Exhibit 99.1
Moody's Corporation Reports Results for Fourth Quarter and Full Year 2004
NEW YORK--(BUSINESS WIRE)--Feb. 16, 2005--Moody's Corporation
(NYSE:MCO) today announced results for the fourth quarter and full
year 2004.
Summary of Results for Fourth Quarter 2004
Moody's reported revenue of $391.6 million for the three months
ended December 31, 2004, an increase of 12% from $350.7 million for
the same quarter of 2003. The quarter's results reflected double-digit
percent year-to-year revenue growth in most lines of business.
Operating income for the quarter was $206.2 million and rose 17% from
$176.1 million for the same period of last year. Diluted earnings per
share for the fourth quarter of 2004 rose to $0.80, 43% higher than
$0.56 in the fourth quarter of 2003. Earnings per share for the fourth
quarter of 2004 included a charge of $1.6 million, equivalent to $0.01
per diluted share, related to legacy income tax exposures that were
assumed by Moody's in connection with its separation from Dun &
Bradstreet in 2000, which are described in Moody's annual and
quarterly SEC filings. Earnings per share for the fourth quarter of
2003 included a legacy income tax charge of $16.2 million, or $0.10
per share. In addition, earnings per share for the fourth quarter of
2004 included $8.7 million of pre-tax expense related to stock options
and other stock-based compensation plans, equivalent to $0.04 per
diluted share, compared with $2.8 million of similar expense, or $0.01
per diluted share, in the fourth quarter of 2003.
John Rutherfurd, Chairman and Chief Executive Officer of Moody's
said "Moody's results for the fourth quarter and full year 2004
reflect record revenue and profitability. We benefited from strong
conditions in a number of businesses including the U.S. residential
mortgage-backed and home equity securitization markets, which posted
strong year-over-year issuance gains. At the same time, we experienced
less favorable conditions in other markets including the U.S.
corporate market, where issuance declined. Overall, Moody's had a
strong year, which underscores the diversity of our business by
product and geography."
In addition to its reported results, Moody's has included 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 results for the fourth quarter and full year
2004 before charges related to legacy income tax exposures; (2)
presenting results for the full year 2003 before a non-recurring gain
on an insurance recovery and for the fourth quarter and full year 2003
before charges related to legacy income tax exposures; and (3)
presenting results for the fourth quarter and full year 2004 and 2003
before the impact of expensing stock-based compensation plans, which
is being phased in for annual stock option grants commencing in 2003
over the current four-year stock plan vesting period. In addition, the
2005 outlook presented below includes a discussion of projected 2005
earnings per share growth excluding the impact of the 2004 charges
related to legacy income tax exposures and the impact of expensing
stock-based compensation in 2005 and 2004. Attached to this earnings
release are tables showing adjustments to Moody's fourth quarter and
full year results for 2004 and 2003 to arrive at non-GAAP financial
measures excluding the impacts noted above.
Fourth Quarter Revenue
Revenue at Moody's Investors Service for the fourth quarter of
2004 was $354.9 million, an increase of 12% 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 and
had a smaller positive impact on operating income growth. Ratings
revenue totaled $310.3 million in the quarter, rising 10% from a year
ago. Research revenue of $44.6 million was 22% higher than in the
fourth quarter of 2003.
Within the ratings business, global structured finance revenue
totaled $151.2 million for the fourth quarter of 2004, an increase of
11% from a year earlier. Low double-digit percent revenue growth was
achieved both within and outside the U.S. Revenue from the residential
mortgage and home equity securitization sector of the U.S. structured
finance business continued to reflect unexpected strength, which is
not expected to persist. Moody's also benefited from robust activity
in commercial mortgage-backed securities and credit derivatives,
partially offset by weakness in asset-backed securities. Growth in
international structured finance revenue was driven primarily by
robust activity in European credit derivatives and asset-backed
securities. International structured finance revenue also benefited
from favorable foreign currency translation.
Global corporate finance revenue of $84.6 million in the fourth
quarter of 2004 rose 11% from the same quarter of 2003. Revenue in the
U.S. grew in the high teens percent range, reflecting strength in
rating bank loans and high yield bonds that offset the impact of a
significant decline in investment grade issuance. Outside the U.S.,
corporate finance revenue declined modestly from the prior year period
reflecting flat performance in Europe, and weakness in issuance in
Latin America and parts of Asia-Pacific. In Europe, despite an active
speculative grade market, corporate issuance declined more than 20%
compared with the strong prior year period, as improved profitability
reduced borrowing needs and mergers and acquisitions remained weak.
Global financial institutions and sovereigns revenue totaled $54.5
million for the fourth quarter of 2004, up 17% compared with the prior
year period. In the U.S., revenue growth reflected good issuance by
U.S. real estate investment companies and banks as spreads narrowed,
creating refinancing opportunities. In Europe, strong growth in new
rating relationships in banking more than offset the impact of lower
issuance volumes in some market segments, driving 26% revenue growth
in this sector over the prior year.
U.S. public finance revenue was $20.0 million for the fourth
quarter of 2004, 10% lower than in the fourth quarter of 2003. "New
money" issuance declined from the prior year reflecting reduced
borrowing needs as a result of improving tax receipts.
Moody's research revenue rose to $44.6 million, up 22% from the
same quarter of 2003. The continued strong growth reflected robust
demand for traditional credit research as well as good adoption of
newly-offered products that support clients' growing interest in
credit data and credit risk analysis tools.
Revenue at Moody's KMV ("MKMV") for the fourth quarter of 2004 was
$36.7 million, an increase of 11% from the fourth quarter of 2003.
MKMV generated double-digit percent revenue growth from credit risk
assessment products and credit processing software to support
commercial lending.
Moody's U.S. revenue of $240.3 million for the fourth quarter of
2004 was up 11% from the fourth quarter of 2003. International revenue
of $151.3 million was 13% higher than in the prior year period
including the favorable impact of currency translation. International
revenue accounted for 39% of Moody's total in the quarter, up from 38%
in the year-ago period.
Fourth Quarter Expenses
Moody's operating expenses were $185.4 million in the fourth
quarter of 2004, 6% higher than in the prior year period. Expenses for
the fourth quarter of 2004 included $8.7 million related to
stock-based compensation plans compared with $2.8 million in the
fourth 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 current four-year stock plan vesting period.
Expenses for the quarter also included a $7 million grant to the
Moody's Foundation, which carries out philanthropic activities on
behalf of Moody's Corporation, compared with a $6 million grant in the
prior year period. Moody's operating margin for the fourth quarter of
2004 was 52.7% compared with 50.2% in the fourth quarter of 2003.
Full Year 2004 Results
Revenue for the full year 2004 totaled $1,438.3 million, an
increase of 15% from $1,246.6 million for the same period of 2003.
Operating income of $786.4 million was up 19% from $663.1 million for
the prior year period. Currency translation accounted for
approximately 170 basis points of revenue growth and had a smaller
positive impact on operating income growth. Net income for the full
year 2004 was $425.1 million, an increase of 17% from $363.9 million
in the full year 2003. Diluted earnings per share for the full year
2004 were $2.79 compared with $2.39 for the full year 2003, an
increase of 18%.
Moody's results for the full year 2004 included charges totaling
$30.0 million related to legacy income tax exposures, equivalent to
$0.20 per diluted share. Moody's results for the full year 2003
included a $16.2 million legacy income tax charge, equivalent to $0.11
per diluted share, and a $13.6 million non-recurring gain on an
insurance recovery, equivalent to $0.05 per diluted share. In
addition, earnings per share for 2004 included $27.8 million of
expense related to stock options and other stock-based compensation
plans, equivalent to $0.11 per diluted share, compared with $10.8
million of similar expense, or $0.04 per diluted share, in 2003.
At Moody's Investors Service, global ratings revenue was $1,141.2
million for the full year 2004, up 13% from $1,007.8 million in the
previous year. Revenue grew in the double-digit percent range in the
global corporate finance, structured finance and financial
institutions businesses and declined year-to-year in U.S. public
finance. Research revenue rose to $169.5 million for the full year
2004, up 34% from 2003. Revenue at MKMV for the full year 2004 totaled
$127.6 million, 14% higher than in the prior year period.
Effective Tax Rate
Moody's effective tax rate for the fourth quarter of 2004 was
40.5% on a reported basis and 39.7% on a pro-forma basis, excluding
the $1.6 million of charges related to legacy income tax exposures.
The effective tax rate for the fourth quarter of 2003 was 50.6% on a
reported basis and 41.2% on a pro-forma basis, excluding the impact of
charges related to legacy income tax exposures. For the full year
2004, Moody's effective tax rate was 44.9% on a reported basis and
41.0% on a pro forma basis, compared with 44.6% and 42.1%,
respectively, in 2003. The year-over-year reduction in Moody's pro
forma tax rate principally reflected income growth in jurisdictions
with lower tax rates than New York.
Share Repurchases
Moody's issued 1.0 million shares of stock under employee
stock-based compensation plans during the fourth quarter of 2004, and
3.7 million shares for the full year 2004. During 2004, the company
repurchased 3.5 million shares at a cost of $221.3 million. Since
becoming a public company in September 2000 and through December 31,
2004, Moody's has repurchased 26.4 million shares at a total cost of
$1.1 billion, including 13.0 million shares to offset shares issued
under employee stock plans.
Outlook for Full Year 2005
Moody's outlook for the full year 2005 is based on assumptions
about many macroeconomic and capital market factors, including
interest rates, corporate profitability and business investment
spending, merger and acquisition activity, consumer spending,
residential mortgage refinance activity, securitization levels and
capital markets issuance. 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 from the
outlook presented in this press release.
In the U.S., we expect mid-single-digit percent revenue growth for
the ratings and research business for the full year 2005. In the U.S.
structured finance market, we expect that revenue from rating
residential mortgage and home equity securities will decline by
approximately twenty percent or more in 2005 from the record level of
2004. We expect good year-over-year growth in several other sectors of
U.S. structured finance, including asset-backed securities and credit
derivatives, and flat to modest growth in asset-backed commercial
paper and commercial mortgage-backed securities. Accordingly, for the
full year we expect a modest decline in U.S. structured finance
revenue. In the U.S. corporate finance business, we expect that modest
growth in investment-grade issuance and bank loan ratings, and revenue
from our enhanced analysis initiative, will offset relative weakness
in speculative-grade bond activity, resulting in high single-digit
percent growth in revenue. Flat issuance volume in the financial
institutions sector in the U.S. is expected to be offset by revenue
from our enhanced analysis initiative and new rating relationships,
allowing low double-digit percent growth in this sector in the U.S. in
2005. We expect a second consecutive year of modest year-to-year
revenue decline in U.S. public finance. We are also forecasting
continued strong growth in the U.S. research business.
Outside the U.S. we expect growth in ratings and research revenue
in the range of 20%, with double-digit percent growth in all major
business lines in almost all regions assisted by favorable foreign
currency impacts. Our projection assumes improved corporate issuance
in Europe after a relatively weak 2004, modest issuance growth in the
financial institutions sector and growth in several sectors of
structured finance in Europe and Japan. In addition, we expect
continued strong growth in international research revenue.
Finally, we continue to expect global revenue to rise in the
mid-teens percent range at Moody's KMV, reflecting good growth in both
credit risk assessment subscription products and credit processing
software products.
For Moody's overall, we expect high single-digit percent revenue
growth for the full year 2005 including the positive impact of
currency translation. We expect the operating margin before the impact
of expensing stock-based compensation to be down approximately 100
basis points in 2005 compared with 2004. This reflects slower revenue
growth in 2005 than in 2004 and investments we are continuing to make
in expanding geographically, improving our analytic processes,
pursuing ratings transparency and compliance initiatives in the
Moody's Investors Service business, introducing new products and
improving our technology. For 2005 we expect that year-over-year
growth in diluted earnings per share will be in the high single-digit
percent range. This expected growth excludes the impacts of the legacy
tax provisions in 2004 and the expensing of stock-based compensation
in 2004 and 2005. The impact of expensing stock-based compensation is
expected to be in the range of $0.18 - $0.20 per diluted share in
2005, compared to $0.11 per diluted share in 2004. The estimated 2005
impact excludes any effects of adopting Statement of Financial
Accounting Standards No. 123R, Share-Based Payment, which will be
effective as of July 1, 2005.
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 reported revenue of $1.4 billion in 2004, employs
approximately 2,500 people worldwide and maintains offices in 18
countries. 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 February 16, 2005, 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 Year Ended
December 31, December 31,
---------------- --------------------
2004 2003 2004 2003
Amounts in millions, except per
share amounts
- ------------------------------- -------- -------- ---------- ---------
Revenue $391.6 $350.7 $1,438.3 $1,246.6
- ------------------------------- -------- -------- ---------- ---------
Expenses
Operating, selling, general
and administrative expenses 176.6 165.8 617.8 550.9
Depreciation and
amortization 8.8 8.8 34.1 32.6
-------- -------- ---------- ---------
Total expenses 185.4 174.6 651.9 583.5
- ------------------------------- -------- -------- ---------- ---------
Operating income 206.2 176.1 786.4 663.1
- ------------------------------- -------- -------- ---------- ---------
Interest and other non-
operating expense, net (0.2) (3.1) (15.1) (6.7)
Income before provision
for income taxes 206.0 173.0 771.3 656.4
Provision for income taxes 83.4 87.5 346.2 292.5
- ------------------------------- -------- -------- ---------- ---------
Net income $122.6 $85.5 $425.1 $363.9
- ------------------------------- -------- -------- ---------- ---------
- ------------------------------- -------- -------- ---------- ---------
Earnings per share
Basic $0.83 $0.57 $2.86 $2.44
Diluted $0.80 $0.56 $2.79 $2.39
- ------------------------------- -------- -------- ---------- ---------
Weighted average number of
shares outstanding (a)
Basic 148.5 149.2 148.5 148.9
Diluted 152.7 153.3 152.3 152.3
- ------------------------------- -------- -------- ---------- ---------
(a) Certain prior year amounts have been reclassified to conform to
the current presentation.
Moody's Corporation
Supplemental Revenue Information (Unaudited)
Three Months Ended Year Ended
December 31, December 31,
---------------- --------------------
Amounts in millions 2004 2003 2004 2003
- -------------------------------- -------- ------- ---------- ---------
Moody's Investors Service
Structured finance $151.2 $135.8 $538.6 $460.6
Corporate finance 84.6 76.4 311.5 278.8
Financial institutions and
sovereign risk 54.5 46.6 208.9 181.2
Public finance 20.0 22.2 82.2 87.2
------- ------- --------- ---------
Total ratings revenue 310.3 281.0 1,141.2 1,007.8
Research 44.6 36.5 169.5 126.9
------- ------- --------- ---------
Total Moody's Investors
Service 354.9 317.5 1,310.7 1,134.7
Moody's KMV 36.7 33.2 127.6 111.9
------- ------- --------- ---------
Total revenue $391.6 $350.7 $1,438.3 $1,246.6
- -------------------------------- -------- ------- ---------- ---------
Revenue by geographic area (a)
United States $240.3 $216.7 $911.2 $795.3
International 151.3 134.0 527.1 451.3
------- ------- --------- ---------
Total revenue $391.6 $350.7 $1,438.3 $1,246.6
- -------------------------------- -------- ------- ---------- ---------
(a) Certain prior year amounts have been reclassified to conform to
current year presentation.
Moody's Corporation
Reconciliation to Non-GAAP Financial Measures (Unaudited)
Three Months Ended
December 31, 2003
----------------------------------
Amounts in millions, except per
share amounts
Non-GAAP
As Financial
Reported Adjustments Measures*
-------- ----------- ----------
Revenue $350.7 $350.7
Expenses 174.6 (2.8) (a) 171.8
-------- ----------- ----------
Operating income 176.1 2.8 178.9
Interest and other non-operating
expense, net (3.1) - (3.1)
-------- ----------- ----------
Income before provision for income
taxes 173.0 2.8 175.8
Provision for income taxes 87.5 (15.0) (b) 72.5
-------- ----------- ----------
Net income $85.5 $17.8 $103.3
-------- ----------- ----------
Basic earnings per share $0.57 $0.69
-------- ----------
Diluted earnings per share $0.56 $0.67
-------- ----------
- ----------------------------------------------------------------------
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 (10.8) (a) 572.7
--------- ----------- ---------
Operating income 663.1 10.8 673.9
Interest and other non-operating
expense, net (6.7) (13.6) (b) (20.3)
--------- ----------- ---------
Income before provision for income
taxes 656.4 (2.8) 653.6
Provision for income taxes 292.5 (17.4) (c) 275.1
--------- ----------- ---------
Net income $363.9 $14.6 $378.5
--------- ----------- ---------
Basic earnings per share $2.44 $2.54
--------- ---------
Diluted earnings per share $2.39 $2.49
--------- ---------
- ----------------------------------------------------------------------
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
three months and year ended December 31, 2003, adjusted to reflect the
following:
(a) To exclude operating expenses of $2.8 million in the fourth
quarter of 2003 and $10.8 million for the full year 2003 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.
* May not add due to rounding.
Moody's Corporation
Reconciliation to Non-GAAP Financial Measures (Unaudited)
Three Months Ended
December 31, 2004
---------------------------------
Amounts in millions, except per share
amounts
Non-GAAP
As Financial
Reported Adjustments Measures*
-------- ----------- ---------
Revenue $391.6 $391.6
Expenses 185.4 (8.7) (a) 176.7
-------- ----------- ---------
Operating income 206.2 8.7 214.9
Interest and other non-operating
expense, net (0.2) - (0.2)
-------- ----------- ---------
Income before provision for income
taxes 206.0 8.7 214.7
Provision for income taxes 83.4 2.0 (b) 85.4
-------- ----------- ---------
Net income $122.6 $6.7 $129.3
-------- ----------- ---------
Basic earnings per share $0.83 $0.87
-------- ---------
Diluted earnings per share $0.80 $0.85
-------- ---------
- ----------------------------------------------------------------------
Twelve Months Ended
December 31, 2004
----------------------------------
Amounts in millions, except per
share amounts
Non-GAAP
As Financial
Reported Adjustments Measures*
--------- ----------- ---------
Revenue $1,438.3 $1,438.3
Expenses 651.9 (27.8) (a) 624.1
--------- ----------- ---------
Operating income 786.4 27.8 814.2
Interest and other non-operating
expense, net (15.1) - (15.1)
--------- ----------- ---------
Income before provision for income
taxes 771.3 27.8 799.1
Provision for income taxes 346.2 (18.6) (b) 327.6
--------- ----------- ---------
Net income $425.1 $46.4 $471.5
--------- ----------- ---------
Basic earnings per share $2.86 $3.17
--------- ---------
Diluted earnings per share $2.79 $3.10
--------- ---------
- ----------------------------------------------------------------------
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
three months and year ended December 31, 2004, adjusted to reflect the
following:
(a) To exclude operating expenses of $8.7 million in the fourth
quarter of 2004 and $27.8 million for the full year 2004 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 reflect the income tax impact related to the adjustment
described in note (a) and to exclude $10.0 million, $18.4 million
and $1.6 million of income tax provisions in the second, third and
fourth quarters of 2004, respectively, related to reserves for
legacy tax exposures.
* May not add due to rounding.
CONTACT: Moody's Corporation
Michael Courtian, 212-553-7194
michael.courtian@moodys.com