Thomson Reuters Corp (TRI) 2006 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Thomson fourth-quarter year-end results conference call. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session with instructions 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, Vice President Investor Relations, Frank Golden. Please go ahead.

Thanks very much. Good morning and welcome to The Thomson Corporation's full-year and fourth-quarter 2006 earnings call. Those of you listening should have a copy of today's earnings release and related slides, which are posted on our website at Thomson.com.

Let me begin with a few points regarding today's release. This quarter marks the final time we will present the Company's financials in the market group structure. Effective January 1, the Company was reorganized into five segments. North American Legal business and the International Legal & Regulatory businesses will be treated as one segment, which more accurately reflects the manner in which the market is managed.

We will present the financials in this format beginning with the first quarter's results. We have also posted on our website a schedule that provides quarterly financial information for 2005 and 2006 for each of these segments.

All of the Learning businesses are in discontinued operations this quarter; and a small TLR business has been added, NewsEdge and Market Research, which had combined revenues of $39 million for the year and $10 million for the quarter. In today's release we have also provided a supplemental schedule that reflects fourth-quarter and full-year results with Learning treated as part of continuing operations, to assist you in your analysis.

Now Dick Harrington, our President and CEO, will begin this morning with a recap of the Company's 2006 priorities and will discuss the Company's priorities for 2007 and beyond. Bob Daleo, our CFO, will then discuss the fourth quarter, the full year, and fourth-quarter financial results. Bob will also diffuse were also review the review the Company's financial metrics for 2006 and will also provide some visibility into what we're anticipating for 2007 and 2008.

Following Dick and Bob's presentations, we will open the call for questions. I ask that you please limit yourselves to one question each.

Now 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 measures in the investor relations section of our website found at Thomson.com.

Let me now introduce the President and CEO of The Thomson Corporation, Dick Harrington.

Good morning. Before I get into the details of our 2006 performance and our priorities for 2007, I would like to provide some context. We are at an important point in our Company's history. As I look forward, Thomson has more opportunity than ever before, and we have never been better positioned to seize it.

Why am I so confident? Thomson has demonstrated the ability to transform itself from a holding company with businesses as diverse as newspapers and leisure travel into what we are today, a world leader in workflow solutions for professional and business customers. The strength of our vision has been validated by the marketplace. Over the last decade, we more than tripled our market capitalization, improved our EBITDA margins by 1,200 basis points, and completely transformed our business model. We have come a long way.

But today, we have a much stronger foundation to build on than we had 10 years ago. Today, all of Thomson's businesses are focused on a clear unifying vision. We're successfully executing our workflow solutions strategy. We enjoy leading positions in all of our markets, which gives us the opportunity to shape markets. And we have realigned the Company to be more focused, efficient, and effective than ever before.

The Thomson Corporation entered 2007 strongly positioned to drive growth and returns. Several years ago, we had a vision of creating workflow solutions for business and professional customers. Today, our workflow solutions have become market leaders and the foundation of our business.

The vast majority of our products are electronic, and they are growing at double digit or high single digit rates. As the shift to electronic solution software and services continues, our utilization and renewal rates continue to rise. We provide must-have products and services for high-end professionals such as lawyers, accountants, bankers, brokers, doctors, and scientists, who are essential to the knowledge economy.

The THOMSONplus efficiency initiative that we launched six months ago is already capturing savings and driving efficiencies. We are confident that we will continue to have the financial flexibility to meet the demands of our customers, shareholders, and employees. In fact, we have never been stronger financially.

I'm pleased with the progress we made in 2006 and excited about the opportunities ahead. With that, let me turn to our 2006 performance.

This time last year, I announce that Thomson had three major priorities for 2006. The first priority was focused on our operational metrics.

The second priority centered on optimizing our portfolio and was comprised of two parts. First, we refined our investment process to ensure that we are investing in the businesses with the highest potential for organic growth and superior returns. Second, we divested businesses that no longer fit our strategic goals.

The third priority dealt with optimizing our infrastructure to support growth and improve profitability. We formalized this initiative with the launch of THOMSONplus midyear. So let me show you how we have performed against these priorities.

In 2006, we made great progress achieving our operational priorities. Organic revenue growth was strong. The margin improved 80 basis points before THOMSONplus. Free cash flow was up over 20%. And we made good progress in increasing our return on invested capital.

Our portfolio optimization program was also quite successful. The dispositions we announced last year are all part of Thomson's natural evolution to fulfill our strategic vision. We have simplified the organization and aligned it with a highly focused strategy, providing workflow solutions to business and professional customers, which is what we do best. It is a very focused, very disciplined, and very targeted strategy.

The divestitures we announced are on track and on schedule, as we launched the sales process for the higher education businesses this week. We realized sales proceeds of about $170 million last year. In addition to Learning, we have four other divestitures which we expect to close in the first half of this year.

Perhaps most importantly, we continue to invest in our highest growth opportunities as we build out our solutions strategy in our markets.

We also made significant progress with our infrastructure optimization program. Our streamlined operating structure provides even greater focus on driving our business segments, and it also offers greater transparency to our investors. THOMSONplus is driving greater efficiency and effectiveness across the Company and is on plan and on budget. We're leveraging our infrastructure and assets to enable each of our business units to benefit from the scale and resources of a $7 billion Company.

Let me remind you what the Company looks like following the sale of the announced divestitures, based on our final 2006 results. We're faster growing and more profitable. We will continue to generate strong free cash flow. We will be electronic based with stronger recurring revenue streams.

How will we deploy the proceeds from the sale of Learning? The first priority will be to make strategic and tactical investments to accelerate growth in our existing markets. The next priority will be to make strategic investments in adjacent markets with similar business models focused on business and professional customers. As we explore possible acquisitions, we will seek companies with financial and operating characteristics similar to those reflected on the slide.

Let me emphasize that creating shareholder value is our top priority.

Let's now look at 2007 and beyond and the opportunities ahead. For 2007, we have three immediate priorities. First, we plan to successfully complete the sale of Learning and invest the proceeds to drive shareholder value. Second, we plan to continue to increase organic revenue growth through the buildout of new and existing solutions. Third, we must continue to aggressively implement the THOMSONplus initiatives to drive operational efficiency and effectiveness across the organization.

Now let me explain why I am confident we are poised to see greater growth in the business. We have built the foundation of our business with authoritative, timely, and value-added content. It is the cornerstone of our business model. We're continuously investing in building robust, dynamic technology platforms. The combination of powerful technology platforms with must-have content results in rich and useful point-of-use solutions for our customers.

We have deep customer knowledge. This enables us to build productivity tools that can be tailored to the professional's specialty, such as a litigation attorney or a bond trader. It also allows us to deliver these solutions where and when the professional needs them most, at the desktop, on a handheld device, and integrated across applications.

The top of the pyramid, productivity tools, is where we are concentrating our efforts, directing our investments, and building new tools and applications. The combination of content, platform, and productivity tools allows us to meet the customer's value proposition. We are achieving success every day as customers sign on and began asking for more -- more functions, more features, more adoptable interfaces. This is contributing to higher growth and higher retention rates.

Lastly, it is about leveraging -- leveraging content, technology, people, client relationships, and leading market positions. I am confident this approach will drive organic growth and profitability in the coming years.

Workflow solutions like the ones you see highlighted on this slide are the growth engines of the Company. The success of these products is enabling our product development teams to bring more robust solutions with higher value analytics and embedded platforms to market more quickly and efficiently.

We know the model works because we see the results. 80% of our revenue last year was generated by electronic solutions software and services, which grew 9%. The bottom line is that incremental, repeatable innovation is driving core revenue growth.

Looking ahead to 2007 and beyond, I believe The Thomson Corporation has never been in a stronger position strategically, operationally, and financially. We understand the workflow solutions business. We have learned what works in the market and how to replicate and scale that success. We understand what our customers need to succeed, and what we need to do to surpass their expectations. We're working smarter across the Company, which will continue to improve as our organizational realignment and efficiency initiatives bear fruit. And we continue to generate strong free cash flow, which enables us to fund growth initiatives and deliver attractive returns to shareholders.

Thomson has never had a greater opportunity than it has today; and it has never been better equipped to capture that opportunity. I am very encouraged by the progress we have made and look forward to a successful 2007. Let me introduce Bob Daleo.

Thank you, Dick, and good morning, everyone. Today I will begin by reviewing the fourth-quarter and full-year consolidated results for continuing operations. You will note that Thomson Learning is now shown in discontinued operations. Next I will discuss the results for the four market groups and each of the segments, the reporting structure we will follow from here onward. Third, I will review corporate expenses and provide an update on THOMSONplus. Fourth, I will detail our reported and adjusted earnings and will also provide supplemental earnings information, assuming the inclusion of Learning, since we recognize this will help you understand our relative performance. I will close by providing some visibility for 2007.

Now to the consolidated results. For continuing operations, fourth-quarter revenue growth was 8%. 4% of this was organic, 2% came from acquisitions, and 2% from exchange. Operating profit was down 1% for the quarter, and the margin declined to 22.7% from the 25% of the prior period. However, excluding $29 million of THOMSONplus costs, operating profits increased 5% with a margin of 24.3%, still reflecting the timing of some other corporate costs which I will discuss in a few moments.

For the full year, revenues increased 8% -- 6% organic and 2% from acquisitions. There was solid revenue growth across each business segment, and organic growth accelerated from 4% in 2005 to 6% this year. Operating profit for the year increased by 7% from strong revenue growth and continued operating efficiencies. Excluding THOMSONplus costs of $60 million, operating profits actually increased 12% and the margin increased 80 basis points to 19.8%.

I will now discuss the fourth-quarter and full-year results for each of the market groups, with supplemental segment information. I'm going to start with Legal & Regulatory. In the quarter, Legal & Regulatory continued its strong revenue and profit momentum. The revenue increased 8%, of which 6% was organic, 1% from acquisitions, and 1% from the benefit of exchange. Overall, online solutions and software services continued to be the growth engine, up over 10% in the quarter. Print revenue was flat for the quarter and represented 36% of total revenue, dampening the overall organic growth rate. Operating profit grew 12% and the margin rose 140 basis points.

For the full year, revenues grew 8%, of which 7% was organic. Operating profit increased 12% or 100 basis points. The full-year profit growth and margin improvement validates our solutions business model, which is fueling not only top-line growth but incremental flowthrough and higher margins.

Legal segment revenue grew by 7% for the quarter and the full year, respectively. Growth was led by U.S. Westlaw revenue, which was up over 9%, driven by Litigator and double-digit growth at FindLaw. Print revenue was flat for the quarter and the year. International revenues were driven by double-digit growth of online solutions in Europe and Australia. Legal's operating profit increased 10% and 11%, respectively, for the quarter and full year.

The Tax & Accounting segment saw strong revenue growth of 12% for the quarter and year, and nearly all of this was organic. Revenues were led by more than a 20% increase in Checkpoint, making it the fourth consecutive year of Checkpoint growth in excess of 15%. UltraTax and InSource tax software products also recorded double-digit growth. Operating profit rose 19% for the quarter and the full year.

Now as this is the first time you're seeing the Tax & Accounting segment's results, it is important to note that 35% of its revenue and over 50% of its profits were generated in the fourth quarter. The primary reasons for this are that much of the tax software and print publications are shipped in advance of the upcoming tax season. In fact, over 35% of the print revenue was generated in the fourth quarter.

Moving on to Financial, continued to show good progress in 2006. For the full year, revenues were up 6%, of which 4% was organic. The Financial segment continues to see sales gains across the business, with institutional equities, corporate, investment banking, and investment management showing solid expansion. Since the quarter was affected by several onetime items, the full-year results are more reflective of the underlying business performance. For the full year, operating profit increased 13% and the margin rose 120 basis points to 18.8%.

For the quarter, revenue grew 6%, only 2% organic, 2% from acquisitions, and 2% from exchange. Now, the quarter's revenue growth was negatively impacted by 2 full percentage points due to the difficult year-over-year comparisons for certain onetime items; and, as I had mentioned in earlier quarters, the discontinuance of a low-margin service which represented 1% of that growth.

The rate of revenue growth was also impacted by softness in the fixed-income trading due to lower transaction volumes for U.S. treasuries and mortgage-backed securities, totally tied to the current level of interest rates.

International revenue growth was also strong, with Asia and Europe up 14% and 7%, respectively. Operating profit for the quarter was affected also by the difficult comparisons to the prior year. Excluding certain onetime items, operating profit for the quarter grew by 7%.

Let me remind you that last year on this call I noted that the fourth quarter of 2005 margin benefited from these onetime items and contributed 1 percentage point to the margin improvement last year.

Moving on to Scientific & Healthcare, full-year revenue was up 8% to nearly $1 billion; and organic growth was 4%. The core underlying business at Scientific & Healthcare continues to be strong, with information solutions growing at double-digit rates. For the full year, information solutions across this segment accounted for 60% of revenues and grew 13% organically. Print and legacy products which comprise approximate 20% of revenues declined 10% for the year. Solutions such as Thomson Pharma, Web of Science, and our offerings in clinical decision support and management decision support will continue to be drivers of growth into 2007.

Full-year operating profit grew 11%, and the margin increased 60 basis points to 23.7%, benefiting from revenue growth and continued operating leverage.

In the fourth quarter, Scientific & Healthcare achieved revenue growth of 13%; 2% was organic and 10% was acquisition, and 1% exchange. Now, information solutions accounted for 55% of the revenue in the quarter and grew 15% organically.

Organic growth was negatively affected by lower print revenue in the Physicians Desk Reference due to lower copy sales and custom projects; and the timing of releases -- some product releases at clinical decision support; and also declines in other legacy products.

For the quarter, operating profit was up 6% and the margin decreased slightly from the prior period due to the product mix.

Now on a segment basis, Scientific revenues were up 8% for the quarter, 2% organic; and for the full year revenues rose 6%, of which 4% was organic. Operating profit at Scientific rose by 15% and 17% for the quarter and year respectively. Operating profit gains are driven by business integration and other operating efficiencies.

Now, Healthcare revenues increased 19% for the quarter, 3% organic and 16% from acquisitions; and this is primarily Solucient, which we announced earlier this year, or last year. For the full year, revenues increased 12%, of which 3% was organic.

Now as previously noted, the Physicians Desk Reference, which by the way is one of the Corporation's largest remaining print products, saw a revenue decline of 3% for the quarter and the full year. Now the PDR represents about 25% of Healthcare revenues on an annual basis and over 40% of revenues in the quarter.

Operating profit was flat in the quarter and rose 1% for the year due primarily to the difficulties noted in the PDR.

As we mentioned, Learning's results in their entirety have moved to discontinued operations; and therefore we are providing these results on a pro forma basis. Learning has leading positions in its markets and is a solid business with strong revenue, profit, and free cash flow metrics. Full-year revenue increased 5%, of which 4% was organic. Operating profit increased 6% for the year.

Now, the global higher education and reference business was up over 7% to $1.8 billion. This growth reflects strong custom and international sales, and continued growth in the traditional higher ed textbooks. In fact, higher ed's growth was very strong compared to the industry average rate of somewheres between 3 and 4%.

For the fourth quarter, Learning's revenues rose 6%, of which 4% was organic. Operating profit for the fourth quarter rose 9%.

Let me spend a minute on the reasons for the increase in corporate expenses. What I will refer to as underlying corporate costs rose about 6% last year to $148 million. Now, the primary reasons for the $96 million increase in corporate costs had to do with $60 million of THOMSONplus related expenses as well as higher pension and stock compensation related costs.

Pensions costs came in about where we expected, with an increase of $40 million for the year, as I outlined in our guidance last February. Now, $19 million of that is reflected in corporate, with the balance recorded in the businesses. Stock compensation related costs increased $8 million. This is primarily related to the vestiges of our shadow stock program. Now, we estimate that pension related expense for 2007 should be fairly stable and similar to 2006.

Let me update you on THOMSONplus. As we outlined last year, THOMSONplus is an essential part of our strategic realignment and will result in a more integrated and efficient operating Company. As Dick mentioned, THOMSONplus is on track and on schedule. We entered 2007 with a $25 million run rate savings. We spent $60 million in 2006, of which $29 million was incurred in the fourth quarter; and we achieved approximately $12 million of savings for the full year. These savings are reflected in the businesses.

In 2006, THOMSONplus achieved several milestones, especially in the area of finance. We established a facility in a dear dad Hyderabad, India, to primarily handle back-office finance functions, and shifted 150 positions to that location while also eliminating 215 positions. In addition, we have begun to deploy the SAP platform. By year-end, we expect the vast majority of the Company will be on SAP.

In addition to finance, there will be a ramp up in technology, customer, and efficiency programs this year. As part of efficiency [plus], Thomson Scientific has begun moving parts of its editorial production operations from several U.S. and European sites to our Hyderabad location. We continue to estimate $50 million in savings and $100 million of expenses this year; and anticipate $150 million in run rate savings by the end of next year.

Now let me turn to our full-year metrics. We had strong revenue growth across each of the market groups, with revenue up 8% for the full year. On an organic basis, revenues increased by 6%, which was led by the strong performance at Legal & Regulatory. This compares favorably to the 4% organic growth of a year ago.

Now as you can see from this slide, the effectiveness of our business model is reflected in our consistent margin expansion. As outlined earlier, the operating margin was negatively affected primarily due to $60 million of THOMSONplus costs and higher pension and stock expenses. Excluding the THOMSONplus cost, the margin increased 80 basis points for the year.

You can see from the segment results, the underlying businesses continue to steadily increase their operating margins through further efficiencies. We expect to realize additional leverage from our THOMSONplus program which, along with revenue growth, enables us to continue to grow the margin.

For 2006, capital expenditures as a percentage of revenues declined to 6.8% from 6.9% of 2005. The decline was primarily driven by improvements at Financial, and was partly partially offset by corporate and THOMSONplus related capital expenditures.

In 2007, we expect run rate capital expenditures as a percentage of revenue to continue to be in the 6% to 7% range. Spending related to THOMSONplus initiatives and the expansion of our Eagan, Minnesota, facility is expected to cost nearly $100 million, bringing total capital expenditures to about 8% of revenue, although long-term, however, we continue to expect capital as a percentage of revenue to be in that 7% range.

Free cash flow growth was a headline story for 2006, increasing 21% to $1.4 billion. This increase was the result of strong operating income growth, lower tax payments, and stable capital expenditures. The free cash flow margin has increased 200 basis points over the past five years, ending 2006 at 16.1% of revenue. Now included in the $1.4 billion is a little over $300 million in free cash flow from our Learning business.

As evidenced by our portfolio optimization efforts, we are committed to improving returns; and we are seeing good leverage and flowthrough from each of our businesses. Return on invested capital improved 40 basis points including Learning in 2006; and Learning is our lowest return business, with a pretax return of approximately 6.6%. Return on invested capital excluding all discontinued operations was 8.9% in 2006, and this was up 50 basis points from 8.4% in the prior year on a restated basis.

We are confident that our growing free cash flow and improving margins will continue to strengthen our returns.

Now to assist in your analysis, this slide and the next one provide our reported earnings recast to include Learning. These schedules were also attached to our release. The two columns on the left reflect the reconciliation of reported results to adjusted earnings for continuing operations. The third column adds back Learning and treats it as though it were part of continuing operations for the full year. On this recast basis including Learning, fourth-quarter adjusted earnings were $425 million; and adjusted earnings per share would have been $0.66 per share.

Now, turning to the full year, again, the two columns on the left represent the reported earnings from continuing operations and the related adjustments. On a recast basis including Learning, full-year adjusted earnings were $1.1 billion and EPS would have been $1.73 per share.

Now let me spend a moment on our financial position. Our financial flexibility, which has never been stronger, has enabled us to announce a record 11% increase in the annual dividend for 2007. This increase is reflective of management's and the Board's confidence in the sustainability of our free cash flow model which we have built over the past few years.

Our continued strong free cash flow growth has enabled us to return nearly $1 billion to our shareholders last year in the form of dividends and share repurchases, 25% more than a year before. In fact, over the last five years, we have returned over $3 billion to our shareholders in the form of increased dividends and share buybacks.

I want to again remind you that our capacity to return cash to our shareholders is an outcome of our growth-oriented investment philosophy, and not an alternative to it. We continue to focus on investing in our business for the long-term to deliver both growth and returns.

Now, given the strides we're making in driving the business, we wanted to provide you with some visibility into our thinking for 2007 and beyond. Against the backdrop of a positive economic environment, we expect 2007 to be another strong year of operating performance. Revenue growth is expected to be at the high end of the Company's long-term range of 7 to 9%. This is prior to the deployment of the proceeds from the sale of Thomson Learning.

Operating margin is expected to be at or above 2006 levels, despite increasing investments in efficiency initiatives. Cash generated by continuing operations is expected to grow, excluding cash generated through the deployment of Thomson Learning proceeds.

As I discussed earlier, capital expenditures on an underlying basis are expected to be about 7% of revenue. Depreciation and amortization are expected to be in the -- 6% to 8% higher next year. This year.

Now we anticipate our effective tax rate to be in the range of 20% for the near term. The 2006 tax rate was 16.2% compared to 27.3% in the prior year. About half of the decrease resulted from the recapitalization of our internal subsidiaries in December of 2005, which resulted in a tax payment of $125 million in the fourth quarter of a year ago. Now the balance came from other tax planning initiatives and some onetime tax credits.

In spite of the lower tax rate in 2006, we continue to anticipate a rate in the 20% range going forward, as we lose these onetime benefits and future income growth is subject to higher marginal tax rates.

Now in 2008, we expect our performance to further strengthen. We expect to sustain our long-term revenue growth rates. Our operating margin is expected to increase above 20%. Our free cash flow is expected to strengthen as improvements in our operating performance are projected to more than offset the loss of Thomson Learning's free cash flow. And this is even before the deployment of Thomson Learning sale proceeds.

In summary, while we are pleased with our 2006 results, we are more excited about the groundwork which has been laid for 2007 and beyond. We're confident that the solutions model we have built, combined with the disposition of the Learning assets and deployment of those proceeds, will lead to further acceleration of growth and returns in our business.

To reiterate Dick's comment, Thomson Corporation has never been stronger, in a stronger position strategically, operationally, and financially. Now let me turn it back over to Frank.

Thanks very much, Bob. We would now like to open it for questions.

(OPERATOR INSTRUCTIONS) Andrew Mitchell.

Apologies, I just have two questions. First off, Dick, I'm just wondering if you're still comfortable you think you will be able to redeploy the bulk of the Learning proceeds in acquisitions within roughly 18 months of receiving them.

Then secondly, could you just provide a little granularity on the revenue guidance if possible? I would just be interested in your thoughts on organic revenue. Clearly it is going up. Just wondered if you could provide a little more granularity on where you think it could be by 2008. Thanks.

First, Andrew, I think I heard you say could we redeploy the -- I'm not sure if it's correct -- but would we redeploy the funds in two months. Is that what I heard? (multiple speakers) Oh, 18 months, I'm sorry.

18 months.

Very good. Thank you.

And not all of them, but a good chunk of them, we will see redeployed within 18 months?

Yes, we are confident that basically that there are opportunities out there for us as we said. We have two priorities. Number one is really to continue to deal with -- to make strategic and tactical acquisitions in existing markets and also, secondly, adjacent markets.

You know, we feel comfortable that if you look at today, although we are only in February, so if you look at the next really 22, 24 months, we are confident that we will be able to redeploy the funds successfully. Again, our overall goal is to continue to create shareholder value.

On the second part of the organic revenue growth going forward, yes, we would expect organic revenue growth to continue to increase next year over '06. We would expect to see, we think, that Healthcare and Scientific are at the tipping point where their organic growth should start to drive more quickly than it has in the past. We would expect them to see a good year in '07, a good year in '08.

Legal & Regulatory business, we would expect that to continue to drive the way it is driving. Our tax business is already in double-digit growth, and we would expect to hopefully see that continue over the next few years. Then we would expect to see Financial continue to pick up over the next two years.

So I'm bullish that organic growth will continue to grow as a percentage of our 7 to 9% growth in '07 and '08.

Lauren Fine.

Excuse me, one quick one. If you could just clarify on the '08 margin guidance that you were giving; is that before or after THOMSONplus spending?

That is after THOMSONplus spending for '08.

Great. Okay, thanks. Then I guess quickly, just following on the organic growth, I mean, the organic growth obviously did improve in '06 over '05. But it decelerated going into the fourth quarter.

Is that just a pattern we should expect to see and not extrapolate into '07? Or is that something that might extrapolate into the early part of the year and then pick up as the year progresses?

This is Bob. The dampening effect in the fourth quarter of '06 is not reflective of what we expect going into '07. We had, like I said, some PDR -- a large part of the fourth quarter is print, and so -- and that grows at a slower rate. So you would expect to see a little bit lower growth rate.

But as I said, there were some timing issues in comparisons to relative to Financial, which made that comparison difficult. Also as I said, some of these print products for Scientific and Healthcare. So the fourth quarter is not reflective in any way of what our expectations are for '08, '07, organic growth.

Thanks. Just quickly, does the growth rate that you're experiencing in the Tax business, is that something where you believe you're taking market share? Or is that overall that the market is growing?

It's Dick. No, we are taking market share in that. We have had a strategy over the last five years to basically really work hard in both. We have broken the market down into basically three major segments, one being the corporate segment, one being the professional segment, and then one being the information products and services, which are also blended in those. But by being able to do that, we have been aggressively driving in each one of those markets.

We feel that we have a better product and service than our competitors. So we are -- although the market is growing well, the growth rates we are experiencing are higher than the market growth rates, which is really due to the strategy and the management driving that business.

Thanks. I will just sneak in one last one. On Thomson Financial, there has been some discussion that we have been hearing that pricing has gotten very challenging and that there has been some discounting. I am wondering if you could discuss the competitive environment.

I would not say there has been major discounting. I think you always have selected issues moving out. But I don't think there's anything abnormal, but I think Bob has a --

I think, just contrary to that, is that for the first time in a long time we have been able to put in price increases for Thomson ONE. I think the quality of the product, the strength of the offering, and the very nature of it has really allowed us to actually see price increases imposed there.

You may have -- there may be individual segments within the marketplace where you might have a little bit of competitive pressure. But generally speaking, across all of the segments that we operate in, we have had some pretty good success in terms of pricing.

Fred Searby.

I wondered if you could give us an update on what you expect the tax implications of the divestiture of Thomson Learning should be. Do you have a better view on that? Thank you.

I don't know if we said it last time, but if you wanted to use something in your models, I would say if you had applied somewheres between a 10 to a 15% tax rate, you probably would be safe.

I think it is hard to project, obviously. You have a fixed level of tax planning you do, and so the higher the price the higher the tax you will pay. Frankly, I don't mind if we pay a very big tax, because that means we get a very high price. But it should be in the range of 10 to 15%.

Peter Salkowski.

Just a question on the acquisitions you may do and redeployment of the Learning money you make there. With regards to your sort of platform, your pyramid that earlier with regard to the content platform or productivity tools, do you see any sort of emphasis on any one of those areas with regards to acquisitions?

Yes, Peter, I think the -- well, first of all, for the [testable] side if they open up in any one of those areas and they can continue to either build or advance, we will make.

But we have been focusing on the last couple of years or the acquisitions that continue to enhance the productivity tool section of the pyramid, primarily because our opinion is the faster we can build out these productivity tools then that really drives growth. It drives retention. And it drives utilization. So that is the primary area.

But that does not mean we would not have the opportunity to buy content or really other platforms to drive growth.

Great, thank you. Then secondly, on the international part of the Legal business, can you just kind of give us a sense of growth in that business going into '07? I think you said it was pretty strong in '06. Do you see that continuing?

Yes, I think it -- first of all the growth last year was a kind of a combination between acquisitions and organic growth. But organic growth picked up, and we do feel we are taking market share based on the growth. We would expect the organic growth to roughly be the same as it was -- '07 to be roughly the same as it was in '06.

Our growth drivers there, again, that has the same dynamics as all our businesses. Growth drivers are electronic, offset by print. But we are very pleased with the progress they have made in driving electronic products and services. But the growth we would expect to be roughly the same as last year. Next year is the same as '06.

Amy Glading.

Just a question. If you could just remind us of your longer-term return on invested capital targets, maybe also looking at that across the new five segments.

Longer-term, we have said consistently that we would -- we are striving to get to a minimum of 12% after-tax. Right now, we are roughly at a little above 8%, so. And we are making progress every year.

I think in terms of each segment, I am not sure I have that information in front of me. Well, on a segment basis, you really have to look at it on a pretax basis. I would say that roughly the highest would be the Legal segment, which is a pretax return of about 16%. Then the others are all in the 10 to 12% range at this point.

Okay, which segment would you say has the most opportunity to improve?

Which has the most opportunity to improve? Well, they all do. I don't want to minimize all of them. The idea of us driving solutions product, driving our solutions strategy -- right? --- which, and also implementing THOMSONplus, is to drive leverage across the entire business, and drive efficiency across all of them.

I think that from our perspective, the great indication of the ability for these businesses to improve their returns is their cash generation. Cash is the ultimate return. As we continue to drive and grow free cash flow, that ultimately signals to us that we believe we can drive returns across all of our businesses. So I don't think any one of them has a better opportunity than others. I think in each case we have the opportunity to drive significant return improvements across all of our businesses.

Okay, great. Thanks very much.

Andrea Horan.

I am wondering if you can comment on acquisitions for next year. You indicated that the 7 to 9% is before redeploying proceeds from Thomson Learning, but you have typically spent sort of in the 3 to $500 million of your free cash flow on acquisitions. Is that likely to continue this year as well?

Yes, I think when you look at the 7 to 9%, that builds in that roughly 3 to $500 million worth of acquisitions. That will continue. Then, obviously on top of that will be the redeployment of the Thomson Learning proceeds.

Okay. Can you give me a sense of how much acquisitions [fronting] from '06 will contribute to '07 growth as it cycles in?

It wouldn't be very much.

Vince Valentini.

First of all, on the 2008 free cash flow outlook, you say that doesn't include any redeployment of the proceeds from Learning. So does that mean you would not even assume any interest on cash balances? You would assume an absolute zero when you gave that number?

Sounds like a model question. The answer is yes, it excludes that.

So it assume zero?

It assumes our continuing operations.

Okay, (multiple speakers) basically interest expense based on your current balance sheet with no changes?

That's right.

Okay. In order to make that type of prediction, you must have some sort of feel for the tax rate looking out there. Because you have had a remarkably low rate in the past year. You're now saying about 20%. So would you think somewhere in that same sort of 20% range? No major spike up in '08 is built into your expectations right now?

I would say that would be not unreasonable.

Okay, perfect. Last clarification, on your slide 31 with the reconciliation of the earnings, I just want to make sure I am comparing apples-to-apples here. You show $1.34 as the earnings for last year. That, I don't believe, was the adjusted figure that you reported last year. I think that was more like $1.42. That jibes with the front page of your press release. You said there was 22% earnings growth. If we use the $1.34, it is actually 29%.

So just to clarify, is that $1.34 an adjusted number that is really comparable to the $1.73?

Yes, it is.

So it is 29%, not 22%, should have been on the front page of your release? $1.73 over $1.34 is 29% earnings growth. (technical difficulty) of your release says 22%, so I am just trying to make sure I have the right number.

Why don't we take this off line and we can talk about it. The release is correct. I will to you the release is correct and the numbers are correct. I think your interpretation might be a little different than what it is meant to be. But that is something -- we will take it off line and we can take you through it in detail.

Okay, thanks.

Jeffrey Fan.

Wanted to clarify the 2008 comment regarding the improvement in operating performance offsetting the loss of TL's free cash. When I take a look at your '06 free cash flow, excluding Thomson Learning, it is about $1.1 billion. Learning looks like generated about 300, 350 in free cash. So are we saying that by 2008, that $1.1 billion is going to get to about 1.4, $1.5 billion? Is that what --?

What we are saying, Jeffrey, is that the ongoing businesses that we have are exceptional. And that their ability to grow and throw off cash is exceptional. Our ability to drive them into workflow -- into work solutions and electronic products is going to create a higher level of cash generation than the business that we looked at in 2006 including Learning.

So we are saying within that by 2008, we will grow over the loss of the Learning free cash flow, and get it entirely from our continuing businesses.

Jeffrey, the answer to your question is yes.

Okay, second quick one. You increased your dividend; great track record there is being established looking forward. But if we assume after the TL sale your payout ratio obviously increases pretty dramatically, can you shed some light on -- I know this is kind of a Board issue -- but can you shed some light on how you think on the dividend after the TL sale?

Jeffrey, I would just say that for us dividends are an important part of shareholder value creation. Our ability to drive cash and our ability to grow cash will be reflected in the dividends that we declare in the years ahead. That is entirely the Board's purview, so I wouldn't comment on it. But I would comment on our confidence in driving cash and the link between generating cash and declaring dividends, as was evidenced this year.

Randal Rudniski.

A few small questions, I think. First of all, according to the new segment reporting, can you tell us what proportion of Legal, of each Legal and Tax & Accounting revenues are electronic versus print?

I think in the Legal segment it is about 70%. If you just hold a second while I get the paper in front of me. I'm sorry, about 70 -- in the tax area about 75% is electronic. In the Legal area, it is about the same, I think; is it not? It is about 65%.

Okay, thank you. You mentioned that you're gaining market share in the Tax & Accounting segment. Can you tell us what you figure that the underlying growth rate is in those markets?

It should be around 5%, 4% to 5%. Our organic growth rates are about 11%.

Thank you. Then lastly, just a couple on THOMSONplus. The press release says the THOMSONplus costs were $60 million in '06. But adding up kind of the year-to-date number from last quarter, plus the number you disclosed for this quarter suggests it is closer to $70 million. I just wanted to clarify. Is the $60 million net of the efficiency gains?

No, last quarter, there were costs that related to Thomson Learning. So we are not quoting those costs in the costs of THOMSONplus. They have moved to discontinued with the business.

Michael Meltz.

Can you just give us numbers as to how higher ed finished for the year? You have a TL slide here. I am just wondering what revenues and EBITDA were in '06.

Michael, we will get back to you on that. We don't have that have at our fingertips.

Okay, let me sneak in another one then. Bob, on your guidance for corporate costs, are you saying you take the 235 that you did and add another $40 million for THOMSONplus? Then what -- with pension flat, then what is the underlying corporate growth you are expecting?

Underlying corporate growth would be normal expense increases somewheres around 4%, something like that.

Okay, all right. Then last question, you had some type of legal reserve in the quarter, which -- $36 million. What was that?

We had an outstanding lawsuit with one of our businesses, and we settled the lawsuit during the fourth quarter.

Okay, so that was a cash payment?

It hasn't been paid yet, but will be next year. I'm sorry, will be in '07.

Thank you, thank you.

I will turn it back to you, Mr. Golden.

Thanks very much for joining us on this fourth-quarter call. If you have any follow-up questions, please feel free to give us a call. Thanks.

Thank you. Ladies and gentlemen, this conference will be available for replay after noon today through midnight February 15, 2007. You may access the AT&T teleconference replay system at any time by dialing 1-800-475-6701 and entering the access code 860447. International participants dial 320-365-3844. (OPERATOR INSTRUCTIONS) That does conclude our conference for today. Thank you for your participation and for using AT&T executive teleconference. You may now disconnect.