Moody's Corporation Reports Results For Third Quarter 2012

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ABOUT MOODY'S CORPORATION

Moody's is an essential component of the global capital markets, providing credit ratings, research, tools and analysis that contribute to 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, which offers leading-edge software, advisory services and research for credit and economic analysis and financial risk management. The Corporation, which reported revenue of $2.3 billion in 2011, employs approximately 6,700 people worldwide and maintains a presence in 28 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 2012 and other forward-looking statements in this release are made as of October 26, 2012, 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, the current world-wide credit market disruptions and economic slowdown, which is affecting and could continue to affect the volume of debt securities issued in domestic and/or global capital markets; other matters that could affect the volume of debt securities issued, including credit quality concerns, changes in interest rates and other volatility in the financial markets; the uncertain effectiveness and possible collateral consequences of U.S. and foreign government initiatives to respond to the economic slowdown; 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; both proposed and recently adopted legislation and regulations in the U.S., EU, other foreign, state and local jurisdictions, including the Dodd-Frank Wall Street Reform and Consumer Protection Act; regulations relating to the oversight of credit rating agencies; provisions in the Dodd-Frank Act, and potential EU regulations, modifying the pleading and liability standards applicable to credit rating agencies in a manner adverse to rating agencies; possible judicial decisions in various jurisdictions regarding the status of and potential liabilities of credit rating agencies; the possible loss of key employees; 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 from financial institutions for credit risk management tools; and other risk factors as discussed in the Company’s annual report on Form 10-K for the year ended December 31, 2011 and in other filings made by the Company from time to time with the Securities and Exchange Commission.

Moody's Corporation
Consolidated Statements of Operations (Unaudited)
				Three Months Ended												Nine Months Ended
				September 30,												September 30,
				2012					2011							2012				2011
Amounts in millions, except per share amounts
Revenue				$	688.5				$		531.3					$	1,976.1			$	1,713.6
Expenses:
Operating					207.3						171.0						573.4				502.3
Selling, general and administrative					187.4						145.0						515.8				436.4
Restructuring					-						0.2						-				0.1
Depreciation and amortization					24.1						19.0						69.7				58.5
Total expenses					418.8						335.2						1,158.9				997.3
Operating income					269.7						196.1						817.2				716.3
Non-operating (expense) income, net
Interest (expense) income, net					(15.3	)					(12.9	)					(42.2	)			(45.2	)
Other non-operating (expense) income, net					10.0						1.6						12.6				13.1
Total non-operating (expense) income, net					(5.3	)					(11.3	)					(29.6	)			(32.1	)
Income before provision for income taxes					264.4						184.8						787.6				684.2
Provision for income taxes					77.9						52.7						249.9				204.3
Net income					186.5						132.1						537.7				479.9
Less: net income attributable to noncontrolling interests					2.6						1.4						7.8				4.7
Net income attributable to Moody's Corporation				$	183.9				$		130.7					$	529.9			$	475.2
Earnings per share attributable to Moody's common shareholders
Basic				$	0.83				$		0.58					$	2.37			$	2.09
Diluted				$	0.81				$		0.57					$	2.34			$	2.06
Weighted average number of shares outstanding
Basic					222.5						226.0						223.3				227.7
Diluted					226.1						229.0						226.7				230.7
Supplemental Revenue Information (Unaudited)
				Three Months Ended												Nine Months Ended
				September 30,												September 30,
Amounts in millions				2012					2011							2012				2011
Moody's Investors Service
Corporate Finance				$	220.7				$	129.0						$	612.7			$	510.9
Structured Finance					93.1					82.0							278.1				257.7
Financial Institutions					82.7					72.1							239.3				228.1
Public, Project and Infrastructure Finance					77.0					68.3							237.3				205.3
Intersegment royalty					17.8					16.8							52.4				49.0
Sub-total MIS					491.3					368.2							1,419.8				1,251.0
Eliminations					(17.8	)				(16.8		)					(52.4	)			(49.0	)
Total MIS revenue					473.5					351.4							1,367.4				1,202.0
Moody's Analytics
Research, Data and Analytics					123.8					115.3							364.7				335.9
Enterprise Risk Solutions					64.0					50.8							163.6				135.7
Professional Services					27.2					13.8							80.4				40.0
Intersegment revenue					3.1					2.6							9.0				7.8
Sub-total MA					218.1					182.5							617.7				519.4
Eliminations					(3.1	)				(2.6		)					(9.0	)			(7.8	)
Total MA revenue					215.0					179.9							608.7				511.6
Total Moody's Corporation revenue				$	688.5				$	531.3						$	1,976.1			$	1,713.6
Moody's Corporation revenue by geographic area
United States				$	375.4				$	274.3						$	1,063.2			$	890.7
International					313.1					257.0							912.9				822.9
				$	688.5				$	531.3						$	1,976.1			$	1,713.6

Non-operating (expense) income, net
					Three Months Ended												Nine Months Ended
					September 30,												September 30,
					2012						2011						2012						2011
Amounts in millions
Interest (expense) / income, net:
Expense on borrowings					$	(19.3	)				$	(16.2	)				$	(52.1	)				$	(48.9	)
Income						1.2						1.6						3.7						3.9
Legacy Tax, UTPs and other
tax related liabilities (a)						2.7						0.9						6.2						(2.4	)
Capitalized						0.1						0.8						-						2.2
Total interest (expense) income, net					$	(15.3	)				$	(12.9	)				$	(42.2	)				$	(45.2	)
Other non-operating (expense) income, net:
FX gain/(loss)					$	(4.9	)				$	0.5					$	(6.1	)				$	3.3
Legacy Tax (b)						12.8						-						12.8						6.4
Joint venture income						2.3						1.4						6.9						5.3
Other						(0.2	)					(0.3	)					(1.0	)					(1.9	)
Other non-operating (expense) income, net						10.0						1.6						12.6						13.1
Total non-operating (expense) income, net					$	(5.3	)				$	(11.3	)				$	(29.6	)				$	(32.1	)

(a) The three and nine months ended September 30, 2012 as well as the nine months ended September 30, 2011 all contain approximately $4 million in benefits from Legacy Tax Matters. Additionally, the amount for the nine months ended September 30, 2012 contains a benefit of approximately $7 million related to the settlement of state and local income tax audits

(b) The amounts represent favorable resolutions of Legacy Tax Matters

Selected Consolidated Balance Sheet Data (Unaudited)
						September 30,					December 31,
						2012					2011
Amounts in millions
Cash and cash equivalents						$	1,518.5				$	760.0
Short-term investments							22.7					14.8
Total current assets							2,205.8					1,424.4
Non-current assets							1,456.5					1,451.7
Total assets							3,662.3					2,876.1
Total current liabilities							982.9					1,134.0
Total debt (1)							1,707.5					1,243.8
Other long-term liabilities							676.2					667.5
Total shareholders' equity(deficit)							322.1					(158.4	)
Redeemable noncontrolling interest*							69.2					60.5
Total liabilities, redeemable noncontrolling interest and shareholders' equity(deficit)							3,662.3					2,876.1
Actual number of shares outstanding							222.9					222.4
* Represents a noncontrolling interest related to the November 2011 acquisition of Copal Partners
						September 30,					December 31,
(1) Total debt consists of the following:						2012					2011
Series 2005-1 Notes due 2015 (a)						$	318.4				$	311.5
Series 2007-1 Notes due 2017							300.0					300.0
2008 Term Loan due 2013 (b)							95.6					135.0
2010 Senior Notes due 2020 (c)							497.4					497.3
2012 Senior Notes due 2022 (d)							496.1					-
Total debt (e)						$	1,707.5				$	1,243.8

(a)Includes an $18.4 million and $11.5 million fair value adjustment on an interest rate hedge at September 30, 2012 and December 31, 2011, respectively

(b) Various payments through 2013

(c) Represents $500 million of 5.5% publicly traded Senior Notes which mature on September 1, 2020; the notes were offered to the public at 99.374% of the face amount

(d) Represents $500 million of 4.5% publicly traded Senior Notes which mature on September 1, 2022; the notes were offered to the public at 99.218% of the face amount

(e) Of the total debt shown in the table above, $95.6 million and $71.3 million are classified within total current liabilities at September 30, 2012 and December 31, 2011, respectively, and consist of the current portion of borrowings under the 2008 Term Loan

Financial Information by Segment:

The table below presents revenue, adjusted operating income and operating income by reportable segment. The Company defines adjusted operating income as operating income excluding depreciation and amortization and restructuring-related items.

		Three Months Ended September 30,
		2012																				2011
		MIS					MA					Eliminations					Consolidated					MIS					MA					Eliminations					Consolidated
Revenue		$	491.3				$	218.1				$	(20.9)				$	688.5				$	368.2				$	182.5				$	(19.4)				$	531.3
Operating, selling, general and administrative			252.4					163.2					(20.9)					394.7					200.5					134.9					(19.4)					316.0
Adjusted operating income			238.9					54.9					-					293.8					167.7					47.6					-					215.3
Depreciation and amortization			11.0					13.1					-					24.1					9.9					9.1					-					19.0
Restructuring			-					-					-					-					0.2					-					-					0.2
Operating income		$	227.9				$	41.8				$	-				$	269.7				$	157.6				$	38.5				$	-				$	196.1
Adjusted operating margin			48.6%					25.2%										42.7%					45.5%					26.1%										40.5%
Operating margin			46.4%					19.2%										39.2%					42.8%					21.1%										36.9%
		Nine Months Ended September 30,
		2012																				2011
		MIS					MA					Eliminations					Consolidated					MIS					MA					Eliminations					Consolidated
Revenue		$	1,419.8				$	617.7				$	(61.4)				$	1,976.1				$	1,251.0				$	519.4				$	(56.8)				$	1,713.6
Operating, selling, general and administrative			684.0					466.6					(61.4)					1,089.2					606.1					389.4					(56.8)					938.7
Adjusted operating income			735.8					151.1					-					886.9					644.9					130.0					-					774.9
Depreciation and amortization			32.9					36.8					-					69.7					31.0					27.5					-					58.5
Restructuring			-					-					-					-					0.1					-					-					0.1
Operating income		$	702.9				$	114.3				$	-				$	817.2				$	613.8				$	102.5				$	-				$	716.3
Adjusted operating margin			51.8%					24.5%										44.9%					51.6%					25.0%										45.2%
Operating margin			49.5%					18.5%										41.4%					49.1%					19.7%										41.8%

Transaction and Relationship Revenue:

The tables below summarize the split between transaction and relationship revenue. In the MIS segment, transaction revenue represents the initial rating of a new debt issuance as well as other one-time fees while relationship revenue represents the recurring monitoring of a rated debt obligation and/or entities that issue such obligations, as well as revenue from programs such as commercial paper, medium-term notes and shelf registrations. In the MA segment, relationship revenue represents subscription-based revenues and software maintenance revenue. Transaction revenue in MA represents software license fees and revenue from risk management advisory projects, training and certification services, and knowledge outsourcing engagements.

						Three Months Ended September 30,
						2012																		2011
						Transaction						Relationship						Total						Transaction						Relationship						Total
Corporate Finance							75	%					25	%					100	%					62	%					38	%					100	%
Structured Finance							58	%					42	%					100	%					49	%					51	%					100	%
Financial Institutions							37	%					63	%					100	%					30	%					70	%					100	%
Public, Project and InfrastructureFinance							59	%					41	%					100	%					58	%					42	%					100	%
Total MIS							62	%					38	%					100	%					52	%					48	%					100	%
Moody's Analytics							22	%					78	%					100	%					19	%					81	%					100	%
Total Moody's Corporation							50	%					50	%					100	%					41	%					59	%					100	%
						Nine Months Ended September 30,
						2012																		2011
						Transaction						Relationship						Total						Transaction						Relationship						Total
Corporate Finance							73	%					27	%					100	%					72	%					28	%					100	%
Structured Finance							57	%					43	%					100	%					52	%					48	%					100	%
Financial Institutions							37	%					63	%					100	%					37	%					63	%					100	%
Public, Project and InfrastructureFinance							61	%					39	%					100	%					57	%					43	%					100	%
Total MIS							61	%					39	%					100	%					59	%					41	%					100	%
Moody's Analytics							21	%					79	%					100	%					18	%					82	%					100	%
Total Moody's Corporation							49	%					51	%					100	%					46	%					54	%					100	%

Non-GAAP Financial Measures:

The tables below reflect certain adjusted results that the SEC defines as “non-GAAP financial measures” as well as a reconciliation of each non-GAAP measure to its most directly comparable GAAP measure. 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 performance, facilitate comparisons to competitors’ operating results and provide greater transparency to investors of supplemental information used by management in its financial and operational decision-making. These non-GAAP measures, as defined by the Company, are not necessarily comparable to similarly defined measures of other companies. Furthermore, these non-GAAP measures should not be viewed in isolation or used as a substitute for other GAAP measures in assessing the operating performance or cash flows of the Company.

Pro forma diluted earnings per share attributable to Moody's common shareholders:

The Company presents this non-GAAP measure to exclude the impacts of Legacy Tax to allow for a more meaningful comparison of Moody’s Net Income and diluted earnings per share from period to period. Below is a reconciliation of this measure to its most directly comparable U.S. GAAP amount.

						Three Months Ended September 30,
						2012						2011
Diluted earnings per share attributable to Moody's common shareholders						$	0.81					$	0.57
Legacy Tax						$	(0.06	)				$	-
Pro forma diluted earnings per share attributable to Moody's common shareholders						$	0.75					$	0.57
						Nine Months Ended September 30,
						2012						2011
Diluted earnings per share attributable to Moody's common shareholders						$	2.34					$	2.06
Legacy Tax						$	(0.06	)				$	(0.03	)
Pro forma diluted earnings per share attributable to Moody's common shareholders						$	2.28					$	2.03
						Full-Year Ended December 31,
						2012
Diluted EPS guidance - GAAP						$	2.95 - 3.05
Legacy Tax						$	(0.06)
Diluted EPS guidance - Pro forma						$	2.89 - 2.99

Adjusted Operating Income and Adjusted Operating Margin:

The table below reflects a reconciliation of the Company’s operating income and operating margin to adjusted operating income and adjusted operating margin. The Company defines adjusted operating income as operating income excluding depreciation and amortization and restructuring-related items. The Company presents adjusted operating income because management deems this metric to be a useful measure of assessing the operating performance of Moody’s, measuring the Company's ability to service debt, fund capital expenditures, and expand its business. Adjusted operating income excludes depreciation and amortization because companies utilize productive assets of different ages and use different methods of both acquiring and depreciating productive assets. Management believes that the exclusion of certain items, detailed in the reconciliation below, allows for a more meaningful comparison of the Company’s results from period to period and across companies. The Company defines adjusted operating margin as adjusted operating income divided by revenue.

						Three Months Ended September 30,															Nine Months Ended September 30,
						2012							2011								2012							2011
Operating income								$	269.7						$	196.1						$	817.2						$	716.3
Depreciation & amortization							24.1							19.0							69.7							58.5
Restructuring							-							0.2							-							0.1
Adjusted operating income								$	293.8						$	215.3						$	886.9						$	774.9
Operating margin									39.2%							36.9%							41.4%							41.8%
Adjusted operating margin									42.7%							40.5%							44.9%							45.2%

Free Cash Flow:

The table below reflects a reconciliation of the Company’s net cash flows from operating activities to free cash flow. The Company defines free cash flow as net cash provided by operating activities minus payments for capital additions. Management believes that free cash flow is a useful metric in assessing the Company’s cash flows to service debt, pay dividends and to fund acquisitions and share repurchases. Management deems capital expenditures essential to the Company’s product and service innovations and maintenance of Moody’s operational capabilities. Accordingly, capital expenditures are deemed to be a recurring use of Moody’s cash flow.

					Nine Months Ended September 30,
						2012						2011
Net cash flows from operating activities						$	496.0					$	666.3
Capital additions						(35.2)						(53.6)
Free cash flow						$	460.8					$	612.7
Net cash used in investing activities						$	(46.1)					$	(65.3)
Net cash provided by (used in) financing activities						$	294.4					$	(392.4)

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