EXHIBIT 99.2
THOMSON REUTERS CORPORATION
CONSOLIDATED INCOME STATEMENT
(unaudited)
THREE MONTHS ENDED SEPTEMBER 30, | NINE MONTHS ENDED SEPTEMBER 30, | |||||||||||||||||||
(millions of U.S. dollars, except per share amounts) | NOTES | 2016 | 2015 | 2016 | 2015 | |||||||||||||||
CONTINUING OPERATIONS | ||||||||||||||||||||
Revenues | 2,744 | 2,747 | 8,306 | 8,370 | ||||||||||||||||
Operating expenses | 5 | (1,964) | (1,958) | (6,064) | (6,083) | |||||||||||||||
Depreciation | (78) | (85) | (239) | (263) | ||||||||||||||||
Amortization of computer software | (177) | (173) | (518) | (529) | ||||||||||||||||
Amortization of other identifiable intangible assets | (128) | (135) | (388) | (415) | ||||||||||||||||
Other operating (losses) gains, net | 6 | (12) | (10) | (1) | 13 | |||||||||||||||
Operating profit | 385 | 386 | 1,096 | 1,093 | ||||||||||||||||
Finance costs, net: | ||||||||||||||||||||
Net interest expense | 7 | (108) | (102) | (304) | (314) | |||||||||||||||
Other finance (costs) income | 7 | (3) | (15) | (28) | 24 | |||||||||||||||
Income before tax and equity method investments | 274 | 269 | 764 | 803 | ||||||||||||||||
Share of post-tax earnings in equity method investments | 2 | 1 | 2 | 8 | ||||||||||||||||
Tax (expense) benefit | 8 | (8) | (7) | 16 | (42) | |||||||||||||||
Earnings from continuing operations | 268 | 263 | 782 | 769 | ||||||||||||||||
Earnings from discontinued operations, net of tax | 10 | 18 | 30 | 126 | 125 | |||||||||||||||
Net earnings | 286 | 293 | 908 | 894 | ||||||||||||||||
Earnings attributable to: | ||||||||||||||||||||
Common shareholders | 273 | 280 | 872 | 847 | ||||||||||||||||
Non-controlling interests | 13 | 13 | 36 | 47 | ||||||||||||||||
Earnings per share: | 9 | |||||||||||||||||||
Basic earnings per share | ||||||||||||||||||||
From continuing operations | $0.34 | $0.32 | $0.99 | $0.92 | ||||||||||||||||
From discontinued operations | 0.03 | 0.04 | 0.17 | 0.16 | ||||||||||||||||
Basic earnings per share | $0.37 | $0.36 | $1.16 | $1.08 | ||||||||||||||||
Diluted earnings per share | ||||||||||||||||||||
From continuing operations | $0.34 | $0.32 | $0.99 | $0.91 | ||||||||||||||||
From discontinued operations | 0.02 | 0.04 | 0.16 | 0.16 | ||||||||||||||||
Diluted earnings per share | $0.36 | $0.36 | $1.15 | $1.07 |
The related notes form an integral part of these consolidated financial statements.
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THOMSON REUTERS CORPORATION
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(unaudited)
THREE MONTHS ENDED SEPTEMBER 30, | NINE MONTHS ENDED SEPTEMBER 30, | |||||||||||||||||||
(millions of U.S. dollars) | NOTES | 2016 | 2015 | 2016 | 2015 | |||||||||||||||
Net earnings | 286 | 293 | 908 | 894 | ||||||||||||||||
Other comprehensive income (loss): | ||||||||||||||||||||
Items that have been or may be subsequently reclassified to net earnings: | ||||||||||||||||||||
Cash flow hedges adjustments to net earnings | 7 | 16 | 110 | (74) | 260 | |||||||||||||||
Cash flow hedges adjustments to equity | (3) | (144) | 55 | (271) | ||||||||||||||||
Foreign currency translation adjustments to equity | (63) | (246) | (162) | (401) | ||||||||||||||||
(50) | (280) | (181) | (412) | |||||||||||||||||
Items that will not be reclassified to net earnings: | ||||||||||||||||||||
Remeasurement on defined benefit pension plans | (42) | (118) | (266) | (29) | ||||||||||||||||
Related tax benefit on remeasurement on defined benefit pension plans | 6 | 45 | 76 | 2 | ||||||||||||||||
(36) | (73) | (190) | (27) | |||||||||||||||||
Other comprehensive loss | (86) | (353) | (371) | (439) | ||||||||||||||||
Total comprehensive income (loss) | 200 | (60) | 537 | 455 | ||||||||||||||||
Comprehensive income (loss) for the period attributable to: | ||||||||||||||||||||
Common shareholders: | ||||||||||||||||||||
Continuing operations | 167 | (100) | 397 | 282 | ||||||||||||||||
Discontinued operations | 20 | 27 | 104 | 128 | ||||||||||||||||
Non-controlling interests | 13 | 13 | 36 | 45 | ||||||||||||||||
Total comprehensive income (loss) | 200 | (60) | 537 | 455 |
The related notes form an integral part of these consolidated financial statements.
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THOMSON REUTERS CORPORATION
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(unaudited)
(millions of U.S. dollars) | NOTES | SEPTEMBER 30, 2016 | DECEMBER 31, 2015 | |||||||||
ASSETS | ||||||||||||
Cash and cash equivalents | 11 | 831 | 966 | |||||||||
Trade and other receivables | 1,403 | 1,755 | ||||||||||
Other financial assets | 11 | 125 | 176 | |||||||||
Prepaid expenses and other current assets | 668 | 683 | ||||||||||
Current assets excluding assets held for sale | 3,027 | 3,580 | ||||||||||
Assets held for sale | 10 | 1,674 | - | |||||||||
Current assets | 4,701 | 3,580 | ||||||||||
Computer hardware and other property, net | 943 | 1,067 | ||||||||||
Computer software, net | 1,399 | 1,486 | ||||||||||
Other identifiable intangible assets, net | 5,862 | 6,417 | ||||||||||
Goodwill | 14,795 | 15,878 | ||||||||||
Other financial assets | 11 | 109 | 116 | |||||||||
Other non-current assets | 12 | 555 | 544 | |||||||||
Deferred tax | 49 | 47 | ||||||||||
Total assets | 28,413 | 29,135 | ||||||||||
LIABILITIES AND EQUITY | ||||||||||||
Liabilities | ||||||||||||
Current indebtedness | 11 | 2,855 | 1,595 | |||||||||
Payables, accruals and provisions | 13 | 2,128 | 2,278 | |||||||||
Deferred revenue | 896 | 1,319 | ||||||||||
Other financial liabilities | 11 | 193 | 238 | |||||||||
Current liabilities excluding liabilities associated with assets held for sale |
| 6,072 | 5,430 | |||||||||
Liabilities associated with assets held for sale | 10 | 474 | - | |||||||||
Current liabilities | 6,546 | 5,430 | ||||||||||
Long-term indebtedness | 11 | 6,307 | 6,829 | |||||||||
Provisions and other non-current liabilities | 14 | 2,404 | 2,124 | |||||||||
Other financial liabilities | 11 | 344 | 387 | |||||||||
Deferred tax | 982 | 1,265 | ||||||||||
Total liabilities | 16,583 | 16,035 | ||||||||||
Equity | ||||||||||||
Capital | 15 | 9,627 | 9,852 | |||||||||
Retained earnings | 5,599 | 6,458 | ||||||||||
Accumulated other comprehensive loss | (3,878) | (3,697) | ||||||||||
Total shareholders’ equity | 11,348 | 12,613 | ||||||||||
Non-controlling interests | 482 | 487 | ||||||||||
Total equity | 11,830 | 13,100 | ||||||||||
Total liabilities and equity | 28,413 | 29,135 |
Contingencies (note 18)
The related notes form an integral part of these consolidated financial statements.
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THOMSON REUTERS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOW
(unaudited)
THREE MONTHS ENDED SEPTEMBER 30, | NINE MONTHS ENDED SEPTEMBER 30, | |||||||||||||||||||
(millions of U.S. dollars) | NOTES | 2016 | 2015 | 2016 | 2015 | |||||||||||||||
Cash provided by (used in): | ||||||||||||||||||||
OPERATING ACTIVITIES | ||||||||||||||||||||
Earnings from continuing operations | 268 | 263 | 782 | 769 | ||||||||||||||||
Adjustments for: | ||||||||||||||||||||
Depreciation | 78 | 85 | 239 | 263 | ||||||||||||||||
Amortization of computer software | 177 | 173 | 518 | 529 | ||||||||||||||||
Amortization of other identifiable intangible assets | 128 | 135 | 388 | 415 | ||||||||||||||||
Net (gains) losses on disposals of businesses and investments | (2) | 1 | (4) | (24) | ||||||||||||||||
Deferred tax | (46) | (43) | (130) | (108) | ||||||||||||||||
Other | 16 | 129 | 88 | 354 | 184 | |||||||||||||||
Changes in working capital and other items | 16 | 37 | (35) | (344) | (401) | |||||||||||||||
Operating cash flows from continuing operations | 769 | 667 | 1,803 | 1,627 | ||||||||||||||||
Operating cash flows from discontinued operations | (11) | 13 | 183 | 248 | ||||||||||||||||
Net cash provided by operating activities | 758 | 680 | 1,986 | 1,875 | ||||||||||||||||
INVESTING ACTIVITIES | ||||||||||||||||||||
Acquisitions, net of cash acquired | 17 | - | (2) | (111) | (17) | |||||||||||||||
Proceeds from disposals of businesses and investments, net of taxes paid | 3 | - | 4 | 75 | ||||||||||||||||
Capital expenditures, less proceeds from disposals | (213) | (203) | (658) | (703) | ||||||||||||||||
Other investing activities | 3 | 2 | 23 | 5 | ||||||||||||||||
Investing cash flows from continuing operations | (207) | (203) | (742) | (640) | ||||||||||||||||
Investing cash flows from discontinued operations | (13) | (14) | (38) | (40) | ||||||||||||||||
Net cash used in investing activities | (220) | (217) | (780) | (680) | ||||||||||||||||
FINANCING ACTIVITIES | ||||||||||||||||||||
Proceeds from debt | 11 | - | 4 | 498 | 4 | |||||||||||||||
Repayments of debt | 11 | - | (593) | (503) | (593) | |||||||||||||||
Net borrowings under short-term loan facilities | 11 | 398 | 529 | 702 | 1,099 | |||||||||||||||
Repurchases of common shares | 15 | (542) | (554) | (1,232) | (1,250) | |||||||||||||||
Dividends paid on preference shares | (1) | (1) | (2) | (2) | ||||||||||||||||
Dividends paid on common shares | 15 | (243) | (253) | (740) | (765) | |||||||||||||||
Dividends paid to non-controlling interests | (15) | (15) | (44) | (42) | ||||||||||||||||
Other financing activities | 9 | 11 | 22 | 63 | ||||||||||||||||
Net cash used in financing activities | (394) | (872) | (1,299) | (1,486) | ||||||||||||||||
Increase (decrease) in cash and bank overdrafts | 144 | (409) | (93) | (291) | ||||||||||||||||
Translation adjustments | (2) | (10) | (3) | (19) | ||||||||||||||||
Cash and bank overdrafts at beginning of period | 684 | 1,124 | 922 | 1,015 | ||||||||||||||||
Cash and bank overdrafts at end of period | 826 | 705 | 826 | 705 | ||||||||||||||||
Cash and bank overdrafts at end of period comprised of: | ||||||||||||||||||||
Cash and cash equivalents | 831 | 900 | 831 | 900 | ||||||||||||||||
Bank overdrafts | (5) | (195) | (5) | (195) | ||||||||||||||||
826 | 705 | 826 | 705 | |||||||||||||||||
Supplemental cash flow information is provided in note 16. | ||||||||||||||||||||
From continuing operations: | ||||||||||||||||||||
Interest paid | (75) | (90) | (240) | (271) | ||||||||||||||||
Interest received | 1 | - | 4 | 1 | ||||||||||||||||
Income taxes paid | (31) | (31) | (120) | (157) |
Prior-year period amounts have been reclassified to reflect the current presentation.
Interest paid and received is reflected as an operating cash flow. Interest paid is net of debt-related hedges. Income taxes paid and received are reflected as either operating or investing cash flows depending on the nature of the underlying transaction.
The related notes form an integral part of these consolidated financial statements.
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THOMSON REUTERS CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(unaudited)
(millions of U.S. dollars) | Stated share capital | Contributed surplus | Total capital | Retained earnings | Unrecognized gain (loss) on cash flow hedges | Foreign currency translation adjustments | Total accumulated other comprehensive (loss) income (“AOCL”) | Shareholders’ equity | Non- controlling interests | Total | ||||||||||||||||||||||||||||||||||
Balance, December 31, 2015 | 9,686 | 166 | 9,852 | 6,458 | 36 | (3,733) | (3,697) | 12,613 | 487 | 13,100 | ||||||||||||||||||||||||||||||||||
Net earnings | - | - | - | 872 | - | - | - | 872 | 36 | 908 | ||||||||||||||||||||||||||||||||||
Other comprehensive loss | - | - | - | (190) | (19) | (162) | (181) | (371) | - | (371) | ||||||||||||||||||||||||||||||||||
Total comprehensive income (loss) | - | - | - | 682 | (19) | (162) | (181) | 501 | 36 | 537 | ||||||||||||||||||||||||||||||||||
Change in ownership interest of subsidiary | - | - | - | 15 | - | - | - | 15 | 3 | 18 | ||||||||||||||||||||||||||||||||||
Distributions to non-controlling interests | - | - | - | - | - | - | - | - | (44) | (44) | ||||||||||||||||||||||||||||||||||
Dividends declared on preference shares | - | - | - | (2) | - | - | - | (2) | - | (2) | ||||||||||||||||||||||||||||||||||
Dividends declared on common shares | - | - | - | (766) | - | - | - | (766) | - | (766) | ||||||||||||||||||||||||||||||||||
Shares issued under Dividend Reinvestment Plan (“DRIP”) | 26 | - | 26 | - | - | - | - | 26 | - | 26 | ||||||||||||||||||||||||||||||||||
Repurchases of common shares(1) | (365) | - | (365) | (788) | - | - | - | (1,153) | - | (1,153) | ||||||||||||||||||||||||||||||||||
Stock compensation plans | 97 | 17 | 114 | - | - | - | - | 114 | - | 114 | ||||||||||||||||||||||||||||||||||
Balance, September 30, 2016 | 9,444 | 183 | 9,627 | 5,599 | 17 | (3,895) | (3,878) | 11,348 | 482 | 11,830 | ||||||||||||||||||||||||||||||||||
(millions of U.S. dollars) | Stated share capital | Contributed surplus | Total capital | Retained earnings | Unrecognized gain (loss) on cash flow hedges | Foreign currency translation adjustments | AOCL | Shareholders’ equity | Non- controlling interests | Total | ||||||||||||||||||||||||||||||||||
Balance, December 31, 2014 | 9,976 | 181 | 10,157 | 7,168 | 18 | (3,165) | (3,147) | 14,178 | 481 | 14,659 | ||||||||||||||||||||||||||||||||||
Net earnings | - | - | - | 847 | - | - | - | 847 | 47 | 894 | ||||||||||||||||||||||||||||||||||
Other comprehensive loss | - | - | - | (27) | (11) | (399) | (410) | (437) | (2) | (439) | ||||||||||||||||||||||||||||||||||
Total comprehensive income (loss) | - | - | - | 820 | (11) | (399) | (410) | 410 | 45 | 455 | ||||||||||||||||||||||||||||||||||
Change in ownership interest of subsidiary | - | - | - | 16 | - | - | - | 16 | 5 | 21 | ||||||||||||||||||||||||||||||||||
Distributions to non- controlling interests | - | - | - | - | - | - | - | - | (42) | (42) | ||||||||||||||||||||||||||||||||||
Dividends declared on preference shares | - | - | - | (2) | - | - | - | (2) | - | (2) | ||||||||||||||||||||||||||||||||||
Dividends declared on common shares | - | - | - | (789) | - | - | - | (789) | - | (789) | ||||||||||||||||||||||||||||||||||
Shares issued under DRIP | 24 | - | 24 | - | - | - | - | 24 | - | 24 | ||||||||||||||||||||||||||||||||||
Repurchases of common shares(1) | (370) | - | (370) | (792) | - | - | - | (1,162) | - | (1,162) | ||||||||||||||||||||||||||||||||||
Stock compensation plans | 131 | (24) | 107 | - | - | - | - | 107 | - | 107 | ||||||||||||||||||||||||||||||||||
Balance, September 30, 2015 | 9,761 | 157 | 9,918 | 6,421 | 7 | (3,564) | (3,557) | 12,782 | 489 | 13,271 |
(1) | Includes stated share capital of $26 million and retained earnings of $59 million for the nine months ended September 30, 2016 related to the Company’s pre-defined share repurchase plan (2015—stated share capital of $6 million and retained earnings of $14 million). See note 15. |
The related notes form an integral part of these consolidated financial statements.
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THOMSON REUTERS CORPORATION
Notes to Consolidated Financial Statements (unaudited)
(unless otherwise stated, all amounts are in millions of U.S. dollars)
Note 1: Business description and basis of preparation
General business description
Thomson Reuters Corporation (the “Company” or “Thomson Reuters”) is an Ontario, Canada corporation with common shares listed on the Toronto Stock Exchange (“TSX”) and the New York Stock Exchange (“NYSE”) and Series II preference shares listed on the TSX. The Company is a major source of news and information for professional markets, operating in more than 100 countries.
Basis of preparation
The unaudited consolidated interim financial statements (“interim financial statements”) were prepared using the same accounting policies and methods as those used in the Company’s consolidated financial statements for the year ended December 31, 2015, except as described below. The interim financial statements are in compliance with International Accounting Standard 34,Interim Financial Reporting (“IAS 34”). Accordingly, certain information and footnote disclosure normally included in annual financial statements prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”), have been omitted or condensed. The preparation of financial statements in accordance with IAS 34 requires the use of certain critical accounting estimates. It also requires management to exercise judgment in applying the Company’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements have been set out in note 2 of the Company’s consolidated financial statements for the year ended December 31, 2015. These interim financial statements should be read in conjunction with the Company’s consolidated financial statements for the year ended December 31, 2015, which are included in the Company’s 2015 annual report.
In October 2016, the Company sold its Intellectual Property & Science business, which is reported as a discontinued operation. See note 20. Prior-year period amounts have been restated to conform to the current period’s presentation, as prescribed by IFRS 5,Non-current Assets Held for Sale and Discontinued Operations.
The accompanying interim financial statements include all adjustments, composed of normal recurring adjustments, considered necessary by management to fairly state the Company’s results of operations, financial position and cash flows. The operating results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year.
References to “$” are to U.S. dollars and references to “C$” are to Canadian dollars.
Changes in accounting policy
In April 2016, the IFRS Interpretations Committee issued an agenda decision regarding the treatment of offsetting and cash-pooling arrangements in accordance with IAS 32,Financial Instruments: Presentation. This decision provided additional guidance regarding when bank overdrafts in cash-pooling arrangements would meet the requirements for offsetting in accordance with IAS 32. Following this additional guidance, the Company changed its accounting policy and revised the amounts of cash and cash equivalents and current indebtedness in the consolidated statement of financial position and cash and cash equivalents and bank overdrafts in the consolidated statement of cash flow. The impact was as follows:
• | cash and cash equivalents and current indebtedness increased $40 million in equal and offsetting amounts in the consolidated statement of financial position at December 31, 2015; and |
• | cash and cash equivalents and bank overdrafts increased $190 million in equal and offsetting amounts in the consolidated statement of cash flow in the three and nine months ended September 30, 2015. |
Note 2: Recent accounting pronouncements
Certain pronouncements were issued by the IASB or International Financial Reporting Interpretations Committee that are effective for accounting periods beginning on or after January 1, 2016. Many of these updates are not applicable or consequential to the Company and have been excluded from the discussion below.
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Pronouncements effective for annual periods beginning January 1, 2018:
IFRS 15 | Revenue from Contracts with Customers | IFRS 15 is the culmination of a joint project between the IASB and the Financial Accounting Standards Board, the accounting standard setter in the U.S., to create a single revenue standard. The core principle of IFRS 15 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new standard moves away from a revenue recognition model based on an earnings process to an approach that is based on transfer of control of a good or service to a customer. Additionally, the new standard requires disclosures as to the nature, amount, timing and uncertainty of revenues and cash flows arising from contracts with customers. IFRS 15 shall be applied retrospectively to each period presented or retrospectively as a cumulative-effect adjustment as of the date of adoption. The Company continues to assess the impact of IFRS 15 on its consolidated financial statements and expects to provide more information in connection with its year-end reporting. | ||
IFRS 9 | Financial Instruments | IFRS 9 replaces IAS 39 –Financial Instruments: Recognition and Measurement. The new standard addresses classification and measurement, impairment and hedge accounting. | ||
Classification and measurement The new standard requires the classification of financial assets based on business model and cash flow characteristics measured at either (a) amortized cost; (b) fair value through profit or loss; or (c) fair value through other comprehensive income. For financial liabilities, the standard retains most of the IAS 39 requirements, but where the fair value option is taken, the part of a fair value change due to an entity’s own credit risk is recorded in other comprehensive income rather than the income statement.
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Impairment Under the forward looking impairment model, expected credit losses are recognized as soon as a financial asset is originated or purchased, rather than waiting for a trigger event to record a loss.
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Hedge accounting The new standard more closely aligns hedge accounting with an entity’s risk management activities. Specifically, the new standard (a) no longer requires the use of a specific quantitative threshold to determine if the hedging relationship is highly effective in order to qualify for hedge accounting; (b) removes restrictions that prevented some economically rational hedging strategies from qualifying for hedge accounting; and (c) allows purchased options, forwards and non-derivative financial instruments to be hedging instruments in applicable circumstances.
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IFRS 9 shall be applied retrospectively to each period presented, subject to the various transition provisions within IFRS 9. The Company is assessing the impact of the new standard on its consolidated financial statements. | ||||
IFRS 2 | Share-based Payment | IFRS 2,Classification and Measurement of Share-based Payment Transactions, was amended to clarify the accounting for (a) the effects of vesting and non-vesting conditions on the measurement of cash-settled share-based payments; (b) share-based payment transactions with a net settlement feature for withholding tax obligations; and (c) a modification to the terms and conditions of a share-based payment that changes the classification of the transaction from cash-settled to equity-settled. Early adoption is permitted. Retrospective application is permitted, but not required. Upon adoption, the Company expects to reclassify certain withholding tax obligations for share-based payments from liabilities to equity and therefore will no longer mark-to-market these or similar instruments awarded in the future. For reference, operating expenses included $3 million of income from mark-to-market adjustments in the year ended December 31, 2015 and $18 million of expense in the nine months ended September 30, 2016. The Company expects that a portion of these amounts would no longer be required once the amendment is adopted. |
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Pronouncement effective for annual periods beginning January 1, 2019:
IFRS 16 | Leases | IFRS 16 introduces a single accounting model for leases. The standard requires a lessee to recognize right-of-use assets and lease liabilities on the statement of financial position for almost all leases having a term of more than 12 months. Early application is permitted as long as IFRS 15 has already been applied. The Company is assessing the impact of the new standard on its consolidated financial statements. |
Note 3: Segment information
The Company is organized as three reportable segments reflecting how the businesses are managed: Financial & Risk, Legal and Tax & Accounting. The accounting policies applied by the segments are the same as those applied by the Company.
Results from the Reuters News business are excluded from reportable segments as they do not qualify as a component of the Company’s three reportable segments, nor as a separate reportable segment. The operating results of Intellectual Property & Science, which was previously a reportable segment, are reported as a discontinued operation (see note 10), except for the Westlaw IP business, which the Company will retain as part of the Legal segment. Prior-year period amounts have been restated to conform to the current year’s presentation.
The reportable segments offer products and services to target markets as described below.
Financial & Risk
The Financial & Risk segment is a provider of critical news, information and analytics, enabling transactions and connecting communities of trading, investment, financial and corporate professionals. Financial & Risk also provides regulatory and operational risk management solutions.
Legal
The Legal segment is 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
The Tax & Accounting segment is a provider of integrated tax compliance and accounting information, software and services for professionals in accounting firms, corporations, law firms and government.
The Company also reports “Corporate & Other”, which includes expenses for corporate functions, shared costs previously allocated to Intellectual Property & Science, and the results of the Reuters News business. Neither Corporate & Other nor the Reuters News business qualify as a component of another reportable segment nor as a separate reportable segment.
THREE MONTHS ENDED SEPTEMBER 30, | NINE MONTHS ENDED SEPTEMBER 30, | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Revenues | ||||||||||||||||
Financial & Risk | 1,516 | 1,517 | 4,549 | 4,621 | ||||||||||||
Legal | 835 | 851 | 2,503 | 2,527 | ||||||||||||
Tax & Accounting | 323 | 307 | 1,036 | 1,007 | ||||||||||||
Corporate & Other (includes Reuters News) | �� | 73 | 74 | 227 | 222 | |||||||||||
Eliminations | (3) | (2) | (9) | (7) | ||||||||||||
Consolidated revenues | 2,744 | 2,747 | 8,306 | 8,370 | ||||||||||||
Operating profit | ||||||||||||||||
Segment operating profit | ||||||||||||||||
Financial & Risk | 313 | 271 | 905 | 786 | ||||||||||||
Legal | 264 | 271 | 749 | 749 | ||||||||||||
Tax & Accounting | 59 | 50 | 197 | 211 | ||||||||||||
Corporate & Other (includes Reuters News) | (77) | (68) | (289) | (251) | ||||||||||||
Underlying operating profit | 559 | 524 | 1,562 | 1,495 | ||||||||||||
Fair value adjustments (see note 5) | (34) | 7 | (77) | - | ||||||||||||
Amortization of other identifiable intangible assets | (128) | (135) | (388) | (415) | ||||||||||||
Other operating (losses) gains, net | (12) | (10) | (1) | 13 | ||||||||||||
Consolidated operating profit | 385 | 386 | 1,096 | 1,093 |
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In accordance with IFRS 8,Operating Segments, the Company discloses certain information about its reportable segments based upon measures used by management in assessing the performance of those reportable segments. These measures are described below and may not be comparable to similar measures of other companies.
Segment operating profit
• | Segment operating profit represents operating profit before (i) amortization of other identifiable intangible assets; (ii) other operating gains and losses; (iii) certain asset impairment charges; (iv) corporate-related items; and (v) fair value adjustments. |
• | The Company does not consider these excluded items to be controllable operating activities for purposes of assessing the current performance of the reportable segments. |
• | Each segment includes an allocation of costs for centralized support services such as technology, editorial, real estate and certain global transaction processing functions that are based on usage or other applicable measures. |
Additionally, the Company assesses its consolidated performance using the following measures.
Consolidated revenues and underlying operating profit
• | Consolidated revenues are revenues from reportable segments and Corporate & Other, less eliminations. |
• | Underlying operating profit is comprised of operating profit from reportable segments and Corporate & Other. |
Note 4: Seasonality
The Company’s revenues and operating profit on a consolidated basis do not tend to be significantly impacted by seasonality as it records a large portion of its revenues ratably over a contract term and its costs are generally incurred evenly throughout the year. However, non-recurring revenues can cause changes in the Company’s 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. The Company’s quarterly performance may also be impacted by volatile foreign currency exchange rates. As a consequence, the results of certain of the Company’s segments can be impacted by seasonality to a greater extent than its consolidated revenues and operating profit.
Note 5: Operating expenses
The components of operating expenses include the following:
THREE MONTHS ENDED SEPTEMBER 30, | NINE MONTHS ENDED SEPTEMBER 30, | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Salaries, commissions and allowances | 992 | 990 | 3,055 | 3,049 | ||||||||||||
Share-based payments | 29 | 20 | 80 | 52 | ||||||||||||
Post-employment benefits | 63 | 62 | 188 | 185 | ||||||||||||
Total staff costs | 1,084 | 1,072 | 3,323 | 3,286 | ||||||||||||
Goods and services(1) | 452 | 461 | 1,461 | 1,455 | ||||||||||||
Data | 206 | 219 | 630 | 668 | ||||||||||||
Telecommunications | 96 | 119 | 298 | 380 | ||||||||||||
Real estate | 92 | 94 | 275 | 294 | ||||||||||||
Fair value adjustments(2) | 34 | (7) | 77 | - | ||||||||||||
Total operating expenses | 1,964 | 1,958 | 6,064 | 6,083 |
(1) | Goods and services include professional fees, consulting and outsourcing services, contractors, selling and marketing, and other general and administrative costs. |
(2) | Fair value adjustments primarily represent mark-to-market impacts on embedded derivatives and certain share-based awards. |
Note 6: Other operating (losses) gains, net
Other operating (losses) gains, net, were $(12) million and $(10) million for the three months ended September 30, 2016 and 2015, respectively, and $(1) million and $13 million for the nine months ended September 30, 2016 and 2015, respectively. The nine months ended September 30, 2015 included a gain on sale of the Fiduciary Services and Competitive Intelligence unit of the Lipper business, which was formerly managed within the Financial & Risk segment.
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Note 7: Finance costs, net
The components of finance costs, net, include interest expense (income) and other finance costs (income) as follows:
THREE MONTHS ENDED SEPTEMBER 30, | NINE MONTHS ENDED SEPTEMBER 30, | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Interest expense: | ||||||||||||||||
Debt | 88 | 81 | 256 | 256 | ||||||||||||
Derivative financial instruments - hedging activities | 1 | 3 | 4 | 10 | ||||||||||||
Other, net | 6 | 5 | 8 | 10 | ||||||||||||
Fair value losses (gains) on financial instruments: | ||||||||||||||||
Cash flow hedges, transfer from equity | 16 | 110 | (74) | 260 | ||||||||||||
Net foreign exchange (gains) losses on debt | (16) | (110) | 74 | (260) | ||||||||||||
Net interest expense - debt and other | 95 | 89 | 268 | 276 | ||||||||||||
Net interest expense - pension and other post-employment benefit plans | 14 | 13 | 40 | 39 | ||||||||||||
Interest income | (1) | - | (4) | (1) | ||||||||||||
Net interest expense | 108 | 102 | 304 | 314 |
THREE MONTHS ENDED SEPTEMBER 30, | NINE MONTHS ENDED SEPTEMBER 30, | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Net (gains) losses due to changes in foreign currency exchange rates | (6) | 7 | (22) | 14 | ||||||||||||
Net losses (gains) on derivative instruments | 9 | 8 | 50 | (38) | ||||||||||||
Other finance costs (income) | 3 | 15 | 28 | (24) |
Net (gains) losses due to changes in foreign currency exchange rates
Net (gains) losses due to changes in foreign currency exchange rates were principally comprised of amounts related to certain intercompany funding arrangements.
Net losses (gains) on derivative instruments
Net losses (gains) on derivative instruments were principally comprised of amounts relating to foreign exchange contracts.
Note 8: Taxation
Tax expense (benefit) was $8 million and $7 million for the three months ended September 30, 2016 and 2015, respectively, and $(16) million and $42 million for the nine months ended September 30, 2016 and 2015, respectively. 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.
Note 9: Earnings per share
Basic earnings per share was calculated by dividing earnings attributable to common shareholders less dividends declared on preference shares by the sum of the weighted-average number of common shares and vested deferred share units (“DSUs”) outstanding during the period. DSUs represent common shares that certain employees have elected to receive in the future upon vesting of share-based compensation awards or in lieu of cash compensation.
Diluted earnings per share was calculated using the denominator of the basic calculation described above adjusted to include the potentially dilutive effect of outstanding stock options and time-based restricted share units (“TRSUs”).
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Earnings used in determining consolidated earnings per share and earnings per share from continuing operations are as follows:
THREE MONTHS ENDED SEPTEMBER 30, | NINE MONTHS ENDED SEPTEMBER 30, | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Earnings attributable to common shareholders | 273 | 280 | 872 | 847 | ||||||||||||
Less: Dividends declared on preference shares | (1) | (1) | (2) | (2) | ||||||||||||
Earnings used in consolidated earnings per share | 272 | 279 | 870 | 845 | ||||||||||||
Less: Earnings from discontinued operations, net of tax | (18) | (30) | (126) | (125) | ||||||||||||
Earnings used in earnings per share from continuing operations | 254 | 249 | 744 | 720 |
The weighted-average number of shares outstanding, as well as a reconciliation of the weighted-average number of shares outstanding used in the basic earnings per share computation to the weighted-average number of shares outstanding used in the diluted earnings per share computation, is presented below:
THREE MONTHS ENDED SEPTEMBER 30, | NINE MONTHS ENDED SEPTEMBER 30, | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Weighted-average number of common shares outstanding | 743,286,632 | 777,722,687 | 751,589,786 | 785,317,508 | ||||||||||||
Weighted-average number of vested DSUs | 652,470 | 612,119 | 636,699 | 614,495 | ||||||||||||
Basic | 743,939,102 | 778,334,806 | 752,226,485 | 785,932,003 | ||||||||||||
Effect of stock options and TRSUs | 1,833,109 | 2,835,269 | 1,690,114 | 2,865,814 | ||||||||||||
Diluted | 745,772,211 | 781,170,075 | 753,916,599 | 788,797,817 |
Note 10: Discontinued operations
In October 2016, the Company sold its Intellectual Property & Science business, which is reported as discontinued operations in the consolidated financial statements for all periods presented. See note 20.
Earnings from discontinued operations are summarized as follows:
THREE MONTHS ENDED SEPTEMBER 30, | NINE MONTHS ENDED SEPTEMBER 30, | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Revenues | 233 | 232 | 704 | 691 | ||||||||||||
Expenses | (212) | (198) | (557) | (555) | ||||||||||||
Earnings from discontinued operations before income tax | 21 | 34 | 147 | 136 | ||||||||||||
Tax expense(1) | (3) | (4) | (21) | (11) | ||||||||||||
Earnings from discontinued operations, net of tax | 18 | 30 | 126 | 125 |
(1) | Includes nil and a $16 million tax benefit in the three and nine months ended September 30, 2016, respectively, that reflects changes in the Company’s estimate of the net deferred tax asset it expects to realize in connection with the sale of its Intellectual Property & Science business. |
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The assets and liabilities associated with the Intellectual Property & Science business that are classified as held for sale in the consolidated statement of financial position are as follows:
SEPTEMBER 30, | ||||
2016 | ||||
Trade and other receivables | 232 | |||
Computer hardware and other property, net | 26 | |||
Computer software, net | 124 | |||
Other identifiable intangible assets, net | 180 | |||
Goodwill | 1,057 | |||
Other assets | 50 | |||
Deferred tax | 5 | |||
Total assets held for sale | 1,674 | |||
Payables, accruals and provisions | 117 | |||
Deferred revenue | 286 | |||
Other liabilities | 32 | |||
Deferred tax | 39 | |||
Total liabilities associated with assets held for sale | 474 |
Relative to assets held for sale, foreign currency translation adjustments recorded within accumulated other comprehensive loss in the consolidated statement of financial position were gains of $15 million at September 30, 2016.
Note 11: Financial instruments
Financial assets and liabilities
Financial assets and liabilities in the consolidated statement of financial position were as follows:
SEPTEMBER 30, 2016 | CASH, TRADE AND OTHER RECEIVABLES | ASSETS/ (LIABILITIES) AT FAIR VALUE THROUGH EARNINGS | DERIVATIVES USED FOR HEDGING | AVAILABLE FOR SALE | OTHER FINANCIAL LIABILITIES | TOTAL | ||||||||||||||||||
Cash and cash equivalents | 831 | - | - | - | - | 831 | ||||||||||||||||||
Trade and other receivables | 1,403 | - | - | - | - | 1,403 | ||||||||||||||||||
Other financial assets - current | 54 | 71 | - | - | - | 125 | ||||||||||||||||||
Other financial assets - non-current | 50 | 27 | - | 32 | - | 109 | ||||||||||||||||||
Current indebtedness | - | - | - | - | (2,855) | (2,855) | ||||||||||||||||||
Trade payables (see note 13) | - | - | - | - | (222) | (222) | ||||||||||||||||||
Accruals (see note 13) | - | - | - | - | (1,415) | (1,415) | ||||||||||||||||||
Other financial liabilities - current(1) | - | (53) | - | - | (140) | (193) | ||||||||||||||||||
Long-term indebtedness | - | - | - | - | (6,307) | (6,307) | ||||||||||||||||||
Other financial liabilities - non current | - | (29) | (314) | - | (1) | (344) | ||||||||||||||||||
Total | 2,338 | 16 | (314) | 32 | (10,940) | (8,868) |
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DECEMBER 31, 2015 | CASH, TRADE AND OTHER RECEIVABLES | ASSETS/ (LIABILITIES) AT FAIR VALUE THROUGH EARNINGS | DERIVATIVES USED FOR HEDGING | AVAILABLE FOR SALE | OTHER FINANCIAL LIABILITIES | TOTAL | ||||||||||||||||||
Cash and cash equivalents | 966 | - | - | - | - | 966 | ||||||||||||||||||
Trade and other receivables | 1,755 | - | - | - | - | 1,755 | ||||||||||||||||||
Other financial assets - current | 55 | 121 | - | - | - | 176 | ||||||||||||||||||
Other financial assets - non-current | 56 | 24 | - | 36 | - | 116 | ||||||||||||||||||
Current indebtedness | - | - | - | - | (1,595) | (1,595) | ||||||||||||||||||
Trade payables (see note 13) | - | - | - | - | (305) | (305) | ||||||||||||||||||
Accruals (see note 13) | - | - | - | - | (1,520) | (1,520) | ||||||||||||||||||
Other financial liabilities - current(1) | - | (15) | - | - | (223) | (238) | ||||||||||||||||||
Long-term indebtedness | - | - | - | - | (6,829) | (6,829) | ||||||||||||||||||
Other financial liabilities - non current | - | (15) | (370) | - | (2) | �� | (387) | |||||||||||||||||
Total | 2,832 | 115 | (370) | 36 | (10,474) | (7,861) |
(1) | Includes a commitment to repurchase up to $85 million (December 31, 2015 - $165 million) related to the Company’s pre-defined plan with its broker to repurchase the Company’s shares during its internal trading blackout period. See note 15. |
Cash and cash equivalents
Of total cash and cash equivalents, $119 million and $106 million at September 30, 2016 and December 31, 2015, respectively, was held in subsidiaries which have regulatory restrictions, contractual restrictions or operate in countries where exchange controls and other legal restrictions apply and are therefore not available for general use by the Company.
Debt-related activity
The following table provides information regarding notes that the Company issued and repaid in the nine months ended September 30, 2016 and 2015:
MONTH/YEAR | TRANSACTION | PRINCIPAL AMOUNT (IN MILLIONS) | ||
Notes issued | ||||
May 2016 | 3.35% Notes, due 2026 | US$500 | ||
Notes repaid | ||||
May 2016 | 0.875% Notes, due 2016 | US$500 | ||
July 2015 | 5.70% Notes, due 2015 | C$600 |
The Company used the net proceeds of its May 2016 debt issuance to repay the notes which matured that month. In July 2015, the Company repaid C$600 million ($593 million after swaps) of notes upon their maturity, principally from cash on hand which included proceeds from earlier commercial paper issuances in 2015.
Under its commercial paper programs, the Company may issue up to $2.0 billion of notes. At September 30, 2016, current indebtedness included $1.740 billion (December 31, 2015—$1.037 billion) of outstanding commercial paper within the consolidated statement of financial position. See note 20.
The Company has a $2.5 billion syndicated credit facility agreement which matures in May 2018. The facility may be utilized to provide liquidity for general corporate purposes (including to support its commercial paper programs). There were no borrowings under the credit facility during the nine months ended September 30, 2016.
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Fair Value
The fair values of cash, trade and other receivables, trade payables and accruals approximate their carrying amounts because of the short-term maturity of these instruments. The fair value of long-term debt and related derivative instruments is set forth below.
Debt and Related Derivative Instruments
Carrying Amounts
Amounts recorded in the consolidated statement of financial position are referred to as “carrying amounts”. The carrying amounts of primary debt are reflected in “Long-term indebtedness” and “Current indebtedness” and the carrying amounts of derivative instruments are included in “Other financial assets” and “Other financial liabilities”, both current and non-current in the consolidated statement of financial position, as appropriate.
Fair Value
The fair value of debt is estimated based on either quoted market prices for similar issues or current rates offered to the Company for debt of the same maturity. The fair value of interest rate swaps are estimated based upon discounted cash flows using applicable current market rates and taking into account non-performance risk.
The following is a summary of debt and related derivative instruments that hedge the cash flows or fair value of the debt:
CARRYING AMOUNT | FAIR VALUE | |||||||||||||||||||
SEPTEMBER 30, 2016 | PRIMARY DEBT INSTRUMENTS | DERIVATIVE INSTRUMENTS LIABILITY | PRIMARY DEBT INSTRUMENTS | DERIVATIVE INSTRUMENTS LIABILITY | ||||||||||||||||
Bank and other | 17 | - | 18 | - | ||||||||||||||||
Commercial paper | 1,740 | - | 1,740 | - | ||||||||||||||||
C$500, 3.369% Notes, due 2019 | 379 | 93 | 396 | 93 | ||||||||||||||||
C$750, 4.35% Notes, due 2020 | 568 | 158 | 622 | 158 | ||||||||||||||||
C$550, 3.309% Notes, due 2021 | 417 | 63 | 442 | 63 | ||||||||||||||||
$550, 1.30% Notes, due 2017 | 550 | - | 550 | - | ||||||||||||||||
$550, 1.65% Notes, due 2017 | 549 | - | 551 | - | ||||||||||||||||
$1,000, 6.50% Notes, due 2018 | 997 | - | 1,086 | - | ||||||||||||||||
$500, 4.70% Notes, due 2019 | 498 | - | 541 | - | ||||||||||||||||
$350, 3.95% Notes, due 2021 | 348 | - | 376 | - | ||||||||||||||||
$600, 4.30% Notes, due 2023 | 595 | - | 653 | - | ||||||||||||||||
$450, 3.85% Notes, due 2024 | 446 | - | 476 | - | �� | |||||||||||||||
$500, 3.35% Notes, due 2026 | 494 | - | 512 | - | ||||||||||||||||
$350, 4.50% Notes, due 2043 | 341 | - | 357 | - | ||||||||||||||||
$350, 5.65% Notes, due 2043 | 340 | - | 410 | - | ||||||||||||||||
$400, 5.50% Debentures, due 2035 | 394 | - | 458 | - | ||||||||||||||||
$500, 5.85% Debentures, due 2040 | 489 | - | 600 | - | ||||||||||||||||
Total | 9,162 | 314 | 9,788 | 314 | ||||||||||||||||
Current portion | 2,855 | - | ||||||||||||||||||
Long-term portion | 6,307 | 314 |
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CARRYING AMOUNT | FAIR VALUE | |||||||||||||||||||
DECEMBER 31, 2015 | PRIMARY DEBT INSTRUMENTS | DERIVATIVE INSTRUMENTS LIABILITY | PRIMARY DEBT INSTRUMENTS | DERIVATIVE INSTRUMENTS LIABILITY | ||||||||||||||||
Bank and other | 57 | - | 59 | - | ||||||||||||||||
Commercial paper | 1,037 | - | 1,037 | - | ||||||||||||||||
C$500, 3.369% Notes, due 2019 | 358 | 109 | 374 | 109 | ||||||||||||||||
C$750, 4.35% Notes, due 2020 | 537 | 182 | 581 | 182 | ||||||||||||||||
C$550, 3.309% Notes, due 2021 | 394 | 79 | 405 | 79 | ||||||||||||||||
$500, 0.875% Notes, due 2016 | 500 | - | 499 | - | ||||||||||||||||
$550, 1.30% Notes, due 2017 | 548 | - | 546 | - | ||||||||||||||||
$550, 1.65% Notes, due 2017 | 548 | - | 547 | - | ||||||||||||||||
$1,000, 6.50% Notes, due 2018 | 997 | - | 1,102 | - | ||||||||||||||||
$500, 4.70% Notes, due 2019 | 498 | - | 535 | - | ||||||||||||||||
$350, 3.95% Notes, due 2021 | 348 | - | 361 | - | ||||||||||||||||
$600, 4.30% Notes, due 2023 | 594 | - | 615 | - | ||||||||||||||||
$450, 3.85% Notes, due 2024 | 445 | - | 442 | - | ||||||||||||||||
$350, 4.50% Notes, due 2043 | 340 | - | 300 | - | ||||||||||||||||
$350, 5.65% Notes, due 2043 | 340 | - | 351 | - | ||||||||||||||||
$400, 5.50% Debentures, due 2035 | 394 | - | 411 | - | ||||||||||||||||
$500, 5.85% Debentures, due 2040 | 489 | - | 531 | - | ||||||||||||||||
Total | 8,424 | 370 | 8,696 | 370 | ||||||||||||||||
Current portion | 1,595 | - | ||||||||||||||||||
Long-term portion | 6,829 | 370 |
Fair value estimation
The following fair value measurement hierarchy is used for financial instruments that are measured in the consolidated statement of financial position at fair value:
• | Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities; |
• | Level 2 – inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices); and |
• | Level 3 – inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs). |
The levels used to determine fair value measurements for those instruments carried at fair value in the consolidated statement of financial position are as follows:
SEPTEMBER 30, 2016 | TOTAL | |||||||||||||||
Assets | LEVEL 1 | LEVEL 2 | LEVEL 3 | BALANCE | ||||||||||||
Embedded derivatives(1) | - | 94 | - | 94 | ||||||||||||
Forward exchange contracts(2) | - | 4 | - | 4 | ||||||||||||
Financial assets at fair value through earnings | - | 98 | - | 98 | ||||||||||||
Available for sale investments(3) | 5 | 27 | - | 32 | ||||||||||||
Total assets | 5 | 125 | - | 130 | ||||||||||||
Liabilities | ||||||||||||||||
Embedded derivatives(1) | - | (47) | - | (47) | ||||||||||||
Forward exchange contracts(2) | - | (33) | - | (33) | ||||||||||||
Contingent consideration(4) | - | - | (2) | (2) | ||||||||||||
Financial liabilities at fair value through earnings | - | (80) | (2) | (82) | ||||||||||||
Derivatives used for hedging(5) | - | (314) | - | (314) | ||||||||||||
Total liabilities | - | (394) | (2) | (396) |
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DECEMBER 31, 2015 | TOTAL | |||||||||||||||
Assets | LEVEL 1 | LEVEL 2 | LEVEL 3 | BALANCE | ||||||||||||
Embedded derivatives(1) | - | 132 | - | 132 | ||||||||||||
Forward exchange contracts(2) | - | 13 | - | 13 | ||||||||||||
Financial assets at fair value through earnings | - | 145 | - | 145 | ||||||||||||
Available for sale investments(3) | 6 | 30 | - | 36 | ||||||||||||
Total assets | 6 | 175 | - | 181 | ||||||||||||
Liabilities | ||||||||||||||||
Embedded derivatives(1) | - | (20) | - | (20) | ||||||||||||
Forward exchange contracts(2) | - | (8) | - | (8) | ||||||||||||
Contingent consideration(4) | - | - | (2) | (2) | ||||||||||||
Financial liabilities at fair value through earnings | - | (28) | (2) | (30) | ||||||||||||
Derivatives used for hedging(5) | - | (370) | - | (370) | ||||||||||||
Total liabilities | - | (398) | (2) | (400) |
(1) | Largely related to U.S. dollar pricing of customer agreements by subsidiaries outside of the U.S. |
(2) | Used to manage foreign exchange risk on cash flows, excluding indebtedness. |
(3) | Investments in entities over which the Company does not have control, joint control or significant influence. |
(4) | Obligations to pay additional consideration for prior acquisitions. |
(5) | Comprised of fixed-to-fixed cross-currency swaps on indebtedness. |
The Company recognizes transfers into and transfers out of the fair value measurement hierarchy levels as of the date of the event or a change in circumstances that caused the transfer. There were no transfers between hierarchy levels for the nine months ended September 30, 2016.
Valuation Techniques
The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined by using valuation techniques. These valuation techniques maximize the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3.
Specific valuation techniques used to value financial instruments include:
• | quoted market prices or dealer quotes for similar instruments; |
• | the fair value of currency and interest rate swaps and forward foreign exchange contracts is calculated as the present value of the estimated future cash flows based on observable yield curves; and |
• | the fair value of contingent consideration is calculated based on estimates of future revenue performance. |
Note 12: Other non-current assets
SEPTEMBER 30, 2016 | DECEMBER 31, 2015 | |||||||
Net defined benefit plan surpluses | 27 | 19 | ||||||
Cash surrender value of life insurance policies | 288 | 283 | ||||||
Equity method investments | 164 | 173 | ||||||
Other non-current assets | 76 | 69 | ||||||
Total other non-current assets | 555 | 544 |
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Note 13: Payables, accruals and provisions
SEPTEMBER 30, 2016 | DECEMBER 31, 2015 | |||||||
Trade payables | 222 | 305 | ||||||
Accruals | 1,415 | 1,520 | ||||||
Provisions | 134 | 176 | ||||||
Other current liabilities | 357 | 277 | ||||||
Total payables, accruals and provisions | 2,128 | 2,278 |
Note 14: Provisions and other non-current liabilities
SEPTEMBER 30, 2016 | DECEMBER 31, 2015 | |||||||
Net defined benefit plan obligations | 1,645 | 1,311 | ||||||
Deferred compensation and employee incentives | 232 | 242 | ||||||
Provisions | 108 | 117 | ||||||
Uncertain tax positions | 337 | 338 | ||||||
Other non-current liabilities | 82 | 116 | ||||||
Total provisions and other non-current liabilities | 2,404 | 2,124 |
Note 15: Capital
Share repurchases
The Company may buy back shares (and subsequently cancel them) from time to time as part of its capital strategy. In May 2016, the Company renewed its current normal course issuer bid (“NCIB”) for an additional 12 months. Under the renewed NCIB, the Company may repurchase up to 37.5 million common shares between May 30, 2016 and May 29, 2017 in open market transactions on the TSX, the NYSE and/or other exchanges and alternative trading systems, if eligible, or by such other means as may be permitted by the TSX and/or NYSE or under applicable law, including private agreement purchases if the Company receives an issuer bid exemption order from applicable securities regulatory authorities in Canada for such purchases. In the nine months ended September 30, 2016, the Company privately repurchased 4.1 million common shares at a discount to the then-prevailing market price.
Details of share repurchases were as follows:
THREE MONTHS ENDED SEPTEMBER 30, | NINE MONTHS ENDED SEPTEMBER 30, | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Share repurchases (millions of U.S. dollars) | 542 | 554 | 1,232 | 1,250 | ||||||||||||
Shares repurchased (millions) | 13.2 | 14.4 | 31.2 | 31.7 | ||||||||||||
Share repurchases - average price per share | $41.40 | $38.60 | $39.56 | $39.48 |
Decisions regarding any future repurchases will be based on factors such as market conditions, share price, and other opportunities to invest capital for growth. The Company may elect to suspend or discontinue its share repurchases at any time, in accordance with applicable laws. From time to time when the Company does not possess material nonpublic information about itself or its securities, it may enter into a pre-defined plan with its broker to allow for the repurchase of shares at times when the Company ordinarily would not be active in the market due to its own internal trading blackout periods, insider trading rules or otherwise. Any such plans entered into with the Company’s broker will be adopted in accordance with applicable Canadian securities laws and the requirements of Rule 10b5-1 under the U.S. Securities Exchange Act of 1934, as amended. The Company entered into such plans with its broker on September 30, 2016 and on December 31, 2015. As a result, the Company recorded an $85 million liability in “Other financial liabilities” within current liabilities at September 30, 2016 ($165 million at December 31, 2015) with a corresponding amount recorded in equity in the consolidated statement of financial position in both periods.
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Dividends
Dividends on common shares are declared in U.S. dollars. In the consolidated statement of cash flow, dividends paid on common shares are shown net of amounts reinvested in the Company under its dividend reinvestment plan. Details of dividends declared per share and dividends paid on common shares are as follows:
THREE MONTHS ENDED SEPTEMBER 30, | NINE MONTHS ENDED SEPTEMBER 30, | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Dividends declared per common share | $ | 0.34 | $ | 0.335 | $ | 1.02 | $ | 1.005 | ||||||||
Dividends declared | 252 | 261 | 766 | 789 | ||||||||||||
Dividends reinvested | (9) | (8) | (26) | (24) | ||||||||||||
Dividends paid | 243 | 253 | 740 | 765 |
Note 16: Supplemental cash flow information
Details of “Other” in the consolidated statement of cash flow are as follows:
THREE MONTHS ENDED SEPTEMBER 30, | NINE MONTHS ENDED SEPTEMBER 30, | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Non-cash employee benefit charges | 72 | 66 | 222 | 191 | ||||||||||||
Fair value adjustments | 34 | (7) | 77 | - | ||||||||||||
Net losses (gains) on foreign exchange and derivative financial instruments | 7 | 15 | 28 | (26) | ||||||||||||
Other | 16 | 14 | 27 | 19 | ||||||||||||
129 | 88 | 354 | 184 |
Details of “Changes in working capital and other items” are as follows:
THREE MONTHS ENDED SEPTEMBER 30, | NINE MONTHS ENDED SEPTEMBER 30, | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Trade and other receivables | 83 | (9) | 75 | (17) | ||||||||||||
Prepaid expenses and other current assets | 14 | (13) | (46) | (60) | ||||||||||||
Other financial assets | (5) | 44 | 26 | 95 | ||||||||||||
Payables, accruals and provisions | 49 | 41 | (148) | (226) | ||||||||||||
Deferred revenue | (100) | (59) | (103) | (23) | ||||||||||||
Other financial liabilities | (6) | (26) | (48) | (39) | ||||||||||||
Income taxes | 24 | 10 | (11) | (40) | ||||||||||||
Other(1) | (22) | (23) | (89) | (91) | ||||||||||||
37 | (35) | (344) | (401) |
(1) | Includes $(18) million (2015—$(13) million) and $(69) million (2015—$(63) million) related to employee benefit plans for the three and nine months ended September 30, 2016 and 2015, respectively. |
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Note 17: Acquisitions
Acquisitions primarily comprise the purchase of businesses that are integrated into existing operations to broaden the Company’s range of offerings to customers as well as its presence in global markets.
Acquisition activity
There were no acquisitions in the three months ended September 30, 2016. The number of acquisitions completed, and the related cash consideration for the nine months ended September 30, 2016, were as follows:
NINE MONTHS ENDED SEPTEMBER 30, 2016 | ||||||||
| NUMBER OF TRANSACTIONS | CASH CONSIDERATION | ||||||
Businesses and identifiable intangible assets acquired, net of cash | 4 | 110 | ||||||
Investments in businesses | 2 | 1 | ||||||
6 | 111 |
Purchase price allocation
Each business combination has been accounted for using the acquisition method and the results of acquired businesses are included in the consolidated financial statements from the dates of acquisition. Purchase price allocations related to certain acquisitions may be subject to adjustment pending completion of final valuations.
The details of net assets acquired were as follows:
NINE MONTHS ENDED SEPTEMBER 30, 2016(1) | ||||
Trade receivables | 9 | |||
Prepaid expenses and other current assets | 3 | |||
Current assets | 12 | |||
Computer software | 19 | |||
Other identifiable intangible assets | 33 | |||
Other financial assets | 1 | |||
Total assets | 65 | |||
Payables and accruals | (4) | |||
Deferred revenue | (10) | |||
Current liabilities | (14) | |||
Deferred tax | (2) | |||
Total liabilities | (16) | |||
Net assets acquired | 49 | |||
Goodwill | 61 | |||
Total | 110 |
(1) | Includes valuation adjustments for acquisitions that closed in the first half of the year. |
The excess of the purchase price over the net tangible and identifiable intangible assets acquired and assumed liabilities was recorded as goodwill and reflects synergies and the value of the acquired workforce. The majority of goodwill for acquisitions completed in 2016 is not expected to be deductible for tax purposes.
Acquisition transactions were completed by acquiring all equity interests or the net assets of the acquired business.
Other
The revenues and operating profit of acquired businesses since the date of acquisition were not material to the Company’s results of operations.
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Note 18: Contingencies
Lawsuits and legal claims
The Company is engaged in various legal proceedings, claims, audits and investigations that have arisen in the ordinary course of business. These matters include, but are not limited to, antitrust/competition claims, intellectual property infringement claims, employment matters and commercial matters. The outcome of all of the matters against the Company is subject to future resolution, including the uncertainties of litigation. Based on information currently known to the Company and after consultation with outside legal counsel, management believes that the ultimate resolution of any such matters, individually or in the aggregate, will not have a material adverse impact on the Company’s financial condition taken as a whole.
Uncertain tax positions
The Company is subject to taxation in numerous jurisdictions and is routinely under audit by many different taxing authorities in the ordinary course of business. There are many transactions and calculations during the course of business for which the ultimate tax determination is uncertain, as taxing authorities may challenge some of the Company’s positions and propose adjustments or changes to its tax filings.
As a result, the Company maintains provisions for uncertain tax positions that it believes appropriately reflect its risk. These provisions are made using the Company’s best estimates of the amount expected to be paid based on a qualitative assessment of all relevant factors. The Company reviews the adequacy of these provisions at the end of each reporting period and adjusts them based on changing facts and circumstances. Due to the uncertainty associated with tax audits, it is possible that at some future date, liabilities resulting from such audits or related litigation could vary significantly from the Company’s provisions. However, based on currently enacted legislation, information currently known by the Company and after consultation with outside tax advisors, management believes that the ultimate resolution of any such matters, individually or in the aggregate, will not have a material adverse impact on the Company’s financial condition taken as a whole.
In June 2016, certain U.S. subsidiaries received a statutory notice of deficiency from the Internal Revenue Service (IRS) for the 2010 and 2011 tax years. In the notice, the IRS claims that the taxable income of these subsidiaries should be increased by an amount that creates an aggregate potential additional income tax liability of approximately $250 million for the period, including interest. The IRS claim relates to the Company’s intercompany transfer pricing practices. The Company plans to pursue all available administrative and judicial remedies necessary to resolve the matter. To that end, the Company filed a petition in U.S. Tax Court in September 2016. Management believes the Company will prevail in this dispute.
Note 19: Related party transactions
As of September 30, 2016, The Woodbridge Company Limited (“Woodbridge”) beneficially owned approximately 61% of the Company’s shares.
In January 2016, the Company sold a Canadian wholly owned subsidiary to a company affiliated with Woodbridge for $16 million. The subsidiary’s assets consisted of accumulated losses that management did not expect to utilize against future taxable income prior to their expiry. As such, no tax benefit for the losses had been recognized in the consolidated financial statements. Under Canadian law, certain losses may only be transferred to related companies, such as those affiliated with Woodbridge. A gain of $16 million was recorded within “Other operating (losses) gains, net” within the consolidated income statement. In connection with this transaction, the board of directors’ Corporate Governance Committee obtained an independent fairness opinion. The Company utilized the independent fairness opinion to determine that the negotiated price between the Company and the purchaser was reasonable. After receiving the recommendation of the Corporate Governance Committee, the board of directors approved the transaction. Directors who were not considered independent because of their positions with Woodbridge refrained from deliberating and voting on the matter at both the committee and board meetings.
Except for the above transaction, there were no new significant related party transactions during the nine months ended September 30, 2016. Refer to “Related party transactions” set out in note 29 of the Company’s consolidated financial statements for the year ended December 31, 2015, which are included in the Company’s 2015 annual report, for information regarding related party transactions.
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Note 20: Subsequent events
Sale of Intellectual Property & Science
In October 2016, the Company sold its Intellectual Property & Science business for $3.55 billion and expects to record a post-tax gain of approximately $2.0 billion on the transaction in the fourth quarter of 2016. The Company is providing a range of transitional services to the business in connection with its separation from Thomson Reuters.
Repayment of commercial paper
In October 2016, the Company repaid $1.7 billion of commercial paper with some of the net proceeds from the sale of its Intellectual Property & Science business.
Charge
On November 1, 2016, the Company announced that it plans to record a charge of between $200 million and $250 million to be incurred in the fourth quarter of 2016. The charge is intended to accelerate the pace of the Company’s Transformation program to simplify and streamline its business.
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