10-KPeriod: FY2008

MOODYS CORP /DE/ Annual Report, Year Ended Dec 31, 2008

Filed March 2, 2009For Securities:MCO

Summary

Moody's Corporation (MCO) reported a significant revenue decline of 22.3% in 2008 to $1.76 billion, primarily driven by a 32.3% drop in revenue from its Moody's Investors Service (MIS) segment. This decline was attributed to the severe credit market disruptions that began in mid-2007, leading to a substantial reduction in debt issuance activity. Despite the challenging market, Moody's Analytics (MA) segment showed resilience, with revenue growing by 14.9% to $550.7 million, driven by strong performance in subscriptions, software, and consulting. Operating income decreased by 33.8% to $748.2 million, reflecting the impact of lower revenue and increased expenses related to depreciation and amortization, partly due to acquisitions and asset impairments. Diluted Earnings Per Share (EPS) fell to $1.87 from $2.58 in the prior year. The company's balance sheet shows total assets of $1.77 billion and shareholders' deficit of $994.4 million, indicating the impact of the market downturn and share repurchases. Moody's continues to manage its financial resources, with a share repurchase program in place and a focus on cost control measures to navigate the uncertain economic environment.

Financial Statements
Beta
Revenue$1.76B
R&D Expenses$13.20M
SG&A Expenses$441.30M
Operating Expenses$1.01B
Operating Income$748.20M
Net Income$457.60M
EPS (Basic)$1.89
EPS (Diluted)$1.87
Shares Outstanding (Basic)242.40M
Shares Outstanding (Diluted)245.30M

Key Highlights

  • 1Revenue decreased significantly by 22.3% to $1.76 billion in 2008, largely due to a 32.3% decline in the Moody's Investors Service (MIS) segment caused by credit market disruptions and reduced debt issuance.
  • 2Moody's Analytics (MA) segment demonstrated growth, with revenue increasing by 14.9% to $550.7 million, driven by strong performance across its subscription, software, and consulting businesses.
  • 3Operating income declined by 33.8% to $748.2 million, reflecting lower revenues and increased operating expenses, including higher depreciation and amortization.
  • 4Diluted Earnings Per Share (EPS) fell to $1.87 in 2008 from $2.58 in 2007.
  • 5The company repurchased approximately 4.8 million shares of common stock in Q4 2008 under its ongoing share repurchase program.
  • 6Moody's maintained a total debt of $1.47 billion at year-end 2008, with a Debt/EBITDA ratio below the covenant limit of 4.0.
  • 7The company faces significant litigation and regulatory scrutiny related to its role in rating structured finance products during the financial crisis.

Frequently Asked Questions

The primary driver was a significant decrease in debt issuance activity across global capital markets, particularly in structured finance and corporate finance, due to the severe credit market disruptions that began in 2007 and worsened in 2008. This directly impacted the transaction-based revenue of the Moody's Investors Service (MIS) segment.

The MA segment showed resilience and growth, with revenue increasing by 14.9% to $550.7 million. This was driven by strong demand for its subscription-based research and data, as well as growth in its software and consulting services, indicating a diversification of revenue streams.

Moody's outlook for 2009 projected a low single-digit percent decline in overall revenue, with MIS revenue expected to decline further (high single-digit percent range) while MA revenue was projected to grow (mid single-digit percent range). This outlook was based on assumptions of continued weak market conditions early in the year with potential modest improvements later, and assumes foreign currency translation at current rates.

Key risks include significant declines in capital market issuance, increased regulatory scrutiny and potential new regulations affecting credit rating agencies, litigation related to ratings, competition, and reputational damage. The company also faces risks associated with operating in foreign jurisdictions and potential impacts from government stabilization efforts in financial markets.