Thomson Reuters Corp (TRI) 2004 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Thomson third-quarter results conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded.

I would now like to turn the conference over to Mr. Frank Golden, Vice President of Investor Relations. Please go ahead.

Thanks very much, and good morning. I would like to welcome you to the Thomson Corporation's third-quarter 2004 earnings call. Those of you listening should have a copy of today's earnings release and related slides. If you do not have a hardcopy, you may obtain one from our website at www.Thomson.com.

We will begin this morning's call with our President and CEO, Dick Harrington, providing an overview of the third quarter's results. Dick will also discuss the highlights for each market group, and will discuss the Company's outlook for the balance of this year. Dick will be followed by our CFO, Bob Daleo. Bob will discuss the financial results for Thomson and each of the market groups. He will also provide an update on the Company's financial metrics, and will conclude with some comments on our outlook for the balance of the year.

Following the presentations, we will open the call for questions. We do ask that you limit yourselves to one question each, in order to enable us to get to as many questions as possible during the call.

Let me point out that Thomson Media's results were moved last quarter from "Corporate and Other" to "Earnings From Discontinued Operations." The 2003 results have been reclassified to reflect this change. I am sure you know we have signed an agreement to sell Thomson Media, and we expect the transaction to close later this quarter.

Before we begin, let me mention that the following discussion contains forward-looking statements that relate to future results and events, and are based on Thomson's current expectations. Actual results may differ materially from those currently expected, due to a number of risks and uncertainties discussed in documents that we provide to the regulatory agencies.

This presentation also contains disclosures of certain non-GAAP financial measures. As required by regulatory rules, we have provided a reconciliation of each of these measures to the most directly comparable GAAP measure in the Investor Relations section of our website, found at www.Thomson.com.

And now, I would like to introduce the Company's President and CEO, Dick Harrington.

Good morning, everyone, and thank you for joining us on the call. As you saw from our press release this morning, we reported another quarter of strong revenue growth, up 9 percent for both the third quarter and year to date. Revenues continue to be driven by double-digit growth in the strategic areas of the business -- electronic products, software and services -- as we continue to evolve from a content provider to an information solutions provider.

Importantly, our positive performance in the quarter was broad-based, with all four market groups posting sales, EBITDA and operating profit increases. We also made several very targeted acquisitions in the quarter, as we continue to round out our product offering and enter adjacent markets.

On the divestiture slide, as Frank said, we announced the sale of Thomson Media for 350 million in cash, which we expect to complete by year end. The sale essentially completes our exit from advertising-based print publications, and we are very pleased with the terms of this transaction. The sale should result in a sizable gain in the fourth quarter.

And as you saw from our other press release issued this morning, we plan to redeem 1.2 billion of Canadian dollar denominated bonds, or the equivalent of about 900 million US. We are taking advantage of the current low interest rate environment to refinance this debt, extend our maturities and further strengthen our capital structure. Bob will have additional detail on the redemption later in the call.

Here is a quick recap of our results for the third quarter. Once again, the largest portion of our revenue growth was organic, supplemented by acquisitions with a modest benefit from currency. Operating profit was up 12 percent, so there was a slight improvement in margin, and adjusted EPS rose 9 percent. Cash flow has been strong all year, up 25 percent in the quarter and 38 percent year to date, so we are on track for another very good year, in terms of cash generation.

Let me give you a quick rundown on the performance of each of our market groups in the quarter, beginning with our largest business, Legal & Regulatory. As you know, our strategy in the legal and accounting markets is to expand our electronic product offerings and build software tools and applications that help our customers be more productive. Our services today extend well beyond our traditional strength in content and research data. We now also provide front- and back-office software and marketing services to our customers. These are some of the fastest-growing areas for us, and will be increasingly important going forward.

At the same time, we are managing our print business more efficiently. Print represents about a third of our total Legal & Regulatory revenues, and will continue to decline gradually as more and more research is done online. We have been able to steadily reduce the seasonality of this business, so that print shipments are now more evenly timed throughout the year. You have seen that in our numbers for 2004. Our legal print business actually increased in the first half over 2003 and now, in the second half, we will start to see the year-on-year decline resulting from the timing shift.

Our WestLaw business, which is our online legal research operation, had another solid quarter and also announced some significant contract wins. We extended and expanded our contracts with the US Department of Justice and the Administrative Office of the US Courts. These are multiyear contracts that have a combined total of about 150 million in revenues.

Moving to Thomson Learning, we saw increased revenues across all our businesses in the quarter, including US and international higher education, library reference, e-testing and corporate training. The library reference market has been improving all year. Better market conditions plus some very successful new electronic research products boosted the performance of our Gale library reference business in the quarter. During the quarter, Prometric signed a major new and expanded contract with Educational Testing Services, which extends our long-standing relationship with them for 12 years and will generate over $1 billion in revenues for Prometric.

We also announced two tactical acquisitions at Thomson Learning in the quarter, both designed to expand our footprint in strategically important market segments. KnowledgeNet provides Thomson Learning with industry-leading technology solutions for the corporate e-learning market, a sales force that complements our existing e-learning business and a high-quality customer base. It also gives TL a technology platform capable of serving additional market segments. This acquisition should increase opportunities for cross-selling to new and existing customers, and enable us to gain share in the corporate training market.

Capstar is part of Thomson Learning's strategy to accelerate its expansion into adjacent and complementary professional and government markets, and strengthen our overall capabilities in test development and delivery. Capstar's primary business is focused on supporting professional licensing and certification exams for national organizations and state and local government regulatory agencies, areas where Prometric did not previously compete. Capstar supports approximately 1 million test per year. We are very excited about both of these acquisitions.

Thomson Financial posted very strong results, including its second consecutive quarter of core revenue growth. We are making further inroads for our Thomson ONE suite of products, which are tailored for the specific needs of venues or markets like retail wealth managers, investment bankers and investment managers. The number of Thomson ONE workstations now total over 75,000. They have increased 12 percent for the quarter and 46 percent since December of 2003, as a result of continued migration from our legacy products and new customer sales.

The Merrill Lynch pilot began in July, and we expect to have the rollout completed by the middle of next year. In addition, Wachovia was completely rolled out by Labor Day. The two significant acquisitions we made earlier this year, TradeWeb and CCBN, continue to perform very well, and are exceeding our original expectations. At TradeWeb, for example, we signed up eight new dealers in the quarter in a variety of asset classes, which will further strengthen our leadership position in online fixed-income trading. TradeWeb's overall trading volumes are up over 30 percent year-to-date, and there are several major new products and partnerships currently under development.

In terms of the overall market in financial services, we continue to see positive signs of improvement, mainly in the US, while Europe is still lagging. And we are confident that we have the content and the technology to deliver superior products and continue to perform ahead of the market.

Scientific & Healthcare also had a very strong quarter, aided by higher revenues from our Web of Science and Web of Knowledge solutions for scientific researchers. Growth of these products was helped by the acquisition earlier this year of BIOSIS, a well-respected provider of databases for life sciences research which has been integrated into our overall Thomson Scientific business. And we continue to see very good performance at our Medstat unit, which helps employers, insurers and hospitals monitor and control health-care costs. As health-care continues to be a major public policy issue, Medstat is very well-positioned for continued growth.

Also in the quarter, we made further progress on the scheduled fourth-quarter launch of our Thomson Pharma solution for the pharmaceutical market. We are taking a similar approach as we took with Thomson ONE in the financial market. Thomson Pharma will offer a wide range of content -- ours and some third-party providers' -- tailored to the specific needs of professionals who work at different stages of the drug development process. Additional components of Thomson Pharma will come from IHI, an acquisition we announced in June and we expect to complete by year end.

Before I turn the call over to Bob, I would like to comment briefly on the outlook for the full year. We continue to expect revenues to be in line with our stated long-term growth target of 7 to 9 percent. That excludes any impact from foreign currency translations. The revenue increase will come largely from core growth supplemented by acquisitions. And, as I said before, we do not anticipate any new major acquisition activity for the balance of the year, and we expect acquisition activity in 2005 to be at a more normalized level.

Margins should expand slightly from the 2003 level. We are successfully driving operating efficiencies, but those improvements will be partly offset by higher pension and corporate expenses, which will hit the margin line. And as we said before, we continue to reduce the seasonality of our business, which has resulted in a shift of revenues and profits from the second half of the year into the first half. Bob will discuss this trend in his remarks.

And importantly, as I stated earlier, free cash flow is running well ahead of last year, and we expect 2004 to be another year of strong cash generation, which will enable us to fund our growth and pay an attractive dividend to enhance shareholder returns.

With that, I will now turn the call over to Bob.

Thank you, Dick, and good morning, everyone. We are pleased with the results for the quarter. As reported, we continue to achieve strong core revenue growth from each market group. Margins continue to improve due to this growth and the leverage in our businesses. And strong free cash flow is a core to our business model, and our business continues to demonstrate this capacity. We continue to expect to achieve our long-term revenue growth Dick has pointed out.

What follows is a summary of our results for the quarter and the year to date. Revenue growth continued to be strong, up 90 percent for the quarter, helping to drive another double-digit adjusted EBITDA increase in this quarter. Revenue growth reflects, as Dick mentioned, 4 percent core growth, 3 percent from acquisitions and 2 percent from currency translations. Each of the market groups achieved good growth for the quarter, with Thomson Financial and Scientific & Healthcare recording very strong quarter-over-quarter performance. In particular, TF continues to gain momentum, as it recorded its second consecutive quarter of core revenue growth, up over 3 percent. The 10 percent increase in EBITDA for the quarter was driven by this revenue growth and continued operating efficiencies across the units. All of this resulted in the increase in EBITDA margin for both the quarter and year to date.

Now, I would like to turn to each of our groups' results, starting with Legal & Regulatory. Here, revenues increased 6 percent, with core revenue growth accounting for 4 percent of that increase, currency translation about 1.5 points and the minor balance coming from acquisitions. EBITDA grew 4 percent for the quarter. The overall revenue growth was attributable to online growth of 9 percent, when you exclude the Business News & Information group. Including Business News & Information, revenues grew 7 percent.

WestLaw US revenue was up 7 percent, with strong growth across all segments -- law firms, corporate, government and academic. International online revenues rose 22 percent, with strong growth from Europe and Asia-Pacific. And Checkpoint's online revenue grew 19 percent, reflecting continued strong subscription growth.

Software and services revenue was up 16 percent, due to FindLaw growth of 53 percent and a 22 percent increase in Elite's revenues. Education revenue, anchored by Barbary (ph), rose 14 percent from increased enrollments. Print and CD revenue, however, declined for the quarter, partly due to the seasonal shift from the second half to first half, as previously noted. Now, margins declined slightly from the prior period, due to the impact of some expense timing, a shift in product mix and an increased spending related to growth initiatives.

At Thomson Learning, revenues increased 5 percent, with core revenue growth accounting for 3 percent of that increase and currency translation representing the balance. EBITDA rose a healthy 9 percent for the quarter. The academic revenues grew 5 percent in the third quarter, reflecting good growth in the higher education domestic and international, due to increased English language training and vocational training sales. Library reference revenue increased 6 percent, due to the sales of new electronic offerings and improved state funding environment.

In the e-testing, e-learning and vocational education segment, overall revenues increased 5 percent in the quarter, due to growth in e-testing, government and professional segments, including the impact of the CPA exam, which was launched online during the second quarter. And increased sales in the e-learning business are nominally (ph) related to NETg's contract with the Air Force.

Thomson Financial had a very strong quarter third quarter. Overall revenues rose 22 percent, core revenues increased 5 percent. However, 2 percent of this was related to really one-time items. 15 percent of the overall growth was related to acquisitions, and currency translation accounted for the balance. TF importantly marked its second consecutive quarter of core growth in almost three years. EBITDA increased 21 percent.

Revenue from existing businesses in the US increased for the quarter, due to higher usage and transaction revenues, as well as lower cancellations. Europe is somewhat behind the US, but we are seeing positive momentum building. TF's European revenues grew 12 percent, entirely through acquisition. European core revenue growth was down slightly, compared to the prior period. On a year-to-year basis, US core revenue is up about 7 percent, and Europe is down about 5 percent. Adjusted EBITDA margin for the quarter was 28.1 percent, up from the second quarter's 26.7 percent, and slightly below the year-ago period, 28.5 percent.

Let me point out that the EBITDA for both the second quarter of this year and the third quarter of last year included insurance proceeds of $14 million and $4 million respectively, while this quarter did not include any insurance proceeds.

Thomson Scientific & Healthcare revenues increased 11 percent, comprised of 4 percent core growth, 4 percent acquisition-related growth and 3 percent related to currency translation. EBITDA increased 25 percent in the third quarter to $50 million. Revenue growth from existing businesses was attributable to an increase in subscriptions from the Web of Science and Web of Knowledge, higher PDR-related revenue, an increase in demand for Medstat's health-care division and support products. These gains were in part offset by lower continuing medical education revenue, reflecting short-term spending constraints attributable to regulatory changes and some cost management initiatives by pharmaceutical companies. The EBITDA margin of 26.7 percent was up 300 basis points, compared to the prior year, due to both revenue growth and efficiencies in the operations.

Now, we continue to focus on metrics that drive our long-term business -- importantly, revenue growth, taking advantage of the our size and scale to drive margins, continuing to drive free cash flow and striving for top-quartile returns.

Now, let's review several specific metrics. Revenue growth in constant currencies for the quarter totaled 7 percent, compared to being up 2 percent for the third quarter of last year, and you can see on this slide how that breaks out by each market group. Electronic Solutions & Services, which excludes print, comprises 67 percent of our revenue base now, and 65 percent of our revenue is recurring in nature. These metrics reinforce our model, driving consistency of revenue and cash generation.

This slide on EBITDA shows the continued upward trend in margins on a consolidated basis. It speaks to the fixed-cost nature of our business and the success we are having in leveraging the size and scale of the Company across each of our market groups.

Capital expenditures as a percent of revenue is currently running a bit higher than our long-term target. This is due to the migration of our reference database onto the Novus platform, including Thomson's legal, financial and learning reference databases, and it is also due to data center consolidations which are occurring, to collapse operations in North America into three highly secure and efficient 24-by-7 data centers, each with a backup center. We continue to expect overall capital expenditures to be around the 7 percent of revenue mark over the long term.

Free cash flow continues to be a primary focus across the Company. Free cash flow in the third quarter was up 25 percent and 38 percent year to date. This performance reflects some timing relative to the full year, and it should be noted last year in the third quarter, we made a $50 million pension contribution. We did not have to make a similar contribution this year; in fact, we made no contribution. Overall, we continue to see good cash generation as an essential strength of our overall business.

Now, year to date, we have closed or announced acquisitions totaling approximately $1.5 billion. The 810 million reflects what was actually spent through the first 9 months. As Dick has noted, we expect the pace of acquisitions to slow considerably over the balance of this year, and be more normalized in 2004.

Earnings attributable to common shares for the quarter rose 12 percent to $344 million, based on strong operating performance. Adjusted earnings of 308 million grew 10 percent. The significant one-time items affecting earnings in the quarter were the release of tax credits totaling $35 million, a non-cash item related to a change in the UK tax law enacted during the quarter. We also had $14 million of tax expense increase related to a change in our allocation of expected full-year income tax expense among the interim periods in 2004. You will recall, in the first two quarters we had credits in this line.

Our effective tax rate in the third quarter was 28 percent, as compared to 24.5 percent in the prior period. Let me remind you that the effective tax rate for the fourth quarter of last year was 19.1 percent and 22.3 percent for the full year. We expect to be between 27 and 28 percent for both the fourth quarter and the full year 2004.

Now, I would like to update you on several important metrics for the balance of the year. First of all, as we have said repeatedly, we continue to expect to achieve growth from core operations and acquisitions to be in the 7 to 9 percent range for the full year. We expect depreciation to be 10 percent higher than a year ago. Due to the anticipated closing of the IHI acquisition later in the year, and the proceeds from the sale of Thomson Media, we expect interest expense for the full year to be slightly less than 2003. We expect 2004 and 2005 full-year interest expense each to be approximately $240 million. And we expect, as I've said before, the full-year tax rate to be between 27 and 28 percent.

Now, Dick touched on this point earlier, and I had mentioned in the second quarter that more and more of the Company's earnings are being generated in the first half of the year, as our business model has evolved. More revenue is now being generated electronically, which is less seasonal; and the publishing businesses, in which we continue to operate, are seeing a shift of revenues to the first half of the year.

This chart dramatically highlights this trend. In 1999, 63 percent of Thomson's adjusted earnings were recorded in the fourth quarter. Last year, only 49 percent was recorded in the fourth quarter, and this included the benefit of tax credits, which lowered last year's fourth-quarter effective tax rate to 19.1 percent. This impact is about 5 cents per share alone. We expect this trend to continue with this year's fourth quarter. This is the reason why we look at our business primarily from an annual perspective.

Now, we are pleased with the results for the quarter and year to date. Each market group continues to perform well, and the benefits related to several of the tactical acquisitions we have made are really bearing fruit. We look forward to a very solid finish this year that will carry into 2005.

Now, before I turn it over to Frank for a question-and-answer session, I would like to touch on the debt announcement. This morning, we announced that we would take advantage of the low interest rate environment to replace about $900 million -- US dollars -- of debt outstanding which are maturing over the next 2.5 years with new, lower-cost debt. This transaction will further strengthen Thomson's capital structure. It will extend our average maturity of our debt portfolio by about one full year, from five to six years. It will decrease the average interest on that portfolio to below 5 percent, which today is running at about 5.5 percent, and will lock in attractive medium- and long-term cost of capital. An additional benefit of this transaction is lower future interest expense. In 2005, we expect interest savings of $10 to $15 million arising from this transaction, despite higher average debt balances expected next year as a result of this year's acquisition activity. This is why we expect next year's expense to be roughly equal to this year.

Now, one-time costs of approximately $50 million will be incurred in the fourth quarter associated with these redemptions, and it is essentially a pull-forward of higher coupon interest payments to existing bondholders. The premium incurred to redeem these bonds will be more than offset by improved capital structure and lower interest costs over the long term. We intend to fund this redemption primarily through new bond issues, and through some existing sources of funding such as excess cash and commercial paper.

Lastly, we expect the gain related to the sale of Thomson Media, on an overall basis, will offset the estimated impact of about 8 cents per share related to these bond redemptions. But I would like to remind you that the gain on Thomson Media will be captured in discontinued operations, while this of course will be reported on our continuing business. However, we will isolate the impact of this before adjusted earnings.

With that, I'll turn it over to Frank.

Thanks very much, Bob. We would now like to open the call for questions, and I will remind you we would appreciate it if you would keep the questions to one per person, so we can get through as many questions as possible during the call.

(OPERATOR INSTRUCTIONS). Peter Appert, Goldman Sachs.

You touched on this a bit in the call, but I was hoping you could just dig a little further into helping us understand the modest year-to-year or decline in EBITDA margin in the Legal & Regulatory business. And specifically, I'm wondering why the shift from the print to electronic focus shouldn't be resulting in secular improvement in margins there.

First of all, I think the reason why we do have that modest decline is in fact because we had a 3 percent decline in print products on a year-to-year basis, and they do have an impact on profitability. This is a fixed-cost business and so, when you shift revenues around, it also explains why in the first half of the year we had some really significant double-digit growth in profits in these businesses. What you have to look at, as I've said before, is you have to address the business on an annual basis.

And to the second point, about the shift from print to electronic, while we have seen consistent improvement and expansion in margins in the Legal & Regulatory group over these years, and that has come from, in fact, as we have shifted from print to electronic. So we do see an improvement. What we are saying is that you cannot look at an isolated quarter and view that, interpret that as anything of a long-term trend. You have to look at it on a year-to-date basis and indeed over time.

Lauren Fine, Merrill Lynch.

On Thomson Financial, you made a comment in your prepared remarks about a couple of percent that was -- I'm not sure if you said it was timing related, or what. I was wondering if you could comment on that one-time item.

And then, also related to that, of all the new contracts that you have been winning in Thomson Financial, how much of that revenue are we seeing on a run rate basis in the quarterly results, or can we look forward to some improved momentum and core growth going forward?

Lauren, the one-time items related to a couple of contract cancellations that we had, where the customers actually had to pay us for the setups and costs that we have incurred relative to those services.

Lauren, would you repeat the second question?

Yes. It had to do with all the new contract wins that you've been getting at Thomson Financial. How much of that are we already seeing in run rate revenue, or how will that impact, I guess, the quarterly core growth over the next few quarters?

I think you can take the Merrill Lynch contract as an example, which I think, if I recall, other than some special revenues, kind of began a little bit in the second quarter/third quarter. But the total revenue for this year -- I don't have it broken down by quarter -- will be roughly about $35 million for the Merrill Lynch contract next year. And as it continues to ramp up, it will ramp up to about 49 million, and then the year after that we will get another slight kick. So, just to give you some size (ph), that's on an annual basis. Some of that obviously fell in this quarter, that wasn't there same period last year.

The Wachovia contract -- again, we were able to roll that contract out a little quicker. But assuming that that contract is rolled out, you'll see some revenue in the fourth quarter. Next year, you will get the full-year impact of Wachovia. (multiple speakers). And Wachovia is an incremental difference on an annual basis of about $20 million, of which my guess is we will probably get about 6 or 7 this year, and so you'll get another kick of another, say, 14 to 15 next year.

This is a subscription business, Lauren, and so as you sell these you -- first of all, we report on the sales. There probably could be -- depending on the size of the contract, a 30- to 60-day lag between the sales and the time we get them up and running. So then you run it annually, over the next 12 months. So ratably, as we continue to build momentum throughout the year with improved sales and expand our business base, you could see that momentum carrying more into 2005 than being impacted in 2004.

But we will continue to see some pretty good momentum there, because you continue to win contracts?

Yes.

Andrew Mitchell, Scotia Capital.

I really just wanted to focus on TradeWeb for a moment. I'm wondering if you can give us a sense for where you think we are at now in the growth curve for TradeWeb, now that you have got your hands around the business, and what kind of growth rate you believe is possible for it, given the secular marketshare trends in 2005.

And if I may, just on the second part, can you talk about whether your EBITDA growth is beating the topline performance, and whether you are getting the operating leverage in that business?

Yes. First of all, Andrew, the answer is that we think TradeWeb has additional -- first of all, it is meeting -- it is surpassing our expectations this year. And as I mentioned, we signed eight new dealers just in third quarter. We have signed 13 new dealers for the year. As you know, we have been primarily, I think, in the treasury side and in mortgages, and they continue to grow, but we are looking to expand. There was an article in the Financial Times the other day that mentioned we are looking to expand in the interest-rate swaps, the credit default, repos, Canadian treasuries, et cetera. So we still think that there is good opportunity for that to continue to grow going forward at double-digit growth rates for the next few years, and we are getting the EBITDA performance out of that growth.

So you think better movement on the EBITDA line than on the top line?

It's a fixed-cost business; it's the ultimate fixed-cost business (multiple speakers).

Exactly.

The answer is yes.

Douglas Arthur, Morgan Stanley.

I'm wondering if you can elaborate on the slowdown in continuing medical education. That had been a pretty good source of growth for you up until recently. Do you see the regulatory and budget issues weighing on that group for awhile, or do you think this is short-lived?

We think it's short-lived. We just -- you kind of had a double whammy this year. We had some regulatory issues -- you know, you had some regulatory issues thrown out that basically confused the pharmaceutical companies a little bit, as well as you had some budget constraints. But, based on our discussions with the pharmaceutical companies, this should be back next year. It's almost looking at a delayed spend. We expect to pick some up in the fourth quarter that we didn't get in the third quarter, and we will pick the balance up next year. We consider this to be a little bit of a blip.

Megan Anderson, RBC Capital Markets.

Just on the science and health side, I think last year you mentioned that the delay in release of Physicians' Desk Reference created a problem for Q3, but you made it up in Q4. Was there a reversal this year? In other words, was it released this quarter?

I think comparative, on a year-to-year basis, there is no unusual movement of releases relative to a year ago. Otherwise, we would have commented on it.

Wasn't last year Mexico?

Yes, it was Mexico. We had one particular product last year; it was a Mexican product, a small product that moved. And this year, we don't see that same -- we are on the same cycle as we were a year ago, so there is no impact from timing of distribution.

And one just quick further one. You mentioned the growth rate for the Thomson ONE workstations. Can you just give us what the change and growth may have been for the legacy workstations?

I can, but I don't have it from memory.

Megan, we'll get back to you on that.

To be honest with you, the change was nominal, because we started off with about 100 -- I think we started off the year with like 184 workstations, say, let's say, December. We are at about 190, I think -- 190,000 today. So that did have an impact on legacy, but overall, workstations grew.

Randal Rudniski, CSFB.

Can you provide us with some color behind -- turning to Thomson Financial, in terms of the revenue profile by some of the market segments -- investment managing, investment banking, corporate, et cetera?

We don't have those in front of us at this point. We can look at it for further in the call. We don't look at the business --

We don't look at the business that way anymore, Randy. The way we look at it is we have one what we call global customer-facing unit that sells to most of our Thomson ONE products, the majority of them. We have a corporate segment, and then we have a transaction services segment. And I would tell you that in the quarter, each one of them -- I talked about that net growth of about 3 percent in organic. Each one of them contributed about 1 percentage point to that. But we don't really look at it that way anymore.

Hymanmay Smith (ph), CSFB.

I've got a quick question about your college textbook business. Could you tell me what the incremental flow-through from each dollar of revenue to profit is in that business, and how it changes from when you publish a heavy new addition year to -- and obviously, the book quote (ph) amortization that goes with it, to a lighter year?

Well, the flow-through is, if I'm remembering correctly, on an EBITDA basis is roughly in the high 20's, all in, and we amortize the costs over a three-year period. So it wouldn't make a difference -- we get a lot of the -- oh, we amortize them -- I'm sorry. We amortize them against the revenue, (indiscernible). And so we'd just be (ph) fairly consistent. Roughly about 60 percent of the revenue comes in the first year, and then 40 percent comes in the remaining two years. And that's out over (ph) a three-year period.

So you are saying the flow-through doesn't actually change that much? It's going to be high 20's because the amortization will match the revenues, basically?

Right. We strive very hard to make sure that we properly match those (ph).

I know I'm allowed a follow-up question. Why wouldn't it be higher than that, given your printing distribution costs are probably, what, only 30 percent of the cost of the book? Why wouldn't the flow-through be higher than that?

I'm sorry, what was the question? The flow-through? Because I'm talking about the overall cost of the business. Right? I'm talking about what it costs to run the business, not incrementally what it costs to produce individual textbooks

But incrementally, what would the flow-through be for each additional dollar?

I really don't know that offhand. I wouldn't want to make a comment out of hand about it. I'd have to look at that, and we'd have to get back to you on it.

Jeffrey Fan, UBS.

Can you talk a little bit abound the SEC inquiry that you press-released about two weeks ago or last week? Maybe just give us a sense as to what the nature of the inquiry is, and maybe a little bit more on the profitability of the Capital Markets Intelligence product?

First of all, it's a $33 million business. So the profit is not 100 percent. So you say it's in line with other businesses; I think the Thomson Financial profit is roughly about 27 percent. So you could use that as an amount. As you know, CMI provides stock ownership information for public companies, and it helps them manage their investor relations programs more effectively. And CMI acts solely as an appointed agent for our clients when we collect dealership (ph) data. So that's what they do, I mean, if GM or some other corporation needs to know what is going on with their stock, then CMI or companies like CMI help them find out and investigate what is going on with their stock, to help them to make some of the appropriate decisions.

Now, we did announce that we are being investigated by the SEC, and we are fully cooperating with the SEC. But it is our understanding that the SEC is looking at the industry practices, not just TF. We are one of a number of firms that they are looking at on industry practices concerning obtaining this information.

Sami Kassab, McLain (ph).

Could you please elaborate on what you referred to as being increased spending on growth initiatives within Thomson Legal & Regulatory, and maybe quantify these growth investments you are referring to, please?

We expense a great deal of our ongoing effort to develop products, and some of the investments we make are the developmental products that will impact in 2005. So I don't want to be specific on the amounts involved here, but consistently, we have been able -- and most of those products are electronic products, and we have consistently been able to grow the electrical product portion of this business in the low double-digit, high single-digit range. And that has come from the ability to generate these kind of products, and so we continue to invest in those areas. And that is part of the ongoing nature of the business.

Separate from that, we do have some expense related to the Novus platform that I said we were developing and transferring that. Some of it is in the form of capital, but some of it is in the form of the expense. And so that is reflected there, as well. The Novus platform is the new platform for WestLaw Online, and offers great opportunities in terms of product capabilities and enhanced services.

Michael Meltz, Bear Stearns.

Just following up on that earlier question about the Carson products, are you still selling those products, or is that something you're going to discontinue?

And secondly, can you discuss the trend in Dialog, which you said was a little soft in the quarter? Has that continued into Q4, and what is your expectation going forward?

Number one, we are continuing the Capital Market of Intelligence business. So that is a business we have, and we will continue to provide our customers with those services, number one.

Number two, on the Dialog, Dialog is really four businesses -- or in other words, let's say two types of businesses. Two go after the STM marketplace, and to go after the Business News & Information. And as you know, the shortfall is really kind of in the Business News & Information business. But as you saw from an announcement the other day, that Factiva, that I think was put out by the West Company, that we will not be continuing our Factiva relationship, which will take effect sometime in 2005. And we will basically move in certain Thomson Financial databases, certain West databases and our Dialog news databases into that. That will assure that -- by that time, we feel we can reverse the trend in that side of the business. And the scientific and medical side is doing fine.

Operator, we will take one final question.

Lauren Fine, Merrill Lynch.

In the press release, you made a comment about EBITDA being up in the fourth quarter, and I just thought that was sort of a vague remark. Is there a question of whether it would or would not be up, or was that just meant directionally?

Lauren, it was just meant directionally. I don't think you should read anything more into that.

We would like to thank you all for joining us on the call today. That does in fact conclude our call. If you have any follow-up questions, you know where to reach us. We would be happy to give you a hand. Thanks very much.

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