Thomson Reuters Corp (TRI) 2004 Q2 法說會逐字稿

Ladies and gentlemen, thank you very much for standing by. Good morning, good afternoon, good evening and welcome to the Thomson second-quarter results conference call. At this point, all of your phone lines are muted or in a listen-only mode. However, later during the conference, there will be opportunities for questions, and those instructions will be given at that time. (OPERATOR INSTRUCTIONS). As a reminder, today's call is being recorded for replay purposes, and that information will be announced at the conclusion of our results.

Well, with that being said, let's get right to today's agenda. Here with our opening remarks is Vice President of Investor Relations for Thomson Corporation, Mr. Frank Golden. Please go ahead, sir.

Thanks very much, and good morning. I'd like to welcome you to the Thomson Corporation second-quarter 2004 earnings call. Those of you listening should have a copy of today's earnings release and a set of slides that we will be speaking to. If you do not have a copy, you may obtain one from our website at www.Thomson.com.

Let me begin by introducing myself. I'm the new Vice President of Investor Relations for the Thomson Corporation, having replaced John Kechejian, who retired earlier this year. Prior to joining Thomson, I was the IRO at Cablevision Systems Corporation. I do look forward to working with those of you on today's call, and with the great management team here at Thomson.

We will begin this morning's call with our CEO, Dick Harrington, providing an overview of the second quarter's results. Dick will also discuss the highlights for each market group, update you on M&A activity, and will discuss our outlook for the balance of the year. Dick will then be followed by our CFO, Bob Daleo, who will discuss the financial results for Thomson in each of the market groups. Bob will also provide an update on the Company's financial metrics, and will conclude with some comments on our outlook for the second half of this year. Following Dick and Bob's remarks, we will open the call for questions. We do ask that you limit yourself to one question each, in order to enable us to take as many questions as possible during the call.

Let me point out, before we begin, that Thomson Media's results have been moved from corporate and other to earnings from discontinued operations. The 2003 results have been reclassified to reflect this change. You'll recall that Thomson Media properties were placed for sale during the second quarter.

Finally, Thomson and Information Holdings, Inc. have signed a definitive merger agreement under which Thomson will acquire IHI. The transaction is expected to close later this year, and is subject to approval by IHI stockholders and regulatory authorities. We will not be taking questions related to the proposed transaction during this call.

Before we begin, let me mention 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, due to a number of risks and uncertainties discussed in documents that we provide to the regulatory agencies. This presentation also contains disclosures of certain non-GAAP financial measures. As required by regulatory rules, we have provided a reconciliation of each of these measures to the most directly comparable GAAP measure in the investor relations section of our website found at www.Thomson.com.

And now, I would like to introduce the Company's President and CEO, Dick Harrington.

Good morning, and thank you for joining us. I am pleased to report another quarter of strong top-line growth. Revenues increased in all our market groups, driven by the success of our online products, software and services. Revenue growth came largely from core operations, as we have been successfully implementing our strategy of combining content with software tools and services to deliver integrated solutions that help our customers increase their productivity. We are also getting a tailwind in some markets that had experienced cyclical weakness last year and the year before. In particular, there has been improvement in some of the Thomson Learning's markets and in the financial services market in the United States, and we are seeing some signs of improvement in the European financial markets now, too.

During the first half of this year, we stepped up the level of acquisitions, as we continued to reframe our markets and expand the information solutions we offer. I'll say more about that in a few minutes. And, as our press release indicated, we feel good about the rest of the year. We now anticipate full-year revenue growth in the 7 to 9 percent range, excluding the impact of foreign currency, and this is in line with our long-term revenue targets.

Bob Daleo will discuss the second-quarter numbers in some detail, but here are the highlights. Sales were up 9 percent, or 7 percent in constant currencies. The largest contributor was scored growth at 4 percent, the strongest core growth we have seen in some time. As you know, we have been anticipating improvements in some of our markets. In recent months, those markets have started to turn around. Operating profit grew 24 percent in the second quarter and, after excluding discontinued operations and onetime items, our adjusted earnings were up 52 percent year-to-year.

All our market groups contributed strong sales and adjusted EBITDA growth. This is the first time in over two years that all market groups had core revenue growth. Once again, Thomson Legal & Regulatory, our largest market group, had very strong revenue and adjusted operating profit growth. The story there continues to be about growth in online products, software and services. Our strategy is to provide a full suite of information solutions to help law firms and, increasingly, accounting firms manage their businesses and be more productive. Demand is strong for WestLaw, Elite and FindLaw, which integrate services across the workflow of law firms. Also, demand is growing for Checkpoint, our online tax solution.

Print sales also rose slightly in the first half of this year. We still expect print to be down for the full year. Print revenues will continue to decline, as we transition from print to online products and services. In addition, we're also shifting toward less seasonality in our print revenues. Historically, sales were heavily skewed toward the second half. We have been shifting some print shipments from the fourth quarter to the first half. Less seasonality means greater efficiency for our manufacturing and distribution operations. This year, Legal & Regulatory estimates that about 45 percent of its print revenues occurred in the first half. This represents a significant increase over the past several years.

At Thomson Learning, we saw revenue increases in all major segments. The growth was broad-based. We are excited about the growth in our international higher education business. For example, in China, demand is growing fast for our English language training product, and we have begun to establish a presence in that market. This was the second quarter in a row of solid growth in the library reference market. While it's still early, there are signs that this market has turned the corner, and demand is growing again, particularly for online products. By contrast, demand in the corporate IT training market remains soft. Our businesses in this market are growing, but not at the rate that they were when corporate demand for IT training was more robust.

At Thomson Learning, we are evolving towards more digital solutions in both the higher education and adult learning markets, at a pace that matches the evolution of those markets. The higher education market remains textbook-based and, I might add, seasonal. However, we have a number of initiatives under way to supplement print products with online learning tools. For example, this year we launched Thomson Learning Labs. One of its initiatives is a partnership among Thomson, Microsoft and the University of Virginia that will begin this fall, with a pilot program of new online course materials and tools designed to meet the needs of educators and students.

Thomson Financial had double-digit revenue growth in the second quarter, largely on the strength of recent acquisitions. Importantly, however, we experienced core growth in Thomson Financial for the first time since the fourth quarter of 2001. As you know, over the past several years, Thomson Financial has combined over 70 products and technology platforms into a single scalable Thomson ONE platform. Thomson ONE uses open technology, and can be tailored to meet the needs of different customer segments very cost-effectively. Thomson ONE continues to gain traction in the market, with a 13 percent increase in workstation for the quarter compared to March 2004, and a 30 percent increase since year end 2003, due to user migration and new client wins. We are very pleased with the success of the Thomson ONE rollout at Wachovia, where 70 percent of the workstations are now deployed. I am also pleased to mention that the Merrill Lynch Wealth Management workstation deployment has begun, and we expect the majority of branches to be deployed by year end.

Thomson Scientific & Healthcare had healthy growth across its businesses, as well. Like our other market groups, Thomson Scientific is also developing integrated solutions for its customers. Increasingly, we deliver critical content and decision-making tools to our customers where they need it most, at the point of use, whether it's a doctor at the patient's bedside or a scientist doing research at her desktop computer. Scientific & Healthcare has a largely online subscription-based business model. Two-thirds of the revenue comes from electronic products and services. Our subscription products like Web of Science have extremely high renewal rates. We are very bullish on this market group, and plan to double its size over the next five to seven years through core growth and acquisitions. To that end, we recently announced the acquisition of IHI. I'll talk more about that shortly.

To sum up, second-quarter revenues and profit growth were strong across our businesses, and all our market groups are successfully implementing their strategies.

There was a significant amount of acquisition activity during the first half of the year. We have completed or announced transactions totaling about 1.2 billion. These are targeted acquisitions that enable us to round out our information solutions and more fully meet our customers' workflow needs.

Let me provide some historical context on our acquisition strategy. In 2000 and 2001, we made some very large foundational acquisitions to build scale in Thomson Financial and Thomson Learning. Purchasing Primark helped us to lay the foundation to become a leading player in the financial services market and eventually develop Thomson ONE. And the Harcourt assets we acquired gave us vertical mass in higher education. During the next two years, 2002 and 2003, we made some important tactical acquisitions, but primarily we focused on integrating the acquisitions we had already made.

Our recent acquisitions are the result of our front-end customer strategy. Instead of thinking of the ourselves as a content company, we are thinking of ourselves as a workflow solutions company; and, as we learn more about our customers' workflows, we identify new and larger opportunities to provide integrated solutions. Some can be met through internal developments like Thomson ONE or West km, but others required new capabilities or platform.

TradeWeb is a good example. Thomson Financial had been providing analytics for the pre-trade and post-trade phases of the workflow in the fixed-income market. We do not participate in trade execution, which is at the center of the workflow. Since acquiring TradeWeb, we can now meet customers' workflow needs across the board, embedding our products and services into their daily activities, using TradeWeb as a platform for our solutions offering in the fixed-income market.

To take another example, BIOSIS will be an essential component for Thomson Pharma, an integrated suite of products and services that will enable Thomson Scientific & Healthcare to penetrate the pharmaceutical research much more deeply. And IHI, which we expect to close later in the year, will help us further build out the Thomson Pharma solution, providing significant scale to our Scientific offerings and real benefit to our customers.

All of our first-half acquisitions are linked directly to our front-end customer strategy, and so far, the acquisitions are meeting or exceeding our performance expectations. At this point, we have a couple of smaller tactical acquisitions in the pipeline, but none approaching the size of TradeWeb or IHI.

All in all, we feel very good about 2004. We expect our operations to continue to perform well, and we anticipate further improvements in some of our markets. We feel confident that 2004 will be a year of solid financial results and strategic progress for Thomson. We have increased our revenue outlook for the year. We now expect growth in the range of 7 to 9 percent in constant currencies, versus our previous outlook for mid-single-digit growth, based mainly on a larger contribution from recent acquisitions.

However, the biggest contribution to revenue growth for the full year is expected to come from our core operations. Our front-end customer strategy and focus on integrated solutions should continue to drive core growth across all market groups. As we said last quarter, we expect adjusted EBITDA margins to be slightly ahead of last year. We anticipate further improvements in operating efficiencies over the balance of the year, but as we have indicated before, these improvements will be offset by higher expense items like pension costs and some tougher comparisons over the second half of the year. Bob Daleo will tell you more about that in a minute.

Importantly, we look for 2004 to be another year of strong free cash flow. We feel positive about the evolution of Thomson, and we believe our strategies position us well to grow profitably and to deliver attractive returns to our shareholders.

Now, I'll turn the call over to Bob Daleo for details on the quarter, then we'll open it up for questions.

Thank you, Dick. Good morning, everyone. I'd like to start by referring to slide 14 -- what we think some of the key takeaways are for this quarter's performance.

Continued strong revenue and EBITDA growth, led by our good core growth across all four market groups, as Dick had noted. This has been supplemented by some important acquisitions in good markets, and will continue to drive growth for us. And we also had, as we've noted, contributions from our currency translation. We continue to see strong free cash flow, both in the quarter and our expectation for the year, but we point out that first-half growth does include some timing benefits.

And before I discuss the consolidated results, I want to talk a little about the timing. I want to point out to you that, as many of you know, Thomson's business model has been evolving over the past several years. A greater percentage of the Company's full-year earnings are being generated in the first half of the year. This trend is primarily a result of two factors. First, more revenue is now being generated electronically, which is less seasonal in nature. Traditional (ph) book publishing, which historically generated the majority of its revenue earnings in the second half of the year, is becoming a lesser percentage of the Company's revenue base. And second, the publishing business in which we continue to operate, particularly at TLR, are seeing a shift of more revenues into the first half of the year, as Dick explained earlier.

The impact of these trends is clearly demonstrated by the fact that in 2002, 5 percent of the Company's adjusted earnings were generated in the first half of the year. In 2003, 11 percent of adjusted earnings were generated in the first half of the year and, based on the results for the first six months of this year, we expect this trend will continue in 2004.

Now, let me turn to the consolidated quarter. Revenue growth for the quarter is very strong, up 9 percent, and EBITDA increased 13 percent. These results reflect core growth, revenue growth in excess of 4 percent, contributions from acquired businesses of around 3 percent, with the balance coming from favorable currency translation.

Legal & Regulatory and Learning were the primary contributors to strong second-quarter revenue growth, and I am particularly pleased to report that Thomson Financial, as Dick said, achieved core growth for the second quarter for the first time in 2.5 years. Each of the market groups achieved double-digit EBITDA growth in the quarter. The increase in EBITDA and EBITDA margins reflect the strong revenue growth and continued efficiencies across the Company.

Let me also point out that the adjusted EBITDA for the quarter includes $14 million, resulting from insurance recoveries related to September 11. These are in the financial segment. We also benefited from a $7 million favorable adjustment related to accrued expenses for health insurance claims. Now, last year, we recorded a similar credit of about $5 million, but this occurred in the second half of the year.

Now, I will speak to the market groups, starting with Legal & Regulatory. In this segment, revenues increased 8 percent and adjusted EBITDA increased 11 percent in the quarter. Core revenue growth was 6 percent. Revenue growth is attributable to online revenue growth of over 10 percent over the prior period, when we exclude the business news and information group. The strong revenue growth reflects an 8 percent increase in North American WestLaw revenues, resulting from growth in all major North American markets. Additionally, international online revenue rose 22 percent, due to strong growth in Europe and the Asia-Pacific regions. Continued strong growth from Checkpoint online software products, where this segment grew in excess of 20 percent. And we had solid growth from our software services, which rose 24 percent in the quarter, and we saw continued momentum at FindLaw. And the acquisition of Elite, which occurred in the second quarter of 2003, contributed a little to that year-to-year improvement. We also saw improved activity in trademark searches, and the contribution of foreign exchange accounted for about 1 percent.

As Dick noted, print revenue, which has been and is expected to climb for the full year, saw a slight increase due to timing in the first half. Overall EBITDA rose 11 percent, reflecting the flow-through of higher online revenues and continued productivity and efficiency in the business. The EBITDA growth in the second quarter is partly attributable to timing of costs and investments occurred within the year, and is not indicative of full-year expected growth.

In Learning, revenues increased 8 percent and EBITDA rose 11 percent. Core revenues for the second quarter grew 4 percent. The strong revenue and EBITDA growth was attributed to academic revenues, which increased 9 percent in the second quarter, reflecting good growth in higher education of 8 percent, excluding foreign exchange. And this was anchored by good performance in our English language training series outside of North America.

Library reference revenues rebounded in the quarter, up 6 percent, due to electronic product offerings and improved state funding environments. Lifelong Learning revenues in the second quarter rose 7 percent, with strength in vocational training, particularly in healthcare and professional business unit sales, strength in e-testing, due to launch of the CPA exam, coupled with improvement in the government and professional segments.

EBITDA margins improved slightly in the second quarter, and reflect efficiencies realized through some restructuring efforts of a year ago. Now, Thomson Learning's second-quarter and six-month results, as you all should know, are not indicative of its anticipated full year, due to the seasonal nature of the academic business, in which most of the revenues and profits are realized in the second half of the year.

Moving onto Thomson Financial, for the second quarter, both revenues and EBITDA rose by double digits. Importantly, as we have mentioned, core revenue for TF rose for the first time in 2.5 years by 0.5 points. The increase in revenues primarily resulted from contributions of recently acquired businesses including CCBN, Starquote and TradeWeb. We are very pleased with the progress we have made thus far with each of the acquired companies, which are performing above our expectations.

Revenues from existing businesses in the United States increased for the quarter, due to higher usage in transaction revenues, as well as lower cancellations. I am also pleased to report that European revenues were up for the quarter in constant currencies. Now, this has been driven in part by acquisitions. Overall European revenues were down slightly, but we have begun to see conditions improve in Europe, as they had earlier with the United States.

The second-quarter EBITDA of $111 million includes a $14 million insurance recovery, as I've noted. And we have used these funds to help us fund investments in our online news services and data centers costs. The second-quarter EBITDA margin was essentially unchanged from the prior period, and rose slightly from the first quarter.

Finally, with Scientific & Healthcare, revenues grew 10 percent. EBITDA was up 17 percent. Core revenue growth was 4 percent, and this was attributable to growth, higher subscription revenues from the Web of Science and Web of Knowledge and MICROMEDEX electronic products, and some timing of certain healthcare print products which were moved from the first quarter to the second quarter. We also saw increased customer spending in our decision support services.

Contributions from acquired companies, primarily related to BIOSIS, a provider of databases and services for life sciences research that was acquired early in the first quarter of this year, and is now an important component of our developing T Pharma (ph) currency also contributed to the performance of the business. The second-quarter EBITDA margin increased to 27 percent, due to this flow-through of higher revenues.

As Frank previously mentioned, Thomson Media's results are now included in discontinued operations, since we announced last quarter that we are seeking buyers for this business. For the second quarter, corporate expenses were $19 million, as compared to $24 million in the prior period, and for the first half cost -- expenses were 32 million. The first-half corporate expenses are not viewed as indicative of what the what full-year corporate expenses should be like. Let me point out that, similar to last year, we anticipate approximately 60 percent of full-year corporate costs will occur in the second half of the year, including the higher pension costs which we've talked about previously. Benefits in the second quarter also included the $7 million adjustment related to insurance costs which I mentioned occurred last year in the second half.

Now, moving onto our valuation metrics, you know we continue to focus on our long-term objectives of driving growth, expanding margins, driving free cash flow and improving returns. Overall, performance continues to show strengthening of the business, as evidenced in these metrics.

The next slide, our key revenue metrics, identifies the important ones. Growth at constant currency, as I said, for the quarter was 7 percent versus being flat a year ago in the same quarter. And you can see the revenue breakdowns for electronic, recurring and international revenues are comparable to those achieved a year ago.

On adjusted EBITDA margin, this slide reflects the continued upward trend in the EBITDA margin on a rolling 12-month basis. It certainly speaks to the efficiency and fixed-cost nature of our business, and the progress we continue to make on our leveraging in all overall business efficient initiatives (ph). We continue to realize margin expansion, but let me point out that the margin is slightly inflated, based on some of the timing benefits I've noted earlier.

In capital expenditures, as you can see, we have made good progress in the last five years. And non-bookplate-related capital on a rolling 12-month basis was 6.6 percent, whereas total capital expenditures were about 8 percent of revenue. We do continue to expect overall CapEx to be closer to the 6 to 7 percent range over time.

Now, the slight increase in our 12-month average for the second quarter is primarily due to spending on technology initiatives. Notably, we are spending on data center consolidation and enhancement projects, both in West and Thomson Financial. We are also investing in the continued development of the Novus platform, which is not only a base for our legal group but is also being used across our businesses. And TF continues to invest in its Thomson ONE product development. I'd note that all of these investments are aimed at driving our top line.

Free cash flow for the second quarter was $174 million, and it was up 11 percent compared to the first quarter's $157 million, but was flat compared to the prior year. The flat free cash flow, as compared to last year, was primarily due to unfavorable timing of accounts receivable collections and payments for normal operating expenses and higher capital expenditures. This variability in the quarters caused us to focus more on the full year. An example of variability is that in the quarter, we recorded a $22 million accounts receivable related to a SkillSoft payment. That was set up as an AR, which deducted from our cash flow. Well, we received the payment this week, so it will be in the Q3 cash flows. So what's more important -- if you focus on the six-month, our free cash flow of $331 million is a 55 percent increase over the prior six months.

As Dick noted, during the second quarter we closed on our acquisition of TradeWeb and Starquote. We also continued to make targeted acquisitions such as IHI, which was announced last month and is expected to close later this year. These acquisitions can and are being seamlessly integrated into our existing businesses, enabling us to drive top line while also achieving attractive returns.

In terms of earnings, our earnings attributable to common shares for the quarter rose sharply, based on strong revenue growth and higher operating profit. The second-quarter earning results also benefited from a change in the allocation of expected full-year income tax expense among interim periods in 2004. We reported on this for the first time last quarter, but that change in allocation results in the interim effective tax rate is certainly not indicative of our estimated full-year rate. We also benefited, as noted, from the recognition of the second installment of the SkillSoft settlement for $22 million and, as I noted, we received payment this week. There was no significant impact on earnings for either quarter or either year to date, related to either acquisitions or dispositions.

Let me mention that we do not expect to achieve the same level of year-over-year earnings growth in the second half, due largely to higher depreciation expense, a higher effective tax rate favorable timing of corporate expenses. I'll talk more about that in this next slide on our second-quarter visibility. And we would like to update you on some of these metrics. Given the solid revenue growth in the first half of the year from core operations and acquisitions, we are raising our outlook for revenue growth from mid single digits to between 7 to 9 percent in constant currencies. The EBITDA margin should continue to improve throughout the balance of the year, although not to the same extent that we have experienced in the first half.

Depreciation is expected to accelerate in the second half of the year, due to higher capital expenditures in the latter half of 2003 and in 2004. We expect overall depreciation to increase about 10 percent year over year.

We are also raising our previous estimate for the full-year 2004 effective income tax rate from the range of 25 to 26 percent to between 27 and 28 percent. And this is substantially above the rate we reported for the full year of 2003, which was 22.3 percent.

I might remind you that last year at this time, we had recorded a tax rate of approximately 26 percent. Tax credits in the fourth quarter resulted in an effective tax rate for the full year, as I've noted, of 22.3 percent. In fact, that fourth-quarter rate in 2003 saw an effective tax rate of 19.5 percent, which makes it a very challenging comparison for us this year.

I'd like to wrap up with the key takeaways again. In conclusion, I want to say that we are very pleased with the progress we have made so far this year. We achieved good underlying performance across each of our market groups, and have begun to see the anticipated recovery in many of our segments. We expect to generate strong free cash flow over the balance of this year. Now, timing benefits of the first half and other factors will make second-half comparison challenging. However, we look forward to continuing to make solid progress and good performance over the balance of the year.

That concludes our formal remarks, and now I will turn it back over to Frank.

Thanks very much, Bob. Okay. That, as Bob mentioned, concludes our formal remarks, and we would now like to open the lines for questions.

(OPERATOR INSTRUCTIONS). Andrew Mitchell, Scotia Capital.

Just, since I've got one here you are only giving me, on the financial side, can you just comment -- Reuters was keen to allude yesterday to competitive wins versus Thomson. It seemed particularly in respect to CIBC. So can you just give us a sense of whether that reflects the whole story this quarter, and how you are doing on competitive contract wins?

On the Scotia one, as you know, we just acquired Starquote up there, but we only closed on it within the last 30 days. And actually, when we did that, we anticipated at the time that there might be -- as part of our acquisition, we anticipated that there might be a customer lost along the way. I think, as far as -- so Reuters did win that account, I guess, from the old Starquote management. All said and done, though, I think if you look at the wins going forward, you can just look at their results versus our results. As you know, we have a much broader product line than they do, and we are trying to be more targeted than they are with our products and services, and we are very pleased with our progress to date.

So you continue to feel you've got good momentum versus Reuters on the competition head-to-head where you are at?

That's correct. First of all, we are always going to win some, lose some; I mean it's just a fact of life. We are not going to win them all, but we are very satisfied with where we are positioned and how we are driving the business forward.

Just one follow-up, if I may, just on the metrics side of it. Our Thomson ONE workstations today are 30 percent higher than they were at the beginning of the year, and our legacy stations have not seen any decline. So if they're winning contracts, they are not winning them from us.

Vince Valentini, TD Newcrest.

You mentioned 45 percent of the print revenues for Legal were in the first half, which is much above normal. Can you give us any sense of what normal would have been in past years?

Well, yes. I think it's what it's (ph) -- we've been moving about 2 to 3 percent a year over the last five years, Vince, going forward. So last year it was -- it's 45; it was probably about 42 percent last year. But we've got a double whammy there, just to let you know. What gets confusing is, as we move from print to electronic, when you ship a print sale or when you ship a print product, you take the revenue. When you go to electronic, you divide it by 12 and you take one-twelfth each month. So that impacts the seasonality, moving it up, as well as now moving the print products, changing the distribution of print products.

Douglas Arthur, Morgan Stanley.

Hi. It's Lisa Monaco for Doug. Can you just flesh out a little bit more your increase in expectations for revenue growth this year? You mentioned acquisitions. And also, if you could just provide some color on how the acquisitions in Financial -- CCBN, Starquote and TradeWeb -- how they performed in the quarter on an underlying basis?

Yes. I think, as we look forward, and we look at our -- we obviously have -- we are running at about a year-to-date roughly 6 percent growth, I think, 7 percent for the quarter without foreign exchange. And we have other acquisitions that are being closed -- IHI, et cetera -- which gives us comfort that we will be within that 7 to 9 percent range, plus the momentum we are getting in the core business.

As far as -- CCBN is fully integrated in the business, and we are extremely happy, and it's exceeding our expectations. And TradeWeb is slightly different; we are taking our fixed-income analytics and basically merging it in with TradeWeb. And TradeWeb, which had aggressive board paper targets, is achieving beyond our board paper targets to date. And Starquote we really just closed within the past, I think, 30 days or so. So that's relatively new.

Karl Choi, Merrill Lynch.

In the Financial segment, you mentioned that you took advantage of the timing of the insurance settlement to do some technology and product investments in the quarter. Should we expect -- could you quantify the amount of investments, and should we as a result expect margin to perhaps pick back up again in the second half?

In the second quarter, the investments that we have made on an annual basis, while on an annual basis they would approximate what we've gotten, in terms of some of the refunds, certainly not in the quarter. In the quarter, there is some of the margin improved by the World Trade Center refund that we got, our insurance payment.

And I think that where we are right now in Thomson Financial is that this business over the past three years, while revenue has declined, has seen significant margin expansion. We've become extremely efficient. What will drive further margin expansion is revenue growth. We can't become any more efficient; we are already, I think, at peak efficiency. So as the business continues to expand organically, the margins will improve.

Megan Anderson, RBC Capital Markets.

Could you please characterize the pricing dynamics in the Financial division right now?

I'll start with that, and if Dick wants to add, he certainly can. Generally speaking, as the market -- first of all, I think that, as I've already said, very highly efficient operation already. Thomson Financial enjoys a position in the marketplace that others don't have, which is that we are able to price at a level that is very attractive to our customers, delivering real value and delivering real return to us. So, while there may be some instances where there is some irrational pricing, it's not on the part of Thomson Financial. We are able to price as we had in the past, and deliver good returns and good profitability. I think, overall, the market has strengthened. And so some of the pricing pressures that we've seen in the past are not quite as dramatic. But I think that to say that they've gone away in this market or in any market would be foolhardy.

I would just add I think if you look at the loss that Starquote had in Canada, I would describe that as it was at a price that was not acceptable to us. So there is some of that; it was early on, and that was an old system. We usually don't find that with our Thomson ONE products and services, because the value of the Thomson ONE products and services to the productivity and performance of the individuals using them, especially in the retail wealth management segment; we usually do extremely well, as we have with Wachovia and Merrill and other businesses. But there is some price sensitivity as you move to other markets with the wealth management, a la (ph) Canada, et cetera. But our goal in Canada was to get a position, number one; and, number two was to basically move in our Thomson ONE product as the underlying platform for the content and information and analytics that they are using there. I think, once that's done, we will be in a much more competitive position.

Peter Salkowski, Goldman Sachs.

On the Financial segment, if you could talk about the Thomson ONE workstations, how many are currently installed? And of the 30 percent year-to-date increase you speak of in the release, what percentage is from the legacy product migration? And then what in terms of new client wins?

To date, we would count about 188,000 total workstations, of which about 68,000 of those are Thomson ONE. A significant portion of those are from conversions, but a number of them are also new. Overall, our workstations have increased. From December, at the end of December to June, our overall workstations increased from 167,000 to 188,000. That was driven by Thomson ONE. Legacy workstations actually declined a bit, but there were picked up by a Thomson ONE workstation increase of 51,000 to 68,000 during that period. And so part of that increase was a result of actual new; part of it was a transition.

And I might add that when we move from legacy to Thomson ONE, there is an uplift in revenue, average revenue per workstation, where we see greater value.

Can you quantify that at all?

I don't have this in front of me, and I wouldn't want to give out a wrong number. But it can be as much as 10 to 15 percent per terminal.

Jeffrey Fan, UBS.

Just one question regarding CCBN, TradeWeb and, I guess, pending IHI. I guess, in the past, when you have done some of these acquisitions, your costs coming from integration tends to rise a little bit, and some of these costs get capitalized and it shows up on your cash flow statement. It sounds like the integration of these for CCBN and TradeWeb, are complete. So is it safe to say that we should not see any impact on your cash flow as a result of these integration efforts going forward?

A couple of things. First, the answer to that is yes, they are -- certainly, CCBN is largely complete. A number of items that we used to capitalize we now actually expense, take through the P&L. And so they are in our cash flow; they just haven't been capitalized. So the answer is you wouldn't see a larger tail. I think that, especially in something like TradeWeb, where there isn't the same kind of integration because, in fact, as Dick mentioned, we are using TradeWeb as the platform for Thomson ONE, so we don't have the same kind of integration benefits. There, the real opportunity is really in driving the top line, and that's what motivated us in making that acquisition. In IHI, it's just too soon to comment on.

Randall Rudniski, Credit Suisse First Boston.

I just wanted to clarify, first of all, the comment regarding the insurance payment in Financial -- that added 14 million to EBITDA in the quarter; is that correct?

Yes, it did, $14 million, and it's recorded in the Thomson Financial segment.

So then, excluding that item, it looks like there was a pretty big decline in margin in Financial on a year-over-year basis in the quarter.

Well, there was, but first of all, it's an individual quarter, and so we don't really focus on that, the timing. Secondly, as I said, we've had investments in a datacenter consolidation, which affected the P&L. And we've also made investments in our news service.

So this kind of margin decline is not expected to recur?

It is not. And we've also had expenses -- part of the comment to Randall's question about acquisitions, we had integration costs for CCBN, which were taken to the P&L.

Michael Meltz, Bear Stearns.

One clarification, and then a question. Can you tell us what Thomson Media's EBITDA and EPS contribution were in '03? And then, can you talk about trends at Dialog?

Can I have some clarification? In '03, as of the second half or for the full year?

Full year.

We'll take a minute to get back to you. If I don't have that information in front of me, which I don't right now, we'll post that to the website.

I'll take the Dialog question, Michael. Dialog is still trending down a little bit; we had some kind of mid-single-digit decline. However, we basically plan a -- move Dialog over, in the process of moving Dialog over to our platform at Thomson Legal & Regulatory. We've moved the business news and information over to the Novus platform, which gives us a lot more capabilities to be a lot more competitive, and eventually we'll move the Scientific platform over there. The real impact is really in the business news and information, a highly competitive market between ourselves, Nexus and Factiva, as well as the web. And in the Scientific side, those products are doing fine.

Are you seeing more pricing pressure over at Dialog?

On the business news and information side.

Yes.

Yes, on the business news and information side, not necessarily on the Scientific & Healthcare side. But you know, Dialog for us -- remember, we have a lot of databases up on Dialog. So from our point of view, it was important to basically -- for us to own Dialog, to protect the royalties we had in our own databases, which we have been able to do, and we are very pleased with that.

And just to respond, I am told that all of the adjustments with highlighting the impact of Thomson Media are on our website, available. Just to let you know that the full-year EBITDA for 2003 for Thomson Media was $25 million. And it was approximately equated to about 2 cents a share.

Mark Braley, Deutsche Bank.

It's just a definitional question. Your definition of core growth -- does that exclude all acquisitions, no matter how small, or is there a de minimus sort of definition of work?

It probably would include very small acquisitions, those that have a cost of less than $5 million. They don't represent a significant amount of revenue.

Sami Kassab, BNP Paribas.

Could you just comment on the change in the competitive landscape you may expect from the introduction of royalty-based copies (ph) products in your abstracting business, and maybe tell us why we should think you can maintain your market share, given the rollout of this product there please (ph)?

Well first of all, there really hasn't -- I think, if I recall, if I'm correct, it hasn't been launched yet; it's in beta testing or alpha testing, but the product hasn't been officially launched, not that I'm aware of, number one. Number two, it's a slightly different product; it's a different product, our product -- it's a very narrow product at this particular point in time, focused on a specific segment. Our products are multidimensional, which goes after a number of segments. So for the academics (ph), these products are really geared to the academics and government marketplace. So, as you are looking for that, for the academic and government marketplace, right now, our product is a broader product; it goes back much further. It has 45 years of information. The scope is (ph), I think, is going back five; that's not to say they won't go back further, but right now, it's too early to tell what the dynamics will be going forward, but we obviously continue to upgrade all our products and services. And we upgrade the Web of Science, and we would expect that our Web of Science will continue to have competitive advantages.

Tim Casey, Nesbitt Burns.

I was just wondering if you could expand on your comments with respect to the outlook for Thomson Financial. Reuters talked about they were seeing some different growth rates on the continent and in Europe, and implied they were seeing what they characterized as a slowdown in the recovery in North America. Recognizing that your businesses don't overlap, in many cases, could you give us some insight into what TF management is seeing across those geographies?

Tim, obviously, because we don't line up perfectly with them, I would turned around and say that we look at it slightly different. If you look at our positions, we are heavily into the corporate market, with both inbound and outbound services. So they have some terminals in those businesses, but basically different products and services than we have.

In the investment management side, we've got some more unique content databases that goes in there, as well as investment banking. And the reverse is true -- in the institutional side, on the trading floors, we basically really serve that marketplace with, I would say, content-related products. We are not necessarily in there with the heavy-duty middleware, et cetera, which they are. So as long as that market is not growing, then they are going to be impacted by that particular market. The markets we are in are all -- we see all of them growing not necessarily at the historical rates, but moving in the right direction. And then, obviously, being able to -- with the TradeWeb, and being able to have a stronger position in the fixed income, which is a good, solid market, we see the US growing in most of the markets we are in, we see -- should continue to grow and build momentum over the next couple of years.

Sieran McCauseland (ph), Lehman Brothers International.

I wonder could you give me an average revenue figure for the Thomson ONE and legacy key (ph) stations? And just a follow-up on the core financial growth of 0.5 (ph) percent, could you confirm that at constant currencies?

That is at constant currencies, yes, with foreign exchange.

And on the average revenue per access for Thomson ONE and the legacy key station?

We don't look -- these are specialty workstations that are basically tailored to a specific thing (ph). So we look at them from an individual customer set and subsegment. We don't look at them broad-based, because it's a useless number. We don't have a Reuters (ph) 3,000 -- these terminals, if you recall, the Thomson ONE platform is similar to kind of a Microsoft Office; it has a number of different modules that basically either work separately or work together, and it's a function of what market we attack and what modules we put together. So we don't look at it on an average basis; we look at by segment/subsegment.

And with that, Mr. Harrington, Mr. Daleo and our host panel, I will turn the call back to you.

Thanks very much. We would like to thank you for joining our call this morning. And I want to remind you that this call will be available on a replay basis on the Thomson investor relations website through August 4th. Thanks again for joining us.

And ladies and gentlemen, your host is making today's conference available for digitized replay for one week. It starts at 2 PM Eastern Daylight Time, July 28th, all the way through 11:59 PM August the 4th. To access AT&T's executive replay service, please dial 800-475-6701. At the voice prompt, enter today's conference ID of 738284. Internationally, please dial 320-365-3844, again with the conference ID of 738284. And that does conclude our results for the second quarter of 2004. Thank you very much for your participation, as well as for using AT&T's executive teleconference service. You may now disconnect.