Thomson Reuters Corp (TRI) 2005 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. 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. (Operator Instructions). As a reminder, this conference is being recorded. I would like to turn the conference over to your host, Vice President, Investor Relations, Mr. Frank Golden. Please go ahead.

Good morning. I'd like to welcome you to The Thomson Corporation's third-quarter 2005 earnings call. Those of you listening should have a copy of today's earnings release. However, if you do not have a copy, it is available on our website at www.thomson.com.

This morning's call will begin with an overview of the Company's results, provided by our President and CEO, Dick Harrington. Dick will be followed by our CFO, Bob Daleo, who will discuss the consolidated financial results and the results for each of the market groups. Bob will also provide an update on the Company's financial metrics and provide further visibility on our expectations for the balance of the year.

We will open the call for questions following Dick and Bob's presentations. We ask that you please limit yourselves to one question each to enable us to get to as many questions as possible.

Before we begin, let me mention that the following discussion contains forward-looking statements that relate to future results and events and are not 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 Thomson's website.

I would now like to introduce The Thomson Corporation's President and CEO, Dick Harrington.

Good morning and thank you for joining us as we report our third-quarter results. As you can see in today's release, revenue was up 8% for the quarter, and importantly, organic revenue growth was good across each of the market groups. Half of the revenue growth in the quarter was organic and the rest was mainly from acquisitions. In addition, nearly 70% of our year-to-date revenue, or approximately $4.4 billion, came from electronic products, software and services, which were up 12%.

Operating profit rose 6%, reflecting growth in each market group, somewhat offset by higher corporate expenses. Free cash flow growth was again strong, amounting to 775 million year to date, an increase of 12% compared to the first nine months of 2004.

I'm pleased to mention that Thomson Financial recently completed the rollout of over 23,000 Thomson ONE workstations to more than 550 Merrill Lynch retail brokerage offices. This was the largest rollout of Thomson ONE workstations to a single customer. Today, Thomson is the largest provider of retail wealth management workstations in North America.

Thomson also issued 30-year debt for the first time in its history during the quarter. This was a debt refinancing which lowers our future interest costs, extends our debt maturities and strengthens our capital structure. Bob will provide you with more detail in a moment.

EPS was up 9% for the quarter, but we were not immune to the impact of Hurricane Katrina. Fortunately, our employees who work in the Gulf Coast area were safe. However, TLR did see a slight impact from Katrina, with 6700 law firms and 3800 accounting firms operating in the area. We estimate that it cost us about a penny per share in the quarter.

Thomson Legal & Regulatory had another good year, or another good quarter. Organic revenue grew 4%, driven by continued double-digit growth in online revenues for Legal, Tax & Accounting products, and operating profit was also up double-digit.

Thomson Learning's revenues were up 8%. 3% was organic. And excluding the impact of the loss of the UK driver's license contract in September of last year, underlying organic revenue grew 5%. This is the last quarter we will have this unfavorable comparison.

TL's growth reflects the benefits from last year's acquisitions, good growth in the textbook business and continued demand for custom publishing in English language training products. Additionally, TL has been effectively redesigning its production process, which is reducing its bookplate spend. This contributed to over a 100-basis-point decline in bookplate CapEx as a percentage of revenue, from 4.3% to 3.2% for the quarter.

Thomson Financial achieved organic revenue growth of 4%. The completion of the Merrill Lynch rollout helped drive over a 30% increase in the number of Thomson ONE workstations this year. TF's transaction-related businesses and corporate services also saw strong growth.

Thomson Scientific & Healthcare's organic revenue growth rebounded this quarter to 5%, and operating profit growth was again strong. The Scientific side continues to benefit from the IHI acquisition completed in the fourth quarter of last year. Healthcare achieved double-digit organic revenue growth as demand for its decision support and clinical solutions products continued.

Given our solid financial results for the first nine months of the year, we expect to achieve our long-term revenue growth target of 7 to 9% for the full year. Growth is being driven by our continued ability to develop winning solutions that enhance our product offerings for our customers.

The success we are having with Thomson ONE, Westlaw Litigator and Thomson Pharma gives us confidence that we will continue to grow profitably by providing must-have workforce solutions and tools our customers require to be more productive.

Our operating margin is also expected to increase slightly versus last year, reflecting strong underlying business performance, partially offset by higher pension costs and certain corporate expenses. By driving revenue and improving profitability, we will continue to drive free cash flow and will see growth in dividends.

Our priorities have not changed. We continue to focus on driving organic revenue by concentrating on workflow solutions for our customers, as well as entering adjacent markets. We will pursue tactical acquisitions that fill gaps in our portfolio and enhance our product offerings.

We are driving efficiencies across the Company as we take advantage of our size and scale and to continue to make good progress. We continue to be highly focused on driving free cash flow, and we're confident that returns will continue to improve as we deliver solid and sustainable earnings growth.

In summary, we continue to be on track for another year of solid financial performance. I'll now turn the call over to Bob Daleo.

Thank you, Dick, and good morning. There are several items that I want to highlight for the quarter. Revenue growth was strong across each of the groups. A bit more than half of the revenue growth for the quarter was organic, led by Scientific & Healthcare, which recorded a 5% organic increase.

Earnings organic growth was 3%, although underlying growth was 5%, as Dick mentioned, if the UK driver's license contract was excluded. Operating profit margins are down slightly for the quarter and the nine months. For the quarter, this decline is the result of higher corporate expenses, and in Thomson Learning, the termination of the UK driver's license contract.

These same factors impact the nine-month results, and in addition, I will remind you the prior year included $19 million of insurance recoveries at Thomson Financial. It's these factors that make the year-to-year margin comparisons challenging, both in the quarter and the year to date.

Free cash flow continues to be strong. For the first nine months of the year, it was up 12% versus the prior period. And some of this, though, is timing. During the quarter, Thomson also issued a 30-year $400 million debenture at a rate of 5.5% as part of our broad strategy of refinancing to take advantage of low interest rates. A charge of $23 million was recorded in the quarter related to retiring the older debt.

Lastly, as we continue to proceed with our share repurchase program, through September 30, we have repurchased 3.6 million shares for US$129 million.

Now let me turn to the results for the quarter. Revenue for the quarter was up 8%, with organic revenue growth across all segments. Operating profit increased 6%. The increase in revenue is comprised of 4% organic growth, 3.5% from acquired businesses and about 0.5% from exchange.

The 6% increase in operating profit for the quarter was somewhat tempered by the aforementioned increases in corporate expenses, as Dick said, primarily related to pension expense and certain items in Learning, as I talked about, which tempered the flowthrough of revenue.

Now I will discuss the individual market group performances, starting with Legal & Regulatory. In Legal & Regulatory, revenues increased 7%, with organic revenue growth amounting to 4%. Acquisitions contributed 2% and exchange about 1%. The growth was driven by a 12% increase in online revenue, supported by a 9% increase in Westlaw U.S., with strong growth across all of its segments.

Online revenue growth was also strong at our international operations and at Checkpoint. Software and services revenue was flat, primarily due to a decline in Elite's revenue, somewhat offset by strong growth in FindLaw and Thomson Tax & Accounting software products. Print and CD revenue rose 4%, due to some shift from the fourth quarter to the third quarter and increased volume.

The operating margin increased 100 basis points to 28.7%, primarily due to the higher revenues. Learning's third-quarter revenues increased 8%. Organic revenue increased 3% and the underlying organic growth was 5%. Acquisitions accounted for 4% of the revenue growth, and exchange contributed 1%.

In academic, the revenues increased overall 5% in the quarter. Growth in global higher ed, which was up 3% for the quarter and 7.5% year to date, is driven by higher textbook sales, custom publishing products and higher English language training sales. We anticipate the higher ed market this year will grow between 4 and 6% for the full year, and we expect to be at the higher end of that range or possibly even exceed the market.

Library reference revenue increased 5%, benefiting from strong international electronic sales. E-testing and corporate e-learning revenues increased 18% in the quarter, primarily due to acquisitions made last year and some growth in professional testing.

For the quarter, our Learning operating profit improved 5% to almost $250 million, but was impacted by the termination of the UK driver's license contract, which represented $6 million in the prior quarter and some expense timing. However, year to date, the operating margin was flat. This is despite this $22 million impact from the loss -- the cumulative loss of the driver's license contract and a $9 million impact from acquisition reorganization costs. The underlying year-to-date margin was 14.5%, and this compares to the 12.7% of a year ago.

Thomson Financial's revenue increased over 4% for the quarter, all organic. As you may recall, we recorded some onetime revenues in the third quarter last year. Excluding these onetime revenues, underlying organic growth was about 8% -- 6%, rather, and this is consistent with the run rate that we have had over the past three quarters.

Revenue growth was driven primarily by higher transaction volume at TradeWeb and Omgeo, strength from the corporate group and continued strength from Thomson ONE's suite of solutions. The organic growth was 4% in Europe and 9% in Asia. Third-quarter operating profit increased 6% to $85 million, and the operating margin increased 30 basis points to 17.9%.

Let me point out that the nine-month operating profit from last year included this $19 million in insurance recoveries. Excluding the recoveries, year-to-date 2005 operating profit increased 22% on an underlying basis, and the margin rose 140 basis points from last year's 14.6% underlying margin.

Thomson Scientific & Healthcare revenues increased 17%. Organic revenue was up 5%, primarily on the strength of continued growth at Thomson Healthcare, with the balance largely related to acquisitions. In the Scientific area, revenues grew 23%, primarily related to the IHI acquisition completed in the fourth quarter a year ago, but also supplemented by higher subscription revenues for the Web of Science.

Thomson Healthcare achieved revenue growth of 12%, led by strong demand for healthcare decision support products, demand for hospital electronic databases and solid double-digit growth in continuing medical education. Adjusted operating profit increased 17% to $48 million, due to the revenue growth. And margin improvement in the quarter was dampened a bit by a catch-up in acquisition-related software amortization related to the IHI acquisition and due to the timing of certain marketing costs.

Now let me turn to several metrics that we believe measure the success of our long-term strategies. Growth in constant currencies for the quarter was 7%, the same as the prior-year period. For the year to date, electronic products, software and services, which exclude print, comprised 69% of our revenue base, versus 67% of a year ago.

In addition, two-thirds of our revenue is recurring in nature, providing stability to our business model. We continue to look to electronic solutions and services as the key components to driving organic revenue and increasing our recurring revenue stream.

Operating profit margins have shown continuous improvement over the past four years. For the first nine months of the year, the operating margin declined slightly for the reasons I've already mentioned. While we expect a higher level of corporate costs and depreciation and amortization expense in 2005 than 2004, we nevertheless expect margins to be up slightly for the full year.

Spending for capital expenditures declined by nearly 8% in the first nine months of the year compared to the prior year. Our continued focus on capital spending is helping -- in our emphasis on increased efficiencies across the Company, we're focused on reducing the ratio of capital spend to revenue. Year to date, CapEx represented 6.3% of revenue. However, some of this year-to-year improvement is related to timing, and for the full year, we continue to expect capital to be roughly 7% of revenues.

Free cash flow continues to be an important gauge of our performance, and in the first nine months, this was up 12% to $775 million. We expect the full-year growth will be lower than this rate, since some of the year-to-date gain results from timing.

As we discussed at our recent investor day meeting, we expect to see modest gains in days sales outstanding and days payable outstanding, with the bulk of the efficiency improvements behind us. As a result, we will continue to see the flowthrough improvements in cash flow as we grow the business. However, working capital will increase on an absolute basis in conjunction with this growth.

Now, this slide provides a more detailed reconciliation to adjusted earnings and is taken from the supplemental earnings information of the release. The net other income line includes the $23 million charge resulting from the early retirement of the $400 million of debt that I mentioned earlier. The normalization of the Corporation's tax rate represented $15 million in the quarter, and a $7 million tax reserve reversal related to discontinued operations was also excluded.

I would remind you last year's third quarter included the release of $35 million of tax credits related to a change in the UK tax law. Excluding these items, adjusted earnings per share increased 9% to $336 million or $0.51 per share.

Now last month, we redeemed two debt instruments totaling approximately US$400 million, which were set to mature in 2007 and 2008 with rates of 6.9% and 7.62%, respectively. We replaced this debt by issuing a $400 million 30-year bond with a coupon rate of 5.5%. These transactions further strengthened our capital structure. It extended our average maturity on our debt portfolio from approximately five years to over seven years and decreased the average interest on our portfolio to just over 5%.

Now let me turn to the outlook for the full year. As Dick mentioned, we continue to expect to achieve our long-term revenue growth of 7 to 9%. We continue to expect our profit margin to improve slightly compared to last year. Depreciation and amortization is expected to be about 10% higher than a year ago. The full-year effective tax rate is expected to be slightly lower than last year. And lastly, we expect to continue to generate strong free cash flow.

Let me finish by saying that we are pleased with the performance of our businesses and look forward to a solid year. Now I'd like to turn the call back over to Frank.

Thanks very much, Bob. That concludes our formal remarks, and now we would like to open the lines for questions.

(Operator Instructions). Peter Appert, Goldman Sachs.

Bob, you mentioned the margin benefit in Learning from lower bookplate costs. Can you just talk a little bit more about how far along you are in that process, how high you think the margins can go in that business -- and this sound like multiple questions; it's actually all one. The market growth acceleration in '05 -- is that sustainable into '06? Thanks.

Peter, I'll start first with the first question, the margin benefit. In Thomson Learning, first of all, we've worked very hard and we believe we already have probably one of the most efficient learning -- academic businesses in the industry. We're focused on really improving ultimately cash generation of the business, and by being more effective in how we allocate capital to our investments in bookplate.

And so the process we've been going through -- and we've just started this process, actually -- is really, first of all, they are in the process of organizing the business and more centralizing some of the ways we go about procuring outside vendors. But second of all, it's also I would say a deep dive into looking at our product lines and making sure that we're publishing titles that really meet the financial criteria.

So over the long term, we do expect that this will contribute to margin. Now as you know, we amortize these costs over three years, so it takes awhile for that to work through. But there's no reason why we can't see a 1 or 2 percentage point improvement in overall profitability of the business. We haven't really quantified that in terms of a specific objective, but we do know that we can be more efficient in this area.

In terms of the market growth, we and other publishers have seen a rebound in the higher education market from a year ago. I think that we saw this earlier in the year, and I think that we've done a pretty good job in terms of taking advantage of this trend. Whether it's a long-term trend or a short-term trend, it would be really difficult for us to say at this time.

I think that what will be really important as we look to the fourth quarter, as we and all of the higher education publishers, that's a significant part of our revenue and profits, and we're no different than anyone else. And a lot will depend on how we end that quarter. But right now, I think we certainly see an improvement, we see a strengthening in the marketplace, and I think it's just a little too early for us to say whether that would really carry into 2006 or not.

Megan Anderson, RBC Capital Management.

My question actually related to Hurricane Katrina, and I guess any other unfortunate natural disasters like Wilma and so on. You mentioned that you thought Katrina cost you about a penny in the quarter. And I'm just wondering if you can talk a little bit more about the precise impact, whether it was a temporary delay in revenues, whether it was costs and whether these sorts of issues will be ongoing for you for some time, or whether really it was a onetime issue?

Yes, Megan. Dick Harrington. First of all, what cost us a penny in the quarter was really we basically set up some reserves for receivables due from customers that we may never get back in business. So the bulk of that, I think from a revenue point of view, the revenues might have been a couple of million dollars worth of revenues. They will -- as that area comes back, those revenues will gradually come back.

So they weren't -- sorry, the significant items. The significant item was we reserved, again, some receivables, trying to be conservative in the sense that some of these law firms may never get back in business. And that was the bulk of it. There will be some minor impacts the next quarter, but beyond that, it should be immaterial.

Vince Valentini, TD Newcrest.

Your acquisitions to date have been pretty small relative to previous years at only 198 million. Looking forward to 2006, are you still confident that you can deliver 7 to 9% given that about 2 to 3% of that is normally coming from acquisitions and there won't be a lot of fuel coming through the pipeline from stuff you've done this year? Another way, I guess, to spin this question is do you need to make any acquisitions in the fourth quarter in order to be on track to do 7 to 9 next year?

Yes, Vince, I think the -- I think, first of all, we're not necessarily going to give you guidance for next year yet. We usually hold that off until February. But I will say that I think if you remember at investor day, our key is to continue to drive organic revenue growth. And although it's at 4%, we still think we can grow that a little higher.

If we look at the growth dynamics of our business, I've made a comment, but 70% of our business is based on electronic software tools and services, which really are the beginnings of our workflow solutions. If we can get more traction on that, that will increase our organic growth, which will take less pressure off us in the -- will take less pressure off us in the need to acquire, number one.

And number two, those, as I said, for the year to date, those businesses grew about 12%. Now they did include some acquisitions. But a lot of those acquisitions were small taxable acquisitions that basically fit in to help us continue to round out our workflow solutions. So we're -- I'm not going to address our 7 to 9% growth for next year, but I will say, as we said in the investors day, that we're looking to increase organic growth, which will basically take some of the pressure off the acquisitions.

Fred Searby, J.P. Morgan.

A couple quick questions. One is you imply that you are gaining share in the higher ed business, and I was wondered if you could talk about that, and specifically if you strip out everything, what is the organic growth you're expecting this year in the textbook business on the university side? And then a follow-up after that.

Fred, this is Bob. First of all, I guess you could imply that we think we might do better than the market on that, so we might gain a little bit of share. I think our focus more is on where we are to date and where we see ourselves heading.

In terms of the textbook business, the way we report our organized business is similar to the way that the industry does. So when we say we're at 7.5% year to date, it's comparable to others reporting it, which would include textbooks custom publishing, which is an important part of that English language training, and so on.

So from our perspective, as I said, year to date, these elements of our business have grown 7.5%, and that is organic growth. So there aren't any acquisitions in those figures. And obviously, with us at 7.5% through the first nine months, we feel pretty comfortable that we can at least meet the overall growth for the industry and we have every likelihood of exceeding it.

I temper that always by saying, as you know, the fourth quarter represents a significant part of our and other publishers' sales results. And so we sit here and say based upon where we are for the nine months, and we're encouraged by the trends in the industry, we feel that the growth will be so much in the fourth quarter. And we have no reason to really doubt that at this time, but I have to caution that by the fact that that quarter is so important.

So I think that we may gain some share this year. I don't want to really prejudice one way or another, but I think really what we're saying is based on where we see ourselves today, we feel fairly comfortable that we'll have a good year, certainly a better year than we had a year ago.

And I know that you were already asked about the outlook for 2006, but if you look at specifically what's the buzz on state budgets and how it's going to impact the tuition and the financial assistance that appears to be critical in community colleges and driving this business -- what is the outlook there right now?

This is Dick, Fred. I think first of all, as you know, the outlook has improved the last couple of years, and I would suggest that it's going to continue to improve, unless, obviously, something significantly happens with the economy that's going to put the drag on the state budgets. But the states have been adding a little bit more money to both the -- to all their education, which includes the community colleges.

I think after the last downturn, I think many of them, or at least the ones that I'm associated with and I spend some time with, at least in the State of Connecticut, I think they understood that at that particular point in time that they probably cut back a little deeper than they should have in the community colleges. And as you know, I think roughly about 50% is -- whether it's 45 or 55, but roughly 55% of all freshmen and all sophomores in colleges are in community colleges. So I think that the states have realized that they have to be very careful in how they cut back spending.

Douglas Arthur, Morgan Stanley.

Two questions. It looks like depreciation in Financial was down. Therefore, EBITDA in Financial was slightly down in the quarter, which surprises me a little bit. And then I have a follow-up.

The question is?

So I guess the question is Financial looks a little disappointing on the bottom line in the quarter. Am I missing something there?

I don't think you're missing anything in the sense that, yes, it might have been down in the year-to-year comparisons. I think that you have to look at -- I keep saying this all the time -- you have to look at these businesses over an extended period because we could have booked certain expenses in the quarter that we didn't do a year ago. We don't read anything into the performance in the quarter for Financial that would change our expectations of the business and how it's performing. I don't know, I guess that's the best way I can answer at this point.

But Doug, one of the things that Financial has done -- we've asked them over the last couple of years to take a look at what they're capitalizing. So they are probably not capitalizing some of the smaller projects that they would (technical difficulty). To be honest, I don't know what that number is and I can't give it to you, but my guess is that also is impacted.

So certain things that would've been capitalized that would've run through the depreciation line are now running through the EBITDA line. And really, what we did is we didn't want to capitalize anything under $1 million. I didn't like that (ph). So I think that probably also has had an impact on it. That's what you're seeing.

Okay. And then on the Healthcare side, I think you mentioned that the growth was 12%, which is obviously very strong, and I guess I'm just trying to put that in to the context of your comments at the analyst meeting about some of the struggles -- early struggles of Thomson Pharma. So I'm just trying to figure out how all those working parts are working, because the Healthcare number seems very strong in the quarter.

Two things, Doug, on that. First of all, and we're trying not be tricky with this, but Healthcare is really what we provide to the healthcare providers, and then the Scientific side, so Thomson Pharma would be in Scientific. So when Bob said Healthcare, he was talking about our decision support -- I will say our clinical decision support business, which is primarily Micromedex. He was talking about Medstat, which is a business decision support. Those businesses are up in excess of 12%. And then our continuing medical education was up 12%.

So when he's talking about that business, he's talking about those businesses that really provide services to healthcare. On the other side, I think, you know, Thomson Pharma is actually doing well. What it does it takes about a year to get traction in the Thomson Pharma in the sense that we have 18 databases going in, and we're all of a sudden consolidating those 18 databases because those 18 databases we've either owned them or sold them separately or acquired them. They're all priced differently. So you don't get a lot of price advantage your first year because you have to realign all the pricing on this. And then next year, we'll start to see some increases.

What it has done in that business is basically it's increased the renewal rate of those businesses significantly, which is the big benefit we got this year. We're just not going to see the big pop in growth until the next year or the year after.

Paul Bradley, Fraser Mackenzie.

You didn't comment particularly on geographical revenue segmentation and how different markets are going. Certainly you referred to expansion opportunities at the analyst day in some of the overseas markets. I wonder if maybe you could comment on that.

Yes, I think, Paul, we -- well, first of all, I think Bob mentioned at Thomson Financial, where Asia was up 9%, the -- I'm not sure if I actually have the international numbers.

Maybe we can take that off-line and I can ask a slightly different question, then.

Yes, that's great, but I will say it is one of our focuses, but we want to do it intelligently. As we said at investors day, the growth is tailoring those products and services. So I think that -- and again, the real opportunities are basically in the -- well, Scientific is already there. The real opportunities are really going to be in Financial, somewhat in Learning and a little bit lower in Legal & Regulatory, only because it's difficult to do a greenfield in Legal & Regulatory. You have to really do it through acquisition.

Well, in that case, I'm going to be cheeky and ask a second question. Just on Thomson Financial, you obviously spoke about the workstation rollout at Merrill Lynch. I just wonder what other large-scale opportunities you see available in that market now, particularly given that you seem to have a dominant position with retail workstations.

Well, we have a lot of the major customers, but all our customers at this date have not moved up to the Thomson ONE. We still have some of the old ILX products with the workstations out there. And so hopefully, we'll be able to basically move some of those up. Now with Morgan Stanley, we renewed our contract to supply data, for instance, and hopefully that as they continue to look at what they want to do with their desktop workstation, we will have the opportunity to move Thomson ONE in there.

Okay. And that's off a similar scale to Merrill Lynch, then, potentially.

Yes, pretty close.

Mark Braley, Deutsche Bank.

I wonder if you can just help me on Thomson Financial. You gave us an organic growth rate of 4%, or of 6% sort of excluding the one-off benefits in the quarter last year. You've also said that growth was driven by the transaction-related products. Can you just give us a feel for if you take your workstation revenue as a whole, so Thomson ONE and the legacy products, did your workstation revenue grow in the quarter year on year organically, or was all of the organic growth actually from TradeWeb, etc.? Thank you.

No. All of the organic growth was not from the transaction businesses. There was organic growth from our -- I would call them service businesses as well. I think that obviously, TradeWeb, as you talked about, is -- we've experienced some very good growth there, some significant growth. But when we look at all of our businesses across that organic growth rate of 4% that we talked about -- 6% if you take out, as I said, the prior-year one-off -- that is -- all of the businesses grew organically. Some grew at higher rates than others. But the all grew organically.

Sure, okay. Just as a follow-up, can you give us the total workstation count for both Thomson ONE and legacy?

Yes, the Thomson ONE is up to about -- as of the end of the quarter, they are up to about 108,000 workstations.

And legacy?

Well, let me give you the -- the total is roughly 210,000 workstations. And really the big switch -- they are up slightly from -- I would say from last quarter, up slightly from the end of the year. The real key is, as you know, we're really trying to drive the legacy workstations up to Thomson ONE workstations, and that's what -- on a Merrill Lynch, we don't gain a lot because we had the legacy workstation in there, as far as total. But we're up to 108,000, and that's up about, as we said, up about 30% from the end of the year.

Andrea Horan, Genuity Capital Markets.

I just wanted to understand some of the unusuals in the Financial segment a little better. You talk about 19 million of insurance recoveries in the first nine months. If I recall, 14 million came in Q2. So can you confirm that the balance of 5 million came in Q3? And is that part of the 9 million of unusual revenues that you referred to when you were talking about the difference between 4% growth and 6% when you exclude some of the onetime revenues last year? And what were the other revenues related to?

Andrea, the $19 million that we talked about all occurred in the first half of the year. So (multiple speakers)

Okay, so none of that is in the --

None of that is in the third quarter, but it all is in the first. The revenues we're talking about had nothing to do with this. They have to do with onetime revenues received from customers a year ago during the quarter -- non-recurring.

Can you highlight what that was related to?

Well, it was related to a couple of customers who changed their service and actually -- and they had a -- they paid us a fee for changing their service. So a onetime, okay?

Jeff Fan, UBS.

I have a question on the Legal & Regulatory segment. It looks like your organic revenue growth was 4%, which is pretty much in line with last quarter. But what's interesting is that print's up again this quarter, up 4%, whereas software is flat. Can you just talk about why software and services was flat and print was up, and how we should look at those two subsegments in the future?

Jeff, first of all, software was flat, as I mentioned, because Elite is a software services business, and so they sell installations, and their revenues are really not recurring. I mean, a large part of them are onetime. And so there is timing from quarter to quarter, and Elite revenues, which are a large part of the software service business, were actually flat and down a little bit in the quarter. And that's what caused that.

In terms of the print products, we had a couple of factors. One, as I mentioned, that was a little bit of timing that moved from -- print product from Q4 to Q3. And the second thing is that sometimes we do have great products that are not published on a regular cycle. They're published every two or three years, and we happened to have some of those products in the quarter. So that's what drove the volume relative to a year ago. I think that we don't see any significant change in the trends of print, which are, long term, flat or just slightly declining. We don't see any long-term trends in software services that we'd say isn't a growth business for us.

So I guess you feel pretty comfortable about the pipeline on the software and services side heading through the rest of the year and into '06?

Well, we anticipated that we would have a bit softer year this year after the prior year.

If we take our year-to-date on our -- software and services is more than just one business, because we have it, obviously, in the Legal; we have it in Tax & Accounting; we have the other services. Our software services for the year to date went up 11%. It's just that the quarter was a slow quarter.

Okay, that's helpful. Thank you.

So we're not concerned about it going forward.

Lauren Fine, Merrill Lynch.

Thank you, and I apologize. I came on late, so some of this has been asked. But on the expense side, a couple of related questions. I'm trying to understand the indication you made on some of the timing of expenses of both TL and TSH, and specifically if you can quantify the impact of the acquisition-related software amortization at TSH.

And then I don't know if somebody already asked, but I guess your D&A guidance for the year still doesn't make sense relative to where you are year to date, and I'm wondering if that's something that you're in the process of revising?

And then one last -- related costs. At Thomson Financial, was there any impact from the completion of the Merrill Lynch contract that might have hurt the margins or EBITDA in the quarter?

I'll start first with Thomson Scientific & Healthcare. What we had in the quarter was -- when we make acquisitions, really at the time of the acquisition, there's an assessment of the purchase price allocation between goodwill and intangibles and those (ph) intangibles and also software, what -- you allocate the values of the businesses.

What we found in the quarter -- this is related to the IHI acquisition -- was, in fact, that we had not allocated enough to actually amortizable software, which is in the P&L. And so we had an impact in the quarter of about $2.5 million of a catch-up for that.

In terms of the depreciation and amortization, what we actually had in the quarter was likewise an adjustment where we had been overamortizing some intangibles that really should have been in goodwill. And so what we had was a catch-up there.

And so those things are not unusual. And it certainly doesn't change our outlook for the full year; it's just one unusual adjustment -- in both cases, by the way -- in the software in Thomson Scientific & Healthcare and also in depreciation and amortization.

In Thomson Financial, there were no unusual costs as a result of rolling out the Merrill contract that would've impacted us in the quarter other than to say that we're at full run rate now in the business. So the answer would be that's not -- it had nothing to do with Merrill Lynch.

But to the degree that there was some, I guess, speculation that maybe it was a lower-margin contract, are we finally seeing the impact of that?

The answer is it is not. First of all, no, the answer definitely is not. It is a margin that's consistent with the rest of the business. It wouldn't drag down the margins of the business.

And then, Bob, I'm just curious. Can you quantify, as you just did for the software-related amortization for TSH, what that catch-up was in the total amortization line?

I think it was $5 million. I'm sorry. I think it was about -- it was $5 million in the quarter.

Great, thank you. Oh, can I just squeeze in one last one?

Yes, sure.

The decline at Elite that you mentioned -- any insight into what's going on there and whether that's changing?

Yes, what was going on with Elite is we're coming out -- like all these software products -- yes, we're going through some transitions in the business, and I think the -- so it's kind of a normal process as they continue to basically retrofit the business. So it's not something that we're necessarily concerned with. It's the software business, and we will basically -- and we expect it to get back to normal growth next year.

Okay, and just to be clear, Bob, back on the D&A, do you still expect reported D&A to be up 10% for the year, or do we need to take all these catch-up adjustments into account and assume the underlying was up 10%?

I think the way we have positioned it and the way we think about it right now is that we still think it's going to be up 10% because we still have a catch-up to do in our fixed assets as well. So it will offset the other.

Okay. I think that will conclude our third-quarter call. We'd like to thank you all for joining us this morning. And we'd be happy to answer any follow-up questions you may have.

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