THREE MINUTES The Thomson Corporation Annual Report 2006 2 To Our Shareholders 58 Financial Statements and Notes 6 Financial Highlights 102 Board of Directors 8 Growth Metrics 104 Senior Management 10 Three Minutes 105 Corporate Information 24 Management’s Discussion and Analysis 106 In Memoriam: Ken Thomson THREE MINUTES At Thomson, our job is helping business people and professionals meet the constant demand of “I need to know now.” For the lawyer preparing a case, the broker advising a client, the tax adviser struggling with the intricacies of a new regulation or the doctor prescribing a new drug – the demand for better-informed, more innovative, more insightful answers is relentless. And the right answers have to come fast, at the moment the opportunity or risk arises. These answers are never frozen in time. They are preceded and followed by further questions. “Three Minutes” is a look at how Thomson evolves its solutions to meet our customers’ complex information needs, address the various stages of their workflows and enhance their productivity. Thomson folklore has it that we ask our customers what they were doing three minutes before they used our product and three minutes after. Then we build out our solutions to support those before-and- after needs. The reality’s slightly more complicated. To show what a workflow solution does, and how it delivers value, we offer a look inside three of Thomson’s leading solutions. Diagrams and text illustrate how three different types of experts rely on Thomson to enable their daily work and speed its flow – to do in minutes what once took hours or days – and to arrive at better answers. 1 TO OUR SHAREHOLDERS: In 2006 The Thomson Our electronic solutions, software and services continued to gain momentum in the markets, accounting Corporation successfully for 80% of our revenues in 2006 and delivering our highest organic revenue growth in years. Total revenues executed on its strategic and grew 8%, operating profit rose 7% and earnings per operational priorities, and share increased 22%. The company generated over $2 billion in cash from operations, and free cash flow delivered strong financial increased 21%, driven by strong growth in operating income, lower tax payments and stable capital results. Thomson has never expenditures. We delivered value to our customers and created value for our shareholders. Our company been in a stronger position – returned nearly $1 billion to shareholders in 2006 strategically, operationally through dividends and our stock buyback program. Thomson entered 2007 well positioned for continued and financially. growth and profitability. The market has validated our workflow solutions strategy. We enjoy leading positions in all of our markets, which gives us the opportunity to shape markets rather than react to them. And we have realigned the company to be more focused, efficient and effective. Going forward, we see a clear opportunity to build on the foundation that we have established as the world’s leading provider of workflow solutions for business and professional customers. DRIVERS OF OUR SUCCESS Three factors drive the company’s success: innovative workflow solutions, a disciplined approach to optimizing our business portfolio and an equally rigorous approach to leveraging our company’s infrastructure and assets. 2 Our fastest-growing offerings are workflow solutions The main focus of portfolio optimization is to allocate such as the three highlighted in the feature section resources to the businesses that have the highest potential of this report, along with others such as our Checkpoint for growth and returns. We are excited about the sale solution for tax specialists and the management and of Thomson Learning because we believe the proceeds clinical decision support solutions we provide to will enable us to pursue new opportunities, including healthcare payers and providers. Our solutions-based strengthening our existing businesses through increased strategy is achieving success every day as customers investment, expanding into adjacent markets and stepping sign on and begin asking for more: more functions, out into new markets and countries. We have established more features and more adaptable interfaces. a disciplined, measured approach for using the sale proceeds with a focus on profitable growth and enhanced As we hone our ability to tailor solutions so that shareholder value. Value-creating opportunities will they become integral to customer workflows, our drive the investment process. relationship with customers grows even closer. Idea generation and product development have become Optimizing our infrastructure – i.e., technology, a collaborative exercise. And as we build out solutions operational processes and internal support services – to meet our customers’ evolving needs, our growth is the third key to our company’s success. In mid-2006 from existing businesses has risen (up 6% over 2005) we launched a coordinated series of initiatives designed as has the percentage of recurring revenues (reaching to increase organizational efficiency and effectiveness 82% in 2006). by leveraging technology and scale, and by adopting industry best practices, across our company. We are Another success factor is our company’s rigorous making good progress toward developing a robust approach for optimizing our portfolio of common infrastructure to support all of our businesses. businesses to accelerate growth and returns. In The goal is to maximize the ability of each Thomson October 2006 we announced our intention to divest business to leverage the full resources of a multibillion our Thomson Learning group, including businesses dollar corporation. serving the higher education, careers, library reference, corporate e-learning and e-testing markets. Thomson Learning is a leader in these markets and is well managed, growing and profitable. But as our solutions-based strategy evolves, there are fewer synergies between the Learning group and our other businesses. 3 LONG-TERM VALUE CREATION Moreover, electronic delivery improves our ability to provide additional products and services to our As we review the achievements of 2006 and the existing customers and to access new customers around expanding opportunities ahead, we sense that Thomson the world. As our product mix continues to shift from has reached a defining moment in its evolution. Our legacy products to electronic solutions, the result should businesses are unified by a common business model be higher growth and profitability in our existing and are poised to benefit from the efficiency and businesses along with new opportunities to expand scalability of a common infrastructure. We have never into adjacent markets and internationally. been more focused strategically, more nimble as an organization or stronger financially. By leveraging content, technology and expertise across our businesses, we become more efficient at The ongoing success of our workflow solutions gives us developing and launching innovative solutions. What confidence that Thomson can keep building momentum we learn from each new solution enables our product on organic growth. We expect that the percentage of development teams to bring more robust products, our revenues derived from electronic products, software incorporating more advanced analytical and productivity and services will keep rising as we build out solutions tools, to market more quickly. Our increasing use of and as international markets increasingly incorporate scalable technology platforms such as Novus enables technology into their workflows. us to integrate content from our various databases and Every day more people are turning to the Internet online services more easily, lower product development for instantaneous access to value-added information costs and reduce product delivery times. served up through easy-to-use interfaces. We believe We expect that these initiatives, coupled with our that this will continue to fuel demand for our online commitment to provide customers with the solutions products and services. they need to improve their productivity, will continue to deliver strong returns resulting in increased shareholder value. 4 WITH GRATITUDE A LASTING LEGACY We want to thank all the stakeholders – investors, For a number of reasons, 2006 was a memorable year. customers, employees and business partners – who Many of us will remember it as the year Ken Thomson have brought us to this important moment in our died. Ken was our controlling shareholder and he company’s evolution and who support Thomson’s exercised that position with a tremendous sense of ongoing success. responsibility toward our business and our other shareholders. His sense of stewardship, his warmth Special thanks are due to David H. Shaffer, who and his humility motivated generations of Thomson stepped down from his board position and retired from employees. Ken left a unique legacy in his many the company in 2006 after a distinguished career. Dave contributions to our business and he will long be held a number of senior leadership roles at Thomson, remembered as a man of exceptional character including chief executive officer for Thomson Learning and integrity. and later for Thomson Financial. It seems fitting that the final words of this letter should The Thomson board was pleased to welcome a new come from Ken Thomson. Several years ago, when member in 2006. Michael J. Sabia, president and talking about the future of The Thomson Corporation, chief executive officer of BCE Inc.