Thomson Reuters Corp (TRI) 2003 Q2 法說會逐字稿

Welcome to the Thomson second quarter results conference call. At this time, phone participants are in a listen-only mode. Later we will conduct a question and answer session. Instructions will be given during that time. If you should require assistance during the conference, please press start then zero. As a reminder, today's conference is being recorded. I would like to turn the conference over to our host, John Kechejian. Please go ahead.

Good morning, everyone. My name is John Kechejian and on behalf of The Thomson Corporation I would like to thank you all for joining us this morning as we discuss our results for the second quarter of 2003. All of you listening in to our open conference call and webcast should have a copy of our second quarter earnings release and also the set of slides in support of them. If you don't, both the release and slides are now available on www.thomson.com which is the Thomson website.

Our CEO Dick Harrington is on the call with us today, and Dick will be providing an overview of our second quarter results and will also be available for Q&A. Next up will be our CFO, Bob Daleo, who will take us through financial results for Thomson and also each market group and provide us with an update on our financial metrics. This morning our featured market group on this call is Thomson Scientific & Healthcare. Bob Cullen, CEO of the TSH market group, will provide an update of second quarter and review his growth strategies and expectations for the second half of 2003. After our formal remarks, we'll then turn it over to you and answer any questions you may have.

My favorite slide. And we would like to point out 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 a number of risks and uncertainties discussed in documents that we provide to the regulatory agency. This presentation also contains disclosures of certain non-GAAP financial measures. As required by the new SEC rules, we provided a reconciliation for each of these measures to the most directly comparable GAAP measure in the investor relations section of our website. And now I would like to turn the call over to Thomson President and CEO, Dick Harrington.

Thank you, John. Good morning, everyone. Our second quarter came in just as we expected, and I'm very pleased about that. Today I want to provide you with my perspective on the current market environment, our key areas of focus going forward and how Thomson will continue to create customer and shareholder value.

In terms of market environment, we have not seen a significant change since last quarter; but there are signs that some of the markets may be bottoming out, and I will share some of those in a minute. During the second quarter we continued to encounter a difficult financial services market and Thomson financial revenues declined 6%. Lower corporate spending and tight budgets also continue to impact our business information, library reference, IT testing and trademark search businesses. In particular, the European markets continued to weaken, Thomson financial revenues declined in low double digits in Europe during the second quarter and our trademark revenues throughout Europe also declined. But as I mentioned earlier, we also saw some signs of market improvement during the quarter.

For example, the Securities Industry Association issued a press release announcing that the industry expects to report the second straight quarter of revenue and profit growth including increased revenues from underwriting and commissions. The Investment Company Institute reported two consecutive months of positive new net cash flows into stock mutual funds in April and May after four consecutive months of net flows out. And we're not hearing of any additional layoffs in the financial sector in the United States, and that's good news.

While at Thomson, our e-learning business continuing to grow revenues and improve results during the quarter. In higher education, we grew U.S. revenues during the quarter despite a strong front list to be introduced in the second half of this year and our international revenues continued to show good growth. Our healthcare businesses delivered good, organic revenue growth as the demand for workflow solution, disease information and patient information continued to grow. Our specific business, our scientific business continued to drive revenue growth and financial performance with the help of some key tactical acquisitions we made last year. And U.S. Westlaw revenues showed an uptick in Q2 growing at 7%. These are just some of the encouraging signs for the future.

Our success in this difficult market environment is due to our continued focus on providing integrated information solutions for our customers. In today's market environment, stand-alone Legacy products are under pricing pressure. This is why we continue to focus our efforts on migrating customers from print products and other Legacy produces to integrated electronics offering. This migration, which has been underway for a couple of years, has accelerated across all of our market groups. And some recent examples are Thomson Financial is signing up new customers each week for their Thomson ONE family of products, and the feedback on the products has been very positive.

New sales at Thomson Financial increased from the first quarter to the second quarter and cancellations slowed as we converted existing customers to new Thomson ONE family of products. Despite declining library budgets, our library reference business continued to grow with electronic resource center revenues which helped to offset, in part, a declining print base. In our legal regulatory business, integrated online offerings grew a healthy 11% during the quarter while print declined 3%. And during the quarter we completed the acquisition of Elite which will expand our ability to provide back office practice management services to large law firms.

Consistent with our vision, we also announced our intention to sell two nonstrategic businesses during the quarter: Drake Beam Morin and our portfolio of healthcare magazines. These are strong and well-performing franchises, but they are not consistent with our long-term strategy. We plan to complete their sale by year end. As our quarterly results indicate, the disciplined execution of our business model is working to deliver improved valuation metrics.

During the quarter, adjusted EPS grew from 12 cents to 16 cents, EBITDA margins expanded a point from 23% to 24% and free cash flow grew 10% to $171 million. And on this point, I want to mention that our management team is so confident in our future stream of free cash flow that we worked with our board in Woodbridge to eliminate Woodbridge's participation in the dividend reinvestment program. I will be around to answer questions you may have a little later. Now I would like to turn the call over to Bob Daleo.

Thank you, Dick. I'm on Slide 7 in the presentation, financial overview. I'd like to point out that today we are reporting to you second quarter and first half results. It is important to remember that the second half of the year is particularly meaningful to the corporation.

In particular in 2002, the second half represented 55% of revenues and 70% of our profits. So we must remember that as we go through these results. Now the financial metrics continue in their positive development. I'm going to discuss these later on. And they reflect the benefits of leveraging our efficiency initiatives across all of our market groups and some selective acquisitions. Now in continuing to sharpen our focus, as you know we had previously announced the intention to sell DBM and healthcare magazines and these are then classified into discontinued operations for both Canadian and U.S. [Inaudible] requirements.

We continue to demonstrate strong free cash flow and as Dick has mentioned as a result of that, we have agreed with Woodbridge it is no longer a need for them to participate in the dividend investment program. Moving on to Slide 8. This slide represents our results from continuing operations and does exclude the results of DBM and the healthcare magazines. Revenue growth reflected contributions from acquisitions and the impact of [Inaudible] currency translation. As growth from certain existing businesses was offset primarily by reduced revenues from Thomson Financial and the timing of our sales of new additions within the academic [Inaudible] of Thomson learning.

The increase in adjusted EBITDA and related margins during the second quarter has reflected cost savings and efficiencies across the corporation and to a lesser extent some contribution from acquisitions and the favorable impact of currency translation. These increases were partially offset by increased expenses associated with our stock appreciation rights program. On Slide 9, a good underlying EBITDA growth continued in the second quarter. And on this slide we used the one-time nonoperations benefits and costs.

Our learning group results last year included one-time integration costs for [Inaudible] that have been eliminated now that the integration of [Inaudible] has been completed. In the second quarter as I previously noted, the increase in our trading price of our common shares resulted in expense associated with our stock depreciation rights as compared to a benefit during the same period of a year ago. In terms of our financial position, at June 30 our total assets were $18.2 billion, a slight decrease from the beginning of the year. And the decrease in assets resulted from a reduction in our accounts receivable of almost $300 million reflecting a seasonality of our businesses as well as the effective depreciation amortization and the sale of our 20% interest in [Inaudible] media which occurred in the first first quarter.

At June 30, 2003, our share [Inaudible] equity declined by some $420 million from the beginning of the year and the reduction was a result of the redemption of our outstanding Series V [Inaudible] redeemable preference shares which occurred in April of this year. Now I would like to talk about our metrics. We remain focused on revenue growth, on expanding margins, on driving free cash flow and improving returns. As Dick mentioned, we continue to make good progress in each metric in the quarter.

We had restated historical financials to conform with the current [Inaudible] presentation of revenues and expenses. With the adoption of the CICA standard on stock options, we've increased the financial group revenues in order to better present on a growth basis certain stock exchange fees that had been previously netted and in Thomson Learning great costs and distribution fees. Neither had a significant effect on revenues and absolutely no effect of EBITDA or profits. We also restated the metrics to reflect a transfer of DBM and healthcare magazines to discontinued operations. This transfer had no effect on EPS or [Inaudible]. None of these had any material effect on the trend of any particular metric.

In terms of revenues, total revenues were essentially flat in the second quarter reflecting primarily continued difficult market conditions in Thomson Financial and the timing of sales in our higher education area. Electronic revenues for the last 12 months have remained at 56% of total. Now within the first six months of this year, electronic revenues grew very fast in scientific and healthcare by 19% and legal and regulatory by 12%; but this was impacted by [Inaudible] total was impacted by a decline of 5% in financial segments where revenues are 90% electronic. In terms of adjusted EBITDA, this slide shows our rolling 12-month adjusted EBITDA margin. It speaks to the efficiency of our business and the progress we have made in leveraging and efficiency initiatives.

Now moving on to capital expenditures, you can see similar progress to our EBITDA slide. This improved trend reflects both greater efficiency and to some degree timing issues. For the full year, I would expect that we would be closer to 7% than 6%, as we know we have some nominal investing to make in the second half of the year. For example, in Thomson Financial we have some expenditures related to the Merrill Lynch contract and in learning we have higher [Inaudible] investments anticipated as a result of a larger business. In terms of free cash flow, there is another important metric for Thomson; and as this slide indicates on a gross [ph] basis and annualized basis our precash flow continues to show improvement.

Now focusing on the quarter, the improvement on free cash flow was primarily a result of a higher adjusted EBITDA, lower levels of acquisition and disposition related reserve activity which is the principle opponent of the other investing line on our cash flow. The decrease reflected the combination, the completion rather, of many postacquisition and disposable activities during the period. Now this improvement in part was offset by increased inventories at Thomson Learning driven by their record level of new and revised additions and reduced cash contributions from our discontinued operations reflecting lower collections and reduced EBITDA.

Reduced dividends paid on preference shares to the redemption of all the outstanding Series V preference shares which occurred for $308 million earlier in the year. Return on invested capital of 8.4% for the quarter was higher than at year end 2002, the improvement in our operations, slightly lower asset base and due to timing of some tax payment. Now we are slightly down from the previous quarter due to higher invested capital reflecting the Elite acquisition and the full-year effect of acquisitions made over the past year. Talking about those acquisitions, this slide shows you what we have done to date and they continue to be made. But as you can see from this schedule, they generally remain small and [Inaudible] in nature which means we are able to fold them in more quickly and get good returns from them and avoid any material dilution. By going forward we expect to continue to make similar kinds of acquisitions.

As noted in the slide, the only acquisition over $10 million was the public company Elite Information Group, a provider of back office software to law firms which was acquired in May. In terms of earnings per share, this slide strips out all of the one-time charges and restates the years based on new accounting treatment for goodwill and other intangible. And you can see on a 12-month running basis that we have shown continued improvement in earnings per share. Now in particular for the second quarter and the quarter ending June 30, the earnings attributable to common shares were $111 million compared to $88 million a year ago. Now they are not entirely [Inaudible] because of certain one-time items and in the schedule we have attempted to isolate them for you.

On [Inaudible] basis, our adjusted earnings from continuing operations in three months ended June 30 were 106 million compared to adjusted earnings of 179 million for the comparable period of a year ago. Now this increase reflected higher operating profit stemming from contributions from acquisitions, improved efficiencies, lower interest expense offset in part by the higher expense associated with our stock appreciation rights, but lower equity in net loss of associates. The difference between the street's expectation of 18 cents and the 17 cents that we have [Inaudible] is attributable to the higher stock appreciation rights.

Now this slide shows two subsequent events. One Dick has already mentioned about Woodbridge's termination of commitment to reinvest and I would reinforce that as a result of this, Woodbridge will no longer participate in our reinvestment plan and that the decision to end this agreement was based on the growth, strength and stability of the corporation's operating cash flows. Now also in July of this year, we reached a settlement with SkilSaw regarding our claims of breach of fiduciary duty, appropriation of trade secrets and patent infringement. This case was outstanding with [Inaudible] when we acquired the business. Under the terms of this settlement, SkilSaw will pay us $44 million in two equal installments, the first of which was received in July, 2003 and the second which will be received a year from now next July.

I'd like to take a few minutes and [Inaudible] each of the market groups and their performance for the quarter. Starting with legal and regulatory. Revenues increased 5% and EBITDA increased 8% in the second quarter. Revenues benefited from strong growth in the online revenues which grew 11%. The growth of global Westlaw revenues which also grew 11%. At the same time our Checkpoint tax software product continued to grow sales and expand subscription and that represents more than half of the market.

We also had strong performance up 45% from a small base albeit from our software and services segment reflecting very good growth in Finelaw and software at our tax and accounting business and the acquisition of Elite from the second quarter. Foreign exchange contributed 2% to the improvement year to year. This was offset in part by a decline in revenues at dialogue and our trademark search revenues due to market conditions.

I will remind you that dialogue is affected by many of the dynamics that influence the financial services segment. And it was also was offset our overall by the anticipated, what we anticipated is a falloff [ph] in print and CD product lines where revenue declined 3% in the quarter. Our strong EBITDA development in the second quarter reflected the flow through higher online revenues, improved productivity and efficiency and, of course, the addition of our acquired business. I would also like to point out an important part of the growth and efficiency if our business is our ability to drive our global online platform, the Novus [ph] platform. This initiative was launched almost four years ago.

And Novus [ph] today is a scalable -- is a powerful, scalable and quickly evolving platform. We chose content not only across TLR and Westlaw but is beginning to host platforms in Thomson Financial and our library reference business and is quickly becoming a Thomson [Inaudible] platform. I would also like to also mention that the sizable increase in the second quarter and year to date EBITDA performance is partly attributable to the timing of costs and investments and investments occurred within the year and certainly is not indicative of anticipated full year [Inaudible]. Moving on to Thomson Learning. Revenues increased 2% and EBITDA increased 12% in the second quarter. Academic revenues increased 3% reflecting a growth in the higher education, both domestic and international, where revenues were up 9%, 2% of which was foreign exchange.

Budget cuts have affected demand for larger reference materials and their revenues were down overall 4%. Lifelong earning revenues in the second quarter were slightly above a year ago reflecting improved results in the training sector with higher revenues and significantly better operating performance but continued weakness in the IT testing and certification market. With a number of IT tests taken in the quarter were down 23% from year ago.

Margins improved reflecting the improved performance of the training sector and the absence of one-time hard core costs. Learning's second quarter and six month results are not indicative of its anticipated full year performance due to seasonal nature of the academic business in which a majority of revenues are profits are realized in the second half of the year. Moreover, our learning group had the strong new textbook listing place for this year and will offer approximately 20% more first edition and revised textbooks than a year ago. This is expected to result in a larger percentage of revenues being recognized in the second half of the year.

Thomson Financial revenues declined 6% while EBITDA increased 4% in the second quarter. Now although new sales increased and cancellations declined in all sectors in the second quarter, difficult margin conditions as Dick noted continued to affect overall demand for services particularly in Europe. The banking and growth [Inaudible] sector was most impacted by these conditions and its revenues declined 11%. Although the investment management and corporate sectors did not report -- did report lower revenues in the second quarter but not to the same degree.

Our standalone and Legacy products were most affected by these market conditions. Signs continue to be encouraging for our new integrated product offerings as we continue to drive new sales for Thomson ONE product suites. EBITDA margins in the quarter of 26.9% improved by 260 basis points over a year ago reflecting the continuing benefit of our leveraging initiatives, efficiencies and platform consolidations across Thomson Financial.

The Merrill Lynch wealth management workstation project remains on track and user acceptance has been very positive. Scientific and healthcare. I will be turning this over to Bob Cullen who will talk more in detail about the business. I will comment on the financial performance here. Revenues grew 14% and EBITDA 39% in the second quarter. Growth from existing businesses came from our increasing performance of continuing medical education and higher subscription revenues for our anchor product the Web of Science and our Micromedics electronic product portfolio.

We also saw contributions from our acquired companies current drugs which is a provider of databases to the pharma and bio industries [Inaudible] which is provider of patent information and Deltheon [ph] research, which is the patent research solution. It was also favorable currency translation. This performance was in part offset by lower sales of print and CD literature products and patent information in the scientific sector. EBITDA margins expanded due to increased revenue flow through and continued efficiency. Corporate and other. The revenues here relate solely to Thomson Media and showed a decrease of 4% albeit on a small base.

For the six-month period revenues decreased 4% as well from [Inaudible] to 95 million. These decreases were due to continued weakness in global financial services industry and, of course, the related advertising market. In the second quarter of 2003 the adjusted EBITDA loss was $11 million. The increased loss in the three month period ended June 30 reflected an increase in the trading price of our common shares that resulted in an expense associated with the stock appreciation rights as compared to a benefit which occurred a year ago.

The adjusted [Inaudible] loss for the six month ended June 30 was 19 million compared to 32 million for the [Inaudible] period. A reduction in loss for the six-month period was attributable to both improved performance at Thomson Media and reduced corporate expenses. For the six-month period expense associated with our stock appreciation rights was relatively constant with that of a year ago. Now with that I'd like to turn it over to Bob Cullen.

Good morning. Thomson Scientific & Healthcare is ideally positioned to deliver integrated information solutions to the science and healthcare markets. What you see on this first slide, or Slide 29, is a business taking out healthcare magazines that at the end of 2002 was already focused on building scale and leverage on a solid base of recurring revenue. 59% of our revenue is electronic and 25% were from international markets. We are well positioned for global capital efficient growth.

Our market group is divided into two business areas: scientific and healthcare. The scientific business focuses on the information need of the academic and corporate research community. Our scientific businesses are heavily integrated and well along in the implementation of the Thomson business model. Revenue is subscription based. 90% is electronic and approximately 50% of our scientific revenue is for markets outside of North America, and we expect the international markets to be an important growth area.

Our healthcare business focuses on the critical information need of the various constituents in the healthcare delivery. This includes hospitals, the physician and other [Inaudible] to deliver healthcare services as well as health plans, insurers and employers. Because innovation information is the key to controlling the quality and the cost of healthcare. We are already embedded in over 90% of the leading hospitals in the U.S. Revenue in our healthcare businesses is subscription and services based. The next slide I think is one that many of you may have seen before.

Our organization is aligned around the customer facing strategic business units that take us from research to healthcare management and delivery. Within these markets we are well along the way toward implementing a single, scalable business model that is consistent with the Thomson vision. If you are following along on the slide, I'll begin on the left-hand side or with R&D. Our academic and government SBU serves the university and national research programs through the central libraries and [Inaudible].

Our secondary information solutions reach over 9 million academic and corporate researchers. Additionally, the corporate SBU serves a corporate R&D function. We provide database solutions such as [Inaudible] patent index which are highly valued by these research-intensive industries. At the right-hand side of this slide and at the other end of the continuum in healthcare our clinical solution SBU provides the most comprehensive drug- and disease-related information through the Micromedics healthcare series databases. Over 9,000 healthcare organizations use the Micromedics product.

We also have our decision support SBU or the Medstep [ph] which helps customers either provide or pay for healthcare, use information to manage costs and improve the quality of care. While we have leading positions in all these strategic markets, one of or most exciting opportunities is where the science and healthcare markets intercept and the pharmaceutical and biotechnology markets. Here we are focused on integrating information and solutions from across Thomson to develop truly unique solutions for our customers. For example, our recently launched strategic drug database integrates our research information, drug [Inaudible] clinical information and financial information from Thomson Financial to provide a combination that is highly scalable and unsurpassed in the industry.

In terms of the market environment and trends, the pharmaceutical and biotechnology industry has excellent prospects. It has a robust drug development pipeline and strong revenue growth even though it has been impacted in the short term by fewer drug approvals. Actually, and more importantly, for our business there is continuous strength in the R&D expenditures across the industry. Pharma, which is the industry trade group, reported R&D expenditures of over $32 billion in 2002 and as projected, 10% annual growth over the next three years. In the healthcare area, providers are under pressure to control costs, improve the quality of care and improve patient safety. This is driving continued focus on automation and investment in information technology.

These investments increased adoption of our Micromedics drug and clinical database products which have been shown to reduce the chance of life-threatening drug interactions at the point of care. Moreover, increasing the effectiveness and efficiency of our healthcare system is a long-term trend that is most effectively addressed by the type of integrated information solution that Thomson offers. And finally, our academic and library customers continue to make difficult budget decisions and this impacts their subscription resources. However, because of the must-have nature of our secondary information and solutions, like the Web of Knowledge, we continue to be in the center resource and maintain close to 100% renewal rates in this marketplace.

Regarding our growth initiatives, we are confident that our must-have information resources have a coveted place in the research community and we plan to continue to build and acquire information solutions for our targeted scientific research markets. For example, in June we released version 2.0 in the Web of Knowledge with significant productivity enhancements including personalization, alerting and linking to favorite journals. In healthcare we planned continued investments to extend our offerings for hospitals and for the physicians and other clinicians who deliver healthcare.

We recently launched a formulary advisory which allows hospitals to easily create and manage their approved drug formularies based on factors such as efficacy and cost. This was a direct extension of an existing product line and it supports the emerging needs of the hospital pharmacist. We also introduced a new online version of PDR called PDR.net. We have over 60,000 physicians signed up in the first six months. Additionally and importantly, we are now offering PDR.net to medical students and have registered 4500 in the first [Inaudible].

We continued to invest in business critical information solution for pharmaceutical and biotechnology R&D. As mentioned earlier, we just launched the strategic drug database, SDDB, which compiles scientific, clinical and business information for all drugs launched or in the pipeline that have global sales or projected global sales of over $100 million. Regarding operational initiatives, we have made significant investments in technology, process reengineering around how our content databases are created, edited and managed.

Using the development process that is highly responsive to our customer needs, we are creating quality information systems that can be built once and leveraged in many ways. These investments are starting to pay off by expanding and solidifying our customer base and improving margins. We have also invested in information technology that can support point of care clinical solutions. These new platforms help us develop handout [ph] products faster and integrate our clinical and drug reference databases into the healthcare organization information system.

To briefly review our recent acquisitions, we have integrated current drug back office, editorial and production processing. With Deltheon [ph] and Villa Verlog [ph], integration is on track with back office integration finished and product integration almost complete. For example, we recently launched the Thomson Patent Store which links [Inaudible] patent abstracts with full text patents at Deltheon [ph] and Villa Verlog [ph]. All of these efforts ensure a firm foundation for continued capital efficient and profitable growth.

As we look to the second half, we expect the market conditions we discussed earlier to continue through the end of the year. While these are challenging economic times, Thomson continues to expand our offerings for corporate and healthcare clinical customers. The bottom line is that we expect to outperform our key sector competitors. But more to the point, we are strengthening our position for the future. We have an exciting, scalable global business [Inaudible] that is focused on meeting the evolving needs of our customers. Thank you. And now it is time for the question and answer portion of our program. I would just like to remind you all that we will take one question per caller. And now I will ask the conference call operator to provide instructions as to how you may queue up to ask those questions.

If you wish to ask a question, please press star then 1 on your touchtone phone. You'll hear a tone indicating you've been placed in queue. You may remove yourself from queue at any time by placing the pound key. If you're using a speakerphone, please pick up your handset before pushing the number. Once again, if you have a question please press star then 1 on your phone at this time. Our first question will come from Lauren Fine with Merrill Lynch. Please go ahead.

Thank you. I guess if I can only ask one question, I would love to get a better sense of what the [Inaudible] segment and for the corporation what the organic revenue growth was, and if you can isolate [Inaudible] the impact of acquisitions.

Okay. The organic growth for the quarter -- I will go by segment. I will give you core growth, foreign exchange and acquisition. If you think about -- set up four columns, four rows in columns, matrix. Legal and regulatory, the effective core growth because of dialogue and Thomson is really flat, no core growth, 2% foreign exchange, 3% acquisitions.

Learning is 2% foreign exchange, financial was 8% core growth decline, 2% positive foreign exchange for a 6% net decline. Scientific & Healthcare a 5% core growth, 3% foreign exchange and 6% acquisition. The so for the company as a whole media obviously the [Inaudible] 4% is all core growth. Company as a whole 1% decline in core growth, 2% improvement because of foreign exchange and 1% because of acquisitions. Total overall growth 2%.

Great. Thank you.

Our next question comes from Jeff Fan with UBS Warburg. Please go ahead.

Thank you. Question about Thomson Financial. Your revenue fell 6%, but your EBITDA was up 4%. I think in the previous quarters you were able to sustain margins and this quarter it looks like it's even better than that. Can you talk a little bit about the cost reduction that is going on within Thomson Financial? What areas are you cutting what the EBITDA growth is a result of?

Yeah, Jeff, this is Dick Harrington. It's really not about cutting costs. We did do some cost-cutting last year but we are really getting the savings out of the integration of all the platforms that we discussed in prior years. If you remember when we acquired [Inaudible] we had about 80 small platforms between the two. We are down to really two platforms now and we are leveraging those platforms, actually even beyond our expectations of a year ago, being able to leverage those platforms within the marketplace. So I would say most of the cost is coming on the technology side but coming from the leveraging the platforms that we have.

Can I ask a quick follow-up, then? Are you going to be able to duplicate that effort perhaps in integrating the various information across the segment, you know, carrying a single platform or database that supports your various market segments going forward? Do you have any plans there?

This is Dick Harrington, again. Yes, we do have plans in that we will be doing some consolidation, not necessarily this year because we have other areas that have set priorities, but we will be doing some consolidation. You can't do 100% across the businesses. I think we would dim the lights in North America if we had it on one platform. But we will be doing consolidation of data centers, consolidation of platforms. I think Bob discussed that the Novus [ph] platform out at West is also being used for a couple hundred million dollars for the Thomson Financial data. It will be used for dialogue, it will be used for [Inaudible], et cetera, so we are doing consolidation and will expect to see those savings over the next couple of years.

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

I don't know if David is there, but I am wondering if you have any -- there's been a lot of ruckus in the marketplace the last couple weeks about Rueters' knowledge product. I am wondering if you could talk about what you're seeing competitively from Rueters in that area; and, then, secondly, if you could provide any color on the revenue breakdown by major segment in financial sales and trading investment banking, investment management, et cetera. Thanks.

Well, first of all in terms of Rueters, the comments on Goldman Sachs and Lehman. First of all, let me point out that customer acceptance of our Thomson ONE products on the market base continues to be strong. First of all, we did not lose anything at Goldmans and the win by Rueters was renewal of their existing services and not new service. The Lehman award provides Rueters desktops for the senior bankers of the firm which is really a small number of seats. And we continue to see good performance in terms of Thomson ONE, so I think that we still remain focused on the marketplace and our customers and do not look over our shoulders at any one competitor.

In terms of the market revenues and segmentations, year to date banking and brokerage represents about 54% of our revenues. And I think I mentioned that in the quarter that was most significant decline with low double digit range. I think we said about -- and that's largely, Doug, because of Europe. We have the encouraging signs that we mentioned, in terms of improvement of reduction and cancellations and private groups and sales, has really been primarily in the U.S.

The decline in Europe is roughly on a relative basis more than twice that of the U.S., but it represents a smaller portion of our overall business. In terms of investment management which represents less than a third of our business, the declines there are kind of in the mid-single digit range; and the corporate group, which represents really less than 10% of our business, is really also in the mid-single digit range. We also have our our Omgeo [ph] joint venture which has enjoyed growth even in this environment, primarily transaction based, and that growth has kind of been in the mid-single digit range.

Our next question comes from Megan Anderson [ph] with RBC Capital Markets. Please go ahead.

Thanks. Can you talk about your tax rate in the quarter and what you see happening for the balance of the year?

Yes. If you calculate the tax rate in the quarter it exceeds 27% and the year to date. That is simply a timing issue. We have yet given guidance really on that. We thought this year's tax rate would be around 24%. We still believe that may be a little bit higher than 24% but certainly in the 24% range. And so the year to date and quarter are not reflective of what we expect for full year.

Our next question comes from Randal Rudniski with CSFB. Please go ahead.

Thanks. Can you identify the components within Thomson's Learning that are, or the segments that are declining and what the portion of overall business that represents in terms of revenues? Thanks.

Well, I can tell you the areas that are declining. Bob can tell you the percentage [Inaudible]. First of all, our higher education is doing fine and we expect to have another good year. Our [Inaudible] financial, which is primarily higher education, is doing excellent again, high single digits. If you look at the lifelong learning sector our Korean side, which is Delmar [ph] and education director, doing fine, good growth rate.

Where we are getting hit is in, first of all, in net, in our corporate training development [Inaudible]. It comes down to prometric -- prometric in the IT sector had an excellent year last year and is being -- because the technology businesses have some that we do the test [Inaudible], had a number of specials at year end so it took a lot of first quarter/second quarter revenue and test and moved it to last year. And plus you have 600,000 technology people out of work. The other side of our electronic testing, you know, and that is down about 20 -- I think, was it 24% or something, that particular segment. Our government driver's license is doing well, our professional is doing fine. We have the CPA exam coming out in September. Testing and we've got a new area in corporate that we are just starting to launch and already have a few customers in that area.

The other area that is getting hit is our library reference area. Although the electronic resource side is doing fine, where we are getting hit is on the print side because of the library budget cuts. A lot of the what we'd call standing orders where people just continue to get updates of the previous year's products, that has slowed down as well as the revenues we would receive from other electronic vendors.

Our next question is from Tim Casey with BMO Nesbitt Burns. Please go ahead.

Thanks. I'm wondering if you could just talk about the agreement you came up with with Woodbridge on the drip? I guess from [Inaudible] purposes we should assume now that Woodbridge will receive cash dividends. And can you just talk about the discussion with Woodbridge, what factors made them change? Because, obviously they're not taking stock any more and my impression was that was a very efficient tax plan for them when the monetized the shares. Thank you.

Jim, obviously it would be inappropriate for me to comment on Woodbridge and their tax planning and whatever. The decision which was initiated by the corporation is simply that their reinvestment program was really initiated early on when we combined companies, the Thomson Corporation became a combination of the information business and the newspaper business and wanted to maintain appropriate levels of dividend payout.

With the strength of our cash flows as we have recorded over the past 18 months and the continuing expansion of our business, it became apparent that the corporation did not need to have this additional source of funding. And Woodbridge agreed to eliminate their participation [Inaudible]. And the real emphasis behind that is that it is dilutive to all shareholders, and we felt it we would put us on the right track and we will position ourselves for the long-term to really focus on providing dividends at a level that's appropriate for the corporation of our size and scale. So [Inaudible] motivated by the corporation totally based on our strength of our cash flows, and as usual our principle shareholder as acquiesced and supports what we think is right for the business overall.

Our next question is from Vince Valentini with TD Newcrest. Please go ahead.

Thanks, very much. I would like to enter a lot on the organic revenue. Let me try on EBITDA. I don't suppose you will have the same matrix for us, but can you characterize the FX boost to revenue? Would there be a similar boost to EBITDA or is it just offset primarily by cost and foreign currencies as well? And same on the acquisitions. A lot of times you will buy things and it will take some time to get integration benefits, so there's a revenue boost immediately but the margins lag a little. So I wonder if the EBITDA lift will be commensurate in acquisitions with the revenue lift?

In terms of foreign exchange, it really is [Inaudible] in terms of impact on EBITDA at all because you're also translating the expense [Inaudible] a very small impact. In terms of acquisitions, they represent about 1% of the overall EBITDA growth.

Our next question is from Peter Appert with Goldman Sachs. Please go ahead.

Good morning. Within Thomson Financial, can you break down the growth, or the decline I guess, between unit volume and pricing speaking generally on the trend in pricing that you're seeing and the pressure in pricing? And then any specific numbers you can offer us on Thomson ONE in terms of new customer additions and net new customer additions versus conversions from the prior product? Thanks.

In terms of the declines that we've seen in revenue are essentially -- it's hard to determine, separate what is price and what is volume. We know that the bulk of what we've seen is terms of declines is not we're losing contracts but we're losing seats. And that, I guess, we would classify as volume. It's been very little in terms of price erosion. In terms of conversions, I think the answer would be far too detailed for this form; but I'd suffice to say that we continue to move Legacy customers onto the new Thomas ONE platform and we do it at pricing points that are consistent with Thomson ONE. And in some cases that might be a price reduction. In most cases, though, it means just maintaining the existing price and providing a better quality and more efficient service.

Our next question is from Allister [Inaudible] with AB [Inaudible]. Please go ahead.

Good morning. I've just got a question on the Merrill Lynch contract and maybe just an update. I mean, as you get further into it, is there any change to your expectations? Is it tougher or easier than you thought or basically all on target?

The answer is simply it is all on target. I get a monthly report on it, I'm actually sitting in the meeting in September with the senior people in Merrill Lynch and I've had lunch with Stan O'Neill and Stan Fields and it is going excellent on both sides. So we are very pleased with the progress that we are making and it will be launched on time or very close to on time.

Great. Thank you.

Our next question is from Kevin Gruneich with Bear Stearns. Please go ahead.

Thanks very much. When you were discussing TLR, you talked about the timing of investments, it sounded like it was shifting to the back half of the year. I expected the EBITDA growth be a little bit lighter than you showed in Q2. Are you just signaling that you expect organic EBITDA growth be modest in the back half of the year?

No, Kevin, that was not my intention. What I mentioned in terms of investment has to do with the book plate which is inventories. I'm sorry, I apologize. Yes, I was with TLR I was sending a message that said we had some timing that benefited the first half and we shouldn't expect that same kind of growth in the second half.

Our next question is from Jeff Mayes with UBS Warburg. Please go ahead.

Yes, good morning. I've got a question on the legal side. You talked about flat underlying growth, but if you strip out dialog, could you comment on the U.S. legal market, specifically the kind of growth you're seeing and whether or not you are gaining or maintaining share [Inaudible].

The legal marketplace -- this is Dick Harrington. The legal marketplace, if I just take it from what we call North American legal which does not include our tax although our tax had a great -- the growth in legal for the second [Inaudible] so that's [Inaudible] was 7%. If I take our software sales and services, it's high singles, I think it's around 9% or so. But those two are offset by our decline in print CD, so for the quarter it turns out to be a net of about 7% and on a year to date basis it's a net of about 6%. But that, again, it's including Westlaw offset by print with the software sales and services for the front and back office, software and as well as Finelaw.

Our next question is from Mark Braley with Cazenove Global Equities. Please go ahead.

Yeah, another question on legal, if I can. You referred to this sort of continued technical pressure you're seeing in areas like trademarks and also, I guess, the decline in the prints and the CD-ROM revenues is a structural trend that's sort of accelerated by technical issues. I mean, presumably we should expect something like trademarks to be one of the first areas to turn. Is there any sign the year on year declines in trademarks are declining? Is there any fort of light at the end of the tunnel in those early cycle areas?

What's happened is that first of all, decline for us in the U.S. because we have both the U.S. and Europe, so it's declined first in the U.S. over the last couple of years and that decline has slowed a little bit. But what's happened now is Europe has all of a sudden this year seen the same type of decline that we saw in the U.S. a couple years ago. But the U.S. has flattened out which is a good sign. And you're right. Actually, years and years and years and years ago I used to run our trademark business and I would say that basically we will see an indication there of an uptick in the economy when people start to invest in more products and services as in the end result being more trademark.

And our last question will be a follow-up from Lauren Fine of Merrill Lynch.

Thank you. Just a couple of quick ones. On dialogue, giving the kind of declines that you've suffered there, could you give us sort of what's the run rate annual revenue [Inaudible] from that business? And then I'm going to a Scientific & Healthcare presentation. Just on healthcare, could you give us the percent of electronic and the percent of international there since [Inaudible] it for scientific?

Yes, first of all just on the dialogue, to be honest, although it's on year to year it's down but it's really been actually relatively flat for the past seven months so it's actually on our plan, internal plan. So we're talking about dialogue. It's just hitting the year over year segment. So that has leveled off over the last seven months. The run rate, my guess is -- I don't have that off the top of my head right now, Lauren, so I'll have to get back to you on that. And as far as healthcare electronics --

Healthcare electronics is a combined group, is less than 50%, Lauren. And I'm sorry on the international part of healthcare, it's 13%.

And that does conclude our Q&A session for today. I'd like to turn the conference over to you, Mr. Kechejian.

Thank you very much. That concludes our formal remarks in the Q&A. I'd like to thank all of you out there for your participation and look forward to any additional questions you may have. Thank you.

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