are as follows:

1)    Increase Sales to Existing Clients.

We plan to broaden our relationships with our clients in the following ways:



2)    Expand our Client Base.

We plan to continue to pursue the following initiatives to further expand our client base:



We
have evidenced a strong track record of adding new clients. For the year ended December 31, 2008, we added over $72.4 million in ACV, of which approximately
$30.4 million was from new clients.

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3)    Enhance and Extend our Products and Services.

We plan to continue to augment our suite of risk management and corporate governance products and services in the following
ways:



4)    Continue to Develop our Distinct Corporate Culture.

Our ability to develop new products and services has been, and will continue to be, crucial to keeping pace with evolving financial
markets. Consequently, we believe that our success will continue to depend on the strength of our intellectual capital, and that our employees and distinct corporate culture provide us with
significant competitive advantages. We work hard to retain our employees by ensuring that they have a challenging, rewarding and fun work environment. We also encourage our employees to follow their
instincts and develop new ideas, which have resulted in many of our most important analytical and technological developments. At the same time, we strive to engender a team spirit and sense of common
purpose that we believe enables us to attract and retain talented employees.

Our
talented employees share a unique sense of purpose. With little corporate hierarchy and no formal titles, we value substance over form and question every assumption. Every employee
is an owner, as we see ownership as a key to providing the highest level of service to our clients, as well as attracting, developing and retaining the talent we seek in today's highly competitive
labor market. This work environment and ownership create a culture of respect, empowerment, and shared purpose that is aggressively managed to ensure our long-term success.

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Business Segments, Products and Services

We divide our business operations into two segments: RiskMetrics and ISS. We acquired ISS on January 11, 2007. We have included
in the table below revenue data for ISS prior to its acquisition because the ISS business represents a significant amount of our current and expected future revenues. The table below shows revenue by
business segment for each of the past three years:

For the years ended December 31,Revenue by Segment

2006

2007

2008RiskMetrics(1)

$
101,236

$
121,126

$
154,626Revenue Growth





19.6
%

27.7
%ISS(2)

$
103,269

$
119,175

$
141,767Revenue Growth





15.4
%

19.0
%






Business
segment revenue, segment income from operations and assets attributable to foreign and domestic operations are set forth in Note 18 of the Notes to the Consolidated
Financial Statements, included herein.

RiskMetrics Segment

Overview

RiskMetrics is a leading provider of multi-asset, position-based risk and wealth management products and services to global asset
managers, hedge funds, banks, insurance companies, pension funds and wealth managers. We provide our clients with access to customizable applications, interactive analytics and risk reports based on
comprehensive and consistently-modeled market data that are fully- integrated with their holdings. We believe that our comprehensive approach to analyzing multi-asset portfolios and our ability to
fully integrate with our clients' holdings enable us to provide products and services which are an integral and essential part of our clients' portfolio risk management systems. These products and
services provide timely and actionable insights into the market and credit risks of clients' portfolios.

These
products and services allow our clients to:



All
of our RiskMetrics products and services include integrated access to our extensive set of market-related data. Embedded within our RiskMetrics offerings are over 750,000 market data
time series spanning global interest rates, foreign exchange rates, equity prices, implied volatilities, credit

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spreads,
commodity prices and inflation rates. These data are systematically quality-controlled by our dedicated teams of analysts who examine the data for outliers, missing data points and other
anomalies. These data are then transformed into a form suitable for use in risk management systems. We also collect and process international benchmark data for thousands of equity, fixed-income and
commodity indices. These data are used by asset managers and pension plans who track standard or customized benchmarks as well as by clients to measure their risk and exposure relative to an index.

The
pricing model for our RiskMetrics products and services is primarily subscription-based, typically for a period of one year. Depending upon the solution offering, our RiskMetrics
products and services are available through a variety of delivery options, including hosted web-based applications, fully- outsourced managed services, local installation and on a
component-by-component basis.

Our
comprehensive suite of products and services covers a broad range of asset classes including equities, bonds, commodities, foreign exchange, futures, options, derivatives, structured
products, interest-rate products and credit products and is designed to provide our clients with a transparent assessment of the risk in their portfolios in the following three areas:
Market Risk, Credit Risk and Wealth Management.

Market Risk

Managing the risk inherent in our clients' portfolios has become a difficult task for both asset and portfolio managers. Increasingly
complex instruments, expanding asset classes, complex trading strategies and significant data requirements have created a complicated risk assessment task. Our approach is to combine all the
analytics, technologies and data required into one comprehensive offering, accessible through a common portal. We provide our clients with comprehensive, interactive products and services that allow
them to measure and quantify portfolio risk across security types, geographies and markets.

During
2008, our Market Risk offerings accounted for approximately 87% of RiskMetrics' revenue. Our Market Risk products and services consist of RiskManager and its related services,
HedgePlatform and DataMetrics. Although we sometimes sell our data on a stand alone basis, our data are usually embedded in our products and services.

RiskManager

RiskManager, our flagship market risk system, provides clients with a comprehensive solution for measuring risk in their portfolios and
for running sensitivity and stress test analyses. Underlying RiskManager is a service-oriented architecture which is flexible, scalable and extensible. Because we host our products and deliver our
services from a scalable common technology and data infrastructure, all of our clients benefit from advances in our RiskManager market risk system.

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RiskManager
incorporates three primary components: delivery mechanisms, a services platform and the core risk elements, as shown in the following diagram:

GRAPHIC

Delivery
MechanismsOur delivery mechanisms enable our clients to access risk analyses and reports in one of three methods: as an interactive web-based
application operated in a self-directed fashion, as a fully- outsourced or managed service offering in which RiskMetrics utilizes the system on behalf of the client, or as a web service in
which a client's systems access our core risk elements by connecting directly to our systems. Each of these methods involves varying degrees of interaction with the key components of our system. When
accessed as a web-based application, clients have complete control over when and how often they upload positions and holdings into the system application. Clients can create their own ad
hoc analysis, build dynamic "what-if" scenarios, design custom reports for immediate use, run intra-day pre-trade tests and schedule their own overnight data
processing and report generation. As a fully-outsourced or managed service, we configure the services platform to create a customized risk reporting service for our clients. In doing so we take on the
additional responsibility of uploading the client's positions and holdings from the client's internal systems, fund administrator, broker or custodian, schedule and direct the running of all risk
analyses, and produce risk reports our clients use for their internal and external requirements.

Web
service clients bypass our other delivery mechanisms and instead have their own systems connect directly to our core risk elements. Clients typically use our web services to
seamlessly embed the functionality available in RiskManager directly into their own systems and interfaces.

Services
PlatformOur proprietary platform is at the core of our scalable services-oriented architecture and allows us to manage many processes simultaneously. The platform
orchestrates the flow of information between us and our clients as well as directs the internal operations of our risk elements. Using today's latest server technologies, our platform allows us to
simultaneously process millions of positions for hundreds of clients per day. The platform is monitored 24 hours a day, seven days a week by a group of dedicated operations engineers to ensure
peak performance of the entire system.

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Core
Risk ElementsThe core risk elements underlying RiskManager represent our key intellectual property and consist of significant amounts of data, complex analytical models
and proprietary software applications. These elements include:



HedgePlatform

HedgePlatform is a reporting service allowing clients that invest in hedge funds, including funds of funds, pension funds and
endowments, to measure, evaluate and monitor the risk of their hedge fund investments across multiple hedge fund strategies. We collect position-level information from hedge funds on a monthly basis
and provide our clients with a risk report for each individual hedge fund in which they invest as well as an aggregate risk report for their overall portfolio of hedge funds. Our clients who use
RiskManager to measure the risk of their own holdings can further integrate the positions collected via our HedgePlatform service to allow computation of risk across their entire portfolio but retains
the proprietary nature of the underlying hedge fund holdings. HedgePlatform reports include statistics such as exposure (long, short, net and gross), sensitivities, scenario analysis, stress tests and
VAR analysis.

DataMetrics

DataMetrics is a data service that allows clients to access the market data embedded in RiskManager for use in their own proprietary or
other third-party systems. In addition to direct access to market data time series, DataMetrics can provide clients with customized data processing services.

Credit Risk

Our credit risk products and services allow our clients to consolidate multiple types of credit exposures across an institution. Our
CreditManager product is a portfolio credit risk management system used primarily by banks to calculate economic capital, facilitate risk-based pricing and measure risk concentrations. The
application is designed to consolidate and compare risks and opportunities across multiple credit exposures including bonds, credit derivatives and traditional lending.

Wealth Management

WealthBench.WealthBench is an investment planning platform for private banks, financial advisors, brokerages and trust companies.
WealthBench
delivers fully-informed, tailored investment planning proposals for high net worth individuals reflecting their needs, goals and risk tolerances while

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remaining
consistent with firm-driven investment and risk-based policies. WealthBench incorporates robust analytics, market-consistent inputs and transparent methodologies.

Risk Compliance.We provide portfolio risk statistics to the affluent and mass-affluent segments of consumer banks to allow their
financial advisors to ensure compliance with clients' stated investment policies and risk tolerances at the point of sale and monitor compliance on an ongoing basis.

ISS Segment

Overview

ISS is a leading provider of corporate governance and financial research and analysis services to institutional investors and
corporations around the world. We facilitate the voting of proxies by institutional investors and provide in-depth research and analysis to help inform their voting decisions and assess
issuer-specific risk. ISS' products and services consist of: Governance Services to institutional investors and Financial Research and Analysis services to institutional investors, corporations and
professional service firms. The majority of ISS' products and services are delivered through our Governance Analytics web-based platform. The pricing model for ISS' products and services
is primarily subscription-based and varies depending on the product or service purchased.

We
provide proxy services to institutional investors globally. We are the largest proxy advisory firm that offers a fully-integrated, end-to-end proxy voting
service, including policy creation, comprehensive research, vote recommendations, reliable vote execution and reporting and analytical tools. Although some of our Proxy Research and Voting clients
purchase our proxy research on a stand-alone basis, the vast majority purchase a comprehensive research and voting product. In 2008, we issued proxy research and vote recommendations for more than
45,000 shareholder meetings across 110 countries and voted, on behalf of our clients, 7.6 million ballots representing over 1.3 trillion shares. We believe these amounts are substantially more
than any of our competitors. During 2008, Governance Services accounted for approximately 66% of ISS revenues.

We
also offer Financial Research and Analysis products and services designed to assess the overall financial health of companies by analyzing the investment implications of companies'
accounting policies, legal and regulatory exposure, environmental, social and governance practices, mergers and acquisitions initiatives and compensation plans. Our product and service offerings are
provided primarily to portfolio managers for investment analysis, to corporations to monitor compliance with corporate governance practices and to professional services organizations to support due
diligence efforts. These offerings are either bundled with other services or sold on an individual basis and allow investors to add specialized, qualitative analysis to more traditional research used
in the investment
decision-making process. During 2008, Financial Research and Analysis accounted for approximately 34% of ISS revenues.

Governance Services

We categorize our Governance Services products and services into three distinct categories: Proxy Research and Voting, Global Proxy
Distribution Services and Securities Class Action Services.

Proxy Research and Voting

Through our Governance Analytics platform, we provide our clients with vote recommendations, comprehensive analyses and online voting
capabilities that enable users to make informed decisions about how to vote on all items with respect to each shareholder meeting agenda that we cover, execute their votes and monitor and track their
votes for reporting purposes. Our Proxy Research and Voting staff currently operates out of numerous offices around the world, providing a global network of local

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expertise.
In 2009, we plan to deliver a new proxy voting platform which will help provide a more effective product for our clients and allow us to achieve headcount and operational efficiencies.

The
following diagram illustrates our Proxy Research and Voting services and how they integrate into the flow of the proxy process:

GRAPHIC

Proxy Research.We provide research coverage on over 6,900 U.S.-based companies and approximately 25,900 non-U.S. companies. Our
standard
global coverage includes Morgan Stanley EAFE stocks, FTSE All-Share and TSE 300 listings, selected Goldman Sachs/FTA securities; the first section of the Tokyo Stock Exchange,
selected sponsored ADRs from a broad range of countries as well as securities in emerging markets. The size, breadth and experience of the research team allows ISS to maximize an in-depth
understanding of local business practices, proxy voting requirements, language and culture across most developed corporate governance markets globally.

ISS'
policy board works to ensure that ISS' voting policies are developed and applied within a framework of corporate governance best practices. ISS actively works with institutional
clients and industry professionals around the world to gather input on its proxy voting policies. Each year, through an annual policy survey of our institutional clients and other forums,
institutional investors are invited to share their ideas on corporate governance issues including board structure, executive compensation, mergers and acquisitions and corporate accountability to
ensure that our standard voting policies are aligned with the views of our institutional clients.

Our
Proxy Research and Voting recommendations are based on the application of ISS' voting policies to the particular voting items on an issuer's agenda. Our research and recommendations
are produced based on benchmark, specialized and custom policies.

ISS
develops separate benchmark policies for U.S. securities and non-U.S. securities. ISS' non-U.S. benchmark policies are adjusted to address
in-country concerns. ISS' benchmark policies serve as an industry standard and best practice guide to corporate governance. In addition to our benchmark policies, we recognize that the
philosophies and policies used to make proxy voting decisions range widely among different types of investors. Understanding the diverse needs of our clients, we are able to create policies that meet
their requirements through a number of specialized policies such as SRI policies based on environmentally and socially responsible guidelines and our Taft-Hartley policy which is based on
AFL-CIO guidelines. For many institutional investors with highly specialized or unique needs for proxy research and policy, we also offer custom proxy advisory services in which we work
with our clients to develop and refine governance policy guidelines that match their particular views and are unique to them.

Proxy Voting.Our Proxy Voting services include notifying clients of upcoming shareholder meetings, receiving proxy ballots from
third-party proxy
distributors, generating consolidated proxy ballots and instructions across our clients' portfolios, executing and tabulating our clients' votes in accordance with their instructions, maintaining
voting records and providing comprehensive vote reporting.

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Utilizing
our Governance Analytics platform, our integrated platform for proxy voting and research as well as our Financial Research and Analysis products, proxy administrators and
investment managers are able to access timely governance data and ensure efficient and reliable vote execution in a highly automated fashion. Our vote reporting lets our clients stay informed and
empowered with accurate and timely information, including full vote audit trails and intra-day updates of all fund, meeting and agenda information. In addition to daily audits and detailed
vote reconciliation, we conduct automated end-of-day production checks to ensure all votes are executed accurately.

Our
account representatives and voting operations professionals worldwide provide expert guidance and dedicated support to make sure all clients' votes are cast in accordance with their
established proxy guidelines. In addition, we have a Straight Through Processing, or STP, arrangement with Broadridge Financial Solutions with respect to U.S. and global ballots. This STP arrangement
allows for ballots to be received and proxy votes to be made electronically minimizing the manual aspects of the proxy voting process and limiting the risk of error inherent in manual processes. This
STP arrangement and other arrangements with third party ballot distributors and custodians have allowed our number of ballots processed to increase from 2.0 million in 2000 to
7.6 million in 2008.

Vote
Disclosure is a cost-effective proxy voting solution to help U.S. investment companies comply with the SEC disclosure rules and give shareholders easy access to
institutional voting records. For users of this service, we collect report and record the information required by the SEC in the Form N-PX and provide users with reports and a
personalized easily navigable web site for public vote and proxy policy disclosure.

Global Proxy Distribution Services ("GPD")

Our GPD service offers a complete global proxy distribution solution to custodian banks for non-U.S. securities
through a single independent platform. GPD provides for the efficient distribution and voting of proxies giving clients the ability to review and download detailed meeting information and
individualized account information. GPD also provides online access to customized record-keeping and reporting across all custodians and sub-custodians.

Securities Class Action Services ("SCAS")

We deliver a complete class action monitoring and claims filing service to institutional investors who have potential recovery rights
in class action lawsuits. We provide a comprehensive securities litigation database, including up-to-date case information and detailed historical class action data, and
provide fully-outsourced notification, tracking and claims filing services to our institutional clients. Our arrangements with claims administrators and law firms around the world enable us to advise
on new developments in global markets and streamline the filing process.

SCAS
offers more detailed portfolio specific views of cases and settlements with an online report library that allows clients to keep track of the complete securities class action
lifecycle from when a case is first identified until payment is disbursed. Securities class action data provided to our clients include class periods, settlement dates, status reports, award amounts,
claim deadline dates, claims administrator details and pertinent related data.

Financial Research and Analysis

We provide specialized financial research and analysis products and services to asset managers, hedge funds, corporations and
professional services firms across many dimensions of risk, governance, accounting, environmental, social and legal issues. Most of our Financial Research and Analysis products and services are
delivered through our integrated Governance Analytics platform. Throughout its history, CFRA has provided early warnings on numerous high profile accounting irregularities in

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North
America and Europe, including many of the major accounting scandals and key issues such as options backdating and pension accounting reform.

Our
Financial Research and Analysis offerings fall into four general categories: CFRA Forensic Accounting Research, Environmental Social and Governance Services, M&A Edge and
Compensation Services.

CFRA Forensic Accounting Research

Through a rigorous and proprietary research process, our global team of analysts assesses the reported financial results of over 10,000
companies worldwide. We focus on providing our clients with timely and actionable risk analysis reports regarding earnings and cash flow quality and sustainability, legal and regulatory risk and
overall business health. Our clients rely on our continuous analysis and objective perspective.

CFRA's
largest product is Accounting Lens, a leading forensic accounting risk research report offering for investors, providing early warning signals for companies showing signs of
operational or financial distress. The reports consist of in-depth company research, educational and industry research, access to our proprietary earnings quality database and research
analyst contact. In 2007, CFRA launched a new service, Legal Edge, which is focused on identifying and analyzing hidden legal and regulatory risks. CFRA also provides customized research services for
client-defined projects.

Environmental, Social and Governance Services

Our ES&G Research and Analytics products and services include screening and modeling tools that allow institutional investors to apply
socially responsible guidelines to portfolios, understand the implications of restrictions on portfolios, and examine company-specific profiles. These services also include our Corporate Governance
Quotient, or CGQ, quantitative ratings of corporate securities based on relative attractiveness of their corporate governance profiles. Our services also help clients manage portfolio risk by
incorporating an in-depth set of quantitative and qualitative ES&G information into their investment decision making processes.

Our
ES&G Analytics provides sector-based research reports on over 5,000 companies across more than 80 social and environmental issues. These reports are designed to summarize key issues
and to facilitate discussions on social and environmental policies between institutional investor clients and global companies. Relative scoring data for each company enable investors to compare
performance and capabilities across industry sectors to assess a company's progress towards best practices.

Our
CGQ ratings currently cover more than 7,400 companies across 34 countries, with underlying data for up to 70 individual corporate governance variables. The CGQ ratings rate the
corporate governance practices of companies based on a framework developed by ISS. Areas of particular focus include board of directors, audit, charter and bylaw provisions, anti-takeover
provisions and executive and director compensation.

M&A Edge

Our M&A Edge service provides an independent, in-depth analysis that focuses specifically on proposed merger and
acquisition deals and proxy contests to inform institutional investors. This offering complements our traditional proxy research by providing the same foundational analysis and vote recommendation,
but also delivers ongoing deal notes that keep users abreast of key events as the deal or contest evolves. Coverage continues as issues develop, from the date of announcement through the shareholder
vote. The analysis covers key aspects of a transaction, including strategic rationale, corporate governance and shareholder rights issues.

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Compensation Advisory Services

We provide a set of turnkey products and services that enable compensation professionals and committee members to optimize compensation
plan design by modeling, analyzing and benchmarking executive compensation. Our Compensation Advisory Services provide access to experienced and dedicated compensation plan analysts and support to our
clients in modeling the cost of equity compensation plans and determining optimal compensation plan design. Alternatively, we provide a web-based compensation modeling tool, Compass, that
measures the cost of equity-based incentive plans using a binomial option pricing model.

Our Clients

We have a global footprint, which allows us to support our highly-diversified client base across numerous geographies with
in-depth analysis based on local knowledge. No client represented more than 1% of our revenues during the year ended December 31, 2008 and our top 20 clients represented less than
11% of revenues. Our client base is geographically diverse as well, with 39% of our revenues during the year ended December 31, 2008 generated from clients located outside of the Americas.

As
of December 31, 2008, RiskMetrics' annualized contract value by client type was distributed approximately as follows: 57% asset management; 22% alternative investment managers;
15% commercial and investment banking and trading; and 6% corporate, professional services and other. As of December 31, 2008 our clients in the Americas, EMEA and Asia, comprised approximately
58%, 36% and 6% of RiskMetrics' annualized contract value, respectively.

RiskMetrics

Approximately 600 clients worldwide rely on us for their portfolio risk management needs. Our RiskMetrics clients include leading asset
managers, hedge funds, pension funds, commercial and investment banks, central banks, insurance companies, private banks and regulators. The following table summarizes RiskMetrics revenue on a
percentage basis by geographic region, based on the country in which the customer is located:

For the years ended December 31,RiskMetrics Revenue by Region

2006

2007

2008Americas


52.1
%

46.7
%

45.6
%EMEA (Europe, Middle East and Africa)


39.0
%

45.0
%

47.3
%Asia


8.9
%

8.3
%

7.1
%Total


100
%

100
%

100
%


ISS

Approximately 2,800 organizations worldwide rely on ISS for their corporate governance, proxy voting and financial research and
analysis needs. Clients of our financial research and analysis services generally include institutional investors, hedge funds, insurance underwriters and diversified financial institutions. We also
provide our Financial Research and Analysis products and services to corporations and regulatory bodies worldwide. The following table summarizes ISS (which we acquired on

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January 11,
2007) revenue on a percentage basis by geographic region, based on the country in which the customer is located:

For the years ended December 31,ISS Revenue by Region

2006

2007

2008Americas


80.0
%

77.6
%

78.0
%EMEA (Europe, Middle East and Africa)


16.0
%

17.4
%

17.6
%Asia


4.0
%

5.0
%

4.4
%Total


100
%

100
%

100
%


Our
ISS business serves both institutional and corporate clients and we recognize that there is a potential for conflict of interest with respect to the provision of products and
services to corporate issuers and the products and services we provide to our institutional investor clients. We have instituted multiple safeguards to mitigate any real or perceived conflicts of
interests. We have formed a subsidiary that provides governance services to corporations. This subsidiary, ISS Corporate Services, has distinct resources and a firewall that prevents the flow of
information from ISS Corporate Services to ISS. Every ISS Corporate Services contract indicates that the purchase of corporate services will not result in preferential treatment from ISS and does not
influence ISS' proxy recommendations or CGQ scores. Recommendations and CGQ scores are based solely on the application of ISS' published policies and by an issuer's actual governance policies and
practices.

Our Industry and Market Opportunity

Industry

In 2008, the global financial markets were adversely impacted by the current market environment that includes illiquidity, market
volatility, widening credit spreads, changes in interest rates, currency exchange fluctuations and new legal and compliance requirements. These market conditions and the reduced business activity have
had a negative impact on a number of our clients and have resulted in a decline on renewal rates and new sales growth. However, we are exploring numerous other risk management opportunities around a
view that in the aftermath of the financial crisis we will see more risk regulation in the financial industry going forward. In general, regulation has been a key driver to our business growth. In the
event that the current financial crisis
results in further regulation, we believe that such regulation could be a driver for growth in our business.

As
a result of increasing complexity of investment strategies, governments and regulatory authorities are increasing the requirements on financial services firms and investment firms to
track and report risk as part of their daily operations. To satisfy their risk management needs, firms across the financial services industry have significantly increased their expenditures on
portfolio risk management technologies. Financial services firms have traditionally developed these products and services through in-house information technology, or IT, and research and
development staffs. However, the increasing scale and specialization needed to support multi-asset class portfolios and complex securities and strategies have, in many cases, caused these firms to
turn to more comprehensive products and services from dedicated providers who can furnish more effective solutions than internal development teams. In addition, an increasing number of firms are
utilizing risk management solutions from external vendors in order to provide the third party independent risk reports often demanded by their clients. We believe the current financial crisis may
result in further regulation with respect to risk.

Government
regulation is also driving significant changes in governance practices. In the United States, proxy voting is both a legal requirement and a non-discretionary
event for many institutional investors. Through its oversight of ERISA, the U.S. Department of Labor requires that pension funds treat their proxy, or right to vote, as an asset which must be
exercised. At the same time, the SEC

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requires
mutual funds to disclose to their customers how they voted the proxies of the securities they hold. In the United States, corporate governance-related regulation aimed at issuers, such as the
Sarbanes-Oxley Act, further strengthens the focus among investors on governance and related issues. While the United States remains at the forefront of regulation-mandated corporate governance
practices, the rest of the world is increasingly adopting more stringent corporate governance requirements. This is illustrated by the adoption of the Company Reform Law in the United Kingdom and
increased proxy voting requirements in countries such as Germany, Italy and Japan.

The
visibility of corporate governance and recognition of the risks associated with poor governance practices have increased significantly during the past several years. Corporate
governance has shifted from a compliance function to a business imperative. Whether driven by high-profile corporate scandals or increasing shareholder activism, both investors and issuers
are far more cognizant of the consequences of governance practices on their businesses or portfolio returns. Public companies that ignore best practices increasingly risk shareholder dissent and
reputation risk. As institutional equity ownership grows, the power of institutional investors to effect change in their portfolio companies has grown in tandem. Along with the focus on corporate
governance, investors are increasingly focusing on environmental and social issues in making investment and proxy voting decisions. This has increased the need for in-depth proxy research
as a tool for investors engaging in socially responsible investing.

Traditional
research models are also undergoing significant change as market forces reshape both the supply of and demand for research products and services. While traditional Wall
Street research retains an important role, investors are increasingly demanding specialized or targeted research that is free from any perceived conflicts of interest or satisfies specific needs.
Participants in the financial services industry, including investors, underwriters and regulators, are increasingly demanding specialized research perspectives to better inform their decision-making
processes. These specialized services are often used to help identify risk, generate investment opportunities or supplement internal due diligence efforts. As many of the large brokerage firms have
reduced the size of their research staffs given new regulatory and economic realities, independent research firms have increased their capabilities.

Market Opportunity

Our target market is a cross-section of global financial services firms that includes asset managers, hedge funds, commercial and
investment banks, pension funds and insurance companies. We also target other market participants, such as third-party advisors, corporations, underwriters and central banks. We believe that a number
of key market trends are driving the growth of our business and increasing the value we can offer to our expanding client universe:

Growing Global Financial Markets and Investment Portfolio Complexity.The variety, complexity and geographic diversity of
financial assets held by
investors have expanded significantly, resulting in multi-asset class, multi-national portfolios often including derivatives and other structured products.

Increasing Demand for Transparency.RiskMetrics believes that the viability of the global financial community is founded upon
transparency and trust.
Investors increasingly need to document their risk profile on a regular basis for both internal audiences, such as risk committees, as well as external constituencies, such as limited partners and
regulators. In order to satisfy these demands, comprehensive risk management has become an essential requirement. Furthermore, institutional investors have increasingly used their proxy voting power
as a tool to motivate companies to demonstrate better accountability and transparency. We believe that as investors continue to demand greater transparency with respect to multiple dimensions of
financial risk, demand for our comprehensive suite of risk management services will continue to grow.

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Increasing Regulatory Requirements.Regulatory bodies around the world continue to drive change and create opportunities in the
markets we serve.
Portfolio risk reporting and measurement regulations, such as UCITS III, U.S. Department of Labor proxy voting requirements and corporate governance related regulations, including the Sarbanes-Oxley
Act, have increased regulatory compliance requirements and have further emphasized the need for comprehensive risk management tools. We believe the increased focus on regulatory requirements around
the world will drive further demand for our products and services.

Increasing Focus on Corporate Governance.During the past several years, there has been significant growth in the visibility of
corporate governance
and recognition of the risks associated with poor governance practices. Whether driven by high-profile corporate scandals or increasing shareholder activism, both investors and issuers are
far more cognizant of the consequences of governance practices on their businesses or portfolio returns. Furthermore, investors are increasingly focusing on companies' environmental and social
attributes when making investment and proxy voting decisions. We believe that these trends are driving the need for in-depth specialized research as a tool for investors engaging in
socially responsible investing and will continue to fuel demand for ISS' products and services.

Increasing Demand for Outsourced Products and Services.Many financial services firms are increasingly utilizing outsourced
solutions that enable
them to focus on their core competencies and provide greater capabilities and are more cost effective than their in-house systems. As third-party alternatives have improved in quality,
reliability, efficiency and scalability, even the largest firms are recognizing the value of outsourcing. In particular, an increasing number of firms are utilizing risk measurement and management
solutions from external vendors. These vendors provide independent risk reporting products and services which are often requested by the financial services firms' clients. As a provider of market
leading, fully-outsourced risk and governance services, we believe that we will continue to be able to capitalize on this trend.

Competition

The competitive landscape for multi-asset class risk management and corporate governance and financial research and analysis products
and services is characterized by a limited number of external third-party competitors. ISS competes with firms such as Broadridge Financial Solutions (which provides proxy voting services), Glass,
Lewis & Co. (which provides research, voting recommendation and voting execution services) and Proxy Governance, Inc. (which provides research, voting recommendation and voting
execution services). In addition, RiskMetrics competes with firms such as JP Morgan's Measurisk, BlackRock Inc.'s BlackRock Solutions unit, DST Systems Inc.,
Fimalac S.A.'s Algorithmics unit, Moody Corporation's KMV unit, MSCI Barra and SunGard Data Systems Inc. We also face competition from internal development at financial institutions and
corporations. We compete in these markets primarily on the basis of brand recognition, market coverage, methodology and breadth of service offering.

Research and Development and Operations

Research and Development

RiskMetrics

The RiskMetrics research and development team is responsible for our risk research, data and analytics engineering, infrastructure and
application development, testing, implementation and deployment. The team's years of collaborative innovation and research with our clients, which include many of the world's leading financial
institutions, has resulted in an institutional knowledge which we believe would require substantial time and investment to replicate. We seek to maintain this competitive advantage through significant
ongoing investment in research and development.

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ISS

ISS has invested in systems, processes and controls to handle an increase in transactions processed. We have a technology
infrastructure and a proven track record in automating and scaling operationally complex and time critical tasks. Our ISS development team has created integrated processing systems which have been
developed in a scalable architecture linked to a centralized data warehouse. The ISS research and development team also supports ISS' Governance Analytics platform which provides our clients with
complete transparency related to the outsource arrangement they have in place with ISS.

Research
and development expenses amounted to $21,202, $31,142 and $41,593 for the years ended December 31, 2006, 2007 and 2008, respectively.

Operations

Our operations group manages the internal technical infrastructure of RiskMetrics (including data centers, networks and
telecommunications) and the daily operational elements of our hosted applications which run all analytics, data and client processes. Daily functions include processing our market data time series,
securities reference data and benchmarks from our global data providers, loading and processing millions of client positions and monitoring and ensuring peak performance. Our primary operations are
hosted at two redundant data centers in New York City and Boston, connected together via a secure network. We also host two additional data centers in Switzerland. We maintain RiskMetrics' operations
teams in New York, London, Oklahoma and Singapore.

Many
of ISS' clients outsource proxy voting and vote reporting to ISS. We have had success in meeting client requirements while also increasing our transactional volume through increased
automation and by leveraging our operations center in Manila, Philippines, which has grown in the last five years to over 182 employees. This operations center reduces the operational cost per
transaction and has been a key component of our success.

Sales, Marketing and Client Support

We sell our products and services primarily through direct interaction with our clients. As of December 31, 2008, we had a sales
force of 67 people in 11 offices around the world. Sales employees are compensated on a salary and commission basis.

Our
account management staff is composed of approximately 122 employees in 14 offices worldwide. Account managers are assigned to our clients based on geographic location and client
type. Our account management team works closely with our clients to optimize our clients' use of our products and services, and we believe that our account management team's product knowledge and
local presence differentiates us from our competition.

Our
marketing and communications team supports all of our business units with the aim of helping us increase sales, generate qualified sales leads, enhance our brand, increase our
visibility, improve the client experience and educate the financial community about risk and governance. Key areas of focus include communications and industry outreach and event management. The team
also proactively manages our relationship with the media, which frequently seeks our opinion on industry issues, particularly in the area of corporate governance.

Government Regulation

ISS is a registered investment advisor and must comply with the requirements of the Investment Advisers Act of 1940 and related SEC
regulations. Such requirements relate to, among other things, disclosure obligations, recordkeeping and reporting requirements, marketing restrictions and general anti-fraud prohibitions.

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Employees

Our employee base is comprised of talented people from diverse backgrounds. Some of our employees have extensive experience at
prominent financial institutions and Fortune 500 companies. As of December 31, 2008, we had approximately 1,103 full time employees in 11 countries. During the proxy season (March to July), ISS
typically retains approximately 100 temporary employees. We believe that we maintain good working relationships with our employees. None of our employees are subject to a collective bargaining
agreement.

Website Access to our Periodic SEC Reports

Our corporate headquarters are located at One Chase Manhattan Plaza, New York, New York 10005, and our telephone number is
(212) 981-7145. We maintain an Investor Relations website on the Internet atwww.riskmetrics.com. We make available free of charge,
on or through this website, our annual, quarterly and current reports and any amendments to those reports as soon as reasonably practicable following the time they are electronically filed with or
furnished to the SEC. To access these, just click on the "SEC Filings" link found on our Investor Relations homepage.

Information
contained on our website is not incorporated by reference into this Annual Report on Form 10-K or any other document filed with the SEC.

Item 1A.    RISK FACTORS

The Company is exposed to the risk factors described below. You should carefully consider the following risk factors, as well as the
other information in this Annual Report on Form 10-K, before deciding whether to invest in our common stock. If any of the events highlighted in the following risks actually occurs,
our business, results of operations or financial condition would likely suffer. In such an event, the trading price of our common stock could decline and you could lose all or part of your investment.

Risks Relating to our Business

Our revenues and earnings depend substantially upon conditions in the financial services industry, and a significant or prolonged downturn in the financial services industry
could decrease demand for our products and services.

Recently, general worldwide economic conditions have experienced deterioration due to credit conditions resulting from the recent
financial crisis affecting the banking system and financial markets and other factors including slower economic growth, concerns about valuations and decreased consumer confidence. These conditions
make it extremely difficult for our customers and us to accurately forecast and plan future business activities. We cannot predict the timing or duration of any economic slowdown or subsequent
economic recovery. If the economy or markets in which we operate do not continue at their present levels or continue to deteriorate, we may record charges related to restructuring costs and further
impairments to goodwill and long-lived assets, and our business, financial condition and results of operations will likely be materially and adversely affected.

Our
revenues are principally derived from the provision of risk management and corporate governance products and services to the financial services industry. The vast majority of our
business involves the sale of products and services to clients in the financial services industry including asset managers, banks, insurance companies, hedge funds, pension funds as well as
professional organizations that serve the financial services industry. The global financial markets have been particularly adversely impacted by the current market environment that includes
illiquidity, market volatility, widening credit spreads, changes in interest rates, currency exchange fluctuations and new legal and compliance requirements. These market conditions and the reduced
business activity have had a negative impact on

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a
number of our clients and could negatively impact our future revenues due to the potential for declining sales and renewal rates.

Similarly,
we are exposed to other market trends in the financial services industry. Consolidation in the financial services industry could reduce our existing client base and the number
of potential clients. This may negatively impact our ability to generate future growth and may reduce demand for our products and services, which could have a material adverse effect on our business,
financial condition or results of operations.

Our investments in recorded goodwill and other intangible assets as a result of prior acquisitions, including goodwill and other intangible assets resulting from our ISS and
CFRA acquisitions could be impaired as a result of future business conditions, requiring us to record substantial write-downs that would reduce our operating income.

We have goodwill and intangible assets of $457.0 million recorded on our balance sheet as of December 31, 2008. During
2008 we recorded a $160.1 impairment charge to goodwill and intangible assets primarily as a result of the negative equity market conditions which caused a material decline in industry market
multiples in the second half of 2008 and a reduction in the useful life of an ISS tradename. We evaluate the recoverability of recorded goodwill amounts and intangible assets annually, or when
evidence of potential impairment exists. The annual impairment test is based on several factors requiring judgment. Changes in fair market valuations and our operating performance or business
conditions, in general, could result in additional future impairments of goodwill which could be material to our results of operations. In addition, if we are not successful in achieving anticipated
operating efficiencies associated with acquisitions, our goodwill and intangible assets may become impaired.

We have incurred significant indebtedness which could affect our ability to finance our operations, pursue desirable business opportunities or successfully run our
businesses in the future.

As of December 31, 2008 we have outstanding indebtedness of $290.6 million. The 2008 interest costs to service the
remaining first lien debt were approximately $21.2 million. In addition, we are required to make quarterly principal payments of $0.7 million beginning on June 30, 2009 and
re-pay the entire amount outstanding in December 2013. This indebtedness has created substantial demands upon our available cash to pay interest and future debt principal requirements. Our
leverage and debt service obligations could have important consequences to you, including the following:



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We require highly trained and skilled management and other key employees to maintain and expand our analytical models, proxy voting recommendations and other important
aspects of our product and service offerings.

Our strategic direction and growth, as well as the development, maintenance and support of our products and services, are dependent
upon the knowledge, experience and ability of our highly skilled, educated and trained employees. The members of our research and development and operations groups have, in many cases, advanced
degrees and backgrounds in quantitative disciplines, including physics, engineering and economics, and use their experience and expertise to design product and service enhancements. In addition, the
members of ISS' policy board use their experience and expertise in corporate governance and policy formation to ensure that ISS' voting policies are developed and applied within a framework of
corporate governance best practices. Other ISS employees have extensive experience in the process and mechanics of voting proxies. The success of our business depends to a significant extent upon the
continued service of our executive officers and other key management, research, sales and marketing, information technology and other technical personnel. In particular, Ethan Berman, our chief
executive officer and a key participant in the formulation of our growth strategy to date, has been instrumental to our success. The loss of Mr. Berman could have a serious negative effect on
the future development of our business, particularly if we are not able to implement an effective succession plan. We do not have employment agreements with any of our executive officers.

We
believe that success in our business will continue to be based upon our intellectual capital. Consequently, we must hire and retain employees with the technical expertise and industry
knowledge necessary to continue to develop our services and effectively manage our growing sales and marketing organization to ensure the growth of our operations. Despite the current market
conditions, the market for highly skilled employees remains very competitive and we compete for talent with some of the largest financial institutions and corporations in the world.

If
we are unable to retain and recruit a sufficient number of these employees at all levels, our ability to maintain and grow our business could be negatively impacted.

We face competition that may cause price reductions or loss of market share.

We are subject to competitive conditions in all aspects of our business. We are one of the largest providers of outsourced multi-asset
class market risk management and the largest provider of outsourced proxy research and voting services. The competitive landscape for multi-asset class risk management and corporate governance and
financial research and analysis products and services is characterized by a limited number of competitors. ISS competes with firms such as Broadridge Financial Solutions (which provides proxy voting
services), Glass, Lewis & Co. (which provides research, voting recommendation and voting execution services) and Proxy Governance, Inc. (which provides research, voting
recommendation and voting execution services). ISS also competes with local niche proxy voting and research providers in certain international markets. In addition, RiskMetrics competes with firms
such as BlackRock Inc.'s BlackRock Solutions unit, DST Systems Inc., Fimalac S.A.'s Algorithmics unit, Moody Corporation's KMV unit, MSCI Barra and SunGard Data
Systems Inc. We also face competition from:



Intense
competition could harm us by causing, among other things, price reductions, reduced margins and loss of market share. We could further be required to reduce the fees we charge
clients as a result of competitive pressure, which could result in lower revenues and profitability.

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Our ability to compete, succeed and generate profits depends, in part, on our ability to obtain data from third-party vendors on commercially reasonable terms.

We currently obtain data for use in our products and services from a number of third-party vendors. Termination of one or more of our
significant data agreements or exclusion from, or restricted use of a data provider's information could decrease the available information for us to use and offer our clients and may have a material
adverse effect on our business, financial condition or results of operations. In addition, ISS relies on our data feed agreement with Broadridge Financial Solutions which allows for many ballots to be
received and proxy votes to be made electronically, minimizing the manual aspects of the proxy voting process and limiting the risk of error inherent in the manual process. If our data feed agreement
with Broadridge was terminated, we would have to incur significant expenses in order to input our clients' voting instructions directly into Broadridge's proprietary electronic voting systems and our
business and results of operations would be materially adversely affected. Since we also compete with Broadridge in some markets with respect to providing certain aspects of proxy voting services,
Broadridge may have an incentive not to renew our data feed agreement when its initial term expires or to offer renewal terms which we may deem unreasonable.

Some
of our competitors could enter into exclusive contracts with our data suppliers. If our competitors enter into such exclusive contracts, we may be precluded from receiving certain
data from these suppliers or restricted in our use of such data, which would give our competitors an advantage. Such exclusive contracts would hinder our ability to provide our clients with the data
they prefer, which could lead to a decrease in our client base and could have a material adverse effect on our business, financial condition or results of operations.

In
addition, some data suppliers may seek to increase licensing fees for providing their content to us. If we are unable to renegotiate acceptable licensing arrangements with these data
suppliers or find alternative sources of equivalent content, we may be required to reduce our profit margins or experience a reduction in our market share.

Any perceived conflicts of interest resulting from providing products and services to institutional investors in addition to proxy voting recommendations, or providing
products and services to corporations which are the subject of our proxy recommendations or other analytical products and services could harm our reputation and business.

ISS' institutional clients rely on us to provide them with informed vote recommendations, benchmark proxy voting guidelines and
unbiased analyses of companies' environmental, social and governance attributes. The institutional clients of both our RiskMetrics and ISS businesses, particularly hedge funds and more active
institutional investors, may have material economic and other interests in the corporations on which we provide proxy analyses and ratings or which are the subject of our financial research and
analysis products and services. In some cases these institutional clients pay us a significant amount of money for RiskMetrics or ISS products and services
and, accordingly, there may be a perception that we might advocate a particular position or provide research that supports a particular conclusion with respect to a corporation in order to satisfy the
unique economic or other interests of a particular institutional client. As a result, institutional clients, competitors and other market participants could raise questions about our ability to
provide unbiased services, which could harm our reputation.

Through
our ISS Corporate Services subsidiary, we provide products and services to corporate clients who often use our services to learn about and improve their governance practices.
Accordingly, there may be a perceived conflict of interest between the services we provide to institutional clients and the services, including our Compensation Advisory Services, provided to certain
corporate clients. For example, when we provide corporate governance services to a corporate client and at the same time provide proxy vote recommendations to institutional clients regarding that
corporation's proxy items,

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there
may be a perception that we may treat that corporation more favorably due to its use of our services.

The
safeguards that we have implemented may not be adequate to manage these apparent conflicts of interest, and clients or competitors may question the integrity of our services. In the
event that we fail to adequately manage these perceived conflicts of interest, we could incur reputational damage, which could have a material adverse effect on our business, financial condition and
operating results.

Our businesses rely heavily on electronic delivery systems and the Internet and any failures, disruptions or slowdowns may adversely affect our ability to serve our clients.

Technological factors may affect our ability to deliver our products and services to our clients. We depend heavily on the capacity,
reliability and security of our electronic delivery systems and the Internet. Access to our products and services and to data for our products and services, via the Internet involves security,
availability, architectural compatibility and reliability risks. Our ability to effectively use the Internet may be impaired due to infrastructure failures, service outages at third-party Internet
providers or increased government regulation. If failures, disruptions or slowdowns of our electronic delivery systems or the Internet occur, our ability to distribute our products and services
effectively and to serve our clients may be adversely affected. If our products and services or the technology foundations upon which they are built and delivered, have design or implementation flaws,
or otherwise malfunction and cause harm to clients or third parties, claims may be brought against us.

Changes in the legislative, regulatory and corporate environments in which our clients operate may adversely impact our financial results.

ISS' historical growth has been due, in large part, to increased regulatory requirements, highly visible corporate scandals, increased
shareholder activism and corporate chief executive officers and boards of directors that are increasingly concerned about, and responsive to, shareholder concerns. To the extent that any of these
trends change, the demand for our products and services could be reduced, and this could have a material adverse effect on our business, financial condition or results of operation. In addition,
beginning with the 2004 publication of International Convergence of Capital Measurement and Capital Standards: A Revised Framework, or Basel II, which created an international standard for risk
management at banks, and continuing with the adoption of Undertakings for Collective Investment in Transferable Securities, or the UCITS III directives, which require European Union member countries
to adopt policies governing investment managers' risk practices, a portion of the growth of RiskMetrics has been due to regulatory requirements. To the extent these regulations change or are not
extended to other markets, our business, financial condition and results of operation could be materially adversely affected.

Changes in government regulations relating to our business could materially adversely affect our financial condition or results of operations.

The financial services industry is subject to extensive regulation at the federal and state levels, as well as by foreign governments.
It is very difficult to predict the future impact of the legislative and regulatory requirements affecting our business and our clients' businesses. In particular, as a registered investment advisor,
our ISS subsidiary is subject to the requirements and regulations of the Investment Advisers Act of 1940. The Investment Advisers Act relates to, among other things, fiduciary duties, recordkeeping
and reporting requirements, disclosure requirements, limitations on agency and principal transactions between an advisor and advisory clients, as well as general anti-fraud prohibitions.
We may also be adversely affected as a result of new or revised legislation or regulations imposed by the SEC, other U.S. or foreign governmental regulatory authorities or self-regulatory
organizations that supervise the financial markets around the world. In addition, we may be adversely affected by changes in the

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interpretation
or enforcement of existing laws and rules by these governmental authorities and self-regulatory organizations. It is impossible to determine the extent of the impact of any
new laws, regulations or initiatives that may be proposed, or whether any of the proposals will become law. The introduction of any new laws or regulations could make compliance more difficult and
expensive and affect the manner in which we conduct business.

Our products and services support the proxy voting and risk analysis processes of clients. Consequently, we may be exposed to potential liability claims brought by our
clients or third parties as a result of the operational failure of our products and services.

Our products and services support the proxy voting and risk analysis processes of clients. If we were to fail to provide the services
provided for in our client contracts, we could be required to provide credits to our clients and in some cases we may be subject to contractual penalties. Our client agreements generally have
provisions designed to limit our exposure to potential liability claims brought by our clients or other third parties based on the operational failure of our products and services. However, these
provisions could be invalidated by unfavorable judicial decisions or by federal, state, foreign or local laws. Any such claim, even if the outcome were to be ultimately favorable to us, could involve
a significant commitment of management, personnel, financial and other resources.

Any failure to ensure and protect the confidentiality of client data could adversely affect our reputation and have a material adverse effect on our business, financial
condition or results of operations.

Many of our products and services involve the exchange of information with our clients through a variety of media, including the
Internet. We rely on a complex network of process and software controls to protect the confidentiality of client data, such as client portfolio data that may be provided to us or hosted on our
systems. If we fail to maintain the adequacy of our internal controls, including any failure to implement required new or improved controls, or if we experience difficulties in implementation of our
internal controls, client data could be misappropriated. Such internal control inadequacies could damage our reputation, expose us to litigation and have a material adverse effect on our business,
financial condition or results of operations.

Our revenues, expenses, assets and liabilities are subject to foreign currency exchange fluctuation risk.

We are subject to foreign currency exchange fluctuation risk. Exchange rate movements can impact the U.S. dollar reported value of our
revenues, expenses, assets and liabilities denominated in non-U.S. dollar currencies or where the currency of such items is different than the functional currency of the entity where these
items were recorded. We do not currently hedge the foreign exchange risk of assets and liabilities denominated in currencies other than the functional currency.

For
all operations outside the United States where the Company has designated the local non-U.S. dollar currency as the functional currency, revenue and expenses are
translated
using average monthly exchange rates and assets and liabilities are translated into U.S. dollars using month-end exchange rates. For these operations, currency translation adjustments
arising from a change in the rate of exchange between the functional currency and the U.S. dollar are accumulated in a separate component of shareholders' equity. In addition, transaction gains and
losses arising from a change in exchange rates for transactions denominated in a currency other than the functional currency of the entity are reflected in operating expenses.

We
generally invoice our clients in U.S. dollars; however, we invoice a portion of our clients in euros, pounds sterling, and a limited number of other non-U.S. dollar
currencies. For the year ended December 31, 2008, approximately 20% of our operating revenues were invoiced in currencies other than U.S. dollars.

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We
are exposed to additional foreign currency risk in certain of our operating costs. Although our expenses are generally in U.S. dollars, some of our operating expenses are incurred in
non-U.S. dollar denominated currencies. Approximately 15% of our operating expenses for the year ended December 31, 2008 were denominated in foreign currencies, the significant
majority of which were denominated in pounds sterling, euros, Swiss franc, and a limited number of other non-U.S. dollar currencies.

We
have certain assets and liabilities denominated in currencies other than local functional amounts and when these balances were remeasured into their local functional currency, a loss
resulted from the devaluation of the value of the functional currency. As a result of these positions, we recognized foreign currency exchange losses of $1.3 million within operating expenses
and $3.0 million of unrealized translation losses within stockholder equity for the year ended December 31, 2008. These losses on foreign currency exchange were primarily due to the
strengthening of the US dollar.

To
the extent that our international activities recorded in local currencies increase in the future, our exposure to fluctuations in currency exchange rates will correspondingly increase
and could have a material adverse effect on our business, financial condition or results of operations

We have engaged in hedging transactions and may engage in other hedging transactions which involve risks that could have a materially adverse effect on our financial
condition or results of operations.

In February 2007, we entered into two interest rate swap agreements to reduce our interest rate risk and to manage interest expense,
and we may engage in similar transactions in the future. As of December 31, 2008, the interest rate swaps had notional amounts of $279.4 million and a fair value liability of
$22.3 million. Our interest rate swaps effectively changed a portion of our variable-rate debt obligations pursuant to our credit facilities to fixed-rate debt
obligations. Developing an effective strategy for dealing with movements in interest rates is complex, and no strategy can completely insulate us from risks associated with such fluctuations. In
addition, counterparty to a derivative instrument could default on its obligation thereby exposing us to credit risk. Further, we may have to repay certain costs, such as transaction fees or brokerage
costs, if a derivative instrument is terminated by us. Finally, our interest rate risk management activities could expose us to substantial losses if interest rates move materially differently from
our expectations. As a result, our economic hedging activities may not effectively manage our interest rate sensitivity or have the desired beneficial impact on our financial condition or results of
operations.

Operations outside the United States involve certain risks which may adversely affect our ability to grow our business outside the United States.

A significant portion of our business is conducted outside the United States. For the year ended December 31, 2008,
approximately 39% of our revenues were generated from sales to clients outside of the Americas. In addition, as of December 31, 2008, approximately 37% of our combined employee base was located
in our offices outside of the United States. As a result, we are subject to certain risks inherent in doing business in some jurisdictions outside the United States, including the
following:



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These
risks could affect our ability to continue to expand our business outside the United States, which may adversely affect our ability to increase our revenues and to service
non-U.S. clients.

Potential Acquisitions May Disrupt the Corporation's Business and Dilute Stockholder Value

Acquisitions may require significant capital infusions, typically entail many risks, and could result in difficulties in assimilating
and integrating the operations, personnel, technologies, products and information systems of acquired companies or businesses. We have in the past and may in the future experience delays in the timing
and successful integration of an acquired
company's technologies and product development. In addition, key personnel of an acquired company may decide not to work for us. The acquisition of another company or its products and technologies may
also require us to enter into a geographic or business market in which we have little or no prior experience. These challenges could disrupt our ongoing business, distract our management and
employees, harm our reputation and increase our expenses. These challenges are magnified as the size of the acquisition increases.

We
cannot assure you that we will be able to consummate any pending or future acquisitions, such as our anticipated acquisition of Innovest, or that we will realize any anticipated
benefits from these acquisitions. We may not be able to find suitable acquisition opportunities that are available at attractive valuations, if at all. Even if we do find suitable acquisition
opportunities, we may not be able to consummate the acquisitions on commercially acceptable terms, and any decline in the price of our common stock may make it significantly more difficult and
expensive to initiate or consummate additional acquisitions.

Risks Related to an Investment in our Common Shares

Our common share price is likely to be volatile.

The market price of our common shares may be volatile in response to a number of events, including:



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In
addition, if the market for stocks in our industry, or the stock market in general, experiences a loss of investor confidence, the trading price of our common stock could decline for
reasons unrelated to our business, financial condition or results of operations. If any of the foregoing occurs, it could cause our stock price to fall and may expose us to lawsuits that, even if
unsuccessful, could be costly to defend and a distraction to management.

Future sales of shares of our common stock by our affiliates and other stockholders or by us may adversely affect the price and the future exercise of options may lower the
price of shares of our common stock.

We cannot predict what effect, if any, future sales of shares of our common stock, or the availability of shares for future sale, may
have on the trading price of our common stock. Future sales of shares of our common stock by our existing stockholders and other stockholders or by us, or the perception that such sales may occur,
could adversely affect the market price of shares of our common stock and may make it more difficult for you to sell your shares of our common stock at a time and price that you determine appropriate.

Item 1B.    Unresolved Staff Comments

As of the filing of this annual report on Form 10-K, there were no unresolved comments from the staff of the
Securities and Exchange Commission.

Item 2.    Properties

Headquartered in New York City, we maintain a global presence with offices throughout the United States as well as in 10 other
countries. Our New York City facility contains approximately 35,000 square feet and the lease relating to this facility expires in July 2012. ISS is headquartered in Rockville, Maryland. Our primary
Rockville facility contains approximately 64,000 square feet, and the lease relating to this facility expires in July 2012. In the first quarter of 2008 we moved into a new 26,000 square feet leased
property to serve as our London office for both RiskMetrics and ISS, which expires in August 2012.

We
also have smaller offices which support our operations locally in: Ann Arbor, Michigan; Brussels, Belgium; Cambridge, Massachusetts; Chicago, Illinois; Frankfurt, Germany; Geneva,
Switzerland; Iselin, New Jersey; Leeds, England; Manila, Philippines; Melbourne, Australia; Norman, Oklahoma; Paris, France; San Francisco, California; Singapore; Tokyo, Japan; and Toronto, Canada.

Item 3.    Legal Proceedings

In the ordinary course of business, we are involved in routine litigation incidental to our business. In the opinion of management,
none of these matters presently pending are expected to have a material adverse effect on our overall financial position or results of operations.

Item 4.    Submission of Matters to a Vote of Security Holders

There were no matters submitted to a vote of the company's security holders during the fourth quarter of 2008.

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Part II

Item 5.    Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

a)    Market Information

Our common stock is listed on the New York Stock Exchange under the symbol "RMG". Our stock was first publicly traded on
January 25, 2008.

The
graph below compares the cumulative total stockholder return on our common stock with the cumulative total return on the S&P's 500 Index and the NYSE Financial
Sub-Industry Index for the fiscal year ended December 31, 2008 assuming an investment of $100 at January 25, 2008 and the reinvestment of any dividends. The comparisons in
the graphs below are based upon historical data and are not indicative of, nor intended to forecast, future performance of our common stock.

GRAPHIC

The
following table shows the quarterly range of the closing high and low sale prices for our common stock as reported by the NYSE. Such prices do not include retail markups, markdowns
or commissions.

Common StockHigh

LowYear Ended December 31, 2008First Quarter

$
24.45

$
10.76Second Quarter

$
22.07

$
16.00Third Quarter

$
26.43

$
15.86Fourth Quarter

$
20.31

$
10.06


b)    Holders

As of February 24, 2009 there were approximately 125 stockholders of record and the closing price of RiskMetrics Group common
stock was $12.36 per share as reported by the New York Stock Exchange.

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Table of Contents

c)    Dividends

We have not paid or declared any cash dividends on our common stock during the period covered by the financial statements included in
this Annual Report on Form 10-K. We have retained, and currently anticipate that we will continue to retain, all of our earnings for use in developing our business. In addition, our
credit facility restricts us from declaring and paying dividends.

d)    Securities authorized for issuance under equity compensation plans

The following table sets forth information as of December 31, 2008 regarding our compensation plans and the Common Stock we may
issue under the plans.

Equity Compensation Plan Information

Plan Category

Number of securities to
be issued upon exercise
of outstanding options

Weighted-average exercise
price of outstanding options

Number of securities
remaining available for
future issuance under
equity compensation plansEquity compensation plans approved by stockholders


12,819,587

$
7.20


3,322,805Equity compensation plans not approved by stockholders








Total


12,819,587

$
7.20


3,322,805


e)    Stock Repurchases

We do not have a publicly announced share repurchase plan. As of December 31, 2008 we had 243,154 shares of treasury stock.

f)    Issuance of Securities and use of Proceeds from Sale of Registered Securities

On January 25, 2008, we granted 1,563,500 options to our employees immediately prior to the consummation of our initial public
offering, including an aggregate of 1,031,500 options related to 2007 compensation for certain employees and an aggregate of 532,000 options to all full time employees, representing a
one-time grant of 500 options to each of our employees.

On
January 30, 2008, we completed our initial public offering of 16,100,000 shares of our common stock, which included 4,035,816 shares sold by our selling stockholder pursuant to
our Registration Statement on Form S-1, as amended (Reg. No. 333-146167) that was declared effective on January 24, 2008. We did not receive any proceeds
from the sale of the shares by
the selling stockholders. Our net proceeds from the offering were $193.9 million, after deducting underwriting discounts and commissions and approximately $3.5 million of offering
expenses.

In
January 2008, we utilized a portion of proceeds from the initial public offering to prepay the entire outstanding indebtedness under the second loan lien credit facility which
amounted to $125.0 million and a 1% prepayment penalty fee, or $1.25 million. The remainder of proceeds from the initial public offering have been and will continue to be utilized for
general corporate purposes, including working capital.

Item 6.    Selected Consolidated Financial Data

Our selected consolidated financial and operating data for each of the years ended December 31, 2004, 2005, 2006, 2007 and 2008
are presented below. The information set forth below should be read in conjunction with the consolidated financial statements and notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this Annual Report on Form 10-K.

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Consolidated Statements of Operations Data

Year ended December 31,2004

2005

2006

2007(10)

2008(Amounts in thousands, except share and per share data)Revenues(1)

$
71,699

$
93,637

$
101,236

$
240,301

$
296,393Operating costs and expenses:Costs of revenues


18,909


23,704


25,618


77,317


93,387Research and development


14,095


16,099


21,202


31,142


41,593Selling and marketing


13,222


12,257


14,977


35,420


33,202General and administrative


9,328


11,492


12,852


29,654


37,422Depreciation and amortization of property and equipment(2)


5,170


3,551


4,081


7,419


8,779Amortization of intangible assets(3)


1,079


2,713


770


19,145


21,758Impairment of goodwill and intangible asset(4)





361








160,069Loss on disposal of property and equipment(2)(5)(6)


1,659


1,577


15


734


122Total operating costs and expenses(7)(8)


63,462


71,754


79,515


200,831


396,332Income (loss) from operations


8,237


21,883


21,721


39,470


(99,939
)Interest, dividend and investment income (expense), net:Interest, dividend and investment income


597


1,438


2,549


1,564


2,567Interest expense








(49
)

(36,922
)

(26,234
)Other expenses














(2,613
)Interest, dividend and investment income (expense), net


597


1,438


2,500


(35,358
)

(26,280
)Income (loss) before provision (benefit) for income taxes


8,834


23,321


24,221


4,112


(126,219
)Provision (benefit) for income taxes(9)


(1,048
)

7,640


8,200


1,711


10,700Net income (loss)

$
9,882

$
15,681

$
16,021

$
2,401

$
(136,919
)Net income (loss) per share:Basic

$
0.33

$
0.36

$
0.38

$
0.05

$
(2.28
)Diluted

$
0.20

$
0.32

$
0.33

$
0.04

$
(2.28
)Weighted average shares outstanding:Basic


30,379,564


43,496,221


42,655,069


46,380,175


59,970,438Diluted


49,813,540


48,412,751


47,963,666


54,364,746


59,970,438


Consolidated Balance Sheet Data

As of December 31,2004

2005

2006

2007(10)

2008(Amounts in thousands)Cash and cash equivalents

$
12,042

$
10,966

$
37,313

$
27,455

$
170,799Short-term investments


46,453


69,296


68,071





Goodwill and intangibles, net


3,844


770





635,105


456,953Total assets


89,833


115,293


136,947


743,183


705,013Deferred revenue


45,996


53,744


58,842


101,279


110,889Total debt, including current portion











422,750


290,619Stockholders' equity


30,074


44,270


56,498


136,092


203,167


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Other Financial and Operating Data

The financial and operating data below sets forth supplementary information that we believe is useful for investors in evaluating our
underlying operations:

Year ended December 31,2004

2005

2006

2007(10)

2008(Amounts in thousands, except for percentages)Financial DataAdjusted EBITDA(11)

$
18,727

$
30,085

$
30,223

$
72,801

$
101,147Net cash provided by operating activities

$
31,115

$
30,035

$
36,082

$
45,348


84,848Capital expenditures


(4,237
)

(6,217
)

(3,724
)

(11,091
)

(8,795
)Free cash flow(12)

$
26,878

$
23,818

$
32,358

$
34,257

$
76,053Operating DataAnnualized contract value (at period end)(13)

$
77,660

$
96,134

$
101,686

$
250,238

$
285,997Recurring revenue as a percentage of total revenue(14)


94.3
%

94.2
%

96.6
%

92.7
%

93.9
%


---

Notes to Selected Consolidated Financial Information and Other Data:

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We
also present Adjusted EBITDA as a supplemental performance measure because we believe that this measure provides our board of directors, management and investors with additional information to
measure our performance, provide comparisons from period to period by excluding potential differences caused by variations in capital structure (affecting interest expense), tax position (such as the
impact on periods of changes in effective tax rates or net operating losses), the age and book depreciation of fixed assets (affecting relative depreciation expense), acquisitions (affecting
amortization expense) and compensation plans (affecting stock-based compensation expense).

Adjusted
EBITDA is not a measurement of our financial performance under U.S. GAAP and should not be considered as an alternative to net income, operating income or any other performance
measures derived in accordance with U.S. GAAP or as an alternative to cash flow from operating activities as a measure of our profitability or liquidity.

We
understand that, although Adjusted EBITDA is frequently used by securities analysts, lenders and others in their evaluation of companies, Adjusted EBITDA has limitations as an analytical tool, and
you should not consider it in isolation, or as a substitute for an analysis of our results as reported under U.S. GAAP. Some of these limitations are:



Year ended December 31,2004

2005

2006

2007

2008Net income (loss)

$
9,882

$
15,681

$
16,021

$
2,401

$
(136,919
)Interest, other income (expense), net


(597
)

(1,438
)

(2,500
)

35,358


26,280Income tax expense


(1,048
)

7,640


8,200


1,711


10,700Depreciation and amortization of property and equipment


5,170


3,551


4,081


7,419


8,779Amortization of intangible assets


1,079


2,713


770


19,145


21,758Stock-based compensation(a)


2,582





3,636


6,033


9,893Impairment of goodwill and intangible asset(b)





361








160,069Non-recurring expenses(c)














465Loss on disposal of property and equipment(d)


1,659


1,577


15


734


122Adjusted EBITDA

$
18,727

$
30,085

$
30,223

$
72,801

$
101,147






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Item 7.   Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our historical financial statements and the related
notes included elsewhere in this annual report. This discussion contains forward-looking statements that are subject to known and unknown risks and uncertainties. Actual results and timing of events
may differ significantly from those expressed or implied in such forward-looking statements due to a number of factors, including those set forth in the Item 1ARisk Factors and
elsewhere in this annual report.

Overview

We are a leading provider of risk management and corporate governance products and services to participants in the global financial
markets, as measured by revenues. Our products and services enable investors to measure and manage the market, credit, portfolio, governance, accounting, legal and environmental risks associated with
their financial holdings. These offerings address multiple asset classes, markets and geographies to a broad group of market participants, including asset managers, hedge funds, pension funds, banks,
insurance companies, financial advisors and corporations. Clients rely on us to better understand and manage risk of their financial holdings, to provide greater transparency to both their internal
and external constituencies, to satisfy regulatory and reporting requirements and to make better investment decisions.

Our
growth strategy is focused on the following:



As
of December 31, 2008, we had approximately 3,400 clients located in 56 countries. Among our clients are 69 of the 100 largest investment managers, 42 of the 50 largest mutual
fund companies, 41 of the 50 largest hedge funds, in each case as measured by assets under management.

We
benefit from a number of favorable attributes of our business model. These attributes include:

Subscription-based revenue model:We sell our services primarily on an annual subscription basis and have experienced high renewal
rates. Recurring
revenues accounted for approximately 93.9% of

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our
total revenues in the year ended December 31, 2008, and we had a renewal rate of 86.3% during that time. Our subscription model and high renewal rates minimize volatility in our revenues
and provide significant visibility for our future results.

Leveragable cost structure:Because we provide our services from a common technology and data
infrastructure, we benefit from economies of scale. As a result, we have generally been able to increase adjusted EBITDA margins as our revenues have grown.

Favorable cash flow characteristics:Our subscription-based revenues and leveragable cost structure, combined with our positive working
capital
characteristics and low capital expenditure requirements, have historically allowed us to generate significant cash flow.

In
evaluating our results, we focus on several key financial and operating data including annualized contract value, renewal rates, sales to new customers, non-recurring
revenues and Adjusted EBITDA. Our annualized contract value, which is described in detail below, is a leading indicator of our business and represents a large portion of our revenue in any given
period. We track our performance across geographies and product and service lines.

We
expect to invest in our business to continue to grow our revenues. Compensation, data acquisition and technology infrastructure costs represent significant components of our operating
expense structure. While we expect to increase our operating expenses over time to take advantage of market opportunities, we believe that the economies of scale in our operating model will allow us
to grow our operating expenses at a lower rate than revenues and thereby increase our operating margins.

The
vast majority of our business involves the sale of products and services to clients in the financial services industry, including asset managers, banks, insurance companies, hedge
funds, pension funds as well as professional organizations that serve the financial services industry. The global financial markets have been adversely impacted by the current market environment that
includes illiquidity, market volatility, widening credit spreads, changes in interest rates, currency exchange fluctuations and new legal and compliance requirements. These market conditions and the
reduced business activity have had a negative impact on a number of our clients and could negatively impact our future revenues due to the potential for declining sales and renewal rates.

We
do not believe that our liquidity has been affected by the recent events in the global financial markets. Refer to Liquidity and Capital Resources discussion.

Our Revenues

We generate a substantial majority of our revenues from annual subscriptions to our products and services, for which our clients
generally pay us in advance. These contracts generally renew automatically on an annual basis. Our products and services are generally
priced based on the access to our applications and services, including research, voting and reports purchased. We do not price our products and services based on our clients' assets under management.
As a result, we generally are not directly subject to revenue fluctuations resulting from changes in our clients' assets under management ("AUM"). Our experience has been that, over time, our clients
have often added users and purchased additional products and services from us, which has led to increases in our revenues per client.

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Revenues from subscription contracts are referred to as recurring revenues. Recurring revenues are generated through the renewal of existing contracts and the
signing of new subscription contracts. For the year ended December 31, 2008, approximately 93.9% of our total revenues were generated from these subscription contracts. The subscription fees
received from our clients are recorded as deferred revenues and recognized each month as our services are rendered. Our renewal rate, which was 86.3% for the year ended December 31, 2008,
combined with our level of new subscription contracts, determine our annualized contract value, which is a leading indicator of our recurring revenues. Our annualized contract value as of
December 31, 2008 was $286.0 million.

We
also generate non-recurring revenue from sales of products and services without a subscription contract, which represented 6.1% of total revenues during the year ended
December 31, 2008.

Annualized Contract Value ("ACV")

As a result of our subscription-based model and historically high renewal rates, at the end of any period, we generally have
subscription contracts in place for a high percentage of our total revenues for the next 12 months. We monitor the contracted revenues from these
agreements and refer to them as annualized contract value. We define our annualized contract value as the aggregate value on an annualized basis of all recurring subscription contracts in effect on a
reporting date. Any revenues associated with subscription contracts that are entered into during a reporting period will be reflected in the annualized contract value beginning at the end of that
period. As a result, annualized contract value at the end of any period is the annualized contract value at the beginning of the period plus the annualized contract revenue associated with new
subscription contracts signed during that period minus the annualized contract revenues associated with subscription contracts not renewed. Annualized contract value does not include any fees
associated with any non-recurring revenues.

Annualized
contract value is an important metric for our business. However, annualized contract value may differ from our future reported revenues due to a number of factors, which
include:



Our
annualized contract value for the RiskMetrics business and ISS business as of December 31, 2006, 2007 and 2008, as well as the percentage growth period over period is set
forth, separately for each business, in the table below. ISS ACV growth in 2007 was complemented by the acquisition of $15.9 million from CFRA on August 1, 2007.

As of December 31,2006

2007

2008(Amounts in thousands,
except for percentages)RiskMetrics business annualized contract value

$
101,686

$
131,716

$
160,200Percent growth





29.5
%

21.6
%ISS business annualized contract value

$
89,938

$
118,522

$
125,797Percent growth





31.8
%

6.1
%


Current
market conditions have led to foreign currency fluctuations, lower than average historical renewal rates and sales growth, which may negatively impact ACV growth.

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Renewal Rate

Because non-renewals of subscription contracts decrease our annualized contract value, which in turn decreases our
revenues, a key operating metric is renewal rate. Our renewal rate for any period is defined as the amount of annualized contract value that renews in a period divided by the amount of annualized
contract value with an expiration date during that period. If a client has a higher contract value upon renewal of its existing contract, the amount in excess of the prior period's contract is
considered new contract revenue for purposes of this calculation.

The
renewal rate for our RiskMetrics business and ISS business for the years ended December 31, 2006, 2007 and 2008, is set forth separately for each business, in the table below.
We have calculated the renewal rate for our RiskMetrics business for the year ended December 31, 2006 including the JPMorgan online services agreement that was terminated as of April 2006. The
lower 75.5% renewal rate for RiskMetrics for the fiscal year ended December 31, 2006 was due largely to the termination of
the JPMorgan online contract which accounted for approximately 12%, or half of the 24.5% non-renewal rate for that period.

Year ended December 31,2006

2007

2008RiskMetrics business renewal rate


75.5
%

91.1
%

87.1
%ISS business renewal rate


91.0
%

91.8
%

85.4
%


Overall,
consolidated renewal rates were 86.3% for the year ended December 31, 2008 as compared with 91.4% in the prior year. RiskMetrics achieved a renewal rate of 87.1% which
decreased compared to the prior year rate of 91.1%, while ISS had a renewal rate of 85.4% which decreased compared to the prior year rate of 91.8%. The RiskMetrics renewal rate declined mainly due to
higher non-renewals in the alternative investment segment offset by steady renewal rates in the asset management and banking segments.. The ISS renewal rate declined primarily due to lower
renewal rates in Corporate Services and CFRA products as well as an approximate 200 basis point decline in the Proxy business renewal rate.

Non-Recurring Revenues

Non-recurring revenues result from sales on a non-subscription basis. Non-recurring revenues for
the RiskMetrics business and ISS business for the years ended December 31, 2006, 2007 and 2008 are set forth in the table below. Our non-subscription services include
implementation, compensation advisory services and similar services and overages related to ISS' Proxy Research and Voting business. Revenues from implementation are recognized as the related
subscription service is provided, some Compensation Advisory Services revenues are recognized over a three month period and other non-recurring revenues are recognized once the service is
provided. To the extent that clients' actual usage of proxy voting services or proxy research reports exceeds contracted-for limits, the excess usage is considered to be an overage and
clients may be charged additional fees. Our clients' overages are typically an indication of larger proxy voting contract renewals.

Year ended December 31,2006

2007

2008RiskMetrics business percent non-recurring revenue


3.4
%

2.4
%

1.6
%ISS business percent non-recurring revenue


14.2
%

12.3
%

11.1
%


Our Operating Costs and Expenses

Compensation expense represents a substantial majority of our expenses across all of our operating functions. Compensation expenses
before stock-based compensation expense are comprised of base

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salary,
bonuses, benefits, payroll taxes and sales commissions. While we expect to grow our headcount over time to take advantage of our market opportunity, we believe that the economies of scale in
our operating model will allow us to grow our compensation expenses at a lower rate than revenues.

Other
significant operating expenses are data, proxy voting fees, occupancy and telecommunications and web hosting costs. Since we deliver our products and services using a common data
and technology infrastructure, we expect these expenses to generally increase at less than the rate of revenue growth. Overall, our goal is to keep the rate of growth of these operating expenses below
the rate of growth of our revenues. However, in order to take advantage of growth opportunities, we may invest in our business in order to support increased revenue growth. This might result in
variability in our operating margin in the short term.

We
allocate compensation expenses, including stock-based compensation expense, to our cost of revenues, sales and marketing, research and development and general and administrative
expense categories based on the actual costs associated with each employee. Other costs associated with the employees, such as occupancy, travel and telecommunications, are included in the same cost
categories as the corresponding employees. We allocate shared services to each segment based on usage or headcount. The following summarizes our significant operating expenses:

Costs of Revenues

Costs of revenues include costs related to production of proxy research and voting, web hosting, data, account management,
implementation and systems operations and allowances for doubtful accounts. Costs in this area consist primarily of staff compensation and related costs and payments to third party vendors, including
third party web hosting and data providers.

Research and Development

Research and development expenses include costs related to product development, research technology, application design, technology
infrastructure and analytics development. Costs in this area consist primarily of staff compensation costs and related expenses and consultant expenses.

Selling and Marketing

Selling and marketing expenses consist of costs related to our sales force, product management and marketing professionals. These costs
include staff compensation costs and related expenses, including commissions and general marketing costs.

General and Administrative

General and administrative expenses consist of expenses for finance, legal, accounting, human resources and information technology
personnel. Costs in this area primarily consist of staff compensation and related expenses, legal costs, insurance costs, audit and accounting fees and other professional services fees.

Depreciation and Amortization of Property and Equipment

Depreciation and amortization of property and equipment includes depreciation of software, computer and related equipment, furniture
and fixtures and telecommunications equipment, which is recorded over the respective useful lives of the related assets. Depreciation also includes the amortization of leasehold improvements which are
amortized over the shorter of the term of the lease or the assets' useful life, and the amortization of capitalized software costs. Amortization expense for leasehold improvements and capitalized
software development costs are included in depreciation and amortization of property and equipment in the statements of operations

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Amortization of Intangible Assets

Amortization expense includes the amortization of finite life intangible assets such as acquired technology, customer relationships,
trade names, proprietary process and non-compete agreements acquired, which are amortized over their estimated useful lives.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States.
Our critical accounting policies, including the assumptions and judgments underlying them, require the application of significant judgment in the preparation of our financial statements, and as a
result they are subject to a greater degree of uncertainty. In applying these policies, we use our judgment to determine the appropriate assumptions to be used in calculating estimates that affect the
reported amounts of assets, liabilities, revenues and expenses. Estimates and assumptions are based on historical experience and on various other factors that are believed to be reasonable under the
circumstances. Accordingly, actual results could differ from those estimates. Our critical accounting policies include the following:

Revenue Recognition

The majority of our revenues are generated from contracted annual subscriptions, for which we receive licensing fees from clients who
utilize services. Depending on the service offering, the services are available through a variety of delivery options, including hosted web applications, fullyoutsourced managed services,
and local software installation. Revenues are recognized on a straight line basis over the term of the subscription period which is typically one year.

Subscription
revenue is recognized in accordance with the Securities and Exchange Commission, or "SEC", Staff Accounting Bulletin ("SAB") No. 104,Revenue
Recognition,since the Company provides its application as a service. The Company also recognizes revenue on software sales in accordance with the AICPA SOP
No. 97-2,Software Revenue Recognition, as amended by SOP No. 98-9, Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain
Transactions.

Revenue
is recognized when all of the following conditions are met:



License
fees associated with local software installations, for the RiskMetrics business, are recognized over the term of the license period, typically one year. The arrangement for local
installation is a multiple-element arrangement that consists of software, post contract support (PCS) including unspecified upgrades and enhancements, and other service elements. Revenue is recognized
ratably over the term of the license as there is no vendor-specific objective evidence of the fair value for PCS or the other service elements because they are not priced separately or sold separately
to customers and there is no discernable pattern in which PCS and other services are expected to be performed.

The
ISS business provides proxy advisory and voting services, corporate governance and financial research and analysis services to institutional investors and corporations. The majority
of ISS's products and services are delivered through a web based platform and are typically provided through annual subscription agreements. Revenue is recognized ratably over the term of the
subscription agreement. Many of ISS's subscription agreements are multiple element arrangements that provide for the delivery

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of
more than one ISS product or service. Revenue is recognized on a straight-line basis over the term of the subscription as each of the services specified in these multiple element
arrangements are performed continuously over the subscription term and there is no discernable pattern in which the services will be performed.

In
situations where contracts include client acceptance provisions, we do not recognize revenue until such time as the client has confirmed its acceptance. Some of our subscription
contracts include automatic renewal provisions under existing contract terms. Reserves for possible losses on subscription service, if any, are recognized when determined.

A
portion of our revenues are derived from non-subscription services including implementation, Compensation Advisory Services and overages related to Proxy Research and
Voting services. Revenues from implementation are recognized as the services are provided and other non-recurring revenues are recognized once the service is provided or upon delivery of
the required service.

Goodwill and Intangibles

Goodwill, which consists of the excess of the purchase price over the fair value of identifiable net assets of businesses acquired, is
evaluated for impairment using a two-step process that is performed at least annually on October 1 of each year, or whenever events or circumstances indicate that impairment may
have occurred. The first step is a
comparison of the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying value, goodwill of the reporting unit is
not considered impaired and the second step is unnecessary. If the carrying value of the reporting unit exceeds its fair value, a second test is performed to measure the amount of impairment by
comparing the carrying amount of the goodwill to a determination of the implied value of the goodwill. If the carrying amount of the goodwill is greater than the implied value, an impairment loss is
recognized for the difference.

The
implied value of goodwill is determined as of the test date by performing a purchase price allocation, as if the reporting unit had just been acquired, using currently estimated fair
values of the individual assets and liabilities of the reporting unit, together with an estimate of the fair value of the reporting unit taken as a whole. The estimate of the fair value of the
reporting unit is based upon information available regarding prices of similar groups of assets, or other valuation techniques including present value techniques based upon estimates of future cash
flows.

Intangible
assets, including acquired technology, customer relationships, certain trade names and non-compete agreements arising principally from acquisitions, are recorded
at cost less accumulated amortization and our finite-lived intangibles are amortized using the straight line method of over the estimated useful life of the intangible asset. Intangible assets deemed
to have indefinite useful lives, such as certain trade names, are not amortized and are subject to an annual impairment tests or whenever events or circumstances indicate impairment may have occurred.
Impairment exists if the carrying value of the indefinite-lived intangible asset exceeds its fair value. For other intangible assets subject to amortization, impairment is recognized if the carrying
amount is not recoverable and the carrying amount exceeds the fair value of the intangible asset.

As
of December 31, 2008, we had goodwill and intangible assets of $457.0 million. During 2008, we recorded a non-cash impairment charge to goodwill and
intangible assets totaling $160.1 million as a result of our annual goodwill and intangible asset impairment review. The impairment charge includes a $154.2 million
write-down to ISS goodwill primarily as a result of the negative equity market conditions which caused a material decline in industry market multiples in the second half of 2008. The fair
value of the ISS reporting unit was determined using a combination of present value techniques, including a discounted cash flow, as well as fair values of comparable businesses. In addition, the
impairment charge includes a $5.9 million write-down to an ISS product tradename as a result of an integration plan for the tradename which reduced its expected life.

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There
are many assumptions and estimates that may directly impact the results of impairment testing, including market valuations of comparable companies, earnings multiples, estimate of
future expected revenues, earnings and cash flows, and discount rates applied to such expected cash flows in order to
estimate fair value. We have the ability to influence the outcome and ultimate results based on the assumptions and estimates we choose for testing. To mitigate undue influence, we set criteria that
are reviewed and approved by various levels of management. The determination of whether or not goodwill or indefinite-lived acquired intangible assets have become impaired involves a significant level
of judgment in the assumptions underlying the approach used to determine the value of our reporting unit. Changes in market valuations, earnings multiples and our strategy or market conditions could
significantly impact these judgments and require adjustments to recorded amounts of intangible assets.

Stock-Based Compensation

We adopted SFAS 123(R), as of January 1, 2006. SFAS 123(R) replaced the existing requirements under SFAS
No. 123,Accounting for Stock Based Compensation,and Accounting Principles Board Opinion No. 25,Accounting for
Stock-based Compensation to Employees,or APB 25. According to SFAS 123(R), all forms of share-based payments to employees, including employee stock options and
employee stock purchase plans, are treated the same as any other form of compensation by recognizing the related cost in the statement of operations.

Under
SFAS 123(R), stock-based compensation expense is measured at the grant date based on the fair value of the award, and the expense is recognized ratably over the award's
vesting period. Prior to the adoption of SFAS 123(R), we recognized compensation for unvested awards under the graded vesting method, and will continue to do so in all grants made prior to
January 1, 2006. For all grants made subsequent to December 31, 2005, we recognize compensation cost under the straight-line method.

We
measure the fair value of stock options on the date of grant using a Black- Scholes option-pricing model which requires the use of several estimates,
including:



Prior
to the completion of our initial public offering in January 2008, we were not a publicly traded company, and as a result we had limited historical information on the price of our
common stock. As a result, we could not solely rely on historical experience alone to develop assumptions for stock price volatility. As such, our stock price volatility also considered an estimated
volatility with reference to a peer group of companies.

The
expected life of options is based on internal studies of historical experience and projected exercise behavior. We estimate expected forfeitures of stock-based awards at the grant
date and recognize compensation cost only for those awards expected to vest. The forfeiture assumption is ultimately adjusted to the actual forfeiture rate. Estimated forfeitures are reassessed in
subsequent periods and may change based on new facts and circumstances. We utilize a risk-free interest rate, which is based on the yield of U.S. zero coupon securities with a maturity
equal to the expected life of the options. We have not and do not expect to pay dividends on our common shares.

We
estimate expected forfeitures of stock-based awards at the grant date and recognize compensation cost only for those awards expected to vest. The forfeiture assumption is ultimately
adjusted to the actual forfeiture rate. Therefore, changes in the forfeiture assumptions may impact the

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timing
of the total amount of expense recognized over the vesting period. Estimated forfeitures are reassessed in subsequent periods and may change based on new facts and circumstances.

We
recorded stock-based compensation expense of $9.9 million for the year ended December 31, 2008. The use of different assumptions in the Black-Scholes model would result
in different amounts of stock-based compensation expense. Furthermore, if different assumptions are used in future periods, stock-based compensation expense could be materially impacted in the future.

Income Taxes

We account for income taxes using the asset and liability method in accordance withSFAS No. 109
Accounting for Income Taxes. We record income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences
attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to be recovered or settled. To the extent needed, we record valuation
allowances against deferred tax assets, if it determines it is not more likely than not that the assets will be utilized in the future.

On
January 1, 2007, we adoptedFASB Interpretation No. 48, Accounting for Uncertainty in Income Taxesan interpretation of FASB
Statement No. 109,or FIN 48. FIN 48 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be
recorded in the financial statements. Under FIN 48, we may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on
examination by the taxing authorities, based on the technical merits of the position. As a result of the implementation of FIN 48, we recognized an approximate $0.4 million increase in
the current tax liability for unrecognized tax benefits and a decrease to the January 1, 2007 balance of retained earnings. As of December 31, 2008, our unrecognized tax benefits totaled
$2.0 million, and if such liability was reversed would favorably impact our effective tax rate.

Results of Operations

Segments and Periods Presented

Prior to January 1, 2007, we operated as a single reportable segment. As a result of our acquisition of ISS and based on a
review of SFAS No. 131,Disclosures about Segments of an Enterprise and Related Information,we have determined that we currently operate in two
segments, "the RiskMetrics business" and the "ISS business."

We
have provided a discussion of our results of operations on a consolidated basis and have also provided certain detailed discussions for each of our segments. We have done so because
the results of ISS are not included in our results of operations until January 12, 2007, but constitute a substantial portion of our business. As a result, in order to provide a meaningful
discussion of our ongoing business, we have provided a discussion of RiskMetrics and ISS segment results for 2007 compared to 2006.

Factors Affecting the Comparability of Results

As discussed above, our acquisition of ISS impacts the comparability of our results of operations. In addition, the financial results
of CFRA, which was acquired on August 1, 2007, have been included in the results of our ISS business only since the date of its acquisition. CFRA supplements the ISS business and supports the
Financial Research and Analysis product and services offerings.

In
January 2008, we completed an initial public offering of 16,100,000 shares of common stock, which included 4,035,816 shares sold by selling stockholders and 2,100,000 shares sold by
RiskMetrics

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Group
to cover over-allotments, which was exercised in full in January 2008. We received net proceeds of $193.9 million from the offering. We did not receive any proceeds from the
sale of the shares by the selling stockholders. As such, weighted average common shares outstanding for the year ended December 31, 2008 includes 12,100,000 additional shares sold in the
initial public offering. In addition, immediately prior to the completion of our initial public offering we granted each of our full-time employees an option to acquire 500 shares of our
common stock, at an exercise price equal to the initial public offering price. Such grant resulted in stock-based compensation of $1.9 million being recorded for the year ended
December 31, 2008.

In
January 2008, we utilized a portion of proceeds from the initial public offering to prepay the entire outstanding indebtedness under the second lien loan, in the amount of
$125.0 million. As a result of the prepayment we incurred $5.0 million in expenses during the year ended December 31, 2008, which were comprised of a $1.25 million debt
prepayment penalty fee, a $2.4 million write-off of debt issuance costs and a $1.4 million loss on an interest rate swap settlement. Such costs have been included in
interest, dividend, investment and other income (expense), net in the statement of operations for the year ended December 31, 2008.

In
2008, we recorded a non-cash impairment charge to goodwill and intangible assets totaling $160.1 million as a result of our annual goodwill and intangible asset
impairment review. The impairment charge includes a $154.2 million write-down to ISS goodwill primarily as a result of the negative equity market conditions which caused a material
decline in industry market multiples in the second half of 2008. In addition, the impairment charge includes a $5.9 million write-down to an ISS product tradename as a result of an
integration plan for the tradename which reduced its expected life.

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Year ended December 31, 2008 compared to the year ended December 31, 2007

The following tables provide information with respect to our consolidated and segment operating results:

Consolidated RiskMetrics Group, Inc.

Year Ended
December 31,

Increase (decrease) for year
ended December 31,
2008 compared to 20072007

2008

Amount

%(Amounts in thousands, except percentages)Revenues

$
240,301

$
296,393


56,092


23.3
%Operating costs and expenses:Cost of revenues


77,317


93,387


16,070


20.8
%Research and development


31,142


41,593


10,451


33.6
%Selling and marketing


35,420


33,202


(2,218
)

(6.3
)%General and administrative


29,654


37,422


7,768


26.2
%Depreciation and amortization of property and equipment


7,419


8,779


1,360


18.3
%Amortization of intangible assets


19,145


21,758


2,613


13.6
%Impairment of goodwill and intangible asset





160,069


160,069


100
%Loss on disposal of property and equipment


734


122


(612
)

(83.4
)%Total operating costs and expenses(1)


200,831


396,332


195,501


97.3
%Income (loss) from operations


39,470


(99,939
)

(139,409
)

*
%Interest, dividend and investment income (expense), net


(35,358
)

(26,280
)

9,078


25.7
%Income (loss) before provision for income taxes


4,112


(126,219
)

(130,331
)

*
%Provision for income taxes


1,711


10,700


8,989


*
%Net income (loss)

$
2,401

$
(136,919
)
$
(139,320
)

*
%


---

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RiskMetrics Business

Year ended
December 31,

Increase (decrease) for year
ended December 31,
2008 compared to 20072007

2008

Amount

%(Amounts in thousands, except percentages)Revenues

$
121,126

$
154,626

$
33,500


27.7
%Operating costs and expenses:Cost of revenues


30,103


37,367


7,264


24.1
%Research and development


24,002


27,235


3,233


13.5
%Selling and marketing


17,101


17,408


307


1.8
%General and administrative


14,105


19,162


5,057


35.9
%Depreciation and amortization of property and equipment


4,439


4,624


185


4.2
%Amortization of intangible assets





78


78


100
%Loss on disposal of property and equipment


161





(161
)

(100
)%Total operating costs and expenses(2)


89,911


105,874


15,963


17.8
%Income from operations

$
31,215

$
48,752

$
17,537


56.2
%


---

ISS Business

Increase (decrease) for year
ended December 31,
2008 compared to the period
January 12, 2007 to
December 31, 2007January 12, 2007
to
December 31, 2007

Year ended
December 31, 2008Amount

%(Amounts in thousands, except percentages)Revenues

$
119,175

$
141,767

$
22,592


19.0
%Operating costs and expenses:Cost of revenues


47,214


56,020


8,806


18.7
%Research and development


7,140


14,358


7,218


*
%Selling and marketing


18,319


15,794


(2,525
)

(13.8
)%General and administrative


15,549


18,260


2,711


17.4
%Depreciation and amortization of property and equipment


2,980


4,155


1,175


39.4
%Amortization of intangible assets


19,145


21,680


2,535


13.2
%Loss on disposal of property and equipment


573


122


(451
)

(78.7
)%Impairment of goodwill and intangible asset





160,069


160,069


100
%Total operating costs and expenses(3)


110,920


290,458


179,538


*
%Income (loss) from operations

$
8,255

$
(148,691
)
$
(156,946
)

*
%


---

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The
following table provides information with respect to our revenues in certain geographic regions:

Consolidated RiskMetrics Group, Inc.

Year ended
December 31, 2007

Year ended
December 31, 2008Increase (decrease) for year
ended December 31,
2008 compared to 2007% of
Total
Revenue



% of
Total
RevenueRegion

Revenue

Revenue

Amount

%(Amounts in thousands, except percentages)Americas

$
148,881


62.0
%
$
181,039


61.1
%
$
32,158


21.6
%Europe, Middle East and Africa (EMEA)


75,430


31.4
%

98,028


33.1
%

22,598


30.0
%Asia


15,990


6.6
%

17,326


5.8
%

1,336


8.4
%Total

$
240,301


100.0
%
$
296,393


100.0
%
$
56,092


23.3
%


RiskMetrics Business

Year ended
December 31, 2007

Year ended
December 31, 2008Increase (decrease) for year
ended December 31,
2008 compared to 2007% of
Total
Revenue



% of
Total
RevenueRegion

Revenue

Revenue

Amount

%(Amounts in thousands, except percentages)Americas

$
56,408


46.6
%
$
70,497


45.6
%
$
14,089


25.0
%Europe, Middle East and Africa (EMEA)


54,666


45.1
%

73,105


47.3
%

18,439


33.7
%Asia


10,052


8.3
%

11,024


7.1
%

972


9.7
%Total

$
121,126


100.0
%
$
154,626


100.0
%
$
33,500


27.7
%


ISS Business

Increase (decrease) for year
ended December 31,
2008 compared to the period
January 12, 2007 to
December 31, 2007January 12, 2007
to
December 31, 2007

Year Ended
December 31, 2008% of Total
Revenue



% of Total
RevenueRegion

Revenue

Revenue

Amount

%(Amounts in thousands, except percentages)Americas

$
92,473


77.6
%
$
110,542


78.0
%
$
18,069


19.5
%Europe, Middle East and Africa (EMEA)


20,764


17.4
%

24,923


17.6
%

4,159


20.0
%Asia


5,938


5.0
%

6,302


4.4
%

364


6.1
%Total

$
119,175


100.0
%
$
141,767


100.0
%
$
22,592


19.0
%


Set
forth below is a discussion of our results for the year ended December 31, 2007 compared to the year ended December 31, 2008.

Revenues.Consolidated revenues increased from $240.3 million for the year ended December 31, 2007 to $296.4 million for
the
year ended December 31, 2008, or 23.3%. Revenue growth was driven by

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a
27.7% increase in the RiskMetrics business and 19.0% increase in the ISS business. Revenue growth was also driven by a 21.6% increase in the Americas region and a 30.0% increase in the EMEA region
driven by increased sales in both businesses in these regions.

RiskMetrics
revenues increased from $121.1 million for the year ended December 31, 2007 to $154.6 million for the year ended December 31, 2008, or 27.7%. The
$33.5 million increase in revenues was primarily due to a $30.9 million, or 29.6%, increase in revenues from our Market Risk products. The increase in revenues from Market Risk Products
was due to a 34.4% increase in revenues from RiskManager due to strong sales of RiskManager to asset managers and hedge funds as they increased their outsourcing of risk reporting services. As a
percentage of total RiskMetrics revenues, revenues from our Market Risk products and services increased from 86.0% for the year ended December 31, 2007 to 87.4% for the year ended
December 31, 2008. Revenue growth was also driven by a 25.0% increase in the Americas region and a 33.7% increase in the EMEA region driven by strong sales of RiskManager in these regions due
to, among other things, increased investor demand and the need for financial services firms to comply with regulatory requirements.

ISS
revenues increased from $119.2 million for the period from January 12, 2007 to December 31, 2007 to $141.8 million for the year ended December 31,
2008, or 19.0%. During the period from January 1 to January 11, 2007, ISS recognized revenues of $3.3 million. Had these eleven days of revenue been included in the year ended
December 31, 2007, revenue would have been $122.5 million, an increase of 15.7% as compared to the year ended December 31, 2008. The increase in revenues was primarily due to a
$13.9 million increase in revenue from our Financial Research and Analysis products and services which increased from $34.8 million to $48.7 million, or 39.9%, due to a
$9.5 million increase in CFRA revenue, which was acquired on August 1, 2007, and growth from our Corporate and Compensation Advisory Services, ES&G and M&A Edge products. Revenues from
our Governance Services products increased 10.3% from $86.8 million to $93.1 million primarily due to increased revenue in proxy research services. Governance services revenue accounted
for 65.7% of total revenue for the year ended December 31, 2008 compared to 70.8% in the prior year. Revenue growth was also driven by an approximate 20% increase in the both the Americas and
EMEA region.

Operating costs and expenses.Consolidated operating expenses increased from $200.8 million for the year ended December 31,
2007 to
$396.3 million for the year ended December 31, 2008, or 97.3%. The $195.5 million increase in operating expenses was primarily due to a $160.1 million non-cash
impairment charge for goodwill and an intangible asset. The remaining $35.4 million increase in operating expenses was due to increased compensation expenses of $15.8 million, increased
stock-based compensation of $3.9 million, increased depreciation and
amortization expense of $4.0 million as well as increased foreign currency expenses and increased travel, data, and occupancy costs to support revenue growth.

RiskMetrics
operating expenses increased from $89.9 million for the year ended December 31, 2007 to $105.9 million for the year ended December 31, 2008, or
17.8%. The increase was mainly due to increased compensation costs of $7.0 million related to higher headcount, bonus expenses and commission increases, increased data costs of
$2.0 million, as well as increased foreign currency losses, web hosting costs, stock based compensation, accounting and insurance costs. As a percentage of revenues, operating expenses
decreased from 74.2% to 68.5% due to increased economies of scale.

ISS
operating expenses increased from $110.9 million for the period from January 12, 2007 to December 31, 2007 to $290.5 million for the year ended
December 31, 2008. The increase in operating expenses was primarily due to a $160.1 million non-cash impairment charge for goodwill and intangible assets. The remaining
$19.5 million increase in operating expenses was primarily due to an $8.8 million increase in compensation costs due to increased bonus expense and the full year inclusion of CFRA,
increased depreciation and amortization expense of $3.7 million and increased stock based compensation expense of $3.0 million.

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Table of Contents

Cost of revenues.Consolidated cost of revenues increased from $77.3 million for the year ended December 31, 2007 to
$93.4 million for the year ended December 31, 2008, or 20.8%. The increase in cost of revenues resulted primarily from increased compensation and increased data costs. As a percentage of
revenues, cost of revenues decreased from 32.2% to 31.5%.

RiskMetrics
cost of revenues increased from $30.1 million for the year ended December 31, 2007 to $37.4 million for the year ended December 31, 2008, or
24.1%. The increase was primarily due to increased compensation costs of $1.8 million, increased third- party data costs of $2.0 million, increased occupancy costs of
$1.2 million, and increased telecommunication costs of $1.6 million. As a percentage of revenues, RiskMetrics cost of revenues decreased from 24.9% to 24.2% due to increased economics of
scale.

ISS
cost of revenues increased from $47.2 million for the period from January 12, 2007 to December 31, 2007 to $56.0 million for the year ended
December 31, 2008, or 18.7%. The increase was primarily due to the full year inclusion of CFRA costs, increased compensation costs of $4.6 million and occupancy costs as well as
increased stock-based compensation expense of $1.8 million. As a percentage of revenues, ISS cost of revenues decreased from 39.6% to 39.5%.

Research and development expenses.Consolidated research and development expenses increased from $31.1 million for the year ended
December 31, 2007 to $41.6 million for the year ended December 31, 2008, or 33.6%. As a percentage of revenues, research and development expenses increased from 12.9% to 14.0%
primarily due to increased compensation costs, including increased stock-based compensation of $1.7 million and increased investment in research and development related to governance service
products and platforms.

RiskMetrics
research and development expenses increased from $24.0 million for the year ended December 31, 2007 to $27.2 million for the year ended
December 31, 2008, or 13.5%. The increase was primarily due to increased compensation costs of $1.1 million, increased occupancy cost of $1.0 million and increased stock based
compensation expense of $0.4 million. As a percentage of revenues, research and development expenses decreased from 19.8% to 17.6%.

ISS
research and development expenses increased from $7.1 million for the period from January 12, 2007 to December 31, 2007 to $14.4 million for the year
ended December 31, 2008. The increase was primarily due to increased compensation costs of $4.2 million, occupancy costs and increased stock based compensation expense of
$1.3 million. As a percentage of revenues, research and development expenses increased from 6.0% to 10.2% due to continued investment in enhancing the governance service products and platforms.

Selling and marketing expenses.Consolidated selling and marketing expenses decreased from $35.4 million for the year ended
December 31, 2007 to $33.2 million for the year ended December 31, 2008, or 6.3%. As a percentage of revenues, selling and marketing expenses decreased from 14.7% to 11.2% due to
synergies achieved from the integration of the Company's global sales force and lower marketing expenses.

RiskMetrics
selling and marketing expenses increased from $17.1 million for the year ended December 31, 2007 to $17.4 million for the year ended December 31,
2008, or 1.8%. The increase was primarily due to increased commissions as a result of the increase in sales partially offset by a decline in marketing expenses.

ISS
selling and marketing expenses decreased from $18.3 million for the period from January 12, 2007 to December 31, 2007 to $15.8 million for the year ended
December 31, 2008, or 13.8%. The decrease was primarily due to a $2.1 million decline in compensation costs due to the global integration of the Company's sales forces as well as a
decline in marketing expenses.

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General and administrative expenses.Consolidated general and administrative expenses increased from $29.7 million for the year
ended
December 31, 2007 to $37.4 million for the year ended December 31, 2008, or 26.2%. As a percentage of revenues, general and administrative expenses increased from 12.4% to 12.6%
due to increased occupancy costs, increased compensation costs, stock based compensation expense and increased accounting, insurance and consulting costs as a result of being a public company.

RiskMetrics
general and administrative expenses increased from $14.1 million for the year ended December 31, 2007 to $19.2 million for the year ended
December 31, 2008, or 35.9%. The increased was primarily due to increased stock based compensation expense, increased compensation costs and a $1.2 million increase in accounting,
insurance and consulting costs as a result of being a public company.

ISS
general and administrative expenses increased from $15.5 million for the period from January 12, 2007 to December 31, 2007 to $18.3 million for the year
ended December 31, 2008, or 17.4%. The increase was primarily due to increased compensation costs and the full year inclusion of CFRA costs.

Depreciation and amortization of property and equipment.Depreciation and amortization of property and equipment increased from
$7.4 million
for the year ended December 31, 2007 to $8.8 million for the year ended December 31, 2008. The increase was primarily due to an increase in capital expenditures for leasehold
improvements and computer equipment to support the Company's increased headcount and facilities expansion.

Amortization of intangible assets.Amortization of intangible assets increased from $19.1 million for the year ended
December 31, 2007
to $21.8 million for year ended December 31, 2008 primarily from our acquisition of CFRA on August 1, 2007 and purchase of an intangible asset in the fourth quarter of 2007.

Impairment of Goodwill and Intangible Asset.We recognized and impairment of goodwill and intangible
asset charge in the amount of $160.1 million for the year ended December 31, 2008. The impairment charge includes a $154.2 million write-down to ISS goodwill primarily
as a result of the negative equity market conditions which caused a material decline in industry market multiples in the second half of 2008. In addition, the impairment charge includes a
$5.9 million write-down to an ISS product tradename as a result of an integration plan for the tradename which reduced its expected life.

Interest, dividend and investment income (expense), net.Net interest, dividend and investment expense decreased from $35.4 million
for the
year ended December 31, 2007 to $26.3 million for the year ended December 31, 2008. This decrease in expense was due to decreased interest expense (net of amortization) and
increased interest income as a result of reduced debt borrowings and increased cash balances during 2008. In January 2008, we utilized a portion of proceeds from the initial public offering to prepay
the entire outstanding indebtedness under the second lien loan, in the amount of $125.0 million. As a result of the prepayment we incurred $5.0 million in expenses during the year ended
December 31, 2008, which were comprised of a $1.25 million debt prepayment penalty fee, a $2.4 million write-off of debt issuance costs and a $1.4 million loss
on an interest rate swap settlement.

Provision for income taxes.The provision for income taxes represents a negative effective tax rate of 8.5% for the year ended
December 31,
2008 as compared to an effective rate of 41.6% for the comparable prior year period. The Company recorded a $10.7 million provision for income taxes despite a pre-tax loss because
the effective tax rate for 2008 does not include a tax benefit for the $154.2 million goodwill impairment as this impairment charge is not tax deductible. The effective rate also changed
partially due to a decrease in non-deductible stock-based compensation expense. Effective tax rates are subject to change based on the taxable income in all the jurisdictions in which we
do business.

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Consolidated Risk Metrics Group, Inc.

Year ended December 31, 2007 compared to the year ended December 31, 2006

The consolidated results for the year ended December 31, 2006 do not include the results of ISS which was acquired on
January 11, 2007.

Year Ended
December 31,

Increase (decrease) for year
ended December 31, 2007
compared to 20062006

2007

Amount

%(Amounts in thousands, except percentages)Revenues

$
101,236

$
240,301

$
139,065


137.4
%Operating costs and expenses:Cost of revenues


25,618


77,317


51,699


201.8
%Research and development


21,202


31,142


9,940


46.9
%Selling and marketing


14,977


35,420


20,443


136.5
%General and administrative


12,852


29,654


16,802


130.7
%Depreciation and amortization of property and equipment


4,081


7,419


3,338


81.8
%Amortization of intangible assets


770


19,145


18,375


2,386.4
%Loss on disposal of property and equipment


15


734


719


4,793.3
%Total operating costs and expenses(1)


79,515


200,831


121,316


152.6
%Income from operations


21,721


39,470


17,749


81.7
%Interest, dividend and investment income (expense), net


2,500


(35,358
)

(37,858
)

(1,514.3
)%Income before provision for income taxes


24,221


4,112


(20,109
)

(83.0
)%Provision for income taxes


8,200


1,711


(6,489
)

(79.1
)%Net income

$
16,021

$
2,401


(13,620
)

(85.0
)%


---

The
following table provides information with respect to our revenues in certain geographic regions:

Year ended
December 31, 2006

Year ended
December 31, 2007Increase (decrease) for year
ended December 31,
2007 compared to 2006% of
Total
Revenue



% of
Total
RevenueRegion

Revenue

Revenue

Amount

%(Amounts in millions, except percentages)Americas

$
52.7


52.1
%
$
148.9


62.0
%
$
96.2


182.5
%Europe, Middle East and Africa (EMEA)


39.5


39.0
%

75.4


31.4
%

35.9


90.9
%Asia


9.0


8.9
%

16.0


6.6
%

7.0


77.8
%Total

$
101.2


100.0
%
$
240.3


100.0
%
$
139.1


137.4
%


Set
forth below is a discussion of the year ended December 31, 2006 compared to the year ended December 31, 2007 for RiskMetrics Group, Inc. This discussion focuses
primarily on the impact of our acquisition of ISS on January 11, 2007 and its effects on our results of operations. For a more detailed discussion of the results of operations of each of our
RiskMetrics and ISS businesses, please see the

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separate
discussions of the results of operations for RiskMetrics and ISS for these periods set forth below.

Revenues.Revenues increased from $101.2 million in 2006 to $240.3 million in 2007, or 137.4%. The increase consisted of
revenues of
$119.2 million attributable to ISS and included as a result of our acquisition of ISS on January 11, 2007 and increased revenue of $19.9 million relating to RiskMetrics.

Operating costs and expenses.Total operating expenses increased from $79.5 million in 2006 to $200.8 million in 2007, or
152.6%. The
increase consisted of operating expenses of $110.9 million attributable to ISS and included as a result of our acquisition of ISS and an increase of $10.4 million relating to
RiskMetrics.

Cost of revenues.Cost of revenues increased from $25.6 million in 2006 to $77.3 million in 2007, or 201.8%. The increase was
primarily
due to cost of revenues of $47.2 million attributable to ISS and included as a result of our acquisition of ISS and an increase of $4.5 million relating to RiskMetrics. The increase in
cost of revenues for RiskMetrics resulted from an increase in client support, data and web hosting costs. As a percentage of revenues, cost of revenues increased from 25.3% to 32.2%. This increase in
cost of revenues as a percentage of revenues reflects the acquisition of ISS, which has historically operated with cost of revenues as a higher percentage of revenues than RiskMetrics, as well as the
increased costs at RiskMetrics as discussed above.

Research and development expenses.Research and development expenses increased from $21.2 million in 2006 to $31.1 million in
2007, or
46.9%. The increase was primarily due to research and development expenses of $7.1 million attributable to ISS and included as a result of our acquisition of ISS, and an increase of
$2.8 million relating to RiskMetrics. As a percentage of revenues, research and development expenses decreased from 20.9% to 13.0%. The decrease in research and development expenses as a
percentage of revenues reflects the acquisition of ISS, which has historically operated with research and development expenses as a lower percentage of revenues than RiskMetrics.

Selling and marketing expenses.Selling and marketing expenses increased from $15.0 million in 2006 to $35.4 million in 2007,
or
136.5%. The increase was primarily due to selling and marketing expenses of $18.3 million attributable to ISS and included as a result of our acquisition of ISS, and an increase of
$2.1 million relating to RiskMetrics. As a percentage of revenues, selling and marketing expenses decreased from 14.8% to 14.7%. Selling and marketing expenses as a percentage of revenues have
historically been approximately the same for both RiskMetrics and ISS.

General and administrative expenses.General and administrative expenses increased from $12.9 million in 2006 to
$29.7 million in 2007,
or 130.7%. The increase was primarily due to general and administrative expenses of $15.5 million included as a result of our acquisition of ISS, and an increase of $1.3 million relating
to RiskMetrics. As a percentage of revenues, general and administrative expenses decreased from 12.7% to 12.3%. The decrease in general and administrative expenses as a percentage of revenues reflects
the results of ISS merger integration efforts.

Depreciation and amortization of property and equipment.Depreciation and amortization of property and equipment increased from
$4.1 million
in 2006 to $7.4 million in 2007, or 81.8%. The increase was primarily due to depreciation of $3.0 million resulting from the acquisition of ISS and an increase of $0.3 million
relating to RiskMetrics.

Amortization of intangible assets.Amortization of intangible assets increased from $0.8 million in 2006 to $19.1 million in
2007 as a
result of our acquisitions of ISS and CFRA.

Loss on disposal of property and equipment.Loss on disposal of property and equipment was primarily due to the abandonment of a
software project
which resulted in a loss of approximately $0.6 million in 2007.

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Interest, dividend and investment income (expense), net.Net interest, dividend and investment income was $2.5 million of income
in 2006 and
$35.4 million of expense in 2007. The change was due to interest expense incurred on the $425 million of debt incurred as a result of the ISS acquisition on January 11, 2007 and
$15.0 million of additional indebtedness under our first lien revolving credit facility incurred in connection with our acquisition of CFRA on August 1, 2007.

Provision for income taxes.Income taxes decreased from a provision of $8.2 million in 2006 to a provision of $1.7 million in
2007, or
79.1%. The decrease was the result of a decline in pre-tax income in 2007, as a result of the large amount of interest expense and amortization resulting from the acquisitions of ISS and
CFRA.

The
provision for income taxes represents an effective tax rate of 41.6% for 2007 as compared to an effective rate of 33.9% for 2006. The effective rate changed from 2006 to 2007 mainly
due to an increase in non-deductible stock- based compensation expense attributable to incentive stock options as well as a decline in pre-tax income. Effective tax rates are
subject to change based on the taxable income in all the jurisdictions in which we do business.

Segment results of operations

RiskMetrics Business

Year ended December 31, 2007 compared to the year ended December 31, 2006

Year ended
December 31,

Increase (decrease) for year
ended December 31,
2007 compared to 20062006

2007

Amount

%(Amounts in thousands, except percentages)Revenues

$
101,236

$
121,126

$
19,890


19.6
%Operating costs and expenses:Cost of revenues


25,618


30,103


4,485


17.5
%Research and development


21,202


24,002


2,800


13.2
%Selling and marketing


14,977


17,101


2,124


14.2
%General and administrative


12,852


14,105


1,253


9.7
%Depreciation and amortization of property and equipment


4,081


4,439


358


8.8
%Amortization of intangible assets


770





(770
)

(100.0
)%Loss on disposal of property and equipment


15


161


146


973.3
%Total operating costs and expenses(2)


79,515


89,911


10,396


13.1
%Income from operations

$
21,721

$
31,215

$
9,494


43.7
%


---

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Table of Contents

The
following table provides information with respect to our revenues in certain geographic regions:

Year ended
December 31, 2006

Year ended
December 31, 2007Increase (decrease) for year
ended December 31,
2007 compared to 2006% of
Total
Revenue



% of
Total
RevenueRegion

Revenue

Revenue

Amount

%(Amounts in millions, except percentages)Americas

$
52.7


52.1
%
$
56.5


46.7
%
$
3.8


7.2
%Europe, Middle East and Africa (EMEA)


39.5


39.0
%

54.6


45.0
%

15.1


38.2
%Asia


9.0


8.9
%

10.0


8.3
%

1.0


11.1
%Total

$
101.2


100.0
%
$
121.1


100.0
%
$
19.9


19.6
%


Revenues.Revenues increased from $101.2 million in 2006 to $121.1 million in 2007, or 19.6%. The $19.9 million increase
in
revenues was primarily due to a $22.3 million, or 27%, increase in revenues
from our Market Risk products and services, partially offset by a $4.3 million reduction in revenues due to the loss of the JPMorgan online services agreement. The increase in revenues from our
Market Risk products and services was due to strong sales of RiskManager to asset managers and hedge funds as they increased their outsourcing of risk reporting services. Increased revenues resulted
from both increased sales to existing customers and sales to new customers. As a percentage of total revenues, revenues from our Market Risk products and services increased from 80% in 2006 to 86% in
2007.

Revenue
growth was also driven by our sales in the EMEA region as revenues increased 38.2% from 2006 to 2007, driven by strong sales of RiskManager in this region due to, among other
things, the need for financial services firms to comply with new regulatory requirements. Americas' 2007 revenue growth was adversely impacted by the $4.3 million reduction in revenues from the
JP Morgan online services agreement.

Operating costs and expenses.Operating expenses increased from $79.5 million in 2006 to $89.9 million in 2007, or 13.1%. The
increase
was mainly due to increased compensation costs of $7.7 million related to higher headcount, bonus accrual and commissions as well as higher data and web hosting costs. As a percentage of
revenues, operating expenses decreased from 78.5% to 74.2% due to increased economies of scale and the elimination of amortization expense resulting from the termination of the JPMorgan online
contract.

Cost of revenues.Cost of revenues increased from $25.6 million in 2006 to $30.1 million in 2007, or 17.5%. The increase was
primarily
due to $1.8 million of increased compensation costs primarily from our London office to support our revenue growth in Europe, a $0.5 million increase in third- party data costs due to
the increased breadth of product offerings and an increase of $0.5 million in web hosting costs associated with various locations. As a percentage of revenues, cost of revenues decreased from
25.3% to 24.9%.

Research and development expenses.Research and development expenses increased from $21.2 million in 2006 to $24.0 million in
2007, or
13.2%. The increase was primarily due to increased employee compensation costs due to increased headcount in various locations. As a percentage of revenues, research and development expenses decreased
from 20.9% to 19.8%.

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Selling and marketing expenses.Selling and marketing expenses increased from $15.0 million in 2006 to $17.1 million in 2007,
or 14.2%.
The increase was primarily due to increased sales commissions of $0.8 million based on a higher volume of new sales in 2007, increase in marketing expenses and increased compensation costs. As
a percentage of revenues, selling and marketing expenses decreased from 14.8% to 14.1%.

General and administrative expenses.General and administrative expenses increased from $12.9 million in 2006 to
$14.1 million in 2007,
or 9.7%. The increase was primarily due to increased employee compensation costs and merger integration costs. As a percentage of revenues, general and administrative expenses decreased from 12.7% to
11.6%.

Depreciation and amortization of property and equipment.Depreciation and amortization of property and equipment increased from
$4.1 million
in 2006 to $4.4 million in 2007, or 8.8% due to increased capital expenditures for computer hardware and software.

Amortization of intangible assets.Amortization of intangible assets decreased from $0.8 million in 2006 to zero in 2007. During
2005, we were
notified that our contract with JPMorgan for online services would not be renewed. As such, we accelerated the amortization of the intangible assets related to the agreement over their remaining
useful lives. This acceleration resulted in $0.8 million of amortization expense in 2006.

ISS Business

The period January 12, 2007 to December 31, 2007 compared to the year ended December 31, 2006

Increase (decrease) for the period
January 12, 2007 to December 31,
2007 compared to the year ended
December 31, 2006Year ended
December 31, 2006

January 12, 2007
to
December 31, 2007Amount

%(Amounts in thousands, except percentages)Revenues

$
103,269

$
119,175

$
15,906


15.4
%Operating costs and expenses:Cost of revenues


39,933


47,214


7,281


18.2
%Research and development


6,070


7,140


1,070


17.6
%Selling and marketing


15,728


18,319


2,591


16.5
%General and administrative


16,678


15,549


(1,129
)

(6.8
)%Depreciation and amortization of property and equipment


3,578


2,980


(598
)

(16.7
)%Amortization of intangible assets


2,520


19,145


16,625


659.7
%Loss on disposal of property and equipment





573


573


100.0
%Total operating costs and expenses(3)


84,507


110,920


26,413


31.3
%Income from operations

$
18,762

$
8,255

$
(10,507
)

(56.0
)%


---

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The
following table provides information with respect to our ISS business revenues in certain geographic regions:

Increase (decrease)
for the period
January 12, 2007
to December 31, 2007
compared to the year
ended December 31, 2006Year ended
December 31, 2006

January 12, 2007
to
December 31, 2007% of Total
Revenue



% of Total
RevenueRegion

Revenue

Revenue

Amount

%(Amounts in millions, except percentages)Americas

$
83.0


80.3
%
$
92.5


77.6
%
$
9.5


11.4
%Europe, Middle East and Africa (EMEA)


16.1


15.6
%

20.8


17.4
%

4.7


29.2
%Asia


4.2


4.1
%

5.9


5.0
%

1.7


40.5
%Total

$
103.3


100.0
%
$
119.2


100.0
%
$
15.9


15.4
%


Revenues.Revenues increased from $103.3 million for the year ended December 31, 2006 to $119.2 million
for the period from January 12, 2007 to December 31, 2007, or 15.4%. The acquisition of CFRA on August 1, 2007 generated additional revenues of $7.2 million during the
period from August 1, 2007 to December 31, 2007.

During
the period from January 1 to January 11, 2007, ISS recognized revenues of $3.3 million. Had this revenue been included in the year ended December 31,
2007, revenue for the year ended December 31, 2007 would have been $122.5 million, an increase of 18.6% as compared to the year ended December 31, 2006. All the information
provided in the remainder of this paragraph reflects the inclusion of the revenues for this 11-day period. The increase in revenues was primarily due to an increase in revenue from our
Financial Research and Analysis products and services which increased from $24.0 million to $35.7 million, or 48%, due to the inclusion of $7.2 of CFRA revenue and the growth of our
revenues from our Compensation Advisory Services, ES&G and M&A Edge products. Revenues from our Governance Services increased 9.5% from $79.3 million to $86.8 million and accounted for
71% of total revenue for the year ended December 31, 2007. Revenues from the Americas accounted for 77.6% of ISS revenues in the year ended December 31, 2007, down from 80.3% in the year
ended December 31, 2006, as ISS continued to diversify geographically.

Operating costs and expenses.Total operating expenses increased from $84.5 million for the year ended December 31, 2006 to
$110.9 million for the period from January 12, 2007 to December 31, 2007, or 31.3%. The increase in operating expenses was primarily due to a $16.6 million increase in
amortization of intangible assets that resulted from the acquisitions of ISS and CFRA by RiskMetrics, and an additional $7.0 million in operating expenses from CFRA. As a percentage of
revenues, operating costs and expenses increased from 81.8% to 93.1% primarily due to the increase in amortization expense.

Cost of revenues.Cost of revenues increased from $39.9 million for the year ended December 31, 2006 to $47.2 million
for the
period from January 12, 2007 to December 31, 2007, or 18.2%. The increase was primarily due to increased compensation costs, including stock-based compensation of $0.3 million and
$3.1 million of CFRA costs partially offset by the elimination of a special bonus paid to option holders in 2006 in connection with a cash dividend paid by ISS to its stockholders. As a
percentage of revenues, cost of revenues increased from 38.7% to 39.6%, primarily due to CFRA revenue in the current period, which historically generates a higher cost of revenue than ISS.

Research and development expenses.Research and development expenses increased from $6.1 million for the year ended
December 31, 2006
to $7.1 million for the period from January 12, 2007 to December 31, 2007, or 17.6%. The increase was primarily due to increased compensation costs,

55

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Table of Contents

including
stock-based compensation of $0.4 million. As a percentage of revenues, research and development expenses increased from 5.9% to 6.0%.

Selling and marketing expenses.Selling and marketing expenses increased from $15.7 million for the year ended December 31,
2006 to
$18.3 million for the period from January 12, 2007 to December 31, 2007, or 16.5%. The increase was primarily due to the inclusion of $1.4 million in CFRA costs, and
increased commissions due to the increase in sales. As a percentage of revenues, selling and marketing expenses increased slightly from 15.2% to 15.4%.

General and administrative expenses.General and administrative expenses decreased from $16.7 million for the year ended
December 31,
2006 to $15.5 million for period from January 12, 2007 to December 31, 2007, or 6.8%. The decrease was primarily due to the elimination of the special bonus paid to option holders
in 2006 in connection with a cash dividend paid by ISS to its stockholders and reduced compensation as a result of reduced headcount, partially offset by additional CFRA costs and increased consulting
and accounting costs. As a percentage of revenues, general and administrative expenses decreased from 16.2% to 13.0% due to integration efforts.

Depreciation and amortization of property and equipment.Depreciation and amortization of property and equipment decreased from
$3.6 million
for the year ended December 31, 2006 to $3.0 million for the period from January 12, 2007 to December 31, 2007, or 16.7% due to the valuation of such assets in connection
with the ISS acquisition by RiskMetrics.

Amortization of intangible assets.Amortization of intangible assets increased from $2.5 million for the year ended
December 31, 2006
to $19.1 million for the period from January 12, 2007 to December 31, 2007. The increase was due to $19.1 million of amortization of intangible assets related to the
acquisitions of ISS and CFRA.

Loss on disposal of property and equipment.We abandoned a software project which resulted in a loss on disposal of property and
equipment of
approximately $0.6 million in 2007.

Liquidity and Capital Resources

Cash and cash equivalents increased $143.3 million in 2008 from $27.5 million at December 31, 2007 to $170.8 at
December 31, 2008. In January 2008, we completed an initial public offering of our common stock. Our net proceeds from the offering, including the exercise of the underwriters' allotment, were
$193.9 million, after deducting underwriting discounts and commissions and approximately $3.5 million of offering expenses, of which we utilized $125.0 million to repay in full
our second lien term loan facility. We believe our existing cash and cash equivalents, our cash flow from operating activities and availability under our existing credit facilities will be sufficient
to meet our anticipated cash needs for at least the next 12 months, during which time we expect to make approximately $10.0 million to $11.0 million of capital expenditures. We
expect to use approximately $16 million of cash to complete the acquisition of Innovest in March 2009.

Our
future working capital requirements will depend on many factors, including our revenue growth, debt service, future acquisitions of businesses and investments in our own business. To
the extent our liquidity sources are insufficient to fund our future activities we may need to raise additional funding through a public or private equity or debt offering. No assurances can be given
that additional financing will be available in the future or that if available, such financing will be on favorable terms.

Cash Flows

Cash flows from operating activities increased $39.5 million in 2008 from $45.3 million in 2007 to $84.8 million
in 2008. Operating activities for the year ended December 31, 2008 provided cash of $84.8 million primarily reflecting a net loss of $136.9 million which includes a
$160.1 million non-cash

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impairment
charge, stock-based compensation of $9.9 million, depreciation and amortization of $30.5 million, a $10.0 million increase in accrued expenses and an
$11.2 million contribution from income taxes. Cash flow from operations in 2008 was negatively impacted by $1.3 million of cash used for a debt pre-payment penalty fee and
$1.4 million for an interest rate swap settlement in
connection with the pre-payment of debt in 2008. Operating activities for the year ended December 31, 2007 provided cash of $45.3 million primarily reflecting net income of
$2.4 million plus depreciation and amortization of $26.6 million, plus stock-based compensation of $6.0 million. Cash flow from operations for the year ended December 31,
2006 was $36.1 million, reflecting primarily net income of $16.0 million plus depreciation and amortization of $4.9 million, stock-based compensation of $3.6 million, a
$5.1 million increase in deferred revenue and $3.9 million decrease in accounts receivable.

Investing
activities for the year ended December 31, 2008 used cash of $11.5 million, primarily due to capital expenditures of $8.8 million, the acquisition of
Applied4 for $1.8 million and a $1.0 million payment for an intangible asset. Investing activities for the year ended December 31, 2007 used cash of $468.5 million,
primarily due to the acquisitions of ISS and CFRA, which included the net liquidation of investments that provided us $68.1 million of cash, as well as capital expenditures of
$11.1 million.

Financing
activities for the year ended December 31, 2008 provided cash of $74.4 million as a result of $197.4 million raised from our initial public offering,
$5.9 million from stock option proceeds, $4.9 million of stock option tax benefits, partially offset by $132.1 million in debt payments. Financing activities for the year ended
December 31, 2007 provided cash of $413.6 million as a result of proceeds received from the incurrence of $440.0 million of indebtedness in connection with the ISS and CFRA
acquisitions, partially offset by the repayment of $17.3 million in principal debt and $10.1 million in debt issuance costs.

Long Term Debt

In connection with the purchase of ISS on January 11, 2007, we incurred $425.0 million of indebtedness, which was
comprised of first lien and second lien term loans and a first lien revolving credit facility. The terms of the indebtedness include various covenant compliance requirements, including maintaining
certain Adjusted EBITDA earning levels, as defined in our credit facilities. The Company has pledged all of its assets as collateral against the debt. Amounts paid under the term loans may not be
re-borrowed. As of December 31, 2008, $290.6 million of debt remains outstanding under the first lien loan and no indebtedness remain outstanding under the second lien term
loan or first lien revolving credit facility. The maturity date of the first lien term loan is December 2013.

In
February 2007, we entered into two interest-rate swap agreements to reduce interest rate risks and to manage interest expense. By entering into these agreements, we change
the fixed/variable interest-rate mix of our debt portfolio. As of December 31, 2008, the interest rate swaps had notional amounts totaling $279.4 million and a fair value
liability totaling $22.3 million. The agreements effectively convert our floating-rate debt into fixed-rate debt. This reduces our risk of incurring higher interest
costs in periods of rising interest rates and increases our risk of paying higher interest costs in periods of decreasing interest rates. Our interest-rate swap agreements hedge a
significant portion of the interest rate risk exposure under our indebtedness. The interest rate swap agreements increased our
weighted average effective interest rate on the first lien term loan facility to 7.2% during the year ended December 31, 2008. The interest rate on the Company's debt was reduced by 25 basis
points in April 2008 due to a reduction in the Company's consolidated debt-leverage ratio.

In
January 2008, we utilized a portion of proceeds from our initial public offering to prepay the entire outstanding indebtedness under our second lien term loan which amounted to
$125.0 million. In addition, we paid a 1% prepayment penalty fee, or $1.25 million, upon repayment as set forth in the credit agreement. In conjunction with the repayment of our second
loan lien, we wrote-off debt

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issuance
costs of $2.4 million and reduced the notional amount of our interest rate swap by $19.3 million which resulted in additional expense of $1.4 million during the year
ended December 31, 2008. During the year ended December 31, 2008, we paid an excess cash flow principal payment of $6.4 million for our first lien term loan, as required by the
credit facility. The next principal debt payment of $0.7 million is due on June 30, 2009.

As
of December 31, 2008, we were in compliance with the covenants of our credit agreements, and we are not aware of any future events or transactions that will impact such
compliance.

Commitments

In addition to the indebtedness discussed above, we enter into routine operating lease obligations for our facilities and purchase
obligations to operate our business. Our contractual commitments, including those related to our indebtedness, were comprised of the following as of December 31, 2008:

Payments Due by PeriodContractual Obligation

Total

Within 1 year

13 years

45 years

After 5 yearsDebt, including estimated interest

$
391,609

$
22,800

$
46,558

$
322,251

$
Interest rate swaps


22,311


10,076


11,794


441


Operating leases


24,455


6,562


12,021


5,670


202Purchase obligation for data


9,775


7,682


2,093





Deferred purchase price obligation(1)


1,165


211


454


500


Total(2)(3)

$
449,315

$
47,331

$
72,920

$
328,862

$
202


---

Off-Balance Sheet Arrangements

We do not maintain any off-balance sheet arrangements, transactions, obligations or other relationships with unconsolidated
entities that would be expected to have a material current or future impact upon our financial condition or results of operations.

Impact of Inflation

Our business may be significantly or adversely affected by inflation. Due to the high degree of competition in the marketplace,
inflation rate increases might lead to an erosion of our profit margins.

Related Party Transaction

In May 2008, we entered into a contract for the sale of Market Risk products to Duff Capital Advisors, which expires on
March 31, 2009. Philip Duff, a director of the Company, is the founder, CEO and General Partner of Duff Capital Advisors. The contract was entered into in the normal course of business on terms
that we believe are consistent with (and not preferential to) those provided

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to
our other clients. We recognized $0.7 million in revenue from the Duff Capital Advisors contract for the year ended December 31, 2008.

Effects of Recently Issued Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157,Fair Value Measurements.
SFAS 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. In February 2008, the FASB issued FASB Staff Position
157-2,Effective Date of FASB Statement No. 157, which provides a one year deferral of the effective date of SFAS 157 for
non-financial assets and liabilities (such as goodwill), except those that are recognized or disclosed in the Company's financial statements at fair value at least annually. Accordingly,
we adopted the provisions of SFAS 157 only for its financial assets and liabilities recognized or disclosed at fair value on a recurring basis effective January 1, 2008. The Company's
financial assets measured at fair value on a recurring basis consist of derivative instruments (see Note 10 of the consolidated financial statements)

In
February 2007, the FASB issued SFAS No. 159 ("SFAS 159"),The Fair Value Option for Financial Assets and Financial
Liabilities, providing companies with an option to report selected financial assets and liabilities at fair value. SFAS 159's objective is to reduce both complexity in
accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. US GAAP required different measurement attributes for
different assets and liabilities that can create artificial volatility in earnings. SFAS 159 helps to mitigate this type of accounting-induced volatility by enabling companies to report related
assets and liabilities at fair value, which may reduce the need for companies to comply with detailed rules for hedge accounting. SFAS 159 also establishes presentation and disclosure
requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of asset and liabilities. SFAS 159 requires companies to provide
additional information that will help investors and other users of financial statements to more easily understand the effect of the Company's choice to use fair value on its earnings. It also requires
entities to display the fair value of these assets and liabilities for which the Company has chosen to use fair value on the face of the balance sheet. The Company adopted SFAS 159 on
January 1, 2008 but did not
elect the fair value option for any qualifying financial instruments presented in the consolidated financial statements.

On
December 4, 2007, FASB issued Statement No. 141(R),Business Combinations(SFAS 141(R)) and Statement
No. 160,Accounting and Reporting of Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51
(SFAS 160). These new standards will significantly change the financial accounting and reporting of business combination transactions and noncontrolling (or minority) interests in consolidated
financial statements. SFAS 141(R) is generally required to be adopted concurrently with Statement No. 160 and is effective for business combination transactions for which the acquisition
date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Application of SFAS 141(R) and SFAS 160 is required to be adopted
prospectively, except for certain provisions of SFAS 160, which are required to be adopted retrospectively. Business combination transactions accounted for before adoption of SFAS 141(R)
should be accounted for in accordance with SFAS141 and that accounting previously completed under Statement No. 141 should not be modified as of or after the date of adoption of Statement
No.141(R). The impact of adopting SFAS 141R and SFAS 160 will be dependent on the business combinations that the Company may pursue after its effective date.

In
March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement
No. 133" ("SFAS No. 161"). SFAS No. 161 establishes, among other things, the disclosure requirements for derivative instruments and for hedging activities.
SFAS No. 161 is effective for fiscal years and interim periods beginning after November 15, 2008. The Company is currently assessing the impact that SFAS No. 161 will have on its
consolidated financial statements.

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In
April 2008, the FASB issued FASB staff position ("FSP") FAS 142-3,Determination of the Useful Life of Intangible
Assets("FSP FAS 142-3"). FSP FAS 142-3 amends the factors an entity should consider in developing renewal or extension assumptions used
in determining the useful life of recognized intangible assets under FASB Statement No. 142, "Goodwill and Other Intangible Assets". This new guidance applies prospectively to intangible assets
that are acquired individually or with a group of other assets in business combinations and asset acquisitions. FSP FAS 142-3 is effective for financial statements issued for fiscal
years and interim periods beginning after December 15, 2008 and as such, the Company will adopt FSP FAS 142-3 on January 1, 2009. Early adoption is prohibited. The
Company is currently evaluating the impact, if any, that FSP FAS 142-3 will have on its consolidated financial statements.

Item 7A.    Quantitative and Qualitative Disclosures About Market Risk

Our primary market risk exposure is interest rate risk associated with short and long-term debt bearing variable interest
rates. To manage this interest rate risk exposure, we enter into interest rate swap agreements. We are also exposed to foreign currency risk, which can adversely affect our sales and operating
profits. The following discussion should be read in conjunction with Note 10 of our consolidated financial statements appearing elsewhere in this Form 10-K, which provides
further information on our derivative instruments.

Interest Rate Sensitivity

To reduce the exposure associated with our variable rate debt, we entered into two interest-rate swap agreements to reduce
interest rate risks and to manage interest expense. By entering into these agreements, we change the fixed/variable interest-rate mix of our debt portfolio. As of December 31, 2008,
the interest rate swaps had notional amounts totaling $279.4 million and a fair value liability totaling $22.3 million. The agreements effectively convert our floating-rate
debt into fixed-rate debt. This reduces our risk of incurring higher interest costs in periods of rising interest rates. Our interest-rate swap agreements hedge a substantial
majority of the interest rate risk exposure under our indebtedness. The interest rate swap agreements increased our weighted average effective interest rate on the first lien term loan facility to
7.2% during the year ended December 31, 2008. A hypothetical, instantaneous increase of one percentage point in the interest rates applicable to the variable interest rate debt would have
increased our net interest expense for the year ended December 31, 2008 by approximately $3.3 million.

Exchange Rate Sensitivity

We have two separate exposures to currency fluctuation risksubsidiaries outside the United States which use a foreign
currency as their functional currency which are translated into U.S. dollars for consolidation of assets and liabilities and non-U.S. dollar invoiced revenues. Changes in foreign exchange
rates for our subsidiaries that use a foreign currency as their functional currency are translated into U.S. dollars and result in cumulative translation adjustments, which are included in accumulated
other comprehensive loss. At December 31, 2008, we had translation exposure to various foreign currencies including the Euro, Pounds Sterling, Canadian Dollar, and a limited number of other
non-U.S. dollar currencies. The net potential loss resulting from a hypothetical 10% adverse change in quoted foreign
currency exchange rates partially offset by a corresponding appreciation of the US dollar, as of December 31, 2008, amounts to $2.5 million.

We
primarily invoice our clients in U.S. dollars; however, we also invoice a portion of our clients in Euro, Sterling, Canadian Dollar, Japanese Yen and a limited number of other
non-U.S. dollar currencies. As such, the fluctuations in such currencies could impact our operating results

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Item 8.    Consolidated Financial Statements and Supplementary Data

The information required by this Item is set forth on page F-1 through F-42 of this Annual Report on
Form 10-K.

Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

There were no changes in or disagreements on any matters of accounting principles or financial statement disclosure between us and our
independent registered public accountants during our two most recent fiscal years.

Item 9A.    Controls and Procedures

(a)    Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of
our management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined
in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Based upon that evaluation, our chief executive officer and
chief financial officer concluded that as of the end of the period covered by this report our disclosure controls and procedures were effective to ensure that information required to be disclosed by
us in reports we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (2) accumulated
and communicated to our management, including our chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure.

(b)    Management's Report on Internal Control Over Financial Reporting

Management of RiskMetrics Group is responsible for establishing and maintaining adequate internal control over financial reporting as
defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accounted accounting
principles.

All
internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with
respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management
assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2008. In making this assessment, we used the criteria set forth
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal ControlIntegrated Framework. Based on our assessment, we determined that, as of
December 31, 2008, the Company's internal control over financial reporting was effective based on those criteria.

Deloitte
and Touche LLP ("Deloitte"), our independent registered public accounting firm, has performed an audit of the effectiveness of Company's internal control over financial
reporting as of December 31, 2008 based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). This audit is required to be performed in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our independent auditors were given
unrestricted access to all financial records and related data. .The effectiveness of our internal control over financial reporting as

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of
December 31, 2008 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in its attestation report which is included below.

(c)    Changes in Internal Controls Over Financial Reporting

There were no changes in our internal controls over financial reporting during our fiscal quarter ended December 31, 2008 that
have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
the Board of Directors and Stockholders of
RiskMetrics Group, Inc.
New York, New York

We
have audited the internal control over financial reporting of RiskMetrics Group, Inc. and subsidiaries (the "Company") as of December 31, 2008, based on criteria
established inInternal ControlIntegrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission. The
Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Management's Report on Internal Control Over
Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A
company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or
persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because
of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material
misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to
future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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In
our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on the criteria established in Internal ControlIntegrated
Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission.

We
have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement
schedule as of and for the year ended December 31, 2008 of the Company and our report dated February 27, 2009 expressed an unqualified opinion on those financial statements and financial
statement schedule.

/s/
Deloitte & Touche LLP

New
York, New York
February 27, 2009

Item 9B.    Other Information

None

Part III

The information required by Item 10 (Directors, Executive Officers, Corporate Governance and Section 16a), Item 11
(Executive Compensation), Item 12 (Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters), Item 13 (Certain Relationships and Related
Transactions, and Director Independence) and Item 14 (Principal Accounting Fees and Services) of this Annual Report on Form 10-K is incorporated by reference from our
definitive Proxy Statement for our 2009 Annual Meeting of Stockholders which will be filed not later than 120 days after the close of our year ended December 31, 2008.

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Part IV

Item 15.    Exhibits and Financial Statement Schedules

(a)(1.) Consolidated Financial Statements

The Index to Consolidated Financial Statements under Item 8 on page F-1 is incorporated herein by reference
as the list of financial statements required as part of this report.

(a)(2.) Financial Statement Schedule

Schedule IIValuation
and Qualifying Accounts

December 31, 2006, 2007 and 2008Col. A

Col. B

Col. C

Col. D

Col. EDescription

Balance at
beginning of
the period

Charged to
costs and
expenses

Charged to
other
accounts

Deductions

Balance at
end of the
period(Amounts in thousands)Year Ended December 31, 2006Allowance for doubtful receivables


318


(48
)

(5
)




265Year ended December 31, 2007Allowance for doubtful receivables


265


134


6





405Deferred tax asset valuation allowance








119





119Year ended December 31, 2008Allowance for doubtful receivables


405


516





338


583Deferred tax asset valuation allowance


119





471





590


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Table of Contents

(a)(3.) Exhibits

Exhibit
Number

Description3.1

Form of Second Amended and Restated Certificate of Incorporation*3.2

Form of Second Amended and Restated By-laws*4.1

Specimen Common Stock Certificate*10.1

First Lien Credit Agreement, dated as of January 11, 2007, among RiskMetrics Group Holdings, LLC, RiskMetrics Group, Inc., Bank of America, N.A. and the other lenders party thereto*10.2

First Lien Guaranty, dated as of January 11, 2007, among each of the subsidiaries of RiskMetrics Group Holdings, LLC listed on the schedules thereto and Bank of America, N.A.*10.3

First Lien Security Agreement, dated as of January 11, 2007, among RiskMetrics Group Holdings, LLC, the guarantors party thereto and Bank of America, N.A.*10.4

Registrant's 2007 Omnibus Incentive Compensation Plan*10.5

Registrant's 2004 Stock Option Plan*10.6

Registrant's 2000 Stock Option Plan*10.7

ISS Equity Incentive Plan*10.8

Second Amended and Restated Stockholders Agreement, dated as of January 11, 2007, between Registrant and the stockholders party thereto*10.9

Amended and Restated Investor Rights Agreement, dated as of January 11, 2007, between Registrant and the stockholders party thereto*10.10

Datafeed License Agreement, dated October 27, 2003, between ISS and ADP Investor Communications Services, Inc.*10.11

First Amendment to Datafeed License Agreement, dated as of January 3, 2005, between ISS and ADP Investor Communications Services, Inc.*10.12

Agreement and Plan of Merger by and among RiskMetrics Group, Inc., RMG Holdco, Inc., RMG Merger Sub, Inc., ISS Merger Sub, Inc., and Institutional Shareholder Services Holdings, Inc., dated as
of October 31, 2006*21.1

Subsidiaries of RiskMetrics Group, Inc. **31.1

Section 302 Certification of Principal Executive Officer**31.2

Section 302 Certification of Principal Financial Officer**32.1

Section 906 Certification of Principal Executive Officer**32.2

Section 906 Certification of Principal Financial Officer**


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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned; thereunto duly authorized this 27th day of February, 2009.

RISKMETRICS GROUP, INC.By:

/s/ M. ETHAN BERMAN M. Ethan Berman Chief Executive Officer


Pursuant
to the requirements of the Securities Act of 1934, this registration statement has been signed below by the following persons in the capacities and on the dates indicated.

Signature

Title

Date/s/ M. ETHAN BERMAN M. Ethan Berman

Chief Executive Officer (Principal Executive Officer)

February 27, 2009/s/ DAVID M. OBSTLER David M. Obstler

Chief Financial Officer (Principal Financial Officer)

February 27, 2009/s/ ERIC DANIELS Eric Daniels

Corporate Controller (Principal Accounting Officer)

February 27, 2009/s/ LOVIDA COLEMAN JR. Lovida Coleman, Jr.

Director

February 27, 2009/s/ PHILIP DUFF Philip Duff

Director

February 27, 2009/s/ STEPANIE HANBURY-BROWN Stephanie Hanbury-Brown

Director

February 27, 2009/s/ RENE M. KERN Rene M. Kern

Director

February 27, 2009/s/ ARTHUR LEVITT Arthur Levitt

Director

February 27, 2009


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Signature

Title

Date/s/ CHRISTOPHER MITCHELL Christopher Mitchell

Director

February 27, 2009/s/ FRANK NOONAN Frank Noonan

Director

February 27, 2009/s/ LYNN PAINE Lynn Paine

Director

February 27, 2009/s/ STEPHEN THIEKE Stephen Thieke

Director

February 27, 2009/s/ ROBERT TRUEDEAU Robert Trudeau

Director

February 27, 2009


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Index to Consolidated Financial Statements

PageConsolidated Financial Statements as of December 31, 2007 and 2008 and for the Years Ended December 31, 2006, 2007 and
2008Report of Independent Registered Public Accounting Firm

F-2Consolidated Balance Sheets

F-3Consolidated Statements of Operations

F-4Consolidated Statements of Changes in Stockholders' Equity

F-5Consolidated Statements of Cash Flows

F-7Notes to Consolidated Financial Statements

F-8


F-1

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Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
the Board of Directors and Stockholders of
RiskMetrics Group, Inc.
New York, New York

We
have audited the accompanying consolidated balance sheets of RiskMetrics Group, Inc. and subsidiaries (the "Company") as of December 31, 2008 and 2007, and the related
consolidated statements of operations, changes in stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2008. Our audits also included the financial
statement schedule listed in the Index at Item 15(a)(2). These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statements and financial statement schedule based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of RiskMetrics Group, Inc. and subsidiaries as of
December 31, 2008 and 2007, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2008, in conformity with accounting
principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken
as a whole, presents fairly, in all material respects, the information set forth therein.

We
have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of
December 31, 2008, based on the criteria established inInternal ControlIntegrated Frameworkissued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated February 27, 2009 expressed an unqualified opinion on the Company's internal control over financial reporting.

/s/
Deloitte & Touche LLP

New
York, New York
February 27, 2009

F-2

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RISKMETRICS GROUP, INC.        CONSOLIDATED BALANCE SHEETS        DECEMBER 31, 2007 AND 2008        (In thousands, except share amounts)

2007

2008ASSETSCURRENT ASSETS:Cash and cash equivalents

$
27,455

$
170,799Accounts receivable, net


37,010


42,319Deferred tax assets


140


2,092Income taxes receivable


8,300


4,562Other receivables and prepaid expenses


5,910


5,666Total current assets


78,815


225,438Intangiblesnet


174,154


148,340Goodwill


460,951


308,613Property and equipmentnet


16,225


15,400Deferred financing costs


8,677


5,227Other assets


4,361


1,995TOTAL ASSETS

$
743,183

$
705,013LIABILITIES AND STOCKHOLDERS' EQUITYCURRENT LIABILITIES:Trade accounts payable

$
6,235

$
1,981Accrued expenses


34,189


40,174Debt, current portion


3,000


2,224Deferred revenue, current portion


100,557


109,525Other current liabilities


227


211Total current liabilities


144,208


154,115LONG-TERM LIABILITIESDebt


419,750


288,395Deferred tax liabilities


28,626


31,405Deferred revenue


722


1,364Other long-term liabilities


13,785


26,567Total liabilities


607,091


501,846COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS' EQUITY:Common stock, $.01 par value200,000,000 authorized; 47,850,652 and 61,673,960 issued and 47,642,460 and 61,430,806 outstanding at December 31,
2007 and 2008, respectively


479


617Treasury stock208,192 and 243,154 shares at December 31, 2007 and 2008, respectively


(2
)

(579
)Additional paid-in capital


217,355


431,781Accumulated other comprehensive loss


(7,262
)

(17,255
)Accumulated deficit


(74,478
)

(211,397
)Total stockholders' equity


136,092


203,167TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$
743,183

$
705,013


See
notes to consolidated financial statements.

F-3

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Table of Contents

RISKMETRICS GROUP, INC.        CONSOLIDATED STATEMENTS OF OPERATIONS        YEARS ENDED DECEMBER 31, 2006, 2007 AND 2008        (In thousands, except
share and per share amounts)

2006

2007

2008REVENUES

$
101,236

$
240,301

$
296,393OPERATING COSTS AND EXPENSES:Cost of revenues


25,618


77,317


93,387Research and development


21,202


31,142


41,593Selling and marketing


14,977


35,420


33,202General and administrative


12,852


29,654


37,422Depreciation and amortization of property and equipment


4,081


7,419


8,779Amortization of intangible assets


770


19,145


21,758Impairment of goodwill and intangible asset








160,069Loss on disposal of property and equipment


15


734


122Total operating costs and expenses(1)


79,515


200,831


396,332INCOME (LOSS) FROM OPERATIONS


21,721


39,470


(99,939
)INTEREST, DIVIDEND AND INVESTMENT INCOME (EXPENSE), NET:Interest, dividend and investment income


2,549


1,564


2,567Interest expense


(49
)

(36,922
)

(26,234
)Other expenses








(2,613
)Total interest, dividend, investment and other income (expense), net


2,500


(35,358
)

(26,280
)INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES


24,221


4,112


(126,219
)PROVISION FOR INCOME TAXES


8,200


1,711


10,700NET INCOME (LOSS)

$
16,021

$
2,401

$
(136,919
)INCOME (LOSS) PER SHARE:Basic

$
0.38

$
0.05

$
(2.28
)Diluted

$
0.33

$
0.04

$
(2.28
)WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:Basic


42,655,069


46,380,175


59,970,438Diluted


47,963,666


54,364,746


59,970,438


---

2006

2007

2008Cost of revenue

$
876

$
2,001


3,614Research and development


909


1,199


2,877Selling and marketing


490


747


1,733General and administrative


1,361


2,086


1,669Total stock-based compensation

$
3,636

$
6,033


9,893


See
notes to consolidated financial statements

F-4

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Table of Contents

RISKMETRICS GROUP, INC.        CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY        YEARS ENDED DECEMBER 31, 2006, 2007, AND 2008    
(In thousands, except share amounts)

Common SharesAccumulated
Other
Comprehensive
LossNumber of
Shares Issued

Amount

Treasury
Stock

Additional
Paid-In
Capital

Accumulated
Deficit

Total
Stockholders'
EquityBALANCEJanuary 1, 2006


52,717,068

$
527

$
(94
)
$
126,334

$
(607
)
$
(81,890
)
$
44,270Comprehensive income:Net income

















16,021


16,021Foreign currency translation adjustment














(90
)




(90
)Change in unrealized loss on investments














189





189Total comprehensive income




















16,120Tax benefit associated with exercise of stock options











1,235








1,235Stock based compensation











3,636








3,636Common shares issued upon exercise of options


142,392


2





253








255Stock repurchased








(9
)

(693
)




(8,316
)

(9,018
)BALANCEDecember 31, 2006


52,859,460

$
529

$
(103
)
$
130,765

$
(508
)
$
(74,185
)
$
56,498Comprehensive income:Net income

















2,401


2,401Foreign currency translation adjustment














(353
)




(353
)Unrealized loss on cash flow hedge, net of deferred tax benefit of $4,585














(6,405
)




(6,405
)Change in unrealized loss on investments














4





4Total comprehensive loss




















(4,353
)Retirement of outstanding treasury stock


(10,329,405
)

(103
)

103











Common shares issued upon exercise of options


1,538,133


15





5,929








5,944Tax benefit associated with exercise of stock options











201








201Stock-based compensation











6,033








6,033Common shares issued in connection with acquisition of ISS (see Note 3)


2,774,351


28





42,398








42,426Options exchanged in connection with acquisition of ISS (see Note 3)











16,331








16,331Adoption of FIN 48

















(365
)

(365
)Common shares issued in connection with the acquisition of CFRA (see Note 3)


1,008,113


10





16,624








16,634Stock repurchased








(2
)

(926
)




(2,329
)

(3,257
)BALANCEDecember 31, 2007


47,850,652

$
479

$
(2
)
$
217,355

$
(7,262
)
$
(74,478
)
$
136,092


F-5

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Table of Contents

RISKMETRICS GROUP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Continued)

YEARS ENDED DECEMBER 31, 2006, 2007, AND 2008

(In thousands, except share amounts)

Common SharesAccumulated
Other
Comprehensive
LossNumber of
Shares Issued

Amount

Treasury
Stock

Additional
Paid-In
Capital

Accumulated
Deficit

Total
Stockholders'
EquityComprehensive loss:Net loss

















(136,919
)

(136,919
)Foreign currency translation adjustment














(3,048
)




(3,048
)Net unrealized loss on cash flow hedge, net of deferred tax benefit of $4,376














(6,945
)




(6,945
)Total comprehensive loss




















(146,912
)Common shares issued upon exercise of options


1,611,358


16





5,901








5,917Tax benefit associated with exercise of stock options











4,861








4,861Stock-based compensation











9,893








9,893Issuance of common stock (Note 14)


147,766


1





(1
)







Common shares recovered in connection with the acquisition of CFRA (Note 3)








(577
)










(577
)Net proceeds from equity offering (Note 4)


12,064,184


121





193,772








193,893BALANCEDecember 31, 2008


61,673,960


617


(579
)

431,781


(17,255
)

(211,397
)

203,167




2007

2008Disclosure of realized loss:Unrealized loss on cash flow hedge

$
(6,058
)
$
(10,474
)Realized gain (loss) for cash flow hedge settlement, net of tax benefit (Note 10)


347


(3,529
)Net unrealized loss on cash flow hedge

$
(6,405
)
$
(6,945
)


See notes to consolidated financial statements.

F-6

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Table of Contents

RISKMETRICS GROUP, INC.        CONSOLIDATED STATEMENTS OF CASH FLOWS        YEARS ENDED DECEMBER 31, 2006, 2007, AND 2008        (Amounts in
thousands)

2006

2007

2008CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss)

$
16,021

$
2,401

$
(136,919
)Adjustments to reconcile net income (loss) to net cash provided by operating activities:Depreciation and amortization of property and equipment


4,081


7,419


8,779Provision (recovery) for bad debt


(53
)

140


516Amortization of intangible assets


770


19,145


21,758Amortization and write-off of debt issuance costs





1,397


3,450Impairment of goodwill and intangible asset








160,069Stock-based compensation


3,636


6,033


9,893Tax benefit associated with exercise of stock options


(1,236
)

(201
)

(4,861
)Loss on disposal of property and equipment


15


734


122Decrease (increase) in deferred tax benefit


812


(1,115
)

2,294Changes in assets and liabilities:(Increase) decrease in accounts receivable


3,923


8,599


(8,177
)(Increase) decrease in other receivables and prepaid expenses


(1,171
)

(934
)

192(Increase) decrease in other assets


(420
)

(88
)

(329
)Increase (decrease) in deferred revenue


5,098


(4,370
)

10,863Decrease in income and deferred taxes


532


2,561


11,211Increase (decrease) in trade accounts payable


1,771


2,631


(4,029
)Increase in other accrued expenses and liabilities


2,303


996


10,016Net cash provided by operating activities


36,082


45,348


84,848CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of property and equipment


(3,724
)

(11,091
)

(8,795
)Cash paid to acquire Institutional Shareholder Services Inc. ("ISS") and related acquisition costs (net of cash acquired of $12,250)





(471,764
)

Payment of acquisition related costs incurred by ISS





(7,413
)

Cash paid to acquire CFRA and related acquisition costs (net of cash acquired of $1,213)





(45,946
)

223Cash paid to acquire Applied4 and related acquisition costs








(1,860
)Payment of deferred purchase price





(128
)

(103
)Purchase of intangible asset





(250
)

(1,000
)Purchase of investments


(70,755
)

(21,289
)

Proceeds from sale of investments


72,169


89,364


Net cash used in investing activities


(2,310
)

(468,517
)

(11,535
)CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from debt borrowings





440,000


Repayment of debt





(17,250
)

(132,131
)Payment of debt issuance costs





(10,074
)

Principal payments on capital lease obligations





(23
)

(26
)Gross proceeds from equity offering (Note 4)








197,400Equity offering expenses





(1,928
)

(1,581
)Excess tax benefit associated with exercise of stock options


1,236


201


4,861Proceeds from exercise of stock options


255


5,944


5,917Repurchase of stock


(9,018
)

(3,257
)

Net cash (used in) provided by financing activities


(7,527
)

413,613


74,440EFFECT OF EXCHANGE RATE CHANGES ON CASH


102


(302
)

(4,409
)NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS


26,347


(9,858
)

143,344CASH AND CASH EQUIVALENTSBeginning of year


10,966


37,313


27,455CASH AND CASH EQUIVALENTSEnd of year

$
37,313

$
27,455


170,799SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:Cash paid for interest

$


$
35,973

$
22,475Cash (paid) refunded for taxes

$
(8,236
)
$
50

$
3,609NON CASH INVESTING AND FINANCING ACTIVITIES:Issuance of common stock to purchase ISS

$


$
42,426

$
Issuance of stock options to purchase ISS

$


$
16,331

$
Retirement of treasury stock

$


$
103

$
Tax benefit associated with exercise of ISS stock options

$


$
3,463

$
631Issuance of common stock to purchase CFRA

$


$
16,634

$
(577
)


See notes to consolidated financial statements.

F-7

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Table of Contents

RISKMETRICS GROUP, INC.        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        YEARS ENDED DECEMBER 31, 2006, 2007, AND 2008        (Amounts in
thousands, except share and per share amounts)

1. OVERVIEW AND BASIS OF PRESENTATION

RiskMetrics Group, Inc. ("the Company" or "RMG") is a provider of risk management and corporate governance products and services to participants in the global financial markets.
The Company's products and services enable its clients to better understand and manage the risks associated with their financial holdings, provide greater transparency to their internal and external
constituencies, satisfy regulatory and reporting requirements and make more informed investment decisions. The Company provides its products and services across multiple asset classes, markets and
geographies to a diverse client base including asset managers, hedge funds, pension funds, banks, insurance companies, financial advisors and corporations. The Company operates in two business
segments, the "RiskMetrics business" and the "ISS business".

ReorganizationRiskMetrics Solutions, Inc., a Delaware corporation, was formed in June 1998. In January 2007, the Company, which was formed
by
RiskMetrics Solutions, Inc., (i) completed a corporate reorganization in which all of RiskMetrics Solutions, Inc.'s then-outstanding capital stock automatically was
converted into and exchanged for capital stock of the Company and (ii) acquired Institutional Shareholder Services Holdings, Inc. ("ISS") for approximately $542.8 million in order
to increase the scale and scope of the Company's risk management products and services. ISS provides proxy research, voting recommendations, and governance advisory services to financial institutions
and corporations worldwide. ISS institutional and corporate clients are located throughout North America, Europe, Asia, and Australia. ISS analyzes proxy issues, issues research, and provides vote
recommendations for companies across markets worldwide. Additionally, ISS provides services in the areas of Taft-Hartley proxy research and voting, social investment proxy research, voting
and portfolio screening, global proxy distribution, and securities class action services.

Principles of Consolidation and Basis of PresentationThe consolidated financial statements include the accounts of RMG and its wholly
owned-subsidiaries which are prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP). All intercompany accounts and transactions have been
eliminated in consolidation.

Stock splitIn May 2007, the Company completed a 2.5 for 1 stock split. All share amounts reflected herein have been adjusted to reflect the
impact of
such split.

ReclassificationEffective January 1, 2008 gains (losses) from interest rate swaps were included in interest expense on the accompanying
consolidated statement of operations. Accordingly, the Company reclassified $595 from interest, dividend and investment income to interest expense in the 2007 consolidated statement of operations.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Management Estimates and AssumptionsThe preparation of consolidated financial statements in conformity with US GAAP requires management to
make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions made by management include the deferral and recognition of revenue,
impairment of goodwill and intangible assets, stock-based

F-8

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Table of Contents

RISKMETRICS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED DECEMBER 31, 2006, 2007, AND 2008

(Amounts in thousands, except share and per share amounts)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

compensation,
gains or losses on derivative instruments, accounting for income taxes and other matters that affect the consolidated financial statements and related disclosures.

Foreign Currency Translation.The Company has foreign subsidiaries where the functional currency has been determined to be the local currency.
Assets
and liabilities are translated using end of period exchange rates; revenues, expenses, and cash flows are translated using average rates of exchange. These currency translation effects are accumulated
as part of other comprehensive loss in the stockholders' equity. Gains and losses from foreign currency transactions are included in the consolidated statements of operations. Translation gains and
losses related to long-term and permanently invested intercompany balances are recorded in accumulated other comprehensive income. The Company does not engage in foreign currency hedging.

Cash and Cash EquivalentsThe Company considers all highly liquid securities with original maturities of three months or less when purchased to be
cash equivalents.

Goodwill and Intangible AssetsGoodwill consists of the excess of the purchase price over the fair value of identifiable net assets of businesses
acquired. Pursuant to the provisions of Statement of Financial Accounting Standards (SFAS) No. 142,Goodwill and Other Intangible Assets(SFAS 142), goodwill is not amortized and is evaluated for impairment using a two-step process that is performed at least annually on October 1 of each year, or whenever
events or circumstances indicate that impairment may have occurred. The first step is a comparison of the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value
of the reporting unit exceeds its carrying value, goodwill of the reporting unit is not considered impaired and the second step is unnecessary. If the carrying value of the reporting unit exceeds its
fair value, a second test is performed to measure the amount of impairment by comparing the carrying amount of the goodwill to a determination of the implied fair value of the goodwill. If the
carrying amount of the goodwill is greater than the implied value, an impairment loss is recognized for the difference. The implied value of the goodwill is determined as of the test date by
performing a purchase price allocation, as if the reporting unit had just been acquired, using currently estimated fair values of the individual assets and liabilities of the reporting unit, together
with an estimate of the fair value of the reporting unit taken as a whole. The estimate of the fair value of the reporting unit is based upon information available regarding prices of similar groups
of assets, or other valuation techniques including present value techniques based upon estimates of future cash flows. During the year ended December 31, 2008, the Company recorded a goodwill
impairment charge of $154.2 million (Note 7).

Intangible
assets, including acquired technology, customer relationships, certain trade names, proprietary process, and non-compete agreements arising principally from
acquisitions, are recorded at cost less accumulated amortization and the finite-lived intangibles are amortized using the straight line method over the estimated useful life of the intangible asset.
Intangible assets deemed to have indefinite useful lives, such as certain trade names, are not amortized and are subject to an annual impairment test or are tested whenever events or circumstances
indicate impairment may have occurred. Impairment exists if the carrying value of the indefinite-lived intangible asset exceeds its fair value. The Company recorded a $5.9 million impairment
charge for an intangible asset during the year

F-9

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Table of Contents

RISKMETRICS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED DECEMBER 31, 2006, 2007, AND 2008

(Amounts in thousands, except share and per share amounts)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

ended
December 31, 2008 upon the change of an indefinite lived intangible to a finite lived intangible (Note 7).

The
goodwill acquired in the business acquisitions is subject to the provisions of SFAS 142, and, accordingly, is not being amortized. Acquired intangibles are carried at cost
less accumulated amortization. At December 31, 2008, intangible assets (See Note 7) are amortized over the following estimated lives:

Acquired technology

35 yearsCustomer relationships

711 yearsCovenants not to compete

13 yearsProprietary process

7 yearsTrade names

110 years


Property and Equipment and Related Depreciation and AmortizationProperty and equipment are stated at cost at the date of acquisition.
Depreciation is
calculated using the straight-line method over the estimated useful lives of the depreciable assets. Amortization of leasehold improvements is calculated using the
straight-line method over the shorter of the life of the asset or the term of the related lease. Improvements are capitalized, while repair and maintenance costs are charged to operations
as incurred.

The
Company follows the provisions of American Institute of Certified Public Accountants ("AICPA") Statement of Position ("SOP") No. 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal
Use, for the capitalization of certain acquisition and development
costs related to internal use software. Capitalization begins when the preliminary project stage is complete. Capitalization ceases when the internal project is substantially complete and ready for
its intended use. Once the project is complete and available for intended use, the Company amortizes these costs over a three-year period.

During
the years ended December 31, 2007 and 2008, $3,511 and $1,629 of internal software development costs have been capitalized and amortization expense of $681 and $1,387 was
recorded for internally developed software, respectively.

Depreciation and Amortization of Property and Equipment.Depreciation and amortization of property and equipment includes depreciation
of software,
computer and related equipment, furniture and fixtures and telecommunications equipment, which is recorded over the respective useful life of the related asset. Depreciation also includes the
amortization of leasehold improvements which are amortized over the shorter of the term of the lease or the assets' useful life and the amortization of capitalized software costs. Amortization expense
for leasehold improvements and capitalized software development costs are included in depreciation and amortization of property and equipment in the statements of operations.

Amortization of Intangible Assets.Amortization of intangible assets includes the amortization of finite life intangibles such as
acquired
technology, customer relationships, proprietary process, certain trade names and non-compete agreements.

F-10

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Table of Contents

RISKMETRICS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED DECEMBER 31, 2006, 2007, AND 2008

(Amounts in thousands, except share and per share amounts)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Impairment of Long-Lived AssetsLong-lived assets of the Company (other than deferred tax assets) including equipment,
software development and leasehold improvements, trade names and other finite lived intangible assets and furniture and fixtures are reviewed for impairment whenever events or changes in circumstances
indicate that the net carrying amount of the asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted
future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the
assets exceeds the fair value of the asset.

Derivative InstrumentsThe Company's derivative instruments are subject to the guidance in SFAS No. 133 ("SFAS 133"), Accounting for Derivative Instruments and Hedging Activities,and are recorded at fair value (the "Fair Value Derivatives"). Changes in fair value of
derivatives that have been designated as cash flow hedging instruments are included in the "Unrealized gains on cash flow hedges" as a component of other comprehensive income (loss) in the
accompanying consolidated statements of stockholders' equity to the extent of the effectiveness of such hedging instruments. Any ineffective portion of the change in fair value of the designated
hedging instruments is included in the consolidated statements of operations. Changes in fair value of derivatives that are not designated as hedging instruments will be included in the consolidated
statements of operations.

Revenue RecognitionThe majority of the Company's revenues are generated from contracted annual subscriptions, for which the Company receives
licensing fees from clients who utilize services. Depending on the service offering, the services are available through a variety of delivery options, including hosted web applications,
fullyoutsourced managed services, and local software installation. Revenues are recognized on a straight line basis over the term of the subscription period which is typically one year.

Subscription
revenue is recognized in accordance with the Securities and Exchange Commission, or "SEC", Staff Accounting Bulletin ("SAB") No. 104,Revenue
Recognition,since the Company provides its application as a service. The Company also recognizes revenue on software sales in accordance with the AICPA SOP
No. 97-2,Software Revenue Recognition, as amended by SOP No. 98-9, Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain
Transactions.

Revenue
is recognized when all of the following conditions are met:



License
fees associated with local software installations, for the RiskMetrics business, are recognized over the term of the license period, typically one year. The arrangement for local
installation is a multiple-element arrangement that consists of software, post contract support (PCS) including unspecified upgrades and enhancements, and other service elements. Revenue is recognized
ratably over the term of the license as there is no vendor-specific objective evidence of the fair value

F-11

---



Table of Contents

RISKMETRICS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED DECEMBER 31, 2006, 2007, AND 2008

(Amounts in thousands, except share and per share amounts)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

for
PCS or the other service elements because they are not priced separately or sold separately to customers and there is no discernable pattern in which PCS and other services are expected to be
performed.

The
ISS business provides proxy advisory and voting services, corporate governance and financial research and analysis services to institutional investors and corporations. The majority
of ISS's products and services are delivered through a web based platform and are typically provided through annual subscription agreements. Revenue is recognized ratably over the term of the
subscription agreement. Many of ISS's subscription agreements are multiple element arrangements that provide for the delivery of more than one ISS product or service. Revenue is recognized on a
straight-line basis over the term of the subscription as each of the services specified in these multiple element
arrangements are performed continuously over the subscription term and there is no discernable pattern in which the services will be performed.

In
situations where contracts include client acceptance provisions, the Company does not recognize revenue until such time as the client has confirmed its acceptance. Some of the
Company's subscription contracts include automatic renewal provisions under existing contract terms. Reserves for possible losses on subscription service, if any, are recognized when determined.

A
portion of the Company's revenues are derived from non-subscription services including implementation, Compensation Advisory Services and overages related to Proxy Research
and Voting services. Revenues from implementation are recognized as the services are provided and other non-recurring revenues are recognized once the service is provided or upon delivery
of the required service.

Deferred RevenueDeferred revenue primarily consists of payments received in advance of revenue recognition from the Company's subscription
services
described above and is recognized as revenue recognition criteria are met. The Company generally invoices its customers in annual or quarterly installments. Accordingly, the deferred revenue balance
does not represent the total contract value of annual or multi-year, non-cancelable subscription agreements.

Fair Value of Financial InstrumentsThe carrying value of the Company's cash, accounts receivable, accounts payable and accrued expenses
approximates
their fair value due to the short-term nature of these items. As of December 31, 2008 the carrying value of the Company's debt was $290,619 compared to an approximate fair value of
$253,000 based on prevailing interest rates at December 31, 2008. At December 31, 2007 the carrying value of the Company's debt approximated its fair value.

Concentration of RiskThe Company's customers are primarily commercial organizations headquartered in the United States, Canada, Europe, Asia,
Middle
East, and Africa.

Accounts
receivable are generally unsecured. Accounts receivable are due in accordance with payment terms included in contracts negotiated with customers. Amounts due from customers are
stated net of an allowance for doubtful accounts. Accounts that are outstanding longer than the contracted payment terms are considered past due. The Company determines its allowance for doubtful
accounts by considering a number of factors, including the length of time accounts are past due, the

F-12

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Table of Contents

RISKMETRICS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED DECEMBER 31, 2006, 2007, AND 2008

(Amounts in thousands, except share and per share amounts)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

customer's
current ability to pay its obligations to the Company, and the condition of the general economy and the industry as a whole. The Company writes-off accounts receivable when they
are deemed uncollectible.

No
customer comprised more than 10% of consolidated revenues during the years ended December 31, 2006, 2007 and 2008.

Cost of RevenuesCosts of revenues include costs related to production of proxy research and voting, web hosting, data, account management,
implementation and systems operations and allowances for doubtful accounts. Costs in this area consist primarily of staff compensation and related costs and payments to third party vendors, including
third party web hosting and data providers.

Research and DevelopmentResearch and development expenses include costs related to product development, research technology, application design,
technology infrastructure and analytics development. Costs in this area consist primarily of staff compensation costs and related expenses and consultant expenses.

Selling and MarketingSelling and marketing expenses consist of costs related to our sales force, product management and marketing professionals.
These costs include staff compensation costs and related expenses, including commissions and general marketing costs.

General and AdministrativeGeneral and administrative expenses consist of expenses for finance, legal, audit and accounting, human resources and
information technology personnel. Costs in this area primarily consist of staff compensation and related expenses, legal costs, insurance costs, accounting fees and other professional services fees.

Income TaxesThe Company follows SFAS No. 109,Accounting for Income Taxes.The Company
records
income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which the temporary differences are expected to be recovered or settled. To the extent needed, the Company records valuation allowances against its deferred tax assets, if it
determines it is not more likely than not that the assets will be utilized in the future.

Effective
January 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48,Accounting for Uncertainty in Income
Taxesan interpretation of FASB Statement No. 109("FIN 48"). FIN 48 clarifies the accounting for uncertainties in income taxes recognized in
an enterprise's financial statements in accordance with SFAS 109. FIN 48 prescribes a comprehensive model for the financial statement recognition, measurement, presentation and
disclosure of uncertain tax positions taken or expected to be taken in income tax returns. Under FIN 48, the tax effects of a position should be recognized only if it is "more
likely-than-not" to be sustained on examination by the taxing authorities, based on its technical merits as of the reporting date. The tax benefits recognized in the financial
statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. FIN 48 also provides
guidance

F-13

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Table of Contents

RISKMETRICS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED DECEMBER 31, 2006, 2007, AND 2008

(Amounts in thousands, except share and per share amounts)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

on
de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company recognizes accrued interest and penalties related to
uncertain tax positions in income tax expense (see Note 11).

Accounting for Stock-Based CompensationThe Company adopted SFAS No. 123 (Revised 2004),Share-Based Payment,
("SFAS 123(R)") as of January 1, 2006. Under SFAS 123(R), stock-based compensation expense is measured at the grant date based on the fair value of the
award, and the cost is recognized as expense ratably over the award's vesting period. The Company measures the fair value of stock options on the date of grant using a Black-Scholes option-pricing
model. Prior to the adoption of SFAS 123(R), the Company recognized compensation for unvested awards under the graded vesting method, and the Company will continue to do so in all grants made
prior to January 1, 2006. For all grants made subsequent to January 1, 2006, the Company recognizes compensation cost under the straight-line method.

Determining
the fair value of stock options required the Company to make several estimates, including the volatility of its stock price, the expected life of the option, and interest
rates. Prior to January 25, 2008 the company was not a publicly traded company, and had limited historical information on the price of its common stock. Because of this limitation, the Company
cannot solely rely on its historical
experience alone to develop assumptions for stock price volatility. Accordingly, the Company also utilizes estimated stock-price volatility with reference to a peer group of companies. Determining the
companies to include in this peer group involves judgment and the use of different assumptions in the Black-Scholes model would result in different amounts of stock-based compensation expense. The
expected life of the options is based on internal studies of historical experience and projected exercise behavior of employees based on the Company's future prospects. The Company utilizes a
risk-free interest rate, which is based on the yield of U.S. zero coupon securities with a maturity equal to the expected life of the options. The Company has not and does not expect to
pay dividends on its common shares.

Under
SFAS 123(R), the Company is required to estimate expected forfeitures of stock-based awards at the grant date and recognize compensation cost only for those awards expected
to vest. The forfeiture assumption is ultimately adjusted to the actual forfeiture rate. Therefore, changes in the forfeiture assumptions may impact the timing of the total amount of expense
recognized over the vesting period. Estimated forfeitures are reassessed in subsequent periods and may change based on new facts and circumstances.

The
actual income tax benefit recorded relating to the exercise of stock options was $1,236, $201 and $4,861 for the years ended December 31, 2006, 2007 and 2008, respectively,
and is classified as a operating cash outflow and financing cash inflow in the consolidated statement of cash flows.

ContingenciesContingencies by their nature relate to uncertainties that require management to exercise judgment both in assessing the likelihood
that
a liability has been incurred as well as in estimating the amount of potential loss, if any. The Company accrues for costs relating to litigation, claims and other contingent matters when such
liabilities become probable and reasonably estimable. Such estimates may be based on advice from third parties or on management's judgment,

F-14

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Table of Contents

RISKMETRICS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED DECEMBER 31, 2006, 2007, AND 2008

(Amounts in thousands, except share and per share amounts)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Debt issuance costsLoan fees and other costs incurred in connection with the issuance of long-term debt are deferred and amortized over
the term of the related loan using the effective interest method. Such amortization is reported as a component of interest expense. If debt is repaid prior to the full amortization of the related
issuance costs is recoded as interest expense in the Company's consolidated statements of operations.

Effects of Recently Issued Accounting PronouncementsIn September 2006, the FASB issued SFAS No. 157,Fair Value
Measurements. SFAS 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. In February 2008, the
FASB issued FASB Staff Position 157-2,Effective Date of FASB Statement No. 157, which provides a one year deferral of the effective
date of SFAS 157 for non-financial assets and liabilities (such as goodwill), except those that are recognized or disclosed in the Company's financial statements at fair value at
least annually. Accordingly, the Company adopted the provisions of SFAS 157 only for its financial assets and liabilities recognized or disclosed at fair value on a recurring basis effective
January 1, 2008. The Company's financial assets measured at fair value on a recurring basis consist of derivative instruments (See Note 10).

In
February 2007, the FASB issued SFAS No. 159 ("SFAS 159"),The Fair Value Option for Financial Assets and Financial
Liabilities, providing companies with an option to report selected financial assets and liabilities at fair value. SFAS 159's objective is to reduce both complexity in
accounting for financial instruments and the volatility in earnings caused by measuring related assets and liabilities differently. US GAAP required different measurement attributes for
different assets and liabilities that can create artificial volatility in earnings. SFAS 159 helps to mitigate this type of accounting-induced volatility by enabling companies to report related
assets and liabilities at fair value, which may reduce the need for companies to comply with detailed rules for hedge accounting. SFAS 159 also establishes presentation and disclosure
requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of asset and liabilities. SFAS 159 requires companies to provide
additional information that will help investors and other users of financial statements to more easily understand the effect of the Company's choice to use fair value on its earnings. It also requires
entities to display the fair value of these assets and liabilities for which the Company has chosen to use fair value on the face of the balance sheet. The Company adopted SFAS 159 on
January 1, 2008 but did not elect the fair value option for any qualifying financial instruments presented in the consolidated financial statements.

On
December 4, 2007, FASB issued Statement No. 141(R),Business Combinations(SFAS 141(R)) and Statement
No. 160,Accounting and Reporting of Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51
(SFAS 160). These new standards will significantly change the financial accounting and reporting of business combination transactions and noncontrolling (or minority) interests in consolidated
financial statements. SFAS 141(R) is generally required to be adopted concurrently with Statement No. 160 and is effective for business combination transactions for which the acquisition
date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Application of SFAS 141(R) and SFAS 160 is required to be adopted
prospectively, except for certain provisions of SFAS 160, which are required to be adopted retrospectively. Business combination transactions accounted for before adoption of SFAS 141(R)

F-15

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Table of Contents

RISKMETRICS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED DECEMBER 31, 2006, 2007, AND 2008

(Amounts in thousands, except share and per share amounts)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

should
be accounted for in accordance with SFAS141 and that accounting previously completed under Statement No. 141 should not be modified as of or after the date of adoption of Statement
No.141(R). The impact of adopting SFAS 141R and SFAS 160 will be dependent on the business combinations that the Company may pursue after its effective date.

In
March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB Statement
No. 133" ("SFAS No. 161"). SFAS No. 161 establishes, among other things, the disclosure requirements for derivative instruments and for hedging activities.
SFAS No. 161 is effective for fiscal years and interim periods beginning after November 15, 2008. The Company is currently assessing the impact that SFAS No. 161 will have on its
consolidated financial statements.

In
April 2008, the FASB issued FASB staff position ("FSP") FAS 142-3,Determination of the Useful Life of Intangible
Assets("FSP FAS 142-3"). FSP FAS 142-3 amends the factors an entity should consider in developing renewal or extension assumptions used
in determining the useful life of recognized intangible assets under FASB Statement No. 142, "Goodwill and Other Intangible Assets". This new guidance applies prospectively to intangible assets
that are acquired individually or with a group of other assets in business combinations and asset acquisitions. FSP FAS 142-3 is effective for financial statements issued for fiscal
years and interim periods beginning after December 15, 2008 and as such, the Company will adopt FSP FAS 142-3 on January 1, 2009. Early adoption is prohibited. The
Company is currently evaluating the impact, if any, that FSP FAS 142-3 will have on its consolidated financial statements.

3. ACQUISITIONS



On January 11, 2007, the Company acquired all of the outstanding capital stock of ISS for approximately $542.8 million.
The purpose of the acquisition was to broaden the types of services the Company could offer its clients. The acquisition has been accounted for as a purchase
and the operating results of ISS have been included in the financial statements since the date of acquisition.

The
aggregate consideration paid for the acquisition is as follows:

Cash paid

$
482,718Fair value of 2,774,351 shares of common stock issued


42,426Fair value of stock options exchanged (1,396,000 shares underlying the stock options)


16,331Transaction costs


1,296Total purchase consideration

$
542,771


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Table of Contents

RISKMETRICS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED DECEMBER 31, 2006, 2007, AND 2008

(Amounts in thousands, except share and per share amounts)

3. ACQUISITIONS (Continued)

The Company valued the shares of common stock issued in exchange for stock options held by employees and those issued to ISS shareholders at $15.29 per share (see Note 13).

The
fair value of stock options issued in connection with the acquisition was estimated using the Black-Scholes option-pricing model utilizing the following weighted-average assumptions:

Risk-free interest rate


4.7
%Expected term (in years)


3.0Expected stock price volatility


31
%Expected dividend yield


None


The
significant assumptions used in the valuation included factors affecting the duration, growth rates and amounts of future cash flows for each income stream, specifically: the future
economic outlook for the industry, risks involved in the business, and the input of competition and technological changes. The following table summarizes the amounts allocated to the acquired assets
and assumed liabilities based upon management's estimates:

Cash and cash equivalents and other current assets

$
47,770Property and equipment


4,864Non-current assets


13,300Intangible assets


172,339Goodwill


418,563Total assets acquired


656,836Accounts payable and accrued expenses


(21,360
)Deferred revenue


(43,510
)Other non-current liabilities


(1,533
)Deferred tax liability


(47,662
)Net assets acquired

$
542,771Goodwill

$
418,563Identifiable intangible assets


172,339Deferred tax liability


(47,662
)Net liabilities assumed


(469
)Total purchase consideration

$
542,771


The
goodwill and liabilities assumed have been adjusted during the year ended December 31, 2008 to reflect certain liabilities for uncertain tax positions of ISS (see
Note 11).

In
accordance with SFAS No. 109,Accounting for Income Taxes, the Company has provided for deferred taxes of $47,662 representing
the difference between the estimated book and tax basis of the net assets acquired. The excess of the purchase price over the estimated fair values of the assets acquired and liabilities assumed was
allocated to goodwill. The Company did not recognize a deferred tax asset
relating to the future tax deduction that will arise when the ISS employee rollover options are exercised. As such exercises occur, the Company recognizes a tax deduction and such benefit is recorded
as a reduction of goodwill.

F-17

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Table of Contents

RISKMETRICS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED DECEMBER 31, 2006, 2007, AND 2008

(Amounts in thousands, except share and per share amounts)

3. ACQUISITIONS (Continued)

The
purchase price for ISS was determined based on an auction whereby several companies arrived at a market price for the purchase of ISS. The Company believes the purchase price
reflects the financial prospects of the existing business as well as the significant opportunities for revenue growth, cost savings and other synergies, including the ability to cross-sell
to one another's clients, and offer more comprehensive and diverse services. The value reflected in these elements of the purchase price does not meet the definition of an intangible asset under
SFAS 141 and is therefore reflected as goodwill. The amounts allocated to intangible assets and acquired technology was attributed to the following categories and estimated useful lives:

Acquired technology

$
25,039

5 yearsCustomer relationships


117,900

911 yearsTrade names


29,400

10 yearsindefiniteTotal intangibles

$
172,339




On August 1, 2007, the Company acquired all of the outstanding membership interests of CFRA for approximately
$63.0 million. CFRA is a provider of forensic accounting research, legal and regulatory risk assessment, due diligence and educational services. The purpose of this acquisition was to broaden
the quantitative and qualitative analysis services that the ISS business could offer its clients. The acquisition has been accounted for as a purchase, and the operating results of CFRA have been
included in the consolidated financial statements since the date of its acquisition.

The
aggregate consideration paid for the acquisition is as follows:

Cash paid (includes cash acquired of $1,213)

$
46,275Fair value of 973,151 shares of common stock issued


16,057Transaction costs


661Total purchase consideration

$
62,993


The
Company valued the shares of common stock issued in exchange for equity held and issued to CFRA shareholders at $16.50 per share (see Note 13).

F-18

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Table of Contents

RISKMETRICS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED DECEMBER 31, 2006, 2007, AND 2008

(Amounts in thousands, except share and per share amounts)

3. ACQUISITIONS (Continued)

The
following table summarizes the amounts allocated to the acquired assets and liabilities assumed based upon management's estimates:

Cash and other current assets

$
3,104Property and equipment


511Non-current assets


49Intangible assets


19,710Goodwill


46,736Total assets acquired


70,110Accounts payable and accrued expenses


(3,326
)Deferred revenue


(3,791
)Net assets acquired

$
62,993Goodwill


46,736Identifiable intangible assets


19,710Net liabilities assumed


(3,453
)Total purchase consideration

$
62,993


The
Company believes the purchase price reflects the prospects of the existing business. The amounts and useful lives allocated to intangible assets were as follows:

Customer relationships

$
10,250

7 yearsCovenant not to compete


250

1 yearTrade name


100

1 yearAcquired technology


240

5 yearsProprietary process


8,870

7 yearsTotal intangibles

$
19,710


Proprietary
process represents the research technique process utilized by CFRA to derive independent value not generally known and is considered an asset apart from goodwill. The excess
of the purchase price over the estimated fair values of the assets acquired and liabilities assumed was allocated to goodwill, which is expected to be deductible for tax purposes.

The
purchase consideration, goodwill and liabilities assumed have been adjusted during the year ended December 31, 2008 to reflect certain sales tax liabilities of CFRA (see
Note 12).

During
the year ended December 31, 2008 the Company recognized an impairment charge for goodwill and an intangible asset related to ISS and CFRA (see Note 7).



On October 3, 2008 the Company acquired all of the outstanding common stock of Applied4 Technology Ltd. ("Applied 4") for
approximately $1.8 million in cash. Applied4 is a specialist provider of technology solutions in the field of investment performance measurement. The purpose of this

F-19

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Table of Contents

RISKMETRICS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED DECEMBER 31, 2006, 2007, AND 2008

(Amounts in thousands, except share and per share amounts)

3. ACQUISITIONS (Continued)

acquisition
was to broaden the performance attribution analytical tools the Company can offer to its clients. The acquisition has been accounted for as a purchase, and the operating results of
Applied4 have been included in the consolidated financial statements since the date of its acquisition.

Additional
one time purchase price payment ranging from approximately $1.4 million to $1.7 million may be paid, depending on, and if, certain earnings targets are achieved
from 2009 through 2011. As of
December 31, 2008, such earnings targets have not been achieved and no amount has been accrued for additional purchase price consideration.

The
aggregate consideration paid for the acquisition is as follows:

Cash paid

$
1,767Transaction costs


93Total purchase consideration

$
1,860


The
following table summarizes the amounts allocated to the acquired assets and liabilities assumed based upon management's estimates:

Cash and other current assets

$
56Property and equipment


22Intangible asset


1,844Total assets acquired


1,922Accounts payable and accrued expenses


(30
)Deferred revenue


(32
)Net assets acquired

$
1,860Identifiable intangible asset


1,844Net liabilities assumed


16Total purchase consideration

$
1,860


A
fair value of $1,844 was allocated to acquired technology in connection with the acquisition and such intangible asset is estimated to have a 5 year useful life.

4. INITIAL PUBLIC OFFERING

In January 2008, the Company completed an initial public offering of 16,100,000 shares of common stock, which included 4,035,816 shares sold by selling stockholders and 2,100,000 shares
to cover
over-allotments, which was exercised in full in January 2008. The Company did not receive any proceeds from the sale of the shares by the selling stockholders. Net proceeds from the
offering, including the exercise of the underwriters' allotment, were $193.9 million, after deducting underwriting discounts and commissions and approximately $3.5 million of offering
expenses, of which $1.9 million and $1.6 million were paid during the years ended December 31, 2007 and 2008, respectively. The Company utilized a portion of the proceeds to
prepay the entire outstanding indebtedness under the Company's second loan lien credit facility (See Note 9).

F-20

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Table of Contents

RISKMETRICS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED DECEMBER 31, 2006, 2007, AND 2008

(Amounts in thousands, except share and per share amounts)

5. ACCOUNTS RECEIVABLE

Unbilled accounts receivable represents revenue that has been earned based on services performed; however, billing has yet to commence under contractual terms of the arrangement.
Accounts receivable as of December 31, 2007 and 2008 consisted of the following:

2007

2008Billed

$
35,916

$
42,150Unbilled


1,499


752Total


37,415


42,902Less allowance for doubtful accounts


(405
)

(583
)Accounts receivable, net

$
37,010

$
42,319


6. PROPERTY AND EQUIPMENT

Property and equipment as of December 31, 2007 and 2008 consist of the following:

Estimated Useful Life

2007

2008Cost:Hardware

3 years

$
16,788

$
20,867Internal use software

34 years


9,860


12,790Telecommunications equipment

5 years


587


837Furniture and fixtures

7 years


2,438


2,384Leasehold improvements

Shorter of the term of the
lease or life of the asset


6,024


6,248$
35,697


43,126Less accumulated depreciation and amortization




(19,472
)

(27,726
)Property and equipmentnet



$
16,225

$
15,400


Depreciation
expense recorded for the years ended December 31, 2006, 2007, and 2008 was $3,646, $6,958 and $7,935, respectively. Amortization expense of leasehold improvements for
the years ended December 31, 2006, 2007 and 2008 was $435, $461 and $844, respectively.

In
2007, we abandoned a software project and wrote off certain assets in our London office, which resulted in a total loss on disposal of approximately $0.7 million.

F-21

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Table of Contents

RISKMETRICS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED DECEMBER 31, 2006, 2007, AND 2008

(Amounts in thousands, except share and per share amounts)

7. GOODWILL AND INTANGIBLE ASSETS



Intangible assets as of December 31, 2007 and 2008 consist of the following:

2007Useful Lives

Gross

Amortization

NetCustomer relationships

711 years

$
128,150

$
(11,286
)
$
116,864Acquired technology

5 years


25,279


(4,878
)

20,401Covenant not to compete

13 years


1,500


(208
)

1,292Proprietary process

7 years


8,870


(528
)

8,342Trade names

110 years


22,800


(2,245
)

20,555Trade names

Indefinite


6,700





6,700Total



$
193,299

$
(19,145
)
$
174,154




2008Useful Lives

Gross

Amortization

NetCustomer relationships

711 years

$
128,150

$
(23,751
)
$
104,399Acquired technology

5 years


27,123


(10,013


17,110Covenant not to compete

13 years


1,500


(771
)

729Proprietary process

7 years


8,870


(1,795
)

7,075Trade names

110 years


23,600


(4,573
)

19,027Total



$
189,243

$
(40,903
)
$
148,340


In
2007, the Company acquired a covenant not to compete for the development of products and services which will support a broad range of corporate governance services for $1,250, of
which $250 and $1,000 was paid during the years ended December 31, 2007 and 2008, respectively. The covenant not to compete is being amortized over its estimated useful life of three years.

In
2008, the Company determined that the useful life of an ISS product tradename should be changed from indefinite life to a finite life tradename with an estimated useful life of
8 years. The change resulted due to the Company beginning an integration plan, in the fourth quarter of 2008, to transition the product tradename into the RiskMetrics tradename or a new
tradename which reduced its expected useful life. In accordance with SFAS 142, the Company recorded a $5.9 million impairment charge for the product tradename which represented the
difference between the fair value of the product tradename and related book value at the date of change. Such charge has been included in the impairment of goodwill and intangible asset caption within
operating expenses on the accompanying statement of operations for the year ended December 31, 2008. As of December 31, 2008, the $800 fair
value of the product tradename is included in finite live tradenames and will be amortized over its remaining useful life.

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Table of Contents

RISKMETRICS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED DECEMBER 31, 2006, 2007, AND 2008

(Amounts in thousands, except share and per share amounts)

7. GOODWILL AND INTANGIBLE ASSETS (Continued)

Annual
amortization expense, which is based on the values of intangibles and their useful lives, for the next five years, is expected to be as follows:

Year ending December 31,2009

$
21,9442010


21,8392011


21,5272012


16,6492013


16,379




The Company completed the first step of its annual goodwill evaluation as of October 1, 2008 which indicated the carrying value
of the ISS reporting unit exceeded its fair value. The fair value of the ISS reporting unit was determined using a combination of present value techniques, including a discounted cash flow, as well as
fair values of comparable businesses. The decrease in fair value of the ISS reporting unit was primarily a result of the negative equity market conditions which caused a material decline in industry
market multiples in the second half of 2008. The Company re-evaluated the fair value of the ISS reporting unit as of December 31, 2008 and noted a further decline in the fair value
of the ISS reporting unit due to further declines in comparable market value multiples. Accordingly, the Company completed the second step of the goodwill evaluation in order to determine the implied
fair value of ISS goodwill by performing a purchase price allocation as if ISS had been acquired on December 31, 2008. Based on the results of the fair value analysis, the carrying amount of
ISS goodwill exceeded the implied value of goodwill and the difference of $154.2 million was recorded as a goodwill impairment charge during the year ended December 31, 2008.

Goodwill
changed during the year ended December 31, 2008 as follows:

Balance at January 1, 2008

$
460,951Impairment of goodwill


(154,169
)Tax benefit on exercise of stock options granted to ISS employees on acquisition (Note 3)


(631
)Accrual of CFRA sales tax liability (Note 12)


638Adjustment to acquired ISS deferred taxes and income taxes


1,824Balance as of December 31, 2008

$
308,613


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Table of Contents

RISKMETRICS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED DECEMBER 31, 2006, 2007, AND 2008

(Amounts in thousands, except share and per share amounts)

8. ACCRUED EXPENSES

Accrued expenses as of December 31, 2007 and 2008 consist of the following:

2007

2008Accrued compensation and related tax

$
28,490

$
29,492Accrued data expense


1,133


1,907Accrued travel and entertainment


227


393Accrued professional fees


1,813


1,392Current portion of deferred rent


202


273CFRA sales tax liability (Note 12)





1,836Other accrued expenses


2,324


4,881$
34,189

$
40,174


9. DEBT

In conjunction with the purchase of ISS on January 11, 2007, a subsidiary of the Company obtained $450 million of debt, of which $425 million was borrowed to
complete the acquisition. The debt is comprised of two term loan facilities and a revolving credit facility. As of December 31, 2008 $290.6 million of debt remains outstanding under the
first lien loan and no indebtedness remain outstanding under the second lien term loan or revolving credit facility. The maturity date of the first lien term loan is December 2013.

The
first lien credit facilities consists of a $25 million revolving credit facility and $300 million of first lien term loan facility and accumulates interest, at the
option of the Company at: (a) the LIBOR rate
plus a margin of 1.75% to 2.25% depending on the Company's consolidated leverage ratio, or (b) the higher of (i) the Federal Funds Effective Rate plus 0.5% and (ii) Bank of
America's "prime rate," plus a margin of 0.75% or 1.25% depending on the consolidated leverage ratio. Amounts repaid under the first lien term loan facility may not be re-borrowed. Amounts
repaid under the revolving credit facility may be re-borrowed.

The
second lien term loan facility was for $125 million and accumulated interest based on, at the option of the Company at: (a) the LIBOR rate plus a margin of 5.50%, or
(b) the higher of (i) the Federal Funds Effective Rate plus 5.0% and (ii) Bank of America's "prime rate," plus a margin of 4.50%. In January 2008, the Company utilized a portion
of proceeds from the initial public offering to prepay the entire outstanding indebtedness under the second lien loan, in the amount of $125.0 million. In addition, the Company paid a 1%
prepayment penalty fee, or $1.25 million, upon repayment as set forth in the credit agreement, which has been included in other expenses for the year ended December 31, 2008 in the
accompanying consolidated statements of operations. In conjunction with the repayment of the second lien term loan during the year ended December 31, 2008, the Company reduced the notional
amount of the interest rate swap by $19.3 million, which resulted in other expense of $1.4 million in 2008 (Note 10).

The
effective interest rate on the Company's debt was 8.7% and 7.4% for the year ended December 31, 2007 and 2008, respectively.

F-24

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Table of Contents

RISKMETRICS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED DECEMBER 31, 2006, 2007, AND 2008

(Amounts in thousands, except share and per share amounts)

9. DEBT (Continued)

In
addition to quarterly interest payments due on the credit facility, the Company is required to repay the principal amounts of the first lien credit facility in quarterly installments
of $741, of which the next payment is due on June 30, 2009. Furthermore, starting January 1, 2008, the Company is required to make a mandatory payment equal to each year's excess cash
flow depending on leverage ratios, as defined in the first lien term loan facility, within five days of delivery of audited financial statements. During the year ended December 31, 2008, the
Company made an excess cash flow principal payment of $6,381 for its first lien term loan. Based on the Company's consolidated leverage ratio as of December 31, 2008, no future excess cash flow
payments would be required as long as that ratio is maintained. The Company is required to repay the aggregate principal remaining on the first lien term loan facility on the maturity date. The
Company may voluntarily prepay the first lien credit facilities in whole or in part without penalty.

Scheduled
repayments of balances outstanding as of December 31, 2008 are as follows:

2009

$
2,2242010


2,9662011


2,9662012


2,9662013


279,497$
290,619


The
Company has guaranteed the payment and performance of the credit facilities. The Company has pledged all of its assets as collateral against the debt. The restrictive covenants set
forth in the first and second lien credit facilities restrict the Company from, among other things: permitting liens on their assets; incurring additional indebtedness (as defined per the debt
agreement); making investments exceeding specific dollar amounts; making dispositions; making restricted payments; making fundamental changes to the business; changes in nature of business;
restricting ability to pay dividends; entering into transactions with affiliates not in the ordinary course of business; use of proceeds to purchase margin stock; making amendments to the organization
documents which are materially adverse to the lenders; making changes in accounting polices except as required by generally accepted accounting principles; prepayments of indebtedness (subject to
amounts defined in the credit facilities); making amendments to second lien documents and indebtedness; and becoming legally obligated to make capital expenditures except in the ordinary course of
business.

The
indebtedness was obtained by a wholly-owned subsidiary of the Company (the "Borrower"). The Company, as parent holding company, has no independent assets or operations, and any other
subsidiaries, other than the Borrower and its subsidiaries, are minor. The Company has guaranteed the indebtedness and such guarantee is full and unconditional. In addition, there are no restrictions
on the ability of the Company to obtain funds from its subsidiaries by dividend or loan.

The
credit facilities include certain covenants related to the delivery of financial results, maintenance of properties and insurance, consolidated leverage ratio limitations and
limitations of capital expenditures. Upon the occurrence of an event of default under the credit facilities, the lenders may require that all amounts outstanding be repaid immediately and terminate
the Company's ability to

F-25

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Table of Contents

RISKMETRICS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED DECEMBER 31, 2006, 2007, AND 2008

(Amounts in thousands, except share and per share amounts)

9. DEBT (Continued)

make
further borrowings and foreclose on the collateral. Events relating to non-payment of amounts due under the credit facilities; breach of covenants; misrepresentation; insolvency of
the Company; certain ERISA events; inability to pay the debts; change of control; invalidity of loan documents; certain judgments against any parties; cross-default; and failure of collateral
agreements to be in effect are considered to be events of default after the passage of time or notice or both. As of December 31, 2008, we were in compliance with our credit agreements, and we
are not aware of any future events or transactions that will impact such compliance.

The
Company incurred debt issuance costs of $10,074, which have been recorded on the accompanying consolidated balance sheet. Such amount is being amortized over the life of the
remaining debt and is reflected as a component of interest expense on the accompanying statement of operations. In
conjunction with the prepayment of the second lien loan during the year ended December 31, 2008, the Company wrote-off debt issuance costs of $2,377. Amortization expense, including
write-offs, of debt issuance costs for the years ended December 31, 2007 and 2008 was $1,397 and $3,450, respectively, and is included in interest expense on the accompanying
consolidated statements of operations.

10. FAIR VALUE OF DERIVATIVE INSTRUMENTS

Effective January 1, 2008, the Company adopted the provisions of SFAS No. 157 that apply to financial assets and liabilities that are measured at fair value within the
financial statements, which provides a framework for measuring fair value under US GAAP. As defined in SFAS No. 157, fair value is the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company utilizes market data or assumptions that the Company believes market
participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable
quoted prices in active markets for identical assets or liabilities (level 1), significant other observable inputs (level 2) or significant unobservable inputs (level 3). The
Company primarily uses the income approach, which uses valuation techniques to convert future amounts to a single present amount. As of December 31, 2008 the Company had interest rate swap
agreements which are valued using level 2 inputs as shown in the following table:

Fair value at December 31, 2008, using:Total

Quoted prices in
active markets for
identical assets
(Level 1)

Significant
other
observable
inputs
(Level 2)

Significant
unobservable
inputs
(Level 3)Interest rate swap liability

$
22,311

$


$
22,311

$
Total

$
22,311

$


$
22,311

$



In
February 2007, the Company entered into two interest-rate swap agreements to reduce interest rate risks and to manage interest expense. By entering into these agreements,
the Company changed the fixed/variable interest-rate mix of its debt portfolio. The agreements effectively convert floating-rate

F-26

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Table of Contents

RISKMETRICS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED DECEMBER 31, 2006, 2007, AND 2008

(Amounts in thousands, except share and per share amounts)

10. FAIR VALUE OF DERIVATIVE INSTRUMENTS (Continued)

debt
into fixed-rate debt over the maturity life of the debt. This reduces the Company's risk of incurring higher interest costs in periods of rising interest rates and increases the
Company's risk of paying higher interest costs in periods of decreasing interest rates. The interest rate swap agreements adjusted the Company's weighted average effective interest rate, which
resulted in a gain (loss) being recorded in interest expense in the accompanying consolidated statements of operations..

The
Company's interest-rate swap agreements hedge a substantial portion of the interest rate risk exposure under the Company's debt (see Note 9). As of
December 31, 2007 and 2008, the swap agreements had a notional amount of $317,063 and $279,375, respectively. As of December 31, 2007 and 2008, the swap agreements had a fair value
liability of $10,990 and $22,311, respectively, which is included in other long-term liabilities on the accompanying consolidated balance sheets.

In
conjunction with the prepayment of the second lien term loan during the year ended December 31, 2008 (Note 9), the Company reduced the notional amount of the interest
rate swap by $19,300 in order to hedge the remaining debt outstanding. The reduction of the notional amount cost $1,364 and has been included in other expenses on the accompanying statement of
operations for the year ended December 31, 2008.

The
notional amount of the swap amortizes over the life of the debt and results in gains and losses being recognized in interest expense in the accompanying consolidated statements of
operations. The
gain (loss) from the amortization and reduction of the swap agreement is summarized in the following table:

Year Ended December 31,2007

2008Gain (loss) from swap agreement

$
595

$
(5,881
)


These
hedges of interest rate risk relating to the Company's debt have been designated as effective cash flow hedges at inception and on an ongoing quarterly basis. The Company estimates
the effectiveness of the interest rate swap agreement utilizing the hypothetical derivative method. Under this method, the fair value of the actual interest rate swap agreement is compared to the fair
value of a hypothetical swap agreement. To the extent that the agreement is not considered to be highly effective in offsetting the change in the value of the interest payments being hedged, the fair
value relating to the ineffective portion of such agreement and any subsequent changes in such fair value will be immediately recognized in earnings. To the extent that the agreement is considered
highly effective but not completely effective in offsetting the change in the value of the interest payments being hedged, any changes in fair value relating to the ineffective portion of such
agreement will be immediately recognized in earnings. Effective gains and losses have been included in the unrealized gain on cash flow hedges as a component of other comprehensive income (loss), net
of tax.

F-27

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Table of Contents

RISKMETRICS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED DECEMBER 31, 2006, 2007, AND 2008

(Amounts in thousands, except share and per share amounts)

11. INCOME TAXES



The components of income (loss) before provision for income taxes are as follows:

2006

2007

2008Domestic

$
20,529

$
(1,423
)
$
(139,341
)Foreign


3,692


5,535


13,122Total

$
24,221

$
4,112

$
(126,219
)


The
components of the tax (benefit) provision for the years ended December 31, 2006, 2007, and 2008 are as follows:

2006

2007

2008Federal:Current

$
4,976

$
38

$
164Deferred


342


(724
)

2,3225,318


(686
)

2,486State:Current


1,857


53


1,682Deferred


128


(44
)

(3
)1,985


9


1,679Foreign:Current


959


2,735


6,560Deferred


(62
)

(347
)

(25
)897


2,388


6,535Total

$
8,200

$
1,711

$
10,700


F-28

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Table of Contents

RISKMETRICS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED DECEMBER 31, 2006, 2007, AND 2008

(Amounts in thousands, except share and per share amounts)

11. INCOME TAXES (Continued)

Deferred
tax assets (liabilities) as of December 31, 2007 and 2008 consist of the following:

2007

2008Current:Net operating loss carryforwards

$


$
1,210Foreign tax credits, net of tax on unremitted earnings





915R&D credits





439Accounts receivable


140


305Domestic production activity deduction and other liabilities


36


19Prepaid expenses and accruals


(36
)

(206
)Net current deferred tax assets before valuation allowance


140


2,682Valuation allowance





(590
)Net current deferred tax assets


140


2,092Long-term:Intangibles


(49,307
)

(42,035
)Capitalized development costs


(2,389
)

(2,263
)Deferred revenue


123


(405
)R&D credits


450


Foreign tax credits


2,425


Net operating loss carry forwards


12,494


Capital loss


73


66Deferred rent


462


437Property and equipment


215


571Stock based compensation


2,362


3,702Unrealized loss on cash flow hedge


4,585


8,522Net long-term deferred tax liabilities before valuation allowance


(28,507
)

(31,405
)Valuation allowance


(119
)

Net long-term deferred tax liabilities


(28,626
)

(31,405
)Net deferred tax liabilities

$
(28,486
)

(29,313
)


F-29

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Table of Contents

RISKMETRICS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED DECEMBER 31, 2006, 2007, AND 2008

(Amounts in thousands, except share and per share amounts)

11. INCOME TAXES (Continued)

The
expected tax provision calculated at the statutory federal rate differs from the actual (benefit) provision for the years ended December 31, 2006, 2007, and 2008 as a result
of the following:

2006

2007

2008Tax provision, at U.S. Federal statutory tax rate

$
8,477

$
1,439

$
(44,176
)State and local income tax expense (benefit), net of U.S. federal taxes


1,290


6


1,088Meals and entertainment


71


191


234Nontaxable interest and dividends


(733
)

(148
)

Non-deductible stock option expense under SFAS 123(R)


832


953


469APB23








607Research and development credit


(685
)

(465
)

(561
)State and local credits


(370
)




U.K. unrealized translation gain


(237
)

(12
)

(137
)Rate differential on foreign earnings


(190
)

(382
)

(596
)Section 199 deduction


(398
)

39


(159
)Goodwill impairment








53,960Other


143


90


(29
)Net tax provision

$
8,200

$
1,711


10,700


As
of December 31, 2008, the Company had fully utilized all U.S. federal net operating losses available but still has state net operating loss carryforwards available of
approximately $16,585, which expire in 2026. In addition, the Company has foreign tax credits and research and development credits of approximately $1,522 and $439, which expire in 2018 and 2028,
respectively. As of December 31, 2008 foreign net operating loss carryforwards approximated $791. Valuation allowances were recorded against all but approximately $200 of these NOL's.



As of December 31, 2008, the Company's unrecognized tax benefits totaled $2,017, all of which would favorably impact the
Company's effective tax rate, if recognized. Interest and penalties accrued during the years ended December 31, 2007 and 2008 were $74 and $198, respectively.

The
Company's tax returns for 2005-2007 remain open to examination by the Internal Revenue Service in their entirety. They also remain open with respect to international and
state taxing jurisdictions. Currently, the Company has been selected for audit by the Internal Revenue Service for 2006, New York City for 2004-2006, Illinois for 2005-2006,
and Canada Revenue Agency for 2005-2006. As of December 31, 2007 and 2008, $259 and $457 was accrued for the payment of interest and penalties, respectively.

F-30

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Table of Contents

RISKMETRICS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED DECEMBER 31, 2006, 2007, AND 2008

(Amounts in thousands, except share and per share amounts)

11. INCOME TAXES (Continued)

A
reconciliation of the beginning and ending amount of unrecognized gross tax benefits is as follows:

Balance at January 1, 2008

$
1,189Additions based on tax positions related to the current year


174Additions for tax positions of prior years


843Reductions for tax positions of prior years


(189
)Balance as of December 31, 2008

$
2,017


12. COMMITMENTS AND CONTINGENCIES

The Company is committed to unrelated parties for the rental of office space under operating leases. ISS leases office space and equipment under various operating lease agreements.
Certain of the non-cancellable leases contain a requirement for the Company to pay its share of any increases in operating expenses and real estate taxes. The lease agreements for RMG's
and ISS' primary office space terminate in August 2012 and July 2012, respectively.

As
of December 31, 2008, minimum future rental payments under non-cancellable operating leases are as follows:

2009

$
6,5622010


6,2952011


5,7262012


4,1262013


1,544Thereafter


202Total minimum lease payments

$
24,455


Rent
expense on leases was $1,805, $6,689 and $8,488 for the years ended December 31, 2006, 2007 and 2008, respectively. The Company had collateralized its obligations to a lessor
by pledging $1,076 and $1,599 in cash deposits classified as other assets on the accompanying consolidated balance sheets as of December 31, 2007 and 2008, respectively.

During
the year ended December 31, 2008, the Company incurred $465 of lease exit costs as a result of relocating the Company's London operations and closing its Washington DC
office. Such expenses have been included in general and administrative expenses in the accompanying statement of operations.

As
a result of free rent periods, lease inducements and escalation clauses of operating leases, deferred rent balances of $1,127 and $1,488 are included in other long term liabilities
and $202 and $273 of current liabilities are included in accrued expenses on the accompanying consolidated balance sheet at December 31, 2007 and 2008, respectively.

F-31

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Table of Contents

RISKMETRICS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED DECEMBER 31, 2006, 2007, AND 2008

(Amounts in thousands, except share and per share amounts)

12. COMMITMENTS AND CONTINGENCIES (Continued)

Data AgreementsThe Company has entered into agreements with other vendors to supply the Company with data, which have terms
that extend through 2011. The aggregate minimum payments with respect to these data agreements as of December 31, 2008, are as follows:

2009

$
7,6822010


1,7402011


353Total

$
9,775


ContingenciesFrom time to time, the Company is involved in various litigation matters involving ordinary and routine claims
incidental to its business. Management currently believes that the outcome of these proceedings, either individually or in the aggregate, will not have a material adverse effect on the Company's
business, results of operations or financial condition.

During
2008, the Company completed an internal study which determined certain sales tax liabilities are payable in connection with both the pre-acquisition and
post-acquisition operational activity of CFRA. As a result, the Company entered into a voluntary agreement with the local taxing authority and agreed to pay a maximum and probable cost of
$1,836, of which $1,438 relates to pre-acquisition activity. The Company has recovered $800 pursuant to an escrow agreement with the former equity owners of CFRA, comprised of $223 in cash
and $577 in shares of the Company's common stock, and has recorded the recovery as a reduction to the CFRA purchase price (See Note 3). Accordingly, $398 of expense has been recorded in general
and administrative expenses within the accompanying consolidated statement of operations for the year ended December 31, 2008, and $638 has been recorded as an adjustment to CFRA goodwill.

13. STOCKHOLDERS' EQUITY

As of December 31, 2008, the authorized capital stock of the Company consisted of 200,000,000 shares of common stock, with a stated par value of $.01 per share. Effective in 2000,
the Company began repurchasing shares of its common stock from employees and held these repurchased shares as treasury stock. During the years ended December 31, 2006 and 2007, 1,432,610 and
208,192 common shares were repurchased at a total cost of $9,018 and $3,257 which is included in stockholders' equity on the consolidated balance sheets. In 2007, the Company retired 10,329,405 shares
held as treasury stock.

In
January 2007, the Company acquired ISS. As part of the consideration paid to ISS, 2,774,351 shares of the Company's common stock with an estimated fair value of approximately
$42.4 million were issued. As well, former ISS employee options held were exchanged for 1,396,000 options of the Company with an estimated market value of approximately $16.3 million.

In
August 2007, the Company acquired CFRA. As part of the consideration paid in connection with the acquisition of CFRA, the Company issued 1,008,113 shares of common stock with an
estimated fair value of $16.6 million.

In
January 2008, the Company completed an initial public offering (See Note 4).

F-32

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Table of Contents

RISKMETRICS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED DECEMBER 31, 2006, 2007, AND 2008

(Amounts in thousands, except share and per share amounts)

14. STOCK BASED COMPENSATION

The Company has incentive plans that provide for the issuance of equity awards, including stock options and non-vested shares of our common stock ("non-vested
stock").



During 2000, the Company's Board of Directors adopted a Stock Option Plan (the "2000 Plan") that provided for the grant of options to
employees, consultants, and non-employee directors to purchase common stock, which vest over a one to four year period and have a ten-year contractual term. The maximum number
of shares of the Company's common stock available for issuance under the 2000 Plan was 12,500,000, and no more than 4,000,000 were allowed to be issued in any calendar year. The Company retired the
2000 Plan and adopted a new option plan (the "2004 Plan"). As of December 31, 2008, 5,581,159 options issued under the 2000 Plan remain outstanding.

The
2004 Plan provides for the grant of options to employees, consultants, and non-employee directors to purchase common stock, which vest over a three to four year
period and have a ten-year contractual term. To satisfy options granted under the Plan, the Company may make common stock available from authorized but unissued shares or shares held in
treasury by the Company. The maximum number of shares of the Company's common stock available for issuance under the 2004 Plan is 7,500,000. Subsequent to the acquisition of ISS, the Company retired
the 2004 plan and adopted a new option plan (the "2007 plan"). As of December 31, 2008, 4,391,343 options issued under the 2004 Plan remain outstanding.

In
January 2007, the Company's Board of Directors adopted a stock option plan covering the employees from ISS (the "ISS Plan"), which resulted in the rollover of 1,396,000 fully-vested
options from ISS. Under the terms of the ISS Plan, no additional options are to be issued. As of December 31, 2008, 161,442 options issued under the ISS Plan remain outstanding.

In
January 2007 the Company's Board of Directors adopted a Stock Option Plan (the "2007 Plan") that provides for the grant of options and non-vested stock to employees,
consultants, and non-employee directors to purchase common stock, which generally vest over a four year period and have a ten-year contractual term. The maximum number of
shares of the Company's common stock available for issuance under the 2007 Plan is 6,500,000. As of December 31, 2008, 2,685,643 options issued and 235,039 shares of non-vested
stock granted under the 2007 Plan remain outstanding.

As
of December 31, 2008, approximately 3,322,805 shares remain available for grant for stock options and non-vested stock.

F-33

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Table of Contents

RISKMETRICS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED DECEMBER 31, 2006, 2007, AND 2008

(Amounts in thousands, except share and per share amounts)

14. STOCK BASED COMPENSATION (Continued)

Summarized
information relative to the Company's stock option plans is as follows:

Number of
Shares

Weighted-
Average
Exercise
PriceOutstandingDecember 31, 2007


13,361,282

$
5.79Granted*


1,701,500


17.54Exercised


(1,611,358
)

3.67Forfeited


(631,837
)

14.27OutstandingDecember 31, 2008


12,819,587

$
7.20






F-34

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Table of Contents

RISKMETRICS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED DECEMBER 31, 2006, 2007, AND 2008

(Amounts in thousands, except share and per share amounts)

14. STOCK BASED COMPENSATION (Continued)



The
Company's stock options outstanding at December 31, 2008 were as follows:

Outstanding Options

Options ExercisableExercise
Prices

Number of
Options

Weighted-Average
Remaining
Contractual
Life
(In Years)

Weighted-Average
Exercise
Price

Number of
Options

Weighted-Average
Exercise
Price$  1.20


911,643


2.08

$
1.20


911,643

$
1.201.49


83,499


2.94


1.49


83,499


1.492.00


2,971,631


3.76


2.00


2,971,629


2.002.33


4,505


4.16


2.33


4,505


2.332.40


1,697,885


5.01


2.40


1,697,885


2.403.42


20,365


4.83


3.42


20,365


3.423.75


234,525


5.68


3.75


234,525


3.754.46


15,141


5.76


4.46


15,141


4.464.80


1,208,520


6.03


4.80


1,089,146


4.805.05


17,837


6.35


5.05


17,837


5.055.94


20,095


7.12


5.94


20,095


5.946.00


241,262


6.60


6.00


190,326


6.007.20


1,649,272


7.07


7.20


1,162,734


7.2015.29


2,134,014


8.19


15.29


803,290


15.2916.50


100,393


8.29


16.50


23,083


16.5017.50


1,424,000


9.05


17.50


225,501


17.5018.01


75,000


9.76


18.01





18.0119.95


10,000


9.34


19.95





19.9512,819,587


5.94


7.20


9,471,204


4.63


Of
the unvested options as of December 31, 2008, 2,756,057 are expected to vest in the future.

The
options granted in conjunction with the ISS acquisition replaced fully vested options held from former ISS employees. The fair value related to these 1,396,000 fully vested options
is included within purchase price consideration (see Note 3) and therefore no additional compensation expense was or will be recorded prospectively by the Company.

The
fair value of stock options at date of grant was estimated using the Black-Scholes option-pricing model utilizing the following weighted-average assumptions:

Year Ended December 31,2006

2007

2008Risk-free interest rate


4.7
%

4.7
%

2.6
%Expected term (in years)


5.0


4.5


4.5Expected stock price volatility


31
%

29
%

35
%Expected dividend yield


None


None


None


F-35

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Table of Contents

RISKMETRICS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED DECEMBER 31, 2006, 2007, AND 2008

(Amounts in thousands, except share and per share amounts)

14. STOCK BASED COMPENSATION (Continued)

The
weighted-average fair value per share for options granted during the years ended December 31, 2006, 2007 and 2008, was $4.72, $5.02 and $5.81, respectively.

During
the year ended December 31, 2007, the Company granted the following stock options with exercise prices as follows:

Grant Dates

Number of
Stock Options
Granted

Fair Value
of Common
Stock

Exercise
Price

Intrinsic
ValueJanuary 11, 2007


1,396,000


15.29
*

15.29


May 17, 2007


1,733,250


15.29
*

15.29


July 26, 2007


20,000


16.50
**

16.50


August 1, 2007


164,243


16.50
***

16.50





---



F-36

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Table of Contents

RISKMETRICS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED DECEMBER 31, 2006, 2007, AND 2008

(Amounts in thousands, except share and per share amounts)

14. STOCK BASED COMPENSATION (Continued)



Stock-based compensation for non-vested stock is measured at the grant date based on the fair value of the Company's common
stock, and the cost is recognized ratably over the vesting period. The following table summarizes non-vested stock activity:

Number of
Shares

Weighted Average
Grant Date
Fair ValueUnvested shares at January 1, 2007




$
Granted


347,821


16.50Vested





Forfeited


(1,212
)

16.50Unvested Shares at December 31, 2007


346,609


16.50Granted


54,983


22.56Vested


(147,766
)

16.50Forfeited


(18,787
)

16.50Unvested Shares at December 31, 2008


235,039

$
18.01


As
of December 31, 2008, there was approximately $14,423 of unrecognized compensation costs related to stock options and non-vested share-based compensation awards
granted under the stock option plans. That cost is expected to be recognized over a period of four years.

15. EARNINGS PER SHARE

Basic earnings per common share are computed by dividing net income attributable to common shareholders by the weighted average number of common shares outstanding. Diluted earnings per
common share is computed by dividing net income attributable to common shareholders by a diluted weighted average number of common shares outstanding. Diluted earnings per common share reflects the
potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted into common stock, unless they are anti-dilutive.

In
computing earnings per share for the years ended December 31, 2006, 2007 and 2008, the difference between basic and diluted number of shares outstanding is as follows:

Year Ended December 31,2006

2007

2008Basic number of weighted-average shares outstanding


42,655,069


46,380,175


59,970,438Effect of dilutive securitiesEmployee stock options and non-vested stock


5,308,597


7,984,571


Diluted number of weighted-average shares outstanding


47,963,666


54,364,746


59,970,438


F-37

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Table of Contents

RISKMETRICS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED DECEMBER 31, 2006, 2007, AND 2008

(Amounts in thousands, except share and per share amounts)

15. EARNINGS PER SHARE (Continued)

Options
and non-vested stock of 1,714,586, 2,184,693 and 9,281,199 common shares during the years ended December 31, 2006, 2007, and 2008, respectively, were
anti-dilutive and were therefore excluded from the computation of diluted earnings per share.

16. RELATED PARTY TRANSACTIONS

In May 2008, the Company entered into a contract for the sale of Market Risk products to Duff Capital Advisors which expires on March 31, 2009. Philip Duff, a director of the
Company, is the founder, CEO and General Partner of Duff Capital Advisors. The Company recognized revenue of $674 for the Duff Capital Advisors contract for the year ended December 31, 2008.

17. EMPLOYEE BENEFIT PLANS

The Company sponsors a 401(k) plan whereby the participants may elect to defer eligible compensation up to governmental limitations and the Company may make contributions to the plan.
Expense related to the 401(k) plan was approximately $680, $1,687 and $3,182 for the years ended December 31, 2006, 2007 and 2008, respectively.

18. SEGMENT INFORMATION

Prior to the acquisition of ISS on January 11, 2007, RMG operated within one segment, RiskMetrics, with various product offerings made available to our customers.

As
of December 31, 2007 and 2008, the Company has two reportable segments, the RiskMetrics business and the ISS business. These designations have been made as the discrete
operating results of these segments are reviewed by the Company's chief operating decision maker to assess performance and make operating and asset allocation decisions. All intersegment transactions
have been eliminated in the consolidated financial statements. The Company allocates corporate and other shared services to each segment based on the employee's geographic location and headcount.
Goodwill and intangible
assets acquired in connection with the ISS and CFRA acquisition are included in the ISS segment assets.

The
RiskMetrics business is a provider of multi-asset, position-based risk and wealth management products and services. The business provides clients with comprehensive, interactive
products and services that allow them to measure and quantify portfolio risk across security types, geographies and markets. The products and services enable the clients to make more informed
investment decisions, monitor and comply with exposure and risk limits; provide greater transparency to both internal audiences and external constituencies and meet regulatory and reporting
requirements.

The
ISS business is a provider of corporate governance services to institutional shareholders and corporations around the world. The business facilitates the voting of proxies by
institutional investors and provides in-depth research and analysis to help inform their voting decisions and assess issuer-specific risk. It offers both global security coverage and fully
integrated products and services, from policy creation to comprehensive research, vote recommendations, reliable vote execution, post-vote disclosure and reporting and analytical tools.

F-38

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Table of Contents

RISKMETRICS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED DECEMBER 31, 2006, 2007, AND 2008

(Amounts in thousands, except share and per share amounts)

Results of operations by segment for the years ended December 31, 2007 and 2008 is as follows:

RiskMetrics
Business

ISS
Business

TotalYear ended December 31, 2007:Revenues

$
121,126

$
119,175

$
240,301Depreciation and amortization of property and equipment


4,439


2,980


7,419Amortization of intangible assets





19,145


19,145Other operating expenses


85,472


88,795


174,267Income from operations


31,215


8,255


39,470Interest, dividend and investment income








1,564Interest expense








(36,922
)Income before income taxes








4,112Provision for income taxes








1,711Net income








2,401Asset information at December 31, 2007Segment assets

$
52,158

$
691,025

$
743,183Goodwill




$
460,951

$
460,951




RiskMetrics
Business

ISS
Business

TotalYear ended December 31, 2008:Revenues

$
154,626


141,767


296,393Depreciation and amortization of property and equipment


4,624


4,155


8,779Amortization of intangible assets


78


21,680


21,758Impairment of goodwill and other intangible asset





160,069


160,069Other operating expenses


101,172


104,554


205,726Income (loss) from operations


48,752


(148,691
)

(99,939
)Interest, dividend and investment income








2,567Interest expense








(26,234
)Other expense








(2,613
)Loss before income taxes








(126,219
)Provision for income taxes








10,700Net loss







$
(136,919
)Asset information at December 31, 2008Segment assets

$
187,392

$
517,621

$
705,013Goodwill




$
308,613

$
308,613


F-39

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Table of Contents

RISKMETRICS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED DECEMBER 31, 2006, 2007, AND 2008

(Amounts in thousands, except share and per share amounts)

The
following table summarizes revenue for the years ended December 31, 2006, 2007 and 2008 on a percentage basis by geographic region, based on the country in which the customer
is located:

2006

2007

2008Americas


52.0
%

62.0
%

61.1
%EMEA (Europe, Middle East and Africa)


39.0
%

31.4
%

33.1
%Asia


9.0
%

6.6
%

5.8
%100.0
%

100.0
%

100.0
%


At
December 31, 2008, the Company's total assets located outside of the United States of America are $49,346 and receivables from customers outside of the United States of America
are $11,755. All other financial instruments or assets located in foreign countries or denominated in foreign currencies were insignificant at December 31, 2008.

F-40

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Table of Contents

RISKMETRICS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED DECEMBER 31, 2006, 2007, AND 2008

(Amounts in thousands, except share and per share amounts)

19. UNAUDITED QUARTERLY FINANCIAL DATA

Selected unaudited, quarterly financial data of the Company for the years ended December 31, 2007 and 2008 appears below:

2007First
Quarter(b)

Second
Quarter

Third
Quarter(c)

Fourth
QuarterRevenues

$
52,365

$
58,150

$
62,159

$
67,627Operating costs and expenses:Cost of revenues


16,593


19,368


20,705


20,651Research and development


6,879


7,920


7,678


8,665Selling and marketing


8,093


8,362


8,874


10,091General and administrative


6,519


6,437


7,873


8,825Depreciation and amortization of property and equipment


1,584


1,739


1,869


2,227Amortization of intangible assets


4,189


4,434


5,104


5,418Loss on disposal of property and equipment





2





732Total operating costs and expenses


43,857


48,262


52,103


56,609Income from operations


8,508


9,888


10,056


11,018Interest, dividend and investment income (expense), net


(7,904
)

(8,935
)

(9,359
)

(9,160
)Income before provision for income taxes


604


953


697


1,858Provision for income taxes


283


447


326


655Net income

$
321

$
506

$
371

$
1,203Net income per share:Basic(a)

$
0.01

$
0.01

$
0.01

$
0.03Diluted

$
0.01

$
0.01

$
0.01

$
0.02Weighted average shares outstanding:Basic


45,016,364


45,600,151


47,239,323


47,626,734Diluted


53,377,084


53,878,411


54,957,187


55,257,079


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F-41

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Table of Contents

RISKMETRICS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

YEARS ENDED DECEMBER 31, 2006, 2007, AND 2008

(Amounts in thousands, except share and per share amounts)

19. UNAUDITED QUARTERLY FINANCIAL DATA (Continued)

2008First
Quarter

Second
Quarter

Third
Quarter

Fourth
QuarterRevenues

$
71,220

$
74,126

$
75,554


75,493Operating costs and expenses:Cost of revenues


22,704


23,176


23,507


24,000Research and development


10,461


10,405


11,248


9,479Selling and marketing


9,206


9,280


9,045


5,671General and administrative


9,205


9,538


8,959


9,720Depreciation and amortization of property and equipment


2,115


2,165


2,153


2,346Amortization of intangible assets


5,456


5,456


5,398


5,448Impairment of goodwill and intangible assets











160,069Loss on disposal of property and equipment


22


4


57


39Total operating costs and expenses


59,169


60,024


60,367


216,772Income (loss) from operations


12,051


14,102


15,187


(141,279
)Interest, dividend and investment income (expense), net


(11,477
)

(5,000
)

(4,860
)

(4,943
)Income (loss) before provision for income taxes


574


9,102


10,327


(146,222
)Provision for income taxes


227


3,556


4,045


2,872Net income (loss)

$
347

$
5,546

$
6,282

$
(149,094
)Net income per share:Basic

$
0.01

$
0.09

$
0.10

$
(2.43
)Diluted

$
0.01

$
0.08

$
0.09

$
(2.43
)Weighted average shares outstanding:Basic


57,161,701


60,522,656


60,780,651


61,392,215Diluted


64,811,753


68,046,927


68,409,343


61,392,215


20. SUBSEQUENT EVENTS

On February 13, 2009, the Company signed a definitive stock purchase agreement to acquire all of the outstanding capital stock of Innovest Strategic Advisors
("Innovest") for approximately $16 million in cash, subject to a minimum working capital balance of $1.0 million. Innovest is an international investment research and advisory firm
specializing in analyzing "non-traditional" drivers of risk and shareholder value, including companies' performance on environmental, social and strategic
governance issues. The purpose of this acquisition is to enhance the product offerings and services the Company may offer its customers in assessing risk within the environmental, social and
governance sectors.

On
February 23, 2009 the Company granted 823,500 stock options to its employees at an exercise price of $11.96 per share, which was equal to the
closing price of the Company's stock on the date of grant.

*
* * * * * * * * *

F-42

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