Thomson Reuters Corp (TRI) 2003 Q1 法說會逐字稿

Welcome to the Thomson first quarter results conference call.

At this time, all participants under a listen-only mode. Later we will conduct a question-and-answer session with instructions given at that time. If need assistance, press zero and then star. As a reminder, this conference is now being recorded.

I would like to turn the conference over to Mr. John Kechejian, your host.

Thank you, Stacy.

Good morning, everyone. My name is John Kechejian.

On behalf of the Thomson corporation, I would like to thank you for joining thus morning to discuss our results for the first quarter of 2003. All of listening into our open conference call and webcast should have a copy of our first quarters earning release and the slide in support of them, but if you don't, both the release, slides and other supporting financial information are available on www.Thomson.com. The Thomson corporate web site.

Please note that on our call this morning, we've got CEO Dick Harrington and Dick will provide us with an overview of our first quarter results and will also be available for Q & A. Next will be our CFO Bob Daleo. He will take you through each marketing group and provide us an update on our financial metrics.

This morning our featured mark group is Thomson Financial and joining us will be Dave Shaffer, CEO and he will give us an update of what's going on at Thomson Financial in the first quarter.

After Dick, Bob and Dave's formal remarks, we'll turn it over to you and answer any questions that you may have. This is my favorite slide, and at this point, we'd like to point out to you that the following discussion contains forward-looking statements that relate to future results and events and are based on Thomson's current expectations.

Actual results may differ materially from those currently expected because of a number of risks and uncertainties discussed in documents that we have provided to the SEC. This presentation also contains disclosures of certain non-GAAP financial measures. As required by new SEC rules we have provided a reconciliation of each of these measures to the mostly directly comparable GAAP measure and these are the investor relation section of our web site www.Thomson.com.

And now I would like to turn it over to our president and CEO, Dick Harrington.

Dick?

Good morning, everyone.

During our investor meeting in New York last fall, I promise that I would provide greater access to investors and that is why I'm participating in today's call. Those of you who have followed Thomson for a while, know that our first quarter is not indicative of our full year performance, due to the seasonal nature of many parts of our business.

Nevertheless, I wanted to take this opportunity to provide an overview of our results, our accomplishments during the first quarter, and our outlook for the rest of the year. And, of course, I will be happy to answer any other questions you may have a little later in the call.

We continue to experience a weak economic environment in the first quarter of 2003. Especially in the financial services market.

To give you some recent statistics about the state of the U.S. financial market, in March 2003, security industry association reported financial services head count in the United States continued to decline, but at a slower rate than last year. For example, the head count in March 2003, was approximately 700,000, 2% lower than last year. Whereas head count declined 9% between 2001 and 2002. So the decline is mitigating, but it did continue in the quarter.

On the deal-making front, the number of m & A deals and IPOs and corporate debt issues continue to decline and trading volumes in the first quarter were down, reflecting the uncertainty of the war. All of these market factors impacted our ability to grow revenues in the financial services sector during the first quarter. And the economy also affected some other businesses, such as dialogue and trademark research, and fewer corporate downsizing in the first quarter meant lower outplacement services -- service revenues for DBM.

While the economy was soft, we had a number of accomplishments during the first quarter, and I want to point out some of the highlights.

Our Thomson One suite of integrated solutions for the financial services market continued to gain momentum as customers looked to increase both functionality and return on their information investment. Dave will have more information on that in his presentation.

Our scientific and healthcare business continued to show good growth, respecting the tactical acquisitions like Current Drugs and Deltheon that we made in this space last year in solid organic growth from the web of science and continuing medical education.

As we anticipated, our legal grew slow by 2% however, our legal customers are continuing to expand the usage of the online and software services. But they have reduced print and CD orders, which is affecting our overall growth in this market. Growth in global Westlaw revenues continued to be strong, up 8% for the quarter.

Also, legal software products and services such as Prolaw, West KM and FindLaw grew by 9% in the quarter. These new products and services, which enable law firms to organize their own internal files, manage their time and billings and fully automate their front and back office processes are critical to our strategy in the legal mark place.

Moving on to the learning group, the revenues declined slightly during the quarter by about 3%. I can assure you this is not a signal of a slowdown in our Learning business. The revenue decline traced to lower textbook reorders in the first quarter, a traditionally light quarter for textbooks, as customers await the new and revised titles that Thomson Learning is offering for 200 3. We have approximately 20 more first editions and revisions -- I'm sorry, 20% more first editions and revisions coming out this year, than we offered last year. And the timing of these new releases has affected the ordering cycle, which will be more heavily skewed to the second half of the year.

The good news is our higher education group has a particularly strong slate of publishing titles coming out in 2003.

I'm also excited about the progress that we have made in our eLearning business Net G. We had double digit revenue increases in the first quarter, and the folks there have done a great job at improving their operating performance. So all signs point to another good year for your learning market group.

We are continuing to track well against our core financial metrics. Bob will discuss each one in detail in just a minute about, ut to briefly highlight our revenue growth for the quarter was affected by seasonality and market uncertainty.

Nevertheless, we continue to grow free cash flow, expand dividend margins, reduce our capital expenditures as a percentage of revenues and improve our return on invested capital.

During the quarter, we completed eight tactical acquisitions for $28 million to augment our content and to enhance our solutions capability.

Moving on to our outlook for the rest of the year, I want to remind you that the first quarter is not indicative of Thomson's full-year expectations. I am confident that we will achieve the outlook for this year that I spoke off at your year-end analyst meeting. Revenues will grow. Margins will continue to expand, and we will maintain our focus on generating free cash flow.

Now, Bob will take you through the financial results in greater detail.

Thank you, Dick.

My discussion will start with slide eight. Financial overview.

As -- as Dick mentioned, our financial metrics continued to improve in the quarter and we'll talk more about the timing and the revenue specifically as it related to learning and financial. I want to point out a couple of items that affect the financials.

First that we have adopted CIC handbook section 3.38.7 regarding the treatment of stock-based compensation and other stock-based payments. In this quarter we charge earnings of fair value of all stock options we have issued not just the ones we have issued recently but all and as we stated in the prior years and the pretax effect of this adoption was 5.1 million in the first quarter, compared to $4.1 the same period a year ago, and both represent per share in earnings. Now the quarterly stated results for 2002 or available on our web site.

Now also during the quarter, we announced the redemption of our series five preference shares, which will -- which took effect April 14th and recorded a gain associated with this, and I will talk about that. We also, as -- as announced previously, sold a minority interest in Bellgold Media to the Woodbridge company for $279 million in the quarter.

Moving on to slide nine, revenue performance in the quarter reflect the continuing softness in the financial information markets, and as Dick mentioned the timing of academic revenues in our learning group. Both EBITDA and EBITDA margins improved significantly in the quarter reflecting lower corporate costs and other expenses primarily shadow stock-related expenses and reflect the efficiencies and synergies across our market group this. This was offset in part by appreciation, which reflects recent acquisitions and our capital expenditure program.

In terms of our EBITDA, we continued to have good underlying EBITDA growth, even after taking out some one-time non-operational benefits. Our learning group results last year included one-time integration costs for Harcourt that have been eliminated now that the integration is complete. And our stock appreciation rights including corporate and other, went from an expanse last year to a benefit this year, primarily as a function of the share price. Excluding these items EBITDA grew by 7% for the quarter.

Moving on to earnings and earnings per share.

Earnings up $66 million or 10 cents per common share for the quarter were compared to a loss of $36 million or 6 cents per common share in the first quarter last year.

Now these current results include, as I said, a one-time gain of $56 million due to the sale of Thomson's minority interest in Colin Powell bellgold media and a $24 million exchange gain associated with reception of the series 5 preferred shares.

Also to note there was no dilutive effect from acquisitions in this quarter. This indicative of the tactical or drop-in acquisitions that we have been making that are more easily integrated into our core operations.

Now, as noted on the slide, excluding one-time items, a loss of $15 million or two cents per share for the first -- for the first quarter of 2003, compared favorably to the loss of $34 million or 5 cents per share for the same period a year ago. And this improvement was driven by our higher operating profits and lower interest expense reflecting the lower level of our outstanding debt.

In terms of our financial position, you will note that total assets declined by almost $700 million from the beginning of the year. This is primarily due to lower accounts receivable balances reflecting the seasonality of our businesses, as well as depreciation amortization. And also reduced investments in companies, primarily due to the sale of Thompson 20% interest in Bellgold media which was carried at about $200 million.

Now shareholders equity declined by $567 million. Reflecting the common dividend payments including the special dividend as a result of Bellgold media and the reception of our series 5 cumulative redeemable preference shares. Now we announced in February our intention to redeem the series five shares. We redeemed the shares on April 14th and they're respected as a current liability in our balance sheet as of the end of the quarter.

I would like to move on to a discussion of our valuation metrics as John and Dick alluded to. Of course we remain focused on our long-term objectives of revenue growth, expanding margins, driving free cash flow and importantly improving returns. As Dick mentioned we continue to make good progress in each metric in the first quarter.

Now we have restated our historical financials to conform with the current year's presentation of revenues. For the adoption of the standard on stock options and also we restated for the increase in the financial group revenues, in order to present on a gross basis stocks and stock exchange fees that had been previously netted.

Just so you snow, these are exchange fees that we bill and collect for the NASDAQ, which have previously been netted out. On an annual basis they represent about $70 million and on a quarterly basis, you can divide by four, roughly, 15, $18 million.

There's no profit associated with these. They are pass through.

So inclusion of this revenue will have a bit of a dilutive effect on Thomson's financial margins.

Total revenues were flat for the first quarter, they reflected, as I said the continued difficult financial conditions and the publication for the higher education group and learning. Electronic revenues on a 12-month rolling basis remained at 53% of total revenues. In the first quarter, electronic revenues grew fastest in legal and regulatory at 11%, and at scientific and healthcare at 19%. However, these were impacted by the decline of 5% in Thompson -- Thomson Financial revenues which are largely electronic.

In terms of EBITDA margins this slide shows a rolling 12-month EBITDA margin. It speaks to the efficiencies of our businesses and the progress we have made in the 2001/2002 leveraging of cost initiatives.

The good performance and the consolidated level was driven by actually improved margins across all of our groups except obviously for learning in the quarter and, of course, the lower -- the benefit of lower shadow stock costs.

On slide 16 is a rolling 12-month analysis of our capital expenditures is a percentage of revenue and you can see that we continue to make progress here. Now this improvement reflects efficiency, but also to some degree timing.

Much of the improvement in the first quarter is in Thomson Financial where we know that we have investments going forward in 2003. For the full year we would expect that our expenditures would be in the 7% range. As percentage of revenues.

Slide 17 shows a rolling 12-month performance of free cash flow which is steadily improved during the periods noted.

I would like to move quickly on, though to slide 18, which shows the sources of the improvement, particularly in the most current quarter. Now, this schedule is summarized from the consolidated statement of cash flow which is provided in the release.

And on this slide, with the improvements, as noted in the statement of cash flow, are derived from higher earnings, higher EBITDA, improvements in accounts receivable collection, lower capital expenditures and lower levels of acquisition and disposition related reserve activities which is noted as other investing activities.

Now these improvements are partially offset by the timing of payments related to accounts payable and accrued expenses and higher royalty payments related to increased fourth quarter revenues experienced in Thomson Learning.

Now the last -- or the next to the last metric slide -- or two or three to go -- talks about return on investor capital.

And here you can see for the -- again, for the quarter our ROIC improved due to improvement in operations, slightly lower asset base due to the sale of Bellgold Media and the timing of tax basements.

On slide 20, is a brief summary that Dick already alluded to, the number of acquisitions we have made and the total amount of $28 million.

Now, these do -- our acquisitions are really focused for their size on providing us additional content, customers -- expanded customer base or applications. And because we're able to fold them in more quickly, we get exceptional returns in this regard.

Going forward, we can expect to continue to make these kind of acquisitions.

Now, on slide 21, is a summary of our adjusted earnings, for the periods, and for the first quarter of '03 on a rolling 12-month basis. So, in effect, what you have is the first quarter of '03, and the prior three quarters of '02.

And the one penny improvement is -- is what is derived from the penny improvement this year, over a year ago.

Now, I would like to move on to talking about the financial performance for each of our mark groups.

Starting with Thomson Legal and Regulatory.

Now, as John mentioned, we announced our intention on April 3rd to acquire Elite Information Group. This is a worldwide leader in law practice management applications for approximately $122 million, and this deal is expected to close in this quarter.

Now in terms of the operations, as you can see from the slide -- now, in terms of operations, as you can see from the slide, revenues increased by 10% and EBITDA increases 2%. Our revenues resulted from a strong global Westlaw growth where revenues grew 8% and commercial usage increased 24%. We had strong renewal and increased sales at our FindLaw business and we had good contributions from our acquired businesses which are mostly Lawtel and Unilink and we did benefit from foreign exchange.

Higher revenues in the tax and accounting sector, which grew 8% were benefited from the core growth from trust services and tax software products, and excellent revenue growth from CheckPoint, our online tax information service, which grew at 20% in the quarter.

Now, these performances were offset, in part, by continued decline in our news and business information segment, and the anticipated falloff in print and CD revenues, which declined 4% in the quarter, and additional to that was lower trademark search revenues.

Now strong EBITDA in the first quarter reflected the flow through of our revenue performance, at decision of our acquired businesses, improved operating efficiencies brought on by the recent restructuring at Thomson tax and accounting and some differences in phasing of certain expenses relative to the prior year.

Moving on to Thomson Learning.

As we said, here, revenues declined 3%. EBITDA was even with last year. Now, Q1 losses are seasonal and as Dick has said, not indicative of our Learning's likely outcome for the full year.

Now, within this performance are academic revenues declined 5%. Related to, as Dick talked about our customers laying ordering in the higher education segment. As Dick mentioned, though, we have a strong slate of publishing titles coming out this year and feel that this is timing.

Also in the quarter, we did see some softness as library budget cuts affected the demand for our reference materials while life long revenue earnings were down by 3% in the quarter primarily reflected a reduction in new business in our corporate outplacement operations. There's some continued weakness in IT testing but this was in part offset by improved results in the eLearning sector as Dick alluded to regarding Net G.

Now, lower margins in the first quarter are due primarily to the seasonality of the revenue stream in the academic sector. Offset by one-time hard core costs in Q1 of last year, and improved Net G performances in this year.

Moving on to Thomson Financial.

Now, as the slide says, revenues declined 6%, while EBITDA was flat in the quarter. The margins improved in the first quarter reflecting the continued benefit of leveraging initiative, cost controls and ongoing platform consolidations across the businesses in Thomson Financial.

Now with Dave -- Dave Shaffer will be following me and he will talk more in detail about the performance of the business and the market in particular. In Thomson Scientific and Healthcare, revenues grew 13%, and EBITDA expanded by 15% in the first quarter. And margins continued to improve.

This performance was related to higher Scientific revenues, and continued good margins in the Scientific sector, which benefited from acquisitions made in 2002, and higher web of science subscription volumes this year. In the Healthcare sector, higher revenues and EBITDA margins were experienced in continuing medical education.

And my final slide, before I turn it over to Dave, deals with corporate and other.

As we have said, we -- here is where we do report Thomson Media. And in Thomson Media, the revenue decline was related entirely to -- to a continued softness in the market. But we continued to grow the EBITDA due to our effective cost management programs. Now, in corporate expenses, the improvement is almost entirely due to reduced stock appreciation rights cost which I mentioned previously.

That concludes my presentation and now I will turn it over to Dave Shaffer who will talk about Thomson Financial.

Thank you very much, Bob.

First slide, slide number 29, market environment and trends.

Overall, as I'm sure all of you are aware, the market has declined further from the end of 2002. And except for debt issuances, market activity, both domestically and globally has been subdued for Q1.

If we look at trading volumes, they're down significantly in all marks from 2002 levels. In fact, New York Stock Exchange volume, Q4 of '02, versus Q3 of -- Q1 of '03 is down 7%, and OTC trading volumes, again Q4 of '02, as compared to Q1 of '03 are down 11% and that has an impact on our trading volume businesses such as BETA AutEx and PORTIA.

In addition to that activity, IPOs and secondary offerings have declined from 2002 lows as well, both in dollar volume and in number. In fact, announced M & A volume is down 26% in Q1, and IMOs are down 72%. And in total numbers only five IPOs were announced in Q1.

In addition to the weakness in the financial services area, the economic uncertainty has been compounded as well with things like the Iraq conflict, and the SARS situation.

Consequently, we continue to see our customers rationalizing costs, and looking for a further opportunities to leverage their existing asset base. Companies are reviewing the total cost of ownership, of market data-ing products and they want less expensive options; however, they want those options along with increased functionality and ease of use and that's something that our Thomson One integrated financial suite offer.

Additionally, companies are continuing to search for outsourcing options such as the Merrill Lynch contract that we announced at the tail end of 2002.

We move to slide 30.

Let me talk for a moment about some of our growth initiatives for 2003.

First, we intend to grow share in the institutional equities in off-trading for activity by aggressively continuing to take share with Thomson One Equity, while leveraging the strengths of our AutEx and BETA products. We will also grow share in the fixed income area, and as a matter of fact, we'll be announcing our Thomson -- Thomson -- we'll be launching our Thomson One yield product in the May/June time frame.

We expect to additionally broaden our position in retail equities. We'll be leveraging the Merrill Lynch when I referenced into other market opportunities and I expect to have more to say about that over the next few weeks.

We'll be migrating our existing retail wealth management customers to Thomson One Advisor. We will be focusing on growing our share of the investment management front office, in fact, we have plans underway, well underway after the first quarter to migrate our First Call web customers to the Thomson One analytics product, prior to the end of 2003. And we'll be introducing Thomson One portfolio and leveraging our premium position of baseline, Vestek and data stream products.

We will continue to cross sell to drive penetration in the investor relations marketplace, and we'll be growing our share of the outbound IR communications market.

And lastly, we'll continue to capitalize on the straight through processing efforts that benefit OMGIO, our joint venture.

We move to slide 31 and speak to the significant operational initiatives for 2003.

Number one, on my plate is the Merrill Lynch implementation. And that's progressing very well. The work station and online platform are on plan, and on budget. And I fully expect that TF and Merrill Lynch will realize all the strategic aims and mutual benefit of this outsourcing partnership.

We continue to migrate our product-oriented customers to the more higher value financial solutions from the legacy base.

For example, we are successfully moving customers from Legacy First Call products to Thomson One Analytics. And Thomson Financial continues to look for additional ways to contain costs in these difficult market environments.

We are looking at things like further rationalization of our product platforms in technology, strategic redo of our sourcing arrangement, both across Thomson Financial and leveraging the strength of Thomson corporation, implementing industry best practices and careful cost management of people and operating expenses.

If we go to slide 32 and speak a little bit about our Q1 competitive achievements.

We've achieved key new business in spite of the extremely difficult market. Thomson One Equity and Advisor were selected by firms like Miller Johnson, ThinkEquity, Guardian, CNBC during this quarter and Thomson One Analytics by HSBC, Jeffries and Banc of America. With our new generation of products launched, our sales pipeline is building month by month; however, the new sales cycle is extended as a result of the economic uncertainty in the marketplace.

We have also signed up our first two BETA clients for the new Thomson One yield product that I mentioned will be launched during May and June. We have launched Thomson One Banker in February and have announced our first significant win at Morgan Stanley.

We've also launched the enhanced First Call analyst product under the Thomson One analytics banner to serve the needs of the investment management sector. And to fully capitalize upon our new products, we're continuing to use our global account sales structure, launched at the tail end of 2002, to realize current and future revenue growth.

We move to slide 33. My last slide.

Looking at 2003 expectations, we believe the market will remain difficult through 2003, and we have very limited visibility into 2004. However, we continue to see Thomson Financial gaining market share in critical areas in the marketplace.

We anticipate further gains in institutional equities and fixed income. We see further increases in corporate and OMGIO and our product investment, we will continue to protect our investment banking and investment management revenues aggressively.

We'll build on the momentum established in Q1, with sleck product migrations and implementations -- with sleck product migrations and implementations, such as Merrill Lynch meeting critical milestones and lastly we see further consolidation in the marketplace at the customer and data provider levels.

Thank you. Thank you, Dave.

Before we start the Q & A I would ask that all of you who have questions to ask that you limit that to one question at a -- at a time, we should have time to cycle back for any repeat questions and as we are currently in the acquisition process regarding elite, we're not able to respond to any questions regarding where we currently are in that process beyond what we have said in our press releases or in our securities filing.

Now I will ask Stacy, our conference call operator, to provide you with instructions as to how you may queue up to ask that question.

Stacy?

Thank you.

Ladies and gentlemen, if you wish to ask a question, please press one on your touch-tone phone. You will hear a tone indicating that you been placed in queue. You may remove yourself from the queue at any time by pressing the pound key Once again, if you wish to ask a question, please press 1at this time. And out first question comes from the line of Lauren Fine with Merrill Lynch. Please go ahead.

Let's stay with Thompson financial. I'm wondering if you could isolate a few factors of what percent of revenues are really subscription base.

Which -- why I'm asking is I'm trying to get a sense of how consistent the revenue declines might be for the year and then you f you could export any financial exchange in Thomson if many.

For the first quarter in financial, our electronic revenues were 91%. Our recurring revenues were 74%.

Okay.

And then -- so that gives us a sense of would it be fair to say that the declines for the year won't vary considerably on the recurring piece?

No, I think that's fair to say.

And then is there a foreign exchange effect on that segment that you could isolate in terms of what it contributed to revenues?

Yeah, Lauren, it was 1 to 2% positive in the quarter.

Okay. Thank you.

Thank you. We have a question from the line of Andrew Mitchell with Scotia Capital.

Please go ahead.

Hi there.

You went through the market share gains a little bit fast for me, but I just wanted to get progress reports on a few fronts, so if you can just bear with me, in case you talked about it already but in the equity one side, I wondered if you could talk about a few things.

Can you talk about the penetration you are now seeing on the testing phase in terms of the top tiers, the southside dealers. Can you identify the potential time line towards decision making, and I assume it's too early, but I just wanted to confirm the north side dealer that's actually testing the product has actually formally rejected doing a rollout at this point, and finally, just some general commentary.

Are you seeing positive or negative surprises versus expectations on the testing phase in terms of client reaction, barriers you are seeing to getting the product in place, versus the competitive response, et cetera.

Andrew, I just counted about seven questions there. We'll do our best to get you the answer. Geez. Well, let me take the high road, Andrew.

First of all, we continued to believe that we are gaining shares significantly. And Thomson One equity is being accepted into the marketplace very, very, well. I don't have penetration statistics that I can share with you. By client segment with regard to that.

But on balance. We are winning business in total with the new solution suite that we're putting into the marketplace. I am -- I am not aware of a customer who has trialed this product and then decided not to implement.

So we're quite happy with our progress and as I said in my presentation, the pipeline for these solution suites is growing month by month. I would have to -- maybe you can repeat some of the tail-end questions or -- no.

Okay. He's gone. All right.

Well, I guess in the -- the net is that things are going very well. You can look at our revenue decline is better than the competition. We're happy with the way the product has been accepted in the marketplace. You asked about time lines to implementation, and both the economic uncertainty in the mark, as well as the fact that these are much more significant sales than Thomson Financial used to have in its product environment, so they do take slightly longer.

But -- but we're on track.

There will be a lot -- I think the real benefit of some of this is especially if you look at something like Merrill Lynch, whom we've talked about a number of times the real financial uplift for Merrill Lynch comes in 2004, and those large deals that are being closed, a good deal of that will also happen in 2004.

And we have a question from the line of Douglas Arthur with Morgan Stanley. Please go ahead.

Yeah, two questions.

Just an update on the deteriorating financial condition of colleges across the country, that combined with the growth at Net G, are you confident you will still have decent revenue growth in the entire learning sector in '03?

And then the second question, organic growth and scientific and health during the quarter.

Thanks.

Yeah, this is me Doug, Dick Harrington. I know it's me. [ LAUGHTER ] Dick Harrington.

First of all, the organic growth and scientific and healthcare for the quarter was about 4%. The didn't on the learning based, two issues, one is that first of all college enrollment is up this year, versus last year. That's increasing.

And there was -- I forget the name of the bill but there was a bill passed as far as funding college -- the financing of college tuitions that's been passed by the government and that's been stated at normal levels. Our issue with IRN -- first of all, we only do $60 million, $65 million worth of sales for our higher Ed products.

Our key is that because of the number of new releases and the two large block busters that we have coming out which is ManQ and one in accounting, ManQ economics and accounting, it's skewing the sales to the back half of the year. So we're pretty confident that the -- that our higher education will still produce excellent growth versus the market this year, as it has done in prior years. As far as Net G is concerned, we've made some investments in Net G last year. We see those paying off this year, we expect Net G to have a very good year.

And, Doug, just in terms of getting a sense of seasonality, a follow-up on Dick's comment here, last year we booked about 17% of our revenues in the first quarter, less than 20% in the second, and then the second half, we book all difference, which is well over 62% of our revenues and virtually all of our profit. So it is a very seasonal business and we don't -- that's why we've said we don't -- we don't see -- look into these results in any way as an implication for the full year, and neither should you.

Thank you.

We have a question from the line of Andrea Horan with Westwind Partners. Please go ahead.

I want to spend a moment on the cash flow statements.

Can you remind us what the other investments are and whether or not $31 million is a good number to annualize?

Other investing is -- is the follow on investment that we make or expenses we incur in integrating acquisitions or in -- in disposing of businesses. In this particular case, there is still a lit bit from Harcourt there's still some from Primark and some other smaller investments.

So the answer to that question is -- is that I don't think it's a good -- good idea to annualize that, and I really don't have a handle on what that is anticipated to be this year. But I -- I really don't think that you should assume annualizing it. It is more in line with the level of activity of acquisitions or dispositions that we do.

If we were to make a larger acquisition later in the year, that would influence that particular cash flow item. But when we make those announcements we usually also nouns that there are integration costs and material, we announce them at the time.

Okay. Thanks a lot.

Thank you. We have a question from the line of Mark Braley with Cazenove.

Yes, just a few quick questions.

First of all on DBM.

I know you don't like to talk about the immediate intentions with any of your businesses but can you give us a feel of whether you think that will still be in the group within three or four year's time. And then secondly, in TF, can you give us an idea of what the current terminal count is for ILS?

Yeah, on the DBM side, first of all, it had a very robust year, and had a very good year and our philosophy is we do not discuss any potential acquisitions or our divestitures within our organization. DBM had a very good 2002 and we expect it to have a decent 2003, based on the mark.

Okay. And the -- based on the market.

Okay. And the screen count for Thomson Financial at the end of 2002 was 198,500, and that's sourced from inside market data, the risk waters group and that was down .2 of a percent and I don't have a Q1 number to give you.

Would I be correct in saying that would include analytic and -- I'm sorry, ILEX, but also at-desk subscriptions to First Call and so on?

Yes, that would be our screen count, yes, that would include ILEX and other screens that we would have out.

Okay, thank you.

Operate rate thank you we have a question from Lionel Randall with Credit Suisse First Boston. Please go ahead.

Thanks. Can you outline the impact of foreign exchange on the revenues and EBITDA for the company overall? Thank you.

Well, first of all, it had no EBIT impact. But in terms of revenues, from a consolidated basis, our revenues benefited by about 2%. And -- and that -- about 3% in scientific and healthcare, Dave said 2% in financial, 2% in learning and 1% in regulatory. Legal and regulatory.

Thank you.

We have a question from the line of Kevin Gruneich with Bear Stearns.

Thanks.

I was wondering if you could provide some color on the restructuring of the tax and accounting business and what you look for the full year in '03 cost savings and also in terms of online learning, if you've seen the strength broad Net G to some other businesses.

What was the second question?

In terms of online learning, if the Net G strength, if you've seen that broaden to some of your other businesses within the sector.

Yeah, I think the -- first of all when we look at -- we look at corporate training, development careers, all in that one area, and all those -- all of those businesses do -- do well. The only business in that area that's basically down first quarter is -- is DBM, as we discussed so all of those businesses are doing well, and they've always done well.

Biggest pickup on Net G really goes to the fact that when we acquired it from Harcourt, it needed some -- we needed to redo the business strategy, the business model and the product infrastructure and how we basically sell and service the customers and an awful lot of work went into that last year and we're seeing the fruits of that now.

All the other businesses have done well last year and will do the same this year. The pickup of Net G will be a great additive to that business. The other question was --

the other question was restructuring of tax and accounting. And as I mentioned that was a prior year. Actually, over a number of years. And we've been taking those costs out as we go along. I think the -- the biggest benefit occurred in the first quarter because on a year-to-year basis, the -- at this time of a year ago, those costs are still in there.

So you wouldn't -- we wouldn't -- we don't expect to see a significant continuation of that kind of benefit, as we go throughout the year.

Could you isolate the Q1 benefit?

Q1 benefit? I don't know if I have that level of detail. We're searching right now as we speak. Less than $5 million.

Okay. Thank you.

Thank you. We have a question from the line of Andrew Gordon Brown with J.P Morgan. Please go ahead.

Thanks, hi. Good afternoon, everyone.

A quick question about Westlaw.

You spoke on about an 8% growth in global Westlaw. I was wondering, could you isolate the organic performance of Westlaw U.S., within that, please?

It's approximately 4%.

Okay. So it's -- would that be sort of more or less online --

I'm sorry, 5%, it grew -- it was 5%. The 9% was -- was Westlaw and our other online businesses.

Okay. And that's 5%, is that sort of more or less in line with the market, slightly faster?

I would say it's -- it's approximately in line with the mark. I'm not sure if anybody measures the market on a quarterly basis.

Yeah, okay. Thank you very much.

Thank you. We have a question from the line of Tim Casey with BMO Nesbitt Burns.

Please go ahead.

Thanks.

On slide 30, you outlined several initiatives for this year for Thomson. I mean, they really touch on pretty well every product you sell. I'm wondering if you could prioritize or maybe rank them in terms of where you think you will get the most bang for your buck this year, and which ones maybe are, you know, more kind of 2004, 2005 stories. Thanks.

Okay.

Tim, basically, I -- the way we talk about this internally is -- is utilizing the phrase "attack and defend". So on the defend side, there's a lot of early bang for the buck in terms of migrating legacy customers that are product-oriented to integrated financial solutions. Moving them up the value chain, if you will, and expanding our share of their overall purchase in this segment. Expanding it, taking it from competitors' wallets, if you will.

So on the defend side there's early bang for the buck, and very high priority placed on migrating legacy products on to the new solutions.

On the attack side, obviously, it's those products that we have in the market already. I mentioned Thomson One Equity, that's out there, we're selling it. We're having success. It has short term 2003 benefits. We'll be launching yield in the May/June time frame.

We expect to see benefits this year but we will -- there are still parts of that suite that we'll launch in the -- in the third fourth quarters and they will have more of an impact on 2004.

So now, overall, you know, it's a two-pronged approach and each of the prongs is important. Those solution suites that are in the market today are the ones that we are going to have 203 benefit on, and the ones that are launching in the second half of this year, we'll have more 2004 benefit on.

Is it fair to say the -- the corporate sector initiatives and the investment management front office integrated suites, would they be more defend or attack? Given the way you've characterized them?

Well that is both. Front office is more -- is more defend, and the corporate side is more attack. So -- so you can look at it that way.

Now, remember we have contracts that we are signing and are in place, where revenue just won't be recognized until later this year, or -- and into 2004. So the -- the competitive wins I talked about, in some instances, require contracts are in existence to lapse, our product will be installed and then revenues to -- to grow moving into 2004.

Thank you.

Thank you.

We have a question from the line of Jeff Fan from UBS Warburg.

Please go ahead.

Thank you.

A question for Dave on Thomson Financial.

Can you talk a little bit about the operating leverage of this particular business? And maybe give us some ballpark estimate of your percentage base which percent is variable and what part is fixed.

Given that it's highly operating leverage. I'm just wondering what the negative revenue impact will have on going forward.

I know in the past quarters have you done a very good job increasing margins but how long can we expect this to last?

Okay, well first of all, the margin improvement in the first quarter is carrying over from the acts we took in 2002. So as we are comparing quarter over prior year quarter, we're gaining benefit, and in the early part of this year, from those actions.

That will begin to minimize, as we move into the second and third, and fourth quarters. I think we said going into this year that we didn't expect to continue to see the kind of margin improvement that we had -- that we experienced in 2002.

With regard to -- to the fixed versus variable cost base, I'm going to -- I'm going to estimate here, I think we're probably in roughly the 55 to 60% fixed cost, versus variable. And it's highly leverageable.

When I talked about initiatives, that were implementing to improve our operating performance and so forth, it -- it isn't a change -- it isn't to change that mix of fixed and variable, as much as it is to leverage the fixed cross more efficiently across the business. I have projects underway dealing with data center consolidation, and contacts that are consolidation, with financial back office staff being looked at as potential offshore tunes, legacy product technology support, et cetera.

It's -- it's those kinds of initiatives that -- that we have underway to leverage the cost base of the -- of the Thomson Financial group.

Just a quick follow-up.

Do you believe those efforts will offset the tough, you know, revenue friends that we expect in 2003, or even '04? Because you mentioned that the sales cycle for a lot of these outsourcing deals, especially regarding Thomson One are long so we don't expect a benefit on the revenue line until, you know, well into next year.

So do those consolidation efforts, data centers and call centers, will those offset, you think in terms of the revenue decline?

Well, in terms of bottom line, I think our bottom line is in pretty good shape. I don't expect that the revenue decline is going to continue to impact beyond the bottom line, because of these kind of initiatives. These are not 100% targeted at strictly cost reduction.

In many instances, we'll redeploy those costs to have -- create better product solutions and better financial solutions in the marketplace and so on. I think at the moment we're happy with where we are on margin. We'll continue to expand slightly but not like we does in 2002. The revenue year will be tough for 2003.

I'm fairly bullish on 2004, only because we're signing a lot of business that will roll into 2004, and -- so on balance, I think that's the best way I can answer the question.

We have a question from John Halliwell with West LB..

Yes, the comment right at the end of the Thomson Financial segment, about expecting further consolidation among stated vendors. Are you just talking there about the likelihood that the small and regional guys get folded in amongst the big three or do you think in the mark shakeout, we're seeing -- you're ultimately going to month of to two large providers rather than three.

I think it's the former rather than the latter.

Thanks.

Thank you. We have a question from the line of Drew McReynolds with RBC Capital Markets. Please go ahead.

Just three questions, but we'll try to combine them into one.

It's all about Thomson legal and regulatory division.

Can you give us what the organic growth rate was in the quarter for that division? And could you comment on what you're seeing in terms of declines in revenues, of the print-based products within Thomson legal and regulatory and finally with respect to dialogue, I believe that Q4 you indicated that the revenue base of dialogue was down about 23% year-over-year. I'm wondering what you are seeing trend-wise in that business.

Well being I can answer some of the other ones. I will let Dick talk about trends and in dialogue.

In terms of organic growth rates for the legal and regulatory group, actually, the overall organic growth was flat, as we had good growth in -- in electronic and in other segments,. As I said the decline in Dialogue, and in our trademarks business really offset that and the print business. So if you look at the legal group at north -- the North American legal group, organic growth there was, you know, around the 2% range.

So I think in that regard, really what we talked about was that the overall -- well, the overall growth in the group was 2%, acquisitions contributed 1% and foreign exchange contributed 1% and that's how -- but within that, there's some really good growth in the electronic and other segment. And I will let Dick talk about Dialogue.

First of all, Dialogue, it's been trending and it's been declining in the last five months. That decline has ceased and it's been not necessarily growing but it's -- but it hasn't been declining over the last five months. What we're getting is quarter-over-quarter. So we're I will still getting a single digit decline.

So we're still getting low double digit, I'm, low double digit decline this quarter and that should ease out as we move into the latter half of the year. But as far as the business itself, we are very comfortable that it's stabilized and it's going the right direction now.

And our final question will come from the line of Vince Valentini with TD Newcrest. Please go ahead.

I'm wonder to what extent the lack of visibility in the economy is curtailing your investments both internally in cap ex and externally in acquisitions.

You consistently underspent on acquisitions versus what you've been telling us. Is that a trend that can continue or if the economy picks up, do you have some projects that will kick in and you will start spending. Same thing with acquisitions do you have some things in the pipeline that you are holding back on until you are more comfortable with the economy.

No, the economy does not impact our long-term decision. Any time we do an acquisition, any time you do any major investment in cap ex, we consider those longer term decisions.

To be honest, we would never make a decision that would have a -- positive decision here is shock term but really a negative decision or impact long term.

The reason why -- first of all, cap ex is down because of everything we stated over the years is actually happening which -- which -- you know which we thought it would, which is as we get larger and we have more anchor tenants in these business, Thomson Financial, with the -- with the Thomson One platform, higher education because of the size and the flat forms we built there, same with Thomson legal regulatory with Westlaw because we have bigger platforms we can leverage them much better today than we could when we had a number of smaller independent businesses and multiple platforms. So that's really been the reduction in the -- in the -- in the capital cost, and as far as -- as far as acquisitions go, we -- I think we mentioned this over the last couple of years, that we've done the major acquisitions to bigger size and scale.

We wanted to make sure they are fully bedded down and integrated; although we have the cost down, we still want to maximize the opportunities we have on the -- on the did -- on the revenue side, just like Thomson One is a brand new product out there. The whole infrastructure for Thomson One is new.

And that's -- we're able to do that because the acquisition of Primark and our Thomson assets that we have. But those are big projects and we're still driving to basically make those happen. And that's in all the groups that had the major acquisitions.

And -- but we are going after the smaller tactical acquisitions at this time because of the fold-in economics and they allow us to increase either a new product for the -- for the customer or make our existing products Morrow bust. And we will continue to -- to do that as we go -- more robust and we'll continue to do that as we go for the.

Thank you very much, this is John Kechejian and on behalf of all of us, I would like to thank all of for participating in this morning's first quarter call.

I will now turn it back over to Stacy who will tell you how to participate and access the replay number.

Thank you.

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