Good day and welcome, ladies and gentlemen to the Moody's Corporation Second Quarter 2008 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, 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 the second quarter of 2008. I am Lisa Westlake, Vice President of Investor Relations. Moody's released its results for the second quarter of 2008 this morning. The earnings release and the 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 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 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 statement. I direct your attention to the management’s discussions and analysis section and the risk factors discussed in our annual report on Form 10-K for the year ended December 31, 2007, and in other SEC filings made by the company from time to time. I would also like to point out that 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 actual 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. Raymond W. McDaniel Jr.: Thank you, Lisa and thank you all for joining us on today's call. I'll began our prepared remarks this morning with the 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 recent developments in the regulatory area and finish with Moody's outlook for 2008. After that we'll be happy to respond to your questions. Moody's achieved good revenue growth in the second quarter over the first quarter but well below very challenging prior year comparables. Revenue for the quarter was $488 million, down 25% from a year ago. Strength in the investment grade corporate, financial institutions, and public and infrastructure finance ratings businesses, and good growth from Moody's Analytics were more than offset by significantly reduced issuance for structured finance securities, speculative-grade bonds and loans. Operating income for the second quarter was $234 million, a decrease of 36% year-over-year. Recurring revenue and our ongoing cost management efforts reduced the impact of weak issuance conditions on overall performance. In addition, revenue and operating income declines were slightly offset by the positive impact of foreign currency translation of approximately 200 basis points and 260 basis points respectively. Diluted earnings per share for the quarter were $0.54 and included a one-time benefit of $0.03 related to legacy tax matters. Excluding benefits relating to legacy tax matters, diluted earnings per share were $0.51 for the quarter down 33 % compared to $0.76 a year ago. Turning now to year-to-date performance, revenue for the first half of 2008 was $918 million, a decrease of 25% from the first half of 2007. Operating income of $433 million was down 35% from the same period a year ago. Foreign currency translation positively affected the changes in revenue and operating income by approximately 200 basis points and 250 basis points respectively. Diluted earnings per share of $1.03 for the first half included a benefit of $0.04 per share relating to certain legacy tax matters. Excluding legacy tax benefits from both periods, diluted earnings per share of $0.99 for the first half of 2008 decreased 28% from $1.37 from the prior year period. We're affirming out full year 2008 EPS guidance in the range of $1.90 to $2 and I will discuss details on our outlook later in the call. At this point, I will turn the call over to Linda who will provide further detail on revenue and expenses. Linda S. Huber: Thanks, Ray. I'll begin with revenue for the second quarter. Moody's U.S. revenue declined 34% year-over-year to $264 million. However, revenue from outside the U.S. was $224 million, down only 9% from year ago and represented 46% of Moody's total revenue for the quarter. Recurring revenue of $269 million was up 12% from the second quarter of 2007 and represented 55% of total revenue. Recurring revenue for the first half of 2008 increased 14% to $538 million and was 59% of total revenue. Focusing on details by segment, for Moody's Investor Service, our ratings business, revenue for the quarter was $356 million, a decline of 33% year-over-year. U.S. ratings revenue was down 42% as compared to a 17% decrease in non-U.S. ratings revenue. Revenue from outside the U.S. represented 44% of total ratings revenue. The decline in revenue was mitigated by favorable foreign currency translation of approximately 200 basis points. Global Structured Finance revenue for the second quarter was $120 million, down 56% year-over-year. U.S. Structured Finance revenue decreased 67% driven by significant declines in issuance across the most asset classes. Non-U.S. Structured Finance revenue was down 35% from the prior-year period, as declines in the European credit derivatives and commercial real estate finance sectors were partially offset by other securitization activity in the Europe, Middle East, Africa and Asia region. Global Corporate Finance revenue of $97 million for the second quarter declined 23% from a year ago. U.S. Corporate Finance revenue decreased 31% year-over-year as good growth from U.S. investment grade ratings was more than offset by high double-digit declines in revenue from speculative-grade bond and bank loan ratings. Outside the U.S., corporate finance revenue was down only 7% due primarily to declines in revenue from speculative-grade bond and bank loan ratings. Global Financial Institutions revenue of $72 million was flat compared to the same quarter of 2007. U.S. financial institutions revenue was down 9% as revenue declines in the banking and insurance sectors were greater than revenue growth in the finance and securities sector. However, outside the U.S. financial revenue grew 9% due primarily to growth in European bank ratings. The public, project and infrastructure finance ratings business had good growth with global revenue up 13% to $66 million. U.S. revenue increased 21% from the second quarter of 2007 reflecting solid double-digit growth in revenue from U.S. municipal ratings while non-U.S. revenue decreased 5% due to a decline in project finance activity. Turning now to Moody's analytics. Global revenue of $132 million increased 14% from the second quarter of 2007. U.S. revenue was up 10% to $65 million while non-U.S. revenue grew 18% and represented 51% of the total for Moody's Analytics. Revenue from subscriptions grew 15% to $117 million driven by continued demand for credit and economic research, structured finance analytics and other offering. This smaller consulting business also delivered double-digit revenue growth reflecting the ongoing demand for credit education, portfolio analysis, risk modeling and scorecard development services. Foreign currency translation increased revenue growth by approximately 190 basis points. Moody's second quarter operating expenses were $254 million, down 10% from the prior-year period. We continue to benefit from cost reduction initiative that began in the second half of 2007 and are reallocating expense dollars to support business needs such as compliance and monitoring efforts. Included in operating expenses were approximately $10 million or about $0.03 per share of one-time charges representing accelerated depreciation expense associated with closing our New Jersey office as well as senior executive severance. Non-operating expenses included a one-time after-tax benefit of approximately $8 million or roughly $0.03 per share relating to the resolution of certain legacy tax matters. Operating margin for the second quarter of 2008 was 47.9%, which was 840 basis points lower than in the second quarter of 2007, but it’s up 160 basis points from the first quarter of 2008 margin of 46.3%. Our effective tax rate for the quarter was 38.9%. Excluding the impact of legacy tax matters, the tax rate for this quarter was 40.1% essentially flat compared to the tax rate for the prior-year period. I'd like to turn now to an update on capital allocations 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 of 2008, Moody's repurchased 1.7 million shares at a total cost of $63 million and issued about 0.6 million shares under employee stock-based compensation plan. For the quarter, we repurchased shares at an average price of $37.09, which was $1.13 below market price. Outstanding shares as of June 30th, 2008 totaled $243.7 million representing a 9% decrease from year ago. In the first half of the year, Moody's repurchased a total of 9.2 million shares at a total cost of $328 million and issued about 1.6 million shares under employee stock-based compensation plan. Year-to-date we repurchased shares at an average price of $35.67, which was $1.53 below the market price. Share repurchases were funded using a combination of free cash flow and borrowings. At quarter end, Moody's had $1.3 billion of outstanding debt with approximately $500 million of additional capacity available. Also as of June 30th, 2008, Moody's had $1.7 billion of share repurchase authority remaining under its current program. And with that, I'll turn the call back over to Ray. Raymond W. McDaniel Jr.: Thanks, Linda. I'd like to now provide a brief update on regulatory development. We continue to have active communications with regulatory authorities in the U.S. and internationally. Our recommendations regarding the role, use and performance of ratings and rating agencies proposed by the Financial Stability Forum have been endorsed by the G-8 Finance Ministers and have incorporated the recommendations of a number of global authorities including IOSCO or the International Organization of Securities Commissions. In turn, IOSCO has published a revised code of conduct for rating agencies. We believe that IOSCO generally has adopted a constructive approach in reviving the code and we're in the process of modifying our existing Moody's Code of Professional Conduct to reflect IOSCO's revision. IOSCO will monitor the implementation of the revised code and aims to publish a review later this year. This week IOSCO indicated potential approaches for their monitoring process that include arrangements for the exchange of information between National Authorities, National Securities Regulators, Cooperative Inspection Programs for rating agencies, or specialized IOSCO committee that would confer on rating agencies compliance with the code. Within the U.S., the SEC introduced a set of proposed rules in three broad areas relating to nationally recognized statistical rating organizations or NRSROs. The areas of focus are first, additional measures on managing conflicts of interest and increasing transparency; second, call to NRSROs to distinguish ratings for structured finance obligations from those of other obligation either by adopting a different rating scale or by providing additional information to investors; and third, proposals to reduce the use of and reliance on NRSRO credit ratings by the SEC and market participants. Moody's has provided our comments to the SEC on the first two areas of rule amendment and we'll provide our comments to the Commission on the remaining proposals by the September 5th deadline. In July, the SEC released a report on its examination of the rating processes and procedures of the three leading rating agencies, Moody's, S & P and Fitch, focusing on sub-prime residential mortgage-backed securities and collateralized debt obligations. While the commission staff noted that most of the period under review predated the implementation of SEC rules for industry, the report identified several areas that were either of concern to the SEC or that the SEC believes can be enhanced going forward. The concerns identified by the SEC generally related to policies addressing potential conflicts of interest, resources and resource allocation, documentation around policies and procedures and enhancing transparency. The SEC also summarized the various steps that have already been taken by the three rating agencies, either individually or collectively, to address these concerns, as well as those that are under consideration in the SEC's current rule-making process. In Europe some authorities including the European Commission have suggested establishing a registration system for credit rating agencies based primarily on the ISOCO code and perhaps analogues to the U.S. registration model. We expect the discussions among European authorities and market participants will continue to explore this possibility over the coming months. Moody's supports the ongoing efforts undertaken by global policy makers and regulatory organizations to restore confidence in the credit market. Moody's has been responding to questions from the officials and participating in various reviews and request for commentary as appropriate, including providing our views on Moody's role in the structured finance market, ways to raise market awareness about the meaning of our ratings and steps that we are taking as an industry and independently to demonstrate sound, objective rating processes. We continue to communicate our messages and seek to understand and address the issues and concerns that various authorities may have in our shared goals of greater market stability and the return of investor confidence. Given what we have seen thus far in the regulatory front, we anticipate that incremental costs relating to compliance and… relating to compliance and that we are in the process of assessing will not be material to our overall cost base. I'd like to conclude this morning’s prepared comments by discussing Moody's outlook for 2008. Moody's outlook for 2008 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 spending, residential mortgage borrowing and refinancing activity, securitization levels and capital markets issuance. 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. Our full year outlook for Moody's 2008 performance is largely unchanged from our previous guidance March 11, 2008 and reaffirmed at our Investor Day on June 5th. For Moody's overall, we continue to expect full year 2008 revenue to decline in the mid to high teens range. This decline assumes foreign currency translation in 2008 at current exchange rates. Revenue guidance for certain lines of business has been modified based on conditions specific to those sectors and geographies. We remain cautious about recovering credit markets for the remainder of 2008. Previously, we had projected modest sequential improvement in quarterly revenue throughout the year. However, quarterly improvement in the first half of the year was somewhat better than we expected and may not be sustainable in the second half. As a result, we now believe the second half performance is likely to be relatively flat with that in the first half. In line with these expectations, we are reaffirming our overall guidance for the year. Full year expenses are now expected to decline about 10% on an as-reported basis compared to full-year 2007. Excluding the restructuring charge of $50 million in 2007, full year expenses for 2008 are now expected to decline about 6%. We continue to expect the full-year 2008 operating margins to be in the mid 40% range. Earnings per share for 2008 continue to be projected in the range of $1.90 to $2, excluding adjustments related to legacy tax matters. For the Global Moody's Investors Service business, we continue to expect revenue for the full year 2008 to decline in the mid 20% range. We continue to project Moody's Investor Service revenue within the U.S. to decrease in the mid 30% range for the full year 2008 while we continue to expect revenue outside the U.S. to decrease only in the high single digit percent range. We now expect Structured Finance revenue for the U.S. to decline in the high 50% to low 60% range, while we continue to expect a decline in the high 20% percent range outside the U.S. We continue to expect corporate finance revenue in the U.S. to decrease in the mid 20% range driven by declines in speculative grade... speculative-grade bond and bank loan ratings. However, we expect international corporate finance revenue to grow in the mid single digit range. We now project good growth in Global Financial Institutions revenue with U.S. revenue expected to be about flat and international growth expected in the mid teens percent range. For the public project and infrastructure finance sectors, both U.S. and international revenue growth is now expected in a high single digit percent range. For Moody's Analytics, we now expect revenue to grow in the low to mid teens percent range rather than mid teen as weakness in the global debt markets and retrenchment within the financial services sector is leading to longer sales cycles and a modest rise in customer attrition. U.S. revenue is now expected to grow in a low double-digit percent range, while non-U.S. growth is now projected in the mid teens percent range. Growth in the subscription business is now expected to be in the low to mid teens percent range, reflecting customers’ budget constraints and reduced spending, especially among large bank customers in the capital market segment. Despite these trends, revenue growth will be driven by sales of credit... credit research services, continuing strong demand for economic research and data, and the impact of our newly formed pricing and valuations business. In software business, we now expect revenue to decline in the high single digit percent range. In the smaller consulting business, we continue to anticipate very strong growth reflecting a robust pipeline of professional services engagements in credit training projects. We continue to see considerable demand for Moody's expertise in credit education, risk modeling and scorecard development due to heightened sensitivity concerning risk management processes in compliance with regulatory requirements. That normally would conclude our prepared remarks, but I do want to add comments about one matter [ph]. We have just received a civil suit from the Attorney General of the State of Connecticut. This suit pertains to Moody's municipal rating scale. Moody's municipal rating scale is just that, a scale or a system of measurement. Asserting that a rating scale is wrong is equivalent of saying that measuring distances in centimeters is wrong or measuring in inches is right. We are not [inaudible] committed to any measurement system, because measurement systems do not relate to ratings accuracy. As such, we strive to provide measurement systems that respond to evolving market preferences. In recent years, we have published multiple reports about the historical performance of our municipal bond ratings including comparisons with corporate ratings and a mapping of one scale to the other. In other words, we've published a rule that shows both measurement systems side-by-side so that investors can make informed decisions about our opinion of relative credit risk and bonds can be priced accordingly. I also note that we have had the current municipal rating scale in place since shortly after World War I and we've been very public about the differences and reasons for those differences between the municipal rating scale and the corporate rating scale. In fact, John Moody wrote on this point as early as 1920 and we've been in continuous market dialogues since. As anticipated, the suit focuses on the issues I've just discussed. It is utterly [inaudible]. I would also add that we have a consistent track record of responding to and working with governmental authorities at both the federal and state levels, such as with the New York Attorney General where there are opportunities to improve our processes and ratings quality for the benefit of the capital market. This is not such an instance. Finally, I understand that investors may construe the Connecticut Attorney General’s action as an attempt to influence Moody's to upgrade the rating of the State of Connecticut. I want to assure everyone our municipal rating analysts and managers have already been reminded to consider only matters pertaining to credit issues but I also want to use this opportunity as a disclosure to investors so that they should... can consider our ratings with all necessary information that they may believe is pertinent. Thank you. I will now open the call for questions and joining us for the question-and-answer period will be Michel Madelain, our Chief Operating Officer at Moody's Investor Service and Mark Almeida, the President of Moody's Analytics. Question and Answer

Thank you. [Operator Instructions]. We'll take our first question from Michael Meltz, JP Morgan.

Great. Ray, one clarification. I know the AG is having a conference call soon and details are scarce. Is there... is it your sense this is focused on the actual practice... the actual rating scale or alleging fraud in the business or something like that? Can you offer any more detail there and then I have a couple of actual business follow-up questions. Raymond W. McDaniel Jr.: Michael, I apologize but I have literally not had a chance to read the complaints which has just been received as we were starting this call, so my comments are based on my understanding that the focus is on the municipal rating scale but I will have to read the complaint.

Okay. Can you talk a little bit about your performance in the quarter and what you're implying for the back half? Has there been any noticeable change in trend in July relative to how you ended Q2? Raymond W. McDaniel Jr.: No. I think the broad answer would be we haven't seen a significant change from the latter part of the second quarter. We did have some better activity in the early part of the second quarter, April and into May. We do have some reasonable pipeline activity in some of the areas that have been under stress, but I would caution that issuance activity in the structured finance area speculative-grade bonds and loans has been lumpy. And I don't think we would identify a pattern of improved issuance activity at this point.

Okay. Linda, on the expense side, what factors should we consider in the second half that, I guess your implying expenses will ramp? Linda S. Huber: Yes. I think we want to be clear about that, Michael. We're trying to establish the right balance here between bringing expenses down but then making sure we're funding the things we need to do to ensure appropriate regulatory and compliance actions and to make sure that we get the ratings right. As we said, we see a 10% a decrease for the year. We would expect compensation expenses to more than likely continue as they have been, and I think what we’ve said previously about expenses would continue, But, we're keeping a very close handle on them obliviously.

Okay. And last question, what's the guidance on the tax rate for the back half? Linda S. Huber: Yes, we're going to keep it where we had it, Michael, which is 38.5% to 39.5%.

So it started in step to 40% or so in the quarter? Linda S. Huber: It did, but we're keeping the annual guidance where we had it, very difficult to manage the tax rate to exactly the same place every quarter.

Okay. Thanks for your time.

Next we'll move to Catriona Fallon with Citi.

Yes, hi. A quick question on depreciation, and is that expected to be down in Q3 as this must be flat in the second half of the year? Linda S. Huber: Hang on just a second, Catriona. Let me just note that we took a little bit heavier depreciation expense in the second quarter. It was in non-comps, of course. That was the result of accelerating the depreciation for closing our New Jersey office. That was a couple of million dollars and then also on the non-comp line we had some additional expenses related to our outsourcing of our data centers and then some increased professional fees. So, in terms of D&A specifically, we generally don't give a lot of guidance on that, but now we'd expect it would probably be back to a more normalish run rate. Raymond W. McDaniel Jr.: And it will be subjected to timing of capitalization of certain projects and initiatives that we have on the technology side. Some of that is associated with compliance and meeting regulatory expectations. But the timing on that is a little bit uncertain.

Okay. And then, excuse me if missed this on the call, but I guess I was a little surprised to see the analytics business just growing 13.7%. What's really leading to that slowness there? I guess we saw strength out of McGraw-Hill yesterday and I thought that the analytics business from Moody's would be a little bit stronger as well. Raymond W. McDaniel Jr.: Let me ask Mark Almeida to make any comments there. Mark E. Almeida: Yes, Catriona, what see going on, I think we talked about this a bit at Investor Day back in June, the debt capital markets which is really our core business segment, are going... is going through a very, very difficult time as you know. And so, that's had an impact on the business. While on the one hand, it’s increased demand for the kind of services we offer to a number of our customers, we have a number of customers that are exiting from asset classes. In some cases, we've got very large customers that had simply gone out of business. And so, that's affected us. So, I think we're pleased with our overall performance that were able to maintain a good solid double-digit growth in spite of the fact we are in the worse debt capital market environment that any of us have ever experienced.

Okay. And then, again excuse me if I missed this, I had another call, but, did you give the breakdown of recurring revenue by category? Raymond W. McDaniel Jr.: No, we didn't. Linda S. Huber: We're happy to do it. What…how would you like to have it broken out?

Just percent of corporate finance, structured finance etcetera that was recurring? Linda S. Huber: Okay. Let me do it this way, I'll do structured, corporate, financial institutions and PPIF first.

Okay. Linda S. Huber: And I'll do transactions first and relationship, if that's okay.

Yes. Linda S. Huber: So, for structured, it was 58% transaction and 42% relationship, for corporate it was 64% transaction and 46%... I am sorry, 36% relationship as we saw a bit of an up tick in corporate finance transactions, financial institutions was 48% transaction and 52% relationship and PPIF was 65% and 35%. So, the total for the rating agency was 59% and 41%. For Moody's Analytics, because of the subscription nature of the business, it was 8% transaction and 92% relationship. So, for the company as a whole, we're at 45% and 35%. Raymond W. McDaniel Jr.: 45%, transaction and 55%, relationship. Linda S. Huber: Excuse me, 55%. Raymond W. McDaniel Jr.: Yes.

So that certainly looks like an improvement in the transaction based revenue, over Q1 and if I apply that then to the outlook for the second half, it seems that expectations for transactions will come down quite a bit for the second half. Linda S. Huber: Catriona, you are right on the numbers for the whole company for Q1. The balance was 38% transaction and 62% relationship. So, yes we did a little bit better on the transaction front in Q2 and perhaps Ray might want to comment a little bit on looking [ph] forward. Raymond W. McDaniel Jr.: I think that what we saw in Q2 really related to up tick in issuance activity early in the quarter. We have not seen that up tick sustained. As I said, we do have a reasonable pipeline in some areas of structured finance that have been under stress and it's possible that we can get an another up tick like we saw early in the quarter but we’ve not seen a pattern that makes us confident in that kind of projection.

Thank you.

We'll go next to John Neff at William Blair. John H. Neff: Hi. I just wanted to see the earnings and the expenses that you reported in the quarter, is that include the Sullivan & Cromwell investigation expenses and if so how much did that run you in the quarter? Raymond W. McDaniel Jr.: Well, we're not going to provide information on how much but yet it does include that. John H. Neff: Okay. Is there other ongoing expenses in the third quarter, or was that relegated only to the second quarter? Raymond W. McDaniel Jr.: Well. The expenses related to the matter that we're dealing with in the second quarter were second quarter only expenses but in this environment, it's a little difficult to predict whether we might have other expenses, for example a civil suit from Attorney General. John H. Neff: Right. Looking ahead, I realize this is uncertain, but give a view on what's going on with the GSCs [ph] do you expect to looking out longer term a larger or smaller role or share of performing mortgages once the dust settles and other ratings opportunities associated with what's going on the GSCs? Raymond W. McDaniel Jr.: Well, as you know, we do rate the GSCs and I think it's fair to say that we're in a fairly dynamic environment in terms of what the likely sources of funding will be for the U.S. housing market going forward. I would certainly expect the GSCs continue to play a very substantial role in that process. But, the balance between conforming mortgages and mortgages that are eligible for purchase by the GSCs versus private label mortgage securitization, I think it's just too early to call. That being said, I do think the market is going to be looking for any available sources of financing and asset transfer in order to help support the housing market. And so, I would expect that we will see some creativity applied to the funding for the U.S. mortgage sector. And that might over time be beneficial to the rating agencies to the extent that the private sector is a source of badly needed capital. John H. Neff: Covered bonds, are those things you rate in Europe? Raymond W. McDaniel Jr.: Yes. And covered bonds is a good example of one of the directions that the mortgage finance market might go in United States. We have seen the beginnings of some activity around covered bonds in the U.S. We do rate those in Europe. We have, I think, a robust methodology around covered bonds and that would be an opportunity. I don't expect it to be a sector of explosive growth in the near term, no. John H. Neff: Just one point of difference, S&P is claiming that the cost of implementing the SEC recommendations is higher than the SEC is forecasting. You're saying that the expected cost of implementing should not be incremental and material to your forecast. Is there any way to reconcile those--? Raymond W. McDaniel Jr.: Well. Let me... let me try and amplify my comments. I think the cost with respect to compliance per say are not going to be material, in part because we have already implemented a number of compliance activities and committed resource to that which already appear in our expense base. I think what you have heard from others though, is that their... the proposals from the SEC are wide ranging and they do include areas of costs that go beyond compliance, strictly speaking, including, for example, putting data and information in machine-readable format. And that is an area where I think we would agree with the comments that you've heard and that the estimates for the incremental cost associated with that will probably be higher, perhaps materially higher than the expectations in Washington. John H. Neff: All Right. That's helpful. And then, last question here, question for Linda. Are you still thinking about low double-digit revenue growth in '09, something you had mentioned at the Investor Day? And also can you give us a sense of D&A expense in '09, given the Canary Wharf plan? Thank you very much. Linda S. Huber: John, I might let Ray talk a little bit about '09. It's a bit early to tell with the choppy markets that we have, but let him go ahead and answer that first. And then I'll chat a bit about Canary Wharf. Raymond W. McDaniel Jr.: I think Linda may have just said as much as I was prepared to say on '09. It is early, it would be early for us to be trying to firm up our outlook for 2009 even in a more normalized market environment. And we certainly do not have a normal market environment currently. The recovery that we would expect to see in the markets, as you’ve heard from our prior comments, we really don't think is going to have a lot of traction in 2008. We do expect that there will be recovery in 2009 and the important question becomes when in 2009. We are watching that closely but I don't think we are in a position to put out our projection or an outlook on 2009 at this point, even though I would expect recovery, the timing being so uncertain. Linda S. Huber: And John on your question on Canary Wharf, let me just set out what we're doing. We presently have office location in Minster Court in London. Unfortunately, we won’t be incurring double rent for the first, second and third quarter of 2009 as we set out our space in the Canada Tower at Canary Wharf. We are planning for all of that, but as a result we won't start seeing depreciation on that Canary Wharf set out until the fourth quarter of 2009 and we haven't said much about what we think that depreciation is going to be. I think you're aware that we’ve said that we expect CapEx to be less than $150 million or so next year, some of that encompassing the set out for Canary Wharf. But we will do this with our usual degree of discipline and attention to detail that we did with the New York move, and the question really would be the double rent expense maybe for the first three quarters, and we'll have more to say about that as we move forward.

Next, we'll go to Edward Atorino at Benchmark Company

Hello. Raymond W. McDaniel Jr.: Yes.

Hi, Ray. I was curios do you think there was any predetermined timing of the Connecticut General… Attorney General’s release today? Jury has [ph] made this announcement on the day you release earnings? Raymond W. McDaniel Jr.: I don't think it's really appropriate for me to speculate on that. So, I will pass on that question, Ed.

Okay. Otherwise you'll cover it in good detail. Thank you very much Raymond W. McDaniel Jr.: Okay.

[Operator Instructions]. We'll go next to Craig Huber at Lehman Brothers.

Hi. I've one quick question. This $10 million of accelerated depreciation for New Jersey, [inaudible] second quarter here I assume? Linda S. Huber: It's not $10 million, Craig. It's only $4 million and yes, we are... we've done with it with the second quarter.

Okay. So that is $4 million in the D&A line, inflating that in the remaining roughly $6 million, is that one you are saying? Linda S. Huber: Yes, roughly the amounts are around what you said $6 million for consulting, other professional service fees and legal. If you're looking at the other non-compensation lines, we've added, as you know, we've moved our IT hosting to [inaudible] and so we have $2 million for that as an expense item and we've got a $4 millionish as I said for the mix shift situation. Raymond W. McDaniel Jr.: And I think Craig that your focus on the $10 million, that is going to point out, that is split between the depreciation and severance costs.

Okay. Very good. And then just back on to the Attorney General thing with Connecticut, it is my understanding that the SEC is the one who has regulatory oversight on the credit rate agencies. So, if that is the case, I assume what's the basis of this lawsuit? Raymond W. McDaniel Jr.: Because I have not read the civil complaint yet, Craig, I cannot articulate for you the basis. But, yes, you are correct that under the Credit Rating Agency Reform Act, we are subject to SEC oversight at the federal level rather than state oversight

May be the angle here from the Attorney General standpoint that it’s more having to do with fraud with his standpoint that had pursuing for as opposed to trying to change the regulations on your guys? Raymond W. McDaniel Jr.: Again with the caveat that I've not read the complaint, I don't think that's the case. No, I do not think it relates to fraud.

Do not, okay. And I guess just lastly on cost for the back half of the year, just review a little bit further, is there any other item that we should think about here that would may or may not increase your cost for the third and fourth quarter versus what that you saw here in the first half of the year, anything of significance you should think about? Linda S. Huber: Craig, we are all kind of looking at each other and we are... we don't really think of anything. We are being very careful to make sure, as we said, that we are reallocating expenses to the prices where they need to be to ensure that we've got a proper rigor [ph] around the ratings part of the business and that we can split the growth requirements of the Moody's Analytics business. But we think we've mentioned pretty much everything that we can see right now. Obviously, if something material comes up, we will let everybody know but we are looking at expenses as we've given guidance earlier in the call.

And then lastly, if I could, just looking at McGraw-Hill’s peer ratings, percent change of the revenues, that you saw in the last six quarters and compared into your performance, is the difference in the performance most likely because you guys have higher rating towards structured finance? And the reason that I bring this up is when you guys have done this blow out type, a very strong structured finance numbers first half of last year's you guys grew much stronger on your peer ratings business with regarding to the first half of this year you guys fall-off was significantly worse than the ratings business of McGraw-Hill? Raymond W. McDaniel Jr.: I think that it probably is relevant to look at the transaction versus recurring revenue mix, but I would not point that solely to structured finance. A lot of the high yield bond and loan ratings are also transaction-based revenues and those areas have been soft as well.

But net over the last couple of years, are you suggesting you are not losing market share relative to your number one peer out there? Raymond W. McDaniel Jr.: No. I don't think so, I think it's probably a difference in some of the pricing mechanisms that the different agencies have.

But… and I guess it is your sense that your mix of business accounts for structured finance is higher than its S&P ratings? Raymond W. McDaniel Jr.: No. I don't think so. As far as I know our competitor does not break out details of it's structured finance revenue but, just looking at market coverage I would say they are roughly similar.

Okay, very good. Thank you.

And next we will move to Peter Appert at Goldman Sachs.

Thanks. Linda, can you tell us about the year-to-year change in bonus accruals both for the second quarter of this year versus last year? Linda S. Huber: Yes, we can, Peter and glad to have you back with us on the call. Incentive compensation for second quarter 2008 versus 2007 was 7% of the total comp expense as compared to 16% at this time last year. Stock compensation is 11% of the total as compared to 13% last year and all other components of compensation were 82% as compared to 70% last year. So we've shifted the mix given the challenging performance that we've seen.

Right. And the... I'm sorry, I forget in the first quarter was it smaller, the 7% versus 16%? Linda S. Huber: I'm sorry, Peter, I didn't quite hear the question could you restate it?

Yes. Was the bonus... was the reduction in the bonus accrual or the magnitude of the production bonus accrual similar in the first quarter to what you have done is the second? Linda S. Huber: We are looking for that right now. I think the answer is roughly yes versus the first quarter of '08 is what you wanted to compare to?

Yes. Just… I am trying to understand if there is any significant quarter-to-quarter impact changes in bonus accrual on a year-to-year basis? Linda S. Huber: Right. And looking at Q1 and the numbers look remarkably similar to Q2. Again, in Q2 and in Q1, 7% of incentive comp… total comp plus incentive comp. We were at 11% also in the first quarter as well as the second quarter and the numbers are roughly the same also for all other compensation. So, very close quarter-on-quarter.

Right. And then, could you give us a sense of the year-to-year change than the second quarter in the total comp expense? Linda S. Huber: Let me see here, year-over-year, it has come up quite a bit. Peter, let me... let us take if you have any follow-up let us check on that for a minute and I will come right back to you.

I guess the follow-up was just... as the year progresses, is the first half accrual rate... should that or we shouldn't think about for the second half of the year? Linda S. Huber: I think that's right, Peter. We are looking… we found your answer here and thank you for bearing with us. We are off 16% and that's what the change is versus last year, but I think…

Total comp percent? Linda S. Huber: Right. That's total comp percent.

Okay. Great. And the... are you done with the headcount reductions at this point? Linda S. Huber: We think we largely are. We may have some small things that we need to deal with, but as you recall we had said that we were reducing 275 heads. But our total headcount number for this year will come out to be pretty much flat from where we are. We, right now have about 3,500 people working here. At the end of the fourth quarter 2007 we had about 3,600 people working here and with hires that we're still continuing to make through the end of the year, we would expect that we’re going to be roughly flat.

Flat with the 3,500 number? Raymond W. McDaniel Jr.: No, probably with the 3,600 number. Linda S. Huber: 3,600 number.

3,600. Okay. Raymond W. McDaniel Jr.: We continue to hire selectively in some areas of the business, some of it pertains to our compliance and reporting and surveillance work. We also had the acquisition of Best Quotes at the beginning of this year, which increased the headcount, obviously. So, I think a flat year-over-year number by the time we get to the end of the year is the best guidance we can give. Linda S. Huber: Yes, Peter, about 50 of those headcount are from acquisition.

Got it. And then last thing, Ray, as you think longer term about the margin potential of the business you've obviously taken some significant cost out of the business obviously the margins are highly leveraged with what the revenue our performance looks like, but in the context of modest revenue recovery in '09 and '10 how much leverage is there in the margin number? Can you get back to 50% or is that desirable? Raymond W. McDaniel Jr.: I think it really depends on where we see growth and what's driving it. I would say that probably somewhere between the mid 40% and 50% would be my expectation over the next couple of years. I certainly would be... I would not expect and would not try to be getting above 50%, but we also want to do our best to manage through a difficult environment about where we've been giving guidance in 2008, which is the mid 40s.

Great. Thank you.

[Operator Instructions]. And at this time we have no further questions. Mr. McDaniel, I'll turn the conference back over to you for any closing remarks. Raymond W. McDaniel Jr.: All right. I just want to thank everybody for joining us for this earnings call and we look forward to speaking with you after the third quarter. Thank you.

And that does conclude today's conference, again, thank you for your participation.