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Dun & Bradstreet (NYSE:DNB)

Q4 2010 Earnings Call

February 03, 2011 8:00 am ET

Executives

Anastasios Konidaris - Chief Financial Officer and Senior Vice President

Daniel Leben -

Manny Conti -

Kathy Guinnessey - Leader, Treasury and IR

Sara Mathew - Chairman, Chief Executive Officer and President

Analysts

Michael Meltz - JP Morgan Chase & Co

Daniel Leben - Robert W. Baird & Co. Incorporated

Carter Malloy - Stephens Inc.

Peter Appert - Piper Jaffray Companies

Shlomo Rosenbaum - Stifel, Nicolaus & Co., Inc.

William Warmington - Raymond James & Associates

Manav Patnaik - Lehman Brothers

Operator

Good morning, and welcome to Dun & Bradstreet’s 2010 Fourth Quarter Teleconference. [Operator Instructions] I would now like to turn the call over to Ms. Kathy Guinnessey, Leader, Treasury and Investor Relations. Ms. Guinnessey, you may begin.

Kathy Guinnessey

Thank you. Good morning, everyone, and thank you for joining us today. In a moment, we will hear commentary on our 2010 performance, as well as our outlook for 2011 and an update on our Strategic Technology Investment from Sara Mathew, our Chairman and Chief Executive Officer; Manny Conti, our Chief Administrative Officer; and Tasos Konidaris, our Chief Financial Officer.

To help our analysts and investors understand how we view the business, our remarks this morning will include forward-looking statements. Our Form 10-K and 10-Q filings, as well as the earnings release we issued yesterday highlight a number of important risk factors that could cause our actual results to differ from these forward-looking statements. These documents are available on the Investor Relations section of our website, and we encourage you to review this material. We undertake no obligation to update any forward-looking statements. During our call today, we will be discussing a number of non-GAAP financial measures, as that's how we manage our business.

For example, when we discuss revenue growth, we'll be referring to the non-GAAP measure, core revenue growth before the effect of foreign exchange, unless otherwise noted. When we discuss operating income, operating margin and EPS, these will all be on a non-GAAP basis before non-core gains and charges. A reconciliation between these and other non-GAAP financial measures and the most directly comparable GAAP measure can be found in the schedules to our earnings release. They can also be found in the supplemental reconciliation schedule that we post on our Investor Relations section of our website. Later today, you'll also find a transcript of this call on our Investor Relations site.

With that, I'll now turn the call over to Sara Mathew. Sara?

Sara Mathew

Thank you, Kathy. Good morning, everyone. Thanks for joining us today. Here's what we plan to cover on the call this morning. I'll begin with the review of 2010 results and progress against the strategic technology initiative. Next, Manny and Tasos will discuss our 2010 performance in more detail, with working and where we must do better. I'll close with our thinking on our guidance for 2011, and then, Manny, Tasos, Kathy and I will take any questions you have. But before I start, I thought I'd share reflections as to my first year as CEO.

As we entered 2010, I was convinced that we had numerous opportunities before us, opportunities to strengthen execution and opportunities to take advantage of emerging technology trends that could transform D&B's customer value proposition and significantly enhance long-term shareholder value. Let me elaborate.

The technology landscape continues to evolve very rapidly. Consider the facts: Facebook now leads Google in terms of the time spent on their website. Today, over 4 billion people around the world use mobile phones. And for a growing segment of that population, the Web has become a fully mobile experience. New concepts such as virtualization and cloud computing are rapidly gaining momentum. This is upending existing business models and creating totally new ones, thereby opening up new markets that were previously too costly to serve.

For D&B, there are three critical tech-enable trends that create a unique window of opportunity to strengthen our competitive advantage and provide a foundation for sustainable value creation. Let me discuss each of them in a bit more detail.

First, the share explosion in available data allows us to create valuable insights in new and different ways. Second, the concept of co-creation to generate insight has moved mainstream and is now a viable business model. What started with Wikipedia several years ago is now an integral part of mainstream America as companies leverage communities to extend their reach to all business problems and lower the cost of serving customers. Third, technological advances are allowing companies to efficiently disaggregate products into bite-sized service components, leveraging the cloud infrastructure to access new markets and provide solutions for real-world problems.

In this world of ever-changing technology, we can create advantage with what we uniquely provide at D&B. By leveraging the DUNS Number as the organizing mechanism, we can efficiently structure unstructured data to generate insights and create value for customers. This was the rationale behind the launch of our Strategic Technology Investment, and I'm pleased to report that we made significant progress in 2010.

We hit all of our data milestones for the year. We relocated our Data Center to Arkansas. We opened a brand new application development center in Ireland and introduced two brand-new products into the market. A third was launched in late January. In parallel, we strengthened execution. We improved the trajectory of our North American business, divested the underperforming Self Awareness Solutions and continued to scale international. All of this was done in the last six months. And so I am very proud of my team in what we collectively accomplished in 2010. It was a year where we concurrently improved the execution of our base business while also making the strategic investments to drive sustainable growth in the years to come.

Now with that, let me provide my perspectives on our 2010 performance and its implications for 2011. Overall, our 2010 performance was in line with expectations, and we met all of our guidance metrics with and without the acquisition of Australia. Specifically, revenue grew 3%, with North America down 1% and international up 16%, of which 4% was organic. Operating income was down 2%. EPS grew 4%, and we generated almost $250 million of free cash flow.

As expected, the second half of the year was stronger than the first half, with the North American business returning to growth and international continuing its trajectory of double-digit growth.

There were three primary reasons for the improved performance in North America in the second half of the year. First, improved leadership and execution in the sales organization. Second, the reduced impact of the overhang from the lower sales in 2009. And third, divestiture of our Self Awareness Business. Beyond this, we saw revenue from our risk products benefit from increased project-related spend by customers as we closed 2010. We also observed the beginning of a potential recovery in sales and marketing, with customers demonstrating high propensity to resume marketing efforts late in December. These improved trends in customer spend resulted in North America performing better than we expected in the fourth quarter, and we're pleased with this performance.

Turning to international. Fourth quarter results were slightly behind expectations due to macroeconomic challenges in Japan. We now expect this weakness to persist throughout 2011, and we have factored this thinking into our guidance for the year.

Looking ahead from a total company perspective, we expect 2011 results to be better than 2010. More specifically, we expect North America top line to improve from a 1% decline in 2010 to low-single digit growth in 2011. International will once again deliver double-digit growth. We also expect operating income to return to growth in 2011 after two consecutive years of declines. More specifically, total operating income is expected to improve from negative 2% in 2010 to a positive 2% to 6% growth in 2011. Manny and Tasos will provide additional details in a few minutes.

Let me move to the second agenda item, an update on our Strategic Technology Investment and related deliverables. Now as a reminder, this initiative has three key components: First, enhancing DUNSRight by simplifying and re-architecting the data supply chain; second, creating a flexible technology infrastructure to innovate; and third, consolidating our legacy products to provide fewer, more impactful application for our customers. In 2010, we made progress on all three components.

Regarding data, we relocated our Data Center from New Jersey to Acxiom's facility in Conway, Arkansas. This allows us to take advantage of Acxiom's grid technology and lower cost platforms. This was a significant undertaking since it includes legacy platforms that are intricately connected to our customer systems. So we needed to make the move without service disruption. I'm happy to report that this mammoth task is now behind us. And as of the end of the year, we are completely out of the New Jersey facility. We also exceeded all of our stated milestones on data quality.

At Investor Day in May, we said we would increase the number of records in our database to 175 million by the end of 2010. We closed the year with 188 million records on hand. That is unmatched in the commercial space. We now have 25 million trade scores and 17 million linked records, both of which were ahead of expectations for the year. And finally, we increased financial statement coverage from 75,000 to 500,000, a critical need for customers of DNBi and vastly superior to competition.

Of note, the improvements in data quality have been noticed by our customers, as the results from our annual customer satisfaction index from just last week yielded the highest ever year-on-year improvement in data quality since we initiated the survey over five years ago. In addition, we saw strong improvements in value and overall satisfaction with D&B. We're pleased with these results and determined to improve even further in 2011.

With the Data Center move completed, we will begin the heavy lifting on building the new data supply chain in 2011. As a reminder, the rebuild of our data supply chain is foundational to achieving our aspiration to be the most trusted source of commercial insight. We now expect the project to be completed in the second half of 2012 at a total cost of around $130 million, which is at the high end of the $110 million to $130 million range provided last year.

The primary driver behind this change is our decision to in-source the rebuild of the data supply chain. After an extensive RST process, we found our capabilities in the space were much stronger than any outsourced provider. And we now have a plan that has lower execution risk than we originally envisioned. We also concluded that the strategic benefits of retaining this expertise in-house far outweigh the marginally higher cost on the overall effort.

Since our 2012 expectations were developed at conservative assumptions, we do not anticipate any changes relative to the communications we had with you at Investor Day. This is largely driven by the fact that we made a decision in 2010 to accelerate product delivery into the year, leveraging our new applications development center in Ireland. The center opened in the summer of 2010, and our first new product from that center, mydnb.com, was introduced in the fourth quarter.

Since we launched the mydnb.com product in November, we successfully migrated over 50% of existing dnb.com customers to this new platform. Clearly, we are ahead of schedule here. Early customer reaction has been positive and the transition was smooth. Customers are benefiting from the improved functionality and ease of use of the new product. Beyond this, two additional products were also developed: D&B360, our entry into the CRM space; and DNBi Pro, designed to close the gap we have in the low-end risk segment. In hindsight, accelerating product delivery is now proving to be an excellent decision.

Our new leaders in Ireland are rapidly coming up the learning curve, allowing us to bring real value to customers much faster than we originally expected. We will benefit from these new product launches in 2011 and expect momentum to build over the course of the year and into 2012 as we accelerate the pace of innovation at D&B.

As just one example, we rolled out a D&B360 early adopter pilot in the fourth quarter last year. The pilot was designed to validate the strength of our value proposition and to test price, position and packaging for this new to world offering. We included a broad representation of customers in the pilot from multiple verticals, differing sizes and the different levels of spend with D&B. These customers installed, tested and used our solutions as part of their daily operations with great success. Two customers immediately purchased the product, and we signed our first significant deal over $1 million with a large strategic customer late in January.

Early customer feedback is positive, with the product scoring high marks for ease of use and significantly better data quality due to realtime data stewardship. Most important, customers see a demonstrable improvement in their overall productivity with this new offering.

Beyond these launches, our Innovation Lab or I-Lab, is developing test and learn protocols to enable rapid prototyping and customer validation to identify new markets and new services. Each of the ideas put forth will leverage our core data assets and what is already a highly flexible Web services capability to bring new product ideas to market for 2012 and beyond.

So to summarize, there was a lot we accomplished in 2010. It's hard to believe that a year is behind us. And at this juncture, we believe we're well-positioned to deliver stronger performance in 2011 while continuing to execute on our strategic replatform. And as I said earlier, we remain committed to our 2012 goal of accelerating top line growth in North America to the mid- to high-single digit range while also delivering total company margins that are 100 basis points above 2009.

And with that, let me turn the call over to Manny Conti for a more detailed review of 2010. Manny?

Manny Conti

Thank you, Sara, and good morning, everyone. Today, I'll discuss our Q4 performance, as well as provide insight into how we see our performance in 2011 playing out.

I'll start with revenue, which was up 7% in the fourth quarter and in line with our expectations. We are pleased with the performance of North America as revenue increased 2%, which was better than anticipated. While international was up 24%, this was slightly below our expectations, primarily due to continued weakness in Japan.

First, let me provide more detail regarding North America, which represents about 75% of our revenue. As expected, our North American business improved over the course of 2010 and returned to growth in the second half after six consecutive quarters of decline. I'll explain each of our solution sets in more detail.

First, I'll start with our largest solution set, Risk Management Solutions or RMS, which represents approximately 54% of North American revenue and was up 1% in the quarter, which was ahead of our expectations. RMS performed better than expected for two reasons: First, we continue to see good performance of DNBi, which accounted for 57% of RMS revenue. Retention remained strong. And as expected, we experienced mid- to high-single-digit price lifts when existing customers renewed their DNBi contracts.

In addition, we had better-than-expected project related revenue at the end of the year. This type of revenue is somewhat seasonal, as our customers' projects tend to be done in preparation for the upcoming year.

Let me now move to Sales & Marketing, or S&MS, which represents 38% of North American revenue. S&MS was up 5% in the fourth quarter, which was ahead of our expectations. Last quarter, we said we were beginning to show a willingness to spend in anticipation of future marketing, and this trend is continuing as evidenced by strong results in S&MS value-added products. Also our customers are beginning to spend on prospecting for new business again.

For example, we're seeing improvement in our flagship Optimizer product, as well as prospecting tools like Market Insight, which is proving to be highly relevant for our customers. While our value-added products drove higher fourth quarter revenue, we continue to see declines in the traditional side of our S&MS business, a trend which has been with us for a while. To address this issue, we are migrating customers to our new Hoover's platform where we have seen much higher satisfaction. To further enhance its appeal to our traditional S&MS customers, we've added more comprehensive prospecting functionality to the Hoover's platform.

Going forward, as we migrate customers from traditional S&MS to the Hoover's platform, our future results will reflect a positive impact on Hoover's growth rate and a corresponding decline in S&MS traditional products.

Finally, Internet Solutions, which includes Hoover's, is our smallest solution set at about 8% of North America revenue. It was up 1% in the fourth quarter, which was slightly below expectations due to lower-than-expected online advertising growth, which can be volatile quarter-to-quarter. As we look ahead, we expect North America to perform better than 2010 and return to growth in 2011. Specifically, we expect revenue growth for 2011 to be in the low single-digits. We expect growth in the second half of the year to be better than the first half as we gain traction on the launch of new products such as dnb.com, DNBi Pro and D&B360, all of which have revenue that is recognized over a 12-month period.

Let me now turn to the Q4 performance of our international business. International, which represented approximately 25% of our revenue last year, was up 24% in the fourth quarter with 20 points coming from our acquisition of Australia and the remaining four points from organic growth. However, operating income for international was down 16% in the fourth quarter primarily due to underperformance in Japan.

Overall, we feel good about the performance of our international business, as over 80% of it is performing well and consistent with our expectations, both in terms of revenue growth and profits. The one challenge we do have in international is in Japan, which I will further discuss shortly.

Let me describe our international fourth quarter performance in more detail by region. In Asia Pacific, which represented 43% of international, revenue grew over 50% in the fourth quarter with organic revenue growth in the low single-digits. There are three primary drivers of performance in Asia Pacific: First, D&B Australia was acquired at the end of the third quarter, provided a bulk of the growth in the quarter. More importantly, since the acquisition in the third quarter, the business is performing well and the integration effort is going smoothly.

Second, we're experiencing continued strong growth in China, specifically in our sales and marketing products. We continue to see significant growth opportunities in this market in the years ahead. As a result, we continue to invest in this market to further develop and scale the business. Partially offsetting growth is continued weakness in Japan, largely due to the macroeconomic environment.

Let me provide some context around Japan, which had about $70 million of annual revenue in 2010 and currently represents about 17% of our international revenue. Back in 2007, we formed a joint venture with TSR, where we hold a 60% equity stake. The strategic intent of the venture is to better penetrate large global customers in Japan. Through the JV, we significantly improved data quality in Japan and gained access to a broader segment of cross-border customers in the market. Due to the early success we experienced, we further expanded our JV arrangement in 2009 to cover more regions in Japan.

However, in early 2010, a weakening macroeconomic situation has resulted in a contraction in customer spend across the market. This resulted in a reduction of upfront commitments, which will adversely impact revenue through 2011. As a result, we expect further weakening in Japan in 2011, and this is factored into our guidance for the year.

Turning to Europe and other, which represent 57% of international, revenue grew in the mid-single digits in the fourth quarter as we continued to benefit from strong cross-border demand, as well as an uptick in sales and marketing. We're also seeing strong early acceptance of DNBi in Europe since our launch at the end of the third quarter. Our early sales are above expectations and customer reception has been very positive. Thus far, we are realizing pricing and conversion lists similar to those we experienced when we first launched DNBi in North America.

Looking forward, we expect our total international business to continue to grow at a double-digit pace in 2011, driven by strong cross-border demand, the rollout of DNBi in Europe, as well as the impact of our acquisition of D&B Australia.

Now let me turn to operating income. As a company, we improved profitability in the fourth quarter, with operating income up 7%. This improved performance was driven by North America, which grew 6% off a lower base in the prior year and benefited from the positive impact of our Self Awareness divestiture. In international, operating income declined 16% due to lower revenue in Japan. We have taken steps to improve operating efficiency of our business in Japan so we can maintain profitability as we face the expected revenue declines.

In sum, we feel good about the performance of our business in the fourth quarter. Specifically, North America and most international markets performed at or above our expectations. Looking forward, we expect 2011 performance to be ahead of 2010, especially in the second half as we gain traction from the launch of new products.

Let me now turn the call over to Tasos to discuss our financial performance in more detail. Tasos?

Anastasios Konidaris

Thank you, Manny, and good morning, everyone. Let me start with the discussion of our full-year profitability. We generated operating income of $481 million in 2010, which was at the low-end of our guidance range but in line with our expectations. That said, our operating income growth in the second half of the year improved substantially. More specifically, operating income grew 4% in the second half of the year compared to a 9% decline in the first half.

Our improved performance was led by North America, where operating income increased 4% in the second half of the year compared to a 10% decline in the first half. This improvement was driven by higher revenue growth, the divestiture of our Self Awareness business and easier prior-year comparisons. International operating income was down 17% in the second half of the year compared to a 4% decline in the first half. This performance reflects solid growth in Europe, offset by the bill costs related to our Australian acquisition and weakness in Japan.

Looking ahead, we expect operating income growth in both North America and international in 2011. As in 2010, our operating income growth will be more heavily weighted to the second half of the year, reflecting the timing of our topline growth expectations and first half investments we are making behind our new products in North America and Europe.

In regards to operating income. It is worthwhile to note that effective January 1, 2011, we prospectively adopted the new revenue recognition accounting standard that impacts the timing of revenue recognition in certain contracts.

In addition, we expect to have slightly lower pension income in 2011. We estimate that the net impact of the revenue recognition adoption and the lower pension income is a benefit to operating income growth of about a point.

Let me now move on to financial flexibility. Financial flexibility remains a key component of our strategy. In 2010, we generated about $80 million of financial flexibility. In 2011, we expect to generate $75 million to $80 million of additional flexibility, and expect to incur non-core charges of approximately $10 million to $15 million and transition costs in the range of $5 million to $7 million.

Turning to earnings per share. Our EPS grew 4% in 2010, well ahead of our operating income decline of 2%. The six-point favorable spread reflects five points of accretion from share repurchases and one point of benefit from a lower tax rate.

Looking ahead, we expect to continue to grow our 2011 EPS faster than operating income. This mostly reflects lower interest expense and a tax rate between 33% and 34% compared to 34% in 2010.

Let me now move on to free cash flow. In 2010, we generated $249 million, which includes $36 million related to our Strategic Technology Investment, all in line with our expectations. We remained very capital efficient and total capital expenditures were 4% of revenue in 2010, and we expect them to be approximately 5% of revenue in 2011.

Our free cash flow generation allowed us to return approximately $151 million of cash to shareholders in 2010 through dividends and share buybacks. For the full year, we paid dividends totaling $70 million and repurchased $81 million of stock under our discretionary share repurchase program. In 2011, we will continue to return excess cash to shareholders. We have increased our quarterly dividend from $0.35 per share to $0.36 per share, and we expect share repurchases under our discretionary program to be in the $60 million to $80 million range.

We ended the year with $79 million of cash, which was down from $223 million last year. This reduction is primarily due to the acquisition of D&B Australia for about $200 million.

Our total debt at the end of 2010 was $974 million, which is consistent with our expectations. During the fourth quarter, we refinanced $300 million of bonds scheduled to mature in March of 2011 to take advantage of the favorable rate environment. The new bond issuance was very successful, and we were able to issue the bonds with a coupon of 2 7/8%.

Concurrent with the new offering, we retired the March 2011 bonds that had a coupon for 5 1/2%. As a result, we paid a make-whole premium on the retiring bonds of $3.7 million, which is reflected in our fourth quarter 2010 non-operating expense.

As we look ahead, we're comfortable with our current level of debt, and we expect to end 2011 with approximately the same level of debt as we have today.

Finally, in 2011, we will be making a change to our external reporting beginning with the first quarter in order to further enhance transparency into our results. As Asia Pacific is becoming a more meaningful part of our revenue base, we will begin reporting international in two separate segments. The first segment is Asia Pacific and the second segment is Europe and Other International Markets.

I would now like to turn the call back to Sara.

Sara Mathew

Thank you, Manny and Tasos. So to summarize, our 2010 results were in line with expectations, and we met all major milestones for the year. It was a year of significant accomplishment, and we are better positioned for the one that lies ahead.

Let me now walk you through our outlook for 2011 and the basis for our guidance for the year. Regarding revenue, we expect to see North America return to growth, with revenue in the low single-digits after two years of decline. In international, we expect revenue growth in the mid- to high-teens as we benefit from both organic growth and the acquisition of D&B Australia. As a result, the total company revenue guidance should be in the 5% to 8% range, with a strengthening trend as the year progresses.

Moving to the bottom line, we expect operating income growth to be in the range of 2% to 6% and EPS between 6% and 10%, both before the impact of Non-Core Gains and Charges.

Regarding cash, we expect to generate free cash flow between $240 million and $270 million. As in the past, our free cash flow guidance includes all cash payments, including the anticipated spend behind our strategic replatform and excluding legacy payments.

So to conclude, we feel good about our 2000 (sic) [2010] results as a whole and we are well-positioned for 2011. We expect to evolve and expand our long-term competitive advantage as a company as we move into the second year of our transformation.

I'd like to close with a message to my D&B team, many of whom are on the call today. It would be difficult to describe the immense pride and deep responsibility I feel as we lead through the next phase of our transformation. We collectively triumphed as one team in 2010, delivering all of the major goals we set for ourselves at the start of the year. Most importantly, we addressed near-term execution while also positioning ourselves to win in the years to come. That will ensure we retain our 170 year-old legacy as the most trusted source of commercial insight so our customers can decide with confidence. Thank you for your dedication, hard work and support in 2010. It is sincerely appreciated.

And with that, we're ready to open the call for questions. So Dianne, if you're on the phone, could you open them?

Question-and-Answer Session

Operator

[Operator Instructions] Michael Meltz, JP Morgan.

Michael Meltz - JP Morgan Chase & Co

I think I have two questions, and then I might get back in the queue. Just a question on the technology project, what you're talking about now, a finished towards the end of 2012. I just want to understand. So you're saying there will be an additional, after what you've spent in '10 and what you've spent in '11, there will be more spend of about $20 million in '12? I just want to confirm that. And then secondly, and exactly what will be done by the time you exit '11 versus what will still need to be done in '12? And then, of the money that you're spending in '11 of $55 million to $65 million, how much is expected to the P&L versus CapEx? And then I have one follow up.

Sara Mathew

Sure. So in terms of the financials, I'm going to have Tasos talk about in a minute in terms of what's left with '12, all of that stuff I'll get to him. And what I'll talk about is really the overall technology investment. I think it might be helpful to frame it a little bit broader than your question, actually, so everybody understands what happened. So if we take you back to Investor Day, which was when we had conceived the project, we had planned for a very sequential process. Step one was the Data Center migration. Because if we didn't move it to the grid technology, on Acxiom's grid, we wouldn't have the capability to process the amount of data we saw would be needed in 2012 and beyond. We also said we would start the application development center build in Ireland, and then we would start rebuilding the data supply chain. Once that was done, we would start the launch of a set of new products. We would have dnb. com launched in 2010, mostly to get familiar with the new platform and then understand and lower the flexibility and the last phase of shutting down old products. So the way you want to think about it, the Data Center migration is completed, done in 2010 as we planned. The part that we are far ahead is the acceleration of product introductions earlier in the cycle. And that was the decision we made over the course of 2010 as the Development Center came up to speed in Ireland, and that allowed us to bring value faster to the marketplace. In terms of the DSC rebuild, which is the data supply chain, the primary reason for the delay is we went through an extensive RFP process, and we very quickly realized that the lowest risk option was for us to do this ourselves. There was a couple of things we learned. We learned that we have much better skills in the space than our partners. We realize that our matching skills are world-class. And for a partner to actually even try and build it, it could have potentially cost more money and introduce risk relative to their readiness to handle it. And most important, we found we did not have to actually rebuild the entire data supply chain, we can reuse a couple of key components like the match engine. What happened though is we went through the RFP process and that took time. So we got delayed by a quarter. And as a result, that's what's causing the delay into 2012. In terms of what will be left to do in 2012, the primary portion of what's left will be the shutdown of the old legacy products, and by which time, we should have many newer, much better products in market. So that's the last piece that is left. We always knew it will be 2 to 2.5 half years. So we're now thinking it will be somewhere between July and December of 2012. It could be as early as July and it could be as late as the end of the year. And we figured out it was important to just give you that insight. So that's really what's left. And now I'm going to turn it over to Tasos to help talk about how the spend will break out between '11 and '12. Tasos?

Anastasios Konidaris

So you're right. The estimated number in 2012 in terms of spend is anywhere between $20 million and $30 million when you do the math between the $45 million that we spent in 2010, the $55 million to $65 million in 2011 and back into the $130 million number. In terms of, as you look at 2011, in terms of the split between CapEx and running through the P&L, you can assume it's 50-50 between P&L and CapEx as it relates to the range of $55 million to $65 million. Does that take care of your question?

Michael Meltz - JP Morgan Chase & Co

And then, the stub in '12?

Anastasios Konidaris

At this point, I would assume a similar 50-50 split.

Michael Meltz - JP Morgan Chase & Co

And just so I'm clear, when you're talking about your 2012 guidance, that's the margin of getting back to the high-single-digit revenue growth and margin of over 30%? Is that all in? I mean is it before the costs? Or is it all in, or is it both? Just clarify, please.

Anastasios Konidaris

It's all in, in this. What we have said in terms of guidance is that our guidance excludes the Strategic Technology Investment. So the way I will do it, that's number one. Number two is, we're still committing to 100-plus basis points over 2009. So as you look at our 2011 margins, you still expect them to see at -- 2012, I'm sorry -- at 30.1%-plus.

Michael Meltz - JP Morgan Chase & Co

And then, all in, even after deducting these costs?

Anastasios Konidaris

No. Excluding those costs.

Sara Mathew

Think about the costs of $110 million to $130 million is at the high end of the range. And we had always pulled that out because we felt it was truly a one-time occurrence, since you're shifting a little bit more into 2012.

Michael Meltz - JP Morgan Chase & Co

And then the other question, just to ask you on revenue trajectory, can you just talk about -- when you're talking about better growth in the second half, and I know this is just one piece of the business, but the Australia acquisition will cycle by the time you get to Q4. And so when you're talking about better revenue growth, is it just simply, you think North America's growth will accelerate and that will be enough to move the needle for the entire company? Is that the thinking?

Sara Mathew

Yes, why don't I have Manny answer that. Manny?

Manny Conti

Yes. So for the company, when you look at North America, we see and we talked about in our prepared remarks the low-single-digit growth for the year, and we see more of it happening in the second half. So that acceleration that we see in the second half, that would drive total company performance.

Sara Mathew

And just to close out on the reason why is, Michael, remember, our business is largely ratable. So it takes time for the upfront commitments that we see actually play out in the second half. So as we were digging out of what was a very poor performance in 2009, 2010, as you could see, had a back half recovery. As we are accelerating, you'll see that similar performance into 2011.

Operator

Shlomo Rosenbaum, Stifel, Nicolaus.

Shlomo Rosenbaum - Stifel, Nicolaus & Co., Inc.

Sara, I want to focus first about something I think is pretty critical for the business. Can you talk more about the traction that you guys are getting in terms of changing some of the culture in the sales force? I think that has been a big focus of yours over the last year.

Sara Mathew

Sure. The person who is actually pioneering a lot of the change in the culture is John Cucci. You may recall, he handles pretty much over the course of 2010 close to half of the U.S. sales organization. He now has responsibly for all of U.S. sales. And the cultural shift that we're going through is one of ensuring that our sales organization is more equipped for new customer acquisition as opposed to retention of existing business. So for the longest time, at D&B, we've been blessed. It's actually a blessing to have a high retention business. And as a result over time, for a salesperson, you earn a lot of your commission through retaining that business. The culture shift actually began, I would say, in 2009 is when we started, we conceived it. And it began with structural changes, both in terms of the number of people who would face an individual customer. It had to do with compensation changes in terms of how we paid people for existing revenue versus new revenue. And it had to do with an important component called New Customer Acquisition, which we were in a test and learn in 2010. And I'm happy to say that all three are progressing really well. And if anything, you should see a broadening of this impact over the entire sales force over the course of 2011 and into 2012. I want to also pause and say, that I think I have an outstanding sales organization, I really do. I touched on the first D&B360 sale. The woman who actually was responsible for that sale is an extremely talented D&B sales representative who was able to take a very complex customer request, translate it into a product that we had. And that's just one example of what we uniquely provide. And this was a competitive situation. So for what it's worth, there were other offerings other people had in the CRM space. But in the end, the DUNS Number and our linkage capabilities was what allowed us to win out. So the culture change is well underway. And I would say it's not just being led by one leader, it is permeating the lower levels of the sales organization. And I think it's evident in our second half recovery.

Shlomo Rosenbaum - Stifel, Nicolaus & Co., Inc.

So do you have some specific metrics or something that you can just kind of give us that you're seeing x amount of traction, however you measure it, that you're comfortable giving out to anybody else?

Sara Mathew

I want to limit the amount of metrics I give out just for purely competitive reasons. I do know my sales people are targeted by competition. So what I will say is, I look for things in the customer satisfaction index to see how customers feel they are treated by D&B sales people. I'm very pleased with those results. I look for things like retention rates. We look for things like growth of an existing customer base, and we look for new customers brought into the franchise. So those would be the metrics. And we look at that by sales representative. And I would say we feel very good about the progress we're making from a cultural standpoint. It is a shift.

Shlomo Rosenbaum - Stifel, Nicolaus & Co., Inc.

When you're talking about competitors targeting you guys, one of your competitors noted its BusinessIQ product and they highlighted in their Analyst Day about some DNBi takeaways. Can you talk about the competitive situation in that area?

Sara Mathew

Sure. And I'll start by saying -- yes, I'm very familiar with the statements that were made, et cetera. I'm going to ask Manny to talk about the facts from our end on competitive losses which we track closely, and then I'll come back and give you a broader view on other competitive areas. So Manny?

Manny Conti

Yes, so we monitor competitive activity quite closely. And in the case of Experian, we monitor losses to them and other competitors. But in the case of Experian, we've actually seen over the last two quarters, a decline in losses to them. So while we do understand that they've launched the product that you mentioned, we haven't really seen that in totality have a big negative effect on our performance. Now with that said, I think it's important to frame this in terms of how we go to market today. Our DNBi product today is aimed at the middle to large segment. We really don't have a product aimed at the smaller market. We have less than 5% penetration. This is the thinking behind DNBi Pro, which we just launched at the end of January. So we see a very large opportunity for us, quite frankly, to further penetrate that small-business space. And the one thing that's worth mentioning is that DNBi Pro, we've tested it significantly with existing DNBi customers. And what we've found is that the product team did a really great job in segmenting the customer base, ensuring that DNBi Pro has a set of functionality that meets the needs of the small segment. But if you were to give it to a midsized or a large-size customer, they would say, it's missing various components that are important to them, things like workflow or the types of scores we have in DNBi. So we really feel that we’ve got a very good segmentation in terms of the way we're launching products. And we're excited about DNBi Pro and the prospects we have penetrating the small-business segment.

Shlomo Rosenbaum - Stifel, Nicolaus & Co., Inc.

And just finally, can you just discuss, Sara, what percentage of your business would you say is more immediately leverageable to upturns in the economy? I know a lot of your business is under subscription and it takes time for that kind of stuff to renew and that to be factored into the numbers. But as you see things improve, should we be a strictly a sales and marketing improvement? Or how should we think about that?

Sara Mathew

What is most discretionary is what we describe as project spent. And these are projects that customers they tend to be a little more ad hoc. So while there is retention, that is not as good as subscription. Retention tends to be lower on these. That is largely driven by how customers are feeling about their business. And I will tell you, in the fourth quarter, we saw propensity to spend both in terms of risk project spend as well as sales and marketing spend. The sales and marketing spend actually came as a bit of a surprise because there was actually fairly heavy activity where customers were beginning to market. And I certainly have received more pieces of mail at home as well. So this may be a broad-based recovery. Fourth quarter, as you know, is seasonably high for us in terms of project spend. So I would really want to watch this around a couple of quarters before I would call that there is a big sales and marketing recovery. But that is what I would say would lift immediately. Beyond that, the only way in an economy like this is through better innovation. You have to provide products that have productivity improvements and immediate demonstration of value. And some of the new stuff that we have, the D&B360 I think, is a really hot product because we have the customer feedback, and remember, we're only in a pilot and was selling sooner than we thought. And those are the ways, I believe, eventually in 2011 we're going to have to grow the business. You should know that all these new products are going to be ratable. So you will see this benefit in the top line as the year progresses and into '12.

Shlomo Rosenbaum - Stifel, Nicolaus & Co., Inc.

So is there some, if I go through that, you’re saying project related revenue? And do you have like a percentages that end up being 10% of your revenue and then like optimize? Or I would think that, that kind of business as well if you see someone kind of gearing up for one of those? Wouldn’t that be more discretionary and you should start to see more of that?

Sara Mathew

Optimizer tends to be more discretionary. But people who have Optimizer actually using it to cleanse their database. So that's not as good an example as market insight, for example, which are more prospecting tools. Some of our traditional sales and marketing businesses, which I believe, you will see much better performance as we put it on the Hoover's platform. So I would say, those are the ones that are more typical. I'll have Tasos give you a rough estimate.

Anastasios Konidaris

My rough -- if you look at Optimizer at one extreme, that's about 20% of the North America business. That's going to be somewhere substantially lower than that. So I would say somewhere in the 5% to 10% range, Shlomo.

Shlomo Rosenbaum - Stifel, Nicolaus & Co., Inc.

So 5% to 10% of North American business is like immediately re-leverageable in case something changes and people want to spend a lot of money?

Anastasios Konidaris

That would be rough, yes.

Sara Mathew

And that's the portion of our business that tends to be more volatile quarter-to-quarter because that's the one where we don't have as much visibility as we do on subscription because, obviously, upfront commitments do matter, and that allows us to see a little bit further along into a year.

Shlomo Rosenbaum - Stifel, Nicolaus & Co., Inc.

So if you look at your whole business and you just take the totality of it, would you say 1/3 of the businesses would see a change like within six months and then maybe 1/3 of that might be more immediate? I'm just trying to think of -- if you think of it macro-wise, how should that flow through the business?

Sara Mathew

The way to think about it is you should know that the vast majority of our business is subscription. So we actually have enormous visibility into that subscription base. Because as the upfront commitments go up, eventually it's recognized either ratably or the way customers use, which is not ratable but it is still fairly predictable. That's what we watch very closely. So a significant chunk of our business we have good visibility into which way it’s headed and therefore, how we can set guidance for the year. The remaining portion of it, as Tasos mentioned, 5% to 10%, can actually pop. And then a little bit beyond that could actually also positively surprise us. And so, for example, people could ask for extra refreshes on an existing product. People could ask -- and even that 5% to 10%, it can pop to double if people just decide to step it up. But with everything that we see right now, Shlomo, I will say we are in a much better shape now than we were six months ago and in significantly better shape than we were 12 months ago. So I would say the year is unfolding as we expect.2011 is pretty much as we expect. And we don't see a pop in recovery. Although, C&I loan volume is normally an encouraging trend. That provides us with a sense of confidence perhaps more around 2012 because that's really when it will show up in our revenue, given the ratable nature of our business.

Operator

Carter Malloy, Stephens.

Carter Malloy - Stephens Inc.

Looking at the expected operating margins this year, operating income margins, picking the midpoint of your guidance gets roughly $108 million in incremental revenues and the midpoint of guidance on operating income gives me about $16 million which seems to be a low incremental margin, but then also -- I'm looking on a GAAP basis, so maybe that's where I'm doing it wrong. But if I look at it on GAAP, then there's also going to be a $15 million, $16 million benefit from restructuring charges going down. So is that wrong to think that there is very little incremental margin flow through this year?

Sara Mathew

Well, let me give you a way of thinking about it, and then I'll pass it on to Tasos to provide more details. Organically, the company in 2011 will be growing at roughly 2% to 4%. So that's the range. And against that, operating margin is growing 2% to 6%, operating income is growing 2% to 6%. So if you think about it, margin should be flattish. You're right. And you also have right to say, well, margins have been flattish in North America since 2008, and I would say yes because we have been through probably the worst recession in 75 years. And I'm actually pleased that we came out holding margins. In many cases, people destroyed margins. You should remember that in 2011, I don't see it -- just let me finish, and then I'm happy to take additional questions. In 2011, we will be spending behind new products because we believe we need to let customers know that we have new offerings. This is both D&B360, as well as DNBi Pro, and that is part of the reasons why 2011 margins don't show a substantial pop. And if you're looking for specific math, I know that Tasos will be happy to take you through that. But I'll pause and ask if that answers your questions, Carter.

Carter Malloy - Stephens Inc.

Hats off to you guys for holding margins for the last year. That's certainly impressive. I guess what I was getting at is that there looks to be a $15 million, maybe upwards of $20 million benefit of restructuring and the transition costs coming down year-over-year. That would imply basically $100 million incremental new revenues, but no new incremental margin dollars.

Anastasios Konidaris

Carter, this is Tasos. So let’s just kind of walk through the, I'm not sure I agree with the specifics of your mark. So let's talk about restructuring charges for a second. So we see restructuring charges in 2010 were $15 million. So what we said for 2011, we expect and will be doing $10 million and $15 million. So that's not a $10 million differential, that demarks $5 million. So that's number one. In terms of transition expenses '10 to '11. In '10, our transition expenses were about $6.6 million. And what we said in 2011, we expect that to be $5 million to $7 million. So restructuring transition, overall, year-over-year, is a couple of million dollars lower as opposed to $10 million. That's number one. Number two is, mostly when you look at it year-over-year around the Strategic Technology Investment because I think you're looking at it with that, I think overall expenses may be going up slightly.

Carter Malloy - Stephens Inc.

And then also this question is probably for you as well, Tasos. Just on international operating income being down 16%, with Japan just being 17% of that business overall. Did Japan go largely negative in operating income this quarter?

Anastasios Konidaris

So a couple things, just to kind of put the size in context. So overall, you're exactly right. 16% on a relatively, overall, a small number. So our quarterly international operating income was about $24 million. So small, relatively small dollars can move percentages quite dramatically. There were two factors. So number one is we had a negative foreign exchange. So that was about $2 million, I think I had estimated that in our Q3 call. So that brought the growth rate that caused some of the decline, I think about six, seven points of that 16% decline was due to FX. And the remaining was mostly it was Japan, but Japan did not go negative from an operating income perspective. It was still positive.

Sara Mathew

And the only thing I would add to that is, remember, we had dilution from the Australian acquisition, which would have impacted margins. I know it doesn't impact operating income. But when you think about international as a whole, there were multiple factors that actually showed a sequential decline.

Operator

Dan Leben, Robert W. Baird.

Daniel Leben - Robert W. Baird & Co. Incorporated

Just first on international, your expectations for next year with the big chunk coming from the Australian acquisition, what are your expectations organically for international?

Sara Mathew

Manny, you want to take that?

Manny Conti

Sure. Yes, our expectations next year is to be in the low- to mid-organic and about 14 to 15 points will be coming from Australia.

Daniel Leben - Robert W. Baird & Co. Incorporated

And then, in the North American risk business, I noticed that the percentage for both DNBi, as well as subscription were down sequentially in the fourth quarter. Obviously, a strong transaction environment helps out there. What are your expectations for what DNBi should look like as we go into the first quarter, given that typically the first quarter is when you get a lot of the upgrades?

Manny Conti

So first, you're right. When you look at -- let me first make a comment around your sequential comment. So if you were to look at DNBi sequentially, you would see penetration going down. And that is due not so much due to the performance of DNBi but the performance of non-subscription, which we got an uptick due to projects. Now to look at DNBi more broadly, we expect penetration rates for DNBi to settle in at around 60% to 65%, at which point it will, from a pricing perspective, settle in at around mid-single digits price increases. So that's what we would expect at a steady state period.

Daniel Leben - Robert W. Baird & Co. Incorporated

And then what percentage of your DNBi contracts are tied to year end in terms of that's when the price increases go through?

Sara Mathew

We have pricing all through the year. And the way you want to think about this is, we don't think of it as pricing per se. We think of it as value we bring to the table. And that value can come through modules. And the value primarily is driven through better data quality. So in my prepared remarks, I talked about a huge increase in private company financial statements. This was one of our focus for 2010. It was the single biggest need that DNBi customers had expressed to us. So when we have the conversation with them, we talk about the value we bring to the table, and that's what essentially results in a commitment. It's not like a price increase, which is typical for, let's say, consumer products where you just take the price of cereal up, or something like that. This is actually quite different in terms of the way we handle it customer by customer. And it happens throughout the year. And I would say that the end of the year, typically, has a bit more than normal. And we're pleased with the way pricing is holding up or value is being delivered.

Daniel Leben - Robert W. Baird & Co. Incorporated

Tasos, if you could just walk us through the revenue recognition change, just what parts of the business that's impacting? And if that's going to change any of the historical seasonalities as contracts are recognized upfront instead of over the course of their lifespan?

Anastasios Konidaris

Yes. New accounting standards are always fun. So this was related to FASB’s accounting change that was issued back in October of 2009, and all of us had to adopt basically Q1 of 2011. For many of the software companies, this has a substantial impact. And really what it has to do, let me show you in terms of D&B terms. So in the past, when you bundle two products, DNBi for example, for a customer along with a marketing file, that combination of their contract was recognized as ratable. The new accounting rules, you almost have to establish a fair market value for each one of them. So as a result, the contract value does not change, the total commitment by the customer does not change, but you're more likely in those situations to recognize some of that revenue more upfront than ratable than it was in the past. Our estimate right now is that is not going to be material. Most of it, when we look at our contracts when those are renewed, most likely that's going to have the vast majority of that impact, which obviously is material to our business will be in Q4 of 2011. So we don't expect to see any real impact of that the first three quarters. Does that help?

Daniel Leben - Robert W. Baird & Co. Incorporated

And so then in 2012, you’d have a little bit more of a heavier fourth quarter in a little bit lighter through the year because you already recognized those contracts in the fourth quarter of '11 and don't have them for the first three quarters of 2012.

Anastasios Konidaris

Everything else being equal, the Q4 of 2011 will be slightly higher than what will have otherwise been.

Daniel Leben

And that's from pulling forward, not pushing back, correct?

Anastasios Konidaris

That's right.

Operator

Our next question comes from Bill Warmington, Raymond James.

William Warmington - Raymond James & Associates

You mentioned the strength that you were seeing in demand from commercial banks. And I just wanted to ask within the risk business, are you seeing demand there? And also, are you seeing demand from businesses extending credit to other businesses? How does that impact in the business currently, and how do you think it's going to play out over 2011?

Sara Mathew

Well, we saw all of the strength in project spend. That was not just the commercial banks, that was actually more widespread, which was a bit of a surprise to us and actually, one of the reasons why North America did better than we thought. I did say that commercial and industrial loan volume appears to have clearly troughed. Now we thought that goal kind of in the middle of the year that it’s clearly troughed, and we should start to see an increase going forward. I think that's broadly published and easily available. And what's happening is while the consumer is still stressed, commercial loan volume is starting to recover. And that's not unusual because banks prefer to make loans to companies before they make loans to individuals. What that does for our business is it will improve our upfront commitments in RMS over time. By the time we see it in top line, it will be the second half of 2011 and mostly into 2012. So not only do we lag the C&I loan volume to begin with, our business is ratable on top of that. Which is why you also see the results that we expect in 2011 to be more in the back half than in the front half.

William Warmington - Raymond James & Associates

Now when you look at the composition of the 2% to 4% organic growth that you're looking for in the U.S. business, how do you think about price and volume contributing to those?

Sara Mathew

Sure. So the 2% to 4% is total company, Bill. It's across both the U.S. and international. And the U.S. is mostly organic. It's more low single-digit range. In terms of price, just remember, we don't sell widgets. What we sell is solutions to our customers. In general, we're pleased with where pricing is holding across most of our products. In fact, in the fourth quarter, we held firm on pricing. And I can think of a couple of very, very large customers. What we said, and if you don't meet the pricing that we believe our products deserve, we're okay not renewing it in the fourth quarter and would've slipped into the first quarter. And quite frankly, most of those got renewed. So when we think of price and volume, everything we're seeing, we feel it's a stable pricing environment. Volume is clearly upside, and that will come from new products that we bring into market because DNBi Pro is going to target a segment that we have ignored, quite frankly, for several years. And that is the low-end risk segment. And that's where a lot of competition has come in, filling a void that we created. We just launched the product earlier this week, so we're talking about just launched, I mean truly just launched this product. And we're only gearing up the marketing effort, both online and otherwise in order to tackle this segment. So we’ll have a lot more to say as the year progresses in terms of new customer acquisition, which is one of the things we believe at D&B we need to do a better job.

William Warmington - Raymond James & Associates

But one housekeeping item, just wanted to ask on the thoughts on tax rate.

Sara Mathew

Sure. Tasos?

Anastasios Konidaris

What's the exact question?

William Warmington - Raymond James & Associates

The question is, what do you think the tax rate is going to end up being in 2011, 2012? Any change there?

Anastasios Konidaris

No change to 2012. And for 2011, as I mentioned, we're targeting between 33% and 34%, which is slightly lower from where we ended up in 2010, which was 34.4%.

Operator

Peter Appert, Piper Jaffray.

Peter Appert - Piper Jaffray Companies

Sarah, did you have any specific metrics you could share with us to just help us better understand the current tone of business? And I'm thinking about things like maybe renewal rates or feelings on sales cycle, average order size? Things along those lines?

Sara Mathew

In general, I would say it's more stability. I would say the fourth quarter, before we call a trend, I'd like to see a couple more quarters because I do believe that sometimes companies make decisions at the very end of the year depending on their general state of wellness. So I don't think we can call that a trend as yet. But if you look at bankruptcies, I would say bankruptcies in general have troughed. I will say that there are a lower rate of bankruptcies, but it's a new normal. And it seems to be stable at that level. If I would look at C&I loans, clearly troughed. So the worst is behind us. So I would describe the general tone of business and looking at our own internal D&B data because we have a huge database on delinquency, bankruptcies, et cetera. I would say in general, we would say that the worst is definitely behind us. I think we may have called that a little bit earlier when we had our second quarter call, and I would just say that is what we see. But I would not go out there and say there's a huge upswing. The question is can we get through a jobless recovery. And there are lots of questions on a broader macroeconomic level that I think we still have some tough sledding ahead of us as a country. So that said, I would say the emerging markets look very attractive. I will say that what we saw in China in terms of growth was way above the GDP rate. We still are very, very interested in India. It's a tough market, but that country is starting to get its act together in terms of identity and credit. So we believe there's opportunities there. As well as some of the other smaller emerging markets, which clearly we're not impacted as badly by the recession as the developed world. We also feel good about Australia. And the one thing I would say about Australia, we were impacted by the floods, if any of you have that question. And that will possibly impact the Q1 results, but we will clearly recover that in the second and third quarters. To have a cyclone to follow a flood is not something you would wish on anybody. But if you look at the broader macroeconomic environment in Australia, we still feel very good about its favorable exposure to the emerging economies, as well as the way Australia as a country managed its level of debt, public debt primarily. So that's what I would say.

Peter Appert - Piper Jaffray Companies

So then on an unrelated item, just want to make sure I understand this. When you cite the three new products related to the technology initiative, you're talking about D&B com, 360 and Pro?

Sara Mathew

That's correct.

Peter Appert - Piper Jaffray Companies

And of those D&B Pro would be the one that you think potentially could be the biggest in the near or intermediate term?

Sara Mathew

I think D&B360 is already out of the gates looking very, very good. And it's a whole new market for us. So just as a bit of context, Peter, the CRM space, the customer relationship management space is one that is new for us. We have never used our DUNS Number and our core data asset in that space. But the cloud and the infrastructure created by the cloud is allowing us to actually allow data to float on somebody else's infrastructure and create data stewardship behind the firewall in the moment that creates raw productivity for the sales rep in a completely new and different way. So I actually would say, I would say that's a huge opportunity for us. And I don't want to, for a minute, say the DNBi Pro doesn't matter, we are hugely underpenetrated in that space. And then, all of the other stuff that can follow because our cost and the ease with which we can innovate is going to be dramatically changed in 2012. And actually, we're already getting the benefits of some of this because we made the decision to pull this forward mostly to get our active development people in Ireland up the learning curve. And as I said in my prepared remarks, in hindsight, that was an excellent decision because we're seeing product come out of that group in very short order. And I'm also very glad it’s in-sourced and under our control because we could not have pulled all that off without the excellent program management capabilities we have, and that's what they're going to apply to the data supply chain rebuild.

Peter Appert - Piper Jaffray Companies

And, Sarah, do you have in mind a thought over the next several years what percentage of revenue growth comes from the newer products? Or maybe put differently, what the scale of the market opportunity might be?

Sara Mathew

Sure, and that's a very good question. We have not provided any metrics. I don't want to give them out flippantly on this call. But I can tell you aspirationally what any company should target. If you look at the most innovative companies, 20% to 25% of their revenue comes from new products. So aspirationally, that's what we should shoot for. For us to do that, you're going to have to identify and come up with new customer insights and then be able to take our core data assets because we don't want to proliferate and try and get into completely new business. We want to take our core assets and find different use cases for the core assets. That's how we keep this highly scalable and highly margin accretive. So that would be what the best companies do today. And I think by the end of 2011, and as we get into 2012, we should be able to provide some metrics in terms of what we're targeting.

Operator

Our next question comes from Manav Patnaik [Barclays Capital].

Manav Patnaik - Lehman Brothers

Firstly, on the deferred revenue growth, again positive growth, that's 7%. Is there a way, or can you help us break down sort of the organic component of that? And maybe also some commentary around the geographic breakdown there?

Sara Mathew

Sure, let me have Tasos take that.

Anastasios Konidaris

As you saw in our press release, so our deferred revenue was up by 7% to $578 million. And that's really positive. It really shows a continuous improvement into the business. So organic was about 5%. So two percentage points of that was inorganic. So organic deferred revenue was up 5%. As you think about from geography, there is probably North America, at that level, slightly higher. And international, slightly lower than that organically, which reflects the challenges that we discussed in Japan in the second half of this year.

Manav Patnaik - Lehman Brothers

And I guess just getting back to Japan, not to push it too much. We all know the challenges there. But to the extent, I think Manny had mentioned using some of the initiatives that you're undertaking to try and sort of get that business at least stabilized. Could you maybe elaborate a little more on what you're trying to do and sort of what needs to be done there?

Sara Mathew

Let me just take it from a broader macroeconomic environment than what we're seeing. So Japan is the third-largest economy in the world. Although you just wonder whether how long it can hold at that position relative to the other emerging economies that are rapidly catching up. The macroeconomic environment is very weak. So as we look at our business, we actually had a very, very strong 2008 and 2009. And we had expanded our partnership with a joint venture partner there. And we do have a majority control mostly because we were shielded from what was a broader weakness in Japan because of our cross-border data, our value proposition that really resonated in the marketplace. Towards the end of that 2009 and into 2010, we've seen continued weakness. Remember, again, upfront commitments gives us a great leading indicator of how we are doing. What we've found is that even the global Japanese companies are shrinking their spend, and we are being affected by it; clearly, less so than our major competitor in that market. But we are being affected by it. If you have a country where foreign debt is about twice the level of GDP, I don't believe there's an easy fix. So what we're trying to do is mostly from an execution standpoint to sharpen value proposition. It has become more of a share gain because the market is shrinking. And we recognize it will probably take us most of 2011 to work our way out of this. And, Manav, you should know that we are taking this very, very seriously. We are in active dialogue with the partner because they also are interested in improving the operations. But I don't see a way out of this until 2012, to be perfectly honest. And the recovery will possibly occur towards the end of 2011, if any.

Manav Patnaik - Lehman Brothers

And then if I may on cash flow, obviously, just wanted to maybe get some maybe read through your thoughts around the use of free cash flow. And obviously, just around the dividend increase, I mean $0.01, why maybe that wasn't a little more? And then just on acquisitions, I think on the Investor Day, you had said you guys target roughly $100 million annually. What sort of thought process is around that this year?

Sara Mathew

Sure. Let me have Manny take acquisitions and Tasos take the dividend question. So Tasos, do you want to go first?

Anastasios Konidaris

Our thinking, one of the things we laid out was that our expectation was that we're going to grow the dividend in line with operating income growth. So I know $0.01 is $0.01 -- not, it could have been $0.02. but that was the thinking. That's number one. But beyond the $0.01 increase, we continue to stay focused on returning all excess cash to shareholders. So that looks at the dividend, which is going to return to shareholders about $71 million, $72 million next year, but those includes our thoughts about share buybacks continuing to be a part of returning cost to shareholders. So we look at it broader than the $0.01 increase on dividend. So with that, Manny?

Manny Conti

Sure. Regarding acquisitions, our strategy, as it relates to acquisition, remains unchanged. We continue to look around the market for opportunities to build our business, scale businesses and they typically are in the -- I would describe them as tuck-ins. But we're looking primarily in the international area at this stage. We want to finish our technology investment first before we make any cut back positions in North America. So we continue to look in the international space at this stage, consistent with what we've done in the past.

Operator

And our last question comes from Shlomo Rosenbaum [Stifel, Nicolaus].

Shlomo Rosenbaum - Stifel, Nicolaus & Co., Inc.

Just, Tasos, what are you thinking about the tax rate over the longer-term given Ireland's austerity program? Is that going to change your view in terms of being able to continue to lower the tax rate?

Anastasios Konidaris

The short answer is no. And that's for a couple of reasons. Number one is the Irish cap sales, they have not signal anything us to them changing their corporate tax rate. That's number one. Number two is, the inland tax rate of Ireland is only one of the components of the overall tax strategy. Their bigger component sets is the amount of product that gets made out in Ireland and the intellectual property. So we're really focused on making sure we structure our business in terms of product development and new product innovation coming out of Ireland. So that's going to be much more of a driver as opposed to whether or not the Irish government changes their tax rate from 12.5% to something else.

Sara Mathew

Okay. Diane, are there any other questions on the call?

Operator

I show no further questions.

Sara Mathew

All right. In that case, to all participants in today's call, thanks again for joining us. We will be back online with you in probably three months. Take care and goodbye.

Operator

That concludes today's conference. Thank you for participating. You may disconnect at this time.

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