穆迪 (MCO) 2009 Q4 法說會逐字稿

Good day and welcome, ladies and gentlemen, to the Moody's Corporation fourth quarter and fiscal year end 2009 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 Liz Zale, Vice President, Investor Relations.

Please go ahead.

Thank you, Audra.

Good morning, everyone, and thanks for joining us on this teleconference to discuss Moody's results for 2009.

I am Liz Zale, Vice President of Investor Relations.

Moody's released its results for the fourth quarter and full year of 2009 this morning.

The earnings release and a presentation to accompany this teleconference are both available on our website at ir.moodys.com.

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

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

Before we begin, I call your attention to the Safe Harbor language, which can be found toward the end of our earnings release.

Today's remarks may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

In accordance with the Act, I also direct your attention to the management's discussion and analysis section on the risk factors discussed in our annual report on Form 10-K for the year December 31, 2008, and in other SEC filings made by the Company, which are available on our website and on the Securities and Exchange Commission's website.

These, together with the Safe Harbor statement set forth important factors that could cause actual results to differ materially from those contained in any such forward forward-looking statements.

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

I will now turn the call over to Ray McDaniel.

Thanks, LIz.

Good morning, and thank you, everyone, for joining today's call.

I'll begin with a brief summary of Moody's fourth quarter and full year 2009 results.

Linda will follow with additional financial detail and operating highlights, and I'll then speak to recent developments in the regulatory and legislative areas and provide Moody's outlook for 2010.

After our prepared remarks, we'd be happy to respond to your questions.

Fourth quarter revenue of $486 million increased 20% over the prior year, reflecting meaningful improvement in credit market activity compared to the conditions experienced globally at the end of 2008.

Excluding the favorable impact from foreign currency translation, revenue grew by 17%.

Operating income for the fourth quarter was $179 million, 43% higher than the same period last year.

Without the favorable impact of foreign currency translation, operating income increased 39%.

Diluted earnings per share of $0.43 for the fourth quarter of 2009 included a benefit $0.01 related to previously announce restructuring activities.

Excluding the restructuring in both periods, diluted earnings per share of $0.42 for the quarter increased 14% from $0.37 in the prior year period.

Regarding full year results, Moody's full year results reflected a gradual improvement in credit markets throughout 2009.

Strength in corporate debt issuance and growth for Moody's analytics provided a slight increase in total revenue from the prior year, but activity remained limited in other areas.

Revenue for 2009 was approximately $1.8 billion, an increase of 2% from full year 2008.

Operating income of $688 million declined 8% from a year ago.

Excluding the unfavorable impact of foreign currency translation, revenue grew 4% from the prior year period, while the impact of foreign currency translation on operating income was negligible.

Diluted earnings per share of $1.69 for 2009 declined 10% and included a net charge of $0.01 reflecting costs related to previously announced restructuring plans, partially offset by a benefit from certain legacy tax matters.

Excluding these items in both years, diluted earnings per share of $1.70 for the full year 2009 decreased 7% from $1.82 in 2008.

At this point, I'll turn the call over to Linda to provide further details on our financial performance and other updates.

Thanks Ray.

I'll begin with revenue for the fourth quarter.

Global revenue for Moody's Corporation increased by 20%.

US revenue grew 25% year-over-year to $245 million, while revenue generated outside of the US rose by 16% to $241 million and represented 50% of Moody's total revenue.

Recurring revenue of $290 million was up 2% from the fourth quarter of last year and represented 60% of total revenue.

Looking at each of our businesses, first, Moody's Investor Service revenue for the quarter was $332 million, 31% above the prior year period.

Excluding the favorable impact of foreign currency translation, revenue grew 26%.

US ratings revenue rose by 42% compared to growth of 19% outside the US.

Revenue from outside the US represented 46% of total ratings revenue.

Global corporate finance revenue of $115 million in the fourth quarter nearly doubled from a year ago, primarily driven by activity in the high yield bond market.

Revenue increased 106% year-over-year in the US and 90% outside the US.

Global structured finance revenue for the fourth quarter was $79 million, down 14% from a year earlier.

Within the US, structured finance revenue increased 5% from a year ago period, reflecting increased issuance of asset backed securities and real estate investment trust funds.

Non-US structured finance revenue decreased 25%, driven by revenue declines across all asset classes as improved credit market conditions slowed the use of securitization for Central Bank supported programs.

Global financial institutions revenue of $72 million increased by 27% from the fourth quarter of 2008 due to gains from the banking sector.

Revenue rose by 18% in the US and 35% outside the US.

Global revenue for public project and infrastructure finance grew 36% to $66 million year-over-year.

The increase of 36% in US revenue was primarily driven by public finance issuance related to stimulus programs such as Build America bonds.

Outside the US, revenue increased 35% with strong issuance in European infrastructure finance.

Turning now to Moody's Analytics.

Global revenue of $154 million increased 3% from the fourth quarter of 2008 with negligible impact from foreign currency translation.

Beginning with the fourth quarter reporting period, we slightly modified the reporting revenue categories from Moody's Analytics revenue to better reflect our major product groupings.

For the research data and analytics business, which represents most of the products previously reported in the subscription category, revenue of $106 million declined by 1% from the prior year period.

In the risk management software category, which includes software licenses, maintenance fees and associated services, revenue of $42 million was 21% higher than in the fourth quarter of 2008.

And in the professional services category, which captures revenue from our training, services and other customer specific project work, revenue of $6 million was down 26%.

From Moody's Analytics, US revenue declined 5% to $66 million, reflecting the effect of customer attrition due to financial market disruption in late 2008 and early 2009.

Outside the US, revenue increased 10% over the prior year period to $88 million, primarily attributable to growth in the risk management software business and represented 57% of total analytics revenue.

Turning now to expenses.

Moody's fourth quarter operating expense of $307 million increased 10% over the prior year period.

Excluding the impact of foreign currency translation, reported expenses grew by 8%.

The increase was primarily driven by higher accruals for performance based compensation and also reflected continuing investments across all areas of the business, including technology infrastructure and investor outreach.

Moody's reported operating margin for the quarter was 36.8%.

Excluding the restructuring adjustment in the current period, expenses were 11% higher than the prior year period, and operating margin was 36.6% compared to 31.1% in the fourth quarter of 2008.

Our effective tax rate for the quarter was 38.3% compared with a somewhat unusual 28.6% in the fourth quarter of 2008.

The increase was primarily due to a favorable true-up of the full year 2008 tax accrual in the fourth quarter of 2008.

In addition, the 2008 effective tax rate included realization of US manufacturing and research credits and deductions.

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

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

We intend to uphold our commitment to returning capital to shareholders in a manner that is consistent with maintaining sufficient liquidity.

On December 15, of last year, we announced a 5% increase in our quarterly dividend.

And in 2010, we expect is to resume share repurchases at modest levels subject to available cash flow and other ongoing capital allocation decisions.

During the fourth quarter of 2009, Moody's did not repurchase shares and issued approximately 400,000 shares under employee stock-based compensation plans.

Outstanding shares as of December 31, 2009, totaled 237 million representing a 1% year-over-year increase.

As of December 31, 2009, Moody's had $1.4 billion of share repurchase authority remaining under its current program.

Now for some details on the balance sheet.

Moody's had $1.2 billion of outstanding debt at year end with approximately $550 million of additional capacity available under our revolving credit facility.

We reduced total outstanding debt by $87 million during the fourth quarter and $274 million for the full year of 2009, and we expect to continue to repay short-term debt during 2010.

As of December 31, 2009, our net debt position, or total debt minus cash and cash equivalents was $720 million, a decrease of 41% from year end 2008.

The last update I would like to provide is on CapEx.

For the full year of 2009, our total capital expenditures were $91 million and included the fit out of our Canary Wharf location in London, to which we relocated in the fourth quarter.

We expect to continue to strategically invest in facilities to support business needs.

And with that, I will turn the call back over to Ray.

Thanks Linda.

I'll start now with a brief update on legislative and regulatory developments.

We continue to communicate with oversight authorities at national, regional and global levels and expect increased levels of regulatory activity over the near term.

In the US, as discussed previously in June 2009, the administration presented a blueprint for financial system reform.

In December, the US House of Representatives passed its version of the reform bill, which contains a section on enhancing the oversight of nationally recognized statistical rating organizations, or NRSROs.

The proposals include measures to increase accountability and transparency, strengthen the management and disclosure of conflicts of interest and and further empower the SEC's oversight of NRSROs.

The Senate has begun work on its version of the reform bill which also includes a discussion draft on enhancing the oversight of credit rating agencies.

The discussion draft is broadly consistent with the administration's blueprint.

However, whereas the administration intentionally did not address the liability position of credit rating agencies is presently constructed, the discussion draft could increase the industry's exposure.

We are currently discussing with congressional staff the provision's potential negative impact, not only for the rating agency industry, but also for the broader US bond market.

As the reform bill progresses through the banking committee, which is a committee of jurisdiction, and ultimately to the full senate, it will be subject to debate and change.

If passed by the full senate, the reform bill may be further debated as the House and Senate work to address inconsistencies.

On the regulatory front, the SEC is considering feedback on several initiatives it published for comment in the third quarter of 2009.

These include a proposed rule that would require all issuers making registered offerings to disclose ratings that they use in connection with the offering and a concept release on identifying credit rating agencies whose ratings are disclosed in registered offerings as experts under the law.

If the concept release ultimately were to be enacted into an SEC rule, the credit rating agencies that concent to have their ratings used in US registered offerings would have additional liability associated with that consent.

As this idea still in the concept release form and the SEC generally take a deliberative approach to issues presented in concept releases, it's too early to assess the likely outcome.

The SEC is also considering comments on its proposals to strengthen the NRSRO compliance function and to require further disclosures about potential conflicts of interest.

In addition, the SEC adopted a rule which comes into effect in June 2010 which would require structured finance issuers to make available to all interested NRSROs the data provided to the NRSRO that they have hired to assign a rating.

In Europe, as noted on previous calls, the EU has passed a new regulatory regime for the credit rating agency industry, and we expect to be fully -- which we expect will be fully in effect by the second half of 2010.

We are currently in the process of implementing the regulation, and in doing so, we continue to interact with national and regional authorities as well as issuers and investors.

Our best estimate of the implementation costs is incorporated into our 2010 guidance.

We remain focused on playing a constructive part in the discussions of these issues with Congress, the SEC and other regulatory and legislative authorities and market participants.

We will continue to advocate for globally consistent approaches that recognize the global nature of our ratings and that align with the G-20's direction and framework.

I'll conclude this morning's prepared remarks by discussing our full year guidance.

Moody's outlook for 2010 is based on assumptions about many macroeconomic and capital market factors, including interest rates, corporate profitability and business investment spending, merger and acquisition activity, consumer borrowing and securitization and the eventual withdrawal of government sponsored economic stabilization initiatives.

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

Our projections assume foreign currency translation at the end of year 2009 rates.

We anticipate continuing recovery for 2010, but also expect market conditions to remain challenging until economic improvement across key markets is sustained.

With this outlook, we are projecting a stronger revenue increase and a return to earnings growth for 2010 with ongoing expense management to support business initiatives and regulatory and compliance efforts.

For Moody's overall, the Company expects full year 2010 revenue to increase in the high single digit percent range.

Recurring revenue from both of our business segments will continue to provide a stable base.

Expenses for full year 2010 are also expected to grow in the high single-digit percent range with modest upward progression through the year.

Of the anticipated 2010 expense increase, about half is related to headcount additions to support strategic initiatives.

Approximately another $15 million of the increase is for incremental compliance, including personnel and compliance related technology costs.

The remainder is due to an unfavorable foreign exchange impact versus 2009 average rates and the restoration of budgeted bonus expense to targets.

We expect that our operating margin will remain in the high 30% range and our effective tax rate will be in the range of 37% to 38%.

We expect diluted earnings per share for full year 2010 to be in the range of $1.75 to $1.85.

Our outlook also assumes $70 million to $90 million of capital expenditures to continue important investments in our technology infrastructure and address compliance requirements and to support facilities needed globally, as Linda mentioned.

For the global Moody's Investor Service business, we expect revenue for the full year 2010 to increase in the high single to low double- digit percent range.

We anticipate growth in the mid teens percent range in the US and in the mid single digit percent range outside the US.

Corporate finance revenue is projected to grow in the high teens percent range as we expect strength from speculative grade issuance to offset a moderation of investment grade issuance from the high volume of 2009.

Structured finance revenue is forecast to grow in the mid single-digit percent range, reflecting modest growth in most asset classes.

We anticipate low single-digit percent range growth in financial institution revenue and low double-digit percent range growth in public, project and infrastructure finance revenue.

For Moody's Analytics, we project full year 2010 revenue growth in the mid single-digit percent range, driven by organic growth.

We expect revenue growth in the low single-digit percent range for research, data and analytics, an increase in the mid teens percent range for risk management software and growth in the high single-digit to low double-digit percent range for professional services.

We expect Moody's Analytics revenue to increase at a low single-digit percent rate in the US and at a mid single-digit percent rate outside the US.

That concludes our prepared remarks.

And joining us for the question-and-answer session are Michelle Madelain, our Chief Operating Officer for Moody's Investor Service and Mark Almeida, President of Moody's Analytics.

We are pleased to take any questions you may have.

Thank you.

(Operator Instructions) We'll go first to Michael Meltz of JP Morgan.

Thank you.

I think I have three questions.

On the expense -- a question on expenses in the quarter, they were up, I guess $30 million year-over-year.

What was the Forex impact in there?

What was incentive compensation up year-over-year.

And then Ray, if you can speak further about your guidance for 2010.

I find it hard to believe that if revenues and expenses would trend up the same rate and you wouldn't be able to drive margin if you grow revenues 9%.

If I back into what you are saying on headcount, where are you -- for what roles are you hiring people?

It seems like you are saying there could be a couple hundred people added.

Michael, it's Linda.

I'll take a shot Q4 expenses first, and we're digging a bit here to find the FX impact for the fourth quarter.

You are right, operating expenses were up about $28.7 million for the fourth quarter.

But keep in mind, that was coming off an extremely weak fourth quarter of 2008, the weakest quarter we've had in quite a while.

The change is due to $4.2 million increase in salaries, $15.6 million in bonus and incentive compensation and $6.9 million in benefits and tax.

That comes to $26.7 million of that increase.

We've had some offsets as well, and we also had some increases in the technology spending.

So that would be the majority of the what happened in the fourth quarter, but again, it's more of a return to normalcy as compared to a pretty anemic fourth quarter of last year.

With respect to the guidance, Michael, we are seeing the bulk of our incremental expense associated with hiring and compensation in addition to a little bit of catch up on the restoration of bonuses back to target for 2010.

The hiring is going to be fairly broad based.

Moody's Analytics will be hiring in particular, as part of the continued build out of our management software business.

We also, as we are increasingly selling to more mid-sized institutions in the Moody's Analytics business, we are going to be adding to our sales force in order to do that.

At Moody's Investor Service we have additional surveillance personnel that we are bringing on board, additional credit policy personnel, because some of the compliance costs that we will have are associated with Moody's Investor Service Analytical staff that will have to be available to meet regulatory expectations.

So it's fairly broadly spread as opposed to being in any one particular area.

Michael, it's Linda.

To answer your question on the FX impact on expenses, it's about a 2% unfavorable impact in the fourth quarter.

Generally the cause of that was the weakening of the euro to the pound on the expense line.

Okay.

And then implicit in your expense guidance for 2010, that would be ramping throughout the year?

Is that what you are saying?

Because you haven't hired all these people?

Yes, that's correct.

That's why we expect to see, I think it's fair to characterize as modest progression of expense throughout the year.

Second question.

On -- generally speaking, Ray, what are you seeing in January and in the first quarter in terms of top line trends or rating trends?

The -- what we are seeing in the market in January, I think is characterized as a continuing return to normalcy, which I think is good news.

I think both the markets and our business had a decent January.

Any change from how you end from December?

To tell if you truth Michael, I didn't go back and compare our early information on December versus January.

Okay.

And last question, you usually come up with pricing or price upticks in January.

What's the expectation of pricing benefit in 2010?

Michael, it's Linda.

If you look for pricing across the Company, I think we would say low single-digits, maybe a little bit higher on average with the rating agency, and it depends on the asset class.

Some of them, where more work is required, we've moved a bit more.

But generally, we would say mid single-digits, a little lower in MAS, a little bit towards the high end of that towards MIS.

Thanks for your time.

Thanks Michael.

We'll go next to Peter Appert of Piper Jaffray.

Thanks.

Ray, do you have any -- can you share with us any perspective on how you are thinking about timeframe in terms of resolution to some of these regulatory issues?

Sure.

I guess starting on the legislative side, at this point, we are watching the Senate and waiting for the Senate to move forward on the overall financial reform package, which I certainly think, if they do that, they will move forward on the credit rating agency component of that.

Just as a matter of the Washington calendar, I would expect that if anything is going to happen, it's going to happen in the second quarter.

After that, with an election year, I think it becomes decreasingly likely that there would be action taken in 2010.

So I think we are really looking at second quarter event.

As far as regulatory action from the SEC, that has been ongoing, and in particular, I would say that the concept release that they put out has probably the longest timeframe associated with it, because that is a concept that was introduced to the market, which is at a more preliminary stage than a proposed rule.

And so they would go through a proposed rule and then final rule, making process, if they decide to move forward, from the concept release.

Okay.

And then Ray, on the litigation front, you had a big win last week.

Can you comment, one, on the significance of that development from your perspective, and two, do you have any insight on when we might anticipate further action on the litigation front in terms of some of these other cases?

I can say that certainly, with respect to other cases that were brought under the 1933 Act, I think this case might have some -- provides some guidance in those other cases.

However, not all of the litigation that we have is related to the 33 Act, and so so for those cases that are not related to the 33 Act, I don't think the successful resolution of the case ten days ago is going to provide the same kind of guidance.

And, unfortunately, with respect to those non-33 Act cases, I don't have any better view on the timing of when the court may issue any judgment than we did when we spoke in the fourth quarter last year.

But my sense is that maybe half the cases were related to the one that was decided last week.

Is that fair?

About a third of the cases.

A third, okay.

And then last thing, Ray, in the past I believe you've expressed some comfort with the potential to get the operating margins for the business overall back to the low 40s or mid 40s.

Is that still a realistic expectation, do you think?

Yes, I still think that having operating margin that is north of 40 is possible and frankly, would be consistent with my expectations.

But we also have some investments that we need to make in this business, while some we feel it's prudent to make and some we are simply being told to make, as we meet regulatory obligations around the world and as we build out the Moody's Analytics business.

So we've got to make these investments.

We've got to make them successful, and we are going to see, I think good long term benefits for our business coming out of this.

This is actually really the last thing.

Linda, the incentive comp increase that we should anticipate in 2010 versus 2009, how big is that?

It's not particularly about big Peter.

It's less than $10 million.

That's the 2010 over 2009.

Thank you.

We'll go next to William Bird with Banc of America Merrill Lynch.

Hi, I was wondering if you can help me through the math a little bit on the math increase, the high single-digit increase would imply about a $100 million of expenses, and you mentioned half is headcount, about $15 million from technology compliance, and now you mentioned less than $10 million from restoration of bonuses.

I just wondering if you can walk me through the balance.

Sure, I'll try to set this out for you Bill.

We are saying that a little bit more than half of that is headcount, and then we are adding in, I think Ray said $15 million for compliance.

The piece that may not jump out at you is if FX rates continue as they are now, that will be $10 million to $15 million in unfavorable impact for us next year.

That gets you through the bulk of it.

And then as we said, the remainder would be less than $10 million in bonus true-up if we return to hitting our targets for next year.

Okay.

And I was just wondering, as you look at 2010 and you think about the growth outlook, I'm just wondering what is implicit in your outlook for pull forward effect.

I think that is going to occur.

There is a lot to pull forward, though.

So even if 2011, 2012 refinancing is being pulled into 2010, it's not -- 2010 is not going to absorb the stock of debt that needs to be refinanced over the next three years.

It's a very significant amount of debt that will have to be refinanced.

Nonetheless, I do think that we will see a pull forward, particularly in high yield activity before any anticipated increase in benchmark rates and potentially, spreads going forward.

So -- It's Linda.

We put out two pieces this week that you might want to take a look at.

On the spec grade side, we've written we are expecting $800 billion in refinancing over the next five years with that peaking in 2014.

And then on the investment grade side, we are saying $550 billion of investment grade refinancing, which peaks into 2013.

Great.

And then just given the lumpiness of issuance in 2009, how do you think about the growth profile of the business for the first half versus second half of 2010?

We don't have any formal quarterly guidance that we give, but in terms of where rates and spreads are now and the attention that companies are paying to opportunistically refinancing, I think we are going to have probably a stronger first half of the year, and we will, as we get further into the year, we will have some visibility, I'm sure, beyond what we have right now in terms of the second half.

But I do think we are going to see a pull forward, at least from later in the year to earlier in the year, of refinancing that is planned for 2010, with the open question being will we then see pull forward from 2011 into the second half of 2010?

And just one final question.

Do you have any preliminary estimate of incremental compliance costs for 2011?

No.

We don't have an estimate yet, but I can tell you that the increment there will be, I think principally associated with what we need to do for analyst rotation to meet European union regulatory requirements.

And the nature of what has to be done for analyst rotation is still not settled.

That is why we don't have an estimate on that.

Thank you.

Bill, we have some sense of the European regulatory situation, which of course is further along, and we'd need more detail on what is going to happen in the US to be able to provide that.

Thanks a lot.

We'll go next to Craig Huber at Access 342.

Yes, good morning.

A few questions.

The first one, as I typically ask, can you give us the breakdown of transaction versus non-transaction revenues across Structured Finance corporate, financial, et cetera?

Yes we can, Craig.

Let's do the rating agency first, and we'll start with the entire rating agency is for -- you are looking for the fourth quarter of 2009?

For the fourth quarter, yes.

Sorry, for the fourth quarter The rating agency total is 53% transaction and 47% relationship, and that's broken down first by Structured Finance, 43% transaction, 57% revenue.

The corporate group is much more transaction based at 65%, given what we've seen in activity in that sector and 35% relationship.

Fig is 37% transaction and 63% relationship, and PPIF is 60% transaction and 40% relationship.

For Moody's Analytics, it's 13% transaction and 87% relationship.

So the total for the fourth quarter of 2009 for the corporation is 40% transaction and 60% relationship, which is a bit of a move from the third quarter of 2009, if you want to look at it sequentially, which the balance for the Company was 37%/63%.

So with the rating agency moving a bit more toward transaction, so has shifted the whole Company.

And the cut to revenue is a little bit different.

Can you also, if you would, please break down within Structured Finance percent breakdown for revenues for the quarter for ABS versus NRBS, et cetera -- Yes.

For the fourth quarter 2009, for Structured Finance, as a percent of the total Structured Finance revenue which was 78.7, as we said before, 33% of that was, asset backs, ABS, 21% of that was RNBS, 16% of that was commercial real estate, what we call crafts, and then 30% was derivative.

And that sets Structured Finance at 12% of the total rating agency revenue for the fourth quarter of 2009.

And then could you do it for corporate finance and finance institutions and PPIF, if you would?

Sure.

Good thing we have all this detail for you, Craig.

Fourth quarter of 2009 for -- I wish your competitors did too.

(laughter) We prepare, we prepare.

Investment grade is 19%, and the total again is $115.2 million for the fourth quarter of 2009, which is up from $57.8 million last year, almost doubling.

So, 19% investment grade, 29% speculative grade, 10% bank loans and 42% other, which as you know, is monitoring fees, medium term loans, shelves, commercial paper and things like that.

So a heavier balance if you are looking sequentially would -- the main headline there would be the movement in spec grade being a higher percentage, which is up from 19% in the last quarter.

Looking at Fig for the fourth quarter of 2009, $72 million of revenue, 71% of that from banking, 22% from insurance and 7% from managed investments.

That looks relatively close to where we were for the third quarter.

And then PPIF for the fourth quarter is $66 million, 49% of that was PFG and sovereigns, munis were 9% of that and project and infrastructure is 42% of that.

I think the headline would be there over the third quarter of 2009 a bit of an increase in PMG and sovereigns, which have been 45% in the third quarter.

Sorry, just the 9% that Linda referred to is the structured municipals.

Yes.

The municipal bond market is included in the PFG or public finance and sovereign line.

Okay.

And then my only other big question here, please, is about your guidance.

If you take your guidance of the three main things you give us up, call it 8% to 9%.

For revenues, you take the mid-point 8.5%, you take the mid-point of your cost guidance for 2010, 8.5%, take the mid-point of your tax rate of 37.5% and assuming there's nothing strange going on in your interest expense line and nothing dramatic in the share buybacks this new year, I get about $1.90, $1.91 per share.

I am trying to reconcile with this $1.75, $1.85 guidance, please.

Sure.

On the tax side -- You guys are very conservative.

I am trying to figure how you get that low.

The tax side, we are guiding to 37% to 38%.

We've made a lot of progress on the tax line in recent years and as we've said, we are looking at modest share repurchase.

We've really been doing three things.

We increased the dividend, as you saw, we took down our debt by $2.74, took up the cash by 228, and then we are looking to get back in the share repo market.

But the pacing and timing and amount of that really depends on market conditions.

So we have got the tax rate pretty much where we think it should be directionally, and let me have Ray comment a little bit more on his thoughts.

Yes.

I would just add that for you, Craig, I think we will probably have a little bit more in tax, and foreign exchange the not going to be -- we are not expecting that to help us.

And so on the non-operating expense line, we will be having an increase that is related to that.

I'm sorry.

Maybe ask it a little differently.

If you use, again, 8.5% revenue growth, 8.5% for total cost growth, use 37.5% for your tax rate, you get to the mid-point to the guidance you gave in your press release and you talked about, I come out with about a $1.90, $1.91 per share.

Again, assuming nothing strange going on in the expense line, I don't quite understand how you talk about $1.75, $1.85 versus the ranges you've given, that's all I'm asking.

The interest expense line would stay about the same.

If our tax rate is 37% I'm being told that gives us -- it costs us about another $0.02, and we are being cautious on our outlook on FX.

Craig.

So I think your point is well taken there, but we are being cautious at this point in the year.

Okay, very good.

Thank you.

We'll move next to Edward Atorino at Benchmark.

My question has been answered a couple of times.

Thanks.

Thank you Ed.

We'll go next to Brian Shipman with Jefferies.

Thanks, just a couple of quick capital allocation questions.

As you reinstitute the share repurchase plan, are you planning to be more systematic as you've done historically?

In other words, will the repurchase pace be fairly evenly spread out over the coming year?

And then you mentioned acquisitions as part of your capital allocation plan as well.

What area of the business do you see is the focus, and do you see deals out there that are imminent, and is the acquisition pipeline fairly full at this stage?

Brian, I don't really think we want to talk too much about our intentions with share repurchase.

We've used both systematic and opportunistic share repurchase previously, and we'll have to see what the market brings us.

So that will lay out according to what the market looks like and what we think about the conditions of the business.

We've pencilled in a small amount for acquisitions for this year.

We will continue to stick close to our knitting.

There are a number of opportunities out there.

Some of them are of larger size, and and Ray may want to comment on that in a moment.

But we would expect we'll continue to look for the international opportunities that looked for before.

In the rating agency, those tend to be smaller.

And then both on acquisitions for Moody's Analytics, which is the main place where we're looking right now.

Ray may have some --

Yes, the only thing I would add on the acquisition side, and I think you're well aware of this, but there are probably more acquisition opportunities for us on Moody's Analytics side.

Most of those that we would have in our pipeline are of modest size.

As Linda noted, there are a couple of firms that have been discussed publicly in terms of being up for sale.

We look at everything that we think makes sense for our business.

When we are looking, though, we are looking for things that are going to provide synergies, and can be purchased at the right price.

Frankly, there are not that many that come along that we think have strong synergies for the businesses we are currently in and that are priced at a level that we think makes sense.

So that reduces the likelihood of doing significant acquisitions.

Okay, thank you.

And we'll go next to Michael Melz with JPMorgan.

I always have more.

Just one follow-up on the headcount question.

If my math was right, of your four -- roughly 4,000 employees, how many are at Moody's Analytics at year end?

Just a minute, MIchael, we can get that for you.

At year end, Moody's Analytics had 1,374.

Okay.

And of the planned increase in expenses from headcount in 2010, have any been hired at this plain, or is that a hiring plan throughout the year?

That hiring plan is throughout the year --

It's ongoing, yes.

We are continuing to hire.

We hired in January, but that is an ongoing process.

Okay, thank you for your time.

And at this time, we have no further questions.

I'll turn the conference back over to Mr.

McDaniel for any closing remarks.

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

Thank you.

And that does conclude today's fourth quarter and fiscal year end 2009 earnings call.

As a reminder, a replay of this call will be available after 4:00 p.m.

eastern time on Moody's website.

Thank you.