Thomson Reports Third-Quarter 2006 Results
Electronic solutions drive revenue and operating profit growth
$0.22 per common share quarterly dividend declared
Company to realign operations and sell education businesses
(All amounts are in U.S. dollars)
STAMFORD, Conn., Oct. 26 /PRNewswire-FirstCall/ -- The Thomson Corporation (NYSE: TOC; TSX: TOC), one of the world's leading information services providers, today reported financial results for the third quarter ended September 30, 2006. Yesterday, Thomson announced a strategic realignment of its operations, including the intent to sell its education businesses.
(Logo: http://www.newscom.com/cgi-bin/prnh/20020227/NYW014LOGO )
Consolidated Third-Quarter Financial Highlights:
* Revenues increased 5%, to $2.4 billion, primarily as a result of organic
growth of 3%. Each market group posted organic revenue growth in the
quarter.
* Operating profit increased 6%, to $549 million, as a result of stronger
operating performance and the continued success of efficiency
initiatives.
* Thomson Learning is included in Continuing Operations as the decision to
divest the business was made subsequent to the end of the quarter.
Thomson Learning will be included in Discontinued Operations when the
fourth-quarter results are released.
* Excluding results from Thomson Learning, organic revenue growth was 5%
and operating profit grew 11%, as a result of improved operating
performance. These results also include $9 million in net costs from
THOMSONplus initiatives. Excluding results from Thomson Learning and
the impact of THOMSONplus, operating profit margins improved 120 basis
points.
* Earnings attributable to common shares were $418 million, or $0.65
diluted earnings per share, compared with $308 million, or $0.47 diluted
earnings per share, in the third quarter of 2005. Earnings in the
quarter include $31 million from discontinued operations. Earnings in
the prior-year period included $17 million, primarily related to costs
associated with early redemption of bonds. After adjusting for these
items and the normalization of the quarterly effective tax rate,
earnings were $391 million, or $0.61 per share, compared with $331
million, or $0.50 per share, in the year-ago period.
* Net cash provided by operations of $633 million was generated by the
company, compared with $540 million in the third quarter of 2005. Free
cash flow increased from $390 million in 2005 to $461 million in the
current year period, driven by improved operating performance across the
company.
"We delivered solid performance this quarter, reflecting good organic revenue and earnings growth, and continued success in executing on our THOMSONplus initiatives," said Richard J. Harrington, president and chief executive officer of Thomson.
"Importantly, Thomson continued to drive growth via our electronic solutions, the most profitable segments of our business and main engines of organic growth," said Mr. Harrington. "Electronic workflow solutions continued to gain traction in the marketplace. Checkpoint, our premier tax and accounting solution, posted its 15th consecutive quarter of 15% plus growth; we built momentum for our new Thomson ONE financial solution in the investor relations and corporate communications markets; and our Thomson Pharma solutions grew 38% in the quarter.
"To sharpen our strategic focus on providing essential electronic workflow solutions to business and professional markets, we will realign our operations effective January 1, 2007 around six existing strategic business units. As part of this realignment, we plan to sell our Thomson Learning businesses," he said. "After the sale of Thomson Learning, the vast majority of our sales will come from electronic products and services with recurring revenues that are currently growing at high rates."
Mr. Harrington said the company expects the sale of the education businesses to be completed in 2007.
"These initiatives are part of the natural evolution of Thomson as we pursue our strategic vision," Mr. Harrington added. "The realignment will speed decision-making, increase organizational transparency and create a more efficient cost structure. We believe these changes will drive growth across the company and enhance value for shareholders."
Third-Quarter Operational Highlights:
* Thomson's electronic solutions, software and services continued to set
the foundation for growth within the company, rising 8% in the quarter.
Thomson's electronic solutions, software and services accounted for 63%
of total revenue in the quarter.
* The THOMSONplus program remained on track with good progress being made
across its technology, finance and customer-focused initiatives.
THOMSONplus generated $4 million of savings in the quarter and incurred
$13 million of costs related to those initiatives. For the full year,
Thomson remains on track to generate $10 million in savings while
incurring $70 million of costs. By 2009, Thomson expects to generate
total run-rate savings of approximately $150 million annually.
* Yesterday, Thomson announced the realignment of its operations slated to
take effect January 1, 2007. Underpinning the strategic realignment is
a series of initiatives to streamline operations, improve efficiencies,
drive revenue and free cash flow growth, and improve margins.
* As part of the realignment, Thomson announced its intention to divest
the entirety of its Thomson Learning business via three independent
sales processes: the sale of NETg, a corporate education and training
business; the sale of Prometric, a provider of technology-driven
assessment and testing services; and the sale of Thomson's higher
education, careers, and library reference businesses.
* Yesterday, Thomson also announced that it has agreed to sell NETg to
SkillSoft PLC for approximately $285 million. The sale is
expected to be completed in the second quarter of 2007.
Also in the quarter, Thomson completed the sale of Peterson's, K.G. Saur and American Health Consultants. The sales process for Thomson Education Direct, IOB and Thomson Medical Education businesses are progressing.
Market Group Third-Quarter Highlights:
Legal & Regulatory
* Revenues increased 7%, to $903 million, and segment operating profit
grew 12%, to $278 million. Organic revenue grew 6%, while acquisitions
and currency each accounted for less than 1%.
* Organic revenue growth was driven by double-digit increases in online
solutions and strong growth in the software and services businesses.
This growth was somewhat offset by a shift in timing of bar review
service revenues from the third quarter to the second quarter of 2006.
In addition, growth was tempered by stable revenues in print and CD
products, which as part of the normal business cycle comprise a greater
percentage of the group's third- and fourth-quarter total revenue.
* Thomson's North American legal products and services continued to
achieve solid revenue growth across all customer segments led by
strength in Westlaw, which was driven by the Litigator suite of
products. FindLaw continued its double-digit revenue growth in the
client development market.
* Revenue in the Thomson tax and accounting business was also up
significantly, led by Checkpoint, InSource and UltraTax.
* Double-digit revenue growth of international online solutions, driven by
strong performance in Europe and Australia, resulted in good growth for
Thomson's international legal and regulatory businesses.
* Segment operating profit growth and a 130 basis point margin improvement
resulted from higher revenue and continued operating leverage across the
businesses.
Financial
* Revenues increased 6%, to $505 million, and segment operating profit
increased 14%, to $97 million. Organic revenue growth was 3%, growth
from acquisitions was 2% and foreign exchange contributed 1%.
* Organic revenue growth was dampened by slower growth in fixed income
trading due to softness in U.S. treasuries and mortgage-backed
securities, and by the discontinuation of a low margin service in the
wealth management segment.
* Thomson Financial continued to drive growth globally via its Thomson ONE
family of solutions. Both the institutional equities and corporate
segments drove growth via Thomson ONE Equity and Thomson ONE Corporate
solutions respectively. The investment banking segment also exhibited
strong growth, performing well in Europe and Asia.
* Revenue growth also benefited from contributions of acquired companies,
including Quantitative Analytics Inc., a provider of financial database
integration and analysis solutions, and AFX News, a real-time financial
news agency.
* Segment operating profit growth and segment operating profit margin
improvement of 130 basis points reflected the flow through of profitable
revenue and continued operating leverage across the segment.
Scientific & Healthcare
* Revenues were $233 million, up 8% from 2005, and segment operating
profit increased 20%, to $49 million. Organic revenues grew 4%,
acquisitions contributed 3% and foreign exchange had a 1% impact.
* Scientific & Healthcare continued its strong performance with double-
digit revenue growth in its information solutions, including increased
subscriptions for the Web of Science, increased sales of Thomson Pharma
solutions and increased healthcare management decision-support solutions
from Medstat.
* Revenue growth also benefited from contributions from recent
acquisitions, including MercuryMD, a provider of mobile information
systems serving the healthcare market and a shift in timing of the
release of certain PDR print products from the second quarter of 2005 to
the third quarter of 2006.
* In October, Thomson further built upon its success in the healthcare
decision-support market with the acquisition of Solucient, an advanced
healthcare analytics and information company. With Solucient and
Medstat, Thomson accelerates its plan to deliver integrated management
decision-support tools that create the most comprehensive view of the
healthcare enterprise.
* Segment operating profit growth and margin improvement of 200 basis
points benefited from revenue growth and continued operating leverage
across the segment.
Learning
* Revenues grew 2% to $794 million and segment operating profit increased
2% to $250 million. Organic revenue grew just over 1%, while
acquisition and currency growth were each under 1%.
* Revenue growth was driven by an 8% increase in the global higher
education businesses, with strong performance across both domestic and
international segments. Approximately 3% of the increase was
attributable to timing of certain shipments to customers.
* Overall revenue growth was constrained by weakness in the e-testing and
e-learning segments.
Corporate & Other
Corporate and other expenses increased to $50 million in the third quarter of 2006, versus $39 million in the third quarter of 2005, due primarily to costs associated with THOMSONplus.
Consolidated Financial Highlights for Nine-Months 2006:
* Revenues increased 6%, to $6.4 billion, comprised of 5% organic revenue
growth and 1% from acquisitions. Excluding Thomson Learning, revenue
rose 7% with organic revenue growth of 6%.
* Operating profit increased 11%, to $1.0 billion, driven by improvements
in all market groups. Excluding Thomson Learning, operating profit rose
12%.
* Earnings attributable to common shares were $725 million, or $1.12
diluted earnings per share, in the first nine months of 2006, compared
with $681 million, or $1.04 diluted earnings per share, in the prior-
year period. Earnings in the first nine months of 2006 include $36
million in net other income, primarily resulting from the sale of an
interest in WebCT in the first quarter of 2006. The prior-year period
included one-time income of $137 million from the release of tax
credits. After adjusting for the tax credits, other income, the
normalization of the quarterly effective tax rate and discontinued
operations, earnings were $685 million, or $1.06 diluted earnings per
share, in the first nine months of 2006, compared with $535 million, or
$0.82 diluted earnings per share, in the prior-year period.
* Net cash provided by operations of $1.3 billion was generated by the
company, compared with $1.2 billion in the previous year period. Free
cash flow was $886 million, versus $775 million in the first nine months
of 2005. The increase was largely due to higher operating profit in the
current year, partially offset by the timing of working capital.
Dividend
The Board of Directors declared a quarterly dividend of $0.22 per common share payable on December 15, 2006 to holders of record as of November 22, 2006.
Normal Course Issuer Bid
Since beginning share repurchases in May 2005, Thomson has purchased approximately 17.0 million common shares for a total cost of approximately $629 million. As of October 25, Thomson had approximately 640.8 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) 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 more than 20 million users 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 third-quarter results beginning at 8:30 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 strategic realignment of operations and plans to sell its Thomson Learning businesses. There can be no assurance that the Thomson Learning businesses will be sold within the timeframes specified in this release, or at all. 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 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 Nine Months Ended
September 30, September 30,
2006 2005 2006 2005
----- ----- ----- -----
Revenues 2,430 2,304 6,431 6,039
Cost of sales,
selling, marketing,
general and
administrative
expenses (1,632) (1,556) (4,735) (4,463)
Depreciation (174) (166) (474) (451)
Amortization (75) (66) (226) (225)
------ ------ ------ ------
Operating profit 549 516 996 900
Net other (expense)
income (1) (5) (17) 36 (14)
Net interest
expense and other
financing costs (60) (59) (169) (169)
Income taxes (96) (141) (122) (48)
------ ------ ------ ------
Earnings from
continuing operations 388 299 741 669
Earnings (loss)
from discontinued
operations, net of tax 31 10 (12) 15
------ ------ ------ ------
Net earnings 419 309 729 684
Dividends declared
on preference shares (1) (1) (4) (3)
------ ------ ------ ------
Earnings attributable
to common shares 418 308 725 681
====== ====== ====== ======
Basic and diluted
earnings per common
share $0.65 $0.47 $1.12 $1.04
====== ====== ====== ======
Basic weighted
average common
shares 642,384,089 654,404,078 645,000,569 655,291,124
=========== =========== =========== ===========
Diluted weighted
average common
shares 644,419,186 655,701,229 646,734,711 656,152,584
=========== =========== =========== ===========
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 Nine Months Ended
September 30, September 30,
2006 2005 2006 2005
----- ----- ----- -----
Earnings attributable
to common shares 418 308 725 681
Adjustments:
One time items:
Net other expense
(income) 5 17 (36) 14
Tax on above items -- 1 (1) 1
Release of tax credits -- -- -- (137)
Interim period
effective tax rate
normalization (3) (1) 15 (15) (9)
Discontinued operations (31) (10) 12 (15)
----- ----- ----- -----
Adjusted earnings from
continuing operations 391 331 685 535
===== ===== ===== =====
Adjusted diluted
earnings per common
share from continuing
operations $0.61 $0.50 $1.06 $0.82
===== ===== ===== =====
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 nine month period ended
September 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)
Sept. 30, Dec. 31,
2006 2005
-------- --------
Assets
Cash and cash equivalents 491 407
Accounts receivable, net of allowances 1,654 1,639
Inventories 323 314
Prepaid expenses and other current assets 363 316
Deferred income taxes 248 248
Current assets of discontinued operations 72 86
---------------------
Current assets 3,151 3,010
Computer hardware and other property, net 711 757
Computer software, net 733 743
Identifiable intangible assets, net 4,348 4,386
Goodwill 9,299 8,891
Other non-current assets 1,406 1,374
Non-current assets of discontinued operations 128 277
---------------------
Total assets 19,776 19,438
=====================
Liabilities and shareholders' equity
Liabilities
Short-term indebtedness 519 191
Accounts payable and accruals 1,501 1,686
Deferred revenue 1,019 994
Current portion of long-term debt 276 98
Current liabilities of discontinued operations 109 139
---------------------
Current liabilities 3,424 3,108
Long-term debt 3,785 3,983
Other non-current liabilities 824 812
Deferred income taxes 1,530 1,536
Non-current liabilities of discontinued operations 20 36
---------------------
Total liabilities 9,583 9,475
Shareholders' equity
Capital 2,768 2,726
Retained earnings 6,970 6,992
Accumulated other comprehensive income 455 245
---------------------
Total shareholders' equity 10,193 9,963
---------------------
Total liabilities and shareholders' equity 19,776 19,438
=====================
Consolidated Statement of Cash Flow
(millions of U.S. dollars)
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2006 2005 2006 2005
------------------ ------------------
Cash provided by (used in):
Operating activities
Net earnings 419 309 729 684
Remove (income) loss
from discontinued
operations (31) (10) 12 (15)
Add back (deduct)
items not involving cash:
Depreciation 174 166 474 451
Amortization 75 66 226 225
Net gains on disposals
of businesses and
investments -- (4) (44) (5)
Loss from redemption
of bonds -- 23 -- 23
Deferred income taxes (8) 23 (3) 26
Other, net 61 43 208 11
Voluntary pension
contribution -- (11) (5) (11)
Changes in working
capital and other items (67) (71) (270) (214)
Cash provided by operating
activities - discontinued
operations 10 6 2 25
---------------- ----------------
Net cash provided by
operating activities 633 540 1,329 1,200
---------------- ----------------
Investing activities
Acquisitions (225) (149) (443) (245)
Proceeds from disposals -- 3 60 4
Capital expenditures,
less proceeds from
disposals (155) (135) (395) (389)
Other investing
activities (14) (11) (39) (25)
Capital expenditures
of discontinued
operations (2) (3) (5) (8)
Proceeds from (income
taxes paid on) disposals
of discontinued
operations 86 -- 105 (105)
Other investing
activities of discontinued
operations -- (3) -- (3)
Net cash used in
---------------- ----------------
investing activities (310) (298) (717) (771)
---------------- ----------------
Financing activities
Proceeds from debt -- 400 -- 400
Repayments of debt -- (411) (73) (556)
Net borrowings under
short-term loan
facilities 143 129 299 289
Premium on debt
redemption -- (22) -- (22)
Repurchase of common
shares (67) (84) (358) (129)
Dividends paid on
preference shares (1) (1) (4) (3)
Dividends paid on
common shares (138) (128) (415) (378)
Other financing
activities, net 5 10 21 23
---------------- ----------------
Net cash used in
financing activities (58) (107) (530) (376)
---------------- ----------------
Translation adjustments 2 (2) 2 (7)
---------------- ----------------
Increase in cash
and cash equivalents 267 133 84 46
Cash and cash
equivalents at beginning
of period 224 318 407 405
---------------- ----------------
Cash and cash equivalents
at end of period 491 451 491 451
================ ================
Reconciliation of Net Cash Provided by Operating Activities to Free Cash
Flow(1)
(millions of U.S. dollars)
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2006 2005 2006 2005
----- ----- ----- -----
Net cash provided
by operating
activities 633 540 1,329 1,200
Capital expenditures (155) (135) (395) (389)
Other investing
activities (14) (11) (39) (25)
Capital expenditures
of discontinued
operations (2) (3) (5) (8)
Dividends paid on
preference shares (1) (1) (4) (3)
-------------------------------------------
Free cash flow 461 390 886 775
===========================================
(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 Nine Months Ended
September 30, September 30,
2006 2005 Change 2006 2005 Change
----- ----- ------ ----- ----- ------
Revenues:
Legal &
Regulatory 903 843 7% 2,658 2,458 8%
Learning 794 776 2% 1,632 1,561 5%
Financial 505 475 6% 1,489 1,403 6%
Scientific &
Healthcare 233 216 8% 669 633 6%
Intercompany
eliminations (5) (6) (17) (16)
----- ----- ----- -----
Total revenues 2,430 2,304 5% 6,431 6,039 6%
===== ===== ===== ======
Operating Profit:
Segment operating
profit
Legal &
Regulatory 278 249 12% 759 677 12%
Learning 250 246 2% 216 208 4%
Financial 97 85 14% 268 225 19%
Scientific
& Healthcare 49 41 20% 127 110 15%
Corporate and
other (1) (50) (39) (148) (95)
----- ----- ----- -----
Total segment
operating profit 624 582 7% 1,222 1,125 9%
Amortization (75) (66) (226) (225)
----- ----- ----- -----
Operating profit 549 516 6% 996 900 11%
===== ===== ===== ======
*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 Nine Months Ended
September 30, September 30,
2006 2005 2006 2005
----------------- -----------------
Legal & Regulatory 55 49 160 147
Learning 64 62 147 136
Financial 44 42 134 133
Scientific & Healthcare 9 9 27 27
Corporate and other 2 4 6 8
----------------- -----------------
174 166 474 451
================= =================
SOURCE The Thomson Corporation
-0- 10/26/2006
/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
SU: ERN DIV ERP CCA
AS
-- NYTH053 --
9553 10/26/2006 05:58 EDT http://www.prnewswire.com