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Thomson Reuters: ManagementS Discussion And Analysis

The following excerpt is from the company's SEC filing.

This managements discussion and analysis is designed to provide you with a narrative explanation through the eyes of our management of our financial condition and results of operations. We recommend that you read this in conjunction with our consolidated interim financial statements for the three and nine months ended September 30, 2015, our 2014 annual consolidated financial statements and our 2014 annual managements discussion and analysis. This managements discussion and analysis is dated as of October 22, 2015. This managements discussion and analysis contains forward-looking statements, which are subject to risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements. Forward-looking statements include, but are not limited to, our 2015 outlook and our expectations related to general economic conditions and market trends and their anticipated effects on our business segments. For additional information related to forward-looking statements and material risks associated with them, please see the Cautionary Note Concerning Factors That May Affect Future Results section of this managements discussion and analysis.

We have organized our managements discussion and analysis in the following key sections:

Overview

a brief discussion of our business

Results of Operations

a comparison of our current and prior-year period results

Liquidity and Capital Resources

a discussion of our cash flow and debt

Outlook

our current financial outlook for 2015

Related Party Transactions

a discussion of transactions with our principal and controlling shareholder, The Woodbridge Company Limited (Woodbridge), and others

Subsequent Events

a discussion of material events occurring after September 30, 2015 and through the date of this managements discussion and analysis

Changes in Accounting Policies

a discussion of changes in our accounting policies and recent accounting pronouncements

Critical Accounting Estimates and Judgments

a discussion of critical estimates and judgments made by our management in applying accounting policies

Additional Information

other required disclosures

Appendix

supplemental information and discussion

We prepare our consolidated financial statements in accordance with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB). This managements discussion and analysis also includes certain non-IFRS financial measures which we use as supplemental indicators of our operating performance and financial position as well as for internal planning purposes.

References in this discussion to $ and US$ are to U.S. dollars and references to C$ are to Canadian dollars. In addition, bp means basis points and n/a and n/m refer to not applicable and not meaningful, respectively. Unless otherwise indicated or the context otherwise requires, references in this discussion to we, our, us and Thomson Reuters are to Thomson Reuters Corporation and our subsidiaries. When we refer to net sales, we are referring to new sales less cancellations.

Page 1

OVERVIEW

Our company

We are the leading source of intelligent information for businesses and professionals. We combine industry expertise with innovative technology to deliver critical information to enable our customers to operate in a dynamic business environment. The exponential growth in the volume of data, the impact of technology, and an increasingly complex legal and regulatory environment create challenges for our customers as well as opportunities for our businesses. The breadth and depth of our offerings, our global footprint, and the trust and credibility built by the worlds most trusted news organization uniquely position our company at the confluence of content and technology. We bring in-depth understanding of our customers needs, flexible technology platforms, proprietary content and scale. We believe our ability to embed our solutions into customers workflows is a significant competitive advantage as it leads to strong customer retention.

We derive the majority of our revenues from selling solutions to our customers, primarily electronically and on a subscription basis. Over the years, this has proven to be capital efficient and cash flow generative, and it has enabled us to maintain leading and scalable positions in our chosen markets.

We are organized in four strategic business units supported by a corporate center:

Financial & Risk,

a provider of critical news, information and analytics, enabling transactions and bringing together financial communities. Financial & Risk also provides regulatory and operational risk management solutions.

Legal,

a provider of critical online and print information, decision tools, software and services that support legal, investigation, business and government professionals around the world.

Tax & Accounting,

a provider of integrated tax compliance and accounting information, software and services for professionals in accounting firms, corporations, law firms and government.

Intellectual Property & Science,

a provider of comprehensive intellectual property and scientific information, decision support tools and services that enable the lifecycle of innovation for governments, academia, publishers, corporations and law firms to discover, protect and commercialize new ideas and brands.

We also have a Global Growth & Operations (GGO) organization which works across our business units to combine our global capabilities and to expand our local presence and development in countries and regions where we believe the greatest growth opportunities exist. Our GGO organization is focused on supporting our businesses in the following geographic areas: Latin America, China, India, the Middle East, Africa, the Association of Southeast Asian Nations/North Asia, Russia and countries comprising the Commonwealth of Independent States and Turkey. We do not report GGO as a separate business unit, but rather include its results within our strategic business units.

We operate Reuters, which is a provider of real-time, high-impact, multimedia news and information services to newspapers, television and cable networks, radio stations and websites around the globe. Our Reuters News business is managed and reported within our corporate center.

Page 2

Key Highlights

Third quarter performance:

Non-IFRS Financial Measures

(millions of U.S. dollars, except per share amounts and margins)

CHANGE

CHANGE IN CONSTANT

CURRENCY

Revenues from ongoing businesses

1%

Adjusted EBITDA

7%

Adjusted EBITDA margin

Underlying operating profit

13%

Underlying operating profit margin

Adjusted earnings per share (adjusted EPS)

Our third quarter results were consistent with our expectations, and we reaffirmed our full-year business outlook in connection with announcing those results. Given the significant impact that fluctuations in foreign currency exchange rates continue to have on our results, we are providing additional information in this managements discussion and analysis about our performance at constant currency rates.

Revenues from ongoing businesses increased in constant currency as combined growth of 3% from our Legal, Tax & Accounting and Intellectual Property & Science businesses was partially offset by the performance of our Financial & Risk business, which was essentially unchanged. The increase in revenues from ongoing businesses in constant currency was entirely from existing businesses.

THIRD QUARTER 2015 REVENUES

FROM ONGOING BUSINESSES

Financial & Risks

net sales were positive for the sixth consecutive quarter. However, revenues were essentially unchanged as benefits from positive net sales and an annual price increase were offset by price adjustments related to the migration of legacy foreign exchange and buy-side customers onto new products on the Financial & Risk unified platform, and a decline in Recoveries revenues.

Legals

revenues increased 1%, all from existing businesses. Revenues from the Legal Solutions businesses grew 4% and revenues from the U.S. online legal information business grew 2%, which was the third consecutive quarter of revenue growth for this business. Revenue growth from Legal Solutions and U.S. online legal information businesses more than offset an expected decline in U.S. print.

revenues grew 8%, all from existing businesses, despite a decline in the Government business.

revenues increased 2%, all from existing businesses, as recurring revenue growth of 4% was partly offset by lower transaction revenues.

Adjusted EBITDA, underlying operating profit and the related margins all increased as higher overall revenues

and a decrease in operating expenses

, primarily within our Financial & Risk segment, more than offset the unfavorable impact of foreign currency on our results. Adjusted EPS increased by $0.07 primarily due to higher underlying operating profit and a lower number of outstanding common shares, despite a $0.04 negative impact from foreign currency.

In 2015, we have been executing on our plan to help our customers better navigate the information age. In addition, we have continued to improve execution across our company by:

investing in sales and marketing expertise, as well as customer service capabilities, including initiating efforts to standardize our go-to-market approach across the company;

implementing several key product and platform migrations in our Financial & Risk business (including completing the migration of a legacy real-time distribution platform which represents one of our largest technology savings initiatives), which we believe will improve service levels to our customers and drive cost savings; and

delivering strong and consistent cash flow to reinvest in our growth businesses while returning over $4.6 billion to our shareholders since October 2013 through dividends and share repurchases.

Refer to Appendix A for additional information on non-IFRS financial measures.

On a constant currency basis.

Page 3

2015 Outlook:

We recently reaffirmed our 2015 full-year business outlook that we originally communicated in February. For 2015, we continue to expect positive revenue from existing businesses (organic), adjusted EBITDA margin between 27.5% and 28.5%, underlying operating profit margin between 18.5% and 19.5%, and free cash flow between $1.55 billion and $1.75 billion.

Our 2015 outlook assumes constant currency rates relative to 2014 and is based on the expected performance of our existing businesses and does not factor in the impact of any acquisitions or divestitures that may occur during the year. In light of increased volatility recently experienced in the foreign exchange markets, we continue to believe that currency is having a higher than usual impact on our results in 2015. Additional information is provided in the Outlook section of this managements discussion and analysis. The information in this section is forward-looking and should also be read in conjunction with the section of this managements discussion and analysis entitled Cautionary Note Concerning Factors That May Affect Future Results.

Seasonality

Our revenues and operating profit on a consolidated basis do not tend to be significantly impacted by seasonality as we record a large portion of our revenues ratably over a contract term and our costs are generally incurred evenly throughout the year. However, our non-recurring revenues can cause changes in our performance from quarter to consecutive quarter. Additionally, the release of certain print-based offerings can be seasonal as can certain product releases for the regulatory markets, which tend to be concentrated at the end of the year. Our quarterly performance may also be impacted by the timing of certain product migrations we are in the process of executing, as well as by volatile foreign currency exchange rates, as we have recently experienced. As a consequence, the results of certain of our segments can be impacted by seasonality to a greater extent than our consolidated revenues and operating profit.

Use of non-IFRS financial measures

In addition to our results reported in accordance with IFRS, we use certain non-IFRS financial measures as supplemental indicators of our operating performance and financial position, as well as for internal planning purposes. These non-IFRS financial measures include:

Revenues from ongoing businesses;

Revenue changes at constant currency (before currency or revenues excluding the effects of foreign currency);

Underlying operating profit and the related margin;

Adjusted EBITDA and the related margin;

Adjusted EBITDA less capital expenditures and the related margin;

Adjusted earnings and adjusted earnings per share;

Net debt;

Free cash flow; and

Free cash flow from ongoing businesses.

Given the increased volatility recently experienced in the foreign exchange markets, foreign currency has had a significant impact on our results for the three and nine months ended September 30, 2015. We believe analysis of our results excluding the effects of foreign currency improves comparability, and provides greater visibility to underlying business performance and trends. Accordingly, we have supplemented our analysis in this managements discussion and analysis with the following non-IFRS measures:

Changes in underlying operating profit and the related margin at constant currency (before currency or changes in underlying operating profit and the related margin excluding the effects of foreign currency);

Changes in adjusted EBITDA and the related margin at constant currency (before currency or changes in adjusted EBITDA and the related margin excluding the effects of foreign currency); and

Changes in adjusted earnings per share at constant currency (before currency or changes in adjusted earnings per share excluding the effects of foreign currency).

We report non-IFRS financial measures as we believe their use provides more insight into and understanding of our performance. See Appendix A of this managements discussion and analysis for a description of our non-IFRS financial measures, including an explanation of why we believe they are useful measures of our performance, including our ability to generate cash flow. Refer to the sections of this managements discussion and analysis entitled Results of Operations, Liquidity and Capital Resources and Appendix B for reconciliations of these non-IFRS financial measures to the most directly comparable IFRS financial measures.

Page 4

RESULTS OF OPERATIONS

Basis of presentation

In this managements discussion and analysis, we discuss our results of operations on both an IFRS and non-IFRS basis. Both bases exclude discontinued operations and include the performance of acquired businesses from the date of purchase.

Consolidated results

We discuss our consolidated results from continuing operations on an IFRS basis, as reported in our consolidated income statement. Additionally, we discuss our consolidated results on a non-IFRS basis using the measures described within the Use of Non-IFRS Financial Measures section of this managements discussion and analysis. Among other adjustments, our non-IFRS revenue and profitability measures as well as free cash flow from ongoing businesses exclude Other Businesses, which is an aggregation of businesses that have been or are expected to be exited through sale or closure that did not qualify for discontinued operations classification.

Segment results

We discuss the results of our four reportable segments as presented in our consolidated interim financial statements for the three and nine months ended September 30, 2015: Financial & Risk, Legal, Tax & Accounting and Intellectual Property & Science.

We also provide information on Corporate & Other and Other Businesses. These categories neither qualify as a component of another reportable segment nor as a separate reportable segment.

Corporate & Other includes expenses for corporate functions, certain share-based compensation costs and the Reuters News business, which is comprised of the Reuters News Agency and consumer publishing; and

Other Businesses is an aggregation of businesses that have been or are expected to be exited through sale or closure that did not qualify for discontinued operations classification. The results of Other Businesses are not comparable from period to period as the composition of businesses changes due to the timing of completed divestitures.

See note 3 of our consolidated interim financial statements for the three and nine months ended September 30, 2015 which includes a reconciliation of results from our reportable segments to consolidated results as reported in our consolidated income statement.

In analyzing our revenues from ongoing businesses, at both the consolidated and segment levels, we identify the impact of foreign currency changes. Additionally, we separately measure revenue growth from existing businesses and from acquired businesses on a constant currency basis.

THREE MONTHS ENDED SEPTEMBER 30,

NINE MONTHS ENDED SEPTEMBER 30,

(millions of U.S. dollars, except per share amounts and margins)

Constant

Operating profit

Diluted earnings per share

Adjusted EBITDA less capital expenditures margin

Foreign currency effects.

With respect to the average foreign exchange rates that we use to report our results, the U.S. dollar strengthened significantly against the Euro, the British pound sterling, the Japanese yen and the Canadian dollar in the third quarter and nine-month period ended September 30, 2015, compared to the same periods in 2014. Given our currency mix of revenues and expenses around the world, these fluctuations had a negative impact on our consolidated revenues and on our consolidated underlying operating profit margin, but had no impact on our consolidated adjusted EBITDA margin. The revenues of each of our segments were negatively impacted by foreign currency movements. However, certain of our segments experienced benefits to their related margins, reflecting their specific currency profiles.

Page 5

PERCENTAGE CHANGE:

(millions of U.S. dollars)

Existing

Acquired

Revenues from ongoing businesses increased on a constant currency basis in the third quarter and nine-month period. In each period, combined growth of 3% from our Legal, Tax & Accounting and Intellectual Property & Science segments was partially offset by the performance of our Financial & Risk segment, which was essentially unchanged.

Revenues from our GGO organization comprised approximately 10% of our revenues in both the third quarter and nine-month period. On a constant currency basis, GGO revenues grew 5% and 6% in the third quarter and nine-month period, respectively (5% from existing businesses in both periods).

Operating profit, underlying operating profit, adjusted EBITDA and adjusted EBITDA less capital expenditures

THREE MONTHS ENDED SEPTEMBER 30,

(millions of U.S. dollars, except margins)

Adjustments to remove:

Amortization of other identifiable intangible assets

Fair value adjustments

Other operating losses (gains), net

Operating loss from Other Businesses

Remove: depreciation and amortization of computer software (excluding Other Businesses)

Deduct: capital expenditures, less proceeds from disposals (excluding Other Businesses)

Adjusted EBITDA less capital expenditures

See Appendix B for a reconciliation of net earnings to adjusted EBITDA and adjusted EBITDA less capital expenditures.

Operating profit decreased in the third quarter. Higher revenues

, slightly lower operating expenses

and lower amortization associated with other identifiable intangible assets were more than offset by lower favorable fair value adjustments and the impact of unfavorable foreign currency movements. Operating profit increased in the nine-month period. The increase reflected higher revenues

, a second quarter 2015 gain on the sale of the Fiduciary Services and Competitive Intelligence unit of our Lipper business (Lipper Services), which was formerly managed within Financial & Risk, and lower amortization of other identifiable intangible assets. These increases were partly offset by the impact of unfavorable foreign currency movements and lower favorable fair value adjustments.

Page 6

While adjusted EBITDA increased during the third quarter, the increase was significantly mitigated by the impact of unfavorable foreign currency. Adjusted EBITDA declined in the nine-month period entirely due to the impact of unfavorable foreign currency. On a constant currency basis, adjusted EBITDA and the related margins increased in both periods primarily due to higher revenues. Additionally, operating expenses declined slightly in the third quarter, but were essentially unchanged in the nine-month period. In both periods, the increases in underlying operating profit and the related margins also benefited from lower depreciation and amortization expense.

Adjusted EBITDA less capital expenditures increased in the third quarter due to higher adjusted EBITDA and lower capital expenditures. The decline in the nine-month period reflected lower adjusted EBITDA and higher capital expenditures.

Operating expenses

NINE MONTHS ENDED

Operating expenses, excluding fair value adjustments and Other Businesses

Fair value adjustments primarily represent non-cash accounting adjustments from the revaluation of embedded foreign exchange derivatives within certain customer contracts due to fluctuations in foreign exchange rates and mark-to-market adjustments from certain share-based awards.

In both periods, operating expenses, excluding fair value adjustments and Other Businesses, decreased primarily due to the impact of foreign currency. On a constant currency basis, operating expenses, excluding fair value adjustments and Other Businesses, decreased slightly in the third quarter and were essentially unchanged in the nine-month period. Both periods reflected lower expenses from earlier efficiency initiatives, primarily in our Financial & Risk segment, partly offset by higher investments in certain growth businesses. Additionally, the nine-month period included higher compensation expense due to the timing of our annual salary increases for employees that came into effect in the second quarter of this year compared to the third quarter of last year. Expenses in the third quarter and nine-month period of 2014 included $18 million and $58 million, respectively, of efficiency-related charges, which were primarily severance.

Depreciation and amortization

Amortization of computer software

Subtotal

Depreciation and amortization of computer software on a combined basis decreased in both periods as the impact of foreign currency and the completion of depreciation and amortization of assets acquired in previous years more than offset higher expenses associated primarily with product development initiatives across our business.

Amortization of other identifiable intangible assets decreased in both periods due to the impact of foreign currency and the completion of amortization for certain identifiable intangible assets acquired in previous years.

Other operating (losses) gains, net

In the nine months ended September 30, 2015, other operating gains, net, included a gain from the sale of our Lipper Services business.

Page 7

Net interest expense

The decrease in net interest expense in both periods was primarily due to lower interest on our debt obligations reflecting the refinancing of certain debt obligations during 2014 and the repayment of notes which matured in July 2015. These decreases were partly offset by higher pension-related interest costs driven by a higher valuation of our net pension obligations. As substantially all of our long-term debt obligations paid interest at fixed rates (after swaps), the net interest expense on the balance of our debt was relatively unchanged.

Other finance (costs) income

Other finance (costs) income primarily included losses realized from changes in foreign currency exchange rates on certain intercompany funding arrangements and gains or losses related to certain foreign exchange contracts.

Tax expense

The tax expense in each period reflected the mix of taxing jurisdictions in which pre-tax profits and losses were recognized. Because the geographical mix of pre-tax profits and losses in interim periods may be different from that for the full year, tax expense or benefit in interim periods is not necessarily indicative of tax expense for the full year.

Additionally, the comparability of our tax expense was impacted by various transactions and accounting adjustments during each period. The following table sets forth certain components within income tax expense that impact comparability from period to period, including tax expense (benefit) associated with items that are removed from adjusted earnings:

TAX EXPENSE (BENEFIT)

Tax items impacting comparability:

Corporate tax rates

Other tax adjustments

Tax related to:

Other items

Relates to the net changes of deferred tax liabilities due to changes in U.S. state apportionment factors and changes in corporate tax rates that were substantively enacted in certain jurisdictions.

Relates primarily to changes in the recognition of deferred tax assets in various jurisdictions due to acquisitions, assumptions regarding future profitability, and adjustments for indefinite-lived assets and liabilities that are not expected to reverse.

Because the items described above impact the comparability of our tax expense for each period, we remove them from our calculation of adjusted earnings, along with the pre-tax items to which they relate.

Page 8

The computation of our adjusted tax expense is set forth below:

Tax expense (benefit)

Remove: Items from above impacting comparability

Other adjustments:

Interim period effective tax rate normalization

Tax charge amortization

Total tax expense on adjusted earnings

Adjustment to reflect income taxes based on estimated full-year effective tax rate. Reported earnings or loss for interim periods reflect income taxes based on the estimated effective tax rates of each of the jurisdictions in which we operate. The adjustment reallocates estimated full-year income taxes between interim periods, but has no effect on full-year...


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