穆迪 (MCO) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Moody's Corporation fourth-quarter and fiscal year-end 2011 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 for questions and answers following the presentation.

I would now like to turn the conference over to Salli Schwartz, Global Head of Investor Relations.

Please go ahead.

Thank you.

Good morning, everyone, and thank you for joining us on this teleconference to discuss Moody's results for 2011.

I am Salli Schwartz, Global Head of Investor Relations.

Moody's released its results for the fourth quarter and full year of 2011 this morning.

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

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

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

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

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

In accordance with the Act, I also direct your attention to the Management's Discussion and Analysis section and the risk factors discussed in our annual report on Form 10-K for the year ended December 31, 2010, and in other SEC filings made by the Company which are available on our website and on the Securities and Exchange Commission's website.

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

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

I will now turn the call over to Ray McDaniel.

Thank you, Salli.

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

I will begin by summarizing Moody's fourth-quarter and full-year 2011 results.

Linda will follow with additional financial detail and operating highlights, and I will then speak to recent regulatory developments and finish with comments on our outlook for 2012.

After our prepared remarks we will be happy to respond to your questions.

Fourth-quarter revenue of $567 million was flat as compared to the fourth quarter of 2010 with strong performance by Moody's Analytics and global structured finance, offsetting a decline from the strong prior-year period in corporate finance.

Operating income for the fourth quarter was $172 million, a 12% decrease from the prior-year period.

Diluted earnings per share for the quarter of $0.43 decreased 26% year over year.

For full year 2011 Moody's revenue of $2.3 billion was 12% increase from full year 2010.

Foreign currency translation favorably impacted Moody's Investors Service revenue by $28 million and was negligible for Moody's Analytics.

Operating income of $888 million increased 15% from a year ago and included a $4 million favorable impact from foreign currency translation.

Revenue at Moody's Investors Service was $1.6 billion, an increase of 12% from last year.

Moody's Analytics revenue was $712 million, 14% higher than the prior year.

Diluted earnings per share of $2.49 for 2011 increased 16% and included a legacy tax benefit of $0.03 in the second quarter of 2011, as well as other tax benefits of $0.09 in the second and third quarters of 2011 resulting from a favorable tax ruling and the settlement of state tax audits.

I will now turn the call over to Linda to provide further commentary on our results and other updates.

Thanks, Ray.

I will begin with revenue at the Company level.

As Ray, mentioned Moody's total revenue for the quarter was essentially flat at $567 million.

The impact of foreign currency translation was negligible.

US fourth-quarter revenue decreased 3% to $286 million while revenue outside the US grew 4% to $281 million and represented 50% of Moody's total revenue, up from 48% in the year-ago period.

Recurring revenue of $318 million represented 56% of the total compared to 52% in the prior-year period.

Looking now at each of our businesses, Moody's Investors Service revenue for the quarter $367 million, a 4% decrease year over year.

US revenue decreased 9% over the prior-year period while outside the US revenue increased 2% and represented 44% of total ratings revenue.

Global corporate finance revenue in the fourth quarter decreased 14% from the year-ago period to $141 million.

Revenue was down 13% in the US, while outside the US revenue was lower by 16% year over year.

The decline in global corporate finance revenue reflected weaker issuance, primarily in speculative grade bonds and loans, in both the US and Europe.

Global structured finance revenue for the fourth quarter was $87 million, 14% above the prior-year period.

In the US, revenue increased 13% year over year primarily due to strength in asset-backed securities.

Most other areas of US structured finance markets remained weak.

Non-US structured finance revenue rose 15% driven primarily by European asset-backed and residential mortgage-backed securities, as well as covered bonds in Europe and Asia.

Global financial institutions revenue of $67 million increase 2% from the same quarter in 2010 with US revenue declining 7% while non-US revenue grew 7%.

Global revenue for public projects and infrastructure declined 6% year over year to $72 million.

Revenue decreased 14% in the US, reflecting a reduction in new financing for projects and infrastructure programs.

Non-US revenue increased 14%, primarily due to gains in the infrastructure sector.

And turning now to Moody's Analytics, global revenue for Moody's Analytics of $200 million was up 10% for the fourth quarter of 2010.

US revenue grew by 15% year over year to $81 million.

Non-US revenue increased by 7% to $119 million and represented 60% of total Moody's Analytics revenue.

Globally, revenue from research data and analytics of $115 million increased 6% from the prior-year period, due primarily to higher customer retention rates, and represented 58% of total MA revenue.

Revenue from risk management software of $56 million fell 3% from last year's record revenue in this segment.

Due to the variable nature of project timing, risk management software revenue remains subject to quarterly volatility.

The December 2011 acquisition of Barry & Hibbert had a negligible impact on software revenue in the fourth quarter of 2011.

Professional services revenue doubled to $29 million, reflecting both organic growth and the acquisition of a majority stake in Copal Partners in November 2011.

Moody's fourth-quarter expenses were $395 million, an increase of 7% compared to fourth quarter 2010.

The impact of foreign currency translation on fourth-quarter expenses was negligible.

Moody's reported operating margin for the quarter was 30.3%, down from 34.8% in the fourth quarter of 2010, primarily due to increased headcount and technology investments to support growth initiatives as well as acquisition-related costs.

Our effective tax rate for the quarter was 37% compared with 19.5% for the prior-year period.

The increase in effective tax rate was primarily due to utilization of foreign tax credits and lower state taxes in 2010.

Now I will provide an update on capital allocation.

Moody's increased its quarterly dividend on December 14 by 14% to $0.16 per share of common stock.

During the fourth quarter of 2011 Moody's did not repurchase any shares but did issue 0.4 million shares under employee stock-based compensation plans.

For the full year 2011 Moody's repurchased 11 million shares at a total cost of $334 million for an average price of $30.30 per share and issued 2.9 million shares under employee-based stock compensation plans.

Outstanding shares as of December 31, 2011, totaled 222 million representing a 4% decline from a year earlier.

As of year-end Moody's had $0.9 billion of share repurchase authority remaining under its current program.

As of December 31 Moody's had $1.2 billion of outstanding debt and $1 billion of additional debt capacity available under our revolving credit facility.

Cash and cash equivalents were $760 million, an increase of $100 million from a year earlier.

Approximately 70% of our cash holdings are maintained outside the US.

We remain committed to using our strong cash flow to create value for shareholders while maintaining sufficient liquidity.

Share repurchase remains subject to available cash flow and other capital allocation decisions.

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

Thanks, Linda.

I will continue with an update on regulatory developments.

In the US, regulatory authorities are moving forward on implementing the various parts of the Dodd-Frank Act.

Following the SEC's summer comment deadline for rule proposals relevant to NRSROs, the SEC recently revised its timetable and is expected to adopt final rules by year-end 2012.

It is also expected to publish its feasibility study on establishing an alternative system for allocating rating assignments for structured finance products, otherwise known as the Franken Amendment, by about the same time.

Both banking and securities regulatory authorities are in the process of reviewing their use of ratings and regulation and considering alternative measures as replacements.

Turning to Europe, Moody's was registered in the European Union in late October 2011, and as I have indicated on previous calls, the transfer of oversight of registered credit rating agencies to the European Securities Markets Authority, ESMA, became effective in July 2011.

Our European operations are, therefore, under the full examination and oversight authority of ESMA and we expect ESMA to publish the first report on its review of the industry sometime in the second quarter of 2012.

In addition, the European Commission has proposed a new round of regulatory measures for the rating agency industry.

Specifically, the suggested measures address, among other ideas, the use of ratings and regulation, business models, competition, rotation of rating agencies, and liability.

The various concepts the Commission has introduced in its proposal focus on how and to what extent rating agencies operate in the EU.

If implemented as currently constructed, however, the Commission's suggested measures may have significant and negative ramifications on the European credit markets.

Consequently, the debate on CRA3 has been active and ongoing since its formal release by the Commission.

In particular, on January 24 the European Parliament held a hearing through which it solicited views from a broad spectrum of market participants who generally sounded a cautionary note.

Because of the tone of the debate thus far, it is possible that during the coming months the Commission's proposals will be amended.

The next stages of the legislative process include deliberation and potential amendments by both the European Parliament and the council of European finance ministers.

The Parliament, Council, and Commission must all confer and agree on a final text.

We expect this process to take anywhere from four to eight months during which time we will continue to consult with relevant authorities and market participants as to the impact of the specific proposals.

While new rules entail various changes in our rating agency processes and operations and require us to adapt our business, we will not alter our fundamental objective to provide the highest quality independent credit opinions, research, and analysis.

We will also continue to advocate for globally consistent approaches that align with the G-20's statements and directives.

Before concluding today's remarks by revealing our 2012 outlook, I will briefly comment on our acquisitions of a majority stake in Copal Partners and of Barry & Hibbert during the fourth quarter of 2011.

Copal is an Indian-based outsourced research and consulting business that strongly complements the research, analysis, and professional services offerings of Moody's Analytics.

The acquisition of Barry & Hibbert, a Scotland-based leading provider of analytical tools for the global insurance industry, is consistent with our ongoing commitment to build a comprehensive suite of enterprise risk management solutions for financial institutions.

Together these acquisitions are expected to be accretive to EPS in 2012.

I will conclude this morning's prepared remarks by discussing our full-year guidance for 2012.

Moody's outlook for 2012 is based on assumptions about many macroeconomic and capital market factors including interest rates, corporate profitability and business investment spending, merger and acquisition activity, and consumer borrowing and securitization.

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

Our guidance assumes foreign currency translation at end-of-quarter exchange rates.

We expect business conditions to remain challenging, particularly early in the year, but still project growth across most areas of our business in 2012.

For Moody's overall, the Company expects full-year 2012 growth to grow in the high single-digit to low double-digit percent range.

Full-year 2012 expenses are also projected to increase in the high single to low double-digit percent range.

Full-year 2012 operating margin is projected to be approximately 39%, which includes the full-year impact of our fourth-quarter 2011 acquisitions.

Our effective tax rate is projected to be approximately 33%.

We expect to continue share repurchase subject to available cash flow, market conditions, and other ongoing capital allocation decisions.

The Company expects diluted earnings per share for the full year 2012 in the range of $2.62 to $2.72.

For the global MIS business, revenue for the full year 2012 is expected to increase in the mid single-digit percent range.

Within the US MIS revenue is expected to increase in the low double-digit percent range while non-US revenue is expected to be about flat.

Corporate finance revenue is forecasted to grow in the high single-digit percent range.

Revenue from each of structured finance and financial institutions is projected to be flat to slightly down, while public project and infrastructure finance revenue is expected to increase in the low teens percent range.

For Moody's Analytics full-year 2012 revenue is expected to increase in the high teens percent range, both in the US and outside the US.

Revenue growth is projected in the mid single-digit percent range for research data and analytics and in the low 20% range for risk management software, reflecting growth in the core business as well as the December 2011 acquisition of Barry & Hibbert.

Professional services revenue is projected to grow by approximately 70% inclusive of revenue from the late 2011 acquisition of a majority stake in Copal Partners and continued growth in our legacy businesses.

This concludes our prepared remarks and joining us for the question-and-answer session is Michel Madelain, President and Chief Operating Officer of Moody's Investors Service, and Mark Almeida, President of Moody's Analytics.

We would be please to take any questions you may have.

(Operator Instructions) Peter Appert, Piper Jaffray.

Thanks.

So, Linda, I was hoping you could give us a little more color on the drivers of cost growth.

Why the acceleration in the fourth quarter?

Sure, Peter.

Happy to talk about that.

I think first, though, we should note that 2011 was a year of record revenue for Moody's and we are back above our 2007 high, so we think we should get that into the mix, Peter.

Let me talk a little bit about fourth quarter 2011 as compared to fourth quarter of 2010.

The fourth quarter of 2010 we put up $0.58 and the number is $0.43 for the fourth quarter of 2011.

The main bridge that gets you there is just a difference in the tax rate.

We had an abnormally low tax rate in the fourth quarter of 2010.

As we had said earlier, the tax rate for 2010 was about 19% and we are running about 37% for the fourth quarter of 2011.

So basically we have a doubling of the effective tax rate for the quarter.

That change gets you about $0.12.

Then the remainder of the $0.03 to get to the bridge; we have some deal costs from these acquisitions that we have done in the fourth quarter.

We had some of other expenses including a sales tax matter and a contribution to our foundation, and then we have got some other things in terms of bringing some IT costs and other systems online.

So the main driver in the difference for the fourth quarter of 2011 is really the tax rate and there is not much more to it than that.

I guess I was focused, Linda, on the operating expenses which were up about 7.5% year to year versus 3.4% growth in the (multiple speakers)

Sure.

Let me try to do that bridge for you also, Peter.

For the fourth quarter of 2010 expenses were $367.7 million and then they were $395 million for the fourth quarter of 2011.

So we are looking at about a $28 million increase over that period.

Basically it's split, as I had mentioned, about a third, a third, a third in terms of deal costs.

The two deals that we did in the fourth quarter were expensive to get done.

We had a success fee in the Copal deals, which is unusual for us to pay.

So take $9-ish million on deal costs and other things related to those acquisitions.

Another third of it, another chunk of it, would be, as I said, another tax matter which revolves around sales tax and a donation to our foundation.

The sort of two costs in the Other category.

Then, thirdly, we have these systems we are bringing online and some consulting fees, mainly to get ready for Dodd-Frank.

So basically those are the three components of the $28 million of expense difference between this year's fourth quarter and last year's fourth quarter.

Got it.

Could you just, while we are on the expenses, tell me what the incentive comp accrual was in the fourth quarter?

Sure.

Incentive comp accrual was actually down from last year.

As we had said, last year's fourth quarter -- we finished very strong in the fourth quarter last year, it was $42.8 million.

This year it's only $30.3 million.

That was still up sequentially, though, from the third quarter's $25 million but more even over the quarters of 2011.

Got it.

I guess really the important issue, Linda, is just I am interested in your perspective on what we could anticipate in terms of long-term margin.

You are guiding to flat margin next year.

Are you basically retreating on your expectation that perhaps we could get back to low 40% margins?

Peter, this is Ray.

But for the acquisitions that we made in the fourth quarter of 2011 I think we would have been projecting approximately a 40% margin this year.

Okay.

But what about next year, Ray?

Again, subject to whether we engage in additional acquisitions, I would still say that our outlook is to have 40%-plus margin and double-digit growth on average for the firm.

Okay, great.

And then last thing; I will get off.

The strength in structured finance, you mentioned specifically I guess the international business; the guidance is somewhat cautious with regard to structured finance for 2012.

What is going on in that market?

And I guess corollary to that you had mentioned in the past that perhaps you are gaining a little bit of market share relative to the competition.

Do you think that is still the case?

Let me start with 2011, because I did comment during the year last year that we had what I considered to be some one-off activity in the early part of the year and that we expected the run rate on that business to decrease.

We didn't -- as it turned out we really didn't see that.

The business held up throughout the year better than I had anticipated, and we are currently looking at that run rate to continue through 2012.

Obviously, there are going to be areas of relative strength and relative weakness in structured finance.

For example, we still don't see any significant RMBS activity here in the US and we will have to see what the impact in Europe is of some of the one-time items that were driving business last year.

But the ABS market in particular, both in the US and in Europe, has held up well.

And to the extent that there is a willingness to -- well, to the extent that there are interest rates and spreads that makes securitization attractive there is potentially some upside to that business.

But right now we would say that we expect the run rate from 2011 to be reflected in the business in 2012.

As to share, I think that is more -- probably more driven by which parts of structured finance happen to be active or inactive at any given point in time.

There are some areas where we have strength relative to our competitors in terms of our analytic framework and there are some areas where issuers and investors may prefer a business from our competitors.

So it really is driven by which areas are active from quarter to quarter.

Thanks, Ray and Linda.

William Bird, Lazard Capital.

Good morning.

Ray, I was wondering if you could just talk a bit about the pipeline.

What are you seeing in terms of how issuance is developing, and kind of as you look at the year, I guess, how do you see growth developing in MIS?

Sure, happy to talk about that.

You can see from our guidance that we are expecting both the financial institutions and structured finance areas to be flat, perhaps slightly down but essentially flat.

We do expect to see growth in the public project and infrastructure finance area and we expect to see that all the way through the year.

But probably the most interesting area is corporate finance.

I think right now the pipelines could be characterized as steady, but probably not more than standing; a little bit of an uptick in high yield recently.

But what we are seeing, and this is very recent, is an improvement in market tone, volatility has come down, spreads have been coming in, and those are all leading indicators of what helps build the pipeline.

So early January I would say we were pretty cautious about how the pipelines looked and what that meant for the business.

As I said, more recently some of the leading indicators are more promising.

We do still expect that the second half of the year is going to be the stronger half.

We do not expect this year to look like last year.

So we would not anticipate having strong growth in the first half this year in the corporate area off of what we saw last year, because it was so strong last year.

It's Linda.

I just wanted to give you some more details on January and February issuance.

January investment-grade issuance is on track with 2011, about an $80 billion issuance month for the month of January.

Interestingly, there are seven deals in the market today and activity has been very active in February so far.

What is interesting is if you look at the forward calendar for high yields, we see 13 high-yield deals in the pipeline which is better than we have seen for quite some time.

Spreads are sort of around 650 over for high yield right.

If we can get under 600 we think we are going to start to see a lot of those deals coming.

So conditions are, for this moment -- and again, to follow up on what Ray said, can change at any moment -- but for this moment conditions are looking relatively good.

You see a lot of companies coming to market getting record low all-in financing costs, which obviously is very helpful to our business.

And we still think that 2012 is going to be characterized or going to reflect the macroeconomic conditions.

And to the extent that there are orderly resolutions of some of the stresses in Europe in particular that should build confidence.

If those resolutions are more disorderly, I think we would see a movement away from risk.

So macroeconomics continue to play a big part of the story.

Ray, is MIS likely to have positive revenue growth in the first quarter?

Well, we don't want to try to provide quarterly guidance, but I think what we are seeing in the first quarter of this year is at this point reflective of what we were seeing in the second half of last year with momentum building slowly throughout the year.

So it's really the second half of this year that I think we are going to see revenue growth as opposed to the first half.

And then, Linda, I was just wondering if you could talk a little more about expenses.

Just perspectively just trying to understand why the flat margins on expected high single-digit, low double-digit revenue growth.

Sure.

I think what Ray was trying to say is our margins would be at 40% and we would have margin expansion but for the interesting effect of accounting for the acquisitions that we have done.

So we have to report via GAAP and we report with those acquisitions in, so it appears that the margin is flat.

Let's talk about expenses for 2012.

I think you want to start the year at about $370 million for the first quarter for expenses.

And then I think, similar to what we have advised you in previous years, you should ramp expenses probably by about $40 million over the course of the year.

Our expenses tend to move up in the fourth quarter as you have obviously just observed, so that would be the way to lay it in for your modeling of 2012.

Great, thank you.

Michael Meltz, JPMorgan.

Thank you.

I think two or maybe two and a half questions for you.

On the question that Bill asked, can you just speak a bit more about earnings progression?

I guess, Linda, what you are saying is costs are going to be up pretty big in the first quarter.

And I assume revenues, even talking first half if you want to talk that way, but you are assuming probably pretty low to no revenue growth in the first half, costs up low double digits.

So earnings down pretty big in the first half and then ramping in the second half; is that the way to think about it?

Michael, the calendarization of this year is particularly challenging, and I may ask Ray to speak to this as well.

It is very hard to know because, frankly, we were a little more pessimistic about the first quarter; now we are feeling a bit more optimistic about the first quarter.

So we are going to have to see if these conditions hold.

If they do, I think we would feel a little bit better.

But I think your view is generally correct, that we would expect as Ray said the second half to be the stronger half.

In addition to saying that the second half is going to be stronger, I think what you see is the steady progression of expense growth, although not to the same degree as we had in 2011.

So that $40 million expense growth should be straight line through the year.

But revenue stronger in the second half and again, I would expect that we are probably going to have the lightest revenue in the first quarter.

Okay.

And then in terms of your MIS guidance for the year, the 4% to 6%, does that essentially imply mostly pricing and little to no volume growth?

Can you talk about that?

We do have some pricing included in that.

We do expect to have growth in several areas.

Where we probably will not see growth is in Europe.

If there is an orderly, as I said, an orderly resolution in Europe and a return of confidence that would provide some upside against our current projections.

So we expect to see a stronger profile in the US and in non-Europe, our non-Europe international business at this point.

Okay.

And then my last question.

Can you speak broadly about what is in your guidance in terms of regulatory impact?

I don't know if there is any -- it's probably too early for any top-line impact but is there -- what are regulatory costs trending year on year in 2012, please?

While I would have hoped that we would have stabilized the incremental increase in costs associated with regulation and compliance in 2012, I don't think that that is the central case at this point.

I think we are going to have incremental compliance and regulatory expense again this year.

I think it will be less than we were forecasting for last year, so perhaps in the $10 million to $15 million range as opposed to the $15 million to $25 million range that we were talking about last year.

Michael, a caution on that would be we can't forecast CRA3 obviously, but we would see that the earliest that would come into effect is fourth quarter of 2012.

But that is probably a 2013 matter for the most part.

Okay, thank you for your time.

Thank you.

Doug Arthur, Evercore.

Ray, I just wanted to follow up on your expectation for flat on -- I believe it's for flat non-US ratings revenue growth in 2012.

I think you started to answer that in the last question.

Is that mostly because of caution on the European situation?

Yes, that is the big driver for our expectations on the international ratings side, the European situation.

We do expect to see growth in other international -- Asia, Latin America.

Because you have got several boosts to that business in 2011, one you mentioned on the structured side which lasted longer than expected.

The other boost seemingly was from this sort of slow inevitable move towards disintermediation where more companies are now getting ratings that previously were dependent on bank loan financing and they are now worried about that pipeline or access.

So is it that you don't expect that to continue or is it going to level off?

No, we do expect the disintermediation trend to continue.

That, I believe, is a long-term secular trend not only for Europe but elsewhere internationally.

For 2012 we think that both the structured finance business internationally and the financial institutions business internationally are going to be down.

The principal reason in both cases is because of our expectations for Europe.

So we expect to have a decline in European financial institution revenue and European structured finance revenue compared to 2011, but we expect to have that in both cases largely offset by growth in the US.

Okay, thank you.

Craig Huber, Huber Research Partners.

Couple of things.

First, can you update us on the CalPERS, Abu Dhabi court cases first?

Yes, sure, Craig.

Starting with the CalPERS case, I think, as you know, the second part of the anti-slap motion was decided earlier in the year.

While we won the first part of the motion, we lost on the second part of the motion which allows CalPERS to proceed with some discovery.

What is unusual about this is that this decision is immediately appealable and we will be doing so, and the case will be stayed until that appeal has been determined.

With respect to Abu Dhabi, discovery was completed in December and we filed a motion for summary judgment in January in that case.

Okay, and then a housekeeping question here, Linda.

Can you break down a percentage basis transaction versus non-transaction related revenues within structured finance, corporate financial, and PPIF, please?

I have a follow-up.

Yes, sure.

For the fourth quarter 2011, Craig, -- for the rating agency first.

Let me go through CFG, transaction was 65% and relationship was 35%.

For structured 54% transaction and 46% relationship.

[FIG] 23% transaction and 77% relationship.

[EPIX] 60% transaction and 40% relationship.

Rating agency as a whole was 54%/46% and the total for Moody's Analytics 26% transaction, 74% relationship.

The balance for the Company 44% transaction and 56% relationship.

I am sorry.

Did I miss the corporate line there?

If you did, it's 65%/35% transaction and relationship.

Okay and then the other housekeeping question I would like to ask.

Could you break down the percentages by subsegment within the same four, if you would -- ABS versus RBMS, [craft] derivatives, and just the other three areas too, please?

Yes.

Thank you.

The corporate, the revenue splits for fourth quarter 2011 were as follows.

Investment grade was 25% of the revenue, high yield 11% of the revenue, bank loans 15%, and other was 49%.

For structured for the fourth quarter of 2011 ABS was 34%, RMBS 27%, commercial real estate 17%, and derivatives 23%.

Going on to financial institutions, banking was 71% of revenue in the fourth quarter, insurance was 24%, and managed investments were 6%.

And then finally for PPIF for the fourth quarter public finance and sovereign were 52% of revenue, munis 8%, project and infrastructure 39%.

Appreciate that.

Then also, can you talk about these two acquisitions a little bit further, what we should expect?

Maybe if you could size them for us for this new year and also what the D&A impact is for 2012.

Sure, Craig.

I will give you the total D&A number first and then let Mark get warmed up to explain the acquisitions that he has done, because I think as a group we feel the analyst community is a little bit light on what we are trying to accomplish here.

The D&A number you should use for 2012 is going to be about $100 million.

Some of that, obviously, is partially due to these acquisitions and partially because we are bringing some more systems online.

With that I will turn it over to Mark and he will give you details.

Sure.

Craig, just to give you a sense of what we are doing.

As Ray described, we acquired Copal Partners in November and that is, I think, an important extension of what we are doing in the RD&A space.

Copal serves substantially the same customer set that we serve with our research and our data and our other related services, so we see this as a very nice, synergistic opportunity to expand our footprint with those customers.

Then with the Barry & Hibbert acquisition that we closed in December that is just a market extension within the software business.

It allows us to have a much more compelling offering for insurance companies and will let us take advantage of what we see as a very robust opportunity associated with the Solvency II related regulations that are being imposed on insurance companies.

So we see both of those as very nice fits with various parts of the Moody's Analytics business.

In terms of the scale, I think we have indicated before that about half of our revenue growth in 2011 was organic and about half was from acquisitions that we made.

Primarily the CSI acquisition that we made in late 2010.

That will be -- those proportions will be the same, roughly the same in 2012.

So again you should expect that about half of our revenue growth in 2012 will be organic and about half from these recently acquired businesses.

And then lastly, if I could slip one more in here.

Ray, your optimism for PPIF for 2012 up low teens I think you said in your press release.

Obviously 2011 was up about 2%, give or take, for your company.

Is part of it just making up for that?

But also is this the way the calendar falls for debt maturity for that area for 2012 give you the optimism or is there something else going on?

No, I would say -- the only thing I would add to how you have already sized it up, Craig, is that remember early last year there was pretty significant concern around the public finance sector, the municipal sector here in the US.

And so we had relatively light performance in US municipals early in the year, which we do not expect to be replayed this year.

Other than that it's really the global infrastructure story which is going to be supporting the growth in that business.

Great.

Thank you.

(Operator Instructions) Edward Atorino, Benchmark.

I apologize; would you repeat the cost question?

Was it 40 and then throughout the year up?

Sure.

Ed, I assume you are talking about what is the 2012 (multiple speakers)?

Yes, right.

Okay, I asked that everybody (multiple speakers)

370.

[370] and then ramp it up $40 billion to get to the fourth quarter.

Okay, thanks.

Sure.

Thanks, Ed.

Michael Meltz, JPMorgan.

I just wanted one clarification.

Linda, I think you just helped us on the cost side here.

So you are saying D&A is going to be up $20-something million dollars year over year?

That is about 100 bps to the margin, correct?

Yes.

Okay.

What about on -- when we think about free cash flow how is CapEx going to trend in 2012 versus 2011?

Hang on a second, let me get that for you.

I think CapEx for 2011 you probably want to use $60 million to $70 million, Michael.

Okay.

Thank you very much.

Sure.

We have no additional questions at this time.

I would like to turn the floor back over to our presenters for any additional or closing remarks.

I just want to thank everyone for joining the call today.

We look forward to speaking to you again in April.

Thank you.

Thank you.

Ladies and gentlemen, that does conclude today's conference.

We thank you for your participation and have a great rest of your day.