Exhibit 99.1
Moody's Corporation Reports Results for the First Quarter of 2004
NEW YORK--(BUSINESS WIRE)--April 28, 2004--Moody's Corporation
(NYSE: MCO) today announced results for the first quarter of 2004.
Summary of Results for First Quarter 2004
Moody's reported revenue of $331.2 million for the three months
ended March 31, 2004, an increase of 19% from $278.2 million for the
same quarter last year. Operating income for the quarter was $182.9
million and rose 23% from $149.1 million for the same period last
year. Diluted earnings per share for the first quarter of 2004 rose to
$0.68, 11% higher than $0.61 in the first quarter of 2003. Excluding
the impact of a $13.6 million non-recurring gain on an insurance
recovery in the first quarter of 2003, diluted EPS for that period
would have been $0.55 and diluted EPS growth in the first quarter of
2004 would have been 24%. Earnings per share for the first quarter of
2004 included a $0.02 impact related to expensing stock options and
other stock-based compensation plans compared with $0.01 in the first
quarter of 2003.
John Rutherfurd, Chairman and Chief Executive Officer of Moody's
said "Moody's results for the first quarter of 2004 again demonstrated
the company's revenue diversity. Growth slowed in several segments of
our ratings business from the rapid pace we saw in 2003. Nonetheless,
Moody's achieved solid overall results for the quarter as a
consequence of strong performance in other parts of our ratings
business and impressive growth in our research operation."
In addition to its reported results, Moody's has included above
and elsewhere in this earnings release certain adjusted results that
the Securities and Exchange Commission defines as "non-GAAP financial
measures." Management believes that such non-GAAP financial measures,
when read in conjunction with the company's reported results, can
provide useful supplemental information for investors analyzing period
to period comparisons of the company's growth. These non-GAAP
financial measures relate to: (1) presenting earnings per share for
the first quarter of 2003 before the non-recurring gain on an
insurance recovery and (2) presenting earnings per share for the first
quarters of 2003 and 2004 before the impact of expensing stock-based
compensation plans, which is being phased in for annual stock grants
commencing in 2003 over the current four-year stock plan vesting
period. In addition, the 2004 outlook presented below includes a
discussion of projected 2004 earnings per share growth excluding the
following items: (1) the impact in 2003 and 2004 of expensing
stock-based compensation; (2) the impact in 2003 of the non-recurring
gain on the insurance recovery; and (3) the impact in 2003 of an
increase in reserves related to legacy tax matters. Attached to this
earnings release is a table showing adjustments to Moody's 2003
results to arrive at non-GAAP financial measures excluding the impacts
noted above.
Revenue
Revenue at Moody's Investors Service for the first quarter of 2004
was $302.4 million, an increase of 19% from the prior year period. The
favorable impact of currency translation, mainly due to the strength
of the Euro relative to the U.S. dollar, contributed approximately 200
basis points to revenue growth in the quarter. Ratings revenue totaled
$261.9 million, rising 17% from $224.7 million a year ago, and
research revenue totaled $40.5 million, 41% higher than in the first
quarter of 2003.
Within the ratings business, global structured finance revenue
totaled $113.0 million for the first quarter of 2004, an increase of
16% from $97.8 million a year earlier. U.S. structured finance revenue
rose in the double digit percent range benefiting from robust growth
in residential and commercial mortgage-backed securities and credit
derivatives, partially offset by weakness in issuance of asset-backed
securities. International structured finance revenue grew in the
mid-twenties percent range, driven by growth in residential and
commercial mortgage-backed securities in Europe and despite weakness
in European credit derivatives, as tighter credit spreads reduced the
profitability of these transactions for sponsors. International
structured finance revenue also benefited from the favorable impact of
currency translation.
Global corporate finance revenue of $76.3 million in the first
quarter of 2004 was up 24% from $61.4 million in the same quarter of
2003. Robust revenue growth in the U.S. was driven by strong
year-over-year increases in high yield issuance and rated bank loan
activity partially offset by a decline in investment grade issuance.
Outside the U.S., corporate finance revenue rose in the double digit
percent range based on good growth in Asia and several smaller markets
in spite of modest growth in Europe.
Global financial institutions and sovereigns revenue totaled $52.5
million for the first quarter of 2004, up 15% compared with the prior
year period. The most significant drivers of this increase were growth
in U.S. and European issuance due to lower interest rates and tighter
spreads compared with the first quarter of 2003.
U.S. public finance revenue was $20.1 million for the first
quarter of 2004, up 2% on issuance that was essentially flat versus
the first quarter of 2003.
Revenue at Moody's KMV ("MKMV") for the first quarter of 2004 was
$28.8 million, an increase of 16% from the first quarter of 2003. This
revenue growth reflected greater subscription revenue from credit risk
assessment products and growth in revenue from training and software
maintenance.
Moody's U.S. revenue of $211.9 million for the first quarter of
2004 was up 18% from the first quarter of 2003. International revenue
of $119.3 million was 21% higher than in the prior year period.
International revenue accounted for 36% of Moody's total in the
quarter versus 35% in the year-ago period.
Expenses and Tax Rate
Moody's operating expenses were $148.3 million in the first
quarter of 2004, 15% higher than in the prior year period. Expenses
for the first quarter of 2004 included $5.2 million related to
stock-based compensation plans compared with $1.9 million in the first
quarter of 2003. The year-to-year increase reflects, in part, the
phasing in commencing January 1, 2003 of expense related to annual
option grants over the stock plan vesting period, which is currently
four years. Moody's operating margin for the first quarter of 2004 was
55% compared with 54% in the first quarter of 2003. The quarter's high
margin was the result of better-than-expected revenue growth,
principally in U.S. corporate finance, U.S. residential and commercial
mortgage-backed securities, and global financial institutions and
research.
Moody's effective tax rate for the first quarter of 2004 was 41.8%
compared with 41.5% for the first quarter of 2003. The full-year
effective tax rate for 2003 was 44.6% on a reported basis and 42.1% on
a pro forma basis, excluding the reserve for legacy tax matters. The
slight pro forma reduction in the 2004 rate reflects Moody's continued
operating growth in jurisdictions with lower tax rates than New York.
Share Repurchases
Moody's repurchased 0.5 million shares during the first quarter of
2004 at a total cost of $30.5 million. These shares partially offset
1.6 million shares issued under employee stock plans. Since becoming a
public company in September 2000 and through March 31, 2004, Moody's
has repurchased 23.5 million shares at a total cost of $911.6 million,
including 9.8 million shares to offset shares issued under employee
stock plans.
Outlook for Full Year 2004
Moody's outlook for 2004 is based on assumptions about many
macroeconomic and capital market factors, including interest rates,
consumer spending, corporate profitability and business investment
spending and capital markets issuance activity. There is an important
degree of uncertainty surrounding these assumptions and, if actual
conditions differ from these assumptions, Moody's results for the year
may differ significantly from the outlook presented in this press
release.
In the U.S. a number of key interest rates - including benchmark
30-year residential mortgage rates and 10-year Treasury rates - are
now above their averages for the first quarter of the year. We expect
U.S. interest rates will continue to increase for the remainder of
2004. We believe higher rates will discourage the use of debt to fund
any recovery in business investment spending, and will result in lower
issuance in the investment grade segment of the U.S. corporate bond
market in 2004 compared to 2003. We anticipate modest growth in high
yield issuance for the year despite exceptionally strong issuance in
the first quarter. For 2004 we expect corporate finance and financial
institutions ratings revenue to grow modestly versus 2003, with the
benefits of new products, particularly our Enhanced Analysis
Initiative, and stronger than anticipated high yield issuance
partially offsetting the impact of lower investment grade issuance.
In the U.S. structured finance market, we think higher mortgage
rates will result in a decline in revenue from rating residential
mortgage-backed securities in 2004. This decline may be less than we
had originally forecast as a result of the first quarter's robust
activity and continued strength in the housing market entering the
second quarter. We expect good growth in the commercial
mortgage-backed securities and credit derivatives segments of the U.S.
ratings business after strong starts to the year. In public finance,
we expect a year-to-year revenue decline in the mid-teens percent, as
higher interest rates should slow the pace of refinancings and "new
money" issuance. We continue to expect strong growth in the research
business. These expectations should produce low single digit U.S.
ratings and research revenue growth for the year.
Outside the U.S. we continue to expect low double digit percent
revenue growth in the corporate and financial institutions ratings
businesses. We are also projecting good year-over-year revenue growth
for international structured finance ratings with strong growth in
non-CDO European asset classes and in Asian structured finance
offsetting slower growth in European CDOs due to tighter spreads. We
also expect the strong growth in research revenue in the first quarter
to continue. These expectations should produce approximately 20%
international ratings and research revenue growth in 2004. Finally, we
continue to expect mid to high teens percent revenue growth at Moody's
KMV on a global basis.
Moody's expenses for 2004 will likely reflect continued investment
spending to improve and increase the transparency of our ratings
practices, for technology initiatives and product development, and for
continued hiring to support growth areas of the business. We will
continue to invest in the Enhanced Analysis Initiative. Moody's
expects the operating margin before the impact of expensing
stock-based compensation to be flat to 100 basis points lower in 2004
compared with 2003. This reflects the investments we are making and
the faster growth of the lower margin MKMV business for the rest of
the year.
Overall for 2004, Moody's expects that year-over-year growth in
revenue and diluted earnings per share will be in the high single
digit percent range. The expected growth in earnings per share
excludes the impacts of the insurance gain and the legacy tax reserve
increase in 2003, and the impact of expensing stock-based compensation
in both years. The impact of stock-based compensation expense is
expected to be approximately $0.10 - $0.11 per share in 2004 compared
with $0.04 per share in 2003.
Moody's Corporation (NYSE: MCO) is the parent company of Moody's
Investors Service, a leading provider of credit ratings, research and
analysis covering debt instruments and securities in the global
capital markets, and Moody's KMV, a leading provider of market-based
quantitative services for banks and investors in credit-sensitive
assets serving the world's largest financial institutions. The
corporation, which employs nearly 2,300 employees in 18 countries, had
reported revenue of $1.2 billion in 2003. Further information is
available at www.moodys.com.
"Safe Harbor" Statement under the Private Securities Litigation
Reform Act of 1995
Certain statements contained in this release are forward-looking
statements and are based on future expectations, plans and prospects
for Moody's business and operations that involve a number of risks and
uncertainties. The forward-looking statements and other information
are made as of April 28, 2004, and the Company disclaims any duty to
supplement, update or revise such statements on a going-forward basis,
whether as a result of subsequent developments, changed expectations
or otherwise. In connection with the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995, the Company is
identifying certain factors that could cause actual results to differ,
perhaps materially, from those indicated by these forward-looking
statements. Those factors include, but are not limited to, changes in
the volume of debt securities issued in domestic and/or global capital
markets; changes in interest rates and other volatility in the
financial markets; possible loss of market share through competition;
introduction of competing products or technologies by other companies;
pricing pressures from competitors and/or customers; the potential
emergence of government-sponsored credit rating agencies; proposed
U.S., foreign, state and local legislation and regulations, including
those relating to Nationally Recognized Statistical Rating
Organizations; possible judicial decisions in various jurisdictions
regarding the status of and potential liabilities of rating agencies;
the possible loss of key employees to investment or commercial banks
or elsewhere and related compensation cost pressures; the outcome of
any review by controlling tax authorities of the Company's global tax
planning initiatives; the outcome of those tax and legal contingencies
that relate to Old D&B, its predecessors and their affiliated
companies for which the Company has assumed portions of the financial
responsibility; the outcome of other legal actions to which the
Company, from time to time, may be named as a party; the ability of
the Company to successfully integrate the KMV and MRMS businesses; a
decline in the demand for credit risk management tools by financial
institutions; and other risk factors as discussed in the Company's
Annual Report on Form 10-K for the year ended December 31, 2003 and in
other filings made by the Company from time to time with the
Securities and Exchange Commission.
Moody's Corporation
Consolidated Statements of Operations (Unaudited)
Three Months Ended
March 31,
------------------
2004 2003
Amounts in millions, except per share amounts
- ----------------------------------------------------------------------
Revenue $331.2 $278.2
- ----------------------------------------------------------------------
Expenses
Operating, selling, general and administrative
expenses 140.0 121.3
Depreciation and amortization 8.3 7.8
------------------
Total expenses 148.3 129.1
- ----------------------------------------------------------------------
Operating income 182.9 149.1
- ----------------------------------------------------------------------
Interest and other non-operating (expense) income,
net (5.0) 8.0
Income before provision for income taxes 177.9 157.1
Provision for income taxes 74.4 65.2
- ----------------------------------------------------------------------
Net income $103.5 $91.9
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Earnings per share
Basic $0.69 $0.62
Diluted $0.68 $0.61
- ----------------------------------------------------------------------
Weighted average number of shares outstanding
Basic 149.1 148.1
Diluted 153.1 151.5
- ----------------------------------------------------------------------
Moody's Corporation
Supplemental Revenue Information (Unaudited)
Three Months Ended
March 31,
------------------
Amounts in millions 2004 2003
- ----------------------------------------------------------------------
Moody's Investors Service
Structured finance $113.0 $97.8
Corporate finance 76.3 61.4
Financial institutions and sovereign risk 52.5 45.7
Public finance 20.1 19.8
-------- --------
Total ratings revenue 261.9 224.7
Research 40.5 28.7
-------- --------
Total Moody's Investors Service 302.4 253.4
Moody's KMV 28.8 24.8
-------- --------
Total revenue $331.2 $278.2
- ----------------------------------------------------------------------
Revenue by geographic area (a)
United States $211.9 $179.5
International 119.3 98.7
-------- --------
Total revenue $331.2 $278.2
- ----------------------------------------------------------------------
(a) Certain prior year amounts have been reclassified to conform to
the current presentation.
Moody's Corporation
Reconciliation to Non-GAAP Financial Measures (Unaudited)
Twelve Months Ended
December 31, 2003
-----------------------------------
Amounts in millions, except
per share amounts
Non-GAAP
As Financial
Reported Adjustments Measures
--------- ----------- ---------
Revenue $1,246.6 $1,246.6
Expenses 583.5 (10.5) (a) 573.0
--------- ----------- ---------
Operating income 663.1 10.5 673.6
Interest and other non-operating
expense, net (6.7) (13.6) (b) (20.3)
--------- ----------- ---------
Income before provision for income
taxes 656.4 (3.1) 653.3
Provision for income taxes 292.5 (17.5) (c) 275.0
--------- ----------- ---------
Net income $363.9 $14.4 $378.3
--------- ----------- ---------
Basic earnings per share $2.44 $2.54
--------- ---------
Diluted earnings per share $2.39 $2.48
--------- ---------
- ----------------------------------------------------------------------
In addition to its reported results, Moody's has included in the table
above adjusted results that the Securities and Exchange Commission
defines as "non-GAAP financial measures." Management believes that
such non-GAAP financial measures, when read in conjunction with the
company's reported results, can provide useful supplemental
information for investors analyzing period to period comparisons of
the company's growth. The table above shows Moody's results for the
year ended December 31, 2003, adjusted to reflect the following:
(a) To exclude operating expenses of $10.5 million relating to the
expensing of stock options and other stock-based compensation on a
prospective basis for options and other stock awards granted on or
after January 1, 2003.
(b) To exclude a non-operating gain of $13.6 million on an insurance
recovery related to the September 11th tragedy, which was recorded
in the first quarter of 2003.
(c) To reflect income tax impacts related to the adjustments described
in notes (a) and (b) and to exclude $16.2 million of income tax
provisions in the fourth quarter of 2003 related to reserves for
legacy tax exposures.
CONTACT: Moody's Corporation
Michael Courtian
Vice President
Investor Relations and Corporate Finance
(212) 553-7194
michael.courtian@moodys.com