Empresas y finanzas

Moody's Corporation Reports Results for the Third Quarter of 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.

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    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
    ------------------------------- -------- -------- --------- ---------
    *T

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    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.
    *T

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    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
    *T

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    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.
    *T

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    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.
    *T

    "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.