Market Overview

Moody's Corporation Reports Results for Second Quarter 2018

Share:
  • 2Q18 revenue of $1.2 billion up 17% from 2Q17
  • 2Q18 operating income up 16% from 2Q17; adjusted operating income up
    17%1
  • 2Q18 diluted EPS of $1.94 up 20% from 2Q17; adjusted diluted EPS of
    $2.04, up 32%1
  • Reaffirming FY 2018 diluted EPS and adjusted diluted EPS guidance
    ranges of $7.20 to $7.40 and $7.65 to $7.85, respectively1

Moody's Corporation (NYSE:MCO) today announced results for the second
quarter of 2018, as well as provided its current outlook for full year
2018.

"Moody's second quarter revenue increased 17%, reflecting strong
performance at Moody's Analytics, driven by contribution from Bureau van
Dijk, as well as record revenue for Moody's Investors Service, primarily
due to robust bank loan and collateralized loan obligation market
activity," said Raymond McDaniel, President and Chief Executive Officer
of Moody's. "Additionally, we are reaffirming our full year 2018
guidance of $7.20 to $7.40 for diluted EPS and $7.65 to $7.85 for
adjusted diluted EPS."

SECOND QUARTER HIGHLIGHTS

Moody's Corporation reported record revenue of $1.2 billion for the
three months ended June 30, 2018, up 17% from the second quarter of
2017, including eight percentage points of growth attributable to Bureau
van Dijk.

Operating expenses totaled $641.1 million, up 19% from the prior-year
period, including 11 percentage points attributable to Bureau van Dijk
operating expenses, amortization of acquired intangible assets, as well
as non-recurring acquisition and integration expenses associated with
the Bureau van Dijk acquisition ("Acquisition-Related Expenses").

Operating income was $534.0 million, up 16% from the second quarter of
2017. Adjusted operating income, which excludes depreciation and
amortization, as well as Acquisition-Related Expenses, was $584.4
million, up 17% from the prior-year period. Operating margin for the
second quarter was 45.4% and the adjusted operating margin was 49.7%.

Diluted EPS of $1.94 was up 20% from the second quarter of 2017.
Adjusted diluted EPS of $2.04 was up 32%. Second quarter 2018 adjusted
diluted EPS excludes $0.10 per share related to amortization of acquired
intangible assets and Acquisition-Related Expenses. Second quarter 2017
adjusted diluted EPS primarily excludes a $0.13 foreign currency hedge
gain. Both second quarter 2018 diluted EPS and adjusted diluted EPS
include a $0.02 per share tax benefit related to the adoption of
accounting standard update ASU 2016-09, "Improvements to Employee
Share-Based Payment Accounting," compared to a $0.05 per share tax
benefit in the second quarter of 2017.

MCO SECOND QUARTER REVENUE UP 17%

Moody's Corporation reported record second quarter revenue of $1.2
billion for the three months ended June 30, 2018, up 17% from the
prior-year period.

U.S. revenue was $625.4 million, up 10%, and non-U.S. revenue was $549.7
million, up 27%. Revenue generated outside the U.S. constituted 47% of
total revenue, up from 43% in the prior-year period. Foreign currency
translation favorably impacted Moody's revenue by 1%.

Moody's Investors Service (MIS) Second Quarter
Revenue Up 10%

Revenue for MIS for the second quarter of 2018 was $752.3 million, up
10% from the prior-year period. U.S. revenue was $451.2 million, up 9%,
and non-U.S. revenue was $301.1 million, up 10%. Foreign currency
translation favorably impacted MIS revenue by 1%.

Corporate finance revenue was $377.6 million, up 6% from the prior-year
period. This result reflected strong bank loan issuance in the U.S. and
Europe, partially offset by a decline in global investment grade and
U.S. high yield bonds. U.S. corporate finance revenue was up 10% and
non-U.S. revenue was approximately flat.

Structured finance revenue was $141.6 million, up 19% from the
prior-year period. This result reflected broad strength in
securitization markets, with particularly strong contribution from
collateralized loan obligations (CLOs). U.S. and non-U.S. structured
finance revenues were up 14% and 28%, respectively.

Financial institutions revenue was $120.6 million, up 18% from the
prior-year period. This result reflected strong contribution from the
global insurance sector, as well as the U.S. and Asia banking sectors.
U.S. and non-U.S. financial institutions revenues were up 24% and 13%,
respectively.

Public, project and infrastructure finance revenue was $108.1 million,
up 3% from the prior-year period. This result primarily reflected
contributions from EMEA infrastructure finance and sovereign and
sub-sovereign issuers, partially offset by a decline in U.S. municipal
issuance. U.S. public, project and infrastructure finance revenue was
down 7%, while non-U.S. revenue was up 21%.

Moody's Analytics (MA) Second Quarter Revenue
Up 35%

Revenue for MA for the second quarter of 2018 was $422.8 million, up 35%
from the prior-year period. U.S. revenue was $174.2 million, up 12%, and
non-U.S. revenue was $248.6 million, up 57%. Foreign currency
translation favorably impacted MA revenue by 2%. Organic MA revenue for
the second quarter of 2018 was $342.8 million, up 9% from the prior-year
period.

Research, data and analytics (RD&A) revenue was $279.9 million, up 55%
from the prior-year period. U.S. RD&A revenue was $118.2 million, up
16%, and non-U.S. RD&A revenue of $161.7 million more than doubled.
Bureau van Dijk's revenue contribution of approximately $80 million
reflects a $6 million reduction from the deferred revenue adjustment
required under acquisition accounting rules. Organic RD&A revenue was
$199.9 million, up 11%, driven by strength in sales of ratings data
feeds and credit research.

Enterprise risk solutions (ERS) revenue was $105.5 million, up 8% from
the prior-year period. This result was driven by continued strong demand
for subscription products, particularly in the risk analytics and
insurance segments. U.S. and non-U.S. ERS revenues were up 5% and 11%,
respectively.

Professional services revenue was $37.4 million, up 5% from the
prior-year period. This result reflected strong new sales and improved
customer retention. U.S. and non-U.S. professional services revenues
were up 1% and 8%, respectively.

SECOND QUARTER OPERATING EXPENSES AND INCOME

Second quarter 2018 operating expenses for Moody's Corporation totaled
$641.1 million, up 19% from the prior-year period. Eleven percentage
points of this increase were attributable to Bureau van Dijk operating
expenses, amortization of acquired intangible assets and
Acquisition-Related Expenses. Other drivers of expense growth included
additional compensation expense for merit increases and hiring. Foreign
currency translation unfavorably impacted operating expenses by 1%.

Operating income was $534.0 million, up 16% from the second quarter of
2017. Adjusted operating income was $584.4 million, up 17% from the
prior-year period. Foreign currency translation favorably impacted
operating income and adjusted operating income by 2% each. Moody's
operating margin was 45.4% and the adjusted operating margin was 49.7%.

Moody's effective tax rate for the second quarter of 2018 was 23.7%,
down from 32.1% for the prior-year period. The decline in the tax rate
primarily reflects a lower U.S. statutory tax rate.

FIRST HALF REVENUE UP 17%

Moody's Corporation reported revenue of $2.3 billion for the first half
of 2018, up 17% from the first half of 2017, including eight percentage
points of growth attributable to Bureau van Dijk. U.S. revenue was $1.2
billion, up 7%, and non-U.S. revenue was $1.1 billion, up 30% from the
prior-year period. Foreign currency translation favorably impacted
Moody's revenue by 2%.

MIS revenue totaled $1.5 billion for the first half of 2018, up 9% from
the prior-year period. U.S. revenue was $884.6 million, up 6%. Non-U.S.
revenue was $587.6 million, up 13%, and represented 40% of MIS revenue,
up from 38% in the first half of 2017. Foreign currency translation
favorably impacted MIS revenue by 2%.

MA revenue totaled $829.6 million for the first half of 2018, up 34%
from the prior-year period. U.S. revenue of $338.5 million was up 9%.
Non-U.S. revenue was $491.1 million, up 58%, and represented 59% of MA
revenue, up from 50% in the first half of 2017. Foreign currency
translation favorably impacted MA revenue by 3%. Organic MA revenue for
the first half of 2018 was $676.1 million, up 9% from the prior-year
period.

FIRST HALF OPERATING EXPENSES UP 19%

Operating expenses for Moody's Corporation in the first half of 2018
totaled $1.3 billion, up 19% from the prior-year period. Twelve
percentage points of this increase were attributable to Bureau van Dijk
operating expenses, amortization of acquired intangible assets and
Acquisition-Related Expenses. Other drivers of expense growth included
additional compensation expense for merit increases and hiring. Foreign
currency translation unfavorably impacted expenses by 2%.

Operating income was $1.0 billion, up 13% from the first half of 2017.
Adjusted operating income was $1.1 billion, up 15% from the prior-year
period. Foreign currency translation favorably impacted operating income
and adjusted operating income by 3% each. Moody's operating margin was
44.5% and the adjusted operating margin was 48.9%.

The effective tax rate for the first half of 2018 was 19.4%, down from
27.8% in the prior-year period, primarily due to a lower U.S. statutory
tax rate and net uncertain tax position benefits related to a statute of
limitations expiration and audit settlement.

Diluted EPS of $3.85 for the first half of 2018 was up 14% compared to
the same period in 2017. Adjusted diluted EPS of $4.06 for the first
half of 2018 was up 33% compared to the same period in 2017. First half
2018 adjusted diluted EPS excludes $0.21 per share related to
amortization of acquired intangible assets and Acquisition-Related
Expenses. First half 2017 adjusted diluted EPS primarily excludes a
$0.31 non-cash, non-taxable gain from a strategic realignment and
expansion involving Moody's Chinese affiliate China Cheng Xin
International Credit Rating Co. Ltd. (the "CCXI Gain"). Both first half
2018 diluted EPS and adjusted diluted EPS include an $0.18 per share tax
benefit related to the adoption of accounting standard update ASU
2016-09, "Improvements to Employee Share-Based Payment Accounting,"
compared to a $0.15 per share tax benefit in the first half of 2017.

CAPITAL ALLOCATION AND LIQUIDITY

$122.1 Million Returned to Shareholders in the
Second Quarter

During the second quarter of 2018, Moody's repurchased 0.2 million
shares at a total cost of $37.6 million, or an average cost of $167.05
per share, and issued 0.2 million shares as part of its employee
stock-based compensation plans. Moody's returned $84.5 million to its
shareholders via dividend payments during the second quarter of 2018.

Over the first half of 2018, Moody's repurchased 0.5 million shares at a
total cost of $81.0 million, or an average cost of $163.80 per share,
and issued a net 1.4 million shares as part of its employee stock-based
compensation plans. The net amount includes shares withheld for employee
payroll taxes. Moody's also returned $168.6 million to its shareholders
via dividend payments during the first half of 2018.

Outstanding shares as of June 30, 2018 totaled 191.9 million,
approximately flat to June 30, 2017. As of June 30, 2018, Moody's had
approximately $450 million of share repurchase authority remaining.

In June 2018, Moody's issued $300 million of 3.250% senior unsecured
notes due 2021, the proceeds of which were used to repay a portion of an
outstanding term loan. At quarter-end, Moody's had $5.3 billion of
outstanding debt and $910 million of additional borrowing capacity under
its revolving credit facility.

Total cash, cash equivalents and short-term investments at quarter-end
were $1.4 billion, up 20% from December 31, 2017. Cash flow from
operations for the first half of 2018 was $777.3 million, an increase
from $(40.6) million in the first half of 2017. Free cash flow for the
first half of 2018 was $739.4 million, an increase from $(83.4) million
in the first half of 2017. These increases in cash flow were largely due
to payments the Company made in the first quarter of 2017 pursuant to
its 2016 settlement with the Department of Justice and various states
attorneys general.

ASSUMPTIONS AND OUTLOOK FOR FULL YEAR 2018

Moody's outlook for 2018 is based on assumptions about many geopolitical
conditions and macroeconomic and capital market factors, including
interest rates, foreign currency exchange rates, corporate profitability
and business investment spending, mergers and acquisitions, consumer
borrowing and securitization, and the amount of debt issued. These
assumptions are subject to uncertainty, and results for the year could
differ materially from our current outlook. Our guidance assumes foreign
currency translation at end-of-quarter exchange rates. Specifically, our
forecast reflects exchange rates for the British pound (£) of $1.32 to
£1 and for the euro (€) of $1.17 to €1.

A full summary of Moody's guidance as of July 27, 2018, is included in
Table 12 – 2018 Outlook at the end of this press release.

CONFERENCE CALL

Moody's will hold a conference call to discuss second quarter 2018
results as well as its 2018 outlook on July 27, 2018, at 11:30 a.m.
Eastern Time ("ET"). Individuals within the U.S. and Canada can access
the call by dialing +1-877-400-0505. Other callers should dial
+1-720-452-9084. Please dial into the call by 11:20 a.m. ET. The
passcode for the call is 7935614.

The teleconference will also be webcast with an accompanying slide
presentation which can be accessed through Moody's Investor Relations
website, http://ir.moodys.com
under "Featured and Upcoming Events and Presentations". The webcast will
be available until 3:30 p.m. ET on August 25, 2018.

A replay of the teleconference will be available from 3:30 p.m. ET, July
27, 2018 until 3:30 p.m. ET, August 25, 2018. The replay can be accessed
from within the United States and Canada by dialing +1-888-203-1112.
Other callers can access the replay at +1-719-457-0820. The replay
confirmation code is 7935614.

*****

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
$4.2 billion in 2017, employs approximately 12,300 people worldwide and
maintains a presence in 42 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
the Company's business and operations that involve a number of risks and
uncertainties. The forward-looking statements and other information in
this release are made as of the date (except where noted otherwise), and
the Company undertakes no obligation (nor does it intend) to publicly
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 examples of factors, risks and uncertainties that could
cause actual results to differ, perhaps materially, from those indicated
by these forward-looking statements. Those factors, risks and
uncertainties include, but are not limited to, credit market disruptions
or economic slowdowns, which could affect the volume of debt and other
securities issued in domestic and/or global capital markets; other
matters that could affect the volume of debt and other securities issued
in domestic and/or global capital markets, including regulation, credit
quality concerns, changes in interest rates and other volatility in the
financial markets such as that due to the U.K.'s referendum vote whereby
the U.K. citizens voted to withdraw from the EU; the level of merger and
acquisition activity in the U.S. and abroad; the uncertain effectiveness
and possible collateral consequences of U.S. and foreign government
actions affecting credit markets, international trade and economic
policy; concerns in the marketplace affecting our credibility or
otherwise affecting market perceptions of the integrity or utility of
independent credit agency ratings; the introduction of competing
products or technologies by other companies; pricing pressure from
competitors and/or customers; the level of success of new product
development and global expansion; the impact of regulation as an NRSRO,
the potential for new U.S., state and local legislation and regulations,
including provisions in the Financial Reform Act and regulations
resulting from that Act; the potential for increased competition and
regulation in the EU and other foreign jurisdictions; exposure to
litigation related to our rating opinions, as well as any other
litigation, government and regulatory proceedings, investigations and
inquires to which the Company may be subject from time to time;
provisions in the Financial Reform Act legislation modifying the
pleading standards, and EU regulations modifying the liability
standards, applicable to credit rating agencies in a manner adverse to
credit rating agencies; provisions of EU regulations imposing additional
procedural and substantive requirements on the pricing of services and
the expansion of supervisory remit to include non-EU ratings used for
regulatory purposes; the possible loss of key employees; failures or
malfunctions of our operations and infrastructure; any vulnerabilities
to cyber threats or other cybersecurity concerns; the outcome of any
review by controlling tax authorities of the Company's global tax
planning initiatives; exposure to potential criminal sanctions or civil
remedies if the Company fails to comply with foreign and U.S. laws and
regulations that are applicable in the jurisdictions in which the
Company operates, including data protection and privacy laws, sanctions
laws, anti-corruption laws, and local laws prohibiting corrupt payments
to government officials; the impact of mergers, acquisitions or other
business combinations and the ability of the Company to successfully
integrate acquired businesses; currency and foreign exchange volatility;
the level of future cash flows; the levels of capital investments; and a
decline in the demand for credit risk management tools by financial
institutions. Other factors, risks and uncertainties relating to our
acquisition of Bureau van Dijk could cause our actual results to differ,
perhaps materially, from those indicated by these forward-looking
statements, including risks relating to the integration of Bureau van
Dijk's operations, products and employees into Moody's and the
possibility that anticipated synergies and other benefits of the
acquisition will not be realized in the amounts anticipated or will not
be realized within the expected timeframe; risks that the acquisition
could have an adverse effect on the business of Bureau van Dijk or its
prospects, including, without limitation, on relationships with vendors,
suppliers or customers; claims made, from time to time, by vendors,
suppliers or customers; changes in the European or global marketplaces
that have an adverse effect on the business of Bureau van Dijk. These
factors, risks and uncertainties as well as other risks and
uncertainties that could cause Moody's actual results to differ
materially from those contemplated, expressed, projected, anticipated or
implied in the forward-looking statements are described in greater
detail under "Risk Factors" in Part I, Item 1A of the Company's annual
report on Form 10-K for the year ended December 31, 2017, and in other
filings made by the Company from time to time with the SEC or in
materials incorporated herein or therein. Stockholders and investors are
cautioned that the occurrence of any of these factors, risks and
uncertainties may cause the Company's actual results to differ
materially from those contemplated, expressed, projected, anticipated or
implied in the forward-looking statements, which could have a material
and adverse effect on the Company's business, results of operations and
financial condition. New factors may emerge from time to time, and it is
not possible for the Company to predict new factors, nor can the Company
assess the potential effect of any new factors on it.

__________________________
1 Refer to the tables at the
end of this press release for a reconciliation of GAAP to all adjusted
and organic measures mentioned throughout this press release.

 
Table 1 - Consolidated Statements Operations (Unaudited)
     
Three Months Ended Six Months Ended
June 30, June 30,
 
2018 2017 2018 2017
Amounts in millions, except per share amounts                          
 
Revenue   $ 1,175.1   $ 1,000.5   $ 2,301.8   $ 1,975.7  
 
Expenses:
Operating 320.2 284.8 635.1 560.1
Selling, general and administrative 270.5 216.1 541.6 436.8
Depreciation and amortization 48.4 32.9 97.5 65.4
Acquisition-Related Expenses   2.0     6.6     2.8     6.6  
Total expenses 641.1 540.4 1,277.0 1,068.9
                     
Operating income     534.0     460.1     1,024.8     906.8  
Non-operating (expense) income, net
Interest expense, net (53.4 ) (49.7 ) (104.1 ) (97.1 )
Other non-operating income (expense), net 14.9 10.4 15.9 2.7
CCXI Gain - -

-

59.7
Purchase price hedge gain   -     41.2    

-

    41.2  
Total non-operating income (expense), net   (38.5 )   1.9     (88.2 )   6.5  
Income before provision for income taxes 495.5 462.0 936.6 913.3
Provision for income taxes   117.6     148.4     181.9     253.8  
Net income 377.9 313.6 754.7 659.5
Less: net income attributable to noncontrolling interests     1.7       1.4     5.6     1.7  
Net income attributable to Moody's Corporation $ 376.2     $ 312.2   $ 749.1     $ 657.8  
                           
 
                           
Earnings per share attributable to Moody's common shareholders
Basic $ 1.96 $ 1.63 $ 3.91 $ 3.44
Diluted   $ 1.94     $ 1.61     $ 3.85     $ 3.39  
 
Weighted average number of shares outstanding
Basic 191.9 191.0 191.6 191.1
Diluted     194.4       193.8       194.5       194.1  
 

 
Table 2 - Supplemental Revenue Information (Unaudited)
       
Three Months Ended Six Months Ended
June 30, June 30,
Amounts in millions   2018   2017   2018   2017
 
Moody's Investors Service
Corporate Finance $ 377.6 $ 355.8 $ 755.3 $ 708.6
Structured Finance 141.6 119.2 271.3 219.4
Financial Institutions 120.6 102.4 234.9 214.7
Public, Project and Infrastructure Finance 108.1 104.7 201.3 202.8
MIS Other 4.4 4.6 9.4 9.4
Intersegment royalty   30.6     27.0     60.4     53.0  
Sub-total MIS 782.9 713.7 1,532.6 1,407.9
Eliminations   (30.6 )   (27.0 )   (60.4 )   (53.0 )
Total MIS revenue   752.3     686.7     1,472.2     1,354.9  
 
Moody's Analytics
Research, Data and Analytics 279.9 180.9 549.1 356.3
Enterprise Risk Solutions 105.5 97.3 205.6 193.2
Professional Services 37.4 35.6 74.9 71.3
Intersegment revenue   2.4     3.8     7.4     7.5  
Sub-total MA 425.2 317.6 837.0 628.3
Eliminations   (2.4 )   (3.8 )   (7.4 )   (7.5 )
Total MA revenue   422.8     313.8     829.6     620.8  
 
Total Moody's Corporation revenue $ 1,175.1   $ 1,000.5   $ 2,301.8   $ 1,975.7  
 
                         
 
Moody's Corporation revenue by geographic area
United States $ 625.4 $ 567.8 $ 1,223.1 $ 1,145.6
International   549.7     432.7     1,078.7     830.1  
 
$ 1,175.1   $ 1,000.5   $ 2,301.8   $ 1,975.7  
 

 
Table 3 - Selected Consolidated Balance Sheet Data (Unaudited)
   
June 30, December 31,
2018 2017
Amounts in millions
 
Cash and cash equivalents $ 1,314.5 $ 1,071.5
Short-term investments 101.2 111.8
Total current assets 2,839.7 2,580.6
Non-current assets 5,911.9 6,013.6
Total assets 8,751.6 8,594.2
Total current liabilities (1) 1,843.9 2,063.3
Total debt (2) 5,324.0 5,540.5
Other long-term liabilities 1,513.4 1,534.7
Total shareholders' equity (deficit) 460.1 (114.9 )
 
Total liabilities and shareholders' equity (deficit) 8,751.6 8,594.2
 
Actual number of shares outstanding 191.9 191.0
 
(1) The June 30, 2018 and December 31, 2017 amounts
include $389.8 million and $429.4 million, respectively, of debt and
commercial paper classified as a current liability as the maturities
are within twelve months of the balance sheet date.
(2) Includes debt classified in both current liabilities
and long-term debt.
 

 
Table 4 - Selected Consolidated Balance Sheet Data (Unaudited)
Continued
         
Total debt consists of the following:
June 30, 2018
Amounts in millions

Principal
Amount

Fair Value of
Interest Rate
Swaps
(1)

Unamortized
(Discount)
Premium

Unamortized
Debt Issuance
Costs

Carrying
Value

Notes Payable:
5.50% 2010 Senior Notes, due 2020 $ 500.0 $ (7.3 ) $ (0.8 ) $ (0.9 ) $ 491.0
4.50% 2012 Senior Notes, due 2022 500.0 (2.8 ) (1.8 ) (1.6 ) 493.8
4.875% 2013 Senior Notes, due 2024 500.0 - (1.7 ) (2.2 ) 496.1
2.75% 2014 Senior Notes (5-Year), due 2019 450.0 (4.4 ) (0.2 ) (0.7 ) 444.7
5.25% 2014 Senior Notes (30-Year), due 2044 600.0 - 3.3 (5.6 ) 597.7
1.75% 2015 Senior Notes, due 2027 583.8 - - (3.3 ) 580.5
2.75% 2017 Senior Notes, due 2021 500.0 - (1.1 ) (2.9 ) 496.0
2017 Floating Rate Senior Notes, due 2018 300.0 - - (0.1 ) 299.9
2.625% 2017 Senior Notes, due 2023 500.0 - (1.0 ) (3.2 ) 495.8
3.25% 2017 Senior Notes, due 2028 500.0 - (5.0 ) (3.8 ) 491.2
3.25% 2018 Senior Notes, due 2021 300.0 - (0.4 ) (1.7 ) 297.9
2017 Term Loan Facility, due 2020 50.0 - - (0.5 ) 49.5
Commercial Paper   90.0   -     (0.1 )   -     89.9  
Total debt $ 5,373.8 $ (14.5 ) $ (8.8 ) $ (26.5 ) $ 5,324.0  
Current portion   (389.8 )
Total long-term debt $ 4,934.2  
 
December 31, 2017

Principal
Amount

Fair Value of
Interest Rate
Swaps (1)

Unamortized
(Discount)
Premium

Unamortized
Debt Issuance
Costs

Carrying
Value

Notes Payable:
5.50% 2010 Senior Notes, due 2020 $ 500.0 $ - $ (1.0 ) $ (1.2 ) $ 497.8
4.50% 2012 Senior Notes, due 2022 500.0 (0.8 ) (2.0 ) (1.7 ) 495.5
4.875% 2013 Senior Notes, due 2024 500.0 - (1.8 ) (2.4 ) 495.8
2.75% 2014 Senior Notes (5-Year), due 2019 450.0 (2.2 ) (0.2 ) (1.1 ) 446.5
5.25% 2014 Senior Notes (30-Year), due 2044 600.0 - 3.3 (5.7 ) 597.6
1.75% 2015 Senior Notes, due 2027 600.4 - - (3.6 ) 596.8
2.75% 2017 Senior Notes, due 2021 500.0 - (1.3 ) (3.2 ) 495.5
2017 Floating Rate Senior Notes, due 2018 300.0 - - (0.5 ) 299.5
2.625% 2017 Senior Notes, due 2023 500.0 - (1.1 ) (3.5 ) 495.4
3.25% 2017 Senior Notes, due 2028 500.0 - (5.2 ) (3.9 ) 490.9
2017 Term Loan Facility, due 2020 500.0 - - (0.7 ) 499.3
Commercial Paper   130.0   -     (0.1 )   -     129.9  
Total debt $ 5,580.4 $ (3.0 ) $ (9.4 ) $ (27.5 ) $ 5,540.5  
Current portion   (429.4 )
Total long-term debt $ 5,111.1  
 

(1) The Company has entered into interest rate swaps on
the 2010 Senior Notes, the 2012 Senior Notes, the 2014 Senior
Notes (5-Year) and the 2017 Senior Notes due 2021.

 

 
Table 5 - Non-Operating (Expense) Income, Net
       
Three Months Ended Six Months Ended
June 30, June 30,
 
  2018     2017     2018     2017  
Amounts in millions                
 
Interest:

Expense on borrowings

$ (49.4 ) $ (46.4 ) $ (100.7 ) $ (91.1 )
Income 3.4 4.6 6.6 8.7
UTPs and other tax related liabilities (2.8 ) (3.4 ) (1.0 ) (5.5 )
Net periodic pension costs-interest component(1) (4.9 ) (4.7 ) (9.6 ) (9.7 )
Interest Capitalized   0.3     0.2     0.6     0.5  
Total interest expense, net $ (53.4 ) $ (49.7 ) $ (104.1 ) $ (97.1 )
Other non-operating (expense) income, net:
FX gain (loss) $ 6.2 $ 3.8 $ 0.3 $ (5.8 )
Net periodic pension costs - other components(1) 2.9 2.1 5.2 3.8
Joint venture income 4.6 4.0 5.9 5.0
Other   1.2     0.5     4.5     (0.3 )
Other non-operating (expense) income, net   14.9     10.4     15.9     2.7  
CCXI Gain (2) - - - 59.7
Purchase Price Hedge Gain (3)   -     41.2     -     41.2  
Total non-operating (expense) income, net $ (38.5 ) $ 1.9   $ (88.2 ) $ 6.5  
 

(1) The Company adopted a new accounting standard
relating to the accounting for pension costs in the first quarter
of 2018 whereby all components of pension expense except for the
service cost component are required to be presented in other
non-operating income (expense). The service cost component
continues to be reported as a component of operating and selling,
general and administrative (SG&A) expense. This standard required
retrospective adoption resulting in the reclassification of prior
period results.

(2) Reflects the non-cash, non-taxable gain from a
strategic realignment and expansion involving Moody's China
affiliate, China Cheng Xin International Credit Rating Co. Ltd.
(3) Reflects a gain on a foreign currency collar to
economically hedge the Bureau van Dijk euro-denominated purchase
price.
 

Table 6 - 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 Acquisition-Related Expenses.

               
Three Months Ended June 30,
2018

2017 (1)

Amounts in millions MIS MA Eliminations Consolidated MIS MA Eliminations Consolidated
 
Revenue $ 782.9 $ 425.2 $ (33.0 ) $ 1,175.1 $ 713.7 $ 317.6 $ (30.8 )

$

1,000.5

Operating, selling, general and administrative expense   303.6     320.1     (33.0 )   590.7     289.7     242.0     (30.8 )  

500.9

 
Adjusted operating income   479.3     105.1     -     584.4     424.0     75.6     -    

499.6

 
Depreciation and amortization 16.7 31.7 - 48.4 18.9 14.0 -

32.9

Acquisition-Related Expenses   -     2.0     -     2.0     -     6.6     -    

6.6

 
Operating income $ 462.6   $ 71.4   $ -   $ 534.0   $ 405.1   $ 55.0   $ -   $

460.1

 
Adjusted operating margin 61.2 % 24.7 % 49.7 %

59.4

%

23.8

%

49.9

%

Operating margin 59.1 % 16.8 % 45.4 %

56.8

%

17.3

%

46.0

%

 
Six Months Ended June 30,
2018

2017 (1)

Amounts in millions MIS MA Eliminations Consolidated MIS MA Eliminations Consolidated
 
Revenue $ 1,532.6 $ 837.0 $ (67.8 ) $ 2,301.8 $ 1,407.9 $ 628.3 $ (60.5 ) $ 1,975.7
Operating, selling, general and administrative expense   614.0     630.5     (67.8 )   1,176.7     575.9     481.5     (60.5 )   996.9  
Adjusted operating income   918.6     206.5     -     1,125.1     832.0     146.8     -     978.8  
Depreciation and amortization 33.5 64.0 - 97.5 37.8 27.6 - 65.4
Acquisition-Related Expenses   -     2.8     -     2.8     -     6.6     -     6.6  
Operating income $ 885.1   $ 139.7   $ -   $ 1,024.8   $ 794.2   $ 112.6   $ -   $ 906.8  
Adjusted operating margin 59.9 % 24.7 % 48.9 %

59.1

%

23.4

%

49.5

%

Operating margin 57.8 % 16.7 % 44.5 %

56.4

%

17.9

%

45.9

%

 
(1) Pursuant to the adoption of a new accounting standard
relating to pension accounting, which required retrospective
adoption, only the service cost component of net periodic pension
expense will be classified within operating and SG&A expenses with
the remaining components being classified as non-operating expenses.
Prior period segment results have been restated to reflect this
reclassification. Accordingly, operating and SG&A expenses for MIS
and MA for the three months ended June 30, 2017 were reduced by $1.7
million and $0.9 million. For the six months ended June 30, 2017
operating and SG&A expenses for MIS and MA were reduced by $3.8
million and $2.1 million, respectively.
 

Table 7 - Transaction and Relationship Revenue

The tables below summarize the split between transaction and
relationship revenue. In the MIS segment, excluding MIS Other,
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 MIS
Other, transaction revenue represents revenue from professional services
and outsourcing engagements and relationship revenue represents
subscription-based revenues. In the MA segment, relationship revenue
represents subscription-based revenues and software maintenance revenue.
Transaction revenue in MA represents perpetual software license fees and
revenue from software implementation services, risk management advisory
projects, training and certification services, and research and
analytical engagements.

                     
Three Months Ended June 30,
Amounts in millions 2018 2017
Transaction Relationship Total Transaction Relationship Total
Corporate Finance $ 274.3 $ 103.3 $ 377.6 $ 262.5 $ 93.3 $ 355.8
73% 27% 100% 74% 26% 100%
Structured Finance $ 95.3 $ 46.3 $ 141.6 $ 75.2 $ 44.0 $ 119.2
67% 33% 100% 63% 37% 100%
Financial Institutions $ 56.2 $ 64.4 $ 120.6 $ 43.9 $ 58.5 $ 102.4
47% 53% 100% 43% 57% 100%
Public, Project and Infrastructure Finance $ 69.7 $ 38.4 $ 108.1 $ 67.2 $ 37.5 $ 104.7
64% 36% 100% 64% 36% 100%
MIS Other $ 0.4 $ 4.0 $ 4.4 $ 0.3 $ 4.3 $ 4.6
9% 91% 100% 7% 93% 100%
Total MIS $ 495.9 $ 256.4 $ 752.3 $ 449.1 $ 237.6 $ 686.7
66% 34% 100% 65% 35% 100%
Moody's Analytics $ 66.5 $ 356.3 $ 422.8 $ 62.8 $ 251.0 $ 313.8
16% 84% 100% 20% 80% 100%
Total Moody's Corporation $ 562.4 $ 612.7 $ 1,175.1 $ 511.9 $ 488.6 $ 1,000.5
48% 52% 100% 51% 49% 100%
 
Six Months Ended June 30,
Amounts in millions 2018 2017
Transaction Relationship Total Transaction Relationship Total
Corporate Finance $ 549.2 $ 206.1 $ 755.3 $ 523.1 $ 185.5 $ 708.6
73% 27% 100% 74% 26% 100%
Structured Finance $ 178.4 $ 92.9 $ 271.3 $ 132.7 $ 86.7 $ 219.4
66% 34% 100% 60% 40% 100%
Financial Institutions $ 106.2 $ 128.7 $ 234.9 $ 97.3 $ 117.4 $ 214.7
45% 55% 100% 45% 55% 100%
Public, Project and Infrastructure Finance $ 124.1 $ 77.2 $ 201.3 $ 126.4 $ 76.4 $ 202.8
62% 38% 100% 62% 38% 100%
MIS Other $ 1.0 $ 8.4 $ 9.4 $ 0.6 $ 8.8 $ 9.4
11% 89% 100% 6% 94% 100%
Total MIS $ 958.9 $ 513.3 $ 1,472.2 $ 880.1 $ 474.8 $ 1,354.9
65% 35% 100% 65% 35% 100%
Moody's Analytics $ 127.3 $ 702.3 $ 829.6 $ 127.4 $ 493.4 $ 620.8
15% 85% 100% 21% 79% 100%
Total Moody's Corporation $ 1,086.2 $ 1,215.6 $ 2,301.8 $ 1,007.5 $ 968.2 $ 1,975.7
47% 53% 100% 51% 49% 100%
 

Adjusted 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 adjusted 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 adjusted measures, as
defined by the Company, are not necessarily comparable to similarly
defined measures of other companies. Furthermore, these adjusted
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.

Table 8 - Adjusted Operating Income and Adjusted Operating Margin

The Company presents Adjusted Operating Income because management deems
this metric to be a useful measure of assessing the operating
performance of Moody's. Adjusted Operating Income excludes depreciation
and amortization and Acquisition-Related Expenses. Depreciation and
amortization are excluded because companies utilize productive assets of
different ages and use different methods of acquiring and depreciating
productive assets. Acquisition-Related Expenses consist of expenses
incurred to complete and integrate the acquisition of Bureau van Dijk
and are excluded due to the material nature of these expenses on an
annual basis which are not expected to recur at this dollar magnitude
subsequent to the completion of the multi-year integration effort.
Acquisition-Related Expenses from previous acquisitions were not
material. Management believes that the exclusion of depreciation and
amortization and Acquisition-Related Expenses, as detailed in the
reconciliation below, allows for an additional perspective on the
Company's operating results from period to period and across companies.
The Company defines Adjusted Operating Margin as Adjusted Operating
Income divided by revenue.

   
Three Months Ended Six Months Ended
June 30, June 30,
Amounts in millions   2018       2017     2018       2017  
Operating income $ 534.0 $ 460.1 $ 1,024.8 $ 906.8
Depreciation & amortization 48.4 32.9 97.5 65.4
Acquisition-Related Expenses   2.0       6.6     2.8     6.6  
Adjusted operating income $ 584.4   $ 499.6   $ 1,125.1   $ 978.8  
Operating margin 45.4 % 46.0 % 44.5 % 45.9 %
Adjusted operating margin 49.7 % 49.9 % 48.9 % 49.5 %
 

Table 9 - 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 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.
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.

 
Six Months Ended
June 30,
Amounts in millions   2018       2017  
Net cash flows provided by (used in) operating activities $ 777.3 $ (40.6 )
Capital additions   (37.9 )   (42.8 )
Free cash flow $ 739.4   $ (83.4 )
Net cash flows (used in) provided by investing activities $ (45.3 ) $ 39.9
Net cash flows (used in) provided by financing activities $ (467.6 ) $ 1,170.5
 

Table 10 - Organic Revenue and Growth Measures

The Company presents the organic revenue and growth for the MA segment
and the RD&A LOB because management deems this metric to be a useful
measure which provides additional perspective in assessing the revenue
growth of the Company's MA segment and RD&A LOB excluding the revenue
impacts from Bureau van Dijk, a material acquisition. The organic
revenue and growth in the three months ended and six months ended June
30, 2018 both exclude revenue from Bureau van Dijk, which was acquired
in August 2017. The Company calculates organic revenue and growth by
excluding $80.0 million and $153.5 million of revenue from Bureau van
Dijk in the second quarter and the first half of 2018, respectively
(which is net of an approximate $6 million and $16 million reduction,
respectively, to revenue due to a $53 million fair value adjustment, as
part of acquisition accounting, to acquired deferred revenue). Below is
a reconciliation of the Company's organic dollar revenue and growth
rates:

  Three Months Ended June 30,     Six Months Ended June 30,
Amounts in millions   2018     2017   Change   Growth   2018     2017   Change   Growth
MA revenue $ 422.8 $ 313.8 $ 109.0 35% $ 829.6 $ 620.8 $ 208.8 34%
Bureau van Dijk revenue   (80.0 )     -   (80.0 )     (153.5 )     -   (153.5 )  
Organic MA revenue $ 342.8   $ 313.8 $ 29.0   9% $ 676.1   $ 620.8 $ 55.3   9%
 
 
Three Months Ended June 30,

 

Amounts in millions   2018   2017 Change Growth

 

 

 

 

RD&A revenue $ 279.9 $ 180.9 $ 99.0 55%

 

 

 

 

 

 

 

Bureau van Dijk revenue   (80.0 )     -   (80.0 )  

 

 

 

 

 

Organic RD&A revenue $ 199.9   $ 180.9 $ 19.0   11%

 

 

 

 

 

 

 

 

Table 11 - Adjusted Net Income and Adjusted Diluted EPS Attributable
to Moody's Common Shareholders

Beginning in the third quarter of 2017, the Company modified this
adjusted measure to exclude the impact of amortization of acquired
intangible assets as companies utilize intangible assets with different
ages and have different methods of acquiring and amortizing intangible
assets. Furthermore, the timing and magnitude of business combination
transactions are not predictable and the purchase price allocated to
amortizable intangible assets and the related amortization period are
unique to each acquisition and can vary significantly from period to
period and across companies. Also, management believes that excluding
acquisition-related amortization expense provides additional perspective
when comparing operating results from period to period, and with both
acquisitive and nonacquisitive peer companies.

In addition to excluding acquisition-related amortization expense,
adjusted net income and adjusted diluted earnings per share exclude the
CCXI Gain, the Purchase Price Hedge Gain and Acquisition-Related
Expenses. The Company excludes these items to provide additional
perspective on the Company's operating results from period to period and
across companies as the frequency and magnitude of similar transactions
may vary widely across periods. Additionally, the Acquisition-Related
Expenses are excluded due to the material nature of these expenses on an
annual basis which are not expected to recur at this dollar magnitude
subsequent to the completion of the multi-year integration effort
relating to Bureau van Dijk. Acquisition-Related Expenses from previous
acquisitions were not material.

Below is a reconciliation of this measure to its most directly
comparable U.S. GAAP amount:

         
Three months ended June 30, Six months ended June 30,
Amounts in millions 2018     2017 2018     2017
Net income attributable to Moody's common shareholders   $ 376.2       $ 312.2   $ 749.1       $ 657.8
CCXI Gain - - - (59.7 )
Pre-Tax Purchase Price Hedge Gain $ - $ (41.2 ) $ - $ (41.2 )
Tax on Purchase Price Hedge Gain   -     15.9     -     15.9  
Net Purchase Price Hedge Gain - (25.3 ) - (25.3 )
Pre-Tax Acquisition-Related Expenses $ 2.0 $ 6.6 $ 2.8 $ 6.6
Tax on Acquisition-Related Expenses   (0.4 )   -     (0.6 )   -  
Net Acquisition-Related Expenses (1) 1.6 6.6 2.2 6.6
Pre-Tax Acquisition-Related Intangible Amortization Expenses $ 25.1 $ 8.6 $ 50.8 $ 17.1
Tax on Acquisition-Related Intangible Amortization Expenses   (5.6 )   (2.4 )   (11.5 )   (4.7 )
Net Acquisition-Related Intangible Amortization Expenses   19.5   6.2     39.3   12.4  
Adjusted Net Income $ 397.3 $ 299.7   $ 790.6 $ 591.8  
                               
                               
Three months ended June 30, Six months ended June 30,
2018     2017 2018     2017
Earnings per share attributable to Moody's common shareholders $ 1.94 $ 1.61 $ 3.85 $ 3.39
CCXI Gain - - - (0.31 )
Pre-Tax Purchase Price Hedge Gain $ - $ (0.21 ) $ - $ (0.21 )
Tax on Purchase Price Hedge Gain   -     0.08     -     0.08  
Net Purchase Price Hedge Gain - (0.13 ) - (0.13 )
Pre-Tax Acquisition-Related Expenses $ 0.01 $ 0.03 $ 0.01 $ 0.04
Tax on Acquisition-Related Expenses   -     -     -     -  
Net Acquisition-Related Expenses (1) 0.01 0.03 0.01 0.04
Pre-Tax Acquisition-Related Intangible Amortization Expenses $ 0.13 $ 0.04 $ 0.26 $ 0.09
Tax on Acquisition-Related Intangible Amortization Expenses   (0.04 ) -   (0.06 )   (0.03 )
Net Acquisition-Related Intangible Amortization Expenses   0.09   0.04     0.20   0.06  
Adjusted Diluted EPS $ 2.04 $ 1.55   $ 4.06 $ 3.05  
                               
 
(1) Certain of these Acquisition-Related Expenses are not
deductible for tax.
 

Table 12 - 2018 Outlook

Moody's outlook for 2018 is based on assumptions about many
macroeconomic and capital market factors, including interest rates,
foreign currency exchange rates, corporate profitability and business
investment spending, merger and acquisitions, consumer borrowing and
securitization, and the amount of debt issued. These assumptions are
subject to uncertainty, and results for the year could differ materially
from our current outlook. Our guidance assumes foreign currency
translation at end-of-quarter exchange rates. Specifically, our forecast
reflects exchange rates for the British pound (£) of $1.32 to £1 and for
the euro (€) of $1.17 to €1.

         
Full Year 2018 Moody's Corporation Guidance as of July 27, 2018
   
MOODY'S CORPORATION   Current guidance   Last publicly disclosed guidance
Revenue increase in the high-single-digit percent range increase in the low-double-digit percent range
Operating expenses increase in the high-single-digit percent range increase in the low-double-digit percent range
Depreciation & amortization approximately $195 million approximately $200 million
Operating margin approximately 44% 43% - 44%
Adjusted operating margin(1) 48% - 49% approximately 48%
Effective tax rate 22% - 23% NC
Diluted EPS $7.20 to $7.40 NC
Adjusted Diluted EPS(1) $7.65 to $7.85 NC
Capital expenditures approximately $105 million approximately $120 million
Operating cash flow approximately $1.7 billion NC
Free cash flow(1) approximately $1.6 billion NC
Share repurchases   approximately $200 million (subject to available cash, market
conditions and other ongoing capital allocation decisions)
  NC
NC - There is no difference between the Company's current guidance
and the last publicly disclosed guidance for this item.
Note: All last publicly disclosed guidance is as of April 27, 2018.
(1) These metrics are adjusted measures. See below for
reconciliation of these measures to their comparable GAAP measure.
 
 
Full Year 2018 Moody's Corporation Guidance as of July 27, 2018
 
MIS   Current guidance   Last publicly disclosed guidance
MIS global increase in the mid-single-digit percent range NC
MIS U.S. increase in the low-single-digit percent range NC
MIS non-U.S. increase in the mid-single-digit percent range increase in the high-single-digit percent range
CFG increase in the low-single-digit percent range increase in the mid-single-digit percent range
SFG increase in the low-double-digit percent range increase in the high-single-digit percent range
FIG increase in the mid-single-digit percent range NC
PPIF   decrease in the mid-single-digit percent range   decrease in the low-single-digit percent range
MA        
MA global(2) increase in the low-twenties percent range increase in the mid-twenties percent range
MA U.S. increase in the high-single-digit percent range increase in the low-double-digit percent range
MA non-U.S. increase in the low-thirties percent range increase in the mid-thirties percent range
RD&A(2) increase in the high-thirties percent range increase approximately 40%
ERS decrease in the low-single-digit percent range increase in the low-single-digit percent range
PS   increase in the high-single-digit percent range   NC
NC - There is no difference between the Company's current guidance
and the last publicly disclosed guidance for this item.
Note: All last publicly disclosed guidance is as of April 27, 2018.

(2) Organic MA global revenue is now expected to increase in the
high-single-digit percent range and organic RD&A revenue is now
expected to increase in the low-teens percent range.

 

Table 12 - 2018 Outlook Continued

The following are reconciliations of the Company's adjusted forward
looking measures to their comparable GAAP measure:

 
Projected for the Year Ended
December 31, 2018
Operating margin guidance Approximately 44%
Depreciation and amortization Approximately 4.0%
Acquisition-Related Expenses Approximately 0.5%
Adjusted operating margin guidance 48% - 49%
 
 
Projected for the Year Ended
December 31, 2018
Operating cash flow guidance Approximately $1.7 billion
Less: Capital expenditures Approximately $105 million
Free cash flow guidance Approximately $1.6 billion
 
 
Projected for the Year Ended
December 31, 2018
MA global revenue Increase in the low-twenties percent range
(Partial year impact of Bureau van Dijk)
Organic MA global revenue Increase in the high-single-digit percent range
 
 
Projected for the Year Ended

December 31, 2018

RD&A revenue Increase in the high-thirties percent range
(Partial year impact of Bureau van Dijk)
Organic RD&A revenue Increase in the low-teens percent range
 
 
Projected for the Year Ended
December 31, 2018
Diluted EPS $7.20 to $7.40
Acquisition-Related Intangible Amortization Expenses Approximately $0.40
Acquisition-Related Expenses Approximately $0.05
Adjusted diluted EPS $7.65 to $7.85
 

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