Thomson Reuters Corporation (TRI) Q3 2012 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the Thomson Reuters Third Quarter 2012 Earnings Call. [Operator Instructions] As a reminder today's conference being recorded. I'd now like to turn the conference over to our host, Mr. Frank Golden. Please go ahead.

Good morning, and thank you for joining us as we report our third quarter results today. We'll begin today with our CEO, Jim Smith; followed by our CFO, Stephane Bello. Following Jim and Stephane's presentations, we'll open the call for questions. [Operator Instructions] Throughout today's presentation, keep in mind that when we compare performance period-on-period, we look at revenue growth rates before currency, as we believe this provides the best basis to measure the underlying performance of the business. In addition, today's results are presented on an ongoing basis and exclude disposals announced to date. Now today's presentation contains forward-looking statements. Actual results may differ materially due to a number of risks and uncertainties discussed in reports and filings that we provide to regulatory agencies. You can access these documents on our website or by contacting our Investor Relations Department. Let me now turn it over to the CEO of Thomson Reuters, Jim Smith.

Thanks, Frank, and thanks to those of you on the call for joining us. Let me begin by apologizing for having to postpone our earnings release. Like many of you, we've been dealing with other critical issues related to Hurricane Sandy over the course of this week. Our priorities were focused on the safety of our 7,000 employees in the storm's path and servicing our customers around the world. I'm very pleased to report that all of our employees are safe. Though many of them are dealing with personal challenges, I'm incredibly proud of the way our teams worked to minimize the impact of Hurricane Sandy on our customers. The vast majority of our products and services were unaffected by the storm and continue to operate as normal. There was no impact to our Legal, Intellectual Property, Science, Tax or Accounting clients. Our next-generation financial platforms, Eikon and Elektron, performed well, and critical services in dealing, matching, FXall and Tradeweb, weren't affected. We did have unexpected disruptions to a few services in a few regions, primarily related to outages at data centers in New York City and New Jersey and last mile connectivity problems at some customer sites. However, those issues have been relatively few, and our services were completely restored as of my last check this morning. I want to thank our customers for their patience, as we work to keep services up and running. I'm proud of the way our people have gone above and beyond to help our customers recover, and I want to thank them as well. Now to our results for the third quarter. Today I want to cover 3 topics: I'll begin with a review of the third quarter results; two, I'll update you on the progress we've made over the past 9 months against the priorities and strategies I outlined at the beginning of the year; and three, I'll discuss the progress we're making and how that progress is shaping our thinking for 2013 and beyond. I'll then turn it over to Stephane who'll provide you with further details on the results for the quarter. Our results year-to-date can be characterized as on track for the company as a whole and in line with our prior discussions. Let me remind you that given the nature of our business, quarter-to-quarter comparisons often do not accurately reflect underlying performance of the business as compared to full year results. As expected, our third quarter results were weaker than our performance during the first half of the year due to a number of factors we'll cover in greater detail in a moment. However, we knew Q3 would be our weakest quarter this year in terms of revenue growth and that margins would decline both sequentially and period-on-period. That said, we remain on track to achieve our full year 2012 guidance. Obviously, we've not been able to fully assess the impact of the storm, but given the largely recurring nature of our business, we do not anticipate that the impact on our Q4 results would be material. In the third quarter, total revenues increased 1% with Legal, Tax & Accounting and IP & Science again reporting good performance. In aggregate, these 3 businesses were up 4%, lower than the first half rate of 8% and also lower than what we expect for the full year. Financial & Risk revenues were flat for the quarter in what continues to be a challenging and volatile global financial services market, particularly in Europe. As a result of the lower growth in Q3, the EBITDA and operating profit margins both declined as expected. It's also worth noting that the year-over-year margin comparison was particularly challenging this quarter, as Q3 last year was the high watermark for margins last year due to several timing factors. Adjusted earnings per share in the quarter were $0.54, unchanged from the prior year period, helped in part by lower-than-anticipated tax rate. Let me remind you that during the quarter, we acquired FXall and MarkMonitor, 2 acquisitions that buttress our position in 2 foundational businesses and markets, foreign exchange and intellectual property. They're reflective of the strategy we are employing to shift revenues towards markets and businesses with higher growth prospects and where we have leading positions. And as mentioned earlier, based upon our year-to-date performance and our expectation for the fourth quarter, we are reaffirming our full year 2012 outlook. Now let me turn to our results by business segment. Financial & Risk's total revenue growth was flat for the quarter, and organic revenue declined 2%. Growth in Marketplaces and Governance, Risk & Compliance were offset by weakness in trading. Investors revenue was flat for the quarter, yet was its best performance since the second quarter of 2011. Revenues by geography saw the Americas up 1%. Europe, Middle East and Africa was unchanged; and Asia declined 1% due to softness in Japan. Tax & Accounting revenues rose 10%, 3% organic. IP & Science grew 3% from acquisitions, and Legal's revenues increased 2%, 1% organic driven by FindLaw, Elite and the global Legal businesses, including Latin America. As anticipated, U.S. print revenues declined 9%, impacting Legal's overall growth rate in the quarter. Excluding print, our revenues in Legal rose 5%, with organic revenues up 3%. We expect print revenues to decline again in the fourth quarter, and for the full year, they'll be down about 5%, as the law firms continue to be very cost conscious. And lastly, our global growth businesses continue to perform very well, growing 16%, 8% organic. By year end, these businesses will represent nearly $1 billion in annual revenues. For reporting purposes, the GGO numbers are included within the appropriate business segment results. So our performance thus far in the year must be viewed in conjunction with the overall global economic environment, which continues to be challenging. Large global banks continue to be under pressure to reduce costs, and despite improving net sales figures over the past 3 quarters, we expect F&R's net sales will be lower in Q4 than in Q3 due to the flow-through for cutbacks announced at several global banks over the past few months. That said, we expect Q4's net sales to be substantially better than Q4 last year. Despite the environment, our customers are telling us they want a true partner, a partner they can engage with now and one that will also be there in the future to grow with them. We're working hard to meet their needs, and we're seeing the results in improving trends. We've also made strides in achieving greater transparency and accountability, particularly in the financial risk business. This is particularly encouraging as we put together our 2013 plans and make decisions around capital allocation and expense management. We're also seeing a more rigorous and disciplined approach is beginning to drive results. Streamlining administrative and commercial processes leads to simplification, which leads to better customer experience and improved customer service. For example, onboarding new Eikon customers had been -- has been reduced from weeks to hours. Customer satisfaction trends continue to improve especially with Eikon customers. We also continue to launch new products such as Datastream Pro, Eikon for compliance management and while we upgrade our customers to a more robust and user-friendly Eikon desktop. And momentum is building with the number of Eikon customers now at approximately 26,000, up 35% from Q2. And lastly, the F&R team has built targeted, pragmatic metrics enabling us to more accurately measure profitability, sales performance, product development, customer satisfaction and a variety of other items, which is enabling them to make better decisions faster. On the back of this steady progress, we have great confidence in regarding what we can accomplish, which enables us to state that we are expecting good performance in the fourth quarter across the company, and we expect to achieve our full year 2012 outlook. So what does this mean for the balance of the year and for 2013? Well, the points you see on this slide are the 2012 key priorities I outlined earlier this year, and we've made significant progress against each of them. As we near the end of the year, there's no question we are far better positioned to make informed decisions about where we should or should not allocate capital to achieve profitable growth. And we certainly have a far better understanding of the real drivers of our business. We're confident we can return to mid-single-digit organic growth rates by continuing our strategy of focused investment in higher growth businesses, which will enable us to gradually shift our revenue mix toward these higher growth segments, thereby lifting the average growth of our portfolio. However, the global financial services market is likely to remain challenged in the near term, and therefore, it is imperative that we continue to: one, push for faster growth in markets and businesses where we have strong positions; and two, invest in fast-growing geographies where we continue to have success. This is the playbook utilized when I managed the professional division, and we're now employing across the entire company and it is working. But in my view, it's not enough to focus only on the top line. As I said last quarter, and I want to reiterate again today, we will give equal attention to the cost side of the equation, and we will cut our coat according to our cloth, to quote the saying. As we work to balance our focus on growth with the imperative of maximizing free cash flow and profitability in 2013 and beyond, we believe we can deliver attractive earnings and free cash flow growth over the next couple of years even in what is likely to remain a difficult environment from a revenue growth perspective. With that, let me turn it over to Stephane.

Thank you, Jim. As Frank indicated earlier, I will speak to revenue growth before currency throughout today's presentation. Reported revenues are also highlighted on each slide. In total, our third quarter revenues were up 1%, with acquisitions contributing 2%, so organic growth was down 1%. As Jim mentioned earlier, quarter-to-quarter comparisons do not always accurately reflect the underlying trends in our business. This is why we believe that it is better to look at full year numbers, which eliminates some of the noise that may affect our performance in a given quarter. Adjusted EBITDA was down 5% with a corresponding margin of 27.3%, representing a decline of 120 basis points. The benefit from the elimination of integration expenses incurred in 2011 was offset by lower revenue growth and the timing of high-margin onetime revenues in 2011 that did not repeat in 2012. Underlying operating profit decreased 15%, and the corresponding margin was 18.5%, a decline of 310 basis points due to the same factors that impact EBITDA, as well as higher software amortization from investments made during prior periods. Let me remind you that both our EBITDA and operating margin performances faced difficult year-on-year comparisons, as margins in 2011 reached their peak in the third quarter. Finally, foreign exchange had no material impact on our overall operating margin during the quarter. Now let me briefly discuss the third quarter results for our individual business segments starting with Legal. As we indicated during the second quarter earnings call, we were expecting a slowdown in growth for the third quarter for our Legal business, driven by the timing of print revenues. Overall, growth in the U.S. legal market continues to face headwinds. Yet we see good growth in areas away from core legal research. Gross sales during the quarter were up from the second quarter, and retention rates, primarily due to WestlawNext, remain high relative to 2011. We have now covered 73% -- sorry, we have now converted 73% of our annual contract value to WestlawNext, and so we're well on our way to achieve our 75% conversion target by year end. During the third quarter, Legal's overall revenues were up 2%, 1% on an organic basis. U.S. print revenues, which accounted for just under 20% of Legal's revenues in the third quarter, were down 9%. Excluding these print revenues, Legal grew 5% in the third quarter, 3% organically. In fact, if you exclude U.S. print revenues, the organic growth rate for our Legal business would have been a steady 3% in each of the first 3 quarters of the year. Let me now briefly discuss the performance of the 3 subsegments within our Legal business. U.S. Law Firm Solutions, which is our largest subsegment, grew slightly. This was driven by a 13% increase in Business of Law services, while research-related revenues decreased 3%. In Corporate, Government and Academic revenues were up 1% and flat organically. This was driven primarily by the strong performance of our legal process outsourcing business. Now about 40% of this segment's revenue are from print, which explains the lower growth rate this quarter. Lastly, revenues in our global Legal businesses were up 9%, 5% organic. And this was once again driven by strong growth in Latin America, which was up 22%, about half of that organic. So in aggregate, 60% of Legal's revenues grew 6% in the third quarter, while the remaining 40% core Legal research sold to U.S. law firms declined by 3% during the quarter. EBITDA was up slightly versus the prior year, and the corresponding margin was up 10 basis points. Excluding the benefit of foreign exchange, the margin declined by 40 basis points, largely due to the change in business mix. That is the decline in our highly profitable core research business and the growth in other legal businesses, which have attractive margins but just not as high as in core legal research. Operating profit was flat, and the margin decreased 50 basis points. Again, excluding the benefit of exchange, the margin declined 100 basis points primarily due to flow-through from lower print revenues and higher depreciation. For the 9-month period, revenues grew 3%, EBITDA margin was flat and operating margin was down 10 basis points. Now turning to our Tax & Accounting business. Revenues grew 10%, of which 3% was organic. Revenue growth during the quarter was driven by acquisitions, by revenues derived from our ONESOURCE platform sold to corporations and by software sales to accounting firms. This was offset by lower government-related revenues. As a reminder, Tax & Accounting faced a difficult comparison, as the organic growth rate in 2011 reached its high watermark at over 8% in the third quarter last year. In the quarter, EBITDA grew 3%, and the EBITDA margin was 24.8%, a 120-basis-point decline. The EBITDA margin decline was due to the dilutive impact of acquisitions and the flow-through of lower revenues in our government business. Operating profit decreased 8%, with the margin down 230 basis points due mainly to the same reasons I've just mentioned as well as higher software amortization from acquisitions. Tax & Accounting's recent acquisitions continue to perform well, and as I discussed last quarter, we have high expectations from our government tax automation business. Governments around the world are seeking ways to improve tax collection management by modernizing their tax automation systems. Still being said, government-related contracts can be lumpy in that they can be large and fluctuate from quarter-to-quarter. In the third quarter, government revenues declined by 13% organically from the prior year period. So if you exclude the government business, Tax & Accounting's organic growth rate would have been closer to 5% during the quarter versus the reported 3% growth rate. Also, please remember that Tax & Accounting is a seasonal business with a significant proportion of its operating profit traditionally generated during the fourth quarter. For these reasons, full year margins are more reflective of the segment's underlying performance. And for the 9 month period, revenues rose 22%, EBITDA was up 25% and the corresponding margin was up 110 basis points. Our IP & Science business achieved revenue growth of 3% in the third quarter, all coming from acquisitions. Growth was driven by a 3% increase in IP Solutions and an 8% increase in Life Sciences. Scientific & Scholarly Research revenues decreased 6%, due to strong back-file sales recorded in Q3 2011 that did not repeat this quarter. And as we say on every call, quarterly revenue growth for IP & Science can be uneven due to the impact of such large sales in the Scientific & Scholarly Research business. EBITDA and operating profit both declined, with corresponding declines in margins. The uneven nature of revenue growth contributed to 200 basis points decline in EBITDA margin, while the acquisition of MarkMonitor negatively impacted margins by about 100 basis points. And as we said in the second quarter call, the acquisition of MarkMonitor is expected to continue to close margin dilution next year but should rebound thereafter. For the first 9 months of 2012, EBITDA was up 1%, with the corresponding margin down 40 basis points. Let me now turn to Finance & Risk where revenues were flat, with a 2% contribution from acquisitions. So organic revenue was down 2% in the quarter. Recurring revenues, which represent about 3/4 of F&R's revenue base, were down 1%, as the benefit from this year's price increase was offset by the impact of negative net sales in the last several quarters. Recoveries revenues declined 1%, and Outright revenues were up 2%. Finally, transactions revenues, which represent about 10% of F&R's revenue base, were up 4% due to the acquisitions of FXall and Rafferty. However, organic transaction revenues declined 8%, reflecting lower market volumes across most asset classes over the summer. If you exclude transactions, organic revenue growth for F&R would have been minus 1%, which is in line with the Q2 performance. EBITDA and operating profit both declined during the quarter. This was attributable to 2 main factors: First, the decline in organic revenue had roughly 200-basis-point impact on margins; and second, we continue to make investments into the business to drive customer satisfaction, including product enhancement and better customer service and customer administration. These investments are yielding tangible results as we are seeing a gradual improvement in our customer satisfaction scores. As I mentioned last quarter, these investments are incorporated within our full year outlook. For the 9 months period, revenue grew 1%, EBITDA was down 10%, with the corresponding margin down 230 basis points. Now I'll briefly review the results for the individual segments within our Finance & Risk business. Trading revenues declined 4%. We experienced steady growth in our Commodities & Energy and Data Feeds businesses. However, this was offset by desktop cancellations in equity and fixed income, as well as low revenues in Omgeo related to the low transaction volume environment. Investors revenues were flat, with enterprise content revenues up 12%, offset by a 4% decline in Investment Management due to weakness in Europe and Asia. While Investment Management is still negative, this represents a sequential improvement as compared to the 5% decline we recorded in the second quarter and the 10% decline in the first quarter. Wealth Management revenues were up 1%. Banking & Advisory revenues were down 1%, and the Corporate business was also down 1%. Marketplaces revenues increased 7% driven by acquisitions. Organic revenues declined 2% in that segment due to lower transaction volumes. For instance, foreign exchange volumes declined 23% year-on-year during the third quarter, as a number of key currency pairs traded in a very narrow range. And finally, our Governance, Risk & Compliance business continues to perform strongly, with revenues increasing 17% organically. Demand continues to be strong for our financial crime, a reputation of risk products. Now let me turn back to our consolidated results. Our third quarter adjusted EPS was $0.54 per share, unchanged from the year-ago period. The third quarter EPS reflected lower income tax and the elimination of integration expenses, which were offset by lower underlying operating profit primarily from our Finance & Risk business. Foreign exchange had $0.01 negative impact on EPS. During the quarter, we favorably concluded negotiations with tax authorities in several jurisdictions. That resulted in the recognition of about $100 million in prior year tax benefits. As we have done in the past, we have excluded these benefit from our adjusted earnings. But those favorable negotiations will also provide an ongoing benefit, and consequently, we have reduced our projected tax rate for 2012 and now expect our full year 2012 effective rate to be between 16% and 18%. This in turn resulted in an effective tax rate of 11% for the third quarter. So the impact of the change in the third quarter tax rate versus last year was about $0.05. Turning to free cash flow. We reported a $97 million improvement in reported free cash flow for the first 9 months of the year. More importantly, free cash flow from ongoing businesses, which excludes cash flow from businesses we had either put up for sale or sold over the last 12 months, was up $184 million or nearly 23% better than a year ago. Approximately $150 million of the improvement came from the elimination of integration spending, with the balance coming from lower cash tax payments and lower interest paid. Year-to-date CapEx spending was 7.5% of revenue, within our guidance of 7.5% to 8% for the full year. We're pleased with our free cash flow performance for the first 9 months of the year, but it is not indicative for the full year. We are reiterating our full year outlook as some of the benefit from lower cash taxes and interest paid are timing related. In addition, the businesses, which we divested over the last 12 months, generated about $80 million in free cash flow in the fourth quarter of last year, which we will obviously not benefit from in the fourth quarter of this year. So let me conclude by saying that as Jim mentioned earlier, we are reaffirming our full year 2012 outlook today. The only change to our guidance relates to our quarterly effective tax rate, which we now expect to be in the range of 16% to 18% for the reason I discussed earlier. With that, let me turn it back over to Frank for the Q&A session.

Thanks very much, Stephane. And we would now like to open the call for questions, operator, so if we could have the first question, please.

[Operator Instructions] And our first question does come from the line of Drew McReynolds with RBC.

Just a question on the Legal business. Just with respect to the print business, you gave some nice granularity there in terms of the impact this quarter and what your expectations are for going forward. Just wondering, I know it's a heavily free cash flow generative business, but given obviously the print world as it stands today and tomorrow, would there be any plans to ultimately divest the print business just to boost your organic revenue growth rate so that folks could see the kind of underlying electronic revenue trends a little bit better?

So I think that's a very interesting question. The truth of the matter is there's still a strong demand for it. I mean, even if you look within our U.S. Legal business, where that's still about $600 million of revenue, every time -- it does prove to be the most cyclically sensitive thing in our portfolio. And every time we hit a downturn, it's the first thing that gets hit, but there's still a nice strong demand for print out there. And certainly, what we've seen in past cycles is that print's kind of the first thing to get hit. And then as things improve, it stabilizes and then stays at a new level. So it's a sizable chunk of revenue, and it's there because the customers like it. So we tend to try to provide the customers with what they want, so it's still an important part of the mix today. And I think importantly, the same content is produced and served up online, so that's just another sales channel. We would do the same production, the same content gathering. The only difference would be the printing expense. And frankly, it's highly profitable revenue for us. So once upon a time -- I've been around long enough to remember the day where we used to associate all of the editorial costs with the print product and measure the incremental online sales. We're probably in a reverse position today where we should be thinking about it and actually, we do think about it centrally now. But we should look at the incremental online print sales as something that subsidizes what we need to produce for our online products.

And our next question comes from line of Sara Gubins with Bank of America Merrill Lynch.

Jim, in your prepared remarks, you made some comments about expectations for F&R net sales to be worse in the third -- versus the third quarter but up substantially year-over-year. I'm just hoping -- first I wanted to clarify that, that's what you said. And then second, if that's right, do you think that the tide has turned and that you would expect continued year-over-year growth in net sales in 2013? And if you could maybe break out trends in the U.S. versus international, that'd be helpful as well.

Let me give you the high-level view, and then I'll turn over to Stephane for the detailed and more granular explanation. We did say that net sales in Q3 were better than Q2, which was better than Q1, which was better than Q4. So we've had 3 consecutive quarters of improvement in net sales, still not in positive territory but improvement. We do expect that net sales in Q4 will not be as good year-to-year -- it will not be as good sequentially quarter-on-quarter, right? But will be substantially better than we were in Q4 of prior year. That's because just of the number of contracts that we have in the renegotiation phase and the kind of cumulative effect of cutbacks that have already been announced in the marketplace. So I would say overall, what I feel is a great sense of momentum inside the business. Our gross sales performance continues to improve. We continue to feel very good in the marketplace. I think we're far better positioned, competitively. It's just that in the near term, the cutbacks at the big global banks and pressures in Europe make it difficult overall for us to get into that kind of positive territory. As to projections about 2013, it's just too soon to say. Although I can't imagine that we wouldn't be in a better position entering '13. In fact, I know we're in a better position entering '13 than we were entering this year. Stephane?

Yes. And Sara, let me try to give you some additional color regarding the third quarter net sales performance. I mean, from a regional perspective, Europe continues to be, by far, the biggest the drag. I would say over 2/3 of the negative net sales performance was really caused in -- by Europe. But all 3 regions, Americas, Europe and Asia, all show sequential improvement from the second quarter, in the third quarter.

Our next question is from the line of Vince Valentini with TD Securities.

Maybe I can expand on Drew's questions just to the overall portfolio of assets. Have you continued to sort of review what may not fit with your vision going forward, Jim? There's been some talk about some of the subsegments in F&R, including Corporate, that may be on the block, so I wonder if you can give us any update on your strategic thinking on other potential divestitures.

Yes. I mean, obviously, as you know, we don't comment on those things until we're ready to take some kind of action, and that shouldn't imply that we're ready to take some kind of action. But certainly, we always take the same critical look at all of our businesses. And I just want to reiterate, we don't do that, and I certainly don't do that by sitting back with an investment banking approach to it and looking at sectors by sector by sector and imagining what you might do with the portfolio. We take the businesses that we're responsible for. We try to develop growth plans for them. We work really hard to see where the areas of opportunity lie. Then we go out to prosecute those growth plans that we put together. And where we're convinced that we can win, we invest and we play. Where we're convinced that we're not going to win, we kind of get out and move on and invest behind the places where we can win. We are at the place where we have developed those growth strategies across all of our businesses, and we are at the place where we're testing those. And I am confident that there will be some that will prove to be just as attractive as we think they could be. And there will be some where it's going to be more difficult for us to execute or where the capital might be better applied somewhere else. But it's just too soon for us to make that call, and when we do make that call, we'll let you know. Again, I don't want to pull out the -- this card too often, but we are kind of 3 quarters into our first year in the role, both Stephane and I, and I should say it took us a huge chunk of this first year, probably the first 6 months, to really get a granular grounding in the expense levers inside the business and what was actually going on. You'll recall that we've mentioned several times that in the old Markets business, now our F&R business, about 80% of the cost base was handled in the central bucket. We've now got a lot more visibility into that, and that helps us to kind of ground our thinking on each of the segments and come up with those growth plans. But we're pleased with the progress that we're making. It's just too soon to talk about any impact on the portfolio from that work.

We will go to the line of Paul Steep with Scotiabank.

Jim, maybe you could talk, and I guess, Stephane as well, about the major investment priorities in terms of product cycle heading into 2013 and what that would imply for, or not, for free cash flow use next year. I guess, just sort of adjunct to that, for Stephane, what's sort of the EPS opportunity or lift from refinancing? It looked like there's a decent amount of debt out there that could be refinanced at substantially lower rate.

Let me start with the second question, Paul. As you know, we've been opportunistic in the past at looking at refinancing opportunities, so it's actually -- I don't have much more to say other than we're just in the midst of our annual capital strategy review, and that's obviously one topic that's going to be part of this. So we are very conscious of the low attractive rate -- the very attractive interest rate environment that we face currently in the marketplace, and we'll be opportunistic. I mean, our effective tax rate -- our effective interest rate, sorry, in the portfolio is reasonably low, but it certainly can be lower through some refinancing activities. So maybe more to say on this in future calls but not at this time.

Yes and as far as priorities for continued investment, I think probably wouldn't surprise you that there aren't any big surprises there. As we've said all year, we've laid out kind of an 8-quarter plan for our platform migration, so it's on the Eikon and Elektron, and we'll continue to prosecute that. That's been well laid out since the first quarter of this year, and we're executing against it, and we'll continue to execute against it. We have scheduled releases and scheduled migration plans in place throughout all of next year. We'll be continuing to progress along there. If there's any chance for us to accelerate that, we'll do so. I think the -- on the legal and regulatory side of the house, we have a very strong product pipeline and in fact, the strongest I've seen. We'll continue to invest behind workflow tools that -- what I like to call and talk internally about get us kind of out of the library and onto the desktops and iPads of practicing attorneys. So we have some exciting new product that will come out in the -- and we put into our sales channels at the beginning of next year. And we'll continue to iterate on those workflow tools. In Tax & Accounting, the continued buildout of functionality both in our corporate and accounting tax solutions, and also growing around the world. As Stephane noted earlier, our new government sector in Tax & Accounting is more lumpy with more big sales to government than our predictable past business or legacy businesses. But it's also about a heck of a lot of opportunity around the world, and we'll continue to invest behind that. We're seeing great growth, particularly in Latin America there, and I think we have opportunity to both continue to acquire in some foundational tools and content but also to build solutions for specific markets. So I think executing against the growth vectors that we've had in professional for some time now will take priority, and then completing and executing against the Eikon and Elektron roadmap in F&R will take priority.

And our next question is from the line of Phillip Huang with UBS.

If I recall correctly, in the 2009 cycle, the then Markets division organic revenue declined for just 4 quarters and reached the trough at minus 6%. I know it's a little bit tough given the macro environment's kind of beyond your control. But based on your current visibility, is it fair to assume that you expect the current cycle to have more of a shallow -- shallower and perhaps a briefer dip for the F&R organic revenue decline? And also, this quarter, the organic revenue decline rate is partially impacted by the tough comps on transaction revenues. Was wondering if you could remind us when the comps become easier for transaction revenues.

Okay, let me try to take that question. On the second part of your question first, this is, if I recall, and Frank and Marc can correct me if I'm wrong, but I think this is the weakest quarter we've had at least in the last 8 quarters from a transaction revenue perspective. So it's a particularly tough comparison. Organically, transaction declined by 8% in F&R, and as I say, this is the weakest performance in the last 8 quarters, driven really by environment. It's not reflective of any kind of share movement. It's purely reflected by the environment. In terms of the first part of your question, well, we had been in this last downturn now for a number of quarters. And as you've seen, F&R has been able to keep the organic growth rate. Although, the organic growth rate has turned negative. It's minus 2% now. We're not seeing the same negative numbers as we saw earlier. It's hard to predict what it will be going forward, but I would say based on what we've seen so far and let's say the activity that we've seen so far, we do not expect it to go back to the level that we've seen in prior cycles.

The next question is from the line of Adam Shine with National Bank Financial.

Jim, you highlighted maybe one question or so ago, in regards to the evolution of the Eikon roadmap heading into next year. Clearly, it's one of your priorities. Certainly, progress was made sequentially in this Q3. Can you talk about sort of where the inroads were achieved to drive some of the incremental Eikon desktops? And number two, you highlighted earlier regarding the number of contracts, perhaps up for renewal or in discussion now. Can you maybe talk about sort of the pricing dynamic and the ability to drive sort of the annual 2%, 3% price increases in the face of the market backdrop?

Yes, sure. I think we made Eikon progress across the board, so I mean obviously, it's stronger in places where we -- where the products build out with greater capability and as we like to say, more fit for purpose. So in Commodities and Energy and FX, lots of areas where we have great functionality and content kind of lead the way. But we saw progress across the board in Eikon, and behind the scenes, we're continuing to make great progress in building out capabilities for other sectors and in working very closely with our customers to build out the capabilities that they need on their trading desks and on their floors and in their businesses. So our progress in Eikon is really across the board and quite encouraging as to our competitive position. With the second part of your question, could you clarify again?

Yes, just talking about the ability to drive annual price increases in the face of the market backdrop.

It's one of the, I guess, surprising aspects of this time in that we are still able to command price. And it's interesting when we look at our business going forward and it's important to keep that in mind as you model what revenue looks like, volume is one thing and price is another. And we have seen price because price is built into all of our multiyear contracts, and the price escalators kick in, and we have not seen significant pushback on price. Well, the discussion we've had with all of our customers has been around total cost of ownership, total cost of their operations and what they're spending in totality, not necessarily fixed around price. And our team has been very focused on not giving in price concessions, but rather, to enter into value discussions with customers and to talk about what features, functionality and services they need. So price has held up surprisingly well in this environment.

Maybe, if I may, just push you on that. I guess, as it relates to the value of contract discussions in totality, progress in regards to incremental growth or I guess that ultimately ties into net sales as we await the recovery there into next year.

Yes, I'm not exactly -- I'll try to answer your question as best I can. We do see progress -- I mean, we do see progress toward growth in some sectors. We do see progress toward growth in some customers and clients with net gains. But today and what we anticipate in Q4 is that those will be offset by some downdrafts at a handful of very big customers who have disproportionate impact on our overall sales trends.

And our next question is from the line of Andrew Steinerman with JPMorgan. Andrew C. Steinerman - JP Morgan Chase & Co, Research Division: When you say low-single-digit growth in constant currency given that we only have 1 quarter left for the year, could you be more specific? Does low-single-digit growth mean kind of 2% to 3% for the year? Or does it mean really anywhere in the 1% to 4% bucket?

I don't know how to answer that question, Andrew. It's -- we say low-single-digit growth. I think it's mid-single-digit growth is clearly like 4% to 6% in my mind. I don't know. Low-single-digit growth is like positive but below that range. Andrew C. Steinerman - JP Morgan Chase & Co, Research Division: Okay. That's fair enough. And on your FX Alliance acquisition, besides for the capabilities that they were bringing, it was also thought at time of acquisition that this can enhance Thomson Reuters' relationship more broadly with Investment Management clients. Have you seen any of this derivative benefit yet?

I would say it's very, very encouraging, early days but very encouraging.

And we open the line of Matthew Walker with Nomura.

Just a couple of questions, please. The first is on the Legal side, can you just repeat what you said about the print percentage? I wasn't sure what the universe that was. I think you mentioned something like 20%, but wondered was it 20% of what for the print business. The second question is also on the Legal business. Can you remind us what is the barriers to entry into the core litigation research business that you have in terms of accumulation of content? What is to prevent competitors from even if gradually building up a similar business? I think there are significant barriers to entry in that business, but if you could just remind us of them, that would be very helpful. And the last question is on the tax rate. You've guided down the tax rate for the full year this year to 16% to 18%. Can you tell us for next year and the year after, what are you going to look for in terms of adjusted tax rate? Is it going to be now below 20%?

Well, why don't I start and talk about the barriers to entry in Legal quickly and where we are, and then I'll let Stephane follow up with specific answers to your more granular question. We feel very good about our position in Legal. And the barriers to entry start with a business that for more than a century has been in the legal information business, but -- and one that was the first to apply technology and the first to apply really sophisticated technological tools to core legal research. It also was, before technology, the first to apply and the most sophisticated, at that time I guess we call it, metadata in print, and our key numbering system was the forerunner of kind of metadata and indexing capabilities. And I think the thing that makes our business so sticky is just decades upon decades of interlinking. We have millions and millions of links that between the documents that tie together the data in our vast databases, and they are incredibly vast. And it's a combination of both the technology and the human expertise that goes out and links relative legal information together so that when one searches for an answer, one gets a solution whether or not -- it gets a complete range of solutions, whether or not you've keyed in exactly the right kind of words or the right kind of search phrases and the search terms. So it's a very, very long history of understanding legal and regulatory content, linking that together, first through key numbers, then by applying technology and then by applying the combination of human knowledge of the legal system and how lawyers work with that technology to build really an unrivaled ability to determine what the right answer is to a question. So it is a not trivial advantage that we have.

Okay, Matthew, let me try to take the other 2 questions that you post. The first one, regarding what I said about Legal print, the 20% I referred to was essentially a proportion that U.S. print represents as a percent of our total Legal business. So that's, as Jim said I think earlier in his remarks, that's about $600 million worth of revenues a year. So in the third quarter, that was about $150 million roughly. That's what I referred to and what I said is that if you exclude that print business from the numbers, the organic growth rate of the Legal business would have been a steady 3% organically in each of the last 3 quarters.

So the print for a full year basis would be $600 million?

Correct. Okay? And in answer to the question on the tax rate, let me give you maybe a little bit more color on what I said on the call. As I said, we did reach a favorable outcome in discussions with several tax authorities, primarily in the U.S. and Taiwan actually during the quarter. And this has triggered 2 favorable outcomes in our Q3 results. The first one is that it led to the recognition of a little over $100 million in what we call prior year's tax benefits. And this obviously has no immediate impact on cash flow. And as we always do, we've removed the benefit of this tax -- what is essentially tax reserve or leases, if you want, from our adjusted earnings because otherwise, it would have had a very distorted impact on our results. The second impact is that these several negotiations have also allowed us to lower our estimated tax rate for the full year from 21%, 23% which was our prior guidance to 16% to 18%, as I mentioned on the call. And as a result of that, we really have to normalize our tax rate for the year-to-date results, which is why the reported tax rate in the third quarter is only 11%, and simple explanation is that essentially, the third quarter tax expense reflects the impact of the lower estimated tax rate for the first 3 quarters, not just for the third quarter. And that's why you see 11% compared to the guidance for the full year that we've given of 16% to 18%. And as I mentioned, I mean, the impact of the change in tax rate on a year-over-year basis was about $0.05 on the EPS. Now if you look at '13 and beyond, it's still too soon for us to provide you with a very specific projection regarding effective tax rate next year. We're in the midst of the planning process and that I'm sure you can appreciate figuring out tax rate comes after we've figured out the operating profit we're going to have in various jurisdictions. So we're going to need to wait until we provide our guidance in early next year to give you something more specific. But based on the development in the third quarter, I would say directionally that we would expect the guidance we'll provide to you early next year to be lower than the guidance we provide to you early this year.

Our next question is from the line of Tim Casey with BMO.

Jim, just on the net sales trends, you've indicated they'll be lower year-over-year in Q4, but sequentially, you expect growth. I think I've got that right.

The other way around. It's the other way around, Tim.

Oh, pardon me, right. Yes, I got it. Do the comps get tougher as we go into next year? I know you're not giving guidance, but just directionally, how do you feel about that? And then if I can sneak one other one in. There's been some real breathless commentary in the press about your potential interest in the FT. I'm wondering if you could comment on that.

I'll let Stephane talk about the comps because I'll take the easy one, which is we never -- first of all, I've read the same commentary that you've read. I certainly haven't been the source for any of it because we just don't comment on those kinds of things. I will say that we have lots of attractive places to invest behind our core growth initiatives today. And we just wouldn't comment on any speculation about any acquisition opportunities that would lie out there, especially of things that aren't for sale.

Okay. So let me try to get on your question on net sales. I think just to repeat what Jim said in his remarks, what we are expecting is the Q4 net sales to not show a sequential improvement compared to the third quarter but be better than in the fourth quarter of last year. And both in the fourth quarter of this year and last year, we had several like large contracts for negotiations with large customers. So they are somewhat comparable from that perspective, but Q4 is a heavier quarter, both in '11 and '12, in terms of contracts negotiation with big banks, which is -- and as Jim said, these banks have suffered pretty heavy headcount reductions. So we can -- obviously, we do expect to see reduction in these contracts. When you look at next year, we're not going to make any projections in terms of when net sales will turn positive next year. But the comparison should hopefully get easier because we are certainly on overall an improving trend, which is the result of all the actions that we've implemented in the last 9 months.

And our next question is from the line of Nick Dempsey with Barclays.

A couple of questions for you. Just going back to core legal research, I'm looking at if half of that is print and the other half is Westlaw, then roughly Westlaw group's 1% to 2% in the quarter. Now given that you've told us you're migrating quite a few customers still onto WestlawNext, which you've invested in heavily, wouldn't we have hoped to have a bit more price and therefore a bit more growth coming through in Westlaw? Next question, just Reed Elsevier, their legal investor day, talked about the legal information services market growing mid-single digit in the medium term. I just wondered if that's a number that you also agree with. And then lastly, sort of housekeeping, on corporate costs, those were a bit lower at the 9-month stage than last year. Can we expect those to be down year-on-year for the full year? Or are there some phasing issues there?

Let me start with the easy question, the last one, on corporate costs. You can look at it on a quarter-to-quarter basis, so I would keep last year's number as the basis for the full year. There are certainly items which may impact the corporate cost from one quarter to the other. And in terms of your first question, I think that the -- if you look at Westlaw, remember, when we speak about core legal research, we speak about core legal research sold to U.S. law firm. That's the 40% that we refer to. There's also core legal research sold to other groups, corporate general counsels and government in particular. So if you look at the overall core legal research, I would say print is about 1/3 of the total, not half of the total, but 1/3 of the total at $600 million. And there's factors that we haven't spoke about in number of quarters, but I'm sure you remember Bob [ph] and I were speaking to you about, which is the fact that we have still a sizable proportion of the revenue in Westlaw that's what we called ancillary or transaction usage revenues. And these continue to be pretty heavily impacted obviously. They're still down in the area of like 15% to 20% every quarter, and that's what's essentially dragging down the overall growth rate for Westlaw or WestlawNext. So and I forgot what the last question was that you had. I think it was about...

It was about the mid -- I mean, on just Reed Elsevier said in the medium term a couple of years out, they expected the overall market that you guys and they are in, legal information services, to grow mid-single digit. I just wondered if you wanted to comment on that prediction.

Yes. I don't think we'll take any exception with their prediction, but saying that we expect the Legal -- growth in our Legal segment to be around these levels, I think a lot of the growth will come from the new workflow solution products, not so much from core legal research. So there's really -- we're really seeing a transition there, and we aggressively investing behind these new products that are higher growth, and that's a greater proportion of revenues in the future arises from these new type of solutions. That's how we can return to this mid-single-digit organic growth rate. That's what we're very much focused on.

And our last question is from the line of Toni Kaplan with Morgan Stanley.

Can you comment on whether there was more aggressiveness in pricing in the competitive environment this quarter over last quarter? And are there certain areas maybe of F&R where pricing was more aggressive?

Sure. No, I don't think we saw any change in -- material change in pricing pressure. It's been a competitive environment for a long time, but there was -- I'm certainly not aware of any change in pricing policy. Okay, that will conclude our call, and we do very much appreciate you joining us this morning. Thanks.

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