The Thomson Corporation Annual Report 2007 2 To Our Shareholders 64 Financial Statements and Notes 6 I am 110 Board of Directors 18 Thomson 2007 Financial Highlights 112 Senior Management 24 Management’s Discussion and Analysis 113 Corporate Information We are like you. At Thomson, our success depends on being trusted, on staying ahead, on having the answers others need in order to succeed. We are certain we have what it takes, because we have put the right model at the center of our design. You, the professional. The Thomson Corporation is a leading provider of critical information, decision support tools and related services to professionals in the legal, financial, tax and accounting, scientific and healthcare sectors. Thomson integrates its unique proprietary databases with third party data, software and analytical tools to create essential workflow solutions for business and professional clients around the world. We provide information platforms and services to support faster, better decisions that are more informed, more considered and more immediate. We have fashioned our solutions to provide the most relevant and trusted data instantly – intelligent information that helps you put your knowledge to work. This book is a tribute to you and our thanks for the trust you place in us. 1 To Our Shareholders: 2007 was a milestone year for The Thomson Corporation. The company’s name was in the headlines more often than perhaps at any other time in its history. On a Friday in May we announced our agreement to sell Thomson Learning, and on the following Tuesday we announced an agreement to buy Reuters Group PLC for nearly $18 billion.* The sale of our Thomson Learning assets for more than $8 billion was a resounding success. We decided to sell Learning because it no longer aligned with our basic business model. This divestiture enabled us to unite our organization around a common model: providing electronic information, software and services – usually on a subscription basis – to business and professional customers. In addition, the sale proceeds will help fund the cash portion of the Reuters acquisition. *All amounts are in U.S. dollars. 2 Reuters is a perfect fit for our business model. positions in Europe and Asia with ours in North Combining Thomson Financial with Reuters will America. This will give us more traction in geographic create one of the two top providers of financial markets that will become increasingly important for information in the world. Post-close, Thomson Reuters our business. Today, the U.S. and Europe are by far will be a world leader in electronically delivered critical Thomson’s largest markets. However, the demand information and decision support tools for businesses for information services is expected to increase and professionals. significantly in Asia – especially in China, India and Japan – over the coming years. As Thomson Reuters, While these two transactions made the headlines we will have an initial revenue base in Asia of more in 2007, the other important news was the continued than one billion dollars that should position us to grow growth and strong performance of our business. along with the fastest-growing economies in the world. Double-digit increases in revenue and earnings per share (EPS) gave us good momentum coming into Thomson Reuters will consist of two divisions and a 2008. The Board approved a 10% dividend increase, corporate center. Combining Thomson Financial with marking the third consecutive year of double-digit Reuters will create the Markets Division, one of the dividend growth. two largest global providers of financial information, software, services and transaction support. Reuters Acquiring Reuters Media and News will be critical assets of this division. The Professional Division will consist of Thomson’s Reuters also reported solid financial results for businesses in the legal, tax and accounting, scientific 2007, with strong sales and double-digit growth in and healthcare sectors. We will look to accelerate profits and adjusted EPS. Both companies are positioned growth in the Professional Division by leveraging for continued success, and we believe that Thomson Reuters well-established networks, relationships Reuters will be able to drive growth and value more and operations in over 140 countries. aggressively than either company could do on its own. Combining the talent, technology and resources of At the time of this writing, we have received all of the Thomson Financial and Reuters should spur innovative required antitrust/regulatory clearances to acquire product development, further enhance the quality and Reuters, and both companies have sent proxy circulars competitiveness of our offerings, and accelerate growth. to shareholders. The shareholders have not yet voted, The acquisition will better equip us to meet customers’ but we are confident that the deal will be approved growing demands for broader, faster and more deeply and we expect it to close on April 17, 2008. integrated information. We strongly believe that by This acquisition, the largest in Thomson’s history, offering solutions which enhance productivity, Thomson allows us to leverage the brands of both companies. Reuters will be at the center of customers’ business Importantly, it will combine Reuters strong market and commercial enterprise dealings each day. 3 While Thomson Financial and Reuters are highly subscription-based or recurring in nature. This complementary businesses, we expect the transaction continuing evolution to electronic solutions has changed to deliver significant synergies. Cost-saving opportunities how we interact with customers. Our revenue streams exist in many areas, including shared technology flow increasingly from multi-year contracts that platforms, distribution, third party content and encompass enterprise-wide functions. That results in corporate services. stronger, more enduring relationships with customers who see Thomson solutions as must-have, not We are confident that these opportunities for growth discretionary. Our solutions help customers increase and greater efficiency will translate into significant free their productivity and make better decisions faster. And cash flow growth and shareholder value in the years the cost is usually a small fraction of a customer’s ahead. Teams from Thomson and Reuters are working annual budget. We believe that the price-to-value ratio tirelessly to plan a successful integration, and we feel is, and will continue to be, highly compelling. well prepared to launch the new company as soon as the deal closes. Across all our businesses, driving operational efficiency and effectiveness has become a mantra. Delivering a Solid Financial Performance The THOMSONplus initiative accelerated its pace in 2007. We expect it to achieve run-rate savings of Neither the sale of Learning nor the pending $160 million by mid-2008 – six months ahead of Reuters acquisition distracted Thomson employees schedule and $10 million higher than originally planned. from their focus on serving customers and growing the business. Highlights from Thomson businesses in 2007 included: In 2007, our revenues rose 11%. Importantly, we At Legal, we are the leader in the U.S. market and we continued our momentum on organic revenue growth continued to expand internationally. We delivered strong from existing businesses. Organic growth increased revenue growth in product lines such as Westlaw which 6%, led by Legal at 7% and Tax & Accounting at 10%. support the practice of law, and in solutions such as And, despite the softening in the credit markets and FindLaw which help lawyers manage the business Reuters integration planning, Thomson Financial of law. delivered strong sales and grew revenues 8% At Financial, our #2 position in North America is built (5% organic). Diluted earnings per share (EPS) on diversified product offerings. In 2007, approximately rose from $1.73 to $6.20 and diluted EPS from 40% of revenues came from fixed income, transaction continuing operations rose from $1.41 to $1.69. and corporate services products, most of which we In 2007, approximately 82% of our revenue was derived didn’t have five years ago. These robust offerings help from electronic information, software and services our increasingly global customer base to manage which grew 13%, and more than 80% of revenue was through every phase of market cycles. 4 In Tax & Accounting, we are a market leader in the will not be transitioning to the new board. We want U.S. tax information, software and services field. Fast- to extend our special thanks for the outstanding growing solutions like Checkpoint and core software contributions made by Ron Barbaro, Bob Daleo, products targeted to accountants and corporations, Maureen Kempston Darkes, Michael Sabia and Dick including UltraTax and InSource, delivered strong new Thomson during their tenures on the Thomson Board. sales and high retention rates. Bob Daleo, who is currently our chief financial officer, will be CFO of the new Thomson Reuters. Highlights of Scientific included double-digit revenue growth in Asia Pacific, all-time high renewal rates Once the Reuters acquisition closes, Dick Harrington for Web of Science (98%) and ISI Web of Knowledge will step down after more than 25 years of service to (93%), and the launch of Thomson Innovation, a new Thomson – almost 11 of them as CEO. When Dick integrated patent solution for the corporate market. became CEO, Thomson was a holding company with businesses as different as newspapers and leisure