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Moody’s Corporation Reports Results for Third Quarter 2011

Summary of Results for Third Quarter 2011

Moody’s reported revenue of $531.3 million for the three months ended September 30, 2011, an increase of 4% from $513.3 million for the third quarter of 2010. Operating income for the quarter was $196.1 million, a 4% increase from $188.9 million for the same period last year. Diluted earnings per share were $0.57 for the third quarter of 2011, including $0.03 from the favorable resolution of a state tax matter.

“Despite difficult debt issuance conditions, Moody’s achieved year-on-year revenue and operating income growth in the third quarter of 2011, with strong performance by Moody’s Analytics offsetting a modest revenue decline at Moody’s Investors Service,” said Raymond McDaniel, Chairman and Chief Executive Officer of Moody’s. “Though volatile market conditions in the U.S. and Europe may continue, we are reaffirming our 2011 EPS guidance of $2.38 to $2.48 and we expect to be at the upper end of the range.”

Third Quarter Revenue

For Moody’s Corporation overall, global revenue of $531.3 million increased 4% from the third quarter of 2010. Excluding the favorable impact of foreign currency translation, revenue grew 1 percent. U.S. revenue of $274.3 million for the third quarter of 2011 decreased 1% from the third quarter of 2010, while revenue generated outside the U.S. of $257.0 million increased 9% from the prior-year period. Revenue generated outside the U.S. represented 48% of Moody’s total revenue for the quarter, up from 46% in the year-ago period.

Global revenue for Moody’s Investors Service (“MIS”) for the third quarter of 2011 was $351.4 million, a decrease of 2% from the prior-year period. Excluding the impact of foreign currency translation, revenue was down 5 percent. U.S. revenue of $198.8 million for the third quarter of 2011 decreased 4% from the third quarter of 2010. Outside the U.S., revenue of $152.6 million increased 1% from the year-ago period.

Within MIS, global corporate finance revenue of $129.0 million in the third quarter of 2011 was down 11% from the same quarter of 2010 reflecting weaker issuance primarily in speculative grade bonds. Corporate finance revenue was down 11% in the U.S. and 10% outside the U.S.

Global structured finance revenue totaled $82.0 million for the third quarter of 2011, an increase of 17% from a year earlier. U.S. structured finance revenue grew 20% from the year-ago period, primarily due to strength in commercial real estate. Non-U.S. structured finance revenue increased 14%, driven primarily by European covered bonds.

Global financial institutions revenue of $72.1 million in the third quarter of 2011 decreased 2% compared to the prior-year period. U.S. financial institutions revenue declined 1%, while non-U.S. revenue fell 3 percent.

Global public, project and infrastructure finance revenue was $68.3 million for the third quarter of 2011, a decrease of 2% from the third quarter of 2010. U.S. revenue declined 8% from the prior-year period reflecting lower project and infrastructure finance. Non-U.S. revenue grew 13%, primarily due to gains in infrastructure finance.

Global revenue for Moody’s Analytics (“MA”) for the third quarter of 2011 was $179.9 million, up 16% from the third quarter of 2010. The impact of foreign currency translation was negligible. Revenue from research, data and analytics of $115.3 millionincreased by 9% from the prior-year period and risk management software revenue of $47.9 million grew 12 percent. Professional services revenue of $16.7 million more than doubled from the prior-year period, primarily reflecting the acquisition of CSI Global Education in November 2010.

In the U.S., MA revenue of $75.5 million for the third quarter of 2011 increased 6% from the prior-year period. Outside the U.S., revenue of $104.4 million grew 24% as compared with the same quarter of 2010.

Third Quarter Expenses

Third quarter 2011 expenses for Moody’s Corporation of $335.2 million were 3% higher than in the prior-year period. Excluding the impact of foreign currency translation, expenses grew 1 percent. Moody’s reported operating margin for the third quarter of 2011 was 36.9%, essentially flat to the third quarter of 2010.

Moody’s effective tax rate was 28.5% for the third quarter of 2011, compared with 24.4% for the prior-year period. The increase in the effective tax rate was primarily due to a tax benefit associated with foreign earnings in 2010, partially offset by a tax benefit from the settlement of state tax audits in the current period.

Year-to-Date Results

Moody’s Corporation revenue for the first nine months of 2011 totaled $1,713.6 million, an increase of 17% from $1,467.7 million for the same period of 2010. Excluding the impact of foreign currency translation, revenue growth was 15 percent. Revenue at Moody’s Investors Service totaled $1,202.0 million for the first nine months of 2011, an increase of 18% from the prior-year period. Moody’s Analytics revenue rose 15% from the first nine months of 2010 to $511.6 million.

Moody’s Corporation expenses for the first nine months of 2011 were $997.3 million, 12% higher than a year ago. Excluding the impact of foreign currency translation, expenses for the first nine months of 2011 grew 9 percent. Moody’s Corporation operating income for the first nine months of 2011 was $716.3 million, an increase of 24% from $576.2 million for the same period of 2010. The impact of foreign currency translation on operating income was negligible. Diluted earnings per share of $2.06 for the first nine months of 2011 included a legacy tax benefit of $0.03, as well as other tax benefits totaling $0.09. Excluding legacy tax benefits in both periods, diluted earnings per share of $2.03 for the first nine months of 2011 increased 32% from $1.54 for the first nine months of 2010.

Capital Allocation and Liquidity

During the third quarter of 2011, Moody’s repurchased 6.8 million shares and issued 0.1 million shares under employee stock-based compensation plans. Outstanding shares as of September 30, 2011 totaled 222.0 million, representing a 5% decline from a year earlier. As of September 30, 2011, Moody’s had $0.9 billion of share repurchase authority remaining under its current program. At quarter-end, Moody’s had $1.2 billion of outstanding debt and $1.0 billion of additional debt capacity available under its revolving credit facility. At quarter-end, total cash and cash equivalents were $854.2 million, an increase of $60.5 million from a year earlier.

Assumptions and Outlook for Full-Year 2011

Moody’s outlook for 2011 is based on assumptions about many macroeconomic and capital market factors, including interest rates, corporate profitability and business investment spending, merger and acquisition activity, and consumer borrowing and securitization. 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 materially from the current outlook. Our guidance assumes foreign currency translation at end-of-quarter exchange rates.

Moody’s is reaffirming its EPS guidance for the full-year 2011 and expects to be at the upper end of the range. For Moody’s overall, the Company now expects full-year 2011 revenue to grow in the low-double-digit percent range. Full-year 2011 expenses are now projected to increase in the high-single-digit percent range. Full-year 2011 operating margin is now projected to be approximately 39%, due to the planned increase in expenses and lower expected revenue in the fourth quarter. The effective tax rate is now expected to be approximately 31 percent. Share repurchase remains subject to available cash flow and other capital allocation decisions. The Company still expects diluted earnings per share for full-year 2011 in the range of $2.38 to $2.48 but expects to be at the upper end of the range.

For the global MIS business, revenue for full-year 2011 is now expected to increase in the high-single-digit percent range. Within the U.S., MIS revenue is now expected to increase in the mid-single-digit percent range, while non-U.S. revenue is now projected to increase in the low-teens percent range. Corporate finance revenue is now forecasted to grow in the low-double-digit percent range. Revenue from structured finance is now projected to increase in the mid-teens percent range. Financial institutions is now forecasted to increase in the mid-single-digit percent range, while public, project and infrastructure finance revenue is still expected to be about flat.

For Moody’s Analytics, full-year 2011 revenue is still expected to increase in the low-double-digit percent range. Revenue growth is still projected in the mid-single-digit percent range for research, data and analytics and in the low- to mid-single-digit percent range for risk management software. Professional services revenue is still projected to more than double, primarily reflecting revenue from the late 2010 acquisition of CSI Global Education and very strong performance in the risk management advisory business. MA revenue is now expected to increase in the high-single-digit percent range in the U.S. and in the mid-teens percent range outside the U.S.

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