FIRST QUARTER REPORT Period Ended March 31, Management s Discussion and Analysis and Unaudited Consolidated Financial Statements

Transcription

1 FIRST QUARTER REPORT Period Ended 2011 Management s Discussion and Analysis and Unaudited Consolidated Financial Statements

2 MANAGEMENT S DISCUSSION AND ANALYSIS This management s discussion and analysis is designed to provide you with a narrative explanation of our financial condition and results of operations through the eyes of our management. We recommend that you read this in conjunction with our interim financial statements for the three months ended 2011, our 2010 annual financial statements and our 2010 annual management s discussion and analysis. We have organized our management s 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 period results; Liquidity and Capital Resources a discussion of our cash flow and debt; Outlook our current business and financial outlook for 2011; Related Party Transactions a discussion of transactions with our principal and controlling shareholder and others; Subsequent Events a discussion of material events occurring after 2011 and through the date of this management s 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; and Appendices supplemental information and discussion. References in this discussion to $ and US$ are to U.S. dollars and references to C$ are to Canadian dollars. 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. This management's discussion and analysis also 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 expectations regarding: General economic conditions and market trends and their anticipated effects on our business; Our 2011 financial outlook; Investments that we have made and plan to make; Anticipated cost savings to be realized from our integration and legacy savings programs; and Our liquidity and capital resources available to us to fund our ongoing operations, investments and returns to shareholders. For additional information related to forward-looking statements and material risks associated with them, please see the section of this management s discussion and analysis entitled Cautionary Note Concerning Factors That May Affect Future Results. This management s discussion and analysis is dated as of April 28,

3 OVERVIEW KEY HIGHLIGHTS In the first quarter of 2011, we continued the positive momentum that we experienced in the last quarter of Revenue growth accelerated, benefiting from 2010 investments in new products and acquisitions and improved markets; Underlying operating profit margin (1) was impacted by efficiency-related charges which are expected to pay back within the year; and We expect business divestitures to provide approximately $1 billion of net proceeds for re-investment to drive growth and returns. Revenues Our revenues from ongoing businesses were $3.2 billion, a 5% increase before currency impacts (1). Revenues increased in both our Professional and Markets divisions, and in particular within our Legal and Enterprise businesses. Adjusted EBITDA and underlying operating profit margins (1) - Adjusted EBITDA and underlying operating profit margins declined because of a $39 million efficiency-related charge. Excluding this charge, adjusted EBITDA and underlying operating profit margins increased 70 basis points and 40 basis points, respectively, compared to the prior year period. New products gaining momentum WestlawNext has been sold to over 18,500 customers since its launch in February 2010; Thomson Reuters Eikon has been sold or migrated to over 19,000 desktops since its launch in September 2010; and Thomson Reuters Elektron has been adopted in established and emerging markets. Portfolio optimization In Markets, we expect to divest two businesses, Enterprise Risk and Portia, in the second half of the year; and In Professional, earlier this month, we sold the Scandinavian legal, tax and accounting businesses and we reached agreement to sell the BARBRI legal education business. Integration program - We continued to make good progress and achieved run-rate savings of $1.5 billion at We expect to achieve our aggregate run-rate savings target (including legacy efficiency programs) of $1.7 billion by program completion at the end of this year. We recently reaffirmed our 2011 business outlook that we originally communicated in February. Additional information is provided in the Outlook section of this management s discussion and analysis. OUR BUSINESS AND STRATEGY Who we are and what we do We are the leading source of intelligent information for businesses and professionals. We combine industry expertise with innovative technology to deliver critical information to leading decision-makers. Through over 55,000 people in over 100 countries, we deliver this must-have insight to the financial, legal, tax and accounting, healthcare and science and media markets, powered by the world s most trusted news organization. How we make money We serve a wide variety of customers with a single, tested business model. We derive the majority of our revenues from selling electronic content and services to professionals, primarily 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. Within each of the markets we serve, 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. Our operational structure We are organized in two divisions: Professional, which consists of our legal, tax and accounting, and healthcare and science businesses; and Markets, which consists of our financial and media businesses. We also report a Corporate & Other category that principally includes corporate expenses, certain share-based compensation costs, certain fair value adjustments and expenses for our integration programs. (1) Refer to Appendix A for additional information on non-ifrs financial measures. 2

4 SEASONALITY Our revenues and operating profits 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, excluding integration programs expenses, 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. INTEGRATION PROGRAMS In 2011, we expect to complete the integration program we commenced in 2008 as a result of the Reuters acquisition. The major initiatives associated with the program relate to: Realizing cost synergies through headcount reductions; Retiring legacy products and systems; Consolidating data centers; Rolling out new strategic products; and Capturing revenue synergies. The following chart summarizes the run-rate savings we have achieved and the annual savings (including legacy efficiency programs) that we expect to achieve by completion of the program at the end of this year, as well as the actual and projected costs to achieve these savings levels. ($ millions) Run-rate savings and One-time expenses $1,800 $1,420 $1,500 $1,300 $1,075 $750 $800 $1,700 $300 ($200) ($700) ($70) ($200) ($468) * ($506) ($463) Target Q1 Run-rate savings One-time expenses * Total costs exclude $68 million of Reuters transaction-related expenses incurred in We incurred $70 million of costs in the first quarter. As of 2011, we had achieved run-rate savings of approximately $1.5 billion. The incremental $80 million in run-rate savings achieved in the first quarter of 2011 compared to year-end 2010 was largely attributable to retiring legacy products and execution of our sales and customer service transformation programs. USE OF NON-IFRS FINANCIAL MEASURES In addition to our results reported in accordance with International Financial Reporting Standards (IFRS), we use certain non-ifrs financial measures as supplemental indicators of our operating performance and financial position and for internal planning purposes. These non-ifrs measures include: Revenues from ongoing businesses; Revenues at constant currency (before currency or revenues excluding the effects of foreign currency); Operating profit from ongoing businesses; Underlying operating profit and underlying operating profit margin; Adjusted EBITDA and adjusted EBITDA margin; Adjusted earnings and adjusted earnings per share from continuing operations; 3

5 Net debt; Free cash flow; and Underlying free cash flow. We have historically reported non-ifrs financial measures as we believe their use provides more insight into our performance. Please see Appendix A 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. Non-IFRS financial measures are unaudited. See the sections entitled Results of Operations, Liquidity and Capital Resources and Appendix B for reconciliations of these non-ifrs measures to the most directly comparable IFRS measures. RESULTS OF OPERATIONS BASIS OF PRESENTATION Below, we discuss our results from continuing operations as presented in our income statement. Our results from continuing operations include the performance of acquired businesses from the date of their purchase and exclude results from businesses classified as discontinued operations. We measure the performance of our ongoing businesses. Ongoing businesses exclude discontinued operations and the results of disposals. Disposals are businesses sold or held for sale that could not be classified as discontinued operations. We recently announced our intention to sell our Markets division s Enterprise Risk and Portia businesses, both of which are expected to close in the second half of the year. These businesses have been excluded from ongoing businesses. See Subsequent Events for additional information. In analyzing our revenues, we measure the performance of existing businesses and the impact of acquired businesses on a constant currency basis. We separately identify the effect of foreign currency on our reported revenues. CONSOLIDATED RESULTS The following table provides a summary of our results for the periods indicated: (millions of U.S. dollars, except per share amounts) Change IFRS Financial Measures Revenues 3,330 3,140 6% Operating profit % Diluted earnings per share $0.30 $ % Non-IFRS Financial Measures Revenues from ongoing businesses 3,240 3,057 6% Underlying operating profit % Underlying operating profit margin 17.2% 18.0% (80) bp Adjusted EBITDA % Adjusted EBITDA margin 23.2% 23.7% (50) bp Adjusted earnings per share from continuing operations $0.39 $0.36 8% bp= basis points. Foreign currency effects. With respect to the average foreign exchange rates we use to report our results, the U.S. dollar weakened against the British pound sterling, Japanese yen and other major currencies in the first quarter of 2011 compared to the same period in 2010, but strengthened against the Euro. Given our currency mix of revenues and expenses around the world, these fluctuations had a positive impact on the amount of our revenues in U.S. dollars, but did not impact our underlying operating profit margin. 4

6 Revenues. The following table provides information about our revenues: Percentage change: Existing Acquired Constant Foreign (millions of U.S. dollars) businesses businesses currency currency Total Revenues from ongoing businesses 3,240 3,057 2% 3% 5% 1% 6% Revenues from disposals n/m n/m n/m n/m n/m Revenues 3,330 3,140 n/m n/m n/m n/m 6% n/m = not meaningful. Revenues from ongoing businesses increased on a constant currency basis driven by contributions from both our Professional and Markets divisions, which increased 8% and 2%, respectively. These results reflected a continuing acceleration in our revenue growth. 6% Revenue Growth Rate (revenues from ongoing businesses) (year over year % change before currency) 5% 4% 2% 3% 4% 0% -2% -1% -2% Q Q Q Q Q Our accelerating revenue growth has been driven by three factors: Our investment in new product platforms such as WestlawNext, Thomson Reuters Eikon, Thomson Reuters Elektron, ONESOURCE global tax workstation and Advantage Suite 5.0 has delivered an advanced set of products for our customers; Improving conditions in both the financial and legal services markets; and Expansion through acquisition and execution of our globalization strategy, which is focused on rapidly developing economies and leveraging our global presence. We expect these underlying trends will continue through However, further acceleration in the rate of revenue growth will be challenged as the prior year comparable included significant contributions from newly acquired businesses in the second half of the year. 5

7 Operating profit, underlying operating profit and adjusted EBITDA. The following table provides information about our operating profit and our non-ifrs financial measures, underlying operating profit and adjusted EBITDA: (millions of U.S. dollars) Change Operating profit % Adjustments: Amortization of other identifiable intangible assets Integration programs expenses Fair value adjustments (2) 9 Other operating gains, net (33) (1) Disposals (19) (5) Underlying operating profit % Adjustments: Integration programs expenses (70) (97) Depreciation and amortization of computer software from ongoing businesses Adjusted EBITDA (1) % Underlying operating profit margin 17.2% 18.0% (80) bp Adjusted EBITDA margin 23.2% 23.7% (50) bp (1) See Appendix B for a reconciliation of earnings from continuing operations to adjusted EBITDA. bp = basis points. Operating profit increased due to higher revenues across our business, savings from efficiency and integration initiatives and lower integration-related expenses. Additionally, operating profit benefited from a $35 million gain in connection with the termination of a vendor agreement. Partially offsetting these increases was a $39 million efficiency-related charge, from which we expect to realize cost savings of approximately $40 million in 2011, as well as longer term savings. The efficiency-related charge and related savings are non-integration related and result from ongoing efficiency opportunities to streamline our operations. We expect the benefits from these actions to contribute to margin improvement as the year progresses. The $39 million efficiency-related charge is reflected in the results of our divisions (Markets - $28 million; Professional - $11 million). Underlying operating profit, which excludes the benefit from lower integration expenses as well as from the termination of a vendor agreement, increased slightly. The underlying operating profit margin decreased reflecting dilution from 2010 acquisitions and the $39 million efficiency-related charge, which reduced the margin by 120 basis points. Excluding the efficiency-related charge, underlying operating profit and adjusted EBITDA margins improved 40 and 70 basis points, respectively. Operating expenses. The following table provides information about our operating expenses: (millions of U.S. dollars) Change Operating expenses 2,552 2,412 6% Remove: Fair value adjustments (1) 2 (9) Operating expenses, excluding fair value adjustments 2,554 2,403 6% (1) Fair value adjustments primarily represent non-cash accounting adjustments from the revaluation of embedded foreign exchange derivatives within certain customer and vendor contracts due to fluctuations in foreign exchange rates and mark to market adjustments from certain share-based awards. Operating expenses (excluding fair value adjustments) increased due to higher staff costs. Staff costs, which include salaries, bonuses, commissions, benefits, payroll taxes and share-based compensation, increased 12% and represented approximately 55% of our expenses in the first quarter of 2011 compared to 52% in the prior year period. The increases were due to a $39 million efficiency-related charge, integration-related actions, as well as staff costs associated with acquisitions. These increases were mitigated by savings generated from tight cost controls, efficiency and integration initiatives. Operating expenses in 2011 also reflected lower costs associated with a decrease in recoveries revenues (which are low-margin revenues we collect and pass through to a third party provider, such as stock exchange fees) in our Markets division. 6

8 Depreciation and amortization. (millions of U.S. dollars) Change Depreciation (22%) Amortization of computer software % Amortization of other identifiable intangible assets % Depreciation. The decrease reflected that certain assets acquired in the Reuters acquisition are now fully depreciated. This impact more than offset increases from new capital expenditures. Amortization of computer software. The increase reflected higher amortization attributable to investments in products launched in 2010 such as Thomson Reuters Eikon and WestlawNext, investments in growth initiatives and assets of newly-acquired businesses. Amortization of other identifiable intangible assets. The increase was due to amortization from newly-acquired assets, which more than offset decreases from the completion of amortization for certain identifiable intangible assets acquired in previous years. Other operating gains, net. Other operating gains, net, of $33 million for the three months ended 2011 included a $35 million gain in connection with the termination of an information technology (IT) outsourcing agreement. Earlier this year, we reached agreement with a vendor to terminate the agreement, which had been signed by Reuters prior to the acquisition of that business. We and the vendor mutually terminated the agreement as the vendor was unable to provide certain services. Following a transition period with the vendor, we plan to fold these technology support services into existing in-house operations. For the full year, we expect to record total charges of approximately $100 million relating to this termination, net of the gain recorded in the first three months. The net charges represent payments that were made to the vendor in prior periods for which we will receive no future value, net of amounts that are payable by us and the vendor in connection with the termination and subsequent transition. The majority of the net charges will be non-cash and must be amortized over the transition period of the contract, resulting in a net charge over the remainder of the year. Net interest expense. Net interest expense was $101 million and $93 million in the three months ended 2011 and 2010, respectively. The increase was due to higher interest charges related to indirect taxes and uncertain tax positions. Other finance income (costs). Other finance income was $7 million in the three months ended 2011 compared to other finance costs of $63 million in the prior year period. The variance reflects a $62 million loss in the prior year, principally representing premiums paid for our early redemption of debt securities. Tax expense. Tax expense for the three months ended 2011 and 2010 reflected the mix of taxing jurisdictions in which pre-tax profits and losses were recognized. However, because the geographical mix of pre-tax profits and losses in interim periods may not be reflective of full year results, this distorts our interim period effective tax rate. Net earnings and earnings per share. Net earnings were $257 million for the three months ended 2011 compared to $134 million in the prior year period and the related diluted earnings per share were $0.30 and $0.15, respectively. Net earnings and diluted earnings per share increased principally due to higher operating profit. In addition, the prior year reflected a loss in connection with our early redemption of debt securities. 7

9 Adjusted earnings and adjusted earnings per share from continuing operations. The following table presents our adjusted earnings calculation: (millions of U.S. dollars, except per share amounts) Change Earnings attributable to common shareholders % Adjustments: Disposals (19) (5) Fair value adjustments (2) 9 Other operating gains, net (33) (1) Other finance (income) costs (7) 63 Share of post-tax earnings in equity method investees (5) - Tax on above 9 (4) Interim period effective tax rate normalization (10) (18) Amortization of other identifiable intangible assets Discontinued operations (2) - Dividends declared on preference shares (1) (1) Adjusted earnings from continuing operations % Adjusted earnings per share from continuing operations $0.39 $0.36 8% Adjusted earnings from continuing operations and the related per share amount increased primarily due to lower integrations programs expenses and higher underlying operating profit. The $39 million efficiency-related charge reduced adjusted earnings per share by $0.03 per share in the first quarter of SEGMENT RESULTS A discussion of the operating results of each of our segments follows. We measure the performance of our ongoing businesses. Ongoing businesses exclude discontinued operations and the results of disposals. Disposals are businesses sold or held for sale that could not be classified as discontinued operations. In addition, our definition of segment operating profit as reflected below may not be comparable to that of other companies. We define segment operating profit as operating profit before (i) amortization of other identifiable intangible assets; (ii) other operating gains and losses and (iii) certain asset impairment charges. We use this measure for our segments because we do not consider these excluded items to be controllable operating activities for purposes of assessing the current performance of our segments. We also use segment operating profit margin, which we define as segment operating profit as a percentage of revenues. As a supplemental measure of segment performance, we use EBITDA and the related margin. Professional division Percentage change: Existing Acquired Constant Foreign (millions of U.S. dollars) businesses businesses currency currency Total Revenues from ongoing businesses 1,377 1,267 4% 4% 8% 1% 9% Revenues from disposals (1) n/m n/m n/m n/m n/m Revenues 1,408 1,296 n/m n/m n/m n/m 9% 8

10 (millions of U.S. dollars) Change EBITDA % EBITDA margin 30.4% 31.3% (90) bp Operating profit from ongoing businesses % Operating profit from disposals (1) 11 - Operating profit % Operating profit margin for ongoing businesses 21.9% 22.8% (90) bp Operating profit margin 22.2% 22.3% (10) bp (1) Comprised of our BARBRI legal education business, which we have reached agreement to sell, our Scandinavian legal, tax and accounting businesses, sold in April 2011 and PLM (a drug information provider in Latin America) within our Healthcare & Science segment, sold in See Subsequent Events. n/m = not meaningful; bp = basis points. Professional division revenues from ongoing businesses increased on a constant currency basis driven by growth across all businesses, and in particular, Legal, which increased 10% before currency, led by growth across all major units and contributions from acquired businesses. EBITDA and operating profit from ongoing businesses increased due to the benefits of scale from higher revenues and savings from efficiency initiatives, partially offset by an $11 million efficiency-related charge. The related margins were negatively impacted by the efficiency-related charge and the dilutive effect from 2010 acquisitions. Operating profit and the related margin also absorbed the impact of amortization and depreciation from 2010 acquisitions and growth investments. Excluding the $11 million efficiency charge, EBITDA margin and operating profit margin for ongoing businesses were 31.2% and 22.7%, respectively, both down 10 basis points compared to the prior year period. Legal Percentage change: Existing Acquired Constant Foreign (millions of U.S. dollars) businesses businesses currency currency Total Revenues from ongoing businesses % 6% 10% 1% 11% Revenues from disposals (1) n/m n/m n/m n/m n/m Revenues n/m n/m n/m n/m 11% (millions of U.S. dollars) Change EBITDA % EBITDA margin 32.9% 34.8% (190) bp Operating profit from ongoing businesses % Operating profit from disposals (1) 10 - Segment operating profit % Operating profit margin for ongoing businesses 24.4% 26.3% (190) bp Segment operating profit margin 24.7% 25.5% (80) bp (1) Comprised of our BARBRI legal education business, which we have reached agreement to sell, and our Scandinavian legal business, sold in April See Subsequent Events. n/m = not meaningful; bp = basis points. 9

11 Revenues from ongoing businesses increased on a constant currency basis with contributions from both existing businesses and 2010 acquisitions (such as Revista dos Tribunais, Canada Law Book, Complinet, Pangea3 and Serengeti). Subscription revenues, which include Westlaw and other businesses, increased 8%, led by FindLaw, which increased 16%; Non-subscription revenues increased 26%, primarily due to strong sales at our Elite law firm automation unit, which increased 30%, and acquisitions; and Print revenues increased 5% due to timing and stabilizing print attrition. From a customer and market perspective, revenues from: Corporate, Government and Academic increased 12% (8% from existing businesses) and included contributions from acquisitions such as Serengeti; Business of Law increased 20% (16% from existing businesses), as noted above, led by FindLaw and Elite; Small and solo firms increased 1%; and Large law firms decreased 3%. EBITDA and operating profit from ongoing businesses increased due to the benefits of scale from higher revenues and savings from efficiency initiatives, partially offset by a $10 million efficiency-related charge. The related margins were negatively impacted by the efficiency-related charge and the dilutive effect from 2010 acquisitions. Operating profit and the related margin also absorbed amortization and depreciation from 2010 acquisitions and growth investments. Excluding the $10 million efficiency related charge, EBITDA and operating profit from ongoing businesses both increased 8% and the related margins declined 80 basis points to 34.0% and 25.5%, respectively. Tax & Accounting Percentage change: Existing Acquired Constant Foreign (millions of U.S. dollars) businesses businesses currency currency Total Revenues from ongoing businesses % 1% 4% 1% 5% Revenues from disposals (1) 2 2 n/m n/m n/m n/m n/m Revenues n/m n/m n/m n/m 5% (millions of U.S. dollars) Change EBITDA % EBITDA margin 24.3% 21.9% 240 bp Operating profit from ongoing businesses % Operating profit from disposals (1) 1 - Segment operating profit % Operating profit margin for ongoing businesses 15.1% 13.5% 160 bp Segment operating profit margin 15.3% 13.4% 190 bp (1) Comprised of our Scandinavian tax and accounting business, sold in April See Subsequent Events. n/m = not meaningful; bp = basis points. Revenues from ongoing businesses increased on a constant currency basis reflecting the following: Workflow & Service Solutions, which comprised two-thirds of segment revenues, increased 5% from continued demand for our Income Tax software products and Global Tax solutions as well as contributions from acquired businesses; and Business Compliance & Knowledge Solutions revenues increased 3%, as a 12% increase in online revenues, which include Checkpoint, and contributions from acquisitions were partially offset by a decline in print, which comprised approximately 8% of Tax and Accounting s revenues from ongoing businesses. EBITDA and operating profit from ongoing businesses and the related margins increased due to the benefits of scale from higher revenues and savings from efficiency initiatives. These results represent the third consecutive quarter of double-digit EBITDA growth for Tax & Accounting. Operating profit margin for ongoing businesses was also affected by higher amortization associated with prior investments. 10

12 Healthcare & Science Percentage change: Existing Acquired Constant Foreign (millions of U.S. dollars) businesses businesses currency currency Total Revenues from ongoing businesses % 1% 6% - 6% Revenues from disposals (1) - 1 n/m n/m n/m n/m n/m Revenues n/m n/m n/m n/m 5% (millions of U.S. dollars) Change EBITDA EBITDA margin 28.2% 29.8% (160) bp Operating profit from ongoing businesses Operating profit from disposals (1) - - Segment operating profit Operating profit margin for ongoing businesses 20.0% 21.2% (120) bp Segment operating profit margin 20.0% 21.1% (110) bp (1) Comprised of PLM (a drug information provider in Latin America), sold in n/m = not meaningful; bp = basis points. Revenues from ongoing businesses increased on a constant currency basis driven by our Payer and Life Sciences businesses. Payer revenues increased double-digits reflecting continued strong demand for our healthcare spending analytics solutions. Life Sciences revenues increased 14% reflecting strong demand for biology and disease analytics products and contributions from our 2010 acquisition of GeneGo. Scientific & Scholarly Research revenues decreased 2% due to unfavorable timing, as the prior year period benefited from an outright backfile sale. EBITDA and operating profit from ongoing businesses were unchanged compared to the prior year period. The decline in the related margins was due to timing of revenues and a difficult prior year comparable. Markets division (millions of U.S. dollars) Percentage change: Existing Acquired Constant Foreign businesses businesses currency currency Sales & Trading % 2% 2% 4% Investment & Advisory (1%) - (1%) 1% - Enterprise (1) % - 10% 3% 13% Media % - 1% 1% 2% Revenues from ongoing businesses 1,865 1,792 1% 1% 2% 2% 4% Revenues from disposals (1) n/m n/m n/m n/m n/m Revenues 1,924 1,846 n/m n/m n/m n/m 4% Total 11

13 (millions of U.S. dollars) Change EBITDA (1%) EBITDA margin 25.3% 26.5% (120) bp Operating profit from ongoing businesses % Operating profit from disposals (1) 8 5 Segment operating profit % Operating profit margin for ongoing businesses 17.7% 17.7% - Segment operating profit margin 17.6% 17.5% 10 bp (1) Results for 2010 reflect our 2011 presentation of disposals, comprised of the Enterprise Risk and Portia businesses, which were announced for sale in April See Subsequent Events. n/m = not meaningful; bp = basis points. Revenues from ongoing businesses increased on a constant currency basis, continuing the improving trend from Recoveries revenues were down 5% in the first quarter, as exchanges continue to move clients to a direct bill model and we lose these low-margin fees. Excluding recoveries revenues, Markets revenue growth on a constant currency basis was 3%. The following chart illustrates the improving revenue trends both with and without recoveries revenues. 3% 2% 1% 0% -1% -2% -3% -4% -5% -6% Revenue Growth Rate (revenues from ongoing businesses) (year over year % change before currency) Q Q Q Q Q Q Q Q Q % 2% 1% 0% -1% -2% -3% -4% -5% -6% Growth Growth excluding recoveries In the first quarter of 2011, revenue growth was led by Enterprise, Commodities & Energy and Tradeweb, partially offset by lower revenues from Investment Management and Exchange Traded Instruments. By revenue type: Subscription revenues, which comprised 77% of Markets revenues, increased 2%, including the benefit of a price increase. Our 2010 product releases, including Thomson Reuters Elektron, our low-latency data distribution platform and Thomson Reuters Eikon, our next generation desktop platform, continue to gain momentum; Transaction revenues increased 15%, driven by our change in ownership of Tradeweb, which we fully consolidate in our results since obtaining a controlling interest in that entity in the fourth quarter of Transaction growth was 4% excluding the impact of our change in ownership of Tradeweb; Recoveries revenues (low-margin revenues that we collect and largely pass-through to a third party provider, such as stock exchange fees) declined 5% as noted above; and Outright revenues, which represented a small portion of Markets revenues, increased 3%. By geography, revenues increased across all major regions of the world. Asia increased 3%, and Europe, Middle East and Africa (EMEA) and the Americas each increased 2%. 12

14 Further analysis of revenues from the Markets division s businesses, on a constant currency basis, is as follows: Sales & Trading revenues increased primarily from Tradeweb, which grew 35%, driven by our change in ownership of Tradeweb, which we fully consolidate in our results since obtaining a controlling interest in that entity in the fourth quarter of Tradeweb growth was 9% excluding the impact of our change in ownership in that entity. Recoveries declined 9%. Excluding recoveries, Sales & Trading revenues increased 5%. Commodities & Energy revenues increased 9%, primarily due to our 2010 acquisition of Point Carbon. Treasury revenues increased 1%, as growth was impacted by 2010 cancellations. Exchange Traded Instruments revenues decreased 6%, due to our decision to shut down certain low-margin legacy products as part of our integration and the continued reduction of recoveries revenues. Investment & Advisory revenues decreased as a 3% increase in revenues from Corporate customers and a 1% increase in revenues from Wealth Management were more than offset by a 4% decline in revenues from Investment Management. Investment Management s performance has been affected by competitive pressures. A plan has been established to improve the performance of the Investment Management unit, including changes in management and go-to-market strategy, as well as longer-term product enhancements culminating in the expected release of Thomson Reuters Eikon for Investment Management later this year. Enterprise revenues increased driven by continued demand for its data distribution platform, Thomson Reuters Elektron. Enterprise Real Time Solutions revenues increased 10%, as customers continued to invest in low-latency data feeds and hosting solutions. Platform revenues increased 4%, driven by sales of recurring products. Content revenues increased 17%, driven by growth in pricing and reference data. Revenues from Omgeo, our trade processing joint venture with The Depository Trade & Clearing Corporation, increased 7%, driven by higher equity volumes. Media revenues increased driven by new sales. Consumer revenues increased 6%, driven by higher online advertising sales across all global properties. News Agency revenues were unchanged. EBITDA and the related margin declined due to a $28 million efficiency-related charge. Excluding this charge, EBITDA increased 5% and the related margin increased 30 basis points. Operating profit from ongoing businesses reflected lower depreciation and amortization due to a lessening impact from assets acquired in the Reuters acquisition, which more than offset increases attributable to products launched in the latter part of 2010 such as Thomson Reuters Eikon. Excluding the $28 million efficiency-related charge, operating profit from ongoing businesses increased 13% and the related margin increased 150 basis points. We expect further improvement in the Markets division's margins as the year progresses, as we expect to realize integration savings and revenue growth. Corporate & Other The following table details our Corporate & Other expenses for the periods presented: (millions of U.S. dollars) $ Change Core corporate expenses Integration programs expenses (27) Fair value adjustments (1) (2) 9 (11) Total (20) (1) Fair value adjustments relate to (a) the revaluation of embedded foreign exchange derivatives within certain customer and vendor contracts; (b) mark to market adjustments on certain share-based employee compensation awards which must be considered liabilities for accounting purposes. Both of these adjustments are non-cash. Corporate & Other expenses decreased largely reflecting lower integration programs expenses as this program winds down in Higher core corporate expenses due to timing were largely offset by favorable fair value adjustments. 13

15 LIQUIDITY AND CAPITAL RESOURCES At 2011, we had a strong liquidity position with: Approximately $0.6 billion of cash on hand; Access to a committed, but unused $2.5 billion syndicated credit facility; and The ability to access global capital markets, as evidenced by our issuance of approximately $1.2 billion principal amount of debt securities in Our business generates significant free cash flow attributable to our strong business model and diversified customer base. In 2011, we expect to increase free cash flow compared to 2010 as a period of heavy investment relating to the launch of new products and the Reuters integration program comes to an end. We believe that cash on hand, cash provided by our operations, our commercial paper program and available credit facility will be sufficient to fund our cash dividends, debt service, capital expenditures, acquisitions in the normal course of business and any opportunistic share repurchases. FINANCIAL POSITION Our total assets at 2011 and December 31, 2010 were $35.5 billion. Net Debt The following table presents information related to our net debt as of the dates indicated: As at (millions of U.S. dollars) 2011 December 31, 2010 Current indebtedness Long-term indebtedness 6,931 6,873 Total debt 7,624 7,518 Swaps (355) (296) Total debt after swaps 7,269 7,222 Remove fair value adjustments for hedges (38) (31) Remove transaction costs and discounts included in the carrying value of debt Less: cash and cash equivalents (611) (864) Net debt 6,679 6,389 Our net debt position increased due to lower cash and cash equivalents balances. See the section entitled Cash Flow for additional information. Total Equity The following table shows the changes in our total equity: (millions of U.S. dollars) Balance at December 31, ,675 Net earnings 257 Share issuances 89 Effect of share-based compensation plans on paid in capital (7) Dividends declared on common shares (259) Dividends declared on preference shares (1) Unrecognized net loss on cash flow hedges (5) Change in foreign currency translation adjustment 217 Net actuarial gains on defined benefit pension plans, net of tax 19 Distributions to non-controlling interests (5) Balance at ,980 Additional Information on Liquidity The maturity dates for our long-term debt are well balanced with no significant concentration in any one year. At 2011, the average maturity for our long-term debt was approximately eight years at an average interest rate (after swaps) under 6%. 14

16 At 2011, the carrying amounts of our total current liabilities exceeded the carrying amounts of our total current assets principally because current liabilities include deferred revenue. Deferred revenue does not represent a cash obligation, but rather an obligation to perform services or deliver products in the future. The costs to fulfill these obligations are included in our operating expenses. We monitor the financial strength of financial institutions with which we have banking and other commercial relationships, including those that hold our cash and cash equivalents as well as those which are counterparties to derivative financial instruments and other arrangements. Guarantees We guarantee certain obligations of our subsidiaries, including borrowings by our subsidiaries under our revolving credit facility. Under our revolving credit facility discussed below, we must maintain a ratio of net debt as of the last day of each fiscal quarter to EBITDA as defined in the credit facility agreement (earnings before interest, income taxes, depreciation and amortization and other modifications described in the credit facility agreement) for the last four quarters ended of not more than 4.5:1. We were in compliance with this covenant at RATINGS OF DEBT SECURITIES Our access to financing depends on, among other things, suitable market conditions and the maintenance of suitable long-term credit ratings. Our credit ratings may be adversely affected by various factors, including increased debt levels, decreased earnings, declines in customer demand, increased competition, a further deterioration in general economic and business conditions and adverse publicity. Any downgrades in our credit ratings may impede our access to the debt markets or raise our borrowing rates. The following table sets forth the credit ratings that we have received from rating agencies in respect of our outstanding securities as of the date of this management's discussion and analysis: Moody s Standard & Poor s DBRS Limited Fitch Long-term debt Baa1 A- A (low) A- Commercial paper - A-1 (low) R-1 (low) F2 Trend/Outlook Stable Stable Stable Stable There have been no changes in our credit ratings since March 1, 2011, the date of our 2010 annual management s discussion and analysis, and we are not aware of any changes being contemplated by these rating agencies. These credit ratings are not recommendations to purchase, hold, or sell securities and do not address the market price or suitability of a specific security for a particular investor. Credit ratings may not reflect the potential impact of all risks on the value of securities. We cannot assure you that our credit ratings will not be lowered in the future or that rating agencies will not issue adverse commentaries regarding our securities. CASH FLOW Our principal sources of liquidity are cash on hand, cash provided by our operations, our commercial paper program and our available credit facility, as well as the issuance of public debt. We also expect proceeds from divestitures to be a source of liquidity in 2011 (see Subsequent Events ). Our principal uses of cash have been for debt servicing costs, debt repayments, dividend payments, capital expenditures and acquisitions. Additionally, we have occasionally used cash to repurchase outstanding shares in open market transactions, though we have not repurchased any shares since Summary of Statement of Cash Flow The following table presents summary cash flow information for the periods presented: (millions of U.S. dollars) $ Change Cash provided by operating activities (85) Cash used in investing activities (201) (264) 63 Cash used in financing activities (180) (218) 38 Translation adjustments on cash and cash equivalents 4 (10) 14 Decrease in cash and cash equivalents (253) (283) 30 Cash and cash equivalents at beginning of period 864 1,111 (247) Cash and cash equivalents at end of period (217) 15

17 Operating activities. Cash provided by operating activities decreased primarily due to unfavorable working capital, which provided a timing benefit in the fourth quarter of Investing activities. Cash used in investing activities decreased reflecting: The receipt of $21 million in the first quarter of 2011 related to a note issued to us in connection with our 2007 disposal of Prometric. These proceeds were included within investing cash flows from discontinued operations. The receipt of $34 million in the first quarter of 2011 from the redemption of certain company-owned life insurance policies. These proceeds were included within other investing activities. Acquisition and capital expenditures were largely unchanged. The majority of acquisition spending in the first quarter of 2011 was directed at global expansion of our Legal business. Within our Markets division, we invested in Thomson Reuters Eikon, which we expect to offer to our Investment & Advisory customers by the end of the year. We also continued to invest in infrastructure technology to drive efficiencies across our businesses. Financing activities. Cash used in financing activities decreased, reflecting higher net inflows from debt-related activities and higher dividend reinvestment. In March 2010, we issued $500 million principal amount of 5.85% notes due The net proceeds from this issuance were used to repurchase $432 million principal amount of notes as part of the tender for our $700 million principal amount of outstanding 6.20% notes due In April 2010, we completed the redemption of the remaining notes which were not tendered. The following table sets forth dividend information for the periods presented: (millions of U.S. dollars) Dividends declared Dividends reinvested in shares (42) (10) Dividends paid In February 2011, our board of directors approved a $0.08 per share increase in the annualized dividend to $1.24 per common share. The increase in dividends reinvested in shares reflects higher reinvestment by The Woodbridge Company Limited (Woodbridge) in the first quarter of Free cash flow and underlying free cash flow. The following table sets forth calculations of our free cash flow and underlying free cash flow for the periods presented: (millions of U.S. dollars) Net cash provided by operating activities Capital expenditures, less proceeds from disposals (218) (214) Other investing activities 35 (1) Dividends paid on preference shares (1) (1) Free cash flow (60) (7) Integration programs costs (1) Underlying free cash flow (1) Free cash flow includes one-time cash costs associated with our integration programs. We remove these costs to derive our underlying free cash flow. Free cash flow and underlying free cash flow declined primarily due to unfavorable working capital, which provided a timing benefit in the fourth quarter of Free cash flow and underlying free cash flow are historically lowest in the first quarter of the year and are not indicative of our full year expectations. Credit facility and commercial paper program. We have a $2.5 billion unsecured revolving credit facility which we may utilize to provide liquidity in connection with our commercial paper program and for general corporate purposes. The credit facility currently expires in August 2012, but we may request an extension of the maturity date under certain circumstances for up to two additional one-year periods, which the applicable lenders may accept or decline in their sole discretion. We may also request an increase, subject to approval by applicable lenders, in the amount of the lenders commitments up to a maximum amount of $3.0 billion. As of 2011, we had no borrowings under the credit facility and we had $57 million in commercial paper outstanding. 16

18 Based on our current credit rating, the cost of borrowing under the agreement is priced at LIBOR plus 19 basis points (or plus 24 basis points on all borrowings when line utilization exceeds 50%). If our long-term debt rating was downgraded by Moody s or Standard & Poor s, our facility fee and borrowing costs may increase, although availability would be unaffected. Conversely, an upgrade in our ratings may reduce our credit facility fees and borrowing costs. The facility contains certain customary affirmative and negative covenants, each with customary exceptions. The financial covenant related to this facility is described in the Financial Position subsection above. We monitor the lenders that are party to our facility and believe they continue to be able to lend to us. Normal course issuer bid (NCIB). Although we have not repurchased any shares since 2008, we may buy back shares from time to time as part of our capital management strategy. In May 2011, we expect to renew our NCIB share repurchase facility for an additional 12-month period. Debt shelf prospectus. In April 2011, we filed a new shelf prospectus allowing us to issue up to $3 billion principal amount of debt securities through May As of the date of this management s discussion and analysis, no debt securities have been issued under this prospectus. OFF-BALANCE SHEET ARRANGEMENTS, COMMITMENTS AND CONTRACTUAL OBLIGATIONS For a summary of our other off-balance sheet arrangements, commitments and contractual obligations please see our 2010 annual management s discussion and analysis. There were no material changes to these arrangements, commitments and contractual obligations outside the ordinary course of business during the three months ended March 31, CONTINGENCIES Lawsuits and Legal Claims In November 2009, the European Commission initiated an investigation relating to our use of our company s Reuters Instrument Codes (RIC symbols). RIC symbols help financial professionals retrieve news and information on financial instruments (such as prices and other data on stocks, bonds, currencies and commodities). We are fully cooperating with the investigation. We do not believe that we have engaged in any anti-competitive activity related to RIC symbols. In addition to the matter described above, we have engaged in various legal proceedings and claims that have arisen in the ordinary course of business. The outcome of all of the proceedings and claims against us, including the matter described above, is subject to future resolution, including the uncertainties of litigation. Based on information currently known to us and after consultation with outside legal counsel, management believes that the probable ultimate resolution of any such proceedings and claims, individually or in the aggregate, will not have a material adverse effect on our financial condition, taken as a whole. Uncertain Tax Positions We are subject to taxation in numerous jurisdictions. There are many transactions and calculations during the course of business for which the ultimate tax determination is uncertain. We maintain provisions for uncertain tax positions that we believe appropriately reflect our risk. These provisions are made using the best estimate of the amount expected to be paid based on a qualitative assessment of all relevant factors. We review the adequacy of these provisions at the end of the reporting period. The IRS has challenged certain positions taken on our tax returns for the years 2006 and It is possible that at some future date, liabilities in excess of our provisions could result from audits by, or litigation with, the IRS or other relevant taxing authorities. Management believes that such additional liabilities would not have a material adverse impact on our financial condition taken as a whole. 17