Exhibit 99.1
Moody's Corporation Reports Results for Fourth Quarter and Full Year 2005
NEW YORK--(BUSINESS WIRE)--Feb. 3, 2006--Moody's Corporation
(NYSE:MCO) today announced results for the fourth quarter and full
year 2005. Please note that all prior period per share amounts
referred to in this press release have been adjusted for the 2-for-1
stock split, which became effective in the second quarter of 2005.
Summary of Results for Fourth Quarter 2005
Moody's reported revenue of $473.2 million for the three months
ended December 31, 2005, an increase of 21% from $391.6 million for
the same quarter of 2004. Operating income for the quarter was $242.4
million and rose 18% from $206.2 million for the same period of last
year. Diluted earnings per share were $0.50 for the fourth quarter of
2005, 25% higher than $0.40 in the fourth quarter of 2004. Operating
income and earnings for the quarter included $12.3 million of expense
related to stock options and other stock-based compensation plans,
equivalent to $0.02 per diluted share compared with $8.7 million of
expense, or $0.02 per diluted share, for the prior year period.
Results for the fourth quarter of 2004 included charges of $1.6
million, equivalent to $0.01 per diluted share, related to legacy
income tax exposures that Moody's assumed in connection with its
separation from The Dun & Bradstreet Corporation in 2000 and which are
described in Moody's annual and quarterly SEC filings.
Raymond McDaniel, Chairman and Chief Executive Officer of Moody's,
commented, "I am pleased to announce that Moody's financial
performance for the fourth quarter and full year 2005 topped our
previous record performance for the same periods in 2004. We generated
good revenue growth in each of our major business lines including two
- - U.S. structured finance and public finance - where our outlook and
consensus forecasts at the start of the year suggested that market
conditions would be notably weaker than they ultimately were. For 2006
we face a similar situation, with divergent market opinions on how
important segments of the debt markets will perform. Nonetheless, we
believe Moody's market position and revenue diversity can support
reasonable growth even if conditions in some market segments become
less favorable."
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 full year 2005, and the
fourth quarter and full year 2004, before adjustments for legacy
income tax exposures; and (2) presenting results for the fourth
quarter and full year of both 2005 and 2004 before the impact of
expensing stock-based compensation, which is being phased in over a
four year period for stock awards commencing in 2003. In addition, the
2006 outlook presented below includes a discussion of projected 2006
diluted earnings per share growth excluding the impact of the 2005
reserve adjustments related to legacy income tax exposures and the
impact of expensing stock-based compensation. Attached to this
earnings release are tables showing adjustments to Moody's fourth
quarter and full year results for 2005 and 2004 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
2005 was $437.7 million, an increase of 22% from the prior year
period. Foreign currency translation negatively impacted operating
results, mainly due to the strength of the U.S. dollar relative to the
euro, reducing revenue growth by approximately 170 basis points and
operating income growth by approximately 120 basis points. Ratings
revenue totaled $380.6 million in the quarter, rising 22% from a year
ago. Research revenue of $57.1 million was 24% higher than in the
fourth quarter of 2004.
Within the ratings business, global structured finance revenue
totaled $210.1 million for the fourth quarter of 2005, an increase of
36% from a year earlier. U.S. structured finance revenue rose 43%,
driven by strong growth in a number of ratings segments including
residential and commercial mortgage-backed securities, credit
derivatives, and asset-backed securities. International structured
finance revenue rose 24%, also benefiting from strong growth in the
residential and commercial mortgage-backed securities businesses.
Global corporate finance revenue of $85.1 million in the fourth
quarter of 2005 rose 3% from the same quarter of 2004. Revenue in the
U.S. rose 1% from the prior year period reflecting lower issuance of
investment grade and speculative grade securities offset by higher
fees from the Enhanced Analysis Initiative. Outside the U.S.,
corporate finance revenue increased 7% due, in part, to new rating
relationships in Europe partly offset by weak issuance in Asia Pacific
outside Japan.
Global financial institutions and sovereigns revenue totaled $64.9
million for the fourth quarter of 2005, increasing 19% from the prior
year period. Revenue in the U.S. rose 17% based on good growth in
issuance in the banking, finance and securities sectors. New mandates
for ratings from finance and securities firms also contributed to the
U.S. revenue growth. Outside the U.S., revenue rose 21% reflecting
continued strong issuance in the banking sector in Europe and a
pick-up in issuance in Asia.
U.S. public finance revenue was $20.5 million for the fourth
quarter of 2005, 3% higher than in the fourth quarter of 2004. This
reflected an increase in long-term issuance as issuers continued to
take advantage of low long-term interest rates and the narrow spread
between long and short-term rates, which has been favorable for
advance refundings.
Moody's global research revenue rose to $57.1 million, up 24% from
the same quarter of 2004. This growth reflects strong increases in
each of Moody's research product segments, including core research
services, licensing of Moody's data to third parties, and sales of
data and analytic tools.
Revenue at Moody's KMV ("MKMV") for the fourth quarter of 2005 was
$35.5 million, 4% higher than in the fourth quarter of 2004. Revenue
from risk product subscriptions rose 5% and revenue from the licensing
of credit processing software and the related software maintenance
fees increased by 29% from the prior year. These increases were
partially offset by a decline in revenue from professional services.
Moody's U.S. revenue of $294.5 million for the fourth quarter of
2005 was up 23% from the fourth quarter of 2004. International revenue
of $178.7 million was 18% higher than in the prior year period and
reflected approximately 400 basis points of negative impact from
currency translation. International revenue accounted for 38% of
Moody's total in the quarter compared with 39% in the year-ago period.
Fourth Quarter Expenses
Moody's operating expenses were $230.8 million in the fourth
quarter of 2005, 24% higher than in the prior year period. The higher
2005 expense is primarily related to higher personnel costs, and
includes the phasing-in commencing January 2003 of expense related to
annual stock awards over the current four-year stock plan vesting
period. The quarter's stock-based compensation expense was $12.3
million compared with $8.7 million in the 2004 period. The quarter's
expenses also included a $6 million grant to the Moody's Foundation,
which carries out philanthropic activities on behalf of Moody's
Corporation, compared with a $7 million grant in the prior year
period. Moody's operating margin for the fourth quarter of 2005 was
51% compared with 53% for the same period last year.
Fourth Quarter Effective Tax Rate
Moody's effective tax rate for the fourth quarter of 2005 was
38.5%. Excluding the impacts of changes in legacy tax reserves, the
tax rate for the fourth quarter of 2004 was 39.7%. The tax rate in the
fourth quarter of 2005 benefited from the impact of the American Jobs
Creation Act of 2004, which permitted Moody's a one-time opportunity
to repatriate funds at a lower tax rate in 2005 than in 2004.
Full Year 2005 Results
Revenue for the full year 2005 totaled $1,731.6 million, an
increase of 20% from $1,438.3 million for the same period of 2004.
Operating income of $939.6 million was up 19% from $786.4 million for
the same period of 2004. Net income for the full year 2005 was $560.8
million, an increase of 32% from $425.1 million in the full year 2004.
Diluted earnings per share for the full year 2005 were $1.84, 31%
higher than $1.40 for the same period of 2004.
Diluted earnings per share for the full year 2005 included a
charge of $9.4 million, equivalent to $0.02 per diluted share, for the
settlement of sales tax matters related to Moody's operations in Japan
from 2000 through June 30, 2005, and an $8.8 million net reduction in
tax reserves, equivalent to $0.03 per diluted share, primarily related
to legacy income tax exposures. Results for the full year 2004
included legacy tax charges totaling $30 million, equivalent to $0.09
per diluted share. Moody's results for the full year 2005 also
included $54.8 million of expense related to stock options and other
stock-based compensation plans, or $0.10 per diluted share, compared
with $27.8 million of similar expense, or $0.05 per diluted share, in
the full year 2004.
Ratings and research revenue at Moody's Investors Service totaled
$1,598.9 million for the full year 2005, an increase of 21% from the
prior year period. For the year, the favorable impact of currency
translation contributed approximately 50 basis points to revenue
growth and added approximately 80 basis points to operating income
growth. Global ratings revenue was $1,383.6 million for the full year
2005, up 21% from $1,143.6 million in the same period of 2004 with
each of the global ratings business lines achieving year-over-year
growth. Research revenue rose to $215.3 million for the full year
2005, up 24% from the full year 2004. Finally, revenue at MKMV for the
full year 2005 totaled $132.7 million, 10% higher than in the prior
year period.
Share Repurchases
During the fourth quarter of 2005, Moody's repurchased 6.7 million
shares at a total cost of $363.4 million and issued 1.6 million shares
of stock under employee stock compensation plans. For the full year
2005 Moody's repurchased 13.5 million shares at a total cost of $691.7
million and issued 6.1 million shares under employee stock
compensation plans. Since becoming a public company in October 2000
and through December 31, 2005, Moody's has repurchased 66.4 million
shares at a total cost of $1.8 billion, including 32.1 million shares
to offset shares issued under employee stock plans. At quarter-end,
Moody's had $856 million of share repurchase authority remaining under
the current $1 billion program.
Outlook for Full Year 2006
Moody's outlook for 2006 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
borrowing and refinancing 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 our
current outlook.
For Moody's overall, we project revenue growth in the high
single-digit to double-digit percent range for the full year 2006,
including a small negative impact from foreign currency translation.
We expect the operating margin before the impact of expensing
stock-based compensation to decline by up to 100 basis points in 2006
compared with 2005. This reflects investments we are continuing to
make to expand internationally, improve our analytical processes,
pursue ratings transparency and compliance initiatives, introduce new
products and improve our technology infrastructure.
For 2006 we project year-over-year growth in non-GAAP diluted
earnings per share in the low double-digit percent range. This
expected growth excludes the impacts of reserve adjustments related to
legacy tax matters in 2005, and the expensing of stock-based
compensation in both 2005 and 2006. Please note that 2006 represents
the final year of "phasing" for our stock-based compensation, which we
began in 2003. The impact of expensing stock-based compensation is
expected to be in the range of $0.12 - $0.14 per diluted share in
2006, compared to $0.10 per diluted share in 2005.
In the U.S., we are forecasting mid-single-digit percent revenue
growth for the Moody's Investors Service ratings and research business
for the full year 2006. In the U.S. structured finance business, we
expect revenue for the year to rise modestly from the record level of
2005. We are projecting a high-teens percent decline from 2005 to 2006
in revenue from residential mortgage-backed securities, including home
equity securitization, and we note a divergence in market views about
the 2006 outlook for this business. Offsetting this expected decline,
we look for double-digit year-over-year growth in asset-backed
securities, credit derivatives, and commercial mortgage-backed
securities.
In the U.S. corporate finance business, we believe that modest
growth in investment grade issuance, gains in rated share of the
syndicated bank loan market, and incremental revenue from our Enhanced
Analysis Initiative and new products will more than offset expected
flat issuance in the speculative grade bond sector. Overall, we expect
revenue in the U.S. corporate finance business to grow in the low
double-digit percent range for the year.
In the U.S. financial institutions sector, we project issuance by
banks to increase slightly in 2006 compared with 2005 and issuance by
insurers and other financial institutions to be flat or down. However,
fee increases partly related to our Enhanced Analysis Initiative, as
well as expected new ratings mandates, should produce revenue growth
for the year in the low double-digit percent range.
For the U.S. public finance sector, we believe that rising
interest rates will slow refinancing activity and result in lower
issuance in 2006 than 2005. We forecast revenue for 2006 declining in
the mid-single-digit percent range from the prior year. We forecast
strong growth in the U.S. research business at about twenty percent.
Outside the U.S. we expect ratings revenue to grow in the
low-teens percent range with high single-digit to mid-teens percent
growth in all major business lines. This forecast assumes that foreign
currency translation rates will have a modest negative impact on
revenue growth for the year. In addition, our outlook assumes low- and
mid-teens percentage growth in corporate revenue in Europe and Asia,
respectively. For the financial institutions business we expect to see
high single-digit revenue growth in Europe, after a year of very
strong issuance in 2005, and low double-digit percent growth in Asia.
We look for low teens percentage growth in international structured
finance and about twenty percent growth in international research
revenue.
For Moody's KMV globally, we expect moderate growth in net sales
and revenue from credit risk assessment subscription products, credit
decision processing software, and professional services. This should
result in mid- to high-single-digit percent growth in revenue with
greater growth in profitability.
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 credit risk
processing and credit risk management products for banks and investors
in credit-sensitive assets serving the world's largest financial
institutions. The corporation, which reported revenue of $1.7 billion
in 2005, employs approximately 2,900 people worldwide and maintains
offices in 22 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 3, 2006, 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, 2004 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 Year Ended
Ended
December 31, December 31,
----------------- -------------------
2005 2004 2005 2004
Amounts in millions, except per
share amounts
- -------------------------------------------------- -------------------
Revenue $473.2 $391.6 $1,731.6 $1,438.3
- -------------------------------------------------- -------------------
Expenses
Operating, selling, general
and administrative expenses 221.7 176.6 756.8 617.8
Depreciation and amortization 9.1 8.8 35.2 34.1
------------------ -------------------
Total expenses 230.8 185.4 792.0 651.9
- -------------------------------------------------- -------------------
Operating income 242.4 206.2 939.6 786.4
- -------------------------------------------------- -------------------
Interest and other non-
operating income (expense),
net 1.5 (0.2) (4.9) (15.1)
Income before provision
for income taxes 243.9 206.0 934.7 771.3
Provision for income taxes 93.8 83.4 373.9 346.2
- -------------------------------------------------- -------------------
Net income $150.1 $122.6 $560.8 $425.1
- -------------------------------------------------- -------------------
- -------------------------------------------------- -------------------
Earnings per share(a)
Basic $0.51 $0.41 $1.88 $1.43
Diluted $0.50 $0.40 $1.84 $1.40
- -------------------------------------------------- -------------------
Weighted average number of
shares outstanding(a)
Basic 292.0 297.0 297.7 297.0
Diluted 300.9 305.4 305.6 304.7
- -------------------------------------------------- -------------------
(a) Prior period earnings per share and weighted average number of
shares outstanding have been adjusted to reflect the 2-for-1 stock
split.
Moody's Corporation
Supplemental Revenue Information (Unaudited)
Three Months Year Ended
Ended
December 31, December 31,
--------------- -------------------
Amounts in millions 2005 2004 2005 2004
- ----------------------------------------------- -------------------
Moody's Investors Service(a)
Structured finance $210.1 $154.0 $715.4 $551.8
Corporate finance 85.1 82.8 321.8 300.7
Financial institutions and
sovereign risk 64.9 54.5 254.6 208.9
Public finance 20.5 20.0 91.8 82.2
------- ------- ---------- --------
Total ratings revenue 380.6 311.3 1,383.6 1,143.6
Research 57.1 46.1 215.3 173.7
------- ------- ---------- --------
Total Moody's
Investors Service 437.7 357.4 1,598.9 1,317.3
Moody's KMV(a) 35.5 34.2 132.7 121.0
------- ------- ---------- --------
Total revenue $473.2 $391.6 $1,731.6 $1,438.3
- ----------------------------------------------- -------------------
Revenue by geographic area
United States $294.5 $240.3 $1,085.4 $911.2
International 178.7 151.3 646.2 527.1
------- ------- ---------- --------
Total revenue $473.2 $391.6 $1,731.6 $1,438.3
- ----------------------------------------------- -------------------
(a) Certain prior year amounts have been reclassified to conform to
current year presentation.
Moody's Corporation
Selected Consolidated Balance Sheet Data (Unaudited)
December 31, December 31,
2005 2004(1)
-------------- ----------------
Amounts in millions
Cash and cash equivalents $486.0 $606.1
Short-term investments 94.5 7.3
Total current assets 1,051.8 1,035.9
Non-current assets 405.4 353.4
Total assets 1,457.2 1,389.3
Total current liabilities(1) 558.5 550.5
Notes payable 300.0 300.0
Other long-term liabilities 268.9 221.3
Shareholders' equity 329.8 317.5
Total liabilities and shareholders'
equity $1,457.2 $1,389.3
Shares outstanding(2) 290.3 297.8
(1) Certain amounts have been reclassified to conform to the current
year presentation.
(2) Number of shares outstanding has been adjusted to reflect the 2-
for-1 stock split.
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** $0.41 $0.44
-------------- -----------
Diluted earnings per
share** $0.40 $0.42
-------------- -----------
- --------------------------------------------------------- ------------
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** $1.43 $1.59
-------------- ------------
Diluted earnings per
share** $1.40 $1.55
-------------- ------------
- --------------------------------------------------------- ------------
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 $1.6 million and $30.0
million of income tax provisions for the three months and year
ended December 31, 2004, respectively, related to reserves for
legacy tax exposures.
* May not add due to rounding.
** Prior period earnings per share amounts have been adjusted to
reflect the 2-for-1 stock split.
Moody's Corporation
Reconciliation to Non-GAAP Financial Measures (Unaudited)
Three Months Ended
December 31, 2005
----------------------------------------
Amounts in millions, except
per share amounts
Non-GAAP
As Financial
Reported Adjustments Measures*
--------------- ------------ -----------
Revenue $473.2 $473.2
Expenses 230.8 (12.3)(a) 218.5
-------------- -------- ----------
Operating income 242.4 12.3 254.7
Interest and other non-
operating income, net 1.5 - 1.5
-------------- -------- ----------
Income before provision for
income taxes 243.9 12.3 256.2
Provision for income taxes 93.8 4.8 98.6
-------------- -------- ----------
Net income $150.1 $7.5 $157.6
-------------- -------- ----------
Basic earnings per share $0.51 $0.54
-------------- ----------
Diluted earnings per share $0.50 $0.52
-------------- ----------
- ------------------------------------------- ------------ -----------
Twelve Months Ended
December 31, 2005
------------------------------------------
Amounts in millions, except
per share amounts
Non-GAAP Non-GAAP
As Financial
Reported Adjustments Measures*
--------------- ------------ -----------
Revenue $1,731.6 $1,731.6
Expenses 792.0 (54.8)(a) 737.2
--------------- --------- ------------
Operating income 939.6 54.8 994.4
Interest and other non-
operating expense, net (4.9) - (4.9)
--------------- --------- ------------
Income before provision for
income taxes 934.7 54.8 989.5
Provision for income taxes 373.9 30.3(b) 404.2
--------------- --------- ------------
Net income $560.8 $24.5 $585.3
--------------- --------- ------------
Basic earnings per share $1.88 $1.97
--------------- ------------
Diluted earnings per share $1.84 $1.92
--------------- ------------
- ----------------------------------------------------------------------
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, 2005,
adjusted to reflect the following:
(a) To exclude operating expenses of $12.3 million in the fourth
quarter of 2005 and $54.8 million for the full year 2005 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 impacts related to the adjustments
described in note (a) and to exclude $8.8 million of reductions in
tax reserves primarily related to legacy tax exposures for the
full year of 2005.
* May not add due to rounding.
CONTACT: Moody's Corporation
Michael Courtian, 212-553-7194
michael.courtian@moodys.com