Exhibit 99.1
Moody's Corporation Reports Results for First Quarter of 2006
NEW YORK--(BUSINESS WIRE)--April 26, 2006--Moody's Corporation
(NYSE:MCO) today announced results for the first quarter of 2006.
Summary of Results for First Quarter 2006
Moody's reported revenue of $440.2 million for the three months
ended March 31, 2006, an increase of 13% from $390.5 million for the
same quarter of 2005. Operating income for the quarter was $238.3
million and rose 12% from $212.5 million for the same period of last
year. Diluted earnings per share were $0.49 for the first quarter of
2006, 26% higher than $0.39 in the first quarter of 2005. Earnings for
the quarter included $13.9 million of expense related to stock options
and other stock-based compensation plans, equivalent to $0.03 per
diluted share. Earnings for the prior year period reflected $16.9
million of expense related to stock options and other stock-based
compensation plans, or $0.03 per diluted share, including $9.1
million, or $0.02 per share, related to the accelerated expensing of
equity grants for employees at or approaching retirement eligibility.
Results for the first quarter of 2006 included an income tax benefit
of $0.9 million related to contingent legacy income tax matters 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. Results for the first quarter of
2005 included a tax charge of $2.7 million, equivalent to $0.01 per
diluted share, related to these legacy tax matters.
Raymond McDaniel, Chairman and Chief Executive Officer, commented,
"Moody's reported solid results for the first quarter of 2006 against
a backdrop of rising interest rates. As expected, revenue declined or
grew slowly in several units of our business that are sensitive to
lower securities issuance volumes. This was offset by good growth in
other units where issuance was strong or that are less volume
sensitive, including annual fees from issuers and subscription fees
for research and related products. Overall, we continue to believe
that Moody's can generate results for the remainder of 2006 in-line
with our outlook from the beginning of this year."
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 first quarter of both 2006
and 2005 before adjustments for legacy income tax exposures; and (2)
presenting results for the first quarter of both 2006 and 2005 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 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 first quarter
results for 2006 and 2005 to arrive at non-GAAP financial measures
excluding the impacts noted above.
First Quarter Revenue
Revenue at Moody's Investors Service for the first quarter of 2006
was $407.9 million, an increase of 13% 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 190 basis points and
operating income growth by a similar amount. Ratings revenue totaled
$347.1 million in the quarter, rising 13% from a year ago. Research
revenue of $60.8 million was 18% higher than in the first quarter of
2005.
Within the ratings business, global structured finance revenue
totaled $175.5 million for the first quarter of 2006, an increase of
27% from a year earlier. U.S. structured finance revenue rose 29%,
driven by broad-based growth and particularly strong increases from
rating commercial mortgage-backed securities and credit derivatives,
and the continuation of strong growth from residential mortgage-backed
securities. International structured finance revenue rose 21%, also
benefiting from exceptional growth in the commercial mortgage-backed
securities unit and strong growth in the credit derivatives business.
Global corporate finance revenue of $86.1 million in the first
quarter of 2006 rose 6% from the same quarter of 2005. Revenue in the
U.S. rose 6% from the prior year period reflecting very strong growth
in rating fees related to investment grade securities, partially
offset by a significant decline in high yield bond and bank loan
revenue. Outside the U.S., corporate finance revenue increased 7%. As
in the U.S. market, revenue from investment grade issuance in Europe
was strong and was partially offset by weaker performance in the
speculative grade bond business due to a decline in transaction
volumes.
Global financial institutions and sovereigns revenue totaled $65.9
million for the first quarter of 2006 and was essentially unchanged
from the prior year period. Revenue for the quarter reflects the
deferral of approximately $6 million related to certain frequent
issuers whose fees will be recognized over their annual contractual
period. Excluding the impact of this deferral, financial institutions
revenue in the U.S. would have risen 17% based on good growth in all
sectors of the business and particularly robust growth from non-bank
finance companies. Outside the U.S., revenue rose 4% before the
deferral, reflecting modest growth from banks and a decline from
insurers.
U.S. public finance revenue was $19.6 million for the first
quarter of 2006, 16% lower than in the first quarter of 2005,
reflecting an expected decrease in refundings and a modest decline in
new money issuance.
Moody's global research revenue rose to $60.8 million, up 18% from
the same quarter of 2005. The quarter's growth was driven by higher
revenue in each of Moody's research product groups and increases from
licensing Moody's data to third parties, selling data and analytic
tools, and providing credit training.
Revenue at Moody's KMV ("MKMV") for the first quarter of 2006 was
$32.3 million, 6% higher than in the first quarter of 2005. Revenue
from risk product subscriptions was essentially flat year-over-year
while revenue from the licensing of credit processing software and the
related software maintenance fees increased 28% and revenue from
professional services rose 18%.
Moody's U.S. revenue of $278.9 million for the first quarter of
2006 was up 15% from the first quarter of 2005. International revenue
of $161.3 million was 9% higher than in the prior year period and
included more than 450 basis points of negative impact from currency
translation. International revenue accounted for 37% of Moody's total
in the quarter compared with 38% in the year-ago period.
First Quarter Expenses
Moody's operating expenses were $201.9 million in the first
quarter of 2006, 13% higher than in the prior year period. This
increase was driven primarily by higher personnel costs. The quarter's
stock-based compensation expense was $13.9 million compared with $16.9
million in the 2005 period, which included $9.1 million related to the
accelerated expensing of equity grants for employees at or approaching
retirement eligibility. Moody's operating margin for the first quarter
of 2006 was 54%, essentially unchanged from the prior year period.
First Quarter Effective Tax Rate
Moody's effective tax rate was 39.5% for the first quarter of 2006
compared with 42.7% for the prior year period. Excluding the impacts
of changes for legacy tax matters, the tax rate for the first quarter
of 2006 was 39.9% compared to 41.4% for the prior year period. The
decrease was due primarily to the favorable settlement of state tax
audits.
Share Repurchases
During the first quarter of 2006, Moody's repurchased 3.1 million
shares at a total cost of $201.8 million and issued 3.7 million shares
of stock under employee stock compensation plans. Since becoming a
public company in October 2000 and through March 31, 2006, Moody's has
repurchased 69.5 million shares at a total cost of $1.996 billion,
including 35.8 million shares to offset shares issued under employee
stock plans. At quarter-end, Moody's had $654.1 million of share
repurchase authority remaining under the current $1 billion program.
Assumptions and 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 and securitization levels. 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 continue to project revenue growth in the
high single-digit to double-digit percent range for the full year
2006. This assumes a modest negative impact from foreign currency
translation which, at rates currently prevailing between the U.S.
dollar and other major currencies, would result in a smaller reduction
in the revenue growth rate for the full year 2006 than for the
quarter. 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 continue to project year-over-year growth in non-GAAP
diluted earnings per share in the low double-digit percent range. This
growth forecast excludes the impacts of adjustments related to legacy
tax matters in 2005 and 2006, and the expensing of stock-based
compensation in both 2005 and 2006. This year represents the final
year of "phasing in" of expense related to stock-based compensation,
which we began in 2003. The impact of expensing stock-based
compensation is expected to be in the range of $0.13 - $0.15 per
diluted share in 2006, compared to $0.10 per diluted share in 2005.
In the U.S., we continue to forecast 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 continue to project a high teens
year-over-year percent decline 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 revenue growth in most other asset classes, including
modestly higher expectations than at the beginning of the year for
revenue from credit derivatives and commercial mortgage-backed
securities.
In the U.S. corporate finance business, we now expect revenue
growth in the high single-digit percent range for the year, down from
our previous expectation of low double-digit percent growth largely
due to lower expected transaction volume in the speculative grade bond
sector.
In the U.S. financial institutions sector, we now expect revenue
to grow in the high single to low double-digit percent range for the
year as new ratings mandates and fee increases partly related to our
Enhanced Analysis Initiative should more than offset the impact of
lower revenue related to issuance volumes and the revenue deferral
discussed above.
For the U.S. public finance sector, we continue to forecast
revenue for 2006 declining in the mid-single-digit percent range as
rising interest rates should slow refinancing activity. We continue to
expect strong growth in the U.S. research business at about twenty
percent.
Outside the U.S. we still expect ratings revenue to grow in the
low teens percent range. This forecast assumes that foreign currency
translation rates will reduce international revenue growth by
approximately 160 basis points for the year. In addition, our outlook
assumes low and mid-teens percentage growth in corporate finance
revenue from Europe and Asia, respectively. For the financial
institutions business we expect to see mid- to high single-digit
percent revenue growth in Europe 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, 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, and Moody's Economy.com, a provider of economic research
and data services. 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.
Moody's Corporation
Consolidated Statements of Operations (Unaudited)
Three Months Ended
March 31,
-------------------
2006 2005
Amounts in millions, except per share amounts
- ----------------------------------------------------------------------
Revenue $ 440.2 $ 390.5
- ----------------------------------------------------------------------
Expenses
Operating, selling, general and administrative
expenses 192.5 169.4
Depreciation and amortization 9.4 8.6
--------------------
Total expenses 201.9 178.0
- ----------------------------------------------------------------------
Operating income 238.3 212.5
- ----------------------------------------------------------------------
Interest and other non-operating income
(expense), net 3.4 (5.2)
Income before provision for income taxes 241.7 207.3
Provision for income taxes 95.5 88.6
- ----------------------------------------------------------------------
Net income $ 146.2 $ 118.7
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
Earnings per share (a)
Basic $ 0.50 $ 0.40
Diluted $ 0.49 $ 0.39
- ----------------------------------------------------------------------
Weighted average number of shares outstanding (a)
Basic 290.5 299.0
Diluted 299.5 306.1
- ----------------------------------------------------------------------
(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 Ended
March 31,
--------------------
Amounts in millions 2006 2005
- ----------------------------------------------------------------------
Moody's Investors Service (a)
Structured finance $ 175.5 $ 138.6
Corporate finance 86.1 80.9
Financial institutions and sovereign risk 65.9 65.7
Public finance 19.6 23.2
-------- --------
Total ratings revenue 347.1 308.4
Research 60.8 51.5
-------- --------
Total Moody's Investors Service 407.9 359.9
Moody's KMV (a) 32.3 30.6
-------- --------
Total revenue $ 440.2 $ 390.5
- ----------------------------------------------------------------------
Revenue by geographic area
United States $ 278.9 $ 242.1
International 161.3 148.4
-------- --------
Total revenue $ 440.2 $ 390.5
- ----------------------------------------------------------------------
(a) Certain prior year amounts have been reclassified to conform to
the current year presentation.
Moody's Corporation
Selected Consolidated Balance Sheet Data (Unaudited)
March 31, 2006 December 31, 2005
-------------- -----------------
Amounts in millions
Cash and cash equivalents $ 495.9 $ 486.0
Short-term investments 109.1 94.5
Total current assets 1,062.8 1,051.8
Non-current assets 439.6 405.4
Total assets 1,502.4 1,457.2
Total current liabilities 550.1 578.9
Notes payable 300.0 300.0
Other long-term liabilities 270.1 268.9
Shareholders' equity 382.2 309.4
Total liabilities and shareholders'
equity $ 1,502.4 $ 1,457.2
Shares outstanding 290.8 290.3
Moody's Corporation
Reconciliation to Non-GAAP Financial Measures (Unaudited)
Three Months Ended Three Months Ended
March 31, 2006 March 31, 2005
------------------------------ ------------------------------
Amounts in millions,
except per share amounts
Non-GAAP Non-GAAP
As Financial As Financial
Reported Adjustments Measures* Reported Adjustments Measures*
-------- ----------- --------- -------- ----------- ---------
Revenue $ 440.2 $ 440.2 $ 390.5 $ 390.5
Expenses 201.9 (13.9)(a) 188.0 178.0 (16.9)(a) 161.1
------- ------ ------- ------- ------ -------
Operating
income 238.3 13.9 252.2 212.5 16.9 229.4
Interest
and other
non-
operating
income
(expense),
net 3.4 3.4 (5.2) - (5.2)
------- ------ ------- ------- ------ -------
Income before
provision
for income
taxes 241.7 13.9 255.6 207.3 16.9 224.2
Provision
for
income
taxes 95.5 6.3(b) 101.8 88.6 4.2(b) 92.8
------- ------ ------- ------- ------ -------
Net
income $ 146.2 $ 7.6 $ 153.8 $ 118.7 $ 12.7 $ 131.4
------- ------ ------- ------- ------ -------
Basic
earnings
per
share $ 0.50 $ 0.53 $ 0.40 $ 0.44
------- ------- ------- -------
Diluted
earnings
per
share $ 0.49 $ 0.51 $ 0.39 $ 0.43
------- ------- ------- -------
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 ended March 31, 2006 and 2005, adjusted to reflect the
following:
(a) To exclude operating expenses of $13.9 million in the first
quarter of 2006 relating to the expensing of stock-based
compensation based on the implementation of SFAS No. 123R on
January 1, 2006 and $16.9 million of stock-based compensation
expense in the first quarter of 2005 as determined on a
prospective basis for 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 an income tax benefit of $0.9
million and a tax charge of $2.7 million in the first quarters of
2006 and 2005, respectively, related to legacy tax exposures.
* May not add due to rounding.
Moody's Corporation
Reconciliation to Non-GAAP Financial Measures (Unaudited)
Twelve Months Ended
December 31, 2005
----------------------------------------
Amounts in millions, except
per share amounts
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 income
(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
year ended December 31, 2005, adjusted to reflect the following:
(a) To exclude operating expenses of $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 related to legacy tax exposures for the full year
2005.
* May not add due to rounding.
"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 26, 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, 2005 and in
other filings made by the Company from time to time with the
Securities and Exchange Commission.
CONTACT: Moody's Corporation
Michael Courtian, 212-553-7194
michael.courtian@moodys.com