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Dear Shareholders
During 2000, Moody’s celebrated its one-hundredth anniversary. We thank all our customers – issuers, investors, and financial intermediaries – for giving us the opportunity to serve you and to build our franchise. We also thank all the people who have contributed their expertise, professionalism and dedication to Moody’s success over the last century. Our first century created a great company for our customers, our shareholders and our employees. As public capital markets continue to develop, both globally and in breadth of financial products, Moody’s will increase the number of our customers and the range of our services. Extending our brand will create additional value. We will reward our shareholders. We will provide attractive professional opportunities and compensation to our employees in an inclusive workplace. Moody’s will be an even greater company in our second century. During 2000, Moody’s also became an independent public company, separating from The Dun & Bradstreet Corporation (“D&B”). In last year’s D&B annual report, Cliff Alexander, then Chairman and Chief Executive Officer of D&B and now Moody’s Chairman, said, “We firmly believe that the actions we are taking will unlock significant value for the shareholders of The Dun & Bradstreet Corporation.” Under Cliff’s leadership, the separation of Moody’s and D&B did create very significant value for our shareholders. Now we look forward to creating greater value. As a separate company, Moody’s can better deploy its resources, including its significant cash flow, to expand its business and generate value. With the separation, we took three additional actions to increase shareholder value: 1. Granted stock options to all Moody’s employees. 2. Instituted a share repurchase program of up to $250 million. 3. Established independent access to the capital markets. 2000 Results During 2000, Moody’s also made good progress in pursuing its growth strategies, despite difficult conditions in the United States. This progress is demonstrated in our financial results. Moody’s full-year revenue was $602.3 million in 2000, an increase of about 7% from $564.2 million in 1999. We maintained our 48% operating margins, and full-year operating income of $288.5 million in 2000 was up almost 7% from $270.4 million in 1999. Earnings per share comparisons were affected both by Moody’s financing costs in the fourth quarter of 2000 and by a gain in 1999 related to the disposition of Moody’s Print Manuals business. Our pro-forma earnings per share of 91 cents increased 8% for the year. In 2000, Moody’s again demonstrated very strong cash generation. Moody’s had $304 million of earnings before interest, taxes, depreciation and amortization (“EBITDA”). After investments in operating working capital, capital expenditures, capitalized software, and acquisitions, pre-tax operating cash flow reached $270 million, 94% of operating income. During 2000, Moody’s produced record revenues, stable operating margins and strong cash flow. Our 2000 results also demonstrate our ability to capitalize on three long-term global economic and capital markets trends, which will also drive our future results. 1. Worldwide economic growth 2. The growth of global public capital markets 3. The growth of global structured finance Moody’s global expansion produced impressive results in 2000. International revenue was $173.4 million in 2000 compared to $140.8 million in 1999, an increase of 23%. Moody’s revenue grew almost 30% in Europe in 2000, with double-digit growth in all business lines. In Japan, our revenue grew over 20% despite the economic environment, based on strong growth in structured finance and increased corporate rating relationships. Moody’s also experienced strong growth in global structured finance during 2000. Structured finance ratings revenue of $199.2 million in 2000 grew more than 15% over 1999 revenue of $172.4 million. Structured finance now represents about one-third of Moody’s total business. Moody’s also had success in our two non-ratings businesses. Credit research revenues grew over 15% based on subscriber growth, mainly outside the United States, and strong demand for research products delivered via the Internet. Moody’s Risk Management Services (MRMS) business had a particularly strong year in 2000. Moody’s existing business was successfully integrated with a financial software products company acquired in January 2000. Revenue increased more than 100% or $12.4 million in 2000. Of course, in 2000 Moody’s was also exposed to difficult interest rate conditions in the United States. The U.S. fixed income markets faced their toughest year since 1994, which was the last time the Federal Reserve tightened monetary policy for an extended period. As a result, United States ratings revenue declined 1% in 2000 compared to the prior year. Nevertheless, by capitalizing on longer-term opportunities, Moody’s was able to achieve almost 7% revenue growth despite the difficult U.S. interest rate environment. That represents excellent performance and demonstrates the great underlying strength of the Moody’s franchise. Strategies for Growth We intend to continue our record of strong performance by pursuing our key strategies for growth: to continue our global expansion, to introduce new products, and to extend the very strong Moody’s brand. Global Expansion Our main focus for growth will be Europe, which will be the most important competitive arena in the ratings business. We expect that a significant portion of European financing needs currently met by banks will move to the public capital markets and be rated. Each year since 1997, Moody’s has assigned first-time ratings to about 100 European corporations. Moody’s estimates that there are still 1,500 unrated European institutions with revenues of over 1 billion euros; they are good prospects to issue public debt and create a strong pipeline for continued growth in Moody’s European ratings. New Products Extending the Moody’s Brand Our Goals Moody’s goal is to provide the most accurate, comprehensive, and useful assessments of risk to all participants in credit-sensitive markets: issuers, intermediaries and investors. We intend to be the best rating agency, as perceived by our customers, in all major capital markets. We also intend to develop our positions in important developing economies. We will extend the Moody’s brand. Our goal is also to provide an attractive value proposition to our shareholders. On a long-term basis, our financial performance targets for our core rating business are low-teens growth in revenue and operating income, stable margins at the 48% level that we have historically exhibited, and mid-teens earnings per share growth. Our brand extension activities will, over a medium term of three to five years, provide additional earnings. We will return excess cash flow to our shareholders by way of dividends and share repurchases. Finally, Moody’s seeks to be a superior place to work. Hiring, retaining and rewarding our outstanding professionals worldwide is critical to our success. We aspire to provide challenging and satisfying professional activities, a reasonable balance between work and other commitments, compensation that rewards performance and is aligned with shareholder interests, and an inclusive work environment. Moody’s has had a great hundred years since our founding. We will create an even greater company in our second century.
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