The Thomson Corporation's (Thomson)...

The Thomson Corporation's (Thomson) was formed through the merger in 1989 of Thomson Newspapers and International Thomson Organization. The company's principal activities are: (1) specialized information and publishing, (2) newspaper publishing, and, (3) leisure travel. The corporation operates primarily in the United States, the United Kingdom, and Canada.

Specialized information and publishing has been an important focus for corporate vegetation in the last decade. This group's activities are concentrated in sizable, information-intense sectors which have an increasingly international scope

Thomson Newspapers publishes 54 newspapers in Canada as well as 131 newspapers in the U In addition, this cluster publishes over 350 supplemental publications.

Thomson Travel collection based in the U.K., is a leading supplier of leisure air travel and holiday arrange packages.

PICTURING HISTORICAL GROWTH

Revenues

As indicated in the accompanying Guide, the average annual unite rate of growth in receiptss during the 1985-1994 study period was approximately 9% vegetation slowed substantially in the early 1990 when the company's newspaper clump experienced significant declines in advertising income due to the recession.

In addition, between 1990 and 1993 the company focused forward internal growth, and therefore, was not actively making acquisitions as it had in the past. Thomson resum the practice of making acquisitions in 1994

EPS

Since 1989 fully-diluted earnings by means of share before unusual items (EPS) have shown no overall shooting This pattern of earnings is generally characteristic of a cyclical company.

During the recession, Thomson restructur and re-focused its activities. The newspaper publishing collection experienced the most significant restructuring.

This restructuring proces outcomeed in layoffs, write-offs and other outlays which, in addition to the flatter return growth trend, affected EPS negatively.

JUDGING futurity GROWTH

The specialized information and publishing cluster will continue to focus its development on new product development, adapting to changing client extremitys for information. Thomson Travel assemblage will remain focused on maintaining its first place position in the UK market.

Thomson Newspapers intends to focus its activities within certain geographic markets where operating synergies can be achieved. The prospective sale of 21 regional Canadian newspapers will continue to make less the importance of this division.

Thomson's continuing emphasis forward internal growth and acquisitions (the latter appears to be occurring largely in the area of specialized information and publishing), could accrue in the company performing more like a bourgeoning stock and less like the cyclical stock it has been in the past. As similar earnings should begin to point out positive overall growth through the nearest economic cycles.

Efficiency of Operations (see Stock Selection Manual, p 26)

Part 2(1) of the Guide indicates that Thomson's operating profit margin (OPM) during the investigation period followed the pattern of a cyclical company--it declined [i]or[/i] part of to the other the recession and has been gradually improving since then. from one side the recession, margins were affected on both reduced revenue growth and a slower rate of expenditure reduction. Restructuring charges for various corporate activities also reduc the OPM

Financial Leverage (see Stock Selection Manual, p 29)

Part 2(2) of the Guide, showing Thomson's liability ratio for the last 10 years, clearly indicates a rising turn in the company's use of shortcoming When any company increases the use of leverage, its earnings become more sensitive to down-turns in the economic revolution of time Increased debt contributed to the significant pendant in Thomson's EPS in 1992 during the recession.

However, the company's earnings expansion subsequent to 1992 would likely not have been as substantial if certain acquisitions--made possible within the use of borrowed money--had not been made. As with the contemplation of any stock, an investor must decide if the benefits associated with increased earnings bourgeoning outweigh the risks that draw near with the greater use of due financing.

Effectiveness of Operations (see Stock Selection Manual p 27)

Part 2(3) of the Guide contemplates management's ability to earn an adequate rate of answer on shareowners' common equity (ROCE) ROCE data for Thomson are available merely for the last seven years of the studious mood period. During this time, the cyclical pattern in ROCE reflects: (1) the impact of the OPM (2) increased interest cost due to greater use of sin and (3) unusual items associated with the restructuring, reorganizing and re-focusing process

STUDY POTENTIAL: THE "BUY" & "SELL" ZONES

Two places of illustrative judgements about Thomson's increase prospects during the next five years--and the market's possible valuation of them--are pondered in the accompanying Guide.

The A Judgements

The Guide's chart illustrates incomes growing at the A mother-wit rate of 10% to $102 billion by means of 1999 with EPS growing at an average annual rate of 15% to $149 It is unusual to make improvement earnings faster than revenues (see "Guidelines for Judgments" page 13) However, Thomson's late restructuring could result in stronger earnings growing over the next few years.