10-KPeriod: FY2007

MOODYS CORP /DE/ Annual Report, Year Ended Dec 31, 2007

Filed February 29, 2008For Securities:MCO

Summary

Moody's Corporation reported a modest revenue increase of 10.9% to $2.26 billion for the fiscal year ended December 31, 2007. While overall revenue grew, the company experienced a significant slowdown in its structured finance business in the latter half of the year due to credit market turmoil, particularly impacting U.S. markets. This led to a $50 million restructuring charge. Net income decreased by 7.0% to $701.5 million, and earnings per diluted share were $2.58. The company actively managed its capital by repurchasing shares and paying dividends, while also undertaking a significant corporate reorganization to separate its ratings business (Moody's Investors Service) from its other commercial activities (Moody's Analytics). Looking ahead, Moody's projected a decline in revenue for 2008, citing continued weakness in certain market sectors, especially structured finance. Despite these headwinds, the company continued to invest in its Moody's Analytics segment, anticipating growth in its data and risk management solutions. Regulatory reviews of credit rating agencies were ongoing, with potential impacts on the business model and costs.

Financial Highlights

28 data points
Beta

Revenue

$2.26B

Net Income

$701.50M

31.1% Net Margin

EPS (Diluted)

$2.58

Cash & Equivalents

$426.30M

Free Cash Flow

$806.40M

Financial Statements
Beta
Revenue$2.26B
SG&A Expenses$451.10M
Operating Expenses$1.13B
Operating Income$1.13B
Net Income$701.50M
EPS (Basic)$2.63
EPS (Diluted)$2.58
Shares Outstanding (Basic)266.40M
Shares Outstanding (Diluted)272.20M

Key Highlights

  • 1Revenue increased by 10.9% to $2.26 billion in 2007, driven by corporate finance and research segments.
  • 2Net income decreased by 7.0% to $701.5 million, with diluted EPS at $2.58.
  • 3A $50 million restructuring charge was recorded due to business reorganization and market conditions.
  • 4Structured finance revenue experienced a significant decline in the second half of 2007 due to credit market turmoil.
  • 5Moody's Corporation underwent a reorganization, creating two distinct segments: Moody's Investors Service and Moody's Analytics.
  • 6The company repurchased approximately 31.3 million shares for $1.74 billion during 2007.
  • 7Moody's outlook for 2008 projected a revenue decline in the low double-digit percent range.
  • 8The company was subject to ongoing regulatory reviews concerning credit rating agencies.

Frequently Asked Questions

The primary drivers of revenue growth in 2007 were the corporate finance and research lines of business, which saw increases of 22.4% and 27.4% respectively. Moody's KMV (MKMV) also contributed with a 5.4% increase driven by its software and risk subscription businesses.

The credit market turmoil, which began in the third quarter of 2007, significantly impacted Moody's structured finance business. This led to a substantial reduction in the volume of credit-sensitive securities issued and a decline in related revenues, particularly in the second half of the year. This decline was partially offset by growth in other segments, but it contributed to a lower overall net income and a restructuring charge.

Beginning in January 2008, Moody's reorganized into two reportable segments: Moody's Investors Service (MIS), which includes the ratings business, and Moody's Analytics, which combines all other commercial activities including the former MKMV business and sales of MIS research. This reorganization aimed to broaden opportunities for the analytics segment and address potential conflicts of interest.

Moody's projected a decline in overall revenue for 2008 in the low double-digit percent range, expecting a weak first half with potential improvement later in the year. The company anticipated a decline in its Moody's Investors Service segment revenue in the mid-to-high teens percent range, particularly in structured finance and corporate finance, while expecting mid-teen revenue growth for Moody's Analytics.