The related notes form an integral part of these consolidated financial statements.

(millions of U.S. dollars)		March 31, 2007		December 31, 2006 (note 8)

Assets
Cash and cash equivalents		350		334
Accounts receivable, net of allowances		1,285		1,364
Inventories		80		72
Prepaid expenses and other current assets		303		297
Deferred income taxes		153		153
Current assets of discontinued operations (note 8)		868		1,045

	Current assets		3,039		3,265
Computer hardware and other property, net		600		624
Computer software, net		656		647
Identifiable intangible assets, net		3,467		3,457
Goodwill		6,674		6,546
Other non-current assets		1,053		1,082
Non-current assets of discontinued operations (note 8)		4,549		4,511

Total assets		20,038		20,132

Liabilities and shareholders' equity
Liabilities
Short-term indebtedness		591		333
Accounts payable and accruals		1,058		1,307
Deferred revenue		1,061		970
Current portion of long-term debt		661		264
Current liabilities of discontinued operations (note 8)		654		865

	Current liabilities		4,025		3,739
Long-term debt		3,275		3,681
Other non-current liabilities		807		785
Deferred income taxes		987		997
Non-current liabilities of discontinued operations (note 8)		434		449

Total liabilities		9,528		9,651

Shareholders' equity
Capital		2,832		2,799
Retained earnings		7,152		7,169
Accumulated other comprehensive income		526		513

Total shareholders' equity		10,510		10,481

Total liabilities and shareholders' equity		20,038		20,132

	Three months ended March 31,
(millions of U.S. dollars)	2007		2006 (note 8)

Cash provided by (used in):
Operating activities
Net earnings	224		137
Remove (income) loss from discontinued operations	(14	)	68
Add back (deduct) items not involving cash:
	Depreciation	115		105
	Amortization	61		60
	Net gains on disposals of businesses and investments (note 6)	(6	)	(41	)
	Deferred income taxes	(42	)	(17	)
	Other, net	64		64
Pension contribution	(1	)	(5	)
Changes in working capital and other items (note 15)	(103	)	(123	)
Cash used in operating activities — discontinued operations (note 8)	(11	)	(19	)

Net cash provided by operating activities	287		229

Investing activities
Acquisitions, less cash therein (note 13)	(154	)	(132	)
Proceeds from disposals of discontinued operations (note 8)	35		—
Proceeds from other disposals	6		55
Capital expenditures, less proceeds from disposals	(98	)	(66	)
Other investing activities	(10	)	(11	)
Capital expenditures of discontinued operations (note 8)	(37	)	(38	)
Acquisitions by discontinued operations	(54	)	(3	)
Other investing activities of discontinued operations	(4	)	(3	)

Net cash used in investing activities	(316	)	(198	)

Financing activities
Repayments of debt (note 14)	—		(52	)
Net borrowings of short-term loan facilities	244		198
Repurchase of common shares (note 9)	(55	)	(168	)
Dividends paid on preference shares	(1	)	(1	)
Dividends paid on common shares	(153	)	(139	)
Other financing activities, net	10		9

Net cash provided by (used in) financing activities	45		(153	)

Translation adjustments	—		—

Increase (decrease) in cash and cash equivalents	16		(122	)
Cash and cash equivalents at beginning of period	334		407

Cash and cash equivalents at end of period	350		285

The Thomson Corporation
Consolidated Statement of Changes in Shareholders' Equity
(unaudited)

The related notes form an integral part of these consolidated financial statements.

The Thomson Corporation
Notes to Consolidated Financial Statements (unaudited)
(unless otherwise stated, all amounts are in millions of U.S. dollars)

The unaudited interim 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.

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with the requirements of the Canadian Institute of Chartered Accountants ("CICA") Handbook Section 1751, Interim Financial Statements. Accordingly, certain information and footnote disclosure normally included in annual financial statements prepared in accordance with Canadian GAAP have been omitted or condensed. These unaudited interim consolidated financial statements should be read in conjunction with the consolidated financial statements as at and for the year ended December 31, 2006, as set out in the Company's 2006 Annual Report.

In the opinion of management, the unaudited interim consolidated financial statements include all adjustments (consisting of normal recurring accruals) considered necessary by management to present a fair statement of the results of operations, financial position and cash flows. The consolidated financial statements were prepared using the same accounting policies and methods as those used in the Company's financial statements for the year ended December 31, 2006, except as explained in Note 4.

Prior periods have been restated for discontinued operations. Where necessary, certain amounts for 2006 have been reclassified to conform to the current period's presentation.

The Company's revenues and operating profits from continuing operations are proportionately the smallest in the first quarter and the largest in the fourth quarter, as certain product releases are concentrated at the end of the year, particularly in the regulatory and healthcare markets. As costs continue to be incurred more evenly throughout the year, operating margins will generally increase as the year progresses. For these reasons, the performance of the Company's businesses may not be comparable quarter to consecutive quarter and 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 for the previous year.

Effective January 1, 2007, Thomson voluntarily adopted a new accounting policy for uncertain income tax positions. As a result of this change in accounting policy, the Company recorded a non-cash charge of $33 million to its opening retained earnings as of January 1, 2007 with an offsetting increase to non-current liabilities.

Under its previous policy, the Company would reserve for tax contingencies if it was probable that an uncertain position would not be upheld. Under its new policy, the Company evaluates a tax position using a two-step process:

The Company believes that this new policy will provide reliable and more relevant information because all tax positions of the Company will be affirmatively evaluated for recognition, derecognition and measurement using a consistent threshold of more likely than not, based on the technical merits of a tax position. In addition, the Company will be providing more information about uncertainty related to income tax assets and liabilities.

The Company was not able to retroactively apply this new policy as the data to determine the amounts and probabilities of the possible outcomes of the various tax positions that could be realized upon ultimate settlement was not collected in prior periods. Further, significant judgments are involved in assessing these tax positions and the Company has concluded that it is not possible to estimate the effects of adopting the policy at an earlier date.

The Company will continue to recognize interest and penalties on underpayment of income taxes as an income tax expense.

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. These new Handbook Sections provided 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 introduced 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:

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.

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.

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 date of grant to the date the employee becomes eligible to retire. EIC-162 did not have an impact on the Company's financial statements.

THOMSONplus is a series of initiatives, announced in 2006, which will allow the Company to become a more integrated operating company by leveraging assets and infrastructure across all segments of its business. To accomplish these initiatives, the Company expects to incur approximately $250 million of expenses from inception through 2009 primarily related to technology and restructuring costs and consulting services. In 2006, the Company incurred $60 million of expenses consisting primarily of consulting fees and severance. The Company also 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. 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. Because THOMSONplus is a series of initiatives, the timing of these costs and savings may shift between different calendar years.

For the three months ended March 31, 2007, the Company incurred $34 million of expenses within continuing operations associated with THOMSONplus consisting primarily of consulting fees and severance. The consulting costs primarily related to efforts to deploy SAP as a company-wide enterprise resource planning (ERP) system, which will continue throughout 2007 and 2008. Severance primarily related to efforts to streamline the operations of Thomson Financial. Because THOMSONplus is a corporate program, expenses associated with it are reported within the Corporate and Other segment. Restructuring activities represented approximately $17 million of the expense for the three months ended March 31, 2007. The liabilities associated with these restructuring activities were not material as of March 31, 2007 and December 31, 2006, respectively.

For the three months ended March 31, 2007 and 2006, net gains on disposals of businesses and investments were comprised of a gain on sale of an equity investment.

As discussed in Note 4, the Company voluntarily adopted a new policy for accounting for uncertain tax positions effective January 1, 2007. As a result of this change, the Company recorded a non-cash charge of $33 million to its opening retained earnings as of January 1, 2007 with an offsetting increase to non-current liabilities.

Inclusive of the impact of the change in accounting policy, the Company had $205 million of unrecognized tax benefits as of January 1, 2007. If recognized, approximately $69 million of these benefits would favorably affect the Company's income tax expense. As of January 1, 2007, the Company had accrued $26 million for interest and penalties associated with tax positions.

As a global company, Thomson and its subsidiaries are subject to numerous federal, state and provincial income tax jurisdictions. As of March 31, 2007, the tax years subject to examination by major jurisdiction are as follows:


Jurisdiction		Tax Years

Canada — Federal and Ontario Province		1997 to 2006
United States — Federal		2003 to 2006
United Kingdom		2005 and 2006

The Company has multiple years subject to examination in other jurisdictions in which it does business as well.

The following businesses are classified as discontinued operations within the consolidated financial statements for all periods presented. None of the businesses are considered fundamental to the integrated offerings of Thomson.

In March 2007, the Company approved plans within Thomson Healthcare to sell PLM, a provider of drug and therapeutic information in Latin America; the New England Institutional Review Board, an ethical review board that monitors clinical research involving human subjects; and CenterWatch, a provider of clinical research information.

In October 2006, the Company announced its intention to sell Thomson Learning through 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 negotiating the sale of Prometric, a global leader in assessment services, with a prospective buyer. 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. The sale of these businesses is expected to be completed in the third quarter of 2007. The Company recorded impairment charges associated with certain of these businesses of $14 million in the fourth quarter of 2006. Based on estimates of fair value as well as current carrying value at March 31, 2007, these impairment charges were reversed in the first quarter of 2007.

Additionally, in the fourth quarter of 2006 the Company approved plans within Thomson Legal to sell its business information and news operations, which include the Company's Market Research and NewsEdge businesses. Based on estimates of fair value at March 31, 2007, the Company recorded impairment charges to identifiable intangible assets of $3 million before taxes related to these businesses.

In June 2006, the Company's board of directors approved plans to sell IOB, a Brazilian regulatory business within Thomson Legal, and Thomson Medical Education, a provider of sponsored medical education within Thomson Healthcare.

In the first quarter of 2006, the Company approved plans within Thomson Legal 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.

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. Based on estimates of fair market value at March 31, 2006, Thomson recorded impairment charges associated with certain of these businesses related to identifiable intangible assets and goodwill of $40 million before taxes. The Company completed the sale of Peterson's in July 2006 and K.G. Saur in August 2006. The Company completed the sale of its North American operations of Thomson Education Direct in March 2007.

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 Healthcare. The Company completed the sale in the third quarter of 2006.

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. In the three months ended March 31, 2007, the Company adjusted disposal liabilities related to businesses previously sold resulting in $10 million (2006 — $3 million) of earnings from discontinued operations. These amounts are included in "Other" below.


	March 31, 2007
	Thomson Legal	Thomson Learning	Thomson Healthcare	Total

Current assets:
Accounts receivable, net of allowances	17	342	45	404
Inventory	1	263	1	265
Other current assets	4	64	5	73
Deferred income taxes	—	124	2	126

Total current assets	22	793	53	868

Non-current assets:
Computer hardware and other property	8	153	8	169
Computer software	7	153	1	161
Identifiable intangible assets	27	835	17	879
Goodwill	5	3,019	25	3,049
Other non-current assets	1	290	—	291

Total non-current assets	48	4,450	51	4,549

Current liabilities:
Accounts payable and accruals	16	310	31	357
Deferred revenue	34	222	23	279
Other current liabilities	17	1	—	18

Total current liabilities	67	533	54	654

Non-current liabilities:
Other non-current liabilities	5	38	1	44
Deferred income taxes	10	373	7	390

Total non-current liabilities	15	411	8	434


	December 31, 2006
	Thomson Legal	Thomson Learning	Thomson Healthcare	Total

Current assets:
Accounts receivable, net of allowances	13	538	36	587
Inventory	1	252	1	254
Other current assets	3	70	5	78
Deferred income taxes	—	124	2	126

Total current assets	17	984	44	1,045

Non-current assets:
Computer hardware and other property	7	157	8	172
Computer software	5	145	1	151
Identifiable intangible assets	29	838	18	885
Goodwill	5	3,003	24	3,032
Other non-current assets	1	270	—	271

Total non-current assets	47	4,413	51	4,511

Current liabilities:
Accounts payable and accruals	12	499	25	536
Deferred revenue	32	260	20	312
Other current liabilities	16	1	—	17

Total current liabilities	60	760	45	865

Non-current liabilities:
Other non-current liabilities	4	38	2	44
Deferred income taxes	12	385	8	405

Total non-current liabilities	16	423	10	449


	Three months ended March 31, 2007
	Thomson Legal		Thomson Learning	Thomson Healthcare		Other	Total

Revenues from discontinued operations	20		414	27		—	461

Earnings (loss) from discontinued operations before income taxes	(11	)	12	(8	)	—	(7	)
Income taxes	3		5	3		10	21

Earnings (loss) from discontinued operations	(8	)	17	(5	)	10	14


	Three months ended March 31, 2006
	Thomson Legal		Thomson Learning		Thomson Healthcare	Other	Total

Revenues from discontinued operations	32		413		29	—	474

Earnings (loss) from discontinued operations before income taxes	(7	)	(109	)	2	—	(114	)
Income taxes	1		42		—	3	46

Earnings (loss) from discontinued operations	(6	)	(67	)	2	3	(68	)

"Proceeds from disposal of discontinued operations" within the consolidated statement of cash flow for the three months ended March 31, 2007 represent cash received from the sale of the North American operations of Thomson Education Direct.

The carrying values of businesses disposed of during the three months ended March 31, 2007 consisted of current assets of $8 million, non-current assets of $49 million, current liabilities of $22 million and non-current liabilities of $1 million as of the date of disposal.

In May 2005, Thomson initiated a normal course issuer bid. Under this first program, which terminated on May 4, 2006, the Company repurchased and subsequently cancelled approximately 13.3 million shares for approximately $482 million. In May 2006, the Company renewed its normal course issuer bid to repurchase up to 15 million additional common shares. The second program commenced on May 5, 2006 and will end on May 4, 2007. Shares that it repurchases are cancelled. The Company may repurchase shares in open market transactions on the Toronto Stock Exchange or the New York Stock Exchange. The following summarizes the Company's repurchases for this second program:


Three-month period ended	Shares Repurchased	Average Price per Share		Number of Shares Available 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
March 31, 2007	1,305,000	$	41.74

Total	5,945,000	$	40.45	9,055,000

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 nonpublic 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 the requirements of applicable Canadian securities laws and Rule 10b5-1 under the U.S. Securities Exchange Act of 1934.

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.

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.


	Three months ended March 31,
	2007		2006

Earnings from continuing operations	210		205
Dividends declared on preference shares	(1	)	(1	)

Earnings from continuing operations attributable to common shares	209		204

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:


	Three months ended March 31,
	2007	2006

Weighted-average number of common shares outstanding	640,275,972	647,531,311
Vested deferred share units	795,718	622,161

Basic	641,071,690	648,153,472
Effect of stock and other incentive plans	2,712,045	844,632

Diluted	643,783,735	648,998,104

The Company's net defined benefit plan expense is comprised of the following elements:


	Pensions				Other post-retirement plans
	Three months ended March 31,
	2007		2006		2007	2006

Current service cost	16		16		1	1
Interest cost	37		34		2	2
Expected return on plan assets	(40	)	(38	)	—	—
Amortization of net actuarial losses	11		13		1	1
Amortization of prior service cost	—		—		—	—

Net defined benefit plan expense	24		25		4	4

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. The Company expects to pay this amount in the second quarter of 2007.

In addition to the matter described above, the Company is engaged in various legal proceedings and claims that have arisen in the ordinary course of business. Some of these matters are described in the Company's management's discussion and analysis for the year ended December 31, 2006. Except as updated and supplemented above, there have been no material developments to these matters. The outcome of all of the proceedings and claims against the Company, including, without limitation, those described in its management's discussion and analysis for the year ended December 31, 2006, is subject to future resolution, including the uncertainties of litigation. Based on information currently known by 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 Company's financial condition, taken as a whole.

The number of transactions associated with continuing operations completed during the three month periods ended March 31, 2007 and 2006 and the related cash consideration were as follows:


Number of transactions	Three months ended March 31,
	2007	2006

Businesses and identifiable intangible assets acquired	11	2
Investments in businesses	—	1


Cash consideration	Three months ended March 31,
	2007	2006

Businesses and identifiable intangible assets acquired	154	130
Investments in businesses	—	2

Total acquisitions	154	132

Included in these acquisitions was the purchase of CrossBorder Solutions, a provider of tax software, in March 2007, and the purchase of Quantitative Analytics, Inc., a provider of financial database integration and analysis solutions, in March 2006.

The value of goodwill and identifiable intangible assets acquired in connection with these transactions is detailed below:

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 during the three-month periods ended March 31, 2007 and 2006, the majority of the acquired goodwill is not deductible for tax purposes. Purchase price allocations related to certain acquisitions may be subject to adjustment pending completion of final valuations.

Included in assets and liabilities of discontinued operations were two acquisitions purchased for cash consideration of $54 million.

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


	Three months ended March 31,
	2007		2006

Accounts receivable	98		115
Inventories	(8	)	(4	)
Prepaid expenses and other current assets	(5	)	7
Accounts payable and accruals	(246	)	(226	)
Deferred revenue	82		51
Income taxes	(14	)	(67	)
Other	(10	)	1

	(103	)	(123	)

During the three months ended March 31, 2007 and 2006, the Company issued 193,412 and 189,176 shares, respectively, to employees in connection with its employee stock purchase plans. This issuance settled the liability for accumulated payroll deductions at December 31, 2006 and 2005.

As at March 31, 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. For the year ended December 31, 2006, the total amount charged to Woodbridge for these rentals and services was approximately $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. These premiums were approximately $50,000 for the year ended December 31, 2006, 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.

The Company has entered into a contract with Hewitt Associates Inc. to outsource certain human resources administrative functions in order to improve operating and cost efficiencies. 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. Under the current contract terms, the Company expects to pay Hewitt an aggregate of approximately $165 million over a 10 year period beginning in 2006. In 2006, Thomson paid Hewitt $16 million for its services.

Thomson is a global provider of integrated information solutions for business and professional customers. Effective January 1, 2007, the Company realigned its continuing operations into five new segments consisting of Legal; Financial, Tax & Accounting, Scientific and Healthcare. Prior period segment data have been restated to conform to this presentation. The accounting policies applied by the segments are the same as those applied by the Company.

The reportable segments of Thomson are strategic business groups that offer products and services to target markets, as follows:

Providing workflow solutions throughout the world to legal, intellectual property, compliance, and other business professionals, as well as government agencies.

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.

Providing integrated information and workflow solutions for tax and accounting professionals in North America.

Providing information and services to researchers, scientists and information professionals in the academic, scientific, corporate and government marketplaces.

Providing information and services to physicians and other professionals in the healthcare, corporate and government marketplaces.

Additionally, in March 2007, a broker research business managed by the Legal segment was transferred to the Financial segment. Financial information for all periods has been restated to reflect this transfer.


	Three months ended March 31, 2007
Reportable segments	Revenues		Segment operating profit

Legal	747		207
Financial	527		95
Tax & Accounting	160		38
Scientific	149		34
Healthcare	92		4

Segment totals	1,675		378
Corporate and other⁽¹⁾	—		(91	)
Eliminations	(6	)	—

Total	1,669		287


	Three months ended March 31, 2006
Reportable segments	Revenues		Segment operating profit

Legal	678		177
Financial	487		79
Tax & Accounting	142		30
Scientific	139		28
Healthcare	65		4

Segment totals	1,511		318
Corporate and other⁽¹⁾	—		(49	)
Eliminations	(4	)	—

Total	1,507		269

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 Company's definition of segment operating profit may not be comparable to that of other companies.

The following table reconciles segment operating profit per the reportable segment information to operating profit per the consolidated statement of earnings:

Note 18: Reconciliation of Canadian to U.S. Generally Accepted Accounting Principles

The consolidated financial statements have been prepared in accordance with Canadian GAAP, which differ in some respects from U.S. GAAP. The following table presents the material differences between Canadian and U.S. GAAP:


			Three months ended March 31,
			2007			2006

Net earnings under Canadian GAAP				224			137
Differences in GAAP increasing (decreasing) reported earnings:
	Business combinations			3			4
	Derivative instruments and hedging activities			(4	)		1
	Income taxes			(46	)		(60	)

Net income under U.S. GAAP				177			82

Earnings under U.S. GAAP from continuing operations				172			179
Earnings (loss) under U.S. GAAP from discontinued operations				5			(97	)

Net income under U.S. GAAP				177			82

Basic and diluted earnings (loss) per common share under U.S. GAAP from:
		Continuing operations	$	0.27		$	0.27
		Discontinued operations, net of tax		—			(0.15	)

Basic and diluted earnings per common share⁽¹⁾			$	0.27		$	0.12

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 net increase to income 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.

Under U.S. Statement of Financial Accounting Standards ("FAS") 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 4.

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.

Under Canadian GAAP, the Company estimates separate annual effective income tax rates for each taxing jurisdiction and individually applies such rates to the interim period's pre-tax income of each jurisdiction. Under U.S. GAAP, the Company estimates the average annual effective income tax rate, excluding jurisdictions that generate net losses where the Company does not expect to receive a tax benefit, and applies that rate to the Company's interim period pre-tax income excluding the interim period pre-tax loss of those loss jurisdictions.


	Three months ended March 31,
	2007		2006

Additional provision due to different accounting principles described above	(46	)	(58	)
Tax effect of U.S. GAAP pre-tax reconciling items	—		(2	)

Total income taxes per reconciliation	(46	)	(60	)

As discussed in Note 4, effective January 1, 2007, the Company adopted a new accounting policy under Canadian GAAP for uncertain income tax positions which conforms to the provisions of Financial Accounting Standards Board ("FASB") Interpretation No. 48 ("FIN 48"). The adoption of FIN 48 was required for U.S. GAAP purposes as of January 1, 2007. As a result of this adoption, there is no material difference in treatment between Canadian and U.S. GAAP for uncertain income tax positions.

In September 2006, the FASB issued FAS 157, Fair Value Measurements. 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.

In February 2007, the FASB issued FAS 159, The Fair Value Option for Financial Assets and Financial Liabilities. This statement permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. FAS 159 is effective for the Company in the first quarter of 2008. The Company is currently evaluating the statement's impact on its financial statements.

In April 2007, the Company completed its sale of Thomson Medical Education. The Company anticipates recording a post-tax gain on the sale.

		Stated Share Capital⁽¹⁾		Contributed Surplus	Total Capital		Retained Earnings		AOCI	Total Retained Earnings 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 4)		—		—	—		—		51	51		51

Restated balance, December 31, 2005		2,599		127	2,726		6,992		296	7,288		10,014
Comprehensive income:
	Net earnings						137		—	137		137
	Unrecognized net gain on cash flow hedges						—		4	4		4
	Foreign currency translation adjustments						—		6	6		6

Comprehensive income							137		10	147		147
Dividends declared on preference shares							(1	)	—	(1	)	(1	)
Dividends declared on common shares							(142	)	—	(142	)	(142	)
Common shares issued DRIP		3		—	3							3
Repurchase of common shares (note 9)		(17	)	—	(17	)	(151	)	—	(151	)	(168	)
Effect of stock compensation plans		14		10	24							24

Balance, March 31, 2006		2,599		137	2,736		6,835		306	7,141		9,877

		Three months ended March 31,
(millions of U.S. dollars, except per common share amounts)		2007			2006 (note 8)

Revenues			1,669			1,507
Cost of sales, selling, marketing, general and administrative expenses			(1,267	)		(1,133	)
Depreciation			(115	)		(105	)
Amortization			(61	)		(60	)

Operating profit			226			209
Net other income (note 6)			6			38
Net interest expense and other financing costs			(53	)		(52	)
Income taxes			31			10

Earnings from continuing operations			210			205
Income (loss) from discontinued operations, net of tax (note 8)			14			(68	)

Net earnings			224			137
Dividends declared on preference shares			(1	)		(1	)

Earnings attributable to common shares			223			136

Basic and diluted earnings (loss) per common share (note 10):
	From continuing operations	$	0.33		$	0.31
	From discontinued operations		0.02			(0.10	)

Basic and diluted earnings per common share		$	0.35		$	0.21

(millions of U.S. dollars)		Stated Share Capital⁽¹⁾		Contributed Surplus	Total Capital		Retained Earnings		Accumulated Other Comprehensive Income ("AOCI")		Total Retained Earnings and AOCI		Total

Balance, December 31, 2006		2,642		157	2,799		7,169		513		7,682		10,481
Opening balance adjustment for income tax accounting change (note 4)		—		—	—		(33	)	—		(33	)	(33	)

Restated balance, December 31, 2006		2,642		157	2,799		7,136		513		7,649		10,448
Comprehensive income:
	Net earnings						224				224		224
	Unrecognized net gain on cash flow hedges						—		(9	)	(9	)	(9	)
	Foreign currency translation adjustments						—		25		25		25
	Net gain reclassified to income						—		(3	)	(3	)	(3	)

Comprehensive income							224		13		237		237
Dividends declared on preference shares							(1	)	—		(1	)	(1	)
Dividends declared on common shares							(157	)	—		(157	)	(157	)
Common shares issued under Dividend Reinvestment Plan ("DRIP")		4		—	4								4
Repurchase of common shares (note 9)		(5	)	—	(5	)	(50	)	—		(50	)	(55	)
Effect of stock compensation plans		18		16	34								34

Balance, March 31, 2007		2,659		173	2,832		7,152		526		7,678		10,510