6-K

QuickLinks -- Click here to rapidly navigate through this document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of March 2007 Commission File Number: 1-31349

THE THOMSON CORPORATION
(Translation of registrant's name into English)

Metro Center, One Station Place
Stamford, Connecticut 06902, United States
(Address of principal executive office)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

Form 20-F o Form 40-F ý

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):
o

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):
o

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes o No ý

If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-.

The information contained in Exhibit 99.1 of this Form 6-K (excluding those sections under the headings "Report on Executive Compensation," "Composition of the Human Resources Committee," "Performance Graphs" and "Statement of Corporate Governance Practices") is incorporated by reference into, or as an additional exhibit to, as applicable, the following Registration Statements of the registrant: Form F-9 (File No. 333-128045); Form F-3 (File No. 333-97203); Form S-8 (File No. 333-12284); Form S-8 (File No. 333-105280); Form S-8 (File No. 333-126782); and Form S-8 (File No. 333-135721).

SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	THE THOMSON CORPORATION
Date: March 28, 2007
	By:	/s/ Deirdre Stanley Name: Deirdre Stanley Title: Senior Vice President and General Counsel

EXHIBIT INDEX

Exhibit Number	Description
99.1	Notice of Annual and Special Meeting of Shareholders and Management Information Circular (Proxy Statement)
99.2	Annual Report to Shareholders
99.3	Form of Proxy for Registered Shareholders

QuickLinks

SIGNATURES
EXHIBIT INDEX

EX-99.1

EXHIBIT 99.1

NOTICE OF ANNUAL AND
SPECIAL MEETING OF SHAREHOLDERS
AND MANAGEMENT INFORMATION CIRCULAR
MAY 2, 2007

NOTICE OF ANNUAL AND
SPECIAL MEETING OF SHAREHOLDERS OF
THE THOMSON CORPORATION

Date

Wednesday, May 2, 2007

Time

12:00 p.m. (EDT)

Place

Roy Thomson Hall, 60 Simcoe Street, Toronto, Ontario, Canada

Business

The business of the meeting is to:

•receive the consolidated financial statements of the company for the year ended December 31, 2006 and the auditors’ report on those statements;

•elect directors;

•appoint auditors and authorize the directors to fix their remuneration;

•consider, and if thought fit, approve amendments to the company’s stock incentive plan, employee stock purchase plans, deferred compensation plan and U.S. employees’ 401(k) retirement savings plan; and

•transact any other business properly brought before the meeting.

At the meeting, you will have an opportunity to hear about our company’s 2006 performance and plans going forward. The management information circular included with this notice is your guide to the business to be considered at the meeting.

Record Date

You are entitled to vote if you were a holder of Thomson common shares as of 5:00 p.m. (EDT) on Monday, March 19, 2007.

Voting

Please vote by proxy on the matters to be considered at the meeting if it is not convenient for you to attend in person. The enclosed proxy form contains instructions on how to complete and send your voting instructions. Our transfer agent, Computershare Trust Company of Canada, must receive your proxy or voting instructions no later than 5:00 p.m. (EDT) on Monday, April 30, 2007 or, if the meeting is adjourned, no later than 48 hours (excluding Saturdays and holidays) before any adjourned meeting.

Please visit www.thomson.com for more information about Thomson.

By order of the Board,

David W. Binet
Secretary to the Board of Directors

March 15, 2007

MANAGEMENT INFORMATION CIRCULAR
TABLE OF CONTENTS

1	About this Circular and Related Proxy Materials
1	Voting Information
4	Receiving Annual and Quarterly Financial Statements and Related MD&A
4	Electronic Delivery of Shareholder Communications
5	Principal Shareholder
5	Business of the Meeting
	•	Financial Statements
	•	Election of Directors
	•	Appointment of Auditors
	•	Special Business – Approval of amendments to the stock incentive plan, employee stock purchase plans, deferred compensation plan and U.S. employees’ 401(k) retirement savings plan
13	Executive Compensation
	•	Summary Compensation Table
	•	Long-Term Incentive Plan – Awards in 2006
	•	Option/SAR Grants in 2006
	•	Aggregated Option/SAR Exercises in 2006 and Financial Year-End Option/SAR Values
	•	Equity Compensation Plan Information
	•	Pension and Other Retirement Benefits
	•	Insurance Policies
	•	Agreements with Named Executive Officers
21	Report on Executive Compensation
30	Report of the Audit Committee
31	Performance Graphs
32	Compensation of Directors
33	Indebtedness of Officers, Directors and Employees
33	Directors’ and Officers’ Indemnification and Insurance
34	Statement of Corporate Governance Practices
40	Share Repurchase Program
41	Additional Information
41	Directors’ Approval
A-1	Annex A – Corporate Governance Guidelines

i

MANAGEMENT INFORMATION CIRCULAR

ABOUT THIS CIRCULAR AND RELATED PROXY MATERIALS

We are providing this circular and proxy materials to you in connection with The Thomson Corporation’s annual and special meeting of shareholders on May 2, 2007. As a shareholder, you are invited to attend the meeting. If you are unable to attend, you may still vote.

This circular describes the items to be voted on at the meeting and the voting process, and provides information about executive compensation, our corporate governance practices and other matters.

Please see the “Voting Information” section below for an explanation of how you can vote on the matters to be considered at the meeting, whether or not you decide to attend the meeting.

Unless otherwise indicated, all amounts in this circular are in U.S. dollars and information is as of March 9, 2007.

VOTING INFORMATION

What is the business of the meeting?

At the meeting, shareholders are voting on three items: (1) the election of directors of the company; (2) the appointment of PricewaterhouseCoopers LLP as auditors of the company and the authorization of the directors to fix the auditors’ remuneration; and (3) approval of amendments to our stock incentive plan, employee stock purchase plans, deferred compensation plan and U.S. employees’ 401(k) retirement savings plan. We are not aware of any other matters to be considered at the meeting. However, you may also vote on any other business that may properly come before the meeting.

Who can vote?

Holders of common shares as of 5:00 p.m. (EDT) on March 19, 2007 are entitled to vote at the meeting. Each common share is entitled to one vote. On March 9, 2007, there were 639,907,226 common shares outstanding.

If you want to vote shares acquired after March 19, 2007 at the meeting, you must contact our transfer agent, Computershare Trust Company of Canada, and request in writing for them to include you on the list of shareholders entitled to vote at the meeting, and you must produce properly endorsed share certificates or establish in some other way that you owned the shares before 5:00 p.m. (EDT) on April 23, 2007.

How many votes are required for approval?

A simple majority of votes cast, in person or by proxy, is required to approve each of the items specified in the notice of meeting which accompanies this circular.

How do I vote?

You should first determine whether you are a registered shareholder or a non-registered shareholder.

•You are a registered shareholder if your name appears on your share certificates or if you hold your shares in book-entry form on the records of our transfer agent, Computershare Trust Company of Canada. If you are a registered shareholder, you can vote either in person at the meeting or by submitting your voting instructions by proxy, which means that you give another person authority to vote on your behalf.

•You are a non-registered shareholder if your name does not appear on your share certificates or if you hold your shares in book-entry form through an intermediary. For example, you are a non-registered shareholder if your shares are held in the name of a bank, trust company, securities broker, trustee or custodian.

1

If I am a registered shareholder, how do I vote in person?

You do not need to do anything except attend the meeting. Do not complete or return the proxy form, as your vote will be taken at the meeting. You should register with representatives of Computershare when you arrive at the meeting. If you wish to vote shares registered in the name of a corporation, the corporation must submit a properly executed proxy to Computershare by the proxy cut-off time which appoints you to vote the shares on behalf of the corporation.

If I am a registered shareholder, how do I vote by proxy?

If it is not convenient for you to attend the meeting, you may vote by proxy on the matters to be considered at the meeting in one of two ways:

•You can authorize the directors of our company who are named on the enclosed proxy form to vote your shares as your proxyholder. If you choose this option, you can give voting instructions by mail, telephone or through the Internet. Please refer to your proxy form for instructions.

•You may appoint another person to attend the meeting on your behalf and vote your shares as your proxyholder. If you choose this option, you can appoint your proxy by mail or through the Internet. If you mail the proxy form, you must print that person’s name in the blank space provided on the back of the enclosed proxy form and you should indicate how you want your shares voted. Sign, date and return the proxy form in the envelope provided. If you vote through the Internet, you may also appoint another person to be your proxyholder. You may choose anyone to be your proxyholder; the person does not have to be another shareholder. The person you appoint must attend the meeting and vote on your behalf in order for your votes to be counted. Proxyholders should register with representatives of Computershare when they arrive at the meeting.

Please remember that your proxy or voting instructions must be received by 5:00 p.m. (EDT) on Monday, April 30, 2007, or, if the meeting is adjourned, no later than 48 hours (excluding Saturdays and holidays) before any adjourned meeting.

If I am a non-registered shareholder, how do I vote my shares?

As mentioned above, you are a non-registered shareholder if your shares are held in the name of an intermediary (such as a bank, trust company, securities broker, trustee or custodian).

There are two ways to vote your shares:

•In person. If you wish to attend the meeting and vote in person, you should do one of the following:

°If you have received a proxy form from your intermediary, insert your own name in the blank space provided on the proxy form to appoint yourself as proxyholder. If the intermediary has not signed the form, you must sign and date it. Follow your intermediary’s instructions for returning the proxy form. Do not otherwise complete the form as your vote will be taken at the meeting; or

°If you have received a voting instruction form from your intermediary, follow your intermediary’s instructions for completing the form.

•By proxy. If it is not convenient for you to attend the meeting, you should do one of the following:

°If you received a proxy form from your intermediary, you may vote by authorizing the directors of our company named on the form to vote your shares as your proxyholder. If you choose this option, you may complete the proxy form by indicating how you want your shares to be voted. If the intermediary has not signed the proxy form, you must sign and date it. Return the completed proxy form as instructed on the form. Alternatively, you may appoint another person to attend the meeting on your behalf and vote your shares by printing that person’s name in the blank space on the form and indicating how you want your shares to be voted. The person you choose does not have to be another shareholder. The person named on the form must attend the meeting and vote on your behalf in order for your votes to be counted; or

°If you have received a voting instruction form from your intermediary, follow your intermediary’s instructions for completing the form.

2

How will my shares be voted if I appoint a proxyholder?

Your proxyholder must vote your shares on each matter according to your instructions if you have properly completed and returned a proxy. If you have not specified how to vote on a particular matter, then your proxyholder can vote your shares as he or she sees fit.

If you have appointed the directors of our company named on the enclosed proxy form as your proxyholder, and you have not specified how you want to vote, your shares will be voted as follows:

•FOR the election as directors of the nominees set out in this circular;

•FOR the appointment of PricewaterhouseCoopers LLP as the auditors of the company and the authorization of the directors to fix their remuneration; and

•FOR the approval of the amendments to the stock incentive plan, employee stock purchase plans, deferred compensation plan and U.S. employees’ 401(k) retirement savings plan.

What happens if any amendments are made to these matters or if other matters are properly brought before the meeting?

Your proxyholder will have discretionary authority to vote your shares as he or she sees fit. As of the date of this circular, management knows of no such amendment, variation or other matter expected to come before the meeting.

If I change my mind, how do I revoke my proxy or voting instructions?

If you are a registered shareholder and you have returned a proxy form or have given voting instructions, you may revoke them in any of the following ways:

•By completing and signing a proxy form with a later date than the proxy form you previously returned, and delivering it to Computershare;

•By completing a written statement revoking your instructions, which is signed by you or your attorney authorized in writing, and delivering it:

°To the offices of Computershare at any time before 5:00 p.m. (EDT) on May 1, 2007, or, if the meeting is adjourned, the business day before any adjourned meeting; or

°To the Chairman of the meeting before the meeting starts; or

•In any other manner permitted by law.

If you are a non-registered shareholder, you may revoke a proxy or voting instruction (or a waiver of the right to receive meeting materials and to vote) given to your intermediary at any time by written notice to the intermediary, provided that the revocation is received by the intermediary at least seven days before the meeting. If your revocation is not received by that time, your intermediary is not required to act on it.

Who is soliciting my proxy?

Our company’s management is soliciting your proxy for use at the meeting and any adjourned meeting. We are soliciting proxies by mail and our employees may also solicit them personally. We are paying all costs of solicitation.

Is my vote confidential?

Yes. Computershare independently counts and tabulates the proxies to preserve the confidentiality of individual shareholder votes. Proxies are referred to us only in cases where a shareholder clearly intends to communicate with management, in the event of questions as to the validity of a proxy or where it is necessary to do so to meet applicable legal requirements.

3

RECEIVING ANNUAL AND QUARTERLY FINANCIAL STATEMENTS AND RELATED MD&A

Our annual and quarterly reports and earnings releases are available in the “Investor Relations” section of our website at www.thomson.com. Below, we have provided information regarding distributions of our annual and quarterly reports. Please also see the next section of this circular entitled “Electronic Delivery of Shareholder Communications” for information about how to sign up for electronic delivery of these reports and other shareholder communications.

How can I receive a copy of Thomson’s annual financial statements and related MD&A?

Our annual report includes our annual financial statements and related management’s discussion and analysis (MD&A).

•If you are a registered shareholder, we are required to send you future annual reports unless you opt out of receiving them by marking the appropriate box at the bottom of your form of proxy. Shareholders who opt out of receiving future annual reports will continue to receive our management information circular, form of proxy and other shareholder mailings.

•If you are a non-registered shareholder and hold your interests through a Canadian intermediary, you must mark the request box on your voting instruction form/proxy form in order to receive next year’s annual report. If you are a non-registered shareholder and hold your interests through a U.S. intermediary, you must complete and return the request form included in your proxy package in order to receive next year’s annual report.

How can I receive a copy of Thomson’s quarterly financial statements and related MD&A?

Our quarterly reports include our quarterly financial statements and related MD&A.

•If you are a registered shareholder, you must mark the request box on your form of proxy in order to receive quarterly reports.

•If you are a non-registered shareholder and hold your interests through a Canadian intermediary, you must mark the request box on your voting instruction form/proxy form in order to receive quarterly reports. If you are a non-registered shareholder and hold your interests through a U.S. intermediary, you must complete and return the request form included in your proxy package in order to receive quarterly reports. Non-registered shareholders that requested quarterly reports earlier this year do not need to submit another request.

The foregoing represents applicable annual and quarterly financial statement and MD&A distribution requirements as of the date of this circular.

ELECTRONIC DELIVERY OF SHAREHOLDER COMMUNICATIONS

Does Thomson provide electronic delivery of shareholder communications?

Yes. Electronic delivery is a voluntary program for our registered and non-registered shareholders. Under this program, an e-mail notification is sent advising you that documents (such as this circular) that must be delivered under applicable securities law are available on our website. We believe that electronic delivery will benefit the environment and reduce our costs.

How can I enroll for electronic delivery of shareholder communications?

If you are a registered shareholder, please go to www.computershare.com and click “Enroll for e-delivery” under the “Shareholder Services” menu. You will need your Holder Account Number and postal/zip code. You can find your Holder Account Number on the proxy form provided in your package.

If you are a non-registered shareholder, please go to www.investordelivery.com for more instructions and to register. You will need your Enrollment Number/Control Number. You can find this number on the voting instruction form/proxy form provided in your package.

4

PRINCIPAL SHAREHOLDER

The Woodbridge Company Limited, or Woodbridge, a private company, is our principal and controlling shareholder. Woodbridge is the primary investment vehicle for members of the family of the late Roy H. Thomson, the first Lord Thomson of Fleet. On March 9, 2007, Woodbridge beneficially owned 419,318,722 of our common shares, or approximately 66%. On that date, Woodbridge and other companies affiliated with it together beneficially owned an aggregate of 447,986,679 common shares, or approximately 70%.

Prior to his death in June 2006, Kenneth R. Thomson controlled our company through Woodbridge. He did so by holding shares of a holding company of Woodbridge, Thomson Investments Limited. Under his estate arrangements, the 2003 TIL Settlement, a trust of which the trust company subsidiary of a Canadian chartered bank is trustee and members of the family of the late first Lord Thomson of Fleet are beneficiaries, holds those holding company shares. Kenneth R. Thomson established these arrangements to provide for long-term stability of the business of Woodbridge. The equity of Woodbridge will continue to be owned by members of successive generations of the family of the first Lord Thomson of Fleet.

Under the Kenneth R. Thomson estate arrangements, the directors and officers of Woodbridge are responsible for its business and operations. In certain limited circumstances, including very substantial dispositions of our common shares by Woodbridge, the estate arrangements provide for approval of the trustee to be obtained.

Note 22 to our 2006 consolidated financial statements provides information on certain transactions that we entered into with Woodbridge and certain of its affiliates in 2005 and 2006.

To the knowledge of our company, no other person beneficially owns, directly or indirectly, 10% or more of our common shares.

BUSINESS OF THE MEETING

Financial Statements

Our consolidated financial statements for the year ended December 31, 2006 are included in our annual report. A copy of our annual report is also available in the “Investor Relations” section of our website, www.thomson.com.

Election of Directors

At the meeting 15 directors are proposed to be elected. All of the nominees are currently directors of our company. Each director elected will hold office until the next annual meeting of shareholders or until the director resigns or a successor is elected or appointed. The persons named in the enclosed proxy intend to vote for the election of these nominees. Management does not believe that any of the nominees will be unable to serve as a director but, if this should occur for any reason before the meeting, the persons named in the enclosed proxy form may vote for another nominee at their discretion.

Majority voting. In February 2007, the Board of Directors adopted a policy which provides that if a director does not receive the support of a majority of the votes cast at the annual meeting of shareholders, the director will tender his or her resignation to the Chairman of the Board, to be effective when accepted by the Board. The Corporate Governance Committee will consider the director’s offer to resign and make a recommendation to the Board as to whether to accept it. The Board will have 90 days from the annual meeting to make and publicly disclose its decision.

5

Nominee information. The following provides information as of March 1, 2007 regarding the director nominees, together with their municipality and country of residence, age, year first elected or appointed as a director, status as independent or non-independent, principal occupation, and other directorships and committee memberships. The following also provides the number of shares beneficially owned directly or indirectly by them, or over which they exercised control or direction, and the number of restricted share units, deferred share units and options held by, or credited to, them on March 1, 2007. Information regarding common shares beneficially owned does not include common shares that may be obtained through the exercise or vesting of options, restricted share units or deferred share units. Information as to shares beneficially owned or under control or direction is not within the knowledge of our company and has been provided to us by each nominee.

David K.R. Thomson1 Toronto, Ontario, Canada	Director since: 1988 Common shares: 6,070 Non-independent	David K.R. Thomson, 49, is Chairman of The Thomson Corporation and a Chairman of Woodbridge. Previously, Mr. Thomson was a Deputy Chairman of Woodbridge. Mr. Thomson was named Chairman of Thomson in May 2002.
W. Geoffrey Beattie Toronto, Ontario, Canada	Director since: 1998 Common shares: 200,500 Restricted share units: 15,603 Options: 200,000 Non-independent Member of the Corporate Governance and Human Resources Committees	W. Geoffrey Beattie, 46, is Deputy Chairman of The Thomson Corporation and President of Woodbridge. Mr. Beattie has been Deputy Chairman of Thomson since 2000. Mr. Beattie is also a director of Royal Bank of Canada and is Chairman of CTVglobemedia Inc.
Richard J. Harrington Westport, Connecticut, United States	Director since: 1993 Common shares: 15,100 Restricted share units: 110,429 Deferred share units: 421,355 Options: 2,501,700 Non-independent	Richard J. Harrington, 60, is President and Chief Executive Officer of Thomson. Mr. Harrington joined Thomson in 1982. He has held a number of key leadership positions during his Thomson career, including President and Chief Executive Officer of Thomson Newspapers. In October 1997, he became President and Chief Executive Officer of Thomson. Mr. Harrington also serves on the board of directors of Xerox Corporation.
Ron D. Barbaro Toronto, Ontario, Canada	Director since: 1993 Common shares: 25,000 Deferred share units: 14,498 Independent Member of the Audit and Corporate Governance Committees	Ron D. Barbaro, 75, is Chairman of The Brick Group Income Fund, a retail company. Prior to 2004, Mr. Barbaro was Chairman and CEO of the Ontario Lottery and Gaming Corporation. Mr. Barbaro is also Chairman of Trans Global Life Insurance Company.
Mary Cirillo New York, New York, United States	Director since: 2005 Deferred share units: 3,975 Independent Member of the Corporate Governance Committee	Mary Cirillo, 59, is a corporate director. Ms. Cirillo was Chair and Chief Executive Officer of Opcenter, LLC, an Internet consulting firm, from 2000 to 2003. Prior to that, Ms. Cirillo was Chief Executive Officer of Global Institutional Services at Deutsche Bank. Ms. Cirillo is also a director of Healthcare Property Investors, Inc., DealerTrack Holdings, Inc. and ACE Ltd.

6

Robert D. Daleo Alpine, New Jersey, United States	Director since: 2001 Common shares: 1,893 Restricted share units: 62,559 Deferred share units: 52,607 Options: 873,830 Non-independent	Robert D. Daleo, 57, is Executive Vice President and Chief Financial Officer of Thomson. Mr. Daleo began his career with Thomson in January 1994 when he joined Thomson Newspapers as Senior Vice President and Chief Financial Officer. In November 1998, Mr. Daleo became Chief Financial Officer of Thomson. Mr. Daleo is also a member of the board of directors of Equifax Inc.
Steven A. Denning Greenwich, Connecticut, United States	Director since: 2000 Deferred share units: 13,337 Independent Chair of the Human Resources Committee	Steven A. Denning, 58, is Chairman of General Atlantic LLC, a private equity investment firm. Mr. Denning is also a director of Hewitt Associates, Inc., IHS, Inc., Eclipsys Corporation, Liberata Limited and Genpact.
V. Maureen Kempston Darkes, O.C. Miramar, Florida, United States	Director since: 1996 Common shares: 500 Deferred share units: 15,204 Independent Member of the Corporate Governance and Human Resources Committees	V. Maureen Kempston Darkes, O.C., 58, is Group Vice President, General Motors Corporation and President of GM Latin America, Africa and the Middle East, an automobile manufacturer. Previously, Ms. Kempston Darkes was President and General Manager of General Motors of Canada Limited. Ms. Kempston Darkes is also a director of Canadian National Railway Company.
Roger L. Martin Toronto, Ontario, Canada	Director since: 1999 Common shares: 6,000 Deferred share units: 14,260 Independent Member of the Audit Committee	Roger L. Martin, 50, is Dean of the Joseph L. Rotman School of Management at the University of Toronto, a post-secondary educational institution. Mr. Martin is also Chairman of the Board of Workbrain Corporation.
Vance K. Opperman Minneapolis, Minnesota, United States	Director since: 1996 Common shares: 50,000 Deferred share units: 18,633 Independent Chair of the Audit Committee	Vance K. Opperman, 64, is President and Chief Executive Officer of Key Investment, Inc., a holding company. Previously, Mr. Opperman was President of West Publishing Company. He is also a director of Delta Dental Plans Association, BlueCross/BlueShield of Minnesota and Avenet LLC.
Michael J. Sabia2 Montreal, Québec, Canada	Director since: 2006 Deferred share units: 476 Independent Member of the Human Resources Committee	Michael J. Sabia, 53, is President and Chief Executive Officer of BCE Inc. as well as Chief Executive Officer of Bell Canada, both of which are communications companies. Mr. Sabia has been President and Chief Executive Officer of BCE Inc. since April 2002 and Chief Executive Officer of Bell Canada since May 2002. Mr. Sabia was President and Chief Operating Officer of BCE Inc. from March 2002 to April 2002 and Chief Operating Officer of Bell Canada from March 2002 to May 2002. He was President of BCE Inc. from December 2000 to March 2002 and Vice Chair of Bell Canada from July 2000 to March 2002. He is also a director of BCE Inc., Bell Canada, Telesat Canada and Clearwire Corporation and Chairman of Bell Alliant Regional Communications.

7

John M. Thompson Toronto, Ontario, Canada	Director since: 2003 Common shares: 2,5003 Deferred share units: 9,403 Independent Chair of the Corporate Governance Committee Member of the Audit Committee	John M. Thompson, 64, is Chairman of the Board of The Toronto-Dominion Bank, a financial institution. Mr. Thompson was Vice Chairman of the Board of IBM from August 2000 to September 2002. Prior to that, he held various senior executive positions with IBM. Mr. Thompson is also a director of Royal Philips Electronics.
Peter J. Thomson1 Toronto, Ontario, Canada	Director since: 1995 Deferred share units: 682 Non-independent	Peter J. Thomson, 41, is a Chairman of Woodbridge. Previously, Mr. Thomson was a Deputy Chairman of Woodbridge.
Richard M. Thomson, O.C.1 Toronto, Ontario, Canada	Director since: 1984 Common shares: 31,700 Deferred share units: 19,178 Independent Member of the Audit and Human Resources Committees	Richard M. Thomson, O.C., 73, is a corporate director. Previously, Mr. Thomson was Chairman and Chief Executive Officer of The Toronto-Dominion Bank. He is also a director of Nexen Inc. and S.C. Johnson & Son, Inc.
John A. Tory Toronto, Ontario, Canada	Director since: 1978 Common shares: 501,670 Deferred share units: 1,819 Non-independent Member of the Human Resources Committee	John A. Tory, 76, is a director of Woodbridge. Mr. Tory was Deputy Chairman of Thomson from 1978 to 1997 and President of Woodbridge from 1973 to 1998. Mr. Tory is also a director of Abitibi-Consolidated Inc. and Rogers Communications Inc.

1David K.R. Thomson and Peter J. Thomson are the sons of Kenneth R. Thomson who, prior to his death in June 2006, was the controlling shareholder of our company. Richard M. Thomson is not related to David and Peter Thomson.

2Mr. Sabia was a director and officer of Teleglobe Communications Corporation and Teleglobe Inc. from February 2002 to April 2002. In May 2002, both of these companies filed for protection under the Companies’ Creditors Arrangement Act (Canada) and Chapter 11 of the U.S. Bankruptcy Code.

3In addition, Mrs. J.M. Thompson owned 300 common shares as of March 1, 2007.

For more information on deferred share units held by our non-management directors, please see the section of this circular entitled “Compensation of Directors.” Messrs. Harrington and Daleo hold their deferred share units under our deferred compensation plan. Options and restricted share units are issued under our stock incentive plan. For more information on our deferred compensation plan and stock incentive plan, please see the section of this circular entitled “Report on Executive Compensation.”

8

Appointment of Auditors

It is recommended that PricewaterhouseCoopers LLP be appointed as the auditors of the company to hold office until the next annual meeting of shareholders and that the directors be authorized to fix their remuneration. PricewaterhouseCoopers LLP have been the auditors of our company since our incorporation in 1977.

Fees payable to PricewaterhouseCoopers LLP and its affiliates for the years ended December 31, 2006 and 2005 were as follows:

(in millions of U.S. dollars)	2006	2005
Audit fees	$21.1	$12.1
Audit-related fees	11.5	3.0
Tax fees	7.4	6.9
All other fees	0.1	0.1
Total	$40.1	$22.1

Audit Fees

These audit fees were for professional services rendered for the audits of our consolidated financial statements, reviews of interim financial statements included in our quarterly reports, the audit of management’s assessment of, and the effectiveness of our internal control over financial reporting, and services that generally only the independent auditors can reasonably provide, such as comfort letters, statutory audits, consents, and assistance and review of documents filed with the Securities and Exchange Commission (SEC) and Canadian securities regulatory authorities.

Audit-related Fees

These audit-related fees were for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported under the “audit fees” category above. These services included advisory services related to internal control over financial reporting, audits of our various employee benefit plans, transaction due diligence, subsidiary audits and other services related to acquisitions and dispositions.

Tax Fees

Tax fees were for tax compliance, tax advice and tax planning. These services included the preparation and review of corporate and expatriate tax returns, assistance with tax audits and transfer pricing matters, advisory services relating to federal, state, provincial and international tax compliance, customs and duties, and restructurings, mergers and acquisitions.

All Other Fees

Fees disclosed in the table above under the item “all other fees” were for services other than the audit fees, audit-related fees and tax fees described above. These services included:

•Authoring content for inclusion in certain Thomson products and services; and

•French translations of financial statements, management’s discussion and analysis and financial information included in our annual information form, prospectuses and other offering documents.

9

Pre-approval Policies and Procedures

Our Audit Committee is responsible for overseeing the work of the independent auditors and has considered whether the provision of services other than audit services is compatible with maintaining the auditors’ independence. The Audit Committee has adopted a policy regarding its pre-approval of all audit and permissible non-audit services provided by the independent auditors. The policy gives detailed guidance to our management as to the specific types of services that have been pre-approved by the Audit Committee. The policy requires the Audit Committee’s specific pre-approval of all other permitted types of services that have not already been preapproved. Our senior management periodically provides the Audit Committee with a summary of services provided by the independent auditors in accordance with the pre-approval policy. The Audit Committee’s charter delegates to its Chair the authority to evaluate and approve engagements in the event that the need arises for approval between Audit Committee meetings. If the Chair approves any such engagements, he reports his approval decisions to the full Audit Committee at its next meeting. For the year ended December 31, 2006, none of the audit-related, tax or all other fees described above made use of the de minimus exception to pre-approval provisions contained in Rule 2-01(c)(7)(i)(C) of SEC Regulation S-X or Section 2.4 of the Canadian Securities Administrators’ Multilateral Instrument 52-110 (Audit Committees).

Special Business

You are being asked to consider and, if thought fit, approve certain amendments to our security-based compensation plans, as described in more detail below. On February 23, 2007, the Board approved these amendments, subject to approval by our shareholders.

Amendment Provisions. Our company has a number of security-based compensation plans under which our common shares may be issued. These plans include our stock incentive plan, employee stock purchase plans, deferred compensation plan and U.S. employees’ 401(k) retirement savings plan (collectively referred to as the Plans). These Plans have “general amendment” provisions which have permitted the Board (or one of its committees) to approve amendments, subject to approval of the Toronto Stock Exchange (TSX) and shareholders, as may be required. The deferred compensation plan and U.S. employees’ 401(k) retirement savings plan are administered by the board of directors of a wholly-owned Thomson subsidiary.

Effective June 30, 2007, TSX-listed companies that have only general amendment provisions in their security-based compensation plans will no longer be able to make any amendments to their plans, or awards made under these plans, without shareholder approval, including amendments considered to be of a “housekeeping” nature. The TSX has encouraged its listed companies to seek shareholder approval of more detailed amendment provisions to clarify when shareholder approval is required. We believe that except for certain material changes to our Plans or awards made under the Plans as described below, it is appropriate for our Board or the board of one of our wholly-owned subsidiaries (or one of their respective committees) to have the flexibility to adopt changes to the Plans and awards made under the Plans without the need to obtain shareholder approval.

Our proposed amendment procedures would clarify that shareholder approval is not required for any amendments to the stock incentive plan or an award made under the stock incentive plan, except for any amendment or modification which:

•Increases the number of common shares that can be issued under the stock incentive plan, including an increase to a fixed number of common shares or a change from a fixed maximum number of common shares to a fixed maximum percentage;

•Reduces the exercise price of an award (including, without limitation, a cancellation and re-grant of an award, constituting a reduction of the exercise price of such award), except in connection with maintaining the value of an award in connection with a change in the number of our company’s outstanding common shares by reason of a stock dividend or split, recapitalization, reorganization, merger, amalgamation, consolidation, combination or exchange of common shares, or another corporate change affecting our common shares;

•Extends the term of an award beyond its original expiry date, except where the expiry date would have occurred in one of our blackout periods;

10

•Changes the provisions relating to the transferability of an award, other than for a transfer by will or the laws of descent and distribution, a transfer by a grantee to an entity which is controlled by the grantee or a transfer to a former spouse or domestic partner in connection with a legal obligation or settlement;

•Extends eligibility to participate in the stock incentive plan to a non-employee director; or

•Is required to be approved by shareholders under applicable laws, regulations or stock exchange rules.

Similar amendment provisions would be included in the employee stock purchase plans, deferred compensation plan and U.S. employees’ 401(k) retirement savings plan to the extent appropriate and applicable given the nature and operation of such Plans.

Examples of the types of changes to a Plan or awards made under a Plan that our company could make without shareholder approval include:

•Housekeeping or administrative changes, including, without limitation, any amendment for the purpose of:

°Curing any ambiguity, error or omission in a Plan,

°Correcting or supplementing any provision of a Plan that is inconsistent with any other provision of a Plan,

°Changing procedures for Plan enrollment and/or withdrawal by participants,

°Changing the time periods for applicable notice provisions in a Plan,

°Changing a Plan’s eligibility requirements for employees and/or officers,

°Changing a Plan’s definition of eligible compensation, base salary or other similar term,

°Changing a Plan’s definition of eligible subsidiaries,

°Changing the fixed amount of money or percentage of eligible compensation, base salary or other similar amount that a participant is entitled to contribute to a Plan, or

°Changing a Plan’s provisions related to the designation of beneficiaries by a participant;

•Changes deemed necessary or advisable to comply with the provisions of applicable laws, regulations or stock exchange rules;

•Changes deemed necessary or advisable for an award to quality for favorable treatment under applicable tax laws or regulations or accounting/auditing requirements;

•Changes to the vesting provisions of a Plan or an award made under a Plan;

•Changes to the termination or amendment provisions for a Plan or an award made under a Plan (other than those which require shareholder approval), provided that the change does not entail an extension of an award beyond the original expiry date, except where the expiry date would have fallen in one of our blackout periods;

•Changes to the procedures for exercising options, acquiring units or purchasing common shares, including, without limitation, the addition or modification of a cashless exercise feature, payable in cash or common shares, which provides for a full deduction of the number of underlying common shares from the reserve of the Plan; and

•Changes to provisions on the transferability of an award to permit a transfer from the grantee to an entity controlled by the grantee or to a former spouse or domestic partner of the grantee in connection with a legal obligation or settlement.

11

Blackout Periods. For good corporate governance reasons, many public companies, including Thomson, have internal trading policies prohibiting certain employees, officers and directors from buying or selling the company’s securities or exercising stock options during specific periods. These are often called “blackout periods.” A blackout period is designed to prevent a person from trading while in possession of material nonpublic information.

Under our company’s policy, there are four periods throughout the year when our designated insiders are permitted to trade in Thomson securities. Each period begins on the trading day after we publicly release earnings and ends on the last day of the fiscal quarter. All other times of the year are considered to be blackout periods. If an insider is aware of undisclosed material information during one of the four permitted trading periods, then the insider cannot trade in Thomson securities until that information has either been disclosed or is no longer considered material. Our company is also permitted to impose special blackout periods (i.e., in connection with a significant M&A transaction) from time to time, during which certain specified insiders and other employees, officers and directors will be prohibited from trading in Thomson securities, even though it ordinarily might not be a blackout period.

The TSX has commented that self-imposed blackout periods might result in an unintended penalty to those who are prohibited from exercising expiring options during that period because of their company’s internal trading policies. As a result, the TSX now provides a framework for extending options that would ordinarily expire during a blackout period. Our company proposes adopting the TSX framework and amending the stock incentive plan so that all options and related awards (such as tandem stock appreciation rights) issued under our stock incentive plan expire at the later of the expiry date set for the option or related award (usually 10 years after the grant date) or, if that date occurs during a blackout period or other period during which an insider is prohibited from trading in our securities by our insider trading policy, 10 business days after the period ends, provided that any such extended expiration date shall not in any event be beyond the later of (i) December 31 of the calendar year in which the options or related awards were otherwise due to expire or (ii) the 15th day of the third month following the day on which the options or related awards were otherwise due to expire. This change has no additional dilutive impact on our common shares and we believe that it will not have an adverse impact on our company or its shareholders.

A full copy of each Plan is available to any shareholder of our company upon request by writing to: The Thomson Corporation, Attention: Legal Department, Metro Center, One Station Place, Stamford, Connecticut 06902, United States or by sending an e-mail request to legal@thomson.com. We also describe each of the Plans in more detail elsewhere in this circular.

A simple majority of votes cast, in person or by proxy, is required to approve this item.

THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” APPROVAL OF THE AMENDMENTS TO THE STOCK INCENTIVE PLAN, EMPLOYEE STOCK PURCHASE PLANS, DEFERRED COMPENSATION PLAN AND U.S. EMPLOYEES’ 401(K) RETIREMENT SAVINGS PLAN.

12

EXECUTIVE COMPENSATION

Summary Compensation Table

The following table discloses compensation earned during the last three years by our President and Chief Executive Officer, our Chief Financial Officer and our next three most highly compensated executive officers who were serving as executive officers as of December 31, 2006. In this section, these individuals are referred to as the named executive officers. All dollar amounts are in U.S. dollars unless otherwise indicated.

		Annual compensation					Long-term compensation
							Awards			Payouts
						Securities		Shares or
					Other annual	under		units subject			All other
					compen-	options/SARs		to resale	LTIP		compen-
Name and principal position	Year	Salary ($)	Bonus ($)1		sation ($)2	granted (#)3		restrictions ($)4	payouts ($)5		sation ($)6
Richard J. Harrington	2006	1,420,000	1,662,820		253,642	265,000		1,921,500	1,551,286		419,634
President and	2005	1,372,000	1,413,160		262,422	–		–	1,200,259		224,306
Chief Executive Officer	2004	1,325,000	1,446,503		263,098	325,000		–	679,905		420,910
Robert D. Daleo	2006	838,000	981,298		123,328	–		1,573,709	914,870		122,750
Executive Vice President	2005	810,000	834,300		150,663	125,000		–	706,212		124,125
and Chief Financial Officer	2004	780,000	851,526		112,478	115,000		–	399,330		122,588
David H. Shaffer7	2006	1,112,000	1,978,990	8	297,099	–		–	1,217,818		65,347
Former Executive	2005	1,080,000	2,008,500	8	562,985	50,000		–	941,616		65,047
Vice President	2004	1,040,000	1,220,570		604,994	50,000		–	532,440		64,796
Brian H. Hall9	2006	1,000,000	1,668,750		255,637	–		614,880	1,073,880		141,126
Vice Chairman	2005	950,000	1,268,250		245,602	125,000		–	802,788		142,108
	2004	900,000	1,380,038		164,935	125,000		1,029,000	446,310		151,120
Ronald H. Schlosser10	2006	805,000	1,513,400	11	87,042	–		495,747	872,292		94,267
President and	2005	780,000	771,420		122,139	125,000		337,300	666,978		130,437
Chief Executive Officer	2004	730,000	611,740		117,205	115,000		–	373,230		122,809
of Thomson Learning

1Annual bonus payouts are with respect to performance during the year shown. Payouts are typically made in the first quarter after the end of the year, following certification of the achievement of applicable performance goals.

2Amounts include tax reimbursements related to premiums paid by our company for life insurance policies. Mr. Harrington received life insurance-related tax reimbursements of $118,906 in 2006, $114,807 in 2005 and $117,093 in 2004. Mr. Daleo received life insurance-related tax reimbursements of $66,076 in 2006, $64,326 in 2005 and $65,659 in 2004. Mr. Daleo also received $37,712 in 2005 for reimbursement of club dues. Mr. Shaffer received life insurance-related tax reimbursements of $48,351 in 2006, $53,650 in 2005 and $38,300 in 2004. In 2006, Mr. Shaffer received $106,389 in connection with taxes paid by our company related to future payments to be made under his supplemental executive retirement plan (SERP). The amounts for 2005 and 2004 include $466,935 and $490,545, respectively, paid to Mr. Shaffer as compensation for living, travel and related expenses incurred as a result of working a significant distance from his family’s principal residence. These amounts also include related tax reimbursements to Mr. Shaffer. Mr. Hall received life insurance-related tax reimbursements of $73,113 in 2006, $71,957 in 2005 and $73,385 in 2004. Mr. Hall’s 2006 and 2005 amounts also include $107,922 and $107,863, respectively, for travel and commuting expenses, primarily associated with his use of leased corporate aircraft. Mr. Schlosser received life insurance-related tax reimbursements of $48,533 in 2006, $49,004 in 2005 and $50,018 in 2004. Mr. Schlosser also received $39,791 in 2005 for reimbursement of travel and commuting expenses. For disclosure purposes, personal use of corporate aircraft for all years presented has been valued based on the incremental variable operating cost to our company. Because our leased corporate aircraft are used primarily for business purposes, fixed costs that do not change based on usage are excluded from this calculation. In last year’s circular, 2004 amounts in this column were calculated using the Standard Industry Fare Level (SIFL) rates determined by the U.S. Department of Transportation and published by the U.S. Internal Revenue Service. SIFL rates are used to determine the amount of compensation income that is imputed to an executive for U.S. tax purposes for personal use of corporate aircraft.

3In February 2006, we granted Mr. Harrington 265,000 options. Mr. Harrington ordinarily would have received options in December 2005 as part of our annual grant, but the Human Resources Committee of the Board of Directors required additional time to formulate a new long-term incentive plan design. No other named executive officers received options or phantom stock units (SARs) in 2006, as the Human Resources Committee decided to change the timing for our annual grant from December 2006 to February 2007. For more information on options granted to Mr. Harrington in February 2006, please see the “Option/SAR Grants in 2006” table contained in this section of the circular.

13

4Amounts represent the dollar value of restricted share units (RSUs) issued during 2006, 2005 and 2004, based on the closing price of our common shares on the New York Stock Exchange on the grant dates multiplied by the number of RSUs granted.

In 2006, we began issuing performance RSUs (PRSUs) as part of our long-term incentive program. These PRSUs vest in March 2009 and entitle the holder to receive Thomson common shares if performance goals are met. At the time that the PRSUs vest, the number of units to be redeemed for common shares may increase, decrease or remain the same depending on our company’s performance during 2006, 2007 and 2008. For more information on PRSUs granted in 2006 to our named executive officers, please see the “Long-Term Incentive Plan – Awards in 2006” table contained in this section of the circular. For additional information about our PRSUs, please see the “Long-Term Incentive Bonus” subsection of the “Report on Executive Compensation” section of this circular.

Our other RSU grants to certain named executive officers have been time-based awards. In 2006, we granted 27,500 RSUs to Mr. Daleo. One third of these will vest on each of February 24, 2009, 2011 and 2013. In 2005, we granted 10,000 RSUs to Mr. Schlosser. One third of these will vest on each of May 5, 2008, 2010 and 2012. In 2004, we granted 30,000 RSUs to Mr. Hall. 3,000 of Mr. Hall’s RSUs vested on December 31, 2004, 4,500 RSUs vested on December 31, 2005, 7,500 RSUs vested on December 31, 2006 and 7,500 RSUs will vest on each of December 31, 2007 and 2008. For additional information about our time-based RSUs, please see the “Equity-Based Compensation Plans” subsection of the “Report on Executive Compensation” section of this circular.

RSUs (both time-based and PRSUs) accumulate additional units based on notional equivalents of dividends paid on our common shares. Additional RSUs resulting from dividends vest to the same extent as the RSUs that resulted in the crediting of such additional RSUs.

The following table sets forth the aggregate number and the value of RSUs held by our named executive officers as of December 31, 2006, based on the closing price of our common shares on the New York Stock Exchange on December 29, 2006, which was the last trading day of the year. RSU amounts below include additional units received from notional dividend equivalents. In 2006, we granted the following additional units from notional dividend equivalents to our named executive officers: Mr. Harrington: 829; Mr. Daleo: 679; Mr. Hall: 787; and Mr. Schlosser: 443.

	Time-Based	Performance
Name	RSUs (#)	RSUs (#)	Value ($)
R. Harrington	–	50,829	2,106,354
R. Daleo	27,956	13,673	1,725,106
D. Shaffer	–	–	–
B. Hall	15,776	16,265	1,327,779
R. Schlosser	10,402	13,114	974,503

5Long-term incentive bonus payouts are with respect to performance periods ending on December 31 of the year shown. These payouts are typically made in the first quarter after the end of the performance period, following certification of the achievement of the applicable performance goals. Amounts reflected in this column for 2004 represent amounts paid pursuant to a two-year transition performance period, in connection with the phase-in of our current three-year long-term incentive bonus program. For more information on long-term incentive bonus awards, please see the “Long-Term Incentive Plan – Awards in 2006” table contained in this section of the circular and the “Long-Term Incentive Bonus” subsection of the “Report on Executive Compensation” section of this circular.

6Amounts for 2006, 2005 and 2004 include premiums that we paid for life insurance policies on behalf of certain of our named executive officers. We will not recover premiums paid. For more information, please see the “Insurance Policies” subsection of the “Executive Compensation” section of this circular. The amounts in this column also include our matching contributions under our company-sponsored U.S. employees’ 401(k) retirement savings plan and deferred compensation plan on behalf of the named executive officers. Under our deferred compensation plan, if a participant elects to convert deferred cash into DSUs, our company credits his or her plan account with a 10% DSU match, which matching units generally vest over a period of four years. Matching contributions made by our company on behalf of our named executive officers are valued in U.S. dollars on the date that the officer converted deferred cash into DSUs.

The amounts for Mr. Harrington in 2006, 2005 and 2004 include payments of premiums of $213,006, $217,096 and $214,389, respectively, in connection with his life insurance policy. Our matching contributions for Mr. Harrington under our U.S. employees’ 401(k) retirement savings plan in 2006, 2005 and 2004 were $6,600, $7,210 and $6,150, respectively. In 2006 and 2004, we granted 5,073 and 6,211 matching DSUs to Mr. Harrington with an aggregate value of $200,028 and $200,371, respectively, on the grant dates.

The amounts for Mr. Daleo in 2006, 2005 and 2004 include payments of premiums of $116,150, $117,825 and $116,438, respectively, in connection with his life insurance policy. Our matching contributions for Mr. Daleo under our U.S. employees’ 401(k) retirement savings plan in 2006, 2005 and 2004 were $6,600, $6,300 and $6,150, respectively.

The amounts for Mr. Shaffer in 2006, 2005 and 2004 include payments of premiums of $58,747, $58,747 and $58,646, respectively, in connection with his life insurance policy. Our matching contributions for Mr. Shaffer under our U.S. employees’ 401(k) retirement savings plan in 2006, 2005 and 2004 were $6,600, $6,300 and $6,150, respectively.

The amounts for Mr. Hall in 2006, 2005 and 2004 include payments of premiums of $134,526, $135,682 and $134,338, respectively, in connection with his life insurance policy. Our matching contributions for Mr. Hall under our U.S. employees’ 401(k) retirement savings plan in 2006, 2005 and 2004 were $6,600, $6,426 and $6,182, respectively. In 2004, we granted 351 matching DSUs to Mr. Hall with an aggregate value of $10,600 on the grant date.

The amounts for Mr. Schlosser in 2006, 2005 and 2004 include payments of premiums of $89,767, $89,363 and $88,907, respectively, in connection with his life insurance policy. Our matching contributions for Mr. Schlosser under our U.S. employees’ 401(k) retirement savings plan in 2006, 2005 and 2004 were $4,500, $4,200 and $3,900, respectively. In 2005 and 2004, we granted 1,108 and 970 matching DSUs to Mr. Schlosser with an aggregate value of $36,874 and $30,002, respectively, on the grant dates.

7Mr. Shaffer retired from Thomson on December 31, 2006. Prior to that, he was Executive Vice President of Thomson during 2005 and 2006. He was Executive Vice President of Thomson and Chief Executive Officer of Thomson Financial from 2002 to 2005.

14

8In 2006, Mr. Shaffer earned a special bonus of $351,300 and a regular bonus of $1,627,690. In 2005, Mr. Shaffer earned a special bonus of $618,000 and a regular bonus of $1,390,500. Mr. Shaffer’s 2006 and 2005 special bonuses were in consideration of him receiving a reduced amount of stock options in 2005 and 2004, respectively. The special bonus earned in 2005 was payable in two installments. For more information on these bonus arrangements, please see the “Annual Cash Incentive Bonus” subsection of the “Report on Executive Compensation” section of this circular.

9Mr. Hall became Vice Chairman of Thomson in January 2007. Prior to that, he was Executive Vice President of Thomson and President and Chief Executive Officer of Thomson Legal & Regulatory.

10Mr. Schlosser has been President and Chief Executive Officer of Thomson Learning since 2002. Prior to that, he was President and Chief Executive Officer of Thomson Scientific & Healthcare. He was an Executive Vice President of Thomson through December 31, 2006.

11In 2006, in connection with our announcement to sell Thomson Learning, we provided Mr. Schlosser with a special annual cash incentive bonus award in addition to his regular annual cash incentive bonus award. Mr. Schlosser earned a special bonus of $844,445 and a regular bonus of $668,955. For more information on these bonus arrangements, please see the “Annual Cash Incentive Bonus” subsection of the “Report on Executive Compensation” section of this circular.

Long-Term Incentive Plan – Awards in 2006

In 2006, we granted long-term incentive awards to our named executive officers. The table below sets forth information regarding PRSU awards granted in 2006 to all of our named executive officers except for Mr. Shaffer. While PRSU awards are granted in terms of number of units, we have also provided the dollar value of the threshold, target and maximum amounts for each award based on the closing price of our common shares on December 29, 2006, which was the last trading day of the year.

		Performance		Estimated future payouts under
	Securities,	or other period		non-securities price-based plans
	units or other	until maturation
Name	rights (#)	or payout	Threshold (#/$)		Target (#/$)	Maximum (#/$)
Richard J. Harrington	50,000	2006–2008	12,500		50,000	100,000
			$518,000		$2,072,000	$4,144,000
Robert D. Daleo	13,450	2006–2008	3,363		13,450	26,900
			$139,362		$557,368	$1,114,736
Brian H. Hall	16,000	2006–2008	4,000		16,000	32,000
			$165,760		$663,040	$1,326,080
Ronald H. Schlosser	12,900	2006–2008	3,225		12,900	25,800
			$133,644		$534,576	$1,069,152

The final number of PRSUs that vest will vary from 0% to 200% of the initial number awarded, based 50% on our company’s adjusted earnings per share (EPS) growth and 50% on our company’s return on invested capital (ROIC) performance over the three-year performance period. PRSUs granted in 2006 will vest on March 1, 2009. For our named executive officers other than Mr. Harrington, the target award for this performance period was initially set based upon 60% of average expected earned base salary. PRSUs will also accumulate additional units based on notional equivalents of dividends paid on our common shares. In February 2007, we granted the following number of PRSUs to our named executive officers: Mr. Harrington – 35,500; Mr. Daleo – 20,930; and Mr. Hall – 25,020. No PRSU awards were granted to Mr. Shaffer in February 2007, as he retired on December 31, 2006. No PRSU awards were granted to Mr. Schlosser, due to our plans to sell Thomson Learning. PRSUs granted in February 2007 have similar terms and conditions to those granted in February 2006, and vest on March 1, 2010.

For more information on these awards, please see the “Long-Term Incentive Bonus” subsection of the “Report on Executive Compensation” section of this circular.

15

In 2006, in lieu of a PRSU award, we issued a cash-based long-term incentive bonus to Mr. Shaffer due to his retirement plans. This award is based on the same performance criteria mentioned in the paragraph immediately above. Mr. Shaffer’s target award below is a pro-rated amount based on the fact that he was only employed by our company for the first year of the performance period. Any amounts earned will be paid to Mr. Shaffer in March 2009. The following table sets forth information regarding this award.

		Performance		Estimated future payouts under
	Securities,	or other period		non-securities price-based plans
	units or other	until maturation
Name	rights (#)	or payout	Threshold ($)		Target ($)	Maximum ($)
David H. Shaffer	–	2006–2008	55,600		222,400	444,800

Option/SAR Grants in 2006

In 2006, Mr. Harrington was the only named executive officer who received a grant of stock options. We did not grant phantom stock units to any of our named executive officers in 2006. Mr. Harrington ordinarily would have received his 2006 options in December 2005 as part of our annual grant, but the Human Resources Committee required additional time to determine his award. As a result, Mr. Harrington received his options in February 2006. In 2006, the Human Resources Committee also decided to change the timing for our annual option and phantom stock unit grants from December 2006 to February 2007. As a result, no new options were granted in 2006 to any of our named executive officers, except for the award to Mr. Harrington described above. For more information about our stock incentive plan, please see the “Equity-Based Compensation Plans” subsection of the “Report on Executive Compensation” section of this circular.

		% of total		Market value of
	Securities	options/SARs		securities underlying
	under	granted	Exercise or	options/SARs on
	options/SARs	to employees	base price	the date of grant
Name	granted (#)	in 2006	($/security)	($/security)	Expiration date
Richard J. Harrington1	265,000	69.7%	$37.73	$37.73	February 9, 2016
Robert D. Daleo	–	–	–	–	–
David H. Shaffer	–	–	–	–	–
Brian H. Hall	–	–	–	–	–
Ronald H. Schlosser	–	–	–	–	–

1If Mr. Harrington’s 265,000 options had been awarded as part of our annual grant in December 2005 instead of in February 2006, the relevant percentages of all options/SARs granted to employees in 2005 would have been as follows for each named executive officer: Mr. Harrington – 7.3%; Messrs. Daleo, Hall and Schlosser – 3.4%; and Mr. Shaffer – 1.4%.

In February 2007, we granted the following number of stock options to our named executive officers: Mr. Harrington – 221,700; Mr. Daleo – 130,830; and Mr. Hall – 156,400. These options have an exercise price of $42.96 and have an expiration date of February 21, 2017.

16

Aggregated Option/SAR Exercises in 2006 and Financial Year-End Option/SAR Values

The following table provides information on stock option and phantom stock unit exercises in 2006 by each of our named executive officers, and the value of each officer’s unexercised options and phantom stock units as of December 31, 2006. During 2006, Messrs. Harrington and Daleo exercised phantom stock units that were about to expire. None of our named executive officers exercised options in 2006. We have not repriced any options granted under our stock incentive plan or units allocated under our phantom stock plan. The value of unexercised in-the-money options and units is the difference between the exercise price of the options and units and the closing price of our common shares on December 29, 2006, which was the last trading day of the year.

			Unexercised	Value of unexercised
		Aggregate	options/SARs at	in-the-money options/SARs
	Securities acquired	value	December 31, 2006 (#)	at December 31, 2006 ($)
Name	on exercise (#)	realized ($)	exercisable/unexercisable	exercisable/unexercisable
Richard J. Harrington	288,750	3,020,575	1,971,250/508,750	11,941,462/2,877,088
Robert D. Daleo	50,000	424,828	565,500/177,500	3,196,108/1,241,850
David H. Shaffer	–	–	1,055,500/97,500	5,505,365/706,875
Brian H. Hall	–	–	690,000/185,000	4,039,227/1,300,125
Ronald H. Schlosser	–	–	540,500/176,250	3,536,341/1,231,913

Equity Compensation Plan Information

The following table provides information as of December 31, 2006 regarding common shares of our company that may be issued under our existing equity compensation plans. Our stock incentive plan is currently the only compensation plan under which common shares of our company have been authorized for issuance. For more information about this plan, please see the “Equity-Based Compensation Plan” subsection of the “Report on Executive Compensation” section of this circular.

						(c)
						Number of securities
						remaining available for
			(a)	(b)		future issuance under
			Number of securities to be	Weighted average		equity compensation
			issued upon exercise of	exercise price of		plans (excluding
			outstanding options,	outstanding options,		securities reflected
Plan category			warrants and rights	warrants and rights		in column (a))
Equity compensation plans approved by security holders:1
	Cdn$ stock options		5,099,392	Cdn$49.79		–
	US$ stock options		9,627,964	US$32.98		–
	US$ time-based restricted share units		407,925	N/A	2	–
		Total	15,135,281	–		22,384,901
Equity compensation plans not approved by security holders			–	–		–
Total			15,135,281	–		22,384,901

1Due to the contingent nature of performance restricted share units (PRSUs) issued under the stock incentive plan, we have excluded PRSUs from this table. As of December 31, 2006, there were 705,109 PRSUs outstanding. If PRSUs were included in the table, the totals in column (a) and (c) of the table would be 15,840,390 and 21,679,792, respectively.

2Unlike stock options, restricted share units do not have an applicable exercise price.

17

Pension and Other Retirement Benefits

We provide pension and other retirement benefits to our named executive officers, primarily under a pension plan, a “retirement plus” plan and supplemental executive retirement plans, or SERPs.

Pension Plan. The pension plan in which the named executive officers participate is a defined benefit plan funded by one of our wholly-owned U.S. subsidiaries that is qualified under U.S. federal income tax laws. Benefits under our U.S. qualified pension plan are subject to a maximum annual benefit based on eligible compensation limits set forth by the U.S. Internal Revenue Service. In 2006, the eligible compensation limit was $220,000 and the maximum annual benefit that could be accrued under the pension plan was $175,000.

Retirement Plus Plan. Our “retirement plus” plan is an unfunded, non-qualified defined benefit plan that provides a supplemental benefit above the limits imposed by the U.S. Internal Revenue Service, with a maximum annual benefit based on an eligible compensation limit of $300,000. Amounts under the retirement plus plan are paid from our company’s general assets.

SERPs. The SERPs are also unfunded, non-qualified defined benefit pension plans under which benefits are paid from our company’s general assets. SERP benefits supplement amounts received by the named executive officers under our other defined benefit plans (i.e., the pension plan and retirement plus plan) and our defined contribution plans, which are funded by company contributions and earnings attributable to such contributions. All of our named executive officers are currently eligible to receive SERP benefits as each of them is at least 55 years old and has at least 10 years of credited service.

The combined annual benefit for each named executive officer is a pension equal to a percentage of his final base salary, commencing on the later of the named executive officer reaching age 62 or his retirement or termination of employment. This percentage of final base salary is 60% for Messrs. Harrington, Daleo and Shaffer and 50% for Messrs. Hall and Schlosser. The benefit amount will be reduced by 5% for each year by which retirement precedes age 62. Given their ages and years of credited service with our company, if a named executive officer is terminated without cause, there would be no reduction to the benefit amount. In certain circumstances, a named executive officer will be entitled to his pension upon disability. The annual benefit is payable for life, with a spousal survivor pension of 50% of the named executive officer’s pension. Annual benefit amounts are not subject to reductions for social security benefits.

The table below sets forth the annual service cost and total accrued pension obligation, respectively, for each named executive officer as of September 30, 2006 (our plan’s measurement date).

Name	Annual service cost ($)	Accrued pension obligation ($)
Richard J. Harrington	589,000	14,354,000
Robert D. Daleo	413,000	6,556,000
David H. Shaffer	853,000	8,510,000
Brian H. Hall	267,000	5,847,000
Ronald H. Schlosser	353,000	3,929,000

The annual service cost of these future benefits represents the actuarial value of the projected pension benefit earned throughout the plan year. The total accrued pension obligation represents the actuarial value of the projected pension benefit as of September 30, 2006, earned for all credited service to date. We determined these values using the same actuarial assumptions as those used to determine the 2006 service cost (which is a component of net periodic pension cost) and year-end pension plan obligations, respectively, in note 17 to our audited consolidated financial statements for the year ended December 31, 2006.

18

The following table shows the estimated annual retirement benefits that would be payable to our named executive officers under the SERPs on a single life annuity basis, based on normal retirement at age 62 with 10 or more years of credited service. This table assumes no reduction under the SERPs for other company-funded retirement benefits (including the pension plan and the retirement plus plan). As of March 9, 2007, all of our named executive officers had at least 10 years of credited service.

	Annual benefit
Base salary	50%1	60%2
$700,000	$350,000	$420,000
$800,000	$400,000	$480,000
$900,000	$450,000	$540,000
$1,000,000	$500,000	$600,000
$1,100,000	$550,000	$660,000
$1,200,000	$600,000	$720,000
$1,300,000	$650,000	$780,000
$1,400,000	$700,000	$840,000
$1,500,000	$750,000	$900,000

1Percentage of base salary applicable for Messrs. Hall and Schlosser.

2Percentage of base salary applicable for Messrs. Harrington, Daleo and Shaffer.

Insurance Policies

We have acquired life insurance policies for Messrs. Harrington, Daleo, Hall and Schlosser. Each policy has a death benefit of approximately five times the highest annual base salary payable to the named executive officer during the last five years of employment with our company. All premiums that we paid prior to the enactment of the Sarbanes-Oxley Act for the non-term life portion of the policies will be repaid to us following the retirement or death of the named executive officer. Due to provisions in the Sarbanes-Oxley Act prohibiting certain loans to executive officers, we modified our arrangements with our named executive officers. As a result, we will not recover premiums paid in 2003 and subsequent years. We have agreed to reimburse Messrs. Harrington, Daleo, Hall and Schlosser for imputed taxes on their policies. Prior to his retirement, Mr. Shaffer had a separate life insurance arrangement on which we also paid premiums and reimbursed him for related taxes.

We provide group life insurance to certain of our U.S. employees in the amount of their annual salary up to $400,000. Messrs. Harrington, Daleo and Schlosser also participate in this plan. Mr. Shaffer participated in this plan prior to his retirement.

Agreements with Named Executive Officers

We have entered into agreements with our named executive officers. Except as set forth below, if Mr. Harrington, Daleo or Hall is terminated without cause, he will receive a payment based on his final base salary. In the case of Mr. Harrington, the payment is the lesser of (i) three times his final base salary as of the effective date of termination and (ii) his final base salary as of the effective date of termination paid through age 62. For each of Messrs. Daleo and Hall, the payment is two times his final base salary. Prior to his retirement, Mr. Shaffer had an agreement that contemplated a payment of two and one-half times his final base salary if he were terminated without cause.

Notwithstanding any terms in our plans to the contrary, if either Mr. Harrington or Mr. Daleo is terminated without cause, 50% of all unvested awards granted to him under our stock incentive plan (such as stock options or RSUs) and units granted to him under the phantom stock plan would immediately vest and become exercisable and the balance would be forfeited. Mr. Harrington or Mr. Daleo

19

would have six months following the effective date of termination to exercise all exercisable awards and units. Alternatively, our company may, at its discretion, determine that all such awards or units (whether or not vested) shall be deemed to have expired at the effective date of termination, in which case our company would pay him an amount equal to the value of all vested units and awards and 50% of all unvested units and awards as of the effective date of termination.

If Mr. Harrington, Mr. Daleo or Mr. Hall is terminated without cause, any management incentive to which he would otherwise be entitled pursuant to any bonus plan in which he participated prior to the effective date of termination would be pro-rated through the effective date, except that any bonuses due under long-term incentive plans would be payable in accordance with the terms of such plans.

If Mr. Harrington, Mr. Daleo or Mr. Hall is terminated without cause, certain medical and dental benefits and insurance, automobile allowances and eligibility in the deferred compensation plan will continue during any severance period in which he remains unemployed. Other employee benefits will end as of the effective date of termination. Please see the “Pension and Other Retirement Benefits” subsection of the “Executive Compensation” section of this circular for more information on treatment of our named executive officers’ pension benefits in connection with a termination without cause. If Mr. Harrington, Mr. Daleo or Mr. Hall is terminated without cause, his SERP benefits would be payable following the completion of any severance payments owed under his agreement. Messrs. Harrington, Daleo and Hall have also agreed not to compete with our company or solicit employees to leave our company for a period of time following termination without cause.

Following our announcement in October 2006 to sell Thomson Learning, we entered into a new agreement with Mr. Schlosser. As President and Chief Executive Officer of Thomson Learning, Mr. Schlosser’s presence and participation is important to the sale process for that business. As part of this new agreement, Mr. Schlosser is entitled to (i) receive a special annual cash incentive bonus based on Thomson Learning meeting certain financial performance conditions in 2006 (payable in March 2007); (ii) receive a performance bonus based on the gross sale proceeds of Thomson Learning (payable following the closing of the sale of Thomson Learning); and (iii) participate in our company’s 2007 annual and long-term incentive bonus plans. If the sale occurs prior to December 31, 2007 and Mr. Schlosser remains employed for 90 days following the closing, he may also be entitled to receive pro-rata payments under our long-term incentive bonus plans for the 2005–2007 and 2006-2008 performance periods. In lieu of these pro-rated payments, Mr. Schlosser may elect to receive a retention bonus in an amount equal to 12 months’ base salary.

If Mr. Schlosser’s employment with our company is terminated other than for cause or voluntary resignation prior to the date that our company signs a definitive agreement to sell Thomson Learning, he will be entitled to receive from our company 24 months’ base salary as severance, certain amounts under our annual and long-term incentive bonus plans and certain health and welfare benefits and insurance coverage. If Mr. Schlosser’s employment is terminated other than for cause or voluntary resignation between the date that we sign a definitive agreement to sell Thomson Learning and the date that is 90 days after the closing, he will be entitled to receive similar amounts and benefits, along with acceleration of his equity-based compensation awards (or, at our company’s option, the cash equivalent thereof). In order to receive these benefits, Mr. Schlosser will be obligated to enter into a severance agreement and release with our company, which, among other provisions, will include covenants regarding non-disparagement, non-competition, confidentiality and the return of company property.

20

REPORT ON EXECUTIVE COMPENSATION

Overview

The Human Resources Committee of the Board is responsible for establishing, implementing and overseeing our compensation policies and programs. The Committee ensures that the total compensation paid to our named executive officers is fair, reasonable and competitive. The Committee has furnished the following report on executive compensation for 2006.

Compensation Philosophy and Objectives

The Committee’s overall philosophy and objectives regarding executive compensation are to:

•Link compensation with our company’s annual and long-term strategic and financial objectives;

•Align executives’ interests with those of Thomson shareholders, with the ultimate goal of improving shareholder value;

•Encourage executives to achieve exceptional performance and provide an opportunity for our senior executives to be compensated in the top quartile of the compensation paid by our competitors when superior results are achieved;

•Attract, motivate and retain high quality, key employees needed to support our financial, operational and strategic growth and success;

•Provide flexibility to recognize and reward an individual executive’s performance, responsibilities, experience, skills, value and contribution to our company; and

•Structure the compensation program to be regarded positively by Thomson shareholders, employees, the financial community and the public in general.

Executive Compensation Analysis

The Human Resources Committee engages a compensation consulting firm, Frederic W. Cook & Co., Inc., to serve as an independent advisor on matters relating to executive compensation. Representatives of the Cook firm are available to Committee members on an ongoing basis and generally attend Committee meetings. The Committee has sole discretion over the terms and conditions of the Cook relationship. Cook maintains no other commercial relations with Thomson and does not provide any services to the company other than those provided directly to the Committee.

During 2006, the Cook firm conducted its annual analysis of our executive compensation structure and its form to ensure our company is competitive in this regard. The Cook firm reviewed our executive compensation program and provided guidance and analysis on plan design and market trends and practices. The Cook firm concluded that our program generally provides executives with competitive compensation opportunities, links compensation to performance and value creation, and is efficient from accounting, tax and cash flow perspectives. In 2006, utilizing guidance from the Cook firm, the Human Resources Committee made several changes to our company’s ongoing incentive plans, most notably the adoption of a share unit-based long-term incentive bonus and the introduction of a multi-year return on invested capital (ROIC) metric in this program (which complemented the existing adjusted EPS metric). The introduction of ROIC, in particular, was intended to better align our compensation practices with a key area of shareholder focus. In 2006, the Cook firm provided additional recommendations to the Human Resources Committee regarding the development and evaluation of some of our executive compensation awards. Some of the Cook firm’s recommendations include data and alternatives for the Committee to consider when making compensation-related decisions.

As most of our company’s senior executives are based in the United States, the group of companies used for comparative purposes typically represents a mix of primarily U.S. media and general industry companies and includes other information companies with which we compete that are located in other countries. The businesses that we choose for comparison may differ from one senior executive to another, depending on the nature of the business for which the particular executive has oversight or responsibilities. In addition to the analysis of specific peer companies conducted by the Cook firm in 2006, the Human Resources Committee utilized and relied upon independent market survey data that Towers Perrin provided to our company regarding executive compensation for organizations of comparable size and scope with which our company is most likely to compete for executive talent. The Human Resources Committee then used this data as part of its due diligence in determining salary, target bonus and long-term incentive amounts.

21

Total Compensation

A senior executive’s target total compensation typically comprises:

•A base salary;

•A performance-based annual incentive bonus, which is usually paid in cash;

•Periodic grants (generally annual) of long-term incentives, such as stock options and/or restricted share units, which may be subject to performance-based and/or time-based vesting requirements;

•Retirement and health and welfare-related benefits; and

•In some instances, perquisites and other personal benefits.

In determining the mix and relative weighting of cash (base salary and bonus) versus equity-based incentives, we consider the appropriate proportion of compensation that should be at risk based on the executive’s ability to affect and influence our short- and long-term results and advance the interests of shareholders as well as the compensation mix for similar positions at comparable companies. In general, the proportion of total pay delivered through “at risk” performance-based compensation increases directly with an executive’s level of responsibility in the company. Similarly, the proportion of performance-based compensation that is tied to equity-based awards also increases directly with an executive’s level within the company. The Committee believes that this ensures that the senior-most executives are held most accountable for achievement of critical strategic and operating performance goals and for changes in shareholder value. As senior executives approach retirement age, there is generally less emphasis placed on equity-based long-term incentives, which decreases pressure executives feel to diversify their total net worth. The Committee believes this mix and weighting aligns the interests of executives with those of shareholders, provides significant cash incentives and assists in keeping our company competitive in the market for high-quality executives.

The table below shows the typical target weightings that we are currently seeking to assign to the different types of compensation for our named executive officers.

	Percentage of target total direct compensation
		Annual cash	Long-term equity	Long-term equity
	Base salary	incentive bonus	incentive – options	incentive – PRSUs	Total
Named executive officer	25%	25%	25%	25%	100%

The specific practices regarding each component of our executive compensation program are described below.

Base Salary

Base salary is typically determined annually by reference to an executive’s performance, an executive’s experience and competitive considerations, such as salaries prevailing in the relevant market. Base salaries are also evaluated in connection with certain promotions and other changes in job responsibilities. Generally, as in the past, increases in 2006 base salaries were determined primarily by the performance of our company, of the part of our business in which the executive works, and of the individual executive. For an executive in one of our company’s segments, the most heavily weighted factors are the performance of that executive and that group. For an executive with corporate-wide responsibilities, the most heavily weighted factors are the performance of that executive and the performance of our company as a whole. In the past few years, most of our executives have had annual salary increases in the 3 to 5% range, consistent with salary increase guidelines for other employees.

The Human Resources Committee annually approves changes in base salary for senior executive officers, including the named executive officers. Salaries for our named executive officers (other than Mr. Harrington) are established in part on the basis of recommendations by Mr. Harrington and on the basis of the Board’s and Human Resources Committee’s assessments of the executives’ respective performance. Mr. Harrington’s salary is based on the Board’s and Human Resources Committee’s assessment of Mr. Harrington’s performance. The most recent salary reviews took place in December 2006.

22

Annual Cash Incentive Bonus

We use annual cash incentive bonus awards to motivate and reward senior executives for achievement of specified levels of financial and/or individual performance. Different types of bonus awards are often granted to compensate individual executives, but all focus on superior performance. Each Thomson business segment establishes awards within parameters we set that take into account the market conditions of the particular business. The awards are typically designed to reward the individual executive for the direct contribution that he or she can make to our company or his or her business.

Target annual cash incentive bonus awards are expressed as a percentage of each of the named executive officer’s base salary. For 2006, Mr. Harrington’s target bonus opportunity was 100% of his base salary, and the other named executive officers’ target bonus opportunities ranged from 100% (for Messrs. Daleo and Schlosser) to 125% (for Messrs. Shaffer and Hall) of their base salary. The Committee sets minimum (threshold), target and maximum levels for each component of the financial objective portion of the award. In 2006, the maximum level for named executive officers’ annual cash incentive bonuses was 200% of the target award. After the end of the year, the company measures its actual performance against the predetermined performance goals to determine the appropriate bonus amount earned, and the Committee determines the actual cash incentive bonus awards for our named executive officers in February following the close of our fiscal year.

In making determinations of the minimum, target and maximum levels, the Committee considers the company’s specific circumstances for the year. Targets are typically aligned with the company’s strategic operating plan and financial expectations. In general, the Committee sets targets so that the relative difficulty of achieving them is consistent from year to year.

For 2006, in order to increase our focus on the importance of free cash flow, which is an important metric of our performance, we added free cash flow growth to the annual bonus plan and assigned the following weightings to the financial performance objectives:

•45% based on revenue growth;

•45% based on adjusted operating profit growth; and

•10% based on free cash flow growth.

For definitions of adjusted operating profit and free cash flow as used by our company, please see our MD&A for the year ended December 31, 2006.

In February 2007, the Committee determined that the annual cash incentive bonus payouts for the year ended December 31, 2006 as a percentage of the target award opportunity were as follows for our named executive officers: Mr. Harrington – 117.1%; Mr. Daleo – 117.1%, Mr. Shaffer – 117.1%; Mr. Hall – 133.5%; and Mr. Schlosser – 83.1%. Also in February 2007, the Committee approved the annual cash incentive bonus plan for 2007. No changes were made to the performance criteria, bonus targets or other design elements.

In December 2004, in lieu of receiving a greater amount of stock options as part of our annual grant, Mr. Shaffer was granted a special annual cash incentive bonus award in addition to his regular annual cash incentive bonus award. Under the special award, Mr. Shaffer’s target bonus was $600,000 (payable in two installments) based on our revenue and adjusted operating profit growth for 2005. The threshold amount for 2005 was met and Mr. Shaffer earned a bonus of $618,000. The first payout of $309,000 occurred in March 2006. The second payout of the same amount will be made to Mr. Shaffer in March 2007. Mr. Shaffer was granted a similar award in December 2005 in lieu of receiving a greater amount of stock options that month. Under the new award grant, Mr. Shaffer’s target bonus was $300,000 (payable in one installment) based on our revenue, adjusted operating profit and free cash flow growth for 2006. In March 2007, we will make a payout of $351,300 to Mr. Shaffer for this award.

In 2006, in connection with our announcement to sell Thomson Learning, we also provided Mr. Schlosser with a special annual cash incentive bonus award in addition to his regular annual cash incentive bonus award. Under the special award, Mr. Schlosser’s target bonus was $805,000 based on Thomson Learning meeting certain financial performance conditions in 2006. Mr. Schlosser earned a special bonus of $844,445, and the payout will occur in March 2007.

The Human Resources Committee approves awards for senior executive officers. Mr. Harrington or the chief executive officer of the relevant Thomson business segment generally approves awards for other executives, subject to the guidelines imposed by the Human Resources Committee.

23

Long-Term Incentive Bonus

We have granted a number of cash-based long-term incentive bonus awards to our key senior executives. The performance periods for the awards are typically three years, coinciding with our company’s operating planning cycles. Payments of long-term incentive awards are not made unless predetermined targets are met.

In February 2006, we modified the structure of our long-term incentive bonus awards to better align these awards with key drivers of total shareholder return. For new awards, we began issuing performance restricted share units (PRSUs) to certain senior executives who receive long-term incentives in lieu of long-term cash incentive bonuses. A description of the PRSUs is presented below.

Prior to 2006, our long-term incentive bonus awards were cash-based and were measured by different financial metrics over a three-year performance period. Similar to our current practice, total long-term cash bonuses cannot exceed 200% of the target award. In February 2007, the Committee determined that the payout percentage for our named executive officers for long-term incentive bonuses earned for the three-year performance period that ended December 31, 2006 was approximately 188.4% of the target award opportunity. The only outstanding cash-based long-term incentive bonus award opportunity is for the three-year performance period ending on December 31, 2007, which is payable in 2008.

Equity-Based Compensation Plans

Our equity-based compensation plans consist of a stock incentive plan and a phantom stock plan.

Stock Incentive Plan. Our stock incentive plan provides for the grant of non-qualified stock options, incentive stock options (ISOs), stock appreciation rights (SARs) and awards of RSUs, common shares and other awards that are valued in whole or in part by reference to, or are otherwise based on, the fair market value of the common shares of our company at the date of the grant. To date, we have issued only stock options and RSUs (which include PRSUs) under the plan. Any employee or officer of our company (as may be determined by the Human Resources Committee) may be a participant in the plan. Non-employee directors are not eligible to participate in the plan.

Stock options, which have value only if our stock price increases, are used to align executive interests with those of our long-term shareholders. PRSUs are used to link a portion of compensation to the achievement of longer-term financial goals. Additionally, time-based RSUs are granted on a highly selective basis to high-performing, critical-to-retain executives. Equity-based awards utilize multi-year vesting schedules to encourage executive retention and provide strong incentives for superior long-term future performance.

We look to divide our named executive officers’ long-term equity awards between 50% stock options and 50% PRSUs. The blend of stock options and PRSUs is intended to create balance in the overall long-term incentive program by ensuring that the program is financially efficient to the company and strongly supportive of important strategic and human resource objectives over the long-term. Stock options reward executives for increases in shareholder value and thereby foster strong alignment between management and investors. Options also support important management retention objectives as a result of the vesting requirements. However, the retention power and cost efficiency may be diminished during periods in which stock price is flat or temporarily depressed because expense associated with options is fixed at the time of grant and based on a theoretical value. Costs associated with the PRSUs are variable and incurred only to the extent that the underlying performance goals are achieved. PRSUs thereby ensure a financially efficient outcome to the company by tying expense recognition to the achievement of specific financial goals. Because the payout is tied to operational results, we believe that the PRSUs also create strong “line of sight” between controllable performance and realized compensation, reinforce the importance of achieving specific multi-year financial results, and mitigate the impact of stock price volatility on the retention power of the overall program.

All options granted in 2006 vest 25% per year over four years. The exercise prices for options granted in 2006 were based on the fair market value of our common shares on the grant date, which is the closing price of our common shares on the day before the grant. Since we amended the stock incentive plan in May 2005, we have been using the closing price of our shares on the New York Stock Exchange (NYSE). Options currently expire no later than10 years from the grant date.

24

PRSUs vest upon completion of a three-year performance cycle and entitle the holder to receive Thomson common shares if threshold performance goals are met. At the time that the PRSUs vest, the number of units to be redeemed for common shares may increase, decrease or remain the same depending on our company’s performance over the three-year period. For awards granted in 2006, the final number of PRSUs that vest will vary from 0% to 200% of the initial number awarded, based 50% on our company’s adjusted EPS growth and 50% on our company’s ROIC performance over the three-year performance period (January 1, 2006 – December 31, 2008). PRSUs also accumulate additional units based on notional equivalents of dividends paid on our common shares.

RSUs accumulate additional units based on notional equivalents of dividends paid on our common shares. Vesting dates for RSUs granted in 2006 ranged from three to seven years. RSUs entitle executives to receive common shares of our company at a future date or dates upon satisfaction of certain terms and conditions, including, for example, continued full-time employment with our company or one of our subsidiaries on the vesting dates.

In 2006, we granted 380,000 options,192,098 time-based RSUs and 705,109 PRSUs. This represented approximately 0.2% of our common shares outstanding as of December 31, 2006. In comparison, in 2005, we granted 3,112,846 options, 201,194 time-based RSUs and no PRSUs. RSUs and PRSUs issued in 2006 and 2005 include additional units credited for dividend equivalents. As of December 31, 2006, total options, RSUs and PRSUs outstanding represented approximately 2.5% of our common shares outstanding. No annual option awards were granted in 2006, as the Human Resources Committee decided to move the timing of our annual grants from December 2006 to February 2007 to correspond with the compensation planning cycle for other direct compensation elements, including base salary increases and annual bonus decisions.

From time to time, we also grant off-cycle options to new executives, in connection with promotions and to reward exceptional performance. In 2006, as part of an emerging best practice for public companies, the Human Resources Committee adopted a new equity grant policy which sets forth approval requirements for off-cycle awards. Mr. Harrington is authorized to approve certain off-cycle awards, depending on the size of the grant and the identity of the particular grantee. Awards that exceed Mr. Harrington’s approval authority are submitted to the Human Resources Committee. In addition, under the new policy, unless Thomson is in a designated blackout period or is in possession of material nonpublic information, off-cycle awards are granted on the last business day of each month. New hire awards are made on the last business day of the month during which the grantee commenced employment with Thomson or one of its subsidiaries. Promotion-related awards are made on the last business day of the month during which the grantee’s promotion was made effective by Thomson or one of its subsidiaries. If Thomson is in a designated blackout period or otherwise is in possession of material nonpublic information on the date that a grant would typically be made, then the grant is not made until the last business day of the month after the blackout period has ended, or when Thomson is no longer in possession of material nonpublic information.

Options, RSUs and PRSUs are subject to early expiration or vesting in certain circumstances, including death, disability, retirement and termination.

•Options granted prior to February 2007 cease to be exercisable in the event that a participant ceases to be an employee or officer of our company or a subsidiary for any reason other than death, retirement, disability or the employer of the participant ceasing to be a subsidiary of our company. For these options, if the participant ceases to be an employee or officer of our company or a subsidiary for any of the reasons listed as exceptions immediately above, the options held by such participant become exercisable and remain exercisable for a period of between three months and one year after such date depending upon the circumstances and, in the case of early retirement, subject to a specified reduction in the number of common shares for which such option is exercisable. In the fourth quarter of 2006, the Human Resources Committee approved certain changes to the post-termination treatment of stock options beginning with our annual option grants made in February 2007. The changes are not applicable to grants made prior to February 2007. In particular, the Committee exercised its discretion under the stock incentive plan to extend the exercise period for vested stock options, beginning with new awards granted in February 2007:

°Following termination due to “normal retirement” and “early retirement” to three years (from one year and six months, respectively), and

°Following termination due to disability to one year (from six months).

25

The Committee also exercised its discretion to prescribe new definitions of “normal retirement” and “early retirement” for purposes of awards under the stock incentive plan, beginning with our annual option grants made in February 2007. No changes were made to the one-year exercise period post-termination for death, an employer ceasing to be a subsidiary of Thomson or involuntary termination for cause. If a grantee was eligible for normal retirement at the time of termination due to disability or death, his or her vested options will remain exercisable for three years after termination.

Under the new option awards granted in February 2007, if a grantee voluntarily terminates employment, then all options that are vested as of the date that the grantee ceases to be an employee remain exercisable for three months after termination. All options that are unvested as of the date that the grantee ceases to be an employee are forfeited. Involuntary termination without cause is treated in a similar manner.

•For time-based RSUs, in the event that a participant ceases to be an employee or officer as a result of early retirement or for any reason other than death, normal retirement, disability or the employer of the participant ceasing to be a subsidiary of our company, all unvested time-based RSUs are forfeited effective immediately upon the occurrence of such event. If a participant ceases to be an employee or officer as a result of death, normal retirement, disability or by reason of the employer of the participant ceasing to be a subsidiary of our company, all unvested RSUs vest in full effective immediately upon the occurrence of such event.

•For PRSUs, in the event that a participant ceases to be an employee or officer for any reason other than death, retirement, disability or the employer of the participant ceasing to be a subsidiary of our company, all PRSUs are forfeited immediately upon the occurrence of such event. If a participant ceases to be an employee or officer as a result of death, retirement, disability or the employer of the participant ceasing to be a subsidiary of our company, PRSUs vest in proportion to the participant’s active service as an employee (measured in calendar days) during the period commencing on the grant date and ending on the vesting date. For PRSUs awarded in 2006 as part of our annual grant, the vesting date is approximately three years from the grant date.

The stock incentive plan contains the following limitations:

•The maximum number of common shares that may be issued under the plan is 40,000,000 (provided that not more than 4,000,000 common shares may be issued under grants other than stock options, SARs or RSUs). As of March 1, 2007, we had issued 1,979,350 common shares under the plan.

•The maximum number of common shares that may be issued under plan awards held by any one person under the plan cannot exceed 5% of our outstanding common shares determined on a non-diluted basis. The maximum number of common shares for which plan awards may be granted and which may be otherwise awarded under the stock incentive plan to any individual during any one-year period is 2,000,000.

•The maximum number of common shares that may be issued under plan awards held by a participant granted under the plan and under any other share compensation arrangement of our company (i) to all “insiders” may not exceed 10% of the number of outstanding common shares at such time determined on a non-diluted basis, and (ii) to an “insider” and such insider’s “associates” during any one-year period may not exceed 5% of the number of outstanding common shares at such time determined on a non-diluted basis.

•The maximum number of common shares that may be issued through ISOs under the stock incentive plan may not exceed 4,000,000.

Information about grants under the stock incentive plan to our named executive officers is provided in the “Option/SAR Grants in 2006” table contained in this circular.

Phantom Stock Plan. If tax or securities regulations make it impracticable or inefficient to make grants under the stock incentive plan, we may allocate units under our phantom stock plan to executive officers and senior employees of our company and our subsidiaries. After being employed with our company for a prescribed length of time, a holder of units is entitled to a cash payment based on the number of units and the increase, if any, in the market price of our common shares from the date of grant. We did not grant any phantom stock units in 2006.

26

Generally, in determining whether and how many grants to make under the stock incentive plan and allocations under the phantom stock plan, the Human Resources Committee does not take into account the amount of previous allocations under the plans. Rather, the Human Resources Committee makes grants with a view to providing competitive total target compensation packages, in which long-term equity should be balanced against short-term compensation opportunities. The Human Resources Committee does not consider it relevant whether an executive has exercised options or units previously granted.

Deferred Compensation Plan

A group of key executives, including our named executive officers, is eligible to participate in our deferred compensation plan, which allows participants to voluntarily defer a percentage of annual base salary and annual and long-term cash incentive bonuses. Irrevocable elections to participate in this plan must be made before the beginning of the fiscal year. Certain participants in the plan are eligible to convert deferred cash into deferred share units (DSUs). Deferred cash may be converted into DSUs on the basis of the closing price of our common shares on the NYSE on the day before the deferral or conversion. If a participant elects to hold DSUs, our company credits his or her plan account with a 10% DSU match, which matching units generally vest over a period of four years. DSUs also accumulate additional units based on notional equivalents of dividends paid on our common shares. We issue new common shares to satisfy our DSU obligations to participants. The maximum number of common shares which may be issued under our deferred compensation plan is 6,000,000. As of March 1, 2007, we had issued 14,508 common shares under this plan.

Employee Stock Purchase Plan

In the fourth quarter of 2005, we launched a new U.S. employee stock purchase plan, under which eligible employees, including our named executive officers, may purchase common shares of our company at a 15% discount. Employees who participate may contribute 1% to 10% of their eligible compensation through after-tax payroll deductions, up to a maximum of $21,250 (or the equivalent in other currencies) in a calendar year. On the last business day of each quarter, we use employees’ accumulated payroll deductions to purchase common shares for them. In 2006, we launched a similar employee stock purchase plan for our eligible Canadian and U.K. employees. In early 2006, we made certain administrative amendments to these plans. These amendments were within the discretionary authority of the Board of Directors under the terms of the plans and did not require shareholder approval. The maximum number of our common shares which may be issued under our employee stock purchase plans is 8,000,000. As of March 1, 2007, we had issued 948,342 common shares under these plans.

Retirement Benefits

Our company’s retirement benefits are designed to provide a competitive level of post-retirement income and a strong incentive for executives to remain with Thomson throughout their careers.

Pension and retirement plans. For information about the pension plans and other retirement benefits applicable to our named executive officers, see the “Pension and Other Retirement Benefits” subsection of the “Executive Compensation” section of this circular.

U.S. employees’ 401(k) retirement savings plan. We maintain a 401(k) retirement savings plan that covers substantially all of our U.S. employees, including most of our senior executives and all of our named executive officers. This plan is a tax-qualified company-sponsored retirement savings plan under which participating employees may contribute up to 25% of their compensation on a before-tax basis (16% for employees who are considered to be highly compensated). We also make a company matching contribution to amounts contributed by participating employees. During 2006, the maximum before-tax contribution that could be made by a participating employee was $15,000 per year (or $20,000 per year for certain participants age 50 and over). As of March 9, 2007, the plan had 17 different investment options, one of which was a company stock fund. Employees only contribute to the company stock fund if they have elected to do so. For more information on company matching contributions made to our named executive officers, please see the “Summary Compensation Table” contained in this circular. In 2006, we made certain administrative amendments to the plan. These amendments were within the discretionary authority of the board of directors of the wholly-owned subsidiary that administers the plan and did not require shareholder approval. The maximum number of our common shares that may be issued under the plan is 9,000,000. As of March 1, 2007, we had issued 495,665 common shares under this plan.

27

Perquisites and Other Personal Benefits

Thomson provides its named executive officers with perquisites and other personal benefits that the company and the Committee believe are reasonable and consistent with its overall compensation program to better enable the company to attract and retain superior employees for key positions. For our named executive officers, these perquisites and benefits include executive medical coverage, use of company automobiles and corporate aircraft, tax preparation and financial planning assistance and payment of club dues. The Committee periodically reviews the levels of perquisites and other personal benefits provided to the named executive officers.

Share Ownership

We believe that the use of long-term equity-based incentive compensation programs further aligns the interests of our senior executives with those of our shareholders and enables them to share in the long-term growth and success of our company. In 2002, we approved share ownership guidelines for some of our senior executives that require them to maintain an equity interest in our company with a value equal to a multiple of their salary. In 2006, we increased the salary multiples in our guidelines. The highest current multiple is five times salary and the lowest is one times salary. The values of DSUs and common shares acquired pursuant to our deferred compensation plan, U.S. employees’ 401(k) retirement savings plan and employee stock purchase plans count toward meeting the share ownership requirement. Unvested RSUs and PRSUs and all stock options do not count toward the guidelines. There is no longer a deadline for complying with the share ownership requirements. Senior executives subject to our current share ownership guidelines must retain a specified percentage of the shares that they acquire (after applicable tax withholdings) through option exercises and the vesting of RSUs and PRSUs until they have attained the share ownership requirements. Mr. Harrington currently exceeds his share ownership requirements. Mr. Daleo and Mr. Hall are currently required to retain 50% of the common shares that they acquire until they attain their share ownership requirements.

The following table sets forth the applicable share ownership requirement and actual share ownership (each as a multiple of base salary) for Messrs. Harrington, Daleo and Hall. Mr. Shaffer is no longer subject to these guidelines as a result of his retirement as of December 31, 2006. In addition, Mr. Schlosser is no longer subject to these guidelines as a result of the pending sale of Thomson Learning.

	Required share ownership –	Actual share ownership –
Name	base salary multiple	base salary multiple
Richard J. Harrington	5x	12.3x
Robert D. Daleo	3x	2.6x
Brian H. Hall	3x	2.0x

Chief Executive Officer’s Compensation

The structure of Mr. Harrington’s compensation is similar to that of other senior executives of our company. In setting
Mr. Harrington’s compensation, the Human Resources Committee uses the same philosophy and guiding principles described above and refers to publicly disclosed executive compensation information to ascertain that the amount is competitive with amounts paid to chief executive officers of businesses of comparable size and in comparable markets. As Mr. Harrington is based in the United States, the group of companies used for comparative purposes represents a mix of primarily U.S. media and general industry companies including other information companies with which we compete. For 2006, Mr. Harrington received an increase in his annual salary, based on merit, of 3.5%. His resulting annual salary in 2006 was $1,420,000. Mr. Harrington’s base salary for 2007 is $1,474,000, representing a 3.8% increase from 2006.

Mr. Harrington’s compensation also includes equity-based compensation awards under our stock incentive plan and annual and long-term incentive bonus awards. Similar to those of our other named executive officers, Mr. Harrington’s annual incentive bonus earned for 2006 was weighted 45% based on revenue growth, 45% based on adjusted operating profit growth and 10% based on free cash flow growth. Mr. Harrington’s long-term cash incentive bonus earned for the three-year performance period which ended on December 31, 2006 was based on certain adjusted EPS targets. Based on our company’s performance, Mr. Harrington earned a 2006 annual cash incentive bonus of $1,662,820 and a long-term cash incentive bonus of $1,551,286.

28

Mr. Harrington ordinarily would have received options as part of our annual grant in December 2005, but the Human Resources Committee needed additional time to formulate his long-term equity-based incentive award. In February 2006, Mr. Harrington was granted 265,000 options and 50,000 PRSUs. In February 2007, Mr. Harrington was granted 221,700 options and 35,500 PRSUs. As a result, Mr. Harrington’s long-term incentive opportunity is now split approximately 50% between options and PRSUs.

Mr. Harrington’s options vest 25% per year over a four-year period. Mr. Harrington’s PRSUs vest after approximately three years, and entitle him to receive Thomson common shares if performance goals are achieved. At the time that Mr. Harrington’s PRSUs vest, the number of units to be redeemed for common shares may increase, decrease or remain the same depending on our company’s performance over the three-year period. The final number of PRSUs that vest will vary from 0% to 200% of the initial number awarded, based 50% on our company’s adjusted EPS growth and 50% on our company’s ROIC performance over the three-year performance period. Mr. Harrington’s PRSUs will also accumulate additional units based on notional equivalents of dividends paid on our common shares.

In February 2007, the Human Resources Committee also made a special grant of 24,100 time-based RSUs to Mr. Harrington. All of these RSUs will vest in February 2009.

The Human Resources Committee reviewed Mr. Harrington’s performance in 2006, considering strategic, financial and operational components. Under Mr. Harrington’s leadership in 2006:

•Thomson delivered another year of solid financial performance. In particular, our company achieved an 8% increase in revenues, full year EPS was up 22% and free cash flow grew 21%. In 2006, the company had 6% revenue growth from existing businesses. Thomson’s electronic solutions, software and services achieved strong revenue growth in 2006, and comprised approximately 80% of our company’s 2006 revenues.

•The company launched the THOMSONplus initiative in mid-2006, which is already driving efficiencies. THOMSONplus is a coordinated series of initiatives that are designed to increase our company’s organizational efficiency and effectiveness by leveraging technology and scale and adopting industry best practices. The result is a common, robust infrastructure that can be leveraged across our company.

•As part of the company’s efforts to optimize the business portfolio to improve growth and returns, the company announced a decision in 2006 to sell Thomson Learning and also refined its internal investment process.

•Thomson was successful in further developing and deploying innovative workflow solutions that meet our customers’ needs.

•Mr. Harrington also was instrumental in initiating our company’s organizational realignment which became effective on January 1, 2007, as well as other important senior management changes and succession planning. The Human Resources Committee believes that these and other changes have strengthened our company’s senior management structure and succession planning and have established the right team to ensure our continued success.

The Human Resources Committee believes that Mr. Harrington’s compensation structure is consistent with compensation programs offered by the company’s significant competitors, aligns Mr. Harrington’s interests with those of our shareholders and appropriately compensates Mr. Harrington for the long-term success of the company.

Composition of the Human Resources Committee

This report on executive compensation has been approved by the Human Resources Committee, the members of which are set out below.

Steven A. Denning (Chair)	Michael J. Sabia
W. Geoffrey Beattie	Richard M. Thomson
V. Maureen Kempston Darkes	John A. Tory

Mr. Sabia became a member of the Committee in November 2006 in connection with his appointment to the Board. All of the Committee members except for Messrs. Beattie and Tory have been determined by the Board of Directors to be independent.
Mr. Beattie is an executive officer of Woodbridge and certain companies affiliated with it, and he is also the Deputy Chairman of our Board. Mr. Tory is a director and former executive officer of Woodbridge and certain companies affiliated with it (other than our company), a former Deputy Chairman of our Board and a former officer of some of our subsidiaries.

29

REPORT OF THE AUDIT COMMITTEE

The Audit Committee is responsible for assisting the Board in fulfilling its oversight responsibilities in relation to the integrity of our financial statements, our compliance with legal and regulatory requirements, the qualifications and independence of our auditors, the performance of our internal audit function and independent auditors, and any additional matters delegated to the Audit Committee by the Board. More information about the Audit Committee is contained in the “Statement of Corporate Governance Practices” section of this circular.

In 2006, the Audit Committee met with various members of Thomson’s senior management and internal audit team and PricewaterhouseCoopers LLP. In addition, the Committee met regularly in separate sessions with representatives of PricewaterhouseCoopers LLP. In 2006, in the course of fulfilling its mandate, the Audit Committee focused on several topics, which included:

•Reviewing and discussing the company’s annual and quarterly consolidated financial statements and related management’s discussion and analysis. The Committee also reviewed other disclosures, including Thomson’s earnings press releases and annual information form and annual report on Form 40-F;

•Reviewing the scope and plans for the audit of the company’s financial statements;

•Reviewing and approving fees to be paid to PricewaterhouseCoopers LLP for its services, as further described in the “Appointment of Auditors” subsection of the “Business of the Meeting” section of this circular;

•Discussing with PricewaterhouseCoopers LLP:

°Its independence from Thomson (and receiving disclosures from PricewaterhouseCoopers LLP in this regard),

°All critical accounting policies and practices used or to be used by Thomson,

°All alternative treatments of financial information within generally accepted accounting principles that have been discussed with management, ramifications of the use of such alternative treatments and the treatment preferred by the auditors, and

°All other matters required to be communicated under generally accepted auditing standards;

•Receiving periodic updates on Thomson’s guidelines and policies with respect to risk assessment and risk management, including the steps and processes taken to monitor and control risks; and

•Receiving periodic updates from Thomson’s Corporate Compliance and Audit Department on internal control over financial reporting and fraud-related matters.

The Audit Committee also played a role in Thomson management’s first report on internal control over financial reporting. In February 2007, as part of its oversight role and in reliance upon its reviews and discussions as noted above, the Audit Committee reviewed and discussed with management its assessment and report on the effectiveness of the company’s internal control over financial reporting as of December 31, 2006, which was made using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission. The Audit Committee also reviewed and discussed with PricewaterhouseCoopers LLP its attestation report on management’s assessment of internal control over financial reporting and its review and report on Thomson’s internal control over financial reporting. The Audit Committee also recommended that PricewaterhouseCoopers LLP be re-appointed as the company’s independent auditors to serve until the next annual general meeting of shareholders in 2008, and that the Board submit this appointment to Thomson’s shareholders for approval at the 2007 annual meeting.

Based upon the reports and discussions described in this report, and subject to the limitations on the role and responsibilities of the Audit Committee in its charter, the Audit Committee recommended that the Board approve the filing of the audited consolidated financial statements, management’s discussion and analysis and annual information form for the year ended December 31, 2006 with the Canadian securities regulatory authorities, the filing of the Form 40-F for the year ended December 31, 2006 with the SEC, and the inclusion of the audited consolidated financial statements in the company’s annual report to shareholders for the year ended December 31, 2006.

This report has been approved by the Audit Committee, the members of which are set out below.

Vance K. Opperman (Chair)	John M. Thompson
Ron D. Barbaro	Richard M. Thomson
Roger L. Martin

30

PERFORMANCE GRAPHS

The graph below compares the cumulative total shareholder return, assuming reinvestment of dividends, on Cdn$100 invested in our shares on December 31, 2001 with the cumulative total return of the S&P/TSX Composite Index over the same period. A significant portion of our revenues are generated in U.S. dollars and our financial statements are expressed in U.S. dollars. As such, an appreciation of the Canadian dollar relative to the U.S. dollar can have an adverse effect on the value of our Canadian dollar-denominated common shares. 2006 was the fourth consecutive year that the Canadian dollar strengthened against the U.S. dollar.

Cumulative Value of a Cdn$100 Investment

Cumulative Value of a US$100 Investment

The graph below compares the cumulative total shareholder return, assuming reinvestment of dividends, on US$100 invested in our shares on June 11, 2002 with the cumulative total return of the S&P 500 Composite Index over the same period. Our common shares were listed on the NYSE on June 11, 2002.

31

COMPENSATION OF DIRECTORS

The table below sets forth the annual retainers and attendance fees (in U.S. dollars) paid to our non-management directors in 2006.

Annual retainer for directors	80,000
Annual retainer for Human Resources Committee and Corporate Governance Committee Chairs	5,000
Annual retainer for Audit Committee Chair	10,000
Each Board or committee (excluding Audit Committee) meeting attended	1,000
Each Audit Committee meeting attended	2,000
Annual retainer for Chairman	500,000
Annual retainer for Deputy Chairman	250,000

Effective in February 2007, the Chairs of the Human Resources Committee and Audit Committee will each be paid an annual retainer of $10,000.

Director Compensation

The following table reflects compensation earned by our non-management directors in 2006. The amounts are actual amounts earned in respect of 2006 in DSUs and cash, as further discussed below. Neither the Chairman (David K.R. Thomson) nor the
Deputy Chairman (W. Geoffrey Beattie) receives an attendance fee. Management directors do not receive compensation for their services as directors.

		Committee	Board	Committee
	Board	Chair	attendance	attendance
Name	retainer ($)	retainer ($)	fees ($)	fees ($)	Total fees ($)
David K.R. Thomson	500,000	–	–	–	500,000
W. Geoffrey Beattie	250,000	–	–	–	250,000
Ron D. Barbaro	80,000	–	11,000	17,000	108,000
Mary Cirillo	80,000	–	10,000	3,000	93,000
Steven A. Denning	80,000	5,000	12,000	5,000	102,000
V. Maureen Kempston Darkes	80,000	–	12,000	8,000	100,000
Roger L. Martin	80,000	–	12,000	14,000	106,000
Vance K. Opperman	80,000	10,000	12,000	14,000	116,000
Michael J. Sabia1	20,000	–	–	1,000	21,000
John M. Thompson	80,000	5,000	11,000	17,000	113,000
Kenneth R. Thomson2	40,000	–	5,000	–	45,000
Peter J. Thomson	80,000	–	12,000	–	92,000
Richard M. Thomson	80,000	–	11,000	19,000	110,000
John A. Tory	80,000	–	12,000	5,000	97,000
Total	1,610,000	20,000	120,000	103,000	1,853,000

1Mr. Sabia was appointed to the Board in November 2006.

2Mr. Thomson died in June 2006.

32

Deferred Share Units. Under our non-management director share plan, non-management directors (except for the Chairman and Deputy Chairman) must receive at least one-third of their annual retainer in common shares or DSUs. In 2006, all but four of our directors who participate in the plan received 100% of their fees in DSUs. A DSU is a bookkeeping entry credited to an account maintained for each eligible director, and has the same value as one common share. If a director elects to receive shares, the amount (net of withholding taxes) is used to buy shares for the director in the open market. If a director elects to receive DSUs, units representing the value of our common shares are credited to the director’s account based on the market value of a share. DSUs are paid to the director within one year following termination of Board service. Payment is made in shares or cash (net of withholding taxes), based on the market value of the shares on the date of payment. DSUs accumulate additional units based on notional equivalents of dividends paid on our common shares. We believe this plan further aligns the interests of our directors with those of our shareholders.

Share Ownership Guidelines. Pursuant to our corporate governance guidelines, our directors are required to hold common shares or DSUs having a value equal to five times their annual retainer. Directors have until the later of January 20, 2008 or five years from the date of their election or appointment to the Board to comply with this requirement.

Directors are also reimbursed by the company for reasonable travel and out-of-pocket expenses incurred in connection with their duties as directors.

INDEBTEDNESS OF OFFICERS, DIRECTORS AND EMPLOYEES

As at March 9, 2007, there was no indebtedness (other than “routine indebtedness” under applicable Canadian securities laws) of the officers, directors, employees and former officers, directors and employees of our company and our subsidiaries owing to our company or any of our subsidiaries.

DIRECTORS’ AND OFFICERS’ INDEMNIFICATION AND INSURANCE

Our by-laws indemnify directors and officers against any liability and costs arising out of any action or suit against them from the execution of their duties. The indemnities are subject to the limitations described in the by-laws. We have in the past maintained insurance for the benefit of our directors and officers against any liability incurred by them in their capacity as directors or officers, except where the liability relates to a failure to act honestly and in good faith with a view to the best interests of our company. We have entered into an agreement with Woodbridge under which Woodbridge has agreed to indemnify up to $100 million of liabilities incurred either by our current and former directors and officers or by our company in providing indemnification to these individuals substantially on the same terms and conditions as would apply under our directors’ and officers’ insurance policy. A third party administrator will manage any claims under the indemnity. We will pay Woodbridge an annual fee of $750,000, which is less than the premium that we would have paid for commercial insurance. This arrangement with Woodbridge was a related party transaction that was reviewed by our Corporate Governance Committee.

33

STATEMENT OF CORPORATE GOVERNANCE PRACTICES

Our Governance

Our governance structure is designed to permit our Board to responsibly supervise the management of the business and affairs of our company. The Board’s principal responsibilities are strategic planning, risk identification and financial and human resources oversight.

We believe that sustainable value creation for all shareholders, including, in particular, shareholders other than the Thomson family, will be fostered through a Board that is informed and engaged and that functions independently of management.

Responsibility for our governance structure lies, in the first instance, with the Corporate Governance Committee, and more generally with our Board. Our Board practices are set out in our corporate governance guidelines, which our Corporate Governance Committee reviews annually, together with our committee charters. Our corporate governance guidelines deal with issues such as Board duties and responsibilities, share ownership requirements and conflicts of interest, and are analogous to a Board mandate. The guidelines and committee charters are posted in the “Investor Relations” section of our website at www.thomson.com. In addition, a copy of the guidelines is attached to this circular as Annex A.

Board and Committee Composition

The Board believes that its composition and procedures and those of its committees ensure that the Board functions independently of management. Position descriptions for the Chairman of the Board and for the chair of each committee have been approved by the Board and help ensure the independent operations of the Board and its committees.

In 2006, the Board held 12 meetings. In January of each year, the Board has a meeting focused principally on the operating plan for the current year. In addition to addressing key initiatives, the operating plan addresses opportunities, risks, competitive position, financial projections and other key performance indicators for our company. A separate meeting later in the year is devoted solely to broader strategic considerations for our businesses. These strategy sessions allow our directors to discuss and shape our company’s priorities and objectives. Throughout the year, our directors are updated on our strategic progress as part of regular Board and committee meetings.

Our Board meetings are typically held in Toronto. The Board generally meets once a year at the offices of one of our company’s businesses in order to meet operating management and develop a deeper understanding of a particular business or market group. In 2006, the Board met in London, England. Directors had an opportunity to meet with local management of various U.K.-based Thomson businesses. At the conclusion of all Board meetings, the non-management directors meet as a group. W. Geoffrey Beattie, the Deputy Chairman, chairs these sessions and informs management of the substance of the meetings to the extent that action is required by management.

Our independent directors meet at least once each year without management directors or directors affiliated with our controlling shareholder. These meetings, which follow a regularly scheduled Board meeting, are chaired by John M. Thompson, the Chair of the Corporate Governance Committee. Mr. Thompson develops the agenda, although the discussion need not be limited to it. The agenda generally addresses any issues that might be specific to a public corporation with a controlling shareholder. Mr. Thompson reports on the substance of these meetings to the Chairman and the Deputy Chairman. One such meeting took place in 2006.

To assist the Board in operating independently of management, we also have a Secretary to the Board who reports to the Chairman and who also acts as secretary to each of the committees of the Board.

The Board periodically considers the principal financial, accounting, legal, operational and other risks facing our company and the steps that our management is taking to monitor and mitigate these risks. The Board also periodically receives reports on our company’s operating activities, as well as reports on certain non-operational matters, including corporate governance, taxation, pension and treasury matters. We have a secure intranet site for the Board that is used to distribute information and to foster communication among directors and between directors and senior management.

34

A director can retain an outside advisor with the approval of the Corporate Governance Committee. In 2006, the Human Resources Committee retained an independent consulting firm, Frederic W. Cook & Co., Inc., to advise it on compensation matters relating to senior management. The Cook firm reviewed our executive compensation program and provided guidance and analysis on plan design and market trends and practices. All of the fees paid by our company to the Cook firm were for work requested by the Human Resources Committee. In 2006, the Human Resources Committee also utilized and relied upon independent market survey data that Towers Perrin provided to our company regarding executive compensation for organizations of comparable size and scope with which our company is most likely to compete for executive talent. Towers Perrin also provides consulting and advisory services to our Corporate Human Resources Department. In 2006, the Corporate Governance Committee retained an independent law firm to review the structure we use to insure and indemnify our directors and officers.

Independent Directors

In February 2007, our Board conducted its annual assessment of the independence of each of its members. In determining independence, the Board examined and relied on the definition of “independent” in the NYSE listing standards and as referenced in National Instrument 58-101. The Board also reviewed the results of annual questionnaires completed by each director. After considering a wide variety of factors and information disclosed by each director, our Board has determined that of the 15 directors standing for election, nine are independent. At our meeting of shareholders in May 2006, 15 directors were elected, of whom eight are independent.

•Two of our directors (Messrs. Harrington and Daleo) are not independent because they are members of senior management of Thomson.

•Three of our directors (David K.R. Thomson, Peter J. Thomson and W. Geoffrey Beattie) are directors and executive officers of Woodbridge, our controlling shareholder, or its affiliates other than our company, and one of our directors (John A. Tory) is a director and former executive officer of Woodbridge and its affiliates other than our company. None of these individuals is a member of The Thomson Corporation’s management team. While the Board considers these directors’ interests to be fully aligned with the interests of minority shareholders, and although they do not act as part of our executive management, the NYSE listing standards and National Instrument 58-101 suggest that they be considered not independent. Kenneth R. Thomson, the former Chairman of Woodbridge, was a director until his death in June 2006.

•The independent directors are Mary Cirillo, V. Maureen Kempston Darkes and Messrs. Barbaro, Denning, Martin, Opperman, Sabia, Thompson and Richard M. Thomson. Richard M. Thomson is not related to David K.R. Thomson and Peter J. Thomson. In determining that all of these directors are independent, the Board considered all relevant facts and circumstances, including that in the normal course of business, The Thomson Corporation provides services to, and receives services from, companies that some of our directors are affiliated with. For example, various in-house legal departments of a number of these companies subscribe to Thomson Legal’s Westlaw service. The Board determined that these types of relationships were immaterial. In particular, the Board acknowledged that Messrs. Denning and Thompson were also directors of companies that our company has a relationship with, but determined that these relationships were not material and did not preclude a finding of independence.

°Mr. Denning, one of our independent directors, is also a director of Hewitt Associates Inc. In February 2005, we entered into a contract with Hewitt Associates Inc. to outsource certain human resources administrative functions in order to improve operating and cost efficiencies. When we initially signed the contract, we expected to pay Hewitt an aggregate of $115 million over a five-year period. This contract was subsequently renegotiated and extended in September 2006. Under the new terms, we expect to pay Hewitt an aggregate of $165 million over a 10-year period. In 2006 and 2005, we paid Hewitt $16 million and $5 million, respectively, for its services. Mr. Denning has not participated in negotiations related to the contract and has refrained from deliberating and voting on the matter by the Human Resources Committee and the Board of Directors.

°Mr. Thompson, another of our independent directors, is the non-executive independent Chairman of the Board of The Toronto-Dominion Bank. In the normal course of business, our company has a banking relationship with The Toronto-Dominion Bank and one of the bank’s affiliates has served as a dealer for our company’s recent offerings of debt securities in Canada.

Pursuant to applicable rules, the Chairman cannot be considered independent because he is an executive officer of Woodbridge, which is our controlling shareholder. As Chairman, David Thomson directs the operations of the Board in such a way that it operates independently of management. The Chairman is responsible for establishing the agenda for meetings, ensuring that the Board has sufficient resources and information to carry out its functions, and facilitating a constructive relationship between the Board and senior management.

35

Controlled Company

The NYSE listing standards require a listed company to have, among other things, a majority of independent directors on its Board and solely independent directors on its compensation committee and corporate governance committee. The rules permit a “controlled company” to be exempt from these requirements. A “controlled company” is a company of which more than 50% of the voting power is held by an individual, group or another company. Controlled companies are not, however, exempt from the requirement that the audit committee must be comprised solely of independent directors.

Thomson is controlled by Woodbridge, which beneficially owned approximately 66% of our common shares as of March 9, 2007. As of that date, Woodbridge and other companies affiliated with it together beneficially owned approximately 70% of our common shares. The Board has determined that it is appropriate for directors affiliated with the controlling shareholder to serve on the Board committees apart from the Audit Committee. Accordingly, the Board has approved the company’s reliance on the controlled company exemption. Nine of our current 15 directors are independent of both management and the controlling shareholder, with the result that a majority of the directors independently represent the 30% interest in our company held by shareholders other than Woodbridge and other companies affiliated with it.

Committees

The Board operates with three committees. In September 2006, the Board approved a recommendation of the Corporate Governance Committee that the Finance Committee be disbanded. Changes in the authority of management to act in certain areas, as well as a more proactive Board agenda-building process, meant the Finance Committee no longer had a meaningful role to play. Members of the Finance Committee prior to its disbandment were David K.R. Thomson and Messrs. Beattie and Tory.

Each Board committee operates under a written charter. The charters are reviewed annually by the relevant committee and the Corporate Governance Committee, which may make recommendations to the Board for changes. The charters were last reviewed and approved in February 2007. All of these charters are available in the “Investor Relations” section of our website at www.thomson.com. Below is a brief description of the responsibilities of each committee.

Audit Committee. The Audit Committee is responsible for assisting the Board in fulfilling its oversight responsibilities in relation to the integrity of our financial statements, our compliance with legal and regulatory requirements, the qualifications and independence of our independent auditors, the performance of our internal audit function and independent auditors, and any additional matters delegated to the Audit Committee by the Board.

The Audit Committee is responsible for the hiring of the independent auditors, and communicates directly with the independent auditors and our internal audit department. The Audit Committee is also responsible for overseeing management reporting and internal control systems. The Audit Committee has adopted a policy regarding pre-approval of all audit and permissible non-audit services to be performed by the independent auditors. For more information, please see the “Appointment of Auditors” subsection of the “Business of the Meeting” section of this circular.

The Audit Committee has adopted procedures for the receipt, retention and treatment of any complaints received by our company regarding accounting, internal accounting controls, or auditing matters, as well as the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters. These procedures are set forth in our Code of Business Conduct and Ethics, which is discussed below.

The Board has determined that all members of the Audit Committee are financially literate in accordance with applicable Canadian and U.S. securities rules and as this term is defined in our corporate governance guidelines. In addition, the Board has concluded that Richard M. Thomson is qualified as an “audit committee financial expert” (within the meaning of applicable SEC rules) and that he has “accounting or related financial management expertise” (within the meaning of the NYSE listing standards).

36

A further description of matters relating to the Audit Committee, along with a copy of the written charter of the Audit Committee, is set forth in Section 8 (“Directors and Officers”) and Schedule A, respectively, of our company’s annual information form dated March 1, 2007.

The members of the Audit Committee are Vance K. Opperman (Chair), Ron D. Barbaro, Roger L. Martin, John M. Thompson and Richard M. Thomson. The Board has determined that all of the Audit Committee members are independent. The Audit Committee met seven times in 2006.

Corporate Governance Committee. The Corporate Governance Committee is responsible for assisting the Board in fulfilling its oversight responsibilities in relation to the size, composition and structure of the Board and its committees, including the nomination of directors, the company’s overall approach to corporate governance, related party transactions and other matters involving conflicts of interest, orientation and continuing education for directors, and director compensation. The Corporate Governance Committee is also responsible for reviewing directors’ compensation to ensure that it is competitive and consistent with the responsibilities and risks associated with being an effective director. To this end, the Corporate Governance Committee periodically reviews director compensation in the marketplace. The Corporate Governance Committee has developed position descriptions for the Chairman of the Board and the Chair of each Board committee, and is also responsible for any additional matters delegated to it by the Board.

The members of the Corporate Governance Committee are John M. Thompson (Chair), Ron D. Barbaro, W. Geoffrey Beattie, Mary Cirillo and V. Maureen Kempston Darkes. The Board has determined that all of the Corporate Governance Committee members, except for Mr. Beattie, are independent. The Corporate Governance Committee met three times in 2006.

Human Resources Committee. The Human Resources Committee is responsible for assisting the Board in fulfilling its oversight responsibilities in relation to the selection and retention of senior management, the compensation of senior management, professional development for senior management, the management of pension and benefit plans for employees, and any additional matters delegated to the Human Resources Committee by the Board. These responsibilities include considering policies and procedures for succession planning, including planning in the event of an emergency or retirement of our Chief Executive Officer and other key senior executives.

The Human Resources Committee sets objectives each year for the President and Chief Executive Officer. The Board is later advised of the objectives. The Human Resources Committee also evaluates the performance of the Chief Executive Officer against these objectives at year end. The Human Resources Committee reports to the full Board on the objectives for the forthcoming year and the performance against objectives in the preceding year. The Human Resources Committee has developed a written position description for the President and Chief Executive Officer.

The members of the Human Resources Committee are Steven A. Denning (Chair), W. Geoffrey Beattie, V. Maureen Kempston Darkes, Michael J. Sabia, Richard M. Thomson and John A. Tory. The Board has determined that all of the Human Resources Committee members, except for Messrs. Tory and Beattie, are independent. The Human Resources Committee met five times in 2006.

Board, Committee and Director Assessment Process

The Corporate Governance Committee undertakes an annual structured review of the operations of the Board and its committees. Questionnaires addressing issues such as supervision of senior management, strategic planning, risk management, financial reporting, disclosure, governance and conduct of Board and committee meetings are developed annually and given to directors. Some years, the questionnaire is more focused on particular issues. The individual responses, which are confidential, are consolidated by the Secretary to the Board and reported to the Corporate Governance Committee and the Board. The process, most recently completed in February 2007, has resulted in changes in Board and committee practices and refinements of the annual agenda of matters the Board reviews.

The Board also follows a process for peer reviews of individual directors. The Chair of the Corporate Governance Committee interviews each director regarding his or her self assessment and peer assessment against a set of criteria. Feedback is provided in a second meeting held by the Chair of the Corporate Governance Committee with each director. The performance of the Chair of the Corporate Governance Committee is reviewed by the Deputy Chairman following a process similar to that used for the other peer reviews. This process was most recently completed in 2006.

37

Director Qualifications and Board Size

The Corporate Governance Committee is responsible for assessing the skills and backgrounds of current directors and those areas that could complement the operations of the Board, the need for new directors and their preferred experience and qualifications. The Corporate Governance Committee is also responsible for maintaining an understanding of the anticipated tenure of current directors, and the experience, needs and areas of expertise of the Board as a whole. The Corporate Governance Committee recommends candidates for initial Board membership and Board members for renomination. Recommendations are based on character, integrity, judgment, business experience, record of achievement and any other skills or talents that would enhance the Board and overall management of the business and affairs of our company. As necessary, the Corporate Governance Committee retains an executive search firm to identify and evaluate potential director candidates in light of the Corporate Governance Committee’s assessment of the Board’s composition.

The Board is currently of the view that its optimal size for effective decision-making and committee work is 14 to 16 members and that it may need to increase beyond that from time to time in anticipation of retirements of Board members.

Director Recruitment, Orientation and Education

Our Corporate Governance Committee maintains an ongoing assessment of the Board’s composition with respect to experience, qualifications and other factors. One new director, Michael J. Sabia, was added to the Board in 2006. Mr. Sabia, who was previously known to several directors, was identified by the Corporate Governance Committee as having skills and experience relevant to our Board. Mr. Sabia then met with our Chairman, Deputy Chairman, the Chair of our Corporate Governance Committee and our Chief Executive Officer. Mr. Sabia also had met in 2006 with Kenneth R. Thomson prior to Mr. Thomson’s death. After the Corporate Governance Committee and the full Board considered Mr. Sabia’s experience and skills, he was asked if he would accept an appointment to the Board and be willing to stand for election by shareholders at the upcoming meeting.

We provide new directors with orientation materials describing the business of our company, our corporate governance structure and related policies and information. New directors also have meetings with our Chief Executive Officer, Chief Financial Officer and other senior executives, including the heads of our major business groups. Early in their tenure, opportunities are provided to new directors to visit some of our major facilities and meet with operations management. The Board’s secure website, monthly management reports and other means of communications provide our directors with information to ensure their knowledge and understanding of our business remain current.

Directors are entitled to attend external continuing education opportunities at our expense. Internal continuing education initiatives are generally undertaken at the committee level.

Majority Voting Policy

In February 2007, the Board of Directors adopted a policy which provides that if a director does not receive the support of a majority of the votes cast at the annual meeting of shareholders, the director will tender his or her resignation to the Chairman of the Board, to be effective when accepted by the Board. The Corporate Governance Committee will consider the director’s offer to resign and make a recommendation to the Board as to whether to accept it. The Board will have 90 days from the annual meeting to make and publicly disclose its decision.

38

Director Attendance

Full attendance is expected from our directors at our Board and committee meetings and at the annual meeting of shareholders. In 2006, the Board met 12 times. Six of our 10 scheduled Board meetings were held in person. Two additional telephonic meetings were held during the year. Every director attended more than 80% of Board meetings and 100% of committee meetings. The following table sets forth the attendance of our directors at Board and committee meetings in 2006.

	Meetings attended
Director	Board	Committee
David K.R. Thomson	12 of 12	1 of 1
W. Geoffrey Beattie	12 of 12	9 of 9
Richard J. Harrington	12 of 12	–
Ron D. Barbaro	11 of 12	10 of 10
Mary Cirillo	10 of 12	3 of 3
Robert D. Daleo	12 of 12	–
Steven A. Denning	12 of 12	5 of 5
V. Maureen Kempston Darkes	12 of 12	8 of 8
Roger L. Martin	12 of 12	7 of 7
Vance K. Opperman	12 of 12	7 of 7
Michael J. Sabia1	–	1 of 1
David H. Shaffer2	5 of 5	–
John M. Thompson	11 of 12	10 of 10
Kenneth R. Thomson3	5 of 5	–
Peter J. Thomson	12 of 12	–
Richard M. Thomson	11 of 12	12 of 12
John A. Tory	12 of 12	6 of 6

1Mr. Sabia was appointed to the Board and the Human Resources Committee in November 2006.

2Mr. Shaffer did not stand for re-election to the Board in May 2006.

3Mr. Thomson died in June 2006.

39

Transactions Involving Directors or Officers

In the case of any transaction or agreement in respect of which a director or executive officer of our company has a material interest, the director or officer is required to disclose his or her interest. Where applicable, he or she is also generally required to exclude him or herself from any deliberations or voting relating to such transaction or agreement. Related party transactions are considered by the Corporate Governance Committee or, where appropriate, a special committee of independent directors.

Code of Business Conduct and Ethics

We have a Code of Business Conduct and Ethics that applies to all employees, directors and officers, including our Chief Executive Officer, Chief Financial Officer and principal accounting officer/controller. The Code was most recently revised and approved by the Board in January 2007. All of our employees, directors and officers are required to submit an acknowledgement that they have received and read a copy of the Code and understand their obligations to comply with the principles and policies outlined in it. In an effort to further promote a culture of ethical business conduct through the company, most of our employees are required to take a mandatory online training course related to the Code. The Corporate Governance Committee receives an annual report regarding the Code and our ethics hotline from our General Counsel. No material violations were reported in 2006. Also, no waivers under the Code were sought by or granted to our directors or executive officers in 2006. A copy of the Code is available on our website at www.thomson.com as well as at www.sedar.com and www.sec.gov.

Corporate Communications

As part of our governance structure, the Board has ensured that an appropriate procedure is in place so that inquiries or other communications from shareholders, analysts and the media to management are answered by our investor relations and media relations professionals or referred to an appropriate person in the company. In 2006, our company adopted an updated disclosure policy in this regard. Senior executives meet regularly with financial analysts and institutional investors, and our earnings conference calls are broadcast live via webcast and are accessible to interested shareholders, the media and members of the public. Presentations given by senior executives at investor conferences are promptly made public on our website. The Board reviews and approves the contents of major disclosure documents, including our quarterly and annual financial statements and MD&A, annual information form/Form 40-F and this circular.

Communications with the Board

Shareholders and other interested parties may contact our Board or our non-management or independent directors as a group, or the directors who preside over their meetings, by writing to them c/o Secretary to the Board of Directors, The Thomson Corporation, Suite 2706, Toronto Dominion Bank Tower, P.O. Box 24, Toronto-Dominion Centre, Toronto, Ontario M5K 1A1 Canada or by e-mail at board.secretary@thomson.com. David K.R. Thomson presides over Board meetings. Mr. Beattie and Mr. Thompson preside over meetings of our non-management directors and independent directors, respectively.

SHARE REPURCHASE PROGRAM

Our company has filed a notice of intention to make a normal course issuer bid to enable us to purchase up to 15,000,000 common shares. The notice provides that our company may purchase these shares between May 5, 2006 and May 4, 2007 at prevailing market prices in amounts and at times to be determined by our company. We may make purchases through the TSX or the NYSE. Common shares that we purchase under the bid are cancelled. In 2006, we repurchased 10,680,600 common shares. A copy of the notice is available at www.sedar.com and www.sec.gov or may be obtained without charge from our Investor Relations Department at the address listed below.

40

ADDITIONAL INFORMATION

In addition to being available at www.thomson.com, our Code of Business Conduct and Ethics, corporate governance guidelines and committee charters are also available in print to any shareholder who requests a copy in writing to: The Thomson Corporation, Attention: Investor Relations Department, Metro Center, One Station Place, Stamford, Connecticut 06902, United States. Requests may also be sent by e-mail to investor.relations@thomson.com.

Financial information about our company is provided in our comparative consolidated financial statements and management’s discussion and analysis (MD&A) for the year ended December 31, 2006. You can obtain copies of these financial statements and our MD&A by contacting our Investor Relations Department by mail or e-mail as indicated in the paragraph immediately above. You will also find these financial statements and MD&A at www.thomson.com.

Additional information relating to our company, including our other continuous disclosure materials, is available on our website, www.thomson.com, the Canadian Securities Administrators’ website, www.sedar.com, and in the EDGAR section of the SEC’s website at www.sec.gov.

DIRECTORS’ APPROVAL

The contents and sending of this circular to shareholders of the company have been approved by the Board of Directors of the company.

David W. Binet
Secretary to the Board of Directors
Toronto, Ontario

March 15, 2007

41

ANNEX A – CORPORATE GOVERNANCE GUIDELINES

(As approved by the Board of Directors on February 23, 2007)

1.General

The Board of Directors of The Thomson Corporation believes that sound corporate governance practices are essential to the well-being of the Corporation and the promotion and protection of its shareholders’ interests as owners of the Corporation. The Board oversees the functioning of the Corporation’s governance system, in part, through the work of the Corporate Governance Committee which it established in 1994.

The Board has adopted these guidelines, which reflect the Corporation’s commitment to high standards of corporate governance, to assist the Board in supervising the management of the business and affairs of the Corporation as required under applicable law and stock exchange rules and requirements.

The fundamental responsibility of the Board is to supervise the management of the business and affairs of the Corporation with a view to sustainable value creation for all shareholders. The Board promotes fair reporting, including financial reporting, to shareholders of the Corporation and other interested persons as well as ethical and legal corporate conduct through an appropriate system of corporate governance, internal controls and disclosure controls. The Board believes that the Corporation is best served by a board of directors that functions independently of management and that is informed and engaged.

The Corporate Governance Committee will review these guidelines annually, or more often if warranted, and recommend to the Board such changes as it deems necessary and appropriate in light of the Corporation’s needs and legal and regulatory developments.

2.Board Composition

(a)Board Membership Criteria

The Corporate Governance Committee is responsible for assessing the need for new directors, the preferred experience and qualifications for new directors, and the skills and competencies that the Board, its committees, individual directors and candidates should possess. The Committee recommends candidates for initial Board membership and Board members for renomination. Recommendations are based on character, integrity, judgment, business experience, record of achievement and any other skills and talents which would enhance the Board and overall management of the business and affairs of the Corporation. Each director must have an understanding of the Corporation’s principal operational and financial objectives, plans and strategies, financial position and performance and the performance of the Corporation relative to its principal competitors. Directors must be able to dedicate sufficient time to carry out their duties and not assume responsibilities that would materially interfere with or be incompatible with Board membership. Directors who change their principal occupation are expected to advise the Corporate Governance Committee and, if determined appropriate by the Corporate Governance Committee, resign from the Board.

(b)Director Independence

The Board’s composition and procedures are designed to permit it to function independently from management and to promote and protect the interests of all shareholders, in particular shareholders other than the Thomson family. The Board believes that, except during periods of temporary vacancies, no fewer than half of its members should be independent.

The Board determines whether a director is independent. In determining independence, the Board relies on the definition of “independent” as referenced in National Instrument 58-101 “Disclosure of Corporate Governance Practices” and the New York Stock Exchange (NYSE) listing standards. Generally, an independent director means a director who has been affirmatively determined by the Board to have no material relationship with the Corporation, either directly or indirectly as a partner, shareholder or officer of an organization that has a relationship with the Corporation. A material relationship is a relationship which could, in the Board’s determination, reasonably interfere with the exercise of a director’s independent judgment.

A-1

The Board will review the independence of all directors on an annual basis and will publish its determinations in the management information circular for the Corporation’s annual meeting of shareholders. Directors have an ongoing obligation to inform the Board of any material changes in their circumstances or relationships that may affect the Board’s determination as to their independence.

Four of the directors of the Corporation are executive officers of The Woodbridge Company Limited, a private company that is the primary investment vehicle for members of the family of the late first Lord Thomson of Fleet, or Woodbridge’s affiliates other than the Corporation (David Thomson, the current Chairman, W. Geoffrey Beattie, the current Deputy Chairman, Peter J. Thomson and John A. Tory). The NYSE listing standards suggest that directors in such a relationship with the Corporation be considered not independent. The Board believes that, given that there are no material relationships between any of them and the Corporation or between Woodbridge and the Corporation which affect their independence, other than Woodbridge’s ownership of common shares of the Corporation, Woodbridge’s interests as a shareholder of the Corporation are fully aligned with those of the Corporation’s other shareholders. Nevertheless, the Board does not classify these directors as independent directors.

The NYSE listing standards require a listed company to have, among other things, a majority of independent directors on its Board. The listing standards permit a “controlled company” to be exempt from these requirements. A “controlled company” is a company of which more than 50% of the voting power is held by an individual, group or another company. The Woodbridge Company Limited is the principal and controlling shareholder of the Corporation. The Board has approved the Corporation’s reliance on the controlled company exemption.

(c)Board Size

The Board is currently of the view that its optimal size for effective decision-making and committee work is 14 to 16 members, and that it may need to increase beyond that from time to time in anticipation of retirements from the Board.

(d)Term

All directors are elected at the annual meeting of shareholders of the Corporation for a term of one year. The Board does not believe it should establish term limits or mandatory retirement ages for its members as such limits may deprive the Corporation and its shareholders of the contributions of members who have been able to develop, over time, valuable insights into the Corporation, its strategy and business operations.

(e)Board Succession

The Corporate Governance Committee is responsible for maintaining a Board succession plan that is responsive to the Corporation’s needs and the interests of its shareholders.

(f)Service on Other Boards and Audit Committees

The Board does not believe that its members should be prohibited from serving on the boards of other public companies so long as these commitments do not materially interfere with and are not incompatible with their ability to fulfill their duties as a member of the Board. Directors must advise the Chairman or Deputy Chairman in advance of accepting an invitation to serve on the board of another public company and, as a general rule, directors are not allowed to join a board of another public company on which two or more other directors of the Corporation serve.

Members of the Audit Committee may not serve on the audit committees of more than two other public companies without the prior approval of the Board.

A-2

3.Board Duties and Responsibilities

The directors’ primary responsibility is to act in good faith and to exercise their business judgment in what they reasonably believe to be the best interests of the Corporation. In fulfilling its responsibilities, the Board is, among other matters, responsible for the following matters:

(a)Appointment and Supervision of the Chief Executive Officer and Senior Management

The Board appoints and supervises the Chief Executive Officer and other members of the Corporation’s senior management, approves their compensation and, as permitted by applicable law, delegates to senior management responsibility for the day-to-day operations of the Corporation.

The Board will satisfy itself that a process is in place to provide for the development, evaluation and succession of the Chief Executive Officer and other members of senior management. The Board will establish and maintain a position description for the Chief Executive Officer.

The Board will satisfy itself as to the integrity of the Chief Executive Officer and other members of senior management, including confirming that the Chief Executive Officer and other members of senior management create a culture of integrity throughout the Corporation.

For purposes of these guidelines, references to “senior management” mean executives of the Corporation or its business groups as determined from time to time by the Board.

(b)Strategic Planning and Risk Management

The Board will establish and maintain the Corporation’s mission, values, long-term strategic goals, performance objectives and operational policies. In this regard, the Board will:

•Review and approve on an annual basis a business plan developed with management which includes rigorous but realistic goals;

•Adopt a strategic planning process and review and approve, on an annual basis, a strategic plan which takes into account, among other things, the opportunities and risks of the business;

•Approve strategic and operational policies within which management will operate in relation to capital expenditures, acquisitions and dispositions, disclosure and communications, finance and investment, risk management, human resources, internal financial and disclosure controls and management information systems;

•Set annual corporate and management performance targets;

•Confirm that a system is in place to identify the principal risks facing the Corporation and its businesses and that appropriate procedures and systems are in place to monitor, mitigate and manage such risks; and

•Confirm that processes are in place for the Corporation and its businesses to address and comply with applicable legal, regulatory, corporate, securities and other compliance matters.

(c)Financial Reporting and Management

The Board will:

•Approve the Corporation’s annual and interim financial statements and related management’s discussion and analysis and review and oversee the integrity of the Corporation with regard to its compliance with applicable audit, accounting and financial reporting requirements;

•Approve annual operating and capital budgets;

•Confirm the integrity of the Corporation’s internal control and management information systems; and

•Review operating and financial performance results relative to established strategies, plans, budgets and objectives.

A-3

(d)Disclosure and Communications

The Board will satisfy itself that appropriate policies and procedures are in place regarding public disclosure and restricted trading by insiders. In this regard, the Board will approve a corporate disclosure policy for the Corporation and will confirm that a process is in place to disclose all material information in compliance with the Corporation’s timely disclosure obligations and to prevent selective disclosure of material information to analysts, institutional investors, market professionals and others.

(e)Corporate Governance

The Board will:

•Develop the Corporation’s approach to corporate governance, including establishing appropriate principles and guidelines relating to corporate governance that are specifically applicable to the Corporation and practices to facilitate the Board’s independence;

•Establish committees and approve their respective charters and the limits of authority delegated to each committee;

•Establish appropriate processes for the regular evaluation of the effectiveness of the Board and its committees;

•Approve the nomination of directors;

•Review the adequacy and form of directors’ compensation to confirm that it realistically reflects the responsibilities and risks involved in being a director;

•Arrange for non-management directors to meet at least quarterly without management present and for independent directors to meet at least annually; and

•Ensure that sufficient funds are available for its effective operation and that of its committees.

(f)Approval of Certain Other Matters

The Board must approve those matters which may not be delegated by the Board under applicable corporate law including, among others, the issuance of securities of the Corporation (except in the manner and on terms authorized by the Board), the declaration of dividends, the repurchase or redemption of shares of the Corporation and the adoption, repeal or amendment of the by-laws of the Corporation. The Board may also reserve to itself the right to approve certain matters notwithstanding the delegation to senior management of the authority to manage the business of the Corporation.

4.Controlling Shareholder

As of the date hereof, The Woodbridge Company Limited is the principal and controlling shareholder of the Corporation.

Woodbridge’s primary investment is its holding of common shares of the Corporation. In its involvement with the Corporation, Woodbridge focuses principally on the following matters:

•Corporate governance, including the effectiveness of the Board;

•The appointment of the Chief Executive Officer and other members of senior management and related succession planning;

•The development of the long-term business strategy of the Corporation and assessment of its implementation; and

•Capital strategy.

With its expertise in dealing with these matters and its substantial equity investment in the Corporation, Woodbridge monitors the Corporation as an owner to an extent that other shareholders cannot. Woodbridge considers that its interests as a shareholder are fully aligned with those of all other shareholders.

A-4

5.Chairman

The Board will in each year elect from among its members a Chairman who is not the Chief Executive Officer or otherwise a member of the Corporation’s management.

The Chairman is principally responsible for overseeing the operations and affairs of the Board.

6.Deputy Chairman

The Board may in each year elect from among its members a Deputy Chairman who is not the Chief Executive Officer or otherwise a member of management.

The Deputy Chairman is responsible for assisting the Chairman in fulfilling his duties and for performing additional duties requested by the Board.

7.Secretary to the Board of Directors

The Board will appoint an individual who is not a member of management to act as the Secretary to the Board.

The Secretary to the Board is responsible for assisting the Chairman and the Deputy Chairman in managing the operations and affairs of the Board and for performing additional duties requested by the Chairman, the Deputy Chairman or the Board or any of its committees. The Secretary to the Board reports directly to the Chairman and the Deputy Chairman.

8.Board Committees

(a)General

The Board carries out its responsibilities directly and through the following committees and such other committees as it may establish from time to time: the Audit Committee, the Corporate Governance Committee and the Human Resources Committee.

(b)Composition

All committees will be comprised solely of directors who are not members of management and who are selected by the Board on the recommendation of the Corporate Governance Committee. The Corporation relies on an exemption available to controlled companies from the NYSE listing standards requiring the Human Resources and Corporate Governance Committees to be composed entirely of independent directors. Members of the Audit Committee must be independent and are subject to the additional requirements that they may not (i) accept directly or indirectly any consulting, advisory, or other compensatory fee from the Corporation or any of its subsidiaries, other than director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service), or (ii) be an “affiliated person” of the Corporation or any of its subsidiaries (within the meaning of applicable law). Each member of the Audit Committee will be “financially literate” (within the meaning of applicable law).

(c)Chair

The Audit Committee, Corporate Governance Committee and the Human Resources Committee are each chaired by an independent director who is selected by the Board on the recommendation of the Corporate Governance Committee and is responsible for determining the agenda and the frequency and conduct of meetings.

(d)Charters

Each committee has its own charter that sets out its responsibilities and duties, qualifications for membership, procedures for committee member removal and appointment and reporting to the Board. On an annual basis, each committee’s charter is reviewed by both the committee itself and the Corporate Governance Committee and is also reviewed and approved by the Board. Copies of each charter are posted on the Corporation’s website.

A-5

9.Board and Committee Meetings

(a)Scheduling

Board meetings are scheduled in advance at appropriate intervals throughout the year. In addition to regularly scheduled Board meetings, additional Board meetings may be called upon proper notice at any time to address specific needs of the Corporation. The Board may also take action from time to time by unanimous written consent. A Board meeting may be called by the Chairman, the Deputy Chairman, the Chief Executive Officer or any two directors.

Each committee meets as often as it determines is necessary to fulfill its responsibilities. A meeting of any committee may be called by the committee chair, the Chairman, the Deputy Chairman, the Chief Executive Officer or any committee member.

Board meetings are held at a location determined by the Chairman and meetings of each committee are held at a location determined by the committee chair. The Board meets at least once a year at the offices of one of the Corporation’s businesses so that directors may meet operating management and develop a deeper understanding of a particular business or market group.

(b)Agenda

The Chairman establishes the agenda for each Board meeting in consultation with the Deputy Chairman, the other directors, the Secretary to the Board and the Corporation’s senior management. Any director may propose the inclusion of items on the agenda, request the presence of or a report by any member of senior management, or at any Board meeting raise subjects that are not on the agenda for that meeting.

Committee chairs establish the agenda for each committee meeting. Any committee member may propose the inclusion of items on the agenda, request the presence of or a report by any member of senior management, or at any committee meeting raise subjects that are not on the agenda for the meeting.

(c)Meetings of Non-Management and Independent Directors

To facilitate the Board’s independence, non-management directors meet as a group after each Board meeting without management present. Non-management directors may also meet without management present at such other times as determined by the chairing or presiding director. The Deputy Chairman informs management of the substance of these meetings to the extent that action is required by them. At least annually, independent directors will meet separately. The Chair of the Corporate Governance Committee chairs these meetings and informs the Chairman and the Deputy Chairman of the substance of these meetings to the extent that action is required by them.

(d)Distribution of Information

Information that is important to the Board’s understanding of the business and its meeting agenda are distributed to the Board before it meets. Sensitive subject matters may be discussed at a meeting without written materials being distributed in advance or at the meeting. The Board periodically receives reports on the operating activities of the Corporation, as well as reports on certain non-operational matters, including corporate governance, insurance, pensions and treasury matters. The Corporation maintains a secure intranet site for directors, which is used to distribute information and to foster communication among directors and between directors and the Corporation’s senior management.

(e)Preparation, Attendance and Participation

Each director is expected to prepare adequately for and attend all meetings of the Board and any committee of which he or she is a member. A director who is unable to attend a Board or committee meeting in person may participate by telephone or teleconference.

A-6

(f)Procedures

Procedures for Board meetings are determined by the Chairman unless otherwise determined by the by-laws of the Corporation or a resolution of the Board.

Procedures for committee meetings are determined by the chair of the committee unless otherwise determined by the by-laws of the Corporation or a resolution of the committee or the Board.

10.Director Compensation

The Board believes that compensation for directors should be competitive with the compensation paid to directors of businesses of comparable size and in comparable markets. The Board reviews directors’ compensation annually with these criteria in mind.

Non-Management directors (except for the Chairman and Deputy Chairman) must receive at least one-third and may receive up to 100% of their annual retainer in common shares of the Corporation or deferred share units. If a director elects to receive shares, the amount (net of withholding taxes) is used to buy shares for the director in the open market. If a director elects to receive deferred share units, units representing the value of the shares are credited to the director’s account based on the market value of a share. Deferred share units are paid to the director within one year following termination of Board service. Payment will be made in shares or cash (net of withholding taxes), based on the market value of the shares on the date of payment. Deferred share units also accumulate additional units based on notional equivalents of dividends declared on the Corporation’s common shares. The Board believes that this plan further aligns the interests of directors with the interests of other shareholders.

Directors are reimbursed by the Corporation for reasonable travel and out-of-pocket expenses incurred in connection with their duties as directors.

Management directors do not receive compensation for their services as directors. Neither the Chairman nor the Deputy Chairman receives attendance fees.

11.Share Ownership Requirements

Directors are required to hold common shares or deferred share units of the Corporation having a value equal to at least five times the amount of their annual retainer for service as a director. Directors have from the later of January 20, 2008 or five years from the date of their election or appointment to the Board to comply with this requirement.

The Chief Executive Officer is required to acquire and hold common shares or deferred share units of the Corporation with a value equal to at least five times his or her annual base salary.

Each of the other executive officers of the Corporation is required to acquire and hold common shares or deferred share units of the Corporation with a value equal to at least his or her annual base salary or, in some instances, with a value equal to at least three times his or her annual base salary, depending on his or her position with the Corporation.

The Chief Executive Officer and the other executive officers of the Corporation do not have a deadline in which to comply with the share ownership requirements. Each of them is expected to retain a specified percentage of the common shares of the Corporation that he or she acquires (after applicable tax withholdings) through option exercises and the vesting of restricted share units until he or she has attained the share ownership requirements. The Chief Executive Officer is currently required to retain 100% of the common shares of the Corporation that he acquires and the other executive officers of the Corporation must retain 50% of the common shares of the Corporation that they acquire, until they attain the share ownership requirements.

A-7

12.Director Orientation and Continuing Education

New directors receive orientation materials describing the Corporation’s business, its corporate governance structure and related policies and information. New directors also have meetings with the Corporation’s Chairman, Deputy Chairman, Chief Executive Officer and Chief Financial Officer and other senior executives, including heads of the Corporation’s major business groups. Early in their tenure, new directors are provided with the opportunity to visit major facilities and meet with operating management of the Corporation’s market groups.

The Corporate Governance Committee is responsible for confirming that procedures are in place and resources are made available to provide directors with appropriate continuing education opportunities. Directors may attend continuing education programs at the Corporation’s expense.

13.Board Access to Management and Advisors

The Board has complete access to members of the Corporation’s management and directors are encouraged to raise any questions or concerns directly with management. The Board and its committees may invite any member of management, employee, outside advisor or other person to attend any of their meetings.

In carrying out their duties, the Board and any of its committees may retain an outside advisor at the expense of the Corporation at any time and have the authority to determine the advisor’s fees and other retention terms. Individual directors may retain an outside advisor at the expense of the Corporation with the approval of the Corporate Governance Committee.

14.Performance Assessments of the Board, Directors and Committees

The Board, acting through the Corporate Governance Committee, annually reviews the effectiveness of the Board, each director and each Board committee in fulfilling their responsibilities and duties, including their effectiveness and contribution. The Corporate Governance Committee subsequently makes recommendations to the Board for appropriate action. The Corporate Governance Committee also evaluates individual directors to assess their suitability for nomination for re-election.

15.Code of Business Conduct and Ethics

The Board has adopted a Code of Business Conduct and Ethics. The Board expects all directors, officers and employees of the Corporation and its subsidiaries to conduct themselves in accordance with the highest ethical standards and to adhere to the Code. Any waiver of the Code for directors or executive officers may only be made by the Board or one of its committees and will be disclosed by the Corporation to the extent required by law, regulation or stock exchange requirement.

16.Prohibition on Personal Loans

The Corporation will not extend or maintain credit, arrange for the extension of credit, or renew an extension of credit, in the form of a personal loan to or for any director or executive officer.

17.Indemnification and Insurance

In accordance with the by-laws of the Corporation and applicable Ontario law, current and former directors and officers are each indemnified by the Corporation against all liability and costs arising out of any action or suit against them resulting from the execution of their duties, provided that they have carried out their duties honestly and in good faith with a view to the best interests of the Corporation and have otherwise complied with the provisions of applicable corporate law.

The Corporation maintains insurance for the benefit of its directors and officers against any liability incurred by them for which they would be indemnified. The amount and terms of the insurance coverage are dependent upon prevailing market conditions and practices with the objective of adequately protecting directors and officers from such liability.

A-8

18.Conflicts of Interest

Each director is required to inform the Board of any potential or actual conflict of interest he or she may have with the Corporation. If a director has a personal interest in a matter before the Board or a committee, he or she must not participate in any vote on the matter, except where the Board or the committee has expressly determined that it is appropriate for him or her to do so.

To avoid potential conflicts of interest, interlocking directorships will not be allowed. Interlocking directorships occur where a member of senior management of the Corporation serves on the board or as a trustee of a company or institution that employs a director of the Corporation.

19.To Contact the Board and Its Committees

The Board welcomes input and comments from shareholders of the Corporation. You may contact one or more members of the Board or its committees by writing to the Secretary to the Board at:

Board of Directors of The Thomson Corporation
c/o David W. Binet, Secretary to the Board of Directors
The Thomson Corporation
65 Queen Street West, Suite 2400
Toronto, Ontario M5H 2M8
Canada

E-mail: board.secretary@thomson.com

A-9

The Thomson Corporation

Metro Center, One Station Place
Stamford, Connecticut 06902 United States
Tel 203.539.8000

Suite 2706, Toronto Dominion Bank Tower
P.O. Box 24, Toronto-Dominion Centre
Toronto, Ontario M5K 1A1 Canada
Tel 416.360.8700

EX-99.2

Exhibit 99.2

TO OUR SHAREHOLDERS:

In 2006 The Thomson Corporation successfully executed on its strategic and operational priorities, and delivered strong financial results. Thomson has never been in a stronger position – strategically, operationally and financially.

Our electronic solutions, software and services continued to gain momentum in the markets, accounting for 80% of our revenues in 2006 and delivering our highest organic revenue growth in years. Total revenues grew 8%, operating profit rose 7% and earnings per share increased 22%. The company generated over $2 billion in cash from operations, and free cash flow increased 21%, driven by strong growth in operating income, lower tax payments and stable capital expenditures. We delivered value to our customers and created value for our shareholders. Our company returned nearly $1 billion to shareholders in 2006 through dividends and our stock buyback program.

Thomson entered 2007 well positioned for continued 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 such as the three highlighted in the feature section of this report, along with others such as our Checkpoint solution for tax specialists and the management and clinical decision support solutions we provide to healthcare payers and providers. Our solutions-based strategy is achieving success every day as customers sign on and begin asking for more: more functions, more features and more adaptable interfaces.

As we hone our ability to tailor solutions so that they become integral to customer workflows, our relationship with customers grows even closer. Idea generation and product development have become a collaborative exercise. And as we build out solutions to meet our customers’ evolving needs, our growth from existing businesses has risen (up 6% over 2005) as has the percentage of recurring revenues (reaching 82% in 2006).

Another success factor is our company’s rigorous approach for optimizing our portfolio of businesses to accelerate growth and returns. In October 2006 we announced our intention to divest our Thomson Learning group, including businesses 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.

The main focus of portfolio optimization is to allocate resources to the businesses that have the highest potential for growth and returns. We are excited about the sale of Thomson Learning because we believe the proceeds will enable us to pursue new opportunities, including strengthening our existing businesses through increased investment, expanding into adjacent markets and stepping out into new markets and countries. We have established a disciplined, measured approach for using the sale proceeds with a focus on profitable growth and enhanced shareholder value. Value-creating opportunities will drive the investment process.

Optimizing our infrastructure – i.e., technology, operational processes and internal support services – is the third key to our company’s success. In mid-2006 we launched a coordinated series of initiatives designed to increase organizational efficiency and effectiveness by leveraging technology and scale, and by adopting industry best practices, across our company. We are making good progress toward developing a robust common infrastructure to support all of our businesses. The goal is to maximize the ability of each Thomson business to leverage the full resources of a multibillion dollar corporation.

3

LONG-TERM VALUE CREATION

As we review the achievements of 2006 and the expanding opportunities ahead, we sense that Thomson has reached a defining moment in its evolution. Our businesses are unified by a common business model and are poised to benefit from the efficiency and scalability of a common infrastructure. We have never been more focused strategically, more nimble as an organization or stronger financially.

The ongoing success of our workflow solutions gives us confidence that Thomson can keep building momentum on organic growth. We expect that the percentage of our revenues derived from electronic products, software and services will keep rising as we build out solutions and as international markets increasingly incorporate technology into their workflows.

Every day more people are turning to the Internet for instantaneous access to value-added information served up through easy-to-use interfaces. We believe that this will continue to fuel demand for our online products and services.

Moreover, electronic delivery improves our ability to provide additional products and services to our existing customers and to access new customers around the world. As our product mix continues to shift from legacy products to electronic solutions, the result should be higher growth and profitability in our existing businesses along with new opportunities to expand into adjacent markets and internationally.

By leveraging content, technology and expertise across our businesses, we become more efficient at developing and launching innovative solutions. What we learn from each new solution enables our product development teams to bring more robust products, incorporating more advanced analytical and productivity tools, to market more quickly. Our increasing use of scalable technology platforms such as Novus enables us to integrate content from our various databases and online services more easily, lower product development costs and reduce product delivery times.

We expect that these initiatives, coupled with our commitment to provide customers with the solutions they need to improve their productivity, will continue to deliver strong returns resulting in increased shareholder value.

4

WITH GRATITUDE

We want to thank all the stakeholders – investors, customers, employees and business partners – who have brought us to this important moment in our company’s evolution and who support Thomson’s ongoing success.

Special thanks are due to David H. Shaffer, who stepped down from his board position and retired from the company in 2006 after a distinguished career. Dave held a number of senior leadership roles at Thomson, including chief executive officer for Thomson Learning and later for Thomson Financial.

The Thomson board was pleased to welcome a new member in 2006. Michael J. Sabia, president and chief executive officer of BCE Inc. and chief executive officer of Bell Canada, brings extraordinary business acumen and distinctive insights to our board.

A LASTING LEGACY

For a number of reasons, 2006 was a memorable year. Many of us will remember it as the year Ken Thomson died. Ken was our controlling shareholder and he exercised that position with a tremendous sense of responsibility toward our business and our other shareholders. His sense of stewardship, his warmth and his humility motivated generations of Thomson employees. Ken left a unique legacy in his many contributions to our business and he will long be remembered as a man of exceptional character and integrity.

It seems fitting that the final words of this letter should come from Ken Thomson. Several years ago, when talking about the future of The Thomson Corporation, Ken remarked:

“By wholeheartedly embracing change, I’m sure an exciting future lies ahead for everyone associated with Thomson. The world changes, situations change, corporations change, we change personally. Everything changes, you know – that’s the one constant in the world.”

Sincerely,

David Thomson	Richard J. Harrington
Chairman of the Board	President &
	Chief Executive Officer

5

FINANCIAL HIGHLIGHTS^*

THE THOMSON CORPORATION

	2006	2005	Change
Revenues	6,641	6,173	+	8%
Operating profit	1,258	1,172	+	7%
Earnings attributable to common shares	1,115	930	+	20%
Earnings per common share (EPS)	$1.73	$1.42	+	22%
Adjusted earnings from continuing operations1	864	687	+	26%
Adjusted EPS from continuing operations1	$1.34	$1.05	+	28%
Shareholders’ equity	10,481	9,963	+	5%
Net cash provided by operating activities	2,125	1,879	+	13%
Free cash flow2	1,440	1,194	+	21%

REVENUE BY SEGMENT	REVENUE BY MEDIA	REVENUE BY GEOGRAPHY

FOOTNOTES: *Millions of U.S. dollars except per common share amounts. Adjusted earnings from continuing operations, adjusted EPS from continuing operations and free cash flow are non-GAAP financial measures, which are reconciled to the most directly comparable GAAP financial measures within the MD&A.

6

MARKET GROUP PERFORMANCE

LEGAL & REGULATORY

	2006	Change
Revenues	$3,647		+	8%
Segment operating profit3	$1,120		+	12%
Segment operating profit margin3	31%	+100bps

FINANCIAL

	2006	Change
Revenues	$2,015		+	6%
Segment operating profit3	$379		+	13%
Segment operating profit margin3	19%	+120bps

SCIENTIFIC & HEALTHCARE

	2006	Change
Revenues	$995		+	8%
Segment operating profit3	$236		+	11%
Segment operating profit margin3	24%	+60bps

SEGMENT PERFORMANCE

LEGAL	2006	Change
Revenues	$3,053		+	7%
Segment operating profit3	$952		+	11%
Segment operating profit margin3	31%	+100bps

TAX & ACCOUNTING	2006	Change
Revenues	$598		+	12%
Segment operating profit3	$168		+	19%
Segment operating profit margin3	28%	+160bps

SCIENTIFIC	2006	Change
Revenues	$602		+	6%
Segment operating profit3	$151		+	17%
Segment operating profit margin3	25%	+240bps

HEALTHCARE	2006	Change
Revenues	$393		+	12%
Segment operating profit3	$85		+	1%
Segment operating profit margin3	22%	-230bps

1Excludes one-time items. For a full reconciliation to GAAP reported earnings, see page 34.

2Net cash provided by operating activities less net capital expenditures, other investing activities and dividends paid on preference shares.

3Excludes amortization of identifiable intangible assets.

7

GROWTH METRICS^*

REVENUES	OPERATING PROFIT	OPERATING PROFIT MARGIN
Revenues increased 8% in 2006 vs. 2005, to $6.6 billion.	Operating profit increased 7% in 2006 vs. 2005.	Operating profit margin decreased slightly compared to the prior year as the effects of scale were offset by higher corporate costs.1

FOOTNOTES:

*Millions of U.S. dollars except per common share amounts. Free cash flow and adjusted EPS are non-GAAP financial measures, which are reconciled to the most directly comparable GAAP financial measures on pages 43 and 101, respectively.

1Resulting from our THOMSONplus program, increased pension and other defined benefits plans expense and higher stock-related compensation expense.

8

CASH FLOW	EARNINGS PER COMMON SHARE	DIVIDENDS PER COMMON SHARE
Free cash flow, a key measure of financial strength, increased 21% to $1,440, driven by strong operating income growth, lower tax payments and stable capital expenditures.	Strong operating performance drove adjusted earnings up 28% to $1.34 per share.	Steadily increasing cash dividends continue to enhance total returns to shareholders.

2      Net cash provided by operating activities less net capital expenditures, other investing activities and dividends paid on preference shares. 3      Excludes one-time items. For a full reconciliation to reported earnings, see the six-year summary on page 101. 4      Excludes a special dividend of $0.0428 per common share related to the sale of our 20% interest in Bell Globemedia.

9

10

11

12

13

14

15

16

17

18

19

20

21

FINANCIAL AND CORPORATE INFORMATION

22

INDEX TO FINANCIAL AND CORPORATE INFORMATION

24	Management’s Discussion and Analysis
24	Overview
30	Use of Non-GAAP Financial Measures
31	Results of Operations
40	Liquidity and Capital Resources
46	Outlook
46	Material Assumptions
47	Related Party Transactions
47	Employee Future Benefits
49	Subsequent Events
49	Accounting Changes
50	Critical Accounting Policies
52	Recently Issued Accounting Standards
53	Additional Information
54	Reconciliations
55	Supplemental Information
56	Quarterly Information
57	Forward-Looking Statements
58	Management Reports
59	Independent Auditors’ Report
61	Consolidated Statement of Earnings
62	Consolidated Balance Sheet
63	Consolidated Statement of Cash Flow
64	Consolidated Statement of Changes in Shareholders’ Equity
65	Notes to Consolidated Financial Statements
65	Note 1: Summary of Significant Accounting Policies
69	Note 2: Changes in Accounting Policies
70	Note 3: THOMSONplus Program
71	Note 4: Net Other Income (Expense)
71	Note 5: Net Interest Expense and Other Financing Costs
71	Note 6: Income Taxes
73	Note 7: Discontinued Operations
77	Note 8: Earnings per Common Share
77	Note 9: Accounts Receivable Allowances
77	Note 10: Inventories
78	Note 11: Computer Hardware and Other Property
78	Note 12: Computer Software
79	Note 13: Identifiable Intangible Assets
79	Note 14: Goodwill
80	Note 15: Financial Instruments
83	Note 16: Capital
84	Note 17: Employee Future Benefits
88	Note 18: Contingencies, Commitments and Guarantees
89	Note 19: Acquisitions and Disposals
91	Note 20: Stock-Based Compensation
95	Note 21: Supplemental Cash Flow Information
95	Note 22: Related Party Transactions
96	Note 23: Segment Information
97	Note 24: Reconciliation of Canadian to U.S. Generally Accepted Accounting Principles
99	Note 25: Subsequent Events
100	Six-Year Summary

23

MANAGEMENT’S DISCUSSION AND ANALYSIS

The following management’s discussion and analysis is intended to assist you in understanding and evaluating changes in our financial condition and operations for the year ended December 31, 2006, compared to the preceding two fiscal years. We recommend that you read this discussion and analysis in conjunction with our consolidated financial statements prepared in accordance with accounting principles generally accepted in Canada, or Canadian GAAP, and the related notes to those financial statements. All dollar amounts in this discussion are in U.S. dollars unless otherwise specified. Unless otherwise indicated, references in this discussion to “we,” “our” and “us” are to The Thomson Corporation and its subsidiaries. In addition to historical information, this management’s discussion and analysis contains forward-looking statements. Readers are cautioned that these forward-looking statements are subject to risks and uncertainties that could cause our actual results to differ materially from those reflected in the forward-looking statements. Some of these factors include those identified in the section entitled “Forward-Looking Statements” on page 57 of this management’s discussion and analysis and in the “Risk Factors” section of our annual information form, which is also contained in our annual report on Form 40-F. This management’s discussion and analysis is dated as of February 23, 2007.

OVERVIEW

Our Business and Strategy

We are one of the world’s leading information services providers to business and professional customers. Our target customers are knowledge workers whose expertise in particular markets is critical to the success of economies throughout the world. As economies evolve and become more global, we believe that the needs of knowledge workers will continue to grow.

We generate revenues by supplying knowledge workers with business-critical information solutions and services. We make our information more valuable by adding expert analysis, insight and commentary, and couple it with software tools and applications that our customers can use to search, compare, synthesize and communicate the information. To further enhance our customers’ workflows, we deliver information and services electronically, integrate our solutions with our customers’ own data and tailor the delivery of information to meet specific customer needs. As we integrate critical information with analysis, tools and applications, we place greater focus on the way our customers use our content, rather than simply on selling the content itself, and are moving from just informing our customers to enabling their decisions. We believe our ability to embed our solutions into our customers’ workflows is a significant competitive advantage as it leads to strong customer retention and barriers to entry for competitors. Over time, we believe that these attributes translate into more pricing power, higher margins and better cash flow. Thus, our shift to workflow solutions is important to our growth and profitability.

As a global company, we are affected by economic and market dynamics, governmental regulations and business conditions for each market and country in which we operate. We have traditionally encountered competition in each of our markets from both large information providers and smaller niche market businesses. However, we now face an evolving competitive landscape. Certain of our traditional competitors are implementing solutions strategies of their own. In the future, other competitors could come from outside our traditional competitive set. For instance, Internet service companies and search providers could pose a threat to some of our businesses by providing more in-depth offerings than are currently available from such services. In response to this, we are continuing to move forward aggressively in segmenting our markets and developing solutions that will allow us to remain embedded in our customers’ workflows.

We strive for leadership positions in each market we serve in order to secure broad and deep market expertise. To maintain our leadership positions, we plan to continue to invest in our existing businesses and also to acquire new businesses. During the past few years, we have achieved efficiencies by leveraging resources within our various businesses, which has increased our profitability. We have had consistently strong cash flow generation, reflecting the strength of our businesses and the quality of our earnings, as well as contributions from operating efficiencies and improvements in our use of working capital.

Throughout 2006, our operations were organized into four market groups that were structured on the basis of the customers they served:

•Thomson Legal & Regulatory – a leading provider of information solutions to legal, tax, accounting, intellectual property, compliance and other business professionals, as well as government agencies;

•Thomson Learning – a leading provider of learning solutions to colleges, universities, professors, students, libraries, reference centers, government agencies, corporations and professionals;

24

•Thomson Financial – a leading provider of products and integration services to financial and technology professionals in the corporate, investment banking, institutional, retail wealth management and fixed income sectors of the global financial community; and

•Thomson Scientific & Healthcare – a leading provider of information and services to researchers, physicians and other professionals in the healthcare, academic, scientific, corporate and government marketplaces.

In October 2006, we announced our intention to divest the entirety of our Thomson Learning market group, including those businesses serving the higher education, careers, library reference, corporate e-learning and e-testing markets. Therefore, we have restated our results and metrics for all years discussed throughout this management’s discussion and analysis to remove Thomson Learning. See the sections entitled “Dispositions” and “Discontinued Operations” for further discussion.

In October 2006, we also announced that we would realign our remaining operations, effective January 1, 2007. While we had previously announced that we would manage our business along six business segments, we subsequently decided that our North American Legal and International Legal and Regulatory businesses will be managed as one segment to better serve our customers in those markets. As such, we will report on the following five business segments beginning with results for the first quarter of 2007:

•Thomson Legal – a leading provider of workflow solutions to legal, intellectual property, compliance, business and government professionals throughout the world. Major brands include Westlaw, Aranzadi, BAR/BRI, Carswell, CompuMark, Thomson Elite, FindLaw, Gee, LIVEDGAR, Sweet & Maxwell and Thomson & Thomson;

•Thomson Financial – a leading provider of products and integration services to financial and technology professionals in the corporate, investment banking, institutional, wealth management and fixed income sectors of the global financial community. Its flagship brand is Thomson ONE. Other major businesses and brands include AutEx, Baseline, Datastream, First Call, I/B/E/S, Investext, IR Channel, SDC Platinum, StreetEvents, Thomson Transaction Services and TradeWeb;

•Thomson Tax & Accounting – a leading provider of integrated information and workflow solutions for tax and accounting professionals in North America. Major brands include Checkpoint, Creative Solutions and RIA;

•Thomson Scientific – a leading provider of information and services to researchers, scientists and information professionals in the academic, scientific, corporate and government marketplaces. Major businesses and information solutions include Derwent World Patents Index, MicroPatent, Thomson Pharma, ISI Web of Science and Web of Knowledge; and

•Thomson Healthcare – a leading provider of information and services to physicians and other professionals in the healthcare, corporate and government marketplaces. Major businesses and information solutions include Medstat, Micromedex, PDR (Physicians’ Desk Reference) and Solucient.

We have presented our results in this management’s discussion and analysis on the basis that we operated in 2006, but have provided supplemental financial information to assist with the understanding of our new operating structure that became effective on January 1, 2007. See the section entitled “Supplemental Information” for the segment results of our businesses as they will be managed and presented in 2007.

We also report financial results for a corporate and other reporting category, as well as discontinued operations. The Corporate and Other category principally includes corporate expenses, certain costs associated with our stock-related compensation, and, beginning in 2006, costs associated with the company’s THOMSONplus business optimization program, which are discussed in the section entitled “THOMSONplus.”

PERCENTAGE OF TOTAL 2006 REVENUES

25

MANAGEMENT’S DISCUSSION AND ANALYSIS

The following table summarizes selected financial information for 2006, 2005 and 2004, including certain metrics that are non-GAAP financial measures. Please see the section below entitled “Use of Non-GAAP Financial Measures” for definitions of these terms and references to the reconciliations of these measures to the most directly comparable Canadian GAAP measures.

	Year ended December 31
(millions of U.S. dollars, except per share amounts)	2006	2005	20043
CONSOLIDATED STATEMENT OF EARNINGS DATA
Revenues	6,641	6,173	5,686
Operating profit	1,258	1,172	1,062
Earnings from continuing operations1	919	662	642
Earnings from discontinued operations, net of tax	201	272	369
Net earnings1	1,120	934	1,011
Earnings per common share from continuing operations1	$1.41	$1.00	$0.97
Earnings per common share1	$1.73	$1.42	$1.54
CONSOLIDATED BALANCE SHEET DATA
Cash and cash equivalents	334	407	405
Total assets	20,132	19,434	19,645
Total long-term liabilities	5,912	6,364	6,600
Total shareholders’ equity	10,481	9,963	9,962
DIVIDEND DATA
Dividends per common share (US$)	$0.880	$0.790	$0.755
Dividends per Series II preferred share (Cdn$)	C$1.00	C$0.77	C$0.70
OTHER DATA2
Adjusted earnings from continuing operations	864	687	581
Adjusted earnings per common share from continuing operations	$1.34	$1.05	$0.89
Net debt	3,741	3,646	3,689
Free cash flow	1,440	1,194	1,123

1Results are not directly comparable due to certain one-time items. For more information, please see the “Results of Operations” section of this management’s discussion and analysis.

2These are non-GAAP financial measures. See pages 30 and 31 for definitions.

3A full discussion of results for 2005 compared to 2004 is included in our management’s discussion and analysis for the year ended December 31, 2005. Significant trends and items affecting comparability over the three-year period are noted within this management’s discussion and analysis.

26

Revenues

The following graphs show the percentage of our 2006 revenues by media, type and geography.

REVENUE BY MEDIA	REVENUE BY TYPE	REVENUE BY GEOGRAPHY

Our revenues are derived from a diverse customer base. In 2006, 2005 and 2004, no single customer accounted for more than 2% of our total revenues.

By media. We use a variety of media to deliver our products and services to our customers. Increasingly, our customers are seeking products and services delivered electronically and are migrating away from print-based products. We deliver information electronically over the Internet, through dedicated transmission lines, CDs and handheld wireless devices. In 2006, electronic, software and services revenues represented 80% of our total revenues. This was the same percentage as in 2005, which had increased from 78% in 2004. Thomson Learning’s businesses have a higher percentage of revenues that are print-based. Since Thomson Learning’s revenues are no longer contained in the revenues for our continuing operations, the percentage of our total revenues derived from electronic software and services has increased. In the long term, we expect that electronic, software and services as a percentage of our total revenues will gradually increase as we continue to emphasize electronic delivery, add solution-based and software-based acquisitions to our portfolio, and as markets outside North America continue to incorporate technology into their workflows. Electronic delivery of our products and services improves our ability to more rapidly and profitably provide additional products and services to our existing customers and to access new customers around the world.

By type. For each year from 2004 to 2006, approximately 82% of our revenues were generated from subscription or similar contractual arrangements, which we refer to as recurring revenues. Subscription revenues are from sales of products and services that are delivered under a contract over a period of time. Our subscription arrangements are most often for a term of one year, though increasingly they are for three year terms, after which they automatically renew or are renewable at the customer’s option. The renewal dates are spread over the course of the year. Because a high proportion of our revenues comes from subscription and similar arrangements where our customers contract with us for a period of time, our revenue patterns are generally more stable compared to other business models that sell products in discrete or one-off arrangements. In the case of some of our subscription arrangements, we realize additional fees based upon usage.

By geography. We segment our revenues geographically by origin of sale in our financial statements. In 2006, 83% of our revenues were generated from our operations in North America, consistent with 2005 and 2004. In the long term, we are striving to increase our revenues from outside North America as a percentage of our overall revenues. We can modify and offer internationally many of the products and services we have developed originally for customers in North America without excessive customization or translation. This represents an opportunity for us to earn incremental revenues. For some of the products and services we sell internationally, we incur additional costs to customize our products and services for the local market and this can result in lower margins if we cannot achieve adequate scale. Development of additional products and services and expansion into new geographic markets are integral parts of our growth strategy. While development and expansion present an element of risk, particularly in foreign countries where local knowledge of our products may be lacking, we believe that the quality and brand recognition of our products and services help to mitigate that risk.

27

MANAGEMENT’S DISCUSSION AND ANALYSIS

We routinely update a number of our key products and services by adding functionality or providing additional services to our existing offerings to make them more valuable and attractive to our customers and, thereby, increase our revenues from existing customers. Because of the dynamic nature of our products and services, management does not find it useful to analyze large portions of our revenue base using traditional price versus volume measurements. As it is difficult to assess our revenue changes from a pure price versus volume standpoint when products are continually evolving, we limit these measurements to our analysis of more static products and service offerings.

Expenses

As an information provider, our most significant expense is labor. Our labor costs include all costs related to our employees, including salaries, bonuses, commissions, benefits, payroll taxes and stock-related compensation. Labor represented approximately 66% of our cost of sales, selling, marketing, general and administrative expenses (operating costs) in 2006 compared to approximately 65% in 2005 and 63% in 2004. No other category of expenses accounted for more than 10% of our operating costs in 2006, 2005 or 2004.

Acquisitions

Acquisitions play a key role in fulfilling our strategy. Our acquisitions are generally tactical in nature and primarily relate to the purchase of information, products or services that we integrate into our operations to broaden the range of our product and service offerings to better serve our customers. As alternatives to the development of new products and services, tactical acquisitions often have the advantages of faster integration into our product and service offerings and cost efficiencies. When integrating acquired businesses, we focus on eliminating cost redundancies and combining the acquired products and services with our existing offerings. We may incur costs, such as severance payments to terminate employees and contract cancellation fees, when we integrate businesses. In 2006, acquired businesses generated approximately one quarter of our total growth in revenues and a lesser portion of the growth in operating profit. Generally, the businesses that we acquired have initially had lower margins than our existing businesses.

COMPLETED ACQUISITIONS	CASH OUTLAYS FOR ACQUISITIONS
	(in millions of U.S. dollars)

During 2006, we completed 25 acquisitions at an aggregate cost of $0.7 billion including Solucient LLC, a provider of data and advanced analytics to hospitals and health systems, Quantitative Analytics, Inc., a provider of financial database integration and analysis solutions, and LiveNote Technologies, a provider of transcript and evidence management software to litigators and court reporters. In 2005 and 2004, we completed an aggregate of 60 acquisitions with total cash outlays of approximately $1.6 billion. The reduction in the number of acquisitions was primarily due to our continued focus in 2006 on portfolio optimization and integration of prior year acquisitions. In 2007, we expect our acquisition activity to continue as we evaluate opportunities that further the execution of our strategy. Upon completion of the divestiture of Thomson Learning, we will evaluate ways to deploy those proceeds in a manner that will result in long-term value creation for our shareholders.

In 2005 and 2004, acquired businesses generated a significant portion of the growth in our total revenues and a lesser portion of the growth in our operating profit. In 2005, our largest acquisition was Global Securities Information (GSI), a provider of online securities and securities-related information and research services. In 2004, our largest acquisitions were Information Holdings Inc. (IHI), a provider of intellectual property and regulatory information, for $445 million, net of cash and cash equivalents received, and TradeWeb, an online trading platform for fixed income securities, for $361 million, net of cash received, plus contingent payments of up to $150 million over a three-year period ending in 2007 based upon the achievement of certain growth targets. In 2006 and 2005, we paid in each year $50 million in contingent consideration associated with the TradeWeb acquisition.

28

Dispositions

As part of our continuing strategy to optimize our portfolio of businesses, to sharpen our strategic focus on providing electronic workflow solutions to business and professional markets and to ensure that we are investing in parts of our business that offer the greatest opportunities to achieve growth and returns, management decided to actively pursue the sale of a number of businesses. While each of the operations that we have decided to sell possesses brand equity, a loyal customer base and talented employees, they do not provide the type of synergies that strengthen our core integrated information solutions. The most significant of these was the announcement of our intention to divest Thomson Learning via three independent sales processes, each on its own schedule:

1We agreed to sell NETg, a leading provider of continuing corporate education and training, to SkillSoft PLC. The sale is expected to be completed in the second quarter of 2007.

2We are currently seeking buyers for Prometric, a global leader in assessment services, through a competitive bidding process. We expect the sale of Prometric to be concluded in 2007.

3The competitive bidding for the higher education, careers and library reference businesses commenced in the first quarter of 2007.

Additionally, in 2006 we announced our intention to sell the following operations:

•Our business information and news operations within Thomson Legal & Regulatory, which include Market Research and NewsEdge;

•IOB, a Brazilian regulatory business within Thomson Legal & Regulatory;

•Thomson Medical Education, a provider of sponsored medical education within Thomson Scientific & Healthcare;

•Lawpoint Pty Limited, an Australian provider of print and online regulatory information services within Thomson Legal & Regulatory;

•Law Manager, Inc., a software and services provider within Thomson Legal & Regulatory;

•Peterson’s, a college preparatory guide in Thomson Learning;

•The North American operations of Thomson Education Direct, a consumer-based distance learning career school in Thomson Learning; and

•K.G. Saur, a German publisher of biographical and bibliographical reference titles serving the library and academic community in Thomson Learning.

We completed the sale of Law Manager in April and Lawpoint in June. The sales of Peterson’s and K.G. Saur were completed in July and August, respectively.

In August 2006, we completed the sale of American Health Consultants (AHC), a provider of medical education and publisher of medical newsletters, managed within Thomson Scientific & Healthcare.

Other than certain minor investments, there were no other dispositions in 2005. During 2004, we completed two dispositions. The most significant of these was the sale of our Thomson Media group in October 2004.

Our proceeds from the sales of discontinued operations in 2006, net of taxes paid, were $81 million. In 2005, we paid $105 million in taxes associated with discontinued operations sold in a prior year. In 2004, our proceeds from the sales of discontinued operations, net of taxes paid, were $474 million.

Results from all these businesses and operations have been reclassified to discontinued operations and prior periods have been restated. This means that revenues associated with these businesses and operations are excluded from our results which are discussed in this management’s discussion and analysis. Earnings of these businesses and operations, however, are reflected as earnings from discontinued operations, net of tax, for all periods. For more information, see the section entitled “Discontinued Operations.”

Additionally, over the past few years we have sold certain minority equity investments and businesses that did not qualify as discontinued operations. Proceeds from these sales amounted to $88 million in 2006, $4 million in 2005 and $87 million in 2004.

THOMSONplus

In 2006, we formally announced the THOMSONplus program. THOMSONplus is a series of initiatives which will allow us to become a more integrated operating company by leveraging assets and infrastructure across all segments of our business. The program is expected to produce cost savings for our businesses by:

•Realigning our business units into five segments;

•Streamlining and consolidating certain functions such as finance, accounting and business systems;

•Leveraging infrastructure and technology for customer contact centers;

•Establishing low-cost shared service centers;

•Consolidating certain technology infrastructure operations such as voice and data networks, data centers, storage and desktop support; and

•Re-engineering certain product development and production functions and realigning particular sales forces within our business segments.

29

MANAGEMENT’S DISCUSSION AND ANALYSIS

To accomplish these initiatives, we expect to incur approximately $250 million of expenses through 2009, primarily related to technology and restructuring costs and consulting services. Because THOMSONplus is a corporate program, expenses associated with it are reported within our Corporate and Other segment. At the completion of the program, we anticipate these initiatives will produce annual savings of about $150 million. These savings will largely be driven by improved efficiencies and effectiveness of procurement, supply chain management, financial reporting systems, including the implementation of a common enterprise resource planning (ERP) system, and platform integration across all market groups.

In 2006, we incurred $60 million of expenses associated with THOMSONplus consisting primarily of consulting fees and severance. The consulting costs primarily related to our efforts to deploy SAP as our company-wide ERP system, which will continue throughout 2007 and 2008. We estimate that we saved about $12 million in 2006 from the elimination of certain positions and the relocation of others to lower cost locations resulting from our establishment of a facility in Hyderabad, India to perform certain finance functions. These savings represented an annualized cost reduction of approximately $25 million. Additionally, we incurred $9 million of expenses associated with businesses that were reclassified to discontinued operations in 2006. These expenses consisted of severance and losses on vacated leased properties.

Because THOMSONplus is a series of initiatives, the timing of these costs and savings may shift between different calendar years. However, based on current estimates, we expect to incur expenses of approximately $100 million in 2007, $50 million in 2008 and $30 million in 2009. As a return on this investment, we expect to generate savings of approximately $50 million in 2007, $90 million in 2008 and should reach our targeted savings of about $150 million per year at the beginning of 2009.

Seasonality

With the pending divestiture of Thomson Learning, our results will become less seasonal than previously reported. However, in terms of revenues and profits, the first quarter will continue to be proportionately the smallest quarter for us and the fourth quarter will be our largest, as certain product releases are concentrated at the end of the year, particularly in the regulatory markets. Costs will continue to be incurred more evenly throughout the year. As a result, our operating margins will continue to generally increase as the year progresses. For these reasons, it may not be possible to compare the performance of our businesses quarter to consecutive quarter, and our quarterly results should be considered on the basis of results for the whole year or by comparing results in a quarter with the results in the same quarter of the previous year. While we report results quarterly, we view and manage our company from a longer-term perspective.

See the section entitled “Quarterly Information” for our restated quarterly results reflecting all of our Learning businesses as discontinued operations.

USE OF NON-GAAP FINANCIAL MEASURES

In addition to our results reported in accordance with Canadian GAAP, we use non-GAAP financial measures as supplemental indicators of our operating performance and financial position. We use these non-GAAP financial measures internally for comparing actual results from one period to another, as well as for future planning purposes. We have historically reported non-GAAP financial results, as we believe their use provides more insight into our performance. The following discussion defines the measures that we currently use and explains why we believe they are useful measures of our performance, including our ability to generate cash flow:

•Adjusted earnings and adjusted earnings per common share from continuing operations.

We measure our earnings attributable to common shares and per share amounts to adjust for non-recurring items, discontinued operations and other items affecting comparability, which we refer to as adjusted earnings from continuing operations and adjusted earnings per common share from continuing operations. We use these measures to assist in comparisons from one period to another. Adjusted earnings per common share from continuing operations do not represent actual earnings per share attributable to shareholders.

In interim periods, we adjust our reported earnings and earnings per common share to reflect a normalized effective tax rate. Specifically, the normalized effective rate is computed as the estimated full-year effective tax rate applied to the consolidated pre-tax income of the interim period. The reported effective tax rate is based on separate annual effective income tax rates for each taxing jurisdiction that are applied to each interim period’s pre-tax income. Because the seasonality of our businesses impacts our geographical mix of profits in interim periods and therefore distorts the reported effective tax rate, we believe that using the expected full-year effective tax rate provides a more meaningful comparison among interim periods. The adjustment to normalize the effective tax rate reallocates estimated full-year income taxes between interim periods, but has no effect on full year income taxes or on cash taxes paid.

See the reconciliation of this measure to the most directly comparable Canadian GAAP measure on pages 34 and 40.

30

•Net debt. We measure our net debt, which we define as our total indebtedness, including associated fair value hedging instruments (swaps) on our debt, less cash and cash equivalents. Given that we hedge some of our debt to reduce risk, we include hedging instruments as we believe it provides a better measure of the total obligation associated with our outstanding debt. However, because we intend to hold our debt and related hedges to maturity, we do not consider the associated fair market value of cash flow hedges in our measurements. We reduce gross indebtedness by cash and cash equivalents on the basis that they could be used to pay down debt. See the reconciliation of this measure to the most directly comparable Canadian GAAP measure on page 41.

•Free cash flow. We evaluate our operating performance based on free cash flow, which we define as net cash provided by operating activities less capital expenditures, other investing activities and dividends paid on our preference shares. We use free cash flow as a performance measure because it represents cash available to repay debt, pay common dividends and fund new acquisitions. See the reconciliation of this measure to the most directly comparable Canadian GAAP measure on page 43.

These and related measures do not have any standardized meaning prescribed by Canadian GAAP and, therefore, are unlikely to be comparable with the calculation of similar measures used by other companies. You should not view these measures as alternatives to net earnings, total debt, cash flow from operations or other measures of financial performance calculated in accordance with GAAP. We encourage you to review the reconciliations of these non-GAAP financial measures to the most directly comparable Canadian GAAP measure within this management’s discussion and analysis.

While in accordance with Canadian GAAP, our definition of segment operating profit may not be comparable to that of other companies. We define segment operating profit as operating profit before the amortization of identifiable intangible assets. We use this measure for our segments because we do not consider amortization to be a controllable operating cost for purposes of assessing the current performance of our segments. We also use segment operating profit margin, which we define as segment operating profit as a percentage of revenues.

We report depreciation for each of our market groups within the section below entitled “Additional Information.”

RESULTS OF OPERATIONS

The following discussion compares our results for the fiscal years ended December 31, 2006, 2005 and 2004 and for the three-month periods ended December 31, 2006 and 2005 and provides analyses of results from continuing operations and discontinued operations.

Basis of Analysis

Our results from continuing operations include the performance of acquired businesses from the date of their purchase and exclude results from operations classified as discontinued. Results from operations that qualify as discontinued operations have been reclassified to that category for all periods presented. Please see the section below entitled “Discontinued Operations” for a discussion of these operations. In analyzing the results of our operating segments, we measure the performance of existing businesses and the impact of acquired businesses and foreign currency translation.

The following table summarizes our consolidated results for the years indicated.

(millions of U.S. dollars,	Year ended December 31
except per share amounts)	2006	2005	2004
Revenues	6,641	6,173	5,686
Operating profit	1,258	1,172	1,062
Operating profit margin	18.9%	19.0%	18.7%
Net earnings1	1,120	934	1,011
Diluted earnings per common shares1	$1.73	$1.42	$1.54

1Results are not directly comparable due to certain one-time items.

Revenues. In 2006, revenues increased 8% comprised of the following:

•6% from higher revenues of existing businesses;

•2% from contributions of newly acquired businesses; and

•a negligible impact from foreign currency translation.

For our existing businesses, revenue growth was exhibited in all our market groups, reflecting customer demand for our integrated solutions and overall growth in the markets we serve. Contributions from acquired businesses were primarily related to Quantitative Analytics, Inc. and AFX News in our Thomson Financial market group and Solucient and MercuryMD in our Thomson Scientific & Healthcare market group.

31

MANAGEMENT’S DISCUSSION AND ANALYSIS

Revenues in 2005 grew 9% comprised of contributions from acquired businesses and growth from existing businesses, as foreign currency translation had a minimal impact. Contributions from acquired businesses were primarily related to Information Holdings Inc. (IHI) in Thomson Scientific & Healthcare and TradeWeb within Thomson Financial. See the analysis of our segment results for further discussions of our revenue growth.

Operating profit. In 2006, operating profit rose 7% primarily due to the increase in revenues. The operating profit margin decreased slightly compared to the prior year as the effects of scale were offset by higher corporate costs resulting from our THOMSONplus program, increased pension and other defined benefit plans expense and higher stock-related compensation expense. See the section entitled “THOMSONplus” for a discussion of the program’s initiatives and the section entitled “Corporate and Other” for discussion of its associated costs.

The increase in operating profit in 2005 reflected higher revenues due to contributions from existing and acquired businesses. The operating profit margin increased slightly as the impact of increased revenues more than offset higher pension and other defined benefit plans expenses, and severance and other charges associated with the outsourcing and reorganization of certain functions within our human resources department. Improvement in our operating margin was tempered by the inclusion in 2004 results of $19 million of insurance recoveries related to September 11, 2001.

Depreciation and amortization. Depreciation in 2006 increased $25 million, or 6%, compared to 2005. This increase reflected recent acquisitions and capital expenditures. Amortization increased $6 million, or 3%, compared to 2005, as increases due to the amortization of newly acquired assets were partially offset by decreases arising from the completion of amortization for certain intangible assets acquired in previous years.

Depreciation in 2005 approximated that of 2004 primarily due to the timing and limited growth of capital expenditures. Amortization increased $29 million, or 14%, due to the amortization of newly acquired assets in 2005 and the full-year effect of those acquired in 2004.

Net other income/expense. Net other income in 2006 of $1 million primarily consisted of gains on the sales of certain equity investments offset by charges associated with a legal reserve. In the fourth quarter of 2006, we established a legal reserve of $36 million representing our portion of a cash settlement related to the Rodriguez v. West Publishing Corp. and Kaplan Inc. case. If the settlement is approved by the court, we expect to pay this amount later in 2007.

Net other expense in 2005 was $28 million, which primarily represented a loss associated with the early redemption of certain debt securities of $23 million (discussed in the section below entitled “Financial Position”) and a charge of $15 million to reduce the carrying value of one of our equity investments to its fair value, partially offset by income from equity investments and gains from the sale of certain other investments.

In 2004, net other income of $2 million primarily consisted of a $35 million gain on the sale of an investment and a $14 million gain on the sale of a wholly-owned subsidiary, whose only asset consisted of tax losses, to a company controlled by our controlling shareholder. These gains were partially offset by a $53 million loss associated with our early redemption of certain debt securities (discussed in the section entitled “Financial Position”).

Net interest expense and other financing costs. In 2006, our net interest expense and other financing costs approximated that of the prior year. In 2005, these costs declined 5% primarily due to the refinancing of certain debt securities in 2005 and the full-year effect of an earlier refinancing of debt in 2004 (discussed in the section entitled “Financial Position”).

Income taxes. Our income tax expense in 2006 represented 11.5% of our earnings from continuing operations before income taxes. This compares with effective rates of 28.3% in 2005 and 22.6% in 2004. Our effective income tax rate is lower than the Canadian corporate income tax rate of 35.4% (2005 and 2004, 36.0%), due principally to the lower tax rates and differing tax rules applicable to certain of our operating and financing subsidiaries outside Canada. Specifically, while we generate revenues in numerous jurisdictions, our tax provision on earnings is computed after taking account of intercompany interest and other charges among our subsidiaries resulting from their capital structure and from the various jurisdictions in which operations,

32

technology and content assets are owned. For these reasons, our effective tax rate differs substantially from the Canadian corporate income tax rate. Our income tax expense was further impacted by certain one-time items and the accounting for discontinued operations in 2006, 2005 and 2004 as described below.

•In 2006, we increased valuation allowances against deferred tax assets by $42 million which increased our tax rate by 4%. The net change in the valuation allowance included benefits associated with our Thomson Learning market group which, under the requirements of discontinued operations accounting, were not allowed to be reclassified to discontinued operations along with the other results for the business. The impact of including the benefits related to Thomson Learning market group in our continuing operations tax charge reduced our effective tax rate by 3% in 2006, and 2% in 2005 and 2004.

•In 2005, we released $98 million of contingent income tax liabilities based upon the outcome of certain tax audits of prior year periods. Additionally, we repatriated a substantial portion of certain of our subsidiaries’ accumulated profits. The repatriation was related to the recapitalization of these subsidiaries, which was effected through intercompany financing arrangements. We incurred a one-time tax charge of $125 million in connection with this repatriation, which reduced our cash flow from operations and our net earnings in the fourth quarter by the same amount. The net effect of both of these one-time tax items was a $27 million increase in the tax provision for the full year of 2005.

•The 2004 income tax provision included a benefit resulting from the release of a valuation allowance of $41 million related to new legislation in the United Kingdom.

The balance of our deferred tax assets at December 31, 2006 was $1,347 million compared to $1,197 million at December 31, 2005. Our deferred tax assets consist primarily of tax losses and other credit carryforwards, the majority of which can only be utilized against taxable income in Canada. In assessing the likelihood of using our deferred tax assets, we first offset them against deferred tax liabilities. We establish valuation losses for any remaining deferred tax assets that we do not expect to be able to use against deferred tax liabilities or future taxable income. Our valuation allowance against our deferred tax assets at December 31, 2006 was $442 million compared to $412 million at December 31, 2005. The net movement in the valuation allowance from 2005 to 2006 primarily relates to additional Canadian losses sustained in 2006 that we do not anticipate using because we expect to continue to incur losses in Canada.

In 2007, our businesses expect to continue with initiatives to consolidate the ownership of their technology platforms and content and we expect that a proportion of our profits will continue to be taxed at lower rates than the Canadian statutory tax rate. After giving effect to our ongoing asset consolidation initiatives, we expect our effective tax rate in 2007 to be in the 20% range. We believe our effective rate will be sustainable. However, our effective tax rate and our cash tax cost depend on the laws of numerous countries and the provisions of multiple income tax conventions between various countries in which we operate. Our ability to maintain a low effective tax rate will be dependent upon such laws and conventions remaining unchanged as well as the geographic mix of our profits. We are not aware of any significant changes in existing laws or conventions at this time that would cause our effective tax rate to increase.

See the section entitled “Contingencies” for further discussion of income tax liabilities.

Earnings attributable to common shares and earnings per common share. Earnings attributable to common shares were $1,115 million in 2006 compared to $930 million in 2005. Earnings per common share were $1.73 in 2006 compared to $1.42 in 2005. The increases in reported earnings and earnings per common share were the result of higher operating profit and lower tax expense due to the recapitalization of certain subsidiaries in the fourth quarter of 2005 and certain one-time items in 2005.

Earnings attributable to common shares were $930 million in 2005 compared to $1,008 million in 2004. Earnings per common share were $1.42 in 2005 compared to $1.54 in 2004. The decreases in reported earnings and earnings per common share were the result of gains on the sales of discontinued operations in 2004 and certain one-time items in both years, which more than offset increases in operating profit in 2005.

33

MANAGEMENT’S DISCUSSION AND ANALYSIS

The results for each of these periods are not directly comparable because of certain one-time items, as well as the variability in discontinued operations due to the timing of dispositions. The following table presents a summary of our earnings and our earnings per common share from continuing operations for the periods indicated, after adjusting for items affecting comparability in each year.

		Year ended December 31
(millions of U.S. dollars, except per common share amounts)		2006		2005		2004
Earnings attributable to common shares		1,115		930		1,008
Adjustments for one-time items:
	Net other (income) expense	(1	)	28		(2	)
	Tax on above item	(16	)	(4	)	1
	Tax (benefits) charges	(33	)	5		(57	)
Discontinued operations		(201	)	(272	)	(369	)
Adjusted earnings from continuing operations		864		687		581
Adjusted earnings per common share from continuing operations		$1.34		$1.05		$0.89

Our adjusted earnings from continuing operations for 2006 increased 26% compared to 2005 largely as a result of higher operating profit stemming from higher revenues and a lower effective tax rate, which more than offset costs associated with THOMSONplus as well as higher pension and other benefit plans expense and higher stock-related compensation expense. Our adjusted earnings in 2005 increased 18% compared to 2004 also as a result of higher operating profits offset by higher pension and other benefit plans expense.

Operating Results by Business Segment

Thomson Legal & Regulatory

	Year ended December 31
(millions of U.S. dollars)	2006	2005	2004
Revenues	3,647	3,368	3,164
Segment operating profit	1,120	1,000	916
Segment operating profit margin	30.7%	29.7%	29.0%

2006 v. 2005

Thomson Legal & Regulatory’s financial performance in 2006 reflected the continued demand in the marketplace for online products and solutions. Revenues increased 8% comprised of the following:

•7% from higher revenues of existing businesses;

•1% from contributions of newly acquired businesses; and

•a negligible impact from foreign currency translation.

Growth within our existing businesses reflected the strong performance of online services, consisting primarily of Westlaw, Checkpoint and our international online services, which increased 11% over the prior year. Revenue from sales of software and services increased 11% as a result of higher sales of tax and accounting software products and services at FindLaw and Tax Partners. These increases were partially offset by a decline in CD product revenues as customers continued to migrate to our online offerings. Contributions from acquired businesses reflected the results from LiveNote Technologies, a provider of transcript and evidence management software that brings new functionality to Westlaw Litigator, which is our integrated litigation platform, and several small acquisitions in 2006 that supplemented existing offerings.

Within our North American legal businesses, revenues increased 7% primarily due to higher online and services revenues. Westlaw revenue experienced growth in all of its major market segments: law firm, corporate, government and academic as a result of greater new sales. Revenues from services increased primarily due to higher sales at FindLaw. Within the tax and accounting group, revenues increased 12% as a result of higher online and software and services sales. Our Checkpoint online service revenue continued to increase significantly as a result of new sales and continued migration of customers from print to online products. Software revenues increased due to higher sales of our UltraTax and InSource offerings. Service revenues increased primarily as a result of higher sales and use tax outsourcing services at Tax Partners. Outside of North America, online revenues increased, particularly in Europe and Australia, due to higher customer demand for our products and the continued migration of our international customers from CD to online products.

34

The growth in segment operating profit and its corresponding margin was primarily a result of the revenue growth described above. The increase in the segment operating profit margin reflected the effects of scale in our existing businesses and a favorable product mix.

2005 v. 2004

In 2005, revenues increased 6% primarily due to higher revenues from existing businesses and, to a lesser extent, from contributions of newly acquired businesses. Within our existing businesses, growth reflected the strong performance of online services, consisting primarily of Westlaw, Checkpoint and our international online services, which increased 11% over 2004. Revenue from sales of software and services increased 14% reflecting strong growth from FindLaw, tax and accounting software products and acquired companies. These increases were partially offset by a slight decline in CD product revenues as customers continued to migrate to our online offerings. Contributions from acquired businesses reflected the results from 18 acquisitions in 2005. Among our acquired businesses in 2005 were GSI, a provider of securities and securities-related information and research services, which further enhanced our online offerings, and Tax Partners, LLC, a tax compliance service firm, which expanded our service offerings in the outsourcing solutions market.

In 2005, North American Westlaw revenue experienced growth in all of its major market segments: law firm, corporate, government and academic. Within our North American tax and accounting group, our Checkpoint online service revenues also increased. The revenue increases for both North American Westlaw and Checkpoint were driven by new sales and higher retention. FindLaw revenue increased as a result of new sales performance, as well as the impact of recent acquisitions. Outside of North America, online revenues increased, particularly in Europe, driven by higher customer demand for our solutions.

The growth in segment operating profit and its corresponding margin in 2005 resulted primarily from the revenue growth described above. The segment operating margin increased as the effects of scale in our existing businesses more than offset the impact of lower initial margins for certain acquired businesses.

Outlook

Growth in the overall legal information market remains modest but steady. We expect that customer spending worldwide on print products will remain constant, while spending on CD products will continue to decline. We anticipate the most significant elements of growth in this market will be in spending for online products and integrated information offerings. In North America, law firms are increasing expenditures on talent and practice development, while exploring outsourcing of managed services. In this environment, we anticipate continued strong demand for our “business of law” products and services.

Increasing regulatory complexity and stringency, largely stemming from the Sarbanes-Oxley Act, have significantly affected the accounting labor market, increasing the demand for compliance information and software and for workflow efficiency tools and integrated solutions. In this environment, we anticipate continued strong demand for our tax and accounting compliance products and our outsourcing solutions.

Thomson Financial

	Year ended December 31
(millions of U.S. dollars)	2006	2005	2004
Revenues	2,015	1,897	1,738
Segment operating profit	379	334	294
Segment operating profit margin	18.8%	17.6%	16.9%

2006 v. 2005

Results in 2006 for Thomson Financial reflected underlying market conditions and the continued success of Thomson ONE offerings. Revenues increased 6% comprised of the following:

•4% from higher revenues of existing businesses;

•2% from contributions of newly acquired businesses; and

•a negligible impact from foreign currency translation.

Revenues from existing businesses increased as a result of new sales of Thomson ONE products, as well as higher usage and transaction revenues. Revenues from Thomson ONE products increased across the investment banking, corporate, investment management and institutional equities sectors. Notably, performance in the corporate sector reflected the adoption of Thomson ONE Investor Relations. Increases in revenues from existing businesses were experienced in our three primary geographic regions, the U.S., Europe and Asia. International growth benefited from demand for our webcasting solutions as European and Asian markets increasingly are adopting U.S.-style investor relations practices. TradeWeb’s overall revenues increased due to higher subscription fees despite TradeWeb’s decline in transaction fees, which resulted from lower trading volumes in its U.S. Treasurys marketplace. Revenue growth from existing businesses was also tempered by the discontinuation of a low margin service in the wealth management sector. Results also reflected contributions from Quantitative Analytics, Inc., a provider of financial database integration and analysis solutions that was acquired in March 2006, and AFX News, a real-time financial news agency that was acquired in July 2006.

35

MANAGEMENT’S DISCUSSION AND ANALYSIS

Segment operating profit increased due to the increase in revenues. The segment operating profit margin increased due to the effects of scale, efficiency efforts to relocate certain activities to lower cost locations and a decline in depreciation expense as a percentage of revenues as a result of more efficient capital spending.

2005 v. 2004

Revenues in 2005 increased 9% due equally to higher revenues from existing businesses and contributions from newly acquired businesses. Revenues from existing businesses increased as a result of higher usage and transaction revenues. In particular, TradeWeb revenues increased significantly due to higher volumes for its online fixed income marketplaces as a result of greater online trading activity and the introduction of new online markets, including tri-party repurchase agreements, Euro- and U.S. dollar-denominated interest rate swaps, and default swap index products. Thomson ONE workstations increased 45% in 2005 due to user migration from legacy products and new client sales. Increases in revenues from existing businesses were experienced in all geographic regions, including Europe, which was aided by improving market conditions. Contributions from acquired businesses primarily related to the full year effect of TradeWeb and CCBN, which were both acquired in the first half of 2004.

Segment operating profit increased in 2005 due to the increase in revenues and lower depreciation expense due to lower capital spending. Included in segment operating profit in 2004 were insurance recoveries of $19 million related to September 11, 2001. Excluding these recoveries, the increase in 2005 of segment operating profit and improvement in its corresponding margin would have been more pronounced.

Outlook

The financial services market is experiencing fundamental changes, fueled by globalization, exchange consolidation, new technology, new and modified government regulations and the increasing influence of hedge funds. Traditional marketplace relationships are changing as the search for greater returns becomes truly global. Specifically, traditional market structures and investment strategies are converging as single security portfolios are being replaced with more sophisticated multi-asset strategies. Given these market conditions, we believe there will continue to be a strong demand for solutions that provide proprietary content and superior analytics and improve efficiency and we anticipate revenue growth for existing businesses to be driven by the continued rollout of the Thomson ONE platform.

Thomson Scientific & Healthcare

	Year ended December 31
(millions of U.S. dollars)	2006	2005	2004
Revenues	995	921	798
Segment operating profit	236	213	174
Segment operating profit margin	23.7%	23.1%	21.8%

2006 v. 2005

Results for Thomson Scientific & Healthcare reflected continuing customer demand for our solutions and services and additional investments in the healthcare marketplace. Revenues increased 8% comprised of the following:

• 4% from higher revenues of existing businesses;

• 4% from contributions of newly acquired businesses; and

• a negligible impact from foreign currency translation.

Growth in revenues from existing businesses was primarily a result of higher subscription revenues for the Web of Science and Thomson Pharma solutions, as well as increased customer spending for healthcare decision support products. These increases were partially offset by lower revenues from our other online and legacy print products. Results also reflected contributions from Solucient, a provider of data and advanced analytics to hospitals and health systems acquired in October 2006, and MercuryMD, a provider of mobile information systems serving the healthcare market acquired in May 2006.

Growth in segment operating profit compared to the prior year reflected higher revenues from our workflow solutions and the benefits from completed and ongoing integration initiatives. Those initiatives have increased operating efficiencies enabling us to control costs and improve the segment operating profit margin.

2005 v. 2004

The financial performance for Thomson Scientific & Healthcare in 2005 reflected contributions from prior year investments and further expansion of our information solutions. Revenues increased 15% primarily due to contributions of newly acquired businesses and, to a lesser extent, higher revenues from existing businesses.

The increases in revenue attributable to acquired businesses primarily related to IHI, which was acquired in November 2004. Additionally, Thomson Scientific & Healthcare completed three small, tactical acquisitions in 2005 that further enhanced its Thomson Pharma and healthcare decision support offerings. Growth in revenues from existing businesses was primarily a result of higher customer spending for healthcare decision support products, which help customers manage healthcare costs.

36

Additionally, there were higher subscription revenues for ISI Web of Science and the Micromedex electronic product portfolio due to new sales and strong retention rates. These increases were reflective of continuing customer demand for our workflow solutions. Revenues from existing businesses were tempered by the unfavorable effect of changes in foreign currency exchange rates on transactions involving U.S. dollar revenues within the group’s European businesses.

Segment operating profit and the corresponding margin increased in 2005 compared to 2004 due to higher revenues and the benefits from integration efforts. The majority of the integration benefits were derived from our IHI acquisition. During 2005, relative to IHI, we successfully completed the consolidation of several offices, integrated back office services, consolidated and optimized sales forces for certain businesses, and consolidated technology platforms.

Outlook

The aging U.S. population continues to fuel investments in scientific research and development that lead to drug development and other healthcare solutions. Additionally, universities are increasingly being challenged to manage their research programs more effectively, measuring productivity and return on investment in ways not seen historically. Therefore, demand should continue to grow for our solutions that contain content and tools that increase the efficiency of the research process, which is critical to institutional and corporate customers with time and funding constraints.

The aging U.S. population and the increasing complexity of healthcare therapeutic options are also driving healthcare costs higher and creating the need for decision support solutions. We, therefore, anticipate continued growth from our healthcare management and point-of-care decision support solutions.

Corporate and Other

	Year ended December 31
(millions of U.S. dollars)	2006	2005	2004
Expenses excluding THOMSONplus	175	139	115
THOMSONplus	60	–	–
Total	235	139	115

2006 v. 2005

In 2006, Corporate and Other expenses increased $96 million, or 69%, compared to 2005. The increase was primarily due to expenses associated with our THOMSONplus program, as well as higher pension and other defined benefit plans expense and stock-related compensation expense.

In 2006, we incurred $60 million of expenses associated with THOMSONplus. These expenses primarily related to consulting services, but also included severance. Additionally, these expenses included approximately $2 million of charges previously reported in Thomson Scientific & Healthcare in the first quarter of 2006. These charges primarily related to the consolidation of certain sales and operations functions and primarily reflected severance. Our segment results for the first quarter of 2006 have been reclassified to reflect this presentation.

2005 v. 2004

Corporate and Other expenses were $139 million in 2005 compared to $115 million in 2004. The increase was primarily due to higher pension and other defined benefit plans expense and severance and other charges associated with the outsourcing and reorganization of certain functions within our human resources department. See the section entitled “Employee Future Benefits” for further discussion of our pension and other defined benefit plans expense.

Outlook

We anticipate Corporate and Other expenses to increase in 2007 as a result of projected spending associated with our THOMSONplus program. Additional expenses are also expected due to certain technology initiatives.

37

MANAGEMENT’S DISCUSSION AND ANALYSIS

Discontinued Operations

As part of our continuing strategy to optimize our portfolio of businesses to ensure that we are investing in parts of our business that offer the greatest opportunities to achieve growth and returns, management decided to actively pursue the sale of the following businesses. These businesses were classified as discontinued operations within the consolidated financial statements for years ended December 31, 2006, 2005 and 2004. None of these businesses was considered fundamental to our integrated information offerings.

In October 2006, we announced our intention to sell Thomson Learning via three independent processes, each on its own schedule. First, we agreed to sell NETg, a leading provider of continuing corporate education and training, to SkillSoft PLC. The sale is expected to be completed in the second quarter of 2007. Second, we are currently seeking buyers for Prometric, a global leader in assessment services, through a competitive bidding process. We expect the sale of Prometric to be concluded in 2007. Lastly, the competitive bidding for our higher education, careers and library reference businesses commenced in the first quarter of 2007. We recorded impairment charges associated with certain of these businesses related to goodwill of $14 million in the fourth quarter of 2006.

Additionally, in the fourth quarter of 2006 we approved plans within Thomson Legal & Regulatory to sell our business information and news operations, which include our Market Research and NewsEdge businesses. We recorded impairment charges associated with these businesses related to identifiable intangible assets and goodwill of $4 million in the fourth quarter of 2006.

In June 2006, our board of directors approved plans to sell IOB, a Brazilian regulatory business within Thomson Legal & Regulatory, and Thomson Medical Education, a provider of sponsored medical education within Thomson Scientific & Healthcare.

In the first quarter of 2006, we approved plans within Thomson Legal & Regulatory to sell Lawpoint Pty Limited, an Australian provider of print and online regulatory information services; and Law Manager, Inc., a software and services provider. We completed the sale of Law Manager in April 2006 and Lawpoint in June 2006.

Also in the first quarter of 2006, we approved plans within Thomson Learning to sell Peterson’s, a college preparatory guide; the North American operations of Thomson Education Direct, a consumer-based distance learning career school; and K.G. Saur, a German publisher of biographical and bibliographical reference titles serving the library and academic communities. We recorded impairment charges associated with certain of these businesses related to identifiable intangible assets and goodwill of $63 million before taxes in the first half of 2006. We completed the sale of Peterson’s in July 2006 and K.G. Saur in August 2006. Based upon the status of negotiations at December 31, 2006, we recorded a pre-tax impairment charge associated with Thomson Education Direct of $15 million relating to goodwill in the fourth quarter of 2006.

In December 2005, our board of directors approved our plan to dispose of American Health Consultants, a medical newsletter publisher and medical education provider within Thomson Scientific & Healthcare. We recorded a post-tax gain of $23 million in the third quarter of 2006 related to the completion of the sale.

In 2006 and 2005, discontinued operations included adjustments to tax liabilities previously established for Thomson Newspapers, which we sold in 2000 and 2001 and Thomson Media, which we sold in 2004.

In November 2004, we sold the Thomson Media group, a provider of largely print-based information products focused on the banking, financial services and related technology markets for gross proceeds of $350 million. We recorded a post-tax gain of $94 million in 2004.

In the second quarter of 2004, we sold Sheshunoff Information Services Inc., a provider of critical data, compliance and management tools to financial institutions, which had been managed within Thomson Media. Based on the status of negotiations at March 31, 2004, we recorded a pre-tax impairment charge of $6 million relating to identifiable intangible assets in the first quarter of 2004. We recorded a post-tax gain of $6 million in 2004 related to the completion of the sale.

In February 2004, we sold DBM, a provider of human resource solutions, which had been managed within Thomson Learning. We recorded a post-tax gain of $7 million in the first quarter of 2004 on this sale.

For more information on discontinued operations, see note 7 to our consolidated financial statements.

38

Return on Invested Capital

We measure our return on invested capital (ROIC) to assess, over the long term, our ability to create value for our shareholders. Our goal is to increase this return over the long term by efficiently and effectively utilizing our capital to invest in areas with high returns and realizing operating efficiencies to further enhance our profitability. ROIC is calculated as the ratio of our operating profit (including discontinued operations) before amortization, less taxes paid, to our average invested capital (see the “Reconciliations” section for the calculation and a reconciliation to the most directly comparable Canadian GAAP measures). For 2006, our ROIC was 8.2%, an increase from 7.8% for 2005 and 7.6% for 2004. As assets acquired are recorded at their fair values, this has had the effect of increasing the recorded value of our asset base to be much closer to its fair value, thereby tempering our return. We continue to focus on driving efficiency, increasing our operating profit margin and, in particular, improving free cash flow. We believe that success in these areas is indicative of the long-term capability to improve our ROIC. Since 2001, we have increased our operating margin from 13.0% to 18.9% and grown free cash flow at a compounded rate of almost 20% to $1.4 billion in 2006.

Review of Fourth Quarter Results

The following table summarizes our consolidated results for the fourth quarter of 2006 and 2005.

	Quarter ended December 31
(millions of U.S. dollars)	2006	2005
Revenues	1,865	1,721
Operating profit	424	430
Operating profit margin	22.7%	25.0%
Net earnings1	391	250
Diluted earnings per common shares1	$0.61	$0.38

1 Results are not directly comparable due to certain one-time items.

Revenues. The 8% increase in revenues for the three-month period ended December 31, 2006 was comprised of the following:

• 4% from growth of existing businesses;

• 2% from contributions of acquired businesses; and

• 2% from the favorable impact of foreign currency translation.

The growth from existing businesses was contributed by all market groups. Notably, Thomson Legal & Regulatory’s online products and Thomson Scientific & Healthcare’s decision support solutions exhibited continued strong performance. Thomson Financial benefited from increased Thomson ONE revenues. Contributions from acquired businesses were primarily related to Solucient in Thomson Scientific & Healthcare.

Operating profit. Operating profit for the three months ended December 31, 2006 decreased 1%. This decrease was primarily due to expenses associated with our THOMSONplus program and higher stock-related compensation expense. These expenses more than offset the effect from higher revenues. The corresponding operating profit margin also decreased as a result of these higher expenses.

Depreciation and amortization. Depreciation for the three months ended December 31, 2006 increased $13 million, or 13%, compared to the same period in 2005 due to the newly acquired assets and the timing of capital expenditures. Amortization for the three months ended December 31, 2006 increased $7 million, or 12%, compared to the 2005 period reflecting the expense of newly acquired intangible assets.

Net other expense. Net other expense for the three months ended December 31, 2006 of $35 million primarily consisted of a legal reserve representing our portion of a cash settlement anticipated to be paid in 2007 related to the Rodriguez v. West Publishing Corp. and Kaplan Inc. case.

Net other expense for the three-month period ended December 31, 2005 was $14 million. The expense primarily related to a charge to write down the carrying value of an equity investment to its fair value. The decline in fair value was reflective of our diminished expectations of future growth for our investee.

Income taxes. Income taxes for the three-month period ended December 31, 2006 decreased significantly compared to the same prior year period due to our repatriation in 2005 of a substantial portion of some of our subsidiaries’ accumulated profits. The repatriation was related to the recapitalization of these subsidiaries, which was affected through intercompany financing arrangements. We incurred a one-time tax charge of $125 million in connection with this repatriation. Income taxes for both periods in the current and prior year reflected the mix of taxing jurisdictions in which pre-tax profits and losses were recognized. Because the seasonality in our businesses impacts our geographic mix of pre-tax profits and losses in interim periods and, therefore, distorts our reported tax rate, our effective tax rate for interim periods is not indicative of our effective tax rate for the full year.

39

MANAGEMENT’S DISCUSSION AND ANALYSIS

Earnings attributable to common shares and earnings per common share. Earnings attributable to common shares were $390 million for the three months ended December 31, 2006 compared to $249 million in the same period in 2005. Earnings per common share were $0.61 in the three months ended December 31, 2006 compared to $0.38 in the comparable period in 2005. The increases in earnings and earnings per common share were primarily due to lower tax expense due to a one-time charge in 2005 associated with the repatriation of certain earnings. The results for the three months ended December 31, 2006 and 2005 are not directly comparable because of certain one-time items, the impacts from accounting for income taxes in interim periods, and the variability in discontinued operations due to the timing of dispositions.

The following table presents a summary of our earnings and our earnings per common share from continuing operations for the periods indicated, after adjusting for items affecting comparability in both years.

(millions of U.S. dollars,		Quarter ended December 31
except per common share amounts)		2006		2005
Earnings attributable to common shares		390		249
Adjustments for one-time items:
	Net other expense	35		14
	Tax on above item	(15	)	(5	)
	Tax (benefits) charges	(12	)	114
Interim period effective tax rate normalization		8		18
Discontinued operations		(85	)	(92	)
Adjusted earnings from continuing operations		321		298
Adjusted earnings per common share from continuing operations		$0.50		$0.46

On a comparable basis, our adjusted earnings from continuing operations for the fourth quarter of 2006 improved over 2005 due primarily to a lower effective tax rate resulting from the 2005 recapitalization of certain subsidiaries through intercompany financing arrangements.

LIQUIDITY AND CAPITAL RESOURCES

Financial Position

At December 31, 2006, our total assets were $20,132 million, which represented a 4% increase from the total of $19,434 million at December 31, 2005. This increase was primarily due to the increases in assets related to newly acquired businesses and capital expenditures, as well as the impact of foreign currency translation, which more than offset the effect of depreciation and amortization.

Our total assets by market group as of December 31, 2006 and 2005 were as follows:

	As at December 31
(millions of U.S. dollars)	2006	2005
Thomson Legal & Regulatory	7,552	7,263
Thomson Financial	3,484	3,358
Thomson Scientific & Healthcare	2,115	1,705
Corporate and other	1,442	1,476
Discontinued operations	5,539	5,632
Total assets	20,132	19,434

ASSETS BY MARKET GROUP

(excluding discontinued operations, as of December 31, 2006)

40

The following table presents comparative information related to net debt, shareholders’ equity and the ratio of net debt to shareholders’ equity:

	As at December 31
(millions of U.S. dollars)	2006	2005
Short-term indebtedness	333	191
Current portion of long-term debt	264	98
Long-term debt	3,681	3,957
Total debt	4,278	4,246
Swaps	(257)	(193)
Total debt after swaps	4,021	4,053
Remove fair value adjustment of cash flow hedges1	54	—
Less: Cash and cash equivalents	(334)	(407)
Net debt	3,741	3,646
Total shareholders’ equity	10,481	9,963
Net debt/equity ratio	0.36:1	0.37:1

1 Effective January 1, 2006, all derivatives and certain hedged items are recorded at fair value on the balance sheet. See the section entitled “Accounting Changes” for further discussion.

We guarantee certain obligations of our subsidiaries, including borrowings by our subsidiaries under our revolving credit facilities. In August 2006, we amended our credit facility guarantees to replace the two original financial covenants with one new financial covenant. Under the new financial covenant, we must maintain a ratio of total debt as of the last day of each fiscal quarter to adjusted EBITDA (earnings before interest, income taxes, depreciation and amortization and other modifications described in the guarantee) for the last four quarters ended of not more than 4:1. Total debt is adjusted to factor in the impact of swaps and other hedge agreements related to the debt. As of December 31, 2006, we were in compliance with this covenant as the ratio was approximately 2.1:1.

In January 2006, we repaid $50 million of privately placed notes upon their maturity.

In the third quarter of 2005, we completed the early redemption of US$75 million of 7.62% privately placed notes and Cdn$400 million of 6.90% medium-term notes and settled an associated currency swap. A loss of US$23 million was recorded as a result of these redemptions in “Net other income (expense)” in the consolidated statement of earnings, primarily related to early redemption premiums and non-cash write-offs of deferred costs. These redemptions were principally financed by the August 2005 offering of US$400 million of 5.50% debentures due 2035.

In addition to the early redemptions discussed above, in September 2005, we also repaid US$75 million of privately placed notes. In March 2005, we repaid $125 million of floating rate notes upon their maturity.

The following table displays the changes in our shareholders’ equity for the year ended December 31, 2006:

(millions of U.S. dollars)
Balance at December 31, 2005	9,963
Earnings attributable to common shares for the year ended December 31, 2006	1,115
Additions to paid in capital related to stock compensation plans	30
Common share issuances	84
Repurchases of common shares – normal course issuer bid	(412)
Common share dividends declared	(567)
Net unrealized gains on derivatives that qualify as cash flow hedges1	59
Change in translation adjustment	209
Balance at December 31, 2006	10,481

1Effective January 1, 2006, the unrealized gains and losses on certain derivatives that qualify as cash flow hedges are recorded as a component of accumulated other comprehensive income within shareholders’ equity in our consolidated balance sheet. See the section entitled “Accounting Changes” for further discussion.

The following table sets forth the ratings that we have received from rating agencies in respect of our outstanding securities as of December 31, 2006.

		Standard &	Dominion Bond
	Moody’s	Poor’s	Rating Service
Long-term debt	A3	A–	A (low)
Commercial paper	–	–	R-1 (low)
Trend/Outlook	Negative	Developing	Stable

41

MANAGEMENT’S DISCUSSION AND ANALYSIS

In the fourth quarter of 2006, Moody’s revised its trend/outlook for our company from “stable” to “negative” and Standard & Poor’s revised its trend/outlook for our company from “stable” to “developing” after our announcement of our intention to sell our remaining Thomson Learning businesses. These revisions reflect the uncertainties surrounding this divesture including the amount of proceeds to be received and the nature of the reinvestment of those proceeds. You should be aware that a rating is not a recommendation to buy, sell or hold securities and may be subject to revision, suspension or withdrawal at any time by the assigning rating organization. We cannot assure you that our credit ratings will not be lowered in the future or that rating agencies will not issue adverse commentaries regarding our securities.

The maturity dates for our long-term debt are well balanced with no significant concentration in any one year. At December 31, 2006, the carrying amounts of our total current liabilities exceeded the carrying amounts of our total current assets because current liabilities include deferred revenue. Deferred revenue does not represent a cash obligation, however, but rather an obligation to perform services or deliver products in the future. The costs to fulfill these obligations are included in our operating costs.

Normal Course Issuer Bid

In May 2005, we initiated a normal course issuer bid to repurchase up to 15 million of our common shares. Under this first program, which terminated on May 4, 2006, we repurchased and subsequently cancelled approximately 13.3 million shares for approximately $482 million. The following summarizes our repurchases under this first program.

		Average
	Shares	price per
Three-month period ended	repurchased	share
June 30, 2005	1,350,000	$33.58
September 30, 2005	2,250,000	$37.01
December 31, 2005	3,649,400	$34.97
March 31, 2006	4,570,600	$36.83
June 30, 2006	1,470,000	$39.22
Total	13,290,000	$36.28

In May 2006, we renewed our normal course issuer bid. Under this second program, we may purchase up to 15 million of our common shares. Shares that we repurchase are cancelled. Purchases commenced on May 5, 2006 and will terminate no later than May 4, 2007. We may repurchase shares in open market transactions on the Toronto Stock Exchange or the New York Stock Exchange. The following summarizes our repurchases for this second program.

		Average	Number of
	Shares	price per	shares available
Three-month period ended	repurchased	share	for repurchase
June 30, 2006	1,640,000	$39.90
September 30, 2006	1,710,600	$39.27
December 31, 2006	1,289,400	$41.41
Total	4,640,000	$40.09	10,360,000

In 2006, under both programs, we cumulatively repurchased 10,680,600 shares for $412 million, representing an average cost per share of $38.57. In 2005, we repurchased 7,249,400 shares for $256 million, representing an average cost per share of $35.35.

Decisions regarding the timing of future repurchases will be based on market conditions, share price and other factors. We may elect to suspend or discontinue the bid at any time. From time to time, when we do not possess material non-public information about ourselves or our securities, we may enter into a pre-defined plan with our broker to allow for the repurchase of shares at times when we ordinarily would not be active in the market due to our own internal trading blackout periods, insider trading rules or otherwise. Any such plans entered into with our broker will be adopted in accordance with applicable Canadian securities laws and the requirements of Rule 10b5-1 under the U.S. Securities Exchange Act of 1934.

Employee Stock Purchase Plan

In October 2005, our eligible U.S. employees began participating in our new employee stock purchase plan (ESPP). In 2006, we expanded the ESPP to eligible Canadian and U.K. employees. Under the ESPP, participating employees may authorize payroll deductions of between 1% and 10% of their eligible compensation during a quarter, with a maximum of $21,250 for a year, to purchase newly issued shares. Using accumulated payroll deductions, participating employees purchase our common shares at a 15% discount to the New York Stock Exchange closing price on the last business day of a quarter. The discount, which amounted to $4 million in 2006 and $1 million in 2005, represented compensation expense for our company. In 2006, we issued approximately 755,000 common shares in connection with employee deductions from the fourth quarter of 2005 and the first three quarters of 2006. In January 2007, we issued approximately 193,000 common shares in connection with the fourth quarter of 2006 employee deductions.

42

Cash Flow

Our principal sources of liquidity are cash provided by our operations, borrowings under our revolving bank credit facilities and our commercial paper program and the issuance of public debt. In 2007, we anticipate that the proceeds from our announced divestitures will also be a large source of liquidity. Our principal uses of cash have been to finance working capital and debt servicing costs, repay debt, and finance dividend payments, capital expenditures and acquisitions. Additionally, as discussed in the section entitled “Normal Course Issuer Bid,” we also used our cash to repurchase outstanding common shares in open market transactions.

Operating activities. Cash provided by our operating activities in 2006 was $2,125 million compared to $1,879 million for 2005. The change primarily reflected the increase in operating profit from 2005 to 2006 and lower tax payments. The reduction in tax payments was principally due to a $125 million withholding tax paid in 2005 associated with the repatriation of certain subsidiary earnings. Working capital levels decreased slightly in 2006 due to the timing of accounts receivable collections and payments for normal operating expenses, though not to the extent of the prior year.

Investing activities. Cash used in our investing activities in 2006 was $1,290 million compared to $1,071 million for 2005. The increased use of cash in 2006 was attributable to greater acquisition spending. In 2006, spending on acquisitions included the purchase of Solucient within Thomson Scientific & Healthcare, Quantitative Analytics within Thomson Financial and LiveNote within Thomson Legal & Regulatory. In 2005, investing activities included tax payments of $105 million associated with our sale of Thomson Media in 2004.

Capital expenditures in 2006 increased 6% to $453 million from $427 million in 2005. This represented 6.8% and 6.9% of revenues in 2006 and 2005, respectively. Higher capital expenditures in 2006 were incurred primarily at Thomson Legal & Regulatory and Corporate, and primarily related to initiatives to standardize technology platforms across businesses.

The majority of our capital expenditures is focused on technology-related investments. We make significant investments in technology because it is essential to providing integrated information solutions to our customers and because we intend to maintain the significant competitive advantage we believe we have in this area. Our technology expenditures include spending on computer hardware, software, electronic systems, telecommunications infrastructure and digitization of content. In 2006, approximately 76% of our total capital expenditures was for technology-related investments. Although we can give no assurance that investments in technology will result in an increase in our revenues or a decrease in our operating costs, we expect our technology-related investments to continue at a significant level.

We expect our capital expenditures to increase in 2007, both in absolute dollars and as a percentage of revenues. While we anticipate spending associated with our underlying businesses to approximate 6–7% of revenues, capital spending related to THOMSONplus initiatives and the expansion of our Eagan, Minnesota facility is expected to result in an additional $100 million of expenditures. As a result, we anticipate total capital expenditures will approximate 8% of our revenues in 2007.

Financing activities. Cash used in our financing activities was $912 million for the year ended December 31, 2006 compared to $798 million for the year ended December 31, 2005. The increased use of cash largely reflected our repurchase of common shares (see “Normal Course Issuer Bid” above) and higher dividend payments in 2006.

The following table sets forth our common share dividend activity.

	Year ended December 31
(millions of U.S. dollars)	2006	2005
Dividends declared	567	517
Dividends reinvested	(14)	(12)
Dividends paid	553	505

Discussion of other significant financing activities from each year are noted under the section entitled “Financial Position.”

Free cash flow. The following table sets forth a calculation of our free cash flow for 2006 and 2005:

	Year ended December 31
(millions of U.S. dollars)	2006		2005
Net cash provided by operating activities	2,125		1,879
Capital expenditures	(453	)	(427	)
Other investing activities	(26	)	(25	)
Dividends paid on preference shares	(5	)	(4	)
Additions to property and equipment of discontinued operations	(184	)	(215	)
Other investing activities of discontinued operations	(17	)	(14	)
Free cash flow	1,440		1,194

Our free cash flow for 2006 increased due to higher operating profit and lower tax payments. The decrease in tax payments reflected a $125 million withholding tax payment associated with the repatriation of certain earnings in 2005.

43

MANAGEMENT’S DISCUSSION AND ANALYSIS

Credit facilities and commercial paper program.

As of December 31, 2006, we maintained revolving unsecured credit facilities of $1.6 billion. In September 2006, we increased the limit of our commercial paper program from Cdn$1 billion to US$1.2 billion. Though not contractually required, we view our borrowings under our commercial paper program as a reduction of the amount available to us under our credit facilities. At December 31, 2006, our credit lines and related activity were as follows:

(millions of U.S. dollars)	As at December 31, 2006
Credit lines	1,600
Amount drawn	(27	)
Commercial paper outstanding	(316	)
Lines available	1,257

Our facilities are structured such that, if our long-term debt rating was downgraded by Moody’s or Standard & Poor’s, our facility fee and borrowing costs under our existing multi-year credit facilities may increase, although availability would be unaffected. Conversely, an upgrade in our ratings may reduce our facility fees and borrowing costs.

Debt shelf registration. In September 2005, we filed a shelf prospectus to issue up to $2 billion of debt securities from time to time. As of December 31, 2006, we had not issued any debt securities under this shelf.

For the foreseeable future, we believe that cash from our operations and available credit facilities will be sufficient to fund our future cash dividends, debt service, projected capital expenditures, acquisitions that we pursue in the normal course of business and share repurchases.

Off-Balance Sheet Arrangements, Commitments and Contractual Obligations

The following table presents a summary of our long-term debt and off-balance sheet contractual obligations as of December 31, 2006 for the years indicated:

(millions of U.S. dollars)	2007	2008	2009	2010	2011	Thereafter	Total
Long-term debt1	226	436	631	352	254	1,842	3,741
Operating lease payments	154	129	106	79	66	246	780
Unconditional purchase obligations	83	25	6	2	1	1	118
Total	463	590	743	433	321	2,089	4,639

1 Represents hedged principal payments. As substantially all non-U.S. dollar-denominated debt has been hedged into U.S. dollars, amounts represent the net cash outflows to the company associated with principal payments on our long-term debt.

We have entered into operating leases in the ordinary course of business, primarily for real property and equipment. Payments for these leases are contractual obligations as scheduled per each agreement. With certain leases, we guarantee a portion of the residual value loss, if any, incurred by the lessors in disposing of the assets, or to restore a property to a specified condition after completion of the lease period. The liability associated with these restorations is recorded on our consolidated balance sheet. With certain real property leases, we guarantee the rental obligations of some of our subsidiaries that are tenants. We believe, based upon current facts and circumstances, that a material payment pursuant to such guarantees is remote.

We have various unconditional purchase obligations. These obligations are for materials, supplies and services incidental to the ordinary conduct of business.

We have obligations to pay additional consideration for prior acquisitions, typically based upon performance measures contractually agreed to at the time of purchase. In connection with the acquisition of TradeWeb in 2004, we are obligated to make a final contingent consideration payment in 2007 of up to $50 million if certain performance measures are achieved. The contingent consideration associated with TradeWeb is the largest for which we may become liable. We do not believe that additional payments in connection with other transactions would have a material impact on our financial statements.

In certain disposition agreements, we guarantee to the purchaser the recoverability of certain assets or limits on certain liabilities. We believe, based upon current facts and circumstances, that the likelihood of a material payment pursuant to such guarantees is remote.

44

We guarantee certain obligations of our subsidiaries, including borrowings by our subsidiaries under our revolving credit facilities. We must maintain a ratio of total debt as of the last day of each fiscal quarter to adjusted EBITDA (earnings before interest, income taxes, depreciation and amortization and other modifications described in the guarantee) for the last four quarters ended of not more than 4:1. Total debt is adjusted to factor in the impact of swaps and other hedge agreements related to the debt. As of December 31, 2006, we were in compliance with this covenant as the ratio was approximately 2.1:1.

Other than as described above, we do not engage in any off-balance sheet financing arrangements. In particular, we do not have any interests in unconsolidated special-purpose or structured finance entities.

Contingencies

Lawsuits and Legal Claims. As previously disclosed, we are a defendant in certain lawsuits involving our BAR/BRI business. Park v. The Thomson Corporation and Thomson Legal & Regulatory Inc., which was filed in the U.S. District Court for the Southern District of New York, alleges violations of U.S. federal antitrust laws. In June 2006, an additional complaint with substantially identical allegations to the Park matter, which is now captioned Arendas v. The Thomson Corporation, West Publishing Corporation d/b/a BAR/BRI and Doe Corporation, was filed in the Circuit Court for the Ninth Judicial Circuit in and for Orange County, Florida, alleging violations of Florida state antitrust law. We continue to defend ourselves vigorously in these cases.

In February 2007, we entered into a settlement agreement related to a lawsuit involving our BAR/BRI business that alleged violations of antitrust laws (Rodriguez v. West Publishing Corp. and Kaplan Inc.). Our part of the settlement is $36 million, which we accrued for in the fourth quarter of 2006. If the settlement is approved by the U.S. District Court for the Central District of California, we expect to pay this amount later in 2007.

Also as previously disclosed, in 2005 we became aware of an inquiry by the Serious Fraud Office in the United Kingdom regarding the refund practices relating to certain duplicate subscription payments made by some of our customers in our Sweet & Maxwell and Gee businesses in the United Kingdom. We are continuing to cooperate fully with the authorities in their inquiry.

In addition to the matters described above, our company is engaged in various legal proceedings and claims that have arisen in the ordinary course of business. The outcome of all of the proceedings and claims against our company, including, without limitation, those described above, is subject to future resolution, including the uncertainties of litigation. Based on information currently known by us and after consultation with outside legal counsel, our management believes that the probable ultimate resolution of any such proceedings and claims, individually or in the aggregate, will not have a material adverse effect on our financial condition, taken as a whole.

Taxes. We maintain a liability for contingencies associated with known issues under discussion with tax authorities and transactions yet to be settled and we regularly assess the adequacy of this liability. We record liabilities for known tax contingencies when, in the judgment of management, it is probable that a liability has been incurred. We reverse contingencies to income in the period when management assesses that they are no longer required or when they become no longer required as a result of statute or resolution through the normal tax audit process. Our contingency reserves principally represent liabilities for the years 2000 to 2006. It is anticipated that these reserves will either result in a cash payment or be reversed to income between 2007 and 2010.

In the normal course of business, we enter into numerous intercompany transactions related to the sharing of data and technology. The tax rules governing such transactions are complex and depend on numerous assumptions. At this time, we believe that it is not probable that any such transactions will result in additional tax liabilities, and therefore we have not established contingencies related to these items. However, because of the volume and complexity of such transactions, it is possible that at some future date an additional liability could result from audits by the relevant taxing authorities.

Market Risks

Our consolidated financial statements are expressed in U.S. dollars but a portion of our business is conducted in currencies other than U.S. dollars. Changes in the exchange rates for such currencies into U.S. dollars can increase or decrease our revenues, earnings and the carrying values of our assets and liabilities in our consolidated balance sheet. Changes in exchange rates between 2005 and 2006 increased our revenues by less than 1%. The translation effects of changes in exchange rates in our consolidated balance sheet are recorded within the translation adjustment component of accumulated other comprehensive income in our shareholders’ equity. In 2006, we recorded net translation gains of $209 million, reflecting cumulative changes in exchange rates of various currencies compared to the U.S. dollar less translation gains realized with dispositions of certain businesses.

45

MANAGEMENT’S DISCUSSION AND ANALYSIS

We use derivative instruments only to reduce our foreign currency and interest rate exposures. In particular, when we borrow money in currencies other than the U.S. dollar, we generally enter into currency swap arrangements to effectively convert our obligations into U.S. dollars. All such swap arrangements are entered into only with counterparties that are investment-grade financial institutions. At December 31, 2006, 99% of our indebtedness was denominated in U.S. dollars or had been swapped into U.S. dollar obligations.

At December 31, 2006, after taking into account swap agreements, 79% of our total debt was at fixed rates of interest and the remainder was at floating rates of interest. Based upon these levels, a 100 basis point change in floating interest rates would increase or decrease our full-year interest expense by approximately $9 million.

Set out below are the U.S. dollar equivalents of our local currency revenues and operating profit for the year ended December 31, 2006. Based on our 2006 results of operations, a 10% change in the average exchange rate for each of these currencies into U.S. dollars would increase or decrease our full-year revenues and operating profit by the following amounts:

(millions of U.S. dollars)			Operating		Impact on
	Revenues as	Impact on	profit as		operating
Currency	reported	revenues	reported		profit
U.S. dollar	5,361	–	1,152		–
British pound sterling	624	62	50		5
Euro	197	20	38		4
Canadian dollar	155	16	(7	)	(1	)
Australian dollar	86	9	4		–
Other	218	22	21		2
Total	6,641	129	1,258		10

In addition to exposing us to changes in foreign currency exchange rates and interest rates, operating in foreign countries subjects us to inherent risks in doing business in certain jurisdictions outside North America. These include difficulties in penetrating new markets, exposure to varying legal standards in other jurisdictions and the potential instability of local economies and governments.

OUTLOOK

The information in this section is forward-looking and should be read in conjunction with the sections below entitled “Material Assumptions” and “Forward-Looking Statements.”

Operational

Among our key operational priorities for 2007 are to complete the sale of Thomson Learning and to invest the proceeds in a manner that will result in long term value creation for our shareholders.

Additionally, we will continue to focus on accelerating organic growth by building upon our workflow solutions and concentrating our efforts on developing common business models.

We intend to improve our operational efficiency and effectiveness by progressing with our THOMSONplus program. These initiatives will allow us to optimize our internal infrastructure and assets by reducing redundant functions and systems across our company, increasing our presence in low-cost locations and deploying common platforms for content production and delivery.

Financial

We expect 2007 revenue growth to be at the high end of our long-term target of 7%–9%, prior to our deployment of the proceeds from the sale of Thomson Learning. Our operating margin is expected to be at or above 2006 levels, despite increasing investments in efficiency initiatives. Cash generated by continuing operations is expected to grow, excluding cash generated through deployment of the Thomson Learning proceeds.

We expect our performance to further strengthen in 2008. We expect to sustain our long-term revenue growth rates. Our operating margin is expected to increase above 20%. Free cash flow is expected to strengthen as improvements in operating performance are projected to more than offset the loss of Thomson Learning’s free cash flow even before deployment of the Thomson Learning sale proceeds.

MATERIAL ASSUMPTIONS

In preparing our Outlook, our material assumptions were that worldwide macroeconomic conditions would be unchanged in 2007 and 2008 relative to 2006, a portion of our anticipated 2007 and 2008 revenue growth would come from tactical acquisitions made during the year, and that our operating profit margin would improve in 2007 and 2008.

46

RELATED PARTY TRANSACTIONS

As of February 23, 2007, The Woodbridge Company Limited (Woodbridge) and other companies affiliated with it together beneficially owned approximately 70% of our common shares.

From time to time, in the normal course of business, Woodbridge and its affiliates purchase some of our products and service offerings. These transactions are negotiated at arm’s length on standard terms, including price, and are not significant to our results of operations or financial condition individually or in the aggregate.

In the normal course of business, a Woodbridge-owned company rents office space from one of our subsidiaries. Additionally, a number of our subsidiaries charge a Woodbridge-owned company fees for various administrative services. In 2006 and 2005, the total amounts charged to Woodbridge for these rentals and services were approximately $2 million per year.

The employees of Jane’s Information Group (Jane’s), a business we sold to Woodbridge in April 2001, continue to participate in our United States and United Kingdom pension plans as well as our defined contribution plan in the United States. Woodbridge assumed the pension liability associated with the active employees of Jane’s as of the date of sale as part of its purchase. Jane’s makes proportional contributions to these pension plans as required, and makes matching contributions in accordance with the provisions of the defined contribution plan.

We purchase property and casualty insurance from third party insurers and retain the first $500,000 of each and every claim under the programs via our captive insurance subsidiary. Woodbridge is included in these programs and pays us a premium commensurate with its exposures. In 2006, these premiums were about $50,000 (2005 – $45,000), which would approximate the premium charged by a third party insurer for such coverage.

We have entered into an agreement with Woodbridge under which Woodbridge has agreed to indemnify up to $100 million of liabilities incurred either by our current and former directors and officers or by our company in providing indemnification to these individuals on substantially the same terms and conditions as would apply under an arm’s length, commercial arrangement. A third party administrator will manage any claims under the indemnity. We pay Woodbridge an annual fee of $750,000, which is less than the premium that we would have paid for commercial insurance.

In February 2005, we entered into a contract with Hewitt Associates Inc. to outsource certain human resources administrative functions in order to improve operating and cost efficiencies. When we initially signed the contract, we expected to pay Hewitt an aggregate of $115 million over a five year period. This contract was subsequently renegotiated and extended in September 2006. Under the new terms, we expect to pay Hewitt an aggregate of $165 million over a ten year period. In 2006 and 2005, we paid Hewitt $16 million and $5 million, respectively, for its services. Mr. Denning, one of our directors and chairman of our Human Resources Committee, is also a director of Hewitt. Mr. Denning has not participated in negotiations related to the contract and has refrained from deliberating and voting on the matter by the Human Resources Committee and the board of directors.

EMPLOYEE FUTURE BENEFITS

We sponsor defined benefit plans providing pension and other post-retirement benefits to covered employees. The largest plan consists of a qualified defined benefit pension plan in the United States, which we closed to new participants in March 2006. Other smaller plans exist primarily in the United Kingdom and Canada. We use a measurement date of September 30 for the majority of these plans.

Management currently estimates that the 2007 cost of employee future benefits will approximate that of 2006. The determination of the cost and obligations associated with employee future benefits requires the use of various assumptions, including an expected rate of return on assets and a discount rate to measure obligations. We consult with our actuary regarding the selection of these assumptions each year.

In determining our long-term rate of return assumption for our pension plans, we evaluated historical investment returns, as well as input from investment advisors. For our primary pension plan in the United States, we also consider our actuary’s simulation model of expected long-term rates of return assuming our targeted investment portfolio mix. We will reduce our 2007 assumption of the expected rate of return on assets available to fund obligations for our primary pension plan in the United States by 0.25% to 7.75%. While the actual return on plan assets of 9% exceeded the expected rate of return in 2006 due to higher than expected equity returns, management nevertheless decided to adopt a more conservative long-term return for this plan. Adjusting the expected rate of return on assets for this plan upward or downward by another 25 basis points would decrease or increase, respectively, pension expense by less than $3 million in 2007.

47

MANAGEMENT’S DISCUSSION AND ANALYSIS

Our discount rate is selected based on a review of current market interest rates of high-quality, fixed-rate debt securities adjusted to reflect the duration of expected future cash outflows for pension benefit payments. In developing the discount rate assumption for our primary pension plan in the United States for 2007, we reviewed the high-grade bond indices published by Moody’s and Merrill Lynch as of September 30, 2006, which are based on debt securities with average durations of 10 to 15 years. Because we have a relatively young workforce, the duration of our expected future cash outflows for our plan tends to be longer than the duration of the bond indices we reviewed. Therefore, our discount rate tends to be higher than the rates of these benchmarks. To appropriately reflect the timing and amounts of the plan’s expected future pension benefit payments, our actuary analyzed market data and constructed a hypothetical yield curve that represents yields on high quality zero-coupon bonds with durations that mirrored the duration of the expected payment stream of the benefit obligation. The discount rate determined on this basis was 5.95%, approximately 25 basis points higher than that of the prior year. Adjusting the discount rate upward or downward by another 25 basis points would result in a decrease or increase, respectively, in pension expense of approximately $10 million in 2007.

As of December 31, 2006, we had cumulative unrecognized actuarial losses associated with all of our pension plans of $466 million, compared to $553 million at December 31, 2005. The majority of these losses are a result of the decline in discount rates over the past five years reflecting the overall decline in interest rates, primarily in the United States. These amounts also include actuarial gains and losses associated with the difference between our expected and actual returns on plan assets.

Actuarial gains and losses are included in the calculation of our annual pension expense subject to the following amortization methodology. Unrecognized actuarial gains or losses are netted with the difference between the market-related value and fair value of plan assets. To the extent this net figure exceeds 10% of the greater of the projected benefit obligation or market-related value of plan assets, it is amortized into pension expense on a straight-line basis over the expected average service life of active participants (approximately eight years at December 31, 2006). Unrecognized actuarial gains and losses below the 10% corridor are deferred. In applying this amortization method, the estimated pension expense for 2007 includes $42 million of the unrecognized actuarial losses at December 31, 2006.

As of December 31, 2006, the fair value of plan assets for our primary pension plan in the United States represented about 96% of the plan’s projected benefit obligation. We did not make any voluntary contributions in 2006. In September 2005, we voluntarily contributed $11 million to this plan. In March 2006, we voluntarily contributed $5 million to benefit plans in the United Kingdom. In the fourth quarter of 2005, we also voluntarily contributed $14 million to benefit plans in the United Kingdom. While none of these contributions were required under the applicable funding rules and regulations, we decided to make the voluntary contributions to further improve the funding of the plans.

We are not required to make contributions to our primary pension plan in the United States in 2007. However, from time to time, we may elect to voluntarily contribute to the plan in order to improve its funded status. Because the decision to voluntarily contribute is based on various market-related factors, including asset values and interest rates, which are used to determine the plan’s funded status, we cannot predict whether, or the amount, we may elect to voluntarily contribute in 2007.

We provide postretirement healthcare benefits for certain retired employees. However, these liabilities are significantly less than those associated with our pension plans. Retired employees share a portion of the cost of these benefits. We fund the accrued costs of these plans as benefits are paid. Annual postretirement expense for 2007 was calculated based upon a number of actuarial assumptions, including a healthcare cost trend rate of 9.5% that declines 50 basis points per year for nine years, and thereafter remains constant at 5%. The healthcare cost trend rate is based on our actual medical claims experience and future projections of medical costs. A 1% change in the trend rate would result in an increase or decrease in the benefit obligation for postretirement benefits of approximately $17 million at December 31, 2006.

48

SUBSEQUENT EVENTS

In February 2007, our board of directors approved an increase in our annualized 2007 dividend to $0.98 per common share, which represents a quarterly dividend in 2007 of $0.245 per common share. This represents an annual increase of $0.10 per share, or 11%, over 2006.

Also in February 2007, we signed an agreement to sell Thomson Medical Education, subject to customary closing conditions. We anticipate the sale will be completed in the second quarter of 2007.

ACCOUNTING CHANGES

Financial Instruments and Comprehensive Income

Effective January 1, 2006, we adopted Canadian Institute of Chartered Accountants (CICA) Handbook Section 1530, Comprehensive Income, CICA Handbook Section 3855, Financial Instruments – Recognition and Measurement and CICA Handbook Section 3865, Hedges. These new Handbook Sections provide comprehensive requirements for the recognition and measurement of financial instruments, as well as standards on when and how hedge accounting may be applied. Handbook Section 1530 also introduces a new component of equity referred to as accumulated other comprehensive income.

Under these new standards, all financial instruments, including derivatives, are included on our consolidated balance sheet and are measured either at fair market value or, in limited circumstances, at cost or amortized cost. Derivatives that qualify as hedging instruments must be designated either as a “cash flow hedge,” when the hedged item is a future cash flow, or a “fair value hedge,” when the hedged item is the fair value of a recognized asset or liability. The effective portion of unrealized gains and losses related to a cash flow hedge are included in other comprehensive income. For a fair value hedge, both the derivative and the hedged item are recorded at fair value in the consolidated balance sheet and the unrealized gains and losses from both items are included in earnings. For derivatives that do not qualify as hedging instruments, unrealized gains and losses are reported in earnings.

In accordance with the provisions of these new standards, we reflected the following adjustments as of January 1, 2006:

•an increase of $53 million to “Other non-current assets” and “Accumulated other comprehensive income” in the consolidated balance sheet relative to derivative instruments that consisted primarily of interest rate contracts, which convert floating rate debt to fixed rate debt and qualify as cash flow hedges;

•a reclassification of $5 million from “Other current assets,” and $3 million from “Other current liabilities” to “Accumulated other comprehensive income” in the consolidated balance sheet related primarily to previously deferred gains and losses on settled cash flow hedges; and

•an increase of $16 million to “Other non-current assets” and “Long-term debt” in the consolidated balance sheet related to derivative instruments and their related hedged items. These derivative instruments consist primarily of interest rate contracts to convert fixed rate debt to floating and qualify as fair value hedges.

The adoption of these new standards had no material impact on our consolidated statement of earnings. The unrealized gains and losses included in “Accumulated other comprehensive income” were recorded net of taxes, which were nil.

During 2006, a net increase of $8 million in unrealized gains for cash flow hedges was reflected in “Accumulated other comprehensive income.” The net realized gain in the period previously deferred on adoption in “Accumulated other comprehensive income” was less than $1 million. The net decrease in fair value in the period of fair value hedges and the related hedged items of $7 million was reflected in “Prepaid expenses and other current assets,” “Current portion of long-term debt,” “Other non-current assets” and “Long-term debt.”

As of December 31, 2006, approximately $3 million of net deferred gains in “Accumulated other comprehensive income” were expected to be recognized in earnings over the following 12 months. The remaining net deferred gains in “Accumulated other comprehensive income” were expected to be recognized over a period of up to eight years.

49

MANAGEMENT’S DISCUSSION AND ANALYSIS

Discontinued Operations

In April 2006, the Emerging Issues Committee of the CICA (EIC) issued Abstract 161, Discontinued Operations (EIC-161). The abstract addresses the appropriateness of allocating interest expense to a discontinued operation and disallows allocations of general corporate overhead. EIC-161 was effective upon its issuance and did not have an impact on our consolidated financial statements.

Stock-Based Compensation

In July 2006, we adopted EIC Abstract 162, Stock-Based Compensation for Employees Eligible to Retire Before the Vesting Date (EIC-162), retroactively to January 1, 2006. The abstract clarifies the proper accounting for stock-based awards granted to employees who either are eligible for retirement at the grant date or will be eligible before the end of the vesting period and continue vesting after, or vest upon, retirement. In such cases, the compensation expense associated with the stock-based award will be recognized over the period from the grant date to the date the employee becomes eligible to retire. EIC-162 did not have an impact on our consolidated financial statements for any period in 2006.

CRITICAL ACCOUNTING POLICIES

The preparation of our financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Our estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. The result of our ongoing evaluation of these estimates forms the basis for making judgments about the carrying values of assets and liabilities and the reported amounts of revenues and expenses that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions.

Our critical accounting policies are those that we believe are the most important in portraying our financial condition and results, and require the most subjective judgment and estimates on the part of management. A summary of our significant accounting policies, including the critical accounting policies discussed below, is set forth in note 1 to our consolidated financial statements.

Revenue Recognition

Revenues from subscription-based products, excluding software, generally are recognized ratably over the term of the subscription. Where applicable, we recognize usage fees as earned. Subscription payments received or receivable in advance of delivery of our products or services are included in our deferred revenue account on our consolidated balance sheet. As we deliver subscription-based products and services to subscribers, we recognize the proportionate share of deferred revenue in our consolidated statement of earnings and our deferred revenue account balance is reduced. Certain incremental costs that are directly related to the subscription revenue are deferred and amortized over the subscription period.

Increasingly, we derive revenue from the sale of software products, license fees, software subscriptions, product support, professional services, transaction fees and multiple element arrangements that may include any combination of these items. We generally recognize revenue when persuasive evidence of an arrangement exists, we have delivered the product or performed the service, the fee is fixed or determinable and collectibility is probable. However, determining whether and when some of these criteria have been satisfied often involves assumptions and judgments that can have a significant impact on the timing and amount of revenue we report. For multiple element arrangements we must make assumptions and judgments in order to allocate the total price among the various elements we must deliver, to determine whether undelivered services are essential to the functionality of the delivered products and services, to determine whether objective evidence of fair value exists for each undelivered element and to determine whether and when each element has been delivered. If we were to change any of these assumptions or judgments, it could cause a material increase or decrease in the amount of revenue that we report in a particular period. Amounts for fees collected or invoiced and due relating to arrangements where revenue cannot be recognized are reflected on our balance sheet as deferred revenue and recognized when the applicable revenue recognition criteria are satisfied.

For all accounts receivable, we must make a judgment regarding the ability of our customers to pay and, accordingly, we establish an allowance for estimated losses arising from non-payment. We consider customer creditworthiness, current economic trends and our past experience when evaluating the adequacy of this allowance. If future collections differ from our estimates, our future earnings would be affected.

At December 31, 2006, our combined allowances on our accounts receivable balance were $97 million, or 7% of the gross accounts receivable balance. A 1% increase in this percentage would have resulted in additional expense of approximately $15 million.

50

Capitalized Software

A significant portion of our expenditures relates to software that is developed as part of our electronic databases, delivery systems and internal infrastructures, and, to a lesser extent, software sold directly to our customers. During the software development process, our judgment is required to determine the expected period of benefit over which capitalized costs should be amortized. Due to rapidly changing technology and the uncertainty of the software development process itself, our future results could be affected if our current assessment of our various projects differs from actual performance. At December 31, 2006, we had $647 million of capitalized costs related to software on our consolidated balance sheet.

Identifiable Intangible Assets and Goodwill

We account for our business acquisitions using the purchase method of accounting. We allocate the total cost of an acquisition to the underlying net assets based on their respective estimated fair values. As part of this allocation process, we must identify and attribute values and estimated lives to the intangible assets acquired. These determinations involve significant estimates and assumptions, including those with respect to future cash inflows and outflows, discount rates and asset lives, and therefore require considerable judgment. These determinations will affect the amount of amortization expense recognized in future periods.

We review the carrying values of identifiable intangible assets with indefinite lives and goodwill at least annually to assess impairment because these assets are not amortized. Additionally, we review the carrying value of any intangible asset or goodwill whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. Examples of such events or changes in circumstances include significant negative industry or economic trends, significant changes in the manner of our use of the acquired assets or our strategy, a significant decrease in the market value of the asset, or a significant change in legal factors or in the business climate that could affect the value of the asset.

We assess impairment by comparing the fair value of an identifiable intangible asset or goodwill with its carrying value. The determination of fair value involves significant management judgment. Impairments are expensed when incurred. Specifically, we test for impairment as follows:

Identifiable intangible assets with finite lives

We compare the expected undiscounted future operating cash flows associated with the asset to its carrying value to determine if the asset is recoverable. If the expected future operating cash flows are not sufficient to recover the carrying value, we estimate the fair value of the asset. Impairment is recognized when the carrying amount of the asset is not recoverable and when the carrying value exceeds fair value.

Identifiable intangible assets with indefinite lives

Selected tradenames comprise the entire balance of our identifiable intangible assets with indefinite lives. We determine the fair values of our intangible assets with indefinite lives using an income approach, specifically the relief from royalties method. Impairment is recognized when the carrying amount exceeds fair value.

Goodwill

We test goodwill for impairment on a “reporting unit” level. A reporting unit is a group of businesses: (a) for which discrete financial information is available; and (b) that have similar economic characteristics. We test goodwill for impairment using the following two-step approach:

•In the first step, we determine the fair value of each reporting unit. If the fair value of a reporting unit is less than its carrying value, this is an indicator that the goodwill assigned to that reporting unit might be impaired, which requires performance of the second step.

•In the second step, we allocate the fair value of the reporting unit to the assets and liabilities of the reporting unit as if it had just been acquired in a business combination, and as if the purchase price was equivalent to the fair value of the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to its assets and liabilities is referred to as the implied fair value of goodwill. We then compare that implied fair value of the reporting unit’s goodwill to the carrying value of that goodwill. If the implied fair value is less than the carrying value, we recognize an impairment loss for that excess.

We determine the fair value of our reporting units based on a combination of various techniques, including the present value of future cash flows, earnings multiples of competitors and multiples from sales of like-businesses.

51

MANAGEMENT’S DISCUSSION AND ANALYSIS

As the valuation of identifiable intangible assets and goodwill requires significant estimates and judgment about future performance and fair values, our future results could be affected if our current estimates of future performance and fair values change. At December 31, 2006, identifiable intangible assets and goodwill amounted to $10 billion, or 50% of our total assets on our consolidated balance sheet.

Income Taxes

We are required to estimate our income taxes in each of the jurisdictions in which we operate. For interim periods, we provide income taxes based on our estimate of how much we will earn in each jurisdiction for the full year. To the extent that our forecasts differ from actual results, we must true-up our estimates of income tax expense. Actual amounts of income tax expense only become final upon filing and acceptance of the tax return by the relevant authorities, which occur subsequent to the issuance of the financial statements. To the extent our estimates differ from the final tax return, our earnings would be affected in a subsequent period. For 2006, our effective tax rate was 11.5% of our earnings from continuing operations before income taxes. A 1% increase in our effective tax rate would have resulted in additional income tax expense of approximately $10 million.

Estimation of income taxes includes estimating a value for our existing net operating losses based on our assessment of our ability to utilize them against future taxable income before they expire. Our assessment is based upon existing tax laws and estimates of future taxable income. If our assessment of our ability to use our net operating losses proves inaccurate in the future, we might be required to recognize more or less of the net operating losses as assets, which would decrease or increase our income tax expense in the relevant year. This would affect our earnings in that year.

Our accounting for income taxes requires us to exercise judgment for issues relating to known matters under discussion with tax authorities and transactions yet to be settled. As a result, we maintain a tax liability for contingencies and regularly assess the adequacy of this tax liability. We record liabilities for known tax contingencies when, in our judgment, it is probable that a liability has been incurred. It is reasonably possible that actual amounts payable resulting from audits by tax authorities could be materially different from the liabilities we have recorded due to the complex nature of the tax legislation that affects us.

Employee Future Benefits

The determination of the cost and obligations associated with our employee future benefits requires the use of various assumptions. We must select assumptions such as the expected return on assets available to fund pension obligations, the discount rate to measure obligations, the projected age of employees upon retirement, the expected rate of future compensation and the expected healthcare cost trend rate. These assumptions are re-evaluated each year, and variations between the actual results and the results based on our assumptions for any period will affect reported amounts in future periods. We retain an independent actuarial expert to prepare the calculations and to advise us on the selection of assumptions. See further discussion under the section entitled “Employee Future Benefits” on page 47.

RECENTLY ISSUED ACCOUNTING STANDARDS

In 2006, the CICA announced that it will no longer converge Canadian GAAP with generally accepted accounting principles of the United States (U.S. GAAP). Rather, the CICA will work towards convergence with International Financial Reporting Standards (IFRS) with the expectation that Canadian GAAP will be replaced by IFRS in 2011. As a public company, we are allowed to file our financial statements with the Canadian securities regulatory authorities under either Canadian GAAP or U.S. GAAP. We are also required to file an annual reconciliation of our earnings and shareholders’ equity between Canadian GAAP and U.S. GAAP with the U.S. Securities and Exchange Commission (SEC). This reconciliation is presented in note 24 in our financial statements.

52

ADDITIONAL INFORMATION

Depreciation by Market Group

The following table details depreciation expense by market group for 2006, 2005 and 2004.

	Year ended December 31
(millions of U.S. dollars)	2006	2005	2004
Legal & Regulatory	211	193	189
Financial	179	177	182
Scientific & Healthcare	39	34	32
Corporate and other	10	10	12
Total	439	414	415

Disclosure Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in applicable U.S. and Canadian securities law) as of December 31, 2006, have concluded that our disclosure controls and procedures are effective to ensure that all information required to be disclosed by our company in reports that it files or furnishes under the U.S. Securities Exchange Act and applicable Canadian securities law is (i) recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and Canadian securities regulatory authorities and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Internal Control over Financial Reporting

There was no change in our company’s internal control over financial reporting that occurred during 2006 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Canadian GAAP. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2006, and based on that assessment determined that our internal control over financial reporting was effective. See our financial statements for our management’s report on internal control over financial reporting and the report of our independent auditors with respect to management’s assessment of internal control over financial reporting.

Share Capital

As of February 23, 2007, we had outstanding 640,086,694 common shares, 6,000,000 Series II preference shares, 540,025 restricted share units and 16,330,216 stock options.

Public Securities Filings

You may access other information about our company, including our annual information form and our other disclosure documents, reports, statements or other information that we file with the Canadian securities regulatory authorities through SEDAR at www.sedar.com and in the United States with the SEC through EDGAR at www.sec.gov.

53

MANAGEMENT’S DISCUSSION AND ANALYSIS

RECONCILIATIONS

Reconciliation of Return on Invested Capital (ROIC) to GAAP Measures

(millions of U.S. dollars)		For the year ended or as at December 31
(unaudited)		2006		2005		2004		2003
CALCULATION OF ADJUSTED OPERATING PROFIT AFTER TAXES
Operating profit		1,258		1,172		1,062
Add:
Amortization		242		236		207
Reduce amount by Thomson Learning adjustments1		(19	)	–		–
Segment operating profit of discontinued operations		386		372		392
Adjusted operating profit – including discontinued operations		1,867		1,780		1,661
Taxes paid on operations2		(311	)	(326	)	(285	)
Post-tax adjusted operating profit		1,556		1,454		1,376
CALCULATION OF ADJUSTED INVESTED CAPITAL
Equity		10,481		9,963		9,962		9,193
Total debt2		4,321		4,283		4,315		4,255
Invested capital		14,802		14,246		14,277		13,448
Adjustments:
	Cash and other investments3	(334	)	(423	)	(420	)	(696	)
	Debt swaps4	(257	)	(193	)	(192	)	(199	)
	Current and long-term deferred taxes2,3	1,122		1,310		1,356		1,427
	Accumulated amortization and non-cash goodwill2,5	2,390		1,885		1,586		1,336
	Present value of operating leases2,6	783		754		832		879
	Historical intangible asset and equity investment write-downs7	162		162		147		248
	Other2,3	798		821		1,125		1,072
Adjusted invested capital		19,466		18,562		18,711		17,515
Average invested capital		19,014		18,639		18,113
Return on invested capital		8.2%		7.8%		7.6%

1This adjustment reflects the actual results of the higher education, careers and library reference, NETg and Prometric businesses in Thomson Learning as if they had been part of continuing operations for the periods presented. Specifically, this amount reflects depreciation expense which is excluded from GAAP results under the accounting requirements for discontinued operations. Costs incurred in connection with the disposal of the businesses have been excluded.

2Includes amounts related to discontinued operations.

3Items excluded as not deemed components of invested capital; “Other” primarily consists of non-current liabilities.

4Excludes debt swaps as balances are financing rather than operating-related.

5Excludes accumulated amortization as only gross identifiable intangible assets and goodwill cost is considered component of invested capital. Excludes goodwill arising from adoption of CICA 3465. This goodwill was created via deferred tax liability instead of cash purchase price.

6Present value of operating leases deemed component of invested capital.

7Adds back write-downs that were not cash transactions.

54

SUPPLEMENTAL INFORMATION

New Business Segment Information
Post-January 1, 2007 Realignment

(millions of U.S. dollars)		Twelve months ended December 31
(unaudited)		2006		2005		Change
REVENUES
	Legal1	3,053		2,843		7%
	Financial	2,015		1,897		6%
	Scientific	602		569		6%
	Tax & Accounting	598		532		12%
	Healthcare	393		352		12%
	Intercompany eliminations	(20	)	(20	)
	Total revenues	6,641		6,173		8%
OPERATING PROFIT
Segment operating profit:
	Legal1	952		859		11%
	Financial	379		334		13%
	Scientific	151		129		17%
	Tax & Accounting	168		141		19%
	Healthcare	85		84		1%
	Corporate and other2	(235	)	(139	)
Total segment operating profit		1,500		1,408		7%
Amortization		(242	)	(236	)
Operating profit		1,258		1,172		7%

1Effective January 1, 2007, we re-aligned our operations around five segments. For informational purposes, this table presents the results of our businesses as they will be managed and presented in 2007. The North American Legal business and the International Legal and Regulatory business are presented as one segment, reflecting the manner in which the business will be managed. We had previously announced that results for these two segments would be reported separately.

2Corporate and other includes THOMSONplus costs, corporate costs and certain costs associated with our stock-related incentive plans.

Post-January 1, 2007 Realignment

Detail of Depreciation Expense by Segment

Twelve months ended December 31
	2006	2005
Legal	189	173
Financial	179	177
Scientific	23	20
Tax & Accounting	22	20
Healthcare	16	14
Corporate and other	10	10
	439	414

55

MANAGEMENT’S DISCUSSION AND ANALYSIS

QUARTERLY INFORMATION (UNAUDITED)

The following table presents a summary of our consolidated operating results for our eight most recent quarters.

	Quarter ended March 31				Quarter ended June 30				Quarter ended September 30				Quarter ended December 31
(millions of U.S. dollars, except per common share amounts)	2006		2005		2006		2005		2006		2005		2006		2005
Revenues	1,510		1,411		1,637		1,521		1,629		1,520		1,865		1,721
Operating profit	208		179		310		277		316		286		424		430
Earnings from continuing operations	204		106		200		256		209		142		306		158
Discontinued operations, net of tax	(67	)	(33	)	(27	)	46		210		167		85		92
Net earnings	137		73		173		302		419		309		391		250
Dividends declared on preference shares	(1	)	(1	)	(2	)	(1	)	(1	)	(1	)	(1	)	(1	)
Earnings attributable to common shares	136		72		171		301		418		308		390		249
BASIC EARNINGS (LOSS) PER COMMON SHARE
From continuing operations	$0.31		$0.16		$0.31		$0.39		$0.32		$0.22		$0.47		$0.24
From discontinued operations	(0.10	)	(0.05	)	(0.04	)	0.07		0.33		0.25		0.14		0.14
	$0.21		$0.11		$0.27		$0.46		$0.65		$0.47		$0.61		$0.38
DILUTED EARNINGS (LOSS) PER COMMON SHARE
From continuing operations	$0.31		$0.16		$0.31		$0.39		$0.32		$0.22		$0.47		$0.24
From discontinued operations	(0.10	)	(0.05	)	(0.05	)	0.07		0.33		0.25		0.14		0.14
	$0.21		$0.11		$0.26		$0.46		$0.65		$0.47		$0.61		$0.38

With the pending divestiture of Thomson Learning, our results will become less seasonal than previously reported. However, in terms of revenues and profits, the first quarter will continue to be proportionately the smallest quarter for us and the fourth quarter will be our largest, as certain product releases are concentrated at the end of the year, particularly in the regulatory markets. Costs are incurred more evenly throughout the year. As a result, our operating margins will generally increase as the year progresses. In general, our year-over-year performance reflected increased operating profit driven by higher revenues from existing businesses and contributions from acquired businesses.

In the quarters ended June 30, 2005 and March 31, 2006, earnings from continuing operations and net earnings reflected the recognition of certain tax credits. In the quarter ended December 31, 2005, earnings from continuing operations and net earnings reflected a $125 million tax charge associated with repatriated profits.

56

FORWARD-LOOKING STATEMENTS

Certain information in this management’s discussion and analysis, particularly under the heading “Outlook,” are forward-looking statements that are not historical facts but reflect our current expectations regarding future results. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from current expectations. Some of the factors that could cause actual results or events to differ materially from current expectations are: actions of our competitors; failure to fully derive anticipated benefits from our acquisitions or complete dispositions; failures or disruptions of our electronic delivery systems or the Internet; failure to meet the special challenges involved in expansion of our operations outside North America; failure of our significant investments in technology to increase our revenues or decrease our operating costs; failure to develop new products, services, applications and functionalities to meet our customers’ needs, attract new customers or expand into new geographic markets; increased accessibility to free or relatively inexpensive information sources; failure to maintain the availability of information obtained through licensing arrangements and changes in the terms of our licensing arrangements; changes in the general economy; failure to recruit and retain high quality management and key employees; increased self-sufficiency of our customers; inadequate protection of our intellectual property rights; actions or potential actions that could be taken by our principal shareholder; failure to realize the anticipated cost savings and operating efficiencies from the THOMSONplus initiative; an increase in our effective income tax rate; and impairment of goodwill and identifiable intangible assets. Additional factors are discussed in our materials filed with the securities regulatory authorities in Canada and the United States from time to time, including our annual information form, which is contained in our current annual report on Form 40-F. We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

57

MANAGEMENT REPORTS

Management’s Responsibility for the Consolidated Financial Statements

The management of The Thomson Corporation is responsible for the accompanying consolidated financial statements and other information included in the annual report. The financial statements have been prepared in conformity with Canadian generally accepted accounting principles using the best estimates and judgments of management, where appropriate. Information presented elsewhere in this annual report is consistent with that in the financial statements.

The Company’s board of directors is responsible for ensuring that management fulfills its responsibilities in respect of financial reporting and internal control. The Audit Committee of the board of directors meets periodically with management and the Company’s independent auditors to discuss auditing matters and financial reporting issues. In addition, the Audit Committee recommends to the board of directors the approval of the interim and annual consolidated financial statements and the annual appointment of the independent auditors. The board of directors has approved the information contained in the accompanying consolidated financial statements.

Richard J. Harrington

President & Chief Executive Officer

Robert D. Daleo

Executive Vice President & Chief Financial Officer

February 23, 2007

Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting.

Internal control over financial reporting is a process that was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

Management conducted an evaluation of the effectiveness of the system of internal control over financial reporting based on the framework and criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2006.

Management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006 has been audited by PricewaterhouseCoopers LLP, independent auditors, as stated in their report which appears herein.

Richard J. Harrington

President & Chief Executive Officer

Robert D. Daleo

Executive Vice President & Chief Financial Officer

February 23, 2007

58

INDEPENDENT AUDITORS’ REPORT

To the shareholders of The Thomson Corporation:

We have completed an integrated audit of the consolidated financial statements and internal control over financial reporting of The Thomson Corporation as of December 31, 2006 and an audit of its December 31, 2005 consolidated financial statements. Our opinions, based on our audits, are presented below.

Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of The Thomson Corporation (the “Company”) as of December 31, 2006 and 2005, and the related consolidated statements of earnings, cash flows and changes in shareholders’ equity for each of the two years in the period ended December 31, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audit of the Company’s consolidated financial statements as of December 31, 2006 and for the year then ended in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). We conducted our audit of the Company’s consolidated financial statements as of December 31, 2005 and for the period ended December 31, 2005 in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. A financial statement audit also includes assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2006 and 2005 and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2006 in accordance with Canadian generally accepted accounting principles.

As discussed in note 2 to the consolidated financial statements, the Company changed its method of accounting for financial instruments effective January 1, 2006.

Internal Control over Financial Reporting

We have also audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, that the Company maintained effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

59

INDEPENDENT AUDITORS’ REPORT

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that the Company maintained effective internal control over financial reporting as of December 31, 2006 is fairly stated, in all material respects, based on criteria established in Internal Control – Integrated Framework issued by the COSO. Furthermore, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006 based on criteria established in Internal Control – Integrated Framework issued by the COSO.

Chartered Accountants

Toronto, Canada

February 23, 2007

60

THE THOMSON CORPORATION

CONSOLIDATED STATEMENT OF EARNINGS

	Year ended December 31
			2005
(millions of U.S. dollars, except per common share amounts)	2006		(note 7	)
Revenues	6,641		6,173
Cost of sales, selling, marketing, general and administrative expenses	(4,702	)	(4,351	)
Depreciation (notes 11 and 12)	(439	)	(414	)
Amortization (note 13)	(242	)	(236	)
Operating profit	1,258		1,172
Net other income (expense) (note 4)	1		(28	)
Net interest expense and other financing costs (note 5)	(221	)	(221	)
Income taxes (note 6)	(119	)	(261	)
Earnings from continuing operations	919		662
Earnings from discontinued operations, net of tax (note 7)	201		272
Net earnings	1,120		934
Dividends declared on preference shares (note 16)	(5	)	(4	)
Earnings attributable to common shares	1,115		930
EARNINGS PER COMMON SHARE (note 8)
Basic and diluted earnings per common share:
From continuing operations	$1.41		$1.00
From discontinued operations	0.32		0.42
Basic and diluted earnings per common share	$1.73		$1.42

The related notes form an integral part of these consolidated financial statements.

61

THE THOMSON CORPORATION

CONSOLIDATED BALANCE SHEET

	December 31
		2005
(millions of U.S. dollars)	2006	(note 7)
ASSETS
Cash and cash equivalents	334	407
Accounts receivable, net of allowances of $97 million (2005 – $102 million) (note 9)	1,369	1,175
Inventories (note 10)	73	67
Prepaid expenses and other current assets	297	257
Deferred income taxes (note 6)	153	129
Current assets of discontinued operations (note 7)	1,039	974
Current assets	3,265	3,009
Computer hardware and other property, net (note 11)	625	604
Computer software, net (note 12)	647	568
Identifiable intangible assets, net (note 13)	3,461	3,519
Goodwill (note 14)	6,552	5,947
Other non-current assets	1,082	1,129
Non-current assets of discontinued operations (note 7)	4,500	4,658
Total assets	20,132	19,434
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities
Short-term indebtedness (note 15)	333	191
Accounts payable and accruals	1,309	1,200
Deferred revenue	971	797
Current portion of long-term debt (note 15)	264	98
Current liabilities of discontinued operations (note 7)	862	821
Current liabilities	3,739	3,107
Long-term debt (note 15)	3,681	3,957
Other non-current liabilities	785	791
Deferred income taxes (note 6)	998	1,157
Non-current liabilities of discontinued operations (note 7)	448	459
Total liabilities	9,651	9,471
Shareholders’ equity
Capital (note 16)	2,799	2,726
Retained earnings	7,169	6,992
Accumulated other comprehensive income	513	245
Total shareholders’ equity	10,481	9,963
Total liabilities and shareholders’ equity	20,132	19,434

Contingencies (note 18)

The related notes form an integral part of these consolidated financial statements.

Approved by the Board

David Thomson	Richard J. Harrington
Director	Director

62

THE THOMSON CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOW

	Year ended December 31
			2005
(millions of U.S. dollars)	2006		(note 7	)
Cash provided by (used in):
OPERATING ACTIVITIES
Net earnings	1,120		934
Remove earnings from discontinued operations	(201	)	(272	)
Add back (deduct) items not involving cash:
Depreciation (notes 11 and 12)	439		414
Amortization (note 13)	242		236
Net gains on disposals of businesses and investments (note 4)	(47	)	(5	)
Loss from redemption of debt securities (notes 4 and 15)	–		23
Deferred income taxes (note 6)	(121	)	(58	)
Other, net	204		56
Pension contributions (note 17)	(23	)	(30	)
Changes in working capital and other items (note 21)	(45	)	(57	)
Cash provided by operating activities – discontinued operations (note 7)	557		638
Net cash provided by operating activities	2,125		1,879
INVESTING ACTIVITIES
Acquisitions, less cash therein of $11 million (2005 – $8 million) (note 19)	(744	)	(246	)
Proceeds from disposals (note 19)	88		4
Capital expenditures, less proceeds from disposals of $3 million (2005 – $2 million)	(453	)	(427	)
Other investing activities	(26	)	(25	)
Capital expenditures of discontinued operations (note 7)	(184	)	(215	)
Other investing activities of discontinued operations	(17	)	(14	)
Proceeds from (income taxes paid on) disposals of discontinued operations (note 7)	81		(105	)
Acquisitions by discontinued operations	(35	)	(43	)
Net cash used in investing activities	(1,290	)	(1,071	)
FINANCING ACTIVITIES
Proceeds from debt (note 15)	–		401
Repayments of debt (note 15)	(88	)	(621	)
Net (repayments) borrowings under short-term loan facilities	108		184
Premium on redemption of debt securities (note 15)	–		(22	)
Repurchase of common shares (note 16)	(412	)	(256	)
Dividends paid on preference shares (note 16)	(5	)	(4	)
Dividends paid on common shares (note 16)	(553	)	(505	)
Other financing activities, net	38		25
Net cash used in financing activities	(912	)	(798	)
Translation adjustments	4		(8	)
(Decrease) increase in cash and cash equivalents	(73	)	2
Cash and cash equivalents at beginning of period	407		405
Cash and cash equivalents at end of period	334		407

Supplemental cash flow information is provided in notes 5, 20 and 21.

The related notes form an integral part of these consolidated financial statements.

63

THE THOMSON CORPORATION

CONSOLIDATED STATEMENT OF CHANGES

IN SHAREHOLDERS’ EQUITY

								Accumulated
								other		Total
	Stated							comprehensive		retained
	share		Contributed	Total		Retained		income		earnings
(millions of U.S. dollars)	capital	1	surplus	capital		earnings		(“AOCI”	)	and AOCI		Total
Balance, December 31, 2005	2,599		127	2,726		6,992		245		7,237		9,963
Opening balance adjustment for net deferred gain on cash flow hedges (note 2)	–		–	–		–		51		51		51
Balance, January 1, 2006	2,599		127	2,726		6,992		296		7,288		10,014
Comprehensive income:
Net earnings						1,120		–		1,120		1,120
Unrecognized net gain on cash flow hedges						–		8		8		8
Foreign currency translation adjustments						–		230		230		230
Net gain reclassified to income						–		(21	)	(21	)	(21	)
Comprehensive income						1,120		217		1,337		1,337
Dividends declared on preference shares	–		–	–		(5	)	–		(5	)	(5	)
Dividends declared on common shares	–		–	–		(567	)	–		(567	)	(567	)
Common shares issued under Dividend Reinvestment Plan (“DRIP”)	14		–	14		–		–		–		14
Repurchase of common shares (note 16)	(41	)	–	(41	)	(371	)	–		(371	)	(412	)
Effect of stock compensation plans	70		30	100		–		–		–		100
Balance, December 31, 2006	2,642		157	2,799		7,169		513		7,682		10,481

										Total
	Stated									retained
	share		Contributed	Total		Retained				earnings
(millions of U.S. dollars)	capital	1	surplus	capital		earnings		AOCI		and AOCI		Total
Balance, December 31, 2004	2,588		108	2,696		6,808		458		7,266		9,962
Comprehensive income:
Net earnings						934		–		934		934
Foreign currency translation adjustments						–		(213	)	(213	)	(213	)
Comprehensive income						934		(213	)	721		721
Dividends declared on preference shares	–		–	–		(4	)	–		(4	)	(4	)
Dividends declared on common shares	–		–	–		(517	)	–		(517	)	(517	)
Common shares issued under DRIP	12		–	12		–		–		–		12
Repurchase of common shares	(27	)	–	(27	)	(229	)	–		(229	)	(256	)
Effect of stock compensation plans	26		19	45		–		–		–		45
Balance, December 31, 2005	2,599		127	2,726		6,992		245		7,237		9,963

1 Includes both common and preference share capital

The related notes form an integral part of these consolidated financial statements.

64

THE THOMSON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unless otherwise stated, all amounts are in millions of U.S. dollars)

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements of The Thomson Corporation (“Thomson” or the “Company”) include all controlled companies and are prepared in accordance with accounting principles generally accepted in Canada (“Canadian GAAP”). All intercompany transactions and balances are eliminated on consolidation.

Accounting Estimates

The preparation of financial statements in conformity with Canadian GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.

Foreign Currency

Assets and liabilities of self-sustaining subsidiaries denominated in currencies other than U.S. dollars are translated at the period end rates of exchange, and the results of their operations are translated at average rates of exchange for the period. The resulting translation adjustments are included in accumulated other comprehensive income in shareholders’ equity. Other currency gains or losses are included in earnings.

Revenue Recognition

Revenues are recognized, net of estimated returns, when the following four criteria are met:

•  persuasive evidence of an arrangement exists;

•  delivery has occurred;

•  the fee is fixed or determinable; and

•  collectibility is probable.

Delivery does not occur until products have been shipped or services have been provided to the customer, risk of loss has transferred to the customer, customer acceptance has been obtained or such acceptance provisions have lapsed, or the Company has objective evidence that the criteria specified in the client acceptance provisions have been satisfied. The sales price is not considered to be fixed or determinable until all contingencies related to the sale have been resolved.

Revenue from sales of third-party vendor products or services is recorded net of costs when the Company is acting as an agent between the customer and vendor and recorded gross when the Company is a principal to the transaction. Several factors are considered to determine whether the Company is an agent or principal, most notably whether the Company is the primary obligor to the customer, has inventory risk or adds meaningful value to the vendor’s product or service. Consideration is also given to whether the Company was involved in the selection of the vendor’s product or service, has latitude in establishing the sales price, or has credit risk.

In addition to the above general principles, the Company applies the following specific revenue recognition policies:

Subscription-Based Products (Excluding Software)

Revenues from sales of subscription-based products are primarily recognized ratably over the term of the subscription. Where applicable, usage fees above a base period fee are recognized as earned. Subscription revenue received or receivable in advance of the delivery of services or publications is included in deferred revenue. Incremental costs that are directly related to the subscription revenue are deferred and amortized over the subscription period.

Multiple Element Arrangements

When a sales arrangement requires the delivery of more than one product or service that have value on a stand-alone basis, the individual deliverables are accounted for separately, if reliable and objective evidence of fair value for each deliverable is available. The amount allocated to each unit is then recognized when each unit is delivered, provided that all other relevant revenue recognition criteria are met with respect to that unit.

If, however, evidence of fair value is only available for undelivered elements, the revenue is allocated first to the undelivered items, with the remainder of the revenue being allocated to the delivered items, utilizing the residual method. Amounts allocated to delivered items are deferred if there are further obligations with respect to the delivered items. If evidence of fair value is only available for the delivered items, but not the undelivered items, the arrangement is considered a single element arrangement and revenue is recognized as the relevant recognition criteria are met.

Software-Related Products and Services

License fees are generally recognized ratably on a straight-line basis over the license period when the Company has an ongoing obligation over the license period. Alternatively, if there is neither an associated license period nor significant future obligations, revenues are recognized upon delivery. In those instances, costs related to the insignificant obligations are accrued when the related revenue is recognized.

65

THE THOMSON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Certain software arrangements include implementation services. Consulting revenues from these arrangements are accounted for separately from software license revenues if the arrangements qualify as service transactions as defined in Statement of Position 97-2, Software Revenue Recognition. The more significant factors considered in determining whether the revenue should be accounted for separately include the nature of services (i.e., consideration of whether the services are essential to the functionality of the licensed product), degree of risk, availability of services from other vendors, timing of payments and impact of milestones or acceptance criteria on the realizability of the software license fee.

If an arrangement does not qualify for separate accounting of the software license and consulting transactions, then software license revenue is generally recognized together with the consulting services using either the percentage-of-completion or completed-contract method. Contract accounting is applied to any arrangements: (1) that include milestones or customer specific acceptance criteria that may affect collection of the software license fees; (2) where services include significant modification or customization of the software; (3) where significant consulting services are provided for in the software license contract without additional charge or are substantially discounted; or (4) where the software license payment is tied to the performance of consulting services. For certain of these arrangements, a customer’s obligation to pay corresponds to the amount of work performed. In these circumstances, revenue is recognized as a percentage of completed work using the Company’s costs as the measurement factor.

Certain contracts specify separate fees for software and ongoing fees for maintenance and other support. If sufficient vendor specific objective evidence of the fair value of each element of the arrangement exists, the elements of the contract are unbundled and the revenue for each element is recognized as appropriate.

Other Service Contracts

For service or consulting arrangements, revenues are recognized as services are performed based on appropriate measures.

Employee Future Benefits

Net periodic pension expense for employee future benefits is actuarially determined using the projected benefit method. Determination of benefit expense requires assumptions such as the expected return on assets available to fund pension obligations, the discount rate to measure obligations, the projected age of employees upon retirement, the expected rate of future compensation and the expected healthcare cost trend rate. For the purpose of calculating expected return on plan assets, the assets are valued at a market-related fair value. The market-related fair value recognizes changes in the fair value of plan assets over a five-year smoothing period. Actual results will differ from results which are estimated based on assumptions. When the cumulative difference between actual and estimated results exceeds 10% of the greater of the benefit obligation or the fair value of the plan assets, such difference is amortized into earnings over the average remaining service period of active employees. Past service costs arising from plan amendments are amortized on a straight-line basis over the average remaining service period of active employees at the date of the amendment.

Cash and Cash Equivalents

Cash and cash equivalents comprise cash on hand, demand deposits and investments with an original maturity at the date of purchase of three months or less.

Inventories

Inventories are valued at the lower of cost and net realizable value. Cost is determined using either the average cost or the first-in, first-out method.

Long-lived Assets

Long-lived assets with finite lives are tested for impairment when events or changes in circumstances indicate that their carrying amounts may not be recoverable. When such a situation occurs, the expected future operating cash flows associated with the asset are compared to its carrying value to determine if the asset is recoverable. If the expected future operating cash flows are not sufficient to recover the asset, an estimate of the fair value of the asset is computed. Impairment of the carrying amount of a long-lived asset is recognized in operating profit of continuing or discontinued operations, as appropriate, when the carrying amount is not recoverable and is in excess of its fair value. The impairment loss recognized is equal to the excess of the carrying amount over the fair value.

Computer Hardware and Other Property

Computer hardware and other property are recorded at cost and depreciated on a straight-line basis over their estimated useful lives as follows:

Computer hardware	3–5 years
Buildings and building improvements	5–40 years
Furniture, fixtures and equipment	3–10 years

66

Computer Software

Capitalized Software for Internal Use

Certain costs incurred in connection with the development of software to be used internally are capitalized once a project has progressed beyond a conceptual, preliminary stage to that of application development. Costs which qualify for capitalization include both internal and external costs, but are limited to those that are directly related to the specific project. The capitalized amounts, net of accumulated amortization, are included in “Computer software, net” in the consolidated balance sheet. These costs are amortized over their expected useful lives, which range from three to ten years. The amortization expense is included in “Depreciation” in the consolidated statement of earnings.

Capitalized Software to be Marketed

In connection with the development of software that is intended to be marketed to customers, certain costs are capitalized once technological feasibility of the product is established and a market for the product has been identified. The capitalized amounts, net of accumulated amortization, are also included in “Computer software, net” in the consolidated balance sheet. The capitalized amounts are amortized over the expected period of benefit, not to exceed three years, and this amortization expense is included in “Cost of sales, selling, marketing, general and administrative expenses” in the consolidated statement of earnings.

Identifiable Intangible Assets and Goodwill

Upon acquisition, identifiable intangible assets are recorded at fair value. Goodwill represents the excess of the cost of the acquired businesses over fair values attributed to underlying net tangible assets and identifiable intangible assets. The carrying values of all intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. Additionally, the carrying values of identifiable intangible assets with indefinite lives and goodwill are tested annually for impairment because they are not amortized. Impairment is determined by comparing the fair values of such assets with their carrying amounts.

Identifiable Intangible Assets

Certain tradenames with indefinite lives are not amortized. Identifiable intangible assets with finite lives are amortized over their estimated useful lives as follows:

Tradenames	2–30 years
Customer relationships	1–40 years
Databases and content	2–25 years
Publishing rights	30 years
Other	2–29 years

Identifiable intangible assets with finite lives are tested for impairment as described under “Long-lived Assets” above.

Selected tradenames comprise the entire balance of identifiable intangible assets with indefinite lives. For purposes of impairment testing, the fair value of tradenames is determined using an income approach, specifically the relief from royalties method.

Goodwill

Goodwill is tested for impairment on a “reporting unit” level. A reporting unit is a group of businesses: (a) for which discrete financial information is available; and (b) that have similar economic characteristics. Goodwill is tested for impairment using the following two-step approach:

•In the first step, the fair value of each reporting unit is determined. If the fair value of a reporting unit is less than its carrying value, this is an indicator that the goodwill assigned to that reporting unit might be impaired, which requires performance of the second step.

•In the second step, the fair value of the reporting unit is allocated to the assets and liabilities of the reporting unit as if it had just been acquired in a business combination, and as if the purchase price was equivalent to the fair value of the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to its assets and liabilities is referred to as the implied fair value of goodwill. The implied fair value of the reporting unit’s goodwill is then compared to the actual carrying value of goodwill. If the implied fair value is less than the carrying value, an impairment loss is recognized for that excess.

The fair values of the Company’s reporting units are determined based on a combination of various techniques, including the present value of future cash flows, earnings multiples of competitors and multiples from sales of like businesses.

67

THE THOMSON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Disposal of Long-lived Assets and

Discontinued Operations

Long-lived assets are classified as held for sale once certain criteria are met. Such criteria include a firm decision by management or the board of directors to dispose of a business or a group of selected assets and the expectation that such disposal will be completed within a twelve month period. Assets held for sale are measured at the lower of their carrying amounts or fair values less costs to sell, and are no longer depreciated. Long-lived assets held for sale are classified as discontinued operations if the operations and cash flows will be eliminated from ongoing operations as a result of the disposal transaction and there will not be any significant continuing involvement in the operation of the disposed asset.

Deferred Income Taxes

Deferred income taxes are determined based on the temporary differences between the financial reporting and tax bases of assets and liabilities using the enacted or substantially enacted rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse. A valuation allowance is recorded against deferred income tax assets if management determines that it is more likely than not that such deferred income tax assets will not be realized. The income tax provision for the period is the tax payable for the period and the change during the period in deferred income tax assets and liabilities.

Derivative Financial Instruments

See note 2 for 2006 accounting changes for financial instruments. In the ordinary course of business, Thomson enters into the following types of derivative financial instruments to manage foreign currency and interest rate exposures:

•cross currency swap agreements to hedge foreign currency exposures on non-U.S. dollar-denominated debt;

•foreign currency contracts to hedge forecasted cash flows denominated in currencies other than the functional currency of a particular Thomson subsidiary; and

•interest rate swap agreements to manage the fixed versus floating interest rate mix of debt. Such contracts require periodic exchange of payments without the exchange of the notional principal amount upon which the payments are based.

The Company identifies a risk management objective for each transaction. All derivatives are linked to specific assets and liabilities or to specific firm commitments or forecasted transactions. For derivatives designated as hedges, periodic assessments of each derivative’s effectiveness are performed.

While the derivative financial instruments are subject to the risk of loss from changes in exchange and interest rates, these losses are offset by gains on the exposures being hedged. Gains and losses on cross currency swap agreements designated as hedges of existing assets and liabilities are accrued as exchange rates change, thereby offsetting gains and losses from the underlying assets and liabilities. Gains and losses on foreign currency contracts designated as hedges for firm commitments or forecasted transactions are recorded in earnings when the related transaction is realized. The differential paid or received on interest rate swap agreements is recognized as part of net interest expense. Derivative financial instruments that do not qualify as hedges are measured at fair value with changes recognized in earnings.

Stock-Based Compensation Plans

Stock Incentive Plan

Under the stock incentive plan, Thomson may grant stock options, restricted share units (“RSUs”), performance restricted share units (“PRSUs”) and other equity-based awards to certain employees for a maximum of up to 40,000,000 common shares.

Stock Options

Options vest over a period of four to five years. The maximum term of an option is 10 years from the date of grant. Options under the plan are granted at the closing price of the Company’s common shares on the New York Stock Exchange (“NYSE”) on the day prior to the grant date. Compensation expense related to stock options is recognized over the vesting period, based upon the estimated fair value of the options at issuance.

Restricted Share Units

RSUs vest over a period of up to seven years. Compensation expense related to RSUs is recognized over the vesting period, based upon the closing price of the Company’s common shares on the NYSE on the day prior to the grant date.

Performance Restricted Share Units

In 2006, the Company introduced a new long-term incentive program under which certain senior executives are awarded PRSUs. PRSUs give the holder the right to receive one Thomson common share for each unit that vests on the vesting date. Between 0% and 200% of PRSUs initially granted may vest depending upon the Company’s performance over the three-year performance period against pre-established performance goals. Compensation expense related to each PRSU grant is recognized over the three-year vesting period based upon the closing price of the Company’s common shares on the day prior to the grant date and the number of units expected to vest.

68

Phantom Stock Plan

Awards under the phantom stock plan are granted in the form of stock appreciation rights (“SARs”). Such awards are payable in cash, and compensation expense is recognized as the SARs change in value based on the fair market value of the Company’s common shares at the end of each reporting period.

Employee Stock Purchase Plan

In the fourth quarter of 2005, the Company initiated an employee stock purchase plan whereby eligible employees can purchase Thomson common shares at a 15% discount up to a specified limit utilizing after-tax payroll deductions. The entire amount of the discount is expensed as incurred.

Comparative Amounts

Prior periods have been restated for discontinued operations.

NOTE 2: CHANGES IN ACCOUNTING POLICIES

Financial Instruments and Comprehensive Income

Effective January 1, 2006, Thomson adopted Canadian Institute of Chartered Accountants (“CICA”) Handbook Section 1530, Comprehensive Income, CICA Handbook Section 3855, Financial Instruments – Recognition and Measurement and CICA Handbook Section 3865, Hedges. These new Handbook Sections provide comprehensive requirements for the recognition and measurement of financial instruments, as well as standards on when and how hedge accounting may be applied. Handbook Section 1530 also introduces a new component of equity referred to as accumulated other comprehensive income.

Under these new standards, all financial instruments, including derivatives, are included on the consolidated balance sheet and are measured either at fair market value or, in limited circumstances, at cost or amortized cost. Derivatives that qualify as hedging instruments must be designated as either a “cash flow hedge,” when the hedged item is a future cash flow, or a “fair value hedge,” when the hedged item is the fair value of a recognized asset or liability. The effective portion of unrealized gains and losses related to a cash flow hedge are included in other comprehensive income. For a fair value hedge, both the derivative and the hedged item are recorded at fair value in the consolidated balance sheet and the unrealized gains and losses from both items are included in earnings. For derivatives that do not qualify as hedging instruments, unrealized gains and losses are reported in earnings.

In accordance with the provisions of these new standards, the Company reflected the following adjustments as of January 1, 2006:

•an increase of $53 million to “Other non-current assets” and “Accumulated other comprehensive income” in the consolidated balance sheet relative to derivative instruments that consisted primarily of interest rate contracts, which convert floating rate debt to fixed rate debt and qualify as cash flow hedges;

•a reclassification of $5 million from “Other current assets” and $3 million from “Other current liabilities” to “Accumulated other comprehensive income” in the consolidated balance sheet related primarily to previously deferred gains and losses on settled cash flow hedges;

•an increase of $16 million to “Other non-current assets” and “Long-term debt” in the consolidated balance sheet related to derivative instruments and their related hedged items. These derivative instruments consist primarily of interest rate contracts to convert fixed rate debt to floating and qualify as fair value hedges; and

•a presentational reclassification of amounts previously recorded in “Cumulative translation adjustment” to “Accumulated other comprehensive income.”

The adoption of these new standards had no material impact on the Company’s consolidated statement of earnings. The unrealized gains and losses included in “Accumulated other comprehensive income” were recorded net of taxes, which were nil.

During the year ended December 31, 2006, a net increase of $8 million in unrealized gains for cash flow hedges was reflected in “Accumulated other comprehensive income.” The net realized gain in the period previously deferred on adoption in “Accumulated other comprehensive income” was less than $1 million. The net decrease in fair value in the period of fair value hedges and the related hedged items of $7 million was reflected in “Prepaid expenses and other current assets,” “Current portion of long-term debt,” “Other non-current assets” and “Long-term debt.”

As of December 31, 2006, approximately $3 million of net deferred gains in “Accumulated other comprehensive income” were expected to be recognized in earnings over the following 12 months. The remaining net deferred gains in “Accumulated other comprehensive income” were expected to be recognized over a period of up to eight years.

69

THE THOMSON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Discontinued Operations

In April 2006, the Emerging Issues Committee of the CICA (“EIC”) issued Abstract 161, Discontinued Operations (“EIC-161”). The abstract addresses the appropriateness of allocating interest expense to a discontinued operation and disallows allocations of general corporate overhead. EIC-161 was effective upon its issuance and did not have an impact on the Company’s consolidated financial statements.

Stock-Based Compensation

In July 2006, the Company adopted EIC Abstract 162, Stock-Based Compensation for Employees Eligible to Retire Before the Vesting Date (“EIC-162”), retroactively to January 1, 2006. The abstract clarifies the proper accounting for stock-based awards granted to employees who either are eligible for retirement at the grant date or will be eligible before the end of the vesting period and continue vesting after, or vest upon, retirement. In such cases, the compensation expense associated with the stock-based award will be recognized over the period from the grant date to the date the employee becomes eligible to retire. EIC-162 did not have an impact on the Company’s financial statements for any period in 2006.

NOTE 3: THOMSONplus PROGRAM

In 2006, Thomson formally announced the THOMSONplus program. THOMSONplus is a series of initiatives which will allow the Company to become a more integrated operating company by leveraging assets and infrastructure across all segments of its business. The program is expected to produce cost savings for its businesses by:

•  Realigning its business units into five segments;

•  Streamlining and consolidating certain functions such as finance, accounting and business systems;

•  Leveraging infrastructure and technology for customer contact centers;

•  Establishing low-cost shared service centers;

•  Consolidating certain technology infrastructure operations such as voice and data networks, data centers, storage and desktop support; and

•  Re-engineering certain product development and production functions and realigning particular sales forces within its business segments.

To accomplish these initiatives, the Company expects to incur approximately $250 million of expenses through 2009, primarily related to technology and restructuring costs, and consulting services. Because THOMSONplus is a corporate program, expenses associated with it are reported within the Corporate and Other segment.

In 2006, the Company incurred $60 million of expenses within continuing operations associated with THOMSONplus consisting primarily of consulting fees and severance. The consulting costs primarily related to its efforts to deploy SAP as a company-wide ERP system, which will continue throughout 2007 and 2008. The severance primarily related to the elimination of certain positions and the relocation of others to lower cost locations resulting from the establishment of a facility in Hyderabad, India to perform certain finance functions. Additionally, the Company incurred $9 million of expenses associated with businesses that were reclassified to discontinued operations in 2006. These expenses consisted of severance and losses on vacated leased properties.

Because THOMSONplus is a series of initiatives, the timing of these costs and savings may shift between different calendar years. However, based on current estimates, the Company expects to incur expenses of approximately $100 million in 2007, $50 million in 2008 and $30 million in 2009.

Of the $60 million spent on THOMSONplus in 2006, $16 million of expenses were associated with the restructuring activities of the program. The liabilities associated with these restructuring activities were not material as of December 31, 2006.

70

NOTE 4: NET OTHER INCOME (EXPENSE)

The components of net other income (expense) include:

	Year ended December 31
	2006		2005
Net gains on disposals of businesses and investments	47		5
Loss from redemption of debt securities	–		(23	)
Equity in net earnings of associates	–		5
Other (expense) income	(46	)	(15	)
Net other income (expense)	1		(28	)

Net Gains on Disposals of Businesses and Investments

For the year ended December 31, 2006, net gains on disposals of businesses and investments were comprised primarily of a gain on the sale of an equity investment.

Loss from Redemption of Debt Securities

In August and September 2005, the Company redeemed two outstanding issuances of debt securities with an aggregate carrying value of approximately US$400 million. These losses primarily represent required premiums paid for early extinguishment and non-cash write-offs of deferred costs.

See note 15.

Other (Expense) Income

For the year ended December 31, 2006, other expense primarily related to a legal reserve representing Thomson’s portion of the cash settlement expected to be paid in 2007 related to the Rodriguez v. West Publishing Corp. and Kaplan Inc. case. For the year ended December 31, 2005, other expense relates to a writedown of an investment to reflect current estimates of fair value.

NOTE 5: NET INTEREST EXPENSE AND OTHER FINANCING COSTS

The components of net interest expense and other financing costs include:

	Year ended December 31
	2006		2005
Interest income	24		16
Interest expense on short-term indebtedness	(26	)	(9	)
Interest expense on long-term debt	(219	)	(228	)
	(221	)	(221	)

Interest paid on short-term indebtedness and long-term debt during 2006 was $244 million (2005 – $220 million) and interest received during 2006 was $25 million (2005 – $14 million).

NOTE 6: INCOME TAXES

The components of earnings (loss) before taxes by jurisdiction are as follows:

	Year ended December 31
	2006		2005
Canada	(242	)	(245	)
U.S. and other jurisdictions	1,280		1,168
Total earnings before taxes1	1,038		923

1 Represents earnings from continuing operations before income taxes.

The provision for income taxes on continuing operations consisted of:

		Year ended December 31
		2006		2005
Canada:
	Current	1		126
	Deferred	(20	)	(17	)
Total Canadian		(19	)	109
U.S. and other jurisdictions:
	Current	239		193
	Deferred	(101	)	(41	)
Total U.S. and other jurisdictions		138		152
	Total worldwide	119		261

71

THE THOMSON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The tax effects of the significant components of temporary differences giving rise to the Company’s deferred income tax assets and liabilities at December 31 are as follows:

	2006		2005
Accrued expenses	181		171
Deferred compensation and stock options	124		116
Accounts receivable allowances	32		38
Tax loss and credit carryforwards	863		794
Other	147		78
Total deferred tax asset	1,347		1,197
Valuation allowance	(442	)	(412	)
Net deferred tax asset	905		785
Intangible assets	(1,280	)	(1,231	)
Other long-lived assets1	(37	)	(173	)
Financial instruments	(273	)	(237	)
Pension	(144	)	(147	)
Other	(16	)	(25	)
Total deferred tax liability	(1,750	)	(1,813	)
Net deferred tax liability	(845	)	(1,028	)

1 Other long-lived assets include Computer hardware and other property and Computer software for internal use.

The net deferred liability of $845 million (2005 – $1,028 million) was comprised of net current deferred tax assets of $153 million (2005 – $129 million) and net long-term deferred tax liabilities of $998 million (2005 – $1,157 million).

The Company records valuation allowances against deferred income tax assets when management determines that it is more likely than not that such deferred income tax assets will not be realized. The following details the movements in the valuation allowance for the years ended December 31, 2006 and 2005:

	2006		2005
Balance at beginning of year	412		358
Additional Canadian and other net operating losses with no benefit	68		89
Releases of valuation allowances to income	(26	)	(16	)
Reduction due to change in deferred tax liability related to debt instruments1	(26	)	(63	)
Exchange and other items	14		44
Balance at end of year	442		412

1Canadian losses are first offset by deferred tax liabilities before computing the required valuation allowance. The deferred tax liability increased in 2006 and 2005 from the revaluation of debt and currency swaps. As the deferred tax liability increased, the requirement for the valuation allowance decreased by the same amount.

The following is a reconciliation of income taxes calculated at the Canadian corporate tax rate to the income tax provision:

	2006		2005
Earnings before taxes	1,038		923
Income taxes at the Canadian corporate tax rate of 35.4% (2005 – 36.0%)	367		332
Differences attributable to:
Effect of income taxes recorded at rates different from the Canadian tax rate	(276	)	(170	)
Additions to valuation allowance due to losses with no benefit	68		89
Releases of valuation allowances to income	(26	)	(16	)
Net change to contingent tax liabilities(1)	(5	)	(93	)
Withholding tax on repatriation of accumulated profits(2)	–		125
Other, net	(9	)	(6	)
Income tax provision on continuing operations	119		261

1In 2005, this amount includes the recognition of a net tax benefit of $98 million from the release of contingent income tax liabilities. The liabilities were released upon completion of tax audits relating to prior year periods.

2During the fourth quarter of 2005, the Company repatriated a substantial portion of the accumulated profits of certain of its subsidiaries. The repatriation was related to the recapitalization of these subsidiaries. The Company incurred a one-time withholding tax of $125 million in connection with this repatriation, which reduced cash provided by operating activities and net earnings in the fourth quarter by the same amount.

72

The effective income tax rate in each year was lower than the Canadian corporate income tax rate due principally to the lower tax rates and differing tax rules applicable to certain of the Company’s operating and financing subsidiaries outside Canada. Specifically, while Thomson generates revenues in numerous jurisdictions, the tax provision on earnings is computed after taking account of intercompany interest and other charges among subsidiaries resulting from their capital structure and from the various jurisdictions in which operations, technology and content assets are owned. For these reasons, the effective tax rate differs substantially from the Canadian corporate tax rate. The Company’s effective tax rate and its cash tax cost depend on the laws of numerous countries and the provisions of multiple income tax conventions between various countries in which Thomson operates.

The Company maintains a liability for contingencies associated with known issues under discussion with tax authorities and transactions yet to be settled and regularly assesses the adequacy of this liability. The Company records liabilities for known tax contingencies when, in the judgment of management, it is probable that a liability has been incurred. Contingencies are reversed to income in the period in which management assesses that they are no longer required, or when they become no longer required by statute, or when they are resolved through the normal tax audit process. The Company’s contingency reserves principally represent liabilities for the years 2000 to 2006.

At December 31, 2006, the Company had Canadian tax loss carryforwards of $1,467 million, tax loss carryforwards in other jurisdictions of $881 million, and U.S. state tax loss carryforwards which, at current U.S. state rates, have an estimated value of $13 million. If not utilized, the majority of the Canadian tax loss carryforwards will expire between 2008 and 2015. The majority of the tax loss carryforwards from other jurisdictions may be carried forward indefinitely, while the U.S. state tax loss carryforwards expire between 2007 and 2026. The ability to realize the tax benefits of these losses is dependent upon a number of factors, including the future profitability of operations in the jurisdictions in which the tax losses arose. Additionally, the Company had other tax credit carryforwards of $15 million, the majority of which may be carried forward indefinitely, and a tax benefit of $85 million related to capital loss carryforwards that may be used only in offsetting future capital gains.

The total amount of undistributed earnings of non-Canadian subsidiaries for income tax purposes was approximately $5.4 billion at December 31, 2006. A portion of such undistributed earnings can be remitted to Canada tax free. Where tax free remittance of undistributed earnings is not possible, it is the Company’s intention to reinvest such undistributed earnings and thereby indefinitely postpone their remittance. Accordingly, no provision has been made for income taxes that may become payable if undistributed earnings from non-Canadian subsidiaries were distributed by those companies. The additional taxes on undistributed earnings are not practicably determinable.

NOTE 7: DISCONTINUED OPERATIONS

The following businesses are classified as discontinued operations within the consolidated financial statements for all periods presented.

During the year ended December 31, 2006, the Company approved plans to dispose of the following businesses:

In October 2006, the Company announced its intention to sell Thomson Learning via three independent processes, each on its own schedule. First, it agreed to sell NETg, a leading provider of continuing corporate education and training, to SkillSoft PLC. The sale is expected to be completed in the second quarter of 2007. Second, the Company is currently seeking buyers for Prometric, a global leader in assessment services, through a competitive bidding process. The Company expects the sale of Prometric to be concluded in 2007. Lastly, the competitive bidding for the Company’s higher education, careers and library reference businesses commenced in the first quarter of 2007. Thomson recorded impairment charges associated with certain of these businesses related to goodwill of $14 million in the fourth quarter of 2006.

Additionally, in the fourth quarter of 2006 the Company approved plans within Thomson Legal & Regulatory to sell its business information and news operations, which include the Company’s Market Research and NewsEdge businesses. It recorded impairment charges associated with these businesses related to identifiable intangible assets and goodwill of $4 million in the fourth quarter of 2006.

In June 2006, the Company’s board of directors approved plans to sell IOB, a Brazilian regulatory business within Thomson Legal & Regulatory, and Thomson Medical Education, a provider of sponsored medical education within Thomson Scientific & Healthcare.

In the first quarter of 2006, the Company approved plans within Thomson Legal & Regulatory to sell Lawpoint Pty Limited, an Australian provider of print and online regulatory information services; and Law Manager, Inc., a software and services provider. The Company completed the sale of Law Manager in April 2006 and Lawpoint in June 2006.

73

THE THOMSON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Also in the first quarter of 2006, the Company approved plans within Thomson Learning to sell Peterson’s, a college preparatory guide; the North American operations of Thomson Education Direct, a consumer-based distance learning career school; and K.G. Saur, a German publisher of biographical and bibliographical reference titles serving the library and academic communities. Thomson recorded impairment charges associated with certain of these businesses related to identifiable intangible assets and goodwill of $63 million before taxes in the first half of 2006. The Company completed the sale of Peterson’s in July 2006 and K.G. Saur in August 2006. Based upon the status of negotiations at December 31, 2006, the Company recorded a pre-tax impairment charge associated with Thomson Education Direct of $15 million relating to goodwill in the fourth quarter of 2006.

In December 2005, the Company’s board of directors approved a plan to dispose of American Health Consultants, a medical newsletter publisher and medical education provider within Thomson Scientific & Healthcare. The Company recorded a post-tax gain of $23 million related to the completion of the sale in the third quarter of 2006.

For the year ended December 31, 2006, discontinued operations includes a gain of $21 million associated with currency translation adjustments on disposals which were released from “Accumulated other comprehensive income” in the consolidated balance sheet.

In the years ended December 31, 2006 and 2005, discontinued operations also included adjustments to tax liabilities for businesses previously sold. The reserves were reversed in conjunction with the expiration of certain tax audit periods, and are included in “Other” below.

Balance Sheet	December 31, 2006
	Legal &		Scientific &
	Regulatory	Learning	Healthcare	Total
CURRENT ASSETS
Accounts receivable, net of allowances	13	538	31	582
Inventory	1	252	–	253
Other current assets	3	70	5	78
Deferred income taxes	–	124	2	126
Total current assets	17	984	38	1,039
NON-CURRENT ASSETS
Computer hardware and other property	7	157	7	171
Computer software	5	145	1	151
Identifiable intangible assets	29	838	14	881
Goodwill	5	3,003	18	3,026
Other non-current assets	1	270	–	271
Total non-current assets	47	4,413	40	4,500
CURRENT LIABILITIES
Accounts payable and accruals	12	499	23	534
Deferred revenue	32	260	19	311
Other current liabilities	16	1	–	17
Total current liabilities	60	760	42	862
NON-CURRENT LIABILITIES
Other non-current liabilities	4	38	2	44
Deferred income taxes	12	385	7	404
Total non-current liabilities	16	423	9	448

74

	December 31, 2005
	Legal &		Scientific &
	Regulatory	Learning	Healthcare	Total
CURRENT ASSETS
Accounts receivable, net of allowances	27	470	32	529
Inventory	1	254	–	255
Other current assets	4	62	2	68
Deferred income taxes	1	120	1	122
Total current assets	33	906	35	974
NON-CURRENT ASSETS
Computer hardware and other property	16	154	8	178
Computer software	24	158	–	182
Identifiable intangible assets	43	907	16	966
Goodwill	8	3,047	22	3,077
Other non-current assets	1	254	–	255
Total non-current assets	92	4,520	46	4,658
CURRENT LIABILITIES
Accounts payable and accruals	18	495	22	535
Deferred revenue	29	218	28	275
Other current liabilities	11	–	–	11
Total current liabilities	58	713	50	821
NON-CURRENT LIABILITIES
Other non-current liabilities	5	50	3	58
Deferred income taxes	17	377	7	401
Total non-current liabilities	22	427	10	459

75

THE THOMSON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

	Year ended December 31, 2006
	Legal &				Scientific &
	Regulatory		Learning		Healthcare		Other	Total
Revenues from discontinued operations	100		2,393		110		–	2,603
Earnings (loss) from discontinued operations before income taxes	(24	)	237		24		–	237
Gain on sale of discontinued operations	4		3		40		5	52
Income taxes	12		(84	)	(23	)	7	(88	)
Earnings (loss) from discontinued operations	(8	)	156		41		12	201

	Year ended December 31, 2005
	Legal &				Scientific &
	Regulatory		Learning		Healthcare		Other	Total
Revenues from discontinued operations	123		2,319		132		–	2,574
Earnings (loss) from discontinued operations before income taxes	(25	)	294		27		–	296
Gain on sale of discontinued operations	–		–		–		2	2
Income taxes	6		(25	)	(10	)	3	(26	)
Earnings (loss) from discontinued operations	(19	)	269		17		5	272

The Company adjusts liabilities previously established for businesses that have been sold when actual results differ from estimates used in establishing such liabilities. Adjustments are made in conjunction with the expiration of representations and warranty periods or to reflect the refinement of earlier estimates. Due to the expiration of certain tax audit periods for Thomson Newspapers and other businesses, the Company adjusted its related tax liabilities which resulted in tax benefits in 2006 and 2005 of $11 million in each year. Offsetting the release of tax liabilities in 2005 was a $9 million tax charge related to the 2004 sale of Thomson Media. Additionally, in 2006 the Company adjusted disposal liabilities related to Thomson Newspapers and other businesses resulting in $5 million (2005 – $2 million) of earnings from discontinued operations for the year ended December 31, 2005. These amounts are included in “Other” above.

“Proceeds from (income taxes paid on) disposal of discontinued operations” within the consolidated statement of cash flow for the year ended December 31, 2006 represent cash received from the sale of Lawpoint, Law Manager, Peterson’s, K.G. Saur and AHC. For the year ended December 31, 2005, the cash outflow from discontinued operations within the consolidated statement of cash flow represents taxes paid related to the 2004 sale of Thomson Media.

The carrying values of businesses disposed of during 2006 consisted of current assets of $23 million, non-current assets of $89 million, current liabilities of $29 million and non-current liabilities of $2 million as of the date of disposal.

76

NOTE 8: EARNINGS PER COMMON SHARE

Basic earnings per common share are calculated by dividing earnings attributable to common shares by the sum of the weighted-average number of common shares outstanding during the period plus vested deferred share units. Deferred share units represent the amount of common shares certain employees have elected to receive in the future in lieu of cash compensation. The holders of deferred share units have no voting rights, but are entitled to dividends at each dividend payment date, which are reinvested as additional deferred share units based upon the dividend reinvestment plan as described in note 16.

Diluted earnings per common share are calculated using the denominator of the basic calculation described above adjusted to include the potentially dilutive effect of outstanding stock options and other securities.  The Company uses the treasury stock method to calculate diluted earnings per common share.

Earnings used in determining earnings per common share from continuing operations are presented below. Earnings used in determining earnings per common share from discontinued operations are the earnings from discontinued operations as reported within the consolidated statement of earnings.

	2006		2005
Earnings from continuing operations	919		662
Dividends declared on preference shares	(5	)	(4	)
Earnings from continuing operations attributable to common shares	914		658

The weighted-average number of common shares outstanding, as well as a reconciliation of the weighted-average number of common shares outstanding used in the basic earnings per common share computation to the weighted-average number of common shares outstanding used in the diluted earnings per common share computation, is presented below.

	2006	2005
Weighted-average number of common shares outstanding	643,454,420	653,862,363
Vested deferred share units	677,104	574,385
Basic	644,131,524	654,436,748
Effect of stock and other incentive plans	1,894,821	531,283
Diluted	646,026,345	654,968,031

As of December 31, 2006, 4,028,992 stock options were outstanding that had exercise prices that were below the average market price. The effect of these options was not included in the diluted weighted average share calculation as their impact would have been anti-dilutive.

NOTE 9: ACCOUNTS RECEIVABLE ALLOWANCES

The change in the valuation allowances for returns, billing adjustments and doubtful accounts related to accounts receivable  is as follows:

	2006		2005
Balance at beginning of year	102		126
Charges	139		119
Write-offs	(147	)	(138	)
Other	3		(5	)
Balance at end of year	97		102

“Other” includes additions from acquisitions and the impact of foreign currency translation.

The Company is exposed to normal credit risk with respect to its accounts receivable.  To mitigate this credit risk, the Company follows a program of customer credit evaluation and maintains provisions for potential credit losses.  The Company has no significant exposure to any single customer.

NOTE 10: INVENTORIES

Inventories consist of the following:

	2006	2005
Raw materials	17	15
Work in process	19	18
Finished goods	37	34
	73	67

77

THE THOMSON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11: COMPUTER HARDWARE AND OTHER PROPERTY

Computer hardware and other property consists of the following:

				Net computer
				hardware
		Accumulated		and other
As at December 31, 2006	Cost	depreciation		property
Computer hardware	959	(679	)	280
Land, buildings and building improvements	463	(206	)	257
Furniture, fixtures and equipment	298	(210	)	88
	1,720	(1,095	)	625

				Net computer
				hardware
		Accumulated		and other
As at December 31, 2005	Cost	depreciation		property
Computer hardware	979	(726	)	253
Land, buildings and building improvements	438	(176	)	262
Furniture, fixtures and equipment	301	(212	)	89
	1,718	(1,114	)	604

Fully depreciated assets are retained in asset and accumulated depreciation accounts until such assets are removed from service. In the case of disposals, assets and related accumulated depreciation amounts are removed from the accounts, and the net amounts, less proceeds from disposals, are included in income. The depreciation charge in 2006 was $198 million (2005 – $190 million).

NOTE 12: COMPUTER SOFTWARE

Computer software consists of the following:

				Net
		Accumulated		computer
As at December 31, 2006	Cost	amortization		software
Capitalized software for internal use	1,791	(1,228	)	563
Capitalized software to be marketed	212	(128	)	84
	2,003	(1,356	)	647

				Net
		Accumulated		computer
As at December 31, 2005	Cost	amortization		software
Capitalized software for internal use	1,608	(1,085	)	523
Capitalized software to be marketed	143	(98	)	45
	1,751	(1,183	)	568

The amortization charge for internal use computer software in 2006 was $241 million (2005 – $224 million) and is included in “Depreciation” in the consolidated statement of earnings. The amortization charge for software intended to be marketed was $25 million (2005 – $21 million) and is included in “Cost of sales, selling, marketing, general and administrative expenses” in the consolidated statement of earnings.

78

NOTE 13: IDENTIFIABLE INTANGIBLE ASSETS

The following table presents the details of identifiable intangible assets as at December 31, 2006 and 2005.

		Gross			Net
		identifiable			identifiable
		intangible	Accumulated		intangible
As at December 31, 2006		assets	amortization		assets
Finite useful lives:
	Tradenames	206	(94	)	112
	Customer relationships	2,071	(675	)	1,396
	Databases and content	852	(408	)	444
	Publishing rights	1,260	(579	)	681
	Other	88	(53	)	35
		4,477	(1,809	)	2,668
Indefinite useful lives:
Tradenames		793			793
		5,270	(1,809	)	3,461

		Gross			Net
		identifiable			identifiable
		intangible	Accumulated		intangible
As at December 31, 2005		assets	amortization		assets
Finite useful lives:
	Tradenames	223	(94	)	129
	Customer relationships	1,961	(560	)	1,401
	Databases and content	817	(338	)	479
	Publishing rights	1,198	(506	)	692
	Other	64	(39	)	25
		4,263	(1,537	)	2,726
Indefinite useful lives:
Tradenames		793			793
		5,056	(1,537	)	3,519

The amortization charge for identifiable intangible assets in 2006 was $242 million (2005 – $236 million).

As at December 31, 2006, the average amortization life based upon the gross balance of the identifiable intangible assets with finite useful lives was approximately 18 years.

Publishing rights relate to certain historical acquisitions and are comprised of the cumulative value of tradenames, imprints and titles, databases and other intangible assets. These intangible assets are amortized over a weighted-average useful life, which approximates 30 years.

NOTE 14: GOODWILL

The following table presents goodwill by operating segment for  the years ended December 31, 2006 and 2005.

	Legal &				Scientific &
	Regulatory		Financial		Healthcare		Total
Balance at December 31, 2004	3,318		1,906		737		5,961
Acquisitions	72		3		7		82
Adjusted purchase price allocations	(3	)	(5	)	15		7
Translation and other, net	(48	)	(31	)	(24	)	(103	)
Balance at December 31, 2005	3,339		1,873		735		5,947
Acquisitions	82		149		297		528
Adjusted purchase price allocations	1		(1	)	(13	)	(13	)
Translation and other, net	57		34		(1	)	90
Balance at December 31, 2006	3,479		2,055		1,018		6,552

The adjusted purchase price allocations primarily relate to  updated valuations of identifiable intangible assets for certain  acquisitions, which resulted in decreases in goodwill of $8 million  (2005 – increases of $18 million), as well as to the adjustment  of certain acquisition-related assets and liabilities, which resulted  in decreases in goodwill of $5 million (2005 – $11 million).

79

THE THOMSON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15: FINANCIAL INSTRUMENTS

Accounting Change

Effective January 1, 2006, Thomson adopted CICA Handbook Section 1530, Comprehensive Income, CICA Handbook Section 3855, Financial Instruments – Recognition and Measurement and CICA Handbook Section 3865, Hedges. Under these new standards, all financial instruments, including derivatives, are included on the consolidated balance sheet and are measured either at fair market value or, in limited circumstances, at cost or amortized cost. Derivatives that qualify as hedging instruments must be designated as either a “cash flow hedge,” when the hedged item is a future cash flow, or a “fair value hedge,” when the hedged item is a recognized asset or liability. The unrealized gains and losses related to a cash flow hedge are included in other comprehensive income. For a fair value hedge, both the derivative and the hedged item are recorded at fair value in the consolidated balance sheet and the unrealized gains and losses from both items are included in earnings. For derivatives that do not qualify as hedging instruments, unrealized gains and losses are reported in earnings.

Carrying Amounts

Amounts recorded in the consolidated balance sheet are referred to as “carrying amounts.” The primary debt carrying amounts are reflected in “Long-term debt” and “Current portion of long-term debt” in the consolidated balance sheet. The carrying amounts of derivative instruments are included in “Other current assets,” “Other non-current assets,” and “Other non-current liabilities” in the consolidated balance sheet, as appropriate.

Fair Values

The fair values of cash and cash equivalents, accounts receivable, short-term indebtedness and accounts payable approximate their carrying amounts because of the short-term maturity of these instruments. The fair value of long-term debt, including the current portion, is estimated based on either quoted market prices for similar issues or current rates offered to Thomson for debt of the same maturity. The fair values of interest rate swaps and forward contracts are estimated based upon discounted cash flows using applicable current market rates. The fair values of the foreign exchange contracts reflect the estimated amounts at which the Company would have to settle all outstanding contracts on December 31.

Credit Risk

Thomson attempts to minimize its credit exposure on derivative contracts by entering into transactions only with counterparties that are major investment-grade international financial institutions.

The Company places its cash investments with high-quality financial institutions and limits the amount of exposure to any one institution. At December 31, 2006, a significant portion of the Company’s cash was on deposit with five such institutions.

Short-term Indebtedness

At December 31, 2006, short-term indebtedness was principally comprised of $316 million of commercial paper with an average interest rate of 4.8%. The rate was 5.3% after taking into account hedging arrangements. At December 31, 2005, short-term indebtedness was principally comprised of $167 million of commercial paper with an average interest rate of 4.2%. The rate was 4.3% after taking into account hedging arrangements.

80

Long-term Debt and Related Derivative Instruments

The following is a summary of long-term debt and related derivative instruments that hedge the cash flows or fair value of the debt:

	Carrying amount				Fair value
	Primary debt		Derivative		Primary debt	Derivative
As at December 31, 2006	instruments		instruments		instruments	instruments
Bank and other	111		–		109	–
6.50% Debentures, due 2007	217		(38	)	217	(38	)
4.35% Notes, due 2009	258		(21	)	258	(21	)
4.50% Notes, due 2009	217		(33	)	217	(33	)
5.20% Notes, due 2014	522		(58	)	536	(58	)
6.85% Medium-term notes, due 2011	345		(108	)	378	(108	)
5.75% Notes, due 2008	400		–		401	–
4.25% Notes, due 2009	200		–		195	–
4.75% Notes, due 2010	250		–		245	–
6.20% Notes, due 2012	700		–		723	–
5.25% Notes, due 2013	250		–		246	–
5.50% Debentures, due 2035	400		–		363	–
7.74% Private placement, due 2010	75		–		81	–
	3,945		(258	)	3,969	(258	)
Current portion	(264	)	38
	3,681		(220	)

	Carrying amount				Fair value
	Primary debt		Derivative		Primary debt	Derivative
As at December 31, 2005	instruments		instruments		instruments	instruments
Bank and other	182		–		179	–
6.50% Debentures, due 2007	215		(36	)	223	(46	)
4.35% Notes, due 2009	258		(12	)	259	(22	)
4.50% Notes, due 2009	215		(31	)	217	(33	)
5.20% Notes, due 2014	516		(24	)	542	(57	)
6.85% Medium-term notes, due 2011	344		(90	)	386	(108	)
5.75% Notes, due 2008	400		–		406	–
4.25% Notes, due 2009	200		–		195	–
4.75% Notes, due 2010	250		–		247	–
6.20% Notes, due 2012	700		–		736	–
5.25% Notes, due 2013	250		–		249	–
5.50% Debentures, due 2035	400		–		387	–
Private placements, due 2006–2010	125		–		133	–
	4,055		(193	)	4,159	(266	)
Current portion	(98	)	–
	3,957		(193	)

81

THE THOMSON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company utilized various derivative instruments to hedge its currency and interest rate risk exposures. Certain of these instruments were fixed-to-fixed cross-currency interest rate swaps, which swap Canadian dollar principal and interest payments into U.S. dollars. These instruments were designated as cash flow hedges and recorded in the Company’s consolidated balance sheet at their fair value. The fair value of these instruments reflects the effect of changes in foreign currency exchange rates on the principal amount of the debt from the origination date to the balance sheet date as well as the effect of such changes on interest payments and spot-to-forward rate differences. The portion of the fair value attributable to items other than the effect of changes in exchange rates on the principal amounts was $54 million as of December 31, 2006. The total fair value for these agreements at December 31, 2006 was $176 million.

The Company also held fixed-to-floating cross-currency interest rate swaps, which swap Canadian dollar principal and interest payments into U.S. dollars and also change interest payments from a fixed to floating rate. These instruments were designated as fair value hedges. The total fair value for these agreements at December 31, 2006 was $82 million.

Currency Risk Exposures

Bank and other debt at December 31, 2006 and 2005 was primarily U.S. dollar-denominated and comprised notes issued in connection with the Capstar acquisition, along with foreign currency-denominated loans. The 6.50% Debentures, 4.35% Notes, 4.50% Notes, 5.20% Notes and medium-term notes are Canadian dollar-denominated and are fully hedged into U.S. dollars. The 5.75% Notes, 4.25% Notes, 4.75% Notes, 6.20% Notes, 5.25% Notes, 5.50% Debentures and private placements are U.S. dollar-denominated. The carrying amount of long-term debt, all of which is unsecured, was denominated in the following currencies:

	Before currency		After currency
	hedging arrangements		hedging arrangements1
	2006	2005	2006	2005
Canadian dollar	1,559	1,548	–	–
U.S. dollar	2,348	2,435	3,703	3,790
Other currencies	38	72	38	72
	3,945	4,055	3,741	3,862

1Represents net cash outflow upon maturity and, therefore, excludes fair value adjustment of $54 million at December 31, 2006.

Maturities of long-term debt in each of the next five years and thereafter are as follows:

	2007	2008	2009	2010	2011	Thereafter	Total
Before currency hedging arrangements	264	436	676	352	345	1,872	3,945
After currency hedging arrangements1	226	436	631	352	254	1,842	3,741

1Represents net cash outflow upon maturity and, therefore, excludes fair value adjustment of $54 million at December 31, 2006.

Interest Rate Risk Exposures

At December 31, 2006, the Company held four cross-currency interest rate swap agreements which swap from fixed to floating interest rates. After taking account of these hedging arrangements, the fixed and floating rate mix of long-term debt is as follows:

		Average			Average
	2006	interest rate	% Share	2005	interest rate	% Share
Total fixed	3,218	5.4%	86%	3,305	5.4%	86%
Total floating	523	5.6%	14%	557	4.6%	14%
	3,741	5.4%	100%	3,862	5.2%	100%

Including the effect of short-term indebtedness, the proportion of fixed to floating rate debt was 79% to 21%. Floating rate long-term debt is LIBOR-based and, consequently, interest rates are reset periodically.

82

At December 31, 2006, undrawn and available bank facilities amounted to $1.3 billion.

2006 Activity

In January 2006, the Company repaid $50 million of privately placed notes upon their maturity.

2005 Activity

In the third quarter of 2005, the Company completed the early redemption of US$75 million of 7.62% privately placed notes and Cdn$400 million of 6.90% medium-term notes and settled an associated currency swap. A loss of US$23 million was recorded as a result of these redemptions in “Net other (expense) income” in the consolidated statement of earnings, primarily related to early redemption premiums and non-cash write-offs of deferred costs. These redemptions were principally financed by the August 2005 offering of US$400 million of 5.50% Debentures due 2035.

In addition to the early redemptions of debt, in December and September 2005, the Company also repaid US$50 million and US$75 million, respectively, of privately placed notes and in March 2005, Thomson repaid US$125 million of floating rate notes.

Foreign Exchange Contracts

Thomson uses foreign exchange contracts to manage foreign exchange risk. Generally, foreign exchange contracts are designated for existing assets and liabilities, firm commitments or forecasted transactions that are expected to occur in less than one year. At December 31, 2006 and 2005, the fair value of foreign exchange contracts was not material.

Investments

At December 31, 2006 and 2005, investments accounted for using the cost and equity methods were not material. These investments are reported within “Other non-current assets” in the consolidated balance sheet.

NOTE 16: CAPITAL

The change in capital, which includes stated capital and contributed surplus, was as follows:

					Series II,
					cumulative
	Common share capital				redeemable
	Number of		Stated		preference	Contributed	Total
	shares		capital		share capital	surplus	capital
Balance, December 31, 2004	655,131,827		2,478		110	108	2,696
Common shares issued under Dividend Reinvestment Plan (“DRIP”)	335,862		12		–	–	12
Effect of stock compensation plans	730,703		26		–	19	45
Repurchase of common shares	(7,249,400	)	(27	)	–	–	(27	)
Balance, December 31, 2005	648,948,992		2,489		110	127	2,726
Common shares issued under DRIP	347,840		14		–	–	14
Effect of stock compensation plans	1,820,781		70		–	30	100
Repurchase of common shares	(10,680,600	)	(41	)	–	–	(41	)
Balance, December 31, 2006	640,437,013		2,532		110	157	2,799

83

THE THOMSON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Thomson Common Shares

Thomson common shares, which have no par value, are voting shares. The authorized common share capital of Thomson is an unlimited number of shares.

Registered holders of common shares may participate in the DRIP, under which cash dividends are automatically reinvested in new common shares having a value equal to the cash dividend. Such shares are valued at the weighted-average price at which the common shares traded on the Toronto Stock Exchange during the five trading days immediately preceding the record date for such dividend.

Dividends

Dividends on Thomson common shares are declared and payable in U.S. dollars. Shareholders also have the option of receiving dividends on common shares in equivalent Canadian dollars or pounds sterling. Dividends declared per common share in 2006 were $0.88 (2005 – $0.79).

In the consolidated statement of cash flow, dividends paid on common shares are shown net of $14 million (2005 – $12 million) reinvested in common shares issued under the DRIP.

Normal Course Issuer Bid

In May 2005, the Company initiated a normal course issuer bid to repurchase up to 15 million of its common shares. Under this first program, which ended on May 4, 2006, the Company repurchased and subsequently cancelled approximately 13.3 million shares at an average price per share of $36.28.

In May 2006, Thomson renewed its normal course issuer bid. Under this second program, the Company may purchase up to an additional 15 million of its common shares. Shares that are repurchased are cancelled. Purchases commenced on May 5, 2006 and will terminate no later than May 4, 2007. The Company may repurchase shares in open market transactions on the Toronto Stock Exchange or the New York Stock Exchange. Through December 31, 2006, the Company repurchased approximately 4.6 million shares, at an average price per share of $40.09, under this second program.

For the year ended December 31, 2006, the Company repurchased a combined total of approximately 10.7 million common shares for approximately $412 million, representing an average cost per share of $38.57. Of the $412 million, $41 million was recorded as a reduction in capital based upon the historical average issuance price of the shares and $371 million was charged to retained earnings.

Decisions regarding the timing of future repurchases will be based on market conditions, share price and other factors. Thomson may elect to suspend or discontinue the bid at any time. From time to time when the Company does not possess material non-public information about its activities or its securities, the Company may enter into a pre-defined plan with its broker to allow for the repurchase of shares at times when the Company ordinarily would not be active in the market due to its own internal trading blackout periods, insider trading rules or otherwise. Any such plans entered into with the Company’s broker will be adopted in accordance with applicable Canadian securities laws and the requirements of Rule 10b5-1 under the U.S. Securities Exchange Act of 1934.

Series II, Cumulative Redeemable Preference Shares

The authorized preference share capital of Thomson is an unlimited number of preference shares without par value. The directors are authorized to issue preference shares without par value in one or more series, and to determine the number of shares in, and terms attaching to, each such series. As at December 31, 2006 and 2005, 6,000,000 shares of Series II, Cumulative Redeemable Preference shares were outstanding. The Series II preference shares are non-voting and are redeemable at the option of Thomson for Cdn$25.00 per share, together with accrued dividends. Dividends are payable quarterly at an annual rate of 70% of the Canadian bank prime rate applied to the stated capital of such shares. The total number of authorized Series II preference shares is 6,000,000.

NOTE 17: EMPLOYEE FUTURE BENEFITS

Thomson sponsors both defined benefit and defined contribution employee future benefit plans covering substantially all employees. Costs for all future employee benefits are accrued over the periods in which employees earn the benefits.

Defined Benefit Plans

Thomson sponsors defined benefit plans providing pension and other post-retirement benefits to covered employees. Net periodic pension expense for employee future benefits is actuarially determined using the projected benefit method. The Company uses a measurement date of September 30 for the majority of its plans. For the Company’s largest plan, which is in the United States, an actuarial valuation is performed annually as of December 31.

84

The following significant weighted-average assumptions were employed to determine the net periodic pension and post-retirement plans’ expenses and the accrued benefit obligations:

	Pensions		Other post-retirement plans
	2006	2005	2006		2005
ASSUMPTIONS USED TO DETERMINE NET PERIODIC PENSION EXPENSE
Expected long-term rate of return on plan assets	7.3%	7.5%	N/A		N/A
Discount rate	5.4%	5.8%	5.7%		6.1%
Rate of compensation increase	4.3%	4.3%	N/A	1	N/A	1
ASSUMPTIONS USED TO DETERMINE BENEFIT OBLIGATION
Discount rate	5.5%	5.4%	5.9%		5.7%
Rate of compensation increase	4.5%	4.3%	N/A	1	N/A	1

1At the end of 2006 and 2005, these plans consisted almost entirely of retired employees.

The Company uses multiple techniques to determine its expected long-term rate of return on plan assets. These include the use of statistical models and the examination of historical returns.

The Company’s net defined benefit plan (income) expense is comprised of the following elements:

									Other post-
	Pensions								retirement plans
	Funded				Unfunded
	2006		2005		2006		2005		2006		2005
COMPONENTS OF NET PERIODIC BENEFIT EXPENSE (INCOME)
Current service cost	57		46		6		7		3		2
Interest cost	126		120		12		11		9		9
Plan amendments	3		–		(3	)	1		3		–
Actual return on plan assets	(208	)	(285	)	–		–		–		–
Actuarial losses (gains)	15		168		(9	)	12		(6	)	9
Subtotal	(7	)	49		6		31		9		20
ADJUSTMENTS1
Difference between expected and actual return on plan assets	54		130		–		–		–		–
Difference between actuarial loss (gain) recognized and actual actuarial loss (gain) on benefit obligation	37		(135	)	11		(11	)	10		(7	)
Difference between amortization of past service costs for year and actual plan amendments for year	(3	)	1		4		1		(3	)	–
Amortization of transitional asset	(1	)	(1	)	–		–		–		–
Subtotal adjustments	87		(5	)	15		(10	)	7		(7	)
Net defined benefit plan expense	80		44		21		21		16		13

1Adjustments reflect the deferral and amortization of experience gains and losses over applicable periods.

85

THE THOMSON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following information summarizes activity in all of the pension and other post-retirement benefit plans for the Company:

									Other post-
	Pensions								retirement plans
	Funded				Unfunded
	2006		2005		2006		2005		2006		2005
BENEFIT OBLIGATION
Beginning benefit obligation	2,268		2,104		207		182		165		154
Current service cost	57		46		6		7		3		2
Interest cost	126		120		12		11		9		9
Plan participants’ contributions	4		4		–		–		–		–
Plan amendments	3		–		(3	)	1		3		–
Actuarial losses (gains)	15		168		(9	)	12		(6	)	9
Non-routine events	–		(11	)	–		–		–		–
Acquisitions, net	2		9		1		1		–		–
Benefits paid	(95	)	(88	)	(7	)	(8	)	(10	)	(9	)
Translation adjustments	118		(84	)	–		1		–		–
Ending benefit obligation	2,498		2,268		207		207		164		165
PLAN ASSETS
Beginning fair value of plan assets	2,181		2,050		–		–		–		–
Actual return on plan assets	208		285		–		–		–		–
Employer contributions	37		15		7		8		10		9
Plan participants’ contributions	4		4		–		–		–		–
Benefits paid	(95	)	(88	)	(7	)	(8	)	(10	)	(9	)
Other, net	1		(2	)	–		–		–		–
Translation adjustments	121		(83	)	–		–		–		–
Ending fair value of plan assets	2,457		2,181		–		–		–		–
Funded status – deficit	(41	)	(87	)	(207	)	(207	)	(164	)	(165	)
Unamortized net actuarial loss	437		515		29		38		40		50
Unamortized past service costs	7		4		2		6		2		(1	)
Unamortized net transitional asset	(4	)	(5	)	–		–		–		–
Post-measurement date activity1	–		14		2		2		2		2
Accrued benefit asset (liability)	399		441		(174	)	(161	)	(120	)	(114	)

1 Consists primarily of contributions

86

An accrued pension benefit asset of $434 million (2005 – $477 million) is included in “Other non-current assets” in the consolidated balance sheet. An accrued pension benefit liability of $209 million (2005 – $197 million) as well as the accrued liability for other post-retirement plans are included in “Other non-current liabilities” in the consolidated balance sheet.

The unfunded pension plans referred to above consist primarily of supplemental executive retirement plans (“SERPs”) for eligible employees. Thomson partially funds the liabilities of these plans through insurance contracts, which are excluded from plan assets in accordance with CICA Handbook Section 3461. The cash surrender values of insurance contracts used to fund the SERPs are included in “Other non-current assets” in the consolidated balance sheet.

The benefit obligations of funded plans that had benefit obligations that exceeded plan assets at December 31, 2006 were $2,008 million (2005 – $1,823 million). These plans had related fair values of plan assets of $1,909 million (2005 – $1,706 million). While these plans are not considered fully funded for financial reporting purposes, they are adequately funded under the applicable statutory funding rules and regulations governing the particular plans.

As of December 31, 2006, the Company had cumulative unrecognized actuarial losses associated with all of its pension plans of $466 million, compared to $553 million at December 31, 2005. The majority of these losses are a result of the decline in discount rates over the past few years reflecting the overall decline in interest rates, primarily in the United States. Actuarial gains and losses are included in the calculation of annual pension expense subject to the following amortization methodology. Unrecognized actuarial gains or losses are netted with the difference between the market-related value and fair value of plan assets. To the extent this net figure exceeds 10% of the greater of the projected benefit obligation or market-related value of plan assets, it is amortized into pension expense on a straight-line basis over the expected average service life of active participants (approximately eight years at December 31, 2006). Unrecognized actuarial gains and losses below the 10% corridor are deferred.

Actuarial gains and losses also included the difference between the expected and actual returns on plan assets. The expected return on assets represents the increase in the market-related value of plan assets due to investment reforms. The market-related value of plan assets is defined as the market-related value of plan assets at the prior measurement date adjusted for contributions and distributions during the plan year. The difference between actual asset returns and the expected return on assets for each year is recognized in asset values prospectively at the rate of 20% per year for five years.

The average healthcare cost trend rate used was 9.5% for 2006, which is reduced ratably to 5% in 2016. A 1% change in the trend rate would result in an increase or decrease in the benefit obligation for post-retirement benefits of approximately $17 million at December 31, 2006.

The Company’s pension plans’ allocation of assets as of the plans’ measurement dates for 2006 and 2005 is as follows:

	Percentage of plans’ assets
Asset category	2006	2005
Equity securities	49%	56%
Debt securities	51%	44%
Total	100%	100%

As of December 31, 2006 and 2005 there were no Thomson securities held in the Company’s pension plans’ assets.

Plan assets are invested to satisfy the fiduciary obligation to adequately secure benefits and to minimize Thomson’s long-term contributions to the plans.

In March 2006, the Company voluntarily contributed $5 million to a benefit plan in the United Kingdom. In the fourth quarter of 2005, the Company voluntarily contributed $14 million to a combination of benefit plans in the United Kingdom. In September 2005, the Company voluntarily contributed $11 million to its principal qualified defined benefit pension plan in the U.S. While none of these contributions was required under the applicable funding rules and regulations governing each country, the Company decided to make the voluntary contributions to further improve the funding of these plans. Total contributions made in 2006 to the Company’s funded pension plans totaled $23 million (2005 – $30 million).

Based on regulatory requirements, the Company was not obligated to make contributions in 2006 to its major pension plan, which is in the U.S. However, from time to time, the Company may elect to voluntarily contribute to the plan in order to improve its funded status. Because the decision to voluntarily contribute is based on various market-related factors, including asset values and interest rates, which are used to determine the plan’s funded status, the Company cannot predict whether, nor the amount, it may elect to voluntarily contribute in 2007.

87

THE THOMSON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The benefit payments for the years ended December 31, 2006 and 2005 and the estimated payments thereafter, as assumed in the calculation of the benefit obligation as of December 31, 2006, are as follows:

Benefit Payments

		Pensions		Other post-
		Funded	Unfunded	retirement plans
2005		88	8	9
2006		95	7	10
Estimated future payments:
	2007	100	8	10
	2008	100	9	11
	2009	104	11	11
	2010	108	12	12
	2011	112	13	13
	2012 to 2016	638	74	69

Defined Contribution Plans

The Company and its subsidiaries sponsor various defined contribution savings plans that have provisions for company-matching contributions. Total expense related to defined contribution plans was $69 million in 2006 (2005 – $58 million), which approximates the cash outlays related to the plans.

NOTE 18: CONTINGENCIES, COMMITMENTS AND GUARANTEES

Lawsuits and Legal Claims

At December 31, 2006, the Company was a defendant in certain lawsuits involving its BAR/BRI business. Park v. The Thomson Corporation and Thomson Legal & Regulatory Inc., which was filed in the U.S. District Court for the Southern District of New York, alleges violations of U.S. federal antitrust laws. In June 2006, an additional complaint with substantially identical allegations to the Park matter, which is now captioned Arendas v. The Thomson Corporation, West Publishing Corporation d/b/a BAR/BRI and Doe Corporation, was filed in the Circuit Court for the Ninth Judicial Circuit in and for Orange County, Florida, alleging violations of Florida state antitrust law. The Company continues to defend itself vigorously in these cases.

In February 2007, the Company entered into a settlement agreement related to a lawsuit involving its BAR/BRI business that alleged violations of antitrust laws (Rodriguez v. West Publishing Corp. and Kaplan Inc.). Thomson’s part of the settlement is $36 million, which was accrued for in the fourth quarter of 2006. If the settlement is approved by the U.S. District Court for the Central District of California, the Company expects to pay this amount later in 2007.

In January 2005, the Company became aware of an inquiry by the Serious Fraud Office in the United Kingdom regarding refund practices relating to certain duplicate subscription payments made by some of the Company’s customers in the Sweet & Maxwell and Gee businesses in the United Kingdom. Thomson is cooperating fully with the authorities in their inquiry.

In addition to the matters described above, the Company is engaged in various legal proceedings and claims that have arisen in the ordinary course of business. The outcome of all of the proceedings and claims against the Company, including those described above, is subject to future resolution, including the uncertainties of litigation. Based on information currently known to the Company and after consultation with outside legal counsel, management believes that the probable ultimate resolution of any such proceedings and claims, individually or in the aggregate, will not have a material adverse effect on the financial condition of the Company, taken as a whole.

Taxes

The Company maintains a liability for contingencies associated with known issues under discussion with tax authorities and transactions yet to be settled, and regularly assesses the adequacy of this liability. The Company records liabilities for known tax contingencies when, in the judgment of management, it is probable that a liability has been incurred. Contingencies are reversed to income in the period when management assesses that they are no longer required, or when they become no longer required by statute or resolution through the normal tax audit process. In the second quarter of 2005, the Company recognized a net tax benefit of $98 million within continuing operations from the release of contingent income tax liabilities upon completion of tax audits relating to prior year periods. The Company’s remaining contingency reserves principally represent liabilities for the years 2000 to 2006.

88

In the normal course of business, the Company enters into numerous intercompany transactions related to the sharing of data and technology. The tax rules governing such transactions are complex and depend on numerous assumptions. At this time, management believes that it is not probable that any such transactions will result in additional tax liabilities, and therefore has not established contingencies related to these items. However, because of the volume and complexity of such transactions, it is possible that at some future date an additional liability could result from audits by the relevant taxing authorities.

Leases

The Company enters into operating leases in the ordinary course of business, primarily for real property and equipment. Payments for these leases are contractual obligations as scheduled per each agreement. Operating lease payments in 2006 were $147 million (2005 – $143 million). The future minimum operating lease payments are $154 million in 2007, $129 million in 2008, $106 million in 2009, $79 million in 2010, $66 million in 2011 and $246 million thereafter.

With certain leases, the Company guarantees a portion of the residual value loss, if any, incurred by the lessors in disposing of the assets, or in restoring a property to a specified condition after completion of the lease period. The liability associated with these restorations is recorded within “Other non-current liabilities.” The Company believes, based upon current facts and circumstances, that the likelihood of a material payment pursuant to such guarantees is remote.

Business Combinations and Investments

The Company has obligations to pay additional consideration for prior acquisitions, typically based upon performance measures contractually agreed to at the time of purchase. During each of the years ended December 31, 2006 and 2005, the Company made payments of $50 million for contingent consideration associated with the 2004 acquisition of TradeWeb. Relative to TradeWeb, the Company is obligated for additional contingent consideration of up to $50 million through 2007, if certain performance measures are achieved. The $50 million payments made in 2006 and 2005, as well as any future payments under this agreement, will be considered additional purchase price. The contingent consideration associated with TradeWeb is the largest for which the Company may become liable. The Company does not believe that additional payments in connection with other transactions would have a material impact on the consolidated financial statements.

In certain disposition agreements, the Company guarantees to the purchaser the recoverability of certain assets or limits on certain liabilities. The Company believes, based upon current facts and circumstances, that a material payment pursuant to such guarantees is remote.

NOTE 19: ACQUISITIONS AND DISPOSALS

Acquisitions

The number of transactions completed and related cash consideration during 2006 and 2005 were as follows:

	Year ended December 31
	2006		2005
	Number of	Cash	Number of	Cash
	transactions	consideration	transactions	consideration
Businesses and identifiable intangible assets acquired	23	692	25	181
Contingent consideration payment – TradeWeb	–	50	–	50
Investments in businesses	2	2	3	15
	25	744	28	246

89

THE THOMSON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

All acquisitions have been accounted for using the purchase method and the results of acquired businesses are included in the consolidated financial statements from the dates of acquisition. For acquisitions made in 2006 and 2005, the majority of the acquired goodwill is not deductible for tax purposes.

The details of net assets acquired are as follows:

	2006		2005
Cash and cash equivalents	11		8
Accounts receivable	31		12
Prepaid expenses and other current assets	12		12
Computer hardware and other property	9		2
Computer software	49		5
Identifiable intangible assets	160		126
Goodwill	528		82
Other non-current assets	5		–
Total assets	805		247
Accounts payable and accruals	(29	)	(25	)
Deferred revenue	(61	)	(12	)
Other non-current liabilities	(12	)	(21	)
Total liabilities	(102	)	(58	)
Net assets	703		189

Allocations related to certain acquisitions may be subject to adjustment pending final valuation.

The following provides a brief description of major acquisitions completed during 2006 and 2005:

Date	Company	Acquiring market group	Description
October 2006	Solucient, LLC	Scientific & Healthcare	An advanced healthcare analytics and information company
September 2006	LiveNote Technologies	Legal & Regulatory	A provider of transcript and evidence management software
May 2006	MercuryMD, Inc.	Scientific & Healthcare	A provider of mobile information systems serving the healthcare market
March 2006	Quantitative Analytics, Inc.	Financial	A provider of financial database integration and analysis solutions
July 2005	Global Securities Information, Inc.	Legal & Regulatory	A provider of online securities and securities-related information and research services
February 2005	Tax Partners, LLC	Legal & Regulatory	A provider of sales and use tax compliance services primarily servicing the telecommunications industry in the U.S.

90

The identifiable intangible assets acquired are summarized as follows:

				Weighted-average amortization period (years)
		2006	2005	2006	2005
Finite useful lives:
	Tradenames	16	13	10	10
	Customer relationships	116	103	10	13
	Databases and content	8	7	8	7
	Other	20	3	7	3
		160	126

Disposals

In 2006, Thomson received $81 million net cash consideration from the disposals of businesses that qualified as discontinued operations. In 2005, the Company paid $105 million in taxes associated with discontinued operations sold in a prior year. See note 7.

In 2006, Thomson received $88 million (2005 – $4 million) cash consideration from the disposals of investments.

NOTE 20: STOCK-BASED COMPENSATION

Phantom Stock Plan

Thomson has a phantom stock plan that provides for the granting of stock appreciation rights (“SAR”) to officers and key employees. The SAR provides the holder with the opportunity to earn a cash award equal to the fair market value of the Company’s common shares less the price at which the SAR was issued. Compensation expense is measured based on the market price of Thomson common shares at the end of the reporting period. The SARs outstanding under the plan have been granted at the closing price of the Company’s common shares on the day prior to the date of grant, vest over a four- to eight-year period, and expire five to eleven years after the grant date. The compensation expense is recognized over the applicable period. At December 31, 2006, the authorized number of SARs was 20,500,000 and there were 3,189,867 units available for grant. Thomson recognized an expense of $7 million related to the phantom stock plan for the year ended December 31, 2006 (2005 – $1 million benefit) in the consolidated statement of earnings, of which $1 million was charged to discontinued operations in 2006 (2005 – nil), as a result of the change in the Company’s share price as compared to the prior year-end.

A summary of the status of the Thomson phantom stock plan as of December 31, 2006 and 2005, and changes during the years ended on those dates, is as follows:

	2006			2005
	SARs		Canadian $ weighted- average exercise price	SARs		Canadian $ weighted- average exercise price
Outstanding at beginning of year	2,209,503		38.66	2,451,224		37.28
Granted	–		–	252,154		40.77
Exercised	(527,000	)	33.01	(382,335	)	28.72
Forfeited	(150,945	)	36.26	(111,540	)	47.16
Outstanding at end of year	1,531,558		40.84	2,209,503		38.66
Exercisable at end of year	1,197,941		40.65	1,692,789		37.75

The following table summarizes information on SARs outstanding at December 31, 2006:

	SARs outstanding			SARs exercisable
Canadian $ range of exercise prices	Number outstanding at 12/31/06	Weighted- average remaining contractual life	Canadian $ weighted- average exercise price	Number exercisable at 12/31/06	Canadian $ weighted- average exercise price
21.77–32.125	45,834	0.5	21.77	45,834	21.77
35.00–44.50	1,300,546	5.0	39.87	966,929	39.31
48.40–57.45	185,178	4.5	52.34	185,178	52.34

91

THE THOMSON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stock Incentive Plan

In January 2000, the board of directors approved the adoption of a stock incentive plan. The plan authorizes the Company to grant officers and employees stock options and other equity-based awards. An amendment to the plan was approved by the Company’s shareholders in May 2005, which increased the number of common shares issuable under the plan to 40,000,000. As of December 31, 2006, there were 22,384,901 awards available for grant (2005 – 22,991,887).

Stock Options

Under the plan, the exercise price of an option equals the closing market price of the Company’s stock on the New York Stock Exchange on the day prior to the date of the grant and the maximum term of an option is 10 years. In general, grants vest 25% per year from the date of issuance. Under the plan, options may be granted in either Canadian dollars or U.S. dollars.

A summary of the status of the Canadian dollar-denominated options granted and exercised as of December 31, 2006 and 2005, and changes during the years ended on those dates, is as follows:

	2006			2005
	Options		Canadian $ weighted- average exercise price	Options		Canadian $ weighted- average exercise price
Outstanding at beginning of year	5,451,664		49.67	5,958,774		49.46
Granted	–		–	28,000		40.85
Exercised	(157,800	)	42.69	(242,100	)	41.00
Forfeited	(194,472	)	52.16	(293,010	)	51.59
Outstanding at end of year	5,099,392		49.79	5,451,664		49.67
Exercisable at end of year	5,067,267		49.85	5,384,539		49.77

The following table summarizes information on Canadian dollar-denominated stock options outstanding at December 31, 2006:

	Options outstanding			Options exercisable
Canadian $ range of exercise prices	Number outstanding at 12/31/06	Weighted- average remaining contractual life	Canadian $ weighted- average exercise price	Number exercisable at 12/31/06	Canadian $ weighted- average exercise price
40.69–44.40	1,138,000	3.5	41.05	1,105,875	41.04
45.90–48.70	2,126,872	4.9	48.36	2,126,872	48.36
50.25–57.45	1,834,520	4.0	56.88	1,834,520	56.88

92

A summary of the status of the U.S. dollar-denominated options granted and exercised as of December 31, 2006 and 2005, and changes during the years ended on those dates, is as follows:

	2006			2005
	Options		U.S. $  weighted- average exercise price	Options		U.S. $  weighted- average exercise price
Outstanding at beginning of year	10,469,989		32.62	7,956,303		31.38
Granted	380,000		38.27	3,084,846		35.11
Exercised	(742,400	)	30.83	(330,285	)	27.77
Forfeited	(479,625	)	32.66	(240,875	)	30.50
Outstanding at end of year	9,627,964		32.98	10,469,989		32.62
Exercisable at end of year	5,094,436		31.39	3,392,303		30.41

The following table summarizes information on U.S. dollar-denominated stock options outstanding at December 31, 2006:

	Options outstanding			Options exercisable
U.S. $ range of exercise prices	Number outstanding at 12/31/06	Weighted- average remaining contractual life	U.S. $ weighted- average exercise price	Number exercisable at 12/31/06	U.S. $ weighted- average exercise price
26.06–29.70	1,594,867	6.0	26.07	1,591,742	26.07
30.79–33.76	4,747,126	7.5	33.55	2,809,861	33.49
33.87–41.66	3,285,971	9.0	35.50	692,833	35.14

The Company expenses the fair value of all stock options using the Black-Scholes pricing model to calculate an estimate of fair value. Under this method, a fair value is determined for each option at the date of grant, and that amount is recognized as expense over the vesting period. For the year ended December 31, 2006, compensation expense recorded in connection with stock options was $19 million (2005 – $20 million), of which $3 million was charged to discontinued operations in each year.

Using the Black-Scholes pricing model, the weighted-average fair value of options granted was estimated to be $7.99 and $7.27 for the years ended December 31, 2006 and 2005, respectively. The Black-Scholes model was developed for use in estimating the fair value of traded options that have no vesting restrictions. In addition, the model requires the use of subjective assumptions, including expected stock price volatility. The principal assumptions used in applying the Black-Scholes option-pricing model for the years ended December 31, 2006 and 2005 were as follows:

	2006	2005
Risk-free interest rate	4.6%	4.4%
Dividend yield	2.3%	2.3%
Volatility factor	18.5%	18.8%
Expected life (in years)	6	6

93

THE THOMSON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Restricted Share Units

In 2004, the Company made its initial grant of RSUs. RSUs give the holder the right to receive a specified number of common shares at the specified vesting date or upon the achievement of certain performance goals. RSUs vest over a period of up to seven years. The holders of RSUs have no voting rights, but accumulate additional units based on notional dividends paid by the Company on its common shares at each dividend payment date, which are reinvested as additional restricted share units. Compensation expense related to RSUs is recognized over the vesting period, based upon the closing price of the Company's common shares on the day prior to the date of grant. For the year ended December 31, 2006, compensation expense recorded in connection with RSUs was $3 million (2005 – $1 million).

A summary of the status of the time-based restricted share units granted and vested as of December 31, 2006 and 2005, and changes during the years ended on those dates, is as follows:

	2006			2005
	RSUs		U.S. $ weighted- average value	RSUs		U.S. $ weighted- average value
Outstanding at beginning of year	223,715		33.86	27,150		34.68
Granted	192,098		38.20	201,194		33.77
Vested	(7,888	)	34.79	(4,629	)	34.69
Outstanding at end of year	407,925		35.89	223,715		33.86

During 2006, a total of 7,888 RSUs vested (2005 – 4,629). In January 2007, 5,239 (2006 – 2,991) shares were issued in connection with the vesting of the RSUs after the withholding of applicable employee taxes. No other outstanding RSUs vest until December 31, 2007.

Performance Restricted Share Units

In 2006, the Company introduced a new form of long-term incentive program (“LTIP”) intended to reward certain senior executives. Previously, the Company’s LTIP awards were cash based.

Under the 2006 LTIP awards, participants are granted Performance Restricted Share Units (“PRSUs”) which give the holder the right to receive one Thomson common share for each unit held in their PRSU account that vests on the vesting date, based upon the Company’s performance during the three-year performance period against pre-established goals. Between 0% and 200% of the initial grant amounts may vest.

The holders of PRSUs accumulate additional units based upon notional dividends paid by the Company on its common shares on each dividend payment date which are reinvested as additional PRSUs. Compensation expense related to each PRSU grant is recognized over the three-year performance period based upon the closing price of the Company’s common shares on the NYSE on the day prior to the date of grant and the number of units expected to vest.

In 2006, 705,109 PRSUs were granted with a notional value of $27 million at an average share price of $38.88. Related compensatory expenses of $9 million were recorded in 2006.

Employee Stock Purchase Plan

In 2005, the Company initiated an Employee Stock Purchase Plan (“ESPP”) under which eligible U.S. employees may purchase a maximum of 6,000,000 common shares. In 2006, the Company expanded the ESPP to eligible employees in Canada and the United Kingdom under a separate global plan that provides for the issuance of up to an additional 2,000,000 common shares. Each quarter, employees may elect to withhold up to 10% of their eligible compensation, up to a maximum of $21,250 per year, to purchase Thomson common shares at a price equal to 85% of the closing price of the shares on the NYSE as of the last business day of the quarter. The Company recognized an expense of $4 million in 2006 relating to the 15% discount of purchased shares (2005 – $1 million). In 2006, 754,993 shares were issued under the plan of which 189,176 related to withholdings from the fourth quarter of 2005. In January 2007, 193,349 shares were issued related to withholdings from the fourth quarter of 2006.

94

NOTE 21: SUPPLEMENTAL CASH FLOW INFORMATION

Details of “Changes in working capital and other items” are:

	2006		2005
Accounts receivable	(141	)	(69	)
Inventories	(5	)	2
Prepaid expenses and other current assets	2		(15	)
Accounts payable and accruals	68		69
Deferred revenue	81		36
Income taxes	(33	)	(20	)
Other	(17	)	(60	)
	(45	)	(57	)

Income taxes paid during 2006 were $321 million, which included $23 million relating to the 2006 sales of AHC, Peterson’s and Law Manager, Inc. Income taxes paid during 2005 were $544 million, which included $105 million relating to the 2004 sale of Thomson Media and $125 million for a withholding tax from the repatriation of earnings of its subsidiaries. Income tax refunds received during 2006 were $20 million (2005 – $5 million).

NOTE 22: RELATED PARTY TRANSACTIONS

As of February 23, 2007, The Woodbridge Company Limited (“Woodbridge”) and other companies affiliated with it together beneficially owned approximately 70% of the Company’s common shares.

From time to time, in the normal course of business, Woodbridge and its affiliates purchase products and service offerings from the Company. These transactions are negotiated at arm’s length on standard terms, including price, and are not significant to the Company’s results of operations or financial condition either individually or in the aggregate.

In the normal course of business, a Woodbridge-owned company rents office space from one of the Company’s subsidiaries. Additionally, a number of the Company’s subsidiaries charge a Woodbridge-owned company fees for various administrative services. In 2006, the amounts charged for these rentals and services were approximately $2 million (2005 – $2 million).

The employees of Jane’s Information Group (“Jane’s”), a business sold by the Company to Woodbridge in April 2001, continue to participate in the Company’s pension plans in the United States and United Kingdom, as well as the defined contribution plan in the United States. Woodbridge assumed the pension liability associated with the active employees of Jane’s as of the date of sale as part of its purchase. Jane’s makes proportional contributions to these pension plans as required, and makes matching contributions in accordance with the provisions of the defined contribution plan.

Thomson purchases property and casualty insurance from third party insurers and retains the first $500,000 of each and every claim under the programs via the Company’s captive insurance subsidiary. Woodbridge is included in these programs and pays Thomson a premium commensurate with its exposures. In 2006, these premiums were approximately $50,000 (2005 – $45,000), which would approximate the premium charged by a third party insurer for such coverage.

The Company has entered into an agreement with Woodbridge under which Woodbridge has agreed to indemnify up to $100 million of liabilities incurred either by the Company’s current and former directors and officers or by the Company in providing indemnification to these individuals on substantially the same terms and conditions as would apply under an arm’s length, commercial arrangement. A third party administrator will manage any claims under the indemnity. Thomson pays Woodbridge an annual fee of $750,000, which is less than the premium that the Company would have paid for commercial insurance.

In February 2005, the Company entered into a contract with Hewitt Associates Inc. to outsource certain human resources administrative functions in order to improve operating and cost efficiencies. When the Company initially signed the contract, it expected to pay Hewitt an aggregate of $115 million over a five year period. This contract was subsequently renegotiated and extended in September 2006. Under the new terms, the Company expects to pay Hewitt an aggregate of approximately $165 million over a 10 year period. In 2006 and 2005, Thomson paid Hewitt $16 million and $5 million, respectively, for its services. Mr. Denning, one of the Company’s directors and chairman of the board’s Human Resources Committee, is also a director of Hewitt. Mr. Denning has not participated in negotiations related to the contract and has refrained from deliberating and voting on the matter by the Human Resources Committee and the board of directors.

95

THE THOMSON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 23: SEGMENT INFORMATION

Thomson is a global provider of integrated information solutions for business and professional customers. Thomson operates in three reportable market segments worldwide. The reportable segments of Thomson are strategic business groups that offer products and services to target markets. The accounting policies applied by the segments are the same as those applied by the Company. As of December 31, 2006, the company’s three reportable segments were:

Legal & Regulatory

Providing information solutions to legal, tax, accounting, intellectual property, compliance and other business professionals, as well as government agencies.

Financial

Providing products and integration services to financial and technology professionals in the corporate, investment banking, institutional, retail wealth management and fixed income sectors of the global financial community.

Scientific & Healthcare

Providing information and services to researchers, physicians  three and other professionals in the healthcare, academic, scientific, corporate and government marketplaces.

Reportable Segments – 2006

(millions of U.S. dollars)	Revenues		Depreciation	Segment operating profit		Additions to capital assets1 and goodwill	Total assets
Legal & Regulatory	3,647		211	1,120		396	7,552
Financial	2,015		179	379		394	3,484
Scientific & Healthcare	995		39	236		408	2,115
Segment totals	6,657		429	1,735		1,198	13,151
Corporate and other2	–		10	(235	)	28	1,442
Eliminations	(16	)	–	–		–	–
Continuing operations	6,641		439	1,500		1,226	14,593
Discontinued operations							5,539
Total							20,132

Reportable Segments – 2005

(millions of U.S. dollars)	Revenues		Depreciation	Segment operating profit		Additions to capital assets1 and goodwill	Total assets
Legal & Regulatory	3,368		193	1,000		414	7,263
Financial	1,897		177	334		201	3,358
Scientific & Healthcare	921		34	213		64	1,705
Segment totals	6,186		404	1,547		679	12,326
Corporate and other2	–		10	(139	)	12	1,476
Eliminations	(13	)	–	–		–	–
Continuing operations	6,173		414	1,408		691	13,802
Discontinued operations							5,632
Total							19,434

96

Geographic Information – 2006

(by country of origin) (millions of U.S. dollars)	Revenues	Capital assets1 and goodwill	Total assets
United States	5,358	8,967	15,531
Europe	902	1,871	3,103
Asia-Pacific	193	158	387
Canada	155	164	948
Other countries	33	41	163
Total	6,641	11,201	20,132

Geographic Information – 2005

(by country of origin) (millions of U.S. dollars)	Revenues	Capital assets1 and goodwill	Total assets
United States	5,002	8,522	15,688
Europe	816	1,645	2,738
Asia-Pacific	183	146	359
Canada	142	178	437
Other countries	30	102	212
Total	6,173	10,593	19,434

1  Capital assets include computer hardware and other property, capitalized software for internal use and identifiable intangible assets.

2  Corporate and other includes corporate costs, THOMSONplus and costs associated with the Company’s stock-based compensation expense.

In accordance with CICA Handbook Section 1701, Segment Disclosures, the Company discloses information about its reportable segments based upon the measures used by management in assessing the performance of those reportable segments. The Company uses segment operating profit, which is Operating profit before amortization of identifiable intangible assets, to measure the operating performance of its segments. Management uses this measure because amortization of identifiable intangible assets is not considered to be a controllable operating cost for purposes of assessing the current performance of the segments. While in accordance with Canadian GAAP, the definition of segment operating profit may not be comparable to that of other companies.

The following table reconciles segment operating profit per the business segment information to operating profit per the consolidated statement of earnings.

	For the year ended December 31
	2006		2005
Segment operating profit	1,500		1,408
Less: Amortization	(242	)	(236	)
Operating profit	1,258		1,172

Effective January 1, 2007, the Company will be realigned into five new segments consisting of Legal, Financial, Scientific, Tax & Accounting and Healthcare.

NOTE 24: RECONCILIATION OF CANADIAN TO U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

The consolidated financial statements have been prepared in accordance with Canadian GAAP, which differs in some respects from U.S. GAAP. The following schedules present the material differences between Canadian and U.S. GAAP.

		For the year ended December 31
		2006		2005
Net earnings under Canadian GAAP		1,120		934
Differences in GAAP increasing (decreasing) reported earnings:
	Business combinations	17		15
	Derivative instruments and hedging activities	12		4
	Income taxes	(6	)	(6	)
Net income under U.S. GAAP		1,143		947
Earnings under U.S. GAAP from continuing operations		939		674
Earnings under U.S. GAAP from discontinued operations		204		273
Net income under U.S. GAAP		1,143		947
Basic earnings per common share, under U.S. GAAP, from:
	Continuing operations	$1.45		$1.02
	Discontinued operations, net of tax	0.32		0.42
Basic earnings per common share1		$1.77		$1.44

1  Earnings per common share is calculated after taking into account dividends declared on preference shares. For the year ended 2006, diluted earnings per common share for discontinued operations was $0.31, which resulted in total diluted earnings per common share of $1.76 for the year ended December 31, 2006. For 2005, basic and diluted earnings per common share were equivalent.

97

THE THOMSON CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

		For the year ended December 31
		2006		2005
Comprehensive income under Canadian GAAP		1,337		721
Differences in GAAP increasing (decreasing) reported comprehensive income:
	Differences in net income as per above	23		13
	Foreign currency translation	(2	)	2
	Pension adjustment (including tax charge of $7 million in 2006 and benefits
	of $4 million in 2005)	16		21
	Net unrealized gains on cash flow hedges (net of taxes in 2006 and 2005 of nil)	–		26
Comprehensive income under U.S. GAAP		1,374		783

		As of December 31
		2006		2005
Shareholders’ equity under Canadian GAAP		10,481		9,963
Differences in GAAP increasing (decreasing)
	reported Shareholders’ equity:
	Business combinations	(590	)	(605)
	Employee future benefits	(512	)	(33)
	Derivative instruments and hedging activities	9		48
	Income taxes	339		157
Shareholders’ equity under U.S. GAAP		9,727		9,530

Descriptions of the nature of the reconciling differences are provided below:

Business Combinations

Prior to January 1, 2001, various differences existed between Canadian and U.S. GAAP for the accounting for business combinations, including the establishment of acquisition related liabilities. The $17 million increase to income (2005 – $15 million) primarily relates to (i) costs that are required to be recorded as operating expenses under U.S. GAAP which, prior to January 1, 2001, were capitalized under Canadian GAAP; (ii) overall decreased amortization charges due to basis differences; and (iii) differences in gain or loss calculations on business disposals resulting from the above factors.

The $590 million decrease in shareholders’ equity as of December 31, 2006 (2005 – $605 million) primarily relates to basis differences in identifiable intangible assets and goodwill due to the factors discussed above, as well as a gain of $54 million recorded for U.S. GAAP resulting from a 1997 disposal mandated by the U.S. Department of Justice, which was required to be recorded as a reduction of goodwill under Canadian GAAP. On a U.S. GAAP basis, goodwill was $6,271 million at December 31, 2006 (2005 – $5,666 million). On the same basis, identifiable intangible assets, net of accumulated amortization, were $3,237 million at December 31, 2006 (2005 – $3,284 million).

Derivative Instruments and Hedging Activities

Under U.S. Statement of Financial Accounting Standards (“FAS”) No. 133, Accounting for Derivative Instruments and Hedging Activities as amended by FAS 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities, all derivative instruments are recognized in the balance sheet at their fair values, and changes in fair value are recognized either immediately in earnings or, if the transaction qualifies for hedge accounting, when the transaction being hedged affects earnings. Effective January 1, 2006, the Company adopted the same recognition and measurement principles as allowed under new Canadian GAAP accounting standards as discussed in note 2.

Prior to January 1, 2006, in accordance with Canadian GAAP, the Company disclosed the fair values of derivative instruments in the notes to the annual consolidated financial statements, but did not record such fair values in the consolidated balance sheet, except for derivative instruments that did not qualify as hedges. From January 1, 2004, derivative instruments that did not qualify as hedges were recorded in the balance sheet at fair value, and the change in fair value subsequent to January 1, 2004 was recorded in the income statement. The fair value as of January 1, 2004 was deferred and amortized into earnings in conjunction with the item it previously hedged. The reconciling items subsequent to January 1, 2004 relate to historical balances due to the fact that the adoption of the standards occurred at a later date for Canadian GAAP than for U.S. GAAP.

98

Income Taxes

The income tax adjustment for each period is comprised of the tax effect of the U.S. GAAP reconciling items. The adjustment to shareholders’ equity relates entirely to deferred tax liabilities.

In June 2006, the Financial Accounting Standards Board (“FASB”) in the United States issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”). This interpretation, which is effective January 1, 2007, prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company estimates that the impact of adopting FIN 48 will result in an initial increase of its tax liability of approximately $35 million that will be reflected as an adjustment to opening retained earnings.

Employee Future Benefits

In September 2006, the FASB issued Statement No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R) (“FAS 158”). FAS 158 requires an employer to recognize a net liability or asset and an offsetting adjustment to accumulated other comprehensive income to report the funded status of defined benefit pension and other postretirement benefit plans effective for the Company’s year ended December 31, 2006. Additionally, FAS 158 requires employers to measure plan obligations at their year-end balance sheet date, effective for the Company’s year ending December 31, 2008. The Company has applied and will apply the requirements of FAS 158 prospectively at each stage of adoption.

Under the provisions of FAS 158 treatment, the Company’s reported financial position as of December 31, 2006 under U.S. GAAP reflects an increase in net pension related liabilities of $502 million, a decrease in net deferred tax liabilities of $195 million and a decrease in shareholders’ equity, reflected in accumulated other comprehensive income, of $307 million. There was no impact to reported earnings.

The following table summarizes the incremental effect of applying FAS 158 upon individual line items in the consolidated balance sheet under U.S. GAAP.

	FAS 158
(millions of U.S. dollars)	adjustments
Other non-current assets	(380	)
Accounts payable and accruals	19
Other non-current liabilities	103
Long-term deferred income tax liability	(195	)
Accumulated other comprehensive loss	(307	)

As at December 31, 2006, there were no funded pension plans that had accumulated benefit obligations that exceeded the fair value of plan assets. The accumulated benefit obligation of funded pension plans that had accumulated benefit obligations that exceeded plan assets at December 31, 2005 was $80 million. These plans had related fair values of plan assets of $68 million in 2005.

Recently Issued Accounting Standards

In September 2006, the FASB issued Statement No. 157, Fair Value Measurements (“FAS 157”). This statement defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. FAS 157 is effective for the Company in the first quarter of 2008. The Company is currently evaluating the statement’s impact on its financial statements.

NOTE 25: SUBSEQUENT EVENTS

In February 2007, Thomson’s board of directors approved an annualized 2007 dividend of $0.98 per common share, which represents a quarterly dividend in 2007 of $0.245 per common share. This represents an annual increase of $0.10 per share, or 11%, over 2006.

Also in February 2007, the Company signed an agreement to sell Thomson Medical Education, subject to customary closing conditions. The Company anticipates the sale will be completed in the second quarter of 2007.

99

THE THOMSON CORPORATION
SIX-YEAR SUMMARY

(unaudited)

The following table includes measurements for segment operating profit. These measurements are used by management to evaluate performance. A further discussion of these performance measures is included in management’s discussion and analysis.

(millions of U.S. dollars)	2006		2005		2004		2003		2002		2001
REVENUES
Legal & Regulatory	3,647		3,368		3,164		2,909		2,719		2,581
Financial	2,015		1,897		1,738		1,526		1,622		1,704
Scientific & Healthcare	995		921		798		743		696		689
Eliminations	(16	)	(13	)	(14	)	(14	)	(13	)	(8	)
	6,641		6,173		5,686		5,164		5,024		4,966
SEGMENT OPERATING PROFIT1
Legal & Regulatory	1,120		1,000		916		833		793		723
Financial	379		334		294		230		244		246
Scientific & Healthcare	236		213		174		150		128		117
Corporate and other2	(235	)	(139	)	(115	)	(113	)	(89	)	(95	)
	1,500		1,408		1,269		1,100		1,076		991

1Segment operating profit excludes amortization and restructuring charges.

2Corporate and other includes corporate costs, THOMSONplus and costs associated with the Company’s stock-based compensation expense.

Prior year amounts have been restated for discontinued operations and reclassified to conform to the current year’s presentation.

100

The following table includes measurements for adjusted earnings and adjusted earnings per common share from continuing operations that do not have any standardized meanings prescribed by Canadian generally accepted accounting principles. These measurements are used by management to evaluate performance. A further discussion of these performance measures is included in management’s discussion and analysis.

(millions of U.S. dollars,
except per common share amounts)	2006		2005		2004		2003		2002		2001
Earnings attributable tocommon shares	1,115		930		1,008		877		585		741
Basic and diluted earnings percommon share	$1.73		$1.42		$1.54		$1.34		$0.91		$1.18
SUPPLEMENTAL INFORMATION
Earnings attributable to common shares as above	1,115		930		1,008		877		585		741
Adjust: one-time items, net of tax, resulting from other (income) expense and redemption of Series V preference shares	(17	)	24		(1	)	(73	)	40		(215	)
Proportionate share of goodwill impairment recognized by BGM	—		—		—		—		67		—
Tax (benefits) charges	(33	)	5		(57	)	(78	)	(11	)	(7	)
Earnings from discontinued operations	(201	)	(272	)	(369	)	(238	)	(233	)	(219	)
Effect of new accounting standard1	—		—		—		—		—		158
Adjusted earnings from continuing operations	864		687		581		488		448		458
Adjusted basic and diluted earnings per common share from continuing operations	$1.34		$1.05		$0.89		$0.75		$0.70		$0.73

1Under CICA Handbook Section 3062, goodwill and identifiable intangible assets with indefinite useful lives are no longer amortized beginning in 2002. This adjustment removes the amortization related to these assets in prior periods.

101

BOARD OF DIRECTORS

	David Thomson Chairman, The Thomson Corporation; Chairman, The Woodbridge Company Limited
	Mary Cirillo Corporate Director Member of Corporate Governance Committee
	Roger L. Martin Dean of the Joseph L. Rotman School of Management, University of Toronto Member of Audit Committee
	Peter J. Thomson Chairman, The Woodbridge Company Limited

	W. Geoffrey Beattie Deputy Chairman, The Thomson Corporation; President, The Woodbridge Company Limited Member of Corporate Governance and Human Resources Committees
	Robert D. Daleo Executive Vice President & Chief Financial Officer, The Thomson Corporation
	Vance K. Opperman President & Chief Executive Officer, Key Investment, Inc. Chairman of Audit Committee
	Richard M. Thomson Corporate Director Member of Audit and Human Resources Committees

Principles

The Thomson Corporation is committed to maintaining strong corporate governance practices that allocate responsibilities between the company’s board of directors and management in a manner that benefits the long-term interests of the company’s shareholders. We believe that sustainable value creation for all shareholders is fostered through a board that is informed and engaged, and that functions independently of management.

Given our dual listing on the New York and Toronto stock exchanges, we comply with applicable U.S. and Canadian governance standards. Our corporate governance practices are designed not only to satisfy regulatory requirements, but also to provide effective oversight of the company. Our board is committed to the highest standards of responsibility, ethics and integrity in fulfilling its responsibilities to shareholders and has adopted corporate governance guidelines in furtherance of these goals.

Board Committees

The board of directors currently has the following three standing committees:

•The Audit Committee assists the board in fulfilling its oversight responsibilities regarding the integrity of financial statements; legal and regulatory compliance; and the performance of our independent auditors and internal audit function.

•The Corporate Governance Committee focuses on board structure and composition; the nomination, orientation and compensation of directors; and our overall approach to corporate governance.

•The Human Resources Committee helps the board fulfill its oversight responsibilities concerning the selection, compensation and professional development of senior management; succession planning; and the management of employee pension and benefit plans.

102

		Richard J. Harrington President & Chief Executive Officer, The Thomson Corporation
		Steven A. Denning Managing Partner, General Atlantic, LLC Chairman of Human Resources Committee
		Michael J. Sabia President & Chief Executive Officer, BCE Inc. & Chief Executive Officer, Bell Canada Member of Human Resources Committee
		John A. Tory Director, The Woodbridge Company Limited Member of Human Resources Committee
	Ron D. Barbaro Chairman, The Brick Group Income Fund Member of Audit and Corporate Governance Committees
	V. Maureen Kempston Darkes Group Vice President, General Motors Corporation & President, GM Latin America, Africa and Middle East Member of Corporate Governance and Human Resources Committees
	John M. Thompson Chairman of the Board, The Toronto-Dominion Bank Chairman of Corporate Governance Committee and Member of Audit Committee

Code of Conduct

We have a code of business conduct and ethics that applies to all employees, officers and directors, all of whom are required to submit an acknowledgment that they have read the code and understand their obligation to comply with the principles and policies it outlines. To further strengthen a culture of ethical business conduct throughout the company, we also have created an online training course related to the code.

For Additional Information

A statement of our policy with respect to corporate governance is included in our management information circular. In addition, information on our corporate governance practices is available to the public in the Corporate Governance area of the Investor Relations section on www.thomson.com. Information available in this area of our website includes our corporate governance guidelines, board committee charters, code of conduct and a summary of the significant ways in which our corporate governance practices differ from those required to be followed by U.S. domestic companies under NYSE listing standards.

103

SENIOR MANAGEMENT

Richard J. Harrington

President & Chief Executive Officer,
The Thomson Corporation

Robert D. Daleo

Executive Vice President & Chief Financial Officer,
The Thomson Corporation

Brian H. Hall

Vice Chairman,
The Thomson Corporation

James C. Smith

Executive Vice President & Chief Operating Officer,
The Thomson Corporation

Michael E. Wilens

Executive Vice President & Chief Technology Officer,
The Thomson Corporation

Richard Benson-Armer

Senior Vice President & Chief Strategy Officer,
The Thomson Corporation

Robert B. Bogart

Executive Vice President, Human Resources,
The Thomson Corporation

Mike Boswood

President & Chief Executive Officer,
International Legal & Regulatory

Vin Caraher

President & Chief Executive Officer,
Scientific

Gustav Carlson

Senior Vice President &
Chief Marketing & Communications Officer,
The Thomson Corporation

Robert C. Cullen

President & Chief Executive Officer,
Healthcare

Roy M. Martin Jr.

President & Chief Executive Officer,
Tax & Accounting

Sharon Rowlands

President & Chief Executive Officer,
Financial

Deirdre Stanley

Senior Vice President & General Counsel,
The Thomson Corporation

Peter Warwick

President & Chief Executive Officer,
North American Legal

104

CORPORATE INFORMATION

Corporate Headquarters

Metro Center
One Station Place
Stamford, Connecticut 06902
United States

tel 203.539.8000
generalinfo@thomson.com

Stock Exchange Listings

Common shares (symbol: TOC):

•Toronto Stock Exchange (TSX)

•New York Stock Exchange (NYSE)

Series II preference shares (symbol: TOC.PR.B):

•Toronto Stock Exchange (TSX)

Capital Stock

Shares outstanding as of December 31, 2006:

•Common: 640,437,013

•Series II preference: 6,000,000

Controlling shareholder: The Woodbridge Company Limited and other companies affiliated with it (approximately 70% of common shares)

2006 Financial Calendar

Year end: December 31

Quarterly results: announced on April 26 (Q1), July 26 (Q2) and October 25 (Q3).

Common Share Dividends

At the discretion of the directors. Paid on March 15/June 15/September 15/December 15 or on the first business day thereafter. Declared in U.S. dollars but can be paid in Canadian dollars or U.K. pounds sterling at the holder’s option (see also note 16, page 83).

Further information is available from the registrar.

Dividend Reinvestment Plan

Eligible common shareholders may elect to have cash dividends reinvested in common shares. Further information is available from the registrar.

Employees

As of December 31, 2006, our continuing operations had approximately 32,000 employees.

Annual and Special Meeting of Shareholders

Wednesday, May 2, 2007, 12:00 p.m. at

Roy Thomson Hall
60 Simcoe Street
Toronto, Ontario, Canada

Transfer Agent and Registrar

Computershare Trust Company of Canada
100 University Avenue, 9th Floor
Toronto, Ontario M5J 2Y1
Canada

tel 1.800.564.6253 (United States, Canada)
tel 514.982.7555 (outside North America)
www.computershare.com

Auditors

PricewaterhouseCoopers LLP
Suite 3000, Box 82
Royal Trust Tower
Toronto-Dominion Centre
Toronto, Ontario  M5K 1G8
Canada

Further Information

Please visit www.thomson.com for corporate and management news and more detailed information on individual Thomson businesses, products and services.

For investor relations inquiries, call 1.800.969.9974 or e-mail investor.relations@thomson.com.

Any forward-looking statements about the company’s outlook and prospects contained in this annual report are subject to risks and uncertainties, as described in the “Risk Factors” section of the company’s most recent annual information form and annual report on Form 40-F.

Design: Torch Partnership/Xplanations by Xplane
Photography: Bill Gallery, Roth & Ramberg
Typesetting and prepress: Moveable Inc., Toronto/Printed in Canada

105

KEN THOMSON

SEPTEMBER 1, 1923 – JUNE 12, 2006

Ken Thomson was our controlling shareholder. He was Chairman of the Board of Directors from 1978 to 2002 and continued as a director until June 2006, when he died suddenly.

Ken understood the tremendous responsibility that comes with being a controlling shareholder. He supported strong leaders and gave them the room to use their strengths to succeed.

Ken was a wise and caring man who always believed that the future held great promise for our business. Under his leadership, The Thomson Corporation grew to become one of the world’s leading workflow solutions providers and it is well positioned for the future. His legacy to us is the determination to identify new opportunities and the courage to seize them.

We miss him.

106

TO EXPERIENCE AN INTERACTIVE VERSION
OF THIS ANNUAL REPORT, GO TO
WWW.THOMSON.COM

The Thomson Corporation

Metro Center, One Station Place
Stamford, Connecticut 06902 United States
Tel 203.539.8000

Suite 2706, Toronto Dominion Bank Tower
P.O. Box 24, Toronto-Dominion Centre
Toronto, Ontario  M5K 1A1 Canada
Tel 416.360.8700

EX-99.3

EXHIBIT 99.3

	9th Floor, 100 University Avenue Toronto, Ontario  M5J 2Y1 Facsimile  1-866-249-7775 416-263-9524 www.computershare.com
		Security Class
		Holder Account Number

Form of Proxy - Annual and Special Meeting of Shareholders to be held on Wednesday, May 2, 2007

Roy Thomson Hall, 60 Simcoe Street, Toronto, Ontario, Canada - 12:00 p.m., Eastern Daylight Time

Notes to Proxy

1.Every holder has the right to appoint some other person of their choice, who need not be a holder, to attend and act on their behalf at the meeting. If you wish to appoint a person other than the persons whose names are printed herein, please insert the name of your chosen proxyholder in the space provided (see reverse).

2.If the shares are registered in the name of more than one owner (for example, joint ownership, trustees, executors, etc.), then all those registered should sign this proxy. If you are voting on behalf of a corporation or another individual, you may be required to provide documentation evidencing your power to sign this proxy with signing capacity stated.

3.This proxy should be signed in the exact manner as the name appears on the proxy.

4.If this proxy is not dated, it will be deemed to bear the date on which it is mailed by Management to the holder.

5.The shares represented by this proxy will be voted as directed by the holder. In the absence of such directions, shares represented by proxies received by Management will be voted FOR items 1-3 and in favor of Management’s proposals generally.

6.This proxy should be read in conjunction with the accompanying Notice of Annual and Special Meeting and Management Information Circular. Information contained in or otherwise accessible through the websites mentioned in this proxy does not form part hereof, and the references to the websites are inactive textual references only.

Proxies submitted must be received by Computershare by 5:00 p.m., Eastern Daylight Time, on April 30, 2007.

VOTE USING THE TELEPHONE OR INTERNET 24 HOURS A DAY 7 DAYS A WEEK!

• Call the number listed BELOW from a touch tone telephone. 1-866-732-VOTE (8683) Toll Free	• Go to the following website: www.investorvote.com	• You can enroll to receive future securityholder communications electronically by visiting www.computershare.com - click "Enroll for e-delivery" under the Shareholder Services menu.

If you vote by telephone or the Internet, DO NOT mail back this proxy.

Voting by mail may be the only method for securities held in the name of a corporation or securities being voted on behalf of another individual.

Voting by mail or by Internet are the only methods by which a holder may appoint a person as proxyholder other than the individuals named on the reverse of this proxy. Instead of mailing this proxy, you may choose one of the two voting methods outlined above to vote this proxy.

To vote by telephone or the Internet, you will need to provide your CONTROL NUMBER, HOLDER ACCOUNT NUMBER and ACCESS NUMBER listed below.

CONTROL NUMBER HOLDER ACCOUNT NUMBER ACCESS NUMBER

+ +

This Form of Proxy is solicited by and on behalf of Management.

Appointment of Proxyholder
I/We being holder(s) of common shares of The Thomson		Print the name of the person
Corporation hereby appoint:	OR	you are appointing if it is
David K.R. Thomson, or failing him W. Geoffrey Beattie, or		someone else.
failing him Richard J. Harrington, all being directors of Thomson

as my/our proxyholder with full power of substitution and to vote in accordance with the following directions (or if no directions have been given, as the proxyholder sees fit) and to vote at such proxyholder’s discretion with respect to any amendments to matters referred to in the accompanying Notice of Annual and Special Meeting as well as all other matters that may properly come before the Annual and Special Meeting of Shareholders of Thomson to be held at Roy Thomson Hall, 60 Simcoe Street, Toronto, Ontario, Canada on May 2, 2007 at 12:00 p.m., Eastern Daylight Time, and at any adjournment thereof.

The Board of Directors and Management recommend that shareholders VOTE FOR items 1-3 below.

1. Election of Directors

For

Withhold

For

Withhold

For

Withhold

01. David K.R. Thomson

o

o

06. Robert D. Daleo

o

o

11. Michael J. Sabia

o

o

02. W. Geoffrey Beattie

o

o

07. Steven A. Denning

o

o

12. John M. Thompson

o

o

03. Richard J. Harrington

o

o

08. V. Maureen Kempston Darkes, O.C.

o

o

13. Peter J. Thomson

o

o

04. Ron D. Barbaro

o

o

09. Roger L. Martin

o

o

14. Richard M. Thomson, O.C.

o

o

05. Mary Cirillo

o

o

10. Vance K. Opperman

o

o

15. John A. Tory

o

o

2. Appointment of Auditors
Appointment of PricewaterhouseCoopers LLP as auditors and authorization of the directors to fix their remuneration	For		o	Withhold		o
3. Approval of Amendments to the Stock Incentive Plan, Employee Stock Purchase Plans, Deferred Compensation Plan and U.S. Employees’ 401(k) Retirement Savings Plan	For		o	Withhold		o

Authorized Signature(s) - Sign Here - This section must be completed for your instructions to be executed.

I/We authorize you to act in accordance with my/our instructions set out above. I/We hereby revoke any proxy previously given with respect to the Meeting. If no voting instructions are indicated above, this Proxy will be voted as recommended by Management.

Signature(s)

			Date
Quarterly Financial Statements and MD&A Request		Annual Reports
Thomson’s quarterly financial statements and related management’s discussion and analysis (MD&A) are available at www.thomson.com. However, if you wish to receive them by mail, please mark this box. If you do not mark this box, or do not return this form, you will not receive our quarterly financial statements and MD&A by mail in 2007. You are required to complete this request on an annual basis.		Thomson’s annual report containing our audited financial statements and related MD&A is available at www.thomson.com. As a registered holder, you will receive future annual reports by mail. If you DO NOT want to receive them by mail, please mark this box. If you do not mark the box or do not return this form, you will continue to receive future annual reports by mail.

You can also receive these documents electronically - see reverse for instructions to enroll for electronic delivery.