Exhibit 99.1
Moody's Corporation Reports Results for the Third Quarter of 2006
NEW YORK--(BUSINESS WIRE)--Oct. 25, 2006--Moody's Corporation (NYSE: MCO)
today announced results for the third quarter of 2006.
Summary of Results for Third Quarter 2006
Moody's reported revenue of $495.5 million for the three months ended
September 30, 2006, an increase of 18% from $421.1 million for the same quarter
of 2005. Operating income for the quarter was $268.8 million and rose 16% from
$231.9 million for the same period of last year. Diluted earnings per share were
$0.55, 15% higher than $0.48 in the third quarter of 2005. Results for the
quarter included $20.0 million of expense related to stock options and other
stock-based compensation plans, equivalent to $0.04 per diluted share, compared
with $13.3 million, or $0.02 per share, in the prior-year period. Results for
the third quarter of 2005 also included an $11.5 million reduction to tax
reserves, equivalent to $0.04 per diluted share, related to legacy 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.
Raymond McDaniel, Moody's Chairman and Chief Executive Officer, commented,
"Moody's reported strong results for the third quarter of 2006 due largely to
better than expected performance from our U.S. and European structured finance
and corporate finance ratings businesses. Based on Moody's strong results for
the first nine months of 2006 we now believe that results for the full year 2006
will exceed our prior outlook."
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 third quarter of 2005 and the
first nine months of both 2006 and 2005 before adjustments for income tax
exposures related to 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; and (2)
presenting results for the third quarter and first nine months 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: legacy income
tax adjustments, the expensing of stock-based compensation, and any potential
gain on the sale of Moody's headquarters building. Attached to this earnings
release are tables showing adjustments to Moody's results for the third quarter
and first nine months of 2006 and 2005 to arrive at non-GAAP financial measures
excluding the impacts noted above.
Third Quarter Revenue
Revenue at Moody's Investors Service for the third quarter of 2006 was
$459.6 million, 19% greater than in the prior year period. Foreign currency
translation, mainly due to the weakness of the U.S. dollar relative to the euro,
increased revenue growth by approximately 50 basis points and had a minimal
impact on operating income growth.
Ratings revenue totaled $394.0 million in the quarter, rising 19% from a
year ago. Within the ratings business, global structured finance revenue totaled
$217.7 million for the third quarter of 2006, an increase of 25% from a year
earlier. U.S. structured finance revenue rose 18%, benefiting from very strong
growth from rating credit derivatives and higher revenue from rating residential
mortgage-backed securities, which more than offset a year-over-year decline from
the asset-backed securities business. International structured finance revenue
rose 41%, benefiting from broad-based growth across the European business.
Global corporate finance revenue of $91.2 million in the third quarter of
2006 rose 17% from the same quarter of 2005. Revenue in the U.S. rose 20% from
the prior year period as robust growth from rating bank loans more than offset a
year-over-year decline in revenue from rating speculative grade bonds. Outside
the U.S., corporate finance revenue increased 13% driven by strong growth in
revenue from European investment grade ratings.
Global financial institutions and sovereigns revenue totaled $64.1 million
for the third quarter of 2006, 10% higher than in the prior year period. Revenue
increased 9% in the U.S. driven in part by new ratings mandates in the finance,
real estate and insurance sectors. Outside the U.S., revenue grew 10% based
largely on growth in issuer ratings for European banks.
U.S. public finance revenue was $21.0 million for the third quarter of
2006, 4% lower than in the third quarter of 2005, with an increase in new money
issuance more than offset by a sharp decrease in refundings.
Moody's global research revenue rose to $65.6 million, increasing 22% from
the same quarter of 2005. The quarter's results reflect higher revenue from
selling Moody's credit research, licensing Moody's data to third parties,
selling analytic tools, and providing credit training and economic research.
Revenue at Moody's KMV was $35.9 million for the quarter, up 3% from the
strong prior year period, which had benefited from several large one time
software and services sales.
Moody's U.S. revenue of $310.3 million for the third quarter of 2006 was up
16% from the third quarter of 2005. International revenue of $185.2 million was
20% higher than in the prior year period and included approximately 120 basis
points of positive impact from currency translation. International revenue
accounted for 37% of Moody's total in the quarter, unchanged from the year-ago
period.
Third Quarter Expenses
Moody's operating expenses were $226.7 million in the third quarter of
2006, 20% higher than in the prior year period. This increase was driven
primarily by higher personnel costs, various technology investments, and the
phase-in of equity-based compensation begun in 2003. The quarter's stock-based
compensation expense was $20.0 million compared with $13.3 million in the 2005
period. Moody's operating margin for the third quarter of 2006 was 54% compared
with 55% in the prior year period.
Third Quarter Effective Tax Rate
Moody's effective tax rate was 40.9% for the third quarter of 2006 compared
with 37.5% for the prior year. The increase in the effective tax rate was
largely due to a favorable IRS settlement of a legacy tax matter in the prior
year period.
Year-to-date Results
Revenue for the first nine months of 2006 totaled $1,447.1 million, an
increase of 15% from $1,258.4 million for the same period of 2005. Operating
income of $796.2 million was up 14% from $697.2 million for the same period of
2005. Currency translation had a negative impact on these results, reducing
revenue growth by approximately 50 basis points and operating income growth by
approximately 80 basis points. Diluted earnings per share for the first nine
months of 2006 were $1.61, 20% higher than the $1.34 for the prior year period.
Earnings per share for the first nine months of 2006 included $54.6 million
of expense related to stock options and other stock-based compensation plans, or
$0.12 per share, compared with $42.5 million of similar expense, or $0.08 per
share, for the first nine months of 2005. Results for the first nine months of
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.
Ratings and research revenue at Moody's Investors Service totaled $1,344.0
million for the first nine months of 2006, an increase of 16% from the prior
year period. Global ratings revenue was $1,154.7 million for the first nine
months of 2006, up 15% from $1,004.7 million in the same period of 2005.
Research revenue rose to $189.3 million for the first nine months of 2006, up
20% from the prior year period. Finally, revenue at Moody's KMV for the first
nine months of 2006 totaled $103.1 million, 8% higher than in the prior year
period.
Share Repurchases
During the third quarter of 2006, Moody's repurchased 2.9 million shares at
a total cost of $168 million, which more than offset less than 1 million shares
issued under employee stock compensation plans. Since becoming a public company
in October 2000 and through September 30, 2006, Moody's has repurchased 82.1
million shares at a total cost of $2.7 billion, including 37.5 million shares to
offset shares issued under employee stock plans. At quarter-end, Moody's had
approximately $1.9 billion of share repurchase authority remaining.
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.
Based on Moody's stronger than expected results for the first nine months
of 2006 we have made a number of revisions to our outlook for the full year
2006. For Moody's overall, we now project revenue growth in the low teens
percent range for the full year 2006. This assumes foreign currency translation
for the remainder of the year at current exchange rates, which would result in
no material full year impact from currency translation. We now expect the
operating margin before the impact of expensing stock-based compensation to be
flat to up 50 basis points in 2006 compared with 2005. Among other things, this
reflects our increased outlook for revenue and excludes any potential gain on
the sale of Moody's headquarters building. The margin outlook continues to
reflect investments we are making 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 high teens to low twenties percent range. This forecast excludes
the impacts of adjustments related to legacy tax matters in 2005 and 2006, the
expensing of stock-based compensation in 2005 and 2006, and any potential gain
on the sale of Moody's headquarters building. 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 $0.15 - $0.17 per diluted share in 2006, compared to $0.10
per diluted share in 2005.
In the U.S., we forecast low to mid-teens 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
in the mid-teens percent range from the record level of 2005. We now expect
revenue from rating residential mortgage-backed securities (including home
equity securitizations) to be essentially flat compared with 2005. In addition,
we are expecting strong growth from rating credit derivatives and commercial
mortgage-backed securities.
In the U.S. corporate finance business, we expect revenue growth of
approximately twenty percent for the year including good growth from rated bonds
and bank loans.
In the U.S. financial institutions sector, we expect revenue to grow in the
low teens percent range for the year reflecting new entrants to the debt capital
markets and fee increases partly related to the Enhanced Analysis Initiative.
For the U.S. public finance sector, we expect revenue for 2006 to decline
in the double-digit percent range as rising interest rates should continue to
slow refinancing activity. We continue to expect strong growth in the U.S.
research business at better than 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 will have
no material impact on revenue growth for the year. Our outlook assumes mid-teens
to low twenties percent growth for all major business lines except financial
institutions, where we expect international revenue to be essentially flat.
Our outlook for Moody's KMV globally anticipates growth in net sales and
revenue from credit risk assessment subscription products, credit decision
processing software, and professional services. We continue to expect this will
result in 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 Nine Months Ended
September 30, September 30,
----------------- -------------------
2006 2005 2006 2005
Amounts in millions, except per
share amounts
- ------------------------------- -------- -------- --------- ---------
Revenue $495.5 $421.1 $1,447.1 $1,258.4
- ------------------------------- -------- -------- --------- ---------
Expenses
Operating, selling, general and
administrative expenses 216.9 180.4 622.4 535.1
Depreciation and amortization 9.8 8.8 28.5 26.1
-------- -------- --------- ---------
Total expenses 226.7 189.2 650.9 561.2
- ------------------------------- -------- -------- --------- ---------
Operating income 268.8 231.9 796.2 697.2
- ------------------------------- -------- -------- --------- ---------
Interest and other non-
operating (expense) income,
net (3.1) 2.7 1.0 (6.4)
Income before provision for
income taxes 265.7 234.6 797.2 690.8
Provision for income taxes 108.7 88.0 321.9 280.1
- ------------------------------- -------- -------- --------- ---------
Net income $157.0 $146.6 $ 475.3 $ 410.7
- ------------------------------- -------- -------- --------- ---------
- ------------------------------- -------- -------- --------- ---------
Earnings per share
Basic $ 0.56 $ 0.49 $ 1.66 $ 1.37
Diluted $ 0.55 $ 0.48 $ 1.61 $ 1.34
- ------------------------------- -------- -------- --------- ---------
Weighted average shares
outstanding
Basic 280.7 299.6 287.1 299.3
Diluted 287.9 307.7 294.9 306.8
- ------------------------------- -------- -------- --------- ---------
Moody's Corporation
Supplemental Revenue Information (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------- -------------------
Amounts in millions 2006 2005 2006 2005
- ------------------------------- --------- ------- --------- ---------
Moody's Investors Service (a)
Structured finance $217.7 $174.5 $ 611.0 $ 505.6
Corporate finance 91.2 77.7 285.1 238.1
Financial institutions and
sovereign risk 64.1 58.4 196.9 189.7
Public finance 21.0 21.9 61.7 71.3
--------- ------- --------- ---------
Total ratings revenue 394.0 332.5 1,154.7 1,004.7
Research 65.6 53.8 189.3 158.2
--------- ------- --------- ---------
Total Moody's Investors
Service 459.6 386.3 1,344.0 1,162.9
Moody's KMV (a) 35.9 34.8 103.1 95.5
--------- ------- --------- ---------
Total revenue $495.5 $421.1 $1,447.1 $1,258.4
- ------------------------------- --------- ------- --------- ---------
Revenue by geographic area
United States $310.3 $267.0 $ 917.3 $ 790.9
International 185.2 154.1 529.8 467.5
--------- ------- --------- ---------
Total revenue $495.5 $421.1 $1,447.1 $1,258.4
- ------------------------------- --------- ------- --------- ---------
(a) Certain prior year amounts have been reclassified to conform to
the current year presentation.
Moody's Corporation
Selected Consolidated Balance Sheet Data (Unaudited)
September 30, December 31,
2006 2005
-------------- -------------
Amounts in millions
Cash and cash equivalents $ 281.6 $ 486.0
Short-term investments 13.0 94.5
Total current assets 680.2 1,051.8
Non-current assets 475.0 405.4
Total assets 1,155.2 1,457.2
Total current liabilities 525.3 578.9
Notes payable 300.0 300.0
Other long-term liabilities 291.2 268.9
Shareholders' equity 38.7 309.4
Total liabilities and shareholders' equity $1,155.2 $1,457.2
Shares outstanding 279.8 290.3
Moody's Corporation
Reconciliation to Non-GAAP Financial Measures (Unaudited)
Three Months Ended
September 30, 2006
----------------------------------
Amounts in millions, except per
share amounts
Non-GAAP
As Financial
Reported Adjustments Measures*
--------- ----------- ------------
Revenue $495.5 $495.5
Expenses 226.7 (20.0) (a) 206.7
-------- ----------- ---------
Operating income 268.8 20.0 288.8
Interest and other non-operating
income (expense), net (3.1) (3.1)
-------- ----------- ---------
Income before provision for income
taxes 265.7 20.0 285.7
Provision for income taxes 108.7 7.7 (b) 116.4
-------- ----------- ---------
Net income $157.0 $12.3 $169.3
-------- ----------- ---------
Basic earnings per share $0.56 $0.60
-------- ---------
Diluted earnings per share $0.55 $0.59
-------- ---------
- --------------------------------------------- ----------- ------------
Three Months Ended
September 30, 2005
----------------------------------
Amounts in millions, except per
share amounts
Non-GAAP
As Financial
Reported Adjustments Measures*
--------- ----------- ------------
Revenue $421.1 $421.1
Expenses 189.2 (13.3) (a) 175.9
-------- ----------- ---------
Operating income 231.9 13.3 245.2
Interest and other non-operating
income (expense), net 2.7 - 2.7
-------- ----------- ---------
Income before provision for income
taxes 234.6 13.3 247.9
Provision for income taxes 88.0 16.8 (b) 104.8
-------- ----------- ---------
Net income $146.6 $(3.5) $143.1
-------- ----------- ---------
Basic earnings per share $0.49 $0.48
-------- ---------
Diluted earnings per share $0.48 $0.47
-------- ---------
- --------------------------------------------- ----------- ------------
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 September 30, 2006 and 2005, adjusted to reflect
the following:
(a)To exclude operating expenses of $20.0 million in the third quarter
of 2006 relating to the expensing of stock-based compensation
based on the implementation of SFAS No. 123R on January 1, 2006
and $13.3 million of stock-based compensation expense in the third
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
$11.5 million in the third quarter of 2005 related to legacy tax
exposures.
* May not add due to rounding.
Moody's Corporation
Reconciliation to Non-GAAP Financial Measures (Unaudited)
Nine Months Ended
September 30, 2006
----------------------------------
Amounts in millions, except per
share amounts
Non-GAAP
As Financial
Reported Adjustments Measures*
--------- ----------- ------------
Revenue $1,447.1 $1,447.1
Expenses 650.9 (54.6) (a) 596.3
--------- ----------- ---------
Operating income 796.2 54.6 850.8
Interest and other non-operating
income (expense), net 1.0 1.0
--------- ----------- ---------
Income before provision for income
taxes 797.2 54.6 851.8
Provision for income taxes 321.9 23.3 (b) 345.2
--------- ----------- ---------
Net income $475.3 $31.3 $506.6
--------- ----------- ---------
Basic earnings per share $1.66 $1.76
--------- ---------
Diluted earnings per share $1.61 $1.72
--------- ---------
-------------------------------------------- ----------- ------------
Nine Months Ended
September 30, 2005
----------------------------------
Amounts in millions, except per
share amounts
Non-GAAP
As Financial
Reported Adjustments Measures*
--------- ----------- ------------
Revenue $1,258.4 $1,258.4
Expenses 561.2 (42.5) (a) 518.7
--------- ----------- ---------
Operating income 697.2 42.5 739.7
Interest and other non-operating
income (expense), net (6.4) - (6.4)
--------- ----------- ---------
Income before provision for income
taxes 690.8 42.5 733.3
Provision for income taxes 280.1 25.5 (b) 305.6
--------- ----------- ---------
Net income $410.7 $17.0 $427.7
--------- ----------- ---------
Basic earnings per share $1.37 $1.43
--------- ---------
Diluted earnings per share $1.34 $1.39
--------- ---------
-------------------------------------------- ----------- ------------
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 nine months ended September 30, 2006 and
2005, adjusted to reflect the following:
(a)To exclude operating expenses of $54.6 million in the first nine
months of 2006 relating to the expensing of stock-based
compensation based on the implementation of SFAS No. 123R on
January 1, 2006 and $42.5 million of stock-based compensation
expense in the first nine months 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 $2.4 million and $8.8 million
of income tax benefits in the first nine months of 2006 and 2005,
respectively, related to legacy tax exposures.
*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 October 25,
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
Vice President
Investor Relations and Corporate Finance
michael.courtian@moodys.com