Torstar Corp. Annual Report 2010

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FY2010 Annual Report · Torstar Corp.

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T O R S T A R C O R P O R A T I O N

A N N U A L

R E P O R T

OPERATING RESULTS ($000)

2010

2009

Operating revenue

$1,479,588

$1,451,259

EBITDA (1)

Operating profit

Net income

Cash from operating activities

EBITDA – Percentage of revenue

Operating profit –
percentage of revenue

Cash from operating activities –
percentage of average shareholders’ equity

PER CLASS A AND CLASS B SHARES

Net income

Dividends

233,578

153,877

60,906

157,374

15.8%

191,801

95,253

35,645

153,364

13.2%

10.4%

6.6%

22.5%

22.8%

$0.77

$0.37

$0.45

$0.37

Price range (high/low)

$13.23/5.92

$8.84/3.93

FINANCIAL POSITION ($000)

Long-term debt

Shareholders’ equity

$404,727

$720,959

$552,976

$678,980

The Annual Meeting of shareholders will be held Wed., May 4, 2011 at the Toronto Star building, 3rd Floor
Auditorium, One Yonge Street, Toronto beginning at 10 a.m. It will also be webcast live on the Internet.

OPERATINg REvENUE ($millions)

oPERATINg PRoFiT ($millions)

06
07
08
09
10

1,528

1,547

1,534

1,451

1,479

06
07
08
09
10

123

118

163

154

inComE (loss) FRom ConTinUinG
oPERATions PER sHARE

EBiTDA ($millions) (1)

(2.01)

06
07
08
09
10

1.01

1.29

0.45

0.77

06
07
08
09
10

202

225

213

192

234

(1) Consolidated operating profit, as presented on the consolidated statements of income, which is before charges for interest and taxes adjusted for
depreciation and amortization of intangible assets. It also excludes restructuring and other charges. Please see “Non-GAAP Measures” on page 7.

This annual report contains forward-looking statements within the meaning of certain securities laws, including the “safe harbour“ provisions of the
Securities Act (Ontario). We caution readers not to place undue reliance on these statements as a number of factors could cause our results to differ
materially from the beliefs, plans, objectives, expectations, anticipations, estimates and intentions expressed in such forward-looking statements. Additional
information about these factors is contained on page 7 under the heading “Forward-Looking Statements”.

t o r s t a r c o r p o r a t i o n 2 0 1 0 a n n u a l r e p o r t

M E S SAg E f R O M T H E C H A I R

John Honderich
chair, Board of Directors

2010 was a turnaround year for Torstar as all its divisions weathered the economic recession and showed both revenue
growth and the benefits of the ongoing restructuring process.

Overall, Torstar registered one of its best financial years ever, once foreign exchange fluctuations are factored out. The
company’s market capitalization now exceeds $1 billion and its long-term debt has been significantly reduced. Record
years were recorded by Harlequin’s Overseas Division, the Metro Newspaper Group, Sing Tao and the Hamilton Spectator.

It was also a year in which both our revenue and investment in digital across the company continued to grow significantly.
Indeed, by year’s end, Torstar had more than 600 employees working for its various digital businesses. While structural
pressures on the newspaper and publishing industries continue unabated, Torstar has taken a leadership position in
Canada in forming new digital enterprises and alliances.

As in the past, Torstar has been the beneficiary of an exceptionally strong leadership team. President and Chief Executive
Officer David Holland, working in close conjunction with Executive Vice-President and Chief Financial Officer Lorenzo
DeMarchi, has led the company’s overall turnaround. Under their superb stewardship, a new dynamic of collaboration
has evolved among the divisions that has produced tangible results. Torstar’s debt levels have been significantly reduced
and overall revenues are growing, contributing to a significant rise in Torstar’s share price. Harlequin, under the leadership
of CEO Donna Hayes, posted excellent results in 2010 and is now one of the world’s leading digital publishers. John
Cruickshank, Publisher of the Toronto Star and President of Star Media Group, spearheaded a transformational year that
led to almost doubling profit for his division. Ian Oliver, President of Metroland Media Group, led a strong turnaround for
his division, while significantly expanding the group’s digital initiatives. Finally, Torstar Digital President Tomer Strolight
continued to be at the forefront of all of Torstar’s digital thinking, leading to groundbreaking results.

One of the major events of 2010 was Torstar’s bid, in conjunction with Fairfax Financial Holdings Limited, for the
former CanWest newspaper group. Torstar judged that this acquisition would fit its long-term strategic initiatives and
consequently marshalled an exceptional cross-company team to conduct the due diligence on the initiative. Ultimately
our bid was unsuccessful, but it is a credit to our team, the Board of Directors and ultimately all shareholders that our
financial discipline and commitment not to overpay were brought to bear. On behalf of Torstar, I would like to express
my appreciation to Fairfax CEO Prem Watsa and his entire team for their unwavering support throughout this process.

What particularly distinguishes Torstar is the high quality of leadership and employee commitment across the entire
company. There is a combined dedication to excellence and a loyalty to the company and what it represents. Throughout
the year, I was continually dazzled by the innovation and excitement that have been shown. As before, however, the
combination of tough economic times and industry pressures forced some painful decisions and restructuring. While we
herald a strong future, we also pay tribute to those who formerly worked with us, many of them for significant stretches
of time. Their efforts will not be forgotten.

2010 also marked a year of consolidation for the Board of Directors. We were delighted to welcome Linda Hughes, the
former Edmonton Journal Publisher and current Chancellor of the University of Alberta, as our newest Board member.
We will also be saying our farewells in 2011 to Roy Romanow and Peter Armstrong, both of whom have served on
the Board with élan and distinction. Their individual commitments to Torstar generally – and the Atkinson Principles
in particular – have been huge. Torstar has been richly served by its Board of Directors and I want to express my
appreciation for their collective diligence, wisdom and bonhomie.

t o r s t a r c o r p o r a t i o n 2 0 1 0 a n n u a l r e p o r t

TO O U R S H A R E H O L D E R S

David Holland
president and chief executive officer

2010 was a very good year for Torstar from many standpoints, including
achieving good operating results, strengthening our financial foundation
and continuing to make progress on our strategic agenda.

more than tripled its North American digital revenues. What is unclear
is the impact of this shift in the publishing environment on retail book
publishing and the infrastructure that now supports publishing and
marketing of print books.

Operating Results

At the beginning of 2010, Torstar was seeing signs of economic
improvement, but we were not counting on a rapid and significant
recovery in the Canadian economy. The pace of the recovery was critical
to Torstar because our businesses are highly dependent on the state of
the economy. That early forecast proved to be true.

Against a backdrop of only a modest recovery in the Canadian economy,
Torstar earned EBITDA of $234 million, a significant increase over the
$192 million earned in 2009 and an increase over the 2008 result of
$213 million. Total revenues were $1.48 billion, up 1.9% versus the
prior year. The growth in total revenue was driven by the recovery in
Canadian media revenues, which were up 5.6% to $1.01 billion. This
revenue recovery, coupled with ongoing efforts to control costs, resulted
in EBITDA in the media operations increasing substantially to $161
million, up $42 million versus the prior year. Harlequin revenue was
down 5% to $468 million, but it is important to note that the impact
of the strengthening Canadian dollar on translation of international
revenues was responsible for the decline. Harlequin EBITDA was $88
million. Adjusting for the impact of the strengthening Canadian dollar
on results, Harlequin posted another year of earnings growth.

Our focus on debt reduction has been ongoing and we continued to
make good progress in 2010. Net borrowings closed the year at $369
million, $147 million lower than the $516 million at December 31,
2009. The reduction includes a $40-million receipt in respect of the
CTVglobemedia transaction. The remaining reduction of $107 million
resulted from the solid operating results and is indicative of the strong
cash flow characteristics of the business and management’s discipline
in approaching the employment of capital.

Harlequin enjoyed another solid year in 2010, recording its fourth
consecutive year of profit growth excluding the negative effect of foreign
exchange. Revenue of $468 million in 2010 was $8 million higher than
in 2009, after excluding the effect of foreign exchange, representing
an increase of 1.8 per cent. Harlequin authors reached new levels of
achievement in 2010. Collectively, Harlequin authors enjoyed a record
high 257 weeks on the New York Times Bestseller Lists, up 10% over
2009. With terrific brands, a strong foundation in series romance
publishing and the continued success of the single title publishing
program, Harlequin continued to invest in longstanding retail channel
partner relationships, emerging digital channels and its unique Direct-
To-Consumer and Overseas channels.

In addition to executing on its digital strategy, Harlequin remained
committed to other strategic initiatives, including continuing to develop
its recently created non-fiction program and continuing its geographic
expansion by acquiring full ownership of its German operation,
establishing a landed business in Turkey and partnering with licensees
in Vietnam and the Philippines.

In the Media division in 2010, we continued to make progress on the
cost base, which we see as an ongoing initiative in our drive to improve
the efficiency of the operations. We are very committed to ensuring that
the changes to the cost base do not compromise the high standard of
publishing and service that our audiences and advertisers have come
to expect. At the same time, we remained committed to investing in
initiatives that improved the quality and relevance of the content that
we offered to our audiences, both in print and online, and providing
innovative opportunities and compelling solutions for advertisers.

Our Media division is comprised of Star Media Group, Torstar Digital and
Metroland Media Group. Each of these operations has unique strengths
and capabilities. Across these operations, we have significant brands,
access to significant print and digital audiences, a content capability, a
distribution capability, promotional power and very committed, talented
and passionate employees. We embrace and are proud of every aspect
of our operations.

We are especially proud of the many honours received by our
newspapers and journalists in 2010. Toronto Star journalists won six
prestigious National Newspaper Awards (NNA) for reporting and
photography and the Guelph Mercury won an NNA in the local reporting
category. Also, Torstar newspapers swept the 2010 Canadian Journalism
Foundation awards, with the Toronto Star receiving the Excellence
in Journalism Award in the large or national media category and the
Metroland Durham Region winning the Excellence in Journalism Award
in the small, medium or local market category. Metroland publications
also won 93 editorial and 77 advertising and promotion awards from
Suburban Newspapers of America.

The Star Media Group, which includes the Toronto Star, Metro, Sing Tao,
EyeWeekly and many of our digital properties, experienced a very good
year in 2010, growing EBITDA substantially from $32 million to $61
million. The group benefited from a recovery in revenues coupled with
very hard work on the cost base as the restructuring that began several
years ago continued in earnest throughout the year.

The most important development in 2010 for Harlequin, and for all
other book publishers, was the explosive growth in digital publishing
as millions of e-readers drove strong demand for eBooks. Indeed, the
entire book publishing landscape is rapidly shifting with the increase in
digital reading. Harlequin has been preparing for some time and is very
well positioned to adapt to this changing environment, having released
all of its new titles in North America in electronic formats since 2007.
That foresight is starting to show significant benefits. In 2010, Harlequin

The voice of the Toronto Star remains strong. Our flagship newspaper
continued as the most-read and most-circulated daily newspaper in
the Greater Toronto Area and across Canada. The quality of the print
journalism continues to yield benefits as print readership remained
stable in 2010. We were also pleased by the strong growth of thestar.
com, which continued to attract a growing number of unique visitors
in 2010, further solidifying its position as the top newspaper website
destination in the GTA.

t o r s t a r c o r p o r a t i o n 2 0 1 0 a n n u a l r e p o r t

Star Media Group is increasingly diversifying. The Metro commuter
newspaper franchise, operating in the major markets across Canada,
continued to build on its reputation as an effective advertising medium.
The Chinese-language daily, Sing Tao, with editions in Toronto,
Vancouver and Calgary, also had a strong year.

Torstar Digital, which showed positive results once again in 2010, is
central to the online activities of Torstar’s Media division. In addition
to operating a number of digital businesses, Torstar Digital is also
responsible for helping to develop online solutions across the media
operation to meet the needs of online advertisers, consumers and
readers. The portfolio of digital businesses includes: Workopolis,
Canada’s foremost career website, which remains ahead of its major
competitors in job-search traffic and is benefiting from increases in
recruitment advertising after major declines in 2009; and Olive Media, a
leading online advertising solutions provider which continued to build on
its reputation for quality, service and innovation. In 2010, Torstar Digital
also acquired WagJag, a new digital marketing platform that features
deep discounts to Canadians on local services such as restaurants, spas
and attractions, with a new deal featured every day. Although it is early
days, we are pleased with our progress and our position to date in this
evolving space.

Metroland Media Group is a leader in community newspaper operations,
publishing three daily and 103 community papers. It has also evolved
into a diversified business in addition to publishing of the papers, with
operations in flyer distribution, magazines, specialty publications,
consumer shows, commercial printing, television, directories and
numerous digital businesses.

2010 was a year of solid growth for Metroland. It benefited from a
recovery in revenues as the Southern Ontario economy slowly improved
and from good cost control. EBITDA at Metroland grew to $99 million,
up $12 million from 2009. Newspaper advertising revenue, which had
declined in 2009, was stable in 2010, while revenues from flyer delivery,
online business and product sales through Metroland’s television
division all rose during the year.

The year also saw continued expansion of Metroland’s community
newspaper operations, with the launch of Ottawa This Week. Residents
in Ottawa now have neighbourhood news and information delivered
every week right to their doors. We believe Metroland, with its strong
connection to its communities through its community papers and digital
presence, extensive distribution services, its continual investment in new
digital offerings and its expansion into new markets is well positioned
going forward.

In September 2010, Torstar announced it had entered into agreements
to sell its 20% share in CTVglobemedia Inc. for aggregate cash
proceeds of approximately $345 million. The first transaction closed in
December 2010 and with the approval by the CRTC on March 7, 2011, the
remaining transaction is expected to close early in the second quarter
of 2011. We were pleased to participate in the transactions, which were
attractive and beneficial to all of the CTVglobemedia shareholders. The
resulting strengthening of Torstar’s financial position will be an asset as
we continue to build from our core and seek out the opportunities that
are emerging in the increasingly digital world.

Torstar also has an investment in Black Press, which experienced a
modest recovery in 2010 along with the market generally. Black Press,
well led by David Black, is primarily a community newspaper operation
and is nicely positioned in this area going forward.

Looking forward

Torstar’s businesses remain highly dependent on the economy.
Like 2010, we are not anticipating or counting on a robust Canadian
economic recovery in 2011, especially in the Southern Ontario market
where many of our businesses operate.

We remain fully committed, though, to seeking opportunities and
continuing to invest in the Canadian media operation. Harlequin

continues to pursue new opportunities and is well positioned to adapt
to the increasingly digital book publishing landscape.

Within our media operation, we must continue to adapt and evolve to
meet the increasingly diverse media environment in which readers want
content relevant to them delivered in print, online and through mobile
devices. Not surprisingly, marketers’ requirements are evolving as the
behaviour of audiences evolves. We see opportunity in the evolution
that is occurring.

Our goal as Torstar is to be a growing progressive media organization
that takes advantage both of the breadth of the assets currently at
our disposal and the depth and quality of talent throughout our many
businesses.

We will continue to benefit from the diversity and strength of our brands.
We are focused on developing and enhancing products across a variety
of media and platforms for both our current and potential audiences
and customers. Our success in the future will require us to be innovative
and to move quickly when opportunities arise, whether within the book
publishing operations of Harlequin or our Canadian media operations.

To ensure our success, we will aggressively seek to broaden and
diversify Torstar’s revenue base building from within, acknowledging
that sustained future growth will at times require investment in areas
that may lie further from our traditional core.

Torstar has a long history of developing world-class content that
appeals to audiences and serves our customers effectively. We are fully
committed to continuing that tradition.

Our greatest Strength - People

We are fortunate to have talented and committed employees throughout
Torstar who will give us a competitive advantage moving forward. I am
always amazed at the depth of skills and experience of people in all
aspects of our businesses. The need for talented people at all levels of
our organization has never been greater due to the sheer diversity of the
activities in which Torstar is now involved. The quality and passion of our
people will benefit the company as we move forward. Our employees
care about our company and are committed to our future.

Providing the leadership to our talented and committed employees in
the operations is a terrific group of executives. By guiding Harlequin
so effectively as it adapts to the increasingly digital book publishing
environment, Donna Hayes has once again demonstrated why she is
one of the world’s top book publishing executives. At Metroland Media
Group, Ian Oliver is an experienced and successful leader who has a
great record of growth in community-based media driven by his focus
on developing effective solutions for his customers. John Cruickshank,
drawing on his considerable experience, has provided outstanding
leadership and is achieving substantial positive transformation as he
positions Star Media Group for the future. Tomer Strolight at Torstar
Digital is succeeding in building digital franchises and continues to show
why he is considered a thought leader in Canada in the online media
business. Lorenzo DeMarchi, in his first full year as Chief Financial
Officer, made numerous important contributions including being a
valued partner to me.

I would also like to acknowledge the support I have received as CEO
from our Chair, John Honderich, and the Board of Directors in the past
year. I look forward to the Board’s counsel as we develop and execute
on our strategies intended to secure a prosperous future for Torstar.

At Torstar, we are committed to being progressive, adapting quickly
to the fast-paced business environment in which our businesses
exist. Given the quality of the more than 6,000 Torstar employees,
their dedication and hard work, and our ability to be innovative and
aggressive in pursuing opportunities, I am confident that Torstar will
thrive in the years ahead.

t o r s t a r c o r p o r a t i o n 2 0 1 0 a n n u a l r e p o r t

Management’s Discussion & analysis

f I N A N C I A L TA b L E O f C O N T E N TS

Management’s Discussion & Analysis

Management’s Statement of Responsibility

Independent Auditors’ Report to Shareholders

Consolidated Financial Statements

Annual Operating Highlights, Seven-Year-Summary

Corporate Information

t o r s t a r c o r p o r a t i o n 2 0 1 0 a n n u a l r e p o r t

Management’s Discussion & analysis

for the year ended December 31, 2010

Dated: March 1, 2011

The following review and analysis of Torstar Corporation’s (“Torstar”) operations and financial position is supplementary to,
and should be read in conjunction with the audited consolidated financial statements of Torstar Corporation for the year ended
December 31, 2010.

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 Torstar’s operations or
by a 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 consolidated, segment or reporting unit operating profit
as presented on the consolidated statements of income which is before charges for interest and taxes, adjusted for depreciation
and amortization of intangible assets. Torstar also excludes restructuring and other charges from its calculation of EBITDA.
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 MD&A and in the Company’s oral and written public communications 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 MD&A. 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 MD&A. In addition, forward-looking statements are
provided for the purpose of providing information about management’s current expectations and plans relating to the future.
Readers are cautioned that reliance on such information may not be appropriate for other purposes.

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 not to 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 and media platforms;

the Company’s ability to attract and retain advertisers;

the Company’s ability to retain and grow its digital audience and further develop its digital businesses;

• cyclical and seasonal variations in the Company’s revenues;

•

labour disruptions;

• newsprint costs;

•

the Company’s ability to reduce costs;

foreign exchange fluctuations;

• credit risk:

•

closing conditions, termination rights and other risks and uncertainties related to the timing and completion of the proposed
CTVglobemedia Inc. transaction;

t o r s t a r c o r p o r a t i o n 2 0 1 0 a n n u a l r e p o r t

Management’s Discussion & analysis

• restrictions imposed by existing credit facilities, debt financing and availability of capital;

• pension fund obligations;

• results of impairment tests;

• reliance on its printing operations;

• reliance on technology and information systems;

• risks related to business development;

•

interest rates;

• availability of insurance;

•

litigation;

• environmental regulations;

• dependence on key personnel;

•

loss of reputation;

• privacy and confidential information;

• product liability;

•

intellectual property rights;

• control of the Company by the Voting Trust; 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. 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 which the Company believes are reasonable as of the date of this
MD&A. Some of the key assumptions include, without limitation, assumptions regarding the performance of the North American
economy; tax laws in the countries in which we operate; continued availability of printing operations; continued availability
of financing on appropriate terms; exchange rates; market competition; rates of return and discount rates relating to pension
expense and pension plan obligations; royalty rates, expected future revenues, expected future cash flows and discount rates
relating to valuation of goodwill and intangible assets; and successful development of new products. There is a risk that some or
all of these assumptions may prove to be incorrect.

When relying on our forward-looking statements to make decisions with respect to the Company and its securities, investors
and others should carefully consider the foregoing factors and other uncertainties and potential events. The Company does not
intend, and disclaims any obligation to, update any forward-looking statements, whether written or oral, or whether as a result
of new information or otherwise, except as may be required by law.

t o r s t a r c o r p o r a t i o n 2 0 1 0 a n n u a l r e p o r t

Management’s Discussion & analysis

TA b L E O f C O N T E N TS

OVERVIEW

• Media Segment

• Book Publishing Segment

• Associated Businesses

• Other Investment

• Future Accounting Changes

OPERATING RESULTS – YEAR ENDED DECEMBER 31, 2010

• Overall Performance

• Segment Operating Results – Media

• Segment Operating Results – Book Publishing

OPERATING RESULTS – THREE MONTHS ENDED DECEMBER 31, 2010

• Overall Performance

• Segment Operating Results – Media

• Segment Operating Results – Book Publishing

OUTLOOK

LIQUIDITY AND CAPITAL RESOURCES

• Overview

• Operating Activities

•

Investing Activities

• Financing Activities

• Net Debt

• Long-term Debt

• Contractual Obligations

• Funding of Post Employment Benefits

FINANCIAL INSTRUMENTS

• Foreign Exchange

•

Interest Rates

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Management’s Discussion & analysis

TA b L E O f C O N T E N TS

POST EMPLOYMENT BENEFIT OBLIGATIONS

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

• Provision for Book Returns

•

Income (loss) of Associated Businesses

• Valuation of Goodwill and Intangible Assets

• Valuation of Investments

• Accounting for Employee Future Benefits

• Accounting for Income Taxes

CHANGES IN ACCOUNTING POLICIES

• Future Accounting Changes – International Financial Reporting Standards

RISKS AND UNCERTAINTIES

• Economic Conditions

• Revenue Risks and Competition – Media Segment

• Revenue Risks and Competition – Book Publishing Segment

• Labour Disruptions

• Newsprint Costs

• Cost Structure

• Foreign Exchange

• Credit Risk

•

Investment in CTVgm

Restrictions Imposed by Existing Credit Facilities, Debt Financing and Availability of

Capital

• Pension Fund Obligations

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Management’s Discussion & analysis

TA b L E O f C O N T E N TS

•

Impairment Tests

• Reliance on Printing Operations

• Reliance on Technology and Information Systems

• Business Development

•

Interest Rates

• Availability of Insurance

• Litigation

• Environmental Regulations

• Dependence on Key Personnel

• Loss of Reputation

• Privacy and Confidential Information

• Product Liability

•

Intellectual Property Rights

• Control of Torstar by the Voting Trust

ANNUAL INFORMATION – 3 YEAR SUMMARY

SUMMARY OF QUARTERLY RESULTS

CONTROLS AND PROCEDURES

• Disclosure Controls and Procedures

•

Internal Controls over Financial Reporting

• Changes in Internal Control over Financial Reporting

OTHER

t o r s t a r c o r p o r a t i o n 2 0 1 0 a n n u a l r e p o r t

Management’s Discussion & analysis

OvERvIEW

Torstar Corporation is a broadly based media and book publishing company listed on the Toronto Stock Exchange (TS.B).
Torstar reports its operations in two segments: Media and Book Publishing. The Media Segment publishes over 100 newspapers
including the Toronto Star, Canada’s largest daily newspaper, The Mississauga News, Oshawa This Week and The Hamilton
Spectator. It also includes leading digital properties such as thestar.com, toronto.com, InsuranceHotline.com, Wheels.ca,
flyerland.ca, goldbook.ca, Workopolis, Olive Media and eyeReturn Marketing. The Book Publishing Segment represents Harlequin
Enterprises Limited, (“Harlequin”) a leading global publisher of books for women. Torstar also has investments in CTVglobemedia
Inc. (“CTVgm”), Canadian Press Enterprises Inc. (“Canadian Press”), Q-ponz Inc. and Black Press Limited (“Black Press”).

Media Segment

The Media Segment includes Star Media Group and Metroland Media Group.

Star Media Group includes the Toronto Star, Canada’s largest daily newspaper which is read in print and online (thestar.com) by
more than 3.0 million readers every week. Online, thestar.com is one of the most-visited newspaper websites in Canada. Star Media
Group also includes Torstar Syndication Services (which provides editorial content to newspapers and other media), Wheels.ca,
InsuranceHotline.com, moneyville.ca, parentcentral.ca, healthzone.ca, yourhome.ca, toronto.com (an online destination for events
and attractions in the Greater Toronto Area), eyeReturn Marketing (a leading provider of online marketing services), wagjag.com (a
daily deal website), travelalerts.ca (an online publisher of travel and entertainment deals) and the Torstar Digital corporate group.

In addition to the above wholly-owned operations, Star Media Group also includes Torstar’s proportionate interests in Sing Tao
Daily, Metro, Workopolis, and Olive Media. Sing Tao Daily publishes a Chinese language newspaper in Canada with editions in
Toronto, Vancouver and Calgary. It is also involved in printing, outdoor advertising, Chinese telephone directories, radio and weekly
magazine publishing. Torstar jointly owns the Canadian operations of Sing Tao Daily with Sing Tao Holdings Limited. Metro is a free
daily newspaper that is published in Toronto, Vancouver, Ottawa, Calgary and Edmonton, jointly by Torstar and Metro International
S.A. and in Halifax, jointly by Torstar, Metro International S.A. and Transcontinental Media G.P. Torstar owns 50% of Workopolis,
Canada’s leading provider of Internet recruitment and job search solutions, and 75% of Olive Media, a leader in online advertising
sales in Canada with the ability to reach over 17 million unique Canadian visitors monthly on a portfolio of top-tier sites including
thestar.com, nytimes.com, CNET.com, cyberpresse.ca, and auFeminin.ca. Square Victoria Digital Properties (a subsidiary of Power
Corporation) is Torstar’s partner in both of these partnerships.

Metroland Media Group publishes in print and online more than 100 weekly community newspapers including The Mississauga
News and Oshawa This Week and three daily newspapers – The Hamilton Spectator, the Waterloo Region Record and the Guelph
Mercury. Its online properties include flyerland.ca, HomeFinder.ca, gottarent.com, and 50% interests in save.ca and LeaseBusters.
com. Metroland Media Group also participates in Wheels.ca, InsuranceHotline.com and wagjag.com. Metroland Media Group
publishes the Gold Book print and online directories, a number of specialty publications and operates several consumer shows
throughout Ontario. Metroland Media Group also operates Torstar Media Group Television (“TMGTV” - a teleshopping channel and
commercial production house). Metroland Media Group has eight web press facilities which print the Metroland newspapers but
also engage in commercial printing.

book Publishing Segment

The Book Publishing Segment reports the results of Harlequin, a leading global publisher of books for women. Harlequin publishes
books around the world in a variety of genres and formats, including digital. Harlequin sells books through the retail channel, in
stores and online, and directly to the consumer through its direct mail businesses and from its Internet sites (in North America –
eharlequin.com). Harlequin’s publishing operations are comprised of two divisions: North America and Overseas. In 2010 Harlequin
published books in 31 languages in 111 international markets.

Harlequin sells books under several imprints including Harlequin, Silhouette, MIRA, HQN, LUNA, Spice, Kimani Press and Carina
Press. Harlequin publishes books in both series and single title formats. Series titles are published monthly in mass-market
paperback format under an imprint that identifies the type of story to the reader. Each series typically has a preset number of
titles that will be published each month. The single title publishing program provides a broader spectrum of content in a variety of
formats (mass-market paperback, trade paperback, hardcover) and is generally a lengthier book.

Associated businesses

Torstar has a 33.33% equity investment in Canadian Press, a 19.35% equity investment in Black Press and a 30% equity
investment in Q-ponz Inc. Canadian Press was established by Torstar, Square Victoria Communications Group (a subsidiary of
Power Corporation) and The Globe and Mail in late 2010 to acquire the operations of The Canadian Press news agency. Black Press

t o r s t a r c o r p o r a t i o n 2 0 1 0 a n n u a l r e p o r t

Management’s Discussion & analysis

is a privately held company that publishes more than 150 newspapers (weeklies, dailies and shoppers) in Canada and the U.S. and
has 16 press centres in Western Canada, Washington State, Ohio and Hawaii. Q-ponz produces and delivers unaddressed co-op
direct mail.

Other Investment

Torstar has a 20% interest in CTVgm, a Canadian multi-media company that owns and operates 28 conventional television stations
across Canada, with interests in 29 specialty channels and the CHUM Radio Division, which operates 33 radio stations throughout
Canada. Up until December 31, 2010, CTVgm also owned the national daily newspaper The Globe and Mail.

On September 10, 2010, Torstar announced that it had entered into agreements to sell its 20% interest in CTVgm for aggregate cash
proceeds of approximately $345 million. On December 31, 2010, Torstar received $40 million in connection with CTVgm’s sale of
The Globe and Mail. This payment, combined with an estimate of certain costs associated with closing the transaction, has reduced
the cash proceeds expected on the sale to approximately $290 million. The sale of Torstar’s 20% interest in CTVgm remains subject
to customary approvals and closing conditions, including approval by the Canadian Radio-television and Telecommunications
Commission (“CRTC”), and is expected to close by mid 2011.

Torstar accounted for its investment in CTVgm as an associated business through September 10, 2010. The investment is
currently being reported at the September 10, 2010 carrying value increased by $2.5 million on the reallocation of cumulative other
comprehensive losses (treated as realized on the loss of significant influence) and reduced by the $40 million of cash received on
December 31, 2010.

future Accounting Changes

Torstar currently reports its financial results under Canadian generally accepted accounting principles (“Canadian GAAP”). As a
Canadian public company, Torstar will be required to adopt International Financial Reporting Standards (“IFRS”) for its interim
and annual financial statements for fiscal years beginning on January 1, 2011. These fiscal 2011 financial statements will require
Torstar to present the comparative 2010 results in accordance with IFRS. The transition to IFRS will also require adjustments to be
recorded to Torstar’s consolidated balance sheets as of January 1, 2010.

This MD&A has been prepared to provide explanations for Torstar’s 2010 results as reported under Canadian GAAP. However, in
several areas it also includes guidance on the impact to Torstar’s consolidated balance sheets and statements of income from the
adoption of IFRS.

OPERATINg RESULTS – YEAR ENDED DECEMbER 31, 2010
Overall Performance

Total revenue was $1,479.6 million in 2010 up $28.3 million or 1.9% from $1,451.3 million in 2009. Media Segment revenue
was $1,011.4 million in 2010, up $53.4 million or 5.6% from $958.0 million in 2009. The Media Segment revenue growth came
from digital, print advertising and distribution revenues along with $12.7 million of product sales in Metroland Media Group’s
TMGTV operations. Excluding the TMGTV product sales, the Media Segment revenue was up $40.7 million or 4.2% in 2010. Book
Publishing revenue was $468.2 million in 2010, down $25.1 million from $493.3 million in 2009 including a $33.2 million decline
from the stronger year over year Canadian dollar. Excluding the impact of foreign exchange and the $12.9 million benefit from the
acquisition at the beginning of the second quarter of 2010 of the half of the German business that Harlequin had not previously
owned, Book Publishing revenue was down $4.8 million or 1.0% in the year. North America digital revenues were up in the year, but
were more than offset by lower North America retail and direct-to-consumer and Overseas revenues.

Operating profit before restructuring and other charges was $187.3 million in 2010, up $48.3 million from $139.0 million in 2009.
Including the $33.5 million of restructuring and other charges, operating profit was $153.9 million in 2010, up $58.6 million from
$95.3 million in 2009 (which included $43.7 million of restructuring and other charges). Media Segment operating profit was
$118.8 million in 2010, up $48.6 million from $70.2 million in 2009. Book Publishing operating profit was $83.4 million in 2010,
down $0.4 million from $83.8 million in 2009 as a $3.9 million decline due to foreign exchange more than offset growth in the
underlying operations. Corporate costs were $14.9 million in 2010, down $0.1 million from $15.0 million in 2009.

t o r s t a r c o r p o r a t i o n 2 0 1 0 a n n u a l r e p o r t

Management’s Discussion & analysis

EBITDA1 , excluding restructuring and other charges, was $233.6 million in 2010, up $41.8 million from $191.8 million in 2009.

(in $000’s)

Media

Book Publishing

Corporate

EBITDA, excluding restructuring and other charges

Restructuring and other charges

2010

$160,754

87,652

(14,828)

$233,578

2009

$118,527

88,187

(14,913)

$191,801

Restructuring and other charges of $33.5 million were recorded in 2010 including $29.1 million of restructuring provisions,
$2.8 million of costs related to Torstar’s bid to purchase the newspaper and digital businesses of Canwest Limited Partnership and
its related entities, a $1.1 million adjustment to a provision for litigation in the Media Segment and a $0.5 million impairment loss on
intangible assets in the Media Segment.

The restructuring provisions in 2010 included $14.6 million related to a voluntary separation program at the Toronto Star’s Vaughan
Press Centre. This program was offered as part of the collective agreement covering approximately 275 employees at the Press
Centre that was reached during the third quarter of 2010. The collective agreement provided for a substantial restructuring of
job categories with wage reductions over time for a number of junior classifications. Existing employees were given the option of
accepting a severance package or transitioning to the new wage rates. The financial benefits from the program are from the lower
pay rates as the total staff complement is expected to be stable. The staff departures will take place over the next four years which
will result in the benefits also being realized over a number of years. The charge of $14.6 million reflects the discounted value of the
future severance obligations.

In 2009, the restructuring and other charges of $43.7 million included $12.8 million related to the transition in leadership at Torstar
Corporate, $28.8 million for restructuring provisions in the Media Segment, $1.4 million related to the closure of a distribution centre
in Harlequin’s U.K. operation and a $0.7 million impairment loss on intangible assets in the Media Segment.

Both Star Media Group and Metroland Media Group have undertaken several restructuring initiatives in 2009 and 2010 in order to
reduce ongoing operating costs. Total annualized net savings from the 2010 restructuring initiatives are expected to be approximately
$20.8 million and a reduction of approximately 180 positions. Total annualized net savings from the 2009 restructuring activities
were approximately $23.7 million and a reduction of approximately 450 positions.

The following chart provides the realized and expected net savings by year:

(in $000’s)

2009 Initiatives

2010 Initiatives

Combined

Realized net savings:
2009
2010
Expected net savings:
2011
2012
2013
2014
2015
Annualized net savings

$12,700
10,200

800

$23,700

$4,700

10,700
2,100
1,400
1,500
400
$20,800

$12,700
14,900

11,500
2,100
1,400
1,500
400
$44,500

1 EBITDA is calculated as operating profit as presented on the consolidated statements of income which is before charges for interest and taxes, adjusted for depreciation and
amortization of intangible assets. It also excludes restructuring and other charges. See “non-GAAP measures”.

t o r s t a r c o r p o r a t i o n 2 0 1 0 a n n u a l r e p o r t

Management’s Discussion & analysis

Interest

Interest expense was $23.8 million in 2010, up $2.8 million from $21.0 million in 2009. The higher expense reflects higher
effective interest rates partially offset by a lower level of average net debt outstanding in 2010. The average net debt (long-term
debt and bank overdraft net of cash and cash equivalents) was $461.7 million in 2010, down $126.1 million from $587.8 million
in 2009. Torstar’s effective interest rate was 5.2% in 2010 and 3.6% in 2009. The higher rate reflected the impact of the higher
interest rate spread that was effective starting at the beginning of 2010 for borrowings under Torstar’s long-term credit facility.

Net debt was $368.8 million at December 31, 2010, down $147.0 million from $515.8 million at December 31, 2009. The reduction
included the benefit of the $40 million received on December 31, 2010 from CTVgm.

Foreign exchange

Torstar reported a non-cash foreign exchange loss of $1.9 million in 2010. This loss arose from the translation of foreign-currency
(primarily U.S. dollars) denominated assets and liabilities into Canadian dollars. The amount of the gain or loss in any year will
vary depending on the movement in relative value of the Canadian dollar and on whether Torstar has a net asset or net liability
position in the foreign currency. In 2009, a non-cash foreign exchange loss of $0.5 million was reported.

Income (loss) of associated businesses

Income (loss) of associated businesses was a loss of $29.5 million in 2010 and a loss of $18.0 million in 2009.

Torstar’s share of CTVgm’s net loss was $29.1 million in 2010 compared with a loss of $17.8 million in 2009. The results are not
directly comparable as the 2010 loss covers only the period through September 10, 2010 while the 2009 loss includes a full year’s
results. As a result, the 2010 results do not include CTVgm results for Torstar’s fourth quarter, which is traditionally the strongest
earnings quarter for CTVgm.

On September 10, 2010, Torstar announced that it had entered into agreements to sell its 20% interest in CTVgm for aggregate
cash proceeds of approximately $345 million. On December 31, 2010, Torstar received $40 million in connection with CTVgm’s
sale of The Globe and Mail. The sale of Torstar’s 20% interest in CTVgm remains subject to customary approvals and closing
conditions, including approval by the CRTC, and is expected to close by mid 2011. Effective with the signing of the agreements,
Torstar ceased to meet the accounting criteria for significant influence over the operations of CTVgm and as a result ceased to
equity account for CTVgm’s results as of September 10, 2010.

Torstar’s share of CTVgm’s 2010 loss through September 10, 2010 included an $18.2 million loss related to the impairment of
intangible assets. Excluding the impairment loss, Torstar would have reported a net loss of $10.9 million in 2010. The full year
2009 loss included an intangible asset impairment loss of $16.5 million, a $26.3 million valuation allowance (negative earnings
impact) that was provided against certain of CTVgm’s future income tax assets, a recovery related to CRTC Part II licence fees, a
gain on the change in the fair value of financial liabilities and a $4.2 million positive earnings impact as future income tax liabilities
related to intangible assets were reduced to reflect the reduction in future provincial income tax rates. Excluding the impact of the
above items, Torstar would have reported a net loss of $4.3 million in 2009 for its share of CTVgm’s loss.

Torstar is not currently recording its share of Black Press’s results. Torstar’s carrying value in Black Press was reduced to nil in
the fourth quarter of 2008. Under Canadian GAAP a negative carrying value is not recorded, but any deficit must be recovered
prior to the reporting of any further results. Torstar’s share of Black Press’s net income would have been $0.1 million in 2010,
including a $3.1 million impairment loss related to a customer-related intangible asset and goodwill associated with a printing
operation. Excluding the impairment charge, Torstar’s share of Black Press’s net income would have been $3.2 million in 2010
compared with $2.5 million in 2009. Black Press’s EBITDA has improved during 2010, partially offset by higher interest and
restructuring costs.

Gain on sale of assets

Torstar recognized a gain on sale of assets of $4.1 million in 2010. This included $1.3 million on the sale of a small piece of excess
land in Vaughan and $2.8 million realized on the formation of a joint venture with Rogers Media to manage and further develop
the Total Online Publishing Solutions (“TOPS”) system. The TOPS system is a highly scalable content management system for
internet media publishers that had been developed by Torstar and used by its newspapers. In 2009, Torstar recognized a gain of
$0.2 million related to the sale of a small property in Cambridge, Ontario.

Investment write-down

During 2010, Torstar recognized an investment write-down of $0.8 million related to two small portfolio investments. In 2009, Torstar
recognized an investment write-down of $2.4 million, reducing the carrying value of its portfolio investment in Vocel Inc. to nil.

t o r s t a r c o r p o r a t i o n 2 0 1 0 a n n u a l r e p o r t

Management’s Discussion & analysis

Income and other taxes

Torstar’s effective tax rate was 31.3% in 2010 excluding the negative impact of not tax affecting the $29.5 million loss of associated
businesses.

In 2009, Torstar’s effective tax rate was 32.3% excluding the impact of not tax affecting the $18.0 million loss of associated businesses
and excluding the $5.1 million benefit from changes in statutory tax rates. During 2009, the Ontario provincial government enacted
corporate tax decreases for future years. Under Canadian generally accepted accounting principles the impact of these changes
on Torstar’s future income tax assets and liabilities is to be recorded during the period the tax changes are substantially enacted.

The lower effective tax rate in 2010 reflected the lower Canadian statutory income tax rates and a $2.6 million benefit from the
reduction of the valuation allowance that is recorded against Torstar’s future income tax assets. These benefits were partially offset
by foreign income that is now being taxed at rates that are higher than the Canadian statutory rate.

Net income

Torstar reported net income of $60.9 million or $0.77 per share in 2010, up $25.3 million or $0.32 per share from $35.6 million or
$0.45 per share in 2009. Excluding the loss from CTVgm in both years, Torstar would have reported net income of $90.0 million or
$1.14 per share in 2010, up $36.5 million or $0.46 per share from $53.5 million or $0.68 per share in 2009.

The average number of Class A and Class B non-voting shares outstanding was 79.1 million in 2010 up slightly from
79.0 million in 2009.

The following chart provides a continuity of earnings per share from 2009 to 2010:

Net income per share 2009
Changes

• Operations

• Restructuring and other charges

• Loss from CTVgm

• Investment write-down

• Gain on sale of assets

• Change in statutory tax rates (2009)

• Non-cash foreign exchange

Net income per share 2010

segment operating results – Media

0.41

0.07

(0.14)

0.02

0.04

(0.06)

(0.02)

$0.45
Year to Date

$0.77

The following tables set out, in $000’s, the results for the reporting units within the Media Segment for the years ended December
31, 2010 and 2009.

Metroland
Media

2010

Star
Media

Total

Metroland
Media

2009

Star
Media

Total

Operating revenue

$541,735

$469,698

$1,011,433

$513,298

$444,658

$957,956

EBITDA

$99,272

$61,482

$160,754

$86,917

$31,610

$118,527

Depreciation & amortization

12,614

29,344

41,958

16,501

31,872

48,373

Operating profit

$86,658

$32,138

$118,796

$70,416

($262)

$70,154

EBITDA margin

18.3%

13.1%

Operating profit margin

16.0%

6.8%

15.9%

11.7%

16.9%

13.7%

7.1%

n/a

12.4%

7.3%

t o r s t a r c o r p o r a t i o n 2 0 1 0 a n n u a l r e p o r t

Management’s Discussion & analysis

Total revenue of the Media Segment was $1,011.4 million in 2010, up $53.4 million or 5.6% from $958.0 million in 2009.
The revenue growth came from digital, print advertising and distribution revenues along with $12.7 million of product sales in
Metroland Media Group’s TMGTV operations. Excluding the TMGTV product sales, the Media Segment revenue was up $40.7
million or 4.2% in 2010. Digital revenues grew $23.1 million (34.7%) in 2010 contributing 8.9% of the total Media Segment revenue
in 2010, up from 6.9% in 2009.

The Media Segment expenses were up $11.1 million in 2010. This included higher product sales costs, distribution costs, commis-
sions and incentives all related to the revenue growth as well as the continued investment in the digital businesses. Offsetting a
portion of these higher costs was $14.9 million of net savings from restructuring initiatives, $11.3 million of lower pension costs
and $4.6 million from lower newsprint pricing.

Metroland Media Group

Metroland Media Group revenues were $541.7 million in 2010 up $28.4 million from $513.3 million in 2009. The increase included
$12.7 million of revenue from product sales in the TMGTV operations. Excluding the TMGTV product sales, revenues were up
$15.7 million or 3.1% in 2010.

Digital and distribution revenues were the contributors of the revenue growth in the year. Digital revenue was up $10.9 million
in the year with revenue growth across most of Metroland Media Group’s sites. Distribution revenues were up $8.1 million with
volumes growing almost 7% in the year. Print advertising revenue from directories, magazines and supplementary newspaper
sections was down in the year while in-paper advertising revenues were relatively flat. National advertising had strong growth in
the year which offset most of the continued softness in classified and local retail.

Metroland Media Group expenses were up $16.0 million in 2010. This included increased costs related to the TMGTV product
sales (which have a lower margin than the newspaper and digital businesses) and from the higher distribution volumes. Realized
labour cost savings of $5.4 million from restructuring efforts and $2.6 million of lower defined benefit pension costs were more
than offset by wage increases and higher commission and incentive expense and increased staffing for the digital operations.
Newsprint pricing was about 8% lower in the year, contributing $2.6 million of cost savings.

Metroland Media Group’s EBITDA was $99.3 million in 2010 up $12.4 million from $86.9 million in 2009. Metroland Media Group’s
operating profit was $86.7 million in 2010 up $16.3 million from $70.4 million in 2009.

Star Media Group

Star Media Group revenues were $469.7 million in 2010, up $25.0 million or 5.6% from $444.7 million in 2009. The revenue
growth was evenly split between the print and digital properties.

Toronto Star print advertising revenues were up 2.6% in 2010 with national advertising revenue up throughout the year. The retail
and classified categories trended positive as the year progressed but were still down on a full-year basis. Retail advertising was up
in the fourth quarter. The classified category continued to be affected by structural pressures.

The jointly-owned Metro newspapers had significant revenue growth in the year, benefiting from improved national advertising as
well as continued growth in the newer markets. Sing Tao revenues were also up in the year with the growth split evenly between
newspapers and magazine revenues.

Star Media Group digital revenues were up $12.2 million in 2010 with strong growth for Olive Media, Workopolis and thestar.com.
Digital revenues also benefited from the TOPS partnership with Rogers Media and the acquisitions of travelalerts.ca and wagjag.com.

Star Media Group expenses were down $4.9 million in 2010 as net savings of $9.5 million from restructuring efforts, $8.7 million of
lower pension costs and $2.0 million of lower newsprint pricing more than offset the continued investment in staff and marketing
expenses in the digital businesses.

Star Media Group EBITDA was $61.5 million in 2010, up $29.9 million from $31.6 million in 2009. Star Media Group operating
profit was $32.1 million in 2010 compared with an operating loss of $0.3 million in 2009.

t o r s t a r c o r p o r a t i o n 2 0 1 0 a n n u a l r e p o r t

Management’s Discussion & analysis

Segment Operating Results – book Publishing

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 years ended December 31, 2010 and 2009.

Revenue

EBITDA

Depreciation & amortization

Operating profit

EBITDA margin

Operating profit margin

Reported revenue, prior year

Impact of currency movements and foreign exchange contracts

Change in underlying revenue

Reported revenue, current year

Reported operating profit, prior year

Impact of currency movements and foreign exchange contracts

Change in underlying operating profit

Reported operating profit, current year

2010

2009

$468,155

$493,303

$87,652

$4,230

$83,422

18.7%

17.8%

$88,187

$4,390

$83,797

17.9%

17.0%

$493,303

(33,246)

8,098

$468,155

$83,797

(3,851)

3,476

$83,422

North American division revenues were up $1.3 million and operating profit was up $1.0 million in 2010 excluding the impact of foreign
exchange. Digital revenues were up $16.1 million in 2010 reflecting the strong growth of the e-book market. Sales of print books declined
in the year. Retail revenues were down $10.7 million as fewer books were sold through that channel reflecting continued weakness in
the U.S. economy (and its effect on consumer spending) as well as a shift in format from physical to digital books. Direct-to-consumer
revenues were down $4.1 million as lower volumes were only partially offset by higher prices. The lower volumes in the direct-to-
consumer channel were consistent with the long-term decline in the direct mail industry.

Overseas division revenues were up $6.8 million and operating profit was up $2.5 million in 2010 excluding the impact of foreign
exchange. Excluding the benefit from the acquisition of the other half of the German business at the beginning of the second quarter,
Overseas revenues were down $6.1 million and operating profit was up $1.5 million. The Japanese operation accounted for most of the
revenue decline in 2010, the result of a combination of lower digital revenues as well as continued challenges in its print book business.
The digital revenue shortfall included the expected decline in 2010 from the agreement between Harlequin’s Japanese operation and
SoftBank Creative Corp. (a division of Softbank Corp., one of the largest providers of cell phone services in Japan) to distribute digital
manga (comic) content on cell phones and Internet distribution sites. Revenues were lower in 2010 in accordance with the agreed upon
delivery schedule of titles to Softbank. Modest revenue declines were also experienced in several other Overseas markets in 2010 due
to lower volumes. The German operation provided most of the operating profit growth (after excluding the portion from the acquisition)
as a result of strong revenues and cost savings. Several other markets including Australia, the U.K. and the Netherlands also reported
operating profit growth in 2010.

OPERATINg RESULTS – THREE MONTHS ENDED DECEMbER 31, 2010

Overall Performance

Total revenue was $416.1 million in the fourth quarter of 2010, up $21.3 million or 5.4% from $394.8 million in the fourth quarter
of 2009. Media Segment revenue was $296.1 million, up $23.5 million or 8.6% from $272.6 million in the same period last year.

t o r s t a r c o r p o r a t i o n 2 0 1 0 a n n u a l r e p o r t

Management’s Discussion & analysis

The Media Segment revenue growth came from digital, distribution revenues and print advertising along with $8.7 million of product
sales in Metroland Media Group’s TMGTV operations. Excluding the TMGTV product sales, the Media Segment revenue was up $14.8
million or 5.4% in the fourth quarter of 2010. Book Publishing revenues were $120.0 million in the fourth quarter of 2010, down $2.2
million from $122.2 million in the same period last year. The $4.3 million decrease from the strengthening of the Canadian dollar was
offset by the $4.3 million benefit from the acquisition of the other half of the German business. North America digital revenues were up
in the quarter, but were more than offset by lower North America retail and direct-to-consumer and Overseas revenues.

Operating profit before restructuring and other charges was $60.2 million in the fourth quarter of 2010, up $4.4 million from
$55.8 million in the fourth quarter of 2009. Including the $17.9 million of restructuring and other charges, operating profit was
$42.3 million in the fourth quarter of 2010, down $0.5 million from $42.8 million in the fourth quarter of 2009 (which included
$13.0 million of restructuring and other charges). Media Segment operating profit was $46.6 million in the fourth quarter of 2010, up
$7.4 million from $39.2 million in the same period last year. Book Publishing operating profits were $17.3 million in the fourth quarter, down
$3.4 million from $20.7 million in the same period last year. The decline included $0.7 million from the negative impact of foreign
exchange. Corporate costs were $3.7 million in the fourth quarter of 2010, down $0.4 million from $4.1 million in the fourth quarter of
2009 benefiting from lower professional fees.

EBITDA, excluding restructuring and other charges, was $71.5 million in the fourth quarter, up $1.9 million from $69.6 million in the
same period last year.

(in $000’s)

Media

Book Publishing

Corporate

EBITDA, excluding restructuring and other charges

fourth Quarter Fourth Quarter

2010

$56,852

18,330

(3,709)

$71,473

2009

$51,985

21,701

(4,081)

$69,605

Restructuring and other charges
Restructuring and other charges of $17.9 million were recorded in the fourth quarter of 2010 including restructuring provisions of
$17.4 million and a $0.5 million impairment loss on intangible assets, both in the Media Segment.

The restructuring provision in the fourth quarter of 2010 included $14.6 million related to a voluntary separation program at the
Toronto Star’s Vaughan Press Centre. This program was offered as part of the collective agreement covering approximately 275
employees at the Press Centre that was reached during the third quarter of 2010. The collective agreement provided for a substantial
restructuring of job categories with wage reductions over time for a number of junior classifications. Existing employees were given
the option of accepting a severance package or transitioning to the new wage rates. The financial benefits from the program are from
the lower pay rates as the total staff complement is expected to be stable. The staff departures will take place over the next four
years which will result in the benefits also being realized over a number of years. The charge of $14.6 million reflects the discounted
value of the future severance obligations.

In 2009, the restructuring and other charges of $13.0 million included restructuring provisions of $12.3 million and a $0.7 million
impairment loss on intangible assets, both in the Media Segment.

Total annualized net savings from the fourth quarter 2010 restructuring initiatives are expected to be approximately $10.8 million
with a reduction of approximately 30 positions.

Interest
Interest expense was $6.2 million in the fourth quarter of 2010, up $1.1 million from $5.1 million in the fourth quarter of 2009. The
higher expense reflects higher effective interest rates partially offset by a lower level of average net debt outstanding in the fourth
quarter of 2010. The average net debt (long-term debt and bank overdraft net of cash and cash equivalents) was $409.6 million in
the fourth quarter of 2010, down $124.9 million from $534.5 million in 2009. Torstar’s effective interest rate was 6.0% in the fourth
quarter of 2010 and 3.8% in the fourth quarter of 2009. The higher rate reflected the impact of the higher interest rate spread that
was effective starting at the beginning of 2010 for borrowings under Torstar’s long-term credit facility. It also reflected the mix of debt
outstanding with a larger proportion being the higher fixed-rate debt in the fourth quarter of 2010.

t o r s t a r c o r p o r a t i o n 2 0 1 0 a n n u a l r e p o r t

Management’s Discussion & analysis

Foreign exchange
Torstar reported a non-cash foreign exchange gain of $0.2 million in the fourth quarter of 2010. This gain arose from the translation
of foreign-currency (primarily U.S. dollars) denominated assets and liabilities into Canadian dollars. The amount of the gain or loss
in any year will vary depending on the movement in relative value of the Canadian dollar and on whether Torstar has a net asset or
net liability position in the foreign currency. In 2009, a non-cash foreign exchange loss of $0.5 million was reported.

Income (loss) of associated businesses
Income (loss) of associated businesses was a loss of $0.4 million in the fourth quarter of 2010 compared with income of $30.4 million
in the fourth quarter of 2009.

Torstar ceased to equity account for its investment in CTVgm on September 10, 2010 and as a result did not include any amounts
related to CTVgm in the income (loss) of associated businesses in the fourth quarter of 2010.

Torstar’s share of CTVgm’s net income was $30.3 million in the fourth quarter of 2009. The net income included the benefit of a gain
on the change in the fair value of financial liabilities, a partial recovery of the valuation allowance against certain of CTVgm’s future
income tax assets, a gain on the sale of CTVgm’s interest in Maple Leaf Sports and Entertainment Ltd., and a $4.2 million positive
earnings impact as future income tax liabilities related to intangible assets were reduced to reflect the reduction in future provincial
income tax rates, partially offset by a $2.3 million impairment loss on intangible assets. Excluding the impact of the above items,
Torstar would have reported income from CTVgm of $10.5 million in the fourth quarter of 2009.

Torstar is not currently recording its share of Black Press’s results. Torstar’s carrying value in Black Press was reduced to nil in
the fourth quarter of 2008. Under Canadian accounting rules a negative carrying value is not recorded, but any deficit must be
recovered prior to the reporting of any further results. Torstar’s share of Black Press’s income would have been $2.5 million in the
fourth quarter of 2010 up from $0.9 million in the fourth quarter of 2009. The higher income in 2010 reflects the improvement in
Black Press’s revenues and EBITDA.

Gain on sale of assets
Torstar recognized a gain on sale of assets of $1.3 million in the fourth quarter of 2010 on the sale of a small piece of excess land
in Vaughan.

Investment write-down
In the fourth quarter of 2010, Torstar recognized an investment write-down of $0.8 million related to two small portfolio investments.
In 2009 Torstar recognized an investment write-down of $2.4 million, reducing the carrying value of its portfolio investment in Vocel
Inc. to nil.

Income and other taxes
Torstar’s effective tax rate was 26.1% in the fourth quarter of 2010 excluding the impact of not tax affecting the $0.4 million loss of
associated businesses.

In the fourth quarter of 2009, Torstar’s effective tax rate was 37.1% excluding the impact of not tax affecting the $30.4 million
income of associated businesses and excluding the $5.1 million benefit from changes in statutory tax rates. During 2009, the Ontario
provincial government enacted corporate tax decreases for future years. Under Canadian generally accepted accounting principles
the impact of these changes on Torstar’s future income tax assets and liabilities is to be recorded during the period the tax changes
are substantially enacted.

The lower effective tax rate in 2010 reflected the lower Canadian statutory income tax rates, a $2.6 million benefit from the reduction
of the valuation allowance that is recorded against Torstar’s future income tax assets and the impact of permanent differences in
calculating income taxes in one period versus another.

Net income
Torstar reported net income of $26.7 million or $0.34 per share in the fourth quarter of 2010, down $30.7 million or $0.39 per share
from $57.4 million or $0.73 per share in the fourth quarter of 2009. Excluding the income from CTVgm in the fourth quarter of 2009,
Torstar’s fourth quarter of 2010 would have been down $0.4 million compared with the fourth quarter of 2009.

The average number of Class A and Class B non-voting shares outstanding was 79.1 million in the fourth quarter of 2010 up slightly
from 79.0 million in the fourth quarter of 2009.

The following chart provides a continuity of earnings per share from 2009 to 2010:

t o r s t a r c o r p o r a t i o n 2 0 1 0 a n n u a l r e p o r t

Net income per share fourth quarter 2009
Changes

• Operations

• Restructuring and other charges

• Income from CTVgm (2009)

• Income (loss) of associated businesses

• Investment write-down

• Gain on sale of assets

• Change in statutory tax rates (2009)

• Non-cash foreign exchange

Net income per share fourth quarter 2010

Segment Results – Media

Management’s Discussion & analysis

0.07

(0.05)

(0.38)

(0.01)

0.02

0.01

(0.06)

0.01

$0.73

Year to Date

$0.34

The following tables set out, in $000’s, the results for the reporting units within the Media Segment for the three months ended
December 31, 2010 and 2009.

Metroland
Media

2010

Star
Media

Total

Metroland
Media

2009

Star
Media

Total

Operating revenue

$158,467

$137,631

$296,098

$143,594

$128,966

$272,560

EBITDA

$32,530

$24,322

Depreciation & amortization

2,866

7,370

Operating profit

$29,664

$16,952

EBITDA margin

20.5%

17.7%

Operating profit margin

18.7%

12.3%

$56,852

10,236

$46,616

19.2%

15.7%

$28,993

$22,992

4,194

8,589

$24,799

$14,403

20.2%

17.8%

17.3%

11.2%

$51,985

12,783

$39,202

19.1%

14.4%

Total revenue of the Media Segment was $296.1 million in the fourth quarter of 2010, up $23.5 million or 8.6% from $272.6 million
in 2009. The revenue growth came from digital, distribution revenues and print advertising along with $8.7 million of product sales
in Metroland Media Group’s TMGTV operations. Excluding the TMGTV product sales, the Media Segment revenue was up $14.8
million or 5.4% in the fourth quarter of 2010. Digital revenues grew $6.4 million (31.0%) compared to the fourth quarter of 2009
contributing 9.2% of the total Media Segment revenue in the fourth quarter of 2010, up from 7.6% in the same period last year.

The Media Segment expenses were up $18.7 million in the fourth quarter of 2010. This included higher product sales costs,
distribution costs, commissions and incentives all related to the revenue growth. It also included $1.1 million from higher newsprint
pricing and the continued investment in the digital businesses. Offsetting a portion of these higher costs was $3.5 million of net
savings from restructuring initiatives and $2.9 million of lower pension costs.

Metroland Media Group
Metroland Media Group revenues were $158.5 million in the fourth quarter of 2010 up $14.9 million or 10.4% from $143.6 million in
the fourth quarter of 2009. The increase included $8.7 million of revenue from product sales in the TMGTV operations. Excluding
the TMGTV product sales, revenues were up $6.2 million or 4.3% in the fourth quarter of 2010.

Digital and distribution revenues were the contributors of the revenue growth in the quarter. Digital revenue was up $2.1 million in
the quarter with several of Metroland Media Group’s digital properties, including some new initiatives, providing the revenue growth.
Distribution revenues were up $3.7 million in the fourth quarter, primarily from strong volume growth. In-paper advertising revenues
were lower in the fourth quarter. Multi-market retail advertising was up in the quarter but was more than offset by continued softness
in classified revenue. Local retail advertising was only slightly down in the quarter, which was an improvement over the year to date
performance of that category.

t o r s t a r c o r p o r a t i o n 2 0 1 0 a n n u a l r e p o r t

Management’s Discussion & analysis

Metroland Media Group expenses were up $11.4 million in the fourth quarter of 2010. This included increased costs related to the
TMGTV product sales costs (which have a lower margin than the newspaper and digital businesses) and from the higher distribution
volumes. Realized labour cost savings of $0.8 million and $0.7 million of lower pension costs were more than offset by wage
increases and higher commission and incentive expense and increased staffing for the digital operations. Newsprint pricing was
about 7% higher in the quarter, increasing costs by $0.6 million.

Metroland Media Group’s EBITDA was $32.5 million in the fourth quarter of 2010 up $3.5 million from $29.0 million in the fourth
quarter of 2009. Metroland Media Group’s operating profit was $29.7 million in the fourth quarter of 2010, up $4.9 million from
$24.8 million in the same period last year.

Star Media Group
Star Media Group revenues were $137.6 million in the fourth quarter of 2010, up $8.6 million or 6.7% from $129.0 million in the
fourth quarter of 2009. The revenue growth was evenly split between the print and digital properties.

Toronto Star print advertising revenues were up 4.2% in the fourth quarter of 2010. This was the strongest revenue growth quarter
in 2010 with strength in both national and retail advertising. The classified revenues continued to be soft during the quarter.

The jointly-owned Metro newspapers had revenue growth in the fourth quarter of 2010 from strong national advertising revenues.
Sing Tao’s fourth quarter revenue growth was evenly split between newspapers and magazine revenues.

Star Media Group digital revenues were up $4.3 million in the fourth quarter of 2010 with strong growth from Olive Media, Workopolis
and thestar.com. Digital revenues in the fourth quarter also benefited from the acquisitions of travelalerts.ca and wagjag.com.

Star Media Group expenses were up $7.3 million in the fourth quarter of 2010 as net savings of $2.7 million from restructuring efforts
and $2.2 million of lower defined benefit pension costs were more than offset by $0.5 million from higher newsprint pricing and the
continued investment in staff and marketing expenses in the digital businesses.

Star Media Group EBITDA was $24.3 million in the fourth quarter of 2010, up $1.3 million from $23.0 million in 2009. Star Media
Group operating profit was $17.0 million in the fourth quarter of 2010, up $2.6 million from $14.4 million in the same period last year.

Segment Results - book Publishing

Revenue

EBITDA

Depreciation & amortization

Operating profit

EBITDA margin

Operating profit margin

Reported revenue, prior year

Impact of currency movements and foreign exchange contracts

Change in underlying revenue

Reported revenue, current year

Reported operating profit, prior year

Impact of currency movements and foreign exchange contracts

Change in underlying operating profit

Reported operating profit, current year

2010

2009

$120,043

$122,225

$18,330

1,056

$17,274

15.3%

14.4%

$21,701

1,048

$20,653

17.8%

16.9%

fourth Quarter

$122,225

(4,321)

2,139

$120,043

$20,653

(701)

(2,678)

$17,274

t o r s t a r c o r p o r a t i o n 2 0 1 0 a n n u a l r e p o r t

Management’s Discussion & analysis

North American division revenues were down $0.3 million and operating profit was down $3.0 million in the fourth quarter of 2010
excluding the impact of foreign exchange. Digital revenues were up $5.5 million in the fourth quarter of 2010 reflecting the strong
growth of the e-book market including the positive impact of the growing number of e-book readers. Sales of print books declined in
the quarter. Retail revenues were down $3.0 million in the fourth quarter as fewer books were sold through that channel reflecting
continued weakness in the U.S. economy (and its effect on consumer spending) as well as a shift in format from physical to digital
books. Direct-to-consumer revenues were down $2.8 million in the fourth quarter from lower volumes. Higher costs in the fourth
quarter, including advertising and promotional costs, incentives and inventory adjustments contributed to the lower operating profit.

Overseas division revenues were up $2.4 million and operating profit was up $0.3 million in the fourth quarter of 2010 excluding the
impact of foreign exchange. Excluding the benefit from the acquisition of the other half of the German business earlier in the year,
Overseas revenues were down $1.9 million and operating profit was up $0.2 million in the fourth quarter. The Japanese operation
accounted for the revenue decline in the fourth quarter of 2010 as a result of lower digital revenues. The digital revenue shortfall
included the expected decline in 2010 from the agreement between Harlequin’s Japanese operation and SoftBank Creative Corp. (a
division of Softbank Corp., one of the largest providers of cell phone services in Japan) to distribute digital manga (comic) content
on cell phones and Internet distribution sites. Revenues were higher in the same period last year in accordance with the delivery
schedule of titles to Softbank. The U.K. and Germany both had higher revenues in the quarter that were offset by small declines
in some of the other markets. Operating profit was up in Germany (after excluding the portion from the acquisition) as a result of
revenue growth. France and the Nordic group also had operating profit growth in the fourth quarter which was primarily the result
of higher non-recurring costs in the fourth quarter of 2009. Partially offsetting these improvements was the lower operating profit
in Japan as a result of the lower digital revenues.

OUTLOOK

Given the uncertainty in the pace of recovery in the Ontario economy, it is difficult to predict the level of revenue growth anticipated
in the Media Segment in 2011. During 2010, National advertising improved from 2009 levels, retail advertising continued to be soft
and classified advertising continued to feel the impact of structural changes. If overall retail advertising strengthens during the year,
Torstar would expect to realize that benefit in its daily and community newspapers. Digital revenue is expected to benefit from the
2010 acquisitions of travelalerts.ca and wagjag.com. Early indications in 2011 are that revenue growth has slowed compared to
the growth experienced in the fourth quarter of 2010. Torstar anticipates increasing its investment in the Media Segment’s digital
operations in 2011 as well as experiencing increased pension costs of $1.6 million. These higher costs are expected to be mitigated
by $11.5 million of savings from restructuring initiatives. Newsprint pricing is expected to be stable compared to 2010 due to
agreements in place with newsprint suppliers.

The book publishing industry, and in particular the U.S. market, is undergoing significant changes from the rapid growth in digital
books. As part of this trend, Harlequin anticipates continued growth in its e-book business with some resulting decline in print sales.
In February 2011, Borders Group, Inc. (a U.S. book retailer) filed for Chapter 11 bankruptcy protection in the U.S. While Harlequin
does not face a direct credit risk in relationship to Borders, the potential disruption to the U.S. retail book distribution network could
result in lower sales. These changing trends make it more difficult to predict 2011 performance but on balance, Harlequin expects
full-year 2011 operating results to be stable excluding the impact of foreign exchange. If the Canadian dollar remains at its current
levels relative to the U.S. dollar and overseas currencies, Harlequin anticipates a year over year negative foreign exchange impact of
approximately $7.0 million, including the impact of the U.S. dollar hedges currently in place.

In addition to the $40 million received in December 2010, subject to regulatory approval and customary closing conditions, Torstar
expects to receive approximately $290 million of proceeds (this is net of an estimate of certain costs associated with closing the
transaction) on the sale of its interest in CTVgm by mid 2011. This is expected to result in an estimated accounting gain of $189.6
million or $2.40 per share (the carrying value of CTVgm will be approximately $12.4 million lower under IFRS). Depending on the
timing of the receipt and the use of the proceeds, there may also be costs associated with the early termination of some interest
rate swap agreements.

Torstar’s net debt was $368.8 million at December 31, 2010. It is anticipated that net debt levels will increase at least during the first
quarter of 2011 due to movements in working capital, including the payment of final 2010 income tax installments and payments
related to restructuring provisions. During the full year 2011, $18.1 million ($12.5 million net of tax) of payments are expected to be
made related to restructuring provisions. In addition, in 2011 the funding for Torstar’s registered defined benefit pension plans will
increase to approximately $50.0 million from $16.8 million in 2010.

t o r s t a r c o r p o r a t i o n 2 0 1 0 a n n u a l r e p o r t

Management’s Discussion & analysis

LIQUIDITY AND CAPITAL RESOURCES

Overview

Torstar’s businesses generate a significant amount of cash flow from operations. These funds are generally used for capital
expenditures, acquisitions, distributions to shareholders and debt repayment. Long-term debt is used to supplement funds from
operations as required, generally for capital expenditures or acquisitions.

Torstar’s $600 million long-term debt facility will mature in January 2012. If the sale of Torstar’s 20% interest in CTVgm closes
during 2011, the amount of Torstar’s long-term debt facility requirement is expected to decrease. Torstar will renegotiate its long-
term debt facility during 2011 and anticipates that it will be able to obtain the required facility absent any significant changes in the
financial markets. Pricing of the new facility will be at market prices at the time of the negotiation.

It is expected that future cash flows from operating activities, combined with the renewal of the long-term debt facility will be
adequate to cover forecasted financing requirements.

In 2010, $157.4 million of cash was generated by operations, $12.2 million was provided by investing activities and $170.0 million
was used for financing activities. Cash and cash equivalents net of bank overdraft decreased by $1.3 million in the year from $37.2
million to $35.9 million.

In the fourth quarter of 2010, $58.7 million of cash was generated by operations, $27.3 million was provided by investing activities
and $79.8 million was used for financing activities. Cash and cash equivalents net of bank overdraft increased by $5.6 million in the
quarter from $30.3 million to $35.9 million.

Operating Activities

Cash provided by operating activities was $157.4 million in 2010 including no change in non-cash working capital. In 2009, cash
provided by operating activities was $153.4 million including a $33.5 million decrease in non-cash working capital. The improved
cash provided by operating activities, before the change in non-cash working capital reflected the improved operating results in 2010
as well as the $14.3 million of restructuring provisions that will not be payable until 2012 or later.

Torstar’s investment in non-cash working capital did not change in 2010. This resulted from higher accounts receivable (improved
revenues year over year) offset by higher income taxes payable (timing of installments) and higher accounts payable. Restructuring
provisions (included in accounts payable) decreased by $7.4 million in 2010.

In 2009, Torstar’s investment in non-cash working capital decreased $33.5 million. This was a combination of lower accounts
receivable (lower revenues year over year), receipt of income tax refunds and lower tax installments partially offset by lower
accounts payable. The lower accounts payable included a $3.9 million reduction in restructuring provisions.

Cash provided by operating activities was $58.7 million in the fourth quarter of 2010 including a $10.5 million decrease in non-
cash working capital. In 2009, cash provided by operating activities was $51.0 million including a $7.4 million decrease in non-cash
working capital.

Investing Activities

Cash of $12.2 million was provided by investing activities during 2010 compared with a $29.2 million use of cash in 2009. Cash of
$27.3 million was provided by investing activities during the fourth quarter of 2010 compared with a $9.5 million use of cash in the
fourth quarter of 2009. The net receipt of cash in 2010 included $6.2 million on the collection of a mortgage receivable on the sale
of excess land in Vaughan during 2008, $3.0 million on the formation of a joint venture with Rogers Media to manage and further
develop the TOPS system, the fourth quarter $40.0 million return of capital by CTVgm and $1.3 million on the fourth quarter sale of
a small piece of excess land in Vaughan.

Additions to property, plant and equipment and intangible assets were $26.9 million in 2010, up $6.2 million from $20.7 million
in 2009. Fourth quarter additions were $11.7 million and $6.8 million in 2010 and 2009 respectively. The 2010 additions included
investment in technology across the Media Segment to improve the utilization of information and the publication processes as well
as investment in Harlequin’s distribution centre in New York State. The increase in fourth quarter spending reflected the timing of
projects during the year.

In 2010, Torstar used cash of $11.6 million on acquisitions and investments. This included $2.8 million for the first of three payments
related to Harlequin’s acquisition of full ownership of its German publishing business, $3.3 million for deferred purchase and
performance payments in respect of prior year acquisitions in the Media Segment and $5.5 million for several acquisitions within
the Media Segment. The German acquisition has $6.5 million of deferred purchase payments that will be made over the next two
years. The Media Segment acquisitions included the remaining ownership of Travelwire Inc., wagjag.com and several other smaller
businesses. Two of these acquisitions also have potential performance payments of up to $8.4 million based on future revenues.

t o r s t a r c o r p o r a t i o n 2 0 1 0 a n n u a l r e p o r t

Management’s Discussion & analysis

2011 capital expenditures

Capital expenditures in 2011 are expected to be approximately $35.0 million up from the $26.9 million spent in 2010. The 2011
capital expenditures are anticipated to include the upgrading of presses and related production equipment as well as the continued
investment in technology to improve the utilization of information across the Media Segment both in print and on the Internet.

financing Activities

Cash of $170.0 million was used in financing activities during 2010, including $142.3 million for the repayment of long-term debt
and $29.0 million for cash dividends paid to shareholders. In the fourth quarter of 2010, cash of $79.8 million was used in financing
activities including $73.0 million for the repayment of long-term debt and $7.2 million for cash dividends paid to shareholders.

In 2009, cash of $126.1 million was used in financing activities, including $96.8 million for the repayment of long-term debt and
$29.1 million for cash dividends paid to shareholders. In the fourth quarter of 2009, cash of $36.8 million was used in financing
activities including $29.9 million for the repayment of long-term debt and $7.3 million for cash dividends paid to shareholders.

Net Debt

Net debt was $368.8 million at December 31, 2010, down $147.0 million from $515.8 million at December 31, 2009. The $147.0
million included $142.3 million of long-term debt repayments, a decrease of $3.7 million from the strengthening of the Canadian
dollar and a decrease of $1.0 million from changes in cash, bank overdraft and the value of the fair value hedge related to the
medium term notes that were repaid in the third quarter. The $142.3 million of long-term debt repayments included the benefit of
the $40 million received on December 31, 2010 from CTVgm.

Long-term Debt

At December 31, 2010, Torstar had long-term debt of $404.7 million outstanding. The debt consisted of U.S. dollar bankers’
acceptances of $83.7 million and Canadian dollar bankers’ acceptances of $321.0 million.

Torstar has a long-term bank credit facility that consist of a $425 million revolving loan that will mature on January 4, 2012 and a
$175 million revolving 364-day operating loan (“operating loan”). The operating loan was reduced to $175 million from $310 million
at Torstar’s request in November 2010. Torstar is required to borrow from the operating loan in priority to the revolving loan. The
operating loan was established at the same time as the revolving loan and was structured to allow it to be extended annually with
the consent of all parties for additional 364-day periods through January 2012 (i.e. would not be renewable beyond the term of the
revolving loan). The operating loan was renewed in December 2010 to mature in January 2012 with the consent of all the parties.

Amounts may be drawn under the facility in either Canadian or U.S. dollars. The interest rate spread above the bankers’ acceptance
rate if in Canadian dollars, or the LIBOR rate if in U.S. dollars, varies based on Torstar’s long-term credit rating for borrowings
under the revolving loan (range of 0.4% to 1.5%) and on its net debt to operating cash flow ratio for borrowings under the operating
loan (range of 2.0% to 3.8%). Effective January 2011, the interest rate spread is 0.6% on the $425 million revolving loan and 2.25%
on the $175 million operating loan.

Torstar borrows under the facility primarily in the form of bankers’ acceptances. The bankers’ acceptances normally mature
over periods of 30 to 180 days but are classified as long-term as they are issued under the long-term credit facility. Bankers’
acceptances are generally issued for a term of less than six months in order to provide for flexibility in borrowing and to benefit
from short term interest rates. However, the bankers’ acceptances program has been and is intended to continue to be an ongoing
source of financing for Torstar. Recognizing this intent, to the extent that the long-term credit facility has sufficient credit available
that it could be used to replace the outstanding bankers’ acceptances, the bankers’ acceptances are classified as long-term debt
on Torstar’s balance sheet.

If the long-term credit facility has not been renewed by March 31, 2011, Torstar will be required to report its outstanding debt as
current on its first quarter financial statements. This classification will continue until a new long-term debt facility has been obtained.

Torstar has a policy of maintaining a sufficient level of U.S. dollar denominated debt in order to provide an economic hedge against
its U.S. dollar assets. It is expected that the level of U.S. dollar debt will remain relatively constant during 2011.

The long-term credit facility for $600 million also acts as a standby line in support of letters of credit. At December 31, 2010,
$405.5 million was drawn under the facility and a $21.9 million letter of credit was outstanding relating to an executive retirement
plan, leaving $172.6 million of available credit.

t o r s t a r c o r p o r a t i o n 2 0 1 0 a n n u a l r e p o r t

Management’s Discussion & analysis

Contractual Obligations

Torstar has the following significant contractual obligations (in $000’s)2:

Nature of the Obligation

Total

Less than
1 Year (2011)

2 – 3 Years
(2012–2013)

4 – 5 Years
(2014–2015)

After 5 Years
(2016 +)

Office leases

Services

Acquisitions

Equipment leases

Subtotal

Foreign currency forward contracts:

- payments

- receipts

- net

Cdn $ Interest rate swaps

US $ Interest rate swaps

Long-term debt

Total

$141,270

$18,166

$34,874

$31,890

$56,340

13,864

10,327

1,887

4,034

5,997

792

5,574

4,330

885

3,360

896

210

167,348

28,989

45,663

35,460

57,236

54,205

(58,082)

(3,877)

7,656

14,395

404,727

35,308

(37,811)

(2,503)

7,656

3,307

18,897

(20,271)

(1,374)

6,614

4,474

404,727

$590,249

$37,449

$455,630

$39,934

$57,236

Office leases include the offices at One Yonge Street in Toronto for Torstar and the Toronto Star, Harlequin’s Toronto head office and
the Waterloo Region Record in Kitchener. The One Yonge Street and Kitchener leases extend until the year 2020. Harlequin’s lease
will expire in 2018. Equipment leases include office equipment and company vehicles.

The services include distribution contracts for some of the Star Media Group properties and Harlequin’s U.K. operations. The
acquisition obligations relate to the 2008 purchase of eyeReturn Marketing, the 2009 purchase of Gottarent.com and the 2010
purchase of the other half of Harlequin’s German publishing business.

The foreign currency forward contracts are the U.S. dollar contracts that Torstar uses to manage the exchange risk in Harlequin’s
U.S. operations. The interest rate swaps are used to manage the risk on variable interest rate debt. More details on these are
provided in the Financial Instruments section that follows.

The full amount of the outstanding long-term debt is included in the above chart as maturing in 2012, consistent with the maturity
of Torstar’s long-term debt facility.

Torstar has a guarantee outstanding in relation to an operating lease for a warehouse in New Hampshire that was entered into by
one of the businesses in its former Children’s Supplementary Education Publishing Segment. Lease payments are under U.S. $1.0
million per year and the lease runs through December 2018. The warehouse has been subleased, on identical terms and conditions,
to the purchaser of that business. The sublease is secured by a U.S. $0.7 million letter of credit.

funding of Post Employment benefits

During 2010, the most significant group of Torstar’s defined benefit registered pension plans (in terms of assets and obligations)
completed the preparation of actuarial reports as of December 31, 2009. The result of the report is that Torstar’s funding for these
defined benefit registered pension plans will be approximately $50.0 million per year from 2011 through 2016, up significantly from
$16.8 million in 2010. However, Torstar will be required to prepare another set of actuarial reports for that group of plans as of
December 31, 2010 and the results of those reports will determine the actual funding required. The funding that will ultimately be
required starting in 2011 based on those reports could be different from the $50.0 million.

fINANCIAL INSTRUMENTS

foreign Exchange

Harlequin’s international operations provide Torstar with approximately 30% of its operating revenues. As a result, fluctuations
in exchange rates can have a significant impact on Torstar’s reported profitability. Torstar’s most significant exposure is to the
movements in the U.S.$/Cdn.$ exchange rate. To manage this exchange risk in its operating results, Torstar’s practice is to enter
into forward foreign exchange contracts to hedge a portion of its U.S. dollar revenues.

In 2010, Torstar sold U.S. $51.6 million under forward foreign exchange contracts at an average exchange rate of $1.16. In 2009 U.S.

2 All foreign denominated obligations were translated at the December 31, 2010 spot rates.

t o r s t a r c o r p o r a t i o n 2 0 1 0 a n n u a l r e p o r t

Management’s Discussion & analysis

$50.1 million was sold at an average exchange rate of $1.12. The settlement of these contracts resulted in an exchange gain of $7.1 million
in 2010 and a loss of $0.8 million in 2009. Torstar has entered into forward foreign exchange contracts to sell $35.5 million U.S. dollars
during 2011 at an average rate of $1.07 and $19.0 million U.S. dollars in 2012 at an average rate of $1.07. These 2011 and 2012 forward
foreign exchange contracts had a $3.4 million favourable fair value at December 31, 2010. These U.S. dollar contracts are designated as
revenue hedges for accounting purposes and any resulting gains or losses are recognized in Book Publishing revenues as realized.

From time to time, Torstar may also enter into forward foreign exchange contracts to hedge other currencies (Yen, Euro, and Pound
Sterling) which it is exposed to in Harlequin’s overseas operations.

The counterparties to the foreign currency contracts are all major financial institutions with high credit ratings. Further details are contained
in Note 11 of the consolidated financial statements.

In order to offset the exchange risk on its balance sheet from U.S. dollar denominated assets, Torstar maintains a certain level of U.S. dollar
denominated debt. These assets are primarily current in nature, and to the extent that the amount of U.S. dollar assets differs from the
amount of the U.S. dollar debt, a non-cash foreign exchange gain or loss is recognized in earnings.

Under IFRS, the accounting treatment for a significant portion of these U.S. dollar denominated assets will change and the foreign exchange
on their translation into Canadian dollars will be reported through other comprehensive income rather than net income. The accounting
treatment for the translation of the U.S. dollar debt will not change under IFRS and the foreign exchange on its translation into Canadian
dollars will continue to be reported through net income.

In order to have the foreign exchange on the translation of the U.S. dollar debt be reported through other comprehensive income, reflecting
the economic effectiveness of the hedge, Torstar will need to designate a portion of its U.S. dollar debt as a hedge against its net
investment in the Book Publishing U.S. businesses. Torstar will make this designation effective January 1, 2011 on $80.0 million of its U.S.
dollar debt. To the extent that Torstar has U.S. dollar debt in excess of $80.0 million, the translation on the excess amount will be reported
in net income.

Interest Rates

Torstar has long-term debt in the form of bankers’ acceptances issued under the bank loan facility. Torstar issues debt in both Canadian
and U.S. dollars with the U.S. dollar debt used as a hedge against the U.S. dollar denominated assets in the Book Publishing Segment.
Torstar issues bankers’ acceptances at floating rates.

Torstar’s general practice has been to have approximately one half of its debt at floating interest rates but the exact split will vary from time
to time. As at December 31, 2010, approximately 80% of Torstar’s long-term debt was at fixed interest rates. Since Torstar uses interest
rate swap agreements (which are in place for a set number of years) to fix its interest rate, any debt repayment is applied against the
floating rate debt. Therefore as Torstar has been repaying its long-term debt, the percentage of fixed-rate long-term debt has increased.

In 2006, Torstar entered into interest rate swap agreements to fix the rate of interest on $250 million of Canadian dollar borrowings at 4.3%
(plus the applicable interest rate spread based on Torstar’s long-term credit rating) through September 2011. These swap agreements,
which have been designated as cash flow hedges, had a fair value of $4.9 million unfavourable at December 31, 2010.

In 2008, Torstar entered into interest rate swap agreements that fix the interest rate on U.S. $80 million of borrowings at approximately
4.2% (plus the applicable interest rate spread based on Torstar’s long-term credit rating) for seven years ending May 2015. These swap
agreements, which have been designated as cash flow hedges, had a fair value of $7.6 million unfavourable at December 31, 2010.

Torstar mitigates its exposure to credit related losses in the event of non-performance by counterparties to the interest rate swaps
by accepting only major financial institutions with high credit ratings as counterparties. Further details are contained in Note 9 of the
consolidated financial statements.

POST EMPLOYMENT bENEfIT ObLIgATIONS

Torstar has several defined benefit registered pension plans which provide pension benefits to its employees in Canada and the U.S. and an
unregistered, unfunded defined benefit pension plan that provides pension benefits to eligible senior management executives of Torstar. In
addition, Torstar has capital accumulation (defined contribution) plans in Canada, the U.S. and certain of Harlequin’s overseas operations.

The accrued benefit asset or liability and the related cost of defined benefit pension and other retirement benefits earned by employees
is actuarially determined each year by independent actuaries using the projected unit credit actuarial cost method, prorated on credited
service. Unrecognized actuarial gains and losses in excess of 10% of the greater of the accrued benefit obligation or the fair value of plan
assets, and past service costs, are amortized over the expected average remaining service life of the employee group covered by the
plans. Funding requirements are determined based on actuarial valuations that are completed at the frequency required under the Ontario
provincial pension legislation which can range from annually to once every three years.

t o r s t a r c o r p o r a t i o n 2 0 1 0 a n n u a l r e p o r t

Management’s Discussion & analysis

The accounting for defined benefit plans requires the use of actuarial estimates for pension expense and pension plan obligations.
In making the estimates, certain assumptions must be made by management. Different assumptions could result in significantly
different amounts of expense and obligations. The significant assumptions made by Torstar in 2010 and 2009 were:

to determine the benefit obligation at the end of the year:

2010

Discount rate
Rate of future compensation increase

4.7% - 5.1%
3.0% - 4.0%

to determine the pension benefit expense for the year:

2010

Discount rate
Rate of future compensation increase
Expected long-term rate of return on plan assets
Average remaining service life of active employees

5.5% - 5.8%
3.0% - 4.0%
7.0%
8 to 15 years

to determine the pension benefit expense for the year:

2011

Discount rate
Rate of future compensation increase
Expected long-term rate of return on plan assets

4.7% - 5.1%
3.0% - 4.0%
6.75%

2009

5.5% - 5.8%
3.0% - 4.0%

2009

5.6% - 6.3%
3.0% - 4.0%
7.0%
8 to 15 years

The discount rates 4.7% - 5.1% were the yields at December 31, 2010 on high quality Canadian corporate bonds with maturities
that match the expected maturity of the pension obligations (as prescribed by the Canadian Institute of Chartered Accountants
(“CICA”). The selection of a discount rate that was one percent higher (holding all other assumptions constant) would have resulted
in a decrease in the total pension plan obligation at December 31, 2010 of $97.7 million and a decrease in the 2010 expense of
$11.0 million. A discount rate that was one percent lower would have increased the total pension plan obligation at December 31, 2010
by $111.5 million and increased the 2010 expense by $12.0 million.

Management has estimated the rate of future compensation increases to be between 3.0% and 4.0%. This rate includes an
anticipated level of inflationary increases as well as merit increases. Management has considered both historical trends and
expectations for the future. Recent compensation increases have been lower than this range given current market conditions but
management believes the range reflects an appropriate longer-term view.

Torstar management has changed the estimate of the expected long-term rate of return on plan assets from 7% which was used
for the 2010 expense to 6.75% which will be used to calculate the pension expense starting in 2011. The change in the expected
long-term rate of return is related to a change in the targeted mix of investments held by Torstar’s pension plans. The long-
term rate of return includes assumptions on inflation rates and expected real rates of return on cash, fixed income and equity
investments. These various expected rates of return were then weighted to reflect the targeted mix of investments held by Torstar’s
pension plans. Management feels that a long-term rate of return expectation of 6.75% is reasonable and within the range used by
other Canadian corporations. Holding all other assumptions constant, if the expected long-term rate of return on plan assets had
been one percent higher (lower) the 2010 pension expense would have been approximately $6.5 million lower (higher).

Pension expense can also be affected by actual performance of the pension plan assets relative to the estimated long-term rate of
return. Under Canadian GAAP, gains and losses (relative to the expected rate of return) are not amortized unless they are in excess
of 10% of the greater of the accrued benefit obligation or the fair value of plan assets, and past service costs. In 2010, Torstar’s
pension plan assets experienced a 10.0% return.

The average remaining service life of active employees is used to amortize past service costs from plan improvements and
actuarial gains or losses that are subject to amortization. Torstar’s management has estimated the time period to be 8-15 years.
This range reflects the current composition of the members of these plans (most of Torstar’s defined benefit plans are closed
for new hires who are enrolled in capital accumulation plans) and expectations for staff turnover. The estimate of the average
remaining service life is reviewed annually and validated every three years as part of the actuarial valuation.

Torstar’s expense related to the registered defined benefit pension plans was $20.6 million in 2010, down from $29.7 million in
2009. Torstar’s expense related to the unregistered executive retirement plan was $3.3 million in both 2010 and 2009 (excluding
$4.2 million that was included in restructuring and other charges in 2009).

t o r s t a r c o r p o r a t i o n 2 0 1 0 a n n u a l r e p o r t

Management’s Discussion & analysis

Torstar’s defined benefit pension plans are in a net unfunded position of $116.2 million at December 31, 2010 compared with
$73.4 million at the end of 2009. This balance includes $23.2 million ($20.5 million in 2009) for a senior management executive
retirement plan, which is not funded until payments are made to the executives upon retirement, but is supported by a letter of
credit. Excluding the executive retirement plan, Torstar’s pension plans are in a net unfunded position of $93.0 million compared
with a net unfunded position of $52.9 million in 2009.

Torstar’s funding related to the registered defined benefit pension plans was $16.8 million in 2010, down slightly from $18.8 million
in 2009. Torstar only funds the unregistered executive retirement plan when a member of the plan has retired or has left the
company and is of retirement age. Payments of $0.4 million were made in 2010 and $10.9 million in 2009.

As noted above, during 2010 the most significant group of Torstar’s defined benefit registered pension plans (in terms of assets
and obligations) completed the preparation of actuarial reports as of December 31, 2009. The result of the report is that Torstar’s
funding for these defined benefit registered pension plans will be approximately $50.0 million per year from 2011 through 2016,
up significantly from $16.8 million in 2010. However, Torstar will be required to prepare another set of actuarial reports as of
December 31, 2010 and the results of those reports will determine the actual funding required. The funding that will ultimately be
required starting in 2011 based on those reports could be different from the $50.0 million.

Torstar also has a post employment benefits plan that provides health and life insurance benefits to certain grandfathered
employees, primarily in the newspaper operations. For certain members of this group the annual benefit is capped. This obligation
is being funded as payments are made on behalf of the retirees. Torstar has recorded a liability of $59.2 million on its December
31, 2010 balance sheet and an annual expense of $2.4 million ($59.2 million and $3.8 million respectively in 2009). At December
31, 2010 the unfunded obligation for these benefits was $51.4 million, up from $47.0 million at December 31, 2009. The key
assumptions for this obligation are the discount rate and the health care cost trends. The discount rate used is the same as the
prescribed rate for the defined benefit pension obligation. For health care costs, the estimated trend was for an 8.5% increase
for the 2010 expense. For 2011, health care costs are estimated to increase by 8.0% with a 0.5% decrease each year until 2017.
If the estimated increase in health care costs was one percent higher the obligation at December 31, 2010 would be approximately
$1.8 million higher. If the estimated increase in health care costs was one percent lower the obligation at December 31, 2010 would
be approximately $1.6 million lower. The impact on the 2010 expense would have been less than $0.3 million.

Torstar’s accounting for its defined benefit pension plans and other post employment benefit plans will significantly change under IFRS.

Under Canadian GAAP, past service costs were amortized over the estimated average remaining service life of the active employees
in the plan. As of January 1, 2010, Torstar had $26.0 million of unamortized past service costs. Under IFRS, these costs are to be
expensed during the period the benefit vests for the employees. As all of the past service benefits had fully vested as of January 1,
2010, Torstar was required to recognize the $26.0 million as an increase to the long term employee benefit liability and a reduction
to retained earnings.

Under Canadian GAAP, actuarial gains and losses related to the difference between the actual returns earned on plan assets as
compared to the expected long-term returns and from the impact of changes in the discount rates on the plan obligations are not
recognized unless the cumulative amount is more than 10% of the greater of the accrued benefit obligation or the fair value of the
plan assets (the “corridor method”). If the 10% threshold is reached, the excess actuarial gain or loss is amortized into pension
expense over the estimated average remaining service life of the active employees in the plan. As of January 1, 2010, Torstar had
$160.4 million of unamortized actuarial losses related to its defined benefit pension plans and the other post employment benefits
plan. On the adoption of IFRS, there is an exemption available that allows for unamortized actuarial gains or losses to be recognized
in opening retained earnings. Torstar has elected to take this exemption and has recognized the $160.4 million as an increase to
the long term employee benefit liability and a reduction to retained earnings. Under IFRS, there is an option to continue to account
for actuarial gains and losses using the corridor method or to recognize them through other comprehensive income. Torstar has
chosen to recognize actuarial gains and losses through other comprehensive income under IFRS.

As a result of these changes, Torstar’s expense for the defined benefit pension plans and other post employment benefit plans
will be significantly different under IFRS. The restated 2010 expense for the registered defined benefit pension plans and the
unregistered executive retirement plan will be $8.5 million and $1.7 million respectively. The restated 2010 expense for the other
post employment benefits plan will be $3.1 million. The 2011 expense is expected to be $9.7 million for the registered defined
benefit pension plans, $2.0 million for the unregistered executive retirement plan and $3.0 million for the other post employment
benefits plan. The higher expense for the registered defined benefit pension plans in 2011 reflects the impact of the lower expected
long-term rate of return on plan assets and lower discount rates.

The calculation of the funding obligations for the registered defined benefit pension plans is not impacted by the adoption of IFRS.

t o r s t a r c o r p o r a t i o n 2 0 1 0 a n n u a l r e p o r t

Management’s Discussion & analysis

CRITICAL ACCOUNTINg POLICIES AND ESTIMATES

Torstar prepares its consolidated financial statements in Canadian dollars and in accordance with Canadian GAAP. A summary
of Torstar’s significant accounting policies is presented in Note 1 of the consolidated financial statements. Some of Torstar’s
accounting policies require subjective, complex judgements and estimates as they relate to matters that are inherently uncertain.
Changes in these judgements or estimates could have a significant impact on Torstar’s financial statements. Critical accounting
estimates that require management’s judgements include the provision for book returns, income (loss) of associated businesses,
valuation of goodwill and intangible assets, valuation of investments, accounting for employee future benefits and accounting for
income taxes.

Provision for book Returns

Revenue from the sale of books, net of provisions for estimated returns, is recognized for retail print sales based on the publication
date and for sales made directly to the consumer when the books are shipped and title has transferred.

The provision for estimated returns is significant for retail sales where books are sold with a right of return. As revenue is
recognized, a provision is recorded for returns. This provision is estimated by management, based primarily on point-of-sale
information, returns patterns and historic sales performance for that type of book and the author. Books are returned over time
and are adjusted against the returns provision. On a quarterly basis the actual returns experience is used to assess the adequacy
of the provision.

The impact of the variance between the original estimate for returns and the actual experience is reported in a period subsequent
to the original sale. This can have either a positive (if the actual experience is better than estimated) or negative (if the actual
experience is worse) impact on reported results. A change in market conditions can therefore have a compounded effect on the
Book Publishing results. If the market sales are declining, the estimate being made for returns on current period sales will generally
be higher and as well the adjustment to the returns provision for prior period sales is likely to be negative (i.e. the market has
softened since the original estimate was made). The opposite effect could occur if market sales are increasing.

Series books are on sale for approximately one month and returns are normally received within one year, with more than 95%
received within the first six months. Single title books are on sale for several months and, as a result, experience a longer return
period. For these books, there is more variation in net sale rates between titles, even for the same author. As a result, the estimate
for returns on these titles has more variability than that for the series titles.

At December 31, 2010, the returns provision deducted from accounts receivable on the consolidated balance sheets was
$103 million ($98 million in 2009). A one percent change in the average net sale rate used in calculating the global retail returns
provision on sales from July to December 2010 would have resulted in a $3.8 million change in reported 2010 revenue.

Income (Loss) of Associated businesses

Torstar applies the equity method of accounting for its investments in associated businesses. Torstar is currently equity accounting
for its investment in Canadian Press, Black Press and Q-ponz Inc. Torstar also equity accounted for its investment in CTVgm
through the third quarter of 2010.

As Torstar does not have coterminous quarter-ends with Black Press, Torstar may be required to record an estimate of operating
results, a transaction, or other items in advance of Black Press finalizing their accounting treatment. In that situation, Torstar
management is required to record an estimate based on any preliminary information provided by Black Press management as
well as Torstar’s understanding of the underlying business or transaction. This estimate would be included in Torstar’s income
(loss) of associated business. Torstar will report any adjustments in the reporting period when Black Press finalize their accounting
treatment. The ultimate amount recorded by Black Press could differ significantly from the estimate made by Torstar. Torstar also
did not have coterminous quarter-ends with CTVgm and had a similar requirement during the period prior to September 30, 2010.

In the fourth quarter of 2009 Torstar had recorded an estimate of $6.9 million for a gain on the change in the fair value of CTVgm’s
financial liabilities. The estimate was required as the terms of an agreement that created a financial liability were changed in December
2009, after CTVgm’s quarter end but before Torstar’s year end. CTVgm calculated the revised fair value of the financial liability during
its second quarter and Torstar recorded the required $0.6 million positive adjustment during the first quarter of 2010.

valuation of goodwill and Intangible Assets

Under Canadian GAAP, goodwill is not amortized but is assessed for impairment at the reporting unit level annually or when
impairment may be indicated by events or changes in circumstances. Reporting units are identified based on the nature of the
business and the level of integration between operations. Goodwill is assessed for impairment using a two-step approach.

In the first step, the carrying value of the reporting unit is compared to its fair value. Fair value is generally based on estimates of
discounted future cash flows or other valuation methods. When the fair value of a reporting unit exceeds its carrying value, then
goodwill of the reporting unit is considered not to be impaired and the second step is not required.

t o r s t a r c o r p o r a t i o n 2 0 1 0 a n n u a l r e p o r t

Management’s Discussion & analysis

The second step of the impairment test is carried out when the carrying value of a reporting unit exceeds its fair value. In this
situation, the fair value of the reporting unit is allocated to the assets and liabilities, based on their fair values as if Torstar had
acquired the reporting unit at the impairment assessment date. The excess, if any, of the fair value after the allocation (i.e. the
residual) represents the implied fair value of the goodwill. When the carrying value of the reporting unit’s goodwill exceeds the
implied fair value of the goodwill, an impairment loss equal to the excess is recognized in the period in which the impairment is
determined.

For determining the fair value of its reporting units, Torstar uses both the income and market approaches. Under the income
approach, management estimates the discounted future cash flows for five years and a terminal value for each of the reporting
units. The future cash flows are based on management’s best estimates considering historical and expected operating plans,
strategic plans, economic conditions and the general outlook for the industry and markets in which the reporting unit operates.
The discount rates used are based on an optimal debt-to-equity ratio and considers the risk free rate, market equity risk premium,
size premium and a specific risk premium for possible variations from management’s projections. The terminal value is the value
attributed to the reporting unit’s operations beyond the projected period using a perpetuity growth rate based on industry, revenue
and operating income trends and growth prospects. Under the market approach, Torstar estimates fair value by multiplying
maintainable earnings before interest, income taxes, depreciation, amortization and other non-recurring costs by multiples
based on transactions and market comparables. The estimation process results in a range of values which management uses to
determine the fair value for the reporting unit.

Intangible assets are accounted for at cost, which for business acquisitions, represents the fair value at the date of the acquisition.
Intangible assets with an indefinite life, such as mastheads, trademarks and URLs, are tested for impairment annually or more
frequently if events or changes in circumstances indicate that the asset might be impaired. The impairment test compares the
carrying value of the intangible asset with its fair value, and an impairment loss is recognized for the excess, if any, in the period
in which the impairment is determined.

Depending on the nature of the intangible asset, Torstar calculates fair value using either a relief-from-royalty or discounted cash
flow approach. In calculating the fair value, both at the time of acquisition and for the subsequent impairment tests, management
is required to make several assumptions including but not limited to royalty rates, expected future revenues, expected future cash
flows and discount rates.

Torstar’s assumptions for these valuations are influenced by current market conditions and levels of competition both of which
may affect expected revenues. Expected cash flows may be further affected by changes in operating costs beyond what Torstar
is currently anticipating. Torstar has made certain assumptions for the discount and terminal growth rates to reflect possible
variations in the cash flows; however, the risk premiums expected by market participants related to uncertainties about the
industry, specific reporting units or specific intangible assets may differ or change quickly depending on economic conditions and
other events. Changes in any of these assumptions could have a significant impact on the fair value of the reporting unit or the
intangible asset and the results of the related impairment testing.

Torstar has completed its 2010 annual impairment test of goodwill and intangible assets during the fourth quarter. No adjustment for
impairment of goodwill was required for any of Torstar’s reporting units. A write-down of $0.5 million was recorded in restructuring
and other charges related to an impairment loss on a customer-related intangible asset. In 2009, a write-down of $0.7 million was
recorded related to an impairment loss on certain community newspapers mastheads.

Torstar will have a similar requirement to test intangible assets and goodwill for impairment at least annually under IFRS. However,
there are some differences.

Under Canadian GAAP, Torstar’s goodwill was allocated at the reporting unit level. Under IFRS, goodwill acquired in a business
combination is allocated to cash-generating units or groups of cash-generating units that are expected to benefit from the synergies
of the combination. The cash-generating unit or group of cash-generating units to which goodwill is allocated is the lowest level at
which the goodwill is monitored for internal management purposes but cannot be larger than an operating segment.

On the transition to IFRS, Torstar management determined that no change was required for the goodwill allocated to Metroland
Media Group and Harlequin but that the goodwill previously allocated to the Star Media Group reporting unit should be reallocated
to five groups of cash-generating units. The reallocation was done based on relative fair values of the five groups of cash-generating
units on January 1, 2010.

The testing of intangible assets for impairment is similar under Canadian GAAP and IFRS. IFRS, however, permits the testing
for impairment to be completed at the cash-generating unit level if the asset does not generate cash inflows that are largely
independent of those from other assets or groups of assets.

t o r s t a r c o r p o r a t i o n 2 0 1 0 a n n u a l r e p o r t

Management’s Discussion & analysis

IFRS uses the concept of recoverable amount rather than fair value for the testing of intangible assets and goodwill. Recoverable
amount is the greater of fair value less costs to sell and value in use. The value in use calculation is a discounted cash flow model
where management is required to make many of the same assumptions that were used in the income approach to determining
fair value for Canadian GAAP.

The testing of goodwill for impairment is a one-step process under IFRS compared with the two-step process under Canadian
GAAP as discussed above. Under IFRS if the recoverable amount of a cash-generating unit or group of units is less than its carrying
amount, an impairment loss is recognized. The impairment loss is allocated first to reduce the carrying amount of any goodwill
allocated to the cash-generating unit or group of units and then to the other assets of the cash-generating unit or group of units
pro rata on the basis of the carrying amount of each asset in the cash-generating unit or group of units.

Under Canadian GAAP an impairment loss was never reversed. Under IFRS, for assets other than goodwill, an assessment is made
at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or
may have decreased. If the reasons for the impairment no longer apply, impairment losses may be reversed up to a maximum of
the carrying amount of the respective asset if the impairment loss had not been recognized. IFRS does not provide for a reversal
of impairment of goodwill.

Torstar was required to test its non-amortizable intangible assets and goodwill for impairment and for reversal of impairment losses
on the transition to IFRS (January 1, 2010). Torstar has completed that testing. There were no impairment losses required to be
recorded and $0.5 million of previous impairment losses recorded on certain community newspaper mastheads has been reversed.

valuation of Investments

Torstar has investments in Canadian Press, Black Press and Q-ponz Inc. which are accounted for by the equity method. It also has
an investment in CTVgm which was accounted for by the equity method until the third quarter of 2010.

On the acquisition of the investments that are accounted for by the equity method, Torstar was required to complete an allocation
of the purchase price to the underlying assets and liabilities of the businesses with the residual amount being identified as equity
goodwill. Any intangible assets that were established from the allocation of the purchase price are required to be tested annually
for impairment under the same standards and similar assumptions as discussed above for intangible assets that are identified on
Torstar’s balance sheet. Changes in any of the assumptions made could have a significant impact on the fair value of the intangible
asset and the results of the impairment testing. The equity goodwill is not tested for impairment but is assessed as part of the
carrying value of the investment.

On the investment in CTVgm, intangible assets including broadcast licences, masthead and customer relationships were identified.
In 2009, an impairment loss of $2.3 million was reported as a result of Torstar’s annual impairment testing.

Torstar is required to write-down the carrying value of these investments if there has been an “other than temporary” loss in
value. An “other than temporary” loss does not mean a permanent decline but rather could be evidenced by either a significant
or prolonged decline in the fair value.

For determining the fair value of these investments, Torstar uses a combination of the income and market approaches discussed
above, adjusted for long-term debt and other liabilities to determine the enterprise value. This requires Torstar’s management to
make multiple assumptions including those regarding future operating results, future cash flows, discount rates, and economic
conditions. Changes in any of the assumptions used in determining the fair value of the investment could have a significant impact
on the fair value of the investment and any required write-down to its carrying value.

Torstar has completed an assessment of whether these investments have realized an “other than temporary” decline in value
below the carrying value during the fourth quarter of 2010. Torstar has determined that there has not been an “other than
temporary” decline in value below the carrying values in 2010 and therefore, no write-downs are required for these investments.

Accounting for Employee future benefits

The accrued benefit asset or liability and the related cost of defined benefit pension plans and other retirement benefits earned
by employees is actuarially determined each year by independent actuaries using the projected unit credit actuarial cost method,
prorated on credited service. Unrecognized actual gains and losses in excess of 10% of the greater of the accrued benefit obligation
or the fair value of plan assets, and past service costs, are amortized over the expected average remaining service life of the
employee group covered by the plans. Funding requirements are determined based on actuarial valuations that are completed at
the frequency required under provincial pension legislation which can range from annually to every three years.

The discount rate used in measuring the liability and expected health care costs is prescribed to be equal to the current yield on
long-term, high-quality corporate bonds with a duration similar to the duration of the benefit obligation.

t o r s t a r c o r p o r a t i o n 2 0 1 0 a n n u a l r e p o r t

Management’s Discussion & analysis

The calculations are based on management’s estimates of the long-term rate of investment return on plan assets, future
compensation increases, health care costs and the expected average remaining service life of the employee group covered by
the plans. Management applies judgement in the selection of these estimates, based on regular reviews of historical investment
returns, salary increases, health care costs and demographic employee data. Expectations regarding future economic trends and
business conditions, including inflation rates are also considered.

If future investment returns, salary increases and health care costs differ from management’s estimates, the accrued benefit asset
or liability and related expense and funding obligations could differ significantly from current estimates. Management’s current
estimates, along with a sensitivity analysis of changes in these estimates on both the benefit obligation and the benefit expense are
further discussed under “Pension Obligations” in this MD&A and are disclosed in Note 18 of the consolidated financial statements.

Accounting for Income Taxes

Torstar is subject to income taxes in Canada and foreign jurisdictions. Significant judgement is required in determining the world-
wide provision for income taxes. During the ordinary course of business, there are many transactions and calculations for which
the ultimate tax determination is uncertain. Management uses judgement in interpreting tax laws and determining the appropriate
rates and amounts in recording current and future taxes, giving consideration to timing and probability. Actual income taxes could
significantly vary from these estimates as a result of future events, including changes in income tax law or the outcome of reviews
by tax authorities and related appeals. To the extent that the final tax outcome is different from the amounts that were initially
recorded, such differences will impact the income tax provision in the period in which such determination is made.

Future income taxes are recorded to account for the effects of future taxes on transactions occurring in the current period.
Management uses judgement and estimates in determining the appropriate rates and amounts to record for future taxes, giving
consideration to timing and probability. Previously recorded tax assets and liabilities are adjusted if the expected tax rate is revised
based on current information.

The recording of future tax assets also requires an assessment of recoverability. A valuation allowance is recorded when Torstar
does not believe, based on all available evidence, that it is more likely than not that all of the future tax assets recognized will be
realized prior to their expiration. This assessment includes a projection of future year earnings based on historical results and
known changes in operations.

More information on Torstar’s income taxes is provided in Note 3 of the consolidated financial statements.

CHANgES IN ACCOUNTINg POLICIES

future Accounting Changes – International financial Reporting Standards

Torstar will be required to prepare financial statements in accordance with IFRS starting with the interim financial statements
for the quarter ended March 31, 2011. These statements will require 2010 comparatives in accordance with IFRS. As a result,
the financial statements that will be prepared under Canadian GAAP for 2010 will need to be restated to conform to IFRS for
comparative purposes. Torstar’s Transition Date is January 1, 2010.

IFRS 1 (First-Time Adoption of International Financial Reporting Standards) generally requires that a company retrospectively apply
all IFRS effective at the end of its first IFRS annual reporting period (for Torstar – December 31, 2011). However, IFRS 1 does include
certain mandatory exceptions and limited optional exemptions from this general requirement of retrospective application. These
exemptions are provided for items where the historical information may not be readily available or the cost involved in making the
retrospective application may outweigh the benefit. Torstar has elected to use some of these exemptions.

While not all of the transition adjustments have been finalized, it is expected that Torstar’s shareholders’ equity (and correspondingly
net assets) will be reduced by $252.7 million on the Transition Date. The more significant adjustments to Torstar’s financial
statements include the following:

Employee benefits
Torstar’s accounting for its defined benefit pension and other post employment benefit plans will be significantly impacted by the
adoption of IFRS.

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Management’s Discussion & analysis

plan assets (the “corridor method”). If the 10% threshold is reached, the excess actuarial gain or loss is amortized into pension
expense over the estimated average remaining service life of the active employees in the plan. As of January 1, 2010, Torstar had
$160.4 million of unamortized actuarial losses related to its defined benefit pension plans and the other post employment benefits
plan. On the adoption of IFRS, there is an exemption available that allows for unamortized actuarial gains or losses to be recognized
in opening retained earnings. Torstar has elected to take this exemption and has recognized the $160.4 million as an increase to
the long term employee benefit liability and a reduction to retained earnings. Under IFRS, there is an option to continue to account
for actuarial gains and losses using the corridor method or to recognize them through other comprehensive income. Torstar has
chosen to recognize actuarial gains and losses through other comprehensive income under IFRS.

Under Ontario provincial pension legislation, minimum funding requirements for registered defined benefit pension plans are
calculated using different assumptions than those used for accounting for those same pension plans. Both Canadian GAAP and
IFRS have guidance that limits the amount of pension asset that can be recognized as a result of funding requirements in excess of
accounting expense. IFRS has further guidance that also requires that a liability be recognized for certain future minimum funding
requirements. As a result of this IFRS standard, Torstar will be required to record a future funding liability of $67.6 million in the
long term employee benefit liability with a corresponding reduction to retained earnings on January 1, 2010.

As a result of these changes, Torstar’s expense for the defined benefit pension plans and other post employment benefit plans will be
significantly different under IFRS. The restated 2010 expense for the registered defined benefit pension plans and the unregistered
executive retirement plan will be $8.5 million and $1.7 million respectively. The restated 2010 expense for the other post employment
benefits plan will be $3.1 million. The 2011 expense is expected to be $9.7 million for the registered defined benefit pension plans,
$2.0 million for the unregistered executive retirement plan and $3.0 million for the other post employment benefits plan.

Property, plant and equipment
There are several differences between the accounting for property, plant and equipment under IFRS and under Canadian GAAP.
In order to ease the transition to IFRS, there is an IFRS 1 election that permits a company to elect to measure specific items of
property, plant and equipment at fair value rather than to recalculate current net book value under IFRS rules.

Torstar has elected to measure specific items of property, plant and equipment at fair value (i.e. appraised value) as deemed cost.
Torstar has also changed from using the declining balance method of depreciation under Canadian GAAP for certain assets to
the straight-line method. These adjustments reduced the carrying value of property, plant and equipment on January 1, 2010 by
$73.3 million with a corresponding decrease in opening retained earnings.

There is also a $1.0 million reduction in the carrying value of property plant and equipment on January 1, 2010 as a result of
changes in the functional currency of some of Torstar’s foreign subsidiaries (see additional information below).

Under IFRS, companies have the option to value property, plant and equipment using either the cost model or fair value on an
ongoing basis. Torstar has elected to use the cost model to value all of its property, plant and equipment subsequent to the
transition date.

As a result of the reduction in the carrying value of the property, plant and equipment depreciation expense will be reduced.
The restated 2010 depreciation and amortization expense will be $31.7 million with a similar expense expected in 2011.

Foreign Currency Translation Adjustments – Change in functional currency
Under IFRS, there are various indicators to be considered in determining the appropriate functional currency of a foreign operation.
These indicators are similar to those under Canadian GAAP. However, under IFRS if the assessment of functional currency provides
mixed indicators and the functional currency is not obvious, the IFRS standard requires that priority be given to certain primary
indicators. Canadian GAAP does not give priority to any specific indicators.

As a result of this difference, certain of Torstar’s foreign subsidiaries that had been considered to have the Canadian dollar as
their functional currency under Canadian GAAP will be considered to have the U.S. dollar as their functional currency under IFRS.
The impact of this change is a $1.6 million reduction of goodwill, a $1.0 million reduction of property, plant and equipment and a
$0.1 million reduction of intangible assets as of January 1, 2010 with a corresponding decrease of $2.7 million to the cumulative
translation adjustment account (included in accumulated other comprehensive income).

Torstar has historically used U.S. dollar debt as an economic hedge against the net assets of these foreign subsidiaries. Under
Canadian GAAP, the foreign exchange on the translation of both the U.S. dollar debt and the U.S. dollar assets of these foreign
subsidiaries was reported through net income. With the change in functional currency under IFRS, the foreign exchange on the
translation of the net assets of these foreign subsidiaries into Canadian dollars will be reported through other comprehensive income.

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Management’s Discussion & analysis

In order to have the foreign exchange on the translation of the U.S. dollar debt reported through other comprehensive income,
reflecting the economic effectiveness of the hedge, Torstar will designate, effective January 1, 2011, $80.0 million of its U.S. dollar
debt as a hedge against its net investment in the Book Publishing U.S. businesses. The foreign exchange on the translation of the
hedge-designated U.S. dollar debt will then be recorded in other comprehensive income offsetting a portion of the translation of
the U.S. dollar denominated assets.

Foreign Currency Translation Adjustments – Cumulative translation adjustment account
In order to ease the transition to IFRS, there is an IFRS 1 election that allows a company to reset its cumulative translation
adjustment account to zero. Torstar has made this election. The impact will increase accumulated other comprehensive income
and decrease retained earnings by $7.1 million ($4.4 million as of December 31, 2009 plus the $2.7 million from the change in
functional currency). There is no net impact on shareholders’ equity.

The gain or loss realized on a subsequent disposal of any foreign operation will exclude the foreign currency translation differences
that arose before January 1, 2010 but will include foreign currency translation differences after that date.

Income Taxes
The accounting treatment for income taxes is generally the same under Canadian GAAP and IFRS. There are, however, some
presentation differences. Canadian GAAP uses the terminology of current and future income taxes with future incomes taxes
being allocated between current and long term. Under IFRS the terminology is current and deferred income taxes, with all deferred
income taxes being reported as long term. Torstar will reclassify $19.5 million of current future income tax assets to deferred
income tax assets on January 1, 2010.

In addition to the presentation changes, most of the other changes being recorded on the opening balance sheet are required to
be tax affected. The impact of making these changes will be an increase in deferred income tax assets of $31.6 million, a decrease
in deferred income tax liabilities of $54.7 million and an $86.3 million increase to opening retained earnings as of January 1, 2010.

Investment in CTVgm

As Torstar was equity accounting for its investment in CTVgm on January 1, 2010, it is required to record its share of the impact
of what CTVgm’s transition adjustments would have been had CTVgm transitioned to IFRS on January 1, 2010.

CTVgm has an IFRS transition date of September 1, 2010 and is still in the process of finalizing its transition adjustments. Torstar
is required to estimate the impact of the CTVgm transition adjustments as of January 1, 2010. This was done in conjunction with
CTVgm management and involved the “rolling back” of the CTVgm preliminary adjustments. The primary adjustment for CTVgm
was related to pensions with CTVgm making similar adjustments to those recorded by Torstar and described above. The impact
of all the CTVgm adjustments was a reduction in the carrying value of CTVgm of $8.0 million and a corresponding reduction
in opening retained earnings as of January 1, 2010. For the nine months ended September 30, 2010, the impact of the CTVgm
IFRS adjustments is estimated to be a decrease in the loss of associated businesses of $0.1 million and a decrease in other
comprehensive income of $4.5 million. Torstar’s carrying value in CTVgm is estimated to be $100.4 million as of December 31,
2010 under IFRS. All of these numbers may be subject to further revision as CTVgm finalizes its IFRS transition adjustments.

Investment in Black Press
Torstar is also required to make similar IFRS estimates and adjustments related to its investment in Black Press. As a private
company, Black Press has decided to adopt the new Canadian accounting standards for private companies rather than IFRS. As a
result Torstar will need to adjust the Black Press earnings to an IFRS basis both on transition and for each reporting period.

Torstar is currently working with Black Press management to estimate the January 1, 2010 IFRS adjustments for Torstar’s
investment as well as the impact for fiscal 2010 but is not yet able to quantify the impact. However, it is anticipated that these
adjustments will primarily be related to pension liabilities and will result in Torstar’s negative carrying value in Black Press being
further increased. This will have no impact on Torstar’s January 1, 2010 balance sheet or 2010 results but rather will further delay
Torstar’s return to reporting Black Press’s earnings as part of the income (loss) of associated businesses.

Business Combinations
Torstar has elected not to restate under IFRS any business combinations that occurred before January 1, 2010.

Two of the more significant differences in the business combination standard under IFRS for Torstar are that transaction costs are
expensed rather than capitalized as part of the purchase and the fair value of any contingent consideration must be recorded on
the transaction date. Under Canadian GAAP, contingent consideration was generally not recognized until the contingency had been
resolved and the consideration was paid or had become payable.

On January 1, 2010, Torstar recorded a provision of $2.1 million for the fair value of contingent consideration related to a 2009
acquisition. The additional consideration was allocated to an amortizable intangible asset.

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Management’s Discussion & analysis

During 2010, Torstar completed two acquisitions that included contingent consideration. Under Canadian GAAP, no amount was
recorded as the outcome of the contingencies could not be determined beyond a reasonable doubt. On the restatement of 2010,
the fair value of both contingent consideration obligations ($5.5 million) will be recorded as part of the purchase price. The
additional consideration will increase amortizable intangible assets by $0.2 million, increase non-amortizable intangible assets by
$0.5 million and increase goodwill by $4.8 million.

Torstar will be required to review the fair value of the contingent consideration on each reporting date. Subsequent changes to
the fair value of the contingent consideration will be recognized in net income. If the fair value of the contingent consideration has
been discounted for the time value of money, a finance charge will be recorded in net income to accrete the obligation to the full
amount of the future payment.

Internal Control over Financial Reporting (“ICFR”)
As part of the transition process, management is also responsible to make sure that the appropriate internal controls over financial
reporting (“ICFR”) are in place. In most cases, existing controls can be used with only minor modifications. For example, Torstar
has a process for the approval of new accounting standards which is being followed.

Existing controls in Torstar’s financial statement close process will be followed as the required January 1, 2010 and fiscal 2010
adjustments to various accounts are recorded. Torstar is still in the process of identifying any additional controls that need to be
established for the new IFRS disclosure requirements. It is not expected that any of these new controls or the modification of the
existing ones would be considered to have a material impact on Torstar’s ICFR process.

RISKS AND UNCERTAINTIES

Torstar is subject to a number of risks and uncertainties, including those set forth below. A risk is the possibility that an event
might happen in the future that could have a negative effect on the financial condition, results of operations or business of Torstar.
The actual effect of any event on Torstar’s business could be materially different from what is anticipated. This description of risks
does not include all possible risks.

Economic Conditions

Revenue from Torstar’s Media Segment accounted for approximately 68% of Torstar’s consolidated operating revenue in the
year ended December 31, 2010. The majority of Torstar’s Media Segment revenue is from advertising. Torstar’s media business
is cyclical in nature, and advertising revenue in Torstar’s newspapers and digital properties is affected by a variety of factors,
including prevailing economic conditions and the level of consumer confidence. Adverse economic conditions generally, and
downturns in the Southern Ontario economy specifically, have a negative impact on the advertising industry and on Torstar’s
operations. Local downturns in the general economic environment may cause Torstar’s customers to reduce the amounts they
spend on advertising which could result in a decrease in demand for advertising and lower advertising rates. The level of available
jobs in the economy will have an impact on employment advertising, which will impact Workopolis’ revenues.

Torstar’s advertising revenue is also dependent on the prospects of its advertising customers. Certain of Torstar’s advertising
customers operate in industries that are cyclical or are particularly sensitive to general economic conditions and consumer
confidence, such as the automobile, technology, retail, food and beverage, telecommunications, travel, packaged goods, real
estate and entertainment industries. Advertising customers could alter their spending priorities and reduce their advertising
budgets in the event of a downturn in their business or prospects, which could have an adverse effect on the revenue Torstar
generates from advertising.

While historically less sensitive than advertising, circulation levels can also be sensitive to prevailing economic conditions. Although
circulation accounts for less of Torstar’s newspaper revenue when compared to advertising, a substantial decrease in circulation not
only affects circulation revenue but can also result in a substantial decrease in readership which could potentially have a significant
impact on advertising revenue. This impact in turn could affect Torstar’s business, financial condition or results of operations.

Revenue from Torstar’s Book Publishing Segment accounted for approximately 32% of Torstar’s consolidated operating revenue in
the year ended December 31, 2010. In 2010, 95% of revenues from the Book Publishing Segment were derived from non-Canadian
sources. The largest non-Canadian market for the Book Publishing Segment was the U.S., with other principal markets including
Japan, Germany, the U.K., Nordic, France and Australia. This geographic diversification generally lessens the impact of changes
in general economic performances in individual countries, however, Torstar does have significant exposure to the economic
conditions in the U.S. market. The Book Publishing revenues have not historically been as affected as advertising revenues by
economic conditions as consumers have continued to spend on books during difficult times. There is no assurance that this will
continue to be the case in the future.

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Management’s Discussion & analysis

Revenue Risks and Competition – Media Segment

Revenue in the Media Segment is primarily dependent upon the sale of advertising with some of the print products also generating
circulation revenue. Advertising revenue includes in-paper advertising, online advertising, inserts/flyers and specialty publications.

Torstar’s newspapers have experienced and expect to continue to experience significant seasonality in revenue levels due to
seasonal advertising patterns and other factors. Typically, revenue is lowest during the third quarter of the fiscal year and highest
during the fourth. There may also be a seasonal advertising pattern emerging for digital revenues with the summer months being
a lower part of the cycle.

Competition for advertising and circulation revenue comes from local, regional and national newspapers, radio, broadcast and
cable television, outdoor, direct mail, directories, the Internet and other communications and advertising media that operate in
Torstar’s markets. The competition is generally based on audience levels, composition and demographics, price, service and
advertising results. The extent and nature of such competition has intensified over the past few years as a result of the continued
development and fragmentation of digital media.

Print readership levels, in addition to generating circulation revenue, have traditionally been an important factor in the ability of a
newspaper to generate advertising revenues. Changes in everyday lifestyle and technology have meant that people are choosing
not to devote as much time to reading print newspapers as they once did. Offsetting this decline in print readership is an increase
in online readership. While online readership appears to be an important factor in the ability of a newspaper to generate advertising
revenue, it may have a negative impact on print circulation volumes and revenues and also on readership.

There can be no assurance that new media technologies will not diminish newspapers, either in print or online, as a form of media
appealing to readers and advertisers, which could in turn have a material adverse effect on Torstar’s business, financial condition
and results of operations.

Torstar’s reputation for quality journalism and content is an important factor in maintaining readership levels. Torstar strives to
provide content in print and online that is perceived as reliable, attractive and appealing by readers and advertisers. The reviews
of critics, public preferences and tastes, general economic conditions and the newsworthiness of current events, among other
intangible factors, may also contribute to the fluctuation in readership levels, and accordingly, limit the ability of Torstar to generate
advertising and circulation revenue. Maintenance of satisfactory readership levels attractive to advertisers cannot be guaranteed.

Websites and applications for mobile devices that distribute news and other content continue to gain popularity. As a result,
audience attention and advertising spending have shifted and may continue to shift from traditional media forms to the Internet
and other digital media. Torstar expects that advertisers will continue to allocate greater portions of their budgets to digital media.
This secular shift has intensified competition for advertising in traditional media and has contributed to and may continue to
contribute to a decline in print advertising.

The digital businesses in Torstar’s Media Segment operate in a rapidly evolving and highly dynamic competitive environment.
Rapid changes in technology can result in consumer demand moving in unanticipated directions. The increasing number of digital
media options available on the Internet, through mobile devices and through social networking tools is significantly expanding
consumer choice and shifting audience preferences.

With the increase in alternative content providers, Torstar faces the risk that it may not be able to increase its online traffic
sufficiently and retain a base of frequent visitors to its websites and applications on mobile devices. If traffic levels decline or
stagnate, Torstar may not be able to create sufficient advertiser interest in its digital businesses and to maintain or increase the
advertising rates of the inventory on its websites.

Torstar’s existing and potential future competitors in the digital businesses range from start up operations with low cost structures
to global players that may have access to greater operational, financial and other resources than Torstar.

In order for the Media Segment’s digital businesses to succeed, Torstar needs to be able to successfully exploit new and existing
technologies, distinguish its products and services from those of its competitors and continue to develop new forms of content
that provide optimal user experiences.

Revenue Risks and Competition – book Publishing Segment

A key risk for Book Publishing revenue is the ability to publish books, in both print and digital formats, that consumers want to
read and to have them available where and when consumers are making their purchasing decision. Harlequin regularly introduces
new product lines in order to attract new readers and discontinues products where consumer interest has declined. Books are a
discretionary consumer purchase and Harlequin could see a decline in sales in the current weak global print retail environment.

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Management’s Discussion & analysis

Additionally, print distribution is relatively concentrated with a small number of wholesalers and retailers creating collection risk
and distribution risk in the event of any insolvency in the retail channel. Harlequin continues to expand its distribution network
through retail stores, by direct mail and through the Internet in both print and digital formats. Harlequin competes with many other
publishers in very competitive global markets and this competition is expected to continue.

Harlequin’s single title program revenues are dependent on the popularity of its authors. Harlequin enters into contracts with
authors for the right to publish an author’s book or a certain number of books. There is no guarantee that an author will enter into
a new contract for future books and from time to time a popular author will decide to publish future books with another publisher.

Books sold through the retail channel are sold to wholesalers and retailers with a right of return leaving the ultimate sales
risk with Harlequin. In order to reflect the ability of the retailers to return books that they don’t sell, a provision for returns
is made when revenue is recognized. (See additional information in the Critical Accounting Policies and Estimates section of
this MD&A.) The provision is adjusted as actual returns are received over time. Series books are on sale for approximately one
month. Returns for these books are normally received within one year, with more than 95% received within the first six months.
Single title books are on sale for several months and, as a result, experience a longer return period. The difference between the
initial estimate of returns and the actual returns realized has an impact on Harlequin’s results during subsequent periods as the
returns are received. Single title books tend to have a higher variability in return rates than series books, increasing the related
risk in the provision for returns estimate.

A key revenue risk for Harlequin’s direct-to-consumer business is being able to maintain its customer base, both by retaining
existing customers and acquiring new ones. A significant source of new customers has historically been through direct mail offers.
For more than a decade the direct marketing industry has faced considerable challenges from a lack of available mailing lists,
regulation and competitive pressure from alternate channels. This has made the acquisition of new customers through direct mail
offers difficult. Harlequin has responded to these challenges in a number of ways including new, innovative offers and the use of
its Internet site, eharlequin.com, to attract new customers. There is no guarantee that there will be a sufficient number of new
customers acquired each year to offset the decline of existing customers.

Over the past few years, the book publishing industry has seen an increase in the number of books sold over the Internet and
the increasing popularity of digital formats. This shift is having an impact on publishers and traditional book retailers as online
retailers sell books at lower price points putting pricing pressure on publishers. Harlequin primarily publishes paperback books
which, to date, have not experienced the same pricing pressures as hardcover books. The existence of multiple e-reading devices
and formats for e-books has prevented any one online retailer from controlling the market which should help to mitigate some of
the pricing risk. In the longer term, the shift to digital could also have an impact on the retail print book distribution infrastructure.
If this were to happen, it could have a negative impact on Harlequin’s retail print book business as it may cause disruptions in the
distribution system or cost increases.

Labour Disruptions

Torstar has a number of collective agreements at its newspaper operations that have historically tied annual wage increases to
cost of living. The newspapers face the risk associated with future labour negotiations and the potential for business interruption
should a strike, lockout or other labour disruption occur. Such a disruption may lead to lost revenues and could have an adverse
effect on Torstar’s business. The level of unionization at the newspaper operations could impact the ability of Torstar to respond
quickly to downturns in the economy that negatively impact revenue.

The Toronto Star has approximately 790 staff covered by four collective agreements. The largest agreement covers approximately
455 employees at One Yonge Street, Toronto. This collective agreement was originally scheduled to expire in December 2010
but during the third quarter of 2010 was extended to December 2012. There are three agreements covering approximately 335
employees at the Toronto Star’s Vaughan Press Center. In the third quarter of 2010, three agreements covering approximately
275 employees were amalgamated into one agreement that was extended to December 2014. Two other agreements, covering
approximately 60 employees will expire at the end of December 2011.

Sing Tao has two collective agreements covering approximately 125 employees that will expire at the end of 2012. Metro’s Toronto
operations have a collective agreement covering approximately 65 employees that will expire in March of 2013.

Metroland Media Group has a total of 20 collective agreements covering approximately 750 employees. There are ten collective
agreements covering approximately 280 employees within the community newspapers. Six agreements covering approximately
235 employees had expired by the end of 2010. The largest one covers approximately 125 editorial employees. Negotiations have
begun for five of the agreements and are scheduled to begin in March for the sixth. Two of the remaining agreements covering
approximately 20 employees will expire at the end of 2011 and two covering approximately 25 employees will expire during 2012.
In addition, negotiations are underway for a first contract for approximately 20 editorial employees in Ottawa.

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Management’s Discussion & analysis

At the Metroland Media Group daily newspapers, there are ten agreements covering approximately 470 employees. An agreement
was reached in early 2011 for one agreement covering approximately 65 employees that had expired at the end of 2009. Four
agreements covering approximately 135 employees at the Waterloo Region Record expired at the end of 2010. Negotiations are not
yet scheduled. Of the remaining agreements, four covering approximately 180 employees will expire during 2011 and one covering
approximately 90 employees will expire at the end of 2012.

The Book Publishing Segment does not have any collective agreements in place.

Newsprint Costs

Newsprint is the single largest raw material expense for Torstar’s Media Segment and, after wages and employee benefits expense
represents the most significant operating cost for this Segment. Newsprint is priced as a commodity with the price varying widely
from time to time. In 2010, the price that Torstar paid for newsprint was on average 5% lower than in 2009. Torstar’s newspapers
consume approximately 120,000 tonnes of newsprint each year. There can be no assurance that Torstar’s newspapers will not be
exposed in the future to volatile or increased newsprint costs which could have a material adverse effect on Torstar’s operating results.

The pulp and paper industry has faced difficulties over the past few years with some newsprint suppliers experiencing financial
instability. One of Torstar’s four newsprint suppliers has emerged from a restructuring under creditor protection and one is
currently in the process. Should there be a reduction in the number of suppliers, Torstar could face a risk in supply of newsprint
and/or increased prices. Torstar primarily sources newsprint from two main suppliers, one of whom is currently restructuring
under creditor protection. Pursuant to arrangements with these two suppliers, Torstar has fixed the price of the majority of its
newsprint requirements for 2011 at prices that are similar to those realized in 2010. There can be no assurance that Torstar will be
able to extend these arrangements in future years.

Cost Structure

The newspaper business is characterized by a relatively high fixed cost structure. As a result it may be very difficult to significantly
reduce costs in a period of declining revenues. Accordingly, a relatively small change in revenue could have a disproportionate
effect on Torstar’s results from operations.

foreign Exchange

As an international publisher, approximately 95% of Harlequin’s revenues (approximately 30% of Torstar’s operating revenues) are
earned in currencies other than the Canadian dollar. As a result, Harlequin’s revenues and operating profits are affected by changes
in foreign exchange rates relative to the Canadian dollar. The most significant risk is from changes in the U.S.$/Cdn.$ exchange rate.
Harlequin also has exposure to many other currencies, the most significant of which are the Euro, Yen and British Pound.

To offset some of this exposure, Torstar regularly enters into forward foreign exchange contracts to sell U.S. dollars. From time
to time, Torstar may also enter into forward foreign exchange contracts to hedge other currencies (Euro, Yen, and British Pound).
(See additional information on foreign exchange risks in the Financial Instruments section of this MD&A and in Note 11 to Torstar’s
consolidated financial statements.)

Credit Risk

In the normal course of business, Torstar is exposed to credit risk from its accounts receivable from customers. The carrying
amount for accounts receivable are net of applicable allowances for doubtful accounts and book returns, which are estimated
based on past experience, specific risks associated with the customer and other relevant information.

Under a billing and collection agreement with a third party, the Book Publishing Segment has a net receivable of $30.4 million
(U.S. $30.5 million) at December 31, 2010 related to its U.S. sales. Torstar believes that the credit risk associated with this balance
is mitigated by the financial stability and payment history of the third party.

Investment in CTvgm

Torstar announced in September 2010 that it had agreed to sell its investment in CTVgm. The sale remains subject to customary
approvals and closing conditions, including approval by the CRTC and is expected to close by mid 2011.

There is a risk that the sale may not receive the required approvals and, if so, Torstar would remain a 20% shareholder in CTVgm.
Torstar does not own a controlling interest in CTVgm and does not exercise control over its management, strategic direction or
daily operations. CTVgm’s results, and the value of Torstar’s investment, are dependent upon the television and radio broadcasting
environment in Canada and CTVgm’s position in relation to its competitors. Broadcasting is subject to extensive government
regulation in Canada. Changes to the applicable regulations and policies or terms of licences could have a material effect on
CTVgm’s businesses. CTVgm carries a significant level of debt. A change in CTVgm’s operations could have a significant impact
on the value of Torstar’s investment which could require Torstar to record its share of any asset or goodwill impairment recorded
by CTVgm and to possibly take a charge to earnings in order to reduce the carrying value.

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Management’s Discussion & analysis

Restrictions Imposed by Existing Credit facilities, Debt financing and Availability of Capital

The agreements governing certain indebtedness of Torstar impose a number of restrictions on Torstar. These include restriction on
the payment of dividends other than on a basis consistent with Torstar’s current dividend policy (which does not include extraordinary
dividends). The agreements also require compliance with certain financial covenants in order for Torstar’s debt to remain outstanding
and impose restrictions on Torstar in circumstances where Torstar is in default pursuant to its credit facilities. These covenants
include the requirement to meet a minimum fixed charge coverage ratio and to not exceed a maximum level of debt compared to
cash flow. In addition, Torstar cannot experience a material adverse change in its business. Failure to comply with these restrictions
and financial covenants could have a material adverse effect on Torstar. A full description of these restrictions and financial covenants
can be found in the original loan agreement and recent amendments thereto filed on www.sedar.com.

Torstar’s long-term debt facility matures in January 2012. The ability of Torstar to raise capital and the price of such capital may
be negatively affected by global and Canadian financial conditions. Failure to obtain such additional financing at a reasonable price
could have a material adverse effect on Torstar’s future growth.

Pension fund Obligations

Relative to its size, and when compared to other companies, Torstar has large pension liabilities, funding requirements and costs.
In an effort to manage ongoing pension costs and funding requirements, management has purposefully chosen investments which
will not always change in value in a similar manner as pension liabilities in periods of changing long-term interest rates. Similarly,
pension fund returns will not always meet the assumptions used for valuation purposes. This may be particularly true in times of
poor economic performance. This investment policy introduces a significant level of volatility into Torstar’s future pension funding
requirements and the funded status of its pension plans.

The most significant group of Torstar’s defined benefit registered pension plans (in terms of assets and obligations) completed the
preparation of actuarial reports as of December 31, 2009 during 2010. The result of the report is that Torstar’s funding for these
defined benefit registered pension plans will be approximately $50.0 million per year from 2011 through 2016, up significantly from
$16.8 million in 2010. However, Torstar will be required to prepare another set of actuarial reports as of December 31, 2010 and
the results of those reports will determine the actual funding required. The funding that will ultimately be required starting in 2011
based on those reports could be different from the $50.0 million.

Impairment Tests

Under Canadian GAAP and IFRS, Torstar must regularly test the carrying value of its long-lived assets, intangible assets and
goodwill for impairment in value. When an impairment test results in an asset or goodwill devaluation, it is recorded as a non-cash
charge that reduces Torstar’s reported earnings.

Reliance on Printing Operations

The newspaper operations of Torstar place considerable reliance on the functioning of its printing operations for the printing of
their various publications, with particular emphasis placed on the Toronto Star’s Vaughan Press Centre, which primarily supports
the Toronto Star’s printing needs. In the event that any of the print facilities experiences a shutdown or disruption, Torstar will
attempt to mitigate potential damage by shifting the printing to its remaining facilities or outsourcing such work to a third party
commercial printer. However, given Torstar’s reliance on such facilities, such a shutdown or disruption could result in Torstar being
unable to print some publications, and consequently could have an adverse effect.

Torstar also relies on the adequacy of third-party printing arrangements for its book publishing operations in North America and
worldwide. In the event any existing arrangements change or cease to be available, Torstar would attempt to mitigate the situation
by using an alternative supplier or printing location. However, there can be no assurance that such an event would not have an
adverse effect on Torstar.

Reliance on Technology and Information Systems

Torstar places considerable reliance upon information technology systems. In the event that these systems are subject to
disruptions or failures resulting from system failures, loss of power, viruses, unauthorized access, human error, acts of sabotage
or other similar events, it could have an adverse effect on Torstar’s operations and revenues.

The media industry has experienced and is continuing to experience rapid and significant technological changes. In order to be
able to compete, Torstar needs to be able to attract and retain appropriately skilled staff. Torstar must also manage the changes
in new technologies and be able to acquire, develop or integrate them. Torstar’s ability to successfully manage the implementation
of new technologies could have a material adverse effect on Torstar’s ability to successfully compete in the future.

t o r s t a r c o r p o r a t i o n 2 0 1 0 a n n u a l r e p o r t

Management’s Discussion & analysis

business Development

Torstar has in the past, and may in the future, seek to make opportunistic or strategic acquisitions to expand its existing businesses
or to participate in a new business. There is no guarantee that any such opportunities will be available for Torstar or that they will
be available at an appropriate price.

Interest Rates

Torstar has long-term debt in the form of bankers’ acceptances issued under its long-term debt facility. This long-term debt
is issued at market rates plus a spread specific to Torstar. In addition to the exposure to changes in Torstar’s credit rating or
businesses that would impact the specific spread, Torstar is exposed to fluctuations in interest rates on its bankers’ acceptances
that are issued at floating rates. Torstar manages this risk through the use of interest rate swap contracts to fix the interest rate on
a portion of its outstanding debt. Torstar remains exposed to fluctuations in interest rates on the balance of its outstanding debt.

Availability of Insurance

Torstar has property and casualty insurance and directors’ and officers’ liability insurance in place to address certain material
insurable risks. Torstar believes that such insurance coverage is similar to that which would be maintained by prudent owners of
similar businesses and assets and that the coverage limits, exclusions and deductibles that are in effect are reasonable given the
cost of procuring insurance. However, there is no assurance that such insurance will continue to be available on an economically
feasible basis, that all events that could give rise to a loss or liability are insurable, or that the level of insurance coverage will be
sufficient to cover each and every material loss or claim that may occur involving Torstar’s operations or assets.

Litigation

Torstar is involved in various legal actions, primarily in the Media Segment, which arise in the ordinary course of business. These
actions include the litigation as described under the heading “Legal Proceedings” in Torstar’s most recent Annual Information
Form. In particular, given the nature of Torstar’s businesses, Torstar has had, and may continue to have, litigation claims filed
related to the publication of its editorial content. Although Torstar maintains insurance for claims of this nature, there can be no
assurance that such insurance will be available for all such claims. In addition, there can be no assurance as to the outcome of
any future litigation, proceedings or investigations or that the outcome will not be adverse to Torstar nor have a material impact
on Torstar’s results.

Environmental Regulations

Torstar is subject to a variety of federal, provincial, state and municipal laws concerning, among other things, emissions to the air,
water and sewer discharges, handling and disposal of wastes, recycling, or otherwise relating to the protection of the environment.
There have been considerable changes to environmental laws and regulations in recent years, and such laws and regulations are
expected to continue to change. Compliance with new environmental laws and regulations may subject Torstar to significant costs
and a failure to comply with present or future laws or regulations could have an adverse effect on Torstar. While Torstar does have
an environmental policy and environmental committee in place to assist in monitoring compliance with environmental legislation,
there can be no assurance that all environmental liabilities have been identified or that expenditures will not be required to meet
future legislation.

Dependence on Key Personnel

Torstar is dependent upon the continued services of its senior management team. The loss of any of such key personnel could
have an adverse effect on Torstar.

Loss of Reputation

Torstar, its customers, shareholders and employees place considerable reliance on Torstar’s good reputation. If the reputation of
Torstar or any of its significant businesses is tarnished through negative publicity or otherwise, whether true or not, the business,
operations or financial condition of Torstar could be affected.

Privacy and Confidential Information

Laws relating to communications, data protection, e-commerce, direct marketing and digital advertising and use of public records
have become more prevalent in recent years. Existing and proposed legislation and regulations, including changes to the manner in
which such legislation and regulations are interpreted by courts in Canada, the United States and other jurisdictions, may impose
limits on the collection and use of certain kinds of information.

Torstar obtains and uses customers’ confidential information primarily through its sales processes. The potential dissemination
of such information to the wrong individuals could cause damage to Torstar’s relationships with its customers and could result
in legal actions.

t o r s t a r c o r p o r a t i o n 2 0 1 0 a n n u a l r e p o r t

Management’s Discussion & analysis

Product Liability

Torstar may be exposed to potential liability in connection with the sale and promotion of products through TMGTV which could
include claims for personal injury, wrongful death and damage to personal property and/or claims relating to misrepresentation
of product features and benefits.

Intellectual Property Rights

Torstar places considerable importance on the protection of its intellectual property rights. On occasion, third parties may contest
or infringe upon these rights and Torstar will endeavour to take appropriate action to address such matters. There can be no
assurance that Torstar’s actions will be adequate to prevent the infringement of Torstar’s intellectual property rights, or protect
Torstar against claims of infringement by third parties.

Control of Torstar by the voting Trust

More than 98% of Torstar’s Class A shares are held in a Voting Trust pursuant to a Voting Trust Agreement, which joins together seven
groups of shareholders. Under the Voting Trust Agreement, each shareholder group is entitled to appoint a Voting Trustee. The Voting
Trustees exercise various powers and rights, including among others the right to vote in the manner as determined by a majority of
the Voting Trustees all of the Class A shares of Torstar held by the members of the Voting Trust. The Class A shares are the only class
of issued shares carrying the right to vote in all circumstances. Accordingly, the Voting Trust, through a single ballot, effectively elects
the Torstar Board of Directors and controls the vote on any matters submitted to a vote of shareholders of Torstar.

ANNUAL INfORMATION – 3 YEAR SUMMARY

The following table presents, in $000’s (except for per share amounts) selected key information for the past three years:

Revenue

Net income (loss) from continuing operations

Per share (basic)

Per share (diluted)

Net income (loss)

Per share (basic)

Per share (diluted)

Average number of shares outstanding during the year (in 000’s)

Basic

Diluted

Cash dividends per share

Total assets

Total long-term debt

2010

2009

20083

$1,479,588

$1,451,259

$1,533,753

$60,906

$35,645

($158,715)

$0.77

$0.76

$0.45

($2.01)

$60,906

$35,645

($181,504)

$0.77

$0.76

$0.45

($2.30)

79,074

79,637

78,964

78,989

78,837

$0.37

$0.74

$1,573,199

$1,638,442

$1,778,733

$404,727

552,976

668,700

Total revenues declined from 2008 to 2009 but have started to recover in 2010. The weak Ontario economy in 2009 resulted in
revenue declines in the Media Segment as advertising spending was significantly reduced. In 2010, the Media Segment revenues have
grown both through improved print advertising but also from higher digital revenues. In the Book Publishing Segment revenues are
affected by changes in the relative strength of the Canadian dollar as well as the underlying book sales. Foreign exchange improved
revenue growth by $16.5 million in 2009 relative to 2008 and decreased revenue growth by $33.2 million in 2010 relative to 2009.

3 2008 has been restated to reflect Transit TV as a discontinued operation and for the retrospective adoption of CICA Handbook Section 3064.

t o r s t a r c o r p o r a t i o n 2 0 1 0 a n n u a l r e p o r t

Management’s Discussion & analysis

Over the three year period, pension costs have increased (2009 from 2008) and then decreased (2010 from 2009), newsprint
prices have decreased and labour cost savings have been realized in the Media Segment from restructuring initiatives. The
provision for the costs of these restructuring provisions will have a negative impact on net income, generally in advance of the cost
savings being realized.

Net income in 2008 was adversely affected by a $136.9 million loss of associated businesses (primarily related to the accounting
for impairment losses on intangible assets and goodwill) and a $99.8 million write-down of investments including investments in
associated businesses. Net income in 2009 benefited from the non-recurrence of the significant losses of associated businesses
but was negatively impacted from the weakness of the Ontario economy. Net income in 2010 has improved as revenues in the
Media Segment have strengthened as the economy has improved and the digital businesses continue to grow.

Total assets have been relatively stable over the three year period while long-term debt has been reduced by $284 million.

SUMMARY Of QUARTERLY RESULTS

The following table presents, in $000’s (except for per share amounts) selected financial information for each of the eight most
recently completed quarters:

Revenue
Net income

Net income per Class A voting and
Class B non-voting share
Basic
Diluted

Revenue
Net income

Net income (loss) per Class A voting
and Class B non-voting share
Basic
Diluted

Dec 31

$416,141
$26,692

2010 Quarter ended

sept 30

$352,708
$4,117

June 30

$376,520
$22,683

March 31

$334,219
$7,414

$0.34
$0.33

$0.05
$0.05

$0.29
$0.28

$0.09
$0.09

Dec 31

$394,785
$57,355

2009 Quarter ended

sept 30

June 30

$343,734
$4,037

$373,733
($4,362)

March 31

$339,007
($21,385)

$0.73
$0.73

$0.05
$0.05

($0.06)
($0.06)

($0.27)
($0.27)

The summary of quarterly results illustrates the cyclical nature of revenues and operating profit in the Media Segment. The fourth
and second quarters are generally the strongest for the media businesses with the third quarter being the softest. The revenue
declines realized in 2009 from the weak economy have masked some of the quarterly cyclical impact over the past two years.
Book Publishing revenues will vary each quarter depending on the publishing schedule and the impact of foreign exchange rates.

The lower revenues in the Media Segment in 2009 had a negative impact on net income during that period. In addition, restructuring
and other charges have impacted the level of net income in several quarters. In 2010, the first, second, third and fourth quarters had
restructuring and other charges of $8.3 million, $4.8 million, $2.4 million and $17.9 million respectively. In 2009, the first, second,
third and fourth quarters had restructuring and other charges of $25.9 million, $3.8 million, $1.1 million and $13.0 million respectively.

The lower net income in the fourth quarter of 2010 compared with the fourth quarter of 2009 related to the income (loss) of
associated businesses. In the fourth quarter of 2010, Torstar reported a loss of $0.4 million from associated businesses compared
with income of $30.4 million in the fourth quarter of 2009. The significant decline was the result of Torstar ceasing to equity
account for its investment in CTVgm on September 10, 2010.

t o r s t a r c o r p o r a t i o n 2 0 1 0 a n n u a l r e p o r t

Management’s Discussion & analysis

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Disclosure controls and procedures are designed to ensure that information required to be disclosed by Torstar in reports filed
with securities regulatory authorities is recorded, processed, summarized and reported on a timely basis, and is accumulated and
communicated to Torstar’s management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required
disclosure.

As of December 31, 2010, under the supervision of, and with the participation of the CEO and CFO, Torstar’s management evaluated
the effectiveness of the design and operation of its disclosure controls and procedures. Based on this evaluation, Torstar’s CEO and
CFO have concluded that, as at December 31, 2010, the Company’s disclosure controls and procedures were effective.

Internal Controls over financial Reporting

Torstar’s management is responsible for establishing and maintaining adequate internal controls over financial reporting. These
controls include policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of Torstar; (2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures are being made
only in accordance with authorizations of management and directors of Torstar; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition of Torstar’s assets that could have a material effect on
the financial statements.

All control systems contain inherent limitations, no matter how well designed. As a result, Torstar’s management acknowledges
that its internal controls over financial reporting will not prevent or detect all misstatements due to error or fraud. In addition,
management’s evaluation of controls can provide only reasonable, not absolute, assurance that all control issues that may result in
material misstatements, if any, have been detected.

Management, under the supervision of, and with the participation of the CEO and CFO, assessed the effectiveness of internal controls
over financial reporting, using the Committee of Sponsoring Organizations of the Treadway Commission (COSO) framework, and
based on that assessment concluded that internal control over financial reporting was effective as of December 31, 2010.

Changes in Internal Control over financial Reporting

There have been no changes in Torstar’s internal controls over financial reporting that occurred during the fourth quarter of 2010,
the most recent interim period, that have materially affected, or are reasonably likely to materially affect, Torstar’s internal controls
over financial reporting.

OTHER

As at February 15, 2011, Torstar had 9,873,337 Class A voting shares and 69,245,468 Class B non-voting shares outstanding. More
information on Torstar’s share capital is provided in Note 14 of the consolidated financial statements.

As at February 15, 2011, Torstar had 4,507,570 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 15 of the consolidated financial statements.

Additional information relating to Torstar including its Annual Information Form is available on SEDAR at www.sedar.com.

t o r s t a r c o r p o r a t i o n 2 0 1 0 a n n u a l r e p o r t

consolidated Financial statements

MANAgEMENT’S REPORT ON RESPONSIbILITY fOR fINANCIAL REPORTINg

Management is responsible for preparation of the consolidated financial statements, notes hereto and other financial information
contained in this annual report. The financial statements have been prepared in conformity with Canadian generally accepted
accounting principles using the best estimates and judgments of management, where appropriate. Information presented elsewhere
in this annual report is consistent with that in the financial statements.

Management is also responsible for maintaining a system of internal control designed to provide reasonable assurance that assets
are safeguarded and that accounting systems provide timely, accurate and reliable information.

The Board of Directors is responsible for ensuring that management fulfills its responsibilities for financial reporting and internal
control. The Board is assisted in exercising its responsibilities by the Audit Committee of the Board. The Committee meets quarterly
with management and the internal and external auditors, and separately with the internal and external auditors, to satisfy itself that
management’s responsibilities are properly discharged, and to discuss accounting and auditing matters. The Committee reviews the
consolidated financial statements and recommends approval of the consolidated financial statements to the Board.

The internal and external auditors have full and unrestricted access to the Audit Committee to discuss their audits and their related
findings as to the integrity of the financial reporting process.

David P. Holland
President and Chief Executive Officer

March 1, 2011

INDEPENDENT AUDITORS’ REPORT

To the Shareholders of Torstar Corporation

Lorenzo DeMarchi

Executive Vice-President and Chief Financial Officer

We have audited the accompanying consolidated financial statements of Torstar Corporation, which comprise the consolidated
balance sheets as at December 31, 2010 and 2009, and the consolidated statements of income, comprehensive income, changes in
shareholders’ equity and cash flows for the years then ended, and a summary of significant accounting policies and other explanatory
information.

Management’s responsibility for the consolidated financial statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with
Canadian generally accepted accounting principles, and for such internal control as management determines is necessary to enable
the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in
accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements
and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from
material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement
of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider
internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design
audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of
the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness
of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Torstar Corporation
as at December 31, 2010 and 2009 and the results of its operations and its cash flows for the years then ended in accordance with
Canadian generally accepted accounting principles.

Toronto, Ontario,
March 1, 2011

Ernst & Young LLP
Chartered Accountants
Licensed Public Accountants

t o r s t a r c o r p o r a t i o n 2 0 1 0 a n n u a l r e p o r t

consolidated Financial statements

TORSTAR CORPORATION

(Incorporated under the laws of Ontario)

CONSOLIDATED bALANCE SHEETS

December 31, 2010 and 2009

(thousands of dollars)

Assets

Current:
Cash and cash equivalents
Receivables (note 10)
Inventories (note 2)
Prepaid expenses and other current assets
Prepaid and recoverable income taxes
Future income tax assets (note 3)
Total current assets
Property, plant and equipment (net) (note 4)
Investment in CTVglobemedia Inc. (note 5)
Investment in associated businesses (note 5)
Intangible assets (note 6)
Goodwill (net) (note 7)
Other assets (note 8)
Future income tax assets (note 3)
Total assets

Liabilities and Shareholders’ Equity
Current:
Bank overdraft
Accounts payable and accrued liabilities
Income taxes payable
Total current liabilities
Long-term debt (note 9)
Other liabilities (note 13)
Future income tax liabilities (note 3)
Shareholders’ equity:
Share capital (note 14)
Contributed surplus
Retained earnings
Accumulated other comprehensive loss (note 16)
Total shareholders’ equity
Total liabilities and shareholders’ equity

Contingencies (note 23)

(See accompanying notes)

ON BEHALF OF THE BOARD

John Honderich
Director

2009

$39,238
253,306
33,953
51,501
2,997
19,540
400,535
251,817

178,828
51,619
581,842
140,108
33,693
$1,638,442

$2,052
218,971
19,158
240,181
552,976
103,408
62,897

391,626
11,901
292,306
(16,853)
678,980
$1,638,442

2010

$42,899
265,391
34,294
49,982
3,013
20,090
415,669
231,609
112,848
1,816
58,900
590,959
134,709
26,689
$1,573,199

$6,958
234,854
33,233
275,045
404,727
117,064
55,404

392,816
14,462
323,953
(10,272)
720,959
$1,573,199

Paul Weiss
Director

t o r s t a r c o r p o r a t i o n 2 0 1 0 a n n u a l r e p o r t

consolidated Financial statements

Consolidated Statements of Income

Years ended December 31, 2010 and 2009

(thousands of dollars except per share amounts)

Operating revenue

Media
Book Publishing

Operating profit

Media
Book Publishing
Corporate
Restructuring and other charges (note 19)

Interest (note 9(e))
Foreign exchange loss
Loss of associated businesses (note 5)
Gain on sale of assets (note 20)
Investment write-down (note 21)
Income before taxes
Income and other taxes (note 3)
Net income
Earnings per Class A and Class b share (note 14(c))

Net income – Basic
Net income – Diluted

(See accompanying notes)

Consolidated Statements of Comprehensive Income

Years ended December 31, 2010 and 2009

(thousands of dollars)

Net income

Other comprehensive income (loss), net of tax:

Unrealized foreign currency translation adjustment

Reclassification adjustment for loss on available-for-sale
financial assets included in net income

Unrealized loss on available-for-sale financial assets

Realized loss (gain) on cash flow hedges
transferred to net income

Unrealized change in fair value of cash flow hedges

Realized loss on cash flow hedges for associated
businesses transferred to net income

Transfer of unrealized loss on cash flow hedges for
associated business to the investment’s carrying
value upon the loss of significant influence (note 5)

Unrealized change in fair value of cash flow hedges
for associated businesses

Other comprehensive income

Comprehensive income

(See accompanying notes)

2010

$1,011,433
468,155
$1,479,588

$118,796
83,422
(14,886)
(33,455)
153,877
(23,766)
(1,942)
(29,478)
4,088
(773)
102,006
(41,100)
$60,906

$0.77
$0.76

2010

$60,906

921

258

(18)

(3,989)

4,845

2,260

2,522

(218)

6,581

$67,487

2009

$957,956
493,303
$1,451,259

$70,154
83,797
(14,969)
(43,729)
95,253
(21,036)
(458)
(17,953)
239
(2,400)
53,645
(18,000)
$35,645

$0.45
$0.45

2009

$35,645

(6,169)

(426)

3,559

13,814

3,935

(5,670)

9,043

$44,688

t o r s t a r c o r p o r a t i o n 2 0 1 0 a n n u a l r e p o r t

consolidated Financial statements

Consolidated Statements of Changes in Shareholders’ Equity

Years ended December 31, 2010 and 2009

(thousands of dollars)

Share capital (note 14)

Contributed surplus

Balance, beginning of year

Stock-based compensation expense

Balance, end of year

Retained earnings

Balance, beginning of year

Transition impact of accounting changes relating to
intangible assets for associated businesses

Net income

Dividends

Balance, end of year

Accumulated other comprehensive loss

Balance, beginning of year

Other comprehensive income

Balance, end of year (note 16)

Total shareholders’ equity

(See accompanying notes)

2010

$392,816

$11,901

2,561

$14,462

2009

$391,626

$11,018

883

$11,901

$292,306

$288,934

60,906

(29,259)

$323,953

($16,853)

6,581

($10,272)

(3,055)

35,645

(29,218)

$292,306

($25,896)

9,043

($16,853)

$720,959

$678,980

t o r s t a r c o r p o r a t i o n 2 0 1 0 a n n u a l r e p o r t

Consolidated Statements of Cash flows

Years ended December 31, 2010 and 2009

(thousands of dollars)

Cash was provided by (used in)

Operating activities

Investing activities

Financing activities

Increase (decrease) in cash

Effect of exchange rate changes

Cash, beginning of year

Cash, end of year

Operating activities:

Net income

Depreciation and amortization

Future income taxes

Loss of associated businesses (note 5)

Investment write-down (note 21)

Other (note 22)

Decrease (increase) in non-cash working capital

Cash provided by operating activities

Investing activities:

consolidated Financial statements

2010

$157,374

12,164

(170,029)

(491)

(754)

37,186

$35,941

2009

$153,364

(29,151)

(126,078)

(1,865)

(2,311)

41,362

$37,186

$60,906

$35,645

46,246

(5,332)

29,478

773

25,315

157,386

(12)

$157,374

52,819

(3,206)

17,953

2,400

14,248

119,859

33,505

$153,364

Additions to property, plant and equipment and intangible assets

($26,940)

($20,706)

Return of capital by CTVglobemedia Inc. (note 5)

Investment in associated businesses (note 5)

Acquisitions and investments (note 17)

Proceeds from mortgage receivable (note 20)

Proceeds on sale of assets (note 20)

Other

Cash provided by (used in) investing activities

financing activities:

Issuance of bankers’ acceptances

Repayment of bankers’ acceptances

Repayment of medium term notes

Dividends paid

Other

40,000

(750)

(11,562)

6,215

4,344

857

$12,164

$39,620

(106,918)

(75,000)

(28,982)

1,251

(9,464)

239

780

($29,151)

$14,370

(86,230)

(25,000)

(29,076)

(142)

Cash used in financing activities

($170,029)

($126,078)

Cash represented by:

Cash

Cash equivalents

Cash and cash equivalents

Bank overdraft

(See accompanying notes)

$32,948

9,951

42,899

(6,958)

$35,941

$29,004

10,234

39,238

(2,052)

$37,186

t o r s t a r c o r p o r a t i o n 2 0 1 0 a n n u a l r e p o r t

consolidated Financial statements

NOTES TO CONSOLIDATED fINANCIAL STATEMENTS

December 31, 2010 and 2009

(Tabular amounts in thousands of dollars)

1. ACCOUNTINg POLICIES

The consolidated financial statements are prepared in accordance with Canadian generally accepted accounting principles
(“GAAP”). The following is a summary of the significant accounting policies.

(a) Principles of consolidation

The consolidated financial statements include the accounts of the Company and all its subsidiaries and joint ventures.
The major subsidiaries are: Toronto Star Newspapers Limited; Harlequin Enterprises Limited (“Harlequin”) and Metroland
Media Group Limited. The Company proportionately consolidates its joint ventures.

(b) Foreign currency translation

Assets and liabilities denominated in foreign currencies have been translated to Canadian dollars primarily at exchange
rates prevailing at the year end. Revenues and expenses are translated at average rates for the year. Translation gains
or losses relating to self-sustaining foreign operations, principally in Europe and Asia, are included in accumulated other
comprehensive loss. A proportionate amount of these accumulated gains or losses are recognized in income when there
is a reduction in the Company’s net investment in the foreign operation.

Financial assets and liabilities

The Company classifies its financial assets and liabilities into the following categories:

• Held-for-trading (“HFT”)

•

Loans and receivables

Financial assets classified as available-for-sale (“AFS”)

• Other financial liabilities

The Company has not classified any financial instruments under the held-to-maturity category. Appropriate classification
of financial assets and liabilities is determined at the time of initial recognition or when reclassified on the consolidated
balance sheet.

Financial instruments classified as HFT and financial assets classified as AFS are recognized on trade date, which is the
date that the Company commits to purchase or sell the instrument.

Financial assets and liabilities classified as HFT

Assets and liabilities in this category include cash and cash equivalents, bank overdraft and derivative financial
instruments entered into by the Company that are not designated as hedging instruments in hedge relationships.
HFT instruments are carried at fair value and the related realized and unrealized gains and losses are included in the
consolidated statements of income.

Loans and receivables

Assets in this category include receivables which are initially recognized at fair value plus transaction costs. They are
subsequently measured at amortized cost using the effective interest method less any impairment. Receivables are
reduced by provisions for anticipated book returns and estimated bad debts which are determined by reference to past
experience and expectations.

Financial assets classified as AFS

Financial assets that are not classified as HFT or as loans and receivables are classified as AFS. Assets in this category
include portfolio investments. A financial asset classified as AFS is initially recognized at its fair value plus transaction costs
that are directly attributable to its acquisition. They are subsequently measured at fair value except for securities that do not
have a quoted market price in an active market which are carried at cost. Any changes in the fair value are recognized in other
comprehensive income except for other than temporary impairment losses which are recognized in net income.

Financial assets classified as AFS are assessed for impairment at each reporting date and the Company recognizes any
impairment in the consolidated statements of income. Impairment losses on AFS equity instruments are not reversed
until they are sold.

t o r s t a r c o r p o r a t i o n 2 0 1 0 a n n u a l r e p o r t

consolidated Financial statements

Other financial liabilities

Other financial liabilities are measured at amortized cost using the effective interest rate method. Other financial liabilities
include accounts payable and accrued liabilities and the long term debt instruments. The long term debt instruments are
initially measured at fair value, which is the consideration received, net of transaction costs incurred. Transaction costs
related to the long term debt instruments are included in the value of the instruments and amortized using the effective
interest rate method.

Derecognition

A financial asset is derecognized when the rights to receive cash flows from the asset have expired or when the Company
has transferred its rights to receive cash flows from the asset. The unrealized gains and losses recorded in AOCI are
transferred to the consolidated statements of income on disposal of an AFS asset or when it is impaired.

A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires.

Derivative instruments and hedging

In the normal course of business, the Company uses derivative financial instruments to manage some of its risks related to
foreign currency exchange rate fluctuations, interest rates and stock-based compensation liability and expense. Derivative
transactions are governed by a uniform set of policies and procedures covering areas such as authorization, counterparty
exposure and hedging practices. Positions are monitored based on changes in interest and foreign currency exchange rates
and their impact on the market value of derivatives. Credit risk on derivatives arises from the potential for counterparties to
default on their contractual obligations to the Company. The Company limits its credit risk by dealing with counterparties
that are considered to be of high credit quality. The Company does not enter into derivative transactions for trading or
speculative purposes.

All derivatives, including derivatives designated as hedges for accounting purposes and embedded derivatives, are recorded
on the consolidated balance sheets at fair value. Derivatives with a positive fair value are recorded as other assets or as
receivables while derivatives with a negative fair value are recorded as other liabilities or as accounts payable and accrued
liabilities. The accounting for the changes in fair value of derivatives depends on whether or not they are designated as
hedges for accounting purposes.

Foreign exchange contracts to sell U.S. dollars have been designated as hedges against future Book Publishing revenue.
Gains and losses on these instruments are accounted for as a component of the related hedged transaction. Foreign
exchange contracts which do not qualify for hedge accounting are reported on a mark to market basis in earnings.

Interest rate swap contracts have been designated as hedges against interest expense. Payments and receipts under interest
rate swap contracts are recognized as adjustments to interest expense on an accrual basis. Any resulting carrying amounts
are included in receivables in the case of favourable contracts and accounts payable in the case of unfavourable contracts.

The Company has derivative instruments to manage its exposure associated with changes in the fair value of its deferred
share unit (“DSU”) plans and the cost of its restricted share unit (“RSU”) plan. These instruments are settled quarterly and
changes in the fair value of these instruments are recorded as compensation expense. The change in the Company’s stock
price between the settlement date and the quarter-end date is included on the consolidated balance sheet as the fair value
of these derivative instruments at each reporting date.

Fair value hedges

These are hedges of the fair value of recognized assets, liabilities or a firm commitment such as the fixed to floating interest
rate swap agreements. Changes in the fair value of derivatives that are designated as fair value hedges are recorded in
the consolidated statements of income together with any changes in the fair value of the hedged asset or liability that are
attributable to the hedged risk.

Cash flow hedges

These are hedges of highly probable forecast transactions such as the floating to fixed interest rate swap agreements and
foreign exchange forward contracts. The effective portion of changes in the fair value of derivatives that are designated as
a cash flow hedge is recognized in OCI. The gain or loss relating to the ineffective portion is recognized in the consolidated
statements of income.

Embedded derivatives

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 on the
consolidated balance sheet, at its fair value. Any future changes in the fair value are recorded in the consolidated statements of
income. The Company recognizes embedded derivates at their fair value on its consolidated balance sheets, when applicable.

t o r s t a r c o r p o r a t i o n 2 0 1 0 a n n u a l r e p o r t

consolidated Financial statements

Derivatives that do not qualify for hedge accounting

Certain derivative instruments, while providing effective economic hedges, are not designated as hedges for accounting
purposes such as the derivative contracts for the DSU fair value and RSU cost. Changes in the fair value of any derivatives
that are not designated as hedges for accounting purposes are recognized in the consolidated statements of income.

Determination of fair value

Fair value is defined as the price at which an asset or liability could be exchanged in a current transaction between
knowledgeable, willing parties, other than in a forced or liquidation sale. The fair value of instruments that are quoted
in active markets is determined using the quoted prices where they represent those at which regularly and recently
occurring transactions take place. The company uses valuation techniques to establish fair value of instruments
where prices quoted in active markets are not available. Therefore, where possible, parameter inputs to the valuation
techniques are based on observable data derived from prices of relevant instruments traded in an active market.
These valuation techniques involve some level of management estimation and judgment, the degree of which will
depend on the price transparency for the instrument or market and the instrument’s complexity.

The Company categorizes its fair value measurements according to a three-level hierarchy. The hierarchy prioritizes
the inputs used by the Company’s valuation techniques. A level is assigned to each fair value measurement based on
the lowest level input significant to the fair value measurement in its entirety. The three levels of the fair value hierarchy
are defined as follows:

Level 1 - Unadjusted quoted prices at the measurement date for identical assets or liabilities in active markets.

Level 2 - Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and
liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or
other inputs that are observable or can be corroborated by observable market data.

Level 3 - Significant unobservable inputs which are supported by little or no market activity.

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of
unobservable inputs when measuring fair value.

The fair values of cash and cash equivalents and bank overdraft are classified within Level 1 because they are based
on quoted prices for identical assets in active markets.

The fair value of derivative financial instruments reflects the estimated amount that the Company would have been
required to pay if forced to settle all unfavourable outstanding contracts or the amount that would be received if
forced to settle all favourable contracts at year end. The fair value represents a point-in-time estimate that may not be
relevant in predicting the Company’s future earnings or cash flows.

The Company’s derivative financial instruments include foreign exchange forward contracts, interest rate swaps and
derivative instruments to manage its exposure associated with changes in the fair value of its deferred share unit
(“DSU”) plans and the cost of its restricted share unit (“RSU”) plan. The fair value of foreign exchange forward
contracts is the difference between the forward exchange rate and the contract rate and is classified within Level 2
because they are based on foreign currency rates quoted by banks.

The Company determines the fair value for interest rate swaps as the net discounted future cash flows using the implied
zero-coupon forward swap yield curve. The change in the difference between the discounted cash flow streams for the
hedged item and the hedging item is deemed to be hedge ineffectiveness and recorded in earnings. The fair value for
interest rate swaps is classified within Level 2 because they are based on forward yield curves which are observable
inputs provided by banks and available in other public data sources.

The fair value of portfolio investments measured at fair value is classified within Level 2 because even though the
security is listed, it is not actively traded.

(d) Cash and cash equivalents

Cash and cash equivalents consists of cash in bank and short-term investments with maturities on acquisition of
90 days or less.

(e) Receivables

Receivables are reduced by provisions for anticipated book returns and estimated bad debts which are determined by
reference to past experience and expectations.

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consolidated Financial statements

(f) Inventories

Inventories are stated at the lower of cost and net realizable value. The cost of finished goods and work in progress
includes raw materials, translation and related printing and production costs. Net realizable value is the estimated
selling price in the ordinary course of business, less estimated costs necessary to make the sale. Provisions are made
for slow moving and obsolete inventory. Reversals of previous write-downs to net realizable value are required when
there is a subsequent increase in the value of the inventory.

(g) Prepaid expenses and other current assets

Prepaid expenses and other current assets include advance royalty payments to authors which are deferred until the
related works are published and are reduced by estimated provisions for advances that may exceed royalties earned.

(h) Property, plant and equipment

These assets are recorded at cost and depreciated over their estimated useful lives. The rates and methods used for
the major depreciable assets are:

Buildings:

• straight-line over 25 years to 70 years

Leasehold Improvements:

• straight-line over the life of the lease

Machinery and Equipment:

• straight-line over 3 to 40 years

(i)

Impairment of long-lived assets

Long-lived assets are tested for recoverability whenever events or changes in circumstances indicate that their
carrying amount may not be recoverable. An impairment loss is recognized when their carrying value exceeds the total
undiscounted cash flows expected from their use and eventual disposition. Any impairment loss would be determined
as the excess of the carrying value of the assets over their fair value.

(j)

Investments in associated businesses

Investments in associated businesses are accounted for using the equity method.

(k) Intangible assets

Intangible assets are recorded at their fair value on the date of acquisition. Intangible assets are comprised of computer
software assets, intangible assets with finite lives and intangible assets with indefinite lives.

Computer software is recorded at cost less accumulated amortization. Computer software assets are amortized on a
straight line basis over 3 to 10 years.

Intangible assets with finite lives are amortized over their useful lives and consist primarily of customer relationships
which are being amortized on a straight line basis over 4 to 10 years.

Certain of the Company’s intangible assets, which include trade and domain names and newspaper mastheads,
have an indefinite life and accordingly are not amortized. Intangibles with indefinite lives are tested for impairment
annually or more frequently when impairment is indicated by events or changes in circumstances. Impairment loss is
determined as the excess of the carrying value of the intangible asset over its fair value.

(l) Goodwill

Goodwill represents the cost of acquired businesses in excess of the fair value of net identifiable assets acquired.
Goodwill is tested for impairment on an annual basis or between annual tests when an event or circumstance occurs
that more likely than not reduces the fair value of a reporting unit below its carrying amount. Goodwill is assessed for
impairment using a two-step approach.

In the first step, the carrying value of the reporting unit is compared to its fair value. When the fair value of a
reporting unit exceeds its carrying value, the goodwill of the reporting unit is considered not to be impaired and the
second step is not required.

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consolidated Financial statements

The second step of the impairment test is carried out when the carrying value of a reporting unit exceeds its fair value.
In this situation, the fair value of the reporting unit is allocated to the assets and liabilities of the reporting unit, based
on their fair values. The excess, if any, of the fair value after the allocation (i.e. the residual) represents the implied
fair value of the goodwill. When the carrying value of the reporting unit’s goodwill exceeds the implied fair value of the
goodwill, an impairment loss equal to the excess is recognized in current period earnings and shown as a separate
item in the consolidated statements of income in the period in which the impairment is determined.

(m) Employee future benefits

The Company maintains both defined benefit and defined contribution (capital accumulation) plans. Details with
respect to accounting for defined benefit employee future benefit plans are as follows:

• The cost and obligations of pensions and post employment benefits earned by employees are actuarially determined
using the projected benefit method prorated on service and management’s best estimate of assumptions of future
investment returns for funded plans, salary changes, retirement ages of employees and expected health care costs.

• For the purpose of calculating the expected return on plan assets, those assets are valued at fair value.

• As prescribed by the CICA, the discount rate used for determining the benefit obligation is the current interest rate
at the balance sheet date on high quality fixed income investments with maturities that match the expected maturity
of the obligations.

• Prior service costs resulting from plan amendments are amortized on a straight-line basis over the average remaining

service life of employees active at the date of amendment.

• The excess of the net actuarial gain (loss) over 10% of the greater of the benefit obligation and the fair value of plan

assets is amortized over the average remaining service life of active employees.

Company pension contributions in excess of the amounts expensed in the statements of income are recorded as
accrued benefit assets in other assets in the balance sheet. Liabilities related to unfunded post employment benefits
and an executive retirement plan are included as employee future benefits in other long-term liabilities.

Company contributions to capital accumulation plans are expensed as incurred.

(n) Stock-based compensation plans

The Company has a stock option plan, an employee share purchase plan (“ESPP”), two DSU plans and an RSU plan.

The Company uses the fair value method of accounting for stock options. Under this method, the fair value of the
stock options is determined at the date of grant using an option pricing model. Over the vesting period, this fair value
is recognized as compensation expense and a related credit to contributed surplus. The contributed surplus balance is
reduced as options are exercised through a credit to share capital. The consideration paid by option holders is credited
to share capital when the options are exercised.

The fair value method of accounting is utilized for the Company’s employee share purchase plans. Under this method,
the Company recognizes a compensation expense and a related credit to contributed surplus each period, based on
the excess of the current share price over the opening price, in accordance with the terms that would apply if the plan
had matured at the current share price. Upon maturity of the plan, contributed surplus is eliminated and share capital
is credited. The consideration paid by the plan members is credited to share capital when the plan matures.

Eligible executives and non-employee directors may receive or elect to receive DSUs equivalent in value to Class B
non-voting shares of the Company. Compensation expense is recorded in the year of granting of the DSUs and changes
in the intrinsic value of outstanding DSUs, including deemed dividend equivalents, are recorded as an expense in the
period that they occur. Outstanding DSUs are recorded as long-term liabilities.

Eligible executives may be granted RSU awards equivalent in value to Class B non-voting shares of the Company. RSUs
vest after three years and are settled in cash. RSUs are accrued over the three-year vesting period as compensation
expense and a related liability. The liability is marked to market each quarter. Accrued RSUs are recorded as long-term
liabilities, except for the portion that will vest within twelve months which is recorded as a current liability.

(o) Income taxes

The Company follows the liability method of accounting for income taxes. Under the liability method of tax allocation,
future tax assets and liabilities are determined based on differences between the financial reporting and tax bases of
assets and liabilities and are measured using substantively enacted tax rates and laws that are expected to be in effect
when the differences are expected to reverse.

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consolidated Financial statements

(p) Revenue recognition

Advertising revenue is recognized when publications are delivered or advertisements are placed on the Company’s
web sites. Newspaper circulation revenue is recognized when the publication is delivered. Subscription revenue for
newspapers is recognized as the publications are delivered over the term of the subscription. Revenue from the sale of
books is recognized for the retail distribution channel based on the book’s publication date (books are shipped prior
to the publication date so that they are in stores by the publication date) and for the direct-to-consumer distribution
channel when the books are shipped. Book Publishing revenue is recorded net of provisions for estimated returns and
direct-to-consumer bad debts, which are estimated primarily based on past experience. Other revenue is recognized
when the related service or product has been delivered. Amounts received in advance are included in the balance sheet
in Accounts payable and accrued liabilities until the revenue is recognized in accordance with the policies noted above.

(q) Use of estimates

The preparation of financial statements in conformity with Canadian generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities;
book returns provision; tax valuation allowances; valuation of goodwill, investments, long-lived assets and financial
instruments; the disclosure of contingent assets and liabilities at the date of the financial statements; and the reported
amounts of revenues and expenses during the reporting year. Actual results could differ from those estimates.

(r) Changes in accounting policies

There were no changes to accounting policies in the current fiscal year.

Future accounting changes:

International Financial Reporting Standards (“IFRS”)

The Company will be required to prepare financial statements in accordance with IFRS starting with the interim financial
statements for the quarter ended March 31, 2011. These statements will require 2010 comparatives in accordance with
IFRS. As a result, the financial statements that are prepared under Canadian GAAP for 2010 will need to be restated
to conform to IFRS for comparative purposes. The Company’s Transition Date is January 1, 2010.

INvENTORIES

Finished goods

Work in progress

Raw materials

2010

$10,681

11,013

12,600

$34,294

2009

$11,164

11,292

11,497

$33,953

The Company has expensed inventory costs of $207.1 million for the year ended December 31, 2010 (2009 - $218.9 million).

The Company recorded an inventory write-down of $3.4 million for the year ended December 31, 2010 (2009 - $4.0 million).

t o r s t a r c o r p o r a t i o n 2 0 1 0 a n n u a l r e p o r t

consolidated Financial statements

INCOME AND OTHER TAXES

A reconciliation of income taxes at the average statutory tax rate to actual income taxes is as follows:

Income before taxes

Provision for income taxes based on Canadian statutory
rate of 31.0% (2009 – 33.0%)

(Increase) decrease in taxes resulting from:

Loss of associated businesses

Foreign income taxed at different rates

Foreign losses not tax effected

Tax losses not previously recognized

Non-taxable portion of capital gains

Permanent differences

Other

Reduction in tax rates

Effective income tax rate

2010

2009

$102,006

$53,645

($31,600)

($17,700)

(9,100)

(1,700)

(300)

2,600

200

(2,100)

900

($41,100)

40.3%

(5,900)

900

(200)

2,700

(2,800)

(100)

5,100

($18,000)

33.6%

In November 2009, the Ontario corporate income tax rate reductions announced in the 2009 Ontario Budget became
substantively enacted. The combined federal and provincial statutory tax rate will be reduced from 33% in 2009 to 25%
by 2014. The Ontario tax rate change resulted in a reduction of income tax expense and future income tax liabilities of
$5.1 million in 2009.

Income taxes of $30.3 million were paid and refunds of $2.4 million were received during the year (2009 - $20.8 million
paid and refunds of $20.4 million received).

The components of the provision for income taxes are as follows:

Current tax provision

Future tax recovery

Total tax provision

2010

$44,400

(3,300)

$41,100

2009

$20,300

(2,300)

$18,000

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consolidated Financial statements

Future income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the
Company’s future income tax assets and liabilities as of December 31 are as follows:

Current future income tax assets:

Receivables

Financial instruments

Other

Non-current future income tax assets:

Tax losses carried forward

Employee future benefits

Financial instruments

Other

Non-current future income tax liabilities:

Property, plant and equipment

Employee future benefits

Intangible assets

Goodwill and other

2010

$12,162

967

6,961

$20,090

$20,548

1,266

1,503

3,372

2009

$13,751

(1,881)

7,670

$19,540

$25,195

573

4,820

3,105

$26,689

$33,693

$23,555

$25,880

17,256

7,002

7,591

19,241

6,465

11,311

$55,404

$62,897

At December 31, 2010, the Company had net operating loss carryforwards of approximately U.S. $148.4 million for U.S. income
tax purposes. No future income tax asset has been recognized for U.S. $88.0 million of these losses. U.S. $88.8 million of the
U.S. loss carryforwards will expire between 2019 to 2021 and U.S. $59.6 million will expire between 2023 and 2029.

At December 31, 2010, the Company had Canadian non-capital losses available for carryforward of approximately
$5.5 million that will expire in 2030.

4. PROPERTY, PLANT AND EQUIPMENT

2010

Land

Buildings and leasehold improvements

Machinery and equipment

Total

2009

Land

Buildings and leasehold improvements

Machinery and equipment

Total

Cost

Accumulated
Depreciation

$7,091

221,451

608,141

$836,683

$7,176

218,594

625,406

$851,176

$138,392

466,682

$605,074

$131,948

467,411

$599,359

Net

$7,091

83,059

141,459

$231,609

$7,176

86,646

157,995

$251,817

Depreciation expense for the year ended December 31, 2010 was $36.6 million (2009 - $41.1 million).

t o r s t a r c o r p o r a t i o n 2 0 1 0 a n n u a l r e p o r t

consolidated Financial statements

INvESTMENT IN ASSOCIATED bUSINESSES

The Company’s Investment in associated businesses includes a 33.33% equity interest in Canadian Press Enterprises Inc.
(“Canadian Press”), a 19.35% equity interest in Black Press Ltd. (“Black Press”) and a 30% equity interest in Q-ponz Inc.
(“Q-ponz”). The Company’s 20% equity interest in CTVglobemedia Inc. (“CTVgm”) was also classified as an investment
in associated businesses until September 10, 2010.

The following is a continuity of Investment in associated businesses:

Balance, beginning of period

Loss of associated businesses

Adjustment to opening retained earnings on adoption of new accounting
standards for intangible assets

Change in investees’ accumulated other comprehensive income (loss)

Reclassification of CTVgm to Investment in CTVglobemedia Inc.

Investment in Canadian Press

Balance, end of period

2010

$178,828

(29,478)

2,042

(150,326)

750

$1,816

2009

$201,571

(17,953)

(3,055)

(1,735)

$178,828

On September 10, 2010, the Company announced that it had entered into agreements to sell its 20% interest in CTVgm
for aggregate cash proceeds of approximately $345 million. On December 31, 2010, the Company received $40 million in
connection with CTVgm’s sale of The Globe and Mail. The sale of the Company’s 20% interest in CTVgm remains subject to
customary approvals and closing conditions, including approval by the Canadian Radio-television and Telecommunications
Commission, and is expected to close by mid 2011.

Effective with the signing of the agreements, the Company ceased to meet the accounting criteria for significant influence
over the operations of CTVgm and as a result ceased to equity account for CTVgm results as of September 10, 2010.
The investment in CTVgm has been designated as available-for-sale and will be carried at cost until the transactions are
completed, as the shares do not trade in an active market. The carrying value of $150.3 million as of September 10, 2010
was increased by $2.5 million on the reallocation of cumulative other comprehensive losses (treated as realized on the loss
of significant influence) and reduced by the $40 million received on December 31, 2010 resulting in a carrying value as of
December 31, 2010 of $112.8 million.

The Company does not have coterminous quarter-ends with CTVgm and Black Press. These financial statements reflect
the Company’s share of CTVgm’s results for the nine months ended August 31, 2010 and the twelve months ended
November 30, 2009. The Company has not recorded its share of Black Press’ results in either 2010 or 2009 as the
Company’s carrying value in Black Press was reduced to nil in the fourth quarter of 2008.

On November 15, 2010, the Company became a 33% shareholder in Canadian Press which subsequently acquired the
operations of The Canadian Press news agency.

The 2010 loss of associated businesses included an $18.2 million loss related to the impairment of certain CTVgm intangible
assets. The 2009 loss of associated businesses included a $16.5 million intangible asset impairment loss, a $26.3 million
valuation allowance (negative earnings impact) that was provided against certain of CTVgm’s future income tax assets,
a recovery related to Canadian Radio-television and Telecommunications Commission Part II licence fees, a gain on the
change in the fair value of financial liabilities and a $4.2 million positive earnings impact as future income tax liabilities
related to intangible assets were reduced to reflect the reduction in further provincial income tax rates.

t o r s t a r c o r p o r a t i o n 2 0 1 0 a n n u a l r e p o r t

consolidated Financial statements

Outlined below is summarized financial information for 100% of CTVgm, based on the Company’s fair value adjustments
on acquisition for the nine months ended August 31, 2010 and twelve months ended November 30, 2009.

Statements of income (Loss)

Revenues
Operating profit
Impairment loss on goodwill and intangible assets
Net loss

Statements of Comprehensive Income (Loss)
Net loss
Other comprehensive income (loss)
Comprehensive loss

INTANgIbLE ASSETS

Computer software assets:

Balance, beginning of year
Additions
Recognized on acquisitions
Disposals/Transfer
Amortization
Foreign exchange and other
Balance, end of year

Intangible assets not subject to amortization:

Balance, beginning of year
Recognized on acquisitions
Write-down for impairment (note 19(b))
Foreign exchange and other
Balance, end of year

Intangible assets subject to amortization:

Balance, beginning of year
Recognized on acquisitions
Write-down for impairment (note 19(b))
Amortization
Foreign exchange and other
Balance, end of year

Total

2010

$1,752,150
$120,741
($91,000)
($145,575)

($145,575)
10,210
($135,365)

2010

$16,580
10,682
223
(670)
(6,356)
(30)
$20,429

$22,960
3,571
(90)
45
$26,486

$12,079
3,582
(400)
(3,307)
31
$11,985
$58,900

2009

$2,110,278
$214,747
($84,320)
($89,055)

($89,055)
(8,675)
($97,730)

2009

$17,479
7,889

(239)
(8,506)
(43)
$16,580

$21,321
2,395
(756)

$22,960

$13,346
1,540

(2,807)

$12,079
$51,619

Amortization expense for the year ended December 31, 2010 was $9.7 million (2009 - $11.3 million).

gOODWILL

Balance, beginning of year
Recognized on acquisitions (note 17)
Foreign exchange and other
Balance, end of year

2010

$581,842
9,132
(15)
$590,959

2009

$577,116
5,299
(573)
$581,842

t o r s t a r c o r p o r a t i o n 2 0 1 0 a n n u a l r e p o r t

consolidated Financial statements

OTHER ASSETS

Accrued benefit assets (note 18)
Portfolio investments
Derivative instruments (note 10)
Other

LONg TERM DEbT

Bankers’ acceptance:
Cdn. dollar denominated
U.S. dollar denominated

Medium Term Notes:
Cdn. dollar denominated
Fair value hedge

(a) Bank debt

2010

$133,450
203

1,056
$134,709

2010

$320,998
83,729
$404,727

$404,727

2009

$136,574
883
1,471
1,180
$140,108

2009

$381,819
94,687
476,506

75,000
1,470
76,470

$552,976

(i)

(ii)

The Company has long-term credit facilities with its bankers which consist of a $425 million revolving term loan
and a $175 million revolving operating loan (reduced from $310 million in November 2010). Both facilities mature
in January 2012. The credit facilities may be drawn in Canadian or U.S. dollars, and must be drawn from the
operating loan in priority to the revolving term loan. The credit facilities are subject to financial tests and other
covenants with which the company was in compliance at December 31, 2010.
Amounts borrowed under the bank credit facilities are primarily in the form of bankers’ acceptance (or an
equivalent) at varying interest rates and normally mature over periods of 30 to 180 days. The interest rate spread
above the bankers’ acceptance rate if in Canadian dollars, or the LIBOR rate if in U.S. dollars, varies based on the
Company’s long-term credit rating for borrowings under the revolving term loan (range of 0.4% to 1.5%), and on
its net debt to operating cash flow ratio for borrowings under the operating loan (range of 2.0% to 3.8%). Effective
January 2011, the interest rate spread is 0.6% on the $425 million revolving term loan (January 2010 – 0.6%) and
2.25% on new borrowings under the $175 million operating loan (January 2010 – 3.0%). The interest rate spread
at December 31, 2010 was a blended rate of 1.6% (2009 – 0.96%).

(iii) In September 2006, the Company entered into interest rate swap agreements with major Canadian chartered
banks that fix the interest rate on $250 million of Canadian dollar borrowings. As a result, the Company will pay
quarterly a fixed rate of 4.3% per annum (plus the interest rate spread referred to in 9(a)(ii)) for the subsequent
five years through September 2011 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 $4.9 million unfavourable at December 31, 2010 (2009 - $11.9 million unfavourable).

(iv) The average rate on Canadian dollar bank borrowings outstanding at December 31, 2010 was 2.7% (December
31, 2009 – 1.4%). Including the effect of the interest rate swap noted in 9(a)(iii) the effective rate was 5.3% at
December 31, 2010 (December 31 2009 – 3.9%).

(v) In May 2008, the Company entered into two interest rate swap agreements that fix the interest rate on U.S.
$80 million of borrowings at approximately 4.2% (plus the interest rate spread referred to in 9(a)(ii)) for seven
years ending May 2015. These swaps have been designated as hedges. The fair value of the U.S. interest rate swap
arrangement at December 31, 2010 was $7.6 million unfavourable (2009 - $4.8 million unfavourable).

(vi) Bank debt outstanding at December 31, 2010 included U.S. dollar borrowings of U.S. $84.2 million (December 31,
2009 – U.S. $90.5 million) at an average rate of 1.9% (December 31, 2009 – 1.2%). Including the effect of the
interest rate swap noted in 9(a)(v) the effective rate was 5.8% at December 31, 2010 (December 31, 2009 – 4.8%).

(vii) The company repaid the $75 million medium term notes which matured in September 2010.

t o r s t a r c o r p o r a t i o n 2 0 1 0 a n n u a l r e p o r t

consolidated Financial statements

(b) 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 contracting with major financial institutions, as approved
by the Board of Directors, as counterparties.

(c) Loans under the long term credit facilities may only be made provided there has been no development materially
adversely affecting the business or financial condition or position of the Company and its subsidiaries considered on
a consolidated basis. There were no such developments as at December 31, 2010.

(d) Interest expense includes interest on long-term debt of $24.0 million (2009 - $21.7 million).

(e) Interest of $24.0 million was paid during the year (2009 - $21.6 million).

10. fINANCIAL INSTRUMENTS

Fair value of financial instruments
The carrying values of the Company’s financial instruments approximate their fair values unless otherwise noted.

2010

2009

Financial assets:

Held for trading, measured at fair value

Cash and cash equivalents

Loans and receivables, measured at amortized cost

Trade accounts receivable
Other receivables

Derivatives included in Receivables
Receivables per Balance Sheet

Available for sale, measured at cost

Portfolio investments

Available for sale, measured at fair value

Portfolio investments¹

Derivatives designated as effective hedges, measured at fair value

Foreign currency forward contracts²
Interest rate swaps – cash flow hedges¹
Interest rate swaps – cash flow hedges²
Interest rate swaps – fair value hedges¹

Derivatives
Other¹,³
Other¹,³

Financial liabilities:

Held for trading, measured at fair value

Bank overdraft

Other financial liabilities:

Long term debt, measured at amortized cost
Accounts payable and accrued liabilities:

Measured at amortized cost
Derivatives included in Accounts payable and accrued liabilities

Accounts payable and accrued liabilities per Balance Sheet
Deferred payments on acquisitions¹
Restructuring provisions¹

¹ These amounts are included in Other assets or Other liabilities
² Included in Receivables or Accounts payable and accrued liabilities
³ See section below on CTVgm arrangements

$42,899

252,533
9,504
262,037
3,354
265,391

112,848

203

3,354
(7,647)
(4,947)

6,958

404,727

229,907
4,947
234,854
3,984
14,293

$39,238

233,675
13,564
247,239
6,067
253,306

811¹

6,067
(16,632)

1,470

1
(1)

2,052

552,976

218,971

218,971
3,667

t o r s t a r c o r p o r a t i o n 2 0 1 0 a n n u a l r e p o r t

consolidated Financial statements

Risk management

The Company is exposed to various risks related to its financial assets and liabilities. These risk exposures are managed on an
ongoing basis.

Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due or at a reasonable cost.
The Company manages liquidity risk primarily by maintaining sufficient unused capacity within its long term debt facilities. The
unused capacity at December 31, 2010 was approximately $173 million (2009 - $162 million, taking into account the $75 million
medium term notes that matured in 2010). The maturity profile of the Company’s financial liabilities based on contractual
undiscounted payments is as follows:

2011

2012

2013

2014

2015

2016+

Total

Foreign currency hedges¹:

Outflows
Inflows

Cdn.$ Interest rate swaps
U.S.$ Interest rate swaps¹
Accounts payable and accrued liabilities¹
Deferred payments¹
Restructuring provisions
Long-term debt¹
Net

$35,308
(37,811)
(2,503)
7,656
3,307
229,907

$18,897
(20,271)
(1,374)

3,307

$3,307

$1,167

4,330
8,138
404,727
$419,128

$238,367

1,916

1,355

2,954

$5,120

$5,223

$4,662

$4,121

$5,120

$54,205
(58,082)
(3,877)
7,656
14,395
229,907
4,330
19,483
404,727
$676,621

Total outflows
Total inflows

$276,178 $439,399
($20,271)
($37,811)

$5,223

$4,662

$4,121

$5,120 $734,703
($58,082)

¹All foreign currency denominated amounts were translated at the December 31, 2010 spot rates.

Credit risk
In the normal course of business, the Company is exposed to credit risk from its accounts receivable from customers.
The carrying amounts for accounts receivable are net of applicable allowances for doubtful accounts and returns, which are
estimated based on past experience, specific risks associated with the customer and other relevant information. Under a
billing and collection agreement with a third party, the Book Publishing Segment has a net receivable of $30.4 million (U.S.
$30.5 million) at December 31, 2010 (2009 - $35.8 million (U.S. $34.2 million)). The Company believes that the credit risk
associated with this balance is mitigated by the financial stability and payment history of the third party.

The Company is also exposed to credit-related losses in the event of non-performance by counterparties to derivative
instruments. The Company manages its counterparty risk by only contracting with major financial institutions with high credit
ratings, as approved by the Board of Directors, as counterparties.

The maximum exposure to credit risk is the carrying value of these financial assets.

The following table sets out details of the age of trade receivables and provision for bad debts and book returns:

Gross accounts receivable:

Current
Up to three months past due date
Three to twelve months past due date
Impaired

Allowance for doubtful accounts
Book returns provision

2010

$261,539
94,989
5,845
6,905
369,278
(14,159)
(102,586)
$252,533

2009

$249,297
84,962
4,422
6,051
344,732
(13,398)
(97,659)
$233,675

t o r s t a r c o r p o r a t i o n 2 0 1 0 a n n u a l r e p o r t

consolidated Financial statements

Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates will affect the
Company’s income or the value of its financial instruments.

a) Foreign currency risk

The Company is exposed to foreign currency risk through Harlequin’s international operations. The most significant
foreign currency exposure is to movements in the U.S. dollar/Cdn. dollar exchange rate. To manage this exchange risk in
its operating results, the Company’s practice is to enter into forward foreign exchange contracts to hedge a portion of its
U.S dollar revenues as detailed in Note 11. In 2010, including the impact of the foreign exchange contracts, Harlequin’s
U.S. dollar earnings were translated at a rate of approximately $1.12. A $0.05 higher (lower) average U.S. dollar/Cdn.
dollar exchange rate would have increased (decreased) net income by approximately $0.7 million (2009 - $0.8 million).

From time to time, the Company may also enter into forward foreign exchange contracts to hedge other currencies (Yen,
Euro, Pound Sterling) realized in Harlequin’s overseas operations.

In order to offset the exchange risk on its balance sheet from net U.S. dollar denominated assets, the Company maintains
a certain level of U.S. dollar denominated debt as indicated in Note 9(a)(vi). These net assets are primarily current in
nature and to the extent that the amount of net U.S. dollar assets differs from the amount of the U.S. dollar debt, a non-
cash foreign exchange gain or loss is recognized in earnings. In 2010, the non-cash foreign exchange loss recognized in
earnings was $1.9 million due to the variability in exchange rates during the year (2009 – loss of $0.5 million).

b) Interest rate risk

The Company’s interest rate risk arises from borrowings issued at or swapped into variable rates which expose the
Company to cash flow interest rate risk. The Company manages this risk through the use of interest rate swap contracts
to fix the interest rate on a portion of the debt as detailed in Note 9.

An assumed 1% increase in the Company’s short term borrowing rates during the year ended December 31, 2010 would
have decreased net income by $1.2 million (2009 - $1.8 million), with an equal but opposite effect for an assumed 1%
decrease in short term borrowing rates.

CTVgm arrangements
Prior to October 27, 2010, the Company, as a shareholder of CTVgm, could have been required to purchase a portion of
CTVgm’s financial obligations to its lenders. The Company’s maximum exposure under the arrangement was $45 million.
To offset its exposure, the Company had also entered into a separate arrangement with another CTVgm shareholder
which allowed the Company to assign its purchase obligation. Effective October 27, 2010, the Company ceased to have an
obligation under these arrangements.

11. fORWARD fOREIgN EXCHANgE CONTRACTS

The Company has entered into forward foreign exchange contracts to allow it to convert a portion of its expected future U.S.
dollar revenue into Canadian dollars. The forward foreign exchange contracts outstanding at December 31, 2010 establish
a rate of exchange of Canadian dollar per U.S. dollar of $1.07 for U.S. $35.5 million in 2011 and $1.07 for U.S. $19.0 million
in 2012. At December 31, 2009, forward foreign exchange contracts established a rate of exchange of Canadian dollar per
U.S. dollar of $1.17 for U.S. $45.6 million in 2010 and $1.11 for U.S. $5.0 million in 2011. These forward foreign exchange
contracts have been designated as cash flow hedges and the net fair value of these contracts was $3.4 million favourable
at December 31, 2010 (2009 - $6.1 million favourable).

Forward foreign exchange contracts settled in 2010 established a rate of exchange of Canadian dollar per U.S. dollar of
$1.16 for U.S. $51.6 million in 2010 (2009 - $1.12 for U.S. $50.1 million).

t o r s t a r c o r p o r a t i o n 2 0 1 0 a n n u a l r e p o r t

consolidated Financial statements

12 CAPITAL MANAgEMENT

The Company’s capital management objectives are to maintain financial flexibility in order to preserve its capacity to meet its
financial commitments, to pay dividends and to meet its potential obligations resulting from internal growth and acquisitions.

The Company defines capital as:
• Shareholders’ equity
•
Long term debt
• Bank overdraft net of cash and cash equivalents

Total managed capital was as follows:

Shareholders’ equity

Long term debt

Bank overdraft

Cash and cash equivalents

2010

$720,959

404,727

6,958

(42,899)

$1,089,745

2009

$678,980

552,976

2,052

(39,238)

$1,194,770

The Company manages its capital structure in accordance with changes in economic conditions. In order to maintain or adjust
its capital structure, subject to capital market conditions, the Company may elect to adjust the amount of debt outstanding,
adjust the amount of dividends paid to shareholders, return capital to its shareholders, repurchase its shares in the marketplace
or issue new shares.

The Company is currently meeting all its financial commitments. The Company’s credit facilities are subject to financial tests
and other covenants with which it was in compliance at December 31, 2010.

There have been no changes in the Company’s approach to capital management during the year.

The Company is not subject to any external capital requirements.

13. OTHER LIAbILITIES

Employee future benefits (note 18)

Employees’ shares subscribed (note 15(b))

RSU plan (note 15(c))

DSU plan (note 15(e))

Derivative instruments (note 10)

Deferred payments on acquisitions

Lease inducement

Restructuring provisions (note 19)

Other

14. SHARE CAPITAL

(a) Rights attaching to the Company’s share capital:

2010

$72,841

3,830

3,354

3,210

7,647

3,984

2,234

14,293

5,671

$117,064

2009

$69,135

3,537

1,375

2,263

16,633

3,667

2,393

4,405

$103,408

(i) Class A (voting) and Class B (non-voting) shares, no par value

Class A and Class B shareholders may elect to receive dividends in cash or stock dividends in the form of Class B
shares. Class A shares are convertible at any time at the option of the holder into Class B shares.

t o r s t a r c o r p o r a t i o n 2 0 1 0 a n n u a l r e p o r t

consolidated Financial statements

(ii) Voting provisions

Class B shares are non-voting unless the Company has failed to pay the full quarterly preferential dividend
(7.5 cents per annum) on the Class B non-voting shares in each of eight consecutive quarters.

(iii) Restrictions on transfer

Registration of the transfer of any of the Company’s shares may be refused if such transfer could jeopardize either
the ability of the Company to engage in broadcasting or its status as a Canadian newspaper or periodical publisher.

(b) Summary of changes in the Company’s share capital:

Year ended December 31

2010

2009

Amount

Class A shares (voting)

Balance, beginning of period

9,875,407

$2,683

9,892,667

$2,688

Converted to Class B

Balance, end of period

Class b shares (non-voting)

Balance, beginning of period

Converted from Class A

Dividend reinvestment plan

Issued under Employee Share Purchase Plan

Other

Balance, end of period

(2,070)

(1)

(17,260)

(5)

9,873,337

$2,682

9,875,407

$2,683

69,129,929

$388,943

68,999,095

$388,290

2,070

27,960

83,194

1,600

277

896

17,260

25,394

86,480

1,700

142

495

69,244,753

$390,134

69,129,929

$388,943

Total Class A and Class b shares

79,118,090

$392,816

79,005,336

$391,626

An unlimited number of Class B shares is authorized. While the number of authorized Class A shares is unlimited, the
issuance of further Class A shares, may under certain circumstances, require unanimous board approval.

Basic earnings per share amounts have been determined by dividing income by the weighted average number of Class
A and Class B shares outstanding during the year.

The treasury stock method is used for the calculation of the dilutive effect of stock options and other dilutive securities.
In calculating diluted per share amounts under the treasury stock method, the numerator remains unchanged from
the basic per share calculation as the assumed exercise of the Company’s stock options and employee share purchase
plan does not result in an adjustment to income. The reconciliation of the denominator in calculating diluted per share
amounts is as follows:

(thousands of shares)

Weighted average number of shares outstanding, basic

Effect of dilutive securities

- stock options

- ESPP

2010

79,074

411

152

Weighted average number of shares outstanding, diluted

79,637

2009

78,964

78,989

Outstanding stock options totaling 2,754,743 (2009 – 3,447,880), which are out of the money, have been excluded from the
above calculation of dilutive securities.

t o r s t a r c o r p o r a t i o n 2 0 1 0 a n n u a l r e p o r t

consolidated Financial statements

15. STOCK-bASED COMPENSATION PLANS

(a) Stock option plan

Eligible senior executives may be granted options to purchase Class B non-voting shares at an option price which shall
not be less than the closing market price of the shares on the last trading day before the grant. Prior to 2003, non-
executive directors were also eligible to be granted options.

The maximum number of shares that may be issued under the stock option plan is 12,500,000 and the number of
shares reserved for issuance to insiders (together with shares issuable to insiders under all other stock compensation
arrangements) cannot exceed 10% of the outstanding Class A and Class B shares. The term of the options shall not
exceed ten years from the date the option is granted. Up to 25% of an option grant may be exercised twelve months
after the date granted, and a further 25% after each subsequent anniversary. Options to purchase 9,894,036 shares have
been granted (net of options cancelled) as of December 31, 2010 (2009 – 9,232,839).

A summary of changes in the stock option plan is as follows:

January 1, 2009

Granted

Forfeited or expired

December 31, 2009

Granted

Forfeited or expired

December 31, 2010

Options

5,177,900

539,656

(2,229,676)

3,487,880

854,678

(193,481)

4,149,077

Weighted average
exercise price

$21.88

8.18

(21.34)

$20.10

6.33

(21.79)

$17.19

As at December 31, 2010, outstanding stock options were as follows:

Options Outstanding

Range of exercise price

Number outstanding
December 31, 2010

Weighted average
remaining contractual life

Weighted average
exercise price

$5.75 – 8.37

$15.75 – 19.61

$20.30 – 22.20

$25.50 – 29.01

$5.75 – 29.01

1,394,334

568,732

1,620,274

565,737

4,149,077

Options Exercisable

8.6 years

5.8 years

1.9 years

2.3 years

4.7 years

$7.04

$19.17

$21.68

$27.31

$17.19

Range of exercise price

Number exercisable
December 31, 2010

Weighted average
exercise price

$5.75 – 8.37

$15.75 – 19.61

$20.30 – 22.20

$25.50 – 29.01

$5.75 – 29.01

134,914

361,044

1,609,727

565,737

2,671,422

$8.18

$19.25

$21.68

$27.31

$21.86

t o r s t a r c o r p o r a t i o n 2 0 1 0 a n n u a l r e p o r t

consolidated Financial statements

Subsequent to year-end, 488,813 stock options were granted at an exercise price of $12.21 per share. In estimating the
compensation expense for stock options granted in 2006 to 2010, the Company used the Black-Scholes options pricing
model. The fair value of the options on the date of grant and the assumptions used are as follows:

Fair Value
Risk-free interest rate
Expected dividend yield
Expected share price volatility
Expected time until exercise (years)

2010

2009

$1.10
2.9%
5.9%
31.9%
6

$1.19
2.2%
4.4%
24.3%
6

2008

$2.24
4.1%
3.9%
15.1%
6

2007

$2.56
4.0%
3.8%
16.3%
6

2006

$3.08
4.2%
3.3%
16.8%
5

(b) Under the Company’s employee share purchase plans, employees may subscribe for Class B non-voting shares of the
Company to be paid for through payroll deductions over two-year periods at a purchase price which is the lower of the
market price on the entry date or the market price at the end of the payment period. The value of the shares that an
employee may subscribe for is restricted to a maximum of 20% of salary at the beginning of the two year period. As at
December 31, outstanding employee subscriptions were as follows:

Maturing

Subscription price at entry date

Number of shares

2010

2009

2011

$5.52

340,417

2012

$10.74

181,642

2010

$15.66

93,914

2011

$5.52

374,365

Eligible senior executives may be granted RSU awards equivalent in value to Class B non-voting shares of the Company
as part of their long-term incentive compensation. RSU’s vest after three years and are settled in cash.

The Company has entered into a derivative instrument in order to lock in the expense for 561,194 RSU’s (2009 – 391,394).
The derivative instrument is settled quarterly. Changes in the fair value of this instrument are recorded as compensation
expense and offset the impact of changes in the fair value of the RSU’s that have been accrued. As the RSU’s are accrued
over the three-year vesting period, there will not be an exact offset each period.

As at December 31, 2010, 627,252 units were outstanding of which 113,368 units have been accrued in Accounts payable
and accrued liabilities at a value of $1.4 million while 274,560 units have been accrued in Other liabilities at a value of
$3.4 million (2009 – 473,274 units were outstanding of which 96,573 units were accrued in Accounts payable and
accrued liabilities at a value of $0.6 million while 217,141 units were accrued in Other liabilities at a value of $1.4 million).

A summary of changes in the RSU plan is as follows:

January 1, 2009

Granted

Forfeited

Vested and paid

December 31, 2009

Granted

Vested and paid

December 31, 2010

Units

300,070

355,057

(95,261)

(86,592)

473,274

250,551

(96,573)

627,252

Subsequent to year-end, 146,341 RSU’s have been granted and 113,368 RSU’s have vested and were paid.

t o r s t a r c o r p o r a t i o n 2 0 1 0 a n n u a l r e p o r t

consolidated Financial statements

(d) The Company has recognized in 2010, compensation expense totalling $3.9 million for the stock options granted in 2007 to
2010, RSUs granted in 2008 to 2010 and the employee share purchase plans originating in 2008 to 2010 (2009 - $3.0 million
for the stock options granted in 2006 to 2009, RSU’s granted in 2007 to 2009 and the employee share purchase plans
originating in 2007 to 2009).

(e) DSU Plan

Eligible executives may elect to receive certain cash incentive compensation in the form of DSU units. Each unit is equal
in value to one Class B non-voting share of the Company. The units are issued on the basis of the closing market price
per share of Class B non-voting shares of the Company on the Toronto Stock Exchange on the date of issue. The units
also accrue dividend equivalents payable in additional units in an amount equal to dividends paid on Class B non-voting
shares of the Company. DSU units mature upon termination of employment, whereupon an executive is entitled to
receive the fair market value of the equivalent number of Class B non-voting shares, net of withholdings, in cash.

The Company has also adopted a DSU plan for non-employee directors. Each non-employee director receives an award
of DSU units as part of his or her annual Board retainer. In addition, a non-employee director holding less than the
minimum shareholding requirement of Class B non-voting shares, Class A voting shares, DSU units, or a combination
thereof, receives the cash portion of his or her annual Board retainer in the form of DSU units. Any non-employee
director may elect to participate in the DSU plan in respect of part or all of his or her retainer and attendance fees.
The terms of the director DSU plan are substantially the same as the executive DSU plan.

As at December 31, 2010, 262,868 units were outstanding at a value of $3.2 million (2009 – 357,490 units, value
$2.3 million). There were 168,103 units redeemed during 2010 at an average price of $12.28 per unit (2009 – 65,695
units, average price $5.82 per unit).

The Company has entered into a derivative instrument in order to offset its exposure to changes in the fair value of
units issued under its DSU plan. The derivative instrument is settled quarterly. As at December 31, 2010, the derivative
instrument offset 258,600 units (2009 – 298,600 units).

16. ACCUMULATED OTHER COMPREHENSIvE LOSS (NET Of TAX)

Foreign
currency
translation
adjustment

Unrealized
gains (losses)
on cash flow
hedges

Unrealized
gain on
available-for-
sale securities

Unrealized loss
on associated
businesses’
cash flow
hedges

$1,846
(6,169)
($4,323)¹

921

($3,402)¹

($24,999)
17,373
($7,626)²
856
($6,770)²

$86
(426)
($340)¹
240
($100)¹

($2,829)
(1,735)
($4,564)¹
4,564

Total

($25,896)
9,043
($16,853)
6,581
($10,272)

As at December 31, 2008
Other comprehensive income (loss)
As at December 31, 2009
Other comprehensive income (loss)
As at December 31, 2010

1Net of income tax benefit of $nil (2009 - $nil).

17. ACQUISITIONS AND INvESTMENTS

In 2010, the Company used cash of $11.6 million on acquisitions and investments. This included $2.8 million for the first
of three payments related to Harlequin’s acquisition of full ownership of its German publishing business, $3.3 million for
deferred purchase and performance payments in respect of prior year acquisitions in the Media Segment and $5.5 million
for several acquisitions within the Media Segment.

The total purchase price for Harlequin’s acquisition of the remaining 50% of its German publishing business, Cora Verlag
from Axel Springer Verlag, its joint venture partner in Germany since 1976 was $8.5 million, of which $2.8 million has been
paid while the remaining $5.7 million is payable over the next two years. This acquisition has been accounted for by the
purchase method. The final allocation of the purchase price (including the discounted value of the deferred payments) was
$0.3 million to future tax assets, $2.8 million to non-amortizable intangible assets, $0.6 million to amortizable intangible
assets, $6.1 million to goodwill, $0.6 million to other liabilities and a credit of $0.7 million to working capital. The amount of
goodwill that is deductible for tax purposes is $5.0 million.

t o r s t a r c o r p o r a t i o n 2 0 1 0 a n n u a l r e p o r t

consolidated Financial statements

The Media Segment acquisitions included the remaining 86% ownership interest in Travelwire Inc. (a business that provides
travel consumers with travel deals through its email newsletter), WagJag (a business that allows local businesses to access
new customers featuring one deal per day) and several other smaller businesses. Two of these acquisitions also have
potential performance payments of up to $8.4 million based on future revenues.

These acquisitions were accounted for by the purchase method. The final allocation of the $5.5 million purchase price of
these acquisitions was $0.4 million to working capital, $0.8 million to non-amortizable intangible assets, $2.3 million to
amortizable intangible assets, $3.0 million to goodwill, $0.7 million to future tax liabilities and a $0.3 million credit to other
assets. In addition, $2.7 million of deferred payments and $0.6 million of performance payments were paid during the
year in respect of acquisitions made in prior years. The $0.6 million performance payments were allocated $0.9 million
to amortizable intangible assets and $0.3 million to future tax liabilities. The amount of goodwill that is expected to be
deductible for tax purposes is $0.9 million.

In 2009, $9.5 million was used primarily for digital acquisitions in the Media Segment, including Gottarent.com, Rosebud
Media and 50% of Lease Busters Inc. This also included $4.2 million for earn-out payments and installments on previous
acquisitions and the acquisition of an approximate 14% interest in Travelwire Inc. for $0.8 million. These acquisitions
were for cash of $6.5 million and deferred payments of $2.0 million, which are due in the period May 2010 through May
2012. These acquisitions also contain potential performance payments, based on future revenues, which will be treated as
additional purchase price if paid. The potential performance payments are capped at $2.3 million (of which $0.3 million was
paid during the year) for one acquiree and open-ended for another. These acquisitions were accounted for by the purchase
method. The allocation of the $8.5 million purchase price of these acquisitions (including the deferred payments), was
$0.3 million to working capital, $2.4 million to non-amortizable intangible assets, $1.5 million to amortizable intangible
assets, $5.3 million to goodwill and $1.1 million to future tax liabilities. These allocations are final. In addition, the
$2.2 million first instalment for the eyeReturn Marketing purchase made in the prior year was paid during 2009. The amount
of goodwill that is expected to be deductible for tax purposes is nil.

18. 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. The Company also maintains defined contribution (capital accumulation) plans in Canada, the United
States and in certain overseas operations of Harlequin. Post employment benefits other than pensions are also available to
employees, primarily in the Canadian newspaper operations, which provide for various health and life insurance benefits.

t o r s t a r c o r p o r a t i o n 2 0 1 0 a n n u a l r e p o r t

consolidated Financial statements

Information concerning the Company’s post employment benefit plans as at December 31 is as follows:

Accrued benefit obligations

Balance, beginning of year

Current service cost

Interest cost

Benefits paid

Actuarial losses (gains)

Participant contributions

Prior service costs

Foreign exchange

Settlement

Special termination benefits

Balance, end of year

Plans’ assets

pension plans

post employment Benefit plans

2010

2009

2010

2009

$736,978

$682,551

$46,954

$53,232

390

2,669

(2,271)

3,674

498

3,288

(2,270)

(7,794)

12,897

42,306

(43,342)

67,558

6,128

568

(853)

12,698

42,333

(57,508)

45,779

6,482

2,788

(2,380)

1,943

2,292

$822,240

$736,978

$51,416

$46,954

Fair value, beginning of year

$663,591

$582,470

Return on plan assets

Benefits paid

Contributions to plan

Foreign exchange

Fair value, end of year

funded status – deficit

Unamortized losses (gains)

Unrecognized prior service costs

Accrued benefit asset (liability)

Recorded in:

Other assets

Other liabilities

Accrued benefit asset (liability)

Net benefit expense for the year

Current service cost

Interest cost on benefit obligation

Actual return on plan assets

Actuarial loss (gain) on benefit obligation

Prior service costs

Settlement

Special termination benefits

63,017

(43,342)

23,360

(541)

$706,085

($116,155)

213,441

22,562

103,992

(57,508)

36,181

(1,544)

$663,591

($73,387)

174,125

25,885

($51,416)

($46,954)

(7,952)

129

(12,375)

145

$119,848

$126,623

($59,239)

($59,184)

$133,450

$136,574

(13,602)

(9,951)

$119,848

$126,623

($59,239)

($59,184)

$12,897

42,306

(63,017)

67,558

568

$12,698

42,333

(103,992)

45,779

2,788

1,943

2,292

3,841

$390

2,669

$498

3,288

3,674

(7,794)

6,733

(4,008)

Benefit expense before recognizing the long term
nature of the benefit plans

60,312

Excess (shortfall) of actual return on plan assets
over expected return, deferred to unamortized
losses (gains)

Portion of actuarial loss (gain) deferred to
unamortized losses (gains)

Adjustment to prior service costs for amortization
of (deferral to) unrecognized prior service costs

Net benefit expense

17,416

64,039

(57,072)

(31,392)

(4,369)

7,794

3,257

$23,913

735

$37,223

$2,380

$3,802

t o r s t a r c o r p o r a t i o n 2 0 1 0 a n n u a l r e p o r t

consolidated Financial statements

pension plans

post employment Benefit plans

2010

2009

2010

2009

Significant assumptions used

To determine benefit obligation at end of year:

Discount rate

4.7% to 5.1%

5.5% to 5.8%

Rate of future compensation increase

3.0% to 4.0%

To determine benefit expense:

Discount rate

5.5% to 5.8%

5.6% to 6.3%

Expected long-term rate of return on plan assets

7.0%

Rate of future compensation increase

3.0% to 4.0%

Health care cost trend rates at end of year:

Initial rate

Ultimate rate

Year ultimate rate reached

Average remaining service life of active

N/A

5.1%

N/A

5.8%

N/A

8.5%

5.0%

2017

5.8%

N/A

6.30%

N/A

9.0%

5.0%

2017

employees

8 to 15 years

11 years

At December 31, 2010, long-term liabilities included $11.6 million (2009 - $8.8 million) related to an unfunded executive
retirement plan which is supported by an outstanding letter of credit of $21.9 million (2009 - $20.0 million).

The effect of a one percent increase or decrease in significant assumptions used for the Company’s pension and post
employment benefit plans would result in an increase (decrease) in the net benefit expense and accrued benefit obligation at
December 31, 2010:

Net benefit Expense

Accrued benefit Obligation

1% Increase

1% Decrease

1% Increase

1% Decrease

Pension plans:

Discount rate

Expected long-term rate of return on plan assets

Rate of compensation increase

Post employment benefits plans:

Discount rate

Per capita cost of health care

(10,950)

(6,511)

2,520

(415)

270

Pension plan assets, measured as at December 31, are as follows:

Equity investments

Fixed income investments

Total

11,953

6,511

(2,414)

491

(234)

2010
61%

39%

100%

(97,677)

111,467

11,720

(11,355)

(5,248)

1,792

6,351

(1,563)

2009

62%

38%

100%

The Company measures the accrued benefit obligations and the fair value of the Plans’ assets for accounting purposes as
at December 31 of each year. Funding requirements are determined based on actuarial valuations that are completed at the
frequency required under the Ontario provincial pension legislation which can range from annually to every three years. Not all
of the Company’s defined benefit pension plans are subject to the funding valuation on the same cycle. The most significant
group of plans (in terms of assets and obligations) was last valued as of December 31, 2009 and will be subject to actuarial
valuations again at December 31, 2010.

The total amount expensed for capital accumulation plans in 2010 was $2.7 million (2009 - $2.9 million).

t o r s t a r c o r p o r a t i o n 2 0 1 0 a n n u a l r e p o r t

consolidated Financial statements

19. RESTRUCTURINg AND OTHER CHARgES

During 2010, the Company recorded restructuring and other charges of $33.5 million (2009 - $43.7 million). This included
restructuring provisions of $29.1 million (2009 - $43.0 million) and other charges of $4.4 million (2009 - $0.7 million).

Restructuring provisions of $29.1 million (2009 - $28.8 million) were recorded related to staff reductions in the Media
Segment. In 2009, $1.4 million was recorded in the Book Publishing Segment for the closure of a distribution centre in
the U.K. and a provision of $12.8 million was recorded related to the leadership transition at Corporate.

The following table indicates the change in the amount of restructuring provisions:

Balance, beginning of year

Provision during the year

Payments during the year:

Prior years’ provision

Current year provision

Balance, end of year

Accrued in:

Accounts payable and accrued liabilities

Other liabilities

2010

$25,463

29,060

(15,328)

(6,808)

$32,387

$18,094

$14,293

2009

$29,390

42,973

(23,196)

(23,704)

$25,463

During 2010, other charges of $4.4 million (2009 - $0.7 million) were recorded, which included $2.8 million (2009 –
nil) related to transaction costs for the Company’s bid to purchase the newspaper and digital businesses of Canwest
Limited Partnership and its related entities; a $1.1 million (2009 – nil) adjustment to a provision for litigation in the Media
Segment and a $0.5 million (2009 - $0.7 million) impairment loss on intangible assets in the Media Segment.

20. gAIN ON SALE Of ASSETS

During 2010, the Company recognized gains of $4.1 million from the sale of assets. A gain of $2.8 million ($3.0 million
cash proceeds) was recorded on the formation of a joint venture to manage and further develop the Total Online Publishing
Solutions system. The Company also sold some excess land in Vaughan and realized a gain of $1.3 million from the net cash
proceeds of $1.3 million.

In addition, the Company received the outstanding $6.2 million proceeds from the mortgage receivable on the sale of excess
land in Vaughan during 2008.

In 2009, the Company recognized a gain of $0.2 million related to the sale of a small property in Cambridge.

21. INvESTMENT WRITE-DOWN AND LOSS

The Company has recorded the following investment write-down and loss:

Write-down of investment in Multimedia Nova Corporation

Write-down of investment in LocalPoint Media

Write-down of investment in Vocel, Inc.

2010

($258)

(515)

($773)

2009

($2,400)

t o r s t a r c o r p o r a t i o n 2 0 1 0 a n n u a l r e p o r t

22. OTHER NON-CASH ITEMS PROvIDED bY (INCLUDED IN) OPERATINg ACTIvITIES

consolidated Financial statements

Employee future benefits

Stock-based compensation plans

Foreign exchange

Gain on sale of assets

Lease inducement

Restructuring provisions

Other

2010

$6,693

5,487

1,942

(4,088)

14,293

988

$25,315

2009

$9,209

743

458

(239)

2,393

1,684

$14,248

23. COMMITMENTS AND CONTINgENCIES

The Company is involved in various legal actions, primarily in the Media segment, which arise in the ordinary course of business.
While the final outcome of these matters cannot be predicted with certainty, any liability that may arise from such contingencies
is not expected to have a material adverse effect on the financial position or results of operations of the Company.

The Company has guaranteed sub-lease payments to a third party of approximately U.S. $1 million for each of the next
8 years. In addition, the Company has the following significant contractual obligations:

Nature of the obligation

Office leases
Services
Acquisitions
Equipment leases
Total

Total

$141,270
13,864
10,327
1,887
$167,348

2011

2012-2013

2014-2015

2016+

$18,166
4,034
5,997
792
$28,989

$34,874
5,574
4,330
885
$45,663

$31,890
3,360

$56,340
896

210
$35,460

$57,236

24. RELATED PARTY TRANSACTIONS

The Company conducts transactions in the normal course of business with CTVgm, Black Press and Canadian Press. These
transactions are insignificant to these financial statements.

25. JOINT vENTURES

The Company proportionately consolidates its interests in joint ventures. The significant joint ventures in the Media segment
include Workopolis, Sing Tao Daily Limited and Free Daily News Group (publishes the Metro newspapers in Toronto, Vancouver,
Ottawa, Edmonton, Calgary and Halifax). Harlequin also conducts some of its businesses overseas with joint venture partners
the most significant of which are France and Italy. The Company’s proportionate share of revenue from these businesses is
$124 million (2009 - $117 million) and operating profit is $20 million (2009 - $14 million).

26. COMPARATIvE fINANCIAL STATEMENTS

The comparative financial statements have been reclassified from statements previously presented to conform to the presentation
of the 2010 financial statements.

27. SEgMENTED INfORMATION

The Company reports its operations in two segments: Media and Book Publishing.

The Media Segment publishes over 100 newspapers including the Toronto Star, Canada’s largest daily newspaper, The Mississauga
News, Oshawa This Week and The Hamilton Spectator. It also includes leading digital properties such as thestar.com, toronto.
com, InsuranceHotline.com, Wheels.ca, flyerland.ca, goldbook.ca, Workopolis, Olive Media and eyeReturn Marketing.

The Book Publishing Segment represents Harlequin, a global publisher of books for women. Harlequin publishes books around
the world in a variety of genres and formats, including digital. Harlequin sells books through the retail channel, in stores and
online, and directly to the consumer through its direct mail business and from its internet sites.

The Company also has investments in CTVgm, Canadian Press, Black Press and Q-ponz.

t o r s t a r c o r p o r a t i o n 2 0 1 0 a n n u a l r e p o r t

consolidated Financial statements

Segment Profit or loss has been defined as operating profit which corresponds to operating profit as presented in the
consolidated statements of income before restructuring and other charges.

SUMMARY Of bUSINESS AND gEOgRAPHIC SEgMENTS Of THE COMPANY:

business Segments

Operating Revenue

Depreciation and
Amortization

Operating Profit

2010

2009

2010

2009

2010

2009

Media

Book Publishing

Corporate

Restructuring and other charges

$1,011,433

$957,956

$41,958

$48,373

$118,796

468,155

493,303

4,230

1,479,588

1,451,259

46,188

4,390

52,763

83,422

202,218

(14,886)

(33,455)

$70,154

83,797

153,951

(14,969)

(43,729)

Consolidated

$1,479,588

$1,451,259

$46,246

$52,819

$153,877

$95,253

Media

Book Publishing

Total Assets

goodwill

2010

2009

2010

2009

$1,091,283

$1,091,669

$479,710

$476,639

354,722

351,986

111,249

1,446,005

1,443,655

590,959

105,203

581,842

Corporate

125,378

15,959

Investment in associated
businesses

1,816

178,828

Consolidated

$1,573,199 $1,638,442 $590,959

$581,842

Media

Book Publishing

Corporate

Consolidated

Additions to Property,
Plant and Equipment

Additions to goodwill
& Intangible Assets

2010

2009

2010

2009

$11,274

$8,625

$16,663

$16,085

5,009

16,283

4,205

12,830

10,527

27,190

1,038

17,123

$16,291

$12,836

$27,190

$17,123

geographic Segments

Operating Revenue

Capital Assets
and goodwill

2010

2009

2010

2009

Canada

United States

Other (a)

$1,020,433

$981,400

$759,919

$774,339

249,084

210,071

252,518

217,341

84,165

37,384

83,080

27,859

Segment Totals

$1,479,588

$1,451,259 $881,468

$885,278

(a) Principally – United Kingdom, Japan, Germany, Australia, Sweden and France.

t o r s t a r c o r p o r a t i o n 2 0 1 0 a n n u a l r e p o r t

ANNUAL OPERATINg HIgHLIgHTS CONTINUINg OPERATIONS (Unaudited)

(thousands of dollars)

2010

2009

2008

(Note)

2007

(Note)

2006

(Note)

2005

(Note)

2004

(Note)

Operating revenue

Media

Book publishing

Total

Operating profit & Income
from continuing operations

(thousands of dollars)

Media

Book publishing

Corporate

$1,011,433 $957,956 $1,060,836

$1,083,828

$1,056,462 $1,035,816 $1,003,473

468,155

493,303

472,917

462,709

471,808

521,072

538,376

$1,479,588 $1,451,259 $1,533,753

$1,546,537

$1,528,270 $1,556,888 $1,541,849

$118,796

$70,154

$109,305

$128,675

$107,849

$120,288

$127,601

83,422

83,797

67,511

(14,886)

(14,969)

(16,903)

60,640

(19,028)

(7,507)

56,277

(18,475)

(22,319)

95,381

97,182

(19,001)

(15,555)

(2,119)

(8,399)

Restructuring and other charges

(33,455)

(43,729)

(41,723)

Operating profit

Interest

Foreign exchange

Gain on sale of assets

Income (losses) of associated
businesses

153,877

95,253

118,190

162,780

123,332

194,549

200,829

(23,766)

(21,036)

(28,225)

(34,432)

(20,761)

(10,463)

(10,916)

(1,942)

4,088

(458)

239

395

9,170

(1,873)

(2,723)

12,415

(1,723)

(3,883)

(29,478)

(17,953)

(136,948)

20,416

16,000

565

496

Investment write-down and loss

(773)

(2,400)

(99,797)

Income (loss) before taxes

102,006

53,645

(137,215)

146,891

118,641

194,343

184,803

Income and other taxes

Income (loss) from
continuing operations

Discontinued operations

Net income (loss)

Cash from continuing
operating activities

Average number of shares
outstanding (thousands)

Per share Data

Income (loss) from
continuing operations

Net income (loss)

Dividends – Class A and
Class B shares

Rate of Return on Revenue

Operating profit

Return on equity

Cash from operating activities
as a percentage of average
shareholders’ equity

financial position

Total Assets

Long-term debt

Shareholders’ equity

Property, plant and

equipment (net)

(41,100)

(18,000)

(21,500)

(45,500)

(39,500)

(75,500)

(72,100)

60,906

35,645

(158,715)

101,391

79,141

118,843

112,703

(22,789)

$60,906

$35,645

($181,504)

$101,391

$79,141

$118,843

$112,703

$157,374 $153,364

$122,217

$136,152

$111,591

$124,140

$178,598

79,074

78,964

78,837

78,620

78,250

78,214

79,168

$0.77

0.77

$0.45

0.45

($2.01)

(2.30)

$1.29

1.29

$1.01

1.01

$1.52

1.52

$1.42

1.42

0.37

0.74

0.70

10.4%

6.6%

7.7%

10.5%

8.1%

12.5%

13.0%

22.5%

22.8%

15.4%

15.2%

13.0%

15.2%

23.2%

$1,573,199 $1,638,442 $1,778,733

$1,960,837

$2,001,473 $1,561,682

$1,510,027

404,727

552,976

668,700

720,959

678,980

665,034

650,798

917,761

724,193

872,746

334,317

841,652

317,829

793,661

231,609

251,817

280,996

330,391

349,842

365,665

392,141

Note : 2008 results have been restated for the adoption of CICA Handbook Section 3064 and treating Transit TV as discontinued
operations. The results for 2004 to 2007 have not been restated.

t o r s t a r c o r p o r a t i o n 2 0 1 0 a n n u a l r e p o r t

Board of Directors

John A. Honderich

Chair, Torstar Corporation
Former Publisher, Toronto Star

Director since 2004

Campbell R. Harvey

Professor of International Business,
Duke University

Director since 1992

Martin E. Thall

President and Chief Executive Officer
Thall Group of Companies

Director since 2002

Donald babick

Past President, Southam Publications
Corporate Director

Director since 2004

Peter A. Armstrong

Corporate Director

Director since 2006

Elaine b. berger

Corporate Director

Director since 2006

The Honourable Roy J. Romanow

Former Premier of Saskatchewan
Corporate Director

Director since 2007

t o r s t a r c o r p o r a t i o n 2 0 1 0 a n n u a l r e p o r t

Board of Directors

Daniel A. Jauernig

President and Chief Executive Officer
Classified Ventures, LLC

Director since 2009

Joan T. Dea

Chief Executive Officer
Beckwith Investment Corp.

Director since 2009

Alnasir Samji

President, Alderidge Consulting

Director since 2009

David P. Holland

President and Chief Executive Officer
Torstar Corporation

Director since 2009

Paul R. Weiss

Corporate Director

Director since 2009

Phyllis Yaffe

Corporate Director

Director since 2009

Linda Hughes

Chancellor, University of Alberta
Former Publisher, Edmonton Journal

Director since 2010

t o r s t a r c o r p o r a t i o n 2 0 1 0 a n n u a l r e p o r t

CORPORATE OffICE

TRANSfER AgENT & REgISTRAR

CIBC Mellon Trust Company

P.O. Box 7010

Adelaide Street Postal Station

Toronto, Ontario

M5C 2W9

AnswerLine (416) 643-5500 or

1-800-387-0825

(toll-free in North America)

www.cibcmellon.com/InvestorInquiry

inquiries@cibcmellon.com

Torstar Class B non-voting shares are traded
on the Toronto Stock Exchange under the
symbol TS.B

C O R P O R A T I O N

One Yonge Street

Toronto, Ontario

Canada

M5E 1E6

Telephone: (416) 869-4010

Fax: (416) 869-4183

e-mail: torstar@torstar.ca

Website: www.torstar.com

OffICERS Of TORSTAR

JoHn a. HonDericH
Chair

DaViD p. HollanD
President and Chief
Executive Officer

lorenZo DeMarcHi
Executive Vice-President
and Chief Financial Officer

Marie e. BeYette
Senior Vice-President,
General Counsel and
Corporate Secretary

patricia Hewitt
Senior Vice-President
Human Resources

Gail Martin
Senior Vice-President Finance

D. toDD sMitH
Treasurer

C O R P O R A T I O N