AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 2, 2001.
REGISTRATION NO. 333-
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM F-10
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
---------------------
THE THOMSON CORPORATION
(Exact name of Registrant as specified in its charter)
ONTARIO 2731 98-0176673
(Primary Standard Industrial (I.R.S. Employer
(Province or other Jurisdiction of Classification Code Number, if Identification Number, if
Incorporation or Organization) applicable) applicable)
---------------------
CORPORATION SERVICE COMPANY
THE THOMSON CORPORATION 1177 AVENUE OF THE AMERICAS
METRO CENTER 17TH FLOOR
ONE STATION PLACE NEW YORK, NEW YORK 10036-2721
STAMFORD, CONNECTICUT (212) 299-9100
UNITED STATES 06902 (Name, address (including zip code) and telephone
(203) 328-9400 number
(Address and telephone number of Registrant's (including area code) of agent for service in the
principal executive offices) United States)
---------------------
COPIES TO:
EDWARD A. FRIEDLAND, ESQ. ANDREW J. BECK, ESQ. LISA L. JACOBS, ESQ. DAVID A. JUDSON, ESQ.
THE THOMSON CORPORATION TORYS SHEARMAN & STERLING MCCARTHY TETRAULT LLP
METRO CENTER 237 PARK AVENUE 599 LEXINGTON AVENUE ONE NEW YORK PLAZA,
ONE STATION PLACE NEW YORK, NEW YORK NEW YORK, NEW YORK 25TH FLOOR
STAMFORD, CONNECTICUT 10017 10022 NEW YORK, NEW YORK
06902 (212) 880-6000 (212) 848-4000 10004
(203) 969-8700 (212)785-6410
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
PROVINCE OF ONTARIO, CANADA
(Principal jurisdiction regulating this offering)
---------------------
It is proposed that this filing shall become effective (check appropriate
box):
A. [ ] Upon filing with the Commission pursuant to Rule 467(a) (if in
connection with an offering being made contemporaneously in the United
States and Canada).
B. [X] At some future date (check the appropriate box below).
1. [ ] Pursuant to Rule 467(b) on ( ) at ( ) (designate a
time not sooner than seven calendar days after filing).
2. [ ] Pursuant to Rule 467(b) on ( ) at ( ) (designate a
time seven calendar days or sooner after filing) because the
securities regulatory authority in the review jurisdiction has
issued a receipt or notification of clearance on ( ).
3. [ ] Pursuant to Rule 467(b) as soon as practicable after
notification of the Commission by the Registrant or the Canadian
securities regulatory authority of the review jurisdiction that a
receipt or notification of clearance has been issued with respect
hereto.
4. [X] After the filing of the next amendment to this Form (if
preliminary material is being filed).
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to the home jurisdiction's shelf
prospectus offering procedures, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) FEE
---------------------------------------------------------------------------------------------------------------------------
Common Shares..................... 43,700,000 Shares US$33.89 US$1,480,993,000 US$136,252
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
(1) Includes 5,700,000 common shares that the Underwriters have the option to
purchase solely to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(c), based on the average of the high
and low prices of the Registrant's common shares on the Toronto Stock
Exchange on April 29, 2002 converted into U.S. dollars at the inverse of the
noon buying rate in New York City for cable transfers in Canadian dollars by
the Federal Reserve Bank of New York on April 29, 2002.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE AS PROVIDED IN RULE 467 UNDER THE SECURITIES
ACT OF 1933 OR ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A)
OF THE ACT, MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
PART I
INFORMATION REQUIRED TO BE
DELIVERED TO OFFEREES OR PURCHASERS
I-1
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MAY 2, 2002
PROSPECTUS
LOGO
38,000,000 SHARES
THE THOMSON CORPORATION
COMMON SHARES
---------------------
We are selling 14,615,385 of our common shares and The Woodbridge Company
Limited, our principal shareholder, is selling 23,384,615 of our common shares.
We will not receive any proceeds from the sale of the common shares being sold
by Woodbridge. Our common shares are listed on the Toronto Stock Exchange under
the symbol TOC. On May 1, 2002, the closing sale price of our common shares on
the Toronto Stock Exchange was Cdn$53.80. We have applied to list our common
shares on the New York Stock Exchange under the symbol TOC.
INVESTING IN OUR COMMON SHARES INVOLVES RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 14 OF THIS PROSPECTUS.
---------------------
WE ARE PERMITTED TO PREPARE THIS PROSPECTUS IN ACCORDANCE WITH CANADIAN
DISCLOSURE REQUIREMENTS WHICH ARE DIFFERENT FROM THOSE OF THE UNITED STATES. WE
PREPARE OUR FINANCIAL STATEMENTS IN ACCORDANCE WITH CANADIAN GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES, AND OUR FINANCIAL STATEMENTS ARE SUBJECT TO CANADIAN
GENERALLY ACCEPTED AUDITING STANDARDS AND CANADIAN AND UNITED STATES SECURITIES
REGULATORY AUDITOR INDEPENDENCE STANDARDS. OUR FINANCIAL STATEMENTS MAY NOT BE
COMPARABLE TO FINANCIAL STATEMENTS OF UNITED STATES COMPANIES.
OWNING OUR COMMON SHARES MAY SUBJECT YOU TO TAX CONSEQUENCES IN BOTH THE
UNITED STATES AND CANADA. THIS PROSPECTUS MAY NOT FULLY DESCRIBE THESE TAX
CONSEQUENCES. YOU SHOULD CONSULT YOUR OWN TAX ADVISOR WITH RESPECT TO YOUR OWN
PARTICULAR CIRCUMSTANCES AND READ THE TAX DISCUSSION UNDER "CERTAIN UNITED
STATES AND CANADIAN FEDERAL INCOME TAX CONSIDERATIONS."
YOUR ABILITY TO ENFORCE CIVIL LIABILITIES UNDER UNITED STATES FEDERAL
SECURITIES LAWS MAY BE ADVERSELY AFFECTED BECAUSE WE ARE INCORPORATED UNDER THE
LAWS OF THE PROVINCE OF ONTARIO, CANADA, SOME OF OUR OFFICERS AND DIRECTORS AND
SOME OF THE EXPERTS NAMED IN THIS PROSPECTUS ARE CANADIAN RESIDENTS, AND SOME OF
OUR ASSETS AND SOME OF THE ASSETS OF THOSE OFFICERS, DIRECTORS AND EXPERTS ARE
LOCATED OUTSIDE THE UNITED STATES.
---------------------
PER SHARE TOTAL
--------- ----------
Public offering price....................................... US$ US$
Underwriting commission..................................... US$ US$
Proceeds, before expenses, to us............................ US$ US$
Proceeds, before expenses, to the selling shareholder....... US$ US$
The underwriters may also purchase up to an additional 5,700,000 common
shares from the selling shareholder at the public offering price, less the
underwriting commission, within 30 days from the date of the final prospectus to
cover over-allotments, if any.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The common shares will be ready for delivery in New York, New York on or
about , 2002.
---------------------
Joint Book-Running Managers
MERRILL LYNCH & CO. MORGAN STANLEY
---------------------
RBC CAPITAL MARKETS
BEAR, STEARNS & CO. INC.
CREDIT SUISSE FIRST BOSTON
GOLDMAN, SACHS & CO.
TD SECURITIES
UBS WARBURG
---------------------
The date of this prospectus is , 2002.
TABLE OF CONTENTS
PAGE
----
Summary............................... 2
Risk Factors.......................... 14
Special Note Regarding Forward-Looking
Information......................... 19
Use of Proceeds....................... 20
Dividends............................. 20
Market and Price Range of Common
Shares.............................. 21
Capitalization........................ 22
Selected Consolidated Financial and
Operating Data...................... 23
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 26
Business.............................. 44
Management............................ 81
Beneficial Ownership of Common
Shares.............................. 89
Principal and Selling Shareholder..... 91
PAGE
----
Certain Relationships and
Related Party Transactions.......... 92
Description of Share Capital.......... 93
Shares Eligible for Future Sale....... 94
Certain United States and Canadian
Federal Income Tax Considerations... 95
Underwriting.......................... 101
Legal Matters......................... 104
Experts............................... 104
Registrar and Transfer Agent.......... 105
Enforceability of Certain Civil
Liabilities in the United States.... 105
Documents Incorporated by Reference... 105
Where You Can Find More Information... 106
Documents Filed as Part of the
Registration Statement.............. 106
Index to Consolidated Financial
Statements.......................... F-1
---------------------
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not, and the underwriters have not,
authorized anyone to provide you with different information. If anyone provides
you with different or inconsistent information, you should not rely on it. We
are not, and the underwriters are not, making an offer to sell these securities
in any jurisdiction where the offer or sale is not permitted. You should assume
that the information appearing in this prospectus is accurate only as of the
date on the front cover of this prospectus. Our business, financial condition,
results of operation and prospects may have changed since that date.
All dollar amounts in this prospectus are expressed in United States
dollars, except where otherwise indicated. References to $ or to US$ are to
United States dollars and references to Cdn$ are to Canadian dollars.
Our estimates of market share and market size in this prospectus, in
certain cases, are based on public disclosure and industry and trade
publications and on reports prepared by third parties and are measured in terms
of revenues.
---------------------
In this prospectus, Thomson, we, us and our, each refers to The Thomson
Corporation and its consolidated subsidiaries unless the context requires
otherwise. Our consolidated financial statements and certain other financial
information of ours contained or incorporated by reference in this prospectus
are, except where otherwise noted, reported in United States dollars and have
been prepared in accordance with accounting principles generally accepted in
Canada, or Canadian GAAP. To the extent applicable to our consolidated financial
statements included elsewhere in this prospectus, these principles conform in
all material respects with accounting principles generally accepted in the
United States, or U.S. GAAP, except as described in the reconciliation to U.S.
GAAP, found elsewhere in this prospectus.
Certain names used in this prospectus are our trademarks. This prospectus
also includes references to trademarks, product names and company names of other
companies.
SUMMARY
This summary highlights more detailed information contained elsewhere in
this prospectus. You should read the entire prospectus, including, in
particular, the "Risk Factors" beginning on page 14 and our consolidated
financial statements and related notes presented later in this prospectus.
THE THOMSON CORPORATION
We are a global leader in providing integrated information solutions to
business and professional customers. In a global economy in which the flow of
information is vital, we supply vast amounts of value-added information to our
customers, in both print and electronic formats. We increasingly deliver our
information electronically, with applications and tools that enable our
customers to adapt it and combine it with their own information. By enhancing
the timeliness and effectiveness of our customers' use of information, we help
them serve their customers better.
We serve customers in the following sectors: law, tax, accounting,
financial services, higher education, reference information, corporate training
and assessment, scientific research and healthcare. We believe these sectors are
fundamental to economic development globally and consequently have potential for
consistent long-term growth.
We have a leading market position and well recognized and respected brands
in each of our principal markets. Our revenues, which in 2001 totaled $7.2
billion, are generally recurring or predictable. Approximately 61% of our
revenues in 2001 were generated under subscription arrangements, with
advertising accounting for only 4%. Our revenues are also diversified. In
addition to having multiple lines of business, we have over 20 million users and
no single customer accounts for more than 2% of our revenues. In 2001, 82% of
our revenues were from our operations in the United States and we have users in
approximately 130 countries worldwide.
CORPORATE CENTER AND MARKET GROUPS
Our corporate center initiates and executes strategy and manages other
company-wide functions. We organize our operations in four market groups that
are structured on the basis of the customers they serve:
- Thomson Legal and Regulatory,
- Thomson Learning,
- Thomson Financial, and
- Thomson Scientific and Healthcare.
By centralizing key functions in our corporate center, we foster a
company-wide approach while allowing our market groups sufficient operational
flexibility and scope for initiative in dealing with customers. In addition to
identifying new business opportunities and acquisitions, our corporate center
oversees the planning processes of our market groups and their implementation of
strategy and assesses their performance. Our corporate center develops and
executes capital strategy, including tax planning, and determines the overall
direction on technology. In addition, our corporate center has the
responsibility for the appointment of senior executives and their training and
development.
2
The following table summarizes certain information about our four market
groups relating to 2001 revenues, employees and countries in which they operate.
MARKET GROUPS -- OPERATIONS
PERCENTAGE OF
PERCENTAGE REVENUES FROM
REVENUES(1) OF REVENUES(1)(2) ELECTRONIC DELIVERY(1) COUNTRIES EMPLOYEES
------------- ----------------- ---------------------- --------- ---------
(IN MILLIONS)
Thomson Legal and
Regulatory................ $2,827 39% 52% 30 17,000
Thomson Learning............ 1,851 26 31 26 13,000
Thomson Financial........... 1,590 22 89 27 9,200
Thomson Scientific and
Healthcare................ 697 10 53 13 3,800
---------------
(1) Represents revenues from ongoing businesses, which exclude disposals.
Disposals are businesses sold or held for sale which do not qualify as
discontinued operations.
(2) Percentages are calculated on the basis of revenues from ongoing businesses,
including revenues of our corporate and other category. That category
includes the results of Thomson Media, which was previously designated for
sale but subsequently retained.
We engage in businesses that we believe can readily be extended into new
markets by capitalizing on our expertise in adapting existing successful
products and services, our strong brands and our technology platforms. By
delivering our products and services electronically, we have access to existing
and new customers around the world. We have recently undertaken a significant
initiative to increase the awareness of the Thomson brand, which involves
linking the Thomson name with our many well recognized product and service
brands. We believe the heightened awareness of the Thomson brand will become a
significant asset in supporting our global growth initiatives.
INFORMATION AND TECHNOLOGY
We believe the breadth and depth of our value-added information and our
technological strength are significant competitive advantages.
Compiled over many decades, our collection of information is one of the
world's largest and we maintain much of it in electronic databases. Our Westlaw
databases, for example, contain the equivalent of approximately 400 million
printed pages and our Gale online reference library includes the equivalent of
approximately 125 million printed pages. We have generally enhanced the value of
our information, including that derived from public sources, by adding
proprietary editorial content, formatting, organization and indexing. We also
create some of our information, such as textbooks and course materials. We keep
our information up to date with a large staff of professionals, researchers and
technology specialists. Much of our information is not available to our
customers from other sources in the value-added form in which we provide it.
Our customers rely on our information for its accuracy, comprehensiveness
and utility as well as on the ready access to it that we provide. For example:
- lawyers depend on our Westlaw databases of legal cases, legislation and
other legal information that we have supplemented with summaries and
classified by topic areas and points of law,
- investment professionals and analysts work with our First Call Analyst
database that aggregates 26 years of financial results and analysts'
earnings estimates for over 18,000 companies, including all of the
companies in the S&P 500 index, and
- college professors teach from our Wadsworth and other textbooks authored
by experts in the most popular disciplines, including the humanities,
social sciences, languages, science, mathematics,
3
engineering and business, which are augmented by electronic teaching
aids, such as online interactive supplements and websites.
Since the early 1990s, we have invested in technology to build platforms
that have sufficient scale and scope to meet the needs of our customers
globally. We have the flexibility to deliver our products and services to our
customers electronically in a variety of ways, including over the Internet and
our own proprietary platforms. As a result, our products and services are
readily integrated into the systems of our customers. In 2001, 54% of our
revenues were derived from products and services delivered electronically, up
from 45% in 1997.
We also use technology to develop new products and services and to
repackage and reuse our information and applications in a variety of ways to
create integrated solutions that serve customers effectively. In developing
products and services, we purchase or license and use widely available operating
and data management systems, software and other components and we typically
enhance them by adding applications and tools that we design.
4
KEY BRANDS, PRODUCTS AND SERVICES
The following table summarizes our key brands and products and services by
market group and customers.
MARKET GROUP CUSTOMERS KEY BRANDS KEY PRODUCTS AND SERVICES
------------ ---------------------------- ------------------------ ---------------------------------------
Thomson Legal lawyers, law students, West legal information-based products and
and Regulatory legal professionals Westlaw services
Sweet & Maxwell
tax professionals, RIA tax and accounting information-based
accountants Creative Solutions products and services
business professionals Dialog online databases of business
NewsEdge information and current and archival
news
--------------------------------------------------------------------------------------------------------------------
Thomson Learning professors, students, Wadsworth textbooks and electronic course
business professionals materials in the humanities and social
sciences
South-Western textbooks and electronic course
materials in business and economics
libraries, corporations, Gale printed and electronic reference
reference centers materials, electronic databases of
magazine, newspaper and periodical
content, microfilm collections and
encyclopedias
corporations, Prometric technology-based test delivery and
government agencies assessment services including test
preparation, test results processing
and certification program creation
NETg online and instructor-led information
technology and business skills training
--------------------------------------------------------------------------------------------------------------------
Thomson portfolio managers, First Call online databases of financial
Financial research analysts I/B/E/S information including brokerage
research, forecast data, market indices
data, institutional holdings data, SEC
filings and news
investment bankers Securities Data online databases of global information
on mergers and acquisitions
institutional and retail ILX electronic financial information
traders, investment advisors including real- time market data such
as stock quotes and news
--------------------------------------------------------------------------------------------------------------------
Thomson pharmaceutical/biotechnology, Derwent World Patent indexed and abstracted databases of
Scientific and chemical and engineering Index patents
Healthcare companies, government
agencies, research
libraries, universities
ISI Web of Science website for research scientists
providing access to over 8,500
abstracted and indexed journals,
journal article cited references,
meetings and conference proceedings
physicians, health Physicians' Desk database of Food and Drug
professionals, Reference Administration approved drug
pharmaceutical companies, monographs, delivered in print and
hospitals, poison control electronic formats
centers, government agencies
Micromedex drug, clinical, toxicological and
environmental database products
pharmaceutical companies, Gardiner-Caldwell continuing medical education training
physicians Physicians World for physicians in connection with new
drug launches
5
INTEGRATED INFORMATION SOLUTIONS
Based on the particular needs of a customer segment, we combine our
products and services to create integrated information solutions. Our integrated
information solutions provide our customers with value-added information from
one or more sources along with applications and tools that enable them to use it
in a manner that suits them best, including by adapting it and combining it with
their own information. As customers take advantage of this flexibility, our
solutions are increasingly integrated into their workflow. For example, First
Call Analyst integrates a range of our products and services and our customers'
own data on a single delivery platform, allowing investment professionals and
analysts to review the research of others and produce their own analysis,
utilizing applications that, among other things, enable them to compare
estimates of companies' earnings with actual results.
TRANSFORMATION
Since the 1980s, we have been engaged in publishing business and
professional information, until recently within a multi-business enterprise. We
have now largely completed a strategic transformation through which we divested
cyclical, consumer-focused businesses and acquired market-leading information
businesses with professional and business customers. Our acquisitions include
West Publishing, which became the core of our legal group, Primark and Carson in
our financial group and academic publishing and corporate training businesses of
Harcourt and Prometric, the leading provider of computer-based testing, in our
learning group.
We believe that as a result of our transformation, each of our market
groups has sufficient scale and scope to compete effectively on a global basis
and that we have greatly improved our ability to evolve and grow as a provider
of integrated information solutions and generate strong financial results.
While effecting our transformation, our EBITDA grew from $1.2 billion, or
17% of revenues from continuing operations, in 1995 to $1.8 billion, or 25% of
revenues from continuing operations, in 2001. The following charts illustrate
our transformation, showing the replacement of revenues and EBITDA from our
former travel and newspaper businesses with revenues and EBITDA, respectively,
from our information businesses.
REVENUES FROM CONTINUING OPERATIONS
(IN BILLIONS)
(BAR CHART)
6
EBITDA FROM CONTINUING OPERATIONS
(IN BILLIONS)
(BAR CHART)
STRATEGY
Our strategic objective is to be the foremost global provider of integrated
information solutions to businesses and professionals in markets with consistent
long-term growth prospects. In order to achieve this objective, we apply the
following strategy consistently across our market groups.
CREATING VALUE FOR CUSTOMERS BY PROVIDING INTEGRATED INFORMATION SOLUTIONS
We provide integrated information solutions that create value for our
customers. We supply value-added information and use technology to deliver it
faster and in a form that enables our customers to use it flexibly and
efficiently. As we meet our customers' needs for more and better solutions, we
enhance their ability to serve their customers. Our solutions also become
integral to our customers' workflow and businesses, which is conducive to a high
level of customer retention. Accordingly, we seek to grow primarily by expanding
our opportunities to serve our customers, in addition to improving our market
share. To do so, we will continue to expand the breadth and depth of the
integrated information solutions we offer to our customers.
LEVERAGING OUR TECHNOLOGICAL PLATFORMS AND OTHER ASSETS AND CAPABILITIES TO
GENERATE GROWTH AND EXPAND MARGINS
We have technological platforms of scale and scope, high quality
information, strong brands and skilled senior management and employees. We plan
to capitalize on our technological strength and these other assets and
capabilities to generate revenue growth and expand our profit margins.
We seek to leverage our investment in technology to lower the cost of
developing and marketing new products and services and realize operating
efficiencies. Using the systems we now have, we can adapt products and services
developed for customers in one sector for those in others. Having designed a
technological application to permit one customer to use our information, we can
modify that application for utilization of the same or other information by
another customer. We are using strong brands in one country -- such as Westlaw
in the United States -- as the basis of entry into others. We are also building
Thomson as a global co-brand to foster the development of our product and
service brands. We continue to emphasize the recruitment, training and career
development of our people, on whose ability and creativity our
7
business depends. We deploy management across our market groups to broaden work
experience, foster cross-fertilization of thinking and encourage a common
management approach.
EXPANDING ELECTRONIC DELIVERY TO IMPROVE SCALABILITY
We believe that our focus on electronic delivery allows us to respond more
effectively to our customers' needs, to provide products and services that have
more features and to enhance our customers' ability to use our information as it
suits them. We also believe that our focus on electronic delivery permits us to
expand more readily into new markets. By expanding electronic delivery of
products and services, which can generally be done at lower variable costs than
those that are print-based, we believe that we will generate revenue growth and
expand our profit margins.
EXPLOITING INTERNATIONAL EXPANSION OPPORTUNITIES
We plan to continue to invest outside of North America, which we expect
will enable us to accelerate our overall rate of growth. Our businesses are
readily expandable into new geographic markets and we intend to grow them
internationally, particularly in Europe, Latin America and Asia-Pacific. Many of
our products and services developed originally for the United States or other
markets can be modified and offered internationally. Many of our customers
operate internationally, which gives us the opportunity to expand with them. In
addition, the scalability and flexibility of our technology platforms allow us
to reach customers globally.
ASSESSING ACQUISITIONS
Within our existing businesses, we have opportunities to evolve and grow
and can achieve our strategic objective. We plan to grow by reinvesting in our
existing businesses. We will continue to regularly evaluate and make
acquisitions that broaden the range of our product and service offerings. We
will also continue to assess the acquisition of new businesses that can either
improve our ability to serve our existing markets or allow us to enter new
markets effectively. We believe that we have demonstrated the ability to
identify acquisitions that enhance or complement our business, evaluate them in
a disciplined manner and execute acquisition transactions effectively. We also
believe that our experience in integrating acquired businesses allows us to
eliminate cost redundancies and combine the acquired products and services with
our existing offerings, resulting in incremental revenues, expanded profit
margins and improved potential for revenue growth.
We also continue to assess strategic alliances and joint ventures,
especially when entering new markets. Examples include U21global, our joint
venture with 16 leading research universities from around the world to form an
online university, and our Omgeo joint venture with The Depository Trust &
Clearing Corporation that provides post-trade transaction services to our
financial services customers.
ACHIEVING SUPERIOR LONG-TERM RETURNS AND MAINTAINING FINANCIAL DISCIPLINE
We manage our businesses and deploy our capital to maximize returns to
shareholders over the long term. In growing our businesses, we will continue to
rely on our recurring revenues, strong cash flow from our operations and our
strong balance sheet.
We make disciplined investment decisions largely on the basis of return on
invested capital and other long-term financial measurements such as discounted
cash flow and internal rate of return. Since the early 1990s, we have invested
to focus ourselves on providing integrated information solutions and to build
technology platforms. Having made these investments, we aim to achieve improved
returns on invested capital through sustained revenue growth, realizing
operating efficiencies and leveraging our technology. We expect that the
percentage of our revenues that we spend on technology will decrease, although
we plan to continue to invest in technology at significant levels.
We assess each of our businesses on the basis of annual performance
targets. In making any tactical acquisitions that complement our existing
businesses, we will generally do so on the basis that the acquired
8
business, while adding to our capacity for growth over the long term, will also
be expected to increase our return on invested capital and earnings by the
second year after it is acquired.
PRINCIPAL AND REGISTERED OFFICES
Our principal office in the United States is at the Metro Center, One
Station Place, Stamford, Connecticut, 06902. Our registered office is at Suite
2706, Toronto Dominion Bank Tower, P.O. Box 24, Toronto-Dominion Centre,
Toronto, Ontario, M5K 1A1. Our website address is: www.thomson.com. Information
contained on our website shall not be deemed to be part of, or incorporated by
reference in, this prospectus. Our website address is included in this document
as an inactive textual reference only.
9
THE OFFERING
Common shares offered by us... 14,615,385 common shares
Common shares offered by the
selling shareholder......... 23,384,615 common shares
Common shares to be
outstanding after the
offering...................... 646,729,359 common shares
Use of proceeds............... The net proceeds to us from the offering will
be approximately $ million. We intend
to use the net proceeds for general corporate
purposes, including the repayment of
indebtedness. See "Use of Proceeds." We will
not receive any proceeds from the sale of
common shares by the selling shareholder.
Proposed New York Stock
Exchange and Toronto Stock
Exchange symbol............... TOC
---------------------
Unless we specifically state otherwise, the information in this prospectus
does not take into account the sale of up to 5,700,000 common shares which the
underwriters have the option to purchase from the selling shareholder solely to
cover over-allotments. In addition, the number of common shares shown in this
prospectus as outstanding following the offering excludes 7,137,013 common
shares issuable upon exercise of outstanding options issued pursuant to our
stock incentive plan.
10
SUMMARY OF CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table presents our summary historical financial and operating
data for the periods indicated. Our summary historical financial and operating
data for each of the three years ended December 31, 2001 and at December 31,
2000 and 2001 are derived from our audited consolidated financial statements
beginning on page F-1. Historical results are not necessarily indicative of the
results that may be expected for any future period.
Our results for the year ended December 31, 1999 reflect the results of
Macmillan Library Reference and Aranzadi from July 1999, in each case the month
in which we acquired the business. Our results for the year ended December 31,
2000 reflect the results of Prometric from March 2000, the results of Dialog
from May 2000 and the results of Carson and Primark from September 2000, in each
case the month in which we acquired the business. Our results for the year ended
December 31, 2001 reflect the results of the interest in First Call we
previously did not own from June 2001, the results of the acquired businesses of
Harcourt from July 2001 and the results of NewsEdge from September 2001, in each
case the month in which we acquired the business or interest. In addition to the
acquisition of these larger businesses and interest, our results also reflect
the acquisition and disposition of smaller businesses that occurred in each
respective period. As a result of these acquisitions and dispositions, the
results in each period are not directly comparable.
The following summary of certain of our historical consolidated financial
data should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our audited consolidated
financial statements and related notes that are included elsewhere in this
prospectus. Our consolidated financial statements are prepared in accordance
with Canadian GAAP, which differs in certain significant respects from U.S.
GAAP. See our reconciliation to U.S. GAAP beginning on page F-34 for a
discussion of the principal differences between Canadian GAAP and U.S. GAAP
applicable to our consolidated financial statements and a reconciliation of our
earnings to those under U.S. GAAP.
YEAR ENDED DECEMBER 31,
---------------------------
1999 2000 2001
------- ------- -------
(IN MILLIONS, EXCEPT SHARE
RELATED DATA)
CANADIAN GAAP
CONSOLIDATED INCOME STATEMENT DATA:
Revenues.................................................... $5,752 $6,514 $7,237
------ ------ ------
Earnings before interest, tax, depreciation, amortization,
restructuring charges and Year 2000 costs(1).............. 1,407 1,534 1,786
Depreciation................................................ (386) (416) (476)
------ ------ ------
Operating profit before amortization, restructuring charges
and Year 2000 costs(1).................................... 1,021 1,118 1,310
------ ------ ------
Operating profit after amortization, restructuring charges
and Year 2000 costs....................................... 634 750 836
------ ------ ------
Earnings from continuing operations......................... 409 571 657
Earnings from discontinued operations....................... 123 652 92
------ ------ ------
Earnings attributable to common shares...................... $ 532 $1,223 $ 749
====== ====== ======
Basic and diluted earnings per common share from continuing
operations................................................ $ 0.66 $ 0.92 $ 1.05
====== ====== ======
11
YEAR ENDED DECEMBER 31,
---------------------------
1999 2000 2001
------- ------- -------
(IN MILLIONS, EXCEPT SHARE
RELATED DATA)
OTHER DATA:
Adjusted earnings from continuing operations
(unaudited)(1)(2)......................................... $ 461 $ 468 $ 451
Capital expenditures........................................ 472 585 684
Components of revenue (unaudited)(3):
Electronic delivery based................................. 48% 52% 54%
Advertising based......................................... 5 5 4
Subscription based........................................ 60 60 61
CONSOLIDATED BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents................................... $ 337 $ 532
Working capital(4).......................................... (260) (506)
Total assets................................................ 15,699 18,402
Total debt(5)............................................... 3,059 4,982
Total shareholders' equity.................................. 7,818 8,220
U.S. GAAP
CONSOLIDATED INCOME STATEMENT DATA:
Income from continuing operations........................... $ 365 $ 589 $ 543
Income from discontinued operations......................... 120 743 9
------ ------ ------
Net income.................................................. $ 485 $1,332 $ 552
====== ====== ======
Basic and diluted earnings per common share from continuing
operations................................................ $ 0.55 $ 0.90 $ 0.82
====== ====== ======
OTHER DATA:
Earnings before interest, tax, depreciation, amortization,
restructuring charges and Year 2000 costs
(unaudited)(1)............................................ $1,377 $1,523 $1,759
Depreciation................................................ (386) (416) (476)
------ ------ ------
Operating profit before amortization, restructuring charges
and Year 2000 costs (unaudited)(1)........................ $ 991 $1,107 $1,283
------ ------ ------
---------------
(1) Earnings before interest, tax, depreciation, amortization, restructuring
charges and Year 2000 costs (EBITDA), and operating profit before
amortization, restructuring charges and Year 2000 costs (adjusted operating
profit), are used by us to measure our operating performance, including our
ability to generate cash flow. Among other things, EBITDA eliminates the
differences that arise between businesses due to the manner in which they
were acquired, funded or recorded. In particular, EBITDA excludes the
effects of amortization of identifiable intangible assets and goodwill,
which is a non-cash charge arising from acquisitions accounted for under
the purchase method of accounting. Adjusted operating profit reflects
depreciation expense but eliminates the effects of amortization of
identifiable intangible assets and goodwill, restructuring charges and Year
2000 costs. Because we do not consider these items to be operating costs,
we exclude them from the measurement of our operating performance. We also
measure our earnings from continuing operations to adjust for non-recurring
items (adjusted earnings from continuing operations) to assist in comparing
them from one period to another. EBITDA, adjusted operating profit,
adjusted earnings from continuing operations and related measures do not
have any standardized meaning prescribed by GAAP and therefore are unlikely
to be comparable with the calculation of similar measures for other
companies, and should not be viewed as alternatives to operating profits,
cash flow from operations, net income or other measures of financial
performance calculated in accordance with GAAP.
12
(2) The calculation of adjusted earnings from continuing operations is set out
within "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Results of Operations" included elsewhere in this
prospectus.
(3) Represents percentage of revenues from ongoing businesses, which exclude
disposals. Disposals consist of results of businesses sold or held for sale
which do not qualify as discontinued operations.
(4) Working capital represents current assets less current liabilities of
continuing operations, excluding cash, short-term indebtedness and current
portion of long-term debt.
(5) Total debt includes short-term indebtedness, current portion of long-term
debt and long-term debt, as well as amounts which represent the carrying
value of currency swaps related to our debt. Carrying values of currency
swaps are included within "Other non-current liabilities" and "Accounts
payable and accruals" and total $197 million and $238 million in our
December 31, 2000 and 2001 consolidated balance sheets, respectively.
13
RISK FACTORS
You should carefully consider the following risk factors as well as the
other information included in this prospectus, including our consolidated
financial statements and related notes, before making a decision to invest in
our common shares. Additional risks not presently known to us or that we
currently consider not to be material may also impair our businesses.
RISKS RELATING TO OUR BUSINESSES
WE OPERATE IN HIGHLY COMPETITIVE MARKETS, WHICH MAY ADVERSELY AFFECT OUR MARKET
SHARE AND OUR FINANCIAL RESULTS.
We operate in highly competitive markets with significant established
competitors such as Pearson plc, Reed Elsevier plc, Wolters Kluwer N.V., Reuters
Group plc, Bloomberg L.P. and The McGraw-Hill Companies, Inc. that have
substantial financial resources, recognized brands, technological expertise and
market experience. Our competitors are continuously enhancing their products and
services, developing new products and services and investing in technology to
better serve the needs of their existing customers and attract new customers.
Some of our competitors are acquiring additional businesses in key sectors which
will allow them to offer a broader array of products and services. We may also
face competition from businesses that have not traditionally participated in our
markets but that could adapt their products and services to meet the demands of
our customers or combine with one of our traditional competitors to enhance its
products and services. Competition may require us to reduce the price of our
products and services or make additional capital investments which would
adversely affect our profit margins. If we are unable or unwilling to do so, we
may lose market share and our financial results may be adversely affected.
OUR SIGNIFICANT INVESTMENTS IN TECHNOLOGY MAY NOT INCREASE OUR REVENUES OR
DECREASE OUR OPERATING COSTS, WHICH MAY ADVERSELY AFFECT OUR FINANCIAL RESULTS.
Over the past several years, we have made significant investments in
technology including spending on computer hardware, software, electronic
systems, telecommunications infrastructure and digitization of content. We
expect our investment in technology to continue at significant levels. We cannot
assure you that as a result of these significant investments in technology, we
will be able to increase our revenues or decrease our operating costs and this
may adversely affect our financial results.
IF WE ARE UNABLE TO FULLY DERIVE THE ANTICIPATED BENEFITS FROM OUR ACQUISITIONS,
OUR FINANCIAL RESULTS MAY BE ADVERSELY AFFECTED.
During the past several years we have completed a number of acquisitions
and we may acquire other businesses in order to enhance our ability to serve
existing markets or enter new markets. Achieving the expected returns and
synergies from our past and future acquisitions will depend in part upon our
ability to integrate the products and services, technology, administrative
functions and personnel of these businesses into our market groups in an
efficient and effective manner. We cannot assure you that we will be able to do
so or that acquired businesses will perform at anticipated levels. If we are
unable to successfully integrate acquired businesses, our anticipated revenues
may be lower and our operational costs may be higher.
IF WE ARE UNABLE TO DEVELOP ADDITIONAL PRODUCTS AND SERVICES TO MEET OUR
CUSTOMERS' NEEDS, ATTRACT NEW CUSTOMERS OR EXPAND INTO NEW GEOGRAPHIC MARKETS,
OUR ABILITY TO GENERATE ADDITIONAL REVENUES MAY BE ADVERSELY AFFECTED.
Our growth strategy involves developing additional products and services to
meet our customers' needs for integrated solutions. In addition, we plan to grow
by attracting new customers and expanding into new geographic markets. It may
take a significant amount of time and expense to develop additional products and
services to meet our customers' needs, attract new customers or expand into new
geographic markets. If we are unable to do so, our ability to generate
additional revenues may be adversely affected.
14
EXPANSION OF OUR OPERATIONS OUTSIDE NORTH AMERICA INVOLVES SPECIAL CHALLENGES
THAT WE MAY NOT BE ABLE TO MEET AND THAT MAY ADVERSELY AFFECT OUR ABILITY TO
GROW.
While our primary markets are in North America, we operate globally and
have targeted certain markets outside North America for continued growth. In
particular, we are focusing on opportunities in Europe, Latin America and
Asia-Pacific for expansion. There are certain risks inherent in doing business
in some jurisdictions outside North America, including the following:
- difficulties in penetrating new markets due to established and entrenched
competitors,
- difficulties in developing products and services that are tailored to the
needs of local customers,
- lack of local acceptance or knowledge of our products and services,
- lack of recognition of our brands,
- unavailability of joint venture partners or local companies for
acquisition,
- instability of international economies and governments,
- changes in laws and policies affecting trade and investment in other
jurisdictions,
- exposure to varying legal standards, including intellectual property
protection laws, in other jurisdictions, and
- foreign currency exchange rates and exchange controls.
These risks could affect our ability to expand successfully outside North
America, which may adversely affect our ability to grow.
IF WE DO NOT CONTINUE TO RECRUIT AND RETAIN HIGH QUALITY MANAGEMENT AND KEY
EMPLOYEES, WE MAY NOT BE ABLE TO EXECUTE OUR STRATEGY.
The implementation and execution of our strategy depends on our ability to
continue to recruit and retain high quality management and other employees
across all of our businesses. We compete with many businesses that are seeking
skilled individuals, including those with advanced technological abilities. We
cannot assure you that we will be able to continue to identify or be successful
in recruiting or retaining the appropriate qualified personnel for our
businesses and this may adversely affect our ability to execute our strategy.
CONSOLIDATION OF OUR CUSTOMERS MAY ADVERSELY AFFECT OUR FINANCIAL RESULTS.
Mergers among our customers in some of our key markets have occurred or are
occurring, including among financial services companies, legal and accounting
firms and scientific and healthcare research institutions. Consolidation may
create larger customers with more bargaining power, which may adversely impact
the prices we can charge for our products and services. In some instances
following a consolidation, divisions and employees are eliminated. This may
result in lower demand for our products and services. Lower demand and lower
prices for our products and services may adversely affect our financial results.
OUR CUSTOMERS MAY BECOME MORE SELF-SUFFICIENT, WHICH MAY REDUCE DEMAND FOR OUR
PRODUCTS AND SERVICES AND ADVERSELY AFFECT OUR FINANCIAL RESULTS.
Our customers may decide to independently develop certain products and
services that they currently obtain from us. For example, some of the customers
of our financial group have established a consortium to aggregate and
disseminate their research reports to their institutional clients. Customers of
our corporate training business may develop and implement their own corporate
training programs. To the extent that our customers become more self-sufficient,
demand for our products and services may be reduced which may adversely affect
our financial results.
15
INCREASED ACCESSIBILITY TO FREE OR RELATIVELY INEXPENSIVE INFORMATION SOURCES
MAY REDUCE DEMAND FOR OUR PRODUCTS AND SERVICES AND ADVERSELY AFFECT OUR
FINANCIAL RESULTS.
In recent years, more public sources of free or relatively inexpensive
information have become available, particularly through the Internet, and we
expect this trend to continue. For example, governmental agencies have increased
the amount of information they make publicly available for free. Public sources
of free or relatively inexpensive information may reduce demand for our products
and services. To the extent that our customers choose to use these public
sources directly for their information needs, our financial results may be
adversely affected.
WE MAY NOT BE WILLING OR ABLE TO MAINTAIN THE AVAILABILITY OF INFORMATION
OBTAINED THROUGH LICENSING ARRANGEMENTS OR THE TERMS OF OUR LICENSING
ARRANGEMENTS MAY CHANGE, WHICH MAY REDUCE OUR PROFIT MARGINS OR OUR MARKET
SHARE.
We obtain significant information through licensing arrangements with
content providers. For example, we do not have a proprietary news source and we
license all of our news content from various sources. Some content providers may
seek to increase licensing fees for providing their proprietary content to us.
If we are unable to renegotiate acceptable licensing arrangements with these
content providers or find alternative sources of equivalent content, we may be
required to reduce our profit margins or experience a reduction in our market
share.
PARTS OF OUR BUSINESSES ARE AFFECTED BY CHANGES IN THE GENERAL ECONOMY, WHICH
MAY ADVERSELY AFFECT OUR FINANCIAL RESULTS.
The performance of parts of our businesses is dependent on the financial
health and strength of our customers, which is in turn dependent on the general
economies in our major markets, North America and Europe. For example, customers
of our financial group, of our corporate training business in our learning group
and of our trademark search business in our legal and regulatory group are
particularly affected by fluctuations in the economy. A significant downturn in
the economy could lead to cost cutting measures by these customers. As a result,
purchases of our products and services may be reduced. In addition,
approximately 4% of our revenues are derived from advertising. During an
economic downturn, spending on advertising generally decreases. Cost-cutting by
our customers and lower spending on advertising in response to a weak economic
climate may adversely affect our financial results.
OUR INTELLECTUAL PROPERTY RIGHTS MAY NOT BE ADEQUATELY PROTECTED, WHICH MAY
ADVERSELY AFFECT OUR FINANCIAL RESULTS.
Many of our products and services are comprised of information delivered
through a variety of media, including books, journals, compact discs, dedicated
transmission lines, the Internet and software-based applications. We rely on
agreements with our customers and patent, trademark, copyright and other
intellectual property laws to establish and protect our proprietary rights in
our products and services. Third parties may be able to copy, infringe or
otherwise profit from our proprietary rights without our authorization. The lack
of specific legislation relating to the protection of intellectual property
rights for content delivered through the Internet or other electronic formats
creates an additional challenge for us in protecting our proprietary rights in
content delivered through these media. We also conduct business in some
countries where the extent of effective legal protection for intellectual
property rights is uncertain. We cannot assure you that we have adequate
protection of our intellectual property rights. If we are not able to protect
our intellectual property rights, our financial results may be adversely
affected.
OUR EFFECTIVE INCOME TAX RATE MAY INCREASE SIGNIFICANTLY, WHICH WOULD HAVE A
NEGATIVE EFFECT ON OUR EARNINGS AND OUR AVAILABLE CASH.
We have benefited from a low effective income tax rate in recent years. In
2001, our effective income tax rate was 18.6% of our earnings before income
taxes, dividends on our preferred shares and our share of losses on our
investments accounted for under the equity method, compared to the statutory
corporate income
16
tax rate in Canada of approximately 40%. Our low effective income tax rate was
due principally to the lower effective tax rates applicable to our operating and
financing subsidiaries in countries outside of Canada. In addition, in the past,
we were able to utilize net operating loss carryforwards to reduce our effective
income tax rate. Most of our remaining loss carryforwards are in Canada. Our
ability to use these loss carryforwards in the future may be limited because our
taxable earnings in Canada may be insufficient. We expect our effective income
tax rate to increase within the next several years and this increase may be
significant. An increase in our effective tax rate could arise as a result of
increases in the proportion of our earnings being generated in countries that
have higher tax rates than our current effective tax rate, including the United
States, the effect of changes in tax legislation and changes in tax treaties
that may increase the amount of tax payable by some of our subsidiaries. An
increase in our effective income tax rate would have an adverse effect on our
earnings and on the amount of cash we have available.
WE HAVE SIGNIFICANT GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS RECORDED ON OUR
BALANCE SHEET WHICH MAY BE SUBJECT TO IMPAIRMENT LOSSES THAT WOULD REDUCE OUR
REPORTED ASSETS AND EARNINGS.
Identifiable intangible assets and goodwill, arising from acquired
businesses, comprise a substantial portion of our total assets. At December 31,
2001, our total assets were approximately $18.4 billion, of which approximately
$7.9 billion, or 43%, was goodwill and approximately $4.9 billion, or 27%, was
identifiable intangible assets. Economic, legal, regulatory, competitive,
contractual and other factors may affect the value of goodwill and identifiable
intangible assets. If any of these factors impair the value of these assets,
accounting rules require us to reduce their carrying value and recognize an
impairment charge, which would reduce our reported assets and earnings in the
year the impairment charge is recognized. In accordance with new accounting
rules, we have recently completed our initial impairment review and have
recognized an impairment charge in the first quarter of 2002 of $67 million,
after tax. We anticipate recording an additional impairment charge of up to $100
million in the second quarter of 2002 in connection with the application of the
new rule by our equity method investees. These charges will not affect our
earnings under Canadian GAAP because they result from a change in accounting
principle and will be charged directly to opening retained earnings in our
consolidated balance sheet, but under U.S. GAAP these amounts will be charged to
our earnings. Further impairment charges may have a material adverse affect on
our financial results.
OUR BUSINESSES RELY HEAVILY ON ELECTRONIC DELIVERY SYSTEMS AND THE INTERNET AND
ANY FAILURES OR DISRUPTIONS MAY ADVERSELY AFFECT OUR ABILITY TO SERVE OUR
CUSTOMERS.
We depend heavily on the capacity, reliability and security of our
electronic delivery systems and the Internet. Heavy use of our electronic
delivery systems and other factors such as loss of service from third parties,
operational failures, sabotage, break-ins and similar disruptions from
unauthorized tampering, human error, national disasters, power loss and computer
viruses could cause our systems to operate slowly or interrupt their
availability for periods of time. Our ability to effectively use the Internet
may be impaired due to infrastructure failures, service outages at third party
Internet providers or increased government regulation. If disruptions, failures
or slowdowns of our electronic delivery systems or the Internet occur, our
ability to distribute our products and services effectively and to serve our
customers may be adversely affected.
RISKS RELATING TO THE OFFERING OF COMMON SHARES
WE CANNOT PREDICT WHETHER AN ACTIVE TRADING MARKET FOR OUR COMMON SHARES WILL
DEVELOP IN THE UNITED STATES OR THE MARKET PRICE AT WHICH OUR COMMON SHARES WILL
TRADE.
Our common shares are currently traded on the Toronto Stock Exchange. In
connection with this offering, we have applied for listing of our common shares
on the New York Stock Exchange. We cannot assure you that an active trading
market in our common shares will develop on the New York Stock Exchange.
You may not be able to resell our common shares at or above the offering
price due to changes in our operating performance, our prospects, market
conditions or analysts' recommendations and estimates of our
17
earnings. In addition, the stock market in general has recently experienced
volatility that often has been unrelated to the operating performance of
particular companies. The broad market and industry fluctuations may adversely
affect the market price of our common shares, regardless of our actual operating
performance.
WE ARE CONTROLLED BY WOODBRIDGE, WHICH IS IN A POSITION TO AFFECT OUR GOVERNANCE
AND OPERATIONS AND MAY SELL ADDITIONAL COMMON SHARES IN THE FUTURE.
Upon completion of the offering, Woodbridge will beneficially own
408,731,173 of our common shares or 63.2% of our outstanding common shares or,
if the overallotment option is exercised, 403,031,173 of our common shares or
62.3% of our outstanding common shares. For as long as Woodbridge has a
controlling interest in us, it will generally be able to approve any matter
submitted to a vote of shareholders without the consent of our other
shareholders, including, among other things, the election of our board of
directors and the amendment of our articles of incorporation and by-laws. In
addition, Woodbridge will be able to exercise a controlling influence over our
business and affairs, the selection of our senior management, the acquisition or
disposition of assets by us, our access to capital markets, the payment of
dividends and any change of control of us, such as a merger or take-over. The
effects of this control may be to limit the price that investors are willing to
pay for our common shares.
Also, we cannot assure you that Woodbridge will not sell any of our common
shares it owns in the future. A sale of our common shares by Woodbridge or
perception of the market that a sale may occur may adversely affect the market
price of our common shares.
WE MAY ISSUE ADDITIONAL COMMON SHARES IN THE FUTURE, WHICH MAY ADVERSELY AFFECT
THE MARKET PRICE OF OUR COMMON SHARES.
We may issue additional common shares in the future. Under our dividend
reinvestment plan, shareholders are entitled to use their dividends to purchase
additional common shares which we issue rather than purchase in the open market.
Woodbridge has agreed to reinvest, until June 30, 2005, at least 50% of the
dividends it and its subsidiaries receive in newly issued shares under our
dividend reinvestment plan. In addition, the granting of stock options, which
entitle the holder to purchase newly issued common shares, is an integral
element of our compensation policies. Additional issuances of common shares by
us or market perception that an issuance may occur, may adversely affect the
market price of our common shares.
18
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
Certain statements included or incorporated by reference in this prospectus
constitute "forward-looking statements" within the meaning of the U.S. Private
Securities Litigation Reform Act of 1995. In addition, the statements in the
section entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Outlook" constitute forward looking statements.
When used in this prospectus, the words "anticipate," "believe," "plan,"
"estimate" and "expect" and similar expressions, as they relate to us or our
management, are intended to identify forward-looking statements. These
forward-looking statements are not historical facts but reflect our current
expectation concerning future results and events. 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,
including the matters discussed under "Risk Factors" and in other sections of
this prospectus, which include, but are not limited to:
- actions of our competitors,
- failure of our significant investments in technology to increase our
revenues or decrease our operating costs,
- failure to fully derive anticipated benefits from our acquisitions,
- failure to develop additional products and services to meet our
customers' needs, attract new customers or expand into new geographic
markets,
- failure to meet the special challenges involved in expansion of our
operations outside North America,
- failure to recruit and retain high quality management and key employees,
- consolidation of our customers,
- increased self-sufficiency of our customers,
- 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,
- inadequate protection of our intellectual property rights,
- an increase in our effective income tax rate,
- impairment of goodwill and identifiable intangible assets,
- failures or disruptions of our electronic delivery systems or the
Internet, and
- actions, or potential actions that could be taken by Woodbridge.
We caution you not to place undue reliance on these forward-looking
statements which reflect our view only as of the date of this prospectus. 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.
19
USE OF PROCEEDS
The net proceeds to us from the sale of 14,615,385 of our common shares are
estimated to be approximately $ million, after deducting underwriting
commissions and estimated offering expenses payable by us. Such commissions and
expenses will be paid out of our general funds. We will not receive any of the
proceeds from the sale of common shares by Woodbridge.
We intend to use the net proceeds from this offering for general corporate
purposes, including the repayment of indebtedness.
DIVIDENDS
POLICY AND REINVESTMENT COMMITMENT
We presently pay quarterly dividends on our common shares and intend to
continue to do so.
Our policy is to pay dividends at a rate that takes into account all
factors that our board of directors considers relevant, including our earnings,
available free cash flow, financial condition and capital requirements. Our
dividend rate also takes into account Woodbridge's agreement to reinvest, until
June 30, 2005, at least 50% of the dividends it and its subsidiaries receive in
newly issued shares under our dividend reinvestment plan. Woodbridge originally
made this commitment in 1989 and it has since been extended, most recently on
May 1, 2002.
Our board of directors periodically reviews our dividend policy. The
declaration of dividends by our board of directors and the amount of those
dividends may be adjusted or eliminated at the discretion of our board of
directors.
PAYMENTS
During the past twelve months, quarterly dividends of $0.175 per common
share were paid on June 15, 2001, September 17, 2001, December 17, 2001 and
March 15, 2002. Dividends on our common shares are paid in United States dollars
but our common shareholders have the option to receive dividends in equivalent
Canadian funds. Some of our common shareholders who are resident in the United
Kingdom hold related shares of The Thomson Corporation PLC, a subsidiary of
ours, which give them the option to receive dividends from Thomson PLC in
equivalent British pounds sterling. We have given notice that we will redeem the
related shares of Thomson PLC on June 17, 2002 but will maintain the option for
our common shareholders to receive dividends in equivalent British pounds
sterling from us. See "Description of Share Capital."
DIVIDEND REINVESTMENT PLAN
Under our dividend reinvestment plan, our common shareholders may elect to
have their dividends reinvested in additional common shares which are newly
issued rather than purchased in the market. The price per common share is
calculated by reference to the weighted average price of our common shares on
the Toronto Stock Exchange during the five trading days immediately preceding
the record date for each dividend payment. No brokerage commissions are payable
in connection with the purchase of common shares under our dividend reinvestment
plan and all administrative costs are borne by us. Currently, our dividend
reinvestment plan is not available to shareholders resident in the United States
but we intend to extend it to these shareholders concurrently with our listing
on the New York Stock Exchange.
20
MARKET AND PRICE RANGE OF COMMON SHARES
Our common shares are listed and trade on the Toronto Stock Exchange under
the symbol TOC. The following table shows, for the periods indicated, the high
and low sale prices of our common shares as reported on the Toronto Stock
Exchange.
HIGH LOW
--------- ---------
2002
First Quarter........................................... Cdn$54.00 Cdn$44.70
Second Quarter (through May 1, 2002).................... 57.00 52.26
2001
First Quarter........................................... Cdn$58.00 Cdn$48.50
Second Quarter.......................................... 55.40 50.50
Third Quarter........................................... 53.00 41.05
Fourth Quarter.......................................... 49.75 42.30
2000
First Quarter........................................... Cdn$55.50 Cdn$37.00
Second Quarter.......................................... 55.15 45.60
Third Quarter........................................... 62.75 51.00
Fourth Quarter.......................................... 64.50 53.25
On May 1, 2002, the closing sale price of our common shares as reported on
the Toronto Stock Exchange was Cdn$53.80 (U.S.$34.53, converted at the noon
buying rate in the city of New York for cable transfers in Canadian dollars as
certified for customs purposes by the Federal Reserve Bank of New York). On May
1, 2002, there were 632,113,974 common shares issued and outstanding.
21
CAPITALIZATION
The following table sets out our consolidated capitalization at March 31,
2002, and as adjusted to reflect the offering of common shares and the
application of net proceeds as described under "Use of Proceeds."
MARCH 31, 2002
-------------------------
ACTUAL AS ADJUSTED
------- --------------
(UNAUDITED, IN MILLIONS)
Short-term debt(1).......................................... $ 581 $
Current portion of long-term debt(1)........................ 654
Long-term debt (less current portion)(1).................... 3,876
------- -------
Total debt............................................. $ 5,111 $
------- -------
Shareholders' equity:
Series II, cumulative redeemable preference shares
(authorized, issued and outstanding -- 6,000,000)......... $ 110 $
Series V, cumulative redeemable preference shares, no par
value
(authorized, issued and outstanding -- 18,000,000)........ 332
Common shares (authorized -- unlimited; issued and
outstanding -- 632,112,974; as adjusted --
646,728,359)(2)........................................... 1,796
Cumulative translation adjustment........................... (286)
Retained earnings........................................... 6,042
------- -------
Total shareholders' equity............................. 7,994
------- -------
Total capitalization(3)................................ $13,105 $
======= =======
---------------
(1) Includes amounts which represent the carrying value of currency swaps
related to our debt. Carrying values of currency swaps are included within
"Other non-current liabilities" and "Accounts payable and accruals" in our
consolidated balance sheet and are related to the components of debt as
follows: short-term debt $(1 million), current portion of long-term debt
$60 million, and long-term debt $177 million.
(2) Based on 632,112,974 common shares outstanding at March 31, 2002. Excludes
7,138,013 common shares issuable upon exercise of outstanding options at
March 31, 2002 issued pursuant to our stock incentive plan. Included in
stated capital is $0.7 million related to the 5,610,766 common shares of
Thomson PLC held by holders of the same number of our common shares and the
10,982,764 "A" ordinary shares of Thomson PLC held by Woodbridge.
(3) Other than as reflected in this table, there has been no material change to
our consolidated capitalization since March 31, 2002.
22
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following selected historical consolidated financial and operating data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our audited consolidated
financial statements and related notes that are included elsewhere in this
prospectus. The income statement data for each of the three years ended December
31, 2001 and the balance sheet data at December 31, 2000 and 2001 are derived
from our audited consolidated financial statements for the three year period
ended December 31, 2001 and at December 31, 2000 and 2001 audited by
PricewaterhouseCoopers LLP, independent chartered accountants, beginning on page
F-1. Historical results of operations are not necessarily indicative of future
results.
Our results for the year ended December 31, 1999 reflect the results of
Macmillan Library Reference and Aranzadi from July 1999, in each case the month
in which we acquired the business. Our results for the year ended December 31,
2000 reflect the results of Prometric from March 2000, the results of Dialog
from May 2000, and the results of Carson and Primark from September 2000, in
each case the month in which we acquired the business. Our results for the year
ended December 31, 2001 reflect the results of the interest in First Call we
previously did not own from June 2001, the results of the acquired Harcourt
businesses from July 2001 and the results of NewsEdge from September 2001, in
each case the month in which we acquired the business or interest. In addition
to the acquisition of these larger businesses and interest, our results also
reflect the acquisition and disposition of smaller businesses that occurred in
each respective period. As a result of these acquisitions and dispositions, the
results in each period are not directly comparable.
Our consolidated financial statements are prepared in accordance with
Canadian GAAP, which differs in certain significant respects from U.S. GAAP. See
our reconciliation to U.S. GAAP beginning on page F-34 for a discussion of the
principal differences between Canadian GAAP and U.S. GAAP applicable to our
consolidated financial statements and a reconciliation of our earnings to those
under U.S. GAAP.
YEAR ENDED DECEMBER 31,
------------------------------------------
1999 2000 2001
------------ ------------ ------------
CANADIAN GAAP (IN MILLIONS, EXCEPT SHARE RELATED DATA)
CONSOLIDATED INCOME STATEMENT DATA:
Revenues........................................... $5,752 $6,514 $7,237
Cost of sales, selling, marketing, general and
administrative expenses.......................... (4,345) (4,980) (5,451)
------------ ------------ ------------
Earnings before interest, tax, depreciation,
amortization, restructuring charges and Year 2000
costs(1)......................................... 1,407 1,534 1,786
Depreciation....................................... (386) (416) (476)
------------ ------------ ------------
Operating profit before amortization, restructuring
charges and Year 2000 costs(1)................... 1,021 1,118 1,310
Amortization....................................... (258) (327) (444)
Restructuring charges.............................. (38) (37) (30)
Year 2000 costs.................................... (91) (4) --
------------ ------------ ------------
Operating profit after amortization, restructuring
charges and Year 2000 costs...................... 634 750 836
Net gains on disposals of businesses and
investments...................................... 52 38 302
Net interest expense and other financing costs..... (186) (204) (236)
Income taxes....................................... (63) 15 (168)
Equity in losses of associates, net of tax......... -- -- (50)
Dividends declared on preference shares............ (28) (28) (27)
------------ ------------ ------------
Earnings from continuing operations................ 409 571 657
Earnings from discontinued operations.............. 123 652 92
------------ ------------ ------------
Earnings attributable to common shares............. $ 532 $1,223 $ 749
============ ============ ============
23
YEAR ENDED DECEMBER 31,
------------------------------------------
1999 2000 2001
CANADIAN GAAP ------------ ------------ ------------
(IN MILLIONS, EXCEPT SHARE RELATED DATA)
CONSOLIDATED INCOME STATEMENT DATA:
Basic and diluted earnings per common share:
From continuing operations....................... $0.66 $ 0.92 $1.05
From discontinued operations..................... 0.20 1.04 0.14
------------ ------------ ------------
$0.86 $ 1.96 $1.19
============ ============ ============
Weighted average common shares outstanding:
Basic............................................ 618,092,000 623,242,191 627,747,972
Diluted.......................................... 618,092,000 623,776,305 628,239,466
OTHER DATA:
Earnings from continuing operations................ $ 409 $ 571 $ 657
Adjustment for one-time items, net of tax,
resulting from net (gains) losses on disposals of
businesses and investments, restructuring charges
and Year 2000 costs.............................. 52 2 (206)
One-time tax benefits.............................. -- (105) --
------------ ------------ ------------
Adjusted earnings from continuing operations
(unaudited)(1)(2)................................ $ 461 $ 468 $ 451
============ ============ ============
Adjusted earnings per common share from continuing
operations (unaudited)(1)(2)..................... $0.75 $ 0.75 $0.72
============ ============ ============
Capital expenditures............................... $ 472 $ 585 $ 684
CONSOLIDATED BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents.......................... $ 337 $ 532
Working capital(3)................................. (260) (506)
Total assets....................................... 15,699 18,402
Total debt(4)...................................... 3,059 4,982
Total shareholders' equity......................... 7,818 8,220
U.S. GAAP
CONSOLIDATED INCOME STATEMENT DATA:
Income from continuing operations.................. $ 365 $ 589 $ 543
Income from discontinued operations................ 120 743 9
------------ ------------ ------------
Net income......................................... $ 485 $1,332 $ 552
============ ============ ============
Basic and diluted earnings per common share:
From continuing operations....................... $0.55 $ 0.90 $0.82
From discontinued operations..................... 0.19 1.19 0.02
------------ ------------ ------------
$0.74 $ 2.09 $0.84
============ ============ ============
OTHER DATA:
Earnings before interest, tax, depreciation,
amortization, restructuring charges and Year 2000
costs
(unaudited)(1)................................... $1,377 $ 1,523 $ 1,759
Depreciation....................................... (386) (416) (476)
------------ ------------ ------------
Operating profit before amortization, restructuring
charges and Year 2000 costs (unaudited)(1)....... $ 991 $ 1,107 $ 1,283
============ ============ ============
24
YEAR ENDED DECEMBER 31,
------------------------------------------
1999 2000 2001
------------ ------------ ------------
(IN MILLIONS, EXCEPT SHARE RELATED DATA)
U.S. GAAP
CONSOLIDATED BALANCE SHEET DATA (AT PERIOD END):
Total assets....................................... $14,929 $17,672
Total shareholders' equity......................... 7,312 7,681
REVENUE DATA
Components of revenue (unaudited)(5):
Electronic delivery based........................ 48% 52% 54%
Advertising based................................ 5 5 4
Subscription based............................... 60 60 61
Percentage of revenue by geographic segments (by
origin):
North America.................................... 88 86 83
International.................................... 12 14 17
---------------
(1) EBITDA and adjusted operating profit are used by us to measure our operating
performance, including our ability to generate cash flow. Among other
things, EBITDA eliminates the differences that arise between businesses due
to the manner in which they were acquired, funded or recorded. In
particular, EBITDA excludes the effects of amortization of identifiable
intangible assets and goodwill, which is a non-cash charge arising from
acquisitions accounted for under the purchase method of accounting. Adjusted
operating profit reflects depreciation expense but eliminates the effects of
amortization of identifiable intangible assets and goodwill, restructuring
charges and Year 2000 costs. Because we do not consider these items to be
operating costs, we exclude them from the measurement of our operating
performance. We also measure adjusted earnings from continuing operations to
assist in comparing them from one period to another. EBITDA, adjusted
operating profit, adjusted earnings from continuing operations and related
measures do not have any standardized meaning prescribed by GAAP and
therefore are unlikely to be comparable with the calculation of similar
measures for other companies, and should not be viewed as alternatives to
operating profits, cash flow from operations, net income or other measures
of financial performance calculated in accordance with GAAP.
(2) The calculation of adjusted earnings from continuing operations is set out
within "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Results of Operations" included elsewhere in this
prospectus.
(3) Working capital represents current assets less current liabilities of
continuing operations, excluding cash, short-term indebtedness and current
portion of long-term debt.
(4) Total debt includes short-term indebtedness, current portion of long-term
debt and long-term debt, as well as amounts which represent the carrying
value of currency swaps related to our debt. Carrying values of currency
swaps are included within "Other non-current liabilities" and "Accounts
payable and accruals" and total $197 million and $238 million in our
December 31, 2000 and 2001 consolidated balance sheets, respectively.
(5) Represents percentage of revenues from ongoing businesses, which exclude
disposals. Disposals consist of results of businesses sold or held for sale
which do not qualify as discontinued operations.
25
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following management's discussion and analysis of financial condition
and results of operations, or MD&A, for the years ended December 31, 1999, 2000
and 2001 should be read with "Selected Consolidated Financial and Operating
Data" and our consolidated financial statements and related notes that are
included elsewhere in this prospectus. Certain information contained in MD&A,
particularly under the heading "Outlook," are forward-looking statements that
are not historical facts but reflect our current expectation concerning future
results. Our actual results may differ materially from the results discussed in
the forward-looking statements because of a number of risks and uncertainties,
including the matters discussed below and elsewhere in this prospectus,
particularly under the heading "Risk Factors." Our MD&A is based on financial
statements prepared in accordance with Canadian GAAP, which differs in certain
significant respects from U.S. GAAP. See our reconciliation to U.S. GAAP
beginning on page F-34 for a discussion of the principal differences between
Canadian GAAP and U.S. GAAP applicable to our consolidated financial statements
and a reconciliation of our earnings to those under U.S. GAAP.
OVERVIEW
We are a global leader in providing integrated information solutions to
business and professional customers. We serve customers in the following
sectors: law, tax, accounting, financial services, higher education, reference
information, corporate training and assessment, scientific research and
healthcare. We believe these sectors are both fundamental to economic
development globally and consequently have potential for consistent long-term
growth. We organize our operations in four market groups that are structured on
the basis of the customers they serve:
- Thomson Legal and Regulatory,
- Thomson Learning,
- Thomson Financial, and
- Thomson Scientific and Healthcare.
We report the financial results of our four market groups together with
those of our corporate and other reporting category. Corporate and other
includes corporate costs, costs associated with our stock appreciation rights,
minority interests and the results of Thomson Media which was previously
designated for sale but subsequently retained.
We earn our revenues from sales of subscription-based products, other
products and services and advertising. In 2001, approximately 61% of our
revenues were generated under subscription agreements, 35% from other products
and services and only 4% from advertising. A significant component of our
revenues included in the category "other" is sales of textbooks from our
publishing businesses. Our revenues are generally recurring or predictable. Our
revenues are also diversified. In addition to having multiple lines of business,
we have over 20 million users in approximately 130 countries worldwide and no
single customer accounts for more than 2% of our revenues.
Subscription revenues are from sales of products and services that are
delivered under contract over a period of time. These revenues are primarily
recognized ratably over the term of the subscription. Our subscription
arrangements are most often for a term of one year, after which they are
renewable at our customers' option, and the renewal dates of our subscriptions
are spread over the course of the year. In the case of some of our subscription
arrangements, additional fees are realized based upon usage. Subscription
payments received or receivable in advance of delivery of our products and
services are included in our deferred revenue account on our consolidated
balance sheet. As subscription-based products and services are delivered to
subscribers, the proportionate share of deferred revenue is recognized as
revenue in our consolidated statement of earnings and our deferred revenue
account is reduced. At December 31, 2001, our deferred revenue account was $882
million, representing approximately 12% of our revenues in 2001.
26
Our revenues from sales of some products, primarily our textbooks, are
recognized after we estimate customer returns. Our textbooks and related
products are sold to bookstores on terms that allow them to return the books to
us if they are unsold. We continue to pursue opportunities to reduce the number
of books returned to us and have introduced programs which utilize incentives to
encourage our customers to order an appropriate number of books. Since the
introduction of these programs in 1998, our return rates have improved
significantly.
We segment our financial results geographically by origin in our financial
statements, on the basis of the location of our operations that produces the
product or service. The following table presents a summary of our revenues,
before intercompany eliminations, segmented geographically for the past three
years.
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1999 2000 2001
------------- ------------- -------------
(IN MILLIONS)
North America.......................... $5,061 88% $5,644 86% $6,096 83%
International.......................... 691 12 911 14 1,232 17
Many of our products and services developed originally for North America
can be modified and offered internationally without excessive customization or
translation and represent 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 where we cannot increase our prices
proportionately.
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. Information is delivered electronically over the
Internet, through dedicated transmission lines, on compact discs and more
recently through hand-held wireless devices. In 2001, 54% of our revenues from
ongoing businesses were derived from products and services delivered
electronically, an increase from 52% in 2000 and 48% in 1999. As we expand
electronic delivery of our products and services, we improve our ability to
provide additional products and services to our existing customers and to access
new customers around the world. This allows us to increase our revenues and
expand our margins because products and services delivered electronically
generally have lower variable costs then those that are print-based.
Our most significant expense is labor. Labor includes all costs related to
our employees, including salaries, bonuses, commissions, benefits and payroll
taxes but does not include costs related to our stock appreciation rights. Labor
represented over 55% of our cost of sales, selling, marketing, general and
administrative expenses (operating costs) in 2001. No other category of expenses
accounts for more than 10% of our operating costs.
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. Our technology spending is capitalized where we can
demonstrate future benefits and otherwise expensed when incurred. Over the past
three years our total capital expenditures have been $1.7 billion of which
approximately 70% was on technology. We expect our investment in technology to
continue at significant levels, although we expect the percentage of our
revenues that we spend on technology will decrease because we have largely
completed our transformation into a provider of integrated information solutions
which required a significant initial investment in technology.
Beyond labor costs and technology spending, the operating costs of our
market groups and our individual businesses vary widely. The most significant
additional cost item is the cost related to the development and production of
textbooks for our print businesses, including the costs of paper and the
printing and binding of the books. In these businesses, some of our editorial
costs are capitalized and depreciated over the expected life of the edition.
27
During the past three years we completed 88 acquisitions with an aggregate
cost of over $5 billion. During this period, acquired businesses generated a
significant portion of the growth in our revenue and a lesser portion of the
growth in our operating profit. Generally the businesses we have acquired have
had lower margins initially than our existing businesses.
The acquisition of Prometric, Primark and Carson in 2000 and the higher
education and corporate training businesses of Harcourt in 2001 were large
strategic acquisitions which significantly enhanced the scale and scope of the
market group to which they were added. Our significant acquisitions have been
initially dilutive to our earnings principally as a result of the amortization
of goodwill and identifiable intangible assets.
Many of our other acquisitions were tactical acquisitions where we
purchased information or products or services that we integrated into our
operations to broaden the range of our product and service offerings. As
alternatives to the development of new products and services, these acquisitions
had 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. Because we often combine the acquired products and services with our
existing offerings, it is increasingly difficult for us to determine the
contribution acquired businesses make to our revenues and operating profits. In
addition, we generally incur costs such as severance payments to terminate
employees and contract cancellation fees when we integrate businesses. Prior to
2001, we were able to capitalize many of these costs which spread them over a
longer period. Under new accounting rules applicable from January 1, 2001,
certain costs that previously had been permitted to be capitalized as part of
the purchase price now must be included as operating costs or restructuring
costs.
At the time of an acquisition, acquired identifiable intangible assets are
recorded at their fair value on our balance sheet. Goodwill represents the
excess of the cost of the acquired business over values attributed to underlying
net tangible assets and identifiable intangible assets. Prior to July 1, 2001,
we were required to amortize all identifiable intangible assets and goodwill
over their estimated lives which reduced our earnings. For business combinations
consummated on or after July 1, 2001, identifiable intangible assets with
indefinite lives and goodwill resulting from these business combinations are not
amortized. Effective January 1, 2002, all identifiable intangible assets with
indefinite lives and goodwill, including those acquired prior to July 1, 2001,
will no longer be amortized. As a result of these changes in accounting
standards, we will have lower amortization charges in the future. See "--
Critical Accounting Policies -- Valuation of Identifiable Intangible Assets and
Goodwill."
Our consolidated financial statements are expressed in U.S. dollars but a
portion of our business is carried on in currencies other than U.S. dollars.
Changes in the exchange rate for such currencies into U.S. dollars can affect
our revenues, earnings and the value of our assets and liabilities on our
consolidated balance sheet either positively or negatively. For 2001, the effect
of changes in exchange rates decreased our revenues by approximately 1% and our
operating profit by less than 1%. The translation effects of changes in exchange
rates on our consolidated balance sheet are recorded within the cumulative
translation adjustment component of our shareholders' equity. For 2001, we
increased our unrealized cumulative translation losses by $71 million,
reflecting changes in exchange rates of currencies compared to the U.S. dollar,
partially offset by reductions due to disposals of businesses.
SEASONALITY
Typically, a much greater portion of our operating profit and operating
cash flow arises in the second half of the year. Customer buying patterns are
concentrated in the second half of the year, particularly in the learning and
regulatory markets, while costs are spread more evenly throughout the year. As a
result, our operating margins generally increase as the year progresses. For
these reasons, the performance of our business 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 results in the same quarter
for the previous year.
28
USE OF EBITDA, ADJUSTED OPERATING PROFIT AND ADJUSTED EARNINGS FROM CONTINUING
OPERATIONS
Earnings before interest, tax, depreciation, amortization, restructuring
charges and Year 2000 costs (EBITDA), and operating profit before amortization,
restructuring charges and Year 2000 costs (adjusted operating profit) are used
by us to measure our operating performance, including our ability to generate
cash flow. Among other things, EBITDA eliminates the differences that arise
between businesses due to the manner in which they were acquired, funded or
recorded. In particular, EBITDA excludes the effects of amortization of
identifiable intangible assets and goodwill, which is a non-cash charge arising
from acquisitions accounted for under the purchase method of accounting.
Adjusted operating profit reflects depreciation expense but eliminates the
effects of amortization of identifiable intangible assets and goodwill,
restructuring charges and Year 2000 costs. Because we do not consider these
items to be operating costs, we exclude them from the measurement of our
operating performance. We also measure our earnings from continuing operations
to adjust for non-recurring items (adjusted earnings from continuing operations)
to assist in comparing them from one period to another. EBITDA, adjusted
operating profit, adjusted earnings from continuing operations and related
measures do not have any standardized meaning prescribed by GAAP and therefore
are unlikely to be comparable with the calculation of similar measures for other
companies, and should not be viewed as alternatives to operating profit, cash
flow from operations, net income or other measures of financial performance
calculated in accordance with GAAP. EBITDA and adjusted operating profit are
included in our income statement which allows you to reconcile them with
standard GAAP measures. We reconcile our adjusted earnings from continuing
operations to our earnings from continuing operations under GAAP in the table
below and in the following discussion.
RESULTS OF OPERATIONS
Our results from continuing operations exclude the results of our
discontinued newspaper operations, discussed under "-- Discontinued Operations"
below. Our results from ongoing businesses for each of our market groups exclude
the results of businesses sold or held for sale (disposals). The principal
businesses included in disposals were The Globe and Mail, Mitchell International
and Jane's Information Group in 1999, The Globe and Mail, Mitchell International
and Jane's in 2000 and The Globe and Mail, Jane's and various businesses in our
financial group in 2001.
The following table presents a summary of our segmented and consolidated
operating results from continuing operations for the past three years.
YEAR ENDED DECEMBER 31,
------------------------
1999 2000 2001
------ ------ ------
(IN MILLIONS)
REVENUES:
Legal and Regulatory..................................... $2,346 $2,619 $2,827
Learning................................................. 989 1,388 1,851
Financial................................................ 919 1,201 1,590
Scientific and Healthcare................................ 611 653 697
Corporate and other(1)................................... 259 272 242
Intercompany eliminations................................ -- (29) (32)
------ ------ ------
Ongoing businesses....................................... $5,124 $6,104 $7,175
Disposals(2)............................................. 628 410 62
------ ------ ------
Total revenues........................................... $5,752 $6,514 $7,237
====== ====== ======
29
YEAR ENDED DECEMBER 31,
------------------------
1999 2000 2001
------ ------ ------
(IN MILLIONS)
EBITDA:
Legal and Regulatory..................................... $ 709 $ 775 $ 855
Learning................................................. 248 358 406
Financial................................................ 278 330 405
Scientific and Healthcare................................ 131 164 176
Corporate and other(1)................................... (39) (98) (52)
------ ------ ------
Ongoing businesses....................................... $1,327 $1,529 $1,790
Disposals(2)............................................. 80 5 (4)
------ ------ ------
Total EBITDA............................................. $1,407 $1,534 $1,786
====== ====== ======
ADJUSTED OPERATING PROFIT:
Legal and Regulatory..................................... $ 581 $ 647 $ 708
Learning................................................. 149 234 264
Financial................................................ 186 220 257
Scientific and Healthcare................................ 106 140 151
Corporate and other(1)................................... (47) (106) (60)
------ ------ ------
Ongoing businesses....................................... $ 975 $1,135 $1,320
Disposals(2)............................................. 46 (17) (10)
------ ------ ------
Total adjusted operating profit.......................... $1,021 $1,118 $1,310
====== ====== ======
SUPPLEMENTAL INFORMATION:
Earnings from continuing operations...................... $ 409 $ 571 $ 657
Adjust for one-time items:
Net (gains) on disposals of businesses and
investments......................................... (52) (38) (302)
Restructuring charges................................. 38 37 30
Year 2000 costs....................................... 91 4 --
Tax on above items.................................... (25) (1) 66
One-time tax benefits................................. -- (105) --
------ ------ ------
Adjusted earnings from continuing operations............. $ 461 $ 468 $ 451
====== ====== ======
---------------
(1) Includes the following operating results of Thomson Media: revenues for
1999 -- $259 million, 2000 -- $272 million, 2001 -- $242 million; EBITDA
for 1999 -- $56 million, 2000 -- $43 million, 2001 -- $12 million; adjusted
operating profit for 1999 -- $48 million, 2000 -- $35 million, 2001 -- $4
million.
(2) Disposals consists of the results of businesses sold or held for sale which
do not qualify as discontinued operations.
YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000
Consolidated Operations
Our total revenues in 2001 increased by 11% to $7,237 million. Revenues
from our ongoing businesses increased in 2001 by 18% to $7,175 million due to
organic growth in each of our market groups, significant contributions from the
acquisition of the higher education and corporate training businesses of
Harcourt in July 2001, and the inclusion of the full year results of Primark and
Carson which we acquired in September 2000. Revenues from electronic products
and services accounted for 54% of our revenues from ongoing businesses, a slight
increase from 52% in 2000.
30
Our revenues from North America in 2001, prior to the elimination of
intercompany revenues, increased 8% to $6,096 million, accounting for 83% of our
total revenues. Our revenues from outside North America increased 35% to $1,232
million, accounting for 17% of our total revenues.
Our EBITDA in 2001 increased 16% to $1,786 million, a margin of 24.7%, an
increase from 23.5% in 2000. Our EBITDA from ongoing businesses increased 17% to
$1,790 million, a margin of 24.9%, a slight decrease from our 25.0% margin in
2000.
Our total adjusted operating profit in 2001 increased 17% to $1,310
million, a margin of 18.1%, an increase from 17.2% in 2000. Our adjusted
operating profit from ongoing businesses in 2001 increased 16% to $1,320
million, a margin of 18.4%, a slight decrease from our 18.6% margin in 2000.
The increases in our EBITDA and our adjusted operating profit resulted
primarily from our increased revenues but were also impacted by lower expenses
incurred in connection with our stock appreciation rights over the preceding
year's. Costs related to our stock appreciation rights are linked to changes in
the market price of our common shares and reflected a decrease in the trading
price of our common shares during the year. The slight decrease in our margins
for our ongoing businesses was primarily the result of integration costs
incurred in connection with the acquisition of selected Harcourt businesses.
Depreciation in 2001 increased 14% to $476 million as a result of our
recent acquisitions and increased capital expenditures over the preceding year's
in three of our four market groups. Amortization in 2001 increased 36% to $444
million also as a result of our recent acquisitions.
We incurred restructuring charges in 2001 of $30 million, of which $20
million related to the integration of the Harcourt businesses, $8 million
related to strategic initiatives in our legal and regulatory group commenced in
the previous year to improve operational efficiencies and eliminate
non-strategic and unprofitable products and $2 million related to the
reorganization of certain magazine operations within our scientific and
healthcare group to eliminate non-strategic and unprofitable products.
Our net gains on disposals of businesses and investments in 2001 of $302
million on a pre-tax basis related primarily to the $317 million gain on the
disposal of The Globe and Mail in January 2001 and the $80 million gain on the
disposal of Jane's in April 2001, which were partially offset by a reduction of
$100 million in the carrying values of certain investments to reflect their fair
market value.
Our interest expense and other financing costs in 2001 increased 16% to
$236 million. The increase reflects increased borrowings to finance our
acquisitions, in particular the acquisition of selected Harcourt businesses.
Our income tax expense in 2001 of $168 million represents 18.6% of our
earnings before income taxes, dividends on our preferred shares and our
proportionate share of losses on investments accounted for under the equity
method. This compares with an equivalent rate in 2000 of 15.4%, excluding $105
million of tax benefits principally associated with the disposal of The Globe
and Mail. Our low effective income tax rate compared to the statutory corporate
income tax rate in Canada in 2001 of approximately 40%, was due principally to
the lower effective tax rates applicable to our operating and financing
subsidiaries in countries outside Canada. In addition, in 2000, we were able to
utilize net operating loss carryforwards to reduce our effective income tax
rate. We expect our effective income tax rate to increase over the next several
years.
Our earnings in 2001 decreased 39% to $749 million principally as a result
of the gain we recognized in 2000 on the disposition of substantially all of our
newspaper group. Our earnings from continuing operations in 2001 increased 15%
to $657 million.
After adjusting for the after-tax effects of restructuring charges, net
gains on disposals of businesses and investments and Year 2000 costs, our
adjusted earnings from continuing operations in 2001 were $451 million. This
represents a decrease of 4% compared to 2000 on the same basis and also after
removing the one-time tax benefit recognized in that year. Our adjusted earnings
from continuing operations decreased in 2001 because growth from our existing
businesses was more than offset by dilution from our recent acquisitions and our
proportionate share of net losses of our investments accounted for under the
equity method.
31
Our capital expenditures in 2001 increased 17% to $684 million.
Approximately 70% of our capital expenditures related to our continued
investment in technology to expand our operations and support the production and
delivery of electronic products and services.
Thomson Legal and Regulatory
Revenues from our ongoing businesses in 2001 increased 8% to $2,827
million. The increase reflected a combination of modest growth in our existing
businesses as well as contributions from acquisitions. The growth attributable
to existing businesses reflected growth in revenues from Westlaw in excess of
10%, including the expansion of Westlaw outside the United States. Expansion in
revenues from Westlaw reflected the continuing trend toward increased use of our
electronic products and services. In addition, revenues from some of our
print-based products, such as legal textbooks, increased. These increases were
partially offset by unfavorable changes in currency exchange rates and reduced
demand for trademark searches as a result of the weak economic climate. The
increase in revenues attributable to acquisitions reflected acquisitions
completed in 2001, including non-content businesses such as ProLaw and BAR/BRI,
and the inclusion of the first full year of results from acquisitions made in
2000. Revenues from electronic products and services accounted for 52% of the
group's revenues from ongoing businesses, unchanged from the previous year.
EBITDA from our ongoing businesses in 2001 increased 10% to $855 million
and our adjusted operating profit from ongoing businesses in 2001 increased 9%
to $708 million. Our EBITDA margin in 2001 increased to 30.2% compared to 29.6%
in 2000 and our adjusted operating profit margin in 2001 increased to 25.0%
compared to 24.7% in 2000. Increases in EBITDA and adjusted operating profit
reflect the increased revenues discussed above. Margin improvements were the
result of increased sales of higher-margin products, the realization of benefits
from restructuring efforts in our tax and accounting businesses to eliminate
non-strategic and unprofitable products, and cost management programs initiated
in response to the weak economic climate.
Our capital expenditures in 2001 increased 10% to $198 million, reflecting
recently acquired businesses, new product development, ongoing expenditures on
infrastructure to support our online services and internal business systems and
a one-time expenditure on a new enterprise resource planning system at West.
Thomson Learning
Revenues from our ongoing businesses in 2001 increased 33% to $1,851
million. While revenues from our existing businesses increased, a substantial
portion of the overall increase resulted from the acquisition of the Harcourt
businesses in July 2001, and from the inclusion of the first full year of
results from acquisitions made in 2000. Our existing academic businesses
generated increased revenues as a result of our targeted sales efforts, but this
was partially offset by reduced revenues in our lifelong learning business due
to a weaker market for information technology training and development. Revenues
from electronic products and services accounted for 31% of the group's revenues
from ongoing businesses, unchanged from the previous year.
EBITDA from our ongoing businesses in 2001 increased 13% to $406 million
and our adjusted operating profit from ongoing businesses in 2001 increased 13%
to $264 million. These increases were primarily the result of increased
operating efficiencies, higher revenues throughout the group and cost savings
resulting from the integration of the Harcourt businesses. Our EBITDA margin in
2001 decreased to 21.9% compared to 25.8% in 2000 and our adjusted operating
profit margin in 2001 decreased to 14.3% compared to 16.9% in 2000. These margin
decreases primarily resulted from one-time costs related to our acquisition of
the Harcourt businesses, as well as lower revenues in our corporate training and
testing business.
Our capital expenditures in 2001 increased 21% to $200 million, reflecting
our ongoing investment in technology to support new and existing products, our
one-time investment to build our new textbook distribution center, and spending
related to the newly acquired Harcourt businesses.
32
Thomson Financial
Revenues from our ongoing businesses in 2001 increased 32% to $1,590
million, primarily as a result of the inclusion of the first full year of
results of Primark and Carson, which we acquired in September 2000. The
integration of Primark and Carson with our existing businesses allowed us to
offer enhanced products to our customers and provided a strong market position
in Europe. In our existing businesses, we experienced modest growth despite the
negative financial impact of September 11 and weak financial markets, which led
to reduced trading volumes, slower merger and acquisition and initial public
offering activity, cost-cutting measures by our customers and industry
consolidation. Revenues from electronic products and services represented 89% of
the group's revenues from ongoing businesses, an increase from 80% in the
previous year.
EBITDA from our ongoing businesses in 2001 rose 23% to $405 million and our
adjusted operating profit from ongoing businesses in 2001 increased 17% to $257
million. The integration of Primark and Carson with our existing businesses
allowed us to increase operating efficiencies because we reduced the number of
separate databases we maintain and centralized certain administrative functions.
Growth in EBITDA and adjusted operating profit from ongoing businesses reflects
some of the synergies from this program. Our EBITDA margin in 2001 decreased to
25.5% compared to 27.5% in 2000 and our adjusted operating profit margin in 2001
decreased to 16.2% compared to 18.3% in 2000. The margin decreases relate to the
businesses we acquired in 2000 which initially have lower margins than our
existing businesses.
Our capital expenditures in 2001 increased 25% to $239 million, primarily
reflecting one-time expenditures on the group's new headquarters in New York,
ILX's new data center and Omgeo's trade management project.
Thomson Scientific and Healthcare
Revenues from our ongoing businesses in 2001 increased 7% to $697 million.
About half of this increase was attributable to existing businesses, primarily
within our scientific business. Within our scientific business, revenue
increases resulted from the increased sales of the ISI Web of Science and
Derwent's patent subscription products and gene sequence database, reflecting
enhanced content offerings and the functionality of these products. In our
healthcare business, our existing Micromedex drug and clinical information
databases generated increased revenues. This was partly offset by a decrease in
advertising revenues in our healthcare magazine businesses, as pharmaceutical
company promotional spending shifted away from magazines. The remainder of the
increase in revenues resulted from the inclusion of the first full year of
results of Physicians World, which was acquired in August 2000. Revenues from
electronic products and services represented 53% of the group's revenues from
ongoing businesses, unchanged from the previous year.
EBITDA from our ongoing businesses in 2001 increased 7% to $176 million and
our adjusted operating profit from ongoing businesses in 2001 increased 8% to
$151 million. Our EBITDA margin in 2001 increased to 25.3% compared to 25.1% in
2000 and our adjusted operating profit margin in 2001 increased to 21.7%
compared to 21.4% in 2000. These increases in EBITDA and adjusted operating
profit from ongoing businesses reflected increased sales of higher margin
electronic products, cost management initiatives as well as the full year effect
of acquisitions completed in 2000. The growth was partially offset by
investments in technology in our healthcare business to deploy a common flexible
content management system that will improve our ability to customize and combine
our products to better meet our customers' needs.
Our capital expenditures in 2001 decreased 16% to $26 million. They were
made primarily to continue the development of a single content repository in our
healthcare business. We also invested in new Internet and intranet system
capabilities intended to increase product development and enhance product
delivery.
Corporate and Other
Revenues in 2001, which relate solely to Thomson Media, declined 11% to
$242 million primarily as a result of reduced advertising revenue across our
publications.
33
EBITDA improved by $46 million to a loss of $52 million in 2001 and our
adjusted operating profit in 2001 improved by $46 million to a loss of $60
million. These improvements were primarily the result of lower expenses in
connection with stock appreciation rights and minority interests, partially
offset by lower profits from Thomson Media.
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999
Consolidated Operations
Our total revenues increased in 2000 by 13% to $6,514 million. Revenues
from our ongoing businesses increased in 2000 by 19% to $6,104 million. About
one-third of the increase was generated by growth in our existing businesses and
the remainder was the result of the acquisitions of Prometric in March 2000,
Dialog in May 2000, and Primark and Carson in September 2000. Revenues from
electronic products and services accounted for 52% of our revenues from ongoing
businesses, an increase from 48% in 1999.
Our revenues from North America in 2000, prior to the elimination of
intercompany revenues, increased 12% to $5,644 million, accounting for 86% of
our total revenues. Our revenues from outside North America increased 32% to
$911 million, accounting for 14% of our total revenues.
Our EBITDA in 2000 increased 9% to $1,534 million, a margin of 23.5%, a
decrease from 24.5% in 1999. Our EBITDA from ongoing businesses increased 15% to
$1,529 million, a margin of 25.0%, a decrease from 25.9% in 1999.
Our total adjusted operating profit in 2000 increased 10% to $1,118
million, a margin of 17.2%, a decrease from 17.8% in 1999. Our adjusted
operating profit from ongoing businesses in 2000 increased 16% to $1,135
million, reflecting a margin of 18.6%, a decrease from 19.0% in 1999.
The increases in our EBITDA and adjusted operating profit reflected
contribution from acquisitions completed during 2000 and 1999 as well as growth
in existing businesses. Our EBITDA margins from existing businesses improved in
2000, but this improvement was more than offset by the lower margins in the
businesses acquired during the year, additional expenses to support our
electronic infrastructure and increased expenses incurred in connection with our
stock appreciation rights reflecting an increase in the trading price of our
common shares during the year. Our adjusted operating profit margin decreased
for the same reasons.
Depreciation in 2000 increased 8% to $416 million as a result of our
acquisitions and increased capital expenditures in the preceding years,
particularly in technology. Amortization in 2000 increased 27% to $327 million
also as a result of our recent acquisitions.
We incurred restructuring charges in 2000 of $37 million, of which $15
million was used to implement a vertical customer segment structure in our
financial group, $12 million was used to improve operational efficiencies and to
eliminate non-strategic and unprofitable products in our legal and regulatory
group and the remaining $10 million related to reduction of personnel and other
programs to achieve administrative efficiencies in the learning and scientific
and healthcare groups as well as in our corporate center.
Our gains on disposals of businesses and investments in 2000 of $38 million
on a pre-tax basis related primarily to the sale of Mitchell International in
April 2000 by our scientific and healthcare group, but also include the sale of
certain businesses by our financial and learning groups, as well as the sale of
certain investments maintained in our corporate and other segment.
Our interest expense and other financing costs in 2000 increased 10% to
$204 million. The increase reflects increased borrowings to finance our
acquisitions, which borrowings were offset in part by the proceeds received from
sales of our newspaper operations in the second half of the year.
Our income tax benefit in 2000 of $15 million reflects the recognition of
$105 million of tax benefits principally associated with the disposal of The
Globe and Mail in January 2001. Without this tax benefit, our income taxes as a
percentage of earnings before income taxes and preference dividends would have
been 15.4%. This compares with an equivalent rate of 12.6% in 1999. The
effective tax rate differs from the
34
Canadian corporate tax rate in 2000 of approximately 44%, due principally to the
effect of lower tax rates in other countries where we have operating and
financing subsidiaries, and to the recognition of tax losses.
Our earnings in 2000 increased 130% to $1,223 million principally as a
result of the sale of substantially all of our newspaper operations. Our
earnings from continuing operations in 2000 increased 40% to $571 million. These
earnings increases reflect the one-time tax benefits of $105 million primarily
associated with the sale of The Globe and Mail in January 2001.
After adjusting for the effect of the tax benefits and other one-time
items, our adjusted earnings from continuing operations in 2000 were $468
million. This represents an increase of 2% compared to 1999 earnings on the same
basis. Our adjusted earnings from continuing operations were relatively
unchanged in 2000 because increased earnings in our existing businesses were
offset by dilution from acquisitions and dispositions as well as increased
expense in connection with our stock appreciation rights.
Our capital expenditures in 2000 increased 24% to $585 million. Over 70% of
our capital expenditures related to our continued investment in technology.
Thomson Legal and Regulatory
Revenues from our ongoing businesses in 2000 increased 12% to $2,619
million. Approximately one-third of our growth was generated by our existing
businesses, reflecting growth in excess of 10% in revenues from Westlaw, the
March 2000 launch of Westlaw UK, increased European trademark search activity
and increased sales in Canada. Growth in revenues from Westlaw reflected a trend
toward increased usage of our electronic product offerings and was driven by
sales of web-based Westlaw.com. The remaining growth resulted from acquisitions,
including Dialog in May 2000, IOB in July 2000, La Ley in October 2000, and the
inclusion of the first full year of results from Aranzadi acquired in July 1999.
These increases were partially offset by unfavorable changes in currency
exchange rates. Revenues from electronic products and services accounted for 52%
of the group's revenues from ongoing businesses, an increase from 49% in 1999.
EBITDA from our ongoing businesses in 2000 increased 9% to $775 million and
our adjusted operating profit from ongoing businesses in 2000 increased 11% to
$647 million. Our EBITDA margin in 2000 decreased to 29.6% compared to 30.2% in
1999 and our adjusted operating profit margin in 2000 decreased to 24.7%
compared to 24.8% in 1999. Increases in EBITDA and adjusted operating profit
from ongoing businesses reflect the increased revenues discussed above, as well
as improved operating efficiencies in our businesses in Canada and the
Asia-Pacific region and at RIA, our largest North American tax and accounting
business. These improvements were partially offset by lower margins in the
businesses recently acquired and continued investment in global expansion of our
Westlaw platform.
Capital expenditures in 2000 increased 10% to $180 million, primarily
reflecting recently acquired businesses and continued investments in product
development and infrastructure for online offerings.
Thomson Learning
Revenues from our ongoing businesses in 2000 increased 40% to $1,388
million. We experienced strong growth in our existing businesses. Our academic
publishing business benefitted from the release of new products including
adoptions for international markets and our lifelong learning business
experienced strong sales of computer-based titles. However, our revenues
increased primarily as a result of acquisitions completed in 2000, including
Prometric in March 2000, Wave Technologies in April 2000 and K.G. Saur in
September 2000. Revenues from electronic products and services accounted for 31%
of the group's revenues from ongoing businesses, an increase from 7% in 1999.
EBITDA from our ongoing businesses in 2000 increased 44% to $358 million
and our adjusted operating profit from ongoing businesses in 2000 increased 57%
to $234 million. Our EBITDA margin increased to 25.8% compared to 25.1% in 1999
and our adjusted operating profit margin in 2000 increased to 16.9% compared to
15.1% in 1999. Increases in EBITDA and adjusted operating profit from ongoing
businesses primarily reflect the increased revenues discussed above. The margin
improvements primarily resulted from
35
increased revenues as well as improved operating efficiencies in our academic
publishing and reference business.
Our capital expenditures in 2000 increased 46% to $165 million, primarily
reflecting recently acquired businesses and continued investment in electronic
infrastructure to support new and existing products.
Thomson Financial
Revenues from our ongoing businesses in 2000 increased 31% to $1,201
million. Revenues from existing businesses increased in excess of 10%, led by
businesses benefitting from high transaction volumes, such as BETA Systems and
ESG, resulting from record levels of market activity in the United States and
Europe. However, more than half of our growth resulted from the acquisitions of
Primark and Carson in September 2000. These increases were partially offset by
continued consolidation in the investment banking sector. Revenues from
electronic products and services accounted for 80% of the group's revenues from
ongoing businesses, an increase from 71% in 1999.
EBITDA from our ongoing businesses in 2000 increased 19% to $330 million
and our adjusted operating profit from ongoing businesses in 2001 increased 18%
to $220 million. These increases were primarily the result of the acquisitions
of Primark and Carson, but were also due to higher revenues from our existing
businesses discussed above. Our EBITDA margin in 2000 decreased to 27.5%
compared to 30.3% in 1999 and our adjusted operating margin in 2000 decreased to
18.3% compared to 20.2% in 1999. The margin decreases resulted primarily from
significant investments in our electronic infrastructure that were expensed on a
current basis.
Our capital expenditures in 2000 increased 34% to $191 million, primarily
reflecting recently acquired businesses as well as continued investment in
electronic infrastructure.
Thomson Scientific and Healthcare
Revenues from our ongoing businesses in 2000 increased 7% to $653 million,
with the majority of the increase attributable to existing businesses. Revenues
in our existing scientific businesses increased as a result of increased sales
of the ISI Web of Science and growth in excess of 10% in online sales of
Derwent's patent subscription products and gene sequence database. Revenues in
our existing healthcare businesses increased as a result of increased sales of
drug and clinical information databases and tools at Micromedex as well as
increased sales of Physicians' Desk Reference. The increase in revenues
attributable to acquired businesses primarily resulted from the acquisition of
Physicians World in August 2000. Revenues from electronic products and services
accounted for 53% of the group's revenues from ongoing businesses, an increase
from 49% in 1999.
EBITDA from our ongoing businesses in 2000 increased 25% to $164 million
and our adjusted operating profit from ongoing businesses in 2000 increased 32%
to $140 million. Our EBITDA margin in 2000 increased to 25.1% compared to 21.4%
in 1999 and our adjusted operating profit margin in 2000 increased to 21.4%
compared to 17.3% in 1999. The margin increases were primarily the result of
strong performance within our scientific business, where we experienced
increased sales of higher margin electronic products and lower costs resulting
from improvements in processing patent information. In our healthcare business,
margin improvements resulted from revenue increases and cost savings from the
integration of our Medical Economics and Micromedex businesses.
Our capital expenditures in 2000 decreased 21% to $31 million. They were
made to further develop our technology infrastructure, including spending on
computer hardware and software, to increase the pace of our electronic product
development and to provide more advanced products and services to our customers.
Corporate and Other
Revenues in 2000, which relate solely to Thomson Media, increased by 5% to
$272 million, primarily as a result of strong advertising sales and increased
sales to financial institutions and information technology professionals seeking
commercial information. EBITDA in 2000 decreased by $59 million to a loss of
36
$98 million and our adjusted operating profit decreased by $59 million to a loss
of $106 million. These decreases were primarily a result of increased expenses
relating to our stock appreciation rights and lower profits from Thomson Media,
where increased sales were offset by increased spending on new product
development.
DISCONTINUED OPERATIONS
In February 2000, we announced our intention to sell our newspaper group,
as part of our strategic decision to focus on integrated information solutions
for business and professional customers. The primary activities of this group
were the publishing of newspapers and other advertising and specialty
publications in the United States and Canada. In addition, this group held a 50%
interest in Augusta Newsprint Company, a newsprint mill in Augusta, Georgia.
During 2000, we completed the sale of 51 of 54 publications. We sold the
remaining assets, including our interest in the newsprint mill, in 2001.
The following table presents a summary of our results from discontinued
operations for the past three years.
{YEAR ENDED
DECEMBER 31,
------------------
1999 2000 2001
---- ---- ----
(IN MILLIONS)
Revenues.................................................... $817 $592 $135
Earnings from operations.................................... 123 62 15
Net gain on sale............................................ -- 590 77
Earnings.................................................... 123 652 92
LIQUIDITY AND CAPITAL RESOURCES
FINANCIAL POSITION
Our total assets at December 31, 2001 were $18,402 million. Our total
assets increased by $2,703 million or 17% in 2001, primarily due to the
acquisition of the Harcourt businesses.
Our total assets at December 31, 2001 were distributed across our market
groups and corporate and other as follows:
PERCENTAGE
OF TOTAL
TOTAL ASSETS ASSETS
------------- ----------
(IN MILLIONS)
Thomson Legal and Regulatory................................ $ 7,266 40%
Thomson Learning............................................ 5,216 28
Thomson Financial........................................... 3,165 17
Thomson Scientific and Healthcare........................... 930 5
Corporate and other......................................... 1,825 10
------- ---
$18,402 100%
======= ===
Our total debt at December 31, 2001 was $4,744 million. Total debt consists
of short-term indebtedness, the current portion of long-term debt and long-term
debt. Our total debt in 2001 increased 66%, or $1,882 million, primarily due to
our borrowings to fund the acquisition of the Harcourt businesses. After adding
$238 million for the total liability for related currency swaps our total debt
was $4,982 million.
After deducting cash and cash equivalents of $532 million, our total net
debt was $4,450 million. At the same date, our total shareholders' equity,
including $442 million of preference share capital redeemable only at our
option, was $8,220 million. Our ratio of net debt to shareholders' equity at
December 31, 2001 was
37
0.54:1. This ratio increased from 0.35:1 at December 31, 2000 as a result of
increased borrowings during 2001 associated with our acquisitions.
Presently, our long-term debt is rated "A3" (stable outlook) by Moodys,
"A-" (negative outlook) by Standard & Poor's and "A (low)" by Dominion Bond
Rating Service. Our short-term debt is rated "R-1 (low)" by Dominion Bond Rating
Service. The maturity dates for our long-term debt are well balanced with no
significant concentration in any one year.
CASH FLOW
Our principal sources of liquidity have been cash provided by our
operations, proceeds from the disposition of non-strategic assets, borrowings
under our revolving bank credit facilities and our commercial paper program, the
issuance of public debt and the reinvestment of dividends primarily by
Woodbridge. Our principal uses of cash have been to finance working capital,
debt servicing costs, capital expenditures, acquisitions and dividend payments.
Cash provided by our operating activities in 2001 increased 45% to $1,623
million. This increase was attributable to income tax refunds received in 2001
of $172 million and a higher level of EBITDA which was partially offset by lower
earnings from discontinued operations. Cash provided by our operating activities
in 2000 decreased 3% to $1,116 million primarily because we had a higher level
of working capital at the end of 2000 as a result of investments in working
capital relating to acquisitions completed in 2000 and an overpayment of income
taxes in late 2000 which was refunded in 2001.
Cash used in our investing activities in 2001 was $3,015 million. Our
primary use of cash in 2001 was the $2,060 million used to acquire the Harcourt
businesses. Cash used in our investing activities for 2000 was $1,400 million,
which primarily reflects acquisitions completed during that year in the amount
of $2,824 million after deducting $64 million in cash in these businesses when
they were acquired. This was partially offset by the proceeds from the
disposition of our newspaper businesses of $1,868 million.
Cash provided by our financing activities in 2001 was $1,591 million,
principally reflecting borrowings to fund the acquisition of the Harcourt
businesses which included the issuance of $1,801 million of public debentures.
We also raised $250 million in 2001 from Woodbridge from the issuance by a
subsidiary of ours of preferred shares. Cash provided by financing activities
for 2000 was $294 million primarily from borrowings in 2000 associated with our
acquisitions.
Dividends declared on our common shares in 2001 amounted to $439 million.
Of this amount, $160 million was reinvested in common shares through our
dividend reinvestment program, primarily by Woodbridge, resulting in common
share dividend cash payments of $279 million. Dividends declared on our common
shares in 2000 totaled $427 million. Of this amount, $156 million was reinvested
in common shares through our dividend reinvestment program, primarily by
Woodbridge, resulting in common share dividend cash payments of $271 million. We
increased the quarterly dividend by 2.9% to $0.175 per common share, which was
effective with the dividend paid on December 15, 2000.
In 2001, we increased our commercial paper program in Canada from the
Canadian dollar equivalent of $314 million to $628 million, calculated using the
exchange rate on December 31, 2001. At December 31, 2001, $600 million of
commercial paper was outstanding. Presently, we maintain revolving credit
facilities in the amount of $1,400 million which terminate in August 2004. These
facilities also support our commercial paper program and therefore the amount
available under our revolving credit facilities is reduced to the extent we have
commercial paper outstanding. At December 31, 2001, we had outstanding $355
million under these facilities. At December 31, 2001, our credit facilities were
supplemented by bridge financing facilities in the amount of $1,500 million used
to complete the acquisition of the Harcourt businesses. At December 31, 2001,
there were no amounts outstanding under the bridge facilities and they were
terminated in January 2002. We also have access to global public capital
markets.
At December 31, 2001, our capital commitments to investments and joint
ventures totaled $50 million and our existing obligations under operating lease
commitments amounted to $937 million. We guarantee certain obligations of our
subsidiaries, including borrowings by our subsidiaries under our revolving
credit
38
facilities. These guarantees generally require that we maintain a minimum amount
of share capital and retained earnings and that our debt-to-equity ratio not
exceed 2.0:1.
We expect to generate cash from our operations that is adequate to fund our
future cash dividends, debt service, projected capital expenditures and tactical
acquisitions that we pursue in the normal course.
MARKET RISKS
We are exposed to potential losses arising from adverse changes in currency
exchange and interest rates. We use hedging arrangements in the ordinary course
of business to reduce our currency and interest rate exposures. In particular,
where we borrow money in currencies other than U.S. dollars, we enter into
currency swap arrangements only with counterparties that are significant
financial institutions to convert our obligations into U.S. dollar amounts. At
December 31, 2001, 97% of our indebtedness was denominated in U.S. dollars or
had been swapped into U.S. dollar obligations. We do not enter into speculative
positions through the use of derivatives or any other financial instruments.
At December 31, 2001, after taking into account interest rate swap
agreements, 76% of our total debt was at fixed rates of interest and the
remainder was at floating rates of interest. Using these numbers, a 1% change in
interest rates would increase or decrease our full-year interest expense by
approximately $12 million.
Based on our 2001 results of operations, a one cent change in either the
average exchange rate for British pounds sterling into U.S. dollars or the
average exchange rate for Canadian dollars into U.S. dollars would increase or
decrease our adjusted operating profit by less than $1 million.
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 amount of revenues and expenses during
the reporting period. Our estimates are based upon 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 amount of revenues and expenses that are not readily apparent
from other sources. Actual results may differ from these estimates under
different assumptions.
Our most 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, are set forth in the notes to our consolidated
financial statements included elsewhere in this prospectus.
REVENUE RECOGNITION
Revenues from subscription-based products excluding software are primarily
recognized ratably over the term of the subscription. Where applicable, usage
fees are recognized as earned. Subscription revenue received or receivable in
advance of the delivery of products or services is included in deferred revenue.
Incremental costs that are directly related to the subscription revenue are
deferred and amortized over the subscription period.
Revenues from sales of products such as textbooks that are separate and
distinct from any other product and carry no further substantive performance
obligations on our part after shipment, are recognized when delivery has
occurred and significant risks and rewards of ownership have transferred to the
customer, provided that the price is fixed or determinable and ultimate
collection is reasonably assured. We recognize revenues from sales of discrete
products net of estimated returns. Significant judgment is involved in
estimating future returns. Estimates are made after taking into account
historical experience and current
39
market conditions. If future returns differ from our estimates, the impact would
be recorded against future revenues and profits.
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 credit-worthiness, current
economic trends and our experience when evaluating the adequacy of this
allowance. If future collections differ from our estimates, this would affect
our future earnings.
CAPITALIZED SOFTWARE
A significant portion of our expenditures relate to software that is
developed as part of our electronic databases, delivery systems and internal
infrastructure, and, to a lesser extent, to software sold directly to customers.
During the software development process, our judgment is required to determine
which costs may be capitalized, as well as 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.
VALUATION OF IDENTIFIABLE INTANGIBLE ASSETS AND GOODWILL
We account for our business acquisitions under the purchase method of
accounting. The total cost of an acquisition is allocated 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. While we may employ an expert to assist us with
these matters, such determinations involve considerable judgment, and often
involve the use of significant estimates and assumptions, including those with
respect to future cash inflows and outflows, discount rates and asset lives.
These determinations will affect the amount of amortization expense recognized
in future periods.
We review the carrying values of all identifiable intangible assets and
goodwill, when certain conditions arise, to determine if any impairment has
occurred. Examples of these conditions include:
- significant underperformance relative to historical or expected future
operating results,
- significant changes in the manner of our use of the acquired assets or
our strategy,
- significant negative industry or economic trends, or
- significant decline in our share price or market capitalization.
Prior to January 1, 2002, we determined impairment by comparing the
undiscounted amount of expected future operating cash flows with the carrying
amounts of such assets. Expected future cash flows are based upon our best
estimate given the facts and circumstances at that time. Impairments in the
carrying amount of identifiable intangible assets and goodwill are expensed.
Effective January 1, 2002, we adopted the provisions of the Canadian
Institute of Chartered Accountants (CICA) Handbook Section 3062, "Goodwill and
Other Intangible Assets." Accordingly, from that date we will test identifiable
intangible assets with indefinite useful lives and goodwill by comparing
carrying amounts to their fair values at least annually or when the conditions
referred to above arise. The determination of fair value involves significant
management judgment. Impairments in the carrying amounts of identifiable
intangible assets with indefinite lives and goodwill will be expensed, except
for impairments arising out of the initial adoption of this new accounting rule
which will be treated as a change in accounting principle and charged directly
to opening retained earnings in our consolidated balance sheet for fiscal 2002.
We have recently completed our initial impairment review and have recognized an
impairment charge in the first quarter of 2002 of $67 million, after tax. We
anticipate recording an additional impairment charge of up to $100 million in
the second quarter of 2002 in connection with the application of the new rule by
our equity method investees. These charges will not affect our earnings under
Canadian GAAP because they result from a change in accounting principle and will
be charged directly to opening retained earnings in our consolidated balance
sheet, but under U.S. GAAP these amounts will be charged to our earnings.
40
As the valuation of identifiable intangible assets and goodwill requires
significant estimates and judgment about future performance and fair value, our
future results could be affected if our current estimates of future performance
and fair value change.
INCOME TAXES
We are required to estimate our income taxes in each of the jurisdictions
in which we operate. This 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. 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 increase or decrease our income tax expense in the relevant year and this
would affect our earnings in that year.
NEW ACCOUNTING PRONOUNCEMENTS
In 2001, CICA issued Handbook Section 3062 "Goodwill and Other Intangible
Assets." This standard requires that goodwill and identifiable intangible assets
with indefinite lives no longer be amortized. Instead, those assets are subject
to annual impairment tests. For business combinations occurring before July 1,
2001, amortization continued until December 31, 2001. After that date, carrying
amounts of goodwill and identifiable intangible assets with indefinite lives
will no longer be amortized. For business combinations occurring on or after
July 1, 2001, goodwill and identifiable intangible assets with indefinite lives
will not be amortized. See "-- Critical Accounting Policies" and Note 1 to our
consolidated financial statements included elsewhere in this prospectus for a
more detailed description of this standard.
In 2001, CICA issued Handbook Section 3870, "Stock-Based Compensation and
Other Stock-Based Payments" which requires that if an entity does not use the
fair value-based method to account for non-direct stock-based transactions with
employees, the entity must disclose pro-forma net income and earnings per share
as if the fair value-based method of accounting was used. Additionally, this
standard provides specific rules for accounting for stock appreciation rights
and stock-based payments to employees, as well as non-employees. The new section
is effective for fiscal periods beginning on or after January 1, 2002. We do not
use the fair value-based method and, therefore, will disclose the required pro
forma information in our financial statements beginning in 2002.
In 2001, CICA issued Accounting Guideline AcG13, "Hedging Relationships,"
which addresses the identification, designation, documentation and effectiveness
of hedging relationships and establishes conditions for applying hedge
accounting. The guideline applies to hedging relationships in effect in fiscal
years beginning on or after July 1, 2002.
In 2001, CICA issued Amended Handbook Section 1650, "Foreign Currency
Translation" which eliminates the deferral and amortization of foreign currency
gains and losses on foreign currency denominated long-term assets and
liabilities.
We have determined that the adoption of Handbook Section 1650 will have no
material impact on our financial position or results of operations. We have not
completed our assessment of the impact of adopting Accounting Guideline AcG13.
41
QUARTERLY INFORMATION (UNAUDITED)
The following table presents a summary of our segmented and consolidated
operating results from continuing operations for each of the eight quarters
ended March 31, 2000 through December 31, 2001.
QUARTER ENDED
---------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
--------------- --------------- --------------- ---------------
2000 2001 2000 2001 2000 2001 2000 2001
------ ------ ------ ------ ------ ------ ------ ------
(UNAUDITED)(IN MILLIONS, EXCEPT PER SHARE DATA)
REVENUES
Legal and Regulatory............ $505 $618 $637 $683 $664 $691 $813 $835
Learning........................ 183 241 279 312 489 676 437 622
Financial....................... 250 401 257 405 288 393 406 391
Scientific and Healthcare....... 146 157 155 161 148 160 204 219
Corporate and other(1).......... 53 54 79 71 62 54 78 63
Intercompany eliminations....... -- (9) (7) (7) (8) (9) (14) (7)
------ ------ ------ ------ ------ ------ ------ ------
1,137 1,462 1,400 1,625 1,643 1,965 1,924 2,123
Disposals(3).................... 126 35 95 10 89 12 100 5
------ ------ ------ ------ ------ ------ ------ ------
1,263 1,497 1,495 1,635 1,732 1,977 2,024 2,128
------ ------ ------ ------ ------ ------ ------ ------
EBITDA
Legal and Regulatory............ $103 $128 $188 $206 $195 $210 $289 $311
Learning........................ (8) (10) 37 46 183 205 146 165
Financial....................... 68 94 71 99 76 99 115 113
Scientific and Healthcare....... 25 28 34 34 30 35 75 79
Corporate and other(1).......... (28) (12) (19) (2) (33) (5) (18) (33)
------ ------ ------ ------ ------ ------ ------ ------
160 228 311 383 451 544 607 635
Disposals(3).................... 4 (1) -- 2 (1) 1 2 (6)
------ ------ ------ ------ ------ ------ ------ ------
164 227 311 385 450 545 609 629
------ ------ ------ ------ ------ ------ ------ ------
ADJUSTED OPERATING PROFIT
Legal and Regulatory............ $ 71 $ 90 $153 $170 $164 $176 $259 $272
Learning........................ (29) (35) 12 16 141 150 110 133
Financial....................... 45 57 46 62 50 62 79 76
Scientific and Healthcare....... 19 21 28 29 24 29 69 72
Corporate and other(1).......... (30) (14) (21) (4) (34) (8) (21) (34)
------ ------ ------ ------ ------ ------ ------ ------
76 119 218 273 345 409 496 519
Disposals(3).................... (4) (2) (4) 1 (11) -- 2 (9)
------ ------ ------ ------ ------ ------ ------ ------
72 117 214 274 334 409 498 510
------ ------ ------ ------ ------ ------ ------ ------
EARNINGS (LOSS) ATTRIBUTABLE TO
COMMON SHARES:
From continuing operations...... $(42) $151 $74 $110 $168 $147 $371 $249
From discontinued operations.... 20 16 30 7 503 64 99 5
------ ------ ------ ------ ------ ------ ------ ------
$(22) $167 $104 $117 $671 $211 $470 $254
====== ====== ====== ====== ====== ====== ====== ======
42
QUARTER ENDED
---------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
--------------- --------------- --------------- ---------------
2000 2001 2000 2001 2000 2001 2000 2001
------ ------ ------ ------ ------ ------ ------ ------
(UNAUDITED)(IN MILLIONS, EXCEPT PER SHARE DATA)
BASIC EARNINGS (LOSS) PER COMMON
SHARE:(2)
From continuing operations...... $(0.07) $0.24 $0.12 $0.18 $0.27 $0.23 $0.59 $0.40
From discontinued operations.... 0.03 0.03 0.05 0.01 0.81 0.11 0.16 --
------ ------ ------ ------ ------ ------ ------ ------
$(0.04) $0.27 $0.17 $0.19 $1.08 $0.34 $0.75 $0.40
====== ====== ====== ====== ====== ====== ====== ======
DILUTED EARNINGS (LOSS) PER
COMMON SHARE:(2)
From continuing operations...... $(0.07) $0.24 $0.12 $0.18 $0.27 $0.23 $0.59 $0.40
From discontinued operations.... 0.03 0.03 0.05 0.01 0.80 0.11 0.16 --
------ ------ ------ ------ ------ ------ ------ ------
$(0.04) $0.27 $0.17 $0.19 $1.07 $0.34 $0.75 $0.40
====== ====== ====== ====== ====== ====== ====== ======
---------------
(1) Both 2000 and 2001 quarterly results have been restated to include the
reclassification of Thomson Media.
(2) Per common share amounts for the quarter are computed independently and due
to the computation formula, the sum of the quarters may not equal the
year-to-date period.
(3) Disposals consist of results of businesses sold or held for sale which do
not qualify as discontinued operations.
OUTLOOK
Going forward, the level of our profitability will depend primarily on our
ability to generate increased revenues from our existing assets while continuing
to improve our profit margins across our businesses. We are currently focused on
generating revenues by increasing the market penetration of our products and
services with our existing customers, expanding the sales of our products and
services in new markets and investing in new products and services. We are also
focused on continuing to integrate our businesses, which will allow us to
eliminate cost redundancies and more effectively use our assets and capabilities
across our business.
Our long-term financial targets are to achieve average annual revenue
growth of between 7% to 9% and to expand our EBITDA margin. We expect that for
2002 our revenue growth and our EBITDA margin, excluding one-time costs we will
incur in connection with the integration of the Harcourt businesses, will meet
these targets.
43
BUSINESS
OVERVIEW
We are a global leader in providing integrated information solutions to
business and professional customers. In a global economy in which the flow of
information is vital, we supply vast amounts of value-added information to our
customers, in both print and electronic formats. We increasingly deliver our
information electronically, with applications and tools that enable our
customers to adapt it and combine it with their own information. By enhancing
the timeliness and effectiveness of our customers' use of information, we help
them serve their customers better.
We serve customers in the following sectors: law, tax, accounting,
financial services, higher education, reference information, corporate training
and assessment, scientific research and healthcare. We believe these sectors are
fundamental to economic development globally and consequently have potential for
consistent long-term growth.
We have a leading market position and well recognized and respected brands
in each of our principal markets. Our revenues, which in 2001 totaled $7.2
billion, are generally recurring or predictable. Approximately 61% of our
revenues in 2001 were generated under subscription arrangements, with
advertising accounting for only 4%. Our revenues are also diversified. In
addition to having multiple lines of business, we have over 20 million users and
no single customer accounts for more than 2% of our revenues. In 2001, 82% of
our revenues were from our operations in the United States and we have users in
approximately 130 countries worldwide.
CORPORATE CENTER AND MARKET GROUPS
Our corporate center initiates and executes strategy and manages other
company-wide functions. We organize our operations in four market groups that
are structured on the basis of the customers they serve:
- Thomson Legal and Regulatory,
- Thomson Learning,
- Thomson Financial, and
- Thomson Scientific and Healthcare.
By centralizing key functions in our corporate center, we foster a
company-wide approach while allowing our market groups sufficient operational
flexibility and scope for initiative in dealing with customers. In addition to
identifying new business opportunities and acquisitions, our corporate center
oversees the planning processes of our market groups and their implementation of
strategy and assesses their performance. Our corporate center develops and
executes capital strategy, including tax planning, and determines the overall
direction on technology. In addition, our corporate center has the
responsibility for the appointment of senior executives and their training and
development.
44
The following table summarizes certain information about our four market
groups relating to 2001 revenues, employees and countries in which they operate.
MARKET GROUPS -- OPERATIONS
PERCENTAGE OF
REVENUES FROM
PERCENTAGE ELECTRONIC
REVENUES(1) OF REVENUES(1)(2) DELIVERY(1) COUNTRIES EMPLOYEES
------------- ----------------- ------------- ------------ ---------
(IN MILLIONS)
Thomson Legal and
Regulatory........... $2,827 39% 52% 30 17,000
Thomson Learning....... 1,851 26 31 26 13,000
Thomson Financial...... 1,590 22 89 27 9,200
Thomson Scientific and
Healthcare........... 697 10 53 13 3,800
---------------
(1) Represents revenues from ongoing businesses, which exclude disposals.
Disposals are businesses sold or held for sale which do not qualify as
discontinued operations.
(2) Percentages are calculated on the basis of revenues from ongoing businesses,
including revenues of our corporate and other category. That category
includes the results of Thomson Media, which was previously designated for
sale but subsequently retained.
We engage in businesses that we believe can readily be extended into new
markets by capitalizing on our expertise in adapting existing successful
products and services, our strong brands and our technology platforms. By
delivering our products and services electronically, we have access to existing
and new customers around the world. We have recently undertaken a significant
initiative to increase the awareness of the Thomson brand, which involves
linking the Thomson name with our many well recognized product and service
brands. We believe the heightened awareness of the Thomson brand will become a
significant asset in supporting our global growth initiatives.
INFORMATION AND TECHNOLOGY
We believe the breadth and depth of our value-added information and our
technological strength are significant competitive advantages.
Compiled over many decades, our collection of information is one of the
world's largest and we maintain much of it in electronic databases. Our Westlaw
databases, for example, contain the equivalent of approximately 400 million
printed pages and our Gale online reference library includes the equivalent of
approximately 125 million printed pages. We have generally enhanced the value of
our information, including that derived from public sources, by adding
proprietary editorial content, formatting, organization and indexing. We also
create some of our information, such as textbooks and course materials. We keep
our information up to date with a large staff of professionals, researchers and
technology specialists. Much of our information is not available to our
customers from other sources in the value-added form in which we provide it.
Our customers rely on our information for its accuracy, comprehensiveness
and utility as well as on the ready access to it that we provide. For example:
- lawyers depend on our Westlaw databases of legal cases, legislation and
other legal information that we have supplemented with summaries and
classified by topic areas and points of law,
- investment professionals and analysts work with our First Call Analyst
database that aggregates 26 years of financial results and analysts'
earnings estimates for over 18,000 companies, including all of the
companies in the S&P 500 index,
45
- college professors teach from our Wadsworth and other textbooks authored
by experts in the most popular disciplines, including the humanities,
social sciences, languages, science, mathematics, engineering and
business, which are augmented by electronic teaching aids, such as online
interactive supplements and websites,
- librarians consult our Gale's online reference library of proprietary
reference material, periodical content and primary source research
information, and
- physicians and other healthcare professionals check our Physicians' Desk
Reference product, a directory of Food and Drug Administration approved
drug-labeling information.
Since the early 1990s, we have invested in technology to build platforms
that have sufficient scale and scope to meet the needs of our customers
globally. We have the flexibility to deliver our products and services to our
customers electronically in a variety of ways, including over the Internet and
our own proprietary platforms. As a result, our products and services are
readily integrated into the systems of our customers. In 2001, 54% of our
revenues were derived from products and services delivered electronically, up
from 45% in 1997.
We also use technology to develop new products and services and to
repackage and reuse our information and applications in a variety of ways to
create integrated solutions that serve customers effectively. In developing
products and services, we purchase or license and use widely available operating
and data management systems, software and other components and we typically
enhance them by adding applications and tools that we design.
46
KEY BRANDS, PRODUCTS AND SERVICES
The following table summarizes our key brands and products and services by
market group and customers.
MARKET GROUP CUSTOMERS KEY BRANDS KEY PRODUCTS AND SERVICES
------------ ---------------------------- ------------------------ ---------------------------------------
Thomson Legal lawyers, law students, legal West legal information-based products and
and Regulatory professionals Westlaw services
Sweet & Maxwell
tax professionals, RIA tax and accounting information-based
accountants Creative Solutions products and services
business professionals Dialog online databases of business
NewsEdge information and current and archival
news
--------------------------------------------------------------------------------------------------------------------
Thomson Learning professors, students, Wadsworth textbooks and electronic course
business professionals materials in the humanities and social
sciences
South-Western textbooks and electronic course
materials in business and economics
libraries, corporations, Gale printed and electronic reference
reference centers materials, electronic databases of
magazine, newspaper and periodical
content, microfilm collections and
encyclopedias
corporations, government Prometric technology-based test delivery and
agencies assessment services including test
preparation, test results processing
and certification program creation
NETg online and instructor-led information
technology and business skills training
--------------------------------------------------------------------------------------------------------------------
Thomson portfolio managers, research First Call online databases of financial
Financial analysts I/B/E/S information, including brokerage
research, forecast data, market indices
data, institutional holdings data, SEC
filings and news
investment bankers Securities Data online databases of global information
on mergers and acquisitions
institutional and retail ILX electronic financial information,
traders, investment advisors including real-time market data such as
stock quotes and news
--------------------------------------------------------------------------------------------------------------------
Thomson pharmaceutical/biotechnology, Derwent World Patent indexed and abstracted databases of
Scientific and chemical and engineering Index patents
Healthcare companies, government
agencies, research
libraries, universities
ISI Web of Science website for research scientists
providing access to over 8,500
abstracted and indexed journals,
journal article cited references,
meetings and conference proceedings
physicians, health Physicians' Desk database of Food and Drug
professionals, Reference Administration approved drug
pharmaceutical companies, monographs, delivered in print and
hospitals, poison control electronic formats
centers, government agencies
Micromedex drug, clinical, toxicological and
environmental database products
pharmaceutical companies, Gardiner-Caldwell continuing medical education training
physicians Physicians World for physicians in connection with new
drug launches
47
INTEGRATED INFORMATION SOLUTIONS
Based on the particular needs of a customer segment, we combine our
products and services to create integrated information solutions. Our integrated
information solutions provide our customers with value-added information from
one or more sources along with applications and tools that enable them to use it
in a manner that suits them best, including by adapting it and combining it with
their own information. As customers take advantage of this flexibility, our
solutions are increasingly integrated into their workflow.
We provide users with a wide variety of integrated information solutions.
Some examples are:
- Westlaw enables lawyers to research points of law or related commentary
online with sophisticated features that guide them through our databases,
- First Call Analyst integrates a range of our products and services and
our customers' own data on a single delivery platform, allowing
investment professionals and analysts to review the research of others
and produce their own analysis, utilizing applications that, among other
things, enable them to compare estimates of companies' earnings with
actual results,
- NETg electronic courses and instructor-led sessions and Course Technology
manuals and books are combined with Prometric specialized certification
examinations to allow information technology professionals both to learn
and to measure the results of their learning, and
- ISI Web of Science offers access to primary journal information, relevant
literature, abstracts and citations across multiple databases as well as
search, bibliography and writing tools, such as an automated alert
feature that identifies relevant newly published material, enabling
scientists to improve their productivity in research and writing.
Our integrated information solutions are evolving to reflect technological
change and are becoming increasingly sophisticated and comprehensive in response
to our customers' needs. In developing new products and services, we are
focusing on expanding the range of our integrated information solutions for
users. In addition, we are positioning ourselves to offer our customers
enterprise solutions that improve productivity across entire organizations. For
example, for financial services enterprises, by combining First Call Analyst and
other products and services, we will be able to integrate each phase of the
investment process from initial research through trading in securities to
settlement of trades. We have also begun to help lawyers manage the business
aspects of their professional practice, with our ProLaw software solution for
document management, case management, recording lawyers' hours, billing and
other records management and our FindLaw solution for marketing through an
online legal directory and websites created for lawyers.
TRANSFORMATION
Since the 1980s, we have been engaged in publishing business and
professional information, until recently within a multi-business enterprise. We
have now largely completed a strategic transformation through which we have
divested other businesses and have become focused on information businesses. We
believe that as a result of our transformation, each of our market groups has
sufficient scale and scope to compete effectively on a global basis and that we
have greatly improved our ability to evolve and grow as a provider of integrated
information solutions and generate strong financial results.
In addition to information publishing, in the early 1990s we carried on two
other principal businesses: leisure travel services based in the United Kingdom
and community and other newspapers in the United States, Canada and the United
Kingdom. Both our travel and our newspaper businesses were cyclical and
consumer-focused, with the latter highly dependent on advertising revenues.
Recognizing that our information publishing business had the greatest potential
for growth, especially by capitalizing on technological developments, we
increasingly focused on building this business, utilizing the strong cash flow
from our other businesses.
In 1996, we acquired West Publishing, a U.S.-based provider of primarily
legal information, for $3.4 billion. We made West the core of our legal and
regulatory group and became a leader in this sector. We have used West's leading
technology platform as the base for expanding electronic delivery of our
48
information-based products and services. In addition, by acquiring West we took
a substantial step in shifting our strategy to focus on professional and
business customers and a subscription-based revenue model.
Subsequently, we made other strategic acquisitions of information
businesses, including:
- in our learning group, we greatly increased our scale by purchasing
academic publishing and corporate training businesses of Harcourt for
$2.1 billion in 2001 and we acquired Prometric, the leading provider of
computer-based testing, for $775 million in 2000, and
- in our financial group, we greatly expanded the breadth and depth of our
products and services by purchasing Primark, a global provider of
financial information, and Carson, a global provider of investor
relations products and services, for an aggregate amount of $1.3 billion
in 2000.
In addition, we have regularly made other tactical acquisitions that
complemented our existing information businesses. Many acquisitions were in
effect the purchase of information or a product or service that we integrated
into our operations to broaden the range of our offerings. As alternatives to
the development of new products and services, these acquisitions had the
advantages of faster integration into our product and service offerings and cost
efficiencies.
As part of our transformation, we also divested successful but mature
businesses that were no longer core holdings, including:
- our leisure travel business, which we disposed of in 1998 for proceeds of
$1.9 billion, and
- our community newspapers and a related 50% interest in a newsprint
manufacturing business, which we sold in 2000 and 2001 for aggregate
proceeds of $2.8 billion.
The principal sources of funding for our transformation were divestitures
and cash flow from operations, as well as debt and investment by Woodbridge
under our dividend reinvestment plan.
While effecting our transformation, our EBITDA grew from $1.2 billion, or
17% of revenues from continuing operations, in 1995 to $1.8 billion, or 25% of
revenues from continuing operations, in 2001. The following charts illustrate
our transformation, showing the replacement of revenues and EBITDA from our
former travel and newspaper businesses with revenues and EBITDA, respectively,
from our information businesses.
49
REVENUES FROM CONTINUING OPERATIONS
(IN BILLIONS)
(BAR CHART)
EBITDA FROM CONTINUING OPERATIONS
(IN BILLIONS)
(BAR CHART)
50
STRATEGY
Our strategic objective is to be the foremost global provider of integrated
information solutions to businesses and professionals in markets with consistent
long-term growth prospects. In order to achieve this objective, we apply the
following strategy consistently across our market groups.
CREATING VALUE FOR CUSTOMERS BY PROVIDING INTEGRATED INFORMATION SOLUTIONS
We provide integrated information solutions that create value for our
customers. We supply value-added information and use technology to deliver it
faster and in a form that enables our customers to use it flexibly and
efficiently. As we meet our customers' needs for more and better solutions, we
enhance their ability to serve their customers. Our solutions also become
integral to our customers' workflow and businesses, which is conducive to a high
level of customer retention. Accordingly, we seek to grow primarily by expanding
our opportunities to serve our customers, in addition to improving our market
share. To do so, we will continue to expand the breadth and depth of the
integrated information solutions we offer to our customers.
LEVERAGING OUR TECHNOLOGICAL PLATFORMS AND OTHER ASSETS AND CAPABILITIES TO
GENERATE GROWTH AND EXPAND MARGINS
We have technological platforms of scale and scope, high quality
information, strong brands and skilled senior management and employees. We plan
to capitalize on our technological strength and these other assets and
capabilities to generate revenue growth and expand our profit margins.
We seek to leverage our investment in technology to lower the cost of
developing and marketing new products and services and realize operating
efficiencies. Using the systems we now have, we can adapt products and services
developed for customers in one sector for those in others. Having designed a
technological application to permit one customer to use our information, we can
modify that application for utilization of the same or other information by
another customer. We are using strong brands in one country -- such as Westlaw
in the United States -- as the basis of entry into others. We are also building
Thomson as a global co-brand to foster the development of our product and
service brands. We continue to emphasize the recruitment, training and career
development of our people, on whose ability and creativity our business depends.
We deploy management across our market groups to broaden work experience, foster
cross-fertilization of thinking and encourage a common management approach.
EXPANDING ELECTRONIC DELIVERY TO IMPROVE SCALABILITY
We believe that our focus on electronic delivery allows us to respond more
effectively to our customers' needs, to provide products and services that have
more features and to enhance our customers' ability to use our information as it
suits them. We also believe that our focus on electronic delivery permits us to
expand more readily into new markets. By expanding electronic delivery of
products and services, which can generally be done at lower variable costs than
those that are print-based, we believe that we will generate revenue growth and
expand our profit margins.
EXPLOITING INTERNATIONAL EXPANSION OPPORTUNITIES
We plan to continue to invest outside of North America, which we expect
will enable us to accelerate our overall rate of growth. Our businesses are
readily expandable into new geographic markets and we intend to grow them
internationally, particularly in Europe, Latin America and Asia-Pacific. Many of
our products and services developed originally for the United States or other
markets can be modified and offered internationally. Many of our customers
operate internationally, which gives us the opportunity to expand with them. In
addition, the scalability and flexibility of our technology platforms allow us
to reach customers globally.
51
ASSESSING ACQUISITIONS
Within our existing businesses, we have opportunities to evolve and grow
and can achieve our strategic objective. We plan to grow by reinvesting in our
existing businesses. We will continue to regularly evaluate and make
acquisitions that broaden the range of our product and service offerings. We
will also continue to assess the acquisition of new businesses that can either
improve our ability to serve our existing markets or allow us to enter new
markets effectively. We believe that we have demonstrated the ability to
identify acquisitions that enhance or complement our business, evaluate them in
a disciplined manner and execute acquisition transactions effectively. We also
believe that our experience in integrating acquired businesses allows us to
eliminate cost redundancies and combine the acquired products and services with
our existing offerings, resulting in incremental revenues, expanded profit
margins and improved potential for revenue growth.
We also continue to assess strategic alliances and joint ventures,
especially when entering new markets. Examples include U21global, our joint
venture with 16 leading research universities from around the world to form an
online university, and our Omgeo joint venture with The Depository Trust &
Clearing Corporation that provides post-trade transaction services to our
financial services customers.
ACHIEVING SUPERIOR LONG-TERM RETURNS AND MAINTAINING FINANCIAL DISCIPLINE
We manage our businesses and deploy our capital to maximize returns to
shareholders over the long term. In growing our businesses, we will continue to
rely on our recurring revenues, strong cash flow from our operations and our
strong balance sheet.
We make disciplined investment decisions largely on the basis of return on
invested capital and other long-term financial measurements such as discounted
cash flow and internal rate of return. Since the early 1990s, we have invested
to focus ourselves on providing integrated information solutions and to build
technology platforms. Having made these investments, we aim to achieve improved
returns on invested capital through sustained revenue growth, realizing
operating efficiencies and leveraging our technology. We expect that the
percentage of our revenues that we spend on technology will decrease, although
we plan to continue to invest in technology at significant levels.
We assess each of our businesses on the basis of annual performance
targets. In making any tactical acquisitions that complement our existing
businesses, we will generally do so on the basis that the acquired business,
while adding to our capacity for growth over the long term, will also be
expected to increase our return on invested capital and earnings by the second
year after it is acquired.
THOMSON LEGAL AND REGULATORY
Our legal and regulatory group provides integrated information solutions to
legal, tax, accounting, intellectual property, compliance and business
professionals. We offer a range of over 12,000 products and services primarily
based on our electronic databases of legal, regulatory and business information
and news. We maintain one of the largest electronic databases of legal,
regulatory and business information and news in the world that currently
includes more than 60 terabytes of data, which is equivalent to more than 800
million printed pages of information. Our information-based products and
services are in most cases available in both print and electronic formats to
satisfy our customers' requirements. Information is offered electronically
primarily through the Internet and more recently through newly developed
wireless technology. Information offered electronically is combined with
analytical tools and software applications that enable our customers to search,
analyze and manipulate the information to increase their productivity. We also
offer non-content based products and services to our customers such as software
to assist lawyers and accountants with management functions, including document
management, case management, records management, billing and accounting. We also
offer software that assists tax professionals with preparing and filing tax
returns. More recently, we have begun to offer online legal directories to
assist our customers in their client development initiatives and continuing
legal educational programs. We have more than one million customer accounts with
more than 120,000 users of our online services each day and provide integrated
information solutions to more than 95% of the 100 largest law firms in the
world.
52
We derive our legal, regulatory and business information and news from
public sources and through licensing arrangements with third-party providers.
This information is continually updated. We also enhance this information with
editorial analysis and organize, categorize and combine it with other value
added features enabling our customers to more readily use it in their daily
workflow.
In 2001, approximately 75% of our legal and regulatory group's revenues
from ongoing businesses were derived from legal products and services, 18% were
from tax and accounting products and services and 7% were from business
information and news. The following table provides a breakdown of our legal and
regulatory group's revenues from ongoing businesses in 2000 and 2001 as a
percentage of the group's revenues from ongoing businesses by product format,
revenue origin and revenue type.
REVENUE BREAKDOWN(1)
2000 2001
---- ----
REVENUE BY PRODUCT FORMAT:
Electronic................................................ 52% 52%
Print..................................................... 40 39
Other..................................................... 8 9
REVENUE BY ORIGIN:
North America............................................. 86% 85%
Europe.................................................... 10 10
Asia-Pacific.............................................. 3 3
Latin America............................................. 1 2
REVENUE BY TYPE:
Subscription.............................................. 91% 91%
Advertising............................................... -- --
Other..................................................... 9 9
---------------
(1) Represents percentages of revenues from ongoing businesses, which exclude
disposals. Disposals consist of results of businesses sold or held for sale
which do not qualify as discontinued operations.
Revenue is earned relatively evenly over the course of the year but is
slightly higher in the fourth quarter since a significant number of our
print-based products are updated during this period corresponding to most
legislative sessions in the United States. Revenue is recognized in connection
with subscriptions for our online services throughout the year and not in
connection with the update of information. Since our product mix is becoming
increasingly electronic, with most of our new products and services being
developed in that format, future revenue will be earned more evenly throughout
the year. Our subscription contracts generally have a term of one year and
renewal dates are spread throughout the year.
In 2001, our largest customer was the United States federal government
through its various agencies that together accounted for approximately 3% of the
group's revenues. No other single customer accounted for more than 1% of the
group's revenues.
MARKETS
According to our estimates, the global market for legal and regulatory
information in which we operate generated more than $12 billion in revenues in
2001. We estimate that legal information represented approximately 57% of the
market while regulatory information represented approximately 43%. Our estimates
indicate that the market for legal and regulatory information in most developed
countries is relatively mature with average annual revenue growth rates expected
to be approximately 3%. Growth in this market tends to correlate with gross
domestic product growth. However, we believe there are significant opportunities
to expand the market by offering information combined with innovative software
products and services.
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In 2001, according to our estimates, we were the leader in the global legal
and regulatory information market, accounting for approximately 21% of the
market. This is primarily a result of our leading position in the United States
legal information market, of which we estimate we accounted for approximately
48%.
As the economy becomes increasingly global, the demand for legal and
regulatory information on a global basis is increasing. Similarly, some of our
largest customers are becoming increasingly global. These customers require a
broader array of products and services to meet their varied information needs.
Increasingly, our global customers prefer their information needs to be met by
one strategic partner as opposed to multiple providers to ensure consistency.
Technology also continues to affect the market for legal and regulatory
information. The availability and reliability of the Internet and the demand for
faster access to information has significantly increased the demand for products
and services online. In addition, the Internet has made it much easier to both
deliver and receive information and services. Many of our smaller customers can
now access information and services over the Internet that were previously
unavailable to them.
Competitive differentiation in the market for legal and regulatory
information is becoming increasingly difficult to demonstrate through
traditional means such as content and reliability. We believe that value-added
products and services are increasingly becoming the point of competitive
differentiation. As a result, information providers are putting a greater focus
on, and offering a broader selection of, value-added products and services,
including non-information based products. In addition, brands are becoming
increasingly important as customers associate brands with value.
We believe that we maintain an advantage over our competitors as a result
of the breadth and depth of our products and services and our ability to respond
to market demands quickly and effectively. We believe our focus on technology as
a critical component in meeting our customers' needs differentiates us from some
of our competitors that have historically invested in technology at much lower
levels.
Online business information and news services supply a variety of current
and archival business information and news to professionals in a wide variety of
areas such as marketing, strategic planning, business development and research
and development. According to our estimates, the global market for online
business information and news in which we operate generated more than $2 billion
in revenues in 2001. We estimate that, in 2001, we were one of the leading
providers of online business information and news with a market share of
approximately 12%. According to our estimates, the global market for business
information and news has had average annual revenue growth rates ranging from
three to five percent in recent years. Similar to the legal and regulatory
information market, the availability and reliability of the Internet has
increased the demand for business information and news online, which is driving
growth in this market.
OPERATIONS
Legal
Based primarily on our West business, we are the leading provider in the
United States of legal information-based products and services, offering our
customers access to over 16,000 databases. We provide integrated information
solutions to virtually every large law firm, significant government institution
and law school in the United States and increasingly to small and mid-sized law
firms and corporate in-house legal professionals.
Our information includes case law, statutes, administrative material, law
reviews and treatises, lawyer profiles, legal commentary, public records and
legal forms, in print and electronic formats. Cases, statutes and other legal
information published by our West business are generally enhanced by head-notes,
synopses, key topic numbers and other editorial enhancements prepared by our
staff of lawyers and editorial professionals. These editorial enhancements
facilitate more productive searching and researching by our customers. For
instance, our case synopses are a concise summary of an entire case which
includes the legal determination, legal principles referred to, procedural
history and related facts of the case. A case synopsis allows our customers to
quickly determine the value and relevance of a case and allows our customers
accessing Westlaw to uncover with a keyword search related cases that might
otherwise have been missed since our
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case synopsis includes synonyms, acronyms, terms of art, generic names and legal
relationship terms that may not be included in the case itself. We also enhance
our legal content with a proprietary editorial feature known as the West Key
Number System. The West Key Number System is a master classification system
under which each point of law is assigned a key number and which includes more
than 400 topic areas and 100,000 points of law. Our topical outline allows our
customers to identify the key number that corresponds to a specific area of law.
Using the key number, our customers can search for topically related cases and
commentary.
Through West, we also offer KeyCite, an online citation research service
that, among other things, enables our customers to trace the history of a case,
statute, administrative decision or regulation to determine if it is still
authoritative, to retrieve a list of cases that cite a particular case or
compile a table of authorities. We launched KeyCite in 1997 and it is now used
online by more legal professionals than any other competing service.
We also operate legal information businesses in Canada, the United Kingdom,
Denmark, France, Ireland, the Netherlands, Spain, Sweden, Australia, Hong Kong,
New Zealand, Brazil and Argentina through local operations and in Switzerland
through a joint venture. Through these businesses we provide a range of primary
materials such as case law and statutes and secondary materials such as
treatises and legal commentary specific to the countries in which we operate.
Westlaw is our online delivery platform. Most of our customers access our
products and services over the Internet through Westlaw.com. We also offer
access to Westlaw using newly developed wireless technology. Westlaw offers
numerous search features and navigation tools that enable our customers to
search our databases to research points of law, build tables of authorities or
search for other topically related commentary. Westlaw allows our customers to
customize a search by limiting it to only those databases that are relevant to
them. We recently introduced mywestlaw.com, an innovative set of features that
allows individual users to customize Westlaw by focusing on specific
jurisdictions or practice areas. Our offering of mywestlaw.com, together with
increased use of the Internet, has allowed us to further penetrate the market
for smaller and specialized law firms.
Westlaw was launched in the United Kingdom in 2000 and is now used by 76 of
the 125 largest U.K. law firms. Westlaw UK offers a combination of legal
information from the United Kingdom and the European Union, derived from our
legal publishing businesses in those jurisdictions, together with information
licensed from third-parties, such as business information and news from Dow
Jones & Company, Inc. Customers may also access, on a transactional basis, legal
and regulatory information from West in the United States and our other
businesses such as Dialog, our global online provider of business information
and news. In addition, we are currently offering Westlaw online services in
Australia, Denmark, Spain and Sweden. In each case, we offer local content,
owned or licensed by our operations in that region, and supplemented with
relevant information from other regions of the world such as our databases of
European Council directives maintained by our ELLIS business unit. We are
currently developing Westlaw online services in Canada and Germany.
In addition to launching a customized online service in each of these
countries, we also provide a basic Westlaw service, known as Westlaw
International, in Argentina, Hong Kong, Japan, New Zealand and Singapore.
Through Westlaw International, we are able to offer our current online products
and services to customers in markets where we may not have an existing
publishing presence or have not yet developed a fully customized Westlaw
service.
In 2001, we acquired ProLaw, which offers software that assists primarily
small and mid-sized law firms with front and back-office management functions
including document management, case management, accounting, billing and records
management. In 2001, we also acquired FindLaw, which maintains web-based
services in the United States offering access to a legal directory, legal news,
a legal career center and other legal resources. FindLaw charges law firms a fee
to be included in its online legal directory but users may search its legal
directories and other products and services free of charge. FindLaw also
provides website design and hosting services to more than 6,000 law firms.
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We offer integrated information solutions to assist professionals in
developing and protecting trademarks. Through Thomson & Thomson, Compu-Mark and
Brandy, a Japanese joint venture, we maintain a database containing all current
trademark registrations in the United States, Japan, Malaysia, Singapore, Canada
and most European countries. We also offer a wide range of products and services
that cover all aspects of developing and protecting a trademark, including
enabling customers to screen trademarks, determine the availability of
trademarks, protect trademarks from infringement and search domain names.
Our West Education Group, formed in 2001, is a leading provider of
educational solutions to legal professionals and law students in the United
States. Through BAR/BRI, we provide bar examination review courses and
materials. We also maintain a legal text book publishing business with over
1,200 titles making us a leading provider of casebooks and other learning
materials to law students in the United States. In 2001, we launched West
LegalEdCenter, a provider of continuing legal education materials which offers
one of the largest selections of video and audio continuing legal education
programs on the Internet including more than 1,800 hours of accredited content.
In addition to providing a stable source of revenues, we believe that our
educational business provides us with a competitive advantage by giving us the
opportunity to develop relationships with our professional customers beginning
during their formal training and continuing throughout their careers. For
example, our presence in the legal education market enables us to develop a
preference among junior legal professionals for our products and services, such
as Westlaw. We believe these relationships increase demand for our products and
services.
We primarily sell directly to our customers. In the United States, we have
approximately 490 regionally-based sales representatives in addition to a team
of more than 400 account managers and 120 sales representatives who work out of
our offices to ensure that our existing customers' needs are met. In many of the
countries in which we operate outside the United States we have a regional sales
force that focuses on marketing and selling our products to customers located in
that country.
Tax and Accounting
We provide tax and accounting professionals with integrated information
solutions. We offer regulatory information such as relevant statutes,
regulations, commentary and practice guides and tax and accounting software to
assist our customers in their daily work. Over the past four years, we have made
significant changes in our regulatory business by exiting businesses and product
lines that provided low operating margins or were inconsistent with our overall
strategy.
Our regulatory information is made available in both print and electronic
formats. In 2001, we introduced a new version of our online product, Checkpoint
4.0, which provides our customers with increased speed of service and the
flexibility to link to a broader collection of databases. We continue to add
additional content in this area. As a result of these initiatives, the number of
customers subscribing to the service increased by approximately 14% in 2001 and
we believe we will be able to firmly establish ourselves as the market leader by
continuing to develop our electronic services.
We also offer a comprehensive line of integrated tax, accounting and
practice management software solutions to assist our customers in improving
their productivity and profitability. Through Creative Solutions, we offer
software products that perform payroll, write-up, bookkeeping, audit and
practice management functions and enable our customers to interact with their
clients through the Internet. In addition, we offer tax accounting software
known as UltraTax which assists our customers in the preparation of tax returns
and enables them to file tax returns electronically. Through our Fast-Tax Trust
Services business, we provide our customers with a specialized range of products
for managing trust accounting, from tax preparation software to complete tax
preparation services. Our regulatory business is currently focused on
integrating our developing software business and our information business to
create a broader offering of solutions.
We market and sell our tax and accounting information and software products
to tax and accounting professionals through our 96 regionally-based sales
representatives and through our 161 sales representatives who work out of our
offices. In addition, we have been successful in selling a significant amount of
our products and services over the Internet. Focusing our marketing and sales
efforts on Internet sales has allowed
56
us to broaden our range of customers and reduce sales and marketing costs. We
also use the Internet to provide product support to our existing customers.
While our principal market is the United States, we also provide tax and
accounting professionals with information solutions in Canada, Sweden, Denmark,
Australia, New Zealand and Brazil through domestic operations in each country.
Business Information and News
Our legal and regulatory group manages Dialog, a leading global online
provider of business information and news to a wide range of customers of all
our market groups, including business, science, engineering, financial and legal
professionals. The information offered by this service includes content relating
to pharmaceuticals, science and technology, medicine, intellectual property,
government regulations, social sciences, food and agriculture, news and media,
business and finance, reference, energy and the environment and chemicals.
Dialog provides online access to 15 terabytes of data, which is equivalent to
more than 350 million printed pages of information. This is comprised of
approximately 1.3 billion records. This data is primarily licensed from third
parties and is derived from more than 200,000 sources, such as publicly filed
documents, industry literature and trade journals. This makes the Dialog
database one of the largest of its kind in the world. In September 2001, we
acquired NewsEdge, an online provider of current news licensed from third
parties, and integrated it with Dialog. Dialog and NewsEdge allow our customers
to identify current information on particular topics and to search our archival
databases for information on particular topics to assist in their research
activities. Through Dialog Newsroom, we bundle Dialog's and NewsEdge's products
and services together to provide our customers with a complete solution for news
and business research and monitoring.
Dialog has operations in 29 countries and global customer support centers
in London, Raleigh, North Carolina and Sydney, Australia. Dialog provides
business information and news services to more than 25,000 corporate customers
and more than 100,000 professional researchers and is accessed by over two
million end-users worldwide. We market and sell Dialog through our global sales
forces of 277 regionally-based sales representatives and 36 sales
representatives who work out of our offices.
We are focusing on the expansion of Dialog by making it available in
combination with Westlaw. In addition, through Dialog we are offering content
from our other market groups such as patent information from Derwent in our
scientific and healthcare group and reference information from Gale in our
learning group. To support this initiative, we are converting Dialog's content
formats so that they are compatible with Westlaw's next generation technology
platform. This will improve our ability to offer content from our other market
groups through Dialog and to combine Dialog with our other online services.
TECHNOLOGY
In our legal and regulatory group, we maintain a sophisticated electronic
infrastructure and highly developed online systems and support capabilities to
provide our customers with products and services primarily through the Internet.
In particular, we maintain two data centers with several hundred servers that
have the capacity to handle over 18 million transactions per day from 10,000
simultaneous users. We are continuing to develop the next generation of
Westlaw's online delivery platform which utilizes new and highly scalable
technologies resulting in significantly enhanced capabilities. This platform
hosts other online services such as Checkpoint, and will soon host Dialog.
Moving to our next generation platform will allow us to more easily combine
content from our various online services, reduce product delivery costs and
reduce development time for new products and services. We are also significantly
upgrading and standardizing our applications and infrastructure, enabling us to
support more sophisticated web transactions to enhance our ability generally to
market and sell our products over the Internet.
57
STRATEGIC IMPLEMENTATION
Our legal and regulatory group is implementing our corporate strategy
through the following initiatives:
- Broadening our offerings with non-content based products and
services. We are continuing to develop and acquire innovative
non-content based products and services which generate additional
revenues and enable us to become further integrated into our customers'
daily workflow. For example, we have introduced practice management
software, continuing education programs and marketing services to our
legal customers. Since these products are integral to our customers'
businesses, they serve to strengthen our relationships with our
customers.
- Expanding global access to our information through the Internet. To
increase global access to our information through the Internet, we have
followed the introduction of Westlaw in the United Kingdom by offering
Westlaw online services in Australia, Denmark, Spain and Sweden. In
addition, we are currently developing Westlaw online services in Canada
and Germany. The global expansion of Westlaw was made possible by a
combination of our Westlaw.com platform and our next generation online
platform.
- Expanding into new markets in Europe, Latin America and Asia-Pacific. We
continue to pursue opportunities to develop or acquire leading positions
in markets that we believe offer stable long-term growth. We have over
the past two years acquired businesses in Argentina, Australia, Brazil,
France, Germany, New Zealand, Spain, Sweden and the United Kingdom. We
continue to view Latin America as an area offering growth prospects due
to the increasing use of technology, growing number of professionals and
complexity of the legal system. Germany and Japan also offer significant
opportunities due to the size and fragmentation of the markets.
- Combining our online services and offering content from other market
groups. We are increasing our penetration of the legal, regulatory and
business information and news markets by combining our online services
and offering content from other market groups. For example, we are
focusing on combining Dialog with Westlaw and offering the combined
service to our existing customers. In addition, the combination of
NewsEdge with Dialog and the addition of content from our other market
groups has allowed us to pursue a broader customer base. As we continue
to move our key products and services to our common, next generation
online platform, we are enhancing our ability to combine our online
services and offer content from across our market group through our
existing online services.
COMPETITION
Our primary competitors in the legal and regulatory information market are
Reed Elsevier and Wolters Kluwer, who we compete with in the United States and
in many of the other countries in which we operate. We also compete with smaller
domestic competitors in our international markets.
In the business information and news market we compete with other business
information and news aggregators, the most significant being Factiva, a joint
venture between Reuters and Dow Jones. In addition, we compete with smaller
competitors such as OneSource Information Services, Inc., Hoover's Inc., Ovid
Technologies, a subsidiary of Wolters Kluwer, and STN International that focus
on specific segments of the business information and news market.
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PRINCIPAL PRODUCTS AND SERVICES
The following chart summarizes, by product and service type, the major
brands and principal products and services of our legal and regulatory group.
PRODUCT AND
SERVICE TYPE CUSTOMERS MAJOR BRANDS(1) PRINCIPAL PRODUCTS AND SERVICES
------------ ---------------------------- ---------------------------- ------------------------------------
Legal lawyers, law students, West legal information-based products and
law librarians, Westlaw (U.S., U.K., services
trademark professionals, Australia, Denmark, Spain
legal professionals and Sweden) Carswell
(Canada) Sweet & Maxwell
(U.K., Asia) ELLIS (The
Netherlands) Aranzadi
(Spain) Civitas (Spain)
Karnov (Denmark and Sweden)
Lawpoint (Australia) Lawbook
Co (Australia) Brookers (New
Zealand) La Ley (Argentina)
Sintese (Brazil)
ProLaw law firm management software
FindLaw web-based legal directory and
website creation and hosting
services
Foundation Press West Law text books, study aids, bar review
School Publishing BAR/BRI courses and continuing education
West LegalEdCenter materials
Thomson & Thomson Compu- trademark search and information
Mark (Europe) Brandy(2) services
(Japan) O. Gracklauer
(Germany)
---------------------------------------------------------------------------------------------------------------------
Tax and lawyers, accountants, RIA Checkpoint PPC GEE tax and accounting information-based
Accounting consultants (U.K.) IOB (Brazil) products and services
Creative Solutions Fast-Tax tax and accounting software and
Trust Services services
---------------------------------------------------------------------------------------------------------------------
Business business professionals, Dialog NewsEdge Profound online database of business and
Information and scientists, consultants Datastar Intelligence Data scientific information and current
News and archival news
---------------
(1) Where brands are principally associated with products and services offered
in countries other than the United States, the countries are indicated in
parentheses.
(2) Denotes a joint venture.
THOMSON LEARNING
Our learning group provides integrated learning solutions to colleges,
universities, professors, students, libraries, reference centers, government
agencies, corporations and professionals. We help customers find the learning
resources they need, learn using print and electronic resources and measure
their learning success.
Our publishing and reference business provides textbooks and related
learning products used in colleges and universities, together with a broad range
of online and print-based reference materials used in libraries, reference
centers, colleges and universities. Our lifelong learning business provides
electronic and print-based training, career education, vocational learning and
testing and certification programs and materials to corporations, government
agencies, universities, vocational schools, teachers and students.
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Over the past two years, we have transformed our learning group by
acquiring the higher education and corporate training businesses of Harcourt and
by adding Prometric, a key testing and certification business.
In 2001, approximately 57% of our learning group's revenues from ongoing
businesses were derived from our academic publishing and reference products and
services and 43% were from our lifelong learning products and services. The
following table provides a breakdown of our learning group's revenues from
ongoing businesses in 2000 and 2001 as a percentage of the group's revenues from
ongoing businesses by product format, revenue origin and revenue type.
REVENUE BREAKDOWN(1)
2000 2001
---- ----
REVENUE BY PRODUCT FORMAT:
Electronic................................................ 31% 31%
Print..................................................... 68 61
Other..................................................... 1 8
REVENUE BY ORIGIN:
North America............................................. 88% 85%
Europe.................................................... 8 10
Asia-Pacific.............................................. 3 4
Latin America............................................. 1 1
REVENUE BY TYPE:
Subscription.............................................. 14% 20%
Advertising............................................... -- 1
Other(2).................................................. 86 79
---------------
(1) Represents percentages of revenues from ongoing businesses, which exclude
disposals. Disposals consist of results of businesses sold or held for sale
which do not qualify as discontinued operations.
(2) Other is primarily comprised of revenues from sales of our textbooks and
related products.
The greater proportion of revenues of our academic publishing and reference
business is earned in the third and fourth quarters primarily due to the buying
patterns in this market. Revenues in our lifelong learning businesses are earned
more evenly over the year. Our customer base is diversified, with no single
customer representing more than 3% of our revenues.
MARKETS
The global learning market can be divided into the primary and secondary
school segment, the higher education segment, including post-secondary, college
and university education, the library reference segment and the corporate
training and testing segment. We participate primarily in the higher education,
library reference and corporate training and testing market segments. The higher
education segment is less cyclical than the primary and secondary school segment
because it does not rely on public school districts to adopt textbooks and other
learning materials and is less exposed to government-related budget constraints.
The higher education market is also less capital intensive because publishers in
this market are not required, as in the primary and secondary school market, to
invest funds for book development prior to receiving a commitment from state
education bodies that their books will be adopted and purchased. We participate
in the library reference market because it has high electronic information
adoption rates and its electronic information can be easily combined with our
higher education products and services. We participate in the corporate training
and testing market because we believe it has strong growth potential due to high
electronic information adoption rates, the cost efficiency of digital delivery
and the increasing demand for corporate training and testing products.
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While printed materials continue to be the most widely used learning
resource, electronic resources are increasingly sought by instructors and
students. With the shift to electronic resources, scale and operating efficiency
are becoming increasingly important and accordingly significant investments need
to be made in technology, marketing and distribution. Our acquisition of the
higher education and corporate training businesses of Harcourt significantly
increased the operational scale of our learning businesses. This acquisition
also provided us with electronic capabilities that we are integrating with
existing technologies and leveraging across our businesses to meet our
customers' needs.
Academic Publishing and Reference
According to our estimates, the higher education publishing market in the
United States, our primary market, generated approximately $3.4 billion in
revenues in 2001 and outside the United States generated approximately $830
million. The higher education publishing market is generally not exposed to
economic downturns and grew, globally, at an estimated rate of 5% in 2001
attributable in part to increasing university enrollments that were partially
offset by the declining rate at which students purchased new textbooks. We are
responding to this decreasing rate of new textbook purchases by supplementing
our textbooks with electronic study and teaching aids that are not available
with used books. We estimate that for 2001, our learning group had the second
largest share of the higher education publishing market with approximately 22%
in the United States and 15% outside the United States. In 2001, we estimate
that our higher education business had the largest or second largest market
share in 28 of the 36 academic disciplines in which we participate in the United
States. We believe our strength in this market results from several factors,
including the breadth and depth of our title list, author relationships,
technology investments, scale and our specialized sales and marketing efforts.
According to our estimates, the global library reference market generated
approximately $6.2 billion in revenues in 2001. We estimate that the highest
growth sector of this market is the electronic products segment, where growth
rates have reached as high as 10% in 2001. According to our estimates, growth
for print-based products was approximately 5% in 2001. We estimate that in 2001,
we had the largest market share in the global library print reference market
with approximately 36% and the second largest market share in the global library
electronic reference market with approximately 16%. We believe our strength in
the global library reference market results from several factors, including our
technology investment, entrenched customer relationships, proprietary content
and bundled products.
A significant trend in the United States reference market is that consortia
are increasingly being formed by libraries and reference centers to negotiate
lower prices for information services. We are partially insulated from this
pricing pressure because we offer our customers many highly valued proprietary
products. We are also responding to this pressure by aggressively introducing
new products and services designed to meet specific information needs.
Lifelong Learning
According to our estimates, the outsourced corporate training and testing
market in the United States, our primary market, generated approximately $15.2
billion in revenues in 2001, of which approximately 70% was spent on
instructor-led training. We believe that businesses are increasingly outsourcing
training and are shifting spending from instructor-led to technology-based
training. The corporate training and testing market can be affected by changes
in the general economy as training budgets are often reduced in an economic
downturn.
The corporate training and testing market has traditionally been
characterized by numerous small providers of specialized products and services.
The smaller companies servicing this market are facing increasing pressure to
consolidate as customers are demanding training solutions that combine
traditional training products with electronic products and validation of
training programs. Customers are also increasingly addressing training on an
enterprise-wide basis and in some cases on a global basis.
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We believe we have one of the largest and broadest lifelong learning
businesses, combining computer-based testing, electronic instructional materials
for information technology and business skills training and print-based
instructional materials for career education, technology and out-placement
services.
OPERATIONS
Academic Publishing and Reference
We provide textbooks, study guides and teaching guides in print and
electronic formats for use in colleges and universities and electronic, print
and microfilm reference materials for libraries, reference centers, schools,
colleges, universities and corporations. Our major textbooks are supplemented by
electronic teaching aids, such as online interactive supplements and websites.
We publish in selected disciplines that we believe offer the highest long-term
growth and where we have or believe we can attain substantial market share such
as in the humanities, social sciences, languages, science, mathematics, business
and economics fields. We create proprietary reference material, aggregate
periodical content and primary source research information and integrate this
information into a broad array of sophisticated online reference libraries. Our
online reference library is one of the largest in the world and currently
includes four terabytes of data, which is the equivalent of approximately 125
million printed pages of information. We also maintain academic microfilm
collections that we provide to our library customers. We are currently
digitizing our microfilm collection and include this content in some of our
electronic products.
Our textbooks and learning materials are authored by experts in the
relevant discipline. We contract with our authors under long-term royalty
arrangements. The authors work with our editors to prepare the original
materials for new editions, revised editions and teaching supplements. The depth
and breadth of our product offerings allow us to manage the release dates of
major textbook titles so that revenues from new product releases are spread more
predictably from year to year.
The online interactive supplements and websites that complement our
textbooks and other printed materials are an integral part of our textbook
offerings. The additional content and electronic tools are designed to make the
learning experience more effective. They also encourage sales of our new
textbooks because only students who purchase these books receive special
electronic supplements. For example, we provide purchasers of some new textbooks
with a time-limited subscription to our Gale InfoTrac College Edition reference
database, which contains approximately 4,000 full-text publications and an
historical archive of selected titles.
We are working to design new electronic products to promote more effective
learning by students and more effective teaching and assessment by instructors.
The Learning Equation, one of our online instructional products, is designed to
help college and university students who have difficulty learning math.
Independent studies have shown this product to be more effective than
traditional teaching methods. Another example is the Brooks/Cole Assessment, an
electronic mathematics testing tool that recognizes mathematical symbols in
questions and answers and is capable of evaluating student progress.
We also provide electronic resource centers that aggregate reference
information about particular topics. The Gale Resource Centers are devoted to
topics such as literature, history and health. Through a newly established
alliance with Ingenta, a major aggregator of electronic journal information, we
have expanded our reference content. With a single search using Gale's InfoTrac
service, customers worldwide are able to access online journals through Gale and
Ingenta. We are also extending our reference business into new markets by
providing supplements to core curricula taught in primary and secondary schools
and expanding the distribution of reference products in the international and
primary and secondary school library markets.
We distribute our publishing and reference products internationally. We
adapt textbooks and learning materials created for the United States market for
sales abroad by, where necessary, translating them and supplementing them with
local content. Our acquisition of the Harcourt higher education publishing
businesses significantly increased the scale of our international business. The
Harcourt businesses included strong titles in mathematics, statistics and the
sciences which are more easily transferred to international markets than are,
for example, humanities materials. In 2001, approximately 49% of the revenues
earned from
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international sales of our academic publishing products and services were
attributable to content created in local markets. In the international markets
we distribute our higher education products and services predominately to
universities, colleges, schools and reference libraries.
In response to significant demand for higher education products and
services outside North America, we formed a joint venture together with 16
leading research universities from around the world to create an online
university, U21global, which will be a degree-granting institution providing
online educational services, backed by the member universities. We will use our
existing academic content, reference information and testing services as a basis
for new online offerings. U21global is based in Singapore and will initially
serve the Asia-Pacific higher education market.
We are building on the position of our Heinle business as the third largest
publisher of English materials for the higher education market to develop
materials for the English as a foreign language and English as a second language
learning markets. Demand for English-language training courses and related
teaching and learning materials is expected to continue to grow as markets
become increasingly global. The English-language training market is particularly
appealing because these students tend to purchase a range of textbooks and
ancillary workbooks and other learning aids. In addition, these materials tend
to be updated less frequently, resulting in lower development expenses.
We maintain one of the largest dedicated sales forces in the higher
education publishing market in the United States, with more than 400
salespersons organized into groups specializing in each of our key academic
disciplines. Our sales efforts are focused on college and university professors
because they decide which textbooks to use and these textbooks are in turn
purchased by college or university bookstores and sold to students. The two
largest distributors in the United States of our academic publishing products in
2001 were Barnes & Noble and Follett. Bookstores may return unsold books to us.
Since 1998 we have lowered the return rate for our textbooks through a program
that uses incentives to encourage bookstores and other resellers to order an
appropriate number of books and discourage returns. Outside the United States,
the sale of our higher education products is handled by our sales force of more
than 300 salespersons.
Our academic reference materials are distributed through a 200-person sales
force to academic and public libraries, corporations and other research-oriented
customers. Our reference content is also resold through arrangements with a
number of distributors.
Lifelong Learning
We provide outsourced electronic and print-based training, certification
and testing solutions to corporations, government agencies, students and
professionals. We also offer textbooks, study guides and teaching guides, in
print and electronic formats, to technical and vocational schools, trade
associations, professors, students and professionals. We are one of the world's
largest providers of electronic and print material for broad-based information
technology instruction. We offer our information technology and business skills
training products and services to corporate information technology departments
and corporate training departments and government agencies worldwide. We also
provide strategic consulting and human resource out-placement services to
corporate and professional customers.
One of the strengths of our training and testing business is the breadth of
our offerings. We maintain a repository of more than 75,000 electronic learning
objects, which are self-contained instruction modules to teach specific skills,
primarily focused on information technology and business. These learning objects
are self-contained modules that are used to create flexible and personalized
training programs tailored to the needs of students.
We also offer textbooks, teaching guides, study guides and practice tests
to professionals who are seeking to maintain or upgrade their credentials and to
professors and students in degree-granting technical and vocational schools. Our
offerings are created for a wide variety of disciplines including
administration, automotive, computer-assisted drafting, cosmetology, education,
electronics, fire rescue, healthcare, security, travel and other trades.
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We have formed an alliance with UNext, which owns Cardean University, a
U.S.-based online university, to provide its online business courses to our
customers. Through this relationship, we have access to electronic courses that
complement our proprietary courses. These include an online master of business
administration program and online courses in leadership, management, electronic
commerce, marketing, finance, accounting and business communications.
We entered the testing and certification business in 2000 with our
acquisition of Prometric and are now a leading global provider of computer-based
test delivery and assessment services. In 2001, our testing business delivered
over six million computer-based exams in 136 countries. In 2001, 34% of the
revenues of our testing business were generated from information technology
certification tests, 26% from professional certification tests, such as tests
for investment brokers and registered nurses, 32% from academic tests, such as
graduate record exams and tests of English as a foreign language, and 8% from
government tests, such as driver's license tests in the United Kingdom.
We are focused on enhancing our ability to provide comprehensive training
solutions to be marketed to our largest corporate customers. In particular, we
are creating tests to match each of our learning objects so that customers may
assess the effectiveness of the training products and services we deliver. We
believe our testing technology provides our learning business with a significant
advantage over our competitors, particularly in the electronic learning market,
as corporate customers are increasingly focused on verifying the results of
their training programs.
Our lifelong learning products and services are distributed through our
600-person sales force. We have focused our marketing and sales efforts in the
corporate training market on customer segments with high training spending per
employee, which include customers in the financial services, technology,
manufacturing, energy and pharmaceuticals fields and governmental agencies. In
most of these segments, our other market groups can provide industry expertise
and have relationships with potential customers. Recently, we established a new
sales group focused on offering comprehensive enterprise-wide training programs
using all of the resources available within our learning group. In the corporate
testing market our sales force focuses on entities sponsoring certification
programs in such fields as information technology, government and education.
TECHNOLOGY
Technology is an integral element in the solutions of our learning group.
We are currently focused on standardizing our technological infrastructure and
platforms to support the development of new electronic products and services and
delivery systems. At Gale, content is integrated on a single technology
platform. With a single search, customers are able to access a variety of
reference materials on topics such as literature, history and health through our
Gale Resource Centers. In our higher education publishing business, we are using
technology to develop electronic solutions that are designed to make the
learning experience more effective. In our lifelong learning business, we have
implemented new scheduling and administrative systems that provide Prometric
test-takers with flexible registration options and lower our costs. We are also
using technology to consolidate our print and electronic materials and
software-based applications to create online training products for the customers
of our training business.
STRATEGIC IMPLEMENTATION
Our learning group is implementing our corporate strategy through the
following initiatives:
- Developing integrated learning solutions. We are pursuing opportunities
to combine our products and services across our business to better meet
our customers' increasingly sophisticated needs. For example, we are
matching print materials to our electronic learning objects and then
designing tests for each learning object. This will allow us to provide
learning solutions that can be designed to meet the particular needs of
our customers. We are also aggregating content from our publishing and
reference businesses into electronic libraries for particular segments of
the professional learning market, which we offer alone or combined with
other products.
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- Continuing to develop electronic products and services. We continue to
invest significant resources in developing new products and services that
can be delivered electronically because we believe electronic products
and services can improve the learning experience. These products and
services can also be delivered to a larger, more dispersed audience in a
customized form. In higher education, we are focused on developing
additional online content and products that help make students and
instructors more effective such as The Learning Equation, Brooks/Cole
Assessment and Gale InfoTrac College Edition.
- Developing products to serve higher education markets outside North
America. Significant demand for higher education exists outside North
America that cannot be satisfied by traditional universities. In response
to this demand, we are developing U21global, an online university based
in Singapore. We will use our existing academic content, reference
information and testing services as a basis for new online offerings, the
first of which will be an online master of business administration
program that is scheduled to be launched in 2003.
- Developing long-term strategic arrangements with global corporate
customers. We are focused on using our leading corporate training
position to establish significant long-term global arrangements with
large corporate customers. We believe our broad product offering and
strong electronic learning programs provide us with significant
advantages over our competitors in this sector. As an example, we
recently entered into a four year contract with General Motors to provide
electronic learning programs through the Internet to General Motors'
employees, including an online master of business administration. The
courses will include supplementary print and electronic materials
provided from across our learning group.
- Continuing to integrate our businesses and leverage our assets across our
business. We continue to implement initiatives to use technology,
customer service techniques, product development expertise and sales and
marketing programs across our learning group. We are also implementing
initiatives between our market groups to use common technology platforms
and share sales and marketing information about customers. We believe our
learning group can use relationships established by our other market
groups to identify and successfully pursue corporate training customers.
In particular, customers of our financial group are significant users of
corporate training services. We believe recognition of the Thomson brand
and our strong reputation in the financial services industry will allow
us to increase our penetration of global financial services customers.
COMPETITION
The higher education publishing market in the United States and
internationally has a small number of major participants. In addition to us,
they include Pearson Education and McGraw-Hill.
Our principal competitors in the global library print reference market are
Oceano Grupo Editorial and the Grolier unit of Scholastic Inc. and in the global
library electronic reference market are Proquest Company and EBSCO Industries,
Inc.
Our principal competitors in the global lifelong learning business include
Pearson in the computer-based testing market and SmartForce, SkillSoft Corp.,
DigitalThink, Inc., New Horizons Worldwide, Inc. and Learning Tree
International, Inc. in the electronic and print-based training markets.
65
PRINCIPAL PRODUCTS AND SERVICES
The following chart summarizes, by product and service type, the major
brands and principal products and services of our learning group.
PRODUCT AND
SERVICE TYPE CUSTOMERS MAJOR BRANDS(1) PRINCIPAL PRODUCTS AND SERVICES
------------ ---------------------------- ----------------------------- ------------------------------------------
Academic colleges, universities, Wadsworth textbooks and electronic course materials
Publishing and professors, students, in the humanities and social sciences
Reference professionals
South-Western textbooks and electronic course materials
in business and economics
Brooks/Cole textbooks and electronic course materials
in mathematics, the sciences and
engineering
Heinle textbooks and electronic course materials
for English, modern languages and
English-language training
Peterson's college and university selection guides in
print and electronic formats, online
college registration and test preparation
Nelson (Canada/Australia) textbooks and electronic course materials
for the school and higher education
markets
Paraninfo (Spain/Portugal) Spanish-language higher education
textbooks in business, economics and
vocational subjects
U21global (Asia-Pacific)(2) online university courses
WebCT(2) course management software and enterprise
software solutions for universities
academic libraries, Gale printed and electronic reference
public libraries, Macmillan materials, electronic databases of
corporations, K.G. Saur (Germany) magazine, newspaper and periodical
reference centers, colleges, content, microfilm collections and
universities, schools encyclopedias
---------------------------------------------------------------------------------------------------------------------------
Lifelong corporations, NETg online and instructor-led information
Learning government agencies technology and business skills training
universities, colleges, Course Technology textbooks and print and electronic
corporations materials for information technology
instruction
corporations, professionals DBM outplacement services and strategic human
capital consulting
colleges, vocational Delmar Learning textbooks and learning materials for
schools, career schools, Education Direct technology, trade and career education
teachers, students
corporations UNext(2) professional development and educational
courses on business and related topics
corporations government, Prometric technology-based test delivery and
agencies Galton assessment services including test
Brainbench(2) preparation, test results processing and
certification program creation
---------------
(1) Where brands are principally associated with products and services offered
in countries other than the United States, the countries are indicated in
parentheses.
(2) Denotes a minority investment or joint venture.
THOMSON FINANCIAL
Our financial group provides integrated information and workflow solutions
to the global financial services industry. We offer a broad range of financial
data and related products and services to assist investment bankers,
stockbrokers, portfolio managers, financial planners and corporate executives.
We focus on investment management, investment banking, sales and trading,
corporate and wealth management customer segments. We have organized our
financial group on this basis to ensure that we have a complete understanding of
our customers in these segments and accordingly can serve their needs most
effectively.
66
We provide our customers with financial information, including historical
financial and economic information, broker research, earnings estimates, insider
trading information, corporate information and public disclosure documents. We
also provide access to real-time information including market data, trading
information and financial news. This information is made more valuable to our
customers as our products and services enable them to search, analyze and
manipulate the data so that it can be used more effectively. We also offer our
customers other services such as the dissemination of corporate news releases,
back office data processing, transaction processing and, through our joint
ventures, services that facilitate trade settlement and securities issuances. We
offer our products and services separately and we are increasingly combining
them to provide comprehensive information solutions.
We have a global research group of more than 1,700 employees in 12
countries that obtains and manages the financial information that we provide. We
maintain one of the largest collections of electronic databases of financial
information in the world. The majority of our financial information is derived
from public sources such as regulatory filings and analysts' reports. We also
conduct our own surveys to create other data collections such as our database of
institutional contacts. The information we collect is formatted, organized,
indexed and edited by our research group to enhance its value to our customers
and is continually updated. In addition, we license content from third party
suppliers, such as Dow Jones for news. Having one global research group manage
all of our financial content is cost efficient, ensures its consistency and
quality and enables us to offer it across all of our customer segments.
We have more than 1,400 sales and customer service representatives who sell
and service our products. Our sales force also includes our newly formed
strategic relationship management group that services our largest clients on a
global basis.
In 2001, we identified some print-based publishing businesses that did not
fit within our strategy. We offered these businesses for sale but withdrew them
from the market in light of economic conditions that affected the value we would
have realized from their sale. They are now being managed as a standalone
business unit outside of our financial group.
In 2001, our investment management unit accounted for approximately 32% of
our financial group's revenues from ongoing businesses, our investment banking
unit accounted for approximately 22%, our sales and trading unit accounted for
approximately 29%, our corporate unit accounted for approximately 7% and our
wealth management unit accounted for approximately 3%. The following table
provides a breakdown of our financial group's revenues from ongoing businesses
in 2000 and 2001 as a percentage of the group's revenues from ongoing businesses
by product format, revenue origin and revenue type.
REVENUE BREAKDOWN(1)
2000 2001
---- ----
REVENUE BY PRODUCT FORMAT:
Electronic................................................ 80% 89%
Print..................................................... 6 3
Other..................................................... 14 8
REVENUE BY ORIGIN:
North America............................................. 82% 77%
Europe.................................................... 15 20
Asia-Pacific.............................................. 3 3
Latin America............................................. -- --
REVENUE BY TYPE:
Subscription.............................................. 60% 66%
Advertising............................................... 1 1
Other..................................................... 39 33
---------------
(1) Represents percentages of revenues from ongoing businesses, which exclude
disposals. Disposals consist of results of businesses sold or held for sale
which do not qualify as discontinued operations.
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Revenue is earned relatively evenly over the course of the year. Our
subscription contracts generally have a term of one year and renewal dates are
spread throughout the year. Some of our subscription contracts become rolling
one to three month contracts after the first year.
In 2001, our top 25 customers represented approximately 29% of the group's
total revenues, although no single customer represented more than 4% of the
group's total revenues. Generally, our largest customers use our products and
services on a global basis. All of the underwriters are customers of our
financial group.
MARKETS
According to our estimates, the global market for financial information
generated more than $14 billion in revenues in 2001. We estimate that sales and
trading represented approximately 44% of the global market, investment
management represented approximately 32%, investment banking represented
approximately 20% and corporate represented approximately 3%. Wealth management
is a developing segment of the market. We estimate that in 2001, we had the
fourth largest share of the sales and trading segment of the financial
information market with approximately 7%, the third largest share of the
investment management segment with approximately 11%, the third largest share of
the investment banking segment with approximately 12% and the largest share of
the corporate segment with approximately 22%.
Growth in the global market for financial information is correlated with
activity in the financial markets because the need for information increases as
activity levels increase. The annual revenue growth rate for this market in
2001, which we estimate to have been approximately 4%, was lower than in
previous years due to reduced merger and acquisition and initial public offering
volumes. We expect that growth in the financial information market will increase
as market activity returns to traditional levels.
Consolidation in the financial services industry has affected the global
market for financial information. Consolidation has reduced the number of
customers in the market, which has the effect of intensifying competition. In
addition, consolidation among some of our competitors has resulted in stronger
competitors that have broader offerings of products and services and increased
scale.
Our customers are becoming more sophisticated purchasers of information
products and services and are demanding more powerful products and services
customized to their needs. In addition, our customers are increasingly requiring
comprehensive integrated information that meet all of their information and
related workflow needs on a global basis.
The global market for financial information is dominated by a few major
participants and we believe we have effectively differentiated ourselves from
our major competitors. Our systems use more open architecture than our
competitors, which allows our customers to more easily utilize other information
and software applications with our products and services. Our products and
services are also less bundled than those of some of our competitors, allowing
our customers to purchase only the content and applications that they need. As a
result, we often provide our products and services at a significantly lower cost
to our customers than our competitors. In addition, our ILX system, which
provides real-time market data, employs a technology platform that requires
lower bandwidth and can support more users per server than systems offered by
our competitors, also reducing costs to our customers.
Some of our competitors are focused solely or primarily on particular
segments within the financial information market. Our primary advantage over
these competitors is our ability to offer our customers a broader range of
products and services to better satisfy their complete information needs.
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OPERATIONS
Investment Management
Our investment management unit is focused on providing information
solutions to assist portfolio managers, broker/dealers and research analysts in
buy and sell side investment management activities such as investment analysis
and research. We offer a range of customizable products and services permitting
our customers to work through each phase of the investment process, including
research and analysis, investment decisions, stock selection, trade execution
and settlement. We offer our products separately and increasingly combined to
provide comprehensive information solutions.
First Call is one of the principal products used by our investment manager
customers. In 2001, we acquired the interests in First Call that we did not
already own and fully integrated its operations with our other businesses. This
allowed us to broaden the capabilities of First Call and develop First Call
Analyst, an integrated information solution that enables our customers to
combine their own data with real-time market data and other information
available to us to assist them in improving their productivity and decision
making. Through First Call Analyst, customers have access to real-time equity
and fixed income brokerage research, current and historical analyst estimates,
historical pricing data, global aggregated forecast data, pricing data for U.S.,
European, Asian and other non-U.S. companies, market indices data, institutional
holdings data and SEC filings. It enables financial professionals to identify
investment opportunities using any combination of more than 100 referential and
quantitative criteria, view the history of an individual analyst's
recommendations, estimates and published research and compare them against
actual results to assess past performance, calculate estimates using their own
information and assumptions and view their portfolio holdings. In addition,
First Call Analyst allows financial professionals to export data so that it can
be used in other software applications such as spreadsheet applications.
We also provide our customers with products enabling them to analyze
portfolio characteristics, assess portfolio risk and performance and construct
portfolios with desired rates of risk and return. Through PORTIA, we offer a
portfolio management system, which provides back office investment accounting
services to our customers.
Investment Banking
Our investment banking unit focuses on providing investment bankers and
private equity professionals with integrated information solutions to assist
them in pursuing and completing transactions, including precedent analysis,
company and market due diligence, financial analysis and modeling, preparation
of presentation materials and the offering of securities over the Internet.
For our investment banking customers, we provide online financial data and
research on companies, industries and markets that allow them to develop and
analyze financial forecasts, market share, competition, industry trends,
economic climates and key industry participants. We offer mergers and
acquisitions transaction data which is used by our customers to identify
comparable transactions, business opportunities and business trends. We also
offer institutional securities ownership information which enables our customers
to determine who is buying, selling and holding securities. In addition, our
customers can access news, stock price information and SEC filings.
We also offer ePIB, an electronic service which collects documents from the
industry's leading financial databases and assembles a fully customized book of
publicly filed and other documents in PDF format. This is used by investment
bankers and private equity professionals in researching public companies and in
making transaction proposals.
In 2001 we formed i-Deal, a partnership with Merrill Lynch, Salomon Smith
Barney and Microsoft, which offers products that facilitate the offering of
securities over the Internet. Through i-Deal, we provide a technology platform
that automates the securities issuance process, increasing the speed and
efficiency of underwriting securities for brokers and dealers. Users of i-Deal
include investment banks, issuers, institutional investors and multi-dealer
systems.
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Sales and Trading
Our sales and trading unit focuses on providing information solutions to
equity and fixed income sales and trading professionals to assist them with each
element of the sales and trading process, including order indications, receipts
and executions, investment decisions, process confirmations and trading.
Through ILX, we provide real-time financial information and market data
such as stock quotes and news, combined with the ability to analyze and
manipulate the data. The ILX system allows our customers to modify their
workstations to meet their individual preferences and needs. In addition, the
ILX system is compatible with all industry standard software such as word
processing and spreadsheet software allowing the user to export and use our data
in other software applications. Our system can also serve as a link to our other
products such as First Call and other third-party products and services to
provide the user with a variety of financial information. In addition, ILX can
be modified by our customers to enable them to receive customized information
such as bulletin boards and private research databases.
BETA Systems allows brokerage firms to outsource the majority of their back
office data processing activities such as processing orders for securities and
maintaining customer and firm accounts. Through BETA Systems, our customers are
able to generate a range of customer account documents including monthly
customer statements, trade confirmations and real-time portfolios. BETA Systems
interfaces with major clearing services, depositories and exchanges to process
orders for securities.
We also offer AutEx, which is a database and online real-time network for
trade order indications and executions for listed and over-the-counter
securities. Through AutEx, a broker/dealer is able to send a real-time
indication of interest to buy or sell securities to portfolio managers. The
indication of interest appears in the portfolio manager's AutEx screen and the
portfolio manager can then contact the broker/dealer to make the trade. Once the
trade is complete, the broker/dealer reports the transaction to all AutEx
subscribers. This allows subscribers to obtain a summary of all trades and
indications of interest at any time. AutEx offers global access to over 3,000
portfolio managers and broker/dealers worldwide and an average of 400,000
indications of interest are transmitted each day.
Corporate
Our corporate unit provides information solutions primarily to investor
relations professionals and financial executives. We provide online access to
financial information such as broker research, ownership and peer analysis,
news, stock quotes, institutional profiles and contact data. We also provide
services for the dissemination of corporate news releases. In 2001, we launched
Outbound, designed to be a comprehensive offering of products and services for
the investor relations professional. We also established an alliance with PR
Newswire that allows us to distribute their news releases and corporate webcasts
over First Call and ILX products.
Wealth Management
Our wealth management unit serves retail financial advisors, high net worth
private client groups, financial and media portals and retail product
distribution groups such as fund marketers.
The principal product offered by our wealth management unit is Thomson
Advisor, a web-based application that provides financial advisors with an
integrated information solution to assist them in advising their clients.
Thomson Advisor provides financial advisors with access to databases of mutual
funds, variable annuities and stocks so that they can get a complete picture of
their clients' holdings. It also enables them to prepare portfolio worksheets,
charts and graphs to illustrate investment strategies and portfolio performance
simulations to analyze various investment strategies for their clients.
Other Joint Ventures
In 2001, we contributed the assets of our electronic settlements business
and formed Omgeo, a partnership with The Depository Trust & Clearing
Corporation, to develop straight-through processing and trade settlement
capabilities. Omgeo was formed to meet the expanding information and processing
needs of
70
our customers in the financial services industry resulting from the T+1 trading
initiative expected to be implemented by the SEC. Omgeo will provide clients
with a managed transition to a new and more efficient way of processing trades.
TECHNOLOGY
In our financial group, we maintain global data collection and management
systems that have enabled us to assemble and manage one of the largest and
broadest database collections of financial information in the world. We also
maintain powerful delivery platforms which enable us to provide real-time market
data through our ILX service quickly and reliably to our customers. In addition,
we have delivery architectures which allow us to offer modular web-based
services which can be bundled together to integrate a number of our products and
services into a single product such as First Call Analyst, IR Channel and
Thomson Advisor. Our systems allow us to combine these technologies with our
other web-based products and services, which gives us an advantage over our
major competitors. We also maintain private networks, or extranets, which enable
us to provide innovative community solutions such as our AutEx service, which
connects a large number of firms to a network and permits the online exchange of
real-time trade order indications and executions.
STRATEGIC IMPLEMENTATION
Our financial group is implementing our corporate strategy through the
following initiatives:
- Pursuing emerging high-growth opportunities. We are pursuing initiatives
in high-growth sectors of the financial services industry. As a result of
recent changes to securities laws and business events that have focused
attention on public disclosure, investor relations has become an area of
significant growth. Our corporate unit is now providing comprehensive
information and services to investor relations professionals. In response
to the T+1 trading initiative, we formed Omgeo. In addition, our
financial group has formed i-Deal to support growth in the offering of
securities over the Internet.
- Introducing new products to increase our market share in sales and
trading. We are focused on increasing our institutional equity and fixed
income market share in the sales and trading segment. We have introduced
a new product, ILX FI Focus, that is designed to provide institutional
fixed income traders with the information they require to manage their
portfolios and to provide retail brokers with an alternative source of
fixed income information. We have also introduced Global Active ILX,
which provides institutional equity traders with real-time market data.
In addition, we now offer Thomson Markets, a web-based desktop service
that supplies real-time market data and content from some of our other
services to the off-trading-floor market. In each segment, we believe we
will be able to increase our market share because of our ability to
provide our customers with individually tailored, competitively priced
products.
- Increasing global penetration. Our financial group is focusing on
increasing its penetration of the financial information markets in Europe
and Asia-Pacific. We gained a larger presence in Europe from the
acquisition of Primark in 2000 and we believe we can deliver a lower cost
product to European sales and trading professionals relative to our
competitors. In Asia, our focus is mainly on Japan, Hong Kong and Korea
given the significant presence of financial institutions in these regions
including some of our global clients. To increase our institutional
equity market share, we are launching Global Active ILX in Europe and
Asia. We have also introduced a version of AutEx in both Europe and Asia
which together currently have more than 200 subscribers. In addition, our
corporate unit has recently launched a capital markets surveillance
product in both Europe and Asia.
- Developing integrated information solutions. We are focused on
increasing the functionality of many of our key products and services.
For example, in 2001 we launched Active ILX, a version of our ILX product
that is a fully customizable component system enabling our customers to
build a workspace that meets their needs. The workspace can combine ILX
information such as stock quotes with a workbook area where saved pages
of ILX information can be stored and desktop services which can run
independently of the workspace.
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- Consolidating our technology platforms. As a result of recent
acquisitions, our products and services are currently made available to
our customers using many different technology platforms. We have
implemented a group-wide program to move our products to a reduced number
of technology platforms. This will enhance our ability to combine our
product and service offerings to provide integrated information solutions
such as First Call Analyst and IR Channel to our customers. It will also
allow us to customize our offerings to specific customers and groups of
customers more readily.
- Integrating our operations. We have formed a strategic relationship
management group that services our largest clients on a global basis.
This approach allows us to identify and realize on opportunities to
introduce broader product and service offerings to our existing
customers. We have also centralized administrative functions, including
information management, human resources and technology infrastructure
development to reduce costs and utilize shared resources more
effectively.
COMPETITION
Our financial group's two major competitors are Bloomberg and Reuters.
Bloomberg is our principal competitor in the sales and trading and investment
banking segments, primarily in fixed income trading, while Reuters is our
principal competitor in institutional equities trading in the sales and trading
segment.
Our financial group also competes in the sales and trading, investment
management and investment banking segments with competitors such as FactSet
Research Systems, Inc., Multex.com, Inc., Advent Software, Inc. and SunGard Data
Systems Inc. who focus primarily on specific product and service areas within
these segments.
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PRINCIPAL PRODUCTS AND SERVICES
The following chart summarizes, by customer unit, the major brands and
principal products and services of our financial group.
CUSTOMER UNIT CUSTOMERS MAJOR BRANDS PRINCIPAL PRODUCTS AND SERVICES
------------- ---------------------------- ------------------- -----------------------------------------------
Investment portfolio managers, First Call Analyst online database of real-time equity and fixed
Management brokers/dealers, I/B/E/S income brokerage research, current and
research analysts Baseline historical analyst forecast estimates, company
Datastream accounts data, pricing data, global aggregated
forecast data at the country, sector and
industry levels, market indices data,
institutional holdings data, SEC filings and
news
portfolio managers Vestek performance attribution and portfolio
construction tools
operations managers, PORTIA portfolio management systems and order
information technology Oneva management systems
managers
----------------------------------------------------------------------------------------------------------------------
Investment investment bankers, Securities Data online database of brokerage research,
Banking private equity professionals SDC Platinum transactional data, institutional holdings
Investext data, current and historical earnings
Global Access estimates, pricing information, SEC filings and
Thomson Analytics news
ePIB web-based tool that assembles a book of
publicly filed and other documents in PDF form
----------------------------------------------------------------------------------------------------------------------
Sales and institutional traders, ILX electronic financial information, including
Trading retail traders, Active ILX real-time market data such as stock quotes and
investment advisors Global Topic news
BETA Systems back office data processing services
AutEx electronic database and real-time network for
trade order indications and trade executions
----------------------------------------------------------------------------------------------------------------------
Corporate investor relations IR Channel web-based software applications providing
professionals, financial PRNewswire/First corporate news and information, stock
executives Call Wire surveillance services and outbound
Outbound communications services
Carson Market market intelligence and analytical services for
Intelligence market valuation analysis
Grabill -- Bloom
Prophecy
----------------------------------------------------------------------------------------------------------------------
Wealth investment advisors Thomson Advisor web-based software applications that include
Management Investment View risk assessment, financial planning and
portfolio management
THOMSON SCIENTIFIC AND HEALTHCARE
Our scientific and healthcare group provides integrated information
solutions to researchers, physicians and other professionals in the academic,
corporate and healthcare communities. Our information solutions are primarily
based on our electronic databases of scientific and healthcare information. We
derive this information from public sources, academic, scientific, technical and
medical journals, pharmaceutical companies and practicing professionals and we
supplement it in some cases with proprietary analysis prepared by our staff of
expert editors. Since we include information only from the most respected
sources in the industry, our databases and websites are seen as important
distribution channels by authors and publishers of journals. We enhance the
value of the information by ranking, organizing and summarizing it to make it
more accessible and of greater utility to our customers and we update it
continuously.
Our scientific databases assist scientists in all stages of the research
and development process, from scientific discovery to product manufacture. We
combine our electronic information with analytical tools and applications to
increase the speed and efficiency of our customers' research efforts. Our
healthcare databases
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provide drug and clinical information, primarily at the point of care, to assist
physicians in treating patients. Our databases are offered through the Internet,
dedicated transmission lines, compact discs, hand-held wireless devices and in
print format. We are a global leader in providing continuing medical education
solutions to physicians, primarily through grants for continuing medical
education from pharmaceutical companies as part of their new drug development
and introduction programs. We also publish healthcare subscription journals,
controlled circulation magazines, which are magazines delivered to healthcare
professionals and generate revenues primarily through advertising, directories
and newsletters for physicians, administrators, researchers and other healthcare
professionals on a variety of topics relating to the business, science and
regulation of healthcare.
In 2001, our scientific business accounted for $240 million, or 34% of our
scientific and healthcare group's revenues from ongoing businesses, and our
healthcare business accounted for $457 million, or 66% of the group's revenues
from ongoing businesses. The following table provides a breakdown of our
scientific and healthcare group's revenues in 2000 and 2001 as a percentage of
the group's revenues from ongoing businesses by product format, revenue origin
and revenue type.
REVENUE BREAKDOWN(1)
2000 2001
---- ----
REVENUE BY PRODUCT FORMAT:
Electronic................................................ 53% 53%
Print..................................................... 39 35
Other..................................................... 8 12
REVENUE BY ORIGIN:
North America............................................. 87% 87%
Europe.................................................... 10 11
Asia-Pacific.............................................. -- --
Latin America............................................. 3 2
REVENUE BY TYPE:
Subscription.............................................. 45% 43%
Advertising............................................... 24 21
Other..................................................... 31 36
---------------
(1) Represents percentages of revenues from ongoing businesses, which exclude
disposals. Disposals consist of results of businesses sold or held for sale
which do not qualify as discontinued operations.
Revenue is earned relatively evenly over the course of the year, but is
slightly higher in the fourth quarter due to the annual publication of the
Physicians' Desk Reference in this period. Subscription contracts are generally
for a term of one year and renewal dates are spread throughout the year.
In 2001, the largest customer of our scientific business accounted for
approximately 1% of the revenues of that business and the largest customer of
our healthcare business accounted for approximately 3% of the revenues of that
business.
MARKETS
Scientific
The scientific information market can be divided into the primary
publishing and secondary publishing segments. Primary publishers principally
publish peer-reviewed articles in journals, in print or electronic formats.
Secondary publishers enhance the value of primary publication information by
ranking and organizing the information so that it is more accessible to their
customers. We operate predominantly in the secondary publishing market because
we believe this market presents a greater opportunity for growth.
According to our estimates, the global secondary publishing market
generated approximately $1.6 billion in revenue in 2001 and is growing at a rate
of approximately 5% to 6% annually. According to our estimates,
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in 2001, the top six companies in this segment accounted for slightly less than
50% of this market and we estimate that we were the market leader with a global
market share of approximately 15%.
We believe that demand for scientific information will continue to grow
because scientific research funding, research and development spending and
library spending are all increasing. We estimate that spending by U.S.
corporations on research and development increased more than 10% in each of 2000
and 2001. We also estimate that the number of patent applications filed in the
key markets of Japan, Europe and the United States has increased an average of
15% annually over the past three years.
Customers of our scientific information products are consolidating,
particularly our customers in the pharmaceutical and biotechnology industries.
As our customers build scale through consolidation they are becoming more
sophisticated users of information, demanding more multi-disciplinary data and
products that can be used together with their own data and data from third
parties. We believe that our strength in the scientific information market
results from the depth and breadth of our multi-disciplinary product offerings
and our ability to enhance the speed and efficiency of our customers' research
efforts.
Healthcare
The global healthcare information market is a very broad market. While we
participate in various segments, we are focused on the clinical and drug
information and continuing medical education segments because we believe these
areas offer stronger growth prospects than other segments.
According to our estimates, the healthcare information market in which we
participate, excluding the continuing medical education segment, is
predominantly in the United States and generated approximately $1.6 billion in
revenues in 2001. We estimate that this market is growing at a rate of
approximately 4% to 6% annually. We estimate that the top five participants in
this segment accounted for approximately 70% of the market and that we had the
second leading market share with approximately 20%.
Within the healthcare information market, there is a trend towards
delivering information to physicians and other healthcare professionals at the
point of care. The demand for point of care information is driven by a
combination of consumer demand for quality healthcare, cost pressures and
heightened awareness of medical errors. We believe our continuing investment in
technology will enable us to meet the evolving demand for point of care
solutions. Our principal healthcare products and services serve specific
segments of the market and have strong competitive positions. For example, in
the clinical and drug information segment, our Physicians' Desk Reference and
the Micromedex family of products are well known brands and are well regarded
for their comprehensive coverage and the reliability of their content.
According to our estimates, the continuing medical education market in the
United States generated revenues of approximately $2.5 billion in 2001 and is
growing at a rate of approximately 15% annually. We estimate that we are one of
the leading providers of continuing medical education products and services
worldwide. We are focused on this market because pharmaceutical companies are
dedicating a significant and increasing amount of their promotional spending to
this area. Continuing medical education is a significant element of major drug
introductions by pharmaceutical companies because physicians must be made aware
of the existence of a new drug and its benefits and risks before they will
consider it as a treatment option for their patients. We believe that the scale
of our continuing medical education business and the breadth of our continuing
medical education product offerings, including print and electronic
publications, instructor-led and online training and innovative software
teaching and training tools, provide us with an advantage in competing for
contracts against our competitors.
OPERATIONS
Scientific
Our scientific business provides integrated information solutions that
enable access to, and management of, the highest quality and most relevant
published materials for researchers, information specialists and administrators
in diverse fields. Our objective is to be the primary resource for scientific
information in the research and development process. We also provide products,
such as bibliographic software programs, that help our customers gather, manage
and use our reference information. We customize our products for particular
industries or other customer groups and make them available in one easily
accessible, searchable
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database through the Internet, dedicated transmission lines, compact discs,
hand-held wireless devices and in print format.
Our ISI Web of Science website provides a single point of entry for
scientific researchers. This electronic service extends our users' access to
research information by offering an integrated collection of citation databases
covering over 8,500 primary scientific information journals, leading life
sciences, social sciences, genomic and patent information databases, journal
citation reports, meetings and conference proceedings databases and other
websites selected by our editors. Our advanced interfaces allow our customers to
link through our citator service to journals provided by other publishers and
then to return seamlessly to our service to continue their research. The
citations in our database cover the period from 1945 to the present. Due to the
breadth of our historical coverage, our competitors in the scientific
information market use our database. ISI Web of Science is used in many of the
leading academic institutions and research libraries around the world,
including, according to our estimates, approximately 70% of the leading academic
institutions and research libraries in North America, approximately 55% in
Europe, Africa and the Middle East and approximately 45% in Asia-Pacific.
Through Derwent, we are the world's leading provider of indexed patent
information and patent abstracts. Each week, we assess, classify, summarize and
index over 27,000 patent documents from 37 international patent-issuing
authorities. Our databases cover the period from 1963 to the present. We believe
we currently have the most comprehensive and authoritative source of information
on patented genetic sequences as our database consistently contains more
sequence data than comparable public access databases. Our patent products and
services can be used to monitor competitors, develop research and business
strategies and protect patent portfolios. These products and services are used
by the world's leading pharmaceutical companies, specialty chemical
manufacturers and automotive and telecommunications manufacturing companies.
Our scientific business sells its products through a direct sales force of
approximately 90 employees primarily located in our key markets of North
America, Europe and Japan. We are focusing our sales efforts on academic and
professional researchers in the pharmaceutical, biotechnology, chemical and
engineering fields because we believe researchers in these fields will continue
to spend significant amounts on research and development.
Healthcare
Our healthcare business provides integrated information solutions,
primarily at the point of care, to physicians and other health professionals.
Our drug and clinical point of care solutions enable physicians and other
healthcare professionals to efficiently access the reference resources they need
to make decisions while treating patients. Our range of point of care products
includes our Physicians' Desk Reference, Drugdex, DrugReax, Emergindex,
Poisindex and BioDex products. These products are comprehensive reference
databases of drug, drug interaction, emergency procedure, poison and biohazard
information compiled over more than 25 years that have been extracted from
scientific and clinical literature by expert editors and from approved
drug-labeling information and are relied on by more than 7,000 healthcare
facilities in 90 countries.
Our Physicians' Desk Reference product is a drug database created from Food
and Drug Administration approved drug-labeling information and is distributed in
a print directory format and through the Internet. Pharmaceutical companies
provide us with the drug-labeling information and list their products in the
directory in part to satisfy the Food and Drug Administration's requirements to
make their drug-labeling information available to physicians as well as to
promote awareness of their drug products. Pharmaceutical companies sponsor the
annual delivery of Physicians' Desk Reference to approximately 480,000
practicing physicians in the United States and we sell approximately 390,000
additional copies of the directory to other healthcare professionals and
consumers. In April 2002, we released a hand-held wireless version of the
Physicians' Desk Reference. We are currently working with the pharmaceutical
industry on an initiative to develop a paperless system for delivery of the
information in Physicians' Desk Reference to the approximately 66,000 drug and
pharmaceutical dispensing outlets in the United States.
We developed BioDex in response to the anthrax scare in the United States
in 2001. BioDex provides instant access to detailed information on more than 50
biological and chemical agents to law enforcement
76
personnel, fire departments, hazardous material teams, emergency medical
professionals and other government agencies. This includes information on
patient management and treatment and personal protective clothing and equipment.
In the United States our Emergindex product is used in more than half of
all hospital emergency rooms and our Poisindex reference product is used in all
66 poison control centers.
Through Medstat, we provide decision support systems, market intelligence,
benchmark databases and research for managing the purchase, administration and
delivery of health services and benefits. We also develop and provide products
and methodologies for organizing and understanding the data. Our databases and
research studies provide a vast collection of healthcare information for the
research community and decision makers in state governments, hospitals,
pharmaceutical and other companies and the health plan and insurance industry.
This information helps these customers study and manage the cost, quality and
strategic positioning of health services and benefits.
We provide continuing medical education, on behalf of pharmaceutical
companies, to physicians, pharmacists and other health professionals. In the
United States, physicians must take a minimum number of hours of continuing
medical education annually and similar requirements for physicians are being
introduced in other countries. Pharmaceutical companies provide unrestricted
grants for continuing medical education as a component of major new drug
introductions to make physicians aware of the existence of a drug and its
benefits and risks so they will properly consider it as a treatment option for
their patients. By utilizing other products in our scientific and healthcare
group, such as our scientific databases that track the most cited scientific and
medical authors, as well as our drug and clinical reference products, we are
able to work with pharmaceutical companies to design effective targeted
continuing medical education solutions. The acquisition of Physicians World and
Gardiner-Caldwell has and will continue to enable us to leverage a broad range
of expertise and products and services and provide substantial market coverage
in the continuing education market. Historically, continuing medical education
has been provided in person through instructors. However, continuing medical
education products are increasingly being provided through the Internet and
compact discs to facilitate new drug launches on a global scale.
We also publish healthcare subscription journals, controlled circulation
magazines, directories and newsletters for physicians, administrators,
researchers and other healthcare professionals on a variety of topics relating
to the business, science and regulation of healthcare. Our controlled
circulation magazines generate revenue primarily through advertising. With more
than 54,000 monthly subscribers, we believe that we are a significant publisher
of newsletters for healthcare professionals.
We maintain a direct healthcare information sales force of approximately
115 employees focused on our primary markets in North America and Europe. We are
currently introducing additional dedicated sales forces in the markets we
believe have the strongest growth potential, including expanding our sales force
directed at hospitals by 20% over the next two years.
TECHNOLOGY
Technology is an increasingly important element of the products and
services of our scientific and healthcare group. We are focused on improving our
delivery technology so that we have the ability to deliver our products in the
media best suited to our customers. This includes delivery over dedicated
networks, the Internet and hand-held wireless devices. Each of our scientific
and healthcare businesses deploys a common flexible content management system
that improves our ability to customize and combine our products and simplifies
the new product development process. These content management systems provide
efficiencies in the information collection and editorial process as we are able
to automatically update all our databases concurrently.
Our scientific business is committed to expanding the functionality of our
ISI Web of Science website by introducing new applications and our healthcare
business is redesigning PDR.net, a website for Physicians' Desk Reference. In
addition, we are moving all our drug and clinical information products to
platforms that can be delivered to hand-held wireless devices as we anticipate
this will become an increasingly important element of our strategy to deliver
solutions at the point of care.
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STRATEGIC IMPLEMENTATION
Our scientific and healthcare group is implementing our corporate strategy
through the following initiatives:
- Expanding integrated solutions in key market segments. We are focused on
the academic/government, pharmaceutical/biotech, specialty chemistry and
engineering segments because we believe the demand for information in
these areas will continue to increase. In each area we are pursuing
opportunities to acquire additional information to expand our databases.
We are also developing advanced search tools and interfaces that will
allow our customers to search our databases and other sources of
information in topic specific areas such as genomics, business methods
and nanotechnology.
- Developing leading market positions in drug and clinical information
products. We are developing new products and services in the areas of
drug and clinical information because we believe it presents an important
growth opportunity. Each new drug launch requires information about the
use and effects of the drug to be provided to physicians and hospitals.
We believe that continuing developments in the field of genomics will
increase the rate of drug development in the future.
- Expanding our leading position in global continuing medical
education. We continue to integrate our recently acquired
Gardiner-Caldwell and Physicians World businesses, which provide us with
a strong global position in the continuing medical education market. We
are aggressively pursuing opportunities to increase our penetration in
this fragmented market by developing new products and services, including
ones that can be delivered to physicians electronically. This initiative
will also allow us to benefit from increased new drug development and
introduction programs.
- Expanding delivery of our products to hand-held wireless
devices. Increasingly, technology-based tools, such as hand-held
wireless devices, are being used by physicians and hospitals to improve
patient safety. We believe that it is essential to deliver our
information to physicians directly at the point of care. To improve our
ability to do this, we are developing platforms that will allow us to
deliver information to a variety of hand-held wireless devices through
the Internet.
- Extending intellectual asset management offerings. The increased
emphasis businesses place on their intellectual property portfolios
provides us with an opportunity to expand on our patent information base
to provide patent management workflow solutions. We are working to
develop or acquire a range of products and services to respond to this
market opportunity.
COMPETITION
Scientific
Our principal competitors in the scientific information market include
Information Handling Services Group, American Chemical Society, Institute of
Electrical and Electronics Engineers, Reed Elsevier and Wolters Kluwer.
Healthcare
Our principal competitors in the clinical and drug information market are
Wolters Kluwer and First DataBank, a subsidiary of The Hearst Corporation. The
remainder of our competition is from small, specialized providers of drug or
clinical information.
The continuing medical education market is served by a large number of
small participants including Boron, LePore & Associates, Inc., Discovery
International, a division of The Medicus Group International, Impact
Communications, Inc. and Ingenix Clinical Communications, a division of
UnitedHealth Group, Inc.
Our significant competitors in the advertising journal market include Reed
Elsevier, Wolters Kluwer, McGraw-Hill, the American Medical Association and the
American Academy of Family Physicians.
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PRINCIPAL PRODUCTS AND SERVICES
The following table summarizes, by product and service type, the major
brands and principal products and services of our scientific and healthcare
group.
PRODUCT AND
SERVICE TYPE CUSTOMERS MAJOR BRANDS(1) KEY PRODUCTS AND SERVICES
------------ ---------------------------- --------------------------- -------------------------------------------
Scientific corporations in the Derwent World Patent Index indexed and abstracted database of patents
pharmaceutical/biotechnology, containing over 20 million patents from
chemical and engineering over 37 patent authorities, dating back to
industries, government 1963
agencies, research
libraries, universities
Derwent Geneseq comprehensive database of patented genetic
sequences
ISI Web of Science website for research scientists providing
access to over 8,500 abstracted and indexed
journals, unique source for journal article
cited references, meetings and conference
proceedings
ISI Web of Knowledge comprehensive application and content
extensions that expand the ISI Web of
Science website to include third party
hosted content, editorially selected
websites, and tools to access, analyze and
manage research information
Current Contents current awareness product providing access
to scientific journal literature
ResearchSoft personal computer-based authoring tools
designed to support publishing authors
-----------------------------------------------------------------------------------------------------------------------
Healthcare physicians, health Physicians' Desk Reference database of Food and Drug Administration
professionals, approved drug monographs, delivered in
pharmaceutical companies, print and electronic format
hospitals, poison control
centers, corporations,
government agencies,
insurance companies
Micromedex clinical, toxicological and environmental
database products
Drugdex evaluative drug database created and
maintained by clinicians
Emergindex database of medical emergency procedures
Poisindex database of poison control procedures
American Health Consultants healthcare newsletter publisher and
provider of continuing medical education
Gardiner-Caldwell (United provider of continuing medical education
Kingdom) Physicians World focused on training physicians in
connection with new drug launches
Medical Economics controlled circulation medical magazines
CenterWatch clinical trials publications and website
Medstat decision support products and services
designed for managing healthcare costs and
measuring healthcare quality
---------------
(1) Where brands are principally associated with products and services offered
in countries other than the United States, the countries are indicated in
parentheses.
CORPORATE AND OTHER
We maintain our Thomson Media business unit and our investment in Bell
Globemedia under the category corporate and other.
Thomson Media is a business unit established in 2001 to manage the
print-based businesses that were previously maintained in our financial group.
These include our American Banker and Bond Buyer publications.
We own 20% of Bell Globemedia, a media company based in Canada. BCE, a
Canadian-based public company, owns 70% and Woodbridge owns the remaining 10%.
Bell Globemedia's primary businesses are CTV, a national television network in
Canada and The Globe and Mail, a national newspaper in Canada. We
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acquired our interest in Bell Globemedia in January 2001 by contributing the
assets of The Globe and Mail and its related businesses.
INTELLECTUAL PROPERTY
Our principal intellectual property assets include our patents, trademarks,
databases, copyrights in our content and other rights in our tradenames.
Significant content is obtained through third party licensing arrangements with
content providers. We have also registered a number of website domain names in
connection with our publishing and Internet operations. While we believe we have
taken appropriate legal steps to protect our intellectual property, we can offer
no assurance that such protection is adequate and that no misappropriation will
occur. Nor can we assure you that our intellectual property rights will not be
subject to any claim of infringement or invalidation.
PROPERTIES AND FACILITIES
The following table includes summary information with respect to facilities
which are material to our overall operations.
OWNED/
FACILITY SQUARE FOOTAGE LEASED PRINCIPAL SERVICES
-------- -------------- ------ ----------------------------------------
Stamford, Connecticut..... 60,000 Leased Principal executive offices
Boston,
Massachusetts(1)........ 564,390 Leased Thomson Financial offices
New York, New York........ 284,000 Leased Thomson Financial head office
Florence, Kentucky........ 835,000 Leased Thomson Learning distribution facility
Eagan, Minnesota.......... 2,518,000 Owned Thomson Legal and Regulatory head office
---------------
(1) This property consists of three addresses located in Boston, Massachusetts.
We own and lease office space and other facilities around the world to
support our businesses. We believe that our properties are in good condition and
are adequate and suitable for our present purposes.
EMPLOYEES
We have more than 44,000 employees in 53 countries. Of that number,
approximately 17,000 are employed by our legal and regulatory group, 13,000 by
our learning group, 9,200 by our financial group, 3,800 by our scientific and
healthcare group. The remaining employees are employed within Thomson Media and
our corporate center. We believe that our employee relations are good.
LEGAL PROCEEDINGS
We are involved in various legal proceedings arising in the ordinary course
of business. In our opinion, no legal proceedings, if decided adversely, could
reasonably be expected to have a material adverse impact on our financial
position or results of operations.
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MANAGEMENT
DIRECTORS AND SENIOR MANAGEMENT
The following table includes information regarding our directors and senior
management at May 1, 2002:
NAME AND MUNICIPALITY OF RESIDENCE AGE POSITION
---------------------------------- --- --------
Directors and Senior Management
Kenneth R. Thomson(1)(2).................. 78 Chairman and Director
Toronto, Ontario
W. Geoffrey Beattie(1)(3)(4).............. 42 Deputy Chairman and Director
Toronto, Ontario
Ron D. Barbaro(3)(5)...................... 70 Director
Toronto, Ontario
Steven A. Denning(4)...................... 53 Director
Greenwich, Connecticut
John F. Fraser(3)......................... 71 Director
Winnipeg, Manitoba
V. Maureen Kempston Darkes(5)............. 53 Director
Miami, Florida
Roger L. Martin(5)........................ 45 Director
Toronto, Ontario
Vance K. Opperman(5)...................... 59 Director
Minneapolis, Minnesota
David K. R. Thomson(2).................... 44 Director
Toronto, Ontario
Peter J. Thomson.......................... 37 Director
Toronto, Ontario
Richard M. Thomson(3)(4).................. 68 Director
Toronto, Ontario
John A. Tory(1)(4)........................ 72 Director
Toronto, Ontario
Richard J. Harrington..................... 55 President and Chief Executive Officer and
Stamford, Connecticut Director
Robert D. Daleo........................... 52 Executive Vice President and Chief
Financial
Stamford, Connecticut Officer and Director
Brian H. Hall............................. 54 Executive Vice President and President and
Chief
Colorado Springs, Colorado Executive Officer of Thomson Legal and
Regulatory
Ronald H. Schlosser....................... 53 Executive Vice President and President and
Chief
Stamford, Connecticut Executive Officer of Thomson Scientific
and Healthcare
David H. Shaffer.......................... 59 Executive Vice President and President and
Chief
Stamford, Connecticut Executive Officer of Thomson Learning and
Director
James C. Smith............................ 42 Executive Vice President of Executive
Ridgefield, Connecticut Development and Corporate Affairs
Patrick J. Tierney........................ 56 Executive Vice President and President and
Chief
New York, New York Executive Officer of Thomson Financial
---------------
(1) Member of the executive committee.
(2) After our annual meeting of shareholders on May 8, 2002, David K.R. Thomson
will be appointed Chairman following the retirement of Kenneth R. Thomson.
Kenneth R. Thomson will continue to serve as a director and also as Chairman
of Woodbridge.
(3) Member of the corporate governance committee.
(4) Member of the human resources committee.
(5) Member of the audit committee.
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DIRECTORS
We currently have 15 directors and that number may be altered from time to
time by a resolution adopted by our board of directors. However, our articles of
incorporation provide for a minimum of five and a maximum of 20 directors.
The following individuals comprise our board of directors. These
individuals will hold office until our annual meeting on May 8, 2002, where they
are all expected to be re-elected.
Kenneth R. Thomson has been Chairman of our board and a director since
1978. Mr. Thomson is also Chairman of Woodbridge.
W. Geoffrey Beattie has been Deputy Chairman of our board since 2000 and a
director since 1998. Mr. Beattie is President of Woodbridge. Previously, Mr.
Beattie was a partner at the law firm Tory Tory DesLauriers and Binnington. Mr.
Beattie is also a director of the Royal Bank of Canada, Bell Globemedia and
Woodbridge.
Richard J. Harrington has been our President and Chief Executive Officer
since 1997 and a director since 1993. Mr. Harrington joined us in 1982 as
Executive Vice President of Thomson & Thomson and was appointed its President in
1984. He subsequently served as President and Chief Executive Officer of various
Thomson businesses, including Mitchell International, Thomson Professional
Publishing and Thomson Newspapers.
David H. Shaffer has been Executive Vice President and a director since
1998. He is currently President and Chief Executive Officer of Thomson Learning.
Previously, Mr. Shaffer served as our Executive Vice President and Chief
Operating Officer. Prior to joining us, Mr. Shaffer was Chief Executive Officer
of Josten's Learning Corporation and previously held various senior executive
positions with McGraw-Hill.
Robert D. Daleo has been our Executive Vice President and Chief Financial
Officer since 1998 and a director since 2001. Mr. Daleo joined us in 1994 as
Chief Financial Officer of Thomson Newspapers. In 1997, he became our Senior
Vice President, Finance and Business Development, and was subsequently appointed
our Executive Vice President, Business Operations and Planning. Prior to joining
us, Mr. Daleo held various financial and operations positions with McGraw-Hill
and Automatic Data Processing.
Ron D. Barbaro has been a director since 1993. Mr. Barbaro is President and
Chief Executive Officer of the Ontario Lottery and Gaming Corporation.
Previously, Mr. Barbaro was President of the Prudential Insurance Company of
America, Inc. and President of Worldwide Operations, Prudential Insurance
Company of America.
Steven A. Denning has been a director since 2000. Mr. Denning is the
Executive Managing Member of General Atlantic Partners, LLC, a private equity
investment firm focused exclusively on information technology, media and
communications investments on a global basis, and has been with General Atlantic
since 1980. Mr. Denning is also a director of Exult, Inc., EXE Technologies,
Inc., Manugistics Group, Inc., Eclipsys Corporation and SRA International, Inc.
John F. Fraser has been a director since 1989. Mr. Fraser is Chairman of
Air Canada. Previously, he was Chairman and Chief Executive Officer of Russel
Metals Inc. He has also been a director of the Bank of Montreal, Shell Canada
Limited and Manitoba Telecom Services Inc.
V. Maureen Kempston Darkes has been a director since 1996. Ms. Kempston
Darkes is Group Vice President, General Motors Corporation, President Latin
America, Africa and Middle East. 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 and Noranda Inc.
Roger L. Martin has been a director since 1999. Mr. Martin is Dean of the
Joseph L. Rotman School of Management at the University of Toronto. Previously,
Mr. Martin was Co-Head of Monitor Company in Boston, Massachusetts. Mr. Martin
is also a director of Celestica Inc.
Vance K. Opperman has been a director since 1996. Mr. Opperman is President
and Chief Executive Officer of Key Investments Inc. Previously, he was President
of West Publishing Company. Mr. Opperman is also a director of Delta Dental
Plans Association and BlueCross/BlueShield of Minnesota.
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David K.R. Thomson has been a director since 1988. He has been Deputy
Chairman of Woodbridge since 1990. He is also a director of Bell Globemedia.
Peter J. Thomson has been a director since 1995. He has been Deputy
Chairman of Woodbridge since 1993 and is also a director of Bell Globemedia.
Richard M. Thomson has been a director since 1984. He is also Chairman of
Nexen Inc. and a director of the Canada Pension Plan Investment Board, INCO
Limited, S.C. Johnson & Son Inc., Ontario Power Generation, Inc., Prudential
Financial, Inc., Stuart Energy Systems Inc., The Toronto-Dominion Bank and
TrizecHahn Corporation. Previously, Mr. Thomson was the Chairman and Chief
Executive Officer of The Toronto-Dominion Bank. Mr. Thomson is not related to
the family of Kenneth R. Thomson.
John A. Tory has been a director since 1978. Mr. Tory is President of
Thomson Investments Limited, a Thomson family holding company. He was Deputy
Chairman of our board from 1978 to 1997 and President of Woodbridge from 1973 to
1998. Mr. Tory is also a director of Abitibi Consolidated Inc., Rogers
Communications Inc. and Woodbridge.
COMMITTEES OF THE BOARD OF DIRECTORS
Our board of directors fulfills its responsibilities directly and through
the work of four committees. The members of these committees are all independent
of management and free from any interest and any business or other relationship
which could, or could reasonably be perceived to, materially interfere with
their ability to act with a view to our best interests, other than interests and
relationships arising from shareholdings. In addition, the composition of our
audit committee reflects a high level of financial literacy.
The audit committee is responsible for reviewing the terms of engagement of
our external auditors, including making recommendations to the board on the
nomination of the external auditors and their remuneration. It is also
responsible for ensuring the independence of the external auditors. The audit
committee oversees our system of internal controls and financial reporting and
reviews the performance of the external auditors. It reviews with management and
the external auditors the annual and quarterly financial statements, in each
case prior to their approval by the full board of directors, and discusses
specific financial reporting and other issues as they arise with management and
the external auditors. It also considers pension matters, including reviewing
policies relating to our pension plans.
The human resources committee oversees management of our human resources,
ensures there are appropriate successor plans for senior positions, reviews our
organizational structure, reviews the responsibilities of and compensation for
executive officers and ensures that our human resources strategies conform with
our business goals.
The corporate governance committee is responsible for corporate governance
matters. It makes recommendations regarding new board nominees, assesses the
effectiveness of the board, its committees and individual members, including
exploring prospects for more effective governance and establishing directors'
compensation. It also considers any transactions that may take place between us
and Woodbridge with any committee members related to Woodbridge abstaining from
voting on the matters.
The executive committee meets between regularly scheduled meetings of the
full board if directors' consideration of a particular matter is required. The
executive committee generally considers matters not sufficiently material to
require full board review and those already approved in principle by the full
board. The executive committee has all the powers of the board except for those
reserved to the full board by law, such as approving the issuance of shares.
COMPENSATION OF DIRECTORS
In 2001 our directors were paid an annual directors' fee of $30,000 plus
$1,000 for each board or committee meeting attended ($500 if attendance was by
telephone). Committee chairs were paid an additional fee of $5,000. Our
directors who are also our officers or officers of any of our affiliates do not
receive any fees.
Our non-employee directors can receive up to 100% of their fees in shares
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
83
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 is made
in shares or cash, net of withholding taxes, based on the market value of the
shares on the date of payment. The amount includes the value of any dividends
declared on the shares.
SENIOR MANAGEMENT
In addition to Messrs. Harrington, Shaffer and Daleo, the following persons
comprise our senior management:
Brian H. Hall has been Executive Vice President and President and Chief
Executive Officer of Thomson Legal and Regulatory since 1998. Mr. Hall joined us
in 1995 as President and Chief Executive Officer of Thomson Legal Publishing.
Previously, Mr. Hall was President of Shepard's from 1985 to 1995, a legal
publishing company then owned by McGraw-Hill. Mr. Hall also served as an
Executive Vice President of McGraw-Hill from 1988 to 1995.
Ronald H. Schlosser has been Executive Vice President and President and
Chief Executive Officer of Thomson Scientific and Healthcare since 1999. Mr.
Schlosser joined us in 1995 as President and Chief Executive Officer of Thomson
Financial Publishing Group. Prior to 1995, Mr. Schlosser served as President of
Elsevier Science Inc. Mr. Schlosser also served as General Manager of
Marketing/Operations at the Institute for Scientific Information and Director of
Sales/Marketing at several McGraw-Hill divisions.
James C. Smith has been Executive Vice President of Executive Development
and Corporate Affairs since January 2002. Mr. Smith has been with us for 14
years, primarily in our newspaper group which we recently sold, where he held a
number of operating positions.
Patrick J. Tierney has been Executive Vice President and President and
Chief Executive Officer of Thomson Financial since 1999. Mr. Tierney was
formerly President and Chief Executive Officer of Thomson Scientific and
Healthcare. Prior to joining us, Mr. Tierney was President and Chief Executive
Officer of Knight-Ridder Information and served in the same capacity for
Knight-Ridder Financial. Mr. Tierney joined Knight-Ridder from TRW, where he was
Vice-President and General Manager of the Information Services and Systems
Division.
84
EXECUTIVE COMPENSATION
The following table provides a summary of compensation earned during each
of the last three years by our Chief Executive Officer and our four other most
highly compensated executive officers during our fiscal year ended December 31,
2001.
ANNUAL COMPENSATION LONG-TERM COMPENSATION
--------------------------------------------- ----------------------------------------
AWARDS PAYOUTS
--------------------------- ----------
SECURITIES
UNDER OPTIONS/ RESTRICTED
STOCK SHARES OR LONG TERM
OTHER ANNUAL APPRECIATION RESTRICTED INCENTIVE
NAME AND COMPENSATION RIGHTS GRANTED SHARE PLAN
PRINCIPAL POSITION YEAR SALARY BONUS (1) (#) UNITS PAYOUTS
------------------ ---- ---------- ---------- ------------ -------------- ---------- ----------
Richard J. Harrington................ 2001 $1,200,000 $1,840,800 $481,715(3) 375,000 -- --
President and Chief Executive Officer 2000 1,150,000 1,840,000 122,282(3) 325,000 -- --
1999 1,100,000 1,672,000 96,431 340,000 -- $1,100,000
David H. Shaffer..................... 2001 950,000 1,365,150 206,265(4) 208,000 -- --
Executive Vice-President of Thomson 2000 900,000 1,440,000 251,319(4) 175,000 -- --
and
President and Chief Executive Officer 1999 837,500 1,273,000 387,664(4) 210,000 -- 837,500
of Thomson Learning
Brian H. Hall........................ 2001 750,000 899,250 326,907(5) 155,000 -- 807,444
Executive Vice-President of Thomson 2000 700,000 1,227,100 -- 110,000 -- 1,140,861
and
President and Chief Executive Officer 1999 616,667 1,143,301 -- 80,000 -- 2,315,821
of Thomson Legal and Regulatory
Robert D. Daleo...................... 2001 690,000 1,058,460 252,917(6) 133,000 -- --
Executive Vice-President and 2000 650,000 1,040,000 -- 110,000 -- 929,500
Chief Financial Officer 1999 600,000 462,000 -- 50,000 -- 564,520
Patrick J. Tierney................... 2001 660,000 660,000 659,026(7) 130,000 -- 511,317
Executive Vice-President of Thomson 2000 620,830 600,000 39,363(7) 92,000 -- 678,922
and
President and Chief Executive Officer 1999 550,006 900,406 38,236(7) 70,000 -- 631,442
of Thomson Financial
ALL OTHER
NAME AND COMPENSATION
PRINCIPAL POSITION (2)
------------------ ------------
Richard J. Harrington................ $5,100
President and Chief Executive Officer 5,100
4,800
David H. Shaffer..................... 5,100
Executive Vice-President of Thomson 5,100
and
President and Chief Executive Officer 4,800
of Thomson Learning
Brian H. Hall........................ 5,100
Executive Vice-President of Thomson 5,042
and
President and Chief Executive Officer 4,800
of Thomson Legal and Regulatory
Robert D. Daleo...................... 4,806
Executive Vice-President and 5,100
Chief Financial Officer 4,800
Patrick J. Tierney................... 4,733
Executive Vice-President of Thomson 5,100
and
President and Chief Executive Officer 4,800
of Thomson Financial
---------------
(1) Perquisites and other personal benefits are shown if they exceeded
Cdn$50,000 or 10% of salary and bonus.
(2) These amounts represent our contributions to savings plans on behalf of our
Chief Executive Officer and each of our four other next most highly
compensated executive officers.
(3) The amount for 2001 includes $401,775 in respect of an insurance policy for
the benefit of Mr. Harrington, of which $4,860 represents the premium paid
by us for the term life portion of the policy and $396,915 represents the
actuarial equivalent of the benefit to Mr. Harrington of the premium paid by
us for the non-term portion of the policy. All premiums paid by us in
respect of the non-term portion of the policy will be repaid to us no later
than the death of Mr. Harrington. See "Pension Plans" below for a
description of the policy. The amount for 2000 also includes $49,595 for the
cost of personal transportation services for Mr. Harrington.
(4) The amounts for 2001, 2000 and 1999 include the cost of life insurance,
being $101,876, $99,646 and $98,996, respectively, for Mr. Shaffer. The
amounts for 2001, 2000 and 1999 also include $59,269, $92,565 and $219,502,
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.
(5) The amount for 2001 includes $251,525 in respect of an insurance policy for
the benefit of Mr. Hall, of which $2,841 represents the premium paid by us
for the term life portion of the policy and $248,684 represents the
actuarial equivalent of the benefit to Mr. Hall of the premium paid by us
for the non-term portion of the policy. All premiums paid by us in respect
of the non-term portion of the policy will be repaid to us no later than the
death of Mr. Hall. See "Pension Plans" below for a description of the
policy.
(6) The amount for 2001 includes $216,568 in respect of an insurance policy for
the benefit of Mr. Daleo, of which $2,303 represents the premium paid by us
for the term life portion of the policy and $214,265 represents the
actuarial equivalent of the benefit to Mr. Daleo of the premium paid by us
for the non-term portion of the policy. All premiums paid by us in respect
of the non-term portion of the policy will be
85
repaid to us no later than the death of Mr. Daleo. See "Pension Plans" below
for a description of the policy.
(7) The amount for 2001 includes $232,858 in respect of an insurance policy for
the benefit of Mr. Tierney, of which $2,896 represents the premium paid by
us for the term portion of the policy and $229,962 represents the actuarial
equivalent of the benefit to Mr. Tierney of the premium paid by us for the
non-term life portion of the policy. All premiums paid by us in respect of
the non-term portion of the policy will be repaid to us no later than the
death of Mr. Tierney. See "Pension Plans" below for a description of the
policy. The amount for 2001 also includes $397,770 for the cost of
relocating Mr. Tierney and his family in connection with his appointment as
President and Chief Executive Officer of Thomson Financial. The amounts for
2000 and 1999 include $14,948 and $9,571, respectively, for the cost of
health insurance for Mr. Tierney.
LONG-TERM INCENTIVE PLANS -- AWARDS IN MOST RECENTLY COMPLETED FINANCIAL YEAR
In the past three years, we have replaced cash-based long-term incentive
plans with equity-based incentives for many of our executives. Of our five most
highly compensated executive officers, Messrs. Hall and Tierney are the only
ones who participate in cash-based long-term incentive plans. The following
table sets forth information concerning Mr. Hall's and Mr. Tierney's cash-based
long-term incentive plans which end on December 31, 2002 and are being replaced
with equity-based incentives:
ESTIMATED FUTURE PAYOUTS UNDER
NON-SECURITIES-PRICE-BASED PLANS
SECURITIES, UNITS PERFORMANCE OR OTHER ---------------------------------
OR OTHER RIGHTS PERIOD UNTIL THRESHOLD TARGET MAXIMUM
NAME (#) MATURATION OR PAYOUT ($ OR #) ($ OR #) ($ OR #)
---- ----------------- -------------------- ---------- --------- --------
Brian H. Hall(1)........ -- 3 years (1) (1) (1)
Patrick J. Tierney(2)... -- 3 years (2) (2) (2)
---------------
(1) Based on the three-year period ending December 31, 2002, Mr. Hall may be
paid a bonus equal to a percentage of his average annual salary for the
period. The percentage will depend upon the amount by which the total
operating profit and total sales of Thomson Legal and Regulatory exceed
certain targets. As we are phasing out cash-based long-term incentive plans
in favor of equity-based incentive plans, all or a portion of the bonus will
be paid in the form of equity incentives and the remainder will be paid in
cash. The value of the maximum payout will not exceed 200% of his average
annual salary for the period.
(2) Based on the three-year period ending December 31, 2002, Mr. Tierney may be
paid a bonus equal to a percentage of his average annual salary for the
period. The percentage will depend upon the amount by which the total
operating profit and total sales of Thomson Financial exceed certain
targets. As we are phasing out cash-based long-term incentive plans in favor
of equity-based incentive plans, all or a portion of the bonus will be paid
in the form of equity incentives and the remainder will be paid in cash. The
value of the maximum payout will not exceed 200% of his average annual
salary for the period.
GRANTS OF OPTIONS AND STOCK APPRECIATION RIGHTS DURING THE MOST RECENTLY
COMPLETED FINANCIAL YEAR
Under our stock incentive plan, we may grant options to buy shares, stock
appreciation rights attaching to option grants, awards of shares and other
awards that are valued based upon the fair market value of our shares at the
close of business on the day before the grant.
If tax or securities regulations make it impracticable to make grants under
the stock incentive plan, we may allocate units under our phantom stock plan to
our executive officers and senior employees and to executive officers and senior
employees of our subsidiaries. After being employed with us for a prescribed
length of time, a recipient of units is entitled to a payment based on the
number of units and the increase, if any, in the market price of our shares from
the date of allocation.
Options and units expire no later than 10 years from the date of issuance
or allocation. Options granted under our stock incentive plan and units granted
under our phantom stock plan are exercisable at such times as are determined on
the date of grant. In the case of options granted in 2001, 25% are exercisable
from and after each anniversary of the date of the grant on a cumulative basis.
86
The following table sets forth information concerning grants of options in
2001 under our stock incentive plan to our Chief Executive Officer and our next
four other most highly compensated executive officers:
SECURITIES, % OF TOTAL MARKET VALUE OF
UNDER OPTIONS/SARS SECURITIES UNDERLYING
OPTIONS/SARS GRANTED TO EXERCISE OR OPTIONS/SARS ON THE
GRANTED EMPLOYEES IN BASE PRICE DATE OF GRANT
NAME (#) FINANCIAL YEAR (CDN.$/SECURITY) (CDN.$/SECURITY) EXPIRATION DATE
---- ------------ -------------- ---------------- --------------------- ---------------
Richard J.
Harrington......... 375,000 11.8% $48.40 $48.40 Dec. 12, 2011
David H. Shaffer..... 208,000 6.6 48.40 48.40 Dec. 12, 2011
Brian H. Hall........ 155,000 4.9 48.40 48.40 Dec. 12, 2011
Robert D. Daleo...... 133,000 4.2 48.40 48.40 Dec. 12, 2011
Patrick J. Tierney... 130,000 4.1 48.40 48.40 Dec. 12, 2011
There were no allocations of units under our phantom stock plan to our
Chief Executive Officer or to any of our next four other most highly compensated
executive officers during 2001.
AGGREGATE OPTION/SHARE APPRECIATION RIGHT EXERCISES DURING THE MOST RECENTLY
COMPLETED FINANCIAL YEAR AND FINANCIAL YEAR-END OPTION/SAR VALUES
The following table sets forth information concerning units exercised under
our phantom stock plan during 2001 and unexercised options under our stock
incentive plan and unexercised units under our phantom stock plan at December
31, 2001:
UNEXERCISED OPTIONS/SARS VALUE OF UNEXERCISED IN-THE-
SECURITIES, AGGREGATE AT DECEMBER 31, 2001 MONEY OPTIONS/SARS AT
ACQUIRED ON VALUE (#) DECEMBER 31, 2001
NAME EXERCISE (#) REALIZED EXERCISABLE/ UNEXERCISABLE EXERCISABLE/ UNEXERCISABLE
---- ------------ ---------- -------------------------- ----------------------------
Richard J. Harrington.... 88,750 $2,294,404 766,749/1,059,501 $8,426,125/$3,629,655
David H. Shaffer......... -- -- 159,083/697,251 605,351/1,505,754
Brian H. Hall............ -- -- 106,000/354,001 948,955/1,090,398
Robert D. Daleo.......... -- -- 117,499/300,501 1,263,066/833,141
Patrick J. Tierney....... 7,000 124,452 75,019/300,001 506,114/808,946
No options granted under our stock incentive plan or stock appreciation
rights allocated under our phantom stock plan have been repriced.
PENSION PLANS
Our Chief Executive Officer and each of our next four other most highly
compensated executive officers is entitled to a non-contributory pension at age
62 equal to a percentage of his final year's salary. This percentage is 60% for
Mr. Harrington and 50% for Mr. Shaffer, Mr. Hall, Mr. Daleo and Mr. Tierney. In
certain circumstances, our Chief Executive Officer and each of our next four
other most highly compensated executive officers will be entitled to this
pension upon disability. The pension amount will be reduced by 5% for each year
by which retirement precedes age 62. Our Chief Executive Officer and each of our
next four other most highly compensated executive officers will not be entitled
to receive any amount under our pension plan if he retires before the age of 55
with less than five years of service.
In addition, we have put in place an insurance policy for our Chief
Executive Officer and each of our next four other most highly compensated
executive officers other than Mr. Shaffer. Each policy provides term life
insurance to the executive officer and entitles him to an annual supplemental
retirement benefit beginning at age 62 of approximately 10% of his final year's
salary. The executive officer must have at least 10 years of service to be
entitled to the supplemental retirement benefit. The amount will be reduced by
5% for each year by which retirement precedes age 62. If an executive officer
retires before the age of 55, he will not be entitled to receive any amount
under the policy. Under the terms of each policy, all premiums paid by us in
respect of the non-term portion of the policy will be repaid to us no later than
the death of the executive officer.
87
EMPLOYMENT AGREEMENTS
Each of our Chief Executive Officer and our next four other most highly
compensated executive officers is a party to an employment agreement. If any of
them were to be terminated without cause he would receive a payment based on his
final year's salary. In the case of Mr. Harrington, the payment would be three
times his final year's salary. For Mr. Shaffer, the payment would be two and
one-half times his final year's salary. For each of Messrs. Hall, Daleo and
Tierney, the payment would be two times his final year's salary. If any of them
were to be terminated without cause, one-half of all unvested options issued
under our stock incentive plan and units allocated under our phantom stock plan
would be immediately exercisable and the balance would be forfeited.
88
BENEFICIAL OWNERSHIP OF COMMON SHARES
The following table shows, at May 1, 2002, information regarding the
beneficial ownership of our common shares by each person who, to the knowledge
of our directors and officers, beneficially owns, directly or indirectly, or
exercises control or direction over common shares carrying more than 5% of the
voting rights attached to all issued and outstanding common shares, each of our
directors and executive officers, and all of our directors and executive
officers as a group.
NUMBER OF PERCENTAGE OF SHARES PERCENTAGE OF
COMMON DEFERRED COMMON SHARES BEING COMMON SHARES
NAME SHARES(1) SHARE UNITS(2) OUTSTANDING OFFERED AFTER OFFERING
---- ----------- -------------- ------------- ---------- --------------
Kenneth R. Thomson........ 460,338,126(3) -- 72.8% 23,384,615 67.6%
The Woodbridge Company
Limited................. 432,115,788(4) -- 68.4 23,384,615 63.2
W. Geoffrey Beattie....... 40,500(5) -- * -- --
Richard J. Harrington..... 849,749(6) 163,771(7) * -- --
Ron D. Barbaro............ 25,000 5,449 * -- --
Robert D. Daleo........... 128,599(8) 28,965(7) * -- --
Steven A. Denning......... -- 2,583 * -- --
John F. Fraser............ 2,385 5,593 * -- --
V. Maureen Kempston
Darkes.................. 500 4,872 * -- --
Brian H. Hall............. 122,000(9) -- * -- --
Roger L. Martin........... 6,000 3,149 * -- --
Vance K. Opperman......... 40,000 5,387 * -- --
Ronald H. Schlosser....... 73,500(10) -- * -- --
David H. Shaffer.......... 291,083(11) -- * -- --
James C. Smith............ 34,200(12) -- * -- --
David K.R. Thomson........ 6,070 -- * -- --
Peter J. Thomson.......... -- -- * -- --
Richard M. Thomson........ 31,700 6,069 * -- --
Patrick J. Tierney........ 89,019(13) -- * -- --
John A. Tory.............. 468,214 -- * -- --
All directors and
executive officers as a
group................... 462,546,645 225,838 73.2 23,384,615 67.9
---------------
* Less than 1%.
(1) Represents common shares held and common shares underlying options that are
currently exercisable or exercisable within 60 days of the date of this
prospectus.
(2) The deferred share units are held under our non-employee director share
plan described under "Management -- Compensation of Directors" except in
the case of Messrs. Harrington and Daleo.
(3) Kenneth R. Thomson controls Woodbridge and the shares shown as being
beneficially owned by him include the 432,115,788 shares held by
Woodbridge. He also controls other companies that beneficially own
36,339,672 of our common shares. Through Woodbridge and these other
companies, Mr. Thomson controls an aggregate of 460,338,126 of our common
shares.
(4) Includes 54,446,301 common shares held by wholly-owned subsidiaries of
Woodbridge. Woodbridge or its predecessor companies have held a controlling
interest in us since our incorporation in 1977. Woodbridge, through an
affiliate, acquired 1,088,071 common shares on June 15, 2001 at Cdn$53.40
per share, 1,118,897 common shares on September 17, 2001 at Cdn$51.95 per
share, 1,292,585 common shares on December 17, 2001 at Cdn$46.68 per share
and 1,273,729 common shares on March 15, 2002 at Cdn$47.18 per share,
representing 4,773,282 common shares or Cdn$236,662,097.57 in the
aggregate, in satisfaction of its agreement to reinvest at least 50% of the
dividends it and its subsidiaries receive in newly issued shares under our
dividend reinvestment plan. See "Dividends."
89
(5) Includes options for 40,000 common shares.
(6) Includes options for 834,749 common shares.
(7) Messrs. Harrington and Daleo hold their deferred share units under our
deferred compensation plan which provides that they will receive shares
equal to the number of deferred share units disclosed upon ceasing to be
employed by us.
(8) Includes options for 127,499 common shares.
(9) Comprises options for 122,000 common shares.
(10) Comprises options for 73,500 common shares.
(11) Includes options for 251,083 common shares.
(12) Comprises options for 34,200 common shares.
(13) Comprises options for 89,019 common shares.
90
PRINCIPAL AND SELLING SHAREHOLDER
The Woodbridge Company Limited beneficially owns 432,115,788 of our common
shares, or 68.4% of our common shares outstanding before this offering, and thus
is our principal shareholder.
Woodbridge is the primary investment vehicle for Kenneth R. Thomson and
other members of the family of the late Lord Thomson of Fleet. See "Beneficial
Ownership of Common Shares". Woodbridge is a professionally managed company
that, in addition to its controlling interest in us, has other substantial
investments.
SELLING SHAREHOLDER
Woodbridge, through its wholly-owned subsidiary, 986629 Alberta Limited, is
the only selling shareholder in this offering. Following the completion of this
offering, Woodbridge will beneficially own 408,731,173 of our common shares, or
403,031,173 common shares if the underwriters' over-allotment option is
exercised in full. These holdings will represent 63.2% of our outstanding common
shares, or 62.3% if the underwriters' over-allotment option is exercised in
full.
Of the shares sold in this offering, Woodbridge is selling 61.5%, or 66.6%
if the underwriters' over-allotment option is exercised in full.
Woodbridge plans to continue to hold substantially all of its remaining
common shares for the long term and accordingly to maintain its controlling
interest in us.
RELATIONSHIP WITH US
Woodbridge's primary investment is its holding of our common shares. In its
involvement with us, Woodbridge focuses primarily on these matters:
- corporate governance, including the effectiveness of our board of
directors,
- appointment of our Chief Executive Officer and other key senior
executives and related succession planning,
- development of our long-term business strategy and assessment of its
implementation, and
- capital strategy.
With its expertise in dealing with these matters and its substantial equity
investment in us, Woodbridge monitors us as an owner to an extent that other
shareholders cannot. Woodbridge considers that its interests as a shareholder
are aligned with those of all other shareholders.
Woodbridge encouraged us in planning to realize shareholder value in the
long term through our strategic transformation into an integrated information
solutions company. We have largely completed that transformation, which required
substantial investment in acquisitions and technology and many years of
implementation. Woodbridge supported our long-term orientation, permitting us to
manage towards achieving our strategic goal rather than solely short-term
financial targets. See "Business -- Transformation."
Our objectives for this offering are to raise capital to improve our
financial flexibility, to increase liquidity for our common shares, to create a
significant U.S. shareholder base and to develop greater awareness of us in the
U.S. capital markets and business community. By selling some of its shares in
this offering, Woodbridge is facilitating the achievement of these objectives
while limiting dilution to our shareholders. Woodbridge has substantial net
worth and does not need to raise funds by the sale of our common shares in this
offering.
Since 1989, Woodbridge has reinvested more than 50% of the dividends it and
its subsidiaries have received from us in newly issued common shares under our
dividend reinvestment plan and in accordance with an agreement with us that was
renewed on May 1, 2002 and that remains in force until June 2005. This
reinvestment by Woodbridge has assisted us in financing significant strategic
investments. See "Dividends."
91
OTHER INVESTMENTS
Woodbridge invests in a small number of significant, privately held
businesses, generally through a controlling position that allows it to use its
management and financial expertise to contribute to the making of key strategic
decisions.
CONTROL
For as long as Woodbridge continues to maintain its controlling interest in
us, it will generally be able to approve any matter submitted to a vote of
shareholders without the consent of our other shareholders, including, among
other things, the election of our board of directors or the amendment of our
articles of incorporation and by-laws. In addition, Woodbridge will be able to
exercise a controlling influence over our business and affairs, the acquisition
or disposition of assets by us, our access to capital markets, the payment of
dividends and any change of control of us, such as a merger or take-over.
Members of the Thomson family and directors and officers of Woodbridge are among
our directors and officers.
Our board of directors has a fiduciary duty to act in our best interests.
The corporate governance committee of our board of directors considers any
transactions that may take place between us and Woodbridge with any committee
members related to Woodbridge abstaining from voting. In addition, Canadian
securities laws regulate some related party transactions that could be effected
between Woodbridge and us.
Our board of directors recognizes the importance of the enhancement of both
short and longer term value for all shareholders, including, in particular, the
shareholders other than Woodbridge and the Thomson family. Our board's system of
corporate governance is designed to achieve this. Of our 15 directors, three are
involved in the day-to-day management of our business. The remaining 12 are
independent of management and free from any interest and any business or other
relationship which could, or could reasonably be perceived to, materially
interfere with their ability to act with a view to our best interests, other
than interests and relationships arising from shareholdings. Of the 12 unrelated
directors, five are directors and officers of Woodbridge, including the
Chairman. Therefore, there are seven directors who are independent of both
management and Woodbridge. Directors meet regularly without management present
to ensure the board is able to discharge its responsibilities independently of
management. In appropriate circumstances, a director can obtain an outside
advisor with the approval of the corporate governance committee.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Except as described below, there have been no material transactions since
January 1, 2000 in which any director, executive officer or Woodbridge or any
associate or affiliate of any of these persons has or had an interest.
In January 2001, we completed a transaction with BCE Inc. and Woodbridge in
which we exchanged our interests in The Globe and Mail and its related
businesses for a 20% interest in Bell Globemedia.
In February 2001, a subsidiary of Woodbridge subscribed for $250 million of
preferred shares of Thomson International S.A., a subsidiary of ours. The
preferred shares were exchanged for a new class of preferred shares of the same
subsidiary of ours in February 2002. The new class of preferred shares is
redeemable at the option of either Woodbridge or our subsidiary on the fourth
anniversary of the share exchange and annually thereafter. Dividends are
cumulative and payable annually at 4.5% of the issued capital.
In April 2001, we sold Jane's Information Group to a subsidiary of
Woodbridge for proceeds of $110 million. We retained a financial advisor that
provided an opinion on the fairness of the transaction to us from a financial
point of view.
In September 2001, we sold our 50% interest in Augusta Newsprint Company, a
joint venture newsprint manufacturing business to a subsidiary of Woodbridge for
proceeds of $190 million. We retained a financial advisor that provided an
opinion on the fairness of the transaction to us from a financial point of view.
In October 2000, Woodbridge subscribed for 10,982,764 "A" ordinary shares
of Thomson PLC with a par value of four sterling pence each for an aggregate of
$0.6 million. In November 2000, Thomson PLC
92
redeemed 226,223,830 of the common shares of Thomson PLC held by Woodbridge and
its affiliates at par for an aggregate redemption price of $3 million.
On each quarterly common share dividend payment date, Woodbridge purchased
common shares under our dividend reinvestment plan. See "Dividends."
In preparation for the offering, we will complete a series of transactions
to assist Woodbridge in reorganizing its holdings of our common shares to
achieve certain Canadian tax objectives. Similar transactions will be completed
at the same time with certain companies affiliated with Woodbridge. These
transactions will have no economic effect, cause any change to our common shares
or result in any other consequence to us or our other shareholders and
Woodbridge and the other companies will indemnify us and our other shareholders
in respect of any costs and liabilities associated with these transactions.
DESCRIPTION OF SHARE CAPITAL
Our authorized share capital consists of an unlimited number of common
shares and an unlimited number of preference shares, issuable in series of which
6,000,000 shares consist of a series designated as Cumulative Redeemable
Floating Rate Preference Shares, Series II and 18,000,000 shares consist of a
series designated as Cumulative Redeemable Preference Shares, Series V. At May
1, 2002, there were 632,112,974 common shares, 6,000,000 Series II preference
shares and 18,000,000 Series V preference shares outstanding.
COMMON SHARES
Each common share entitles its holder to one vote at meetings of our
shareholders and to receive dividends when declared by our board of directors.
All dividends that our board of directors declare will be paid equally on all
common shares, subject to the rights of holders of the preference shares.
Holders of common shares will participate equally in any distribution of our
assets upon our liquidation, dissolution or winding-up, subject to the rights of
the holders of the preference shares. There are no pre-emptive, redemption,
purchase or conversion rights attaching to the common shares.
Currently, holders of 5,610,766 of our common shares also hold the same
number of related common shares of Thomson PLC, a subsidiary company of ours
incorporated in the United Kingdom. These holders have the alternative of
receiving their dividends from Thomson PLC, a United Kingdom company, which are
paid in British pounds sterling which offers tax advantages for some
shareholders. We have recently announced that this alternative holding structure
is being eliminated and all of the related common shares of Thomson PLC will be
redeemed on June 17, 2002. See "Dividends."
PREFERENCE SHARES
Our preference shares may be issued in one or more series as determined by
our board of directors. Our board of directors is authorized to fix the number,
the consideration per share and the rights and restrictions of the preference
shares of each series. The preference shares of each series rank on a parity
with the preference shares of each other series with respect to the payment of
dividends and the return of capital on our liquidation, dissolution or
winding-up. The preference shares are entitled to preference over the common
shares and any other shares ranking junior to the preference shares with respect
to the payment of dividends and the return of capital. The special rights and
restrictions attaching to the preference shares as a class may not be amended
without approval of at least two-thirds of the votes cast at a meeting of the
holders of preference shares. The holders of preference shares are not entitled
to any voting rights except as provided by our board of directors when
authorizing a series or as provided by law.
SERIES II, CUMULATIVE REDEEMABLE PREFERENCE SHARES
The Series II preference shares are non-voting and are redeemable at our
option 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.
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SERIES V, CUMULATIVE REDEEMABLE PREFERENCE SHARES
The Series V preference shares are non-voting and are redeemable at our
option for Cdn$25.50, together with accrued dividends. Dividends are payable
monthly at a rate which floats in relation to changes in both the Canadian bank
prime rate and the calculated trading price of the Series V preference shares.
In no event, however, will the annual floating dividend rate applicable for a
month be less than 50% of prime or greater than prime. The total number of
authorized Series V preference shares is 18,000,000.
OWNERSHIP RESTRICTIONS
There is no law or governmental decree or regulation in Canada that
restricts the export or import of capital, or affects the remittance of
dividends, interest or other payments to non-resident holders of common shares,
other than withholding tax requirements. See "Certain United States and Canadian
Federal Income Tax Considerations."
There is no limitation imposed by Canadian law or by our articles of
incorporation or other charter documents on the right of a non-resident to hold
or vote common shares, other than as provided by the Investment Canada Act,
which requires notification and, in certain cases, advance review and approval
by the Government of Canada of the acquisition by a non-Canadian of control of a
Canadian business.
SHARES ELIGIBLE FOR FUTURE SALE
After this offering, we will have 646,729,359 common shares outstanding.
All of the common shares sold in this offering will be freely transferable
without restriction or further registration under the Securities Act of 1933,
except for any shares that may be acquired by an affiliate of ours, as that term
is defined in Rule 144 under the Securities Act of 1933. Persons who may be
deemed to be affiliates generally include individuals or entities that control,
are controlled by, or are under common control with, us and may include our
directors and officers as well as Woodbridge.
In general, under Rule 144, as in effect on the date of this prospectus,
any person, including any of our affiliates, who has beneficially owned
"restricted" common shares for at least one year will be entitled to sell, in
any three-month period, a number of shares that, together with sales of any
common shares with which such person's sales must be aggregated, does not exceed
the greater of:
- 1% of our then outstanding common shares, which will equal approximately
6,467,294 common shares upon the completion of this offering; and
- the average weekly trading volume of our common shares on the New York
Stock Exchange during the four calendar weeks immediately preceding
filing of a Form 144 with respect to such sale.
Sales of restricted securities pursuant to Rule 144 are also subject to
requirements relating to manner of sale, notice and the availability of current
public information about us.
In general, under Rule 144(k) a person who was not an affiliate of ours at
any time during the three months preceding a sale and who has beneficially owned
the shares proposed to be sold for at least two years is entitled to sell shares
treated as "restricted securities" without having to comply with the volume
limitation, manner of sale, notice or current public information provisions of
Rule 144.
All of the common shares sold in this offering will be fully transferable
without restriction in each of the provinces of Canada, except for shares held
by Woodbridge and its affiliates which will be subject to the resale
restrictions applicable to controlling persons under Canadian securities
legislation.
We, our directors and executive officers, Woodbridge and its affiliates and
certain family members of Kenneth R. Thomson have agreed, subject to certain
exceptions, not to sell or transfer any common shares for 90 days after the date
of the final prospectus without first obtaining the written consent of Merrill
Lynch, Pierce, Fenner and Smith Incorporated and Morgan Stanley & Co.
Incorporated, as representatives of the underwriters. See "Underwriting."
Sales of substantial amounts of our common shares on the open market or the
availability of such shares for sale, could adversely affect the price of our
common shares. Additional common shares are issuable in connection with the
exercise of outstanding options and the reinvestment of cash dividends in new
common
94
shares under our dividend reinvestment plan. Subject to affiliate restrictions,
common shares issued under our stock incentive plan and our dividend
reinvestment plan will be freely tradeable because the underlying shares have
been registered under the Securities Act of 1933. See "Dividends."
We cannot estimate the number of common shares that may be sold by third
parties in the future because such sales will depend on market prices, the
circumstances of sellers and other factors.
CERTAIN UNITED STATES AND CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
THIS SUMMARY IS NOT INTENDED TO CONSTITUTE A COMPLETE ANALYSIS OF ALL TAX
CONSEQUENCES RELATING TO ACQUISITION, OWNERSHIP AND DISPOSITION OF OUR COMMON
SHARES. PROSPECTIVE PURCHASERS OF OUR COMMON SHARES SHOULD CONSULT THEIR OWN TAX
ADVISORS CONCERNING THE TAX CONSEQUENCES OF THEIR PARTICULAR SITUATIONS.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
This section summarizes the material United States federal income tax
consequences of the purchase, ownership and disposition of our common shares,
subject to the limitations in this prospectus. This section assumes that you
hold your common shares as capital assets for United States federal income tax
purposes. This section does not discuss special rules that may apply to you if
you are a member of a special class of holders subject to special rules,
including:
- a bank;
- a dealer in securities or currencies;
- a trader in securities that elects to use a mark-to-market method of
accounting for your securities holdings;
- a tax-exempt organization;
- a life insurance company;
- a person liable for alternative minimum tax;
- a person that actually or constructively owns 10% or more of our common
shares;
- a person that holds common shares as part of a straddle or a hedging or
conversion transaction; or
- a person whose functional currency is not the United States dollar.
This section is based on the Internal Revenue Code of 1986, as amended, its
legislative history, existing and proposed regulations, published rulings and
court decisions, all as currently in effect. These laws are subject to change,
possibly on a retroactive basis.
For purposes of this discussion, you are a United States holder if you are
a beneficial owner of common shares and you are:
- a citizen or resident of the United States;
- a corporation, partnership or other entity organized under the laws of
the United States or any state thereof;
- an estate whose income is subject to United States federal income tax
regardless of its source; or
- a trust (a) if a United States court can exercise primary supervision
over the trust's administration and one or more United States persons are
authorized to control all substantial decisions of the trust or (b) that
has elected to be treated as a United States person under applicable
Treasury regulations.
A "non-U.S. holder" is a beneficial owner of common shares that is not a
United States holder.
TAXATION OF DIVIDENDS
United States Holders
Subject to the passive foreign investment company rules discussed below, if
you are a United States holder, you must include in your gross income as
ordinary income the gross amount of any dividend paid by
95
us out of our current or accumulated earnings and profits (as determined for
United States federal income tax purposes), including the amount of any Canadian
taxes withheld from this dividend. If you are a United States resident entitled
to benefits under the Canada-United States Income Tax Convention, dividends on
common shares generally will be subject to Canadian withholding tax at the rate
of 15%. You must include the dividend in income when you receive the dividend,
actually or constructively. The dividend will not be eligible for the
dividends-received deduction generally allowed to United States corporations in
respect of dividends received from other United States corporations.
Distributions in excess of our current and accumulated earnings and profits (as
determined for United States federal income tax purposes) will be treated as a
non-taxable return of capital to the extent of your basis in the common shares
and afterwards as a capital gain.
Dividends received by a United States holder with respect to common shares
will be treated as foreign source income. The foreign source income generally
will be "passive income" or "financial services income," which will be treated
separately from other types of income for purposes of computing the foreign tax
credit allowable to you. The rules relating to foreign tax credits are extremely
complex and the availability of a foreign tax credit depends on numerous
factors. You should consult your own tax advisors concerning the application of
the United States foreign tax credit rules to your particular situation.
Non-United States Holders
If you are a non-United States holder, dividends paid to you in respect of
common shares will not be subject to United States federal income tax unless the
dividends are "effectively connected" with your conduct of a trade or business
within the United States, and the dividends are attributable to a permanent
establishment that you maintain in the United States if that is required by an
applicable income tax treaty as a condition for subjecting you to United States
taxation on a net income basis. In such cases you generally will be taxed in the
same manner as a United States holder. If you are a corporate non-United States
holder, "effectively connected" dividends may, under certain circumstances, be
subject to an additional "branch profits tax" at a 30% rate, or at a lower rate
if you are eligible for the benefits of an income tax treaty that provides for a
lower rate.
TAXATION OF CAPITAL GAINS
United States Holders
Subject to the passive foreign investment company rules discussed below, if
you are a United States holder and you sell or otherwise dispose of your common
shares, you will recognize capital gain or loss for United States federal income
tax purposes equal to the difference between the United States dollar value of
the amount that you realize and your tax basis, determined in United States
dollars, in your common shares. Capital gain of a non-corporate United States
holder is generally taxed at a maximum rate of 20% if the property has been held
more than one year and 18% where the property is held for more than five years.
The deductibility of capital losses is subject to limitations. The gain or loss
will generally be gain or loss from sources within the United States for foreign
tax credit limitation purposes.
Non-United States Holders
If you are a non-United States holder, you will not be subject to United
States federal income tax on gain recognized on the sale or other disposition of
your common shares unless:
- the gain is "effectively connected" with your conduct of a trade or
business in the United States and the gain is attributable to a permanent
establishment that you maintain in the United States if that is required
by an applicable income tax treaty as a condition for subjecting you to
United States taxation on a net income basis; or
- you are an individual, you are present in the United States for 183 or
more days in the taxable year of the sale and certain other conditions
are met.
If you are a corporate non-United States holder, "effectively connected"
gains that you recognize may, under certain circumstances, be subject to an
additional "branch profits tax" at a 30% rate or at a lower rate if you are
eligible for the benefits of an income tax treaty that provides for a lower
rate.
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Passive Foreign Investment Company Discussion
If during any taxable year, 75% or more of our gross income consists of
certain types of "passive" income, or if the average value during a taxable year
of our "passive assets" (generally, assets that generate passive income) is 50%
or more of the average value of all of our assets, we will be classified as a
"passive foreign investment company" for such year and in succeeding years.
Based on our current and projected income, assets and activities, we do not
expect to be classified as a passive foreign investment company for our current
or any succeeding taxable year. No assurance can be provided, however, that we
will not be classified as a passive foreign investment company in the future.
If we are classified as a passive foreign investment company and you are a
United States holder, you may be subject to increased tax liability and an
interest charge in respect of gain recognized on the sale of your common shares
and upon the receipt of certain distributions. Alternatively, if we comply with
certain information reporting requirements, you may elect to treat us as a
"qualified electing fund," in which case you would be required to include in
income each year that we are a passive foreign investment company your pro rata
share of our ordinary earnings and net capital gains, whether or not
distributed. However, if it is determined that we are a passive foreign
investment company, we do not currently intend to provide the information
necessary to permit a United States holder to make the qualified electing fund
election. As another alternative to the foregoing rules, if our shares
constitute "marketable stock" under applicable Treasury regulations, you may
make a mark-to-market election to include in income each year as ordinary income
an amount equal to the increase in value of your common shares for that year or
to claim a deduction for any decrease in value (but only to the extent of
previous mark-to-market gains). We expect that our common shares will be treated
as marketable stock for these purposes but no assurance can be given.
United States holders should consult their own tax advisors with respect to
the passive foreign investment company issue and its potential application to
their particular situation.
INFORMATION REPORTING AND BACKUP WITHHOLDING
If you are a noncorporate United States holder, information reporting
requirements on Internal Revenue Service Form 1099 generally will apply to:
- dividend payments or other taxable distributions made to you within the
United States, and
- the payment of proceeds to you from the sale of common shares effected at
a United States office of a broker.
Additionally, backup withholding may apply to such payments if you are a
noncorporate United States holder that:
- fails to provide an accurate taxpayer identification number,
- is notified by the Internal Revenue Service that you have failed to
report all interest and dividends required to be shown on your federal
income tax returns, or
- in certain circumstances, fails to comply with applicable certification
requirements.
If you are a non-United States holder, you are generally exempt from backup
withholding and information reporting requirements with respect to:
- dividend payments made to you outside the United States by us or another
non-United States payor, and
- other dividend payments and the payment of the proceeds from the sale of
shares effected at a United States office of a broker, as long as the
income associated with such payments is otherwise exempt from United
States federal income tax, and
(1) the payor or broker does not have actual knowledge or reason to know
that you are a United States person and you have furnished the payor or
broker:
(a) an Internal Revenue Service Form W-8BEN or an acceptable
substitute form upon which you certify, under penalties of perjury,
that you are a non-United States person, or
97
(b) other documentation upon which it may rely to treat the payments
as made to a non-United States person in accordance with Treasury
regulations, or
(2) you otherwise establish an exemption.
Payment of the proceeds from the sale of common shares effected at a
foreign office of a broker generally will not be subject to information
reporting or backup withholding. However, a sale of common shares that is
effected at a foreign office of a broker will be subject to information
reporting and backup withholding if:
- the proceeds are transferred to an account maintained by you in the
United States,
- the payment of proceeds or the confirmation of the sale is mailed to you
at a United States address, or
- the sale has some other specified connection with the United States as
provided in Treasury regulations,
unless the broker does not have actual knowledge or reason to know that you are
a United States person and the documentation requirements described above are
met or you otherwise establish an exemption.
In addition, a sale of common shares effected at a foreign office of a
broker will be subject to information reporting if the broker is:
- a United States person,
- a controlled foreign corporation for United States tax purposes,
- a foreign person 50% or more of whose gross income is effectively
connected with the conduct of a United States trade or business for a
specified three-year period, or,
- a foreign partnership, if at any time during the tax year one or more of
its partners are United States persons, as defined in Treasury
regulations, who in the aggregate hold more than 50% of the income or
capital interest in the partnership, or such foreign partnership is
engaged in the conduct of a United States trade or business,
unless the broker does not have actual knowledge or reason to know that you are
a United States person and the documentation requirements described above are
met or you otherwise establish an exemption. Backup withholding will apply if
the sale is subject to information reporting and the broker has actual knowledge
that you are a United States person.
You generally may obtain a refund of any amounts withheld under the backup
withholding rules that exceed your income tax liability by filing a refund claim
with the United States Internal Revenue Service.
CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
This section summarizes the principal Canadian federal income tax
considerations generally applicable to you if you acquire common shares pursuant
to this offering and, for purposes of the Income Tax Act, hold such common
shares as capital property and deal at arm's length and are not affiliated with
us. Our common shares will generally be considered to be capital property to you
unless you hold such common shares in the course of carrying on a business, or
you have acquired them in a transaction or transactions considered to be an
adventure in the nature of trade.
This summary is based on the current provisions of the Income Tax Act, the
regulations thereunder, all specific proposals to amend the Income Tax Act or
the regulations publicly announced by the Minister of Finance (Canada) prior to
the date of this prospectus, and our understanding of the current published
administrative practices of the Canada Customs and Revenue Agency.
This summary is not exhaustive of all possible Canadian federal income tax
considerations and, except as mentioned above, does not take into account or
anticipate any changes in law, whether by legislative, administrative or
judicial decision or action, nor does it take into account provincial,
territorial or foreign tax legislation or considerations, which may differ from
the Canadian federal income tax considerations described in this prospectus.
98
RESIDENTS OF CANADA
This section of the summary applies to you if, for purposes of the Income
Tax Act and any applicable tax treaty or convention, you are resident in Canada
at all relevant times. Certain of such persons to whom common shares might not
constitute capital property may elect, in certain circumstances, to have the
common shares treated as capital property by making the election permitted by
subsection 39(4) of the Income Tax Act.
The Income Tax Act contains certain "mark-to-market rules" relating to
securities held by certain financial institutions. This summary does not take
into account those mark-to-market rules, and if you are a "financial
institution" for purposes of such rules, you should consult your own tax
advisor.
Taxation of Dividends
Dividends received or deemed to be received on a common share will be
included in computing your income for purposes of the Income Tax Act (dividends
received in United States dollars must be converted into Canadian dollars). The
gross-up and dividend tax credit rules normally applicable to taxable dividends
paid by taxable Canadian corporations will apply to such dividends received by
an individual, and such dividends received by a corporation normally will be
deductible in computing its taxable income. If you are a "private corporation"
or a "subject corporation" (as defined in the Income Tax Act), you may be liable
under Part IV of the Income Tax Act to pay a refundable tax of 33 1/3% on such
dividends to the extent that such dividends are deductible in computing your
taxable income.
Disposition of Common Shares
Upon a disposition or a deemed disposition of a common share, you generally
will realize a capital gain (or a capital loss) equal to the amount by which the
proceeds of disposition of the common share, net of any reasonable costs of
disposition, exceed (or are less than) the adjusted cost base of the common
share to you. The cost to you of a common share acquired pursuant to this
offering will be averaged with the adjusted cost base of any other of our common
shares owned by you as capital property for purposes of determining the adjusted
cost of each such share to you.
Under the provisions of the Income Tax Act, one-half of any capital gain
realized by you will be required to be included in computing your income as a
taxable capital gain. Similarly, one-half of any capital loss (an "allowable
capital loss") realized by you may normally be deducted against taxable capital
gains realized by you in the year of disposition. Allowable capital losses not
deducted in the taxation year in which they are realized may ordinarily be
deducted by you against taxable capital gains realized in any of the three
preceding taxation years or any subsequent taxation year, subject to detailed
rules contained in the Income Tax Act in this regard. Capital gains realized by
an individual (other than certain specified trusts) may be subject to
alternative minimum tax.
The amount of any capital loss realized on the disposition or deemed
disposition of a common share by you if you are a corporation may be reduced by
the amount of dividends received or deemed to have been received by you on such
common share to the extent and in the circumstances prescribed by the Income Tax
Act. Similar rules may apply where you are a holder that is a corporation that
is a member of a partnership or beneficiary of a trust that owns common shares
or that is itself a member of a partnership or a beneficiary of a trust that
owns common shares.
If you are a Canadian-controlled private corporation (as defined in the
Income Tax Act), you may also be liable to pay a 6 2/3% refundable tax on
certain investment income, including taxable capital gains but not including
taxable dividends that are deductible in calculating taxable income.
NON-RESIDENT HOLDERS
The following section summarizes the principal Canadian federal income tax
considerations generally applicable to you if:
- at all relevant times, for purposes of the Income Tax Act and any
applicable tax treaty or convention, you are not a resident of Canada;
99
- you do not use or hold (and will not use or hold) and are not deemed to
use or hold the common shares in, or in the course of, carrying on a
business in Canada and do not carry on an insurance business in Canada
and elsewhere; and
- your shares do not constitute "taxable Canadian property" for purposes of
the Income Tax Act.
Provided that the common shares are listed on a prescribed stock exchange
(which includes the Toronto Stock Exchange and the New York Stock Exchange) at a
particular time, the common shares will generally not constitute taxable
Canadian property to you at that time. This rule applies unless, at any time
during the five-year period immediately preceding that time, 25% or more of the
issued shares of any class or series of a class of our capital stock was owned
by you, by persons with whom you did not deal at arm's length or by you and any
such persons. Your common shares can be deemed to be taxable Canadian property
in certain circumstances set out in the Income Tax Act.
Taxation of Dividends
Dividends on our common shares paid or credited or deemed under the Income
Tax Act to be paid or credited to you generally will be subject to Canadian
withholding tax at the rate of 25%, subject to any applicable reduction in the
rate of withholding in an applicable tax treaty where you are a resident of a
country with which Canada has an income tax treaty. If you are a United States
resident entitled to benefits under the Canada-United States Income Tax
Convention, dividends on common shares generally will be subject to Canadian
withholding tax at the rate of 15%. Under the Canada-United States Income Tax
Convention, dividends paid to certain religious, scientific, charitable and
similar tax-exempt organizations and certain pension organizations that are
resident in, and exempt from tax in, the United States are exempt from Canadian
withholding tax. Provided that certain administrative procedures are observed
regarding registration of such organizations, we will not be required to
withhold tax from dividends paid to such organizations. Qualifying organizations
that fail to follow the required administrative procedures will have to file a
claim for refund to recover any amounts withheld.
Disposition of Common Shares
You will not be subject to tax under the Income Tax Act in respect of any
capital gain realized on the disposition of common shares.
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UNDERWRITING
Merrill Lynch, Pierce, Fenner & Smith Incorporated and Morgan Stanley & Co.
Incorporated are acting as representatives of the underwriters named below.
Subject to the terms and conditions described in a purchase agreement among us,
Woodbridge and the underwriters, we and Woodbridge have agreed to sell to the
underwriters, and the underwriters severally have agreed to purchase from us and
Woodbridge, the number of shares listed opposite their names below.
NUMBER OF
UNDERWRITER SHARES
----------- ---------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated....................................
Morgan Stanley & Co. Incorporated...........................
RBC Dain Rauscher Inc.......................................
Bear, Stearns & Co. Inc. ...................................
Credit Suisse First Boston Corporation......................
Goldman, Sachs & Co. .......................................
TD Securities (USA) Inc. ...................................
UBS Warburg LLC.............................................
--------
Total..................................................
========
The underwriters have agreed to purchase all of the shares sold under the
purchase agreement if any of these shares are purchased. If an underwriter
defaults, the purchase agreement provides that the purchase commitments of the
nondefaulting underwriters may be increased or the purchase agreement may be
terminated. The obligations of the underwriters under the purchase agreement may
be terminated on the basis of their assessment of the state of the financial
markets and also upon the occurrence of certain events.
We and Woodbridge have agreed to indemnify the underwriters against certain
liabilities, including liabilities under securities legislation, or to
contribute to payments the underwriters may be required to make in respect of
those liabilities.
The underwriters are offering the shares, subject to prior sale, when, as
and if issued to and accepted by them, subject to approval of legal matters by
their counsel, including the validity of the shares, and other conditions
contained in the purchase agreement, such as the receipt by the underwriters of
officers' certificates and legal opinions. The underwriters reserve the right to
withdraw, cancel or modify offers to the public and to reject orders in whole or
in part.
This offering is being made concurrently in the United States and in all
provinces of Canada pursuant to the multi-jurisdictional disclosure system
implemented by the securities regulatory authorities in the United States and
Canada. Sales of common shares in Canada will be made through registered
Canadian investment dealer affiliates of the underwriters.
COMMISSIONS
The representatives have advised us and Woodbridge that the underwriters
propose initially to offer the shares to the public at the initial public
offering price on the cover page of this prospectus and to dealers at that price
less a commission not in excess of $ per share. The initial public offering
price was determined by negotiation among us, Woodbridge and the representatives
of the underwriters. The underwriters may allow, and the dealers may reallow, a
commission not in excess of $ per share to other dealers. After the initial
public offering, the public offering price and commission may be changed.
101
The following table shows the public offering price, underwriting
commissions and proceeds before expenses to us and Woodbridge. The information
assumes either no exercise or full exercise by the underwriters of their
over-allotment option.
PER SHARE WITHOUT OPTION WITH OPTION
--------- -------------- -----------
Public offering price........................... $ $ $
Underwriting commissions........................ $ $ $
Proceeds, before expenses, to us................ $ $ $
Proceeds, before expenses, to Woodbridge........ $ $ $
The expenses of the offering, not including the underwriting commissions,
are estimated at $ and are payable by us and Woodbridge.
OVER-ALLOTMENT OPTION
Woodbridge has granted an option to the underwriters to purchase up to
5,700,000 additional shares at the public offering price less the underwriting
discount. The underwriters may, at any time and from time to time, exercise this
option for a period of 30 days from the date of the final prospectus solely to
cover any over-allotments. If the underwriters exercise this option, each will
be obligated, subject to conditions contained in the purchase agreement, to
purchase a number of additional shares proportionate to that underwriter's
initial amount reflected in the above table.
RESERVED SHARES
At our request, the underwriters have reserved for sale to some of our
employees, at the initial public offering price, up to 2,000,000 common shares
offered by this prospectus. If these persons purchase reserved shares, this will
reduce the number of shares available for sale to the general public. Any
reserved shares that are not orally confirmed for purchase within one day of the
pricing of this offering will be offered by the underwriters to the general
public on the same terms as the other shares offered by this prospectus.
NO SALES OF SIMILAR SECURITIES
We, our directors and executive officers, Woodbridge and its affiliates and
certain family members of Kenneth R. Thomson have agreed, subject to certain
exceptions, not to sell, transfer or announce the sale or transfer of any common
shares for 90 days after the date of the final prospectus without first
obtaining the written consent of the representatives. Specifically, we and these
other individuals and companies have agreed not to directly or indirectly
- offer, pledge, sell or contract to sell any common shares,
- sell any option or contract to purchase any common shares,
- purchase any option or contract to sell any common shares,
- grant any option, right or warrant for the sale of any common shares,
- lend or otherwise dispose of or transfer any common shares,
- request or demand that we file a registration statement related to the
common shares, or
- enter into any swap or other agreement that transfers, in whole or in
part, the economic consequences of ownership of any common shares whether
any such swap or transaction is to be settled by delivery of shares or
other securities, in cash or otherwise.
This agreement applies to common shares and to securities convertible into
or exchangeable or exercisable for or repayable with common shares. It also
applies to common shares owned now or acquired later by the person executing the
agreement or for which the person executing the agreement later acquires the
power of disposition.
LISTING
We have applied to list our common shares, including the common shares
being offered under this prospectus, on the New York Stock Exchange under the
symbol TOC. We have also applied to list the
102
common shares being offered by us under this prospectus on the Toronto Stock
Exchange. These listings are subject to our fulfilling the listing requirements
of these exchanges.
PRICE STABILIZATION, SHORT POSITIONS AND PENALTY BIDS
Until the distribution of the shares is completed, SEC rules may limit
underwriters and selling group members from bidding for and purchasing our
common shares. However, the representatives may engage in transactions that
stabilize the price of our common shares, such as bids or purchases to peg, fix
or maintain that price.
If the underwriters create a short position in the common shares in
connection with the offering, i.e., if they sell more shares than are listed on
the cover of this prospectus, the representatives may reduce that short position
by purchasing shares in the open market. The representatives may also elect to
reduce any short position by exercising all or part of the over-allotment option
described above. Purchases of the common shares to stabilize the price or to
reduce a short position may cause the price of our common shares to be higher
than it might be in the absence of such purchases.
The representatives may also impose a penalty bid on underwriters and
selling group members. This means that if the representatives purchase shares in
the open market to reduce an underwriter's short position or to stabilize the
price of our common shares, they may reclaim the amount of the selling
concession from the underwriters and selling group members who sold those
shares. The imposition of a penalty bid may also affect the price of our common
shares in that it discourages resales of those shares.
Neither we nor any of the underwriters make any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of our common shares. In addition, neither
we nor any of the underwriters make any representation that the representatives
or the lead managers will engage in these transactions or that these
transactions, once commenced, will not be discontinued without notice.
The underwriters may not, throughout the period of distribution, bid for or
purchase our common shares. This restriction is subject to certain exceptions,
on the condition that the bid or purchase not be engaged in for the purpose of
creating actual or apparent active trading in, or raising the price of, our
common shares. Such exceptions include a bid or purchase permitted under the
rules of the Toronto Stock Exchange relating to market stabilization and passive
market making activities and a bid or purchase made for and on behalf of a
customer where the order was not solicited during the period of distribution.
Such activities, if commenced, may be discontinued at any time.
NASD REGULATIONS
Because more than ten percent of the net proceeds of the offering, not
including underwriting compensation, may be paid to members or affiliates of
members of the National Association of Securities Dealers, Inc. participating in
the offering, the offering will be conducted in accordance with NASD Conduct
Rule 2710(c)(8) and Rule 2720. This rule requires that the public offering price
of an equity security be no higher than the price recommended by a qualified
independent underwriter which has participated in the preparation of the
registration statement and performed the usual standard of diligence with
respect to that registration statement. has agreed to act as qualified
independent underwriter for the offering. The price of the shares will be no
higher than that recommended by .
OTHER RELATIONSHIPS
Some of the underwriters and their affiliates have engaged in, and may in
the future engage in, investment banking and other commercial dealings in the
ordinary course of business with us. They have received customary fees and
commissions for these transactions.
ELECTRONIC DELIVERY
Merrill Lynch and certain other underwriters will be facilitating Internet
distribution for this offering to certain of its Internet subscription
customers. Merrill Lynch intends to allocate a limited number of shares for sale
to its online brokerage customers. An electronic prospectus is available on the
Internet website
103
maintained by Merrill Lynch and certain other underwriters. Other than the
prospectus in electronic format, the information on the Merrill Lynch website is
not part of this prospectus. Morgan Stanley DW Inc., an affiliate of Morgan
Stanley & Co. Incorporated, through Morgan Stanley Online, its online service,
may be a member of the syndicate and engage in electronic offers, sales and
distributions of the shares being offered.
SELLING RESTRICTIONS
No actions have been taken to register or qualify our common shares offered
by this prospectus or the offering or otherwise to permit a public offering of
our common shares in any jurisdiction outside Canada and the United States. Our
common shares offered by this prospectus may not be offered, sold or redelivered
nor may this prospectus or any other document in connection with our common
shares offered by this prospectus be distributed to any person in any
jurisdiction except in such manner and in such circumstances as will result in
compliance with any applicable laws and regulations.
Each underwriter has represented and agreed that:
(1) it has not offered or sold and, prior to the expiry of the period of
six months from the issue date of the common shares, will not offer or
sell any common shares to persons in the United Kingdom except to
persons whose ordinary activities involve them in acquiring, holding,
managing or disposing of investments (as principal or agent) for the
purposes of their businesses or otherwise in circumstances which have
not resulted and will not result in an offer to the public in the United
Kingdom within the meaning of the Public Offers of Securities
Regulations 1995 or the Financial Services and Markets Act 2000;
(2) it has only communicated or caused to be communicated and will only
communicate or cause to be communicated an invitation or inducement to
engage in investment activity (within the meaning of Section 21 of the
Financial Services and Markets Act) received by it in connection with
the issue of any common shares in circumstances in which Section 21(1)
of the Financial Services and Markets Act does not apply to us; and
(3) it has complied and will comply with all applicable provisions of
the Financial Services and Markets Act, with respect to anything done by
it in relation to any common shares in, from or otherwise involving the
United Kingdom.
The common shares may not be offered, transferred, sold or delivered,
directly or indirectly, as part of their initial distribution or at any time
thereafter, in The Netherlands other than to banks, pension funds, insurance
companies, securities firms, investment institutions, central government, large
international and supranational organizations and other entities (including,
among others, treasuries and finance companies of large enterprises) which trade
or invest in securities in the conduct of their business or profession.
LEGAL MATTERS
Some legal matters in connection with this offering will be passed upon on
our behalf by Torys LLP with respect to matters of United States and Canadian
law, and on behalf of the underwriters by Shearman & Sterling with respect to
matters of United States law and by McCarthy Tetrault LLP with respect to
matters of Canadian law. Shearman & Sterling is currently, and may in the
future, render certain legal services to us. McCarthy Tetrault LLP has in the
past, and may in the future, render certain legal services to us. As of the date
of this prospectus, the partners and associates of these firms collectively
owned beneficially, directly or indirectly, less than 1% of our outstanding
securities. Certain partners and an associate of Torys LLP are our assistant
secretaries and assistant secretaries of certain of our associates and
affiliates.
EXPERTS
Our auditors are PricewaterhouseCoopers LLP, Suite 3000, Box 82, Royal
Trust Tower, TD Centre, Toronto, Ontario, M5K 1G8, Canada. Our consolidated
financial statements as at December 31, 2000 and 2001 and for each of the three
years in the period ended December 31, 2001 included in this prospectus have
been included in reliance on the reports of PricewaterhouseCoopers LLP,
independent chartered accountants, given on their authority as experts in
auditing and accounting.
104
REGISTRAR AND TRANSFER AGENT
The registrar and transfer agent for our common shares is Computershare
Trust Company of Canada, at its principal office in Toronto and Computershare
Trust Company, Inc., at its principal office in New York.
ENFORCEABILITY OF CERTAIN CIVIL LIABILITIES IN THE UNITED STATES
We are governed by the laws of the Province of Ontario, Canada. Some of our
assets are located outside of the United States and some of our directors and
officers, as well as some of the experts named in this prospectus, are residents
of Canada. As a result, it may be difficult for investors to effect service
within the United States upon us or those directors, officers and experts who
are not residents of the United States or to realize in the United States upon
judgments of courts of the United States predicated upon the civil liability
provisions of the United States federal securities laws.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents, which have been filed with securities commissions
or similar regulatory authorities in each of the provinces of Canada, and with
the SEC in the United States, are specifically incorporated by reference in this
prospectus:
(a) audited comparative consolidated financial statements as set out
in pages 49 to 78 of our annual report for the year ended December 31, 2001
and the accompanying auditors' report on these statements;
(b) management's discussion and analysis for the annual comparative
financial statements referred to in paragraph (a) as set out on pages 44 to
57 of our annual information form dated May 2, 2002;
(c) our management information circular dated April 9, 2002 relating
to our annual meeting of shareholders to be held on May 8, 2002, except for
the sections entitled "Report on Executive Compensation" and "Performance
Graph";
(d) our annual information form dated May 2, 2002; and
(e) press release dated May 2, 2002 in respect of the announcement of
our financial results for the three months ended March 31, 2002 except for
the section entitled "Financial Outlook."
ANY STATEMENT CONTAINED IN THIS PROSPECTUS OR IN A DOCUMENT INCORPORATED OR
DEEMED TO BE INCORPORATED BY REFERENCE IN THIS PROSPECTUS SHALL BE DEEMED TO BE
MODIFIED OR SUPERSEDED FOR THE PURPOSES OF THIS PROSPECTUS TO THE EXTENT THAT A
STATEMENT CONTAINED IN THIS PROSPECTUS OR IN ANY OTHER SUBSEQUENTLY FILED
DOCUMENT WHICH ALSO IS OR IS DEEMED TO BE INCORPORATED BY REFERENCE IN THIS
PROSPECTUS MODIFIES OR SUPERSEDES SUCH STATEMENT. ANY STATEMENT SO MODIFIED OR
SUPERSEDED SHALL NOT BE DEEMED, EXCEPT AS SO MODIFIED OR SUPERSEDED, TO
CONSTITUTE A PART OF THIS PROSPECTUS.
ANY OF OUR DOCUMENTS OF THE TYPE REFERRED TO ABOVE, INCLUDING OUR UNAUDITED
INTERIM FINANCIAL STATEMENTS, OUR MANAGEMENT INFORMATION CIRCULAR, OUR ANNUAL
INFORMATION FORM AND ANY MATERIAL CHANGE REPORTS (EXCLUDING CONFIDENTIAL
REPORTS) WHICH ARE REQUIRED TO BE FILED BY US WITH THE SECURITIES COMMISSIONS
AND OTHER SIMILAR AUTHORITIES IN CANADA AFTER THE DATE OF THIS PROSPECTUS AND
PRIOR TO THE TERMINATION OF THIS OFFERING WILL BE DEEMED TO BE INCORPORATED BY
REFERENCE INTO THIS PROSPECTUS.
In addition, to the extent that any such documents referred to above are
also filed with, or any Report of Foreign Private Issuer on Form 6-K is
furnished to, the SEC after the date of this prospectus and prior to the
termination of this offering, such documents or reports shall be deemed to be
incorporated by reference into this prospectus.
The information permitted to be omitted from this prospectus will be
contained in a supplemented prospectus and will be incorporated by reference in
this prospectus as of the date of such supplemented prospectus.
105
INFORMATION HAS BEEN INCORPORATED BY REFERENCE IN THIS PROSPECTUS FROM
DOCUMENTS FILED WITH SECURITIES COMMISSIONS OR SIMILAR AUTHORITIES IN CANADA.
Copies of the documents incorporated in this prospectus by reference may be
obtained on request without charge from us at Metro Center, One Station Place,
Stamford, Connecticut 06902, telephone (203) 969-8700 or at Suite 2706, Toronto
Dominion Bank Tower, P.O. Box 24, Toronto-Dominion Centre, Toronto, Ontario, M5K
1A1, Canada, telephone (416) 360-8700. For the purpose of the Province of
Quebec, this simplified prospectus contains information to be completed by
consulting the permanent information record. A copy of the permanent information
record may be obtained from our corporate secretary at the above-mentioned
address and telephone number.
WHERE YOU CAN FIND MORE INFORMATION
Information has been incorporated by reference in this prospectus from
documents filed with securities commissions or similar authorities in Canada
(including the permanent information record in the Province of Quebec). Copies
of this prospectus and the documents incorporated by reference in this
prospectus may be obtained on request without charge from us at Metro Center,
One Station Place, Stamford, Connecticut 06902, telephone (203) 969-8700 or at
Suite 2706, Toronto Dominion Bank Tower, P.O. Box 24, Toronto-Dominion Centre,
Toronto, Ontario, M5K 1A1, Canada, telephone (416) 360-8700. Copies of these
documents are available on the System for Electronic Document Analysis and
Retrieval of the Canadian Securities Administrators at www.sedar.com. This
website address is included in this document as an inactive textual reference
only.
We have filed with the SEC under the Securities Act a registration
statement on Form F-10 relating to our common shares of which this prospectus is
a part. This prospectus does not contain all of the information set forth in
such registration statement, and to which reference is made for further
information. For further information about us, and the common shares offered in
this prospectus, reference is made to the registration statement and to the
schedules and exhibits filed with it. Statements contained in this prospectus as
to the contents of certain documents are not necessarily complete and, in each
instance, reference is made to the copy of the document filed as an exhibit to
the registration statement. Each such statement is qualified in its entirety by
such reference.
We are subject to the information requirements of the Exchange Act, and in
accordance with that legislation file reports and other information with the
SEC. Under a multi-jurisdictional disclosure system adopted by the United States
and Canada, such reports and other information may be prepared in accordance
with the disclosure requirements of Canada, which are different from those of
the United States. We are exempt from the rules under the Exchange Act
prescribing the furnishing and content of proxy statements, and our officers and
directors and Woodbridge are exempt from the reporting and short-swing profit
recovery provisions contained in Section 16 of the Exchange Act. Under the
Exchange Act, we are not required to publish financial statements as frequently
or as promptly as United States companies. Any information filed with the SEC
can be inspected and copied at the public reference facilities maintained by the
SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of such
material can also be obtained from the SEC at prescribed rates through its
Public Reference Section at 450 Fifth Street, N.W., Washington, D.C. 20549.
Information on the operation of the public reference facilities may be obtained
by calling the SEC at 1-800-SEC-0330 or visiting its website at www.sec.gov. We
have applied to list our common shares on the New York Stock Exchange and
reports and other information concerning us may be inspected at the offices of
the New York Stock Exchange at 11 Wall Street, New York, New York 10005.
DOCUMENTS FILED AS PART OF THE REGISTRATION STATEMENT
The following documents have been filed with the SEC as part of the
registration statement of which this prospectus forms a part:
(a) the documents listed above under "Documents Incorporated by
Reference;"
(b) the consent of PricewaterhouseCoopers LLP, independent chartered
accountants;
(c) the consent of Torys LLP, our United States and Canadian counsel;
and
(d) powers of attorney from our directors and officers.
106
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Chartered Accountants................. F-2
Comments by Auditors for United States of America Readers on
Canada -- United States of America Reporting
Differences............................................... F-3
Consolidated Statement of Earnings and Retained Earnings for
the Year ended December 31, 1999, 2000 and 2001........... F-4
Consolidated Balance Sheet as at December 31, 2000 and
2001...................................................... F-5
Consolidated Statement of Cash Flow for the Year ended
December 31, 1999, 2000 and 2001.......................... F-6
Notes to Consolidated Financial Statements.................. F-9
Financial Statement Schedule:
Reconciliation to Generally Accepted Accounting Principles
in the United States of America........................... F-34
F-1
REPORT OF INDEPENDENT CHARTERED ACCOUNTANTS
To the shareholders
of The Thomson Corporation
We have audited the consolidated balance sheet of The Thomson Corporation (the
"Corporation") as at December 31, 2000 and 2001 and the consolidated statement
of earnings and retained earnings and of cash flow for each of the years in the
three year period ended December 31, 2001 as listed in the index on page F-1 of
this prospectus. These consolidated financial statements are the responsibility
of the Corporation's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Corporation as at December 31,
2000 and 2001 and the results of its operations and its cash flows for each of
the years in the three year period ended December 31, 2001 in accordance with
Canadian generally accepted accounting principles.
Our audits of the consolidated financial statements referred to above also
included an audit of the financial statement schedule of the Reconciliation to
Generally Accepted Accounting Principles in the United States of America as
listed in the index on page F-1 of this prospectus. In our opinion, this
financial statement schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
CHARTERED ACCOUNTANTS
Toronto, Canada
February 27, 2002, except as to Note 1 to the consolidated financial statements
and Notes 11 and 17 to the financial statement schedule, which are as of April
25, 2002, respectively.
F-2
COMMENTS BY AUDITORS FOR UNITED STATES OF AMERICA READERS ON
CANADA -- UNITED STATES OF AMERICA REPORTING DIFFERENCES
In the United States of America, reporting standards for auditors require
the addition of an explanatory paragraph (following the opinion paragraph) when
there is a change in accounting principles that has a material effect on the
comparability of the company's consolidated financial statements, such as the
changes described in Notes 1, 3 and 14 to the consolidated financial statements
of The Thomson Corporation as listed in the index on page F-1 of this
prospectus. Our report to the shareholders dated February 27, 2002, except as to
Note 1 to the consolidated financial statements and Notes 11 and 17 to the
financial statement schedule, which are as of April 25, 2002, respectively, is
expressed in accordance with Canadian reporting standards which do not require a
reference to such a change in accounting principles in the auditors' report when
the change is properly accounted for and adequately disclosed in the
consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
CHARTERED ACCOUNTANTS
Toronto, Canada
February 27, 2002, except as to Note 1 to the consolidated financial statements
and Notes 11 and 17 to the financial statement schedule, which are as of April
25, 2002, respectively.
F-3
THE THOMSON CORPORATION
CONSOLIDATED STATEMENT OF EARNINGS AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1999, 2000 AND 2001
(MILLIONS OF U.S. DOLLARS, EXCEPT PER COMMON SHARE AMOUNTS)
1999 2000 2001
------- ------- -------
Revenues.................................................... 5,752 6,514 7,237
Cost of sales, selling, marketing, general and
administrative expenses................................... (4,345) (4,980) (5,451)
------- ------- -------
Earnings before interest, tax, depreciation, amortization,
restructuring charges and Year 2000 costs................. 1,407 1,534 1,786
Depreciation (note 6)....................................... (386) (416) (476)
------- ------- -------
Operating profit before amortization, restructuring charges
and Year 2000 costs....................................... 1,021 1,118 1,310
Amortization (notes 7 and 8)................................ (258) (327) (444)
Restructuring charges (note 16)............................. (38) (37) (30)
Year 2000 costs (note 23)................................... (91) (4) --
------- ------- -------
Operating profit after amortization, restructuring charges
and Year 2000 costs....................................... 634 750 836
Net gains on disposals of businesses and investments........ 52 38 302
Net interest expense and other financing costs (note 2)..... (186) (204) (236)
Income taxes (note 3)....................................... (63) 15 (168)
Equity in losses of associates, net of tax (note 11)........ -- -- (50)
------- ------- -------
Earnings before dividends declared on preference shares..... 437 599 684
Dividends declared on preference shares (note 12)........... (28) (28) (27)
------- ------- -------
Earnings from continuing operations......................... 409 571 657
Earnings from discontinued operations (note 22)............. 123 652 92
------- ------- -------
Earnings attributable to common shares...................... 532 1,223 749
Retained earnings at beginning of year...................... 5,099 5,225 5,943
Effect of adoption of accounting standard (note 14)......... -- (78) --
Dividends declared on common shares (note 13)............... (406) (427) (439)
------- ------- -------
Retained earnings at end of year............................ 5,225 5,943 6,253
======= ======= =======
Basic and diluted earnings per common share (note 4):
From continuing operations................................ $ 0.66 $ 0.92 $ 1.05
From discontinued operations.............................. $ 0.20 $ 1.04 $ 0.14
------- ------- -------
Basic and diluted earnings per common share................. $ 0.86 $ 1.96 $ 1.19
======= ======= =======
The related notes form an integral part of these consolidated financial
statements.
F-4
THE THOMSON CORPORATION
CONSOLIDATED BALANCE SHEET
AS AT DECEMBER 31, 2000 AND 2001
(MILLIONS OF U.S. DOLLARS)
2000 2001
------ ------
ASSETS
Cash and cash equivalents................................... 337 532
Accounts receivable, net of allowances (2000 -- $285;
2001 -- $381)............................................. 1,522 1,662
Inventories (note 5)........................................ 232 256
Prepaid expenses and other current assets................... 384 313
Current assets of discontinued operations (note 22)......... 53 --
------ ------
Current assets............................................ 2,528 2,763
Property and equipment (note 6)............................. 1,379 1,552
Identifiable intangible assets (note 7)..................... 4,659 4,921
Goodwill (note 8)........................................... 6,171 7,903
Other non-current assets.................................... 827 1,263
Non-current assets of discontinued operations (note 22)..... 135 --
------ ------
Total assets................................................ 15,699 18,402
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Short-term indebtedness..................................... 312 620
Accounts payable and accruals............................... 1,626 1,855
Deferred revenue............................................ 772 882
Current portion of long-term debt (note 11)................. 229 473
Current liabilities of discontinued operations (note 22).... 26 --
------ ------
Current liabilities....................................... 2,965 3,830
Long-term debt (note 11).................................... 2,321 3,651
Other non-current liabilities............................... 1,264 1,262
Deferred income taxes (note 3).............................. 1,284 1,439
Non-current liabilities of discontinued operations (note
22)....................................................... 47 --
------ ------
Total liabilities........................................... 7,881 10,182
SHAREHOLDERS' EQUITY
Share capital (notes 12 and 13)............................. 2,035 2,198
Cumulative translation adjustment (note 18)................. (160) (231)
Retained earnings........................................... 5,943 6,253
------ ------
Total shareholders' equity.................................. 7,818 8,220
------ ------
Total liabilities and shareholders' equity.................. 15,699 18,402
====== ======
Approved by the Board
/s/ Kenneth R. Thomson /s/ Richard J. Harrington
The related notes form an integral part of these consolidated financial
statements.
F-5
THE THOMSON CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOW
FOR THE YEAR ENDED DECEMBER 31, 1999, 2000 AND 2001
(MILLIONS OF U.S. DOLLARS)
1999 2000 2001
------ ------ ------
CASH PROVIDED BY (USED IN):
OPERATING ACTIVITIES
Earnings from continuing operations......................... 409 571 657
Add back (deduct) items not involving cash:
Amortization of development costs and capitalized software
(notes 9 and 10)....................................... 109 112 104
Depreciation (note 6)..................................... 386 416 476
Amortization (notes 7 and 8).............................. 258 327 444
Net gains on disposals of businesses and investments...... (52) (38) (302)
Deferred income taxes (note 3)............................ (58) (71) 75
Equity in losses of associates, net of tax (note 11)...... -- -- 50
Other, net................................................ 62 9 34
Changes in working capital and other items (note 20)........ (86) (331) 78
Cash provided by operating activities -- discontinued
operations (note 22)...................................... 121 121 7
------ ------ ------
Net cash provided by operating activities................... 1,149 1,116 1,623
INVESTING ACTIVITIES
Acquisitions of businesses and investments, less cash
therein of $37 million, $64 million and $45 million in
1999, 2000 and 2001, respectively (note 17)............... (337) (2,824) (2,419)
Proceeds from disposals of businesses and investments (note
17)....................................................... 412 387 209
Additions to property and equipment, less proceeds from
disposals of $5 million, $17 million and $16 million in
1999, 2000 and 2001, respectively......................... (472) (585) (684)
Other investing activities, net............................. (162) (226) (359)
Proceeds from disposals of newspaper businesses, net of tax
(note 22)................................................. -- 1,868 239
Cash used in investing activities -- discontinued operations
(note 22)................................................. (32) (20) (1)
------ ------ ------
Net cash used in investing activities....................... (591) (1,400) (3,015)
FINANCING ACTIVITIES
Proceeds from debt.......................................... 6 200 2,054
Repayments of debt.......................................... (176) (425) (281)
Net (repayments) borrowings under short-term loan
facilities................................................ (90) 790 116
Dividends paid on common shares (note 13)................... (255) (271) (279)
Other financing activities, net............................. -- -- (19)
------ ------ ------
Net cash (used in) provided by financing activities......... (515) 294 1,591
------ ------ ------
43 10 199
Translation adjustments..................................... (8) (2) (4)
------ ------ ------
Increase in cash and cash equivalents....................... 35 8 195
Cash and cash equivalents at beginning of year.............. 294 329 337
------ ------ ------
Cash and cash equivalents at end of year.................... 329 337 532
====== ====== ======
Supplemental cash flow information is provided in Notes 2, 17 and 20.
The related notes form an integral part of these consolidated financial
statements.
F-6
THE THOMSON CORPORATION
SEGMENTED INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1999, 2000 AND 2001
(MILLIONS OF U.S. DOLLARS)
Thomson is a global provider of integrated information solutions for
business and professional customers. Thomson operates in four reportable market
segments mainly in the United States, the United Kingdom, and Canada (note 24).
BUSINESS SEGMENTS -- 1999
SCIENTIFIC
LEGAL AND AND CORPORATE
REGULATORY LEARNING FINANCIAL HEALTHCARE AND OTHER(1) ELIMINATIONS TOTAL
---------- -------- --------- ---------- ------------ ------------ ------
Revenues.................................. 2,375 1,099 1,213 806 259 -- 5,752
===== ===== ===== ===== ===== === ======
Earnings before interest, tax,
depreciation, amortization,
restructuring charges and Year 2000
costs................................... 706 258 314 174 (45) -- 1,407
Depreciation.............................. (128) (109) (102) (39) (8) -- (386)
----- ----- ----- ----- ----- --- ------
Operating profit before amortization,
restructuring charges and Year 2000
costs................................... 578 149 212 135 (53) -- 1,021
===== ===== ===== ===== ===== === ======
Additions to capital assets(2)............ 350 230 169 60 13 -- 822
===== ===== ===== ===== ===== === ======
Assets
-- continuing operations.................. 6,557 1,921 1,380 1,245 1,167 -- 12,270
-- discontinued operations................ -- -- -- -- 1,536 -- 1,536
----- ----- ----- ----- ----- --- ------
Total assets.............................. 6,557 1,921 1,380 1,245 2,703 -- 13,806
===== ===== ===== ===== ===== === ======
BUSINESS SEGMENTS -- 2000
SCIENTIFIC
LEGAL AND AND CORPORATE
REGULATORY LEARNING FINANCIAL HEALTHCARE AND OTHER(1) ELIMINATIONS TOTAL
---------- -------- --------- ---------- ------------ ------------ ------
Revenues.................................. 2,620 1,405 1,503 743 272 (29) 6,514
===== ===== ===== ===== ===== === ======
Earnings before interest, tax,
depreciation, amortization,
restructuring charges and Year 2000
costs................................... 774 345 335 178 (98) -- 1,534
Depreciation.............................. (128) (126) (125) (29) (8) -- (416)
----- ----- ----- ----- ----- --- ------
Operating profit before amortization,
restructuring charges and Year 2000
costs................................... 646 219 210 149 (106) -- 1,118
===== ===== ===== ===== ===== === ======
Additions to capital assets(2)............ 887 1,235 1,724 83 18 -- 3,947
===== ===== ===== ===== ===== === ======
Assets
-- continuing operations.................. 7,065 3,000 3,176 945 1,325 -- 15,511
-- discontinued operations................ -- -- -- -- 188 -- 188
----- ----- ----- ----- ----- --- ------
Total assets.............................. 7,065 3,000 3,176 945 1,513 -- 15,699
===== ===== ===== ===== ===== === ======
BUSINESS SEGMENTS -- 2001
SCIENTIFIC
LEGAL AND AND CORPORATE
REGULATORY LEARNING FINANCIAL HEALTHCARE AND OTHER(1) ELIMINATIONS TOTAL
---------- -------- --------- ---------- ------------ ------------ ------
Revenues.................................. 2,827 1,852 1,641 707 242 (32) 7,237
===== ===== ===== ===== ===== === ======
Earnings before interest, tax,
depreciation, amortization,
restructuring charges and Year 2000
costs................................... 855 402 405 176 (52) -- 1,786
Depreciation.............................. (146) (142) (155) (25) (8) -- (476)
----- ----- ----- ----- ----- --- ------
Operating profit before amortization,
restructuring charges and Year 2000
costs................................... 709 260 250 151 (60) -- 1,310
===== ===== ===== ===== ===== === ======
Additions to capital assets(2)............ 592 2,368 353 76 21 -- 3,410
===== ===== ===== ===== ===== === ======
Total assets.............................. 7,266 5,216 3,165 930 1,825 -- 18,402
===== ===== ===== ===== ===== === ======
---------------
(1) Corporate and other includes the results of Thomson Media, a non-reportable
segment, as well as corporate costs, minority interests and costs associated
with the Company's stock appreciation rights. Thomson Media's results
include revenues of: 1999 -- $259 million; 2000 -- $272 million;
2001 -- $242 million, earnings before interest, tax, depreciation,
amortization, restructuring charges and Year 2000 costs of: 1999 -- $56
million; 2000 -- $43 million; 2001 -- $12 million and operating profit
before amortization, restructuring charges and Year 2000 costs of:
1999 -- $48 million; 2000 -- $35 million; 2001 -- $4 million. In addition to
Thomson Media assets of $392 million, $408 million and $335 million as at
December 31, 1999, 2000 and 2001, respectively, Corporate and other assets
include cash, investments and overfunded pension assets.
(2) Capital assets include property and equipment, identifiable intangible
assets and goodwill.
The related notes form an integral part of these consolidated financial
statements.
F-7
THE THOMSON CORPORATION
SEGMENTED INFORMATION (BY COUNTRY OF ORIGIN)
(MILLIONS OF U.S. DOLLARS)
GEOGRAPHIC SEGMENTS -- 1999
UNITED UNITED
STATES KINGDOM CANADA OTHER COUNTRIES ELIMINATIONS TOTAL
------ ------- ------ --------------- ------------ ------
Revenues....................................... 4,759 436 302 255 -- 5,752
====== === === === === ======
Earnings before interest, tax, depreciation,
amortization, restructuring charges and Year
2000 costs................................... 1,228 80 37 62 -- 1,407
Depreciation................................... (334) (25) (13) (14) -- (386)
------ --- --- --- --- ------
Operating profit before amortization,
restructuring charges and Year 2000 costs.... 894 55 24 48 -- 1,021
====== === === === === ======
Capital assets(1).............................. 8,461 398 132 542 -- 9,533
====== === === === === ======
Assets
-- continuing operations....................... 10,420 670 196 984 -- 12,270
-- discontinued operations..................... 1,396 -- 140 -- -- 1,536
------ --- --- --- --- ------
Total assets................................... 11,816 670 336 984 -- 13,806
====== === === === === ======
GEOGRAPHIC SEGMENTS -- 2000
UNITED UNITED
STATES KINGDOM CANADA OTHER COUNTRIES ELIMINATIONS TOTAL
------ ------- ------ --------------- ------------ ------
Revenues....................................... 5,318 497 326 414 (41) 6,514
====== ===== === ===== === ======
Earnings before interest, tax, depreciation,
amortization, restructuring charges and Year
2000 costs................................... 1,369 84 4 77 -- 1,534
Depreciation................................... (355) (26) (15) (20) -- (416)
------ ----- --- ----- --- ------
Operating profit before amortization,
restructuring charges and Year 2000 costs.... 1,014 58 (11) 57 -- 1,118
====== ===== === ===== === ======
Capital assets(1).............................. 10,091 1,004 155 959 -- 12,209
====== ===== === ===== === ======
Assets
-- continuing operations....................... 12,587 1,282 233 1,409 -- 15,511
-- discontinued operations..................... 110 -- 78 -- -- 188
------ ----- --- ----- --- ------
Total assets................................... 12,697 1,282 311 1,409 -- 15,699
====== ===== === ===== === ======
GEOGRAPHIC SEGMENTS -- 2001
UNITED UNITED
STATES KINGDOM CANADA OTHER COUNTRIES ELIMINATIONS TOTAL
------ ------- ------ --------------- ------------ ------
Revenues....................................... 5,943 600 153 632 (91) 7,237
====== ===== === ===== === ======
Earnings before interest, tax, depreciation,
amortization, restructuring charges and Year
2000 costs................................... 1,570 120 21 75 -- 1,786
Depreciation................................... (409) (34) (7) (26) -- (476)
------ ----- --- ----- --- ------
Operating profit before amortization,
restructuring charges and Year 2000 costs.... 1,161 86 14 49 -- 1,310
====== ===== === ===== === ======
Capital assets(1).............................. 12,315 1,014 139 908 -- 14,376
====== ===== === ===== === ======
Total assets................................... 15,217 1,324 587 1,274 -- 18,402
====== ===== === ===== === ======
---------------
(1) Capital assets include property and equipment, identifiable intangible
assets and goodwill.
The related notes form an integral part of these consolidated financial
statements.
F-8
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 its proportionate share in
joint venture interests, and are prepared in accordance with accounting
principles generally accepted in Canada. All intercompany transactions and
balances are eliminated on consolidation.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles 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 accumulated
in a separate component of shareholders' equity. Other currency gains or losses
are included in earnings.
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 first-in, first-out method.
DEVELOPMENT COSTS
Development costs which meet certain criteria specified in generally
accepted accounting principles, including reasonable assurance regarding future
benefits, are capitalized and amortized over the anticipated period of benefit,
not to exceed three years. The capitalized amounts, net of accumulated
amortization, are included in "Other non-current assets" in the consolidated
balance sheet.
CAPITALIZED SOFTWARE
Certain costs incurred in connection with the development of software to be
used internally are capitalized once certain criteria specified in generally
accepted accounting principles are met. The capitalized amounts, net of
accumulated amortization, are included in "Property and equipment" in the
consolidated balance sheet.
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
included in "Other non-current assets" in the consolidated balance sheet. The
capitalized amounts are amortized over the expected period of benefit, not to
exceed three years, and such amortization expense is included within "Cost of
sales, selling, marketing, general and administrative expenses" in the
consolidated statement of earnings and retained earnings.
F-9
THE THOMSON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INVESTMENTS
The equity method of accounting is used to account for investments in
businesses over which Thomson has the ability to exercise significant influence.
Under the equity method, investments are initially recorded at cost and the
carrying amounts are adjusted to reflect the Company's share of net earnings or
losses of the investee companies, and are reduced by dividends received.
The cost method of accounting is used to account for investments in
businesses over which Thomson does not have the ability to exercise significant
influence.
Declines in market values of investments are expensed when such declines
are considered to be other than temporary.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated on a
straight-line basis over their estimated useful lives as follows:
Buildings and building improvements......................... 5-40 years
Furniture, fixtures and equipment........................... 3-10 years
Computer hardware........................................... 3-5 years
Internal-use computer software.............................. 3-10 years
IDENTIFIABLE INTANGIBLE ASSETS AND GOODWILL
Upon acquisition, identifiable intangible assets are recorded at fair value
and are subsequently amortized over their estimated economic lives. Goodwill
represents the excess of the cost of the acquired businesses over values
attributed to underlying net tangible assets and identifiable intangible assets.
Goodwill resulting from business combinations consummated on or before June 30,
2001 is amortized over periods not exceeding 40 years. In accordance with
Canadian Institute of Chartered Accountants (CICA) Handbook Section 3062,
"Goodwill and Other Intangible Assets," for business combinations consummated
after June 30, 2001, identifiable intangible assets with indefinite lives and
goodwill resulting from such business combinations are not amortized.
The carrying values of identifiable intangible assets and goodwill are
reviewed, if certain conditions arise, to determine if any impairment has
occurred. Impairment is determined by comparing the undiscounted amount of
expected future operating cash flows with the carrying amounts of such assets.
Any impairment in the amount of identifiable intangible assets and goodwill is
expensed.
In accordance with other provisions of CICA Handbook Section 3062, which
became effective as of January 1, 2002, identifiable intangible assets with
indefinite lives and goodwill resulting from business combinations that are
consummated on or before June 30, 2001 will no longer be amortized. Such assets,
however, will be subject to tests for impairment at least annually, with such
tests based upon comparisons of carrying amounts to applicable fair values. Any
impairment in the carrying amount of identifiable intangible assets with
indefinite lives and goodwill will be expensed.
DERIVATIVE FINANCIAL INSTRUMENTS
Thomson utilizes hedging arrangements to reduce its currency risk and
interest rate risk exposures. While the hedging 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 derivative contracts 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 exchange contracts designated as hedges for firm commitments or
anticipated transactions are recorded in consolidated earnings when the related
transaction is realized.
F-10
THE THOMSON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The differential paid or received on interest rate swap agreements is
recognized as part of net interest expense.
REVENUE RECOGNITION
Discrete Products
Revenues from sales of discrete products (defined as products that are
separate and distinct from any other product and carry no further substantive
performance obligations on the part of the Company after shipment) are
recognized when delivery has occurred and significant risks and rewards of
ownership have transferred to the customer, provided that the price is fixed or
determinable and ultimate collection is reasonably assured. Revenues from sales
of these products are recognized net of estimated returns.
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.
Software-related Products and Services
Revenues from software-related products are recognized when the following
four criteria are met:
- Persuasive evidence of an arrangement exists;
- Installation (where required) and delivery have occurred;
- The fee is fixed or determinable; and
- Collectibility is probable.
If the above criteria are met, the license fee generally is recognized
ratably on a straight-line basis over the license period. Alternatively, if
there is no associated licensing period, nor future obligations, revenues are
recognized in accordance with the recognition policies described under Discrete
Products above.
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 a majority of service or consulting arrangements, revenues are
recognized using either the percentage-of-completion method of accounting or the
straight-line method. Under the percentage-of-completion method, revenues are
recognized based on a comparison of employee time and other costs incurred to
perform the related services to the total estimated time and costs to be
incurred for the project. Under certain contracts, contractual milestones are
also considered.
STOCK-BASED COMPENSATION PLANS
Thomson has both a Stock Appreciation Rights (SAR) Plan and a stock
incentive plan, which are described in note 19.
Under the SAR plan, compensation expense is recognized as SARs change in
value based on the fair market value of the Company's common stock at the end of
each reporting period.
Under the stock incentive plan, Thomson can grant stock options and other
equity-based awards to certain employees and members of the Thomson Board of
Directors for up to 20,000,000 shares of common stock. The options vest over a
period of four to five years. The maximum term of an option is 10 years from
F-11
THE THOMSON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the date of grant. Options under the plan are granted at the closing price of
the Company's common stock on the day prior to the date of grant. No
compensation expense is recognized with respect to stock options.
DEFERRED INCOME TAXES
Deferred income taxes are determined based on the 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. Deferred income tax
assets are recorded if management determines that it is more likely than not
that such deferred income tax assets will be realized within the foreseeable
future. 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.
RECENTLY ISSUED ACCOUNTING STANDARDS
Effective January 1, 2001, the Company adopted the revised CICA Handbook
Section 3500, "Earnings per Share." As a result of adopting this Section, the
Company now uses the treasury stock method to calculate diluted earnings per
common share. Diluted earnings per common share are computed similar to basic
earnings per common share except that the weighted average number of shares
outstanding is increased to include additional shares from the assumed exercise
of stock options, if dilutive. The number of additional shares is calculated by
assuming that stock options are exercised, and that the Company will use any
proceeds to purchase its common shares at their average market price during the
period. The weighted average shares are increased by the difference between the
number of assumed options exercised and the number of shares purchased by the
Company, as well as any other dilutive securities. Prior year earnings per
common share amounts have been restated to reflect the adoption of this
standard.
In November 2000, the Emerging Issues Committee (EIC) of the CICA issued
EIC-114, "Liability Recognition for Costs Incurred on Purchase Business
Combinations." The consensus reached in EIC-114 must be applied to all business
combinations consummated after December 31, 2000. Under that consensus, costs
related to the acquiring company and certain restructuring and integration costs
may no longer be considered part of the purchase price allocation.
In 2001, the CICA issued Handbook Section 1581, "Business Combinations,"
and Handbook Section 3062, "Goodwill and Other Intangible Assets." Handbook
Section 1581, which Thomson applied to all business combinations occurring on or
after July 1, 2001, institutes new requirements related to the recognition of
certain identifiable intangible assets separate from goodwill.
Handbook Section 3062 requires that goodwill and identifiable intangible
assets with indefinite lives no longer be amortized. Instead, those assets are
subject to periodic impairment tests. Handbook Section 3062 is effective as
follows:
(i) For business combinations occurring before July 1, 2001,
amortization will continue until December 31, 2001. After that date,
carrying amounts of goodwill and identifiable intangible assets with
indefinite useful lives will no longer be amortized.
(ii) For business combinations occurring on or after July 1, 2001,
goodwill and identifiable intangible assets with indefinite useful lives
are not amortized.
The Company recently completed its initial impairment review under the
requirements of Handbook Section 3062 and will recognize a non-cash, after tax
charge directly to opening retained earnings of $67 million in the first quarter
of 2002. The Company anticipates recording an additional transition charge of up
to $100 million in the second quarter in connection with the application of the
new standard by its equity method investees.
F-12
THE THOMSON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In addition to the above, the CICA issued the following additional
pronouncements in 2001:
- Handbook Section 3870, "Stock-Based Compensation and Other Stock-Based
Payments." The new Section is effective for fiscal periods beginning on
or after January 1, 2002 and requires that if an entity does not use the
fair value-based method to account for non-direct stock-based
transactions with employees, the entity must disclose pro-forma net
earnings and earnings per share as if the fair value-based method of
accounting applied. Additionally, this standard provides specific rules
for accounting for stock appreciation rights and stock-based payments to
employees, as well as non-employees.
- Accounting Guideline AcG13, "Hedging Relationships." The Guideline
addresses the identification, designation, documentation and
effectiveness of hedging relationships. It establishes conditions for
applying hedge accounting. The Guideline applies to hedging relationships
in effect in fiscal years beginning on or after July 1, 2002.
- Amended Handbook Section 1650, "Foreign Currency Translation." The
amended section, which becomes effective for fiscal periods beginning on
or after January 1, 2002, eliminates the deferral and amortization of
unrealized translation gains and losses on long-term monetary items.
Thomson has not completed its assessment of the impact of adopting
Accounting Guideline AcG13. The Company has determined that the adoption of
Handbook Sections 3870 and 1650 will have no material effect on the Company's
financial position or results of operations.
COMPARATIVE AMOUNTS
Where necessary, certain amounts for 1999 and 2000 have been reclassified
to conform to the current year's presentation. Reportable segments for all
periods have been reclassified to exclude the operations and other balances of a
newly formed operating segment, Thomson Media, which were previously included in
the Financial group. Thomson Media does not qualify as a reportable segment
under the quantitative thresholds of CICA Handbook Section 1701, "Segment
Disclosures." Additionally, certain investments, as well as goodwill recognized
in connection with the provisions of CICA Handbook Section 3465, "Income Taxes"
which were previously recorded within the Corporate and other business segment,
have been reallocated to the respective market groups and geographic segments.
NOTE 2: NET INTEREST EXPENSE AND OTHER FINANCING COSTS
1999 2000 2001
---- ---- ----
Interest income............................................. 19 17 20
Interest on short-term indebtedness......................... (24) (21) (25)
Interest on long-term debt.................................. (181) (200) (231)
---- ---- ----
(186) (204) (236)
==== ==== ====
Interest paid on short-term indebtedness and long-term debt during 1999,
2000 and 2001 was $201 million, $205 million and $217 million, respectively, and
interest received during 1999, 2000 and 2001 was $17 million, $16 million and
$20 million, respectively.
NOTE 3: INCOME TAXES
In 2000, Thomson adopted the provisions of CICA Handbook Section 3465,
"Income Taxes." The revised tax accounting standard had the effect of lowering
the effective book tax rates with no effect on cash taxes paid. The principal
impact of the standard arises from restating business combinations where, as a
result of purchasing stock, the excess purchase price over the tax basis of the
net assets acquired is not deductible for tax purposes. The comparative earnings
for 1999 have been restated to reflect the amortization of the additional
goodwill and the release of the related additional deferred income tax resulting
from the retroactive adoption of the revised income tax standard.
F-13
THE THOMSON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Components of the provision for income taxes are as follows:
1999 2000 2001
---- ----- -----
Current income tax provision from continuing operations..... (121) (56) (93)
Deferred income tax benefit (provision) from continuing
operations................................................ 58 71 (75)
---- ----- -----
Income tax (provision) benefit.............................. (63) 15 (168)
==== ===== =====
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:
2000 2001
----- -----
Liabilities for differences between book and tax bases of
assets.................................................... 1,440 1,504
Total other assets, net of other liabilities................ (156) (65)
----- -----
Net deferred income tax liability........................... 1,284 1,439
===== =====
The Canadian corporate tax rate is approximately 44% for both 1999 and 2000
and approximately 40% for 2001. The following is a reconciliation of income
taxes calculated at the Canadian corporate tax rate to the income tax
(provision) benefit:
1999 2000 2001
---- ----- -----
Earnings before taxes*...................................... 500 584 902
Income taxes at the Canadian corporate tax rate............. (222) (259) (363)
Differences attributable to:
Non-deductible goodwill amortization...................... (35) (69) (43)
Effect of income recorded at rates lower than the Canadian
tax rate............................................... 132 222 212
Recording of net operating losses not previously
recorded............................................... 30 124 8
Other, net................................................ 32 (3) 18
---- ----- -----
Income tax (provision) benefit on continuing operations..... (63) 15 (168)
==== ===== =====
* Represents earnings from continuing operations before dividends declared
on preference shares, equity in losses of associates and income taxes.
Thomson and its subsidiaries have certain tax loss carryforwards, the
benefit of which has not been recorded in the financial statements. Such tax
loss carryforwards approximate $580 million, the majority of which expire
between 2003 and 2008, with the remainder having an indefinite life. The ability
to realize these benefits is dependent upon a number of factors, including the
future profitability of operations in the jurisdictions in which the tax losses
arose.
NOTE 4: EARNINGS PER COMMON SHARE
Basic earnings per common share are calculated using the weighted average
number of common shares outstanding during the period. Diluted earnings per
common share are calculated using the weighted average number of common shares
outstanding adjusted to include the potentially dilutive effect of outstanding
stock options and other securities. The weighted average number of common shares
outstanding for the year ended December 31, 1999, 2000 and 2001 was 618,092,000,
623,242,191 and 627,747,972, respectively. A reconciliation of the weighted
average number of common shares outstanding used in the basic earnings per
common share and the diluted earnings per common share computations is presented
below.
F-14
THE THOMSON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1999 2000 2001
----------- ----------- -----------
Basic......................................... 618,092,000 623,242,191 627,747,972
Effect of stock incentive plans............... -- 534,114 491,494
----------- ----------- -----------
Diluted....................................... 618,092,000 623,776,305 628,239,466
=========== =========== ===========
NOTE 5: INVENTORIES
Inventories consist of the following:
2000 2001
------ ------
Raw materials............................................... 37 45
Work in process............................................. 40 32
Finished goods.............................................. 155 179
------ ------
232 256
====== ======
NOTE 6: PROPERTY AND EQUIPMENT
2000 2001
------ ------
Land, buildings and building improvements................... 407 470
Furniture, fixtures and equipment........................... 734 786
Computer hardware........................................... 1,044 1,109
Internal-use computer software.............................. 823 1,019
------ ------
3,008 3,384
Accumulated depreciation.................................... (1,629) (1,832)
------ ------
1,379 1,552
====== ======
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 1999, 2000 and 2001 was $386 million, $416
million and $476 million, respectively, of which $101 million, $120 million and
$148 million in 1999, 2000 and 2001, respectively, represented amortization of
capitalized internal-use computer software.
NOTE 7: IDENTIFIABLE INTANGIBLE ASSETS
2000 2001
----- ------
Identifiable intangible assets.............................. 5,597 6,081
Accumulated amortization.................................... (938) (1,160)
----- ------
4,659 4,921
===== ======
The amortization charge in 1999, 2000 and 2001 was $132 million, $167
million and $257 million, respectively.
NOTE 8: GOODWILL
2000 2001
----- -----
Goodwill.................................................... 6,777 8,679
Accumulated amortization.................................... (606) (776)
----- -----
6,171 7,903
===== =====
F-15
THE THOMSON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The amortization charge in 1999, 2000 and 2001 was $126 million, $160
million and $187 million, respectively.
NOTE 9: DEVELOPMENT COSTS
Information relating to development costs associated with internal ventures
is as follows:
1999 2000 2001
---- ---- ----
Expenditures................................................ (135) (108) (47)
Development costs capitalized............................... 110 70 24
Amortization of amounts previously capitalized.............. (93) (99) (79)
---- ---- ----
Net expense................................................. (118) (137) (102)
==== ==== ====
As at December 31, 2000 and 2001, other non-current assets include $110
million and $36 million of unamortized deferred development costs, respectively.
NOTE 10: CAPITALIZED SOFTWARE INTENDED TO BE MARKETED
2000 2001
---- ----
Capitalized software........................................ 89 115
Accumulated amortization.................................... (47) (55)
--- ---
42 60
=== ===
The amortization charge in 1999, 2000 and 2001 was $16 million, $13 million
and $25 million, respectively.
NOTE 11: FINANCIAL INSTRUMENTS
CARRYING AMOUNTS
Amounts recorded in the consolidated balance sheet are referred to as
"carrying amounts" and are based on period-end exchange rates, as applicable.
For non-US dollar denominated debt which is hedged into US dollars by
derivative contracts, the primary debt carrying amounts are reflected in
"Long-term debt" in the consolidated balance sheet. The related receivables or
payables arising from the translation gains and losses on the derivative
contracts, which effectively offset the losses and gains on translation of the
primary debt, are included within "Other non-current liabilities" and "Accounts
payable and accruals" 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 related
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. The fair values of publicly
traded long-term investments are based on quoted market prices. The fair values
of privately held long-term investments are estimated by management. The fair
values represent point-in-time estimates that may not be relevant in predicting
the Company's future earnings or cash flows.
F-16
THE THOMSON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, 2001, a significant portion of the Company's cash was on deposit
with five such institutions.
SHORT-TERM INDEBTEDNESS
Short-term indebtedness is principally comprised of $297 million and $600
million of commercial paper at December 31, 2000 and 2001, respectively. The
average interest rate on this debt was 5.9% and 2.3% for 2000 and 2001,
respectively.
LONG-TERM DEBT
The following is a summary of long-term debt:
CARRYING AMOUNT FAIR VALUE
------------------------------------- -------------------------------------
PRIMARY DEBT CURRENCY SWAP HEDGED PRIMARY DEBT CURRENCY SWAP HEDGED
INSTRUMENTS INSTRUMENTS DEBT INSTRUMENTS INSTRUMENTS DEBT
------------ ------------- ------ ------------ ------------- ------
AS AT DECEMBER 31, 2000
Bank and other............... 756 11 767 756 11 767
10.55% Debentures, due
2001....................... 167 49 216 169 47 216
7.90% Debentures, due 2002... 167 43 210 172 37 209
7.70% Debentures, due 2003... 167 29 196 175 20 195
9.15% Debentures, due 2004... 167 15 182 183 (3) 180
7.95% Debentures, due 2005... 167 19 186 179 5 184
7.15% Debentures, due 2006... 167 18 185 175 8 183
6.50% Debentures, due 2007... 167 13 180 168 9 177
Private placements, due
2001-2010.................. 625 -- 625 645 -- 645
----- --- ----- ----- --- -----
2,550 197 2,747 2,622 134 2,756
===== === =====
Current portion.............. (229) (49) (278)
----- --- -----
2,321 148 2,469
===== === =====
F-17
THE THOMSON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CARRYING AMOUNT FAIR VALUE
------------------------------------- -------------------------------------
PRIMARY DEBT CURRENCY SWAP HEDGED PRIMARY DEBT CURRENCY SWAP HEDGED
INSTRUMENTS INSTRUMENTS DEBT INSTRUMENTS INSTRUMENTS DEBT
------------ ------------- ------ ------------ ------------- ------
AS AT DECEMBER 31, 2001
Bank and other............... 590 2 592 590 10 600
7.90% Debentures, due 2002... 157 53 210 163 45 208
7.70% Debentures, due 2003... 157 39 196 168 26 194
9.15% Debentures, due 2004... 157 25 182 175 2 177
7.95% Debentures, due 2005... 157 29 186 172 10 182
6.20% Debentures, due 2006... 157 9 166 163 10 173
7.15% Debentures, due 2006... 157 28 185 167 12 179
6.50% Debentures, due 2007... 157 23 180 161 12 173
6.55% Medium-term notes, due
2007....................... 283 13 296 291 12 303
6.90% Medium-term notes, due
2008....................... 251 9 260 260 6 266
6.85% Medium-term notes, due
2011....................... 251 3 254 252 7 259
6.20% Notes, due 2012........ 700 -- 700 674 -- 674
Floating rate notes.......... 125 -- 125 125 -- 125
Private placements, due
2002-2010.................. 575 -- 575 612 -- 612
Redeemable preference shares
(note 21).................. 250 -- 250 250 -- 250
----- --- ----- ----- --- -----
4,124 233 4,357 4,223 152 4,375
===== === =====
Current portion............ (473) (56) (529)
----- --- -----
3,651 177 3,828
===== === =====
The floating rate notes will mature on March 20, 2003 and are subject to
extension by the holders for additional one-year periods from March 20, 2003 to
March 22, 2004 and from March 22, 2004 to March 21, 2005. Interest, which is
payable quarterly, is equal to US$ LIBOR plus (i) 0.45% for the period from
issuance through March 19, 2003, (ii) 0.55% for the period from March 20, 2003
through March 21, 2004, and (iii) 0.65% for the period from March 22, 2004
through March 20, 2005.
Bank and other debt at December 31, 2000 and 2001 is primarily US dollar
denominated. The debentures and medium-term notes are Canadian dollar
denominated and are fully hedged into US dollars. The 6.20% Notes, floating rate
notes, private placements and redeemable preference shares are US dollar
denominated. After taking account of hedging arrangements, the carrying amount
of long-term debt, all of which is unsecured, is denominated in the following
currencies:
2000 2001
----- -----
U.S. dollar................................................. 2,664 4,231
Other currencies............................................ 83 126
----- -----
2,747 4,357
===== =====
Maturities of long-term debt after accounting for hedges in each of the
next five years and thereafter are: $529 million in 2002, $323 million in 2003,
$704 million in 2004, $311 million in 2005, $651 million in 2006 and $1,839
million thereafter.
F-18
THE THOMSON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 2001, undrawn bank facilities, which include a bridge loan
facility expiring April 2002 and a revolving credit facility expiring August
2004, amounted to $1,792 million.
In January 2002, Thomson issued $400 million US dollar denominated
principal amount of unsecured notes due February 1, 2008 bearing an annual rate
of interest of 5.75%, payable semi-annually. The net proceeds of $397 million
were principally used to repay existing indebtedness which created sufficient
credit availability under existing bank facilities for the Company to cancel its
$1,500 million bridge loan facility in January 2002.
INTEREST RATE RISK EXPOSURES
Thomson enters into interest rate swap agreements to reduce the impact of
changes in interest rates. Upon issuance, the Company converts certain fixed
rate non-US dollar denominated debt to US dollar floating rate debt via the use
of currency swap instruments. The use of interest rate swaps converts the debt
back to fixed rates. The notional amount of interest rate swap agreements is
used to measure interest to be paid or received and does not represent the
amount of exposure to credit loss. The fair value of interest rate swap
agreements as at December 31, 2000 and 2001 was $21 million and $75 million in
favor of the counterparties, respectively. The Company's notional amounts of
interest rate swaps related to long-term debt as at December 31, 2001 are
summarized as follows:
MATURING IN:
------------------
LESS THAN 1 TO 5
1 YEAR YEARS TOTAL
--------- ------ -----
Notional amounts of interest rate swaps..................... 159 1,093 1,252
After taking account of hedging arrangements, the fixed and floating mix of
long-term debt is as follows:
AVERAGE AVERAGE
INTEREST INTEREST
2000 RATE % SHARE 2001 RATE % SHARE
----- -------- ------- ----- -------- -------
Total fixed........................ 2,103 6.9% 77% 3,760 6.6% 86%
Total floating..................... 644 6.5% 23% 597 3.7% 14%
----- ---- ----- ----
2,747 6.8% 100% 4,357 6.2% 100%
===== ==== ===== ====
Including the effect of short-term indebtedness, the proportion of fixed to
floating rate debt is 76% to 24%, respectively. Floating interest rate long-term
debt is LIBOR-based and, consequently, interest rates are reset periodically.
HEDGES OF NET INVESTMENTS IN FOREIGN AFFILIATES
At December 31, 2000, Thomson had in place a forward exchange contract to
hedge investments in Japanese Yen denominated net assets. The contracted US
dollar equivalent of commitments to sell Japanese Yen was $29 million at
December 31, 2000. The carrying amount and fair value of this contract at
December 31, 2000 were $12 million and $8 million, respectively. During 2001
this contract was closed out, with the difference between carrying value and
fair market value of $4 million increasing the cumulative translation adjustment
account.
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 anticipated transactions that are expected to
occur in less than one year.
At December 31, 2001, the fair value of foreign exchange contracts was
approximately $1 million in favor of Thomson, which consisted of foreign
exchange contracts with gains of $2 million and losses of $1 million.
F-19
THE THOMSON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INVESTMENTS
At December 31, 2000 and 2001, investments accounted for using the equity
method had a carrying amount of $65 million and $501 million, respectively, of
which $380 million in 2001 represents the Company's investment in Bell
Globemedia Inc. (see note 21). Those investments did not have market quotations.
Losses from equity method investments were $50 million in 2001.
Investments accounted for using the cost method totaled $134 million and
$126 million as at December 31, 2000 and 2001, respectively. As at December 31,
2000 and 2001, the estimated fair market value of these investments was $112
million and $126 million, respectively, of which $6 million and $2 million were
publicly traded securities, respectively.
The investments accounted for under both the equity and cost methods are
included in "Other non-current assets" in the consolidated balance sheet.
During 2001, Thomson determined that certain of its investments had
experienced losses in value that were other than temporary. A reduction in the
carrying values of those investments of $100 million for the year ended December
31, 2001 is included in "Net gains on disposals of businesses and investments"
in the consolidated statement of earnings and retained earnings. No such losses
were incurred during the years ended December 31, 1999 and 2000.
NOTE 12: PREFERENCE SHARE CAPITAL
2000 2001
-------------------- --------------------
NUMBER OF STATED NUMBER OF STATED
SHARES CAPITAL SHARES CAPITAL
---------- ------- ---------- -------
Series II.................................... 6,000,000 110 6,000,000 110
Series V..................................... 18,000,000 332 18,000,000 332
--- ---
442 442
=== ===
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.
SERIES II, CUMULATIVE REDEEMABLE PREFERENCE SHARES
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.
SERIES V, CUMULATIVE REDEEMABLE PREFERENCE SHARES
The Series V preference shares are non-voting and were redeemable at the
option of Thomson on January 2, 2002 for Cdn $25.00 per share and are redeemable
thereafter for Cdn $25.50, together with accrued dividends. Through January 1,
2002, dividends were payable quarterly at Cdn $1.25 per share per annum.
Beginning January 1, 2002, dividends will be payable monthly at a rate which
floats in relation to changes in both the Canadian bank prime rate and the
calculated trading price of the Series V preference shares. In no event,
however, will the annual floating dividend rate applicable for a month be less
than 50% of prime or greater than prime. The total number of authorized Series V
preference shares is 18,000,000.
The Series II and Series V Cumulative Redeemable Preference Shares rank
between themselves equally and ratably without preference or priority with
respect to the payment of dividends or the return of capital on the liquidation,
dissolution, or winding-up of the Company.
F-20
THE THOMSON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13: COMMON SHARE CAPITAL AND DIVIDENDS
THOMSON COMMON SHARES
1999 2000 2001
--------------------- --------------------- ---------------------
NUMBER OF STATED NUMBER OF STATED NUMBER OF STATED
SHARES CAPITAL SHARES CAPITAL SHARES CAPITAL
----------- ------- ----------- ------- ----------- -------
Balance at beginning of year... 615,823,077 1,288 621,393,384 1,439 625,764,085 1,593
Issued......................... 5,570,307 151 4,370,701 156 4,976,564 163
Redemption of related Thomson
PLC shares................... -- -- -- (3) -- --
Issuance of Thomson PLC "A"
ordinary shares.............. -- -- -- 1 -- --
----------- ----- ----------- ----- ----------- -----
Balance at end of year......... 621,393,384 1,439 625,764,085 1,593 630,740,649 1,756
=========== ===== =========== ===== =========== =====
The common shares, which have no par value, are voting shares. The
authorized common share capital of Thomson is an unlimited number of shares.
Holders of the common shares may participate in the Dividend Reinvestment
Plan (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. Share issuances made in 1999, 2000 and 2001 consisted of
DRIP of $151 million, $156 million and $160 million, respectively, and $3
million of stock options that were exercised in 2001.
THOMSON PLC COMMON SHARES
Holders of 232,644,452, 5,999,257 and 5,574,476 of Thomson common shares at
December 31, 1999, 2000 and 2001, respectively, also hold the same number of
related common shares of The Thomson Corporation PLC (Thomson PLC) with a par
value of one sterling penny each. The holders of these shares have the
alternative to receive their dividends in pounds sterling from Thomson PLC.
During 1999, 2000 and 2001, 1,202,863, 226,649,141 and 429,164, respectively, of
the Thomson PLC shares were redeemed at par for less than $0.1 million in
aggregate in 1999 and 2001, and $3 million in 2000. The majority of the 2000
redemptions were accounted for by The Woodbridge Company Limited (Woodbridge)
and its affiliates (see note 21).
THOMSON PLC "A" ORDINARY SHARES
In 2000, Thomson PLC issued 10,982,764 "A" ordinary shares with a par value
of four sterling pence each to Woodbridge out of 15 million shares available to
be issued (see note 21). Such shares are entitled to 5% of the votes at general
meetings of the shareholders of Thomson PLC and may be redeemed by Thomson PLC
at any time after January 1, 2004 at their par value. Dividends on these shares
rank pari passu with dividends on the ordinary shares of Thomson PLC and cannot
exceed 5% of the par value thereof, and the holder cannot receive by way of
payment on winding up or return of capital an amount in excess of such par
value.
Included in the stated capital of Thomson at December 31, 1999, 2000 and
2001 is $4 million, $0.7 million and $0.7 million, respectively, related to the
Thomson PLC common and "A" ordinary shares.
DIVIDENDS
Dividends on the Thomson common shares are declared and payable in US
dollars. Dividends declared per common share in 1999, 2000 and 2001 were 65.8
cents, 68.5 cents and 70.0 cents, respectively. Equivalent dividends of 40.2162
pence, 45.0312 pence and 48.5674 pence in 1999, 2000 and 2001,
F-21
THE THOMSON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
respectively, were paid per related common share of Thomson PLC. Shareholders
have the option of receiving dividends on the Thomson common shares in
equivalent Canadian funds.
In the consolidated statement of cash flow, dividends paid on common shares
in 1999, 2000 and 2001 are shown net of $15 million, $9 million and $10 million,
respectively, reinvested in common shares issued under the DRIP and $136
million, $147 million and $150 million, respectively, through private placements
of common shares with the Company's major shareholders. These private
placements, together with the DRIP, satisfied the commitment of the Company's
major shareholders to participate in the DRIP for at least 50% of the dividends
declared on the Thomson common shares directly and indirectly owned by them. The
Company's major shareholders acquired these common shares on the same terms and
conditions under which Thomson issues common shares to shareholders
participating in the DRIP.
NOTE 14: EMPLOYEE FUTURE BENEFITS
Thomson sponsors both defined benefit and defined contribution employee
future benefit plans covering substantially all employees. Effective January 1,
2000, Thomson changed its method of accounting for employee future benefits to
conform with the requirements of CICA Handbook Section 3461, "Employee Future
Benefits." Under the new method, costs for all employee future benefits are
accrued over the periods in which employees earn the benefits.
The change was applied retroactively, on a cumulative adjustment basis,
with no restatement of prior financial statements. As a result of the adoption,
at January 1, 2000, liabilities for employee future benefits were increased by
$118 million and retained earnings were decreased by $78 million, net of tax.
The adoption of the new standard had no material impact on earnings.
DEFINED BENEFIT PLANS
Thomson sponsors defined benefit plans providing pension and other
post-retirement benefits to substantially all employees. The costs of defined
benefit plans are actuarially determined using the projected benefits method
prorated on service and management's best estimates of expected plan investment
performance, increases in salaries, and ages of employees upon retirement. For
the purpose of calculating the expected return on plan assets, those assets are
valued at fair value. Past service costs from plan amendments are amortized on a
straight-line basis over the average remaining service period of employees
active at the date of the amendment. The excess of net actuarial gain (loss)
over 10% of the greater of the benefit obligation and the fair value of the plan
assets is amortized over the average remaining service period of active
employees.
The following significant weighted average actuarial assumptions were
employed to determine the periodic pension and post-retirement plans expense and
the accrued benefit obligations:
OTHER
PENSIONS POST-RETIREMENT PLANS
--------------------- ---------------------
1999(*) 2000 2001 1999(*) 2000 2001
------- ---- ---- ------- ---- ----
Expected long-term rate of return on
plan assets........................... 8.9% 9.0% 8.9% N/A N/A N/A
Discount Rate........................... 7.2% 7.2% 6.8% 7.6% 7.7% 7.2%
Rate of compensation increase........... 4.7% 4.8% 4.9% 5.6% 5.6% 5.6%
---------------
* As Thomson changed its method of accounting for employee future benefits
effective January 1, 2000, the 1999 information is presented for informational
purposes only.
F-22
THE THOMSON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's net defined benefit plan expense (income) is comprised of the
following elements:
{OTHER
PENSIONS POST-RETIREMENT PLANS
--------------------- ---------------------
1999(*) 2000 2001 1999(*) 2000 2001
------- ---- ---- ------- ---- ----
Current service cost....................... 34 32 32 1 1 1
Interest cost.............................. 92 95 101 5 5 6
Expected return on plan assets............. (122) (130) (140) -- -- --
Amortization of net transition
obligation............................... 2 2 2 -- -- --
Amortization of net actuarial (gains)
losses................................... 1 (1) (3) (5) (6) (2)
Amortization of prior service cost......... -- -- 2 -- -- --
Non-routine events......................... -- (6) 14 -- (6) (1)
Change in valuation allowance provided
against accrued benefit asset............ -- 9 (5) -- -- --
---- ---- ---- -- -- --
Net defined benefit plan expense
(income)................................. 7 1 3 1 (6) 4
==== ==== ==== == == ==
---------------
* As Thomson changed its method of accounting for employee future benefits
effective January 1, 2000, the 1999 information is presented for informational
purposes only.
The pension-related non-routine events for 2000 include a curtailment gain
of $8 million and a special termination charge of $2 million. In 2001, the
non-routine events include a curtailment charge of $6 million, a settlement
charge of $5 million and a special termination charge of $3 million. All of the
above amounts relate to the sale of The Globe and Mail and other Thomson
Newspapers operations (see note 22).
In 2000, the non-routine event recorded in connection with other
post-retirement plans was a settlement gain of $6 million related to the sale of
Thomson Newspapers operations. The non-routine events recorded in 2001 consist
of a curtailment gain of $1 million related to the sale of The Globe and Mail
and other Thomson Newspapers operations (see note 22).
The following information summarizes activity in the pension and other
post-retirement benefit plans for the Company:
OTHER POST-
RETIREMENT
PENSIONS PLANS
------------- -----------
2000 2001 2000 2001
----- ----- ---- ----
ACCRUED BENEFIT OBLIGATION
Beginning accrued benefit obligation.................... 1,369 1,411 66 78
Current service cost.................................... 32 32 1 1
Interest cost........................................... 95 101 5 6
Employee contributions.................................. 5 4 1 --
Actuarial losses........................................ 10 49 16 11
Non-routine events...................................... (3) (6) (5) (1)
Acquisitions, net....................................... 20 46 -- 5
Benefits paid........................................... (72) (81) (6) (7)
Translation adjustments................................. (45) (21) -- --
----- ----- ---- ----
Ending accrued benefit obligation....................... 1,411 1,535 78 93
F-23
THE THOMSON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OTHER POST-
RETIREMENT
PENSIONS PLANS
------------- -----------
2000 2001 2000 2001
----- ----- ---- ----
PLAN ASSETS
Beginning fair value of plan assets..................... 1,612 1,750 -- --
Actual return (loss) on plan assets..................... 233 (203) -- --
Employer contributions.................................. 11 14 5 7
Employee contributions.................................. 5 4 1 --
Benefits paid........................................... (72) (81) (6) (7)
Acquisitions, net....................................... 11 8 -- --
Translation adjustments................................. (50) (24) -- --
----- ----- ---- ----
Ending fair value of plan assets........................ 1,750 1,468 -- --
FUNDED STATUS -- SURPLUS (DEFICIT)...................... 339 (67) (78) (93)
Unamortized net actuarial (gain) loss................... (233) 167 (26) (12)
Unamortized past service costs.......................... 2 13 (1) --
Unamortized net transitional obligation................. 2 -- -- --
Fourth quarter activity................................. 3 3 1 2
----- ----- ---- ----
Accrued benefit asset (liability)....................... 113 116 (104) (103)
Valuation allowance..................................... (37) (32) -- --
----- ----- ---- ----
Accrued benefit asset (liability), net of valuation
allowance............................................. 76 84 (104) (103)
===== ===== ==== ====
The accrued benefit obligations of unfunded pension plans at December 31,
2000 and 2001 were $85 million and $121 million, respectively. The accrued
benefit obligations of underfunded plans at December 31, 2000 and 2001 were $33
million and $369 million, respectively, with an associated fair value of plan
assets of $28 million and $340 million, respectively.
The average healthcare cost trend rate used was 6.75%, which is reduced
0.5% per year until 2005. A 1.0% change in the trend rate would result in an
increase or decrease in the accrued benefit obligation for post-retirement
benefits of approximately 9% at December 31, 2001.
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 $43 million in 1999 and 2000,
and $62 million in 2001.
NOTE 15: CONTINGENCIES AND COMMITMENTS
CLAIMS AND LEGAL ACTIONS
At December 31, 2001, certain lawsuits and other claims in the normal
course of business were pending against Thomson. While the outcome of these
matters is subject to future resolution, management's evaluation and analysis of
such matters indicates that, individually and in the aggregate, the probable
ultimate resolution of such matters will not have a material effect on the
Company's consolidated financial statements.
INVESTMENTS AND JOINT VENTURES
The Company has investments in several limited partnerships. Under the
terms of the limited partnership agreements, the Company is required to provide
additional capital contributions of up to $21 million to such limited
partnerships upon written request from the general partners. Additionally, the
Company is a party to a
F-24
THE THOMSON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
joint venture agreement that requires the Company to contribute a maximum of $29
million over the next five years conditional upon the attainment of certain
operational milestones of the joint ventures.
LEASES
Operating lease payments in 1999, 2000 and 2001 were $116 million, $168
million and $193 million, respectively. The future minimum operating lease
payments are $159 million in 2002, $145 million in 2003, $129 million in 2004,
$110 million in 2005, $96 million in 2006 and $298 million thereafter.
NOTE 16: RESTRUCTURING CHARGES
During 1999 and 2000, the Company incurred restructuring charges of $38
million and $21 million, respectively, stemming from strategic initiatives to
rationalize product lines and sales channels, reduce personnel, enhance
administrative efficiencies, and focus on core product and service lines.
Additionally, in 2000, the Company incurred restructuring charges of $16 million
in connection with a plan to reorganize certain businesses within the financial
group as a result of the acquisition of Primark Corporation.
During 2001, the Company recorded restructuring charges of $30 million. In
connection with the integration of the acquired select businesses of Harcourt
General Inc. (Harcourt) into the learning group, $20 million of charges were
recorded, while an additional $2 million of charges were incurred for the
reorganization of certain magazine operations within the scientific and
healthcare group. The remaining $8 million resulted from additional spending in
the legal and regulatory group on strategic initiatives previously approved.
The following table presents an analysis of the total charges incurred by
group:
1999 2000 2001
---- ---- ----
Legal and Regulatory........................................ 10 12 8
Learning.................................................... 8 2 20
Financial................................................... 16 15 --
Scientific and Healthcare................................... -- 4 2
Corporate and other......................................... 4 4 --
-- -- --
38 37 30
== == ==
The following table presents the activity in and balances of the
restructuring liability accounts, included in "Accounts payable and accruals"
and "Other non-current liabilities" in the consolidated balance sheet from
January 1, 1999 through December 31, 2001:
TYPE OF COSTS
-------------------------------------------------------------
CONTRACT
CAPITAL ASSET CANCELLATION OTHER EXIT
WRITE-OFFS SEVERANCE COSTS COSTS TOTAL
------------- --------- ------------ ---------- -----
Balance 1/1/99..................... -- -- -- -- --
Charges............................ 19 14 5 -- 38
Utilization........................ (19) (7) -- -- (26)
--- --- -- -- ---
Balance 12/31/99................... -- 7 5 -- 12
Charges............................ 4 28 2 3 37
Utilization........................ (4) (22) (2) (2) (30)
--- --- -- -- ---
Balance 12/31/00................... -- 13 5 1 19
Charges............................ -- 15 9 6 30
Utilization........................ -- (17) (2) (3) (22)
--- --- -- -- ---
Balance 12/31/01................... -- 11 12 4 27
=== === == == ===
F-25
THE THOMSON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Of the restructuring charges recorded in 1999 and 2000, $19 million and $33
million represented expected cash outlays and $19 million and $4 million
represented non-cash write-offs, respectively. Substantially all of the 2001
restructuring charges recorded represented expected cash outlays. Management
expects that a majority of the initiatives which began in 2001 will be completed
in 2002.
NOTE 17: ACQUISITIONS AND DISPOSALS OF BUSINESSES AND INVESTMENTS
ACQUISITIONS
Businesses were acquired during 1999, 2000 and 2001 for aggregate cash
consideration of $351 million, $2,777 million and $2,355 million, respectively.
Included within the cash consideration for 2000 acquisitions is $243 million
related to the repayment of debt in conjunction with the acquisition of Primark
Corporation. 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. The details of net assets
acquired are as follows:
2001
1999 2000 ------------------------
TOTAL TOTAL HARCOURT OTHER TOTAL
----- ----- -------- ----- -----
Cash and cash equivalents...................... 37 64 1 44 45
Accounts receivable............................ 14 269 83 30 113
Inventory...................................... 15 13 20 4 24
Prepaid expenses and other current assets...... 3 43 8 6 14
Property and equipment......................... 4 230 45 15 60
Identifiable intangible assets................. 88 617 371 63 434
Goodwill....................................... 262 2,498 1,972 244 2,216
Other non-current assets....................... 2 33 25 -- 25
--- ----- ----- ---- -----
Total assets................................... 425 3,767 2,525 406 2,931
--- ----- ----- ---- -----
Accounts payable and accruals.................. (22) (417) (276) (47) (323)
Deferred revenue............................... (26) (190) (97) (43) (140)
Other non-current liabilities.................. (26) (383) (92) (21) (113)
--- ----- ----- ---- -----
Total liabilities.............................. (74) (990) (465) (111) (576)
--- ----- ----- ---- -----
Net assets..................................... 351 2,777 2,060 295 2,355
=== ===== ===== ==== =====
Allocations related to certain acquisitions may be subject to adjustment
pending final valuation.
Aggregate cash consideration relating to investments in businesses totaled
$23 million, $111 million and $109 million in 1999, 2000 and 2001, respectively.
These investments are included in "Other non-current assets" in the consolidated
balance sheet.
Additionally, the Company recorded reserves related to acquisitions
consummated during 2001 totaling $65 million. Those reserves, which were
recorded in accordance with EIC-114, comprise the following costs:
BALANCE
TYPE OF COST INITIAL RESERVE UTILIZATION 12/31/01
------------ --------------- ----------- --------
Severance and other employee-related costs........... 38 (10) 28
Lease cancellation and idle facility costs........... 20 (2) 18
Other exit costs..................................... 7 (2) 5
-- --- --
65 (14) 51
== === ==
In connection with the acquisition of the Harcourt businesses, $52 million
of acquisition reserves were established. Of this amount, $31 million relates to
severance and other employee-related costs, $17 million relates to lease
cancellation and idle facility costs, and $4 million relates to other exit
costs.
F-26
THE THOMSON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following summarizes major acquisitions:
DATE COMPANY DESCRIPTION
---- ------- -----------
September 2001........ NewsEdge Corporation A provider of real-time news and
information products and services to
corporations and professional service
firms worldwide.
July 2001............. Harcourt General Inc. (select Higher education and lifelong learning
businesses) businesses.
June 2001............. First Call Corporation (acquired 48% A provider of real-time, commingled
minority interest not previously owned broker research, analyst estimates,
by Thomson) workflow and technology-based solutions.
September 2000........ Primark Corporation A provider of financial and economic
information products and solutions to
financial, corporate and governmental
decision-makers globally.
September 2000........ The Carson Group A financial information organization
specializing in global shareholder
research and related advisory services.
May 2000.............. Dialog's Information Services Division An online information service provider.
March 2000............ Prometric A provider of computer-based testing and
assessment services
July 1999............. Macmillan Library Reference USA A provider of encyclopedia-type
publications.
July 1999............. Editorial Aranzadi SA A publisher of a wide range of
publications for legal practitioners and
students in Spain.
In 2001, cash consideration of $2,189 million was paid for acquisitions
consummated after June 30, 2001. Those acquisitions are subject to the
provisions of CICA Handbook Section 3062, which require that goodwill and
identifiable intangible assets with indefinite useful lives not be amortized. In
connection with those acquisitions, goodwill of $2,106 million and identifiable
intangible assets of $400 million were recorded. The identifiable intangible
assets are summarized as follows:
WEIGHTED-
AVERAGE
AMORTIZATION
PERIOD
HARCOURT OTHER TOTAL (YEARS)
-------- ----- ----- ------------
Finite useful lives:
Tradenames...................................... -- 11 11 17
Customer relationships.......................... 50 6 56 6
Databases and content........................... 201 -- 201 15
Other........................................... -- 5 5 8
--- -- ---
251 22 273
Indefinite useful lives:
Tradenames...................................... 120 7 127
--- -- ---
371 29 400
=== == ===
NON-CASH ASSET EXCHANGES
In November 2001, Thomson exchanged assets with a fair market value
estimated at $44 million, along with cash consideration of $10 million, for an
investment in i-Deal, a partnership which will automate the process of issuing
securities over the Internet. The resulting loss on this transaction of $9
million is included
F-27
THE THOMSON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
in "Net gains on disposals of businesses and investments" in the consolidated
statement of earnings and retained earnings. The investment is being accounted
for using the equity method of accounting.
In April 2001, Thomson contributed assets with a book value of $32 million
in exchange for a 50% joint venture interest in Omgeo, a global trade processing
business. This transaction had no impact on the consolidated earnings of
Thomson.
In January 2001, Thomson exchanged its interest in The Globe and Mail and
other assets for a 20% equity interest in Bell Globemedia Inc. (BGM), a Canadian
multimedia company. This transaction was recorded at 80% of the estimated fair
value of net assets received, as Thomson continues to maintain a 20% indirect
interest in The Globe and Mail. The resulting net gain of $317 million is
included within "Net gains on disposals of businesses and investments" in the
consolidated statement of earnings and retained earnings. Included in "Income
taxes" in the consolidated statement of earnings and retained earnings is a
charge of $75 million related to the transaction. This investment is being
accounted for using the equity method and is included in "Other non-current
assets" in the consolidated balance sheet. As of December 31, 2001, the
Company's net investment in BGM was $380 million. Additionally, the Company
maintains an associated liability for certain lands to be contributed to BGM on
or before March 31, 2002. There will be no impact on consolidated earnings in
connection with this future contribution, as the lands are recorded at estimated
fair value as of December 31, 2001. As discussed in note 21, Woodbridge is an
investor in BGM.
In 2000, Thomson disposed of a business valued at $49 million via a
non-cash exchange. The resulting loss of $9 million on this disposal is included
within "Net gains on disposals of businesses and investments" in the
consolidated statement of earnings and retained earnings in 2000.
DISPOSALS
Thomson received $412 million, $387 million and $209 million cash
consideration in 1999, 2000 and 2001, respectively, from the disposals of
businesses and investments within the following segments:
1999 2000 2001
---- ---- ----
Legal and Regulatory........................................ 107 -- --
Learning.................................................... 38 76 53
Financial................................................... 154 5 49
Scientific and Healthcare................................... 70 231 105
Corporate and other......................................... 43 75 2
--- --- ---
412 387 209
=== === ===
In April 2001, Thomson sold Jane's Information Group to a subsidiary of
Woodbridge (see note 21). Thomson retained a financial advisor that provided a
fairness opinion on the sale price of $110 million. Accordingly, the transaction
was recorded at this determined fair value. The gain on disposal of $80 million
is included in "Net gains on disposals of businesses and investments" in the
consolidated statement of earnings and retained earnings.
NOTE 18: CUMULATIVE TRANSLATION ADJUSTMENT
An analysis of the cumulative translation adjustment shown separately in
shareholders' equity in the consolidated balance sheet is as follows:
2000 2001
---- ----
Balance at beginning of year................................ (110) (160)
Realized from disposals of businesses....................... -- 66
Translation................................................. (50) (137)
---- ----
Balance at end of year...................................... (160) (231)
==== ====
F-28
THE THOMSON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 19: STOCK-BASED COMPENSATION
STOCK APPRECIATION RIGHTS PLAN
Thomson has a Stock Appreciation Rights (SAR) plan that provides for the
granting of SARs 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, 2001, the authorized number of SARs was
20,500,000 and there were 3,261,870 units available for grant. Thomson
recognized expense of $16 million and $55 million for the years ended December
31, 1999 and 2000, respectively, and recognized a benefit of $14 million related
to the SAR plan for the year ended December 31, 2001 in the consolidated
statement of earnings and retained earnings.
A summary of the status of the Thomson SAR plan as of December 31, 1999,
2000 and 2001, and changes during the years ended on those dates is as follows:
1999 2000 2001
-------------------------- --------------------------- --------------------------
CANADIAN $ CANADIAN $ CANADIAN $
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
SARS EXERCISE PRICE SARS EXERCISE PRICE SARS EXERCISE PRICE
--------- -------------- ---------- -------------- --------- --------------
Outstanding at beginning of
year..................... 6,843,987 27.30 5,907,854 28.28 4,393,204 31.11
Granted.................... 17,500 44.09 377,940 47.28 225,117 48.45
Exercised.................. (711,958) 21.26 (1,148,398) 25.30 (675,837) 27.46
Cancelled.................. (241,675) 22.56 (744,192) 25.81 (517,740) 30.14
--------- ---------- ---------
Outstanding at end of
year..................... 5,907,854 28.28 4,393,204 31.11 3,424,744 33.11
========= ========== =========
Exercisable at end of
year..................... 1,770,048 26.50 1,344,958 29.09 1,710,169 30.23
========= ========== =========
The following table summarizes information on SARs outstanding at December
31, 2001:
SARS OUTSTANDING SARS EXERCISABLE
---------------------------------------------------- ---------------------------------
NUMBER WEIGHTED-AVERAGE CANADIAN $ NUMBER CANADIAN $
OUTSTANDING AT REMAINING WEIGHTED-AVERAGE EXERCISABLE AT WEIGHTED-AVERAGE
CANADIAN $ RANGE OF EXERCISE PRICES 12/31/01 CONTRACTUAL LIFE EXERCISE PRICE 12/31/01 EXERCISE PRICE
----------------------------------- -------------- ---------------- ---------------- -------------- ----------------
16.00 -- 17.25................ 36,700 2.8 17.04 26,200 16.98
21.77 -- 32.125............... 1,327,453 3.9 22.65 798,311 22.88
35.00 -- 44.50................ 1,674,534 6.6 37.36 845,432 36.30
48.40 -- 57.45................ 386,057 9.5 52.18 40,226 57.40
STOCK INCENTIVE PLAN
On January 24, 2000, the Board of Directors approved the adoption of a
stock incentive plan. As of December 31, 2000 and 2001 there were 15,540,940 and
12,772,187 shares available for grant, respectively.
F-29
THE THOMSON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the status of the stock incentive plan as of December 31, 2000 and
2001, and changes during the years ended on those dates is as follows:
2000 2001
-------------------------- --------------------------
CANADIAN $ CANADIAN $
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
--------- -------------- --------- --------------
Outstanding at beginning of year......... -- -- 4,459,060 50.02
Granted.................................. 4,511,560 49.91 2,939,453 48.45
Exercised................................ -- -- (100,000) 41.00
Cancelled................................ (52,500) 41.00 (170,700) 47.18
--------- ---------
Outstanding at end of year............... 4,459,060 50.02 7,127,813 49.56
========= =========
Exercisable at end of year............... -- -- 932,781 51.42
========= =========
The following table summarizes information on stock options outstanding at
December 31, 2001:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------- ---------------------------------
NUMBER WEIGHTED-AVERAGE CANADIAN $ NUMBER CANADIAN $
OUTSTANDING AT REMAINING WEIGHTED-AVERAGE EXERCISABLE AT WEIGHTED-AVERAGE
CANADIAN $ RANGE OF EXERCISE PRICES 12/31/01 CONTRACTUAL LIFE EXERCISE PRICE 12/31/01 EXERCISE PRICE
----------------------------------- -------------- ---------------- ---------------- -------------- ----------------
41.00 -- 44.40................ 1,771,800 8.1 41.02 332,400 41.00
45.90 -- 48.40................ 2,828,283 9.9 48.37 -- --
50.25 -- 57.45................ 2,527,730 9.0 56.89 600,381 57.19
NOTE 20: SUPPLEMENTAL CASH FLOW INFORMATION
Details of "Changes in working capital and other items" in the consolidated
statement of cash flow are:
1999 2000 2001
---- ---- ----
Accounts receivable......................................... (99) (42) (50)
Inventories................................................. (11) 4 (3)
Prepaid expenses and other current assets................... 10 (26) (17)
Accounts payable and accruals............................... (6) (41) (13)
Deferred revenue............................................ 38 (12) (5)
Income taxes................................................ 30 (147) 226
Other....................................................... (48) (67) (60)
--- ---- ---
(86) (331) 78
=== ==== ===
Income taxes paid during 1999, 2000 and 2001 were $91 million, $829 million
and $141 million, respectively. The amount paid in 2000 included $605 million
related to the sale of Thomson Newspapers. The amount paid in 2001 included $72
million related to the sale of Augusta Newsprint Company. Income tax refunds
received during 2000 and 2001 were $49 million and $172 million, respectively.
See note 22 for discussion of Augusta Newsprint Company and Thomson Newspapers.
NOTE 21: RELATED PARTY TRANSACTIONS
Through Woodbridge and its affiliates, the Thomson family owns
approximately 73% of the common shares of Thomson. During the years ended
December 31, 2001 and 2000, Thomson entered into the following transactions with
Woodbridge:
On April 4, 2001, Thomson sold Jane's Information Group to a subsidiary of
Woodbridge (see note 17) and, on September 7, 2001, Thomson sold its 50 percent
interest in Augusta Newsprint Company to Woodbridge (see note 22).
F-30
THE THOMSON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In February 2001, a subsidiary of Woodbridge purchased $250 million of
preferred shares of a subsidiary of Thomson, which pay annual cumulative
dividends at 4.6%. In February 2002, the shares were exchanged for a separate
preferred issuance in the same face amount. These new shares pay a fixed annual
dividend of 4.5%, and are redeemable at the option of either Woodbridge or the
Company beginning February 2006 and annually thereafter. At December 31, 2001,
the preference shares were included within "Long-term debt" in the consolidated
balance sheet, as they were refinanced in February 2002 with new preference
shares due in 2006.
On January 9, 2001, Thomson completed a transaction with BCE Inc. and
Woodbridge in which Thomson exchanged its interest in The Globe and Mail and
other related assets for a 20% equity interest in a new multimedia company, Bell
Globemedia Inc. (see note 17). Woodbridge holds a 9.9% interest in Bell
Globemedia Inc.
In October 2000, Woodbridge subscribed in cash for 10,982,764 "A" ordinary
shares of Thomson PLC with a par value of four sterling pence each for $0.6
million. In November 2000, Thomson PLC redeemed 226,223,830 of the common shares
of Thomson PLC held by Woodbridge and its affiliates at their aggregate
redemption price at par for $3 million (see note 13).
NOTE 22: DISCONTINUED OPERATIONS
On February 15, 2000, Thomson announced its intention to sell the newspaper
interests of Thomson Newspapers (TN). The primary activities of TN were the
publishing of daily and non-daily newspapers, and other advertising and
specialty publications in the US and Canada. The results, cash flows, and assets
and liabilities of TN have been accounted for as a discontinued operation.
During 2000, Thomson sold 51 of the 54 publications that had previously
been identified for sale for proceeds of $2,473 million. During 2001, the
remaining three publications were sold for proceeds of $121 million.
Additionally, Thomson sold its 50% interest in Augusta Newsprint Company, a
newsprint mill in Augusta, Georgia, to Woodbridge for $190 million. Thomson
retained a financial advisor that provided a fairness opinion on the sales
price. Accordingly, the sale of Augusta Newsprint Company was recorded at that
determined fair value.
The earnings from discontinued operations are summarized below:
1999 2000 2001
---- ----- ----
Revenues from discontinued operations....................... 817 592 135
=== ===== ===
Earnings from operations before income taxes................ 139 62 27
Income taxes................................................ (16) -- (12)
--- ----- ---
Earnings from operations.................................... 123 62 15
Gain on sale of discontinued operations..................... -- 1,053 173
Tax on gain................................................. -- (463) (96)
--- ----- ---
Net gain on sale of discontinued operations................. -- 590 77
--- ----- ---
Earnings from discontinued operations....................... 123 652 92
=== ===== ===
Operating loss before amortization, restructuring charges and Year 2000
costs during the period from January 1, 2000 to the measurement date of February
15, 2000 was $7 million.
At December 31, 2000, non-current assets of discontinued operations
principally comprised property and equipment, identifiable intangible assets and
goodwill.
F-31
THE THOMSON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 23: YEAR 2000
During 1999 and the first quarter of 2000, Thomson incurred costs in
connection with the "Year 2000" issue. That issue related to concerns that most
computer programs recognize an applicable year by its last two digits, rather
than all four; as a result, concerns existed that any computer having
time-sensitive software may not have accurately recognized the turn of the
century. As Thomson incurred costs to address the Year 2000 issue, costs
relating to maintenance and modification were expensed as incurred, while the
costs of new hardware and software with future benefits were capitalized and are
being amortized over their useful lives. In 1999 and 2000, Thomson expensed $91
million and $4 million, respectively, of such costs against continuing
operations.
NOTE 24: SEGMENTED INFORMATION
See pages F-7 and F-8.
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. The Company's four
reportable segments are:
LEGAL AND REGULATORY
Providing integrated information and solutions to legal, tax, accounting,
intellectual property, compliance and business professionals.
LEARNING
Providing integrated learning products, services and solutions to
individuals, post-secondary learning institutions and businesses.
FINANCIAL
Providing integrated information and workflow solutions to the worldwide
financial community.
SCIENTIFIC AND HEALTHCARE
Providing integrated information, services and solutions to researchers and
other professionals in the healthcare, academic, scientific and governmental
marketplaces.
In connection with the 2001 decision to retain and manage as an independent
group certain Thomson Financial businesses previously held for sale, a new
operating segment known as Thomson Media was established. As Thomson Media does
not meet the quantitative thresholds to be considered a reportable segment, it
is included within the Corporate and other category. Segmented information for
1999 and 2000 has been reclassified on the same basis.
Additionally, certain investments, as well as goodwill recognized in
connection with the provisions of CICA Handbook Section 3465, "Income Taxes"
previously recorded within the Corporate and other business segment have been
reallocated to the respective market groups.
NOTE 25: SUBSEQUENT EVENTS (UNAUDITED)
On May 2, 2002, Thomson filed a preliminary prospectus with securities
regulatory authorities in Canada, and, pursuant to the Canada/United States of
America multi-jurisdictional disclosure system, a registration statement with
the U.S. Securities and Exchange Commission, in connection with a proposed
public offering of common shares in the United States by Thomson and its
principal shareholder, The Woodbridge Company Limited. Thomson will not receive
any proceeds from the sale of shares by Woodbridge. Proceeds received by Thomson
will be used for general corporate purposes including the repayment of existing
indebtedness. Thomson expects this offering to be completed by the end of the
second
F-32
THE THOMSON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
quarter 2002 and, in connection with the offering, has applied to list its
common shares on the New York Stock Exchange.
Concurrent with the U.S. listing, Thomson will redeem the related common
shares of Thomson PLC, its wholly owned UK subsidiary. Holders of the Thomson
PLC common shares, which have a par value of one sterling penny each, will
receive a notice specifying how these shares will be redeemed. This decision
reflects the comparatively few Thomson PLC shares outstanding and the
administrative and other costs required to maintain this share structure. The
anticipated impact of the redemption on the consolidated financial statements is
not expected to be material.
Additionally, on May 2, 2002, Woodbridge announced the extension of its
commitment to reinvest at least 50% of the dividends received by it and its
subsidiaries in newly issued common shares under the Thomson dividend
reinvestment plan for a further three years to June 2005. The commitment was
originally made in June 1989, has since been extended twice, and was scheduled
to expire in June 2002.
F-33
THE THOMSON CORPORATION
RECONCILIATION TO GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
IN THE UNITED STATES OF AMERICA
FOR THE YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001
AND AS AT DECEMBER 31, 2000 AND 2001
F-34
The consolidated financial statements of The Thomson Corporation (the
"Company") have been prepared in accordance with generally accepted accounting
principles in Canada ("Canadian GAAP"), which differ in some respects from
generally accepted accounting principles in the United States of America ("U.S.
GAAP"). The following schedule presents the material differences between
Canadian and U.S. GAAP. As noted in Note 2, the Consolidated Statement of Income
for 1999 does not include all information required to be presented.
THE THOMSON CORPORATION
RECONCILIATION TO GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
IN THE UNITED STATES OF AMERICA
(MILLIONS OF U.S. DOLLARS, EXCEPT PER COMMON SHARE AMOUNTS)
FOR THE YEAR ENDED
DECEMBER 31,
----------------------
NOTES 1999 2000 2001
----- ----- ------ -----
Net income attributable to common shares under Canadian
GAAP...................................................... 532 1,223 749
Differences in GAAP increasing/(decreasing) reported net
income:
Dividends declared on preference shares................... 8 28 28 27
Development costs......................................... 4 5 29 74
Identifiable intangible assets and goodwill............... 5 (65) 91 (121)
Employee benefits......................................... 7 4 -- --
Related party transactions................................ 9 -- -- (169)
Derivative instruments and hedging activities............. 11 -- -- (31)
Income taxes.............................................. 6 (19) (39) 23
----- ------ -----
Net income under U.S. GAAP.................................. 485 1,332 552
----- ------ -----
Other comprehensive income:
Foreign currency translation.............................. (26) (50) (71)
Unrealized net gains/(losses) on marketable securities
(net of taxes in 1999 -- $22; 2000 -- $(22);
2001 -- $0)............................................ 10 93 (115) 22
Minimum pension liability (net of taxes in 2001 -- $2).... 7 -- -- (5)
Cumulative effect of adoption of SFAS 133 (net of taxes in
2001 -- $0)............................................ 11 -- -- 15
Net unrealized losses on SFAS 133 cash flow hedges (net of
taxes in 2001 -- $0)................................... 11 -- -- (10)
----- ------ -----
67 (165) (49)
----- ------ -----
Other comprehensive income.................................. 552 1,167 503
===== ====== =====
Basic and diluted earnings per common share, calculated
before other comprehensive income items, under U.S.
GAAP...................................................... 8 $0.74 $ 2.09 $0.84
===== ====== =====
{AS AT
DECEMBER 31,
-------------
NOTES 2000 2001
----- ----- -----
Shareholders' equity as reported under Canadian GAAP........ 7,818 8,220
Differences in GAAP increasing/(decreasing) reported
shareholders' equity:
Development costs......................................... 4 (110) (36)
Identifiable intangible assets and goodwill............... 5 (532) (653)
Minimum pension liability................................. 7 -- (7)
Marketable securities..................................... 10 (22) --
Derivative instruments and hedging activities............. 11 -- (26)
Income taxes.............................................. 6 158 183
----- -----
Shareholders' equity under U.S. GAAP........................ 7,312 7,681
===== =====
The accompanying notes are an integral part of this schedule.
F-35
The following schedule presents the Consolidated Statement of Income in
accordance with U.S. GAAP, which differs from the presentation used in the
Company's primary financial statements. As noted in Note 2, 1999 does not
include a breakout of selling, marketing and corporate expenses.
THE THOMSON CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(MILLIONS OF U.S. DOLLARS, EXCEPT PER COMMON SHARE AMOUNTS)
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1999 2000 2001
------------------ ------------------ ------------------
CANADIAN U.S. CANADIAN U.S. CANADIAN U.S.
NOTES GAAP GAAP GAAP GAAP GAAP GAAP
------- -------- ------- -------- ------- -------- -------
Revenues.......................... 1 5,752 5,752 6,514 6,514 7,237 7,237
Costs & expenses:
Operating expenses.............. 2,4,5,7 (4,345) (4,375) (3,793) (3,804) (4,161) (4,188)
Selling, marketing and corporate
expenses..................... 2 -- -- (1,187) (1,187) (1,290) (1,290)
Depreciation.................... (386) (386) (416) (416) (476) (476)
Amortization.................... 5 (258) (290) (327) (360) (444) (476)
Restructuring charges........... (38) (38) (37) (37) (30) (30)
Year 2000 costs................. (91) (91) (4) (4) -- --
------- ------- ------- ------- ------- -------
(5,118) (5,180) (5,764) (5,808) (6,401) (6,460)
------- ------- ------- ------- ------- -------
Operating profit.................. 634 572 750 706 836 777
Net gains on disposals of
businesses and investments...... 5,9 52 63 38 62 302 228
Net interest expense and other
financing costs................. 11 (186) (186) (204) (204) (236) (267)
------- ------- ------- ------- ------- -------
Income from continuing operations
before income taxes............. 500 449 584 564 902 738
(Provision)/benefit for income
taxes........................... 6 (63) (84) 15 25 (168) (145)
Equity in losses of equity-method
investees, net of tax........... -- -- -- -- (50) (50)
Dividends declared on preference
shares.......................... 8 (28) -- (28) -- (27) --
------- ------- ------- ------- ------- -------
Income from continuing
operations...................... 409 365 571 589 657 543
Income from discontinued
operations...................... 5,9 123 120 652 743 92 9
------- ------- ------- ------- ------- -------
Net income........................ 532 485 1,223 1,332 749 552
Dividends declared on preference
shares.......................... 8 -- (28) -- (28) -- (27)
------- ------- ------- ------- ------- -------
Net income attributable to common
shareholders.................... 532 457 1,223 1,304 749 525
======= ======= ======= ======= ======= =======
Basic and diluted earnings per
common share:................... 8
Continuing operations........... $ 0.66 $ 0.55 $ 0.92 $ 0.90 $ 1.05 $ 0.82
Discontinued operations......... 0.20 0.19 1.04 1.19 0.14 0.02
------- ------- ------- ------- ------- -------
Net income per common share....... $ 0.86 $ 0.74 $ 1.96 $ 2.09 $ 1.19 $ 0.84
======= ======= ======= ======= ======= =======
The accompanying notes are an integral part of this schedule.
F-36
The following is a listing of accounts in the Company's Consolidated
Balance Sheet affected by the differences between Canadian and U.S. GAAP:
THE THOMSON CORPORATION
SELECT BALANCE SHEET ACCOUNTS
(MILLIONS OF U.S. DOLLARS)
AS AT DECEMBER 31,
-----------------------------------------------
2000 2001
---------------------- ----------------------
U.S. U.S.
NOTES CANADIAN GAAP GAAP CANADIAN GAAP GAAP
--------- ------------- ------ ------------- ------
Identifiable intangible assets,
net................................ 5 4,659 4,293 4,921 4,536
Goodwill, net........................ 5 6,171 5,888 7,903 7,594
Other non-current assets............. 4,10 827 706 1,263 1,227
Total assets......................... 15,699 14,929 18,402 17,672
Accounts payable and accruals........ 5 1,626 1,591 1,855 1,846
Long-term debt....................... 11 2,321 2,321 3,651 3,688
Other non-current liabilities........ 5,7,11 1,264 1,193 1,262 1,226
Deferred income taxes................ 6 1,284 1,126 1,439 1,256
Total liabilities.................... 7,881 7,617 10,182 9,991
Additional paid-in capital........... 9 -- -- -- 169
Retained earnings.................... 5,943 5,459 6,253 5,545
Accumulated comprehensive income..... 3,7,10,11 (160) (182) (231) (231)
Total shareholders' equity........... 7,818 7,312 8,220 7,681
Total liabilities and shareholders'
equity............................. 15,699 14,929 18,402 17,672
The accompanying notes are an integral part of this schedule.
F-37
THE THOMSON CORPORATION
NOTES TO RECONCILIATION TO GAAP IN THE UNITED STATES OF AMERICA
(MILLIONS OF U.S. DOLLARS, EXCEPT PER COMMON SHARE AMOUNTS)
1. REVENUES
The Company sells information and content to its customers in various
formats and utilizes several methods of delivery (e.g., print, CD-ROM, dedicated
transmission lines, Internet, etc.). The Company considers the sale of
information, no matter what the form and method of distribution to be revenues
from tangible products, as presented in its Consolidated Statement of Income.
Consulting, advertising and other services provided by the Company comprise less
than 10% of total revenues.
2. COSTS & EXPENSES
Included in Operating Expenses are costs and expenses associated with the
Company's operating units, except for selling, marketing and promotion expenses
and the headquarters costs of these units. Such costs and expenses are included
under Selling, Marketing and Corporate Expenses along with the Company's
corporate expenses. U.S. GAAP requires operating and selling, general and
administrative type costs to be separately disclosed. Segmentation of 1999 costs
into these categories was not available.
3. ACCUMULATED COMPREHENSIVE INCOME
Under Canadian GAAP, the cumulative translation adjustment is shown
separately in shareholders' equity in the Company's Consolidated Balance Sheet,
whereas under U.S. GAAP the adjustment is reported within Accumulated
Comprehensive Income. For presentation purposes, the cumulative translation
adjustment, for Canadian GAAP, is included under the caption Accumulated
Comprehensive Income in the Select Balance Sheet Accounts schedule.
4. DEVELOPMENT COSTS
Under Canadian GAAP, certain costs classified as development are deferred
and amortized over their estimated useful lives. Under U.S. GAAP, all
development costs are expensed as incurred. The difference between U.S. GAAP and
Canadian GAAP represents the gross development costs capitalized in the
respective year, net of the reversal of amortization expense recorded for
Canadian GAAP relating to amounts previously capitalized.
5. IDENTIFIABLE INTANGIBLE ASSETS AND GOODWILL
Under U.S. GAAP, the allocation of the purchase price of acquisitions prior
to January 1, 2001, and amortization of intangible assets differs from Canadian
GAAP. These historical differences primarily relate to (i) costs that are
required to be recorded as operating expenses under U.S. GAAP, which, prior to
January 1, 2001 (the effective date of the Emerging Issues Committee 114,
"Liability Recognition for Costs Incurred on Purchase Business Combinations,"
which conforms Canadian GAAP to U.S. GAAP), were capitalized under Canadian
GAAP; (ii) a gain resulting from a 1997 disposal mandated by the U.S. Department
of Justice which has been treated as a reduction of goodwill under Canadian
GAAP; (iii) overall increased amortization charges; and (iv) differences in gain
or loss calculations on business disposals resulting from the above factors.
F-38
THE THOMSON CORPORATION
NOTES TO RECONCILIATION TO GAAP IN THE UNITED STATES OF AMERICA -- (CONTINUED)
(MILLIONS OF U.S. DOLLARS, EXCEPT PER COMMON SHARE AMOUNTS)
Following were the significant identifiable intangible asset balances as at
December 31, as accounted for under U.S. GAAP:
2000 2001
------ ------
Trade names................................................. 1,263 1,415
Customer lists and relationships............................ 1,470 1,615
Databases and content....................................... 839 1,100
Publishing rights........................................... 1,800 1,732
Other....................................................... 225 219
------ ------
Identifiable intangible assets -- gross..................... 5,597 6,081
Less: accumulated amortization.............................. (1,304) (1,545)
------ ------
Identifiable intangible assets -- net....................... 4,293 4,536
====== ======
See note 17 for discussion of new accounting standard relating to
intangible assets and goodwill.
6. INCOME TAXES
On January 1, 2000, the Company adopted The Canadian Institute of Chartered
Accountants (CICA) Handbook Section 3465, "Income Taxes," on a retroactive basis
with restatement. The new accounting standard is substantially similar to U.S.
GAAP. Adjustments to the net deferred tax liability balances on the balance
sheet only relate to the tax effects of other U.S. GAAP reconciling items.
One difference between the two standards is that, under Canadian GAAP,
disclosure of a deferred tax asset is not required when management believes it
is more likely than not that the asset will not be realized. U.S. GAAP requires
disclosing the gross components of deferred tax assets and reflecting a
valuation allowance if it is more likely than not that the asset will not be
realized. The table below disclosing the Company's deferred tax assets and
liabilities reflects the U.S. GAAP requirements.
Another difference between the two standards is that, under Canadian GAAP,
changes to future tax rates need only be substantially enacted to be considered,
whereas for U.S. GAAP, changes to future rates must be enacted by law. This
difference did not have a material impact on the U.S. GAAP presentation as
discussed in these notes.
F-39
THE THOMSON CORPORATION
NOTES TO RECONCILIATION TO GAAP IN THE UNITED STATES OF AMERICA -- (CONTINUED)
(MILLIONS OF U.S. DOLLARS, EXCEPT PER COMMON SHARE AMOUNTS)
The components of income/(loss) from continuing operations before provision
for income taxes on a U.S. GAAP basis are as follows:
YEAR ENDED DECEMBER 31,
-------------------------
1999 2000 2001
----- ------- -------
Canada...................................................... (168) (148) (157)
U.S. and other jurisdictions................................ 617 712 895
---- ------ ------
Total..................................................... 449 564 738
==== ====== ======
The provision/(benefit) for income taxes consists of:
Canadian income taxes:
Current................................................... 1 1 1
Deferred.................................................. -- (105) 75
---- ------ ------
Total Canadian.............................................. 1 (104) 76
U.S. and other jurisdictions' income taxes:
Current................................................... 120 55 92
Deferred.................................................. (37) 24 (23)
---- ------ ------
Total U.S. and other jurisdictions.......................... 83 79 69
---- ------ ------
Total worldwide........................................ 84 (25) 145
==== ====== ======
The deferred tax assets/(liabilities) as at December 31, on a U.S. GAAP
basis consisted of the following items:
2000 2001
------ ------
Acquisition reserves........................................ 58 89
Accrued expenses............................................ 111 181
Financial instruments....................................... 83 101
Investments................................................. 81 28
Tax loss and credit carryforwards........................... 323 349
Other....................................................... 189 197
------ ------
Total deferred tax asset.................................. 845 945
Valuation allowance......................................... (280) (355)
------ ------
Net deferred tax asset.................................... 565 590
Intangible assets........................................... (1,426) (1,495)
Fixed assets................................................ (94) (135)
Other....................................................... (171) (216)
------ ------
Total deferred tax liability.............................. (1,691) (1,846)
------ ------
Net deferred tax liability.................................. (1,126) (1,256)
====== ======
The valuation allowances of $280 and $355 at December 31, 2000 and 2001,
respectively, relate primarily to Canadian and United Kingdom net operating loss
carryforwards (NOLCs). The valuation allowances reflect management's belief that
it is more likely than not that a portion of these assets will not be realized.
The increase in the valuation allowance from 2000 to 2001 primarily relates to
additional Canadian net operating losses sustained in 2001. At December 31,
2001, the Company had Canadian NOLCs of $533 and NOLCs in other jurisdictions of
$47. The Canadian NOLCs will expire, if not previously utilized, as
F-40
THE THOMSON CORPORATION
NOTES TO RECONCILIATION TO GAAP IN THE UNITED STATES OF AMERICA -- (CONTINUED)
(MILLIONS OF U.S. DOLLARS, EXCEPT PER COMMON SHARE AMOUNTS)
follows: 2003 -- $62; 2004 -- $59; and the majority of the remainder in 2007 and
2008. The majority of the NOLCs from other jurisdictions may be carried forward
indefinitely.
The following is a reconciliation of the income taxes calculated at the
Canadian corporate tax rate (44% in 1999 and 2000 and 40% in 2001) with the
income tax provision/(benefit):
1999 2000 2001
---- ---- ----
Income from continuing operations before income taxes....... 449 564 738
==== ==== ====
Income taxes at Canadian corporate tax rate................. 199 250 297
Differences attributable to:
Non-deductible goodwill amortization...................... 33 65 39
Effect of income recorded at rates lower than the Canadian
tax rate............................................... (189) (280) (225)
Changes in valuation allowances........................... 30 (63) 48
Other, net................................................ 11 3 (14)
---- ---- ----
Income tax provision/(benefit).............................. 84 (25) 145
==== ==== ====
The total amount of undistributed earnings of non-Canadian subsidiaries for
income tax purposes was approximately $5.9 billion at December 31, 2001. It is
the Company's intention to reinvest undistributed earnings of its non-Canadian
subsidiaries and, thereby, indefinitely postpone their remittance. Accordingly,
no provision has been made for non-Canadian withholding taxes or Canadian income
taxes that may become payable if undistributed earnings from non-Canadian
subsidiaries were paid as dividends to the Company. The additional taxes on that
portion of the undistributed earnings, which is available for dividends, are not
practicably determinable.
7. EMPLOYEE BENEFITS
On January 1, 2000, the Company adopted CICA Handbook Section 3461,
"Employee Future Benefits," on a cumulative adjustment basis applied
retroactively without restatement of prior years. This Canadian standard is
similar to U.S. GAAP and requires costs for employee future benefits be accrued
over the periods in which employees earn the benefits. Prior to adopting the new
Canadian standard, certain employee future benefits were expensed as incurred.
Under U.S. GAAP, recognition of an additional minimum liability is required
when the accumulated benefit obligation exceeds the fair value of the plan
assets to the extent that such excess is greater than the accrued pension costs
otherwise recorded. No such adjustment is required under Canadian GAAP. There
was no additional minimum pension liability necessary as at December 31, 2000.
At December 31, 2001, an additional minimum pension liability would have been
required under U.S. GAAP.
8. EARNINGS PER COMMON SHARE
The basic and diluted earnings per common share (calculated before other
comprehensive income items) differ from the Canadian GAAP earnings per common
share as a result of the reconciling items in the determination of net income
under U.S. GAAP. In 2000, the Company implemented a stock incentive plan.
Because the number of weighted average options outstanding and other dilutive
securities under the stock incentive plan were immaterial, the diluted earnings
per common share amounts for 2000 and 2001 under U.S. GAAP are reported at the
same amount as the basic earnings per common share amounts under U.S. GAAP.
Under U.S. GAAP, earnings per common share amounts are computed after deducting
from net income $28 of preference share dividends in each of 1999 and 2000 and
$27 of preference share dividends in 2001. Under Canadian GAAP, such dividends
are included as a component of net income.
F-41
THE THOMSON CORPORATION
NOTES TO RECONCILIATION TO GAAP IN THE UNITED STATES OF AMERICA -- (CONTINUED)
(MILLIONS OF U.S. DOLLARS, EXCEPT PER COMMON SHARE AMOUNTS)
9. RELATED PARTY TRANSACTIONS
In April 2001, the Company sold Jane's Information Group to its majority
shareholder, The Woodbridge Company Limited (Woodbridge). Additionally, in
September 2001, the Company sold its 50 percent interest in Augusta Newsprint
Company (Augusta), a discontinued operation, to Woodbridge.
In accordance with Canadian GAAP, the Company recognized gains on these
related party transactions in its Consolidated Statement of Income. Under U.S.
GAAP, such related party gains are not recognizable in the Consolidated
Statement of Income, but rather must be reflected as an equity transaction.
10. MARKETABLE SECURITIES
Under U.S. GAAP, investments with readily determinable fair values, which
are classified as available-for-sale securities, are reported at fair value,
with unrealized gains and losses excluded from income and reported within Other
Comprehensive Income (OCI), net of tax. Under Canadian GAAP, such investments
are recorded at cost, with no adjustments for changes in fair values, unless
management has assessed a decline in value to be other than temporary, for which
a charge to income would be recognized.
Following below is a summary of the amounts recorded to Accumulated
Comprehensive Income and reclassified to income for the periods presented herein
under U.S. GAAP, net of tax:
Accumulated net unrealized gains on marketable securities at
December 31, 1999......................................... 93
Reclassification of net gains to income..................... (43)
Changes in fair value of marketable securities.............. (72)
---
Accumulated net unrealized losses on marketable securities
at December 31, 2000...................................... (22)
Reclassification of net losses to income.................... 22
---
Accumulated net unrealized gains/(losses) on marketable
securities at December 31, 2001........................... --
===
11. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
There are primarily two types of exposures that the Company seeks to hedge
by way of derivative instruments. These are exposures arising from adverse
changes in currency exchange and interest rates. The Company uses currency swap
arrangements to convert its obligations borrowed in currencies other than U.S.
dollars into U.S. dollar amounts. Interest rate swaps are utilized to maintain
an appropriate mix of the Company's debt portfolio between fixed and floating
rates. Under Canadian GAAP, the fair values of these derivative instruments are
disclosed in the notes to the Company's financial statements, but not recorded
in the Company's Consolidated Balance Sheet. In order to reconcile to U.S. GAAP,
effective January 1, 2001, the Company adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS 133), as amended by SFAS 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities." Under SFAS 133, all
derivative instruments are recognized on the balance sheet at their fair values,
and changes in fair value are recognized (i) immediately in income for fair
value hedges or for risk management strategies that do not qualify as, or are
not designated as, hedges; or, (ii) initially in OCI and subsequently
reclassified to income when the transaction being hedged effects income for cash
flow hedges. Any ineffective portion of hedges is recognized in income as it
occurs.
As a result of adopting SFAS 133, and in accordance with the transition
provisions, as of January 1, 2001, the Company recorded a transition credit of
$15 to OCI related to its cash flow hedges. The transition impact on the
Consolidated Statement of Income was not material and, thus, the adoption of
SFAS 133 did not have a material impact on earnings per common share.
F-42
THE THOMSON CORPORATION
NOTES TO RECONCILIATION TO GAAP IN THE UNITED STATES OF AMERICA -- (CONTINUED)
(MILLIONS OF U.S. DOLLARS, EXCEPT PER COMMON SHARE AMOUNTS)
Following is additional information and disclosures concerning derivative
instruments:
CASH FLOW HEDGES
The Company hedges variability in cash flows which arise from changes in
exchange rates of certain non-US dollar denominated debt and floating rate debt,
as well as the effects of changes in exchange rates on forecasted foreign
currency denominated transactions. For cash flow hedges, the effective portion
of the change in fair value of the derivative instrument is recorded in OCI and
reclassified to income when the earnings effects of the hedged item are
recognized in income.
Following below is a summary of the cash flow hedging activity recorded to
OCI and amounts reclassified to income in 2001 (amounts net of tax):
2001
(LOSS)/GAIN
--------------
Cumulative effect of adoption of SFAS 133 on January 1,
2001...................................................... 15
Reclassification of net losses to income.................... 25
Changes in fair value of cash flow hedges................... (35)
---
Accumulated net unrealized gains as at December 31, 2001.... 5
===
The accumulated net unrealized gains as at December 31, 2001, are comprised
of unrealized gains of $47 and unrealized losses of $42. It is expected that the
net impact of amounts reclassified from OCI to income in 2002 will be a benefit
to the Consolidated Statement of Income of approximately $1.
In 2001, there were no forecasted transactions being hedged that failed to
occur. At December 31, 2001, the maximum term of derivative instruments that
hedge forecasted transactions is twelve months.
FAIR VALUE HEDGES
Under SFAS 133, fair value hedges are defined as those that offset the risk
of changes in the fair values of assets, liabilities and firm commitments. For
example, upon issuance, the Company converts certain fixed rate non-US dollar
denominated debt to US dollar floating rate debt via the use of currency swap
instruments. Changes in fair value of derivatives designated and effective as
fair value hedges are recorded in income along with the corresponding change in
the fair value of the hedged item attributable to the risk being hedged.
NON-QUALIFIED DERIVATIVES
SFAS 133 specifies criteria that must be met in order to apply hedge
accounting. Derivatives that do not qualify for hedge accounting are marked to
market through income. The amount of change in fair value of derivatives not
designated as hedges at December 31, 2001, which were required to be marked to
market through income was a loss of $31, and is included in Net Interest Expense
and Other Financing Costs in the Company's Consolidated Statement of Income.
These non-qualified derivatives relate to four interest rate swap agreements.
INCOME EFFECTS OF DERIVATIVES
In the context of hedging relationships, "effectiveness" refers to the
degree to which fair value changes in the hedging instrument offset
corresponding fair value changes in the hedged item. For the year ended December
31, 2001, the ineffective portion of qualifying hedges was not significant.
F-43
THE THOMSON CORPORATION
NOTES TO RECONCILIATION TO GAAP IN THE UNITED STATES OF AMERICA -- (CONTINUED)
(MILLIONS OF U.S. DOLLARS, EXCEPT PER COMMON SHARE AMOUNTS)
12. DEBT MATURITIES
Following are the maturities of long-term debt before accounting for hedges
in each of the next five years and thereafter: $473 in 2002, $284 in 2003, $679
in 2004, $282 in 2005, $614 in 2006 and $1,792 thereafter.
13. CASH FLOW
The Company's Consolidated Statement of Cash Flow is prepared in accordance
with Canadian GAAP, which is consistent with the principles for cash flow
statements in International Accounting Standard No. 7. Accordingly, as permitted
by the Securities and Exchange Commission, a reconciliation of cash flows to
U.S. GAAP has not been provided.
14. ACCOUNTING FOR STOCK BASED COMPENSATION
Under Canadian GAAP, the Company's Stock Incentive Plan is accounted for in
a manner materially similar to U.S. GAAP, APB Opinion 25, "Accounting for Stock
Options Issued to Employees." Had compensation cost for the Company's stock
incentive plans been determined based upon the fair value at the date of grant,
consistent with the methodology prescribed under Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation," the
Company's net income and earnings per share would have been reduced to the
following pro forma amounts:
2000 2001
--------------------- ---------------------
U.S. GAAP PRO FORMA U.S. GAAP PRO FORMA
--------- --------- --------- ---------
Net income................................ 1,332 1,330 552 545
Earnings per common share:
Basic................................... $2.09 $2.09 $0.84 $0.83
Diluted................................. $2.09 $2.09 $0.84 $0.82
These pro forma amounts may not be representative of future disclosures
because the estimated fair value of options is amortized to expense over the
vesting period, and additional options may be granted in future years.
Using the Black-Scholes option pricing model the estimated weighted average
fair value of options granted at date of grant was estimated to be $10.20 in
2000 and $8.56 in 2001. The Black-Scholes model was developed for the use in
estimating the fair value of traded options that have no vesting restrictions.
In addition, such models require the use of subjective assumptions, including
expected stock price volatility. In management's opinion, such valuation models
do not necessarily provide a reliable single measure of the fair value of its
employee stock options. The principal assumptions used in applying the
Black-Scholes option pricing model were as follows:
2000 2001
----- -----
Risk-free interest rate..................................... 5.9% 4.7%
Expected dividend yield..................................... 2.3% 2.1%
Expected stock price volatility............................. 27.9% 26.7%
Expected life (in years).................................... 6 6
No stock options were granted or outstanding in 1999.
15. UNAUDITED PRO FORMA INFORMATION
The following 1999 and 2000 unaudited pro forma information presents the
results of operations of the Company as if the significant 2000 acquisitions had
taken place on January 1, 1999 and 2000, respectively. Additionally, the 2000
and 2001 unaudited pro forma information includes the estimated effect of
significant
F-44
THE THOMSON CORPORATION
NOTES TO RECONCILIATION TO GAAP IN THE UNITED STATES OF AMERICA -- (CONTINUED)
(MILLIONS OF U.S. DOLLARS, EXCEPT PER COMMON SHARE AMOUNTS)
2001 acquisitions as if the acquisitions had occurred on January 1, 2000 and
2001, respectively. For each period shown, the unaudited pro forma information
does not include adjustments to reflect the estimated effects of disposals of
businesses, including the disposal of Mitchell International in April 2000, The
Globe and Mail in January 2001, and Jane's Information Group in April 2001.
Revenues from these and other smaller businesses disposed of over the period
totaled $628 in 1999, $410 in 2000, and $62 in 2001. Refer to Note 17 of the
Company's consolidated financial statements for a description of significant
acquisitions in each year.
The unaudited pro forma results may not be indicative of the results that
would have been reported if the transactions had actually occurred at the
beginning of the respective periods, or of operating results that may be
attained in the future. The following unaudited pro forma information does not
reflect any synergies anticipated by the Company as a result of the
acquisitions, and assumes that the Company would have obtained similar financing
as that which followed the acquisitions. Income from continuing operations is
after income taxes, interest, and amortization charges. The pro forma data
includes the full year effect of each of these items for each significant
acquisition.
1999 2000 2001
--------------------- --------------------- ---------------------
UNAUDITED UNAUDITED UNAUDITED
U.S. GAAP PRO FORMA U.S. GAAP PRO FORMA U.S. GAAP PRO FORMA
--------- --------- --------- --------- --------- ---------
Revenues............. 5,752 6,676 6,514 7,665 7,237 7,614
------ ------ ------ ------ ------ ------
Income from
continuing
operations......... 365 243 589 390 543 452
Income from
discontinued
operations......... 120 120 743 743 9 9
------ ------ ------ ------ ------ ------
Net income........... 485 363 1,332 1,133 552 461
====== ====== ====== ====== ====== ======
Basic and diluted
earnings per common
share.............. $ 0.74 $ 0.54 $ 2.09 $ 1.77 $ 0.84 $ 0.69
====== ====== ====== ====== ====== ======
16. VALUATION ACCOUNT ACTIVITY
The following table presents the activity in the Company's allowances
against accounts receivable for the years ended December 31, 2000 and 2001:
ADDITIONS
-------------------
BEGINNING OF CHARGED TO END OF
YEAR YEAR BALANCE EXPENSE OTHER* WRITE-OFFS YEAR BALANCE
---- ------------ ---------- ------ ------------ ------------
2000........................... 273 379 14 (381) 285
2001........................... 285 425 58 (387) 381
---------------
* Other includes additions from acquisitions, net of reductions from disposals
and impact from foreign currency translation.
17. NEW ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" (SFAS 142). This standard, which must be adopted as of
January 1, 2002, is similar in all material respects to CICA Handbook Section
3062 "Goodwill and Other Intangible Assets," which also must be adopted under
Canadian GAAP as of January 1, 2002. The Company recently completed its initial
impairment review under the requirements of Handbook
F-45
THE THOMSON CORPORATION
NOTES TO RECONCILIATION TO GAAP IN THE UNITED STATES OF AMERICA -- (CONTINUED)
(MILLIONS OF U.S. DOLLARS, EXCEPT PER COMMON SHARE AMOUNTS)
Section 3062 and SFAS 142, and will recognize a charge in its first quarter of
2002 of $67 and $66, net of tax, respectively, associated with its adoption. The
Company anticipates recording an additional transition charge of up to $100 in
the second quarter in connection with the application of the new goodwill and
other intangible assets standard by its equity method investees. These charges
will not affect income under Canadian GAAP because they result from a change in
accounting principle and will be charged directly to retained earnings in the
Consolidated Balance Sheet, but under U.S. GAAP these amounts will be charged to
income.
Statement of Financial Accounting Standards No. 143, "Accounting for Asset
Retirement Obligations" (SFAS 143), was issued in June 2001. SFAS 143
establishes accounting and reporting standards for obligations associated with
the retirement of tangible long-lived assets. For purposes of its reconciliation
to U.S. GAAP, the Company is required to adopt SFAS 143 as of January 1, 2003.
The adoption of this standard is not expected to have a material impact on the
Company's financial position or results of operations.
In August 2001, the FASB issued Statement of Financial Accounting Standards
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS
144). For purposes of its reconciliation to U.S. GAAP, the Company is required
to adopt SFAS 144 as of January 1, 2002. The Company has determined that
adoption of the Statement will not have a material effect on the Company's
financial position or results of operations, but may result in certain future
disposals being classified as discontinued operations.
F-46
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SHARES
LOGO
THE THOMSON CORPORATION
COMMON SHARES
------------------------
PROSPECTUS
------------------------
MERRILL LYNCH & CO. MORGAN STANLEY
RBC CAPITAL MARKETS BEAR, STEARNS & CO. INC. CREDIT SUISSE FIRST BOSTON
GOLDMAN, SACHS & CO. TD SECURITIES UBS WARBURG
, 2002
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
PART II
INFORMATION NOT REQUIRED TO BE DELIVERED TO OFFEREES OR PURCHASERS
INDEMNIFICATION
Under the Business Corporations Act (Ontario), The Thomson Corporation (the
"Corporation") may indemnify a present or former director or officer or a person
who acts or acted at the Corporation's request as a director or officer of
another corporation of which the Corporation is or was a shareholder or
creditor, and his or her heirs and legal representatives, against all costs,
charges and expenses, including an amount paid to settle an action or satisfy a
judgment, reasonably incurred by him or her in respect of any civil, criminal or
administrative action or proceeding to which he or she is made a party by reason
of being or having been a director or officer of the Corporation or such other
corporation and provided that the director or officer acted honestly and in good
faith with a view to the best interests of the Corporation, and, in the case of
a criminal or administrative action or proceeding that is enforced by a monetary
penalty, such director or officer had reasonable grounds for believing that his
or her conduct was lawful. Such indemnification may be made in connection with
an action by or on behalf of the Corporation or such other corporation to
procure a judgment in its favor only with court approval. A director or officer
is entitled to indemnification from the Corporation as a matter of right if he
or she was substantially successful on the merits in his or her defense of the
action or proceeding and fulfilled the conditions set forth above.
The by-laws of the Corporation provide that the Corporation shall indemnify
a director or officer, a former director or officer or a person who acts or
acted at the Corporation's request as a director or officer of a body corporate
of which the Corporation is or was a shareholder or creditor, and the heirs and
legal representatives of such a person against all costs, charges, expenses and
liabilities incurred while carrying out such acts, except as prohibited by law.
The by-laws of the Corporation further provide that the Corporation may, to
the extent permitted by the Business Corporations Act (Ontario), purchase and
maintain insurance for the benefit of any director or officer, a former director
or officer or a person who acts or acted at the Corporation's request as a
director or officer of a body corporate of which the Corporation is or was a
shareholder or creditor.
A policy of directors' and officers' liability insurance is maintained by
the Corporation which insures, subject to certain exclusions, directors and
officers for losses as a result of claims against the directors and officers of
the Corporation in their capacity as directors and officers and also reimburses
the Corporation for payments made pursuant to the indemnity provided by the
Corporation pursuant to the Business Corporations Act (Ontario) and the by-laws
of the Corporation.
Insofar as indemnification for liabilities under the Securities Act of 1933
may be permitted to directors, officers or persons controlling the Corporation
pursuant to the foregoing provisions, the Corporation has been advised that in
the opinion of the U.S. Securities and Exchange Commission such indemnification
is against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable.
II-1
EXHIBITS
The following exhibits have been filed as part of this Registration Statement:
EXHIBIT
NUMBER DESCRIPTION
------- -----------
4.1 Audited comparative consolidated financial statements as set
out in pages 49 to 78 of the annual report of the
Corporation for the year ended December 31, 2001 and the
accompanying auditors' report on these statements
(incorporated by reference to Form 6-K dated April 9, 2002)
4.2 Management's discussion and analysis for the annual
comparative financial statements of the Corporation for the
year ended December 31, 2001 referred to in Exhibit 4.1 as
set out on pages 44 to 57 of the annual information form of
the Corporation dated May 2, 2002 (incorporated by reference
to Form 40-F dated May 2, 2002)
4.3 Management information circular dated April 9, 2002 relating
to the annual meeting of shareholders of the Corporation to
be held on May 8, 2002, except for the sections entitled
"Report on Executive Compensation" and "Performance Graph"
(incorporated by reference to Form 6-K dated April 9, 2002)
4.4 Annual information form of the Corporation dated May 2, 2002
(incorporated by reference to Form 40-F dated May 2, 2002)
4.5 Press release dated May 2, 2002 in respect of the
announcement of the financial results of the Corporation for
the three months ended March 31, 2002 except for the section
entitled "Financial Outlook" (incorporated by reference to
Form 6-K dated May 2, 2002)
5.1 Consent of PricewaterhouseCoopers LLP
5.2 Consent of Torys LLP
6.1 Powers of Attorney (included on the signature pages of this
Registration Statement)
II-2
PART III
UNDERTAKINGS AND CONSENT TO SERVICE OF PROCESS
ITEM 1. UNDERTAKINGS
The Registrant hereby undertakes to make available, in person or by
telephone, representatives to respond to inquiries made by the Commission staff,
and to furnish promptly, when requested to do so by the Commission staff,
information relating to the securities registered pursuant to this Registration
Statement on Form F-10 or to transactions in said securities.
ITEM 2. CONSENT TO SERVICE OF PROCESS
Concurrently with the filing of this Registration Statement on Form F-10,
the Registrant is filing with the Commission a written Irrevocable Consent and
Power of Attorney on Form F-X.
III-1
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form F-10 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Stamford, State of Connecticut, on the 2nd day of
May, 2002.
THE THOMSON CORPORATION
By: /s/ RICHARD J. HARRINGTON
------------------------------------
Richard J. Harrington
President and Chief Executive
Officer
POWER OF ATTORNEY
The Thomson Corporation and each person whose signature appears below
hereby appoints Stephane Bello and David J. Hulland as attorneys-in-fact with
full power of substitution, severally, to execute in the name and on behalf of
The Thomson Corporation and each such person, individually, and in each capacity
stated below, one or more amendments (including post-effective amendments) to
the Registration Statement as the attorney-in-fact acting in the premises deems
appropriate and to file any such amendment to the Registration Statement with
the U.S. Securities and Exchange Commission.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ RICHARD J. HARRINGTON President, Chief Executive Officer May 2, 2002
------------------------------------------------ and Director (Principal Executive
Richard J. Harrington Officer)
/s/ ROBERT D. DALEO Executive Vice-President, Chief May 2, 2002
------------------------------------------------ Financial Officer and Director
Robert D. Daleo (Principal Financial and
Accounting Officer)
/s/ KENNETH R. THOMSON Director May 2, 2002
------------------------------------------------
Kenneth R. Thomson
/s/ W. GEOFFREY BEATTIE Director May 2, 2002
------------------------------------------------
W. Geoffrey Beattie
Director May , 2002
------------------------------------------------
John A. Tory
Director May , 2002
------------------------------------------------
Ronald D. Barbaro
Director May , 2002
------------------------------------------------
V. Maureen Kempston Darkes
/s/ STEVEN A. DENNING Director May 2, 2002
------------------------------------------------
Steven A. Denning
III-2
SIGNATURE TITLE DATE
--------- ----- ----
Director May , 2002
------------------------------------------------
John F. Fraser
Director May , 2002
------------------------------------------------
Roger L. Martin
/s/ VANCE K. OPPERMAN Director May 2, 2002
------------------------------------------------
Vance K. Opperman
Director May , 2002
------------------------------------------------
David H. Shaffer
/s/ DAVID K.R. THOMSON Director May 2, 2002
------------------------------------------------
David K.R. Thomson
/s/ RICHARD M. THOMSON Director May 2, 2002
------------------------------------------------
Richard M. Thomson
/s/ PETER J. THOMSON Director May 2, 2002
------------------------------------------------
Peter J. Thomson
III-3
AUTHORIZED REPRESENTATIVE
Pursuant to the requirements of Section 6(a) of the Securities Act of 1933,
the Authorized Representative certifies that it is the duly authorized United
States representative of The Thomson Corporation and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, solely in
its capacity as the duly authorized representative of The Thomson Corporation in
the United States, in the City of Stamford, State of Connecticut, on this 2nd
day of May, 2002.
THOMSON U.S. HOLDINGS INC.
(Authorized Representative)
By: /s/ EDWARD A. FRIEDLAND
------------------------------------
Edward A. Friedland
Vice President and Assistant
Secretary
III-4
EXHIBITS
The following exhibits have been filed as part of this Registration Statement:
SERIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- --------
4.1 Audited comparative consolidated financial statements as set
out in pages 49 to 78 of the annual report of the
Corporation for the year ended December 31, 2001 and the
accompanying auditors' report on these statements
(incorporated by reference to Form 6-K dated April 9, 2002)
4.2 Management's discussion and analysis for the annual
comparative financial statements of the Corporation for the
year ended December 31, 2001 referred to in Exhibit 4.1 as
set out on pages 44 to 57 of the annual information form of
the Corporation dated May 2, 2002 (Incorporated by reference
to Form 40-F dated May 2, 2002)
4.3 Management information circular dated April 9, 2002 relating
to the annual meeting of shareholders of the Corporation to
be held on May 8, 2002, except for the sections entitled
"Report on Executive Compensation" and "Performance Graph"
(incorporated by reference to Form 6-K dated April 9, 2002)
4.4 Annual information form of the Corporation dated May 2, 2002
(incorporated by reference to Form 40-F dated May 2, 2002)
4.5 Press release dated May 2, 2002 in respect of the
announcement of the financial results of the Corporation for
the three months ended March 31, 2002 except for the section
entitled "Financial Outlook" (incorporated by reference to
Form 6-K dated May 2, 2002)
5.1 Consent of PricewaterhouseCoopers LLP 164
5.2 Consent of Torys LLP 165
6.1 Powers of Attorney (included on the signature pages of this
Registration Statement)