Thomson Reuters Corp (TRI) 2007 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Thomson fourth-quarter and year-end 2007 earnings 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 your host, Frank Golden. Please go ahead.

Thanks very much. Good morning and welcome to The Thomson Corporation's fourth-quarter and full-year 2007 earnings call. I would like to thank you for joining us today. We do have a lot of information to cover, so we will get right to it.

Those of you listening should have a copy of today's earnings release and the related slides, which are posted on our website at Thomson.com. We will begin this morning with Dick Harrington, our President and CEO, who will discuss the highlights of a successful and momentous year for The Thomson Corporation. Dick will provide a recap of 2007 and will report on the state of the Company as he prepares to retire upon the closing of the Reuters acquisition. He will provide a glimpse of the opportunities he sees for Thomson Reuters in the years ahead.

Bob Daleo, our CFO, will follow Dick and will discuss the fourth-quarter and full-year results. Bob will review the Company's key financial metrics for 2007 and he will provide an update on the proposed Reuters acquisition. Following Dick and Bob's presentations, we will open the call for questions. I would ask you to please limit yourselves to one question each, to enable us to get to as many questions as possible.

Now, before we begin, let me address several points that investors have raised in advance of the closing of the Reuters acquisition. First, we plan to report our first-quarter earnings on Thursday, May 1, following regulatory approvals and the close of the transaction. At that time, we will provide the 2008 outlook for the Thomson Reuters company. On May 1, we will also provide pro forma information for 2006 and 2007. This pro forma information will include revenue, operating profit, and depreciation and amortization on a consolidated basis and by business segment. More details on the reporting structure will follow in the weeks ahead.

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 measure in today's earnings release as well as in the Investor Relations section of our website found at Thomson.com.

It is my pleasure now to introduce the President and CEO of The Thomson Corporation, Dick Harrington.

Good morning and thank you for joining us. This morning, I will cover three topics. First, I will recap the significant developments of the past year and will review the Company's strong operating results. Second, I will discuss how well Thomson is positioned in its markets in advance of the Reuters acquisition. Third, I will close with the tremendous opportunities that Thomson Reuters will bring for our customers, employees, and shareholders in the years ahead. Today, Thomson is as strongly positioned to innovate and grow as I have ever seen in my 10 years as CEO.

2007 was certainly a milestone year for The Thomson Corporation. We delivered strong operating performance. We repositioned our portfolio through the sale of Learning and announced the acquisition of Reuters. We announced this morning that our 2008 dividend will be increased 10%, the third consecutive year of double-digit dividend increases. Our strategy is clear and consistent. Our businesses are delivering solid results, and we are well equipped to drive even greater success.

Let's look at several financial highlights for the full year. Total revenue was up over 11%, 6% organic. Operating profit was up 4%, impacted by several special items described in today's earnings release. More importantly, underlying operating profit increased 14% and the margin improved 60 basis points. Adjusted earnings per share was up 27% to $1.69.

Now I would like to look at how we repositioned Thomson to take maximum advantage of our strengths. During my tenure as CEO, we have transformed Thomson's DNA. We understood that the development of the global economy would rapidly lead to growth in information-based services, creating a larger and larger base of business and professional customers across the world. This is true in law, tax and accounting, financial services, science, and healthcare. In fact, the financial services sector now represents 8% of worldwide GDP, and assets under management have nearly doubled over the past 10 years to $62 trillion. And the wealth creation taking place in Asia is likely to accelerate this trend.

We also knew this meant that critical information and electronic decision support tools were the future. Today, 82% of our revenue is electronic solutions, software and services, and grew 13% last year.

We believed this new economy would enable us to recast our sales model and move to a subscription-based model. That also proved true; today more than 80% of our revenue is recurring.

So looking at Thomson today, as compared to only five years ago, I see an improved business mix and a more focused Company, a Company which is ready and able to capture any opportunity while also being even better positioned to weather competitive or economic challenges that may come its way.

We have a stronger portfolio and in each of our businesses we have achieved strong competitive positions. Thomson's overall revenue stream is more diversified, and following the Reuters acquisition will also be more geographically diverse, with 60% of revenues from North America, 30% from Europe, and 10% from Asia.

It is also important to note that when the two companies are combined, 60% of profits will come from our Professional division. Over the last decade, our continuing evolution to electronic platforms and workflow solutions has changed how we interact with customers. This has led to more multiyear contracts and enterprisewide offerings, all of which means we have stronger, more enduring relationships with customers who see Thomson solutions as nondiscretionary.

This is evident looking at the strengths of our businesses. At Legal, we are the leader in this market, concentrating on the most profitable and fastest-growing customer segment of the market, large law firms. These firms have the money to spend and are increasingly interested in productivity solutions, our sweet spot. This business is highly profitable and is built on long-term contracts. We continue to expand our reach throughout a law firm. This is a great success story that I'm confident will continue.

At Thomson Financial, our number two position in North America is built on diversified product offerings that are important to buy-side investors who need to manage effectively through market cycles. Today, 40% of Thomson Financial's revenues are derived from fixed income, transaction services, and corporate-related products, most of which we didn't own five years ago.

This business has delivered good growth and solid margins from products that are much more robust, reliable, and essential to our increasingly global customer base. And, combined with Reuters, the Financial Division will be better positioned, with complementary products offered across the globe.

Similarly, across the rest of our Professional businesses we have established positions in attractive markets that will continue to require more advanced decision tools and information.

In Tax & Accounting, we lead the US market, processing 40% of all corporate income tax returns, and our Checkpoint product counts 95 of the top 100 accounting firms and 85 of the Fortune 100 companies as customers.

Scientific's solutions are embedded in 93 of the top 100 pharma companies, and we're the number one provider of global patent information in this area.

In Healthcare, hospitals and doctors use our targeted solutions to save lives and save money.

So with this as a solid foundation, what is ahead for Thomson Reuters? Well, when our customers go to work each day, we are at the center of their business and commercial enterprise dealings. Whether it is completing a stock trade, closing a merger deal, researching a chemical compound, or helping to file tax returns, Thomson is there. When the Reuters acquisition closes, we will be the world's leader in information services for business and professional customers.

It will give us a truly global footprint by combining Reuters' strength in Europe and Asia with ours in North America. It gives us greater traction in geographic markets that are going to become very important in the years ahead. The Reuters acquisition will give us over a $1 billion base in Asia and positions us to grow along with the fastest-growing economies in the world.

Lastly, we will develop a broader range of solutions and leverage our assets across the Financial and Professional businesses. I'm confident this will translate into significant free cash flow growth and greater shareholder value in the years ahead.

In conclusion, let me say that our management team has never been more focused on driving the business. They are delivering on all fronts. The leading positions we have built in some of the world's most vital markets are enabling us to continue our momentum and expand our position. With the acquisition of Reuters, Thomson's business model will become even more attractive.

Looking forward, the question for us in 2008 is not how can we make Thomson Reuters succeed. We know what to do, and we have the core capabilities to do it. The challenge is to do what we do even better than before, and to do it on a truly global scale with 50,000 employees, a world of new customers, and more opportunities than we have ever had.

With a clear strategic vision, sound operating performance, and financial stability, I'm confident that the new Thomson Reuters, under the leadership of Tom Glocer, will remain well positioned to drive shareholder value for the years to come.

I now want to introduce Thomson's Chief Financial Officer Bob Daleo.

Thank you, Dick. Good morning, everyone. Today, I will begin by reviewing the fourth-quarter and full-year results. Next, I will review several of our key metrics for 2007. I will provide you with a brief update on the Reuters transaction and discuss our dividend increase for 2008.

Since we are awaiting regulatory approval for the Reuters transaction, we will not be issuing our 2008 business outlook at this time. As Frank mentioned, we will provide our 2008 outlook for Thomson Reuters at the time we report our first-quarter results.

During today's presentation, you will hear me refer to underlying operating profit and underlying profit margin. This is because there were several special items in 2007 which masked the strong operating performance of the business.

Our underlying operating performance for 2007 excludes a number of special items primarily related to the Reuters acquisition and THOMSONplus expenses, which have been recorded in corporate expense and are detailed in today's earnings release. Now let's turn to the results.

In the fourth quarter, revenue growth was 10% and the organic growth was 6%, consistent with our organic growth for the year. Importantly, the 6% organic growth in the quarter improved upon our 4% growth in the fourth quarter of last year, and this positions us more strongly than a year ago as we enter 2008.

Now let me repeat what Dick mentioned earlier. In 2007, 82% of our revenues came from electronic solutions and software services, which grew 13%.

Full-year operating profit increased 4%. However, adjusting for special items, underlying operating profit rose 14% for the year. Underlying operating margin increased 60 basis points to 20.4%.

For the quarter, underlying operating profit rose 8%. However, we believe the full-year results are a better measure of operating profit performance within the business, as there were additional unusual items impacting the growth in the quarter, such as the timing of some expenses in the Legal segment and the diluted acquisitions within Thomson Tax & Accounting, attributable mainly to the impact of acquisition accounting, and lower Healthcare margins resulting from weaker performance in the Physicians' Desk Reference.

For the full year, we spent $153 million on THOMSONplus, as more 2008 investment was accelerated into this year. The good news is that we will complete this program ahead of schedule, with higher margins, and have better positioned the Company in advance of the Reuters integration.

I will now discuss the fourth-quarter results for each of the five business segments starting with Legal. Legal growth was driven by continued success in our online product offerings. Westlaw grew 8% in the quarter, led by the Litigator and ResultsPlus products. International online revenues grew 18% led by Westlaw UK. Software and service offerings grew 19% in the quarter; 13% of this was organic. This was led by continued success at FindLaw, which grew 30%, driven by increased retention and strong new sales. Print and CD revenue was flat and comprised 37% of total revenues.

Operating profit for the quarter rose 7% and the margin declined by 100 basis points, primarily due to investments in Asia and timing of other expenses. But for the full year, Legal finished with revenue growth of 10%, of which 7% was organic. Organic growth was led by online products, which grew 10%, and on software and service products which grew 12%. Print and CD products were up 1% for the year, the second straight year of growth for these products.

Legal margins improved by 20 basis points for the year to 31.5%, the third consecutive year of consistent margin expansion; and we continue to expect margin improvement in 2008.

Thomson Financial delivered very strong fourth-quarter growth, with revenue up 9%, of which 6% was organic. This growth reflects good performance across a broad range of services. In fact, overall organic growth accelerated in the second half to 6% from the first half's 4% and the strong sales close in December has carried over into the January performance.

The core solutions businesses of Investment Management, Investment Banking, and Corporate Services achieved combined organic revenue growth of 8%. Our transactional and trading platforms continued to show solid results, led by Omgeo, which grew 26%. TradeWeb's revenue grew 2% as a slight rebound in the U.S. Treasury market offset a slowdown in mortgage-backed securities.

The international operations again performed well, with Europe up 12%, 10% of this organic and Asia was up 18%, all organic. These figures reflect our expanding capabilities in these markets and the continued penetration of our new localized solutions.

Overall, we continue to migrate clients to Thomson ONE desktops, which were up 10% from a year ago and now comprise 80% of our desktops.

Operating performance increased 22% in the quarter, and margins rose 250 basis points, the result of revenue growth as well as efficiency and integration planning initiatives.

Full-year 2007 revenues rose 8%, of which 5% was organic. Operating profit grew 19%, and the margin increased 200 basis points to nearly 21%. I should note this marks the fifth consecutive year of margin improvement in Thomson Financial, with margins having increased 650 basis points over this period.

Thomson Tax & Accounting's top-line growth in 2007 was outstanding. Revenues for the fourth quarter increased 18%, 8% organic and 10% acquisitions. For the quarter, organic revenue growth was led by a 30% increase from Checkpoint. The Corporate division grew 17% organically and the Professional division grew 8% organically. Overall growth was slightly impacted by a decline in print products, which represent 14% of the revenue in the quarter. As anticipated, segment operating profit declined 6%, and the margin declined to about 36% from a year ago.

As I stated, the impact of acquisitions would be dilutive. I stated this in the third-quarter call, that the impact of acquisitions would be dilutive in the fourth quarter, and this is exactly what happened. This was primarily due to the initial lower margins of these acquisitions and accounting rules we must follow in acquiring these businesses.

In the latter case, we have acquired software and service businesses where we are prohibited from recognizing certain deferred revenues. In addition, where applicable, a portion of the purchase price of these businesses is allocated to software and then amortized over three years. While these adjustments result in profit and earnings dilution in the short term, they are entirely non-cash; and these businesses are immediately cash accretive.

In total, acquisitions negatively impacted fourth-quarter margins by roughly 600 basis points. Nevertheless, as these businesses -- as the acquisition accounting treatment normalizes throughout the year, we anticipate these businesses will contribute handsomely to solid margin improvement and we will be back to our historical averages for this business for the full-year 2008.

Full-year 2007 revenues rose 18%, 10% organic. Operating profit increased 10%, while the margin declined 200 basis points, primarily for the reasons I just described.

Scientific revenue was up 11% for the quarter, 5% organic. The Information Solutions business, which is 60% of total revenue, was up 16% of which half was organic, driven by a solid performance by the Web of Science. Software and Services, which represent 13% of the total revenue, was up 6%, all organic. However, the Legacy businesses, which comprise about a quarter of our revenues, were down 4% in the quarter. Scientific had strong operating profit growth of 20%, thanks to the benefits of THOMSONplus and other efficiency initiatives. Margins increased 220 basis points.

For the full year, revenue increased 8%, half of which was organic. Operating profit increased 16%, and the margin increased by 180 basis points.

Healthcare's revenue was flat in the quarter. Organic revenue was down 3% and growth from acquisitions was 3%. The organic revenue decline was due to a decrease in revenue from the Physicians' Desk Reference, which we call the PDR. This is the sole remaining print publication in the Healthcare segment. Excluding the PDR, the Healthcare business grew 11%, 5% organic.

The Payer segment of Healthcare, which is Medstat, comprises 25% of overall revenue, was up 8% of which 6% was organic, reflecting strong renewals and good new business. The Provider portion of the business, which is Solucient and Micromedex, is 40% of revenue, and it grew 13%, of which 4% was organic.

Segment operating profit for the quarter decreased 7% and the margin fell 250 basis points due to the weakness in the PDR product.

For the full year, Healthcare revenues rose 21%, attributable to acquisitions. Excluding the print business, organic revenue rose 4%. Operating profit was up 5% while the margin declined 290 basis points.

Although we are not satisfied with the overall Healthcare results, the core solutions business continued to do well, and we expect good performance in the coming year. We recently implemented some management changes in this business and are very focused on making sure we have the right team, strategy, and assets for this market.

Now let me discuss corporate costs. In the fourth quarter, corporate costs were $131 million, an increase of $47 million from a year ago. Reuters-related expenses totaled $45 million, and THOMSONplus costs were $68 million, partly offset by a $34 million pension credit which we received and recorded in the quarter. The increase in THOMSONplus costs was due to the acceleration of program's initiatives in advance of the Reuters acquisition. This acceleration resulted in run rate savings at year end of $120 million, up from $85 million at the end of the third quarter.

We remain ahead of our original schedule and now estimate run rate savings will be $160 million by the middle of this year, $10 million higher and six months earlier than we originally anticipated.

For the full year, THOMSONplus spending was $153 million. Program-to-date we have spent $213 million and expect the total cost to be in line with our original estimate of $250 million.

For the full year, corporate costs were up $19 million, largely due to higher healthcare expenses.

Now let me turn to the operating profit margin. As reflected on this slide, underlying margin continued to expand, clearly demonstrating the benefits of efficiency initiatives across the Company and the operating leverage of our business models.

Prior to adjustments, the margin for the year decreased 110 basis points. However, this was almost entirely driven by THOMSONplus and Reuters-related expenses. Removing these costs, the underlying operating margin increased 60 basis points to 20.4%.

Now, in an attempt to assist those of you who are somewhat new to Thomson, I thought I would point out seasonality aspects of our business. This slide is a quarterly revenue and operating profit phasing for each of our businesses and on a consolidated basis.

The percentages represent the average revenue and operating profit by quarter, based on actual results for the combined years 2006 and 2007. As you see, there are trends towards heavier weighting towards the fourth quarter for both revenue and operating profit, particularly within the Healthcare and Tax & Accounting businesses. On a consolidated basis, we generate 28% of our revenue and 34% of our operating profit in the fourth quarter.

It is reasonable for you to assume that the phasing for 2008 pre-Reuters acquisition for both revenue and operating profit will be fairly similar to what is reflected in this chart across each of these businesses.

Now let me turn to an important metric, which is free cash flow. Reported free cash flow for 2007 as we knew would be down due to the divestiture of Thomson Learning. However, as this slide notes, excluding discontinued operations and the special items it shows, free cash flow continues to grow on an underlying way at 12%. The 12% growth in this year continues the momentum we have achieved over the past five years in growing free cash flow and is reflective of the emphasis we place on free cash flow growth across the Company.

For 2007, capital expenditures increased to 8.3% of revenues compared to 6.9% a year ago. This increase was essentially driven by two items. $47 million for the expansion of our data center in Eagan, Minnesota, the headquarters of our Legal business; the vast majority of capital required for this project has now been spent. And, incremental capital spending on THOMSONplus, roughly $32 million, supporting our efficiency initiatives. Over the long term, we continue to expect capital expenditures as a percentage of revenue to be in the 7% range.

Now as evidenced by our portfolio optimization efforts over the last few years, we're committed to improving returns; and we have seen good leverage and flowthrough from our businesses. We continue to see favorable return on invested capital trends, with 2007 improving to 8.7%. Furthermore, when factoring out the impact of Reuters transaction costs, the metric increases to 9.2%. This is significant growth results despite $90 million of incremental THOMSONplus costs versus the prior year.

Our return on invested capital will obviously be reset once we complete the Reuters acquisition. However, we're confident our businesses will continue to generate solid returns and we remain focused and committed to consistent improvement in ROIC.

Earnings attributable to common shares were $432 million, compared to $390 million in the prior year. Adjusted earnings were $384 million, up 20%.

Adjustments in the quarter including the removing of the impact in Other Net Expense in Q4 the cost related to the charge -- change in fair value of Sterling call options we purchased to hedge our FX exposure associated with the Reuters acquisition. There is a $34 million pension credit I mentioned. The costs I have also mentioned related to the Reuters acquisition. The normalization of our tax rate, which you will see for the full year turns out to be -- that line goes to zero. And discontinued operations, which obviously include Thomson Learning.

Adjusted EPS rose 20% in the quarter to $0.60.

Now as Dick has mentioned, today we announced that we will increase our 2008 annual dividend by 10% from $0.98 per share to $1.08 per share. We recognize the importance of steady and healthy dividend increases from a total shareholder return perspective. In fact, this marks the third consecutive year of double-digit percentage increases in our dividend.

The $0.10 increase reflects our continued confidence in our ability to generate significant levels of free cash flow following the Reuters acquisition, and our commitment to continue to return cash to our shareholders.

Now let me provide you with just a brief update on the Reuters transaction. As you know, the Department of Justice recently changed its timing to approve the transaction, to align itself with European Commission's timeline. We remain highly confident that the acquisition will receive the necessary regulatory clearance and we continue to expect the transaction to close early in the second quarter of this year.

As we await clearance, we continue to proceed with our integration planning efforts and will hit the ground running once the deal is closed.

In conclusion, let me say that 2007 was a milestone year. We delivered solid results. We repositioned our portfolio through the sale of Learning, announced the acquisition of Reuters, and aligned our business model to target the world's leading professionals with electronic solutions.

At this time, we eagerly anticipate the birth of Thomson Reuters. The long-term value of our business is undeniable. However, in these uncertain times, the fundamental strength of Thomson Reuters cannot be ignored. This is represented by our strong market positions and market diversity; by our customer focus and bent toward product innovation; and perhaps most importantly by the talent in our combined organizations.

Our strategy is clear inconsistent. Our businesses are delivering solid results. And we're well equipped to drive to even greater success.

I know I'm also speaking for Dick when I say we're proud of the accomplishments management team and employees have achieved, and appreciate their efforts in making 2007 such a milestone year. Now let me turn it back over to Frank.

Thanks very much, Dick and Bob. That concludes our formal remarks, and we would be pleased to open the call for questions. So if we could have the first question.

(OPERATOR INSTRUCTIONS) Peter Appert from Goldman Sachs.

Thank you. Dick or Bob, I think you mentioned that you have seen some acceleration in the Financial business in the fourth quarter, continuing in the first quarter, which is impressive in the context of the industry backdrop. So I was just hoping you could dig a little deeper into that in terms of the drivers.

Specifically, how do you measure the risk of decelerating growth in your Financial business in the context of the more challenging environment we are seeing?

Yes, Peter. This is Dick. First of all, Thomson Financial really had an excellent year in the second -- an excellent back half of the year. We say accelerating growth in the first quarter; they signed up a number of large contracts at the end of the fourth quarter, which are taking effect in January, which has accelerated their organic growth.

That was kind of across the board. But it was in the Investment Banking side, the Investment Management; also we have a joint venture with Omgeo, and our Corporate side has really picked it up. So those would be the main areas.

But we have also had some growth, as you know, our retail wealth has been flat the last couple of years, but we have also had overall growth in the retail wealth, which has been exciting for us this year.

When we look at the markets going forward, I mean, obviously it's a function of how deep any type of economic setback that we will see. Obviously depending how deep it is, we will be impacted.

But I would say we think the difference this time around versus the difference four or five years ago, around 2001, 2002, is that we have a totally different product mix. As I mentioned, 40% of our products, product line kind of didn't exist then. We have a lot of transaction-based services, as well as the Corporate market etc..

We have also -- at that time were going through a major change in product mix, where we were going from products to solutions. We have made great, great strides.

So if you take a look at the Thomson ONE products and services, we think that they will be -- we will have less vulnerability this time than we had last time. So we do not expect to see quite the same impact.

We also have 25% of our businesses is international, and we had excellent growth last year bothin Asia and in Europe. I think we had double-digit growth in both. I think 10% and 18%, respectively. We have tailored or should say localized a number of products for Europe and for Asia, and that has helped us.

So we think the combination of the whole new product line, different type of products, will basically at least lessen the impact that we might have seen or we saw back in 2001, 2002.

Great, thanks, Dick.

Tim Casey from BMO.

Yes, thanks. I am wondering, Bob, could you just expand a little bit on the issues you identified that depressed the margins in Legal? You talked about expansion into China and Japan on the online platform. Could you talk -- put that a little bit more in context? I'm assuming China is much more a long-term build than Japan.

You also noted -- I think you mentioned some timing on expenses. Just wondering if you could flesh those out a bit more in terms of what happened in the quarter there. Thanks.

Sure, Tim. In terms of our investments in Asia, we have been making investments all year long in both Japan and China. In Japan, we have a joint venture with the largest legal publisher there. We are providing, in fact, all the technology infrastructure and they are providing the content. Compared to what we had a year ago, the rate of expenditures in that segment was a lot higher.

Also, in China we acquired a small legal online -- a very small legal online business and have begun building that out. So those two are reallysubstantial -- and you're right, they are long term.

Although we will be out with a full-fledged product in the Japanese market in 2008. We are in beta right now. And in China, probably not till the end of 2008, maybe early 2009. So these are not as long term in terms of hitting the marketplace.

In terms of other expenses, I think the way I would answer that question, Tim, is that our businesses are really annual businesses, not quarterly businesses. So things can flow from one quarter to another.

Another part that is interesting is that, in fact, we talk about the transition from print to electronic, and electronic has higher margins. In fact, 37% of our revenues in the quarter is print. It's the highest quarter of the year. Those actually on an incremental base are lower than electronic products.

So it's really a lot of -- nothing in particular, just a series of them. That is why we just noted primarily the investments we are making in Asia.

Tim, I will mention also this is full year, not Q4; but you will recall that we did mention on the third-quarter call that there was a $13 million legal settlement that we wound up booking. So that wound up negatively impacting the full year margins a bit.

But, as Bob mentioned in his prepared remarks, we do expect to see good margin improvement in Legal in 2008.

I assume you have seen no change in terms of business activity given the macroenvironment out there?

No, we have not.

Yes, I would say -- this is Dick. I would say that the business activity, again, first of all, we haven't seen any change in the business activity. Then again, if we go back, we had a much larger portion of -- if you go back you will see what will happen if we do have some economic issues going forward. If you go back to 2001, 2002, we had about 45% -- I forget, it's either 43% or 47%. But let's say 45% of our business was print. We are down to about 33% overall.

Even in that recession, a lot of people basically reduce some of their libraries where we don't expect -- their print libraries. We don't expect to see that going forward. We think we have been through the worst of that back in 2001, 2002. So we feel pretty well positioned going forward in the Legal, and actually in all the professional businesses.

Thank you.

Karl Choi from Merrill Lynch.

Hi, good morning. I just wonder if you can drill down a little bit deeper into the issues over at PDR in the quarter. Was it a marketshare issue? Was it more a transition from print to online?

Karl, PDR is an online product. It is simply -- I would call it a business model issue. PDR is advertising based. You just turn on your TV set and you can see so many more drug advertisements being directed directly at the consumer. So it is really a product that is in a decline phase at this point.

Secondly, can I ask about the incremental margins on Financial was very good in the quarter. Can just you just talk a little bit about if we do hit a slowdown, how you think incremental margins will be on the downside? Thanks.

Well, it is a -- the Financial business is a fixed cost business, but we have been fairly resilient and we have been able to take, as you know, take a tremendous amount of leverage in that business.

In a downside, first of all I believe that, as Dick said, our products are far more resilient than they were back then. So we expect to see less of a revenue decline. But as any good business, we will manage our business to the economic environment accordingly, as we did in the last downturn.

I believe in the last downturn, we actually increased margins as the revenues declined. I don't know if we will be able to achieve that same record, but I know that we can manage our businesses very, very effectively.

Great, thank you.

Vince Valentini from TD Newcrest.

Yes, thanks very much. Question on the dividend and the dividend policy. It would seem that with the Reuters integration that you would have a bit of a drag on your free cash flow in year one, when you account for all the integration costs, albeit you have still been willing to raise the dividend by 10%, which I think is great news.

But I just wanted to hear your thoughts on how you think about the payout ratio now. Are you still trying to stick to a hard 40%? Or you seem to be willing to push higher than 40% for a year or two while you go through the integration and then get back to 40% long-term; is that what you are thinking about now?

I think the way we think about dividends is that it reflects the long-term strength of the Company. We have anticipated in our thinking of our dividends what we are going to be doing over the next two or three years, in investing in getting the right integration done between the businesses.

From our perspective, 40% has been a part of it. But you have to also remember that the Woodbridge has agreed to reinvest a portion of the dividends, which gives us a flexibility as well in terms of funding the kind of growth and kind of investment that we need. So when you take the Woodbridge reinvestments in, that brings that ratio down quite substantially.

So, it is that thought that is also guiding us in terms of making these kind of policy decisions.

Okay, thanks.

Mark Braley from Deutsche Bank.

Yes, good morning. Just a couple of very brief sort of unrelated questions. Can you just tell us how much revenue PDR is on a full-year basis across all of its formats? So, print, but also the newer formats.

Then secondly, on TradeWeb, would it be fair to assume that the ownership change, your selling the stakes back to the banks, should that give you -- everything else being equal -- should it actually give you a revenue uplift in that business in 2008? I.e., are they contractually committed, everything else being equal, to putting more business through TradeWeb?

I will answer the second one first. They are, certainly, in terms of the growth, we are both contributing. They're contributing more of their liquidity and we're contributing our capabilities. So the answer is, we put this together with the belief that we will be able to drive better revenue growth; and they have an economic incentive to do that because of their partnership with us.

So the answer is absolutely, we would expect better growth coming from the diversity of products and markets that will cover it. So the answer to that is absolutely.

In terms of PDR, it is roughly today about an $85 million business from all its sources. A significant portion of that, though, is booked in the fourth quarter.

Okay, great. Thank you very much.

Drew McReynolds from RBC Capital Markets.

Thanks very much and good morning. I guess three small questions for Bob. Just wondering in Q1, should we see again Reuters-related acquisition costs in the quarter?

I guess number two, when you look at the Thomson Learning proceeds, was there any taxes paid on those in the quarter? If not, when do you expect to actually pay the cash tax bill?

Then the third question here, just back to the TTA margins, clearly you guys are making tuck-in acquisitions all the time. What was kind of different about this particular acquisition, where we saw such a dramatic impact on margins?

Okay, again, I will start with the last one first. The difference is relative. We have made a series of -- this has been a -- let me step back and say Thomson Tax & Accounting for the past several years, as you know, has been a growth engine for the Company.

We have scoped out a strategy across the marketplace to give us comprehensiveness of products and services for the market. Then we mapped against that strategy of what do we need to develop and what do we need to buy. The management team has very crisply come forward with a strategy plan which the Board ratified, and then we went out and started pursuing that strategy.

It turns out in the fourth quarter that what we had was a series of acquisitions, I think three or four of them if I remember correctly. All of them were primarily in services or software. So all of that incremental -- so you acquire a service -- let's say you acquire a software business. I'm going to pick a number; it's got $10 million in revenue and makes $4 million in profit on an annual basis. All of a sudden we acquire it, and we have to eliminate, because we can't capture deferred revenues, eliminated $2 million. Now you're down to $8 million. And you wind up taking a part of the cost.

Say software, let's say we had assigned -- this is really dramatic -- $30 million of cost to it which is going to amortize over three years. You have taken a business that had a $4 million profit to it and taken it down to a loss just like that. But it is all non-cash.

So that is what we saw in the quarter with TTA, that there were a series of these acquisitions. We knew all of them in combination would have this impact on the business.

In terms of the -- we did pay the tax in the fourth quarter, and it was $1.3 billion that we paid out in taxes on the proceeds. We anticipated that we were going to pay that in all of our cash planning and cash management.

The answer to your first question in terms of Reuters' costs, yes, we will continue to see them, those costs. These costs are primarily around consulting services and stay bonuses. That is where the bulk of this is.

So we will see those continue into the fourth quarter -- I mean, I'm sorry, into the first quarter. Then as we get forward into the second quarter and on, we will begin to see more of the integration costs as we start putting the businesses together.

Okay, thanks very much, Bob.

Colin Tennant from Lehman Brothers.

Hi, thank you. I just had a question on the Scientific division. You mentioned that the growth was held back by declines in the Legacy products. I wondered how much of a headwind that was.

Also, I just wanted to clarify the THOMSONplus costs that you talked about you brought forward some of those into '07. Does that mean that the THOMSONplus cost is now completed, so there won't be anything in the current year? Or is there still some left to go in '08?

Colin, I will answer that; again the last one first. THOMSONplus costs, there will be some that will roll over 2008. That would be roughly about $30 million or $40 million.

Okay.

In terms of Scientific, the Legacy products are primarily Dialog. That is a large part of it. The decline there is about 7% or 8%. So if you've got 25% of your business going backwards by that amount, and again, Dialog is a business that goes to the information provider, the librarian in most of these research centers. It like other similar platforms experiences the -- just, I will call it, consistent decline as we go directly to the desktop of users. So it is not unexpected, but it is part of what goes on in terms of interactions to business models.

Okay, thanks very much.

Sami Kassab from Exane.

Good morning, everybody. I had two quick questions, please. The first one, could you elaborate on the move towards multiyear contracts? Maybe quantify the average contract length you're seeing across your different divisions today compared to what it was five years ago.

Have you also mentioned whether you have to trade-off price increases for contract life, or whether you're in a position to maintain your historic price increases, please?

First of all, I don't have the exact details in front of me, and we can get those. But for the multiyear contracts, going back probably about five -- the last five or six years, most of the larger contracts, whether it be Thomson Financial, whether it be the large law firms, the large accounting firms in Thomson Tax & Accounting and some of the pharmaceutical businesses, we basically -- and the Scientific side -- we have gone to multiyear contracts, which works both for them and us.

I would turn around and say that the price increases in those are probably roughly the standard price increases we have had across all our contracts. If I go back a number of years ago, go back five or six years ago, the majority -- very few of our contracts were multiyear. It was primarily in the retail wealth management when we did Merrill Lynch or some of the others.

But we have moved to multiyear, and we found it's actually what the customers actually want.

Then the other key with that is that usually what we do -- I will give Legal as one example. As we add new products and services, they go on as a transaction product and services to make sure the customer actually really wants them. When they want them they roll into the contract next year. So I would -- at normal pricing.

That is also the same with Scientific, the same way. So we have a methodology of not only having multiyear contracts but how do we actually roll in new products and services to those multiyear contracts.

This is Frank. Just further to Dick's comments, just a bit more color. In 2002, small law firms, roughly 36% of them were on a month-to-month basis. Today, only 4% of them are on them are on a month-to-month basis. Our library maintenance agreements now are typically three years, which was not the case five or six years ago.

That is also the case with large law firms, whereas today they are typically three-plus years in duration. So is just for Legal; and we could provide you with more information post call on some of the other groups.

That is very, very helpful. Thank you very much. Can I ask a second question on your data center consolidation project? We have heard today the $47 million investments in the Eagan data center.

Can you comment on the cost savings you would expect to generate from that particular part of THOMSONplus? Reducing the number of data centers, how much would that particular project account in the $160 million cost savings you expect, please?

I would turn around and say that if you -- it's a little bit apples-and-oranges. THOMSONplus was the consolidation of -- it was back office accounting, it was certain technology, it was offshoring, it was a number of different activities.

When we build a data center like as we added to the data center out at West, although we have merged some other operations into that data center, we really need to basically do that to make sure that we can continue to handle the growth out at West. And we make sure that they have the flexibility to accept that growth.

So that would be built. So some of these data centers again, although we do consolidate some activities there, the real purpose is to make sure we can handle the continued expansion that our Legal group is experiencing. That would be the primary driver of adding that, the addition to the data center.

Thank you very much, gentlemen.

We would like to take one final call, question, please.

Scott Scher from Clovis Capital.

Quick question. Can you guys update us on -- given the share buyback that Reuters is doing, if they continue at the pace that they are continuing, how much cash will you have to spend as the cash portion of the deal, as compared to what you originally expected?

So just give us an update as to how many shares they have bought back. And if they continue at this pace, what is left on the buyback; and then what the delta is as to the original cash you thought you would have to put out? What will you have to put out?

Well, we originally looked at this, we thought that the stock consideration for the deal would be about $8.5 billion. Now we think it's about $7.2 billion.

The cash consideration, oh, I see what you are saying -- you know what, Scott, I will have to get back to you. I will give you more detail because obviously every share we take out, that is less cash we have to put out in the marketplace.

Well, exactly, and they are buying back --

Yes, I understand the question; I don't have that information directly in front of me. So I will get it to you. You know what we will do? We will post it on the website so anyone else who would like to have that can have it as well. Okay?

That's great. Thank you very much.

Okay, that will conclude our formal remarks in the Q&A. We would like to thank you for joining us on our call. Just to remind you, we anticipate our first-quarter earnings call will take place on May 1.

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