Thomson Reports First-Quarter 2007 Results
Revenues increase 11%; operating profit grows 8%
EPS increases to $0.35, from $0.21 a year ago
Net operating cash rises 25%; free cash flow up 25%
(All amounts are in U.S. dollars)
STAMFORD, Conn., April 26 /PRNewswire-FirstCall/ -- The Thomson Corporation (NYSE: TOC; TSX: TOC), a leading global provider of information services to business and professional customers, today reported that revenues for the first quarter of 2007 increased 11%, to $1.7 billion, and operating profit increased 8%, to $226 million. Diluted earnings per share increased to $0.35 in the first quarter, from $0.21 in the year-ago period.
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"We continued to build momentum in the first quarter, successfully executing on our business and efficiency strategies to drive organic revenue growth and broad-based margin expansion in our operating businesses," said Richard J. Harrington, president and chief executive officer of Thomson. "We achieved solid organic growth of 6%, generated high levels of recurring revenue and improved retention rates as we continued to set the standard for the delivery of must-have electronic solutions, software and services to business and professional customers. Our corporate initiatives to improve operational performance across the organization resulted in higher margins in the business units, and we remain on track to meet our full-year 2007 savings targets. With the pending sale of Thomson Learning, our ability to invest in our businesses and leverage our world-class technology will further enhance our growth and profitability prospects.
"The Thomson Learning sales process is on schedule and has attracted a very high level of interest from prospective buyers. We anticipate announcing a buyer at the end of the second quarter and closing the transaction in the third quarter. We will use the proceeds from the sale to pursue opportunities aligned with our growth strategy and business model. We will be disciplined in reinvesting the proceeds and will focus on opportunities that drive growth and create value for shareholders."
Consolidated First-Quarter Financial Highlights:
-- Revenues increased 11%, to $1.7 billion, led by strong growth in the
Legal and Tax & Accounting business segments. Organic revenue growth
was 6% in the quarter, with each business segment across Thomson
contributing to the increase.
-- Operating profit increased 8%, to $226 million, as a result of strong
operating performance, partly offset by $34 million of investments in
THOMSONplus initiatives. Operating profit margin was 13.5%, compared
with 13.9% in the first quarter of 2006. Excluding THOMSONplus
expenses, operating profit increased 20% and the margins increased 130
basis points, to 15.6%, in part reflecting efficiencies derived from
the savings initiatives.
-- Earnings attributable to common shares were $223 million, or $0.35
diluted earnings per share, compared with $136 million, or $0.21
diluted earnings per share, in the first quarter of 2006. Earnings in
the first quarter of 2007 included $35 million of one-time tax
benefits. After adjusting for these items, as well as other income,
results of discontinued operations and the normalization of the tax
rate, earnings were $145 million, or $0.23 per share, compared with
$131 million, or $0.20 per share, in the first quarter of 2006.
-- Net cash provided by operations was $287 million, compared with $229
million, in the first quarter of 2006. Free cash flow increased 25%,
to $137 million, from $110 million.
First-Quarter Operational Highlights:
-- Operating performance of the businesses reflected successful execution
of the Thomson business model, as well as savings generated by
THOMSONplus efficiency initiatives.
-- Approximately 85% of Thomson's revenues were derived from electronic
solutions, software and services, which grew 12%. In addition,
approximately 84% of Thomson revenues were recurring in nature.
-- To date, THOMSONplus initiatives have generated approximately $50
million in annual run-rate savings. Thomson remains on track to
generate total annual run-rate savings of approximately $150 million by
year-end 2008.
First-Quarter Business Segment Highlights:
Legal
-- Revenues grew 10%, to $747 million. Organic revenue growth was 7%,
foreign exchange contributed 2% and acquisitions added 1%.
-- Organic revenue growth was fueled by strong double-digit online growth.
Westlaw continued to drive growth, delivering a strong performance
across all of its customer segments. Thomson's legal software and
services also continued to be strong revenue drivers, posting double-
digit increases in the first quarter. The revenue increase for
software and services reflected continued strong growth from FindLaw,
as well as growth in consulting services.
-- Segment operating profit grew 17%, to $207 million, aided by strong
revenue growth and efficiency initiatives, resulting in a margin
increase of 160 basis points, to 27.7%.
Financial
-- Revenues increased 8%, to $527 million. Organic growth was 4%, and
acquisitions and foreign exchange each contributed 2%.
-- Organic revenue growth was driven by the strong performance of the
investment management, corporate services and investment banking
segments. Revenues from Europe and Asia grew at double-digit rates,
and a Japanese-language version of Thomson ONE for investment
management was launched in the quarter.
-- Fixed income-related revenue was affected by softness in the U.S.
Treasuries markets, resulting in lower volumes within Thomson's fixed-
income transaction business. Revenues declined slightly in the retail
wealth management segment, as the business exited a low-margin contract
and experienced declines in low-margin legacy desktops.
-- Segment operating profit grew 20%, to $95 million, as a result of
strong revenue growth and efficiency initiatives, and the corresponding
margin increased 180 basis points, to 18.0%.
Tax & Accounting
-- Revenues increased 13%, to $160 million. Organic revenue grew 9%, and
growth from acquisitions was 4%.
-- Thomson Tax & Accounting achieved strong organic growth across its
research and guidance, and professional and corporate software and
services customer segments, driven by higher new sales and improved
retention levels.
-- Segment operating profit grew 27%, to $38 million, as a result of
strong operating performance and efficiency initiatives, raising the
operating margin by 270 basis points, to 23.8%.
Scientific
-- Revenues grew 7%, to $149 million. Organic revenues grew 4%, foreign
exchange contributed 2% and acquisitions added 1%.
-- Revenue growth continued to be driven by the strong performance of Web
of Science and Web of Knowledge, corporate solutions and Thomson
Pharma. The acquisition of ScholarOne also contributed to revenue
growth in the first quarter of 2007. Revenue growth was offset by
declines in legacy online products, as well as print and CD offerings.
-- Segment operating profit grew 21%, to $34 million, as a result of
strong operating performance and efficiency initiatives, raising the
operating margin by 270 basis points, to 22.8%.
Healthcare
-- Revenues grew 42%, to $92 million. Revenues from acquisitions
contributed 39% and organic revenues grew 3%. Because the first
quarter is a relatively small quarter, growth rates were significantly
affected by the timing of new customer contracts, as well as contract
cancellations.
-- Revenue growth was largely driven by the acquisition of Solucient in
the fourth quarter of last year. Solucient's offerings further
strengthened Thomson's management decision support products for
hospitals, and posted solid revenue growth year-over-year.
-- Segment operating profit was affected by acquisition-related costs and
remained flat year-over-year.
-- First-quarter performance of the Healthcare segment is not indicative
of its anticipated full-year results, as historically less than 20% of
its revenue and 10% of its operating profit have been earned in the
first quarter.
Corporate and Other
-- Corporate and Other expenses in the first quarter of 2007 increased $42
million, to $91 million, compared with $49 million in the prior-year
period. The increase was primarily due to $34 million of THOMSONplus-
related costs and certain additional costs related to the company's
organizational realignment.
Discontinued Operations
The former Thomson Learning market group accounted for the majority of results in Discontinued Operations. Discontinued Operations also includes results of certain businesses sold or held for sale, which were formerly managed in Thomson's Legal and Healthcare segments.
Dividend
The Board of Directors declared a quarterly dividend of $0.245 per common share payable on June 15, 2007 to holders of record as of May 24, 2007.
Normal Course Issuer Bid
Thomson plans to renew its share repurchase program (normal course issuer bid) for an additional 12-month period and expects to repurchase up to 15 million of its common shares (representing approximately 2.3% of its issued and outstanding shares as of April 24, 2007). Purchases under the new program may commence on May 7, 2007 and will terminate no later than May 6, 2008. Thomson may repurchase shares in open market transactions on the Toronto Stock Exchange or the New York Stock Exchange. Under its existing normal course issuer bid, which began on May 5, 2006 and expires on May 4, 2007, Thomson has purchased 6,285,000 common shares through April 24, 2007 at an average price of US$40.55 per share. Since beginning share repurchases in May 2005, Thomson has purchased approximately 19.6 million common shares for a total cost of approximately $736.9 million. As of April 24, 2007, Thomson had 639,999,563 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 will be cancelled.
From time to time, when Thomson does not possess material nonpublic information about itself or its securities, it may enter into a pre-defined plan with its broker to allow for the repurchase of common shares at times when Thomson ordinarily would not be active in the market due to its own internal trading blackout periods, insider trading rules or otherwise. Any such plans entered into with Thomson's broker will be adopted in accordance with the requirements of applicable Canadian securities laws and Rule 10b5-1 under the U.S. Securities Exchange Act of 1934.
Business Outlook
The business outlook for 2007 that was provided on February 8, 2007 remains unchanged.
-- Revenue growth is expected to be at the high end of the company's
long-term target range of 7%-9%, prior to the deployment of the
proceeds from the sale of Thomson Learning.
-- Operating margin is expected to be at or above 2006 levels, despite
increasing investments in efficiency initiatives.
-- Cash generated by continuing operations is expected to grow, excluding
cash generated through deployment of the Thomson Learning sale
proceeds.
Thomson expects its performance to further strengthen in 2008. The company expects to sustain its long-term revenue growth rates; operating margin is expected to increase to above 20%; and free cash flow is expected to strengthen, as improvements in operating performance are projected to more than offset the loss of Thomson Learning's free cash flow, even before deployment of the Thomson Learning sale proceeds.
The Thomson Corporation
The Thomson Corporation (http://www.thomson.com) is a global leader in providing essential electronic workflow solutions to business and professional customers. With operational headquarters in Stamford, Conn., Thomson provides value-added information, software tools and applications to professionals in the fields of law, tax, accounting, financial services, scientific research and healthcare. 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 first-quarter results beginning at 8:30 a.m. ET today. To participate in the webcast, please visit http://www.thomson.com and click 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 tables below.
This news release, in particular the section under the heading "Business Outlook," includes forward-looking statements, such as the Corporation's beliefs and expectations regarding its financial performance in 2007 and 2008. These statements 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 ability to deliver continued revenue growth and profitability, its ability to continue to increase shareholder value, its anticipated run-rate savings related to THOMSONplus and the timing of the completion of the sale of its Thomson Learning businesses. 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 and divestitures; failure to develop new products, services, applications and functionalities 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 latest annual information form, which is also contained in its most recently filed annual report on Form 40-F. A discussion of material assumptions related to the Corporation's Business 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
------------------
March 31,
---------
2007 2006
---- ----
Revenues 1,669 1,507
Cost of sales, selling, marketing,
general and administrative expenses (1,267) (1,133)
Depreciation (115) (105)
Amortization (61) (60)
----------- -----------
Operating profit 226 209
Net other income 6 38
Net interest expense and
other financing costs (53) (52)
Income taxes 31 10
----------- -----------
Earnings from continuing operations 210 205
Earnings (loss) from discontinued
operations, net of tax 14 (68)
----------- -----------
Net earnings 224 137
Dividends declared on preference shares (1) (1)
----------- -----------
Earnings attributable to common shares 223 136
=========== ===========
Basic and diluted earnings per
common share $0.35 $0.21
=========== ===========
Basic weighted average common shares 641,071,690 648,153,472
=========== ===========
Diluted weighted average common shares 643,783,735 648,998,104
=========== ===========
Reconciliation of Earnings Attributable to Common Shares to
Adjusted Earnings from Continuing Operations(1)
(millions of U.S. dollars, except per common share data)
(unaudited)
Three Months Ended
------------------
March 31,
---------
2007 2006
---- ----
Earnings attributable to common shares 223 136
Adjustments:
One-time items:
Net other income (6) (38)
Tax on above item -- (1)
Tax benefits (35) (9)
Interim period effective tax rate
normalization(2) (23) (25)
Discontinued operations (14) 68
------ ------
Adjusted earnings from continuing operations 145 131
====== ======
Adjusted diluted earnings per common
share from continuing operations $0.23 $0.20
====== ======
Notes
(1) 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.
(2) 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)
March 31, December 31,
2007 2006
-----------------------
Assets
Cash and cash equivalents 350 334
Accounts receivable, net of allowances 1,285 1,364
Inventories 80 72
Prepaid expenses and other current assets 303 297
Deferred income taxes 153 153
Current assets of discontinued operations 868 1,045
-----------------------
Current assets 3,039 3,265
Computer hardware and other property, net 600 624
Computer software, net 656 647
Identifiable intangible assets, net 3,467 3,457
Goodwill 6,674 6,546
Other non-current assets 1,053 1,082
Non-current assets of discontinued operations 4,549 4,511
-----------------------
Total assets 20,038 20,132
=======================
Liabilities and shareholders' equity
Liabilities
Short-term indebtedness 591 333
Accounts payable and accruals 1,058 1,307
Deferred revenue 1,061 970
Current portion of long-term debt 661 264
Current liabilities of discontinued operations 654 865
-----------------------
Current liabilities 4,025 3,739
Long-term debt 3,275 3,681
Other non-current liabilities 807 785
Deferred income taxes 987 997
Non-current liabilities of discontinued operations 434 449
-----------------------
Total liabilities 9,528 9,651
Shareholders' equity
Capital 2,832 2,799
Retained earnings 7,152 7,169
Accumulated other comprehensive income 526 513
-----------------------
Total shareholders' equity 10,510 10,481
-----------------------
Total liabilities and shareholders' equity 20,038 20,132
=======================
Consolidated Statement of Cash Flow
(millions of U.S. dollars, unaudited)
Three Months Ended
------------------
March 31,
---------
2007 2006
--------------------
Cash provided by (used in):
Operating activities
Net earnings 224 137
Remove (earnings) loss from
discontinued operations (14) 68
Add back (deduct) items not involving cash:
Depreciation 115 105
Amortization 61 60
Net gains on disposals of
businesses and investments (6) (41)
Deferred income taxes (42) (17)
Other, net 64 64
Pension contributions (1) (5)
Changes in working capital and other items (103) (123)
Cash used in operating activities -
discontinued operations (11) (19)
--------------------
Net cash provided by operating activities 287 229
--------------------
Investing activities
Acquisitions (154) (132)
Proceeds from disposals 6 55
Capital expenditures, less
proceeds from disposals (98) (66)
Other investing activities (10) (11)
Capital expenditures of discontinued operations (37) (38)
Other investing activities of
discontinued operations (4) (3)
Proceeds from disposals of
discontinued operations 35 --
Acquisitions by discontinued operations (54) (3)
--------------------
Net cash used in investing activities (316) (198)
--------------------
Financing activities
Repayments of debt -- (52)
Net borrowings under short-term loan facilities 244 198
Repurchase of common shares (55) (168)
Dividends paid on preference shares (1) (1)
Dividends paid on common shares (153) (139)
Other financing activities, net 10 9
--------------------
Net cash provided by (used in)
financing activities 45 (153)
--------------------
Translation adjustments -- --
--------------------
Increase (decrease) in cash and cash equivalents 16 (122)
Cash and cash equivalents at beginning of period 334 407
--------------------
Cash and cash equivalents at end of period 350 285
====================
Reconciliation of Net Cash Provided by Operating Activities
to Free Cash Flow(1)
(millions of U.S. dollars, unaudited)
Three Months Ended
------------------
March 31,
---------
2007 2006
---- ----
Net cash provided by operating activities 287 229
Capital expenditures (98) (66)
Other investing activities (10) (11)
Capital expenditures of discontinued operations (37) (38)
Other investing activities of
discontinued operations (4) (3)
Dividends paid on preference shares (1) (1)
--------------------
Free cash flow 137 110
====================
Notes
(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.
2007 Business Segment Information
(millions of U.S. dollars)
(unaudited)
Three Months Ended
------------------
March 31,
---------
2007 2006 Change
---- ---- ------
Revenues:
Legal 747 678 10 %
Financial 527 487 8 %
Tax & Accounting 160 142 13 %
Scientific 149 139 7 %
Healthcare 92 65 42 %
Intercompany eliminations (6) (4)
------- -------
Total revenues 1,669 1,507 11 %
======= =======
Operating Profit:
Segment operating profit
Legal 207 177 17 %
Financial 95 79 20 %
Tax & Accounting 38 30 27 %
Scientific 34 28 21 %
Healthcare 4 4 0 %
Corporate and other(1) (91) (49)
------- -------
Total segment operating profit 287 269 7 %
Amortization (61) (60)
------- -------
Operating profit 226 209 8 %
======= =======
Notes
(1) Corporate and other includes THOMSONplus costs, corporate costs and
certain costs associated with the company's stock incentive and
phantom stock plans.
Detail of depreciation by segment:
Three Months Ended
------------------
March 31,
---------
2007 2006
-----------------------
Legal (48) (43)
Financial (46) (44)
Tax & Accounting (6) (6)
Scientific (7) (6)
Healthcare (5) (4)
Corporate and other (3) (2)
-----------------------
(115) (105)
=======================
SOURCE The Thomson Corporation
-0- 04/26/2007
/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/
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/Web site: http://www.thomson.com /
(TOC TOC.)
CO: The Thomson Corporation
ST: Connecticut
IN: FIN PUB
SU: ERN ERP DIV CCA
FB-GF
-- NYTH036 --
5716 04/26/2007 07:00 EDT http://www.prnewswire.com