Thomson Reuters Corporation
Q3 2007 Earnings Call Transcript

Published: 26 Oct 2007

[Operator:]

Welcome to The Thomson Third Quarter 2007 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]. And as a reminder, today's conference is being recorded. I would now like to turn the conference over to our host, Vice President of Investor Relations, Mr. Frank Golden. Please go ahead.

[Frank Golden:]

Thanks you and good morning and welcome to The Thomson Corporation's third quarter 2007 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. Dick Harrington, our President and CEO, will begin this morning by discussing the third quarter highlights and he will provide an update on the proposed Reuters acquisition. Bob Daleo, our CFO, will then take us through the details of the quarter and year-to-date results and Bob will also review the Company's financial metrics. Following Dick and Bob's presentations, we will open the call for questions. We are also joined this morning by Jim Smith our COO and Mike Wilens, our Chief Technology Officer. Please limit yourself to one question each to enable us to get to as many questions as possible. Now, today's earnings release has appended to it some additional UK required reporting schedules related to our 2007 profit margin outlook. When we originally provided our outlook in February, which was prior to the announcement of the Reuters transaction, we noted that our 2007 operating profit margin was expected to be at or above 2006 levels, despite increasing efficiency initiatives, i.e. THOMSONplus. Today, we are updating our profit margin forecast to exclude costs related to the Reuters transaction. This is the only change we have made to the previous guidance. Due to the UK takeover code requirements, when we update a profit forecast while the Reuters transaction is ongoing, we are required to describe the bases and assumptions related to the forecast within the release. We are also required to include opinions, letters... opinion and letters related to the forecast from PWC and our financial advisors for the Reuters transaction, Perella Weinberg and Bear Stearns. While this is unusual from the U.S. and Canadian perspective, it is the UK requirement. 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 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.

[Richard J. Harrington:]

Thank you Frank. Good morning and thank you for joining us. This morning I will begin by reviewing the Company's third quarter operating results, next I will discuss the growth drivers of our business... the business that are delivering growth and returns. Third, I will provide a regulatory update related to the Reuters acquisition, I will also touch on the opportunities that Thomson-Reuters combination will bring for our customers, employees and shareholders. Let me begin with the financial results for the quarter, after posting a 6% organic growth rate in the first half of the year. We continue that momentum in the third quarter. The high organic revenue growth is a direct result of our success in building workflow solutions and investing in technology platforms that are being used, across the Company to drive growth. Revenue for the quarter was up 9%, led by our legal and our tax and accounting businesses, though every segment contributed. Operating profit decreased 1% due to several one-time costs that Bob Daleo will describe later. Removing these costs from both periods, underlying operating profiting increased 16% and the margin improved 80 basis points. Adjusted earnings per share for the quarter were up 55% to $0.48 per share, given the results for the first nine months of the year and the continuing strong business environment, we are well positioned for a solid finish to the year. As I discussed in the our recent Investor Day meetings we are helping our businesses, so we are helping our business and professional customers become more productive by delivering integrated information solutions. We are number one or number two, in the market segments in which we compete, which positions us, to meet and exceed our customers' needs. We deliver our information solutions electronically to enable us to roll out new products and services, like Westlaw Business and FindLaw, quickly and cost effectively with high incremental profitability. 80% of our revenues from electronic products offered services and 80% as recurring and we have a very loyal customer base. Combined with stable capital spending and a balanced capital structure, this model has led to a 20% compound annual growth rate and free cash flow over the last five years. The direct result of this model is our ability to quickly develop and launch innovative solution. This chart shows a number of our leading solutions. These solutions represent 40% of our revenue for the first 9 months of the year and they have significantly contributed to our organic revenue growth, faster product development and velocity is translating into higher organic growth and margins. Now let me turn to Reuters regulatory approval process and recap where we stand. As you know, we were informed by the European Commission on October 8 that it will proceed to a Phase 2 review. The Commission's move was not of surprise given the deal size and complexity. We are comfortable with the process and have always planned for the possibility of a Phase 2 review on our business planning. We anticipate that the review will be completed during the first quarter of 2008 and hope we can work with the regulators to expedite this process and complete the transaction in or around the first quarter of next year. As we have said, since we announced the transaction in May, we continue to believe a combination of -- a combine Thomson and Reuters will enhance competition as well as customer value. In the U.S., we have entered into a timing agreement with the Department of Justice related to its regulatory review under the agreement that DOJ will provide us with the decision by January 15, 2008. Lastly, the integration planning teams have been in placed for several months and continue to make progress. The teams are laying the groundwork to ensure that when the deal closes we will be off to a running start having identified the opportunity that will drive the business and better serving our customers. Now, let me discuss the opportunity that the acquisition of Reuters presents for Thomson and our shareholders. As I said, when we announced the Reuters acquisition in May, this combination is the next logical step for Thomson. We have developed a strategy the business model and capital structure to support this acquisition and to take this major step. When the deal closes, we will become the largest provider of information services and solutions to business and professional customers across the globe, supported by a world-class new service. We will deliver high end critical content electronically with software tools and services and enable our customers to perform in a higher level. The acquisition enables Thomson to achieve a global footprint, combined with the global brand, faster than we could have achieved on our own. This global footprint will be set on a solid foundation in North America and Europe and will also give us over $1 billion in revenue in the growing Asia Pacific market. In addition, we'll have the management talent, financial strength and a strong operating position to capitalize on the opportunities in our markets. The net result is that we believe Thomson Reuters will create shareholder value and will be beneficial for our customers. In conclusion, let me say that our management team remains focused on driving the business and achieving strong full year results. We have built leading positions in some of the most vital markets in the world, which enable us to continue our momentum and expand our position while at the same time these markets are also demonstrating favorable business trends. With the acquisition of Reuters, Thomson's business model becomes even more attractive gaining a first class brand and a global reach and with a clear strategic vision, sound operating performance and financial stability, Thomson remains well positioned to drive shareholder value for years to come. I would now want to introduce Thomson's Chief Financial Officer, Bob Daleo.

[Robert D. Daleo:]

Thank you Dick and good morning everyone. I want to begin by reviewing the third quarter nine months results and will also discuss several items affecting our overall expenses. As you will see, there are several moving pieces within the business this quarter, which mask a strong operating performance. I will also review several of our key metrics and conclude with our outlook for the balance of the year. Now, the results, continuing operations for the third quarter saw a revenue growth of 11%, 6% was organic, 3% was acquisitions and 2% foreign exchange. Operating profit declined 1%, however, underlying operating profit rose 16% after adjusting for several unusual items and these include $29 million of Reuters acquisition-related integration cost. $11 million of incremental THOMSONplus expense, which totaled $24 million versus $13 million in the prior period. The good news is we are running ahead of these costs, because we are ahead on the program. I will talk more about this little bit later. And we also incurred a $13 million related to the anticipated settlement of a law suit in our legal segment. Excluding these items the operating margin increased 80 basis points to 21%. Year-to-date revenues are also 11% and 6% organically and excluding the one-time items, I previously mentioned, margins are up 130 basis points. Now I will discuss the third quarter results within each of the five business segments starting with Legal. Our Legal segment have very strong quarter building on its solid first half results. Revenue was up 11%, 8% organic, 1% from acquisitions and 2% from exchange. Online revenue increased by 10% almost entirely organic and was once again driven by U.S. Westlaw, which now has grown at least 8% organically to the last 10 consecutive quarters. U.S. Westlaw growth continues to benefit from the success of the litigated suite products, which grew 34% in the quarter. International online revenue grew 19% lead by Westlaw UK. In July, we introduced Westlaw business and web-based legal research and workflow solution built specifically for business or transaction in world market, and I am pleased to report that 30 of our top 100 customers have already signed up for the service, so solid start. And an example of another new product that we hope to continue to drive organic revenue growth. Software & Services revenue grew by 23% in the quarter, 14% organically, led by the continued success of FindLaw, which grew nearly 30%. Print and CD revenue was up 4% in the quarter, compared to the prior year and represented 37% of total revenue. Approximately $5 million of the print revenue growth is attributable to the timing of shipments that took place in the fourth quarter of last year. Let me highlight that print products are weighted toward the second half of the year, and typically represent about 37% of the overall legal revenues, in the last six months, versus 31% in the first six months. This somewhat dampens revenue growth. Operating profit for the quarter was 6% and margin declined to 32% resulting from the $13 million anticipated settlement recorded in the quarter. Adjusting to this expense the margin was essentially flat. Year-to-date operating profit is up 12%, and the operating profit margin is up 60 basis points to 31.7% while revenue is up 10%. Thomson Financial, Thomson Financial delivered strong growth in the quarter with revenue up 7%, 5% organic and 2% from exchange. The core solutions business... businesses represented by Investment Management, Investment Banking and Corporate Services achieved the combined growth of 7% in the quarter all organic. Our transaction and trading platforms continued to show solid results led by Omgeo, this is Thomson Financials straight-through processing joint venture, which was up 24% in the quarter. TradeWeb's revenue grew 1% as the difficult trading environment in U.S. Treasuries continues. I'll talk about the recent announcement on TradeWeb in a minute. Enterprise Solutions comprised of news, publications and real time commentary, with 20% for the quarter. International operations performed well with Europe up 10%, with 7% was organic and Asia increasing 22% all organic. These stages reflect the expanded capabilities in these markets and a continued penetration of our new localize solutions. Overall, we continue to migrate clients at Thomson ONE desktops, which are up over 10% on the year ago. Thomson Financial continues to drive operating profit, which grew 21% in the quarter. Margins improved 240 basis points due to solid flow-through from revenue growth and ongoing efficiency efforts. Year-to-date revenues of 8%, operating profits as well 19% and margin has increased 180 basis points to almost 20. I have already discussed the TradeWeb transaction, which we announced earlier this month. Thomson Financial has agreed to form a partnership with a consortium of 9 global securities dealers to further expand TradeWeb. The partnership will utilize TradeWeb's established market position to create a global, multi-asset class execution platforms for clients. The dealers have signed long-term agreements. The transaction is very much in keeping with Thomson's history of partnering with leading providers and originators of financial information as well as financial market makers to provide greater transparency and liquidity creating greater value for our customers and shareholders. You may recall, that First Call was a partnership were formed Thomson Financial and a consortium of banks, which created a global database that provides real-time electronic access to equity research reports for more than 700 brokerage firms worldwide. This partnership created a whole new market an efficient way of compiling and distributing research estimates, immediately, adding value and increasing our customer's productivity. And Omgeo, our joint venture with the depository trust and parent company has become the market leader in the development and deployment of post straight pre-settlement solutions, partnering with 40 clients in 42 countries worldwide to create automated solutions that improve the speed and efficiency of their close trade practices. Both of these partnerships are examples of our Thomson successfully leverages relationships. Its understanding of financial markets and electronic platforms to the strong growing and profitable businesses, which also benefit our customers. Now, in order to accomplish this current venture, we are forming two new separate companies, TradeWeb markets and TradeWeb new markets. TradeWeb markets will be 85% owned by Thomson Financial and 15% by our bank partners. TradeWeb new markets will be 80% owned by the banks and 20% owned by Thomson. Under the terms of this agreement, the viewers will invest $180 million of cash in TradeWeb markets with 15% interest, volume in TradeWeb at $1.2 billion. Thomson will contribute AutEx and its Order Routing assets to TradeWeb markets. AutEx is the global industry standard connecting buy and sell side traders by providing electronic databases and real time networks for trade order indications for equity securities. Thomson's Order Routing provides execution services which enables trading partners to actively record their trading. TradeWeb markets will handle traditional asset classes such as treasuries, asset-backed securities and several others that are listed on the table, on the slide rather. Thomson and its dealers will fund additional investments in asset class expansion through a new company called TradeWeb New Markets. Under the terms of the agreement, the viewers will invest $60 million of cash and will contribute contracts valued at a $180 million. In addition, they are committing to invest up to an additional $40 million to fund future expansion. Thomson Financial will invest $30 million of cash and we will contribute certain assets valued at $30 million and we are committed to invest up to an additional $10 million to also fund future expansion. TradeWeb new markets will trade in U.S. and European corporate bonds, convertible bonds and several other asset classes, which are listed on the slide. The infrastructure and management of TradeWeb markets will support both companies, They will run on the existing TradeWeb platform and TradeWeb new markets will pay a fee for services provided by TradeWeb markets. The transaction is expected to be completed within the next few months. Now this is an exciting opportunity for Thomson we believe this combine business will enhance liquidity and trading in the marketplace that are serving customers, buyers and seller and ultimately create significant value for our shareholders. Now turning back to our segments. Tax and Accounting continued its momentum in the third quarter, with revenue up 19%, which 10% was organic in the balance was for acquisitions. The acquisitions include CrossBorder Solutions, eProperty Tax and Deloitte Sales & Use Tax, all focused on the corporate market. Organic revenue growth is being driven by solid performance across all three of the segments businesses. Researching guidance was up 11% all organic, professional software and services was up 13% all organic, corporate software and services was up 38%, of which 7% was organic. Checkpoint continues to drive growth in online revenue, increasing 22% in the quarter and marking the 19th consecutive quarter of at least 15% organic growth. Segment operating profit increased 24% and the margin rose 70 basis points due to significant revenue growth and the benefits from efficiency program. Year-to-date revenues are up 18% and 30% increase in operating profit has led to margin expansion of a 190 basis points. Now as I pointed out last quarter, please keep in mind that Tax and Accounting segment is a seasonal business, historically generating roughly one-third of its revenue and over half of its operating profit in the fourth quarter. This cyclicality is reflective of the market itself. Where significant activity for our customers takes place in the fourth quarter, in preparation for the upcoming tax season. As a result, roughly 40% of this segment's print products typically shift in the fourth quarter. Scientific revenues were up 8% for the quarter, 5% organic, 1% acquisition and 2% exchange, information solutions, which is 60% of total revenues was up 10% all organic, driven by strong performance from the Web of Science. Software and Services, which is about 12% of revenue was up 28%, of which half was organic driven by... and downs driven by the ScholarOne acquisition. However, the legacy business, which represents 28% of total revenue was down 8% for the quarter. Operating profit, increased 8% with the margin declining 10 basis points largely due to a non-recurring royalty expense paid within the quarter. Year-to-date revenue has increased 7% operating profit, is up 14%, and the operating margin has increased 160 basis points. Healthcare revenue increased 26% in the quarter. Organic revenue is actually down 4% and growth from acquisitions mainly solution were 30%. The Payer segment of Healthcare, which is Medstat, comprised one-third of total revenue was up 18% of which 10% was organic reflecting strong renewals and new business sales. Healthcare's revenues was impacted negatively by the timing of the shipments and re-custom sales products from the physician debt reference print product. A $4 million supplement to PDR shipment, which took place in the second quarter last year versus the third quarter... which took place in the second quarter this year versus third quarter last year. This had a big impact on the quarter because of the relative small revenue base. Likewise the segment operating profit increased of 50% is of a small base and while the margin improved 240 basis points. Year-to-date Healthcare revenue is up 36% operating profit is up 40% and the margins have improved 20 basis points. Let me remind you that Healthcare segment historically generates over 40% of its revenue and 70% of its profit in the fourth quarter. Again going back to the PDR. Now let me discuss corporate costs. For the quarter, corporate costs totaled $95 million, a significant $43 million increase from the prior year. The $43 million increase consisted primarily of $29 million of Reuters acquisition-related integration costs. And $11 million increase in THOMSONplus cost from $24 million... from $30 million to $24 million. For the first nine months, corporate cost totaled $258 million, $160 million of which was related to THOMSONplus and Reuters acquisition cost and the $142 million of underlying corporate costs by the way is a good estimate when annualized of where we believe we'll finish the year. Our investments in THOMSONplus continue to lead to greater efficiency and effectiveness across the company. At the third quarter our run rate savings were $85 million up from $65 million of this second quarter. To date we are running ahead of schedule. And we believe we can achieve our run rate savings target of $150 million by the middle of next year, which is at least six months earlier than originally expected. Achieving this will require an additional $30 million of investment this year for a total of $130 million in 2007. However, the incremental 2007 spend does not change our total estimated spent for THOMSONplus. Since we originally had anticipated that we would spend $30 million in 2009. Now let's turn to our operating profit margin, where operating performance excluding one time cost has led to significant underline margin expansion. Prior to adjustments, our margins for the first nine months of the year decreased by 60 basis points, however after adjusting for the $129 million in THOMSONplus and Reuters acquisition related costs, the operating margin has increased to 100 basis points. Now let's turn to free cash flow, reported free cash flow for the first nine months of the year is $638 million down from $886 million in the prior year period. Recall that according to GAAP cash flow from discontinued operations is included in our reported results. However, excluding free cash flow attributed of discontinued operation for both periods, free cash flow increase 7% to $819 million from $716 million a year ago. And I want to remind you that in 2006 we had three quarters of Thomson Learning cash which included the third quarter, which is... when it generate cash and profits in cash. In 2007, we only have the first half, which is only losses and cash outflow and that's why there is that dramatic swing. Now earnings attributable common shares were $3 billion, compared to $418 million in the prior year, adjusted earnings were $310 million with 56% higher than last year, adjustments include removing of the discontinued operations, certain tax benefits and the normalization of our tax rate, and the cost associated with the Reuters transaction, After adjusting for all items EPS rose 55% to $0.48 from $0.31 a year ago. Now let me talk about the business outlook, which essentially remains unchanged, but for one item that deserves highlighting. You can see on this slide, that operating profit margin has been added back to our 2007 outlook, for the reason that Frank had already discussed. You should note the revised language that our full year operating profit margin is predicted to be at or above the 2006 level. Now excludes cost associated with the Reuters transaction. And I want to wind up with this slide because I think it's important. Now as you know, we do not give quarterly guidance in any respect. However, I would like to reiterate several items, which I noted at various points during the presentation that will affect the fourth quarter's results. And while, many of these items translate, the long term growth opportunities for Thomson, they do present anomalies within the coming quarter. First, the fourth quarter historically represents our biggest concentration of print revenue. Last year, we recorded one-third of our print revenues in the fourth quarter, and print accounted for about 23% of consolidated revenue. As I put it out earlier, this trend is driven by our legal tax and accounting and healthcare segments. In addition, remember that we had a timing shift in the third quarter of $5 million of legal revenue come forth into third quarter. So you can see that this will have a dampening effect on our expected revenue growth rates. Second, we have made several acquisitions in our tax and accounting business that are contributing the current revenue and will drive long term growth. However, these acquisitions will be dilutive in the fourth quarter. Resulting in a $0.01 to $0.02 impact on earnings per share. Third, as I pointed out previously since THOMSONplus is ahead of schedule, we anticipate spending of about $45 million, in the fourth quarter and approximately $130 million for the full year. We will continue to make the necessary investments to best facilitate a smooth integration with Reuters, and expect to incur an additional acquisition related integration cost of about $30 million in the quarter. In conclusion, let me reiterate that we are pleased with our results for the first nine months of the year and we are looking forward to a solid finish for the year. And now I would like to turn it over to Frank.

[Frank Golden:]

Thanks very much Bob. And that concludes our formal remarks and we will open the lines for questions. So we could have the first question please. Question And Answer

[Operator:]

[Operator Instructions]. One moment please for the first question from the line of Drew McReynolds from RBC Capital Markets. Please go ahead.

[Drew McReynolds:]

Thanks very much. Good morning. Just on the THOMSONplus program and the acceleration maybe you can provide just a little color on what's behind the acceleration here and also maintaining a $150 million in savings is there is a chance that you can outperform that number when its all said and done? Thanks.

[Robert D. Daleo:]

Hi Drew this Bob. First of all I will tell you that we certainly are not going to stop at a $150 million I mean if we had the opportunity to exceed that we will, right now though it looks as though that certainly will be wrong hint. What's driving the acceleration are a couple of things, first, it is simply just better execution then and taking us so less time then we thought. And second of all I think what's motivating us to try to move these quicker is we want to have these complete before we really get into the middle of the Reuters integration as we anticipate when we complete the proposed acquisition. So those two things combined.

[Drew McReynolds:]

Okay, Thank you.

[Operator:]

Hey, thank you and our next question comes from line of Tim Casey, from BMO, please go ahead.

[Tim Casey:]

Thanks, can you talk about, when you expect to have some sort of roadmap that you'll be able to present to your customers in the financial segment, obviously we've got some decisions to make on integrating Reuters when do you think you will be out talking to customers, so that they can decide what products there are going to continue to take some that may drop and obviously someday may accelerate? Thanks.

[Richard J. Harrington:]

Yes, Tim I think it's very difficult to first to answer the question why we are in middle of the DOJ and European Commission process.

[Tim Casey:]

Well okay.

[Operator:]

Thank you, Mr. Casey. Our next question comes from the line of Karl Choi from Merrill Lynch, please go ahead.

[Karl Choi:]

Hi, good morning. I just want to ask in the Thomson Financial area, have you seen any changes in our renewal patent or, more pricing resistance given from the market model, and I shouldn't speaking of second question the Thomson Learning proceeds in the quarter should we expect a tax payment down the road or this is a kind of proceeds? Thanks.

[Robert D. Daleo:]

I will answer the second one, tax saving will be done there will be a tax payment down the road, because of the timing of the transaction, the actual tax payment is due towards the end of the shares when we completed the transaction.

[Richard J. Harrington:]

On Thomson Financial we... I would say there is been obviously some minor issues with customers who want to take a wait and see attitude and what the new products are, but that said, I think we are performing the units that are performing... Bob mentioned a number of units that are performing at 7 plus percent. Organic growth, those units we would expect to perform regardless of the transaction and so we feel pretty comfortable at Thomson Financial, is basically achieving market rates, growth based on the product line that we have, and so although there is some noise out there from some of the customers, it had minimal effect, on Thomson Financial.

[Karl Choi:]

Bob, can you quantify the tax payment?

[Robert D. Daleo:]

Can I quantify the tax payment, it's got to be about $1.3 billion roughly. I am sorry I missed that part of the question.

[Karl Choi:]

Great, thank you.

[Operator:]

Thank you, sir. Our next question comes from the line of Peter Appert from Goldman Sachs, please go ahead.

[Peter Appert:]

Thank you. Can you talk a little bit about how deep you are able to go pre-transaction in terms of planning the integration and I asked specifically in the context of the $29 million in the cost issue side, which seems like a very high number, at least based on my understanding if the restrictions in there, so how deep can you go and why are those costs so high?

[Richard J. Harrington:]

Well, Peter, first of all, what we can do is obviously anything dealing with basically, what the corporate office is going to look like, which is HR, finance, etcetera, certain infrastructure cost, what we have not been able to, what we will be able to do until a review is done is too deeper dive into customers and into products etcetera. So as far as cost are concerned I will let Bob go through the cost with you.

[Robert D. Daleo:]

There are really too large components of it, one is consultants because we have hired Deloitte and McKinsey to help us manage that and they are working with us full time in terms of laying out the planning. So the consultants, costs are upfront in terms of helping new plan and then once you acquire the business then you execute and those consulting costs fall all the way. So the bulk will fall away. The other thing is that, we have put in place as you would expect a series of retention bonuses with our own people to make sure that we get the continuity of performance in the business and that we treat our employees fairly. It's particularly as it relates to Thomson Financial because as we said and it is known by employees that we are integrating Thomson Financial into workers. So there are many good people there, we want to make sure we continue to motivate the sales organization, keep management in place and there are costs associated with that but above and beyond the normal run rate cost of the business and that's why these costs because they are our own employees these costs we need to expand as opposed to include them as part of any deal cost.

[Peter Appert:]

I understand and 29 would that be a run rate for the next couple of quarters or for the fourth quarter let's say?

[Robert D. Daleo:]

it generally would be for the.... as I've said it's really would be for the fourth quarter I think that we will as we get closer into 2008 we will share what information we have. Okay.

[Peter Appert:]

Thank you.

[Operator:]

Thank you sir. Our next question comes from the line of Michael Meltz from Bear Stearns. Please go ahead.

[Michael Meltz:]

Great thank you. I just two questions one a follow up on Peter's question there the $60 million you are talking about is any of that is there separate capitalized cost regarding that integration effort and then I have a follow up.

[Robert D. Daleo:]

In terms of the integration cost, the integration cost are not... the integration costs are not separate from that. Those will be things like bank fees and legal fees and others. Those costs are capitalized in fact you do some small amounts of them reflected on our cash flow where we maintain this to banks and so on. So roughly about $20 million in the quarter. So those are separate. These costs integration costs are actually costs that we need to expense because they are in preparation of the transaction don't qualify, for being capitalize as prior to the transaction.

[Michael Meltz:]

Okay, and Bob, the detail you gave on TradeWeb and that deal can you talk a little bit about the actual economics for Thomson how is this... what you are contributing and then how you are going to account for all this going forward, how should we be thinking about that?

[Robert D. Daleo:]

We will accounting for TradeWeb markets, we will have a minority interest. So we will eliminate 15%. The TradeWeb new markets will account for an equity basis, so it will not appear to... it will appear in the segment but it won't appear in the revenue, we will just see the portion of profit that we get.

[Michael Meltz:]

So you are still going to consolidate all the revenues that you currently have right now?

[Robert D. Daleo:]

Yes, but we would not consolidate revenues out of TradeWeb new markets where we have a minority interest. We'd only be showing our share of the profits.

[Michael Meltz:]

So when we are thinking about the gross that TradeWeb's been putting up recently is the new market opportunity, is that presumably just new markets you are going to be leading into here or they are... is your growth rate going to be impacted because of that separation?

[Robert D. Daleo:]

We will... part of the agreement with the banks is that they are going to continue to support and actually strengthen their support of the core TradeWeb business in the markets we are currently in. So we would expect to enjoy a better growth rate, in the core TradeWeb business, the only thing that we will see is that as I mentioned, there is a relation between... the new... think of the new markets as a way for us to capture the ability to expand into a different asset classes, but the reality is the sales of the operations of platforms will be supported as a TradeWeb and there will be a fee that will be charged for new markets business, by TradeWeb, which we'll have a reasonable markets and so that will contribute to profits. And so between that and between our share the profits reps and the growth, we will be able to share in that benefit. Now going forward in the instant query we will certainly you know report on what's going on in the new markets business even though it may not be a directly added to our overall revenues. So we'll try to make it as clear as we can, because ultimately what happens here is that our shareholders get value at that value creation of that and so we want to be able to share with you how that's going.

[Michael Meltz:]

Okay, Thank you.

[Robert D. Daleo:]

Thank you.

[Operator:]

[Mark Braley:]

Yes, good afternoon all rather good morning, and just a couple on TradeWeb and kind of continuing the same. Can you just tell us what the revenue base would be for the TradeWeb markets business, and i.e. TradeWeb plus all types and terms in order raising, and then am I correct in thinking that the revenue base for the new markets business is actually zero on day one, or are the banks actually contractually committed to putting a certain amount of business, so does it have a kind of base revenue level when it starts?

[Robert D. Daleo:]

Yes, I like the second question, TradeWeb new markets today has a small amount of revenue about $7 million, until the contract that we retransferring, but, they have... this other banks have committed contracts that they will move in there and importantly they are committed to support this operation with their future liquidity. So we expect to se some significant growth there. In terms of TradeWeb and our equities business, the revenues there are about $270 million.

[Mark Braley:]

And of that TradeWeb online, was that 200 --

[Robert D. Daleo:]

Yes.

[Mark Braley:]

Brilliant, Thank you.

[Operator:]

Thank you sir. Our next question comes from the line of Vince Valentini from TD Newcrest. Please go ahead.

[Vince Valentini:]

Thanks very much. Bob, can you tell us if there is no further acquisitions from now to the end of the year. Approximately how much would prior acquisitions add to the fourth quarter revenue?

[Robert D. Daleo:]

I really don't have it on top of my head, but I would tell you that in the fourth quarter last year we acquired solution towards the end of the quarter and that's the largest contributor. So I think that the fourth quarter acquisition revenue will fall away. I don't know how much though, I really can't I really can't put my finger on that right now.

[Vince Valentini:]

I guess the follow up to that is my math suggests in order to do only 9% for the full year, as soon as you are done 11% year-to-date, you need to do 4% revenue growth in the fourth quarter, and I know you have talked about some of the items in the $5 million print shift, but it doesn't seem like enough to me to get all the way down to 4% unless it's virtually zero acquisitions contribution but --

[Robert D. Daleo:]

Well remember you got foreign exchange as well.

[Vince Valentini:]

Okay, so you are saying 9% is sort of a hard jelling or is there a possibility to do greater than 9% for the year if markets hold up stable?

[Robert D. Daleo:]

I wouldn't speculate on that. We don't talk about the quarters you know, that means [ph] I would say that we have had good momentum in the third quarter and, our business is doing well.

[Vince Valentini:]

Good thanks.

[Operator:]

Okay. Thank you sir, our next question comes from the line of Randal Rudniski from CSFB, please go ahead.

[Randal Rudniski:]

Thanks. Also a follow up on the TradeWeb transaction, can you explain the rationale for contributing AutEx and Thomson Order Routing to that TradeWeb markets given if there are somewhat distinct businesses?

[Richard J. Harrington:]

The real key Randal to carry to this is that first of all Order Routing goes with TradeWeb, that's an integral product TradeWeb and AutEx and AutEx is being converted to converted over the TradeWeb platform to basically have one unit doing these types of transactions. So we can reduce the trading platform, AutEx is a trading platform although not a satisfictated as TradeWeb so that what we do is combined real estate an platforms trading platform although not a sophisticated as trade web so that's so what we do is combine those trading platforms on one. So we would have the large block shares as well as the treasuries and other instruments and the auto routing is just a natural process that goes with that. It's almost like its almost part of the plumbing.

[Randal Rudniski:]

And those two businesses you have to say to equities trades as well. Does the equities part of the business get transferred over time trade web markets as well or do you

[Richard J. Harrington:]

Yes the entire business goes over and that same system can be planned for fixed income which is why.

[Randal Rudniski:]

And secondly the in terms of the THOMSONplus costs in 2008 is would that be in the range of $30 million is that where we are going to get through after you accelerate this spending in 2007.

[Robert D. Daleo:]

The numbers Randall that we had given which we still stand by is $50 million for 2008 on the expense side. The 430 million that Bob had mentioned that we anticipated spending in 2009 is now being moved into 2007.

[Randal Rudniski:]

Yes, okay thank you.

[Operator:]

Thank you. And gentlemen there are no further questions in queue at this time. Please continue.

[Company Speaker:]

Okay, if there are no further questions then that will conclude our call we like to thank you for joining us for the Thomson third quarter earnings call and if you have any follow up question feel free contact us, Thank you,

[Operator:]