Moody´s Corporation Reports Results for First Quarter 2008
Moody´s Corporation (NYSE: MCO) today announced results for the
first quarter 2008.
Summary of Results for First Quarter 2008
Moody´s reported revenue of $430.7 million for the three months
ended March 31, 2008, a decrease of 26% from $583.0 million for the
same quarter of 2007. Operating income for the quarter was $199.3
million, a 35% decline from $304.7 million for the same period last
year. Diluted earnings per share were $0.48 for the first quarter of
2008, 23% lower than $0.62 in the first quarter of 2007.
Raymond McDaniel, Chairman and Chief Executive Officer of Moody´s
said, "Moody´s revenue results in the first quarter clearly reflect
the difficult credit market conditions in which we are operating.
Strong growth at Moody´s Analytics, our solid base of recurring
revenue, and the positive effects of our cost management efforts
helped to mitigate the impact of the operating environment on overall
performance." Mr. McDaniel added that, "We remain cautious about the
likely pace and strength of recovery in credit markets in 2008 and
confirm our existing EPS guidance of $1.90 to $2.00."
First Quarter Revenue
Beginning in January of 2008, Moody´s segments were changed to
reflect the business reorganization announced last year. As a result
of the reorganization, the credit rating agency is reported in the
Moody´s Investors Service ("MIS") segment and several ratings business
lines within MIS have been realigned. All of Moody´s other commercial
activities, including Moody´s KMV and sales of research produced by
MIS analysts, are represented in the Moody´s Analytics segment. Please
refer to the reconciliation tables at the end of this press release
for further details.
For Moody´s Corporation overall, U.S. revenue of $232.8 million
for the first quarter of 2008 decreased 39% from the first quarter of
2007, while non-U.S. revenue of $197.9 million decreased 3% from the
same period. Moody´s global revenue results included approximately 200
basis points of positive impact from currency translation. Non-U.S.
revenue accounted for 46% of Moody´s total revenue for the quarter, up
from 35% in the year-ago period.
Revenue at Moody´s Investors Service for the first quarter of 2008
was $298.2 million, a decrease of 37% from the prior-year period.
Non-U.S. revenue of $131.4 million represented 44% of total MIS
revenue. Changes in revenue and operating income were positively
impacted by foreign currency translation of approximately 200 basis
points and 220 basis points, respectively.
Within the ratings business, global structured finance revenue
totaled $107.2 million for the first quarter of 2008, a decrease of
57% from a year earlier. U.S. structured finance revenue decreased
69%, driven by significant declines in issuance across most asset
categories. Non-U.S. structured finance revenue decreased 29%, led by
declines in the European credit derivatives and commercial real estate
finance sectors.
Global corporate finance revenue of $71.5 million in the first
quarter of 2008 declined 31% from the same quarter of 2007. Revenue in
the U.S. declined 41% from the prior year period. Significant revenue
growth from rating U.S. investment grade debt was more than offset by
high double-digit declines in revenue from speculative-grade bond and
bank loan ratings. Outside the U.S., corporate finance revenue
decreased 6% due primarily to declines in revenue from rating European
speculative-grade securities.
Global financial institutions revenue of $64.0 million decreased
4% for the first quarter of 2008. Financial institutions revenue in
the U.S. declined 5% as growth in the banking sector was more than
offset by revenue declines in the insurance, and finance and
securities sectors. Outside the U.S., revenue decreased 4% as growth
in the insurance sector was more than offset by declines in revenue
from the larger European banking sector.
Global public, project and infrastructure finance revenue was
$55.5 million for the first quarter of 2008, 9% higher than in the
first quarter of 2007, reflecting solid double-digit growth in project
and infrastructure finance. Public, project and infrastructure finance
revenue in the U.S. was flat with the prior year period. Non-U.S.
revenue increased 32% due to strong growth in both project finance and
public finance.
Moody´s Analytics revenue rose to $132.5 million, up 20% from the
same quarter of 2007 with non-U.S. revenues contributing 50% of the
total. All three business lines - subscriptions, software, and
consulting - delivered double-digit percent growth. Revenue from
subscriptions rose to $118.3 million, contributing the greatest dollar
growth. Foreign currency translation positively impacted operating
results, increasing revenue and operating income growth by
approximately 220 basis points and 310 basis points, respectively.
First Quarter Expenses
First quarter 2008 operating expenses for Moody´s Corporation of
$231.4 million were $46.9 million or 17% lower than in the prior year
period. Cost reduction initiatives that we began in the second half of
2007 contributed to these results. About three-quarters of the expense
reduction was driven by lower personnel costs including lower
incentive compensation expense, while the remaining quarter was driven
by savings across non-compensation-related expenses. First quarter
2008 operating expenses benefited from approximately $10 million, or
about $0.02 per share, of expense reductions specific to this quarter
largely from lower stock-based compensation expense. Non-operating
expenses for the quarter included a benefit of approximately $9
million from foreign currency translation. Moody´s operating margin
for the first quarter of 2008 was 46.3%, 600 basis points lower than
the prior year period.
First Quarter Effective Tax Rate
Moody´s effective tax rate was 38.5% for the first quarter of
2008, compared with 41.8% for the prior year period. The decrease was
due primarily to the effects of earning a higher proportion of income
in lower tax jurisdictions outside the U.S.
Share Repurchases
During the first quarter of 2008, Moody´s repurchased 7.5 million
shares at a total cost of $264.5 million and issued approximately 1
million shares under employee stock-based compensation plans.
Outstanding shares as of March 31, 2008 totaled 244.7 million
representing an 11% decrease from a year earlier. First quarter share
repurchases were funded using a combination of free cash flow and
borrowings. At quarter-end, Moody´s had $1.2 billion of outstanding
debt with an additional $400 million available. Additionally, as of
March 31, 2008, Moody´s had $1.8 billion of share repurchase authority
remaining under its current program.
Assumptions and Outlook for Full Year 2008
Moody´s outlook for 2008 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.
Moody´s full-year outlook for 2008 performance is unchanged from
its previous guidance issued on March 11, 2008. For Moody´s overall
full-year 2008 revenue is expected to decline in the mid- to
high-teens percent range. This decline assumes foreign currency
translation in 2008 at current exchange rates. Revenue guidance for
certain lines of business has changed somewhat based on conditions
specific to those sectors and geographies. We anticipate the weakness
of the first quarter to continue at least through the second quarter
with modest improvement in market liquidity and issuance conditions
later in the year. In the first half of 2008, Moody´s will continue to
face challenging year-on-year comparisons against record performance
in the first half of 2007.
Full-year 2008 expenses are expected to decline about 8% on an
as-reported basis compared to full year 2007. Excluding the $50
million restructuring charge in 2007, full-year 2008 expenses are
expected to decline about 5%. We expect the full-year 2008 operating
margin to be in the mid-forties percent range. Earnings per share for
2008 are still projected in a range from $1.90 to $2.00.
For the global Moody´s Investors Service business, we expect
revenue for the full-year 2008 to decline in the mid-twenties percent
range. Within the U.S., we project Moody´s Investors Service revenue
to decrease in the mid-thirties percent range for the full-year 2008.
In the U.S. structured finance business, we expect revenue for the
year to decline in the high-fifties percent range, reflecting large
double-digit percent declines in most asset classes, led by
residential mortgage-backed securities, commercial real estate
finance, and credit derivatives ratings.
In the U.S. corporate finance business, we expect revenue to
decrease in the mid- to high-twenties percent range for the year
driven primarily by declines in speculative-grade bond and bank loan
ratings.
In the U.S. financial institutions and public, project and
infrastructure finance sectors, we project 2008 revenue to grow in the
low- to mid-single-digit percent ranges, respectively.
Outside the U.S. we expect Moody´s Investors Service revenue to
decrease in the high single-digit percent range. Good growth from
rating financial institutions and corporations, as well as public
project and infrastructure finance is expected to be more than offset
by a decline in structured finance ratings revenue, primarily in
Europe.
For Moody´s Analytics, we continue to expect revenue growth in the
mid-teens percent range. On a geographic basis, U.S. and non-U.S.
growth is projected to be in the low-teens and high-teens percent
ranges, respectively. Growth in the subscription business is expected
to be in the mid-teens percent range, reflecting continued demand for
credit and economic research, structured finance analytics, and the
impact of our newly formed pricing and valuation business. In the
software business, we expect revenue to be about flat to full-year
2007. In the smaller consulting business, we anticipate very strong
growth, reflecting a robust pipeline of professional services
engagements and credit training projects. There is considerable demand
for Moody´s expertise in credit education, risk modeling, and
scorecard development as customers implement more sophisticated risk
management processes and comply with regulatory requirements.
Moody´s will host its third annual Investor Day on Thursday, June
5, 2008 in New York City. The event will be webcast. Details will be
posted on Moody´s investor relations website at http://ir.moodys.com.
*****
Moody´s is an essential component of the global capital markets
providing credit ratings, research, tools and analysis that contribute
to stable, transparent and integrated financial markets. Moody´s
Corporation (NYSE: MCO) is the parent company of Moody´s Investors
Service, which provides credit ratings and research covering debt
instruments and securities, and Moody´s Analytics, encompassing the
growing array of Moody´s non-ratings businesses including Moody´s KMV
a provider of quantitative credit analysis tools, Moody´s Economy.com
which provides economic research and data services, and Moody´s Wall
Street Analytics, a provider of software for structured finance
analytics. The Corporation, which reported revenue of $2.3 billion in
2007, employs approximately 3,500 people worldwide and maintains a
presence in 29 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. Moody´s outlook for 2008 and other forward-looking
statements in this release are made as of April 23, 2008, 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, matters that could affect the volume of debt
securities issued in domestic and/or global capital markets, including
credit quality concerns, 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; regulations relating to the oversight of
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 legacy tax and legal contingencies that relate to the
Company, its predecessors and their affiliated companies for which
Moody´s 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 acquired 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, 2007 and in other filings made by the
Company from time to time with the Securities and Exchange Commission.
-0-
*T
Moody´s Corporation
Consolidated Statements of Operations (Unaudited)
Three months ended
March 31
------------------
Amounts in millions, except per share amounts
2008
2007
----------------------------------------------------------------------
Revenue
$ 430.7
$ 583.0
----------------------------------------------------------------------
Expenses
Operating, selling, general and administrative
expenses
218.9
268.0
Depreciation and amortization
12.5
10.3
-------- --------
Total expenses
231.4
278.3
----------------------------------------------------------------------
Operating income
199.3
304.7
----------------------------------------------------------------------
Interest and other non-operating expense, net
(3.1)
(3.3)
Income before provision for income
taxes
196.2
301.4
-------- --------
Provision for income taxes
75.5
126.0
-------- --------
Net income
$ 120.7
$ 175.4
----------------------------------------------------------------------
----------------------------------------------------------------------
Earnings per share
Basic
$ 0.49
$ 0.63
Diluted
$ 0.48
$ 0.62
----------------------------------------------------------------------
Weighted average number of shares outstanding
Basic
247.4
277.7
Diluted
251.0
284.9
----------------------------------------------------------------------
*T
-0-
*T
Moody´s Corporation
Supplemental Revenue Information (Unaudited)
Three months
ended
March 31
---------------
Amounts in millions
2008
2007
----------------------------------------------------------------------
Moody´s Investors Service (a)
Structured Finance
$107.2 $251.2
Corporate Finance
71.5
103.3
Financial Institutions
64.0
66.8
Public, Project and Infrastructure Finance
55.5
51.1
Intersegment royalty
16.0
13.1
------- -------
Sub-total MIS
314.2
485.5
Eliminations
(16.0) (13.1)
------- -------
Total MIS
298.2
472.4
------- -------
Moody´s Analytics
Subscription
118.3
99.5
Software
9.5
7.8
Consulting
4.7
3.3
------- -------
Total MA
132.5
110.6
------- -------
Total consolidated revenue
$430.7 $583.0
======= =======
----------------------------------------------------------------------
Consolidated Revenue by geographic area
United States
$232.8 $378.6
International
197.9
204.4
------- -------
Total consolidated revenue
$430.7 $583.0
======= =======
----------------------------------------------------------------------
(a) Certain reclassifications have been made to the prior year amounts
to conform to the current year presentation.
*T
-0-
*T
Moody´s Corporation
Selected Consolidated Balance Sheet Data (Unaudited)
March 31
December 31
2008
2007
---------- ------------
Amounts in millions
Cash and cash equivalents
$ 339.7
$
426.3
Short-term investments
9.9
14.7
Total current assets
852.5
989.1
Non-current assets
734.3
725.5
Total assets
1,586.8
1,714.6
Total current liabilities
1,318.2
1,349.2
Notes payable
600.0
600.0
Other long-term liabilities
571.6
549.0
Shareholders´ deficit
(903.0)
(783.6)
Total liabilities and shareholders´ deficit
$1,586.8
$
1,714.6
Shares outstanding
244.7
251.4
*T
-0-
*T
Moody´s Corporation
Summary Impact of Reorganization on Revenue (Unaudited)
Amounts in millions
Three Months Ended March 31, 2007
--------------------------------------------------
2008 Adjusted
As Reported Reclassifications (a)
Presentation
--------------------------------------------------
Structured
finance
$
251.5
$
(0.3)
$
251.2
Corporate
finance
114.8
(11.5)
103.3
Financial
institutions
76.7
(9.9)
66.8
Public finance
29.4
(29.4)
-
Public, project
and
infrastructure
finance
-
51.1
51.1
--------------------------------------------------
Total ratings
revenue
472.4
-
472.4
Research
revenue
75.0
(75.0)
-
--------------------------------------------------
Total Moody´s
Investors
Service
547.4
(75.0)
472.4
Moody´s KMV
35.6
(35.6)
-
Moody´s
Analytics
-
110.6
110.6
--------------------------------------------------
Total revenue
Moody´s
Corporation
$
583.0
$
-
$
583.0
==================================================
(a) Reclassifications relate to the business reorganization announced
in August 2007 which became effective in January 2008. It reflects
the combination of the research business, previously classified in
Moody´s Investors Service, and Moody´s KMV to form Moody Analytics.
As part of the reorganization there were several realignments within
the MIS lines of business. Sovereign and sub-sovereign ratings, which
were previously part of financial institutions;
infrastructure/utilities ratings, which were previously part of
corporate finance; and project finance, which was previously part of
structured finance, were combined with the public finance business to
form a new line of business called public, project and infrastructure
finance. In addition, real estate investment trust ratings were moved
from financial institutions and corporate finance to the structured
finance business.
*T