Back to GetFilings.com

Table of Contents

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2002

OR

		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the transition period from ___________________to___________________

1-14037

Commission file number

MOODY’S CORPORATION

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code:   (212) 553-0300

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes   No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

Table of Contents

TABLE OF CONTENTS

MOODY’S CORPORATION

INDEX TO FORM 10-Q

2

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

MOODY’S CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)

The accompanying notes are an integral part of the condensed
consolidated financial statements.

3

Table of Contents

MOODY’S CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)

The accompanying notes are an integral part of the
condensed consolidated financial statements.

4

Table of Contents

MOODY’S CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN MILLIONS)

The accompanying notes are an integral part of the
condensed consolidated financial statements.

5

Table of Contents

MOODY’S CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.     BACKGROUND AND BASIS OF PRESENTATION

Moody’s Corporation (“Moody’s” or the “Company”), a global credit rating, research and risk analysis firm, publishes credit opinions, research and ratings on fixed-income securities, issuers of securities and other credit obligations. The Company publishes rating opinions on a broad range of credit obligations issued in domestic and international markets, including various corporate and governmental obligations, structured finance securities and commercial paper programs. The Company also publishes investor-oriented credit research including in-depth research on major issuers, industry studies, special comments and credit opinion handbooks. Moody’s KMV, which consists of the combined business of KMV LLC and KMV Corporation (“KMV”) (acquired in April 2002) and Moody’s Risk Management Services, develops and distributes credit risk management software and other related products and services used by banks and other financial institutions in their commercial lending, portfolio management and other activities. It also provides modeling tools, analytics, credit education materials, seminars, computer-based lending simulations and other products and services.

The Company operated as part of The Dun & Bradstreet Corporation (“Old D&B”) until September 30, 2000 (the “Distribution Date”), when Old D&B separated into two publicly traded companies—Moody’s Corporation and The New D&B Corporation (“New D&B”). At that time, Old D&B distributed to its shareholders shares of New D&B stock. New D&B comprised the business of Old D&B’s Dun & Bradstreet operating company (the “D&B Business”). The remaining business of Old D&B consisted solely of the business of providing ratings and related research and risk management services (the “Moody’s Business”) and was renamed “Moody’s Corporation.” The method by which Old D&B distributed to its shareholders its shares of New D&B stock is hereinafter referred to as the “2000 Distribution.”

These interim financial statements have been prepared in accordance with the instructions to Form 10-Q and should be read in conjunction with the Company’s consolidated financial statements and related notes in the Company’s 2001 Annual Report on Form 10-K filed on March 22, 2002. The results of interim periods are not necessarily indicative of results for the full year or any subsequent period. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of financial position, results of operations and cash flows at the dates and for the periods presented have been included.

2.     RECONCILIATION OF SHARES USED IN COMPUTING EARNINGS PER SHARE

Below is a reconciliation of basic weighted average shares outstanding to diluted weighted average shares outstanding:

There were no antidilutive options to purchase shares of common stock for the three month or six month periods ended June 30, 2002 and 2001, respectively.

3.     ACQUISITIONS

KMV

On April 12, 2002, Moody’s acquired the business comprising KMV, which provides quantitative estimates of credit default risk and values of credit sensitive financial instruments, and develops and distributes credit risk management software and other related

6

Table of Contents

products and services used by banks, money managers, and other financial institutions in their commercial lending, portfolio management and other activities, in an all cash transaction for $210 million. The results of KMV have been included in Moody’s consolidated financial statements since that date. The acquisition will expand the product offerings and customer base of Moody’s credit risk assessment business, which was previously operated by Moody’s Risk Management Services.

The purchase price of $210 million was funded by using $127 million of Moody’s cash on hand and $81 million of borrowings under Moody’s existing bank credit lines, with the remaining $2 million withheld subject to the finalization of a closing date working capital adjustment. Prior to June 30, 2002, the Company repaid the borrowings under the bank credit lines.

The acquisition has been accounted for as a purchase. Shown below is the preliminary purchase price allocation, which summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition. The allocated purchase price includes $3.3 million in Moody’s transaction costs, primarily professional fees incurred in connection with the acquisition. Management does not believe that the final purchase price allocation will be materially different from the preliminary allocation.

Preliminary Purchase Price Allocation
At April 12, 2002
(dollars in millions)

In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets”, the $117.3 million of acquired goodwill will not be amortized. See Note 4 for further information. The entire goodwill amount has been assigned to the Moody’s KMV segment. The excess of the purchase price over the acquired net assets is expected to be amortized over 15 years for tax purposes. In accordance with Financial Accounting Standards Board (“FASB”) Interpretation No. 4, “Applicability of FASB Statement No. 2 to Business Combinations Accounted for by the Purchase Method”, the $1.1 million allocated to acquired in-process research and development was written off immediately following the acquisition and is included in operating, selling, general and administrative expenses for the quarter and six months ended June 30, 2002. Current assets includes acquired cash of $7.2 million. Other assets includes acquired software of $16.0 million, with a life of 5 years.

The following unaudited pro forma consolidated financial information, for the three month and six month periods ended June 30, 2002 and 2001, illustrates the effect of the acquisition of KMV as if it had been consummated as of the beginning of the respective periods, after giving effect to the following adjustments: (i) elimination of non-recurring transaction related charges resulting from the acquisition; (ii) amortization of acquired intangible assets and software; (iii) Moody’s financing costs for the transaction, consisting of interest expense that would have been incurred on the $81 million of bank borrowings and interest income that would have been foregone on the balance of the purchase price; and (iv) related income tax effects.

The unaudited pro forma consolidated financial information should be read in conjunction with the Company’s Form 8-K/A as filed with the Securities and Exchange Commission on June 26, 2002.

The unaudited pro forma consolidated financial information is presented for comparative purposes only and is not intended to be indicative of the actual consolidated results of operations that would have been achieved had the transaction been consummated as of the dates indicated above, nor does it purport to indicate results that may be attained in the future.

7

Table of Contents