TORSTAR CORPORATION 1st QUARTER

Transcription

1 TORSTAR CORPORATION 1st QUARTER

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3 INTERIM MANAGEMENT S DISCUSSION AND ANALYSIS 1 For the three months ended March 31, 2007 and 2006 Dated: May 1, 2007 The following review and analysis of Torstar Corporation s (the Company or Torstar ) operations and financial position for the three months ended March 31, 2007 and 2006 is supplementary to, and should be read in conjunction with the audited consolidated financial statements of Torstar Corporation for the year ended December 31, 2006 set forth in the Company s Annual Report for such fiscal year and incorporated by reference in the Company s renewal Annual Information Form dated March 20, Torstar reports its financial results under Canadian generally accepted accounting principles ( GAAP ) in Canadian dollars. Per share amounts are calculated using the weighted average number of shares outstanding for the applicable period. Non GAAP Measures Management uses both operating profit, as presented in the consolidated statements of income, and EBITDA as measures to assess the performance of the reporting units and business segments. EBITDA is a measure that is also used by many of Torstar s shareholders, creditors, other stakeholders and analysts as a proxy for the amount of cash generated by the reporting unit or segment. EBITDA is not the actual cash provided by operating activities and is not a recognized measure of financial performance under GAAP. Torstar calculates EBITDA as the reporting unit or segment s operating profit before restructuring provisions, interest, gains on sale of properties, taxes, depreciation and amortization of intangible assets. Torstar s method of calculating EBITDA may differ from other companies and accordingly, may not be comparable to measures used by other companies. Forward looking statements Certain statements in this report may constitute forward looking statements that reflect management s expectations regarding the Company s future growth, results of operations, performance and business prospects and opportunities as of the date of this report. Generally, these forward looking statements can be identified by the use of forward looking terminology such as anticipate, believe, plan, forecast, expect, intend, would, could, if, may and similar expressions. All such statements are made pursuant to the safe harbour provisions of applicable Canadian securities legislation. These statements reflect current expectations of management regarding future events and operating performance, and speak only as of the date of this report. The Company does not intend, and disclaims any obligation to, update any forward looking statements whether as a result of new information or otherwise.

4 INTERIM MANAGEMENT S INTERIM DISCUSSION MANAGEMENT S AND ANALYSIS 2 DISCUSSION AND ANALYSIS By their very nature, forward looking statements require management to make assumptions and are subject to inherent risks and uncertainties. There is a significant risk that predictions, forecasts, conclusions or projections will not prove to be accurate, that management s assumptions may not be accurate and that actual results, performance or achievements may differ significantly from such predictions, forecasts, conclusions or projections expressed or implied by such forward looking statements. We caution readers to not place undue reliance on the forward looking statements in this MD&A as a number of factors could cause actual future results, conditions, actions or events to differ materially from the targets, outlooks, expectations, goals, estimates or intentions expressed in the forward looking statements. These factors include, but are not limited to: general economic conditions in the principal markets in which the Company operates, the Company s ability to operate in highly competitive industries, the Company s ability to compete with other forms of media, the Company s ability to attract advertisers, cyclical and seasonal variations in the Company s revenues, newsprint costs, labour disruptions, foreign exchange fluctuations, restrictions imposed on existing credit facilities, litigation, and uncertainties associated with critical accounting estimates. We caution that the foregoing list is not exhaustive of all possible factors, as other factors could adversely affect our results. For more information, please see the discussion starting on page 24 of the Company s 2006 Annual Report concerning the effect certain risk factors could have on actual results, as well as the discussion in the Company s current Annual Information Form. In addition, a number of assumptions, including those assumptions specifically identified throughout this MD&A, were applied in making the forward looking statements set forth in this MD&A, some or all of which may be incorrect. OVERVIEW Torstar Corporation is a broadly based media company listed on the Toronto Stock Exchange (TS.B). Torstar reports its operations in two segments: Newspapers and Digital; and Book Publishing. Its Newspapers and Digital Segment includes the Star Media Group led by the Toronto Star, Canada s largest daily newspaper and digital properties including thestar.com, toronto.com, LiveDeal.ca, Workopolis, and Olive Canada Network; and Metroland Media Group, publishers of community and daily newspapers in Ontario. Its Book Publishing Segment represents Harlequin Enterprises, a leading global publisher of women s fiction. Torstar also has investments in CTVglobemedia Inc. ( CTVgm ) and Black Press Limited which are accounted for as Associated Businesses, using the equity method.

5 INTERIM MANAGEMENT S INTERIM DISCUSSION MANAGEMENT S AND ANALYSIS DISCUSSION AND ANALYSIS 3 OPERATING RESULTS First Quarter 2007 Overall Performance Total revenue was $377.4 million in the first quarter of 2007, up $20.3 million from $357.1 million in the first quarter of Newspapers and Digital revenue grew $14.2 million to $253.0 million split equally between growth in underlying operations and differences in the publishing days in the first quarter of Reported Book Publishing revenue was $124.5 million in the first quarter, up $6.2 million from $118.3 million in the same period last year including $5.1 million from the favourable impact of foreign exchange rates. Operating profit was $34.4 million in the first quarter of 2007, up $13.7 million from $20.7 million in Newspapers and Digital Segment operating profit was $19.9 million in the first quarter, up $5.7 million from $14.2 million in 2006 led by strong growth at Metroland Media Group. Book Publishing operating profit was $19.1 million in the first quarter of 2007, up $4.0 million from $15.1 million in 2006 with growth in the North America Retail division. Corporate costs were $4.7 million in the first quarter of 2007, down $0.2 million from the first quarter of In addition, in the first quarter of 2006, a restructuring provision of $3.7 million was recorded related to a voluntary severance program at the Toronto Star s Vaughan Press Centre. EBITDA, excluding restructuring provisions, was $48.3 million in the first quarter of 2007, up $9.8 million from $38.5 million in Newspapers and Digital $32,689 $26,558 Book Publishing 20,329 16,826 Corporate (4,672) (4,875) EBITDA, excluding restructuring provisions $48,346 $38,509 Interest expense was $8.7 million in the first quarter of 2007, up $5.9 million from $2.8 million in the first quarter of This significant increase was due to the higher level of debt outstanding from the investment in CTVgm made late in the third quarter of 2006, and higher interest rates. The average net debt (long term debt and bank overdraft net of cash and cash equivalents) was $687.5 million in the first quarter of 2007, up from $293.6 million in the first quarter of Torstar s effective interest rate was 5.1% in the first quarter of 2007 and 3.8% in 2006.

6 INTERIM MANAGEMENT S INTERIM DISCUSSION MANAGEMENT S AND ANALYSIS 4 DISCUSSION AND ANALYSIS Income from associated businesses was $0.5 million in the first quarter of 2007 compared with a loss of $0.5 million in The first quarter of 2007 includes $0.6 million from CTVgm s results for the quarter ended February 28, 2007 (its second quarter of fiscal 2007) adjusted for the impact of the allocation of Torstar s purchase price to CTVgm s underlying assets and liabilities. (As Torstar and CTVgm do not have coterminous quarter ends, Torstar reflects CTVgm s operations with a one month lag.) CTVgm s second quarter is not as strong as its first due to the seasonality of both the CTV and CHUM operations. Torstar s loss from Black Press was $0.1 million in the first quarter of 2007 compared with a loss of $0.5 million in The first quarter loss reflects the seasonal nature of the newspaper operations. Torstar s effective tax rate was 39.8% in the first quarter of 2007 compared with 44.1% in the first quarter of During the first quarter of 2007, a change in foreign tax rates increased the tax expense by $0.5 million as future income tax assets were adjusted to reflect the new tax rate. Excluding this impact, Torstar s effective tax rate was 37.9% in the first quarter of The lower effective tax rate in the quarter was the result of the relative impact of capital based taxes and non tax effected foreign losses on higher pre tax income year over year. The full year 2007 tax rate is expected to be approximately 38%. Net income was $15.7 million in the first quarter of 2007, up $5.9 million from $9.8 million in Net income per share was $0.20 in the first quarter, up $0.07 from $0.13 in the first quarter of The average number of shares outstanding was 78.4 million in the first quarter of 2007 and 78.1 million in The following chart provides a continuity of earnings per share from 2006 to 2007: Net income per share 2006 $0.13 Changes Operations 0.06 Restructuring provisions in Income from associated businesses 0.01 Interest on CTVgm investment (0.04) Effective tax rate 0.01 Net income per share 2007 $0.20

7 INTERIM MANAGEMENT S DISCUSSION AND ANALYSIS 5 Segment Operating Results Newspapers and Digital Segment The Newspapers and Digital Segment includes the Star Media Group; Metroland Media Group; and Transit Television Network ( Transit TV ). Star Media Group includes the Toronto Star, with the largest circulation and readership of any daily newspaper in Canada; Torstar s interests in Sing Tao Daily and the Toronto, Ottawa, Vancouver, Edmonton and Calgary editions of Metro; thestar.com; Toronto.com; LiveDeal.ca; and Torstar Media Group Television ( TMG TV ). TMG TV is a 24 hour direct response television business operating the SHOP TV Canada channel and TMG TV Productions. Star Media Group also includes Workopolis, Olive Canada Network and the Torstar Digital corporate group. Metroland Media Group (the combination of the former Metroland and CityMedia Group Inc.) publishes in print and on line more than 100 community newspapers and three daily newspapers The Hamilton Spectator, The Record (Kitchener, Cambridge and Waterloo) and the Guelph Mercury. It is also the publisher of Goldbook Directories, a number of specialty publications, and operates several consumer shows throughout Ontario through its Premier Consumer Shows division. Transit TV is a U.S. based operation that delivers full motion, broadcast quality information and entertainment to passengers on buses, rail and other modes of mass transit on screens mounted in the vehicle. Torstar is continuing to review its strategic options for Transit TV. The following tables set out, in $000 s, the results for the reporting units within the Newspapers and Digital Segment for the three months ended March 31, 2007 and The 2006 results have been regrouped from the presentation in the first quarter of 2006 to reflect the change in reporting units that occurred in the fourth quarter of Operating Revenue Operating Profit (Loss) Profit Margin Star Media $119,435 $117,583 $2,922 $ % 0.8% Metroland Media 133, ,897 19,904 16, % 13.5% Transit TV (2,878) (2,976) n/a n/a Segment Total $252,986 $238,764 $19,948 $14, % 6.0%

8 INTERIM MANAGEMENT S INTERIM DISCUSSION MANAGEMENT S AND ANALYSIS 6 DISCUSSION AND ANALYSIS Depreciation and Amortization EBITDA 1 EBITDA Margin Star Media $7,990 $8,199 $10,912 $9, % 7.8% Metroland Media 3,788 3,406 23,692 19, % 16.3% Transit TV (1,915) (2,270) n/a n/a Segment Total $12,741 $12,311 $32,689 $26, % 11.1% Total revenue of the Newspapers and Digital Segment was $253.0 million in the first quarter of 2007, up $14.2 million from $238.8 million in Digital revenues were 4.0% of the total in 2007, up from 3.0% in The first quarter of 2007 was positively impacted by the calendar. The daily newspapers, both the Toronto Star and the Metroland Media Group dailies, had an extra Saturday in the quarter. The community newspapers had six extra calendar days in the quarter which provided at least one additional publication day for most of the weekly publications. The impact of these publication days was estimated to be $7.0 million on revenue and $3.0 million on EBITDA. Excluding this impact, EBITDA increased $3.1 million or 11.7% in the quarter. The impact of the extra Saturday will reverse in the third quarter for the Toronto Star and the second quarter for the Metroland Media Group dailies. The impact of the extra publishing days for the community newspapers will reverse in the fourth quarter. Star Media Group The Star Media Group reported revenues of $119.4 million in the first quarter of 2007, an increase of $1.8 million from $117.6 million in the first quarter of 2006 with higher revenues for Torstar Digital and Metro offsetting lower advertising revenue at the Toronto Star. Star Media Group s EBITDA was $10.9 million in the first quarter of 2007, up $1.7 million from $9.2 million in the same period in In the first quarter of 2006, Weekly Scoop (which ceased publication in June 2006) had EBITDA losses of $1.4 million. The Star Media Group had an operating profit of $2.9 million in the first quarter of 2007, up $1.9 million from $1.0 million in the first quarter of EBITDA is calculated as reporting unit or segment operating profit plus depreciation and amortization.

9 INTERIM MANAGEMENT S DISCUSSION AND ANALYSIS 7 Advertising revenue was down at the Toronto Star in the first quarter of 2007, despite an extra Saturday compared with the first quarter of Advertising linage was down 2.1% in the quarter while the effective average line rate was flat. National linage was down slightly in the quarter while retail linage was relatively stable as this category benefited from the new zoned advertising sections. Classified linage trends remained a concern during the first quarter. The continued market expansion of the jointly owned Metro newspapers produced revenue growth in the first quarter of Workopolis revenues were also higher in the first quarter both from growth in the business as well as Torstar s higher ownership percentage of 50% in 2007 versus 40% in the first quarter of Cost savings were realized at the Toronto Star in the first quarter of 2007 from lower newsprint pricing, lower staff counts from the restructuring activities undertaken in 2006 and lower pension costs. These savings were partially offset by higher marketing costs. Torstar continued to invest in building revenue for the digital operations during the quarter including increased spending on payroll and marketing costs. Metroland Media Group Revenues of $133.0 million were up $12.1 million in the first quarter of 2007 at Metroland Media Group with revenue growth at both the community and daily newspapers. Approximately 40% of this growth can be attributed to the extra publishing days in the quarter. EBITDA was $23.7 million in the first quarter of 2007, up $4.0 million from $19.7 million in Operating profit was $19.9 million in the first quarter, up $3.7 million from $16.2 million in the first quarter of Advertising linage was up 11.9% at the community newspapers in the first quarter of 2007 including the impact of acquisitions made in Excluding the impact of acquisitions, linage was up 9.6% in the quarter. Distribution revenues for the community newspapers grew almost 18% in the first quarter of Linage was down at the daily newspapers but was offset by higher effective average line rates resulting in slightly higher advertising revenues in the first quarter of Payroll costs were lower in the first quarter at the daily newspapers from the lower staff counts from the restructuring activities that occurred late in 2006.

10 INTERIM MANAGEMENT S INTERIM DISCUSSION MANAGEMENT S AND ANALYSIS 8 DISCUSSION AND ANALYSIS Transit TV Transit TV had revenues of $0.5 million in the first quarter of 2007, up from $0.3 million in the first quarter of EBITDA losses of $1.9 million were down slightly from $2.3 million in 2006 but higher depreciation, from the completion of the LA transit system installation in 2006, produced operating losses that were flat year over year. Segment Operating Results Book Publishing The Book Publishing Segment reports the results of Harlequin Enterprises Limited, a leading global publisher of women s fiction. Harlequin publishes women s fiction around the world, selling books through the retail channel and directly to the consumer by mail and the Internet. Harlequin s women s fiction publishing operations are comprised of three divisions: North America Retail, North America Direct To Consumer and Overseas. The following tables set out, in $000 s, a summary of operating results for the Book Publishing Segment and a continuity of revenue and operating profit, including the impact of foreign currency movements, for the three months ended March 31, Revenue $124,456 $118,349 EBITDA 2 $20,329 $16,826 Depreciation & amortization 1,206 1,764 Operating profit $19,123 $15,062 EBITDA margin 16.3% 14.2% Operating profit margin 15.4% 12.7% Reported revenue, prior year $118,349 Impact of currency movements and foreign exchange contracts 5,114 Change in underlying revenue 993 Reported revenue, current year $124,456 Reported operating profit, prior year $15,062 Impact of currency movements and foreign exchange contracts 795 Change in underlying operating profit 3,266 Reported operating profit, current year $19,123 2 EBITDA is calculated as segment operating profit plus depreciation and amortization.

11 INTERIM MANAGEMENT S DISCUSSION AND ANALYSIS 9 Book Publishing revenues were up $1.0 million in the first quarter of 2007 excluding the impact of foreign exchange. North America Retail was up $3.8 million, North America Direct To Consumer was down $3.0 million and Overseas was up $0.2 million. Book Publishing operating profits were up $3.3 million in the first quarter of 2007 excluding the impact of foreign exchange. North America Retail was up $3.4 million, North America Direct To Consumer was down $0.4 million and Overseas was up $0.3 million. North America Retail revenues were higher in the first quarter of 2007 with more books sold in both the series and single title businesses. Operating profits were up due to the increase in sales, product mix and cost savings including those resulting from the restructuring undertaken in the fall of North America Direct To Consumer revenue was down in the first quarter of 2007 with fewer books sold in the traditional direct mail business more than offsetting an increase in eharlequin sales. Offsetting part of the decline in revenue were lower costs, including advertising and promotion and savings from the restructuring undertaken in the fall of Overseas results were flat in the first quarter of 2007 with improved results in the Nordic group and Germany offset by lower results in several other markets. LIQUIDITY AND CAPITAL RESOURCES Overview Funds are generally used for capital expenditures, debt repayment and distributions to shareholders. Long term debt is used to supplement funds from operations and as required for acquisitions. It is expected that future cash flows from operating activities, combined with the credit facilities available will be adequate to cover forecasted financing requirements. In the first quarter of 2007, $5.0 million of cash was generated by operations, $6.9 million was used for investing activities and $0.4 million was used in financing activities. Cash and cash equivalents net of bank overdraft decreased by $2.4 million in the quarter from $43.9 million to $41.5 million.

12 10 INTERIM MANAGEMENT S DISCUSSION AND ANALYSIS Operating activities Operating activities provided cash of $5.0 million in the first quarter of 2007, down $16.9 million from $21.9 million in In the first quarter of 2007, pension contributions in excess of pension expense contributed to a use of cash of $4.1 million ( other operating activities ). In the first quarter of 2006, pension contributions were only slightly higher than pension expense. The increase in non cash working capital was $21.8 million in the first quarter of 2007 compared with an increase of $3.1 million in Torstar s usual trend in the first quarter is for an increase in non cash working capital as income taxes, other payables and receivable balances all decrease. In the first quarter of 2007, payables decreased by $36.8 million, including the payment of $8.4 million in respect of the 2006 restructuring provision. In the first quarter of 2006, payables decreased by $14.3 million net of an increase in restructuring provisions of $1.7 million. Investing activities During the first quarter of 2007, $6.9 million was used for investments, down from $10.1 million in Additions to property plant and equipment were $5.4 million in the first quarter of 2007, down from $8.8 million in the first quarter of Financing activities Cash of $0.4 million was used in financing activities during the first quarter of 2007, compared with $0.7 million provided by financing activities in the same period last year. In the first quarter of 2006, $1.2 million of cash was provided by the exercise of stock options. Long term debt At March 31, 2007, Torstar had long term debt of $736.3 million outstanding. The debt consisted of U.S. dollar bankers acceptance of $133.4 million, Canadian dollar bankers acceptance of $502.9 million and Canadian dollar medium term notes of $100.0 million.

13 INTERIM MANAGEMENT S DISCUSSION AND ANALYSIS 11 Torstar s long term credit facility for $850 million is also designated as a standby line in support of letters of credit. At March 31, 2007, $641.7 million was drawn under the facility and a $28.6 million letter of credit was outstanding relating to the executive retirement plan. The remaining credit of $179.7 million is considered to be adequate to cover forecasted financing requirements. Contractual obligations There were no material changes in Torstar s significant contractual obligations during the first quarter of KEY FACTORS AND RELATED RISKS There have been no material changes in any risks or uncertainties facing Torstar since the year ended December 31, OUTLOOK The first quarter results for the Newspapers and Digital Segment included the positive impact from the publishing calendar year over year. This impact will reverse over the rest of the year as the publishing days even out. Metroland Media Group has positive momentum in both revenue and EBITDA growth. In contrast, linage trends at the Toronto Star continue to be challenging. Torstar will continue to invest in its digital properties during 2007, building revenue through new product offerings and increased marketing spend. The outlook for Harlequin remains stable for 2007 as the positive North America Retail year over year results in the first quarter are balanced by the Direct to Consumer trends and the mixed results in the Overseas operations. Harlequin will continue to be subject to the impact of changes in the value of the Canadian dollar relative to the U.S. dollar and other currencies. Torstar has reduced a portion of this exposure by entering into forward foreign exchange contracts to sell $27.5 million U.S. dollars during 2007 at a rate of $1.14 and $7.0 million U.S. dollars during 2008 at a rate of $1.16. Torstar s investment in CTVgm will have an uneven impact on Torstar s earnings in each quarter of Earnings from CTVgm are expected to be stronger in Torstar s second and fourth quarters and weaker in the first and third quarters. The higher interest expense from the increased levels of debt will negatively impact the year over year comparisons through the third quarter.

14 INTERIM MANAGEMENT S INTERIM DISCUSSION MANAGEMENT S AND ANALYSIS 12 DISCUSSION AND ANALYSIS DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROLS OVER FINANCIAL REPORTING As required by Multilateral Instrument issued by the Canadian Securities Administrators, Torstar s Chief Executive Officer ( CEO ) and Chief Financial Officer ( CFO ) will be making certifications related to the information in Torstar s quarterly filings (as defined in Multilateral Instrument ) with the securities regulatory authorities. As part of the certification, the CEO and CFO must certify that they are responsible for establishing and maintaining disclosure controls and procedures and have designed such disclosure controls and procedures (or caused such disclosure controls and procedures to be designed under their supervision) to ensure that the material information with respect to Torstar, including its consolidated subsidiaries, is made known to them. The CEO and CFO must also certify that they have designed a system of internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Canadian GAAP and to report any material changes in internal controls over financial reporting. Changes in internal controls over financial reporting There have been no changes in Torstar s internal controls over financial reporting that occurred during the first quarter of 2007, the most recent interim period, that have materially affected, or are reasonably likely to materially affect, Torstar s internal controls over financial reporting. CHANGES IN ACCOUNTING POLICIES On January 1, 2007, Torstar adopted the new CICA Handbook sections dealing with Financial Instruments and Comprehensive Income. Upon the initial application, Torstar recognized a loss of $10.6 million in the opening balance of Accumulated Other Comprehensive Income which included the $9.1 million reclassification of the Foreign Currency Translation balance. During the first quarter of 2007, Torstar recognized $1.4 million of Other Comprehensive Income. More information on the adoption and application of these new accounting policies can be found in Note 1 to the consolidated financial statements. SUPPLEMENTARY INFORMATION The following chart sets out, in $000 s, the 2006 second and third quarter operating revenue, operating profit (loss) and EBITDA for the Newspapers and Digital Segment, regrouped to reflect the change in reporting units that occurred in the fourth quarter of 2006.

15 INTERIM MANAGEMENT S DISCUSSION AND ANALYSIS 13 Operating Revenue Operating Profit (Loss) EBITDA 3 Q Q Q Q Q Q Star Media $127,536 $115,541 $7,032 ($503) $15,290 $7,470 Metroland Media 147, ,311 31,191 19,748 34,653 23,176 Transit TV (3,279) (3,078) (2,484) (2,208) Segment Total $275,682 $247,440 $34,944 $16,167 $47,459 $28,438 SUMMARY OF QUARTERLY RESULTS (In thousands of dollars except for per share amounts) Mar. 31, 2007 Dec. 31, 2006 Sept. 30, 2006 June 30, 2006 Revenue $377,442 $414,610 $366,216 $390,331 Net income $15,737 $36,068 $7,667 $25,631 Net income per Class A voting and Class B non voting share Basic $0.20 $0.46 $0.10 $0.33 Diluted $0.20 $0.46 $0.10 $0.33 Mar. 31, 2006 Dec. 31, 2005 Sept. 30, 2005 June 30, 2005 Revenue 4 $357,113 $417,227 $378,002 $402,851 Net income $9,775 $37,894 $23,698 $36,112 Net income per Class A voting and Class B non voting share Basic $0.13 $0.48 $0.30 $0.46 Diluted $0.12 $0.48 $0.30 $0.46 The summary of quarterly results illustrates the cyclical nature of revenues and operating profit in the Newspapers and Digital Segment. The fourth and second quarters are generally the strongest for the newspapers. 3 EBITDA is calculated as reporting unit or segment operating profit plus depreciation and amortization. 4 Torstar s 2005 revenue has been restated as a result of the January 1, 2006 adoption, with retroactive restatement, of EIC 156 Accounting by a vendor for consideration given to a customer. The effect was to decrease both revenues and operating expenses by $2.6 million, $2.6 million and $ 2.5 million in each of the second, third and fourth quarters respectively. There was no impact on net income.

16 14 INTERIM MANAGEMENT S DISCUSSION AND ANALYSIS Gains from the sale of properties and restructuring provisions have impacted the level of net income in several quarters. In 2006, the first, third and fourth quarters had restructuring provisions of $3.7 million, $7.0 million and $11.7 million respectively. In 2005, the third quarter had a restructuring provision of $2.1 million and the first and third quarters had gains from the sale of properties of $1.3 million and $11.1 million respectively. RECENT DEVELOPMENTS Subsequent to the end of the quarter, Torstar together with Gesca Ltd. purchased LiveDeal, Inc. s interest in the LiveDeal.ca partnership. Torstar now has a 60% interest in LiveDeal.ca. OTHER At March 31, 2007, Torstar had 9,909,402 Class A voting shares and 68,577,441 Class B non voting shares outstanding. More information on Torstar share capital is provided in Note 6 of the consolidated financial statements. At March 31, 2007, Torstar had 5,788,042 options to purchase Class B non voting shares outstanding to executives and non executive directors. More information on Torstar s stock option plan is provided in Note 7 of the consolidated financial statements. Additional information relating to Torstar including the Annual Information Form is available on SEDAR at

17 TORSTAR CORPORATION 15 Consolidated Balance Sheets (Unaudited) March 31 December 31 (thousands of dollars) Assets Current: Cash and cash equivalents $43,506 $46,037 Receivables 253, ,977 Inventories 36,368 38,208 Prepaid expenses 76,005 72,665 Prepaid and recoverable income taxes 4,772 16,665 Future income tax assets 21,546 23,002 Total current assets 435, ,554 Property, plant and equipment (net) 341, ,842 Investment in associated businesses (note 5) 417, ,320 Goodwill (net) 554, ,928 Other assets 176, ,547 Future income tax assets 43,318 44,282 Total assets $1,968,340 $2,001,473 Liabilities and Shareholders' Equity Current: Bank overdraft $1,958 $2,173 Accounts payable and accrued liabilities 190, ,001 Income taxes payable 2,445 14,174 Total current liabilities 194, ,348 Long term debt (note 2) 736, ,193 Other liabilities 90,828 88,313 Future income tax liabilities 73,529 72,873 Shareholders' equity: Share capital (note 6) 381, ,397 Contributed surplus 7,922 7,466 Retained earnings 493, ,999 Accumulated other comprehensive loss (note 4) (9,227) (9,116) Total shareholders' equity 873, ,746 Total liabilities and shareholders' equity $1,968,340 $2,001,473 (See accompanying notes)

18 TORSTAR CORPORATION 16 Consolidated Statements of Income (Unaudited) Three months ended March 31 (thousands of dollars) Operating revenue Newspapers and digital $252,986 $238,764 Book publishing 124, ,349 $377,442 $357,113 Operating profit Newspapers and digital $19,948 $14,247 Book publishing 19,123 15,062 Corporate (4,686) (4,891) Restructuring provisions (note 10) (3,700) 34,385 20,718 Interest (8,734) (2,819) Foreign exchange (15) 52 Income (loss) of associated businesses 501 (476) Income before taxes 26,137 17,475 Income and other taxes (10,400) (7,700) Net income $15,737 $9,775 Earnings per Class A and Class B share: (Note 6(b)) Net income Basic $0.20 $0.13 Net income Diluted $0.20 $0.12 (See accompanying notes) Consolidated Statements Of Comprehensive Income (Unaudited) Three months ended March 31 (thousands of dollars) (note 1) Net income $15,737 $9,775 Other comprehensive income, net of tax: Unrealized foreign currency translation adjustment Unrealized change in fair value of cash flow hedges 775 Realized gains on cash flow hedges transferred to net income (2) Other comprehensive income 1, Comprehensive Income $17,152 $10,238 (See accompanying notes)

19 TORSTAR CORPORATION 17 Consolidated Statements Of Changes In Shareholders' Equity (Unaudited) Three months ended March 31 (thousands of dollars) Share capital (note 6) $381,191 $378,224 Contributed surplus $7,922 $5,499 Retained earnings Balance, beginning of period $491,999 $470,783 Net income 15,737 9,775 Dividends (14,501) (14,456) Balance, end of period $493,235 $466,102 Accumulated other comprehensive income Balance, beginning of period as previously reported Unrealized foreign currency translation adjustment losses ($9,116) ($10,939) Cumulative impact of accounting changes relating to financial instruments (note 1) (1,526) Adjusted balance, beginning of period (10,642) (10,939) Other comprehensive income 1, Balance, end of period (note 4) ($9,227) ($10,476) Total shareholders' equity $873,121 $839,349 (See accompanying notes)

20 TORSTAR CORPORATION 18 Consolidated Statements Of Cash Flow (Unaudited) Three months ended March 31 (thousands of dollars) Cash was provided by (used in) Operating activities $4,968 $21,877 Investing activities (6,856) (10,132) Financing activities (396) 697 (Decrease) increase in cash (2,284) 12,442 Effect of exchange rate changes (32) 398 Cash, beginning of period 43,864 41,045 Cash, end of period $41,548 $53,885 Operating activities: Net income $15,737 $9,775 Depreciation 13,586 13,373 Amortization Future income taxes 1,624 (1,427) (Income) loss of associated businesses (501) 476 Other (note 11) (4,095) 2,086 26,726 25,001 Increase in non cash working capital (21,758) (3,124) Cash provided by operating activities $4,968 $21,877 Investing activities: Additions to property, plant and equipment ($5,362) ($8,797) Acquisitions (1,671) (1,625) Other Cash used in investing activities ($6,856) ($10,132) Financing activities: Issuance of banker's acceptance $13,541 Issuance of commercial paper $13,476 Dividends paid (14,378) (14,347) Exercise of stock options 108 1,161 Other Cash (used in) provided by financing activities ($396) $697 Cash represented by: Cash and cash equivalents $43,506 $55,599 Bank indebtedness (1,958) (1,714) $41,548 $53,885 (See accompanying notes)

21 TORSTAR CORPORATION 19 TORSTAR CORPORATION Notes to the Interim Consolidated Financial Statements (Dollar amounts in thousands unless otherwise stated) 1. Accounting policies The accounting policies used in the preparation of these unaudited interim consolidated financial statements conform with those in Torstar Corporation s December 31, 2006 audited annual consolidated financial statements except as noted below. These interim financial statements do not include all of the disclosures included in the annual financial statements and accordingly should be read in conjunction with the annual consolidated financial statements. On January 1, 2007, the Company prospectively adopted the CICA Handbook Section 3855 Financial Instruments Recognition and Measurement, Section 3861 Financial Instruments Disclosure and Presentation, Section 3865 Hedges and Section 1530 Comprehensive Income as described in Note 1(s) of the annual consolidated financial statements, with no restatement of prior periods except for the presentation of the foreign currency translation adjustment. These sections provide standards for recognition, measurement, disclosure and presentation of financial assets, financial liabilities and non financial derivatives, and describe when and how hedge accounting may be applied. Section 1530 provides standards for the reporting and presentation of comprehensive income. Upon initial application, all adjustments to the carrying amount of financial assets and liabilities were recognized as an adjustment to the opening balance of retained earnings or accumulated other comprehensive income, depending on the classification of existing assets or liabilities. The Company has recognized a loss of $10,642 to the opening balance of accumulated other comprehensive income consisting of $9,116 for the reclassification of the foreign currency translation adjustment as at December 31, 2006 and losses (net of taxes) of $387 and $1,139 with respect to the forward currency contracts and interest rate swaps respectively designated as cash flow hedges. There was no impact on opening retained earnings. Under the new standards, all financial assets are classified as (i) held for trading, (ii) held to maturity investments, (iii) loans and receivables or (iv) available for sale. Also, all financial liabilities are classified as (i) held for trading or (ii) other financial liabilities. Upon initial recognition, all financial instruments are recorded on the consolidated balance sheet at their fair values. After initial recognition, the

22 TORSTAR CORPORATION 20 financial instruments are measured at their fair values, except for held to maturity investments, loans and receivables and other financial liabilities, which are measured at amortized cost using the effective interest rate method. Changes in the fair value of financial instruments classified as held for trading are recognized in net income. If a financial asset is classified as available for sale, any gain or loss arising from a change in its fair value is recognized in other comprehensive income until the financial asset is derecognized and all cumulative gain or loss is then recognized in net income. The Company has classified its cash and cash equivalents, short term investments and derivative financial instruments that are not designated as hedges as held for trading. They are presented at their fair value and the gains or losses arising on the revaluation at the end of each period are included in net income. The carrying values of these instruments approximate their fair values. Accounts receivable are classified as loans and receivables, which are measured at amortized cost. Accounts payable and accrued liabilities are classified as other financial liabilities and are measured at amortized cost.the long term debt instruments have been classified as other financial liabilities and are measured at amortized cost as the company has the ability and intention to hold to maturity. Derivative financial instruments that are designated as cash flow hedges, such as the interest rate swap agreements and forward foreign exchange contracts are classified as available for sale and are presented at their fair value. The gains or losses arising from the revaluation at the end of each period are included in other comprehensive income to the extent of hedge effectiveness. An embedded derivative is a component of a hybrid instrument that also includes a non derivative host contract, with the effect that some of the cash flows of the combined instrument vary in a way similar to a stand alone derivative. If certain conditions are met, an embedded derivative is separated from the host contract and accounted for as a derivative in the balance sheet, at its fair value. The Company will recognize embedded derivatives on its consolidated balance sheet, when applicable. On transition and for the three months ended March 31, 2007, there was no impact on the financial statements of the Company from embedded derivatives. The impact of these changes in accounting policies on net income for the three months ended March 31, 2007 was insignificant.

23 TORSTAR CORPORATION Long term debt Bankers acceptance: As at March 31, As at December 31, Cdn. Dollar denominated $502,931 $491,885 U.S. Dollar denominated 133, , , ,193 Medium Term Notes: Cdn. Dollar denominated 100, ,000 $736,285 $724,193 a) All bankers acceptance with a term of less than one year have been classified as long term debt as the company has the ability to refinance these amounts under its existing long term credit facilities. The interest rate spread above the bankers acceptance rate if in Canadian dollars, or LIBOR rate if in U.S. dollars, at March 31, 2007 was 0.6% and varies based on the company s long term credit rating. The carrying values of the bankers acceptance approximate their fair value at March 31, The company is party to three interest rate swap agreements with major Canadian chartered banks that will fix the interest rate on $250 million of Canadian dollar borrowings for five years ending September As a result, the company will pay quarterly a fixed rate of 4.3% per annum (plus the interest rate spread based on the company s long term credit rating, currently 0.6%) and will receive quarterly floating rate payments based on 90 day bankers acceptance rates. These swap contracts have been designated as hedges. The fair value of these swap agreements was $0.1 million unfavourable at March 31, The average rate on Canadian dollar bank borrowings outstanding at March 31, 2007 was 5.0%. Including the effect of the above noted swap arrangements, the effective rate was 5.0%.

24 TORSTAR CORPORATION 22 The company is party to an interest rate swap arrangement that will fix the interest rate on U.S. $80 million of borrowings at approximately 3.5% (plus the credit spread of 0.6%) for four years ending December The swap has been designated as a hedge. The fair value of the U.S. interest rate swap arrangement was $1.7 million favourable at March 31, At March 31, 2007 bank debt outstanding included U.S. borrowings of U.S. $115.7 million at an average rate of 6.1%. Including the effect of the above noted swap arrangement, the effective rate was 4.7%. b) The company issued in September 2005 $75 million 3.85% medium term notes which mature on September 8, The company has entered into interest rate swap agreements effectively converting this debt into floating rate debt based on 90 day bankers acceptance rates plus 0.39%. The company also issued in September 2005 $25 million 3.7% medium term notes which mature on September 9, The company has entered into an interest rate swap agreement effectively converting this debt into floating rate debt based on 90 day bankers acceptance rates plus 0.36%. Interest on the medium term notes as well as the payments under the swap agreements is paid semi annually. The swap agreements have been designated as hedges and mature on the due dates of the respective notes. The effective interest rate on the medium term notes outstanding at March 31, 2007 was 4.9%. The fair value of the medium term notes was $3.4 million favourable at March 31, The fair value of the Canadian interest rate swap agreements related to the medium term debt issuance noted above were $2.5 million unfavourable at March 31, c) The company is exposed to credit related losses in the event of non performance by counterparties to the above described derivative instruments, but it does not anticipate any counterparties to fail to meet their obligations given their high credit ratings. The company has a policy of only accepting major financial institutions, as approved by the Board of Directors, as counterparties.

25 TORSTAR CORPORATION Derivative instruments at fair value The fair values of derivatives designated as hedges as disclosed in notes 2 and 9 are as follows: As at March 31, 2007 Assets Liabilities Foreign currency hedges $184 $460 Interest rate swaps 1,915 2,818 $2,099 $3,278 These amounts are included in Other assets and Other liabilities. 4. Accumulated other comprehensive loss (net of tax) As at March 31, 2007 Foreign currency translation adjustment ($8,474) Unrealized losses on cash flow hedges (753) 1 ($9,227) 1 Net of income tax benefit of $ Investment in associated businesses The company s Investment in associated businesses includes a 20% equity interest in CTVglobemedia Inc. ( CTVgm ), a 19.35% equity interest in Black Press Ltd. and a 30% equity interest in Q ponz Inc. The Investment in associated businesses is comprised of the following: December 31, 2006 $416,320 Income of associated businesses 501 Change in investee foreign currency translation adjustment 741 March 31, 2007 $417,562

26 TORSTAR CORPORATION 24 Outlined below is summarized financial information for 100% of CTVgm, including fair value adjustments, for the three months and period ended February 28, The allocation of the fair values is subject to change upon the final determination of the valuation of certain of the intangible assets. Balance Sheet Current assets $510,136 Property, plant and equipment 323,744 Investment in CHUM 1,397,997 Goodwill and other intangible assets 2,208,811 Other assets 234,743 $4,675,431 Current liabilities $291,386 Long term debt 2,192,776 Other liabilities and non controlling interests 234,573 Shareholders equity 1,956,696 $4,675,431 Statement of Income Revenues $394,206 Net income $2, Share capital a) A summary of changes to the company s share capital is as follows: Class A shares (voting) At March 31, 2007 there were 9,909,402 Class A shares outstanding with a stated value of $2,692. During the quarter, 5,390 Class A shares were converted to Class B shares.

27 TORSTAR CORPORATION 25 Class B shares (non voting) Shares Amount December 31, ,558,932 $380,939 Converted from Class A 5,390 2 Stock options exercised 6, Dividend reinvestment plan 6, Other March 31, ,577,441 $381,175 Total Class A and Class B shares 78,486,843 $383,867 Reduction for RSU Trust shares (note 7(d)) (2,676) Share Capital 78,486,843 $381,191 b) Earnings per share Basic per share amounts have been determined by dividing net income by the weighted average number of Class A and Class B shares outstanding during the period after deducting the unvested shares held by the RSU Trust. Diluted per share amounts have taken into consideration the dilutive effect of stock options; the employee share purchase plan and the unvested shares held by the RSU Trust. The weighted average number of Class A and Class B shares outstanding (in thousands) were: Three months ended March Basic 78,423 78,146 Diluted 78,520 78,447

28 TORSTAR CORPORATION Stock based compensation The company has five stock based compensation plans: an executive share option plan, an employee share purchase plan, a deferred share unit ( DSU ) plan for employees, a DSU plan for non employee directors and an executive restricted share unit ( RSU ) plan. a) A summary of changes in the executive share option plan is as follows: Share options Weighted average exercise price December 31, ,388,145 $22.80 Granted 502, Exercised (6,400) (16.90) Forfeited or expired (96,500) (23.14) March 31, ,788,042 $22.52 Options exercisable at March 31, 2007 are as follows: Range of Share options Weighted average exercise price exercisable exercise price $ ,700 $17.36 $ ,557,214 $21.17 $ ,580,737 $26.41 $ ,472,651 $22.74 b) The company has recognized in 2007 compensation expense totalling $0.9 million (2006 $0.8 million) for the stock options granted in 2004 to 2007, RSUs granted in 2006 to 2007 and the employee share purchase plans originating in 2005 to The fair value of the executive stock options granted in 2007 was estimated to be $2.56 per option at the date of grant using the Black Scholes option pricing model with the assumptions of a risk free interest rate of 4.0%, expected dividend yield of 3.8%, expected volatility of 16.3% and an expected time until exercise of 6 years.

29 TORSTAR CORPORATION 27 c) The company has a DSU Plan for executives and non employee directors. As at March 31, 2007, 291,528 units were outstanding at a value of $5.7 million. The company has entered into a derivative instrument in order to offset its exposure to 252,813 units. Changes in the fair value of this instrument will be recorded as compensation expense and will offset the impact of changes in the value of the outstanding deferred share units. d) During 2006, the company introduced an RSU plan. Under the plan, eligible senior executives are granted RSU awards to receive Torstar Class B non voting shares as part of their long term incentive compensation. The value of an RSU is equal in value to a Torstar Class B non voting share. RSUs vest after three years at which time Torstar Class B non voting shares will be distributed to the participants. 203,680 RSUs have been granted to date of which 186,573 remain outstanding at March 31, An employee benefit trust ( RSU Trust ) has been established to purchase the necessary Torstar Class B non voting shares in the open market. For accounting purposes, the RSU Trust is treated as a Variable Interest Entity and consolidated in the accounts of the company. As a result, unamortized compensation expense representing the related shares held by the RSU Trust is presented as a reduction of the company s share capital. 8. Employee future benefits The company maintains a number of defined benefit plans, which provide pension benefits to its employees in Canada and the United States. Post employment benefits other than pensions are also available to employees, primarily in the Canadian newspapers operations, which provide for various health and life insurance benefits. The company has expensed net pension benefit costs of $2.7 million for the three months ended March 31, 2007 (2006 $4.1 million). With respect to post employment benefits other than pensions, for the three months ended March 31, 2007 the net benefit cost was $1.0 million (2006 $1.2 million).