Thomson Reports Strong First-Quarter 2006 Results
Revenues up 7%, driven by strong organic growth
EPS $0.21, up from $0.11 a year ago; Adjusted EPS $0.13, up from $0.08
Business and portfolio optimization programs on track
Share repurchase program renewed
(All amounts are in U.S. dollars)
STAMFORD, Conn., April 27 /PRNewswire-FirstCall/ -- The Thomson Corporation (NYSE: TOC; TSX: TOC), the world's leading information services provider, today reported strong financial results for the first quarter ended March 31, 2006.
(Logo: http://www.newscom.com/cgi-bin/prnh/20020227/NYW014LOGO )
Consolidated First-Quarter Financial Highlights:
-- Revenues increased 7%, to $1.93 billion. Excluding the effects of
currency translation, revenues rose 8% in the quarter. The revenue
increase was primarily the result of solid organic growth of 7%.
-- Operating profit increased 19%, to $143 million. Operating profit
margin continued to improve, increasing 70 basis points from the year-
ago period. Operating profit improvement was driven by revenue growth
and the benefits of increased leverage across the company.
-- Earnings attributable to common shares were $136 million, or $0.21 per
share, compared to $72 million, or $0.11 per share, in the first
quarter of 2005. After adjusting for discontinued operations, the
normalization of the quarterly effective tax rate, and one-time items,
earnings were $84 million, or $0.13 per share, compared with
$55 million, or $0.08 per share, in the year-ago period.
-- Net cash from operations of $229 million was generated by the company.
Free cash flow was $110 million, versus $143 million in 2005. The
decline was largely due to timing factors. First-quarter free cash
flow is not reflective of the strong free cash flow growth Thomson is
expecting for the full year.
First-Quarter Operational Highlights:
-- Accelerating Growth: Growth was driven by innovative products such as
Westlaw Litigator, Practitioner, ResultsPlus and FindLaw for the legal
market; Checkpoint and UltraTax for accounting professionals; Thomson
Pharma solutions and Web of Science for pharmaceutical and scientific
researchers; and a number of solutions across Thomson Financial's
product lines. These solutions combine rich content with software
tools that improve professionals' productivity.
-- Optimizing Portfolio: Thomson continued its portfolio optimization to
further drive growth and returns. In February, the company announced
its intent to sell four businesses that are not core to its strategy.
In addition, today Thomson announced its intention to sell Lawpoint
from the Legal & Regulatory group. These transactions are expected
to be completed in the second half of the year. Thomson announced the
completed sale of Law Manager, also from the Legal & Regulatory
group. Lawpoint and Law Manager accounted for approximately
$40 million in revenue in 2005.
-- Business Optimization: Earlier in the year, Thomson announced the
creation of two new executive positions focused on business
optimization across the company. The new executive team is actively
pursuing leveraging and efficiency initiatives in the back office,
technology and finance areas. Thomson expects to provide further
updates on these initiatives throughout the year.
Thomson President and Chief Executive Officer Richard J. Harrington said, "Thomson continued to build upon its solid momentum in 2005. While the first quarter is historically our smallest of the year, we are pleased to report strong results for the first three months of 2006. We continue to execute on our strategy to develop innovative work solutions for professionals based on rich content, software tools and applications and high-end analytics. Our growth in revenue and profits was balanced across our businesses and markets, and we are well positioned to achieve our long-term objectives of 7% to 9% annual revenue growth, higher margins and strong free cash flow.
"Our Legal and Regulatory group continued to deliver double-digit online growth, reflecting a deep understanding of our vertical markets that enables us to develop new products tailored to our customers' needs. Thomson Financial achieved strong organic revenue growth, with strength in all of its customer segments. In our Scientific and Healthcare group, revenues from electronic information solutions grew 7%. We see these electronic solutions as the engine of future growth. We were also encouraged by growth in the higher education space, which helped drive 9% revenue growth for Thomson Learning, and we continue to work with educators to develop digital learning solutions.
"In the first quarter our Board announced a 10% increase in our dividend, and today we announced that we will continue our share buyback program for another year. To date, we have bought approximately $467 million worth of shares under the program that began last May. We remain committed to driving value for shareholders."
Market Group First-Quarter Highlights:
Legal & Regulatory
-- Revenues increased 9%, to $843 million, and segment operating profit
grew 12%, to $203 million. Organic revenue grew 7% and growth from
acquisitions was 2%. The effect of currency exchange was not
material.
-- Revenue growth was largely driven by double-digit growth of online
legal and tax products, as well as software and services. Westlaw
continued to achieve strong growth across all customer segments. The
Thomson tax and accounting business was up significantly, led by
Checkpoint and UltraTax, which are tax preparation solutions for
accountants, reflecting strong new subscription sales and higher
retention levels.
-- Revenue increases in the quarter were supported by a slight increase
in print revenue primarily due to timing.
-- In April, Thomson and Shin Nippon Hoki Shuppan K.K. signed a joint
venture agreement establishing Westlaw Japan K.K. Westlaw Japan
brings together the two leading providers of legal information and
services in their respective markets and is the first joint venture of
its kind in the Japanese legal market. Shin Nippon Hoki Shuppan will
provide value-added Japanese law content, editorial staff, knowledge
of the Japanese market, strong relationships with customers and sales
experience. Thomson will provide its global technology platform,
online infrastructure, expertise in developing and supporting online
information solutions and the strength of the Westlaw brand.
-- The North American legal business continues to deepen its customer
presence through practice-specific solutions, including Westlaw
Litigator, Practitioner and ResultsPlus. These solutions support
legal professionals' effective practice of law, further extend
Westlaw's reach and maintain the group's online revenue growth
trajectory.
Learning
-- Revenues were $382 million, a 9% increase over the prior-year period.
Excluding the effects of currency exchange, revenues grew 10%,
virtually all of which was organic.
-- Revenue growth was the result of strong performance from higher
education businesses, particularly custom publishing services and
international, as well as growth in global library reference and e-
testing businesses. Revenue growth was dampened by weakness in
corporate e-learning.
-- Strong global higher education performance benefited from increased
demand in several key disciplines, including double-digit growth in
Humanities and Social Sciences, and Business and Economics.
-- The segment operating loss for the quarter was $50 million, compared
to a loss of $45 million in the first quarter of 2005, due to timing
of expenses. Learning's first-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 $485 million, and segment operating profit
increased 22%, to $79 million. Organic revenue growth was 7%, offset
by unfavorable currency exchange movements of 1%.
-- Thomson Financial continued its strong performance in the first
quarter of 2006, with broad-based growth across all customer segments
and regions.
-- Thomson ONE continued to post solid gains with growth from the recent
launch of Thomson ONE for Investment Management and strong growth in
its Corporate Services group.
-- Thomson trading and transaction-based businesses continued to exhibit
good growth and expand into new markets. There was continued strong
demand for both Omgeo's straight-through processing services and
TradeWeb's electronic fixed income products, including new asset
classes.
Scientific & Healthcare
-- Revenues were $227 million, up 2% from 2005, and segment operating
profit increased 11%, to $31 million. Excluding the effects of
currency exchange, revenues grew 4%, of which 3% was organic.
-- Revenue growth was driven by increased subscriptions for Web of
Science and Thomson Pharma solutions, as well as increased customer
spending for healthcare decision support products. This growth was
offset by lower sales in medical education businesses, print and
legacy products.
-- Web of Knowledge continued to post solid gains, with usage up nearly
50% over 2005 and a retention rate greater than 95%.
-- Thomson continued to add value to its Thomson Pharma platform as it
rolled out several new tools, including the Thomson Pharma Brand
Management Module, which helps pharmaceutical companies make critical
decisions regarding products, licensing and new drug indications.
Corporate & Other
Corporate and other expenses increased to $44 million in the first quarter due to higher pension costs, higher stock compensation costs and severance and other charges associated with the Thomson infrastructure optimization program.
Dividend
The Board of Directors declared a quarterly dividend of $0.22 per common share payable on June 15, 2006 to holders of record as of May 18, 2006.
Normal Course Issuer Bid
Thomson also announced today its plans to renew its share repurchase program. Thomson plans to repurchase up to 15 million of its common shares (representing approximately 2.3% of its issued and outstanding shares as of April 26, 2006). Purchases may commence on May 5, 2006 and will terminate no later than May 4, 2007. 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, 2005 and expires on May 4, 2006, Thomson has purchased 12,910,000 common shares to date at an average price of US$36.15. As of April 26, 2006, Thomson had 644,011,589 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.
2006 Outlook
Thomson expects full-year 2006 revenue growth to be in line with the corporation'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.
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 (http://www.thomson.com), with 2005 revenues of approximately $8.5 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 first-quarter results beginning at 9:00 am ET today. To participate in the webcast, please visit http://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, free cash flow and segment operating profit and loss. Segment operating profit and loss were referred to in previous news releases as adjusted operating profit and loss. 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 sections under the headings "2006 Outlook" and "Normal Course Issuer Bid," includes forward-looking statements, such as the Corporation's expectations and intentions regarding its full-year financial results and the share repurchase program, that are based on certain assumptions and reflect the Corporation's current expectations. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from current expectations. For the share repurchase program, these factors include the market price of the common shares, general business and market conditions and management's determination of alternative needs and uses of the Corporation's cash resources. Some of the factors that could cause actual results or events to differ materially from current expectations are actions of our competitors; failure to fully derive anticipated benefits from our acquisitions; failure to develop additional products and services to meet our 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 management's discussion and analysis for the year ended December 31, 2005, which is also part of the Corporation's most recent Form 40-F. 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.
CONSOLIDATED STATEMENT OF EARNINGS
(millions of U.S. dollars, except per common share data)
(unaudited)
Three Months Ended
March 31,
2006 2005
Revenues 1,931 1,801
Cost of sales, selling, marketing, general
and administrative expenses (1,564) (1,460)
Depreciation (148) (141)
Amortization (76) (80)
------------ ------------
Operating profit 143 120
Net other income (1) 38 2
Net interest expense and other
financing costs (53) (54)
Income taxes 46 6
------------ ------------
Earnings from continuing operations 174 74
Loss from discontinued operations,
net of tax (37) (1)
------------ ------------
Net earnings 137 73
Dividends declared on preference shares (1) (1)
------------ ------------
Earnings attributable to common shares 136 72
============ ============
Basic and diluted earnings per common share $0.21 $0.11
============ ============
Basic weighted average common shares 648,153,472 655,764,422
============ ============
Diluted weighted average common shares 648,998,104 656,388,656
============ ============
RECONCILIATION OF EARNINGS ATTRIBUTABLE TO COMMON SHARES TO
ADJUSTED EARNINGS FROM CONTINUING OPERATIONS (2)
(millions of U.S. dollars, unaudited)
Three Months Ended
March 31,
2006 2005
Earnings attributable to common shares 136 72
Adjustments:
One time items:
Net other income (38) (2)
Tax on above item (1) --
Interim period effective tax rate
normalization (3) (50) (16)
Discontinued operations 37 1
------- -------
Adjusted earnings from continuing operations 84 55
======= =======
Adjusted basic and diluted earnings per
common share from continuing operations $0.13 $0.08
======= =======
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 three month period
ended March 31, 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)
March 31, December 31,
2006 2005
Assets
Cash and cash equivalents 285 407
Accounts receivable, net of allowances 1,421 1,676
Inventories 332 315
Prepaid expenses and other current assets 349 320
Deferred income taxes 249 249
Current assets of discontinued operations 32 43
------- -------
Current assets 2,668 3,010
Computer hardware and other property, net 738 773
Computer software, net 732 745
Identifiable intangible assets, net 4,355 4,414
Goodwill 9,023 8,914
Other non-current assets 1,395 1,374
Non-current assets of discontinued operations 166 208
------- -------
Total assets 19,077 19,438
======= =======
Liabilities and shareholders' equity
Liabilities
Short-term indebtedness 405 202
Accounts payable and accruals 1,237 1,708
Deferred revenue 1,116 1,032
Current portion of long-term debt 47 98
Current liabilities of discontinued operations 64 68
------- -------
Current liabilities 2,869 3,108
Long-term debt 3,971 3,983
Other non-current liabilities 820 820
Deferred income taxes 1,527 1,546
Non-current liabilities of discontinued operations 13 18
------- -------
Total liabilities 9,200 9,475
Shareholders' equity
Capital 2,736 2,726
Retained earnings 6,835 6,992
Accumulated other comprehensive income 306 245
------- -------
Total shareholders' equity 9,877 9,963
------- -------
Total liabilities and shareholders' equity 19,077 19,438
======= =======
CONSOLIDATED STATEMENT OF CASH FLOW
(millions of U.S. dollars)
(unaudited)
Three Months Ended
March 31,
2006 2005
Cash provided by (used in):
Operating activities
Net earnings 137 73
Remove loss from discontinued operations 37 1
Add back (deduct) items not involving cash:
Depreciation 148 141
Amortization 76 80
Net gains on disposals of businesses
and investments (41) (1)
Deferred income taxes (17) (7)
Other, net 88 49
Voluntary pension contribution (5) --
Changes in working capital and other items (195) (85)
Cash provided by operating activities -
discontinued operations 1 12
------ ------
Net cash provided by operating activities 229 263
------ ------
Investing activities
Acquisitions (135) (70)
Proceeds from disposals 55 1
Capital expenditures, less proceeds
from disposals (103) (113)
Other investing activities (14) (5)
Capital expenditures of discontinued operations (1) (1)
Income taxes paid on disposal of
discontinued operations -- (105)
------ ------
Net cash used in investing activities (198) (293)
------ ------
Financing activities
Repayments of debt (52) (125)
Net borrowings under short-term loan facilities 199 199
Repurchase of common shares (168) --
Dividends paid on preference shares (1) (1)
Dividends paid on common shares (139) (122)
Other financing activities, net 8 4
------ ------
Net cash used in financing activities (153) (45)
------ ------
Translation adjustments -- (3)
------ ------
Decrease in cash and cash equivalents (122) (78)
Cash and cash equivalents at beginning of period 407 405
------ ------
Cash and cash equivalents at end of period 285 327
====== ======
RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES
TO FREE CASH FLOW (1)
(millions of U.S. dollars, unaudited)
Three Months Ended
March 31,
2006 2005
Net cash provided by operating activities 229 263
Capital expenditures (103) (113)
Other investing activities (14) (5)
Capital expenditures of discontinued operations (1) (1)
Dividends paid on preference shares (1) (1)
------ ------
Free cash flow 110 143
====== ======
(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
March 31,
2006 2005 Change
Revenues:
Legal & Regulatory 843 776 9%
Learning 382 349 9%
Financial 485 458 6%
Scientific & Healthcare 227 223 2%
Intercompany eliminations (6) (5)
------ ------
Total revenues 1,931 1,801 7%
====== ======
Operating Profit: (1)
Segment operating profit
Legal & Regulatory 203 181 12%
Learning (50) (45) -11%
Financial 79 65 22%
Scientific & Healthcare 31 28 11%
Corporate and other (2) (44) (29)
------ ------
Total Segment
operating profit 219 200 10%
Amortization (76) (80)
------ ------
Operating Profit 143 120 19%
====== ======
*Notes to business segment information for continuing operations
(1) Please see reconciliations to GAAP measures in the following tables.
(2) Corporate and other includes corporate costs and certain costs
associated with the Corporation's stock incentive and phantom stock
plan.
Detail of depreciation by segment:
Three Months Ended
March 31,
2006 2005
Legal & Regulatory 52 48
Learning 40 34
Financial 44 46
Scientific & Healthcare 10 10
Corporate and other 2 3
------- ------
148 141
------- ------
RECONCILIATION OF SEGMENT OPERATING PROFIT (LOSS) TO OPERATING PROFIT (LOSS)
(millions of U.S. dollars, unaudited)
Segment operating profit (loss) is defined as operating profit (loss) before amortization of identifiable intangible assets. Thomson uses this measure because amortization is not considered to be a controllable operating cost for purposes of assessing the current performance of the businesses. Thomson also uses segment operating profit margin, which is segment operating profit as a percentage of revenues.
For the Three Months Ended March 31, 2006
Legal & Scientific & Corporate
Regulatory Learning Financial Healthcare and Other Total
Segment
operating
profit
(loss) 203 (50) 79 31 (44) 219
Less:
Amortization (25) (16) (23) (12) -- (76)
---- ---- ---- ---- ---- ----
Operating
profit
(loss) 178 (66) 56 19 (44) 143
==== ==== ==== ==== ==== ====
For the Three Months Ended March 31, 2005
Legal & Scientific & Corporate
Regulatory Learning Financial Healthcare and Other Total
Segment
operating
profit
(loss) 181 (45) 65 28 (29) 200
Less:
Amortization (27) (15) (22) (16) -- (80)
---- ---- ---- ---- ---- ----
Operating
profit
(loss) 154 (60) 43 12 (29) 120
==== ==== ==== ==== ==== ====
Reconciliation Of Segment Operating Profit (Loss) Margin to
Operating Profit (Loss) Margin
(as a percentage of revenue, unaudited)
For the Three Months Ended March 31, 2006
Legal & Scientific &
Regulatory Learning Financial Healthcare Total
Segment operating
profit (loss)
margin 24.1% (13.1%) 16.3% 13.7% 11.3%
Less: Amortization (3.0%) (4.2%) (4.8%) (5.3%) (3.9%)
------- ------- ------ ------ ------
Operating profit
margin (loss) 21.1% (17.3%) 11.5% 8.4% 7.4%
======= ======= ====== ====== ======
For the Three Months Ended March 31, 2005
Legal & Scientific &
Regulatory Learning Financial Healthcare Total
Segment operating
profit (loss)
margin 23.3% (12.9%) 14.2% 12.6% 11.1%
Less: Amortization (3.5%) (4.3%) (4.8%) (7.2%) (4.4%)
------- ------- ------ ------ ------
Operating profit
margin (loss) 19.8% (17.2%) 9.4% 5.4% 6.7%
======= ======= ====== ====== ======
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
SOURCE The Thomson Corporation
-0- 04/27/2006
/CONTACT: Media Contact - Jason Stewart, Vice President, Media Relations,
+1-203-539-8339, jason.stewart@thomson.com, or Investor Contact - Frank J.
Golden, Vice President, Investor Relations, +1-203-539-8470,
frank.golden@thomson.com, both of The Thomson Corporation/
/Photo: NewsCom: http://www.newscom.com/cgi-bin/prnh/20020227/NYW014LOGO
PRN Photo Desk, photodesk@prnewswire.com/
/Web site: http://www.thomson.com/
(TOC TOC.)
CO: The Thomson Corporation
ST: Connecticut
IN: FIN PUB MLM CPR ITE
SU: ERN CCA ERP DIV
EA
-- NYTH037 --
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