Thomson Reuters Corp (TRI) 2006 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Thomson second-quarter results conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. 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 our host, Mr. Frank Golden. Please go ahead, sir.

Good morning and welcome to The Thomson Corporation's second-quarter earnings call. Those of you listening should have a copy of today's earnings release and related slides, which are posted on our website. If you do not have a hard copy, you may obtain one from our website at Thomson.com.

We have a lot to cover today. We will begin with Dick Harrington, our President and CEO, who will take us through the second quarter's highlights. Dick will then update us on how the Company is performing against the strategic priorities that we outlined back in February.

We mentioned last quarter that we would have more to share with you regarding our infrastructure optimization program, and Dick will discuss the strategic rationale and anticipated benefits related to this new and important program, THOMSONplus. Bob Daleo will then discuss the THOMSONplus program including the estimated annual costs and savings, and will finish with a review of the second quarter's financial results.

Given the amount of information we will be covering and our desire to devote sufficient time for your questions, we will not cover several of the financial metric slides that we typically discuss each quarter. However, these slides are posted on our website. We ask that you limit yourselves to one question each, to enable you us to get to as many questions as possible.

One housekeeping item before we begin. This quarter's discontinued operations line includes the two new disposals we announced today, one in TLR and one in TSH. These businesses generated revenue of $136 million last year and had operating income of $17 million. There are now eight businesses included in discontinued operations. Two sales were completed in the second quarter.

The 2005 revenue for these eight businesses was $355 million with operating profits of $36 million and EBITDA was $52 million. For the quarter, operating income for these businesses was $17 million and EBITDA was -- excuse me; EBITDA was $17 million and operating income was $13 million.

The following discussion contains forward-looking statements that relate to the future results and events and are based on Thomson's current expectations. Actual results may differ materially from those 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, and we have provided a reconciliation of each of these measures to the most widely comparable GAAP measure in the investor relations section of our website found at Thomson.com.

Lastly, posted on our website are the quarterly 2005 reclassifications to reflect the discontinued operations. I would now like to introduce the Company's President and CEO, Dick Harrington.

Thanks, Frank. Good morning and thank you for joining us as we report our second-quarter results. I plan to address three topics this morning. First, I will discuss our strong second-quarter results and the positive momentum we have seen in the first half of this year. Next, I will report on the progress we have achieved related to our priorities which I outlined earlier this year. Third, I will discuss the Company's new infrastructure optimization program, THOMSONplus.

Let me start with a few second-quarter highlights. Second-quarter results reflect continued strong top-line growth. Revenue was up 7% and organic revenue was up a healthy 6%, following a 7% increase in the first quarter.

Legal & Regulatory was a standout this quarter. Its organic growth was 8%, building on a 7% increase in the first quarter. I'm sure those of you who recently attended the North American Legal Investor Day have a better understanding of the terrific job the management team has been doing. They have a deep knowledge of their customer workflows, and they're redeploying solutions that help customers be more productive. At the same time, they are expanding from the traditional legal research business into adjacent vertical segments in the legal industry, including the business of law.

The key driver of Legal & Regulatory's organic growth was a 12% increase in revenue from electronic solution software and services. This same approach is being employed across each of our business segments with increasing success. We are confident that Thomson will continue to deliver solid organic growth.

Our strong revenue growth was the primary reason for a 15% rise in operating profit and a 100 basis point increase in the margin. Both of these numbers include $15 million of costs related to THOMSONplus. Excluding these THOMSONplus costs, operating profit was up 21% and the margin rose 170 basis points.

Greater operating leverage across the businesses is also contributing to margin improvement. That was particularly true at Thomson Financial this quarter, which recorded a 23% increase in operating profit. Although these profit and operating margin increases are encouraging, we believe there is still opportunity to improve efficiencies and expand margins as we move forward with our THOMSONplus initiative.

Finally, our adjusted earnings of $0.34 per share versus $0.23 per share last year reflect good top-line growth, greater leverage in the businesses, stable interest expense, and a favorable tax position.

I will now discuss our progress related to our priorities. As you know, our first priority is growing organic revenue and operating margins, while increasing our free cash flow and ROIC. We made solid progress during the first half of 2006. 7% organic revenue growth and a 150 basis point improvement in margin are the direct result of executing well on our strategy, coupled with a heightened focus on allocating capital where it will drive organic growth. Free cash flow is up 10% the first half of the year, and ROIC continues to improve.

We continue to make good progress on our second priority, portfolio optimization. Last year we began a rigorous analysis of our portfolio of businesses and capital investments. The goal was to target and invest in businesses with the highest potential for organic growth and superior returns, while disposing of businesses that no longer fit our long-term strategy. This analysis led to modifications in how capital is allocated and the announcement of several divestitures.

Let me remind you that capital expenditures as a percentage of revenue is expected to decline again this year to around 7% with an increasing portion dedicated to growth and efficiency projects.

Thus far in 2006, eight businesses have been sold or are in the process of being divested. Included in the eight are two disposals we announced today, IOB, a Brazilian tax and accounting publisher, and our Medical Education businesses. Last year, these eight businesses represented 4% of Thomson's revenue. Although they are good businesses, they no longer fit our long-term strategic goals. As I have said before, portfolio optimization is an ongoing process.

Our third priority is implementing our infrastructure optimization program. I believe Thomson is well positioned to implement significant new growth strategies during a period of already strong performance in which organic revenue growth is strong, and operating margin and free cash flow are at historic highs.

Building on this foundation, we have embarked on a new initiative, THOMSONplus, the goal of which is to drive higher sustainable growth and further improve profitability.

Over the past five years, we have driven a single business model across the Company and have been able to achieve greater leverage. In addition, as we integrated acquisitions, we developed efficient cost structures within our businesses. This contributed to a 500 basis point increase in operating profit margin over that period.

We are now entering the next phase of our evolution, toward becoming a fully integrated operating Company. We will further align the Company's businesses with our strategy across the entire organization. This will result in expanded opportunities for growth as well as significant savings.

Over the course of the past nine months, a dedicated team has analyzed data from each of our businesses to gain a better understanding of where our performance is held back by redundant or overly complex structures and systems. In doing so, we have identified numerous opportunities for improvement. Based on this research, we are now launching THOMSONplus companywide.

THOMSONplus is a multi-year series of initiatives that will accomplish three objectives. First, it will transform infrastructure, business processes, and functions to facilitate growth while simultaneously becoming more customer-focused.

Second, it will integrate systems and processes across the Company.

Third, it will result in higher revenue and profitability, translating into improved free cash flow and ROIC. Simply put, THOMSONplus is about simplifying our business, improving quality, reducing costs, and generating new revenues.

Bob Daleo will take you through the details; but let me say that I am excited about the opportunity we have to strengthen The Thomson Corporation's position as a world-class information services provider.

In conclusion, we are executing well on the three priorities we set out earlier this year, and although there is more work to be done we are on the right path. I am very pleased with the Company's operating results for the first half of the year. Organic revenue is strong, margins are rising, and free cash flow continues to increase.

We made very good progress with our portfolio optimization program, which is helping to focus resources and align businesses to help drive growth. We are moving forward from a position of strength, and we understand what is required to take Thomson to the next level as a well-integrated operating Company. I am confident we will be successful. Now let me turn it over to Bob Daleo.

Thank you, Dick, and good morning, everyone. I would like to begin this morning by picking up where Dick left off, discussing our infrastructure optimization program, THOMSONplus. Now, THOMSONplus is not a restructuring or downsize. It is a series of initiatives to further drive effectiveness and efficiency. Finance+ will focus on the finance accounting and business systems organizations and back office functions worldwide. Tech+ will focus on consolidating technology infrastructure and streamlining technology operations. Customer+ will focus on transforming our customer care experience. And Efficiency+ will focus on various initiatives at the business units.

Let me be more specific on where the efficiencies I just referred to are coming from. First, these initiatives will include consolidating operations, facilities, processes, and systems, and the establishment of shared service centers, in some instances utilizing low-cost locations.

Second, to facilitate much of these efforts we plan to roll out an enterprise resource planning system, SAP, over the course of the next two years across the entire organization. SAP was rolled out three years ago by our North American legal segment, and it has experienced firsthand the benefits associated with utilizing such a system. It has been a real success.

Third, we will drive technological integration across the Company. We will continue to consolidate data centers, take better advantage of scale, and leverage products and systems innovations.

We do anticipate some headcount reductions, but do not expect them to be disruptive due to the natural growth of the Company, and retraining and redeployment efforts across the organization. This is about optimizing, not about maximizing.

Let me provide you with some details on the opportunities associated with each initiative. Finance+ provides some significant opportunities across the Corporation. There are currently 4,000 financial professionals across the Company and across the globe working with many disparate systems and technologies. This provides an opportunity to streamline processes, minimize redundant activities, and achieve significant cost savings.

The Finance+ opportunities include, first, standardizing to a common process across the Company. Second, implementing an SAP ERP system and a COGNOS planning system across the Company by the end of 2008. Third, consolidating certain accounting activities to shared service centers and, in some instances, establishing low-cost global shared service centers. This initiative is underway, and we expect to realize some benefits this year.

The Tech+ opportunities include, first, sharing and leveraging data centers and network infrastructures. Second, rapidly taking advantage of technology advances across the Company that can be applied to improve effectiveness of ongoing operations. Third, capitalizing on Thomson's overall scale for service, storage, and support. This initiative is just beginning and will allow us to take a broad view across many areas such as networks, data centers, service, storage, and desktop support. It represents a substantial opportunity.

The third component of THOMSONplus is Customer+. Customer+ will transform our customer care experience, ensuring we consistently provide superior care to each customer at a reasonable cost. Today, our customer care centers support numerous major transaction types across the enterprise with multiple technologies.

There are significant opportunities to improve the effectiveness and efficiency of these operations, including, first, employing process standardization across the Company. Second, leveraging infrastructure and technology. Third, taking advantage of opportunities to create scale wherever possible. The Customer+ initiative will be launched shortly.

The fourth initiative is Efficiency+. Efficiency+ is a collection of business initiatives driven by the Corporate strategy, designed to promote operational efficiency. Several of the opportunities include realigning sales forces and client service organizations; consolidating production groups and closing several offices; and taking advantage of editorial and product development efficiencies.

Now let me turn to the estimated costs and savings associated with the THOMSONplus program. The THOMSONplus program is expected to generate total savings of approximately $300 million over the next three years. By 2009 the project is expected to generate run rate savings of about $150 million per year. Savings will largely come from the areas I have discussed and are highlighted on this slide.

The costs associated with the program are estimated to be $250 million over the same period. Because THOMSONplus is a series of initiatives, the precise timing of costs and savings is difficult to predict. However, based on our current planning, we expect pretax costs to be about $70 million this year; $100 million in 2007; $50 million in 2008; and $30 million in its final year, 2009.

For this investment, we expect to generate $10 million worth of savings this year; and these savings are expected to grow to $50 million by next year; $90 million in 2008; and achieve the $150 million run rate by 2009.

Now let's turn to the second-quarter results. But before I delve into the numbers, there are two more items I want to point out regarding THOMSONplus. First, each quarter we will provide operating profit and margin information on a reported basis including THOMSONplus-related costs, and on an adjusted basis excluding these costs.

Second, it's important to note that THOMSONplus-related costs are booked in the corporate expense line; but we will break them out for you each quarter.

Now to the numbers. On a consolidated basis, revenue in the quarter rose 7%; 6% was organic growth; 1% contributed to acquisitions; and foreign exchange really had a negligible impact at the Company level.

Operating profit increased 15%, and the margin rose 100 basis points. Excluding THOMSONplus costs, the operating profit rose 21%.

Corporate costs were $49 million versus $27 million a year ago. THOMSONplus-related costs comprised $15 million of the increase; and this is related to consulting and some severance expense. And $7 million was primarily related to higher pension costs.

On a year-to-date basis, revenues increased 7% and operating profit increased 23%, excluding the $25 million of THOMSONplus-related costs.

Now let's turn to the individual market group performances. Following a strong first quarter, as Dick pointed out, the Legal & Regulatory segment's revenues increased 9% -- 8% organic and 1% acquisition. Online revenues rose 12% driven by strong demand for legal, tax, and accounting solutions. U.S. Westlaw revenue was up 9% driven by a 38% increase from Westlaw Litigator. Thomson Tax and Accounting's Checkpoint solution saw revenue rise 25%. This was the 14th consecutive quarter-over-quarter growth in excess of 15% for this product.

Software and services increased 15% driven by strong growth from Tax Accounting's UltraTax and InSource software products. Print and CD revenue declined by 2% primarily due to shipments which were shifted to the first quarter. I should note that print will comprise a larger portion of Legal & Regulatory's total revenue in the second half of this year.

Segment operating profit grew 13% and the margin rose 100 basis points. Year to date revenues also grew 9%, while operating profit expanded 12%.

The Learning segment grew 5% in the quarter -- 4% organic and 1% exchange. Global higher education was up 6%; and both library and records and corporate e-testing grew 5%. Operating profit in the quarter nearly doubled off a small base to $13 million, primarily due to the top-line growth.

Year to date revenues increased 7% primarily from the strong higher education performance; and the segment operating loss declined by 11%. I would remind you that due to the seasonal nature of the higher education business, revenues and profits for learning are primarily realized in the second half of the year. However, given our year-to-date results, we are encouraged about the prospects for the second half.

The Financial segment continued to show good growth, increasing 6% for the quarter. This was driven by organic growth of 5% and 1% from acquisition. We achieved balance growth across nearly all of our customer segments and geographic regions. Our integrated solutions continue to do well across the marketplace, as we further enhance content sets, features, and transactional capabilities.

New sales of Thomson ONE for investment management and Thomson ONE corporate continued to do well. Our transactional and trading platforms, Omgeo, AutEx, and Beta, continued to show good growth, rising double digits. TradeWeb was dampened this quarter due to the yield curve dynamics affecting both treasuries and mortgage-backed securities.

International growth continued with Asia up 14% off of a small base, and Europe continues to strengthen, up 6%. Both of these are organic growth rates.

Strong revenue growth and good flowthrough led to a 23% increase in segment operating profit and a 240 basis point margin improvement. Year to date revenues increased 6% and segment operating profit increased 22%.

Scientific & Healthcare revenue increased 6% -- 5% organic and 1% from acquisitions. The increase in organic growth was largely driven by a 13% increase in information solutions, which comprise nearly two-thirds of Scientific & Healthcare's total revenues. Scientific revenue increased 8% led by strong demand for Web of Science products and Thomson Pharma solutions. Thomson Pharma's revenue increased double-digit in the quarter; and customer seats have nearly doubled since the beginning of the year.

Healthcare revenue increased 3% -- 1% organic. Healthcare decision support solutions continued to grow by double digits, but were negatively affected by a 17% decline in print. This was largely the result of the timing of a PDR release, which moved from the second quarter last year to the third quarter this year.

Segment operating profit expanded by 9%. Year to date revenues were up 5% and operating profit increased 13%.

The six-month revenue breakdown is reflected on this slide. Excluding the effect of exchange, revenues were up 8%, with organic growth of 7%, compared to 3% in the first half of last year. We feel confident that organic revenue growth will continue to exceed the rates we reported last year and we will continue to show good year-over-year growth.

Turning to free cash flow, a strong operating income, stable capital expenditures, effective working capital management, and lower tax payments all contributed to a 10% increase in the year-to-date free cash flow. This is despite the fact that we spent $25 million on THOMSONplus-related initiatives.

Earnings attributable to common shares were $171 million, compared to $301 million in the prior period. You will recall that last year's number included the release of some $137 million in tax credits.

On an adjusted basis, second-quarter earnings increased by 48% from a year ago. These adjustments include THOMSONplus costs and related tax impacts; the normalization of the tax rate; the aforementioned onetime tax credit in the second quarter of last year; and the effect of discontinued operations in both years. After these items, adjusted EPS rose to $0.34 from $0.23 for the prior year.

Given our results for the first half of the year, we are reiterating the full-year 2006 guidance that we provided in February. With a positive overall economic environment and our efforts to increase organic growth, we believe we will maintain our positive earnings momentum for the remainder of the year.

Let me point out that electronic solutions, software, and services comprised 75% of revenue for the first half of the year, and print was 25%. Print is expected to comprise about 35% of total revenue in the second half of the year, with higher print sales coming from higher education, Legal & Regulatory, and Healthcare groups. This may somewhat dampened second-half top-line growth; however earnings will continue to remain strong.

As we noted last quarter, some onetime tax benefits associated with a change in state taxes resulted in an unusually low effective tax rate for the first half of the year. We still anticipate our effective tax rate to be in the low 20% range for the full year. We continue to expect net acquisitions will be in the range of 2 to $500 million.

Now let me wrap up by saying we are very pleased with our performance for the first half. Our strategy of focusing on electronic solutions is taking hold and giving us good momentum as we move through the balance of the year. We are seeing real progress with our ongoing portfolio optimization program, and we expect to see the proceeds from a number of disposals this quarter.

Lastly, THOMSONplus is indicative of the Company's continued strategic evolution and our focus on long-term value creation. It will help enhance top-line growth while improving profitability, free cash flow, and returns. We're looking forward to the positive changes it will bring in driving growth and returns across the Company. Now let me turn it back to Frank.

Thanks very much, Bob. We would now like to open the call for questions. If I can remind you, we would appreciate if you would try to keep to one question so we can get as many in as possible.

(OPERATOR INSTRUCTIONS) Lisa Monaco from Morgan Stanley.

Hi, Bob. Could you just collaborate on the THOMSONplus, on the investment spending side and the cost side by segment, in terms of how we should think about the margin impact for each of the segments over the next three years? Thanks.

Lisa, thank you for getting that question out of the way right up front. I knew someone would ask it.

It is THOMSONplus for a reason, that we are really thinking about it as a Company perspective. I think is a fair question, and I think that as we go forward and have articulated this clearly throughout the organization we will share that information with you.

At this point I would like to say that you should just plug it at the top line until we are prepared to share that further down. I think that the reason for that is, as I said before, this is not about a restructuring; it is not about taking out 5,000 people. It is about a number of initiatives across the organization in various stages.

I think you can respect the fact that we have not articulated all of those in the same level of detail throughout the organization. So I think at this point, we would just leave it at the Company level for now.

Lauren Fine with Merrill Lynch.

I am wondering if you can quantify in any way the impact of the timing that you indicated in Thomson Legal & Regulatory with the bar review; and similarly (indiscernible). You indicated a timing issue TSH with the PDR.

Then just finally if you could talk about Reuters' strong growth. If you were to kind of slice and dice their comparable businesses to yours, how do you think your respective growth rates looked relative to each other?

In terms of the PDR, it is about $2.5 million worth of revenue. In terms of bar review, I don't really have that number in front of me right now, but I will get back to you, Lauren. We will post it to the website.

Okay.

Is that okay?

Yes.

And the last point I am going to turn over to Dick.

Lauren, in the Thomson Financial as we look at Reuters, as we can compare them, because they are not -- because we align our businesses slightly different than they do. But we have had very strong growth in the investment management, investment banking, corporate marketplace, in kind of the high single teens. That is really where our business is focused, and we are pretty happy with that.

So I think we are probably slightly ahead of them in the areas that we are primarily focused. And overall, we had the 6% growth, and we are pleased with it.

But I think IM, IB, Corporate, the whole buy-side is our focus and we are very -- we have been very pleased with our growth. It is high single digit, except for retail wealth management which is roughly flat, and that is because of the size of the product.

Would you characterize them as becoming more competitive, or is it a pretty steady-state?

In which marketplace? All of them?

Yes, the ones that you compete head-to-head.

Yes, no, I think -- well, it's (indiscernible) our competition in that space is dealing with Bloomberg FactSet and others. Reuters is in that space, but not at the same size as some others; other than retail wealth management.

Great, thank you.

Peter Appert from Goldman Sachs.

Dick or Bob, back to Lisa's question for a second. I guess it would be helpful if you could help us understand how to think about how these cost savings might impact, for the Company as a whole, the target operating margin over the next couple of years. So specifically should we be assuming that, if you can get $150 million benefit on a run rate basis in '09, then the operating margin might be up, call it 100, 150 basis points higher than what analysts might currently be anticipating?

Peter, that is a fair question, and that is a good answer; yes. Yes, I would say that we would target that if we are talking about $150 million off of a base that is effective about 750, which represents 10% of our overall cost based, roughly. So yes, and that would translate to about 1.5 points in margin.

Excellent. Okay, so it's all incremental?

Yes.

That's great, thank you.

Andrew Mitchell with Scotia Capital.

Probably really following up on that, I was curious, Bob and Dick, you appear to be very confident in the $150 million savings and obviously believe they are there. I just wondered if -- talk about if there could ultimately be upside to that target.

I apologize, there's a linked question to that. I just wondered if you're also prepared to talk about a reasonable free cash flow margin target for the Company looking out to 2009, considering you're at 15% last year, about 15% last year in free cash margin. You have got natural operating leverage coming through; and this program should add at least 100 basis points by that kind of time frame to your free cash margin. So I wondered if you had any internal free cash margin target you can share with us.

Let me take the one on the upside, Andrew. Yes, we think the programs that we [put] in place under THOMSONplus now are an initial set of programs and we are very pleased. But we would feel that, as we sought to execute these programs, we would expect to see more opportunities to make some changes and improve efficiency within the organization.

So the first one is yes, we think there is some upside, but we just have not quantified it yet. Because these are four different programs; and as you can imagine, we want to make sure that we basically -- since a couple of these are across the complete organization, we want to make sure these are implemented, in place, and we are full focused on those.

So the answer to the first is we would expect upside on these programs as we go out to the '08, '09, and even further on. The free cash flow margin, I will put it over to Bob.

Thanks, Dick. Andrew, as we have talked, our objective is to continue to drive efficiency and effectiveness across the Company. So I would start by saying that we'd like to think that the 15% margin is a stop along the way and certainly not the endgame.

Part of the THOMSONplus efficiencies and part of where we are seeing some of the efficiency in cash generation is not only in the operating margin but also in capital expenditures. We would expect to see continued efficiency there.

So do we have a target that I would share with you? I would say certainly it is north of 15%. Ideally if you are running this business efficiently, you could see your cash flow margin and your operating margin coming together at some point.

Now whether that happens in the next year or two -- certainly not in the next year or two. But certainly you could see over time where you would like to see that converging.

Today we are not quite there yet. But to the extent you look at our operating margins; and I would say not adjusted operating margins but operating margins for the Company, that I do think that we have every opportunity to close that gap quickly as we move forward.

Andrew, just to follow up. I think you have heard me say before that our goal is to get operating margins up or over the 20% range, and we are driving towards that.

Thank you.

And as Bob said, hopefully free cash flow will comes close to matching it.

Michael Meltz with Bear Stearns.

Two questions on THOMSONplus. Can you just talk about in sort of rough percentages the $250 million of costs? Just how should we be thinking about -- ? You mentioned these systems, you mention SAP, I assume there is some severance and facility closures. Can you just talk about how you are getting to those numbers?

Then secondly, in terms of the guidance and the reported numbers you are going to be giving, are you going to be taking out these expenses in your normalized numbers and including the savings? Or how should we be thinking of that?

Mike, I will answer the second question first. As you know, we don't give guidance on earnings per share; and so, that is not an issue for us. We do try to give you guidance in terms of margins. Since -- what we will do is characterize, just as we did in this visibility slide, show what the margins are with and without THOMSONplus. All right? So that is the only area where we would do that.

And we are doing it, really, only because we want to provide the clarity and transparency on this program to you. The savings are in the operations, for sure. But they also represent a change in the run rate of the business which I think is important to highlight in our quarterly financials. It is a way to track how we really are performing.

But when you are going to give -- you're saying growth excluding these costs, you are including benefit?

Absolutely.

Okay.

In terms of the characterization of the cost, think about them this way. About 25% of these costs are what I would call a traditional -- what we would call and identify as traditional restructuring, rather, from a reporting perspective. In other words, severance, lease terminations, things like that.

About another quarter comes from this rolling out this unified business system across the organization globally.

The balance or the bulk of it really are these business effectiveness programs. Included in there would be costs like consulting, technology investments, retraining and redeployment, things like that. So that is the way you should think about that.

As we report on these costs on a quarterly basis, as we have done now, we will give you some insight into where they are. Is it severance? Like for example this quarter, it is primarily severance and consulting costs. So we will provide transparency in that regard.

And Bob, related to that, understanding -- I know someone had asked earlier about upside to the savings -- how confident are you that the costs are no more than $250 million?

Well, I'm confident enough to say if there are more costs, there will be more savings.

Fair enough.

David Lewis with JPMorgan.

It's actually Fred Searby with JPMorgan. Not to beat a dead horse, but to understand this. One, a big-picture conceptual. A lot of this sounds like ongoing things that are -- really should be doing day-to-day, not some discrete change in your business. I'm just trying to understand why now. I mean, you have been trying obviously to make more efficient your procurement and supplier and integrate systems for a long time. So I am just trying to figure out why suddenly the labeling as such, and then separating it out.

Then secondly, maybe you answered this; I didn't understand it. When are we going to start to see net savings as opposed to just gross? At what point will these things turn net? If you could just tell us when we should start to see that. Thanks.

Fred, this is Bob. I think that we showed it on the schedule, actually. I thought the schedule I presented, which said by 2008 it should be presenting net savings in the area of about $40 million.

Why we have chosen to highlight this separately is because -- you're absolutely right -- we have over the past number of years continued to drive efficiencies and streamline the businesses. But the bulk of that, vast majority of that, has been within businesses and within market groups.

THOMSONplus is just -- the reason we chose that name is because this really is not about a restructuring; it is about really moving the Company to an integrated operating model. It is about creating shared infrastructure, shared services, that will allow us to leverage growth in the future. Allow us to be more efficient. Allow us to generate products more quickly.

So, it is about changing the way we operate as a Company. It is significant -- it is more significant, I think, internally in how we think of ourselves.

The numbers actually are just the tip of the iceberg. Because we are really talking about taking this Company on a strategic -- we continue our strategic evolution. We have a common business model,. We have a lot of commonalities now, and now we are at a point where we are at the next stage, the natural stage of where we begin to integrate operations to really drive growth and further improve returns.

So for us, it is different. It is very different, and it is a natural evolution, but it is the next stage. We chose to highlight it and segregate it this way, again, to provide the kind of transparency that we think is appropriate.

Okay, thank you.

Andrea Horan with Genuity Capital Markets.

I am wondering if you can clarify the add backs that you did in the quarter. I guess, first of all, with regards to the $15 million of THOMSONplus; break it down between the three general categories that you highlighted.

Then for the $36 million in the tax adjustments, you talked about it briefly, but I am not sure I really understood. Because it looks like you were taking your tax rate for the quarter, from 28% down to 14%.

Andrea, I will deal with the last one first; and I will see if I can get this. The only thing that we do with tax normalization is that we book our tax on a quarterly basis, based upon the flow of income from various jurisdictions. Right?

So what can happen is, to the extent -- and we know the full year. To the extent you have timing of income from different jurisdictions with different tax rates, it gives you a different outcome. So all we are trying to do here with normalization is not to let the swing in tax rates on a quarterly basis influence performance.

What will happen at the end of the year, that will be zero. So it is just what we have done for the past, I think, at least a year, perhaps two years. For the past two years. Simply as a way to remove the swings of either unusually low tax rates or unusually high tax rates in a particular quarter, just based upon the flow of income from our various geographic locations.

So in this particular quarter there would have been an unusual amount of tax coming from higher income jurisdictions?

Higher income jurisdictions, exactly. Higher tax jurisdictions, right. So that is what that does. It zeros out at the end of the year, and it is meant to provide a stable level of tax.

It is not -- it is -- because we know that when people think about our Company they don't think about -- and it's very complex. Then you would have to figure out, you and other people who follow us, not only what you think the earnings would be, but where they're going to come from and what the tax rates are. Frankly, that is not a level of scrutiny that we think that you will be able to do; and we're not prepared to provide that level of information.

This simply normalizes everything along the line. So it will go away by the end of the year, all right? And reverse itself in the second half.

If it normalizes everything, why doesn't normalize to somewhere in the low 20s instead of somewhere in the midteens in this particular quarter?

Well, because we had some unusual items that occurred in the first quarter that are reflected in the -- first half that are reflected in our full year already, that is why.

Okay.

As far as the THOMSONplus numbers, all of those numbers come from our Finance+ program. They all -- they are split between, let's see, primarily between severance and professional fees. Those are the two large areas there.

Okay, thanks very much.

Vince Valentini with TD Newcrest.

Two; but the first one is just real quick. The $250 million, it seems like it's all OpEx. Can you just confirm that there is no CapEx on top of that for THOMSONplus?

Secondly, when (inaudible) EPS estimates -- and Bob, I agree, you don't provide EPS guidance; but you do provide EPS historically. In this quarter, certainly you have shown the $0.34 after adjusting for the $15 million of THOMSONplus costs.

So is that how you would expect us to make our earnings estimates going forward, is on an adjusted basis? I guess we will make the final decision what we want to do. But I'm just curious from your perspective how you think us analysts should be making our earnings going forward now with these new costs.

We only provide that for transparency. You should do what you think is best. I think we manage the business with those costs in there. Not that we pull them apart; we manage it that way. So you should decide how you want to include them. We have never had a view toward that. We have only provided the clarity for it. So it is entirely up to you as an individual to decide how you want to do that.

We will hopefully be giving you enough information so that you will feel comfortable making that adjustment or identifying it. We will share with you both on a quarterly basis; and we will try to at the beginning of the year give you -- if things have changed because of the timing, in our outlook for 2007 we will try to give you better clarification as we get closer to that.

Okay, and on the $250 million, any CapEx?

There is capital expenditures in there; about -- and the reason we didn't -- because the capital expenditures, depreciation, kind of wash out. There is about $75 million of CapEx and the same amount of depreciation in there. So if you think about it, it is just really the same. One number.

So [there's] one 75 OpEx and 75 CapEx, not incremental?

That's right.

Thanks.

Tim Casey with BMO.

Just switching gears a bit, on to your divestiture announcements, could you talk a little bit about the announcement in Brazil? That would seem to suggest you have I guess lowered your expectations or your initiatives to expand TLRG on a global basis.

You have talked in the past about how you look at it as a series of jurisdictions, because you know, you can't export the English language product globally; and some of those markets in continental Europe are difficult to penetrate because there is nothing for sale. But I'm just wondering if we should start interpreting anything with your pullback out of Brazil. Thanks.

This is Dick. First of all, you should not jump to any conclusions because of that. The difference between our legal businesses elsewhere and this one, this business happened to be really kind of an accounting and tax publisher.

When it was originally acquired by TLR the plan was to kind of convert it to legal, convert it to online. And both of those things have been extremely difficult and they think will take an extremely long period of time to make happen.

So with the -- and we find that having a regulatory business without having the anchor legal business, it is very difficult to get growth and profitability. So that is what really -- . It was really a strategic decision for that business in that particular market.

As I think I have said in the past, we still will be opportunistic in the other areas for Legal & Regulatory overseas; but we won't be opportunistic because these are multidomestic businesses.

Thank you.

Jeffrey Fan with UBS Securities.

Just a quick question on the CapEx and the impact of THOMSONplus. I guess as you scaled down some of the redundancies in your businesses, I am just wondering how that is going to impact the CapEx intensity as you look out to 2008, 2009. I know you have given some guidance for this year being at 7%. But how should we look at that a few years out as the program ramps up? Thanks.

This is Bob. I think that we do expect to see efficiencies, and we will continue to drive our relative level of investment, relative to revenues, down. We have said it would be in the 7% range. This should further improve that.

I just don't think I am prepared at this point to put a number on that. I think that we are working through a lot of those things right now.

The savings that we have identified today and we have looked at are primarily operating savings, not depreciation. But we know that there are opportunities there. That is probably one of the areas that we think we can do better on.

So as time goes on, I think it's a fair question, I know it's a fair question; I just don't have the answer that I'm comfortable giving at this time. Other than to say we know it will improve.

Okay, that's great. Thanks.

Amy Glading with CIBC World Markets.

Actually I have a follow-up on Tim's question. Just looking at your portfolio optimization process, and it's been ongoing now. Wondering how far along you are in that process; and if there is any of the four business segments -- which ones would you say you still have room to go as part of that process? Thanks.

Yes, Amy, I think first of all, it is an ongoing process; but it does slow down at some time because we won't have anything left.

I think what it is, is as we continue to look at the businesses, we continue to refine the businesses, and some small businesses even within businesses. So it will continue going on.

You know, at this particular time, we feel comfortable we are making good progress. We may have a few more businesses on our list that we will hopefully announce over the next -- before year end. But other than that, the rest of the stuff would be small.

Okay, good. Thank you.

Okay, that concludes our call. We would like to thank you all for joining us today, and please feel free to contact us if you have any follow-up questions. Thanks.

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