穆迪 (MCO) 2007 Q2 法說會逐字稿

Good day, everyone and welcome to the Moody's Corporations second quarter 2007 earnings conference call.

At this time I would like to inform you that this conference is being recorded and that all participants are in a listen-only mode.

At the request of the Company we will open the conference up for questions and answers following the presentation.

I will now turn the conference over to Lisa Westlake, Vice President of Investor Relations.

Good morning, everyone and thanks for joining us on this teleconference to discuss Moody's results for the second quarter of 2007.

This is Lisa Westlake, Vice President of Investor Relations.

Moody's released its results for the second quarter of 2007 this morning and the earnings release is available on our website at ir.moody's.com.

Ray McDaniel, Chairman and Chief Executive Officer of Moody's Corporation will lead this morning's conference call.

Also on the call this morning is Linda Huber, Chief Financial Officer of Moody's Corporation.

Before we get started I call your attention to the cautionary language set out at the end of our earnings release.

Certain statements my colleagues and I may make today may be forward-looking within the spirit of the Private Securities Litigation Reform Act of 1995.

This Act provides the Safe Harbor for such forward-looking statements.

I direct your attention to the management's discussion and analysis section and the risk factors discussed in our annual report on Form 10-K for the year ended December 31, 2006, and in other filings made by the Company from time to time with the SEC.

I would also like to point out the Safe Harbor statement under the Private Securities Litigation Reform Act of 1995 contained in our press release issued this morning.

These set forth important factors that could cause results to differ materially from those contained in any such forward-looking statements.

I should point out that members of the media might be on the call this morning in a listen-only mode.

I'm now pleased to turn the call over to Ray McDaniel.

Thanks, Lisa, and thank you all for joining us on today's call.

I will begin our prepared remarks this morning with a brief summary of Moody's second quarter results.

Linda will then take you through the quarter's operating highlights, provide some commentary on revenue and expenses and update you on our share repurchase program.

I will then review developments in the regulatory area and finish with Moody's outlook for 2007.

After that we'll be happy to respond to your questions.

Moody's second quarter revenue rose to $646 million, 26% higher than in the second quarter of 2006 and included strong double-digit revenue growth across almost all lines of business and geographies despite market concerns about the U.S.

housing and high yield sectors and their effects on debt issuers.

Operating income in the second quarter was $364 million and also grew 26% year-over-year.

Foreign currency translation positively affected revenue and operating income growth by approximately 180 basis points and 170 basis points respectively.

Diluted earnings per share were $0.95 and included a $0.19 benefit from the resolution of certain legacy tax matters.

Excluding the legacy tax effects in both 2006 and 2007 diluted earnings per share for the quarter were $0.76 in 2007 versus $0.58 in 2006 for 31% higher year-over-year.

Turning now to Moody's results for the first half of 2007, revenue totaled $1.2 billion, an increase of 29% from $952 million for the same period of 2006.

First half operating income of $668 million was up 27% from $527 million for the same period of 2006.

Currency translation had a positive impact on these results increasing revenue growth by approximately 200 basis points and operating income growth by approximately 180 basis points.

Diluted earnings per share of $1.56 for the first half of 2007 included the $0.19 per share legacy tax benefit just discussed.

Excluding the impacts of legacy tax matters in both periods diluted earnings per share of $1.37 grew 28% from $1.07 in the first half of 2006.

Based on Moody's strong results for the first half of 2007 the diversity of our business around the world and our revised outlook for the second half of the year that we will discuss shortly we believe that results for the full year 2007 will reach mid teens percent growth in revenue and low to mid teens percent growth in diluted earnings per share.

The revenue growth expectation is consistent with our lower end of the range from our previous guidance and our EPS outlook is unchanged.

At this point I will turn the call over to Linda who will start with some detail on revenue and expenses.

Thanks, Ray.

I will provide details for the quarter starting with our U.S.

businesses.

Moody's U.S.

revenue was $399 million for the quarter up 22% year-over-year.

Within Moody's investor service U.S.

ratings revenue rose 22%.

U.S.

Corporate finance was the largest contributor to growth on a percentage basis with revenue increasing 27% compared with the prior year period.

U.S.

corporate finance benefited from significant growth in revenue related to syndicated bank loans and high yield bonds.

U.S.

structured finance was the largest contributor to revenue growth on the dollar basis increasing 31 million or 21% versus the second quarter of 2006.

Very strong results from rating commercial mortgage backed securities and credit derivatives were somewhat offset by a 10% decline from rating residential mortgage backed securities.

U.S.

Public finance revenue increased 13% compared with the second quarter of 2006 reflecting strong growth in refunding activities particularly in the healthcare, housing, and higher education sectors of the business.

Turning now to our international operations, Moody's continued to generate very strong growth outside the U.S.

Total international revenue was $247 million in the second quarter, 35% higher than in the prior year period.

Growth in the quarter also reflected favorable foreign currency translation which increased the growth rate by about 480 basis points.

International revenue accounted for 38% of Moody's total in the quarter compared with 36% in the year-ago period.

For Moody's investor service international revenue increased 37% year-over-year.

Corporate finance ratings revenue was 56% higher in the -- than in the prior year period primarily driven by strong growth in European issuance of investment grade and speculative grade debt.

International structured finance revenue grew 38% and benefited from strength across all asset classes including exceptional growth from the commercial mortgage backed securities and credit derivative area of the business as well as strong growth from rating mortgage backed securities.

International financial institutions revenue increased 26% in the second quarter based largely on solid growth in the European banking and insurance sectors.

On a global basis research revenue rose 26% from the prior year period reflecting strength across all segments of the business.

Good growth in the rating agency research and data business was supplemented by above expectation results in the training services unit and Moody'seconomy.com.

On a geographic basis revenue growth in the U.S.

and Europe was strong.

Globally, Moody's KMV generated 38 million of revenue up 9% compared to second quarter of 2006.

Revenue from licensing credit processing software and the related software maintenance fees grew 19% and revenue from risk product subscriptions was up 6% versus the prior year period.

Operating profit at Moody's KMV more than doubled versus the second quarter of 2006.

Moving on to operating expenses, as anticipated expenses grew 27%, largely due to higher personnel costs, including bonus accruals, associated with the above plan revenue performance, incremental technology investments and additional lease expense primarily related to Moody's headquarters move and international expansion.

The quarters operating margin was 56.3%, essentially unchanged from the same period last year.

I'd like to turn now to an update on capital allocation and stock buybacks.

Moody's remains committed to using its strong cash flow to create value for shareholders by investing in growing areas of our business, making selective acquisitions in related businesses, repurchasing our own stock, and paying a modest dividend.

During the second quarter Moody's repurchased 7.7 million shares at a total cost of $500 million with an average price of just over $65 per share.

Partially off setting these buybacks we issued approximately 1 million shares under employee stock-based compensation plans.

Share repurchases through the first half of 2007 were funded using a combination of excess free cash flow and borrowings under Moody's $500 million revolving credit facility.

At quarter end we had roughly 800 million of share repurchase authority remaining.

On Monday Moody's Board of Directors approved a new $2 billion share repurchase program to begin immediately upon completion of the existing program.

Consistent with all previous programs the new share repurchase authorization does not stipulate an expiration date or a price limit.

With that, I will turn the call back to Ray.

Okay, thanks, Linda.

Turning to the regulatory front, on June 5, the SEC published its final rules implementing the Credit Rating Agency Reform Act of 2006.

In accordance with the rules Moody's investor service submitted an application for registration as a nationally recognized statistical rating organization, or NRSRO, on June 26.

The SEC has up to 90 days from the submission date to decide on our application and our existing NRSRO designation remains in effect during that time.

The SECs new oversight rules will not apply to Moody's until our application is approved.

Separately we continue to communicate with members of the U.S.

Congress on issues related to the subprime mortgage market including the role of rating agencies in the securitization process and the performance of our ratings in this area.

Over the past few months the Senate and House have held a number of hearings on this topic and Moody's participated as a witness in a hearing held in April by the Senate Banking Committees subcommittee on securities insurance and investment.

And in one held in May by the House Financial Services subcommittee on financial institutions and consumer credit.

I'd like to conclude this morning's prepared comments by discussing Moody's assumptions and outlook for the remainder of 2007.

Moody's outlook for 2007 is based on assumptions about many macro economic and capital market factors including interest rates, corporate profitability and business investment spending, merger and acquisition activity, consumer spending, residential mortgage borrowing and refinancing activity and securitization levels.

There's an important degree of uncertainty surrounding these assumptions and if actual conditions differ from these assumptions Moody's results for the year may differ from our current outlook.

There's obviously significant uncertainty and instability in some sectors of the debt markets, chiefly in the U.S.

and particularly in those sectors most directly affected by the downturn in the housing market as well as the recent slow down in LBO activity.

Despite these conditions we do not expect a sustained or broad based seizing up of credit without mitigating corrective action, whether from official sources or in the market's repricing of risk to allay current supply and demand imbalances.

Notwithstanding potential corrective actions we have considered the areas where market concerns are most extreme and have reflected updated assumptions in our financial outlook should debt issuance in these sectors continue to show the weakness of recent weeks.

Having done so, I will offer somewhat more detailed comments about our year to go outlook, so that market participants can make their own judgments as to the conservative or agressive nature of our assumptions.

For the second half of the year we expect Moody's overall revenue to grow in the mid single digit percent range reflecting U.S.

revenue that is down slightly versus the last six months of 2006, our international revenue growth in the low teens percent range for the second half.

U.S.

structured finance revenue for the second half of 2007 is projected to decline in the high teens percent range giving current market conditions a difficult comparisons versus the same period of 2006.

This includes an expected year-over-year decline in second half revenue from rating residential mortgage-backed securities of about 40%, and a decline of second half revenue from rating credit derivatives in the mid 20% range.

However we do expect revenue growth in the mid single digit percent range from rating both asset backed securities and commercial mortgage-backed securities.

Our growth expectations for international structured finance are more robust with revenue for the second half of 2007 growing in the low teens percent range versus 2006.

U.S.

corporate finance revenue in the second half of 2007 is expected to grow at a low double digit percent rate driven by solid but decelerating growth from rating corporate loans partially offset by a declining revenue growth from speculative grade bond ratings.

Revenue from international corporate finance is expected to grow at a high single digit percent range for the last six months of 2007.

We also note that certain areas of our business, namely research at Moody's KMV, have historically performed well in more difficult credit environments when expert analysis and insight about credit is at a premium.

Based on Moody's strong results for the first half of 2007, the diversity of our business worldwide, and the growth assumptions just discussed for the segments of our business experiencing the greatest market uncertainty we continue to believe that results for the full year 2007 will be within the ranges of our previous guidance.

For Moody's overall, we project mid teens percent revenue growth for the full year 2007 which is at that time low end of the range of our previous guidance.

This growth assumes foreign currency translation in 2007 at current exchange rates.

We expect the full year operating margin excluding the one-time gain on the sale of Moody's 99 Church Street building from our 2006 results to decline approximately 150 basis points in 2007 compared with 2006.

This reflects investments to sustain business growth including international expansion, improving our analytical processes, pursuing ratings transparency, and compliance initiatives, introducing new products, improving our technology infrastructure, and relocating Moody's headquarters in New York City.

We expect our quarterly spending pattern to continue to differ from previous years which could result in quarterly operating margins that differ materially from our full-year expectations.

On a GAAP basis diluted earnings per share in 2007 are now projected to be modestly higher rather than lower compared to 2006.

Excluding the one-time gain on the building sale from 2006 results, and the impact of adjustments related to legacy tax matters in 2006 and 2007 we project low to mid teens percent growth in 2007 diluted earnings per share which is unchanged from our previous guidance.

In the U.S., we now project low double-digit percent revenue growth for Moody's Investors Service for the full year 2007.

In the U.S.

structured finance business we now expect revenue for the full year to rise at a mid single-digit percent range including commercial mortgage-backed securities ratings and low teens percent growth in rating credit derivatives mostly offset by a decline in revenue from rating U.S.

residential mortgage-backed securities, including home equity securitization.

In the high teens percent range which is a greater decline than in previous guidance.

In corporate finance we continue to expect revenue to grow in the mid 20% range for the year.

This estimate anticipates a significant slowing of growth from rating bank loans and a second-half decline in revenue from rating speculative grade bonds.

In the U.S.

financial institution sector we now expect revenue to grow in the mid teens percent range up from our previous estimates of low teens percent growth.

For the U.S.

public finance sector we continue to forecast revenue for 2007 to grow modestly.

Despite better than expected performance tin first half due to an anticipated softening of the issuance in service sectors including healthcare, higher education, and infrastructure.

We continue to expect growth in the U.S.

research business to be about 20%.

Outside the U.S.

we still expect full-year ratings revenue to grow at a low 20s percent rate with high teens to low 20s growth across all major ratings business lines led by growth in European structured finance and financial institutions ratings.

We now -- we also now project full-year growth in the mid to high 20% range for international research revenue up from our previous guidance of low 20% growth.

Moody's KMV globally we continue to expect growth in sales and revenue from credit risk assessment subscription products, credit decision processing software, and professional services.

This growth should result in low double digit percent growth in revenue with greater growth in profitability for the year.

That concludes our prepared remarks.

We'd be pleased to take any questions you may have.

Thank you.

Today's question-and-answer session will be conducted electronically.

(OPERATOR INSTRUCTIONS) We'll go first to Lisa Monaco at Morgan Stanley.

Good morning.

Ray or Linda, can you just walk through the various subsegments within structured finance, so U.S.

derivatives, U.S.

asset-backed securities, U.S.

RBS and then the same for international?

Then I have a follow-up.

Do you mean for the second quarter, Lisa?

Yes, please.

We had had a decline as I mentioned in previous comments of about 10% for the U.S.

RNBS sector, and we had much more substantial growth in both commercial mortgage backed securities and derivatives.

In the high 40% and high 30% ranges respectively as well as good growth in the term asset backed securities market in the low 20s% range.

On the international side we had strong growth across the board.

Strong double-digit growth in all of the areas that we rate with particularly strong growth coming out of Europe.

Did that cover the full range of the question you were asking?

Yes.

And then my follow-up is, could you give us a sense for where you think the structured products market is in terms of development, secular development in the U.S.

and overseas and then how you see Basle II spurring growth in structured products?

Thanks.

Well, I think it's fair to say that the structured products market is certainly more mature in the U.S.

than it is internationally, although there are some areas of the international structured business which are, in fact, quite mature or quite well developed.

And in fact may lead the U.S., such as in synthetic securities.

I think what's interesting in the current period is that even though this has become what I would characterize as a well developed market it is still a relatively ill liquid market in a number of subsectors compared to what you might see in, for example, municipal credit or in corporate credit.

With respect to Basle II, we do see opportunities for our business coming out of Basle II, frankly probably more on the Moody's KMV side where can he can provide advisory services and assist with model-based approaches to meeting Basle II guidelines rather than what we would see purely in the Moody's investor service business.

So I think that's where we see the primarily opportunity there.

Then just one last question.

If you could give us a sense for how much synthetic CDO as a percentage of your total CDO related revenue and what your expectations are particularly for that asset class?

Thanks.

I don't have the breakout of the synthetic markets.

For Moody's overall, our derivatives business is about 16% of corporate revenue, and within the derivatives market about two-thirds of that comes from CDOs with another 25% or so coming from CLOs, and the remaining 10% from other, which would include things like structured notes and structured investment vehicles.

Okay, thanks.

We'll go next to Peter Appert at Goldman Sachs.

Thank you.

Linda, I am wondering about how you're thinking about use of leverage to drive the share repurchase particularly in the context of the big re-up you've got currently?

Thanks, Peter.

Yes, we are thinking about it, and, in fact, I guess it it would be obvious to most people that we could increase net interest leverage on the Corporation.

We would intend to keep the Corporation as an investment grade credit, of course.

At this point we're not going to discuss any future plans but if we do decide to increase our commitments you'll see those via an 8-K filing.

I'll keep my eyes out for that.

That Linda, could you remind us where you are, or tell us where you are in terms of total headcount now versus a year ago?

You were quite agressive in terms of self expansion the past year and I'm just wondering broadly how you're thinking about that going forward in the context of obviously more challenging environment.

Good question, Peter.

We're thinking lots about that.

For the end of second quarter year-over-year total Moody's headcount has increased 17% but without the addition of Wall Street Analytics it's increased 15%.

The total number of employees at the end of the second quarter stood at 3,587.

The bulk of those hires over the year are in our international businesses, so we have staffed up a bit more aggressively internationally than we have in the U.S.

Given the unclear revenue situation we've been thinking quite a bit about headcount additions and, in fact, that would be the first lever that we would pull to ensure that we have the expenses in proper line with revenue growth, and, in fact, we have started discussions with our management team about that already.

So we think we've got that situation well under control.

Okay.

And then, Ray, last thing, sort of a follow-on to what Lisa was asking, wondering if you have any thoughts about just understanding the correlation between -- this is a hard one -- correlation between activity in the U.S.

debt market and how that might flow through to the international markets, just how tightly correlated you think these markets are as we see the slowdown in the U.S., your ability to sustain growth internationally.

Well, I think -- I think if we look at macro economic performance and capital markets activity at a fundamental level what we've been seeing is an increasing delinkage of U.S.

activity with international activity.

I suppose it's only fair to caveat that statement at this point, though, by saying -- just as folks who participate in the market wonder about contingent risks, for example, the housing sector in the U.S.

to other parts of the U.S.

economy, whether that might have a contagion effect over to the international market, I certainly think it's possible for there to be some contagion but I also would expect it to be far more muted than what we would see in the U.S.

So if there is a broader slowdown coming out of, for example, the housing market.

And just on a very near term basis, in terms of thinking about the pipeline July and August, I take it from the this guidance you haven't seen meaningful changes in volume activity on the international side of your business at this point.

I think that's a fair comment, but I -- again, I have to add a caveat by saying that although pipelines are robust, what is happening with those pipelines I think has a greater degree of uncertainty around that today than it would have on most of our earnings calls, and we will, as will others, have to watch and see how quickly things begin to move through the pipelines that do exist now.

But again, I would not expect it to have anything like the same effect internationally that it does in the U.S., even if we see an extended slowdown in the U.S.

Thanks, Ray.

We'll move next to Karl Choi at Merrill Lynch.

Hi.

Wonder if you can go through the breakdown for corporate finance revenues in the quarter between bank loans ratings and high yield investment grade.

I can do that.

For the second quarter 2007 high yield was $26 million or 19% of the overall corporate finance revenue which totaled $141 million.

Investment grade was about $24 million, or 17% of that revenue.

Bank credit facilities were $37.6 million which is 27% of the total revenue, and that's up from 23% during this quarter last year.

And lastly, other accounts, which include MTN, shelves, commercial paper, and sort of all other, was $52.9 million or 38% of the total global corporate revenues of 141 million.

And Ray, in your assumption for corporate finance for the second half, obviously there have been a lot of talk about deals being postponed and knowing that rating agencies probably do get paid even if the deals don't happen, but are you assuming that the market would sort of open up a little bit come the fall season, or you're not really making that assumption at all?

We're anticipating a decline, an absolute decline in issuance in the second half for the high yield sector versus 2006.

Otherwise, in the both U.S.

and internationally for the Corporate business, I think the story really is more deceleration of growth rather than an absolute decline.

And that would be applicable to investment grade and to the bank loan sector as well.

Okay.

And lastly, I joined in late, if you covered this, I apologize, but was any unusual item in the "other" income line?

Because it was a pretty big number in the quarter.

Give us one second on that, Carl.

Carl, we've got a lot of ins and outs on that one this quarter largely because of the legacy tax matter, and we'd urge to you read our 10-Q which we're filing tomorrow which will have more detail.

But the total nonoperating income line is $17.8 million.

The bulk of it is the reversal of the legacy tax matter which is a $32 million and then an interest expense item of $12 million and of that, $7.8 million has to do with actual interest expense on money we borrowed, and the rest are ins and outs.

Again, we'll be happy to go over that in more detail tomorrow with the filing.

Thank you.

(OPERATOR INSTRUCTIONS) We'll go next to Michael Meltz at Bear Stearns.

I think I have three questions.

Ray, I appreciate the detail of the guidance.

Can you speak a little bit about how you view this guidance?

Is this -- I know you gave a lot of caveats at the beginning.

Is this what you would view as a bear case or is this just the most realistic as you see it right now?

The reason I am asking is, especially on the structured, it's much different than what McGraw Hill is pointing to.

And so I'd just like to get a better sense as to how you're thinking about it.

To the best of our ability to forecast, this is a realistic case.

And part of the reason why we went into this level of detail, Michael is we recognize and appreciate that there is a lot of uncertainty, and that people may disagree with our assumptions as being overly bearish or overly bullish, but it is certainly the mid case expectation for us.

Okay.

On -- Linda, on to the expense line, can you give us the numbers for incentive -- or compensation as a percent of total expenses and then what you're accruing incentives at in the quarter?

Sure.

Incentive compensation as a percent of total comp expenses was 19% for the quarter, Michael, which is 37.6%.

And we're not going to discuss the rate at which we were accruing.

We do that in line with revenue, of course, and if we do put up less revenue in the back half of the year, of course that rate would change.

The overall cost of incentive comp, of course, as well has gone up as the Black-Scholes valuation on our option has increased, and you'll see that we've rolled off less expensive option years and put on more expensive recent option years.

And we can go through that in more detail tomorrow with you when the Q comes out.

Okay.

And just lastly, I know Carl kind of asked this question, but in terms of, can you talk a little bit about your breakup fees if deals don't happen, how you are compensated?

Sure.

In general terms, breakup fee is in the ratings business are different than investment banking breakup fees in a positive way for us, and those fees are considerably more significant.

I'll let Ray comment a little more.

I don't think we want to disclose the actual numbers just for competitive purposes, frankly, but Linda is correct that those fees are more substantial than you might expect looking at other areas of the financial services segment.

Okay.

Great.

Thank you.

Thanks.

And next we'll move to John Neff at William Blair.

Hi.

Thank you.

Linda, I was wondering, couple of housekeeping questions first.

Total debt at quarter end including the line of credit draw?

Sure.

It's $710 million, of that, 410 drawn on the facility, and then we've got 300 million outstanding beyond that in the notes program.

Okay.

And then can you remind us, total subprime ratings, RMBS and CDO as a percentage of total revenue, maybe in the quarter or maybe year to date, and also if you could do, the same question for CMBS.

The total for RMBS is for the first half is still about 7% which is about what we saw for 2006 as well.

So that has held steady in the first half of 2007.

The commercial mortgage-backed securities percent of total Moody's revenue in the second quarter was about 7.5, 8% of total corporate revenue.

Thank you.

And then, Ray, you had mentioned this earlier.

I just wanted to make sure I understood.

Your guidance is assuming continued sub primes.

I'm just -- not putting words in your mouth but is your guidance assuming continued subprime spillover in the U.S., a broader credit crunch, or is it more reflective of a repricing of risk to healthier levels?

In other words, how -- how much of a credit crunch does your guidance envision?

Well, it -- first of all, it very specifically is assuming a decline in issuance for both the RMBS sector and then related to the derivative sector the ABS CBO sector.

As far as a broader credit crunch it it's early days in terms of assessing what kind of credit tightening we are going to see in the market.

Obviously right now things look rather dour in the market as far as the likelihood of a credit crunch coming.

That -- I think it's possible to put that in some historical context.

We've had several credit crunches over the last 10 years.

Although there's not an official definition of a credit crunch we're looking at where spreads widen fairly dramatically in a short period of time and available credit tightens dramatically.

And what we would have seen in the credit crunches that came following the LTCM and Russian crisis as well as the 2001 recession and 9/11, then finally the credit crunch that occurred after the WorldCom debacle would indicate that in two of the periods we saw a strong deceleration of revenue and operating income, and that was associated with LTCN and with the post WorldCom default period.

Interestingly, through the 2001 recession we did not see any decline in revenue or operating income.

It remained higher than our average growth and quite strong through that period.

Following the two periods where we saw a decline in revenue and operating income or deceleration of revenue and operating income it was followed by a sustained period of accelerating growth in revenue and operating income both.

The three quarters out of the four following both of those credit crunches had strong and accelerating growth in our financial performance.

So we will have to see.

I will also just point out that during this last 10-year period and through those three credit crunches we've not had a quarter of declining -- a decline in revenue, and we only had one quarter that had a decline in operating income back in the third quarter of '98, and that was only by 0.2%.

Thank you.

And our next question comes from James Baker at Neuberger Berman.

Yes, good afternoon.

I wanted to, first of all, do you have figures for deferred revenue in the first half?

I think it probably would be better if we talked about deferred revenue tomorrow after we file the 10-Q Jim but we're happy to do that so please give us a buzz.

Okay.

And also, you didn't disclose your stock-based compensation this time, as you usually do in your press release.

Can you give us some sense as to why that happened there?

Sure.

And maybe that that's an oversight on our part.

Total stock compensation is $26.5 million for the second quarter of 2007 which is 13% of the total comp expenses, and that's up a bit from the last year as we said for the reasons that I had discussed previously.

If you just break down between comp expense and non comp expense, and if you just exclude depreciation and amortization from those what were the percentage increases there between comp and noncomp?

Let me see if I can do that.

About two-thirds of the increase -- about two-thirds of the amount is comp based.

Hang on just a second.

No problem.

Okay and then finally, I know you're going to have this in the Q but I think there's very little disclosure on this interest and other non operating income line.

Can you just give us some sense if you footed this income statement to $0.76, what those items would look like in terms of the usual breakdown between interest expense, interest income, foreign exchange, and so on?

In other words, if you have not had the legacy tax gain which I understand impacted both that line and the tax line, what would that interest and other, how would that have broken down?

Right.

It's actually pretty de minimus, Jim.

As I said, we'll chat with you more about that tomorrow, but as I said, the big numbers were to comprise that $17.8 million non-operating other income number.

32 million was a positive from legacy tax, and about 12 million was a negative for interest expense.

The others are very de minimus ins and outs.

And happy to catch those up for you tomorrow.

Very good.

Thanks.

We'll take a follow-up from John Neff at William Blair.

Just wondering what transaction-driven revenue as a percentage was in the first half of '07 and what you might expect that to be in the second half?

Thank you.

It sort of depends how you would define transaction-driven revenue.

I've got numbers for the second quarter of '07 for just MIS, and I am concerned it's going to be a little bit misleading because it doesn't include KMV and our research business.

I think our general view would be we're probably at 65/35, for the Corporation for transaction based revenue, and then what's called relationship-based revenue.

Would really caution on doing comparisons on this with competitors because the way each organization views those two classification can move around quite a bit but I think as a whole we'll probably say 65/35 for the overall business of the Corporation.

That would be for the first half or the second quarter?

That would be for the second quarter and I think that probably is broadly reflective of the first half, and so the second part of your question, I think where we would see the deceleration in revenue would largely be coming from the transaction side of the business.

Again, because where we expect the declines to come are in structured finance and in some parts of our corporate finance ratings business particularly related to high yield which tend to be transaction based revenues.

Thank you.

And that does conclude the question-and-answer session.

At this time I will turn the conference over to Mr.

McDaniel.

I just want to thank everyone for joining us, and look forward to speaking with you at the end of the third quarter.

Thank you.

And that does conclude today's conference.

Again, thank you for your participation.