Thomson Reports Strong Second-Quarter 2006 Results
Revenues up 7%; organic growth up 6%
Operating profit up 15%; margin expands 100 basis points
THOMSONplus business optimization program announced
Portfolio optimization program on track
$0.22 per common share quarterly dividend declared
(All amounts are in U.S. dollars)
STAMFORD, Conn., July 27 /PRNewswire-FirstCall/ -- The Thomson Corporation (NYSE: TOC; TSX: TOC), one of the world's leading information services providers, today reported strong financial results for the second quarter ended June 30, 2006.
(Logo: http://www.newscom.com/cgi-bin/prnh/20020227/NYW014LOGO )
Consolidated Second-Quarter Financial Highlights:
- Revenues increased 7%, to $2.10 billion, primarily as a result of
organic growth of 6%. Currency translation had no material impact in
the quarter.
- Operating profit increased 15%, to $305 million. Operating profit
margin continued to improve, increasing 100 basis points from the year-
ago period. Operating profit improvement was the result of revenue
growth and the continued success of efficiency initiatives. Included in
the results are $15 million of costs associated with the THOMSONplus
business optimization program.
- Earnings attributable to common shares were $171 million, or $0.26
diluted earnings per share, compared with $301 million, or $0.46 diluted
earnings per share, in the second quarter of 2005. Earnings in the
prior-year period included a one-time gain of $137 million from the
release of tax credits. Earnings in the 2006 period included
$15 million of costs associated with THOMSONplus. After adjusting for
these items, the results of discontinued operations and the
normalization of the quarterly effective tax rate, earnings were
$220 million, or $0.34 per share, compared with $149 million, or $0.23
per share, in the year-ago period.
- Net cash provided by operations of $467 million was generated by the
company, compared with $397 million in the second quarter of 2005. Free
cash flow was $315 million, versus $242 million in 2005. The increase
was largely due to higher operating profit in the second quarter of
2006.
Thomson President and Chief Executive Officer Richard J. Harrington said, "We are pleased to report strong results for the second quarter. Our performance reflects our continued ability to execute against our three strategic priorities - driving organic growth as well as business and portfolio optimization. Notably, Thomson achieved another solid quarter of organic growth, up 6% over the prior-year period, with each market group contributing to the increase. Further, Thomson continued to translate revenues into profits, growing operating profit margin 100 basis points over the second quarter of last year.
"Our Legal and Regulatory group continued to deliver strong top-line growth, achieving 8% organic growth in the quarter. Thomson Financial delivered another solid quarter of organic revenue growth, which was balanced across its business and geographic segments. Our Learning group also performed well, driving solid revenue and operating profit growth. Our Scientific and Healthcare group gained momentum in the quarter, with increased organic revenue growth and solid operating profit growth.
"Overall, we continue to focus our strategy on enabling our customers to improve their performance by combining information, technology and services that help them make critical decisions faster. In the quarter, revenue from electronic products and services grew 9%. Moreover, we remain on course in 2006 to achieve our long-term objectives of 7% to 9% annual revenue growth, higher margins and strong free cash flow."
Mr. Harrington concluded, "On a separate note, we were deeply saddened by the loss of our dear friend and former chairman, Ken Thomson, who died on June 12. Ken was an exceptionally strong leader and a valued adviser to several generations of management at Thomson. He will be sorely missed."
Second-Quarter Operational Highlights:
- Accelerating Growth: Thomson's online solutions, software and services
continued to set the foundation for growth within the company, including
Westlaw Litigator for legal professionals; Checkpoint, InSource and
UltraTax in the tax and accounting markets; Thomson Pharma for
pharmaceutical and scientific researchers; Medstat decision support for
healthcare managers; and Thomson ONE in the financial services markets.
- Optimizing Portfolio: Thomson continued to review and refine its
portfolio of businesses to drive growth and returns. In the quarter,
Thomson completed the sale of Lawpoint and Law Manager from its Legal &
Regulatory group. In February, the company announced its intent to sell
Peterson's, K.G. Saur, the North American operations of Thomson
Education Direct and American Health Consultants. The sale of
Peterson's is expected to close shortly, while the other proposed sales
are expected to close later in the year.
In addition, today Thomson is announcing its intention to sell Thomson
Medical Education (TME), which comprises the Physicians World, Gardiner-
Caldwell and Scientific Connexions businesses, from the Scientific &
Healthcare group; as well as IOB, a Brazilian regulatory business, from
the Legal & Regulatory group. TME accounted for approximately $97
million in revenue in 2005 and IOB accounted for approximately $39
million. Results for all of these businesses have been reclassified to
discontinued operations. Thus far in 2006, Thomson has announced the
proposed sale or sale of businesses that accounted for approximately 4%,
or $355 million, of total 2005 revenues.
- Business Optimization: During the second quarter, the company advanced
the implementation phase of THOMSONplus, a series of initiatives
designed to integrate Thomson's systems, processes and infrastructure to
improve efficiency and effectiveness across the entire organization.
These optimization efforts will enable Thomson to share best practices
and improve business processes and functions to enhance the customer
experience and facilitate organic revenue growth. The THOMSONplus
program will focus on the areas of finance, technology and customer
care.
Mr. Harrington said, "Today, we are well positioned to implement
significant new growth strategies during a period of already strong
performance, in which organic revenue growth is strong, operating
margins and free cash flow are at historic highs and the company
continues to enjoy an investment grade rating. Building on this
foundation, we have embarked on a new initiative, THOMSONplus, the goal
of which is to drive higher sustainable growth and further improve
profitability.
"Over the past five years, as we have driven a single business model
within our businesses and markets, we have been better able to achieve
greater leverage and optimize our infrastructure. In addition, as we
integrated acquisitions, we developed efficient cost structures within
our businesses. These initiatives are evidenced by a 500 basis point
increase in operating profit margin over the past five years. We are
now entering the next phase of our evolution toward becoming a fully
integrated operating company, in which we will further align the
company's businesses with our strategy across the entire organization,
resulting in expanded opportunities for growth, as well as significant
savings."
The THOMSONplus program will be implemented from 2006 to 2009 and is
expected to generate total savings of approximately $300 million over
that period. By 2009, it is expected that THOMSONplus will generate
run-rate savings of approximately $150 million annually. This
represents approximately 20% of the relevant cost base.
Savings will be driven largely by improved efficiencies and
effectiveness of procurement, supply chain management, financial
reporting systems (including the implementation of a common Enterprise
Resource Planning system), and platform integration across all market
groups. Costs associated with the implementation of THOMSONplus are
expected to be approximately $250 million over the course of the
program.
In 2006, THOMSONplus expenses are expected to be about $70 million, of
which $25 million has been incurred in the first six months of the year.
Because THOMSONplus is a series of initiatives, the precise timing of
costs and savings is difficult to predict. However, based on current
planning, approximately $100 million is expected to be incurred in 2007,
$50 million in 2008 and $30 million in 2009. For this investment,
Thomson expects to generate $10 million in savings this year. These
savings are expected to grow to $50 million in 2007, $90 million in 2008
and should reach $150 million per year by 2009.
Market Group Second-Quarter Highlights:
Legal & Regulatory
- Revenues increased 9%, to $923 million, and segment operating profit
grew 13%, to $277 million. Organic revenue grew 8% and growth from
acquisitions was 1%.
- Organic revenue growth was largely driven by strong double-digit global
online solutions, software and services, as well as the timing of
certain bar review courses that were recognized this quarter versus the
third quarter in 2005.
- Thomson's North American legal products and services continued to
achieve strong revenue growth across all customer segments, led by
strength in Westlaw driven by the Litigator suite of products. In
addition, products and services focused on the business of law and the
transactional practice area also contributed to growth. FindLaw
continues to grow in the client development market.
- Revenue in the Thomson tax and accounting business was also up
significantly, led by Checkpoint, InSource and UltraTax, reflecting
strong new subscription sales and higher retention levels.
- Print and CD sales declined 2% in the quarter in line with expectations.
As part of the normal business cycle, print and CD sales are expected to
comprise a greater percentage of the group's total revenue in the second
half of the year.
- Results for IOB have been reclassified to discontinued operations.
Learning
- Revenues were $456 million, a 5% increase over the prior-year period.
Excluding the effects of currency exchange, revenues grew 4%, virtually
all of which was organic.
- Revenue growth was driven by a 6% increase in the global higher
education businesses, particularly custom publishing services, and Arts
& Sciences and Business & Economics textbook sales.
- Solid revenue growth within the global library reference business and
increased e-testing revenue were partially offset by overall weakness in
the e-learning business.
- Segment operating profit was $13 million as a result of good top-line
growth.
- Learning's second-quarter results are not indicative of its anticipated
performance for the full year, due to the seasonal nature of the
academic business in which most of the revenues and profits are realized
in the second half of the year.
Financial
- Revenues increased 6%, to $499 million, and segment operating profit
increased 23%, to $92 million. Organic revenue growth was 5% and growth
from acquisitions was 1%.
- Thomson Financial continued its strong performance in the second quarter
of 2006, with broad-based growth in nearly all of its customer segments
and regions.
- Thomson Financial achieved strong operating profit growth and margin
improvement due to greater operating leverage across the business.
- Thomson ONE continued to deliver additional value and capabilities to
customers by leveraging content, features and transactional capabilities
across all segments.
- Thomson Financial also grew internationally with particularly strong
expansion in Asia and continued growth in Europe.
Scientific & Healthcare
- Revenues were $229 million, up 6% from 2005, and segment operating
profit increased 9%, to $47 million. Organic revenues grew 5% and
growth from acquisitions was 1%.
- Revenue growth was driven by information solutions, including increased
subscriptions for Web of Science and Thomson Pharma. Healthcare
decision support also showed good growth. Segment growth was partially
offset by lower sales of legacy products and timing of print
publications.
- Tactical acquisitions enabled Thomson to provide a more complete
solutions offering to customers, most notably MercuryMD, a leading
provider of mobile information systems serving the healthcare market.
- Results for the Thomson Medical Education businesses have been
reclassified to discontinued operations.
Corporate & Other
Corporate and other expenses increased to $49 million in the second quarter of 2006 due to $15 million in charges associated with THOMSONplus, as well as higher pension costs.
Dividend
The Board of Directors declared a quarterly dividend of $0.22 per common share payable on September 15, 2006 to holders of record as of August 24, 2006.
Consolidated Financial Highlights for Six-Months 2006:
- Revenues increased 7%, to $4.0 billion, primarily as a result of organic
growth.
- Operating profit increased 16%, to $447 million, driven by strong
improvements in all market groups.
- Earnings attributable to common shares were $307 million, or $0.47
diluted earnings per share, in the first six months of 2006, compared
with $373 million, or $0.57 diluted earnings per share, in the prior-
year period. Earnings in the prior-year period included a one-time gain
of $137 million from the release of tax credits. Earnings in the 2006
period include $25 million of costs associated with the launch of
THOMSONplus.
- Net cash provided by operations of $696 million was generated by the
company, compared to $660 million in the previous year period. Free
cash flow was $425 million, versus $385 million in the first six months
of 2005. The increase was largely due to higher operating profit in the
current year, partially offset by the timing of working capital.
Normal Course Issuer Bid
Since beginning share repurchases in May 2005, Thomson has purchased approximately 15.7 million common shares for a total cost of approximately $575 million. As of July 26, 2006, Thomson had approximately 641.7 million issued and outstanding common shares. Decisions regarding the timing of future repurchases will be based on market conditions, share price and other factors. Thomson may elect to suspend or discontinue the bid at any time. Shares repurchased under the bid are cancelled.
2006 Outlook
Thomson expects full-year 2006 revenue growth to be in line with the company's long-term target of 7% to 9%, excluding the effects of currency translation. Full-year 2006 revenue growth will continue to be driven primarily by existing businesses, supplemented by tactical acquisitions. Excluding investments in the THOMSONplus program, Thomson expects continued improvement in its operating profit margin in 2006. Thomson also expects to continue to generate strong free cash flow in 2006.
The Thomson Corporation
The Thomson Corporation (www.thomson.com), with 2005 revenues of approximately $8.40 billion, is a global leader in providing integrated information solutions to business and professional customers. Thomson provides value-added information, software tools and applications to more than 20 million users in the fields of law, tax, accounting, financial services, higher education, reference information, corporate e-learning and assessment, scientific research and healthcare. With operational headquarters in Stamford, Conn., Thomson has approximately 40,500 employees and provides services in approximately 130 countries. The Corporation's common shares are listed on the New York and Toronto stock exchanges (NYSE: TOC; TSX: TOC).
The Thomson Corporation will webcast a discussion of second-quarter results beginning at 9:00 am ET today. To participate in the webcast, please visit www.thomson.com and click on the "Investor Relations" link located at the top of the page.
The Corporation's financial statements are prepared in accordance with Canadian generally accepted accounting principles (GAAP) and are reported in U.S. dollars. When applicable, prior periods are restated for discontinued operations. This news release includes certain non-GAAP financial measures, such as adjusted earnings from continuing operations and free cash flow. We use these non-GAAP financial measures as supplemental indicators of our operating performance and financial position. These measures do not have any standardized meanings prescribed by GAAP and therefore are unlikely to be comparable to the calculation of similar measures used by other companies, and should not be viewed as alternatives to measures of financial performance calculated in accordance with GAAP. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures are set forth in the following tables.
This news release, in particular the section under the heading "2006 Outlook" includes forward-looking statements, such as the Corporation's expectations and intentions regarding its full-year financial results that are based on certain assumptions and reflect the Corporation's current expectations. Forward-looking statements also include statements about the Corporation's beliefs and expectations related to its new THOMSONplus business optimization program, such as management's expectations related to projected costs and anticipated savings. All forward-looking statements in this news release are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from current expectations. Some of the factors that could cause actual results or events to differ materially from current expectations are actions of competitors; failure to fully derive anticipated benefits from acquisitions; failure to develop additional products and services to meet customers' needs, attract new customers or expand into new geographic markets; and changes in the general economy. Additional factors are discussed in the Corporation's materials filed with the securities regulatory authorities in Canada and the United States from time to time, including the Corporation's annual information form, which is contained in its annual report on Form 40-F for the year ended December 31, 2005. A discussion of material assumptions related to the Corporation's 2006 Outlook is contained in its most recently filed management's discussion and analysis. The Corporation disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Media Contact: Investor Contact:
Jason Stewart Frank J. Golden
Vice President, Media Relations Vice President, Investor Relations
(203) 539-8339 (203) 539-8470
jason.stewart@thomson.com frank.golden@thomson.com
Consolidated Statement of Earnings
(millions of U.S. dollars, except per common share data)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2006 2005 2006 2005
---- ---- ---- ----
Revenues 2,101 1,966 4,001 3,735
Cost of sales, selling,
marketing, general
and administrative
expenses (1,568) (1,476) (3,103) (2,907)
Depreciation (153) (146) (300) (285)
Amortization (75) (79) (151) (159)
--------- --------- --------- ---------
Operating profit 305 265 447 384
Net other income (1) 3 1 41 3
Net interest expense
and other financing
costs (57) (56) (109) (110)
Income taxes (72) 86 (26) 93
--------- --------- --------- ---------
Earnings from continuing
operations 179 296 353 370
(Loss) income from
discontinued operations,
net of tax (6) 6 (43) 5
--------- --------- --------- ---------
Net earnings 173 302 310 375
Dividends declared on
preference shares (2) (1) (3) (2)
Earnings attributable to
common shares 171 301 307 373
========= ========= ========= =========
Basic earnings per
common share $0.27 $0.46 $0.48 $0.57
========= ========= ========= =========
Diluted earnings per
common share $0.26 $0.46 $0.47 $0.57
========= ========= ========= =========
Basic weighted
average common
shares 644,527,545 655,718,139 646,330,492 655,741,153
============ ============ ============ ============
Diluted weighted
average common
shares 645,802,478 656,361,620 647,407,890 656,372,715
============ ============ ============ ============
Reconciliation of Earnings Attributable to Common Shares to
Adjusted Earnings from Continuing Operations(2)
(millions of U.S. dollars, except per common share data)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2006 2005 2006 2005
---- ---- ---- ----
Earnings attributable to
common shares 171 301 307 373
Adjustments:
One time items:
Net other income (3) (1) (41) (3)
THOMSONplus costs 15 -- 25 --
Tax on above items (5) -- (10) --
Release of tax credits -- (137) -- (137)
Interim period
effective tax rate
normalization (3) 36 (8) (14) (24)
Discontinued operations 6 (6) 43 (5)
------ ------ ------ ------
Adjusted earnings from
continuing operations 220 149 310 204
====== ====== ====== ======
Adjusted basic and
diluted earnings per
common share from
continuing operations $0.34 $0.23 $0.48 $0.31
====== ====== ====== ======
Notes
(1) "Equity in net losses of associates, net of tax" has been reclassified
to "Net other income" in the previous period to conform to the current
period's presentation. For the six month period ended June 30, 2006,
net other income primarily represents the gain on the sale of WebCT.
(2) Adjusted earnings from continuing operations and adjusted earnings per
common share from continuing operations are earnings attributable to
common shares and per share amounts after adjusting for non-recurring
items, discontinued operations, and other items affecting
comparability. Thomson uses these measures to assist in comparisons
from one period to another. Adjusted earnings per common share from
continuing operations do not represent actual earnings per share
attributable to shareholders.
(3) Adjustment to reflect income taxes based on the estimated full-year
effective tax rate of the consolidated group. Reported earnings for
interim periods reflect income taxes based on estimated effective tax
rates of each of the group's jurisdictions. The adjustment
reallocates estimated full-year income taxes between interim periods,
but has no effect on full-year income taxes.
Consolidated Balance Sheet
(millions of U.S. dollars)
(unaudited)
June 30, December 31,
2006 2005
----------------------------
Assets
Cash and cash equivalents 224 407
Accounts receivable, net of allowances 1,437 1,639
Inventories 345 314
Prepaid expenses and other current assets 328 316
Deferred income taxes 248 248
Current assets of discontinued operations 88 86
----------------------------
Current assets 2,670 3,010
Computer hardware and other property, net 712 757
Computer software, net 734 743
Identifiable intangible assets, net 4,294 4,386
Goodwill 9,190 8,891
Other non-current assets 1,435 1,374
Non-current assets of discontinued operations 195 277
----------------------------
Total assets 19,230 19,438
============================
Liabilities and shareholders' equity
Liabilities
Short-term indebtedness 377 191
Accounts payable and accruals 1,346 1,686
Deferred revenue 1,073 994
Current portion of long-term debt 48 98
Current liabilities of discontinued operations 133 139
----------------------------
Current liabilities 2,977 3,108
Long-term debt 3,984 3,983
Other non-current liabilities 803 812
Deferred income taxes 1,539 1,536
Non-current liabilities of discontinued
operations 32 36
----------------------------
Total liabilities 9,335 9,475
Shareholders' equity
Capital 2,750 2,726
Retained earnings 6,753 6,992
Accumulated other comprehensive income 392 245
----------------------------
Total shareholders' equity 9,895 9,963
----------------------------
Total liabilities and shareholders' equity 19,230 19,438
============================
Consolidated Statement of Cash Flow
(millions of U.S. dollars)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2006 2005 2006 2005
------------------- ------------------
Cash provided by (used in):
Operating activities
Net earnings 173 302 310 375
Remove loss (income) from
discontinued operations 6 (6) 43 (5)
Add back (deduct) items not
involving cash:
Depreciation 153 146 300 285
Amortization 75 79 151 159
Net gains on disposals
of businesses and
investments (3) -- (44) (1)
Deferred income taxes 22 10 5 3
Other, net 59 (81) 147 (32)
Voluntary pension
contribution -- -- (5) --
Changes in working capital
and other items (13) (57) (203) (143)
Cash (used in) provided
by operating activities
- discontinued
operations (5) 4 (8) 19
------------------- -------------------
Net cash provided by
operating activities 467 397 696 660
------------------- -------------------
Investing activities
Acquisitions (83) (26) (218) (96)
Proceeds from disposals 5 -- 60 1
Capital expenditures,
less proceeds from
disposals (137) (142) (240) (254)
Other investing
activities (11) (9) (25) (14)
Capital expenditures of
discontinued
operations (2) (3) (3) (5)
Proceeds from (income
taxes paid on) disposals
of discontinued
operations 19 -- 19 (105)
------------------- -------------------
Net cash used in
investing activities (209) (180) (407) (473)
------------------- -------------------
Financing activities
Repayments of debt (21) (20) (73) (145)
Net (repayments)
borrowings under
short-term loan
facilities (42) (37) 156 160
Repurchase of common
shares (123) (45) (291) (45)
Dividends paid on
preference shares (2) (1) (3) (2)
Dividends paid on
common shares (138) (128) (277) (250)
Other financing
activities, net 7 7 16 13
------------------- -------------------
Net cash used in
financing activities (319) (224) (472) (269)
------------------- -------------------
Translation adjustments -- (2) -- (5)
------------------- -------------------
Decrease in cash and
cash equivalents (61) (9) (183) (87)
Cash and cash equivalents
at beginning of period 285 327 407 405
------------------- -------------------
Cash and cash equivalents
at end of period 224 318 224 318
=================== ===================
Reconciliation of Net Cash Provided by Operating Activities to Free Cash
Flow(1)
(millions of U.S. dollars)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2006 2005 2006 2005
---- ---- ---- ----
Net cash provided by
operating activities 467 397 696 660
Capital expenditures (137) (142) (240) (254)
Other investing
activities (11) (9) (25) (14)
Capital expenditures of
discontinued operations (2) (3) (3) (5)
Dividends paid on
preference shares (2) (1) (3) (2)
------------------------------------------------
Free cash flow 315 242 425 385
================================================
(1) Free cash flow is net cash provided by operating activities less
capital expenditures, other investing activities and dividends paid on
preference shares. Thomson uses free cash flow as a performance
measure because it represents cash available to repay debt, pay common
dividends and fund new acquisitions.
Business Segment Information *
(millions of U.S. dollars)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2006 2005 Change 2006 2005 Change
---- ---- ------ ---- ---- ------
Revenues:
Legal &
Regulatory 923 848 9% 1,755 1,615 9%
Learning 456 436 5% 838 785 7%
Financial 499 470 6% 984 928 6%
Scientific &
Healthcare 229 217 6% 436 417 5%
Intercompany
eliminations (6) (5) (12) (10)
------- ------- ------- -------
Total revenues 2,101 1,966 7% 4,001 3,735 7%
======= ======= ======= =======
Operating Profit:
Segment operating
profit
Legal &
Regulatory 277 246 13% 481 428 12%
Learning 13 7 86% (34) (38) 11%
Financial 92 75 23% 171 140 22%
Scientific &
Healthcare 47 43 9% 78 69 13%
Corporate
and other (1) (49) (27) (98) (56)
------- ------- ------- -------
Total segment
operating profit 380 344 10% 598 543 10%
Amortization (75) (79) (151) (159)
------- ------- ------- -------
Operating profit 305 265 15% 447 384 16%
======= ======= ======= =======
*Notes to business segment information for continuing operations
(1) Corporate and other includes THOMSONplus costs, corporate costs and
certain costs associated with the Corporation's stock incentive and
phantom stock plans.
Detail of depreciation by segment:
Three Months Ended Six Months Ended
June 30, June 30,
2006 2005 2006 2005
--------------------- ---------------------
Legal & Regulatory 54 51 105 98
Learning 43 40 83 74
Financial 46 45 90 91
Scientific & Healthcare 8 9 18 18
Corporate and other 2 1 4 4
--------------------- ---------------------
153 146 300 285
===================== =====================
SOURCE The Thomson Corporation
-0- 07/27/2006
/CONTACT: media, Jason Stewart, Vice President, Media Relations,
+1-203-539-8339, jason.stewart@thomson.com, or investors, Frank J. Golden,
Vice President, Investor Relations, +1-203-539-8470, frank.golden@thomson.com,
both of The Thomson Corporation/
/Photo: http://www.newscom.com/cgi-bin/prnh/20020227/NYW014LOGO /
/Web site: http://www.thomson.com /
(TOC TOC.)
CO: The Thomson Corporation
ST: Connecticut
IN: FIN PUB EDU CPR STW
SU: ERN ERP CCA
GF-AA
-- NYTH036 --
1977 07/27/2006 06:55 EDT http://www.prnewswire.com