Thomson Reuters Corp (TRI) 2002 Q2 法說會逐字稿

Ladies and gentlemen, thanks for standing by. And welcome to the Thomson Corporation second quarter investment call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. If you should require assistance during today's call, please press the zero then star. As a reminder this conference is being recorded. I would now like to turn the conference over to your host, Mr. John [Kechejian]. Please go ahead.

Thank you, Carol. Good morning, everyone. My name is John [Kechejian] and on behalf the Thomson Corporation I'd like to thank you for joining us this morning to discuss our results for the second quarter of 2002. All of you listening into our open conference call and also our webcast should have a copy of our second quarter earnings release and the set of slides in support of them. But if you don't, both the release and slides are available at our corporate website on www.thomson.com. Before we begin our presentation I would like to refer you to the Safe Harbor statement that's on the last page of the slide package. At this time, I'm not going to read the slide but do want you to be aware of it.

I now would like to get into our introductions. First, CFO Bob Daleo will take us through the financial results for Thomson and each of the market groups. And then Pat Tierney, who's the President and CEO of the Financial Market group will give us all an update on what's happening in Thomson financial. After Bob and Pat's formal remarks, we'll then turn it over to you and answer any questions that you may have. Bob?

Thank you, John. I'm going to start my presentation for those of you that have access to the website on slide number 4 which is second quarter 2002. We had a solid second quarter given the continuing sluggish economy. With every group in Thomson, feeling the effects of a downturn to some extent.

However, our businesses continue to score wins in the marketplace and we remain on track to achieving our full-year expectations for this year as we articulated at the end of last year. Now Hard Quick contributed much of [INAUDIBLE] top-line growth but it did negatively effect our EBITDA and with the integration and our other one time costs and of course, higher seasonal losses resulting from a larger academic business. And obviously, on June 12 the company's shares were listed for trading on the New York Stock Exchange as part of a $1 billion primary and secondary offering. And I would point out that we do have quarterly pro forma results for 2001. They're included on our website which help decipher the differences in impact on a year-to-year basis with the new accounting changes on goodwill.

Moving to slide 5, showing a second quarter and our year-to-date results, revenues from our ongoing operations which by the nature exclude disposals for the second quarter were $1.8 billion representing an increase of 11 percent over the quarter a year ago. Now, a significant portion of growth over last year was due to the inclusion of Harcourt's business acquired in July of last year and Gardner-Caldwell which is in our continuing Medical education business which was acquired in December of last year. Our ongoing EBITDA for the quarter after corporate and other costs was at $424 million or 11 percent ahead of the second quarter of 2001. With operating profit of $299 million, representing a 10 percent increase over last year.

Now, income benefited from our revenue growth from select core businesses, the inclusion of our acquired businesses and cost savings initiatives and synergies across our organization. Now the next slide shows why we say our on going operations did developed well in the quarter. Good underlying EBITDA growth-- I'm on slide 6. Good underlying EBITDA growth in the second quarter was masked somewhat by the following items. Our linen group results in the quarter were reduced by including the Harcourt academic businesses for the first time. Harcourt will provide significant scale in this academic sector which typically reports a small loss in the quarter.

In addition to the Harcourt seasonal losses, the EBITDA was also affected by the one-time integration costs for Harcourt that are not reflected in our 2001 results. Early losses in our academics turned to profits in the second half of the year and we have a much stronger base of operations in Thomson Learning this year. That is why we are confident that we can expand our EBITDA margins excluding these one-offs. First half and quarter performance reflect the synergies we are realizing from integrating our recent acquisitions and other operational efficiencies.

Now, slide 7, which is the summary of our income, you compare second quarter earnings per share from continuing operations of 14 cents to the 18 cents of the prior year. Higher incremental interest due to the financing of Harcourt acquisitions in the second half of last year, disposal gains in Q2 and related to the sale of Jane's information and higher taxes partially offset the benefit of lower amortization. And as you know, amortization comparisons were affected by the adoption of new accounting rules for goodwill and intangibles. And you can see what this effect had on our earnings per share on the next schedule.

Now, I would like to mention that when we look at the six months, when you look below the EBITDA line, many of our first-half costs will have a similar run rate in the second half. Now, depreciation is the only exception and as we stated earlier, we expected this to increase on a year-to-year basis by about 15 percent.

Moving to slide 8, this slide we compare our earnings per shares. And after adjusting for the new accounting rules, which reduce amortization, as if they had been affecting 2001 and excluding one-time items which are disposal gains and a one-time investment writedown of $12 million. On this basis in the second quarter, we earned $106 million, or 17 cents per share for the second quarter compared to 22 cents for the same time a year ago.

Moving on to slide 9, which is -- shows our financial position, our total assets declined by $589 million from the beginning of the year due primarily to the seasonality of the academic sector in Thomson Learning and the transitional impairment charge of 20 percent associated with our equity investment in Bell Globemedia. Net debt declined by $385 million after using the proceeds of primary share offering to pay down the debt. The significant reduction in our leveraged debt position over the past 12 months clearly effects our commitment to maintain a strong financial position and a rock solid balance sheet. We have reduced our net debt position by approximately $1 billion since we completed the Harcourt acquisition a year ago.

This improvement is primarily attributable to the free cash flow generated from our operations and to the issuance of primary shares in connection with our recent U.S. listing. Looking ahead, we remain fully committed to maintaining a strong balance sheet.

Slide 10 highlights our free cash flow. Now, our operations free cash flow increased $70 million due primarily--- due to an improvement in cash collections growth from our businesses and that obviously includes Harcourt. Additions to our property and equipment, this decreased in CapX reflects the improved capital efficiency that we have been talking about and also large one-time projects that were completed in 2001 such as an -- our SAPCRM system in legal and regulatory and the relocation of our Thomson Financial to the 195 Broadway headquarters. As communicated previously, we expect capital expenditures and percentage of revenue to really be down from the 9.5 percent reported a year ago to somewheres in about the 8 percent range. And we are tracking to that expectation. Now, these results are in line with our long-term objective regarding our overall capital efficiency, other investing activities improved $46 million from last year due to some minor investments that were made in the quarter a year ago.

Now I would like to turn to specific comments for each of the market groups and I'm on page 12 starting with legal and regulatory. In the quarter, revenues in legal and regulatory increased 7 percent and EBITDA grew 10 percent. Now, Global Online services grew 8 percent and Westlaw in the U.S. revenues increased 6 percent while usage grew 35 percent. Our online revenue in Europe more than doubled over the prior year. The tax and accounting sector benefited from a very strong tax season across all product offerings.

Creative Solutions, our tax software business achieved double-digit revenue growth and Checkpoint our Web-based business also grew nicely.

Our organic, growth, was however offset by the following continuing trends. Weak market conditions in the business and information and news, especially customers in the investment banking and corporate sectors, which are similar to those in the financial group which resulted in -- this resulted in a 13 percent shortfall in our dialogue core revenues compared with a year ago. Also, we have fewer global trademark searches year-over-year although on a quarter-to-quarter basis this market is showing some signs of improvement. And we also have the impact of conversion of print and cd-rom based products to our online offerings. And also revenues from [Barbary], which was-- is a business that came as part of the Harcourt acquisition and other acquisitions also benefited the overall revenue growth. In Thomson Learning, slide 13, we reported revenues increased 45 percent and EBITDA increased 20 percent in the second quarter.

Harcourt affected our performance, it provided scale and revenues to the higher ed. sector and which typically does report a small seasonal lost in the second quarter, also provided some substantial learning assets. The Harcourt integration process has proceeded smoothly with all key functions now fully integrated and these synergies have kicked in during the second quarter of 2002. EBITDA in 2002 includes integration and other one-time costs of about $5 million. And approximately about $8 million as we can estimate in seasonal losses that were not included a year ago. On a pro forma basis, revenues increased 4 percent and EBITDA increased 20 percent.

Now, these are, keep in mind, small numbers. --Off of small numbers. We had good growth and improved efficiencies in higher education and international sectors offset in part by continued weakness in the corporate training and development sectors and library and reference sector. OnThomson Financial on slide 14, obviously, with Pat here, I will let him provide the non-financial narrative for this group second quarter performance. As a slide shows, despite the economic turmoil and market volatility and the toll taken on revenues, TF has managed to deliver EBITDA growth and expand margins from 24.3 percent last year to 26.2 percent in 2002. The bottom line has benefited greatly from the full integration of the Prymark and Carson acquisitions.

In addition, the group has leveraged its resources across all of its businesses. Now, operating profit decline reflects higher depreciation costs associated with their historical level of capital expenditure investment and that's also a bit of the loss small numbers where $4 million [screen] can cause a negative variance.

The last group, scientific and healthcare, revenues and EBITDA here each grew 15 percent in the second quarter. The higher revenue growth in the scientific sector was driven by subscription growth in the Web of Science which continues to perform extremely well, Derwent Geneseq which is a specialty database dealing with genetic sequences, and they have shown continued growth in 2002 from new product development, such as the Web of knowledge that enhances our ability to offer integrated solutions. The group also launched the mobile physicians desktop reference, and during the second quarter it has now approximately 10,000 users to date. And we've also experienced good growth in drug information subscriptions in the health care segment. Higher revenues in EBITDA from fast-growing continuing medical education sector, the revenues in EBITDA from -- include revenues in EBITDA from recently acquired Gardner-Caldwell and organic growth from our physicians world business which we acquired two years ago. These were offset in part by lower revenues from our advertising-sensitive primary care and specialty magazines. These are down approximately 5 percent from the same period of a year ago.

Turning to the line of corporate and other, we continue to isolate here the Thomson Media Group and I will remind those on the call, these assets were assets that were put up for sale about a year ago and given the environment, we felt it was -- it was inappropriate for to us pursue the sale. We took them back off the market and we continue to manage these and continue to drive them and, uhm, with the -- with the expectation of future potential sale. Now, here, Thomson Media revenues decreased 12 percent. Its a good portion of this revenue is advertising-based. Falloff in revenues incurred in the second half of last year, so we do expect to see better comparisons as the year goes on. And we have reorganized and taken costs into this business as a result of that reorganization.

Now, corporate expenses were $8 million lower in the quarter. And most of that was just due to generally lower expenses, lower costs, and slightly lower costs associated with the share appreciation rights program which was a $2 million benefit for us this year and it's actually for the full year, though, it is $9 million expense. And we do have slightly lower minority interest costs because we had the buyout of the First Call minorities a year ago. Now, with that, I'd like to turn it over to Pat Tierney, who will take you through some specifics relative to Thomson Financial.

Thanks, Bob. And good morning, everyone. I'm starting on slide 18 for those of you who have access to the slides. And I want to make really just two points with respect to the structure and the organization at Thompson Financial.

The first is that we continue to evolve the organization somewhat to address the market opportunities that we see. Most notably in the quarter, with the addition of [Lou Eckelstin], who's now running our sales and trading operation. As I think some of you already know, Lou is a 14-year veteran of Bloomberg where over the years he ran sales and marketing, product development, product management, most of the technical organization. So he's been a very strong addition to our management team and we are taking advantage of Lou's experience and expertise across this sector to do some minor consolidation in the organization. And we've moved the wealth management group under sales and trading under Lou's leadership.

So in summary, we continue to make small evolutionary changes in the organization to address market opportunities and to strengthen the management group.

Turning to slide 19, it's no news to anyone on the call that the markets remain difficult in this sector. We are seeing continuing staffing cuts and reduction of expenses across most of the sectors that we serve. Most notably investment banking and sales and trading sectors are seeing pressure across the board. For the first time over the last several months we're also beginning to see some downward pressure in the investment management sector. The buy side has been stronger but is now showing some of the weakness that we've seen earlier in investment banking and sales and trading.

On the positive side, there is a corollary effect to our customers' interest in reducing their costs. Because we have several businesses that focus on helping our customers to be more cost efficient, most notedly OMGEO which is our 50/50 joint venture with the DTC which provides a major piece of STP solution to our customers and is a part of their ongoing cost reductions aimed at more efficient processing.

Secondly we have a business within sales and trading called Beta which as many of you know provides outsource trade processing to a number of major brokerage firms. And that business has been particularly strong in the quarter. As has some aspect of our retail brokerage business whereas I'll mention later we are extending the scope and reach of that franchise.

Turning now to slide 20, I want to talk about several of the key strategic initiatives within the group. Starting with sales and trading, we really have a major focus on broadening our reach of service here beyond the traditional market data terminal business. To provide more complete integrated solutions for brokers, to begin to offer institutional equities, uhm, products and services and to begin to serve select niches in the fixed income arena.

Secondly, we are focused more on front office support for investment managers, the buy side, that's the arena where we are seeing the most market demand and the most strength. So we are emphasizing the front office businesses within TF and de-emphasizing somewhat the businesses which are focused more on the back office activities.

On the investment banking front, in a difficult market, we are leveraging our content leadership position through product integration and through higher value-added products. Within the Investor Relations corporate market, we are building on the very strong position that we have in terms of providing data and advice to develop what we call outbound services which help corporations to reach their investor constituents. And we continue to cross-sell the entire TF portfolio. As Bob said, we think in a difficult market, we had a pretty good quarter. We had some revenue shortfall. We were down just under 3 percent. But in a difficult market, I think we were down certainly less than the market. And that's really due to the fact that we have seen some growth as I said earlier in the services that save our customers money. The businesses like OMGEO and Beta and we continue to get good benefit from the higher value-added products that bundle various services together.

On the margin front, as Bob noted, we had 190 basis point improvement on EBITDA margins and that's the result of really three things. It's the result of continued reduction of the platforms and the consolidation economics that come from that. What I've termed here one TF, which means simply that we are integrating a number of functions across the entire organization so that, for example, while each of our strategic customer units used to have their own finance organizations and their own marketing organizations and their own human resource, human capital organizations, we have now begun the process of consolidating all of those operations across Thomson Financial and that has given us margin improvement and efficiency improvement. And as Bob mentioned across the corporation more generally, we continue to work on the capital side and we did have lower capital expense in 2002.

We are continuing to get the synergies that we expected from both Primark and Carson acquisitions and those integrations remain on schedule. We're continuing as I think I have said in other venues to evolve from our traditional content strength providing more higher value add integrated solutions. I mentioned on the first slide that Lou [Eckelstin] had joined to us head up our sales and trading organization. We've made a number of other additions to the management group over the last quarter.

Most notably, Jim [INAUDIBLE], who is I think known to a number of you as the co-founder of Maltex and their long-time President, who joined us to head up our global accounts activity and Jeffery Lehman, who joined us from Microsoft. He was in charge of the technical activities focused on the financial sector capital markets sector from Microsoft. So we continue to strengthen the management team. Expectations for the second half, we think that the market conditions will continue to be difficult, particularly in investment banking and across the brokerage businesses. But into the face of a difficult market, we expect margins to continue to improve as we continue to get the efficiencies both from the integration of prior acquisitions and from the consolidations across the business that I described earlier. And we will continue to get leverage from the newly introduced integrated solutions such as First Call analysts and Thomson Analytics which should benefit the bottom and top line. Bob?

Thank you, Pat. On slide 23, we address our outlook and how we approach it. Our full year expectations for 2002 which really are a long-term expectations for the company, we articulated them at the year end, were for high single-digit revenue growth which we include Harcourt 7 to 9 percent and the ability to expand our EBITDA margins excluding the one-time integration costs. We are still on track to achieve these long term goals.

Thank you, Bob. I'm now going to turn it over to the conference call Operator who will explain to you how you can queue up to ask your questions.

Thank you. Ladies and gentlemen, if you wish to ask a question, please press the 1 on your touch-tone phone. You will hear a tone indicating that you have been placed in queue. You may remove yourself from queue at any time by press the pound key. If you are using a speaker phone, please pick up your handset before pressing the number. [INAUDIBLE] one moment for the first question.

The first question is going to come from me and it's for Bob. Can you please tell us how subscription revenues developed in the first six months for Thomson?

John, on a consolidated basis, we were at 60 percent of our revenues. Our subscription base. And this fairly consistent with our overall expectations for the full year.

[ Pause ]And our question comes from the line of Lauren Fine with Merrill Lynch. Please go ahead.

Yes, thank you. Sorry for the background noise. I have a couple of questions. Starting with Thomson Financial, I'm wondering if you could review for us where you are in terms of the reduction of the number of platforms and the timing and where you are eventually heading with that. And then secondly could you comment on price discounting within the financial sector? And maybe especially as it relates to this Merrill Lynch contract that is being banded about out there where I presume a decision will be made soon. And then I have a follow-up question.

Lauren, let me start with the platform question. We continue to make progress there. As I think you remember from prior presentations, when we acquired Primark and Carson and added those to current products, we had something over 80 product platforms. And we're now down to less than half that number. And are moving towards a handful of product platforms by the end of 2003. That progress is going faster in some of the [INAUDIBLE] than others but we remain very much on track there. I expect within the investment banking sector for example to be down from quite a number of platforms to a single product delivery platform by the end of 2002. So that program remains on track.

With respect to your question on pricing, clearly the market conditions that we see particularly in investment banking and on the brokerage side is putting some pressure on pricing. We've responded there primarily as we have in prior quarters by bundling products together and by trying to move our customers up the value chain to higher value-add products. And I think while we have seen continuing pressure in the marketplace, we've mitigated some of those pressure effects by the actions that I just mentioned.

You asked about Merrill Lynch. And I would just say with respect to Merrill Lynch, that as I said in the presentation, our strategy on the sales and trading side is really to broaden our traditional market away from simply providing market data terminals to providing a much broader suite solution that would include analytical tools and technology and we certainly have been talking to Merrill Lynch and to others about exactly that. And we're hopeful, of course, that our long-standing relationship with Merrill Lynch would result in a positive outcome there, but we'll know, I guess, when you know.

Okay. One last question on the learning side. I'm wondering if you could just comment more specifically on how the different businesses did pro forma for Harcourt and specifically, in the higher education college area, McGraw-Hill had had a very good quarter and I'm just wondering if you could respond to how did you in that area.

We did exceptionally well in the higher education segment. The --[core Global]---we said we did a pro forma and said the overall business is up about, uhm, about 4 percent. But that is dampened by, you know, the corporate training area. So, uhm, I don't have the specific organic growth rates but I do know that our growth rates in the academic business have been in the high single-digit, low double-digit range so far. But again, as you know, Lauren, this business is very much back end-weighted and the second half of the year is really how -- what will determine very much the success of the year. We feel very good about our sales process to date, products that we have, and the progress that we've made in the marketplace with our---with integrating our sales force. So we look to having above-market growth in this segment for the full year.

Great, thank you.

You're welcome.

And our next question comes from the line of Andrew Mitchell with [Osha Capital]. Please go ahead.

Good morning. Three questions really on Thomson Financial for Patrick.

First, can you talk about whether your guidance overall for the company and some of the metrics you are talking about for Thomson Financial factor in the potential for another round of layoffs in the investment banking, sales and trading areas?

Secondly I'm interested on the margin expansion side whether you think with the ongoing revenue and pricing conditions, that you can put a number on where you think actual margin expansion might lie by year end?

And third, can you talk to 2003 with contract renewals and potential for lingering subscription losses? Do you see revenue weakness rolling right into 2003?

Andrew, let me start with the question about head count and investment banking and sales and trading. We have seen weakness in this sector as you know going back all the way to really the time in September 11th. We don't really see much change there. Now, you read the papers as I do, and I think that there certainly have been fewer announced head count reductions over the last month or two. So we're hopeful that there may be some bottoming in that kind of pressure. But we're planning for the market to be essentially as it is now and expect our, you know, results to reflect that.

Secondly, you asked about margin improvement. And I can't be specific about the number. But I can say to you that if you look over the last several quarters you have seen consistent improvement in margins and you will see that in the second half. You will see improved margin performance for the business as we go forward.

Finally, with respect to 2003, of course, it's early to know what the market conditions will be in 2003. We're hopeful that we will see some improvement. But we're actually planning the business as if we will be into the face of a pretty tough market, which will mean that there will be some continued pressure on revenues, but we think regardless of the market performance, we will outperform the market in terms of top line and that we will continue to get bottom-line margin expansion.

Okay. Thanks.

And our next question is from Douglas Arthur with Morgan Stanley. Please go ahead.

Yeah. Bob, following up on Thomson Learning, the EBITDA performance in the second quarter, was that pretty much in line with what you expected, given the integration costs and the seasonality and in terms -- I know you addressed the full year. And the corporate area obviously is going to remain pretty tough here. But would you expect as some of the savings come through eventually in the second half you get the seasonal revenue lift, do you expect to up the EBITDA in this sector for the year?

Doug, I want to be careful here because we will have these one-time costs, okay, which -- of which year to date I think we have incurred about 10 million and we think it could be as much as 20 to $25 million. And so they are still hanging out there but if you take those aside, there is no doubt in our minds that the Learning group will perform exceptionally well this year. They will certainly meet at a minimum meet our expectations, and there is a potential for them to do a little bit better than we have expected. So we're quite positive. We see nothing there today that would tell us anything to the contrary. I did mention about the corporate training marketplace and the particularly in the IT area, there are roughly 350,000 fewer IT jobs than there were a year ago. So that obviously puts pressure. But we have other areas that are doing quite well. And that performance in IT will not dampen our expectations for the group overall.

Great. And just a follow-up, the corporate and "other" line, any sort of guidance on what this thing could look like for the entire year?

Well, the -- the corporate costs as it includes shadow stock, and shadow stock has a--- a level of variability to it that is certainly different in accounting than the way even options are being proposed today. So barring that, we see, you know, nominal change -- some minor change on a year-to-year basis. I don't think we see explosive costs in corporate and "other." I'm excluding, of course, the media group. When we talk about those things, because that's a business -- business performance is variable depending upon market conditions but our corporate costs are pretty consistent on a year-to-year basis.

Great. Thank you.

You're welcome.

And our next question comes from the line of Tom Law with McDougal, McDougal and McTier. Please go ahead.

Good morning, a question for Pat. You talked about how you're helping clients save money. I'm wondering what the decision time cycle, if you will, is like on your customer side? Is it lengthening, is it an issue? And the other question is you had a $12 million writedown as you rationalized the earnings per share variance and I'm just wondering where that appears within the P&L statement.

Tom, let me address your first question. And let Bob Daleo address your second since that's really a corporate reporting issue. With respect to sales decision cycles, we as I think everyone else in the industry have seen some lengthening in the period that customers take to come to a conclusion. You know, I don't expect that to change much. But I will say that we have signed, for example, in the Beta instance, which does trade processing for brokerage institutions, while we have seen some lengthening in the decision cycle there, we continue to sign up customers at a pretty impressive rate and that's one of our best growth businesses. So that increase in the decision cycle at least in the businesses where we're providing that kind of cost-focused benefit to the customers has not been a problem. Let me have Bob comment on your question about the reporting.

The writedown that we mentioned in our equities line, relates to a business that we put into a venture, a venture called IDL where we partnered with Microsoft and Merrill Lynch. That business was called Dalcom. And we put that in about a year ago. And based upon obviously the general market conditions, it was our assessment that the valuation that we originally ascribed to that was not appropriate and we took a writedown accordingly. And that's what accounts for that $12 million.

And is that in the minority or equity --

Yes, it is. Yes, it is. Right there.

Thank you.

You're welcome.

And our next question comes from the line of Tim Casey with [ Nesbit Burns]. Please go ahead.

Thanks. Good morning. Couple of questions. First one for Pat.

Pat, could you talk a little bit more about what you mean by front office versus back office products? Could you just give us a little more color in what products are there and which ones are more cost-focused and which ones are perhaps more revenue-focused?

And second question, uhm, for Bob, just wanted to talk a little bit about pension assumptions. You have almost a 9 percent return on assets assumption. How comfortable are you with that assumption going forward? And, you know, what's the likelihood of a change and could you provide some order of magnitude on what the sensitivity would be to -- if you knocked that down, say, 100 basis points or so? Thank you.

Okay. Let me address your first question about front office back office and I'll maybe do that most easily by giving you a couple of product examples. On the front office side here we are really talking about providing decisions support tools primarily to portfolio managers. So people who are trying to make decisions on the buy side about what stocks do I buy and what stocks do I sell? So products like the very recently introduced First Call Analysts which integrate some of the content from First Call [INAUDIBLE] data stream World Scope and a number of other databases together with some analytical tools. We think will be a very attractive offering for that community and we're putting more emphasis on those kinds of products.

On the back office side, and this really goes to a little bit back to Tom's earlier question about decision cycles, we have products like PORSCHE, which are software applications that are used in funds management corporations to do portfolio accounting, for example. They're--they're large applications, they're expensive to integrate, expensive to support and so we're seeing the sales cycles lengthen on those kinds of products. And as a result, the marketplace for those kinds of products is less attractive and we're de-emphasizing them from a--an investment product and marketing perspective.

And Tim, relative to your question on the pension fund, as you note, our return that we are currently employing is below 9 percent and that is certainly below what a lot of -- what the industry norm is. We adjusted that downward last year. And our pension investment committee, of which obviously I'm a member, we review that periodically. We will review it again and even with that adjustment last year, we were still well funded through the first half of this year. We still are well-funded in our pension plan. So we will review that again later on this year. And I -- it would be difficult for me to speculate on the outcome of that. Because, first of all, as I said, the assets are more than adequate and a reduction in the return may not have an impact, it may, it depends upon where we are at that time when we make that decision. So we'll have to revisit that question perhaps sometime in the third quarter. Or certainly at year end.

Thank you.

Okay.

And our next question comes from the line of Randall -- rudz--Rudzinski from CSFB. Please go ahead..

Thank you. I wanted to ask you about the pickup in the growth rate in both the legal and science groups. Much quicker pace of growth in the second quarter versus the first quarter. And what changed in the quarter, I guess, to accelerate growth and will we see this level of growth continue for the remainder of the year?

Uhm... in -- I'll take even one of them separately. In Thomson legal and regulatory, part of that growth is the kick-in of acquisitions on a year-to-year basis. And the core business revenues were dampened actually by the dialogue as I said the reduction dialogue. So we -- the growth in -- in TLR in the quarter is certainly not representative of the full year. It will be a little lower than that. But consistent with the long-term growth rates of about, I think we said about 5 percent of that range.

In Thomson scientific and health care, again we have had good core growth but there is some benefit there from acquisitions that we made, Gardner-Caldwell at the end of last year in particular. So for them, again I'd say that growth rate is not, you know, reflective of our full-year expectations. But we do expect good performance from these -- particularly from these businesses in the current environment.

Yeah, its just that the acquisitions that, uhm, at least that we are aware of, also impacted the growth in the first quarter or should have, I would have imagined.

Yes. And it's just a seasonal difference from quarter to quarter in these businesses. It's not anything -- I don't want to mislead. It's not anything that we would say this is an acceleration of these growth rates. It's just seasonal. Remember, particularly if I go back to the legal regulatory, they do have product shipments. They still have print businesses. So some of that could be timing of print shipments, as well. We're happy with the growth in the quarter. But we don't want to signal that as anything that would be indicative of future growth rates. We think that the growth rates that we have talked about consistently for these businesses are more in line with where they would perform.

Thank you very much.

You're welcome.

And our next question is from Jeff Mays with UBS Warburg. Please go ahead.

Yes, good morning. This is a follow-up question on the underlying growth rate. Could you talk us through the Westlaw numbers, you're saying it's up 6 percent in the second quarter. Does it include the international business or just the U.S. business? And also, on the ILX could you give us an idea on the development in number of terminals over the past six months in ILX.

Well,the-- I will answer the Westlaw and I will ask Pat to answer the ILX question. The Westlaw 6% is just the U.S. business. The international or European businesses grew at much, much faster rate, but its a smaller base of business. So that was--the 6% just pertains to Westlaw U.S. Pat?

With respect to ILX terminal counts, there are really two factors that impact that. One is new sales and we continue to get new business in that arena at a pretty significant rate. Counteracting that new sales activity, is tha fact that for a number of our customers, there is this contunued ongoing head count reduction which impacts the number seats. And the number of actual users available at a---for an ILX device. We have not lost any customers in the quarter. The net effect of new sales and reductions in numbers of seat is been-- that there has been no really significant change in the number of terminals across ILX over the past few months.

Okay, thank you.

And our next question comes from the line of Chris Collette with Dresdner.

Hello, good morning. This is Chris Collette from Dresdner [Cline Mortman] . If I could ask a little bit more about your expectations for revenue growth for Thomson Financial. I remember you saying that, uhm, you're expecting the top-line growth to come out around flat for the year. I'm just wondering if that is still your expectation. Because I think that would imply that you'd be looking for revenue growth year on year in the second half of the year. And second question is just on RIA, I wonder if you could just comment there whether the good performance that you have seen is due to market growth in the text arena or whether it's due to market share gains and your own initiatives.

This is Pat. I'll talk about the TF revenues first. We have a somewhat easier point of comparison looking at the second half of 2002. Versus 2001 than we had in the first half. Obviously, September 11th and other effects will have some impact on those points of comparison. I will say that I do not think that we will be, uhm, flat for the year. We will be down slightly, I think, for the year. But I do expect to have somewhat easier comparisons in the second half.

In terms of the tax business as you said RIA the growth in performance that we have seen is in the online segment of that business in both the -- our general taxes and Checkpoint and I can't really tell you whether we have taken share or not because obviously you'd have to know the components of our--of the market. I'd be able to tell you, you know, later on in the year. But we know that we have a very, very strong position there and while, you know, we certainly when it comes to the print side of the business, we're very small relative to the largest competitor CCH.

On the online segment we are about the same size so we're about 50/50 there. So our performance, you know, certainly is good because it's driving the growth in the text business and its actually 7, 8 percent is the growth this we have seen and in the marketplace it doesn't really grow that much. It really is significant. So we are quite please with it. But I couldn't really tell you specifically if we have taken share or not at this time.

Thank you very much.

You're welcome.

And our next question comes from the line of Jake Pfaelzer with Edward Jones. Please go ahead. Mr. Pfaelzer, your line is open. Can you check your mute button, please? [ Pause ] Okay. We will go to the line of Peter Everet with Goldman Sachs.

Hi, Bob. Two questions for you. First on the Harcourt. What's left to do in terms of the integration? It seems like it's taken maybe a little longer than I would have anticipated. I'm wondering why that might be. And then secondly unrelated, on the scientific health care business, it seems like the -- in a level of noise in the marketplace maybe it's gotten higher recently in terms of pushback on pricing and I'm wondering if you're seeing evidence of that and maybe beyond that, if you could just talk about what component of your organic revenue growth is price-driven versus volume-driven in that business. Thanks.

Okay. I'll start with the second one first. When you talk about the scientific business, the pushback on pricing, that is -- has generally been and continues to be in a segment of the market we don't compete in, that of scientific journals. In our segment, which are high value-add databases and applications, it isn't anything like that. And so our growth and our pricing strategy in this segment is value-added pricing. In other words, we add different features and capabilities, we're able to get more usage and more revenues as a result of that. So we haven't experienced any of that and the performance of these businesses is really driven off of new product innovation as I have talked about and broadening applications. And being in what we think are some very, very attractive niches.

In terms of the Harcourt integration, it may seem to be taking longer than you thought but in reality, we had originally laid out expectations it was going to take us three years to do this and we have actually completed it -- we will have completed it in about 18 months. There isn't much left to do. However, while there isn't much to do, we talk about ongoing costs, even though you have made the, you know, you have made the decision, you've done it there are some follow-on costs that come about as a result of that. So we have really -- I mean, as far as the academic segment, we have done a great job of integrating these businesses and we now have, you know, certainly one service platform and capability, and in life long learning, we have largely completed the most immediate integration efforts. Of course, there's always ongoing developments. As I mentioned in [INAUDIBLE] we'll continue to drive efficiency in that business. So from our perspective, we're right on -- we're actually head of schedule right on track and we will, you know, we will enter 2003 fully integrated with all of the benefits that accrue from that.

Great. Bob, just a follow on, can you talk a little bit about the IBM deal, how significant that is?

Well, the IBM deal is, first of all, when we talk about corporate training and development, we talk about the IT training, IBM is the biggest in this marketplace. They do it for themselves they do it for their customers. And so just by the sheer size of it, it's a great opportunity for to us partner with someone who is a leader.

Importantly, what it does is it really validates our strategy. Which says that now, when you are able to have a broad offering of products and capabilities that meet the needs of these large businesses, and this is our strategies target the Fortune 1000 so you know, IBM clearly falls into that camp. There really is, uhm, no -- no financial effect this year. As a matter of fact, we'll have some costs we tend to bill at -- some small costs tend to bill it out, the service capabilities, but the opportunities positioning us for the future clearly indicate -- and IBM, by the way, is just one. We announced earlier General Motors. And we also have a deal with Gateway. We're a little bit different with them in terms of using our technology to help them train their customers and their products.

So we are laying the foundation in what---what really still needs to be described as a very difficult market. We are laying the foundation to really achieve the kind of long-term growth that we want in this segment and we're very excited about these kind of relationships and look forward to signing more of them in the future.

So the deal here is not to co-brand the net-g product with IBM specifically?

It is to work with them, uhm, and, to a certain extent we will do co-branding. We'll use our external, we'll use our applications with their products. So there really is some opportunity for doing that. There's also, obviously, we are going to be doing training for them internally, as well. And that is equally exciting.

Great, thank you.

And our next question comes from the line of David McFadden with National Bank Financial. Please go ahead.

Yeah. The questions really on Harcourt, uhm, I thought that the contribution from Harcourt would have been higher in the quarter and I was just wondering, could you give us some sort of feeling on how that business has performed on a pro forma basis? As if you owned it last year for the full quarter?

I thought I said --

You did mention pro forma.

I did mention that -- was it? 20 percent?

In EBITDA.

I said on a pro forma basis, David, that if you were to, you know, adjust for prior year, that we would have a 20 percent increase in profits.

At Harcourt or--?

You can't look at it that way because it's very difficult because now that we've combined these businesses, we don't -- products are co-mingled so the best way to do it is to adjust the prior year and look at it that way as if we had, you know, the business a year ago and when you look at it that way on a year-to-year basis, profits increased 20 percent in the quarter. You know, I also want to -- remember that this business as I said to an earlier question is very much a back end-loaded business so we do expect to see a very, very good benefit of having this business for the full year, not all of which has been reflected.

I think I now understand the academics pretty back end but Harcourt has a fairly large corporate professional services. Is that with back end-weighted?

No, it's not. It's pretty even throughout the year. And it's reflected in the 20 percent growth. It's also reflected of the performance of the other segments, as well.

Okay. Can you give us an idea what the pro forma revenue would have been?

Pro forma revenue growth was about 4 percent in the quarter. And again, it's reflective of the strong growth in academic offset by softness in corporate training and development.

Mm-hm. So what it would appear to be is that the Harcourt business is going well but you really are getting hurt on the corporate training side, which is masking the Harcourt stuff, is that a fair --

It's dampening some of the growth, yes but as I just explained to the previous caller, we're laying down some really good foundations for the future with some of the contracts we're signing as a result of having those assets.

all right, okay, thank you very much.

You're welcome.

And our next question comes from Douglas Arthur with Morgan Stanley. Please go ahead.

Bob, I think you've given some color on this already, but could you just go back over and review what this sort of, uhm, overall organic revenue number was for legal and regulatory as well as the scientific and health care group?

Sure. In legal and regulatory, the overall organic growth rate was virtually less than 1 percent. But that's -- that is really influencing that is the business information and news or the dialogue business. If you take that out, it's about 2 to 3 percent growth. And in scientific and health care, the organic growth rates are about 7 percent.

Super. Thank you.

You're welcome. Can we take our last question at this point, Carol?

Yes. We'll be taking that last question from Kevin [Agress] at Bear Stearns.

Thanks. Bob, a question for you and then two for Pat. Regarding understanding that the corporate training and library and reference sectors are pretty soft, I was wondering if you could provide a bit more color there, perhaps some quantitative elements, and then for Pat, the TF bottom line has been better than I expected in recent quarters. I think, you know, really starting with Q4 and the lack of major impact from 9/11. At that time, there was some talk that there could be some reversals regarding relating to 9/11, maybe some insurance payments. And I was wondering if they have come through. And then secondly, I guess, Reuters has made an announcement that they are going to discontinue a great deal of products, some of their smaller products, and I was wondering what TF's response to that will be? Is there a chance to rationalize your product line and see some savings that way?

Kevin, let me talk first to the bottom line. As you pointed out and as I've mentioned in prior calls and in prior venues, we have had pretty consistent margin improvement quarter after quarter after quarter after quarter now. And I expect that to continue. That is really not, uhm, driven to date nor going forward in any significant measure by any kinds of issues like insurance and so forth. This is primarily the effect of continuing integration economics and benefits that are coming from the Primark and Carson integrations as well as these broader corporate kinds of integration activities that I mentioned earlier. You know, with respect to Reuters, I guess all I would say is that, uhm, they have been reported to be under some pressure and have seen one of their responses is to reduce somewhat the breadth of the product line. You know, as I mentioned earlier, we are continuing to reduce the number of platforms that we have. It's a different sort of dynamic than I think the Reuters dynamic. We do not expect to have the reduction in platform for us in any significant way decrease the size or scope or spectrum of market that we serve. And, uhm, and so I guess that's really all I can say with respect to that. Ours is a matter of providing a product offering which has higher value to our customers and at the same time getting our costs down. I'm not really -- I'm in no position to comment what Reuters' strategy might be there.

Great. Thank you.

Mm-hm.

Okay. Kevin, to give a little bit more color, in our library reference business, the market is really two dimensions for us. It's print and it's electronic. And it's the print that really has gone down as libraries come under budget--under budget constraints. And they move more as you might expect move more to electronic which is highly more efficient.

On an overall basis, the market will certainly will be down and on a year-to-date basis-- we're down a few percentage points. But that decline is not a decline in shares. It's a decline in market. So that's the library reference marketplace. In terms of the overall lifelong learning, when you look at corporate training, that's -- that is down -- it was down the quarter about 10 percent and probably 15 percent for the full year. So we sense, see a sign of a slight improvement there quarter to quarter.

However, training our testing, online testing and certification business has actually experienced growth in this marketplace of about 8 percent. So, you know, net-net, and we have some other segments that have shown some growth, as well. So net-net, the overall segment is not doing badly. It's just that in the corporate training, which is really the segment that we have been talking about, that has seen the impact of two things. One, as I mentioned, the IT marketplace and the decline in jobs there and two in the general corporate training, the -- while, you know, the general reluctance to expand training programs at this time. Okay. Okay, Kevin? Is that --

I guess he's no long there are.

Thank you.

You're welcome.

Carol, before you give our listeners how they can listen to the replay, I would like to thank everyone who's been on the call or on the webcast today for their participation and look forward to their continued interest in the corporation. Take care.

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