2012
ANNUAL REPORT
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OPERATING RESULTS ($000)
2012
2011
Operating revenue
$1,485,744
$1,548,757
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 equity
PER CLASS A AND CLASS B SHARES
Net income
Dividends
207,732
138,769
103,836
90,605
14.0%
242,249
189,673
218,141
114,955
15.6%
9.3%
12.2%
12.6%
17.8%
$1.30
$0.5188
$2.74
$0.4675
Price range (high/low)
$11.30/6.56
$15.25/7.55
FINANCIAL POSITION ($000)
Long-term debt
Equity
$178,027
$196,191
$731,894
$706,264
The Annual Meeting of shareholders will be held Wednesday, May 8, 2013 at The Westin Harbour Castle Hotel,
1 Harbour Square, Toronto beginning at 10 a.m. It will also be webcast live on the Internet.
Operating revenue ($millions)(2)
operating PRoFiT ($millions) (2)
08
09
10
11
12
1,534
1,451
1,484
1,549
1,486
08
09
10
11
12
118
95
186
190
139
(2.01)
inComE (loss) FRom ConTinUinG
oPERATions PER sHARE (2)
EBiTDA ($millions) (1) (2)
0.45
08
09
10
11
12
2.65
2.74
1.30
08
09
10
11
12
213
192
208
250
242
(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 and impairment of assets. Please see “Non-IFRS Measures” on page 37.
(2) 2010 is restated to an IFRS basis. 2008-2009 are based on Canadian GAAP and are not restated to IFRS.
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, targets, outlooks,
expectations, goals, 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”.
TORSTAR CORPORATION 2012 ANNUAL REPORT 2
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13-03-15 10:59 AM
M e s s a g e f r o M t h e C h a i r
John Honderich
Chair, Board of Directors
At a time of great economic uncertainty, 2012 was a year for consolidation and integration at Torstar.
With overall company earnings reflecting the tough environment, greater emphasis was paid on consolidating our premier positions
in both newspapers and book publishing. It should always be remembered that Torstar’s dailies are now collectively Canada’s
most-read weekday English-language newspapers, that Metroland Media is Canada’s number one community newspaper group
and that Harlequin is a global leader in publishing books for women. Torstar has always taken great pride in the quality of its
work. Indeed, this tradition distinguishes us from many of our competitors and provides a meaningful connection to our various
audiences. As the world moves more to digital platforms, high quality and reliable content will be critical and in this regard Torstar
is very well positioned.
During 2012, particular effort and investment was made to further strengthen our cross-country network of 10 Metro dailies,
operating in Vancouver, Calgary, Edmonton, Regina, Saskatoon, Winnipeg, London, Toronto, Ottawa and Halifax. Significant
improvements in results were registered in several of our newer markets and the group was able to take greater advantage of
Torstar’s assets. This group provides one of Torstar’s greatest opportunities for growth. Metroland Media also took great strides to
build our Ontario platform, particularly in Eastern Ontario. The year prior, the Torstar Board approved the purchase of Performance
Printing Ltd., allowing Metroland Media now to offer customers a province-wide vehicle for advertising. At Harlequin, the company
remained at the forefront of the digital transformation as romance readers enthusiastically adopted e-book reading. Its single
copy titles continue to flourish. At Torstar Digital, the ongoing quest to seek out digital opportunities and investments continued.
Taken as a whole, these steps position Torstar well for the future. Our balance sheet is solid, our attention to cost is constant and
our dedication to excellence is ongoing.
The exceptionally high quality of our executive team has always been one of Torstar’s greatest strengths. Collectively they bring
decades of wisdom, publishing experience and creative thinking to the table. President and Chief Executive Officer David Holland
and Chief Financial Officer and Executive Vice-President Lorenzo DeMarchi operate as a great team, providing corporate strategic
guidance and the financial rigour that keeps the company on such a solid financial footing. Harlequin Publisher and Chief
Executive Officer Donna Hayes is recognized worldwide for her inspirational leadership and general book publishing savvy. John
Cruickshank, Publisher of the Toronto Star and President of Star Media Group, has provided great leadership as daily newspapers
forge their way in a new digital era. Ian Oliver, President of Metroland Media Group, has been a driving and inspirational force in
the development of the Ontario platform. Finally, Torstar Digital President Chris Goodridge took over the helm of this division in
2012 and has done an exceptional job in the transition underway.
During this tough year, Torstar was also able to count on a high level of dedication and professionalism from its approximately
7,000 employees. Tough times demand effective leadership and this was certainly the case in 2012. Across the organization, there
were countless examples of innovative and bold moves taken to drive Torstar forward. We celebrate those efforts. Of necessity,
such times also require a critical examination of how we operate and where savings can be achieved. As a result, very tough
decisions had to be made on staffing and operations. We salute those who are no longer here, recognizing that their collective
contribution was meaningful and appreciated.
Torstar also benefitted from an exceptional and effective Board of Directors. Their wisdom, acute analysis and deep concern for
the company were always evident. 2012 also marked the last full year of service on the board for Neil Clark, former Senior Vice-
President Strategic Planning at the Toronto Star. Mr. Clark served for two terms, and always made a significant and meaningful
contribution to our discussions.
190
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t o o U r s h a r e h o L D e r s
David Holland
President and Chief Executive Officer
Torstar’s performance in 2012 reflected the challenging conditions in the
newspaper industry during the year, a rapidly changing book publishing
environment and continued soft economic conditions. At the same time,
though, Torstar continued to pursue strategic initiatives in 2012, maintained
our disciplined approach to employment of capital, pursued cost
containment and continued to enjoy the benefits of a strong balance sheet.
Operating results
Torstar earned EBITDA of $208 million, a decrease from the $242 million
earned in 2011. Total revenues were $1.49 billion, down 4% from $1.55
billion the prior year. EBITDA of $145 million in the media segment was
down $27 million. Harlequin EBITDA was $77 million, down $9 million
from the previous year including the decline of $2 million from the impact
of foreign exchange.
It is important to remember that Torstar remains in a strong overall financial
position due to our efforts in previous years to reduce our debt levels. At the
end of 2012 we had net borrowings of $149 million, down slightly from 2011.
A major factor affecting free cash flow was the contribution to the company
pension plans. Like many private and public organizations in Canada,
Torstar is making significant contributions to its employee pension plans to
reduce the deficit. This shortfall is primarily the result of an unusually low
interest rate environment that has increased the obligation of the plans. We
are taking the necessary steps to improve the condition of the plans.
Harlequin enjoyed another solid year in 2012, although revenues were down
compared to 2011. In making this comparison, it is worth noting that 2011
was a record year for profits adjusted for the effects of foreign exchange.
Harlequin continues to adapt quickly to the fast-evolving book publishing
industry, given the shift worldwide to greater digital consumption. In 2012,
Harlequin had total revenues of $426 million. Excluding the impact of
foreign exchange, revenue was down 6% from 2011 as growth in digital
revenues was insufficient to offset declines in print revenue.
In 2012, Harlequin enjoyed a strong year for bestsellers, with 49 titles
appearing on The New York Times bestseller lists and continued development
of its non-fiction and teen programs. Also, Harlequin announced in
December 2012 that it will partner with Cosmopolitan magazine for a new
eBook series. Starting in May 2013, Harlequin will publish two original
Cosmo Red Hot Reads digitally each month.
Harlequin is a world-class book publisher and its management team
remains focused on providing great reading entertainment to women
around the world. It continues to follow four strategic themes that over the
years have helped Harlequin achieve an enviable record of success: publish
a relevant portfolio of reading for women; leverage the unique advantage
of the Harlequin brand; optimize channel and market management; and
pursue cost reduction and superior execution.
In the Canadian Media division, both print and digital audiences remained
strong but revenues of $1.06 billion fell 3% as a decline in print advertising
took its toll in the year.
We remain very confident in the media platform we have developed.
Geographically, we are centered by the Toronto Star, the largest daily
newspaper in Canada, complemented by newspapers servicing communities
throughout Ontario and that platform now extends beyond Ontario through
our ownership of the Metro newspapers.
One of the greatest strengths of all our media businesses is our connection
to the communities in which we publish – from coverage in small
communities in Ontario to the largest city in Canada. We publish news and
information that is relevant to local audiences, audiences that are desired
by our advertisers.
Our Canadian Media division is comprised of Metroland Media Group, Star
Media Group and Torstar Digital.
Metroland Media is a leader in community media with a focus on publishing
to make a difference in communities and offering great services to its
customers. The organization is diversified with three daily newspapers,
more than 110 community newspapers, one of the largest distribution
networks for flyers in Canada, magazines, specialty publications, consumer
shows, teleshopping, product sales and commercial printing.
As well, Metroland Media’s network of digital sites attracts millions of visitors
each month. Its digital operations include websites for each newspaper as
well as targeted online advertising solutions for local, regional and national
businesses, including a leading group-buying offering in WagJag.com.
Metroland Media, which has enjoyed considerable success over the past
decade, was not immune to the challenging conditions confronting print
publications in 2012. Metroland Media saw its revenues decline 6% to $548
million in 2012. Metroland Media’s EBITDA was $84 million, down from
$102 million in 2011.
During 2012, Metroland Media concentrated on integrating into its
operations acquisitions and market launches from 2011. Metroland Media
also continues to remain alert to opportunities to strengthen its positioning
in Ontario.
Star Media Group, which includes the Toronto Star, Metro, Sing Tao Daily,
The Grid and many of our digital properties, also was impacted by the
challenging business climate for print publications in 2012. Revenue of $512
million declined by $13 million or 3% excluding the benefit of acquisitions.
EBITDA was $61 million in 2012, down $9 million from $70 million in 2011.
The Toronto Star, our flagship newspaper, celebrated its 120th anniversary
on November 3, 2012. Even though it was a difficult year from a revenue
standpoint, the Toronto Star and thestar.com enjoyed successes on a wide
variety of fronts, including seeing weekday readership of the Star rising 4.1%
year-over-year to more than 1 million adults, its highest level since 2004,
and its weekly online readership increasing 14.5%. These increases widened
the readership gap in the GTA between the Toronto Star and its nearest
competitors.
In a major transition for the Toronto Star and its website, the Star announced
that it will launch a paid-subscription program in 2013 for full access to all
the stories on its website. The move will provide a new source of revenue for
the Toronto Star that will help support its ability to provide print and online
readers with one of the best and most comprehensive packages of news and
information in Canada.
Star Media Group made progress in further diversifying its revenue base in
2012. In April, Metro, Canada’s most-read national daily newspaper brand,
launched daily newspapers in Saskatoon and Regina. Metro also publishes
free daily newspapers in Toronto, Vancouver, Ottawa, Calgary, Edmonton,
Winnipeg, London and Halifax. We are pleased with the overall performance
of Metro.
At Sing Tao, our jointly owned Chinese language newspaper, results were
stable in the year. We also continue to be pleased with the progress of
two of Star Media Group’s innovative initiatives, namely The Kit, a print and
digital publication focused on beauty, fashion and wellness news, and The
Grid, a free weekly city publication in Toronto.
As in past years, our newspapers, websites and journalists were honoured
for their work in 2012. The Toronto Star won five National Newspaper
Awards (NNA) for reporting and photography. The Hamilton Spectator won
one NNA and Metroland Media newspapers earned 107 awards from the
Ontario Community Newspaper Association Better Newspaper Awards
plus 131 awards from the Local Media Association for editorial, advertising
and promotional excellence. The Grid, a weekly publication launched in
2011, beat more than 9,000 entries to be named for the second straight
year as one of the five best-designed newspapers in the world by the
Society for News Design, an international non-profit design organization.
Torstar Digital, under the leadership of Chris Goodridge, its new president,
grew earnings in 2012. Across the portfolio which includes Workopolis,
Olive Media, EyeReturn and WagJag, we continue to adapt to the fast-paced
digital environment. Workopolis continues its market leadership position
in 2012, with more than 1.5 million Canadians visiting the Workopolis site
monthly. We are also pleased with the progress we are making in the
rapidly growing area of data-driven media.
Torstar also has a number of minority investments in associated businesses.
We were very pleased with the performance in 2012 of Blue Ant Media
Inc., an independent media company that remains in its formative stages
under the leadership of Michael MacMillan, a media veteran with a track
record of building successful media businesses. In 2011, Torstar acquired
an approximate 25-per-cent interest in Blue Ant as part of our strategy to
diversify our media asset base.
Torstar also has a minority investment in Black Press, a company very well
managed by David Black, which publishes more than 150 newspapers,
including weeklies, dailies and shoppers in Canada and the U.S.
lOOKing FOrWarD
Although Torstar experienced a challenging year due to the decline in print
advertising and book publishing revenues and the cash flow requirement
of dealing with the company’s pension plan deficit, we are confident we
have the products, the brands, the talent and the financial resources to
weather the current challenge and deal successfully with the business
environment we will face in the future.
That confidence stems from our basic corporate strengths: the diversity of
our businesses, our commitment and connection to the communities we
serve, our long-standing brands that readers trust and our determination
to invest in our future and progress as a media company.
One of our greatest strengths is the diversity of our operations. This diversity
begins with the global book publishing and Canadian Media operations.
Attributes of these two divisions have proven complementary and this will
continue. Within our Canadian Media operations, we also benefit from
diversity, with hundreds of brands that provide a broad platform on which
to build as we move forward in 2013 and beyond. That platform includes
daily and community newspapers, digital, magazines, consumer shows,
flyer distribution and teleshopping. It covers most of Ontario and with the
expansion of the Metro operations is developing rapidly across Canada.
Our goal is to further develop and utilize that diverse platform to the
benefit both of our readers and our advertisers.
A second strength for Torstar is the connection our businesses have with
the communities in which they operate. This applies equally to the loyal
Harlequin readers and within the Canadian Media operations, from the
audiences served in smaller communities to the city of Toronto.
In our media operations we publish news and information in our print
papers and on our websites and mobile devices for local audiences
that are relevant and trustworthy. By doing so, we play an important,
recognized role in society at the grassroots level by informing readers of
what is happening in their neighbourhoods, raising the profile of important
issues and ultimately contributing to the building of better communities.
Another strength is our brands across book publishing and media which
have well-earned reputations. Continuing to build the Harlequin brand and
the promise to readers it represents remains a priority in this increasingly
digital environment. The brands across the media operations represent
trust and credibility. We are in the business of trust. Indeed, polls show
that newspapers are the news sources most-trusted by the public. Our
TORSTAR CORPORATION 2012 ANNUAL REPORT 4
TORSTAR CORPORATION 2012 ANNUAL REPORT 5
2012_TORSTAR AR.indd 4
13-03-15 10:59 AM
Our Canadian Media division is comprised of Metroland Media Group, Star
Media Group and Torstar Digital.
Metroland Media is a leader in community media with a focus on publishing
to make a difference in communities and offering great services to its
customers. The organization is diversified with three daily newspapers,
more than 110 community newspapers, one of the largest distribution
networks for flyers in Canada, magazines, specialty publications, consumer
shows, teleshopping, product sales and commercial printing.
As well, Metroland Media’s network of digital sites attracts millions of visitors
each month. Its digital operations include websites for each newspaper as
well as targeted online advertising solutions for local, regional and national
businesses, including a leading group-buying offering in WagJag.com.
Metroland Media, which has enjoyed considerable success over the past
decade, was not immune to the challenging conditions confronting print
publications in 2012. Metroland Media saw its revenues decline 6% to $548
million in 2012. Metroland Media’s EBITDA was $84 million, down from
$102 million in 2011.
During 2012, Metroland Media concentrated on integrating into its
operations acquisitions and market launches from 2011. Metroland Media
also continues to remain alert to opportunities to strengthen its positioning
in Ontario.
Star Media Group, which includes the Toronto Star, Metro, Sing Tao Daily,
The Grid and many of our digital properties, also was impacted by the
challenging business climate for print publications in 2012. Revenue of $512
million declined by $13 million or 3% excluding the benefit of acquisitions.
EBITDA was $61 million in 2012, down $9 million from $70 million in 2011.
The Toronto Star, our flagship newspaper, celebrated its 120th anniversary
on November 3, 2012. Even though it was a difficult year from a revenue
standpoint, the Toronto Star and thestar.com enjoyed successes on a wide
variety of fronts, including seeing weekday readership of the Star rising 4.1%
year-over-year to more than 1 million adults, its highest level since 2004,
and its weekly online readership increasing 14.5%. These increases widened
the readership gap in the GTA between the Toronto Star and its nearest
competitors.
In a major transition for the Toronto Star and its website, the Star announced
that it will launch a paid-subscription program in 2013 for full access to all
the stories on its website. The move will provide a new source of revenue for
the Toronto Star that will help support its ability to provide print and online
readers with one of the best and most comprehensive packages of news and
information in Canada.
Star Media Group made progress in further diversifying its revenue base in
2012. In April, Metro, Canada’s most-read national daily newspaper brand,
launched daily newspapers in Saskatoon and Regina. Metro also publishes
free daily newspapers in Toronto, Vancouver, Ottawa, Calgary, Edmonton,
Winnipeg, London and Halifax. We are pleased with the overall performance
of Metro.
At Sing Tao, our jointly owned Chinese language newspaper, results were
stable in the year. We also continue to be pleased with the progress of
two of Star Media Group’s innovative initiatives, namely The Kit, a print and
digital publication focused on beauty, fashion and wellness news, and The
Grid, a free weekly city publication in Toronto.
As in past years, our newspapers, websites and journalists were honoured
for their work in 2012. The Toronto Star won five National Newspaper
Awards (NNA) for reporting and photography. The Hamilton Spectator won
one NNA and Metroland Media newspapers earned 107 awards from the
Ontario Community Newspaper Association Better Newspaper Awards
plus 131 awards from the Local Media Association for editorial, advertising
and promotional excellence. The Grid, a weekly publication launched in
2011, beat more than 9,000 entries to be named for the second straight
year as one of the five best-designed newspapers in the world by the
Society for News Design, an international non-profit design organization.
Torstar Digital, under the leadership of Chris Goodridge, its new president,
grew earnings in 2012. Across the portfolio which includes Workopolis,
Olive Media, EyeReturn and WagJag, we continue to adapt to the fast-paced
digital environment. Workopolis continues its market leadership position
in 2012, with more than 1.5 million Canadians visiting the Workopolis site
monthly. We are also pleased with the progress we are making in the
rapidly growing area of data-driven media.
Torstar also has a number of minority investments in associated businesses.
We were very pleased with the performance in 2012 of Blue Ant Media
Inc., an independent media company that remains in its formative stages
under the leadership of Michael MacMillan, a media veteran with a track
record of building successful media businesses. In 2011, Torstar acquired
an approximate 25-per-cent interest in Blue Ant as part of our strategy to
diversify our media asset base.
Torstar also has a minority investment in Black Press, a company very well
managed by David Black, which publishes more than 150 newspapers,
including weeklies, dailies and shoppers in Canada and the U.S.
lOOKing FOrWarD
Although Torstar experienced a challenging year due to the decline in print
advertising and book publishing revenues and the cash flow requirement
of dealing with the company’s pension plan deficit, we are confident we
have the products, the brands, the talent and the financial resources to
weather the current challenge and deal successfully with the business
environment we will face in the future.
That confidence stems from our basic corporate strengths: the diversity of
our businesses, our commitment and connection to the communities we
serve, our long-standing brands that readers trust and our determination
to invest in our future and progress as a media company.
One of our greatest strengths is the diversity of our operations. This diversity
begins with the global book publishing and Canadian Media operations.
Attributes of these two divisions have proven complementary and this will
continue. Within our Canadian Media operations, we also benefit from
diversity, with hundreds of brands that provide a broad platform on which
to build as we move forward in 2013 and beyond. That platform includes
daily and community newspapers, digital, magazines, consumer shows,
flyer distribution and teleshopping. It covers most of Ontario and with the
expansion of the Metro operations is developing rapidly across Canada.
Our goal is to further develop and utilize that diverse platform to the
benefit both of our readers and our advertisers.
A second strength for Torstar is the connection our businesses have with
the communities in which they operate. This applies equally to the loyal
Harlequin readers and within the Canadian Media operations, from the
audiences served in smaller communities to the city of Toronto.
In our media operations we publish news and information in our print
papers and on our websites and mobile devices for local audiences
that are relevant and trustworthy. By doing so, we play an important,
recognized role in society at the grassroots level by informing readers of
what is happening in their neighbourhoods, raising the profile of important
issues and ultimately contributing to the building of better communities.
Another strength is our brands across book publishing and media which
have well-earned reputations. Continuing to build the Harlequin brand and
the promise to readers it represents remains a priority in this increasingly
digital environment. The brands across the media operations represent
trust and credibility. We are in the business of trust. Indeed, polls show
that newspapers are the news sources most-trusted by the public. Our
publications and our websites provide reporting on local issues that is
relevant, important and trusted.
In 2013 and the years ahead, our pledge to readers and advertisers is to
continue to deliver on the promise implicit in our brands.
At Torstar, we remain focused on strengthening our reputation as a
progressive media organization. For us, that means confronting reality,
addressing weaknesses, building on our strengths and embracing the
future and the opportunities it holds. It means showing patience when
required, but at the same time encouraging innovation, building value from
within and being disciplined in the employment of capital as we strive to
create value for shareholders over the long term.
Our greatest strengtH – peOple
Critical to Torstar’s future success are the talented, passionate and
committed employees who give us the competitive advantage needed to
ensure we thrive in the years ahead. As the pace of change has accelerated,
we are asking more of employees at all levels of the organization to ensure
we respond effectively to the opportunities in front of us. Despite the
current challenge, it is gratifying to see the creativity and commitment of
employees throughout Torstar. I have worked for Torstar for more than 25
years and I believe the contributions that we now enjoy from all levels of
the company are unsurpassed.
We are fortunate to have a great leadership team of senior executives
guiding this committed group of employees.
At Harlequin, Donna Hayes has once again shown why she is one of the top
book publishing executives in the world by successfully guiding Harlequin
through continued transition as the book publishing landscape furthered
its evolution in this more digital world.
At Metroland Media Group, Ian Oliver, one of North America’s most-
respected community newspaper executives, has been instrumental in
building Metroland into a strong community media organization operating
throughout Ontario. He has made Metroland Media’s commitment and
connection to community an integral part of every newspaper’s operations.
At Star Media Group, John Cruickshank has provided outstanding
leadership once again in 2012 as he guides Canada’s largest newspaper
through these dynamic and challenging times. In addition to overseeing
transformation of the Toronto Star, John continues to diversify the revenue
base of the group through his leadership of the Metro chain of newspapers
and numerous other initiatives.
Chris Goodridge was named President of Torstar Digital in May, 2012, and
has made a number of valuable contributions in a short period of time.
He has played a vital role in establishing many of our important digital
initiatives and will continue to have a significant impact on our digital
efforts in the future.
I am privileged to work with an experienced team at Torstar corporate
who contribute valuable insight and support to me on a daily basis.
These include Lorenzo DeMarchi, our Executive Vice-President and
Chief Financial Officer; Marie Beyette, our Senior Vice-President, General
Counsel and Corporate Secretary; Patricia Hewitt, our Senior Vice-
President Human Resources and Pam Laycock, our Senior Vice-President
Corporate Strategy. I thank all of them.
I would also like to acknowledge the support I have received from John
Honderich, our Chair, and the Board of Directors over the past year. I
look forward to their advice, guidance and support. Their wise counsel is
deeply appreciated as we move forward.
I want especially to thank our nearly 7,000 employees for their dedication
and hard work. I am confident that through their efforts, along with the
diversity of our businesses and our ability to adapt quickly to meet the
challenges of an ever-changing business environment, Torstar will enjoy
success for many years to come.
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13-03-15 10:59 AM
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
Corporate Information
7
46
47
48
103
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TORSTAR - Management’s Discussion and Analysis
For the year ended December 31, 2012
The following management’s discussion and analysis (“MD&A”) of Torstar Corporation’s (“Torstar” or the “Company")
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, 2012.
Torstar reports its financial results under International Financial Reporting Standards (“IFRS”). All financial information
contained in this MD&A and in the consolidated financial statements has been prepared in accordance with IFRS, except for
certain “Non-IFRS Measures” as described in Section 13 of this MD&A. Per share amounts are calculated using the weighted
average number of shares outstanding for the applicable period.
This MD&A is dated March 5, 2013 and all amounts are in Canadian dollars unless otherwise noted.
Additional information relating to Torstar, including its Annual Information Form, is available on SEDAR at www.sedar.com.
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, financial 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:
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the Company’s ability to operate in highly competitive industries;
the Company’s ability to compete with other newspapers and other forms of media and media platforms;
general economic conditions in the principal markets in which the Company operates;
the Company’s ability to attract and retain advertisers;
the Company’s ability to maintain adequate circulation levels;
the Company’s ability to attract and retain readers;
the Company’s ability to retain and grow its digital audience and profitably develop its digital businesses;
the trend towards digital books and the Company’s ability to distribute its books through the changing distribution
landscape;
the Company’s ability to accurately estimate the rate of book returns through the wholesale and retail channels;
the popularity of its authors and its ability to retain popular authors;
labour disruptions;
newsprint costs;
the Company’s ability to reduce costs;
foreign exchange fluctuations;
credit risk;
restrictions imposed by existing credit facilities, debt financing and availability of capital;
changes in pension fund obligations;
results of impairment tests;
reliance on its printing operations;
reliance on technology and information systems;
risks related to business development and acquisition integration;
interest rates;
availability of insurance;
litigation;
TORSTAR CORPORATION 2012 ANNUAL REPORT 7
TORSTAR - Management’s Discussion and Analysis
•
•
•
•
•
•
•
•
environmental, privacy, anti-spam, communications and e-commerce laws and other laws and regulations applicable
generally to our businesses;
dependence on key personnel;
dependence on third party suppliers and service providers;
loss of reputation;
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.
TORSTAR CORPORATION 2012 ANNUAL REPORT 8
TORSTAR - Management’s Discussion and Analysis
Section
Page
Management’s Discussion and Analysis – Contents
1
2
3
4
5
6
7
8
9
Overview
A summary of Torstar’s business
Annual Operating Results
A discussion of Torstar’s operating results for 2012 and 2011
Fourth Quarter Operating Results
A discussion of Torstar’s fourth quarter operating results
Outlook
The outlook for Torstar’s business in 2013
Liquidity and Capital Resources
A discussion of Torstar cash flow, liquidity, credit facilities and other disclosures
Financial Instruments
A summary of Torstar’s financial instruments
Employee Future Benefit Obligations
A summary of Torstar’s employee future benefit obligations
Critical Accounting Policies and Estimates
A description of accounting estimates that are critical to determining Torstar’s
financial results, and changes to accounting policies
Recent Accounting Pronouncements
A discussion of recent IFRS developments that will affect Torstar
10
Controls and Procedures
A discussion of Torstar’s disclosure controls and internal controls over financial
reporting
11 Selected Annual Information
A summary of selected annual financial information for 2012, 2011 and 2010
12 Summary of Quarterly Results
A summary view of Torstar’s quarterly financial performance
13 Reconciliation and Definition of Non-IFRS Measures
A description and reconciliation of certain non-IFRS measures used by management
14 Risks and Uncertainties
Risks and uncertainties facing Torstar
10
12
19
24
25
28
29
31
34
34
35
36
37
37
TORSTAR CORPORATION 2012 ANNUAL REPORT 9
TORSTAR - Management’s Discussion and Analysis
1. Overview
A summary of Torstar’s business
Torstar Corporation is a broadly based media and book publishing company listed on the Toronto Stock
Exchange (Symbol:TS.B). Torstar reports its operations in two segments: Media and Book Publishing.
The Media Segment publishes four daily newspapers: the Toronto Star, The Hamilton Spectator, the Waterloo
Region Record, and the Guelph Mercury. The Media Segment also publishes over 100 community newspapers
in Ontario. In addition, Torstar has a 90% interest in Free Daily News Group Inc. (“Free Daily News Group”), which
publishes the English-language Metro newspapers in several Canadian cities, and through a joint venture
arrangement, Torstar owns an interest in the Chinese-language Sing Tao Daily and its related publications in
Toronto, Vancouver and Calgary. Most of Torstar’s newspapers have an established digital presence, and
Torstar also operates a number of other digital businesses including toronto.com, Wheels.ca, flyerland.ca,
goldbook.ca, Workopolis, Olive Media, eyeReturn Marketing, WagJag.com (“WagJag”) and Jaunt.ca. The Book
Publishing Segment represents Harlequin, a leading global publisher of books for women. Torstar also has
investments in Black Press Limited (“Black Press”), Blue Ant Media Inc. (“Blue Ant”), Canadian Press Enterprises
Inc. (“Canadian Press”), Shop.ca Network Inc. (“Shop.ca”) and Tuango Inc. (“Tuango”). Until April 1, 2011,
Torstar also had an investment in CTV Inc. (“CTV”).
Media Segment
The Media Segment includes Metroland Media Group (“MMG”) and Star Media Group (“SMG”).
Star Media Group includes the Toronto Star, Canada’s largest daily newspaper which is read in print and digital
(thestar.com) by more than 3 million readers every week. Online, thestar.com is one of the most-visited
newspaper websites in Canada. Star Media Group also includes Metro, a free daily newspaper that is published
in Toronto, Vancouver, Ottawa, Calgary, Edmonton, London, Winnipeg, Regina, Saskatoon and, pursuant to a
joint venture with Transcontinental Media G.P., in Halifax. The Star Media Group has one press centre which
primarily supports the Toronto Star’s printing needs but is also engaged in commercial printing.
Star Media Group’s other operations include Torstar Syndication Services (which provides editorial content to
newspapers and other media), Wheels.ca (in partnership with Metroland Media Group), toronto.com (an online
destination for events and attractions in the Greater Toronto Area), 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, People.com, lapresse.ca, and auFeminin.ca), eyeReturn Marketing (a
leading provider of online advertising services), WagJag.com (a daily deal website), Jaunt.ca (a publisher of
online travel deals), travelalerts.ca (an online publisher of travel promotional emails) and targetvacations.ca (an
online travel agency).
In addition to the above operations, Star Media Group also includes Torstar’s proportionate interests in Sing Tao
Daily and Workopolis. 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 language telephone
directories, radio and weekly magazine publishing. Torstar jointly owns the Canadian operations of Sing Tao
Daily with Sing Tao Holdings Limited. Torstar owns 50% of Workopolis, Canada’s leading provider of internet
recruitment and job search solutions. Square Victoria Digital Properties (a subsidiary of Power Corporation) is
Torstar’s partner in Workopolis.
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, save.ca and a 50% interest in LeaseBusters.com. Metroland Media Group also participates in
Wheels.ca (in partnership with Star Media Group), 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 a product sourcing and distribution business). Metroland Media Group has eight web
press facilities which print the Metroland newspapers but also engage in commercial printing.
TORSTAR CORPORATION 2012 ANNUAL REPORT 10
TORSTAR - Management’s Discussion and Analysis
Book Publishing Segment
The Book Publishing Segment includes 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
under several imprints including Harlequin, Harlequin MIRA, Harlequin HQN, Harlequin LUNA, Harlequin
Nonfiction, Harlequin TEEN, Harlequin Kimani Press and Carina Press. 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 – Harlequin.com). Harlequin’s publishing operations are comprised of two divisions:
North America and Overseas. In 2012 Harlequin published books in 31 languages in 110 international markets.
Associated Businesses
At December 31, 2012, Torstar had a 19.4% equity investment in Black Press, a 23.7% equity investment in Blue
Ant, a 33.3% equity investment in Canadian Press, a 20.4% equity investment in Shop.ca and a 38.2% interest in
Tuango.
Black Press is a privately held company that publishes more than 150 titles in print and online in Canada and the
U.S. and has operations in British Columbia, Alberta, Washington State, California, Hawaii and Ohio.
Blue Ant is an independent media company which owns and operates specialty channels Travel+Escape, Bite TV
and AUX TV, and four premium high definition channels Oasis HD, eqhd, radX and HIFI as well as the Cottage
Life Media group (publisher of Cottage Life, Cottage, Outdoor Canada, Canadian Home Workshop and operator
of the Cottage Life consumer trade shows). Torstar invested $16.9 million in Blue Ant in 2011 and a further $5.8
million on August 1, 2012 simultaneously with the completion of the acquisition by Blue Ant of 100% of High
Fidelity TV subsequent to receiving approval from the Canadian Radio-television and Telecommunications
Commission (“CRTC”).
Canadian Press operates The Canadian Press news agency. Torstar invested an additional $0.5 million in
Canadian Press in early 2013.
Shop.ca is an online e-commerce marketplace aimed at Canadian shoppers. The Company made an initial
investment in Shop.ca of $5.0 million on June 15, 2012 for a 14.4% equity interest with a commitment to increase
its interest to 30% in three tranches over a three–year period based on the achievement of certain performance
milestones primarily in exchange for media inventory provided through Torstar’s media properties.
Tuango is a Quebec-based daily deal business. Prior to February 29, 2012, Torstar held a 50% interest in
Tuango. On February 29, 2012 a portion was sold, reducing Torstar’s remaining interest to 38.2%.
Until January 2012, the Company had a 30% equity investment in Q-ponz Inc (“Q-Ponz”). Q-ponz produced and
delivered unaddressed co-op direct mail. Torstar sold its interest in Q-ponz in January 2012.
TORSTAR CORPORATION 2012 ANNUAL REPORT 11
TORSTAR - Management’s Discussion and Analysis
2. Annual Operating Results
A discussion of Torstar’s operating results for 2012 and 2011
Overall Performance
The following table sets out the segmented results for the years ended December 31, 2012 and 2011.
(in $000’s)
Operating revenue
Media
$1,059,261
Publishing Corporate
$426,483
Total
$1,485,744
Media
$1,089,330
Publishing Corporate
$459,427
Total
$1,548,757
2012
Book
2011
Book
Salaries and benefits
Other operating costs
EBITDA1
Amortization &
depreciation
Operating earnings1
Restructuring and
other charges
Impairment of assets
Operating profit
(414,135)
(500,417)
144,709
(34,027)
110,682
(16,498)
(13,003)
$81,181
(4,107)
72,824
(1,280)
(96,002)
(253,550)
76,931
($10,698)
(3,210)
(13,908)
(520,835)
(757,177)
207,732
(398,842)
(518,818)
171,670
(100,014)
(273,320)
86,093
($12,227)
(3,287)
(15,514)
(511,083)
(795,425)
242,249
(48)
(13,956)
(38,182)
169,550
(29,415)
142,255
(3,695)
82,398
(55)
(15,569)
(33,165)
209,084
$71,544
($13,956)
(17,778)
(13,003)
$138,769
(18,860)
(551)
(19,411)
$123,395
$81,847
($15,569)
$189,673
Revenue
Total revenue was down $63.1 million or 4.1% in 2012. Excluding the impact of $36.1 million from acquisitions
and a $34.3 million decrease in Metroland Media Group’s TMGTV resulting from lower product sales, revenue
was down $64.9 million or 4.2%. The declines in product sale revenues in TMGTV operations are consistent with
expected product life cycles in this business.
Media Segment revenues, excluding the above items, were down $31.8 million or 2.9% in 2012. Print advertising
revenues were down at the Toronto Star and the Metroland Media Group, partially offset by revenue growth at the
Metro newspapers. Digital revenue in the Media Segment was down 4.7% in 2012 due primarily to a decline at
WagJag and a change to equity accounting for Torstar’s investment in Tuango, in the first quarter of 2012.
Excluding these two items, digital revenue was up 1.1%.
Book Publishing Segment revenues, excluding the impact of foreign exchange, were down $27.4 million or 6.0%
in 2012 with declines in print revenue more than offsetting digital revenue growth. Beginning in the second
quarter of 2012, digital revenue growth and print revenue declines began to moderate and this trend continued for
the balance of the year.
Salaries and benefits
Total salaries and benefits expense increased 1.9% in 2012 as savings of $16.6 million from restructuring
initiatives in the newspaper businesses in the Media Segment reduced the impact of acquisitions, additional
pension costs and regular wage increases. Book Publishing Segment salaries and benefits reflect lower variable
compensation costs. Corporate expenses were down $1.6 million in 2012 as a result of lower variable
compensation costs and a favourable mark-to-market adjustment related to a share-based compensation hedging
instrument.
Other operating costs
Total other operating costs were down 4.8% in 2012 resulting from revenue declines and a $30.4 million decrease
in costs at TMGTV resulting from lower product sales, partially offset by additional expenses related to investment
spending at Metro and in the digital operations. In the Media Segment, newsprint pricing was flat year over year
while consumption was down.
1 EBITDA and Operating earnings are non-IFRS measures. See Section 13.
TORSTAR CORPORATION 2012 ANNUAL REPORT 12
TORSTAR - Management’s Discussion and Analysis
The Book Publishing Segment had lower costs resulting from lower revenue and reduced promotional spending in
2012.
EBITDA
EBITDA was $207.7 million in 2012, down $34.5 million from $242.2 million in 2011. Prior year acquisitions
provided $5.8 million of EBITDA growth in 2012. Media Segment EBITDA was down $27.0 million primarily as a
result of lower print advertising revenue. Book Publishing Segment EBITDA was down $9.2 million including a
decline of $1.7 million from the impact of foreign exchange. Corporate expenses were $13.9 million, down $1.6
million from $15.5 million in 2011.
Amortization and depreciation
Amortization and depreciation expense was $5.0 million higher in 2012, primarily from the amortization of
intangible assets acquired through the 2011 acquisitions in the Media Segment.
Operating earnings
Operating earnings were $169.6 million in 2012, down $39.5 million from $209.1 million in 2011.
Restructuring and other charges
Restructuring and other charges of $17.8 million were recorded in 2012. This included $16.5 million for
restructuring initiatives in the Media Segment and $0.9 million for restructuring initiatives and $0.4 million for other
charges in the Book Publishing Segment. The 2012 restructuring initiatives in the Media Segment are expected to
result in annualized net labour savings of approximately $17.5 million and a reduction of approximately 260
positions. The 2012 restructuring initiatives in the Book Publishing Segment are expected to result in annualized
savings of approximately $0.9 million and a reduction of 9 positions. $6.0 million of the savings were realized in
2012.
Restructuring and other charges of $19.4 million were recorded in 2011, including $18.8 million in the Media
Segment and $0.6 million in the Book Publishing Segment. The 2011 restructuring charge for the Media Segment
included $15.6 million in respect of labour restructuring and a $3.2 million provision for rented space that was
vacated as reduced staff counts allowed for space consolidation.
Torstar has undertaken several restructuring initiatives between 2010 and 2012 in order to reduce ongoing
operating costs. The following chart provides a summary of the realized and expected net savings (including rent
savings) by year:
(in $000’s)
Realized net savings in:
2010
2011
2012
Expected net savings in:
2013
Year of Initiative
2011
2010
2012
Total
$4,700
11,200
2,800
$1,800
7,900
$6,000
$4,700
13,000
16,700
2,100
1,100
12,400
15,600
Annualized net savings
$20,800
$10,800
$18,400
$50,000
Impairment of assets
In 2012, Torstar incurred charges related to asset impairment totaling $13.0 million related to certain equipment,
intangible assets and goodwill in the Media Segment. These charges have no impact on cash flows.
As a result of restructuring initiatives, which included the consolidation of some facilities, during the year ended
December 31, 2012, Torstar recorded impairment losses of $0.4 million with respect to equipment in the
Metroland Media Group of cash generating units (“CGUs”) and $0.2 million with respect to equipment and $1.4
million of finite-life intangible assets in the Toronto Star Group CGU.
TORSTAR CORPORATION 2012 ANNUAL REPORT 13
TORSTAR - Management’s Discussion and Analysis
During the fourth quarter of 2012, Torstar performed its annual impairment test on the value of intangible assets
with a finite useful life, intangible assets with an indefinite useful life and goodwill. An impairment charge of $11.0
million was recorded in the Workopolis CGU as a result of increased competition in the online recruitment and job
search markets and prevailing economic conditions.
Operating profit
Operating profit was $138.8 million in 2012, down $50.9 million from $189.7 million in 2011.
Interest and financing costs
Interest and financing costs in 2012 and 2011 were broken down as follows:
(in $000’s)
Interest expense (net)
Swap settlement charge
Interest accretion costs
Interest and financing costs
2012
$7,740
1,019
$8,759
2011
$10,168
3,794
2,667
$16,629
2012 interest expense reflects a lower level of average net debt outstanding in 2012 partially offset by higher
effective interest rates. The average net debt (long-term debt and bank overdraft net of cash and cash
equivalents) was $154.9 million in 2012, down $16.6 million from $171.5 million in 2011. Torstar’s effective
interest rate on long-term debt was 4.1% in 2012 and 3.9% in 2011. Net debt was $149.0 million at December
31, 2012, down $4.3 million from $153.3 million at December 31, 2011.
In 2011, Torstar incurred a $3.8 million charge related to the settlement of Canadian dollar debt interest rate
swaps. In 2006, in connection with the investment in CTV, Torstar had entered into interest rate swap
agreements to fix the rate of interest on $250.0 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. The five-year swap
arrangements required a resetting of pricing and debt instruments every ninety days with a reset date occurring in
March 2011. In anticipation of the receipt of the funds from the completion of the CTV sale, the swap
arrangements were not reset in March 2011 and Torstar settled the swaps.
Interest accretion costs are related to contingent consideration estimates, long-term restructuring provisions and
deferred acquisition payments.
Adjustment to contingent consideration
Adjustments to contingent consideration estimates resulted in additional costs of $0.3 million in 2012 and income
of $0.6 million in 2011. Estimates of the fair value of contingent consideration are recorded on the date of the
related acquisition and are revised in future periods as changes in the estimated payments occur.
Foreign exchange
The non-cash foreign exchange gain or loss reported in the consolidated statement of income primarily relates to
the translation of U.S. dollar denominated assets and liabilities held by Torstar’s Canadian operations into
Canadian dollars. It does not include the translation of foreign currency (including U.S. dollars) denominated
assets and liabilities of Torstar’s foreign operations or the translation of U.S. dollar debt that has been designated
as a hedge against those net U.S. dollar denominated assets. The foreign exchange on the translation of those
foreign currency denominated assets and liabilities and the related hedge-designated debt into Canadian dollars
is reported through other comprehensive income (“OCI”). The amount of the non-cash foreign exchange gain or
loss in any year will vary depending on the movement in the relative value of the Canadian dollar and on whether
Torstar’s Canadian operations have a net asset or net liability position in U.S. dollars.
In 2012, Torstar reported a non-cash foreign exchange loss of $0.2 million. In 2011, Torstar reported a non-cash
foreign exchange loss of $3.5 million as a result of the Canadian dollar being weaker at the end of the year
compared with the beginning and with Torstar’s Canadian operations being in a net liability position in U.S. dollars
for most of the year.
TORSTAR CORPORATION 2012 ANNUAL REPORT 14
TORSTAR - Management’s Discussion and Analysis
Loss of associated businesses
Loss of associated businesses was $3.3 million in 2012 and $2.2 million in 2011.
Torstar’s share of Blue Ant’s net loss was $2.2 million in 2012 ($nil in 2011), representing Blue Ant’s results
through November 30, 2012. Blue Ant completed its acquisition of High Fidelity HDTV in 2012 and the loss
includes expenses for the CRTC benefit obligations and reorganization charges. Blue Ant has an August fiscal
year end and therefore does not have coterminous quarter-ends with Torstar.
Torstar’s share of the Shop.ca net loss was $0.7 million. Torstar made its initial investment in Shop.ca on June
15, 2012 and the Shop.ca website was launched late in the second quarter of 2012.
Torstar recorded a loss of $0.8 million in 2012 ($1.6 million in 2011) to reduce its carrying value in Canadian
Press to nil. Torstar’s unrecognized share of Canadian Press’s net loss was $0.3 million in 2012 down from $0.7
million in 2011. Torstar will begin to report its share of Canadian Press’s results once the unrecognized losses
($6.4 million as of December 31, 2012) have been offset by net income, OCI or at such time that additional
investments are made.
Torstar has not recorded its share of Black Press’s results in either 2012 or 2011 as Torstar’s carrying value in
Black Press was previously reduced to nil. Torstar’s share of Black Press’s net income would have been $3.9
million in 2012, up from $3.3 million in 2011. Torstar will begin again to report its share of Black Press’s results
once the unrecognized losses ($0.7 million as of December 31, 2012) have been offset by net income or OCI.
On February 29, 2012 Torstar sold a portion of its 50% interest in Tuango. As a result of the sale transaction and
revised shareholders’ agreement, Torstar lost joint control of Tuango and moved from proportionately
consolidating Tuango to accounting for it as an associated business using the equity method. Torstar’s share of
Tuango’s net income for the period from February 29, 2012 to December 31, 2012 was $0.4 million.
Torstar ceased to equity account for Q-ponz when it was sold in early 2012. No amounts have been recorded
related to the Q-ponz results in 2012 ($0.5 million loss in 2011).
Other income and gain on sale of assets
During 2012, Torstar recognized other income of $10.4 million and a gain on sale of assets of $9.8 million.
Torstar recognized a gain on sale of assets of $3.7 million from the sale of Sing Tao’s land and buildings in
Toronto. Torstar’s share of the proceeds included $2.5 million of cash and $3.5 million for a mortgage receivable
which will mature in 18 to 24 months from the date of sale.
Torstar also recorded a gain on sale of assets of $3.4 million on the sale of a portion of its 50% joint venture
interest in Tuango as noted above. Net proceeds were $3.9 million and Torstar retained a 38.2% interest in
Tuango. As a result of the move from proportionately consolidating Tuango to accounting for it as an associated
business using the equity method, the investment was remeasured and the investment in associated businesses
was recorded at fair value, resulting in a remeasurement gain of $10.4 million which has been included in other
income.
In November 2012, Torstar recorded a gain of $2.7 million in connection with the sale of the assets of Insurance
Hotline. Net proceeds were $7.0 million comprised of $2.0 million in cash and a 12.6% interest in Kanetix Ltd. (an
online Canadian insurance marketplace) valued at $5.0 million. This investment has been recorded at cost and is
included in portfolio investments. At the same time, Torstar received an additional $4.0 million of cash in
exchange for Media inventory to be provided to Kanetix Ltd. over the next two years.
In 2011, Torstar recognized other income of $19.1 million. When a business combination is achieved in stages,
the acquirer is required to remeasure its previously held interest in the acquiree to the acquisition date fair value
and recognize the resulting gain or loss, if any, in profit or loss. This remeasurement resulted in other income of
$19.1 million in 2011 related to Torstar’s increased ownership of Metro and save.ca.
TORSTAR CORPORATION 2012 ANNUAL REPORT 15
TORSTAR - Management’s Discussion and Analysis
Gain on sale of CTV Inc.
In 2011, Torstar recorded a gain of $74.6 million on the sale of its remaining interest in CTV. The transaction
closed on April 1, 2011 and Torstar received cash proceeds of $291.6 million.
Investment write-down
In 2011, Torstar management determined that there had been an other than temporary decline in the value of the
investment in Q-ponz. A $0.5 million write-down was recorded in 2011, reducing the carrying value to nil. In early
2012, the Company sold its interest in Q-ponz to the controlling shareholder for nominal consideration.
Income and other taxes
There were several items in Torstar’s net income before taxes in 2012 and 2011 that were not tax-affected and
therefore had an impact on Torstar’s effective tax rate in both years. This included the 2012 remeasurement gain
on Tuango, the 2011 gain on the sale of CTV, and the 2011 remeasurement gain on the Metro and save.ca
transactions. In addition, Torstar recorded $0.8 million in 2012 and $10.0 million in 2011 as a tax benefit from the
recognition of tax losses that had previously not been recognized.
Excluding the impact of these items in both years, Torstar’s effective tax rate was 30.5% in 2012 and 31.6% in
2011. The Canadian statutory rate was 26.5% in 2012, which was lower than the 28.25% Canadian statutory rate
in 2011. The Canadian statutory rate had previously been planned to be reduced to 26.25% in 2012 and further
to 25% by 2014. The Ontario government passed legislation during 2012 to indefinitely postpone this planned tax
rate reduction. Torstar recorded a tax benefit of $0.2 million in 2012 in respect of this tax rate change.
Torstar’s effective tax rate is higher than the Canadian statutory rate due to the impact of non-deductible
expenses and income earned in foreign jurisdictions subject to higher rates of tax.
Net income attributable to equity shareholders
Torstar reported net income attributable to equity shareholders of $103.2 million or $1.30 per share in 2012 down
$114.5 million or $1.44 per share from $217.7 million or $2.74 per share in 2011. Excluding the impact of CTV, in
2011, Torstar would have reported net income attributable to equity shareholders of $143.1 million or $1.80 per
share in 2011.
The average number of Class A voting shares and Class B non-voting shares outstanding was 79.7 million in
2012, up slightly from 79.4 million in 2011.
The following chart provides a continuity of earnings per share from 2011 to 2012:
Net income attributable to equity shareholders per share 2011
• Gain on sale of CTV (2011)
Adjusted net income attributable to equity shareholders per share 2011
Changes
• Operations
• Restructuring and other charges
Impairment of assets
•
•
Interest and financing costs
• Non-cash foreign exchange
• Adjustment to contingent consideration
• Loss of associated businesses
• Other income (remeasurement gains)
• Gain on sale of assets
Net income attributable to equity shareholders per share 2012
$2.74
0.94
1.80
$1.30
(0.37)
0.01
(0.16)
0.07
0.03
(0.02)
(0.02)
(0.14)
0.10
TORSTAR CORPORATION 2012 ANNUAL REPORT 16
TORSTAR - Management’s Discussion and Analysis
Business Segment Review
Torstar reports its results in two business segments (Media and Book Publishing). Corporate is the provision of
corporate services and administrative support. Torstar’s reporting structure reflects how the business is managed
and how operations are classified for planning and performance measurement. See Section 1 – “Overview” for a
description of Torstar’s business segments.
Segment Operating Results – Media
The following table sets out operating earnings for the Media Segment for the years ended December 31, 2012
and 2011.
(in $000’s)
Operating revenue
MMG
$547,666
2012
SMG
$511,595
Total
$1,059,261
MMG
$582,378
2011
SMG
$506,952
Total
$1,089,330
Salaries and benefits
Other operating costs
EBITDA
Amortization &
depreciation
Operating earnings
(236,197)
(227,741)
83,728
(177,938)
(272,676)
60,981
(414,135)
(500,417)
144,709
(227,321)
(253,153)
101,904
(171,521)
(265,665)
69,766
(398,842)
(518,818)
171,670
(13,480)
$70,248
(20,547)
$40,434
(34,027)
$110,682
(11,249)
$90,655
(18,166)
$51,600
(29,415)
$142,255
Excluding the impact of $36.1 million from acquisitions and a $34.3 million decrease in Metroland Media Group’s
TMGTV resulting from lower product sales, revenue was down $31.8 million or 2.9% primarily from lower print
advertising revenues. Print advertising revenues were down in 2012 with softness in national and retail
categories. Digital revenue in the Media Segment was down 4.7% in 2012 due primarily to a decline at WagJag
and a change to equity accounting for Torstar’s investment in Tuango in the first quarter of 2012. Excluding these
two items, digital revenue was up 1.1% with Star Media Group digital revenue up 2.7% and Metroland Media
Group digital revenue down 1.5%. Digital revenues in the Media Segment were 11.1% of total Media Segment
revenues down slightly from 11.2% in 2011.
Media Segment expenses were down $3.1 million in 2012 including $15.3 million of higher salaries and benefits
offset by an $18.4 million decrease in other operating costs. The 3.8% increase in salaries and benefits expense
includes $16.6 million of savings from restructuring initiatives in the newspaper businesses which were more than
offset by the impact of acquisitions, increased pension costs and regular wage increases. The 3.5% decrease in
other operating costs was the result of a $30.4 million decrease in costs at TMGTV resulting from lower product
sales, partially offset by additional expenses related to investment spending at Metro and in the digital operations.
Newsprint pricing was flat year over year while consumption was down.
Media Segment EBITDA was $144.7 million in 2012, down $27.0 million from $171.7 million in 2011. Media
Segment operating earnings were $110.7 million in 2012, down $31.6 million from $142.3 million in 2011.
Metroland Media Group
Excluding the impact of $18.1 million from acquisitions and a $34.3 million decrease in Metroland Media Group’s
TMGTV resulting from lower product sales, Metroland Media Group revenue was down $18.5 million or 3.2% in
2012. Excluding acquisitions, print advertising revenues were down 5.1% at the newspapers with weakness in
the retail and classifieds categories partially offset by gains in real estate. Digital revenue was down 10.7% in
2012 driven primarily by a decline at WagJag which benefited from a strong rollout period in 2011.
Metroland Media Group expenses were down $16.5 million in 2012, including $8.9 million of higher salaries and
benefits offset by a $25.4 million decrease in other operating costs. The 3.9% increase in salaries and benefits
expense includes $10.1 million of savings from restructuring initiatives which were offset by the impact of
acquisitions, increased pension costs and regular wage increases. The decrease in other operating costs was the
result of a $30.4 million decrease in TMGTV costs resulting from lower product sales, partially offset by the impact
of acquisitions and investment spending in the digital operations.
TORSTAR CORPORATION 2012 ANNUAL REPORT 17
TORSTAR - Management’s Discussion and Analysis
Metroland Media Group EBITDA was $83.7 million in 2012, down $18.2 million from $101.9 million in 2011.
Excluding the impact of $2.2 million from acquisitions, Metroland Media Group EBITDA was $81.5 million in 2012,
down $20.4 million or 20.0% from $101.9 million in 2011. Metroland Media Group operating earnings were $70.2
million in 2012, down $20.5 million from $90.7 million in 2011.
Star Media Group
Excluding the impact of $18.0 million from acquisitions, revenues were down $13.3 million in 2012 or 2.6%.
Toronto Star print advertising revenues were down 8.5% in 2012 with declines across most categories. National
and multi-market retail categories were significant contributors to the decline. The Metro newspapers
experienced revenue growth in 2012, benefiting from expansion into new markets as well as additional investment
spending in existing markets. Digital revenues were down 1.0% in 2012 due entirely to a change to equity
accounting for Torstar’s investment in Tuango in the first quarter of 2012. Excluding the accounting change, digital
revenues were up 2.7% in 2012.
Star Media Group expenses were up $13.4 million in 2012 including $6.4 million of higher salaries and benefits
and $7.0 million of higher other operating costs. Total expenses were higher in 2012 from a combination of
acquisitions, investment in staff in the digital operations, increased pension costs and investment spending
related to Metro including the launch of new markets.
Star Media Group EBITDA was $61.0 million in 2012, down $8.8 million from $69.8 million in 2011. Excluding the
impact of $3.6 million from acquisitions, Star Media Group EBITDA was $57.4 million in 2012, down $12.4 million
or 17.8% from $69.8 million in 2011. Star Media Group operating earnings were $40.4 million in 2012, down $11.2
million from $51.6 million in 2011.
Segment Operating Results – Book Publishing
The following tables set out a summary of operating earnings for the Book Publishing Segment and a continuity of
revenue and operating earnings, including the impact of foreign currency movements and foreign exchange
contracts, for the years ended December 31, 2012 and 2011.
(in $000’s)
Operating revenue
Salaries and benefits
Other operating costs
EBITDA
Amortization & depreciation
Operating earnings
2012
$426,483
(96,002)
(253,550)
76,931
(4,107)
$72,824
(in $000’s)
Reported revenue, prior year
Impact of currency movements and foreign exchange contracts
Change in underlying revenue
Reported revenue, current year
Reported operating earnings, prior year
Impact of currency movements and foreign exchange contracts
Change in underlying operating earnings
Reported operating earnings, current year
2011
$459,427
(100,014)
(273,320)
86,093
(3,695)
$82,398
$459,427
(5,578)
(27,366)
$426,483
$82,398
(1,673)
(7,901)
$72,824
Book Publishing Segment revenues were down $27.4 million excluding the impact of foreign exchange. North
American revenues were down $22.1 million with declines of $19.1 million in retail print and $6.9 million in direct-
to-consumer revenues more than offsetting digital revenue growth of $3.9 million. In North America, digital
revenue growth and print revenue declines began to moderate beginning in the second quarter of 2012 and this
TORSTAR CORPORATION 2012 ANNUAL REPORT 18
TORSTAR - Management’s Discussion and Analysis
trend continued for the balance of the year. In addition, the exceptional performance of a competitor’s bestseller
has had a negative impact on market share in 2012.
The Overseas division continued to be negatively impacted by economic conditions in Europe. Revenues were
down $5.3 million as retail print and direct-to-consumer revenue declines more than offset digital revenue growth.
Global digital revenues were 20.7% of total revenue in 2012, up from 15.5% in 2011.
Book Publishing operating earnings were down $7.9 million, excluding the impact of foreign exchange, reflecting
the above noted declines in revenue and higher author royalties on digital sales partially offset by lower
promotional spending and overhead costs.
3. Fourth Quarter Operating Results
A discussion of Torstar’s fourth quarter operating results
Overall Performance
The following table sets out the segmented results for the three months ended December 31, 2012 and 2011.
(in $000’s)
Operating revenue
Media
$290,757
Publishing Corporate
$104,989
Total
$395,746
Media
$307,281
Publishing Corporate
$118,055
Total
$425,336
2012
Book
2011
Book
Salaries and benefits
Other operating costs
EBITDA
Amortization &
depreciation
Operating earnings
Restructuring and
other charges
Impairment of assets
Operating profit
(106,251)
(133,376)
51,130
(8,910)
42,220
(5,706)
(11,734)
$24,780
(23,747)
(64,490)
16,752
(1,080)
15,672
(944)
($2,541)
(786)
(3,327)
(132,539)
(198,652)
64,555
(104,414)
(139,307)
63,560
(16)
(3,343)
(10,006)
54,549
(8,305)
55,255
(25,382)
(71,443)
21,230
(884)
20,346
($2,889)
(713)
(3,602)
(132,685)
(211,463)
81,188
(10)
(3,612)
(9,199)
71,989
(13,663)
$14,728
($3,343)
$41,705
$20,233
($3,612)
$58,326
(13,550)
(113)
(6,650)
(11,734)
$36,165
Revenue
Excluding the impact of $4.6 million from acquisitions and an $11.2 million decrease in Metroland Media Group’s
TMGTV resulting from lower product sales, revenue was down $23.0 million or 5.4% in the fourth quarter of 2012.
Media Segment revenues, excluding the above items, were down $9.9 million or 3.2% in the fourth quarter,
largely due to print advertising revenue declines.
Book Publishing Segment revenues, excluding the $4.3 million impact of foreign exchange, were down $8.8
million in the fourth quarter with revenues down in both North America and Overseas. Declines in print revenues
were only partially offset by increases in digital revenues.
Salaries and benefits
Total salaries and benefits expense was consistent with the prior year in the fourth quarter as savings in the Book
Publishing Segment as well as $5.4 million of savings from restructuring initiatives in the newspaper businesses
in the Media Segment were offset by the impact of acquisitions, increased pension costs and regular wage
increases.
Other operating costs
Total other operating costs were down $12.8 million or 6.1% in the fourth quarter of 2012 resulting from revenue
declines and a $9.7 million decrease in TMGTV costs resulting from lower product sales, partially offset by
investment spending related to Metro.
TORSTAR CORPORATION 2012 ANNUAL REPORT 19
TORSTAR - Management’s Discussion and Analysis
EBITDA
EBITDA was $64.6 million in the fourth quarter of 2012, down $16.6 million from $81.2 million in the fourth quarter
of 2011. Media Segment EBITDA was down $12.5 million primarily as a result of lower print advertising revenue.
Book Publishing Segment EBITDA was down $4.4 million including a decline of $1.1 million from the impact of
foreign exchange. Corporate expenses were $3.3 million, down $0.3 million from $3.6 million in 2011.
Amortization and depreciation
Amortization and depreciation expense was $0.8 million higher in the fourth quarter of 2012, primarily from the
amortization of intangible assets acquired through 2011 acquisitions in the Media Segment.
Operating earnings
Operating earnings were $54.5 million in the fourth quarter of 2012, down $17.5 million from $72.0 million in the
fourth quarter of 2011.
Restructuring and other charges
Restructuring and other charges of $6.7 million and $13.7 million were recorded in the fourth quarter of 2012 and
2011 respectively. Fourth quarter 2012 restructuring provisions of $6.3 million are expected to result in annual net
savings of $5.9 million and a reduction of approximately 67 positions. $0.4 million of the savings were realized in
the fourth quarter of 2012.
Impairment of assets
During the fourth quarter, Torstar incurred charges related to asset impairment totaling $11.7 million related to
certain equipment, intangible assets and goodwill in the Media Segment. These charges have no impact on cash
flows.
During the fourth quarter, in connection with restructuring activities, Torstar incurred charges related to asset
impairment totaling $0.4 million related to certain equipment in the Metroland Media Group of CGUs and $0.3
million related to certain equipment and finite life intangible assets in the Toronto Star Group CGU.
Additionally, during the fourth quarter of 2012, Torstar performed its annual impairment test on the value of
intangible assets with a finite useful life, intangible assets with an indefinite useful life and goodwill. An
impairment charge of $11.0 million was recorded in the Workopolis CGU as a result of increased competition in
the online recruitment and job search markets and prevailing economic conditions.
Operating profit
Operating profit was $36.2 million in the fourth quarter of 2012, down $22.1 million from $58.3 million in the fourth
quarter of 2011.
Interest and financing costs
Interest and financing costs in the fourth quarter of 2012 and 2011 were broken down as follows:
(in $000’s)
Interest expense (net)
Interest accretion costs
Interest and financing costs
2012
$1,838
163
$2,001
2011
$1,379
682
$2,061
Interest expense increased in the fourth quarter of 2012 reflecting a higher level of average net debt outstanding
in the fourth quarter of 2012 and higher effective interest rates. The average net debt (long-term debt and bank
overdraft net of cash and cash equivalents) was $154.2 million in the fourth quarter of 2012, up $33.7 million from
$121.1 million in the same period last year. Torstar’s effective interest rate on long-term debt was 4.0% in the
fourth quarter of 2012 and 3.0% in the fourth quarter of 2011.
Interest accretion costs related to contingent consideration estimates, long-term restructuring provisions and
deferred acquisition payments were $0.2 million in the fourth quarter of 2012 and $0.7 million in the fourth quarter
of 2011.
TORSTAR CORPORATION 2012 ANNUAL REPORT 20
TORSTAR - Management’s Discussion and Analysis
Foreign exchange
Torstar reported a non-cash foreign exchange loss of $0.1 million in the fourth quarter of 2012 and a loss of $0.5
million in the same period last year.
Income from associated businesses
Income from associated businesses was $0.1 million in the fourth quarter of 2012 inclusive of Torstar’s share of
Blue Ant’s income of $0.6 million and Tuango’s income of $0.2 million. This was partially offset by Torstar’s share
of losses of $0.2 million from Shop.ca and a $0.5 million loss in Canadian Press. Loss of associated businesses
was $0.4 million from Q-ponz in the fourth quarter of 2011.
Torstar recorded a loss of $0.5 million in the fourth quarter of 2012 to reduce its carrying value in Canadian Press
to nil.
Torstar did not record its share of Black Press’s results in the fourth quarter of 2012 as Torstar’s carrying value in
Black Press had previously been reduced to nil.
Other income
When a business combination is achieved in stages, the acquirer is required to remeasure its previously held
interest in the acquiree to the acquisition date fair value and recognize the resulting gain or loss, if any, in profit or
loss. This remeasurement resulted in other income of $19.0 million in the fourth quarter of 2011 related to
Torstar’s increased ownership of Metro.
Gain on sale of assets
In the fourth quarter of 2012, Torstar recorded a gain of $2.7 million in connection with the sale of the assets of
Insurance Hotline for net proceeds of $7.0 million comprised of $2.0 million in cash and a 12.6% interest in
Kanetix Ltd. (an online Canadian Insurance marketplace) valued at $5.0 million. This investment has been
recorded at cost and is included in portfolio investments. At the same time, Torstar received an additional $4.0
million of cash in exchange for Media inventory to be provided to Kanetix Ltd. over the next two years.
Investment write-down
In the fourth quarter of 2011, Torstar management determined that there had been an other than temporary
decline in the value of the investment in Q-ponz. A $0.5 million write-down was recorded, reducing the carrying
value to nil. In early 2012, the Company sold its interest in Q-ponz to the controlling shareholder for nominal
consideration.
Income and other taxes
Torstar’s effective tax rate in the fourth quarter of 2012 was 33.7%, which was higher than the Canadian statutory
rate of 26.5% primarily due to the impairment of goodwill that was not tax affected.
In the fourth quarter of 2011, the remeasurement gain on the Metro transaction was not tax-affected. In addition,
Torstar recorded $8.7 million in the fourth quarter of 2011 as a tax benefit from the recognition of tax losses that
had previously not been recognized. Excluding the impact of these items, Torstar’s effective tax rate was 32.7%
in the fourth quarter of 2011.
Net income attributable to equity shareholders
Torstar reported net income attributable to equity shareholders of $24.1 million or $0.30 per share in the fourth
quarter of 2012, down $40.2 million or $0.51 per share from $64.3 million or $0.81 per share in the fourth quarter
of 2011.
The average number of Class A voting shares and Class B non-voting shares outstanding was 79.7 million in the
fourth quarter of 2012, up slightly from 79.5 million in the fourth quarter of 2011.
TORSTAR CORPORATION 2012 ANNUAL REPORT 21
TORSTAR - Management’s Discussion and Analysis
The following chart provides a continuity of earnings per share from the fourth quarter of 2011 to the fourth
quarter of 2012:
Net income attributable to equity shareholders per share fourth quarter 2011
Changes
• Operations
• Restructuring and other charges
•
• Other income (remeasurement gain on step acquisitions in 2011)
• Gain on sale of assets
• Deferred taxes
Net income attributable to equity shareholders per share fourth quarter 2012
Impairment of assets
(0.15)
0.06
(0.15)
(0.24)
0.03
(0.06)
$0.81
$0.30
Segment Results – Media
The following table sets out operating earnings for the Media Segment for the three months ended December 31,
2012 and 2011.
(in $000’s)
Operating revenue
Salaries and benefits
Other operating costs
EBITDA
Amortization & depreciation
Operating earnings
MMG
2012
SMG
Total
MMG
2011
SMG
Total
$152,150 $138,607 $290,757 $162,319 $144,962 $307,281
(62,055)
(61,236)
28,859
(3,437)
$25,422
(44,196)
(72,140)
22,271
(5,473)
$16,798
(106,251)
(133,376)
51,130
(8,910)
$42,220
(62,060)
(68,348)
31,911
(3,289)
$28,622
(42,354)
(70,959)
31,649
(5,016)
$26,633
(104,414)
(139,307)
63,560
(8,305)
$55,255
Media Segment revenues, excluding the impact of $4.6 million from acquisitions and an $11.2 million decrease in
Metroland Media Group’s TMGTV resulting from lower product sales, were down $9.9 million or 3.2% in the fourth
quarter, largely due to print advertising revenue declines. Digital revenue in the Media Segment was down 3.5%
in the fourth quarter of 2012 due entirely to a change to equity accounting for Torstar’s investment in Tuango in
the first quarter of 2012. Excluding this change, digital revenue was up 0.9%. Digital revenue was 10.9% of Media
Segment revenues in the fourth quarter of 2012 up from 10.6% in the fourth quarter of 2011.
Media Segment expenses were down $4.1 million in the fourth quarter of 2012 including $1.8 million of higher
salaries and benefits expense offset by a $5.9 million decrease in other operating costs. Salaries and benefits
were higher in the fourth quarter of 2012 as $5.4 million of savings from restructuring initiatives in the newspaper
businesses in the Media Segment were more than offset by the impact of acquisitions, increased pension costs
and regular wage increases. The decrease in other operating expenses reflects the impact of decreased
revenues and a $9.7 million decrease in TMGTV costs resulting from lower product sales, partially offset by
additional investment spending related to Metro.
Media Segment EBITDA was $51.1 million in the fourth quarter of 2012, down $12.5 million from $63.6 million in
the fourth quarter of 2011.
Metroland Media Group
Excluding the increase of $3.3 million from acquisitions and an $11.2 million decrease in TMGTV due to lower
product sales, Metroland Media Group revenues were down $2.3 million or 1.4% in the fourth quarter of 2012
primarily as a result of modest declines in print advertising revenue and distribution revenue increased moderately
in the quarter. Digital revenue was down 6.4% driven entirely by a decline at WagJag.
Metroland Media Group expenses were down $7.1 million in the fourth quarter of 2012, inclusive of a $9.7 million
decrease in TMGTV costs resulting from lower product sales and net savings of $4.0 million from restructuring
initiatives partially offset by the impact of acquisitions, increased pension costs and regular wage increases.
TORSTAR CORPORATION 2012 ANNUAL REPORT 22
TORSTAR - Management’s Discussion and Analysis
Metroland Media Group’s EBITDA was $28.9 million in the fourth quarter of 2012 down $3.0 million from $31.9
million in the fourth quarter of 2011. Metroland Media Group’s operating earnings were $25.4 million in the fourth
quarter of 2012 down $3.2 million from $28.6 million in the same period last year.
Star Media Group
Star Media Group revenues were $138.6 million in the fourth quarter of 2012, down $6.4 million from $145.0
million in the fourth quarter of 2011. Excluding a $1.3 million positive impact from acquisitions, revenue was down
$7.6 million or 5.3%.
Toronto Star print advertising revenues were down 11.0% in the fourth quarter of 2012 with declines across most
categories. This decline was partially offset by growth in some of the new initiatives.
Star Media Group digital revenues were down 1.8% in the fourth quarter due entirely to a change to equity
accounting for Torstar’s investment in Tuango in the first quarter of 2012. Excluding the accounting change, digital
revenues were up 5.0% in the quarter.
Star Media Group expenses were up $3.0 million in the fourth quarter of 2012 including $1.8 million of higher
salaries and benefits expenses and a $1.2 million increase in other operating costs. Total expenses were higher
in the fourth quarter of 2012 from a combination of acquisitions, increased pension costs and investment
spending at Metro. These were partially offset by $1.4 million of restructuring savings.
Star Media Group EBITDA was $22.3 million in the fourth quarter of 2012, down $9.3 million from $31.6 million in
the fourth quarter of 2011. Star Media Group operating earnings were $16.8 million in the fourth quarter of 2012
down $9.8 million from $26.6 million in the fourth quarter of 2011.
Segment Results - Book Publishing
The following tables set out a summary of operating earnings for the Book Publishing Segment and a continuity of
revenue and operating earnings, including the impact of foreign currency movements and foreign exchange
contracts, for the three months ended December 31, 2012 and 2011.
(in $000’s)
Operating revenue
Salaries and benefits
Other operating costs
EBITDA
Amortization & depreciation
Operating earnings
(in $000’s)
Reported revenue, fourth quarter prior year
Impact of currency movements and foreign exchange contracts
Change in underlying revenue
Reported revenue, fourth quarter current year
Reported operating earnings, fourth quarter prior year
Impact of currency movements and foreign exchange contracts
Change in underlying operating earnings
Reported operating earnings, fourth quarter current year
2012
$104,989
(23,747)
(64,490)
16,752
(1,080)
$15,672
2011
$118,055
(25,382)
(71,443)
21,230
(884)
$20,346
$118,055
(4,274)
(8,792)
$104,989
$20,346
(1,118)
(3,556)
$15,672
Book Publishing revenues were down $8.8 million in the fourth quarter excluding the impact of foreign exchange,
with North American revenues down $6.6 million and Overseas revenues down $2.2 million.
North American division revenues were down $6.6 million in the fourth quarter of 2012, excluding the impact of
foreign exchange. Declines in print were not offset by increases in digital revenues. Retail print revenues were
TORSTAR CORPORATION 2012 ANNUAL REPORT 23
TORSTAR - Management’s Discussion and Analysis
down $4.9 million, direct-to-consumer revenues were down $1.2 million and digital revenues were down $0.5
million.
Overseas division revenues were down $2.2 million in the fourth quarter of 2012 excluding the impact of foreign
exchange as retail print and direct-to-consumer revenue declines more than offset digital revenue growth.
Global digital revenues were 21.4% of total revenue in the fourth quarter of 2012, up from 17.7% in the same
period last year and 20.3% in the third quarter of 2012.
Book Publishing operating earnings were down $3.6 million, excluding the impact of foreign exchange, reflecting
the above noted declines in revenue and higher author royalties on digital sales, partially offset by lower
promotional spending and overheads.
4. Outlook
The outlook for Torstar’s business in 2013
The 2013 revenue outlook for the Media Segment remains uncertain. Print advertising continues to be
challenged by shifts in spending by advertisers and economic uncertainty. Early indications in 2013 are that print
advertising revenue remains soft. Digital revenue is expected to grow in 2013. Cost reductions remain an
important area of focus. The Media Segment is anticipated to realize $15.6 million of savings in 2013 from
restructuring initiatives undertaken through the end of 2012. Management anticipates pursuing further cost
reductions as the year progresses including recent restructuring initiatives in the Media Segment which are
expected to result in annualized net savings of $6.6 million, $5.0 million of which are expected to be realized in
2013. In addition, fixed price arrangements with the suppliers of a majority of Torstar’s newsprint requirements
are expected to reduce newsprint costs by approximately $3.5 million in 2013. Net investment spending
associated with growth initiatives in 2013 is anticipated to be consistent with 2012 levels.
Harlequin finished 2012 with operating earnings down $7.9 million compared to the prior year, excluding the
impact of foreign exchange. Digital revenue growth and print declines began to moderate in North America as
some stability emerged in print and digital sales during 2012. This trend is expected to continue. Overseas
markets are expected to continue to face economic challenges particularly in Europe. After a challenging 2012,
which included the impact of a competitor’s bestseller and the introduction of higher author royalties on digital
sales, Harlequin’s earnings are anticipated to be relatively stable in 2013. However, earnings are expected to be
lower in the first quarter due to the timing of the increase in author royalties on digital sales part way through 2012
and the strong results posted in the first quarter of 2012. If the Canadian dollar remains at its current levels
relative to the U.S. dollar and overseas currencies, Harlequin anticipates the impact of foreign exchange to be
relatively neutral in 2013.
Effective January 1, 2013 Torstar will be required to adopt the amended IAS 19 accounting standard surrounding
Employee Benefits which is described in more detail in section 9 of this MD&A. After restating 2012 for the
adoption of this standard, it is expected that 2013 employee future benefit expense will increase by approximately
$2.0 million.
From a cash flow perspective, in 2013, Torstar anticipates spending approximately $65.0 million for the minimum
required funding of registered defined benefit pension plans and $33.0 million for additions to property, plant,
equipment and intangible assets. The 2013 capital expenditures are anticipated to include continued investment
in technology and software in the Media Segment in addition to general capital maintenance spending.
TORSTAR CORPORATION 2012 ANNUAL REPORT 24
TORSTAR - Management’s Discussion and Analysis
5. Liquidity and Capital Resources
A discussion of Torstar cash flow, liquidity, credit facilities and other disclosures
Torstar uses the cash generated by its operations to fund capital expenditures, distributions to shareholders,
acquisitions and debt repayment. Long-term debt is used to supplement funds from operations as required,
generally for capital expenditures or acquisitions.
It is expected that future cash flows from operating activities, combined with the long-term bank credit facility will
be adequate to cover forecasted financing requirements in the short and long term.
In 2012, $90.6 million of cash was generated by operations, $47.7 million was used in investing activities and
$56.1 million was used in financing activities. Cash and cash equivalents net of bank overdraft decreased by
$13.8 million in the year from $42.9 million to $29.1 million.
In the fourth quarter of 2012, $30.4 million of cash was generated by operations, $9.0 million was used in
investing activities and $32.4 million was used in financing activities. Cash and cash equivalents net of bank
overdraft decreased by $10.7 million in the quarter from $39.8 million to $29.1 million.
Operating Activities
Operating activities provided cash of $90.6 million in 2012, down $24.4 million from $115.0 million in 2011. The
lower amount in 2012 reflects lower operating income and higher funding of employee future benefits, partially
offset by a lower increase in non-cash working capital.
Non-cash working capital increased $6.8 million in 2012 from the payment of final 2011 income taxes and a net
decrease in current provision balances. $22.3 million was paid against restructuring provisions during 2012.
Non-cash working capital increased $18.1 million in 2011 primarily as a result of the final 2010 income tax
payment and $21.6 million of payments against restructuring provisions during 2011.
Cash provided by operating activities was $30.4 million in the fourth quarter of 2012 including a $4.3 million
increase in non-cash working capital. In the fourth quarter of 2011, cash provided by operating activities was
$46.3 million including a $7.6 million increase in non-cash working capital. This decrease is largely attributable to
a combination of lower operating income and a $10.9 million increase in employee future benefits funding in the
fourth quarter of 2012 compared to the fourth quarter of 2011.
Investing Activities
Cash used in investing activities was $47.7 million in 2012, compared to cash provided by investing activities of
$137.4 million in 2011.
Additions to property, plant and equipment and intangible assets were $33.0 million in 2012, down $2.0 million
from $35.0 million in 2011. The 2012 additions included general capital maintenance spending as well as
investment in technology, software, and leasehold improvements across the Media Segment reflecting process
improvements, website development and office space consolidation.
Cash of $291.6 million was received in 2011 as proceeds on the sale of Torstar’s interest in CTV.
In 2012, Torstar used cash of $11.9 million for acquisitions and portfolio investments. This included $1.8 million
for new acquisitions, $1.1 million for portfolio investments, $3.1 million of deferred payments and $5.9 million of
contingent consideration for prior year acquisitions primarily in the Media Segment.
In 2011, Torstar used cash of $101.8 million for acquisitions and portfolio investments. This included $48.4
million for the fourth quarter increased ownership in Metro, $42.4 million for other acquisitions in the Media
Segment, $6.9 million for the deferred payments related to Harlequin’s 2010 acquisition of full ownership of its
German publishing business, $3.5 million for deferred and contingent consideration payments in respect of prior
year acquisitions in the Media Segment, and $0.6 million for portfolio investments. The other Media Segment
acquisitions included Performance Printing, Starmail Distributors, Autocatch.com, Brant News and the remaining
TORSTAR CORPORATION 2012 ANNUAL REPORT 25
TORSTAR - Management’s Discussion and Analysis
50% of save.ca. The Metro transaction also included a call option liability with a discounted value of $10.8 million
related to call and put options that were entered into with regards to the minority interest held by Metro
International. The other Media Segment acquisitions included $2.1 million of current payables for deferred
purchase payments and an estimate of $1.1 million for contingent consideration.
Cash used for investments in associated businesses was $11.3 million in 2012 and $17.3 million in 2011. The
2012 investments included $5.8 million in Blue Ant, $5.0 million in Shop.ca and $0.3 million in Canadian Press.
The 2011 investments included $16.9 million in Blue Ant and $0.3 million in Canadian Press.
Cash used in investing activities in the fourth quarter of 2012 was $9.0 million, including $9.6 million for additions
to property, plant and equipment and intangible assets and $1.4 million for acquisitions and portfolio investments
partially offset by $2.0 million of cash proceeds received on the sale of Insurance Hotline. In 2011, $101.7 million
of cash was used in investing activities, including $75.7 million for acquisitions, $17.3 million for investments in
associated businesses and $8.7 million for additions to property, plant and equipment and intangible assets.
Financing Activities
Cash of $56.1 million was used in financing activities during 2012, including a net $16.2 million repayment of long-
term debt and $41.1 million for cash dividends paid to shareholders. In the fourth quarter of 2012, cash of $32.4
million was used in financing activities including $22.1 million of long-term debt repayments and $10.4 million for
cash dividends paid to shareholders.
Cash of $245.6 million was used in financing activities during 2011, including a net $209.8 million for the
repayment of long-term debt and $36.9 million for cash dividends paid to shareholders. In the fourth quarter of
2011, cash of $53.0 million was provided by financing activities including $63.1 million of increased long-term debt
borrowing and $9.9 million for cash dividends paid to shareholders.
Net Debt
Net debt was $149.0 million at December 31, 2012, down $4.3 million from $153.3 million at December 31, 2011.
Of the $4.3 million decrease $1.3 million is the result of foreign exchange.
Long-term Debt
As at December 31, 2012, Torstar had $178.0 million of debt outstanding under its long-term bank credit facility.
The debt consisted of U.S. dollar bankers’ acceptances of $91.0 million and Canadian dollar bankers’
acceptances of $87.0 million. As at December 31, 2011, Torstar had $196.2 million of debt outstanding under its
long-term bank credit facility. The debt was classified as current on the December 31, 2011 consolidated
statement of financial position as the renewal of the facility was not effective until January 4, 2012. The debt
consisted of U.S. dollar bankers’ acceptances of $88.2 million and Canadian dollar bankers’ acceptances of
$108.0 million.
As at December 31, 2012, Torstar’s long-term bank credit facility consists of a $150 million revolving facility
(“Tranche A”) that will mature in January, 2016 and a $200 million revolving facility (“Tranche B”) that will mature
in January 2014. Both Tranches provide for annual 364-day extensions upon the mutual agreement of Torstar
and the lenders. In February 2013, Torstar extended both tranches A and B for an additional 364-day period to
January 2017 and January 2015 respectively.
Amounts may be drawn under the credit 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
net debt to operating cash flow ratio for borrowings under either Tranche (range of 1.4% to 2.5%). As at
December 31, 2012, the interest rate spread was 1.4%.
Torstar borrows under the bank credit facility primarily in the form of bankers’ acceptances. The bankers’
acceptances normally mature over periods of 30 to 180 days but as they are issued under the long-term credit
facility, their classification is consistent with the 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.
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 bank credit facility has sufficient credit available
TORSTAR CORPORATION 2012 ANNUAL REPORT 26
TORSTAR - Management’s Discussion and Analysis
that it could be used to replace the outstanding bankers’ acceptances, the bankers’ acceptances are classified as
long-term debt on Torstar’s consolidated statement of financial position.
Torstar has a policy of maintaining a sufficient level of U.S. dollar denominated debt in order to provide a hedge
against its U.S. dollar assets. It is expected that the level of U.S. dollar debt will remain relatively constant during
2013.
Torstar’s long-term bank credit facility also acts as a standby line in support of letters of credit. At December 31,
2012, a total of $211.9 million (December 31, 2011 - $224.1 million) was drawn under the facility, including a
$31.1 million letter of credit relating to an executive retirement plan (December 31, 2011 - $25.2 million). As of
December 31, 2012, Torstar had approximately $138.1 million of available credit, net of outstanding letters of
credit (December 31, 2011 - $50.9 million which was increased by $75 million on January 4, 2012 effective with
the renewal of the long-term bank credit facility).
Contractual Obligations
Torstar has the following significant contractual obligations (in $000’s1):
Nature of the
Obligation2
Office leases
Services
Acquisitions
Equipment leases
Subtotal
Foreign currency forward
contracts:
- payments
- receipts
- net
US $ Interest rate swaps
Long-term debt
Total
Total
$120,429
14,888
14,651
1,933
151,901
49,745
(51,311)
(1,566)
7,783
178,727
$336,845
Less than 1
Year (2013)
$19,423
7,811
2,154
695
$30,083
1 – 3 Years
2014–2015
$37,636
5,418
12,241
930
56,225
4 – 5 Years
2016–2017
$33,902
1,354
256
308
$35,820
After 5
Years
2018 +
$29,468
305
$29,773
39,796
(40,866)
(1,070)
3,308
$32,321
9,949
(10,445)
(496)
4,475
28,727
$88,931
150,0003
$185,820
$29,773
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 and Star Media Group sponsorship commitments. The acquisition obligations relate to the 2010
purchase of WagJag.com, the 2011 purchases of Foodscrooge, The Kit and the call option liability for Metro and
the 2012 purchase of Target Vacations.
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 long-term debt repayment timing reflects Torstar’s credit facility in place as at December 31, 2012.
2 All foreign denominated obligations were translated at the December 31, 2012 spot rates.
3 These are commitments under the revolving credit facility noted previously. The credit facilities are subject to customary terms
and conditions and events of default.
TORSTAR CORPORATION 2012 ANNUAL REPORT 27
TORSTAR - Management’s Discussion and Analysis
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. $0.7 million irrevocable letter of credit by the sub-lessee. In February 2013, the
sub-lessee has filed for protection under Chapter 11 of the United States Bankruptcy Code and it is unclear if the
sub-lessee will be able to honour its commitments going forward under the sublease.
Along with the other shareholders of Kanetix Ltd., Torstar has pledged its shares in Kanetix in support of the
Kanetix credit facility.
Outstanding Share and Share Option Information
As at February 28, 2013 Torstar had 9,861,554 Class A voting shares and 69,883,058 Class B non-voting shares
outstanding. More information on Torstar’s share capital is provided in Note 17 of the consolidated financial
statements.
As at February 28, 2013, Torstar had 4,639,846 options to purchase Class B non-voting shares outstanding to
executives and non-executive directors. More information on Torstar’s stock option plan is provided in Note 18 of
the consolidated financial statements.
6. Financial Instruments
A summary of Torstar’s financial instruments
Foreign Exchange
Harlequin’s international operations provide Torstar with approximately 27% of its operating revenues. As a
result, fluctuations in exchange rates can have a significant impact on Torstar’s reported profitability. Torstar’s
most significant exposure is to the movements in the U.S.$/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 2012, Torstar sold U.S. $52.4 million under forward foreign exchange contracts at an average exchange rate of
$1.03. In 2011, Torstar sold U.S. $35.5 million under forward foreign exchange contracts at an average exchange
rate of $1.07. The settlement of these contracts resulted in a foreign exchange gain of $1.5 million in 2012 and
$2.6 million in 2011. Torstar has entered into forward foreign exchange contracts to sell $40.0 million U.S. dollars
during 2013 at an average rate of $1.02 and $10.0 million U.S. dollars in 2014 at an average rate of $1.04. These
2013 and 2014 forward foreign exchange contracts had a $1.3 million favourable fair value at December 31,
2012. These U.S. dollar contracts are designated as revenue hedges for accounting purposes and any resulting
gains or losses are recognized in Book Publishing Segment revenues as realized.
The counterparties to the foreign currency contracts are all major financial institutions with high credit ratings.
Further details are contained in Note 12 of the consolidated financial statements.
Torstar is also exposed to foreign exchange fluctuations on the translation of foreign currency denominated
assets and liabilities. Foreign exchange gains or losses on the translation of foreign currency (primarily U.S.
dollar) denominated assets and liabilities held by Torstar’s Canadian operations are reported in the consolidated
statement of income. Foreign exchange gains or losses on the translation of foreign currency (including U.S.
dollars) denominated assets and liabilities of Torstar’s foreign operations are reported through OCI.
In order to offset the exchange risk on its statement of financial position from U.S. dollar denominated assets,
Torstar maintains a certain level of U.S. dollar denominated debt. As most of the foreign exchange gains or losses
on those U.S. dollar denominated assets is reported through OCI, Torstar, effective January 1, 2011, has
designated $80.0 million of its U.S. dollar denominated debt as a hedge against its net investment in the Book
Publishing businesses that have the U.S. dollar as their functional currency. The foreign exchange gain or loss
TORSTAR CORPORATION 2012 ANNUAL REPORT 28
TORSTAR - Management’s Discussion and Analysis
on the translation of U.S. dollar denominated debt in excess of $80.0 million is reported in the consolidated
statement of income.
Interest Rates
Torstar has issued bankers’ acceptances at floating rates in both Canadian and U.S. dollars under the long-term
bank credit facility.
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, 2012, approximately 44% of Torstar’s long-term debt
was at fixed interest rates as a result of the use of interest rate swap agreements (December 31, 2011 – 40%).
In 2008, Torstar entered into interest rate swap agreements that fix the interest rate on U.S. $80.0 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 an unfavourable fair value of $7.0 million to Torstar at December 31, 2012.
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 12 of the consolidated financial statements.
7. Employee Future Benefit Obligations
A summary of Torstar’s employee future benefit obligations
Torstar has several registered defined benefit pension plans which provide pension benefits to its employees
primarily 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.
Torstar also has a post employment benefits plan that provides health and life insurance benefits to certain
grandfathered employees, primarily in the newspaper operations.
Torstar had the following defined benefit net obligations as at December 31:
($000’s)
Registered pension plans
Unregistered/unfunded pension plans
Post employment benefits plan
2012
$181,425
26,456
47,553
$255,434
Torstar recognized the following expense in net income related to the defined benefit obligations:
($000’s)
Registered pension plans
Unregistered/unfunded pension plans
Post employment benefits plan
2012
$11,232
2,154
2,898
$16,284
2011
$184,571
23,417
56,039
$264,027
2011
$9,500
2,098
3,048
$14,646
Funding requirements are determined based on actuarial valuations that are completed at the frequency required
under the applicable (primarily Ontario provincial) pension legislation which can range from annually to once
every three years.
Actuarial reports for the most significant group of Torstar’s registered defined benefit pension plans (in terms of
assets and obligations) were completed as of December 31, 2011. Torstar’s funding for its registered defined
benefit pension plans in 2012 was $72.5 million in excess of the minimum funding for 2012 of $46.4 million as
Torstar chose to fund beyond the minimum funding obligation. Torstar is required to prepare another set of
TORSTAR CORPORATION 2012 ANNUAL REPORT 29
TORSTAR - Management’s Discussion and Analysis
actuarial reports as of December 31, 2012. Torstar’s minimum and estimated funding for these plans in 2013 is
approximately $65.0 million.
The unregistered pension plan for Torstar’s senior executives is unfunded but is supported by an outstanding
letter of credit of $31.1 million as at December 31, 2012 (December 31, 2011 - $25.2 million). Torstar only funds
the unregistered pension plan when a member of the plan has retired or has left the company and is of retirement
age. Payments of $1.6 million were made in 2012 and $2.4 million in 2011. The health and life insurance post
employment benefits plan is being funded as payments are made on behalf of the retirees. Payments of $2.4
million and $2.3 million were made in 2012 and 2011 respectively.
The cost and obligations of pensions and post employment benefits earned by employees is calculated annually
by independent actuaries using the projected unit credit method prorated on service and management’s best
estimate of assumptions for the discount rate used to measure obligations, the expected long-term rate of return
on pension plan assets for funded plans, salary increases, employee turnover, retirement ages of employees,
mortality rates and expected health care costs. The most significant assumptions are the discount rate and the
expected long-term rate of return on pension plan assets. On an interim basis, management estimates the
changes in the actuarial gains and losses. These estimates are adjusted to actual when the annual calculations
are completed by the independent actuaries.
The significant assumptions made by Torstar’s management in 2012 and 2011 were:
To determine the benefit obligation at the end of the year:
Discount rate
Rate of future compensation increase
To determine the pension benefit expense for the year:
Discount rate
Rate of future compensation increase
Expected long-term rate of return on pension plan assets
2012
2011
3.4% - 3.9%
3.0% - 4.0%
4.3% - 4.4%
3.0% - 4.0%
4.3% - 4.4%
3.0% - 4.0%
6.50%
4.7% - 5.1%
3.0% - 4.0%
6.75%
To determine the pension benefit expense for the following year:
Discount rate
Rate of future compensation increase
Assumed rate of return on pension plan assets4
2013
3.4% - 3.9%
3.0% - 4.0%
3.9%
The discount rates 3.4 % - 3.9% were the yields at December 31, 2012 on high quality Canadian corporate bonds
with maturities that match the expected maturity of the pension obligations. 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, 2012 of $130.9 million and a decrease in the 2012 expense of $0.8
million. A discount rate that was one percent lower would have increased the total pension plan obligation at
December 31, 2012 by $151.4 million and decreased the 2012 expense by $0.2 million.
Management has estimated the expected long-term rate of return on pension plan assets to be 6.5% based on
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 6.5% 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 pension plan assets had been one percent higher (lower), the 2012 pension expense
would have been approximately $7.3 million lower (higher).
4 Change is due to the adoption of the amended IAS 19 effective January 1, 2013. See description in Section 9.
TORSTAR CORPORATION 2012 ANNUAL REPORT 30
TORSTAR - Management’s Discussion and Analysis
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.
For the post employment benefits plan that provides health and life insurance benefits to certain grandfathered
employees, the key assumptions are the discount rate and 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 a 7.5% increase for the 2012 expense. For 2013, health care costs are estimated to increase by 7.5%
with a 0.5% decrease each year until 2017. If the estimated increase in health care costs were one percent
higher, the obligation at December 31, 2012 would be approximately $1.3 million higher. If the estimated increase
in health care costs were one percent lower the obligation at December 31, 2012 would be approximately $1.1
million lower. The impact on the 2012 expense would have been $0.1 million.
Due to the extensive use of estimates in the benefit calculations, actuarial gains and losses arise over time as
discount rates change, when actual return performance differs from the estimated return and as other assumption
estimates change. The most significant actuarial gains and losses arise from differences in the actual returns
earned on pension plan assets as compared to the expected long-term returns and from the impact of changes in
the discount rates on the plan obligations. Torstar recognizes these actuarial gains and losses as realized,
through OCI. Actuarial losses of $51.9 million were recognized through OCI in 2012 and $91.5 million in 2011.
8. Critical Accounting Policies and Estimates
A description of accounting estimates that are critical to determining Torstar’s financial results, and changes to
accounting policies
The preparation of Torstar’s consolidated financial statements in conformity with IFRS requires management to
make judgements, estimates and assumptions that affect the application of accounting policies and the reported
amounts of revenues, expenses, assets, and liabilities and the disclosure of contingent liabilities, at the end of the
reporting period.
Management uses estimates when accounting for certain items such as revenues, allowance for doubtful
accounts, useful lives of capital assets, asset impairments, provisions, share-based compensation plans,
employee benefit plans, deferred income taxes and goodwill impairment. Estimates are also made by
management when recording the fair value of assets acquired and liabilities assumed in a business combination.
Estimates are based on a number of factors, including historical experience, current events and other
assumptions that management believes are reasonable under the circumstances. By their nature, these
estimates are subject to measurement uncertainty and actual results could differ. Estimates and underlying
assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period
in which the estimates are revised and in any future periods affected.
The more significant estimates and assumptions made by management are described below:
Book revenue provisions
In the Book Publishing Segment, revenue from the sale of books is recorded net of provisions for estimated
returns and direct-to-consumer bad debts (book revenue provisions). Retail print books are sold with a right of
return. The retail returns provision is estimated based primarily on point-of-sale information, returns patterns and
historical sales performance for the type of book and the author. Direct-to-consumer books are shipped with no
obligation to the customer who may return the books or cancel their subscription at any time. The direct-to-
consumer book revenue provision recognizes that not all books shipped will be purchased by the customer.
Direct-to-consumer book revenue provisions are made at the time of shipment for the anticipated physical return
of the books or a non-payment for the shipment. The direct-to-consumer book revenue provisions are estimated
based on historical payment rates for the type of book as well as how long the customer has been a subscriber.
TORSTAR CORPORATION 2012 ANNUAL REPORT 31
TORSTAR - Management’s Discussion and Analysis
The impact of the variance between the original estimate for returns and direct-to-consumer bad debts 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. This subsequent impact has historically been more significant for the retail returns provisions than the
direct-to-consumer book revenue provisions.
As at December 31, 2012, the book revenue provisions deducted from accounts receivable on the consolidated
statement of financial position was $76.5 million ($88.4 million in 2011). A one percent change in the average net
sale rate used in calculating the global retail returns provision on sales from July to December 2012 would have
resulted in a $2.9 million change in reported 2012 revenue.
Employee Future Benefits
The accrued benefit asset or liability and the related cost of defined benefit pension plans and other post
employment benefits earned by employees is determined each year by independent actuaries based on several
assumptions.
The actuarial valuation uses management’s assumptions for the discount rate, expected long-term rate of return
on pension plan assets, rate of compensation increase, trends in healthcare costs and expected average
remaining years of service of employees. 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. The most significant assumptions are the discount rate and the expected long-term rate of return
on pension plan assets.
The discount rate used to determine the present value of the future cash flows that are expected to be required to
settle employee benefit obligations is based on the yield on long-term, high-quality corporate bonds, with
maturities matching the estimated cash flows from the benefit plan. A lower discount rate would result in a higher
employee benefit obligation.
The expected long-term rate of return is a weighted average of estimated long-term returns on each of the major
pension plan asset categories in the Company’s pension funds. A lower expected rate would result in a lower fair
value of the pension plan assets and a higher employee benefit obligation.
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 “Employee Future Benefit Obligations” in
this MD&A and are disclosed in Note 16 of the consolidated financial statements.
Impairment of non-financial assets
At each reporting date, Torstar is required to assess its intangible assets and goodwill for potential indicators of
impairment such as an adverse change in business climate that may indicate that these assets may be impaired.
If any such indication exists, Torstar estimates the recoverable amount of the asset or CGU and compares it to
the carrying value. In addition, irrespective of whether there is any indication of impairment, Torstar is required to
test intangible assets with an indefinite useful life and goodwill for impairment at least annually.
For intangible assets other than goodwill, Torstar is also required to assess at each reporting date whether there
is any indication that previously recognized impairment losses may no longer exist or may have decreased.
Torstar completes its annual testing during the fourth quarter each year.
The test for impairment for either an intangible asset or goodwill is to compare the recoverable amount of the
asset or CGU to the carrying value. The recoverable amount is the greater of fair value less costs to sell and
value in use. The recoverable amount is determined for an individual asset unless the asset does not generate
cash inflows that are largely independent of those from other assets or groups of assets (such as goodwill). If this
is the case, the recoverable amount is determined for the CGU to which the asset belongs.
In calculating the recoverable amount, 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
TORSTAR CORPORATION 2012 ANNUAL REPORT 32
TORSTAR - Management’s Discussion and Analysis
assumptions 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.
Taxes
The Company 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 deferred
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.
Deferred tax is provided using the liability method for temporary differences between the tax bases of assets and
liabilities and their carrying amount for financial reporting purposes. Deferred tax assets and liabilities are
measured using substantively enacted tax rates and laws at the reporting date that are expected to be in effect
when the temporary differences are expected to reverse.
Deferred tax assets are recognized for all deductible temporary differences, carry forward of unused tax credits
and unused tax losses to the extent that it is probable that sufficient taxable profit will be available against which
they can be utilized. When assessing the probability of taxable profit being available, management primarily
considers prior years’ results, forecasted future results and non-recurring items. As such, the assessment of the
Company’s ability to utilize tax losses carried forward is to a large extent judgement-based. If the future taxable
results of the Company differ significantly from those expected, the Company would be required to increase or
decrease the carrying value of the deferred tax assets with a potentially material impact on the Company’s
consolidated statement of financial position and consolidated statement of comprehensive income. The carrying
amount of deferred tax assets is reassessed at each reporting period and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to utilize all or part of the deferred tax assets.
Unrecognized deferred tax assets are reassessed at each reporting period and are recognized to the extent that it
is probable that there will be sufficient taxable profits to allow all or part of the asset to be recovered.
More information on Torstar’s income taxes is provided in Note 10 of the consolidated financial statements.
A significant judgement made by management is described below.
Classification of investments as portfolio investments, associated businesses, joint ventures and subsidiaries
Classification of investments requires judgement on whether Torstar controls, has joint control or significant
influence over the strategic financial and operating decisions relating to the activity of the investee. Joint control
is the contractually agreed sharing of control over the financial and operating policy decisions of the investee. It
exists only when the decisions require the unanimous consent of the parties sharing control. Significant influence
is the power to participate in the financial and operating policy decisions of the investee but does not represent
control or joint control over those decisions. If an investor holds 20% or more of the voting power of the investee,
it is presumed that the investor has significant influence, unless it can be clearly demonstrated that this is not the
case. Conversely, if the investor holds less than 20% of the voting power of the investee, it is presumed that the
investor does not have significant influence, unless such influence can be clearly demonstrated.
In assessing the level of control or influence that Torstar has over an investment, management considers
ownership percentages, board representation as well as other relevant provisions in shareholder agreements.
TORSTAR CORPORATION 2012 ANNUAL REPORT 33
TORSTAR - Management’s Discussion and Analysis
Black Press and Shop.ca have been classified as associated businesses based on management’s judgement that
Torstar has, based on rights to board representation and other provisions in the respective shareholder
agreements, significant influence despite owning less than 20% of the voting rights throughout 2012.
9. Recent Accounting Pronouncements
A discussion of recent IFRS developments that will affect Torstar
The International Accounting Standards Board (“IASB”) continues to issue new and revised IFRS. A listing of the
changes in IFRS is included in Note 2(u) in Torstar’s December 31, 2012 consolidated financial statements. Most
of the new standards are expected to have a relatively minor impact on Torstar’s financial reporting but there are
two that are currently expected to have a more significant impact.
The first is IFRS 11 Joint Arrangements. This new standard provides the accounting for joint ventures and joint
operations. It will eliminate the use of the proportionate consolidation method to account for joint ventures and will
require them to be accounted for using the equity method of accounting. The new standard will be effective for
Torstar for its 2013 fiscal year with retroactive restatement to January 1, 2012. Torstar currently proportionately
consolidates its joint ventures including its interest in Sing Tao, Workopolis and Harlequin’s operations in France
and Italy. With the new standard, the revenues, expenses, assets and liabilities from these operations will no
longer appear in Torstar’s consolidated financial statements but will be replaced by a single investment amount
on the consolidated statement of financial position and a single income amount on the consolidated statement of
income. Torstar’s 2012 restated revenue and operating profit are estimated to be lower by $79.0 million and $1.9
million respectively but with no change to net income. At December 31, 2012, while net assets would remain the
same, cash and cash equivalents net of bank overdraft, would have been lower by $14.0 million resulting in a
corresponding increase in net debt. As a consequence of the new IFRS 11 and IFRS 12, IAS 28 has been
renamed IAS 28 Investments in Associates and Joint Ventures, and describes the application of the equity
method to investments in joint ventures in addition to associates. Under the amended standard, the $10.4 million
gain recognized on the remeasurement of Tuango would be reversed in the restated consolidated statement of
income for 2012, reducing the carrying amount of the investment.
The second is the amended IAS 19 Employee Benefits. The amendments introduce a net interest approach for
defined benefit obligations. The change will replace the expected return on plan assets and interest costs on the
defined benefit obligation with a single net interest component determined by multiplying the net defined benefit
liability or asset by the discount rate used to determine the defined benefit obligation. For example, in 2012
Torstar’s expected long-term rate of return on plan assets was 6.5% compared with the discount rate of 4.3%
used to determine the expense on the benefit obligation. In this example, under the amended standard, the rate
of 4.3% would be applied to the net benefit liability. The amended standard will be effective for Torstar’s 2013
fiscal year with retroactive restatement to January 1, 2012. The adoption of the standard will have no impact on
future cash funding requirements. Upon the adoption of this standard, Torstar intends to classify the interest
component of employee future benefit expenses in interest and financing costs. Torstar’s 2012 restated employee
future benefit expenses are estimated to be $16.8 million higher, incurred equally throughout the year. EBITDA
and operating profit would have been lower by $5.6 million and interest and financing costs would have increased
by $11.2 million. Additionally, Torstar’s net income would have been lower by $12.5 million.
10. Controls and Procedures
A discussion of Torstar’s disclosure controls and internal controls over financial reporting
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 at December 31, 2012, 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.
TORSTAR CORPORATION 2012 ANNUAL REPORT 34
TORSTAR - Management’s Discussion and Analysis
Based on this evaluation, Torstar’s CEO and CFO have concluded that, as at December 31, 2012, 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 IFRS, 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 controls over
financial reporting were effective as at December 31, 2012.
Changes in Internal Control over Financial Reporting
There have been no changes in Torstar’s internal controls over financial reporting that occurred during the year
ended December 31, 2012, that have materially affected, or are reasonably likely to materially affect, Torstar’s
internal controls over financial reporting.
11. Selected Annual Information
A summary of selected annual financial information for 2012, 2011 and 2010
(in $000’s – except for per share amounts)5
2012
2011
2010
Revenue
Net income
Net income attributable to equity
shareholders
$1,485,744
$103,836
$1,548,757
$218,141
$1,483,768
$210,729
$103,247
$217,721
$209,910
Net income attributable to equity shareholders per Class A
voting and Class B non-voting share
Basic
Diluted
$1.30
$1.29
Average number of shares outstanding during the year (in 000’s)
Basic
Diluted
79,671
79,946
$2.74
$2.72
79,400
79,949
$2.65
$2.64
79,074
79,637
Cash dividends per Class A voting and
Class B non-voting share
$0.51886
$0.4675
$0.37
Total assets
Total long-term debt
$1,471,244
$178,027
$1,484,767
$196,191
$1,536,385
$404,586
5 All amounts presented have been prepared in accordance with IFRS.
6 Torstar’s annualized dividend rate effective March 31, 2012 is $0.525.
TORSTAR CORPORATION 2012 ANNUAL REPORT 35
TORSTAR - Management’s Discussion and Analysis
Revenue has been relatively stable in 2012 and 2010 with 2011 revenue reflecting higher product sales in
Metroland Media Group’s TMGTV. Digital revenues have grown over the three year period in both the Media and
Book Publishing Segments.
Over the three year period, significant labour cost savings have been realized in the Media Segment from
restructuring initiatives. The provisions for the costs of these restructuring initiatives have had a negative impact
on net income, generally in a period in advance of the cost savings being realized.
2010 net income included a remeasurement gain of $115.5 million related to Torstar’s investment in CTV and
$3.5 million related to the acquisition of the remaining half of Harlequin’s German publishing business that it had
not previously held.
Net income in 2011 was positively impacted by a $74.6 million gain on the sale of Torstar’s interest in CTV and a
$19.0 million remeasurement gain related to Torstar’s previously-held interest in Metro.
Total assets have declined slightly over the three year period while long-term debt has been reduced by $226.6
million as a result of cash generated from operations and the proceeds from the sale of Torstar’s investment in
CTV.
12. Summary of Quarterly Results
A summary view of Torstar’s quarterly financial performance
The following table presents selected financial information for each of the eight most recently completed quarters:
2012 Quarter Ended
2011 Quarter Ended
(in $000’s - except
per share amounts)
Revenue
Net Income
Net Income
attributable to equity
shareholders
Per Class A voting
and Class B non-
voting share
Dec 31
$395,746
$24,385
Sept 30
$355,336
$14,267
June 30
$383,907
$35,915
March 31
$350,755
$29,269
Dec 31
$425,336
$64,572
Sept 30
$378,677
$25,279
June 30
$393,322
$112,902
March 31
$351,422
$15,388
$24,140
$14,120
$35,677
$29,310
$64,283
$25,239
$112,727
$15,472
Basic
Diluted
$0.30
$0.30
$0.18
$0.18
$0.45
$0.44
$0.37
$0.37
$0.81
$0.81
$0.32
$0.32
$1.42
$1.41
$0.20
$0.19
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. Book Publishing Segment revenues will vary each quarter depending on the publishing
schedule and the impact of foreign exchange rates.
The second quarter of 2011 included the $74.6 million gain on the sale of Torstar’s interest in CTV and the fourth
quarter included the $19.0 million remeasurement gain related to Torstar’s previously-held interest in Metro. The
third and fourth quarters of 2012 were impacted by lower operating revenues.
Restructuring and other charges have impacted the level of net income in several quarters. In 2012, the first,
second, third and fourth quarters had restructuring and other charges of $2.6 million, $1.6 million, $6.9 million and
$6.7 million respectively. In 2011, the first, second, third and fourth quarters had restructuring and other charges
of $0.4 million, $3.4 million, $2.0 million and $13.7 million respectively. Additionally, losses on impairment of
assets of $0.3 million, $1.0 million and $11.7 million were recorded in the second, third and fourth quarters of
2012 respectively.
TORSTAR CORPORATION 2012 ANNUAL REPORT 36
TORSTAR - Management’s Discussion and Analysis
13. Reconciliation and Definition of Non-IFRS Measures
A description and reconciliation of certain non-IFRS measures used by management
In addition to operating profit, as presented in the consolidated statement of income, management uses EBITDA
and operating earnings as measures to assess the consolidated performance and the performance of the
reporting units and business segments.
Earnings before Interest, Taxes, Depreciation and Amortization
EBITDA (earnings before interest, taxes, depreciation and amortization) 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 business segment. EBITDA is not the actual cash provided by
operating activities and is not a recognized measure of financial performance under IFRS. Torstar calculates
EBITDA as operating revenue less salaries and benefits and other operating costs as presented on the
consolidated statement of income. EBITDA excludes restructuring and other charges and impairment of assets.
Torstar’s method of calculating EBITDA may differ from other companies and accordingly may not be comparable
to measures used by other companies.
Operating earnings
Operating earnings is used by management to represent the results of ongoing operations and is not a
recognized measure of financial performance under IFRS. Torstar calculates operating earnings as operating
revenue less salaries and benefits and other operating costs and amortization and depreciation. Operating
earnings excludes restructuring and other charges and impairment of assets. Torstar’s method of calculating
operating earnings may differ from other companies and accordingly may not be comparable to measures used
by other companies.
14. Risks and Uncertainties
Risks and uncertainties facing Torstar
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, financial
performance 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.
Media Segment – Revenue Risks
Revenue from Torstar’s Media Segment accounted for approximately 71% of Torstar’s consolidated operating
revenue in the year ended December 31, 2012. Revenue in the Media Segment is primarily dependent upon the
sale of advertising and to a lesser extent, the generation of circulation revenue. Advertising revenue includes in-
paper advertising, digital advertising, inserts/flyers and specialty publications.
Competition
Competition for advertising and circulation revenue comes from free and paid local, regional and national
newspapers, radio, broadcast and cable television, outdoor, direct mail, directories, websites, social media,
applications for mobile devices, other communications and advertising media, and online advertising networks and
exchanges 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 of digital media alternatives and the
fragmentation of audiences. In addition, there has been increasing consolidation in Canadian newspaper publishing,
television, radio and other media and competitors increasingly have interests in multiple forms of media. These
competitors may be more successful in attracting advertising revenue by bundling sales across television, radio and
internet platforms and may have access to greater financial and other resources than what is available to Torstar.
There has been a structural shift within the advertising industry from print to digital that has and will continue to
impact print advertising revenue and this shift may be permanent. Websites, applications for mobile devices, social
networking tools and other digital platforms that distribute news and other content continue to gain popularity and
contribute to this shift. As a result, audience attention may decline and advertising spending will likely continue to
TORSTAR CORPORATION 2012 ANNUAL REPORT 37
TORSTAR - Management’s Discussion and Analysis
shift from traditional media forms to digital media. In addition, advertisers have increased opportunity to reach
customers directly with new digital technologies which may contribute to reduced spending on advertising. This
shift is likely to continue with advertisers seeking lower-cost alternatives, convenience and access to the latest digital
technologies. Torstar expects that advertisers will continue to allocate greater portions of their budgets to digital
media. This shift has intensified competition for advertising in traditional media and has contributed to and may
continue to contribute to a decline in print advertising revenue that is difficult to replace. Digital advertising revenues
have not offset a significant portion of lost print advertising revenue and Torstar may not be as successful as others
in the industry in offsetting lost print advertising revenue.
In response to this shift to digital media, Torstar has been making significant investments in its digital businesses
over the past several years. The digital businesses in Torstar’s Media Segment operate in a rapidly evolving and
highly dynamic competitive environment. Rapid changes in technology and digital media options 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. Torstar may not be able to successfully respond to these rapid changes
and increasing number of digital media options. In addition, the revenue growth in these digital businesses may
not continue at the same rate and certain of these digital businesses may not achieve profitability.
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 to succeed, Torstar will need to be able to successfully exploit new and existing technologies,
distinguish its products and services from those of its competitors and continue to develop or adapt to new
distribution methods that provide competitive user experiences.
Economic conditions
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 Ontario economy specifically, have had and may continue to have a negative impact on the
advertising industry and on Torstar’s operations. Local downturns in the general economic environment may
continue to 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.
Torstar’s advertising revenue is also dependent on the prospects of its advertising customers. A significant portion
of Torstar’s advertising revenue is derived from retail, real estate and automotive sector advertisers. Weakness and
continuing uncertainty in these sectors has had, and may continue to have, an adverse impact on Torstar’s
advertising revenues.
Content and readership
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.
Torstar has implemented a pay model for online readership for thespec.com, guelphmercury.com and
therecord.com and intends to implement a pay model for thestar.com. Torstar’s ability to build a paid subscriber
base for its digital news content will depend on market acceptance, consumer habits, the timely development of an
adequate online infrastructure, practices of delivery platforms, pricing and other factors. Torstar also faces the risk
that although implementing a pay model could increase revenue, it could also reduce online readership levels and
page views and have a negative impact on advertising revenues.
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, relevant and entertaining by readers and
advertisers. Public preferences and tastes, general economic conditions, the availability of alternative sources of
content and the newsworthiness of current events, among other intangible factors, may also contribute to the
TORSTAR CORPORATION 2012 ANNUAL REPORT 38
TORSTAR - Management’s Discussion and Analysis
fluctuation in readership levels, and accordingly, limit the ability of Torstar to generate advertising and circulation
revenue.
With the increase in alternative digital 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. If traffic levels
decline or stagnate, Torstar may not be able to create sufficient advertiser interest in its digital businesses to
maintain or increase the advertising rates of its advertising inventory. Torstar may incur additional marketing costs
to attract subscribers and increase its online traffic and may not be able to recover these costs through online
circulation and advertising revenues.
Maintenance of satisfactory circulation, readership and online traffic levels attractive to advertisers cannot be
guaranteed.
Product Revenue
TMGTV’s product business is dependent on Torstar’s ability to continue to source and market products that have
consumer appeal and there is no guarantee that Torstar will be able to do so. The appeal of products can change
for a variety of reasons, including customer preference and the perceived value of the products. In addition,
product distribution is a relatively new business for Torstar, and there is a limited historical basis to predict
customer demand for new products.
Book Publishing Segment – Revenue Risks
Revenue from Torstar’s Book Publishing Segment accounted for approximately 29% of Torstar’s consolidated
operating revenue in the year ended December 31, 2012. Book Publishing revenue is generated from Harlequin.
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 – Harlequin.com).
Competition
Harlequin competes not only with other book publishers but also with other providers of entertainment including
television, music, movies, games and magazines. These global markets are very competitive and this is not
expected to change in the future. More recently, online retailers have also entered into the book publishing
business creating additional competition. In addition, authors have greater opportunity to self-publish.
Economic conditions
Historically, Harlequin’s book publishing revenue has not been as sensitive to economic conditions as has
advertising revenue for the Media Segment. While consumers generally reduce spending during economic
downturns, book sales have tended to be relatively more stable. There is no assurance that this will continue to be
the case in the future.
Harlequin has also benefited from geographic diversification to lessen the impact of changes in the general
economic performance in any one individual country, although it does have significant exposure to the economic
conditions in the U.S. market. In 2012, 5% of Harlequin’s revenues were derived from Canada, 48% from the U.S.,
and 47% from all other markets (the largest of which were Japan, Germany, the U.K., Australia, Nordic and France).
Authors
Harlequin’s single title 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 may decide to
publish future books with another publisher. There is also no guarantee that an author will continue to be popular
with readers or that future titles will be successful. In addition, as the digital book market grows, it is increasingly
possible for authors to self-publish.
Price
In recent years, the book publishing industry, in particular in North America, has seen increased price competition
among book retailers in both printed and digital formats, including self-publishing. Harlequin primarily publishes
paperback books which to date, have not experienced the same pricing pressures as hardcover books, however,
there is no guarantee that this will continue.
TORSTAR CORPORATION 2012 ANNUAL REPORT 39
TORSTAR - Management’s Discussion and Analysis
Retail market
The significant growth of the digital book market has resulted in a contraction of the retail print market.
Distribution for the retail print market is also relatively concentrated with a small number of wholesalers and
retailers in any market. These factors increase the risk of bankruptcy of a major retail customer or a wholesaler
which could disrupt the distribution channels, increase competition for shelf-space and/or increase costs.
Books sold through the retail print 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 do not
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. The difference between the initial estimate of returns and the actual returns realized has an
impact on Harlequin’s results during subsequent periods as returns are received. This impact could be
significant.
As a result of the increasing popularity of digital formats, a number of digital-only publishers and other digital
distribution models have emerged. These new competitors have very low cost structures and may be able to
attract quality authors and take market share from the traditional publishers, including Harlequin.
Within the global digital marketplace, there is the risk that online retailer control could become increasingly
concentrated. In the U.S. market, over 80% of Harlequin’s 2012 digital sales were with two online retailers. The
impact of such concentration is currently uncertain but it could have a negative impact on Harlequin’s sales
volumes, pricing and costs.
The low cost of digitization has also led to a proliferation in the number of digital titles available and increased
competition. While Harlequin has been digitizing its backlist for a number of years and now has more than 18,000
digital titles available for sale in North America, there is no assurance that the company will be able to
successfully compete against new or potential competitors.
Direct-to-consumer market
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,
Harlequin.com, to attract new customers. Despite this, the customer base has declined over time and is expected
to continue to do so in the future.
Labour Disruptions
Torstar has a number of collective agreements at its newspaper operations that have historically tied annual wage
increases to the 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 or
structural shifts in Torstar’s business that negatively impact revenue.
The Toronto Star has approximately 795 staff covered by four collective agreements. The largest agreement
covers approximately 445 employees at One Yonge Street, Toronto. This collective agreement expired at the end
of December 2012 and negotiations have started. There are three agreements covering approximately 350
employees at the Toronto Star’s Vaughan Press Centre. One agreement covering approximately 310 employees
will expire in December 2014. Two other agreements, covering approximately 20 employees each will expire at
the end of December 2013 and December 2014 respectively.
Sing Tao has two collective agreements covering approximately 125 employees that will expire in December
2015. Metro’s Toronto operations have a collective agreement covering approximately 65 employees that will
expire in early March of 2013.
TORSTAR CORPORATION 2012 ANNUAL REPORT 40
TORSTAR - Management’s Discussion and Analysis
Metroland Media Group has a total of 20 collective agreements covering approximately 725 employees. There
are ten collective agreements covering approximately 280 employees within the community newspapers. Three
agreements covering approximately 55 employees will expire in November 2013. Two agreements covering
approximately 145 employees will expire in December 2013, three agreements covering approximately 50
employees will expire in December 2014 and two agreements covering approximately 30 employees will expire in
August 2015.
At the Metroland Media Group daily newspapers, there are ten agreements covering approximately 445
employees. Two agreements covering approximately 145 employees at the Hamilton Spectator expired at the
end of December 2012 and negotiations are expected to begin shortly. Two agreements covering approximately
75 employees at the Hamilton Spectator will expire in May 2013. One agreement covering approximately 10
employees at the Guelph Mercury will expire in May 2014. One agreement covering approximately 70 employees
at the Hamilton Spectator and four agreements covering approximately 145 employees at the Waterloo Region
Record will expire in December 2014.
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 salaries and 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 2012, the price that Torstar paid for newsprint was on average equal
to the price paid in 2011. Torstar’s newspapers consume approximately 110,000 tonnes of newsprint each year.
The pulp and paper industry has faced difficulties over the past few years with some newsprint suppliers
experiencing financial instability. 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 three main suppliers.
Pursuant to arrangements with two suppliers, Torstar has fixed the price of the majority of its newsprint
requirements for 2013 at prices less than those realized in 2012. There can be no assurance that Torstar will be
able to extend these arrangements in future years or that Torstar’s newspapers will not be exposed in the future
to volatile or increased newsprint costs which could have an adverse effect on Torstar’s financial performance.
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 financial performance.
Foreign Exchange
As an international publisher, approximately 95% of Harlequin’s revenues (approximately 27% of Torstar’s
operating revenues) are earned in currencies other than the Canadian dollar. As a result, Harlequin’s revenues
and operating earnings 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, British Pound and Australian dollar.
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 12 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 is net of applicable book revenue provisions and allowances for
doubtful accounts. The allowances for doubtful accounts are estimated based on past experience, specific risks
associated with the customer and other relevant information.
TORSTAR CORPORATION 2012 ANNUAL REPORT 41
TORSTAR - Management’s Discussion and Analysis
Under a billing and collection agreement with a third party, the Book Publishing Segment has a net receivable of
$23.5 million (U.S. $23.6 million) as at December 31, 2012 related to its U.S. sales. To date, the credit risk
associated with this balance has been mitigated by the financial stability and payment history of the third party.
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 restrictions 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 not to exceed a maximum level of debt compared to cash flow and a minimum interest coverage test.
In addition, Torstar cannot experience a material adverse change in its business. Failure to comply with these
restrictions and financial covenants could trigger early payment obligations and could have an adverse effect on
Torstar. A full description of these restrictions and financial covenants can be found in the amended and restated
loan agreement filed on www.sedar.com.
Pension Fund Obligations
Relative to its size, and when compared to other companies, Torstar has large pension liabilities, funding
requirements and costs. The funded status of Torstar’s defined benefit pension plans and its contribution
obligations may be impacted by several factors, including changes to pension laws and regulation, changes to
benefits provided to plan participants, changes to actuarial assumptions and methods, changes in participant
demographics and plan experience, and changes to prevailing economic conditions, including the discount rate
used to measure Torstar’s contribution obligations, the rate of return on plan assets, long-term interest rates and
other changes to economic conditions. Changes in investment performance or in a change in the mix of plan
assets may result in increases or decreases in the valuation of plan assets, or in a change to the expected rate of
return on plan assets. Significant variations in plan performance and changes to any of the foregoing factors could
produce further underfunding in Torstar’s defined benefit pension plans as well as increases to the net pension
cost in subsequent financial years that could require increased funding contributions to those plans, which could
have an adverse effect on Torstar’s cash flows, liquidity and financial condition.
As at December 31, 2012 Torstar had a net liability of $181.4 million for its registered defined benefit pension plans.
The most significant group of Torstar’s registered defined benefit pension plans (in terms of assets and
obligations) completed the preparation of actuarial reports as of December 31, 2011 during 2012. Torstar’s
funding for these registered defined benefit pension plans was $72.5 million in 2012. Funding for 2013 is
expected to be approximately $65.0 million. There is no guarantee that these funding requirements will not
increase in the future (whether due to changes in long–term interest rates, lower than expected pension fund
returns, changes in the discount rate used to assess the pension plan obligations, actuarial losses or otherwise).
In addition to the registered defined benefit pension plans, Torstar also has an unregistered, unfunded defined
benefit pension plan that provides pension benefits to eligible senior management executives of Torstar (liability
of $25.0 million at December 31, 2012) and a post employment benefits plan that provides health and life
insurance benefits to certain grandfathered employees, primarily in the newspaper operations (liability of $47.6
million at December 31, 2012). These plans are being funded as payments are made.
Impairment
Economic, market, legal, regulatory, competitive, customer, contractual and other factors may affect the value of
Torstar’s long-lived assets, intangible assets and goodwill. If any of these factors impair the value of these assets,
IFRS requires Torstar to reduce their carrying value and recognize an impairment charge. This would reduce
Torstar’s reported assets and earnings in the year the impairment charge is recognized.
In addition, Torstar holds investments in businesses that it does not hold a controlling interest in and Torstar does
not exercise control over the management, strategic direction or daily operations of these businesses. A change
in the operation of these businesses could require Torstar to record its share of any asset or goodwill impairment
recorded by these businesses and could require Torstar to take a charge to earnings in order to reduce its
carrying value.
TORSTAR CORPORATION 2012 ANNUAL REPORT 42
TORSTAR - Management’s Discussion and Analysis
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 including those of third party service
providers. 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 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 an adverse effect on Torstar’s ability to successfully compete in the future.
Business Development and Acquisition Integration
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. In addition, Torstar may not be
successful in integrating new businesses, could incur unforeseen costs in connection with the acquisition of a
business or may not fully realize anticipated synergies, any of which could have an adverse effect on financial
performance.
Interest Rates
Torstar has long-term debt in the form of bankers’ acceptances issued under its long-term bank credit 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 and the specific borrowing spread, Torstar is exposed to fluctuations in market
interest rates on its bankers’ acceptances that are issued at floating rates. From time to time, 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, that amounts owing from insurers will be collected 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, 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 have, litigation claims filed which
are related to the publication of its editorial content, copyright or trademark infringement, privacy, personal injury,
TORSTAR CORPORATION 2012 ANNUAL REPORT 43
TORSTAR - Management’s Discussion and Analysis
product liability, breach of contract, unfair competition or other legal claims. Although Torstar maintains insurance
for many of these types of claims, there can be no assurance that 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 negative impact on Torstar’s results. In addition,
Torstar could incur significant costs in investigating and defending such claims, even if ultimately found not to be
liable.
Government Regulations
General
Torstar’s businesses are subject to a variety of laws and regulations, including laws applicable generally to
business and environmental, privacy, communications and e-commerce laws. Torstar may also be notified from
time to time of additional laws and regulations which governmental organizations or others may claim should be
applicable to certain of its businesses. If Torstar is required to alter its business practices as a result of any laws
and regulations, revenue could decrease, costs could increase and/or certain of Torstar’s businesses could
otherwise be harmed. In addition, the costs and expenses associated with defending any actions related to such
additional laws and regulations and any payments of related penalties, judgements or settlements could adversely
impact certain of Torstar’s businesses.
Environmental
Torstar is subject to a variety of environmental laws concerning, among other things, emissions to the air, water and
sewer discharges, handling and disposal of wastes, recycling, the use of recycled materials, 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 has 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.
E-Commerce, Privacy and Confidential Information
Laws relating to privacy, anti-spam, 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 and the distribution of certain communications. In addition, the costs of compliance and/or
non-compliance with industry or legislative initiatives to address consumer protection concerns or other related
issues such as copyright infringement, unsolicited commercial e-mail, cyber-crime and access could adversely
impact certain of Torstar’s businesses.
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.
Dependence on Key Personnel
Torstar is dependent to a large extent upon the continued services of its senior management team and other key
employees including editorial, technical and sales personnel. There is intense competition for qualified managers
and skilled employees and Torstar’s failure to recruit, train and retain such employees could have an adverse effect
on its business, financial condition or operating results.
Dependence on Third-Party Suppliers and Service Providers
Torstar relies on third-party suppliers and service providers for certain key services including product distribution,
call center services, certain information technology functions and certain printing, advertising production, and
sales and content supply requirements. Torstar may outsource additional components of its business operations
in the future. Torstar’s business or operations could be interrupted or otherwise adversely impacted by its third
party suppliers and service providers experiencing business difficulties or interruptions, the suppliers or service
TORSTAR CORPORATION 2012 ANNUAL REPORT 44
TORSTAR - Management’s Discussion and Analysis
providers being unable to provide services as anticipated or by Torstar being unable to integrate or effectively
utilize the services of the third party suppliers and service providers.
Loss of Reputation
Torstar, its customers, shareholders and employees place considerable reliance on Torstar’s good reputation.
Torstar’s ability to maintain its existing customer relationships and generate new customers depends greatly on the
quality of its services, brand reputation and business continuity. The loss or tarnishing of the reputation of Torstar or
any of its significant businesses through negative publicity or otherwise, whether true or not, could have an adverse
impact on the business, operations or financial condition of Torstar.
Product Liability
Torstar may be exposed to potential liability in connection with the sale and promotion of products (including claims
from purchasers, distributors, regulators and law enforcement) which could include claims for personal injury,
wrongful death, damage to personal property, claims relating to misrepresentation of product features and benefits
or violation of applicable laws. Although Torstar maintains insurance for many of these types of claims, there can be
no assurance that insurance will be available or sufficient 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 negative impact on Torstar’s results. In addition, Torstar could incur significant costs in
investigating and defending such claims, even if ultimately found not to be liable.
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. If third parties were to
contest the validity or scope of Torstar’s intellectual property rights, such challenges could result in the limitation or
loss of intellectual property rights and regardless of their validity, such claims could cause Torstar to incur significant
costs in investigating and defending such claims and have a negative impact on Torstar’s results.
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.
TORSTAR CORPORATION 2012 ANNUAL REPORT 45
TORSTAR - Consolidated Financial Statements
INDEPENDENT AUDITORS’ REPORT
To the Shareholders of Torstar Corporation
We have audited the accompanying consolidated financial statements of Torstar Corporation, which comprise the
consolidated statements of financial position as at December 31, 2012 and 2011, and the consolidated
statements of income, comprehensive income, changes in equity and cash flows for the years ended December
31, 2012 and 2011, 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 International Financial Reporting Standards, 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, 2012 and 2011 and its financial performance and its cash flows for the
years ended December 31, 2012 and 2011 in accordance with International Financial Reporting Standards.
Toronto, Canada
March 5, 2013
Ernst & Young LLP
Chartered Accountants
Licensed Public Accountants--------------
TORSTAR CORPORATION 2012 ANNUAL REPORT 47
TORSTAR - Consolidated Financial Statements
Torstar Corporation
Consolidated Statement of Financial Position
(Thousands of Canadian Dollars)
Assets
Current:
Cash and cash equivalents
Receivables (note 12)
Inventories (note 3)
Derivative financial instruments (note 12)
Prepaid expenses and other current assets
Prepaid and recoverable income taxes
Total current assets
Property, plant and equipment (note 4)
Investment in associated businesses (note 5)
Intangible assets (note 6)
Goodwill (note 7)
Other assets (note 9)
Deferred income tax assets (note 10)
Total assets
Liabilities and Equity
Current:
Bank overdraft
Current portion of long-term debt (note 11)
Accounts payable and accrued liabilities
Provisions (note 14)
Income tax payable
Total current liabilities
Long-term debt (note 11)
Derivative financial instruments (note 12)
Provisions (note 14)
Other liabilities (note 15)
Employee benefits (note 16)
Deferred income tax liabilities (note 10)
Equity:
Share capital (note 17)
Contributed surplus
Retained earnings
Accumulated other comprehensive loss (note 19)
Total equity attributable to equity shareholders
Minority interests
Total equity
Total liabilities and equity
(see accompanying notes)
ON BEHALF OF THE BOARD
As at
December 31
2012
As at
December 31
2011
$39,021
274,383
34,001
1,272
44,236
11,195
404,108
167,104
42,835
108,130
648,861
11,823
88,383
$50,588
278,010
36,995
367
47,063
2,451
415,474
177,245
16,935
107,845
665,029
1,798
100,441
$1,471,244
$1,484,767
$9,962
212,741
15,964
11,522
250,189
178,027
7,018
14,520
25,847
255,434
8,315
397,425
16,057
325,247
(9,699)
729,030
2,864
731,894
$7,661
196,191
210,567
22,599
17,398
454,416
8,761
16,906
26,749
264,027
7,644
395,334
14,828
301,863
(8,286)
703,739
2,525
706,264
$1,471,244
$1,484,767
John Honderich
Director
Paul Weiss
Director
TORSTAR CORPORATION 2012 ANNUAL REPORT 48
TORSTAR - Consolidated Financial Statements
Torstar Corporation
Consolidated Statement of Income
(Thousands of Canadian Dollars except per share amounts)
Year ended December 31
2012
2011
Operating revenue
$1,485,744
$1,548,757
Salaries and benefits
Other operating costs
Amortization and depreciation
Restructuring and other charges (note 14)
Impairment of assets (note 8)
Operating profit
Interest and financing costs (note 11(c))
Adjustment to contingent consideration (note 14)
Foreign exchange
Loss of associated businesses (note 5)
Gain on sale of assets (note 21)
Other income (note 21)
Gain on sale of CTV Inc.
Investment write-down and loss (note 22)
Income and other taxes (note 10)
Net income
Attributable to:
Equity shareholders
Minority interests
(520,835)
(757,177)
(38,182)
(17,778)
(13,003)
138,769
(8,759)
(258)
(246)
(3,295)
9,811
10,407
(93)
146,336
(42,500)
$103,836
$103,247
$589
(511,083)
(795,425)
(33,165)
(19,411)
189,673
(16,629)
630
(3,477)
(2,157)
19,055
74,590
(544)
261,141
(43,000)
$218,141
$217,721
$420
Net income attributable to equity shareholders per Class A
(voting) and Class B (non-voting) share (note 17(c)):
Basic
Diluted
(see accompanying notes)
$1.30
$1.29
$2.74
$2.72
TORSTAR CORPORATION 2012 ANNUAL REPORT 49
TORSTAR - Consolidated Financial Statements
Torstar Corporation
Consolidated Statement of Comprehensive Income
(Thousands of Canadian Dollars)
Net income
Other comprehensive income (loss):
Year ended December 31
2012
2011
$103,836
$218,141
Unrealized foreign currency translation adjustment (no income
tax effect)
(5,102)
6,041
Net movement on available-for-sale financial assets (no income
tax effect)
Net movement on cash flow hedges
Income tax effect
Unrealized gain (loss) on hedge of net investment
Income tax effect
Actuarial losses on employee benefits (note 16)
Income tax effect
123
2,648
(600)
1,768
(250)
(51,927)
13,400
(29)
846
(400)
(1,792)
250
(91,509)
23,200
Other comprehensive loss, net of tax
(39,940)
(63,393)
Comprehensive income, net of tax
$63,896
$154,748
Attributable to:
Equity shareholders
Minority interests
(see accompanying notes)
$63,307
$589
$154,328
$420
TORSTAR CORPORATION 2012 ANNUAL REPORT 50
TORSTAR - Consolidated Financial Statements
Torstar Corporation
Consolidated Statement of Changes in Equity
(Thousands of Canadian Dollars)
Share
capital
Contributed
surplus
Retained
earnings
Accumulated
other
comprehensive
loss
Total
attributable to
equity
shareholders
Minority
interests
Total
equity
At December 31, 2010
$392,816
$13,235
$189,586
($13,202)
$582,435
$2,125
$584,560
Net income
Other comprehensive
income (loss)
Total comprehensive
income
Dividends (note 17)
Issue of share capital –
other (note 17)
Exercise of share options
(note 17)
Share-based
compensation expense
Acquisition of non-
controlling interest
273
1,869
376
(52)
1,645
217,721
217,721
420
218,141
(68,309)
4,916
(63,393)
(63,393)
149,412
4,916
154,328
420
154,748
(37,135)
(36,862)
(36,862)
1,869
324
1,645
1,869
324
1,645
(20)
(20)
At December 31, 2011
$395,334
$14,828
$301,863
($8,286)
$703,739
$2,525
$706,264
Net income
Other comprehensive loss
Total comprehensive
income
Dividends (note 17)
Issue of share capital –
other (note 17)
Exercise of share options
(note 17)
Share-based
compensation expense
Distribution
At December 31, 2012
(see accompanying notes)
103,247
(38,527)
(1,413)
103,247
(39,940)
589
103,836
(39,940)
64,720
(1,413)
63,307
589
63,896
(41,336)
(41,054)
(41,054)
1,331
413
1,294
1,331
413
1,294
(250)
(250)
282
1,331
478
(65)
1,294
$397,425
$16,057
$325,247
($9,699)
$729,030
$2,864
$731,894
TORSTAR CORPORATION 2012 ANNUAL REPORT 51
TORSTAR - Consolidated Financial Statements
Torstar Corporation
Consolidated Statement of Cash Flows
(Thousands of Canadian Dollars)
Year ended December 31
2012
2011
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
Amortization and depreciation (notes 4 and 6)
Deferred income taxes (note 10)
Loss of associated businesses (note 5)
Gain on sale of CTV Inc.
Impairment of assets (note 8)
Non-cash employee benefit expense (note 16)
Employee benefits funding (note 16)
Other (note 23)
Increase in non-cash working capital
Cash provided by operating activities
Investing activities:
Additions to property, plant and equipment and intangible
assets (notes 4 and 6)
Proceeds from sale of CTV Inc.
Investment in associated businesses
Acquisitions and portfolio investments (note 20)
Proceeds from sale of assets
Other
Cash provided by (used in) investing activities
Financing activities:
Issuance of bankers’ acceptances
Repayment of bankers’ acceptances
Dividends paid
Exercise of share options
Other
Cash used in financing activities
Cash represented by:
Cash
Cash equivalents – short-term deposits
Cash and cash equivalents
Bank overdraft
(see accompanying notes)
$90,605
(47,733)
(56,112)
(13,240)
(628)
42,927
$29,059
$103,836
38,182
24,200
3,295
13,003
16,284
(76,540)
(24,854)
97,406
(6,801)
$90,605
($33,012)
(11,265)
(11,883)
8,407
20
($47,733)
$5,991
(22,211)
(41,054)
413
749
($56,112)
$29,248
9,773
39,021
(9,962)
$29,059
$114,955
137,428
(245,582)
6,801
93
36,033
$42,927
$218,141
33,165
4,300
2,157
(74,590)
14,646
(51,236)
(13,491)
133,092
(18,137)
$114,955
($35,046)
291,590
(17,268)
(101,793)
(55)
$137,428
$71,630
(281,430)
(36,862)
324
756
($245,582)
$42,733
7,855
50,588
(7,661)
$42,927
TORSTAR CORPORATION 2012 ANNUAL REPORT 52
TORSTAR - Consolidated Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands of Canadian dollars except per share amounts)
1. CORPORATE INFORMATION
Torstar Corporation is incorporated under the laws of Ontario, Canada and its Class B (non-voting) shares are
publicly traded on the Toronto Stock Exchange. The registered office is located at One Yonge Street, Toronto,
Canada. The principal activities of the Company and its subsidiaries are described in Note 27.
2. SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of presentation
These consolidated financial statements have been prepared in accordance with International Financial
Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). The
policies applied in these consolidated financial statements are based on IFRS policies effective as of
December 31, 2012. The Board of Directors approved the consolidated financial statements on March 5,
2013.
(b) Basis of measurement
The consolidated financial statements have been prepared under the historical cost convention, except for
certain financial instruments that are measured at fair value as described in the accounting policies.
(c) Principles of consolidation
The consolidated financial statements of the Company include the accounts of Torstar Corporation and all its
subsidiaries and joint ventures. The financial statements of subsidiaries are included in the consolidated
financial statements from the date control commences and are deconsolidated on the date when control
ceases.
Intra-group balances and transactions are eliminated on consolidation. Unrealized gains arising from
transactions with equity-accounted associates are eliminated against the investment to the extent of the
Company’s interest in the associate. Unrealized losses are eliminated in the same way as unrealized gains,
but only to the extent that there is no evidence of impairment.
(d) Joint ventures
Joint ventures are entities where the Company has contractual arrangements with other venturer(s) that
establish joint control over the economic activities of the entity. It exists only when the decisions require the
unanimous consent of the parties sharing control. The Company recognizes its interests in joint ventures
using the proportionate consolidation method. The Company combines its proportionate share of each of the
assets, liabilities, income and expenses of the joint venture with similar items, line by line, in its consolidated
financial statements. Unrealized gains and losses resulting from transactions between the Company and the
joint ventures are eliminated to the extent of the interest in the joint ventures.
(e) Foreign currency translation
The Company’s consolidated financial statements are presented in Canadian dollars, which is the Company’s
functional currency. Each entity consolidated by the Company determines its own functional currency based
on the primary economic environment in which the entity operates.
TORSTAR CORPORATION 2012 ANNUAL REPORT 53
TORSTAR - Consolidated Financial Statements
Transactions in foreign currencies are initially recorded by the entities in their respective functional currencies
on the date of the transaction. Monetary assets and liabilities denominated in currencies other than the
entity’s functional currency are translated at the rates as at the date of the consolidated statement of financial
position (period end rates). Foreign currency exchange gains and losses resulting from the settlement of
such transactions and from the translation of monetary assets and liabilities not denominated in the functional
currency of an entity are recognized in the consolidated statement of income, except for qualifying cash flow
and net investment hedges for which these exchange differences are deferred in accumulated other
comprehensive income (“AOCI”) within equity. These deferred foreign exchange gains and losses are carried
forward to be recognized in income in the same period as the corresponding gains or losses associated with
the hedged item. Non-monetary assets and liabilities are translated into functional currencies at historical
exchange rates.
Assets and liabilities of entities with functional currencies other than Canadian dollars are translated at the
period end rates of exchange, and items of income and expense are translated into Canadian dollars at the
rates prevailing on the dates of the transactions, or average rates of exchange where these approximate
actual rates. The resulting translation adjustments are included in other comprehensive income (“OCI”). Upon
reduction of the Company’s investment in a foreign subsidiary due to a sale or liquidation, the proportionate
amount of AOCI is recognized in income.
(f) Financial instruments
Financial assets and liabilities
The Company classifies its financial assets and liabilities into the following categories:
•
•
•
•
Financial instruments at fair value through profit or loss
Loans and receivables
Financial assets classified as available-for-sale (“AFS”)
Other financial liabilities
The Company has not classified any financial instruments as held-to-maturity. Appropriate classification of
financial assets and liabilities is determined at the time of initial recognition or when reclassified on the
consolidated statement of financial position.
Financial instruments are recognized on the trade date – the date on which the Company becomes a party to
the contractual provisions of the instrument.
Financial assets and liabilities at fair value through profit or loss
The Company classifies certain financial assets and liabilities as either held for trading or designated at fair
value through profit or loss. Assets and liabilities in this category include derivative financial instruments that
are not designated as hedging instruments in hedge relationships.
Financial instruments at fair value through profit or loss are carried at fair value. Related realized and
unrealized gains and losses are included in the consolidated statement of income.
Loans and receivables
Loans and receivables include originated and purchased non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. Assets in this category include current
receivables and cash and cash equivalents and are classified as current assets in the consolidated statement
of financial position. Non-current receivables are classified as other assets.
Loans and receivables 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
TORSTAR CORPORATION 2012 ANNUAL REPORT 54
TORSTAR - Consolidated Financial Statements
reduced by book revenue provisions and estimated bad debt provisions which are determined by reference to
past experience and expectations. Cash and cash equivalents consist of cash in bank and short-term
investments with maturities on acquisition of 90 days or less.
Financial assets classified as AFS
Financial assets that are not classified as at fair value through profit or loss or as loans and receivables are
classified as AFS. A financial asset classified as AFS is initially recognized at its fair value plus transaction
costs that are directly attributable to the acquisition of the financial asset. Financial assets classified as AFS
are carried at fair value with the changes in fair value reported as unrealized gains or losses on AFS assets
within OCI, unless the asset is subject to a fair value hedge, in which case changes in fair value resulting from
the risk being hedged are recorded in the consolidated statement of income.
Financial assets classified as AFS are assessed for impairment at each reporting date and the Company
recognizes any impairment in the consolidated statement of income.
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. 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. Any unrealized gains and losses
recorded in AOCI are transferred to the consolidated statement of income on disposal of an AFS asset.
A financial liability is derecognized when the obligation under the liability is discharged, cancelled or expires.
Derivative instruments and hedging
In the normal course of business, the Company uses derivative financial instruments to manage its risks
related to foreign currency exchange rate fluctuations, interest rates and share-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 in the consolidated statement of financial position at fair value. The treatment of
changes in the 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 intercompany
Book Publishing revenues. Gains and losses on these instruments are accounted for as a component of the
related hedged transaction. Gains and losses on foreign exchange contracts which do not qualify for hedge
accounting are reported in the consolidated statement of income.
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TORSTAR - Consolidated Financial Statements
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 the consolidated statement of financial position.
The Company uses derivative instruments to manage its exposure to 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 share price between the settlement date and the reporting date is included in the
consolidated statement of financial position at the fair value of these derivative instruments at each reporting
date.
The treatment of changes in the fair value of a derivative depends on the intended use of the derivative and
the resulting designation. In order for a derivative to qualify for hedge accounting, the derivative must be
formally designated as a fair value, cash flow or net investment hedge by documenting the relationship
between the derivative and the hedged item. Documentation includes a description of the hedging
instrument, the hedged item, the risk being hedged, the Company’s risk management objective and strategy
for undertaking the hedge, the method for assessing the effectiveness of the hedge and the method for
measuring hedge ineffectiveness. Additionally, the hedge relationship must be expected to be highly effective
at offsetting changes in either the fair value or cash flows of the hedged item at both the inception of the
hedge and on an ongoing basis. The Company assesses the ongoing effectiveness of its hedges at each
reporting date.
Amounts in AOCI are recycled to the consolidated statement of income in the period when the hedged item
will affect profit and loss (for instance, when the forecast sale that is hedged takes place). If a hedging
instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any
unrealized cumulative gain or loss remains in AOCI and is recognized when the forecast transaction is
ultimately recognized in the consolidated statement of income. If a forecast transaction is no longer expected
to occur, the unrealized cumulative gain or loss that was reported in AOCI is recognized in the consolidated
statement of income.
Fair value hedges
These are hedges of the fair value of recognized assets, liabilities or a firm commitment. Changes in the fair
value of derivatives that are designated as fair value hedges are recorded in the consolidated statement of
income together with any changes in the fair value of the hedged asset or liability 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 statement of income.
Net investment hedges
These are hedges of the Company’s net investment in its foreign operations. The effective portion of the
change in the fair value of the hedging instrument is recorded directly in OCI. The ineffective portion is
recognized in the consolidated statement of income in the period in which the change occurs. Upon the sale
or liquidation of the foreign operations, the amounts deferred in AOCI are recognized in the consolidated
statement of income.
TORSTAR CORPORATION 2012 ANNUAL REPORT 56
TORSTAR - Consolidated Financial Statements
Embedded derivatives
An embedded derivative is a component of a hybrid instrument that also includes a non-derivative host
contract, with the effect that a portion of the cash flows of the combined instrument vary in a way similar to a
stand-alone derivative. If certain conditions are met, an embedded derivative is separated from the host
contract and accounted for as a derivative in the consolidated statement of financial position, at its fair value.
Any future changes in the fair value are recorded in the consolidated statement of income.
Derivatives that do not qualify for hedge accounting
Certain derivative instruments, while providing effective economic hedges, are not designated as hedges for
accounting purposes. Changes in the fair value of any derivatives that are not designated as hedges for
accounting purposes are recognized in the consolidated statement 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 quoted in active markets is determined using quoted prices where they represent those at which
regularly and recently occurring transactions take place. The Company uses valuation techniques to
establish the fair value of instruments where prices quoted in active markets are not available. 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 judgement, the degree of which will depend on the price transparency for the
instrument or market and the instrument’s complexity.
The Company categorizes fair value measurements according to a three-level hierarchy. The hierarchy
prioritizes the inputs used in 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 the Company to maximize the use of observable inputs and minimize
the use of unobservable inputs when measuring fair value.
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 the reporting date. 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 DSU
plans and the cost of its RSU plan. The fair value of foreign exchange forward contracts is classified within
Level 2 as it is based on foreign currency rates quoted by banks and is the difference between the forward
exchange rate and the contract rate.
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 is
TORSTAR CORPORATION 2012 ANNUAL REPORT 57
TORSTAR - Consolidated Financial Statements
recorded in the consolidated statement of income. The fair value for the interest rate swaps is based on
forward yield curves which are observable inputs provided by banks and available in other public data
sources, and are classified within Level 2.
The fair value of the derivative instruments used to manage the Company’s exposure under the DSU and
RSU plans is classified within Level 2 and is based on the movement in the Company’s share price between
the quarterly settlement date and the reporting date which are observable inputs.
The fair value of portfolio investments that have quoted market prices is classified within Level 2 because
even though the securities are listed, they are not actively traded. The fair value of portfolio investments that
do not have quoted market prices is determined when possible using a valuation technique that maximizes
the use of observable market inputs, and is classified within Level 3.
(g) Inventories
Inventories are valued at the lower of cost and net realizable value. The cost of finished goods and work in
progress includes raw materials, translation and printing and production costs. Raw materials are valued at
purchase cost on a first in, first out basis. Net realizable value is the estimated selling price in the ordinary
course of business, less estimated costs of completion and estimated costs necessary to make the sale.
Provisions are made for slow moving and obsolete inventory. If the carrying value exceeds the net realizable
amount, a writedown is recognized. The writedown may be reversed in a subsequent period if the
circumstances causing it no longer exist.
(h) 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.
(i) Property, plant and equipment
Property, plant and equipment are stated at cost net of accumulated depreciation and any accumulated
impairment losses. On transition to IFRS, the Company had elected to measure specific items of property,
plant and equipment at fair value as deemed cost. Cost includes expenditures that are directly attributable to
the acquisition of the asset. When significant parts of property, plant and equipment are required to be
replaced in intervals, the Company recognizes such parts as individual assets with specific useful lives and
depreciation, respectively. Likewise, when a major inspection is performed, its cost is recognized in the
carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. All other
repair and maintenance costs are recognized in the consolidated statement of income as incurred.
Depreciation is calculated using the straight-line basis over the estimated useful life of the asset as follows:
• Buildings
- Structural
- Components
• Machinery and Equipment
- Machinery and Equipment
- Furniture and Fixtures
• Leasehold Improvements
35 – 60 years
15 – 25 years
20 – 40 years
5 – 15 years
Term of the lease plus renewal periods, when renewal is
reasonably assured
The useful lives and methods of depreciation and the assets’ residual values are reviewed at least annually,
and the depreciation charge is adjusted prospectively, if appropriate.
TORSTAR CORPORATION 2012 ANNUAL REPORT 58
TORSTAR - Consolidated Financial Statements
An item of property, plant and equipment and any significant part initially recognized is derecognized upon
disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising
on derecognition of the asset is included in the consolidated statement of income when the asset is
derecognized.
(j) Borrowing costs
Borrowing costs consist of interest and other costs that the Company incurs in connection with the borrowing
of funds. Borrowing costs directly attributable to the acquisition, construction or production of an asset that
necessarily takes a substantial period of time to get ready for its intended use or sale are capitalized as part
of the cost of the asset. All other borrowing costs are expensed in the period they are incurred.
(k) Business combinations and goodwill
Business combinations are accounted for using the acquisition method. The cost of an acquisition is
measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the
amount of any non-controlling interest in the acquiree. Acquisition costs incurred are expensed in the
consolidated statement of income.
When the Company acquires a business, it assesses the financial assets and liabilities assumed for
appropriate classification and designation in accordance with the contractual terms, economic circumstances
and pertinent conditions at the acquisition date. If the business combination is achieved in stages, the
acquisition date fair value of the Company’s previously held equity or jointly controlled interest in the acquiree
is remeasured to fair value at the acquisition date through profit or loss. Any contingent consideration to be
transferred by the Company will be recognized at fair value at the acquisition date. Subsequent changes to
the fair value of the contingent consideration which is deemed to be an asset or liability will be recognized in
accordance with IAS 39, Financial Instruments: Recognition and Measurement, either in the consolidated
statement of income or as a change to OCI.
Goodwill represents the excess of the cost of an acquisition over the fair value of the Company’s share of the
net identifiable assets of the acquired subsidiary at the date of acquisition. If this consideration is lower than
the fair value of the net assets acquired, the difference is recognized in the consolidated statement of income.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses.
(l)
Intangible assets
Intangible assets are recognized separately from goodwill when they are separable or arise from contractual
or other legal rights and their fair value can be measured reliably. The useful lives of intangible assets are
assessed as either finite or indefinite.
Intangible assets which have a finite useful life are amortized over the useful economic life of the asset and
are stated at cost less accumulated amortization and any accumulated impairment losses. The amortization
period and the amortization method for an intangible asset with a finite useful life are reviewed at least
annually. Changes in the expected useful life or the expected pattern of consumption of future economic
benefits is accounted for by changing the amortization period or method, as appropriate, and adjusted
prospectively.
Amortization is calculated using the straight-line basis over the estimated useful life of the asset as follows:
•
•
•
Software
Customer relationships and other
Franchise agreements
3 – 10 years
4 – 10 years
10 years
Intangible assets with indefinite useful lives are not amortized. These include newspaper mastheads and
trade and domain names. The assessment of indefinite life is reviewed at each reporting date to determine
whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite
is made on a prospective basis.
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TORSTAR - Consolidated Financial Statements
Gains or losses arising from derecognition of an intangible asset are measured as the difference between the
net disposal proceeds and the carrying amount of the asset and are recognized in the consolidated statement
of income when the asset is derecognized.
(m) Impairment of non-financial assets
Property, plant and equipment and intangible assets are tested for impairment when events or changes in
circumstances indicate the carrying value may not be recoverable. Intangible assets with an indefinite useful
life are subject to an annual impairment test. For the purpose of measuring recoverable values, assets are
grouped at the lowest levels for which there are separately identifiable cash flows (a cash generating unit or
“CGU”). The recoverable value is the higher of an asset’s fair value less costs to sell and value in use (which
is the present value of the expected future cash flows of the relevant asset or CGU). An impairment loss is
recognized for the value by which the asset’s carrying value exceeds its recoverable value.
Goodwill is reviewed for impairment annually or at any time if an indicator of impairment exists. Goodwill
acquired through a business combination is allocated to each CGU or group of CGUs that is expected to
benefit from the related business combination. A group of CGUs represents the lowest level within the entity
at which goodwill is monitored for internal management purposes, which is not higher than an operating
segment. Goodwill is not amortized.
The Company evaluates impairment losses, other than goodwill impairment, for potential reversals when
events or circumstances warrant such consideration.
The test for impairment for either an intangible asset or goodwill is to compare the recoverable value of the
asset, CGU or group of CGUs to the carrying value. The recoverable value is determined for an individual
asset unless the asset does not generate cash inflows that are largely independent of those from other assets
or groups of assets (such as goodwill). If this is the case, the recoverable value is determined for the CGU to
which the asset belongs.
The Company generally uses the value in use calculation to determine the recoverable value but in certain
circumstances may use fair value less costs to sell. The value in use calculation uses cash flow projections
for a five year period and a terminal value. The terminal value is the value attributed to the cash flow beyond
the projected period using a perpetual growth rate. The key assumptions in the value in use calculations are:
• EBITDA growth rates (for periods within the cash flow projections and in perpetuity for the calculation of
the terminal value), future levels of maintenance expenditures on capital and discount rates:
• EBITDA growth rates and future levels of capital expenditures 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 CGU operates. The projections are based
on the most recent financial budgets and three year strategic plans approved by the Company’s Board of
Directors and management forecast beyond that period.
In calculating the value in use, the Company uses a discount rate in order to establish a range of values
for each CGU or group of CGUs. The discount rate applied to each calculation is an after-tax rate that
reflects an optimal debt-to-equity ratio and considers the risk free rate, market equity risk premium, size
premium and the risks specific to each CGU or group of CGUs cash flow projections.
•
• The perpetuity growth rate is based on management’s best estimates considering the industry, operating
income trends and growth prospects for that specific CGU or group of CGUs.
(n) Investments in associated businesses
An associate is an entity in which the Company has significant influence. Significant influence is the power to
participate in the financial and operating policy decisions of the investee but does not represent control or joint
control over those decisions. Investments in associates are accounted for using the equity method, whereby
the investment in the associate is carried in the consolidated statement of financial position at cost plus post
acquisition changes in the Company’s share of the net assets of the associate. Goodwill arising on the
acquisition of the associates is included in the cost of the investments and is not amortized.
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TORSTAR - Consolidated Financial Statements
The consolidated statement of income reflects the Company’s share of the results of operations of the
associate. Where there has been a change recognized directly in the OCI of the associate, the Company
recognizes its share of any changes and discloses this, when applicable, in OCI. Unrealized gains and losses
resulting from transactions between the Company and the associate are eliminated to the extent of the
interest in the associate.
After the initial application of the equity method, the Company determines at each reporting date whether
there is any objective evidence that the investment in the associate is impaired and consequently whether it is
necessary to recognize an impairment loss with respect to the Company’s investment in its associate. If this is
the case, the Company calculates the amount of impairment as the difference between the recoverable
amount of the associate and its carrying value and recognizes the amount in the consolidated statement of
income.
Upon loss of significant influence over the associate, the Company measures and recognizes any retaining
investment at its fair value. Any difference between the carrying amount of the associate upon loss of
significant influence and the fair value of the retained investment and proceeds from disposal is recognized in
profit or loss.
(o) Revenue recognition
Advertising revenue is recognized when publications are delivered or advertisements are placed on the
Company’s digital platforms. 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 print 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 all other distribution channels when title has transferred to the buyer. Book publishing revenue
is recorded net of provisions for estimated returns and direct-to-consumer bad debts (“book revenue
provisions”). Retail print books are sold with a right of return. The retail returns provision is estimated based
primarily on point-of-sale information, returns patterns and historical sales performance for the type of book
and the author. Direct-to-consumer books are shipped with no obligation to the customer who may return the
books or cancel their subscription at any time. The direct-to-consumer book revenue provision recognizes
that not all books shipped will be purchased by the customer. Book revenue provisions are made at the time
of shipment for the anticipated physical return of the books or a non-payment for the shipment. The direct-to-
consumer book revenue provisions are estimated based on historical payment rates for the type of book as
well as how long the customer has been a subscriber. Book publishing revenue attributable to the customer
loyalty points program is deferred at the date of the initial sale and is recognized as revenue when the
Company fulfills its obligations.
Other revenue is recognized when the related service or product has been delivered. Amounts received in
advance are included in the consolidated statement of financial position in accounts payable and accrued
liabilities until the revenue is recognized in accordance with the policies noted above.
(p) Employee benefits
The Company maintains both defined benefit and capital accumulation (defined contribution) employee
benefit 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 is calculated
annually by independent actuaries using the projected unit credit method prorated on service and
management's best estimate of assumptions of future investment returns for funded plans, salary
increases, retirement ages of employees and expected health care costs. On an interim basis,
management estimates the changes in the actuarial gains and losses. These estimates are adjusted
when the annual valuation or estimate is completed by the independent actuaries.
TORSTAR CORPORATION 2012 ANNUAL REPORT 61
TORSTAR - Consolidated Financial Statements
• For the purpose of calculating the expected return on plan assets, assets are valued at fair value. Plan
assets are assets that are held in a long-term employee benefit fund. Plan assets are not available to the
creditors of the Company, nor can they be paid directly to the Company without regulatory approval.
• The present value of the defined benefit obligation is determined by discounting estimated future cash
flows using the current interest rate at the reporting date on high quality fixed income investments with
maturities that match the expected maturity of the obligations.
• The vested portion of past service cost arising from plan amendments is recognized in the consolidated
statement of income. The unvested portion is recognized as an expense on a straight-line basis over the
average remaining period until the benefits become vested.
• Changes in actuarial gains and losses that arise in calculating the present value of the defined benefit
obligation and the fair value of plan assets are recognized in OCI in the period in which they arise and
charged or credited to retained earnings.
• The asset or liability recognized in the consolidated statement of financial position is the present value of
the defined benefit obligation at the reporting date less the fair value of the plan assets and unrecognized
past service costs. For the funded plans, the value of any minimum funding requirements (as determined
by applicable pension legislation) is recognized to the extent that the amounts are considered
recoverable. Recoverability is primarily based on the extent to which the Company can reduce the future
contributions to the plan.
Company contributions to capital accumulation plans are expensed as incurred.
(q) Share-based compensation plans
The Company has a share option plan, an employee share purchase plan (“ESPP”), two DSU plans and an
RSU plan.
Share option plan and ESPP
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.
Share options vest, and are expensed, over four years from the date of grant.
Under the Company’s ESPP, 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.
The fair value of share options granted and ESPP subscriptions are measured using the Black-Scholes
pricing model. For share options, the model considers each tranche with graded vesting features as a
separate share option grant. Forfeitures are estimated on the grant date and are revised as the actual
forfeitures differ from estimates.
The fair value of share options granted and ESPP subscriptions is recognized as compensation expense over
the vesting and subscription periods with a related credit to contributed surplus. The contributed surplus
balance is reduced as options are exercised and as the ESPP matures through a credit to share capital. The
consideration paid by option holders and the ESPP subscribers is credited to share capital when the options
are exercised or when the plan matures.
DSUs
Eligible executives may elect to receive certain cash incentive compensation in the form of DSUs. Each DSU
is equal in value to one Class B non-voting share of the Company and 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
TORSTAR CORPORATION 2012 ANNUAL REPORT 62
TORSTAR - Consolidated Financial Statements
date of issue. DSUs also accrue dividend equivalents payable in additional units in an amount equal to
dividends paid on Class B non-voting shares of the Company.
The Company has also adopted a DSU plan for non-employee directors. Each non-employee director
receives an award of DSUs 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, DSUs, or a combination thereof, receives the cash portion of his or her annual Board retainer in the
form of DSUs. Any non-employee director may also 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.
Compensation expense is recorded in the year DSUs are granted and changes in the fair value of outstanding
DSUs, including deemed dividend equivalents, are recorded as an expense in the period that they occur.
DSUs can only be redeemed once the executive or director is no longer employed with the Company
whereupon the executive or director is entitled to receive the fair market value of the equivalent number of
Class B non-voting shares, net of withholdings, in cash. Outstanding DSUs are recorded as long-term
liabilities.
RSUs
Eligible 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. 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.
Forfeitures are estimated on the grant date and revised if the actual forfeitures differ from the estimates. The
liability is recorded at fair value at each reporting date. 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.
(r) Taxes
Tax expense comprises current and deferred tax. Tax expense is recognized in the consolidated statement
of income, unless it relates to items recognized outside the consolidated statement of income. Tax expense
relating to items recognized outside of the consolidated statement of income is recognized in correlation to
the underlying transaction in either OCI or equity.
Current income tax
Current income tax assets and liabilities for the current and prior periods are measured at the amount
expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute
the amount are those that are enacted or substantively enacted at the reporting date.
Deferred tax
Deferred tax is provided using the liability method for temporary differences between the tax bases of assets
and liabilities and their carrying amount for financial reporting purposes. Deferred tax assets and liabilities are
measured using substantively enacted tax rates and laws at the reporting date that are expected to be in
effect when the temporary differences are expected to reverse.
Deferred taxes are recognized for taxable temporary differences arising on investments in subsidiaries,
associates and joint ventures except where the reversal of the temporary difference can be controlled and it is
probable that the difference will not reverse in the foreseeable future. Deferred tax assets and liabilities are
not recognized for temporary differences that arise on initial recognition of assets and liabilities other than in a
business combination.
Deferred tax assets are recognized for all deductible temporary differences, carry forward of unused tax
credits and unused tax losses to the extent that it is probable that sufficient taxable profit will be available
against which they can be utilized.
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TORSTAR - Consolidated Financial Statements
(s) Provisions
Provisions are recognized if the Company has a present legal or constructive obligation as a result of past
events, if it is probable that an outflow of resources will be required to settle the obligation, and a reliable
estimate can be made of the amount of the obligation.
The amount recognized as a provision is the best estimate of the consideration required to settle the present
obligation as of the date of the consolidated statement of financial position, taking into account the risks and
uncertainties surrounding the obligation.
Provisions are discounted and measured at the present value of the expenditure expected to be required to
settle the obligation, using a pre-tax rate that reflects the current market assessments of the time value of
money and the risks specific to the obligation. The increase in the provision due to the passage of time is
recognized as interest expense.
When some or all of the economic benefits required to settle a provision are expected to be recovered from a
third party (for example, because the obligation is covered by an insurance policy), an asset is recognized if it
is virtually certain that reimbursement will be received.
(t) Use of estimates and judgements
The preparation of the Company’s consolidated financial statements in conformity with IFRS requires
management to make judgements, estimates and assumptions that affect the application of accounting
policies and the reported amounts of revenues, expenses, assets, liabilities and the disclosure of contingent
liabilities, at the end of the reporting period.
Management uses estimates when accounting for certain items such as revenues, allowance for doubtful
accounts, useful lives of long-lived assets, asset impairments, provisions, share-based compensation plans,
employee benefit plans, deferred income taxes and goodwill impairment. Estimates are also made by
management when recording the fair value of assets acquired and liabilities assumed in a business
combination.
Estimates are based on a number of factors, including historical experience, current events and other
assumptions that management believes are reasonable under the circumstances. By their nature, these
estimates are subject to measurement uncertainty and actual results could differ. Estimates and underlying
assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the
period in which the estimates are revised and in any future periods affected.
The more significant estimates and assumptions made by management are described below:
Book revenue provisions
Book revenue provisions are estimated based on the following key inputs and assumptions: point-of-sale
information, returns patterns, historical sales performance for the type of book and author, historical payment
rates for the type of book and the length of time the customer has been a member of the direct-to-consumer
program. The variance between the original estimate for returns and direct-to-consumer bad debts, and the
actual experience is recorded in the period when the data becomes available.
Employee benefits
The valuation by independent actuaries uses management’s assumptions for the discount rate to measure
obligations, expected long-term rate of return on pension plan assets, rate of compensation increase, trends
in healthcare costs, employee turnover and expected mortality. The most significant assumptions are the
discount rate and the expected long-term rate of return on pension plan assets.
The discount rate, used to determine the present value of the future cash flows that are expected to be
needed to settle employee benefit obligations, is based on the yield on long-term high-quality corporate bonds
with maturities matching the estimated cash flows from the benefit plan. A lower discount rate would result in
a higher employee benefit obligation.
TORSTAR CORPORATION 2012 ANNUAL REPORT 64
TORSTAR - Consolidated Financial Statements
The expected long-term rate of return is a weighted average of estimated long-term returns on each of the
major plan asset categories in the Company’s pension funds. A lower expected rate would result in a lower
fair value of the plan assets and a higher employee net benefit obligation. Further details about the
assumptions used are provided in Note 16.
Impairment of non-financial assets
The Company tests goodwill and indefinite life intangible assets for impairment annually, or more frequently if
there are indicators that impairment may have arisen. Impairment exists when the carrying value of an asset
or CGU exceeds its recoverable amount, which is the higher of its fair value less costs to sell and its value in
use. The fair value less costs to sell calculation is based on available data from binding sales transactions in
arm’s length transactions of similar assets or observable market prices less incremental costs for disposing of
the asset. The value in use calculation is based on a discounted cash flow model. The key estimates and
assumptions used in the discounted cash flow model are cash flow growth rates for the projection period and
in perpetuity for the calculation of the terminal value and discount rates. More details on the key assumptions
used by the Company to assess its assets and CGUs are provided in Note 8.
Taxes
The Company is subject to income taxes in Canada and foreign jurisdictions. Significant judgement is
required in determining the world-wide provision for income taxes. In 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 deferred 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.
Deferred tax assets are recognized for all deductible temporary differences, carry forward of unused tax
credits and unused tax losses to the extent that it is probable that sufficient taxable profit will be available
against which they can be utilized. When assessing the probability of taxable profit being available,
management primarily considers prior years’ results, forecasted future results and non-recurring items. As
such, the assessment of the Company’s ability to utilize tax losses carried forward is to a large extent
judgement-based. If the future taxable results of the Company differ significantly from those expected, the
Company would be required to increase or decrease the carrying value of the deferred tax assets with a
potentially material impact on the Company’s consolidated statement of financial position and consolidated
statement of comprehensive income. The carrying amount of deferred tax assets is reassessed at each
reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be
available to utilize all or part of the deferred tax assets. Unrecognized deferred tax assets are reassessed at
each reporting period and are recognized to the extent that it is probable that there will be sufficient taxable
profits to allow all or part of the asset to be recovered.
Further details on taxes are disclosed in Note 10.
A significant judgement made by management is described below:
Classification of investments as portfolio investments, associated businesses, joint ventures and subsidiaries
Classification of investments requires judgement on whether the Company controls, has joint control or
significant influence over the strategic financial and operating decisions relating to the activity of the investee.
In assessing the level of control or influence that the Company has over an investment, management
considers ownership percentages, board representation as well as other relevant provisions in shareholder
agreements. If an investor holds 20% or more of the voting power of the investee, it is presumed that the
investor has significant influence, unless it can be clearly demonstrated that this is not the case. Conversely,
if the investor holds less than 20% of the voting power of the investee, it is presumed that the investor does
not have significant influence, unless such influence can be clearly demonstrated.
TORSTAR CORPORATION 2012 ANNUAL REPORT 65
TORSTAR - Consolidated Financial Statements
The Company has classified its investments in Black Press and Shop.ca as associated businesses based on
management’s judgement that the Company has significant influence, based on rights to board representation
and other provisions in the respective shareholders’ agreements.
(u) Changes in accounting policies
Policies adopted in 2012:
On January 1, 2012, the Company adopted the amendments to IFRS 7 Financial Instruments: Disclosures
and IAS 12 Income Taxes.
IFRS 7 Financial Instruments: Disclosures
The amendment relates to enhanced disclosures around transfers of financial assets and the possible effects
of any risks that remain in an entity after an asset has been transferred.
IAS 12 Income Taxes
The amendment, which relates to the recovery of underlying assets and the impact on deferred taxes,
provides a solution to the problem of assessing whether recovery would be through use or through sale when
the asset is measured at fair value under IAS 40 Investment Property, by adding the presumption that the
recovery would normally be through sale. The amendment also incorporates the remaining guidance in SIC-
21 Income Taxes – Recovery of Revalued Non-depreciable Assets, as SIC-21 was withdrawn.
There was no impact from these changes in accounting policies on the net income for the years ended
December 31, 2012 and 2011.
Future changes in accounting standards:
The following changes in accounting standards will be adopted by the Company on the effective date of
January 1, 2013:
IFRS 10 Consolidated Financial Statements
IFRS 10 requires an entity to consolidate an investee when it is exposed, or has rights, to variable returns
from its involvement with the investee and has the ability to affect those returns through its power over the
investee. IFRS 10 supersedes SIC -12 Consolidations - Special Purpose Entities and replaces parts of IAS
27 Consolidated and Separate Financial Statements. The adoption of this standard is not expected to have a
significant impact on the consolidated financial statements.
IFRS 11 Joint Arrangements
IFRS 11 replaces IAS 31 Interests in Joint Ventures and SIC 13 Jointly Controlled Entities – Non-monetary
Contributions by Venturers. This new standard eliminates the use of the proportionate consolidation method
to account for jointly controlled entities and will require jointly controlled entities that meet the definition of a
joint venture to be accounted for using the equity method of accounting. The Company currently
proportionately consolidates its joint ventures including its interest in Sing Tao, Workopolis and Harlequin’s
operations in France and Italy. With the new standard, the revenues, expenses, assets and liabilities from
these operations will no longer appear in the Company’s consolidated financial statements but will be
replaced by a single investment amount in the consolidated statement of financial position and a single
income amount in the consolidated statement of income. Upon adoption of the new standard, the Company’s
restated revenue and operating profit for 2012 is estimated to be lower by $79.0 million and $1.9 million
respectively but with no change to net income.
TORSTAR CORPORATION 2012 ANNUAL REPORT 66
TORSTAR - Consolidated Financial Statements
IFRS 12 Disclosure of Interests in Other Entities
IFRS 12 establishes disclosure requirements for interests in other entities such as subsidiaries, joint
arrangements, associates and unconsolidated structured entities. The standard carries forward existing
disclosures and also introduces significant additional disclosure requirements that address the nature of, and
risks associated with, an entity’s interest in other entities. IFRS 12 replaces the previous requirements
included in IAS 27 Consolidated and Separate Financial Statements; IAS 31 Interests in Joint Ventures and
IAS 28 Investment in Associates. The adoption of this standard will affect disclosures but will not have an
impact on the financial results.
IFRS 13 Fair Value Measurement
IFRS 13 is a comprehensive standard for fair value measurement and disclosure requirements for use across
all IFRS standards. IFRS 13 defines fair value and establishes disclosures about fair value measurement.
The adoption of this standard will affect disclosures but will not have an impact on the financial results.
IAS 28 Investments in Associates and Joint Ventures
As a consequence of the new IFRS 11 and IFRS 12, IAS 28 has been renamed IAS 28 Investments in
Associates and Joint Ventures, and describes the application of the equity method to investments in joint
ventures in addition to associates. Under the amended standard, the $10.4 million gain recognized on the
remeasurement of Tuango (Note 21) would be reversed in the restated consolidated statement of income for
2012, reducing the carrying amount of the investment.
IAS 1 Presentation of Financial Statements
The IASB amended IAS 1 by revising how certain items are presented in other comprehensive income
(“OCI”). Items within OCI that may be reclassified to profit and loss will be separated from items that will not.
The amendment affects presentation only and will not have an impact on the Company’s financial position or
performance.
IAS 19 Employee Benefits
The amendments to IAS 19 introduce a net interest approach for defined benefit obligations by replacing the
expected return on plan assets and interest costs on the defined benefit obligation with a single net interest
component determined by multiplying the net defined benefit liability or asset by the discount rate used to
determine the defined benefit obligation. In 2012, the expected long-term rate of return on plan assets was
6.5% compared with the discount rate of 4.3% used to determine the expense on the defined benefit
obligation. Under the amended standard, the discount rate of 4.3% would be applied to the net benefit
liability. It is estimated that the 2012 expense for the defined benefit pension plans would increase from
approximately $11.2 million to $28.0 million, an increase of $16.8 million ($12.5 million after tax), with no
impact on funding requirements.
The following amendments to accounting standards will be effective for the Company subsequent to 2013:
IFRS 9 Financial Instruments: Classification and Measurement
In November 2009, the IASB issued IFRS 9, which covers classification and measurement as the first part of
its project to replace IAS 39. In October 2010, the Board also incorporated new accounting requirements for
liabilities. The standard introduces new requirements for measurement and eliminates the current
classification of loans and receivables, available-for-sale and held-to-maturity, currently in IAS 39. There are
new requirements for the accounting of financial liabilities as well as a carryover of requirements from IAS 39.
The Company does not anticipate early adoption and will adopt the standard on the effective date of January
1, 2015. The Company is in the process of reviewing the standard to determine the impact on the
consolidated financial statements.
In December 2011, the IASB amended both IAS 32 Financial Instruments: Presentation and IFRS 7 Financial
Instruments: Disclosures by moving the disclosure requirements in IAS 32 to IFRS 7 and enhancing the
TORSTAR CORPORATION 2012 ANNUAL REPORT 67
TORSTAR - Consolidated Financial Statements
disclosures about offsetting financial assets and liabilities. The effective date of the amendments is January
1, 2015. Earlier adoption is permitted but must be applied together with IFRS 9. The Company is in the
process of reviewing the standard to determine the timing of adoption and the impact on the consolidated
financial statements.
3.
INVENTORIES
Finished goods
Work in progress
Raw materials
December 31,
2012
$12,323
10,371
11,307
$34,001
December 31,
2011
$15,349
9,873
11,773
$36,995
The Company expensed $192.8 million of inventory costs during the year ended December 31, 2012 (2011 –
$215.2 million). The Company recorded an inventory write-down of $3.7 million during the year ended December
31, 2012 (2011 – $3.7 million).
TORSTAR CORPORATION 2012 ANNUAL REPORT 68
TORSTAR - Consolidated Financial Statements
4. PROPERTY, PLANT AND EQUIPMENT
Cost
Balance at December 31, 2010
Acquisitions – business combinations
Additions
Disposals
Reclassifications
Foreign exchange
Balance at December 31, 2011
Acquisitions – business combinations
Additions
Disposals
Foreign exchange
Balance at December 31, 2012
Depreciation and impairment
Balance at December 31, 2010
Additions
Disposals
Reclassifications
Foreign exchange
Balance at December 31, 2011
Additions
Impairments
Disposals
Foreign exchange
Balance at December 31, 2012
Net book value
At December 31, 2010
At December 31, 2011
At December 31, 2012
Building and
leasehold
improvements
Machinery
and
equipment
$136,352
1,274
6,462
(1,678)
390
274
143,074
3,656
(2,976)
(288)
$143,466
$46,839
8,011
(1,674)
(315)
199
53,060
7,673
(1,614)
(207)
$58,912
$89,513
$90,014
$84,554
$203,249
7,266
12,028
(15,440)
528
482
208,113
18
12,668
(8,283)
(487)
$212,029
$127,838
13,754
(15,348)
1,174
314
127,732
15,374
578
(8,055)
(324)
$135,305
$75,411
$80,381
$76,724
Land
$6,619
175
56
6,850
(967)
(57)
$5,826
$6,619
$6,850
$5,826
Total
$346,220
8,715
18,490
(17,118)
918
812
358,037
18
16,324
(12,226)
(832)
$361,321
$174,677
21,765
(17,022)
859
513
180,792
23,047
578
(9,669)
(531)
$194,217
$171,543
$177,245
$167,104
5.
INVESTMENT IN ASSOCIATED BUSINESSES
As of December 31, 2012, the Company’s Investment in associated businesses includes a 19.4% equity interest
in Black Press Ltd. (“Black Press”); a 23.7% equity investment in Blue Ant Media Inc. (“Blue Ant”); a 33.3% equity
interest in Canadian Press Enterprises Inc. (“Canadian Press”); a 38.2% equity investment in Tuango Inc, and a
20.4% equity investment in Shop.ca Network Inc. (“Shop.ca”). The Company’s 30.0% equity interest in Q-ponz
Inc. (“Q-ponz”) was also classified as an investment in associated businesses until January 2012 when the
Company sold its interest in Q-ponz to the controlling shareholder for nominal consideration.
Black Press
Black Press is a privately held company that publishes more than 150 titles in print and online in Canada and the
U.S. and has operations in British Columbia, Alberta, Washington State, California, Hawaii and Ohio. The
Company has not recorded its share of Black Press’ results in either 2012 or 2011 as the Company’s carrying
value in Black Press was previously reduced to nil. The Company will report its share of Black Press’s results
once the unrecognized losses ($0.7 million as of December 31, 2012 and $0.3 million as of December 31, 2011)
have been offset by net income or other comprehensive income. For the year ended December 31, 2012, the
TORSTAR CORPORATION 2012 ANNUAL REPORT 69
TORSTAR - Consolidated Financial Statements
Company would have reported income of $3.9 million and other comprehensive loss of $4.4 million from Black
Press (2011 – income of $3.3 million and other comprehensive loss of $2.4 million).
Blue Ant
Blue Ant is an independent media company which owns and operates specialty channels Travel+Escape, Bite TV
and AUX TV, and four premium high definition channels Oasis HD, eqhd, radX and HIFI as well as the Cottage
Life Media group (publisher of Cottage Life, Cottage, Outdoor Canada Canadian Home Workshop and operator of
the Cottage Life consumer trade shows).
The Company invested $16.9 million in 2011 and a further $5.8 million on August 1, 2012 simultaneous with the
completion of the acquisition by Blue Ant of 100% of High Fidelity TV subsequent to receiving approval from the
Canadian Radio-television and Telecommunications Commission (“CRTC”). As a result of the above
transactions, the Company’s equity interest at December 31, 2012 changed to the current 23.7% from 25.0% at
December 31, 2011.
The Company’s share of Blue Ant’s net loss in 2012 was $2.2 million (2011 – $nil). The net loss includes
expenses for CRTC benefit obligations and reorganization charges related to the acquisition of High Fidelity
HDTV.
Canadian Press
Canadian Press operates The Canadian Press news agency. During 2012, the Company invested $0.3 million
and has committed to invest an additional $0.5 million in early 2013.
The Company recorded a loss of $0.8 million in 2012 to reduce the carrying value to nil. The Company recorded
its share of Canadian Press’s results through the third quarter of 2011 when the Company’s carrying value was
reduced to nil. The Company will begin to report its share of Canadian Press’s results once the unrecognized
losses ($6.4 million as of December 31, 2012 and $3.9 million as of December 31, 2011) have been offset by net
income, other comprehensive income or additional investments are made. For the year ended December 31,
2012, the Company would have reported an additional loss of $0.3 million (including income of $0.7 million, net of
$1.0 million goodwill impairment loss) and other comprehensive loss of $3.0 million from Canadian Press (2011 –
loss of $0.7 million and other comprehensive loss of $3.2 million).
Tuango
Tuango is a Quebec-based daily deal business. Prior to February 29, 2012, the Company had a 50% interest
until a portion was sold to bring the remaining interest to 38.2% as detailed in Note 21. The Company’s share of
Tuango’s net income for the period from February 29, 2012 to December 31, 2012 was $0.4 million.
Shop.ca
Shop.ca is an online e-commerce marketplace aimed at Canadian shoppers.
The Company made an initial investment of $5.0 million on June 15, 2012 for a 14.4% equity interest with a
commitment to increase its interest to 30% in three tranches over a three-year period based on the achievement
of certain performance milestones in exchange for an additional $1.0 million in cash and up to $12.4 million in
promotional support (“media inventory”) provided through the Company’s media properties. After the end of every
quarter, Shop.ca issues shares to the Company at the predetermined price in exchange for media inventory
provided. The Company has agreed to provide $4.8 million of media inventory by March 2013, bringing the
Company’s interest to 21.6%. As of December 31, 2012, the Company’s equity interest in Shop.ca was 20.4%
and the Company had provided approximately $3.8 million of media inventory (Note 23). The remaining two
tranches will only apply if the milestones are met.
For the year ended December 31, 2012, the Company’s share of the Shop.ca’s net loss was $0.7 million.
TORSTAR CORPORATION 2012 ANNUAL REPORT 70
TORSTAR - Consolidated Financial Statements
The following is a continuity of Investment in associated businesses:
Balance, beginning of year
Loss of associated businesses
Investment in Tuango (note 21)
Investment in Shop.ca
Investment in Blue Ant
Investment in Canadian Press
Write-down of investment in Q-ponz
Balance, end of year
6.
INTANGIBLE ASSETS
Year ended December 31
2011
2012
$16,935
(3,295)
13,750
8,847
5,765
833
$2,201
(2,157)
16,935
500
(544)
$42,835
$16,935
Cost
Balance at December 31, 2010
Acquisitions – business combinations
Additions – internally developed
Additions – purchased
Disposals
Reclassifications
Foreign exchange
Balance at December 31, 2011
Acquisitions – business combinations
Additions – internally developed
Additions – purchased
Disposals
Foreign exchange
Balance at December 31, 2012
Amortization and impairment
Balance at December 31, 2010
Amortization
Disposals
Reclassifications
Foreign exchange
Balance at December 31, 2011
Amortization
Impairment
Disposals
Foreign exchange
Balance at December 31, 2012
Net book value
At December 31, 2010
At December 31, 2011
At December 31, 2012
Indefinite
life
Software
Finite life
Other
Total
Total
$32,018
9,856
12
8
41,894
151
(543)
(32)
$41,470
$1,723
1,723
475
$2,198
$30,295
$40,171
$39,272
$73,874
61
3,135
13,409
(10,798)
288
99
80,068
50
3,854
12,834
(5,378)
(155)
$91,273
$53,439
7,277
(10,707)
184
83
50,276
9,027
1,425
(5,082)
(113)
$55,533
$22,668
28,455
(752)
(9)
(3)
50,359
1,628
(2,877)
(6)
$49,104
$9,105
4,123
(752)
1
12,477
6,108
(2,595)
(4)
$15,986
$96,542
28,516
3,135
13,409
(11,550)
279
96
130,427
1,678
3,854
12,834
(8,255)
(161)
$140,377
$62,544
11,400
(11,459)
184
84
62,753
15,135
1,425
(7,677)
(117)
$71,519
$128,560
38,372
3,135
13,421
(11,550)
279
104
172,321
1,829
3,854
12,834
(8,798)
(193)
$181,847
$64,267
11,400
(11,459)
184
84
64,476
15,135
1,425
(7,202)
(117)
$73,717
$20,435
$29,792
$35,740
$13,563
$37,882
$33,118
$33,998
$67,674
$68,858
$64,293
$107,845
$108,130
TORSTAR CORPORATION 2012 ANNUAL REPORT 71
TORSTAR - Consolidated Financial Statements
7. GOODWILL
Cost and net book value:
Balance, beginning of year
Acquisitions (note 20)
Dispositions (note 21)
Impairment (note 8)
Foreign exchange and other
Balance, end of year
2012
2011
$665,029
1,074
(6,114)
(11,000)
(128)
$648,861
$595,899
68,998
132
$665,029
Goodwill acquired in a business combination is allocated to a CGU or groups of CGUs which are expected to
benefit from the synergies of the combination. Each CGU or group of CGU to which goodwill is allocated is the
lowest level at which the goodwill is monitored for internal management purposes but is not larger than an
operating segment.
Goodwill has been allocated to the following groups of CGUs:
Harlequin
Metroland Media Group
Star Media Group
Toronto Star Group
Metro
Workopolis
Others
Total
8.
IMPAIRMENT TESTING
December 31,
2012
$111,024
257,832
December 31,
2011
$111,151
258,826
139,788
75,851
28,632
35,734
$648,861
141,191
75,851
39,632
38,378
$665,029
In 2012, the Company incurred impairment losses as indicated in the chart below:
Property, plant and equipment (note 4)
Finite-life Intangible assets (note 6)
Goodwill (note 7)
2012
$578
1,425
11,000
$13,003
As a result of restructuring initiatives which included the shut-down and consolidation of some facilities, the
Company incurred impairments of $0.4 million for equipment in the Metroland Media Group of CGUs; $0.2 million
for equipment and $1.4 million with respect to finite-life intangible assets in the Toronto Star Group CGU.
During the fourth quarter of 2012, the Company performed its annual impairment test on the value of intangible
assets with a finite useful life, intangible assets with an indefinite useful life and goodwill. In carrying out this
testing, it was determined that the carrying amount of the Workopolis CGU exceeded the value in use. This CGU
represents the Company’s 50% ownership of Workopolis. Accordingly, the Company recorded an impairment of
$11.0 million for goodwill in the Workopolis CGU as a result of increased competition in the online recruitment and
job search markets, and prevailing economic conditions. In its assessment of the recoverable amounts of the
Workopolis CGU, the Company performed a sensitivity analysis of the discount rates. A 1% increase in the
discount rate and a 1% decrease in the perpetual growth rate would have an impact of approximately $4.0 million
and $2.8 million respectively.
TORSTAR CORPORATION 2012 ANNUAL REPORT 72
TORSTAR - Consolidated Financial Statements
These impairments had no effect on the Company’s operations or cash flows. There were no other impairments
or reversals of impairments recorded as a result of the testing.
The after-tax discount and perpetual growth rates used by the Company for the purpose of impairment testing for
each of the following CGU or group of CGUs in the following periods were:
Harlequin
Metroland Media Group
Toronto Star Group
Metro
Workopolis
Others
Fiscal 2012
Fiscal 2011
Discount
9.7%
9.5%
8.8%
15.6%
13.5%
10.1% - 13.2%
Growth
1.0%
0.0%
0.0%
1.5%
3.0%
0.0% - 3.0%
Discount
9.5%
9.6%
9.0%
n/a
13.0%
10.4% - 13.3%
Growth
1.0%
0.0%
0.0%
3.0%
1.0% - 3.0%
These after-tax rates correspond to pre-tax rates in an estimated range of 11% - 21% for 2012; 11% - 23% for
2011. For the 2011 impairment testing, Metro was assessed for impairment based on the transaction value
whereby the Company increased its ownership in Metro to 90%.
In its assessment of the recoverable amounts of the CGUs or group of CGUs, the Company performed a
sensitivity analysis of the discount and perpetual growth rates. The results of the sensitivity analysis show that a
reasonable change to key assumptions would not result in an impairment loss to the other CGUs or CGU groups
for which no impairment loss was required.
9. OTHER ASSETS
Portfolio investments
Mortgage receivable (note 21)
ESPP receivable
Other long term receivables
December 31,
2012
$6,899
3,500
332
1,092
$11,823
December 31,
2011
$774
431
593
$1,798
10. INCOME TAXES
Income tax expense is made up of the following:
Current income tax expense (recovery):
Current year
Adjustment for prior years
Deferred income tax expense (recovery):
Origination and reversal of temporary differences
Recognition of previously unrecognized tax losses
Change in future tax rates
Adjustment for prior years
Year ended December 31
2011
2012
$18,300
18,300
25,700
(800)
(200)
(500)
24,200
$39,200
(500)
38,700
14,500
(10,000)
(200)
4,300
Income tax expense in the consolidated statement of income
$42,500
$43,000
TORSTAR CORPORATION 2012 ANNUAL REPORT 73
TORSTAR - Consolidated Financial Statements
Income tax expense in the consolidated statement of income
Current income tax expense (recovery) in OCI
Deferred income tax recovery in OCI
Income tax recovery in OCI
Total income taxes
Year ended December 31
2011
2012
$42,500
250
(12,800)
(12,550)
$29,950
$43,000
(250)
(22,800)
(23,050)
$19,950
Income taxes of $37.0 million were paid and refunds of $3.4 million were received during the year (2011 – $58.5
million paid and refunds of $2.4 million received).
Reconciliation of effective tax rate
The combined Canadian federal and provincial statutory rate was 26.5% in 2012 (28.25% in 2011). The
combined rate had previously been expected to reduce to 26.25% in 2012 and further to 25% by 2014. In June
2012, the Ontario government passed legislation to indefinitely postpone the provincial component of these
planned tax rate reductions.
Income before taxes
Year ended December 31
2011
2012
$146,336
$261,141
Provision for income taxes based on Canadian statutory rate
of 26.5% (2011: 28.25%)
$38,800
$73,800
Increase (decrease) in taxes resulting from:
Gain on sale of CTV Inc. not recognized
Loss of associated businesses not recognized
Impairment not deductible
Gain on remeasurement not recognized
Prior years’ losses not previously recognized
Effect of higher foreign tax rates
Foreign losses not recognized
Non-taxable portion of capital gains
Non-deductible expenses
Change in future tax rates
Other
Income tax expense in the consolidated statement of income
Effective income tax rate
900
2,900
(1,100)
(800)
2,500
200
(900)
1,100
(200)
(900)
$42,500
29.0%
(21,100)
800
(5,400)
(10,000)
3,900
100
2,200
(1,300)
$43,000
16.5%
In 2011 the Company sold its 20% interest in CTV Inc. and recognized a gain of $74.6 million which was not
subject to tax, as the Company had previously written down the cost of the investment below its tax basis. The
Company realized a capital loss for tax purposes of $45.6 million on the disposition and was able to utilize a small
portion of this capital loss to offset other capital gains recognized in 2011 and 2012. No tax benefit has been
recognized in respect of $44.1 million of the capital loss (2011 – no tax benefit had been recognized on $44.4
million of the capital loss).
TORSTAR CORPORATION 2012 ANNUAL REPORT 74
TORSTAR - Consolidated Financial Statements
Deferred tax assets and liabilities
Net deferred tax assets
Deferred 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 deferred income tax assets and liabilities as at December 31, 2012 and December 31, 2011 are
as follows:
Book revenue provisions
Property, plant &
equipment
Intangible assets
Financial instruments
Provision for employee
benefit obligations
Share-based payment
transactions
Tax loss carry forwards
Other
Net deferred tax assets
December 31,
2011
$10,918
(8,654)
(11,285)
2,070
Recognized
in net income
Recognized
in OCI
Acquired in
business
combinations
$7
(22)
(1,176)
($600)
Foreign
exchange
& other
($632)
(8)
50
December 31,
2012
$10,293
(8,684)
(12,411)
1,470
68,277
(14,439)
13,400
(170)
67,068
1,607
32,214
(2,350)
$92,797
(24)
(1,535)
(7,011)
($24,200)
$12,800
(598)
29
($1,329)
As reported in the
consolidated statement
of financial position
Deferred tax assets
Deferred tax liabilities
Net deferred tax assets
$100,441
(7,644)
$92,797
1,583
30,081
(9,332)
$80,068
$88,383
(8,315)
$80,068
Book revenue provisions
Property, plant &
equipment
Intangible assets
Financial instruments
Provision for employee
benefit obligations
Share-based payment
transactions
Tax loss carry forwards
Other
Net deferred tax assets
As reported in the
consolidated statement
of financial position
Deferred tax assets
Deferred tax liabilities
Net deferred tax assets
December 31,
2010
$12,456
Recognized
in net income
($1,845)
Recognized
in OCI
Acquired in
business
combinations
(8,054)
(9,098)
2,470
621
(866)
($400)
Foreign
exchange
& other
$231
61
(53)
December 31,
2011
$10,918
(8,654)
(11,285)
2,070
$76
(1,282)
(1,268)
54,835
(9,830)
23,200
72
68,277
1,938
22,286
(2,356)
$74,477
(331)
8,488
(537)
($4,300)
783
275
($1,416)
657
268
$1,236
$22,800
$84,804
(10,327)
$74,477
TORSTAR CORPORATION 2012 ANNUAL REPORT 75
1,607
32,214
(2,350)
$92,797
$100,441
(7,644)
$92,797
TORSTAR - Consolidated Financial Statements
Tax loss carryforwards
The Company has tax loss carryforward balances and has recognized a deferred tax asset in respect of these
losses to the extent that it is probable that they will be utilized before they expire.
The Company has capital loss carryforwards in Canada of $44.2 million (2011 – $47.9 million) that can be carried
forward indefinitely and applied to only offset capital gains. No deferred tax asset has been recognized in respect
of the capital loss as there is no current intent to dispose of capital properties.
The U.S. subsidiaries have combined net operating loss carryforwards of U.S. $129.0 million (2011 – U.S. $133.9
million). These tax losses arose in prior years from the operation and disposition of businesses that are no longer
carried on by the Company. The current U.S. business has no relation to the former business operations, and
has a history of profits. A deferred tax asset has been recognized for a portion of the U.S. tax loss carryforward
based upon expectations of future operating profits for the current operations, as determined by reference to
historic operating results and forecasts.
The tax loss carryforward balance at December 31, 2012, the portion of the loss recognized in the deferred tax
assets, and year of expiry are summarized as follows:
Tax loss carryforward
Local
currency
Canadian
dollars
Portion recognized
in deferred tax
assets
As at December 31, 2012:
Canada – net operating losses
Canada – capital losses
U.S. – net operating losses
Other foreign losses
As at December 31, 2011:
Canada – net operating losses
Canada – capital losses
U.S. – net operating losses
Other foreign losses
$21,100
$44,200
U.S. $129,000
$21,600
$47,900
U.S. $133,900
$21,100
$44,200
$128,400
$3,200
$21,600
$47,900
$136,100
$1,700
Investments in subsidiaries, associates and joint ventures
$21,100
$72,600
$21,600
$79,400
$400
Expiry
2028 to 2032
No expiry
2019 to 2031
Various
2025 to 2031
No expiry
2019 to 2029
Various
The excess of the tax basis over the carrying value of investments in subsidiaries, associates and joint ventures
for which a deferred tax asset has not been recognized, is $171.9 million as at December 31, 2012 (2011 –
$192.4 million).
11. LONG-TERM DEBT
Bankers’ acceptances:
Cdn. dollar denominated
U.S. dollar denominated
Current
Long-term
December 31,
2012
December 31,
2011
$87,009
91,018
$178,027
$178,027
$108,020
88,171
$196,191
$196,191
TORSTAR CORPORATION 2012 ANNUAL REPORT 76
TORSTAR - Consolidated Financial Statements
(a) Bank debt
i.
In January 2012, the Company renewed its long-term credit facilities with its bankers, which consists of a
$150.0 million revolving facility maturing January 2016 (“Tranche A”) and a $200.0 million revolving
facility maturing in January 2014 (“Tranche B”). Either or both tranches can be extended with the consent
of all parties for additional 364-day periods. In February 2013, the Company extended both tranches A
and B for an additional 364-day period to January 2017 and January 2015 respectively. Prior to January
2012, the Company had long-term credit facilities with its bankers consisting of a $275 million revolving
term loan (reduced from $425 million in April 2011 at the Company’s request). The term loan matured in
January 2012 and was classified as current at December 31, 2011. Prior to April 2011, the long-term
credit facilities also included a revolving operating loan of $175 million, which was cancelled in April 2011
at the Company’s request.
ii. The credit facilities may be drawn in Canadian or U.S. dollars and are subject to financial tests and other
covenants with which the Company was in compliance at December 31, 2012. 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. Effective January 2012, 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 net debt to operating cash flow ratio (range of 1.4% to 2.5%) for
borrowings under either tranche. The interest rate spread at December 31, 2012 was 1.4% (December
31, 2011 – 0.6% based on the Company’s long-term credit rating spread for borrowings under the
revolving term loan which matured in January 2012).
iii.
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 11(a)(ii)
for seven years ending May 2015. These swaps have been designated as cash flow hedges. The fair
value of the U.S. interest rate swap arrangements at December 31, 2012 was $7.0 million unfavourable
(December 31, 2011 – $8.8 million unfavourable).
iv. Bank debt outstanding at December 31, 2012 included U.S. dollar borrowings of U.S. $91.8 million
(December 31, 2011 – U.S. $87.0 million) at an average rate of 1.6% (December 31, 2011 – 0.7%).
Including the effect of the interest rate swap noted in 11(a)(iii), the effective rate was 5.2% at December
31, 2012 (December 31, 2011 – 4.6%).
v.
In September 2006, the Company entered into interest rate swap agreements for five years through
September 2011, with major Canadian chartered banks that fixed the interest rate on $250 million of
Canadian dollar borrowings. As a result, the Company paid quarterly a fixed rate of 4.3% per annum
(plus the interest rate spread referred to in 11(a)(ii)) and received quarterly floating rate payments based
on 90 day bankers’ acceptance rates. These swap contracts were designated as cash flow hedges until
the Company extinguished these swap agreements in March 2011 and paid $3.8 million, which was
included in interest and financing costs in 2011.
vi. The average rate on Canadian dollar bank borrowings outstanding at December 31, 2012 was 2.6%
(December 31, 2011 – 1.8%).
(b) 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,
2012.
(c) Interest and financing costs for the year ended December 31, 2012 consists of interest on long-term debt of
$7.8 million and interest accretion costs of $1.0 million (2011 – interest on long-term debt of $14.1 million
(including $3.8 million paid to extinguish the swap agreements in 11(a)(v)) and interest accretion costs of $2.7
million partially offset by interest income of $0.2 million).
TORSTAR CORPORATION 2012 ANNUAL REPORT 77
TORSTAR - Consolidated Financial Statements
(d) Interest paid during the year ended December 31, 2012 was $7.9 million (2011 – $14.2 million including $3.8
million paid to extinguish the swap agreements in 11(a)(v)).
12. FINANCIAL INSTRUMENTS
Fair value of financial instruments
The carrying values of the Company’s financial instruments approximate their fair values unless otherwise noted.
Financial assets:
Loans and receivables, measured at amortized cost:
Cash and cash equivalents
Trade accounts receivable
Other receivables
Receivables
Mortgage receivable¹
Available-for-sale, measured at fair value:
Portfolio investments¹
Derivatives designated as effective hedges, measured at fair value:
Foreign currency forward contracts
Interest rate swaps – cash flow hedges
Other financial liabilities, measured at amortized cost:
Bank overdraft
Current portion of long-term debt
Long term debt
Accounts payable and accrued liabilities
Deferred payments on acquisitions¹
Call option liability¹
Provisions (current)
Provisions (non-current)
¹ These amounts are included in Other assets or Other liabilities
Risk management
December 31,
2012
December 31,
2011
$39,021
$50,588
267,480
6,903
274,383
3,500
271,784
6,226
278,010
6,899
774
1,272
(7,018)
367
(8,761)
9,962
178,027
212,741
99
10,951
15,964
14,520
7,661
196,191
210,567
10,821
22,599
16,906
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 credit facilities. At December 31, 2012, the unused capacity net of letters of credit was approximately
$138.1 million (December 31, 2011 - $50.9 million; if the renewal of the credit facilities in January 2012 had been
in place at December 31, 2011, the unused capacity would have been $125.9 million).
TORSTAR CORPORATION 2012 ANNUAL REPORT 78
TORSTAR - Consolidated Financial Statements
The maturity profile of the Company’s financial liabilities, based on contractual undiscounted payments, is as
follows:
2013
2014
2015
2016
2017
2018+
Total
Foreign currency hedges¹
Outflows
Inflows
U.S. $ Interest rate swaps
Bank overdraft
Accounts payable and
accrued liabilities1
Call option liability
Provisions1
Long term debt1,2
$39,796
(40,866)
(1,070)
3,308
9,962
212,741
15,964
$9,949
(10,445)
(496)
3,308
$1,167
11,184
4,440
3,947
28,727
$2,191
$1,000
150,000
$4,781
$49,745
(51,311)
(1,566)
7,783
9,962
212,741
11,184
32,323
178,727
Total
$240,905 $18,436 $33,841
$2,191
$151,000 $4,781
$451,154
1 All foreign currency denominated amounts have been translated at the December 31, 2012 spot rates.
2 The long-term credit facilities were extended in February 2013 as indicated in note 11(a)(i).
Credit risk
In the normal course of business, the Company is exposed to credit risk from its accounts receivable from
customers. The carrying amounts of accounts receivable are net of applicable book revenue provisions and
allowances for doubtful accounts. Allowances for doubtful accounts 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 $23.5 million (U.S. $23.6
million) at December 31, 2012 (December 31, 2011 - $29.1 million (U.S. $28.6 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 exposed to credit related losses in the event of non-performance by counterparties to the
derivative instruments described above. Given their high credit ratings, the Company does not anticipate any
counterparties failing to meet their obligations. The Company has a policy, approved by the Board of Directors, of
only contracting with major financial institutions as counterparties.
The maximum exposure to credit risk is the carrying value of the financial assets.
The following table sets out the ageing of the trade receivables:
Gross accounts receivable:
Current
Up to three months past due date
Three to twelve months past due date
Impaired
Book revenue provisions
Allowances for doubtful accounts
December 31,
2012
December 31,
2011
$236,844
98,978
15,813
487
352,122
(76,538)
(8,104)
$267,480
$251,802
102,317
12,535
613
367,267
(88,362)
(7,121)
$271,784
TORSTAR CORPORATION 2012 ANNUAL REPORT 79
TORSTAR - Consolidated Financial Statements
The continuity of the allowance for doubtful accounts is as follows:
Balance, beginning of year
Utilized
Income statement movements
Exchange differences and other
Balance, end of year
Market risk
Year ended December 31
2011
($7,841)
3,800
(2,805)
(275)
($7,121)
2012
($7,121)
4,072
(4,773)
(282)
($8,104)
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’s primary exposure to foreign currency risk is 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 below. A $0.05 higher (lower)
average U.S. dollar/Cdn. dollar exchange rate during the year ended December 31, 2012 would have
increased (decreased) net income by approximately $0.6 million (2011 – $1.5 million).
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 establish
a rate of exchange of Canadian dollar per U.S. dollar of $1.02 for U.S. $40.0 million in 2013 and $1.04 for
U.S. $10.0 million in 2014 (December 31, 2011 – $1.03 for U.S. $52.4 million in 2012, $1.02 for U.S. $30.0
million in 2013 and $1.05 for U.S. $5.0 million in 2014). These forward foreign exchange contracts have been
designated as cash flow hedges and the net fair value of these contracts was $1.3 million favourable at
December 31, 2012 (December 31, 2011 – $0.4 million favourable).
Forward foreign exchange contracts settled in 2012 established a rate of exchange of Canadian dollar per
U.S. dollar of $1.03 for U.S. $52.4 million (2011 - $1.07 for U.S. $35.5 million).
In order to offset the exchange risk on its consolidated statement of financial position from net U.S. dollar
denominated assets, the Company maintains a certain level of U.S. dollar denominated debt as indicated in
Note 11(a)(iii). Effective January 1, 2011, the Company designated $80 million of its U.S. dollar debt as a
hedge of its U.S. dollar denominated net investment in subsidiaries with the U.S. dollar as their functional
currency. Gains or losses on the translation of the designated hedge amount are transferred to OCI to offset
any gains or losses on translation of the net investments in subsidiaries with the U.S. dollar as their functional
currency. There was no hedge ineffectiveness during the years ended December 31, 2012 and 2011.
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.
b)
Interest rate risk
The Company’s interest rate risk arises from borrowings issued at 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 11.
An assumed increase of 1% in the Company’s short term borrowing rates during the year ended December
31, 2012 would have decreased net income by $0.9 million (2011 – $0.9 million), with an equal but opposite
effect for an assumed decrease of 1% in short term borrowing rates.
TORSTAR CORPORATION 2012 ANNUAL REPORT 80
TORSTAR - Consolidated Financial Statements
13. 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:
• Total equity
• Long term debt
• Bank overdraft net of cash and cash equivalents
Total managed capital was as follows:
Total equity
Long term debt (including current portion)
Bank overdraft
Cash and cash equivalents
December 31,
2012
$731,894
178,027
9,962
(39,021)
$880,862
December 31,
2011
$706,264
196,191
7,661
(50,588)
$859,528
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, 2012.
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.
14. PROVISIONS
Restructuring
During the year ended December 31, 2012, the Company recorded restructuring and other charges of $17.8
million, which included restructuring provisions of $17.4 million and other charges of $0.4 million.
Restructuring provisions of $16.5 million were recorded in the Media Segment for staff reductions and the Book
Publishing Segment recorded $0.9 million for staff reductions in the United Kingdom and North America. Other
charges of $0.4 million were recorded for litigation expenses in the Book Publishing Segment.
During the year ended December 31, 2011, the Company recorded restructuring and other charges of $19.4
million. This included restructuring provisions of $18.8 million related to staff reductions in the Media Segment
and $0.6 million in the Book Publishing Segment. The Media Segment restructuring provisions included $15.6
million relating to staff reductions and a $3.2 million charge for rented spaces that were vacated as reduced staff
counts allowed for space consolidation. The $0.6 million recorded in the Book Publishing Segment related to staff
reductions in the North American Retail business and were classified as current provisions.
The non-current restructuring provisions are expected to be paid out through 2028 within the Media Segment.
TORSTAR CORPORATION 2012 ANNUAL REPORT 81
TORSTAR - Consolidated Financial Statements
Legal
The Company is involved in various legal actions, which arise in the ordinary course of business.
In 2012, Harlequin was named as defendant in a class action complaint pertaining to ebook author royalties.
Harlequin believes that the authors have been recompensed fairly and properly for their work and will be
defending itself vigorously. A motion to dismiss the complaint is pending.
While the final outcome of these matters cannot be predicted with certainty, any additional 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.
Contingent consideration
The contingent consideration provision is an estimate of the fair value of contingent consideration for acquisitions,
which are primarily based on revenue and earnings levels estimated to be realized by the acquired businesses for
specified periods following the acquisition.
Balance at December 31, 2010
Provisions made during the year
Reversals of provisions during the year
Adjustment to contingent consideration
Foreign exchange
Provisions paid during the year
Interest accretion
Balance at December 31, 2011
Provisions made during the year
Reversals of provisions during the year
Adjustment to contingent consideration
Foreign exchange
Provisions paid during the year
Interest accretion
Balance at December 31, 2012
Current
Non-current
Balance at December 31, 2011:
Current
Non-current
Balance at December 31, 2010:
Current
Non-current
Restructuring
Legal
Contingent
consideration
$32,387
19,794
(383)
3
(21,622)
1,338
31,517
17,716
(288)
5
(22,290)
376
$27,036
$13,472
$13,564
$15,725
$15,792
$18,094
$14,293
$2,560
(427)
2
(1,795)
340
92
(123)
(1)
(20)
$288
$288
$340
$2,560
$7,146
1,087
(630)
(823)
868
7,648
693
258
(4)
(5,947)
512
$3,160
$2,204
$956
$6,534
$1,114
$516
$6,630
Total
$42,093
20,881
(810)
(630)
5
(24,240)
2,206
39,505
18,501
(411)
258
(28,257)
888
$30,484
$15,964
$14,520
$22,599
$16,906
$21,170
$20,923
TORSTAR CORPORATION 2012 ANNUAL REPORT 82
TORSTAR - Consolidated Financial Statements
15. OTHER LIABILITIES
Employees’ shares subscribed (note 18(b))
RSU Plan (note 18(c))
DSU Plan (note 18(e))
Other employment benefits
Call option liability (note 20)
Lease inducements
Other
December 31,
2012
December 31,
2011
$2,928
1,096
3,123
3,616
10,951
1,729
2,404
$25,847
$3,617
1,597
2,655
3,785
10,821
2,075
2,199
$26,749
16. EMPLOYEE FUTURE BENEFITS
The Company maintains a number of defined benefit plans which provide pension benefits to its employees
primarily in Canada and the United States. Pension benefits are calculated based on a combination of years of
service and compensation levels. The Company also maintains capital accumulation plans in Canada, the United
States and in certain overseas operations of Harlequin. Post employment benefits other than pensions which
provide for various health and life insurance benefits are also available primarily to employees in the newspaper
operations hired prior to August 23, 2000.
Information concerning the Company’s post employment benefit plans is as follows:
Net defined benefit plan obligations
Changes to the net defined benefit obligation were as follows:
At December 31, 2010
Expense recognized in
statement of income
Amounts recognized in OCI
Contributions to plan
Foreign exchange
At December 31, 2011
Expense recognized in
statement of income
Amounts recognized in OCI
Contributions to plan
Foreign exchange
At December 31, 2012
Pension plans
Funded
Canada
$124,302
United States
$8,892
Unfunded1
$24,308
Post
employment
benefit plans
$51,416
8,324
85,258
(45,146)
$172,738
9,862
56,483
(69,979)
$169,104
1,176
2,838
(1,273)
200
$11,833
1,370
1,879
(2,504)
(257)
$12,321
2,098
(470)
(2,509)
(10)
$23,417
2,154
2,529
(1,637)
(7)
$26,456
3,048
3,883
(2,308)
$56,039
2,898
(8,964)
(2,420)
$47,553
Total1
$208,918
14,646
91,509
(51,236)
190
$264,027
16,284
51,927
(76,540)
(264)
$255,434
1 The unfunded pension plan includes an executive retirement plan liability of $25.0 million (December 31, 2011 - $22.3
million) which is supported by an outstanding letter of credit of $31.1 million as at December 31, 2012 (December 31, 2011
- $25.2 million.)
TORSTAR CORPORATION 2012 ANNUAL REPORT 83
TORSTAR - Consolidated Financial Statements
A summary of the components of the net defined benefit obligation as at December 31, 2012 and 2011 is as
follows:
2012
Defined benefit obligations
Fair value of plan assets
Net defined benefit obligation
Pension plans
Funded
Canada
$954,239
(785,135)
$169,104
United States
$28,794
(16,473)
$12,321
Post
employment
benefit plans
$47,553
Unfunded
$26,456
$26,456
$47,553
Total
$1,057,042
(801,608)
$255,434
2011
Defined benefit obligations
Fair value of plan assets
Net defined benefit obligation
Pension plans
Funded
Canada
$881,845
(709,107)
$172,738
United States
$25,186
(13,353)
$11,833
Post
employment
benefit plans
$56,039
Unfunded
$23,417
$23,417
$56,039
Total
$986,487
(722,460)
$264,027
The following table provides a summary of changes in the defined benefit obligation and the fair value of plan
assets during 2012 and 2011:
2012
Pension plans
Funded
Canada
United States
Unfunded
Accrued benefit obligations:
Balance, beginning of year
Current service cost
Interest cost
Benefits paid
Actuarial losses (gains)
Participant contributions
Past service cost
Special termination benefits
Curtailment gain
Settlement loss
Foreign exchange
Balance, end of year
Plans’ assets:
Fair value, beginning of year
Expected return on plan assets
Actuarial gains
Benefits paid
Employer contributions
Participant contributions
Foreign exchange
Fair value, end of year
Funded status – deficit
$881,845
17,620
38,843
(56,074)
66,985
4,928
560
(770)
302
$954,239
$709,107
46,693
10,502
(56,074)
69,979
4,928
$785,135
$169,104
Post
employment
benefit plans
$56,039
480
2,418
(2,420)
(8,964)
$25,186
1,148
1,119
(435)
2,323
$23,417
876
1,061
(1,637)
2,529
217
(547)
$28,794
(7)
$26,456
$47,553
$13,353
897
444
(435)
2,504
(290)
$16,473
$12,321
($1,637)
1,637
($2,420)
2,420
$26,456
$47,553
Total
$986,487
20,124
43,441
(60,566)
62,873
4,928
217
560
(770)
302
(554)
$1,057,042
$722,460
47,590
10,946
(60,566)
76,540
4,928
(290)
$801,608
$255,434
TORSTAR CORPORATION 2012 ANNUAL REPORT 84
TORSTAR - Consolidated Financial Statements
Pension plans
Funded
Canada
United States
Unfunded
2011
Accrued benefit obligations:
Balance, beginning of year
Current service cost
Interest cost
Benefits paid
Actuarial losses (gains)
Participant contributions
Foreign exchange
Balance, end of year
Plans’ assets:
Fair value, beginning of year
Expected return on plan assets
Actuarial losses
Benefits paid
Employer contributions
Participant contributions
Foreign exchange
Fair value, end of year
Funded status – deficit
$778,462
16,062
39,657
(43,923)
86,235
5,352
$881,845
$694,354
47,395
(39,217)
(43,923)
45,146
5,352
$709,107
$172,738
$20,623
960
1,089
(353)
2,402
465
$25,186
$11,731
873
(436)
(353)
1,273
265
$13,353
$11,833
Post
employment
benefit plans
$51,416
474
2,574
(2,308)
3,883
$56,039
$24,308
919
1,179
(2,509)
(470)
(10)
$23,417
($2,509)
2,509
($2,308)
2,308
$23,417
$56,039
Total
$874,809
18,415
44,499
(49,093)
92,050
5,352
455
$986,487
$706,085
48,268
(39,653)
(49,093)
51,236
5,352
265
$722,460
$264,027
Net benefit expense for defined benefit plans included in salaries and benefits in the 2012 and 2011 consolidated
statement of income is as follows:
2012
Current service cost
Interest cost on benefit
obligation
Expected return on plan
assets
Past service cost
Special termination benefits
Curtailment gain
Settlement loss
Net benefit expense
2011
Current service cost
Interest cost on benefit
obligation
Expected return on plan
assets
Net benefit expense
Pension plans
Funded
Canada
$17,620
United States
$1,148
38,843
1,119
(46,693)
(897)
Unfunded
$876
1,061
217
Post
employment
benefit plans
$480
2,418
560
(770)
302
$9,862
$1,370
$2,154
$2,898
Pension plans
Funded
Canada
$16,062
United States
$960
39,657
1,089
(47,395)
$8,324
(873)
$1,176
Post
employment
benefit plans
$474
2,574
Unfunded
$919
1,179
$2,098
$3,048
Total
$20,124
43,441
(47,590)
217
560
(770)
302
$16,284
Total
$18,415
44,499
(48,268)
$14,646
TORSTAR CORPORATION 2012 ANNUAL REPORT 85
TORSTAR - Consolidated Financial Statements
Amounts recognized in the 2012 and 2011 consolidated statement of comprehensive income (before tax):
2012
Actuarial (losses) gains and
Amounts recognized in OCI
Pension plans
Funded
Canada
United States
Unfunded
Post
employment
benefit plans
Total
($56,483)
($1,879)
($2,529)
$8,964
($51,927)
2011
Actuarial (losses) gains
Change in minimum funding
liability
Amounts recognized in OCI
Pension plans
Funded
Canada
($125,452)
United States
($2,838)
Unfunded
$470
Post
employment
benefit plans
($3,883)
40,194
($85,258)
($2,838)
$470
($3,883)
Total
($131,703)
40,194
($91,509)
The significant assumptions used by the Company in 2012 and 2011 were:
To determine benefit obligation at end of year:
Discount rate
Rate of future compensation increase
3.4% to 3.9% 4.3% to 4.4%
3.0% to 4.0% 3.0% to 4.0%
Pension plans
2012
2011
Post employment benefit
plans
2012
3.9%
N/A
2011
4.4%
N/A
4.3% to 4.4% 4.7% to 5.1%
4.4%
5.1%
To determine benefit expense:
Discount rate
Expected long-term rate of return on plan
assets
6.5%
6.75%
Rate of future compensation increase
3.0% to 4.0% 3.0% to 4.0%
Health care cost trend rates at end of year:
Initial rate
Ultimate rate
Year ultimate rate reached
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
7.5%
5.0%
2017
N/A
N/A
8.0%
5.0%
2017
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, 2012:
Pension plans:
Discount rate
Expected long-term rate of return on
plan assets
Rate of compensation increase
Post employment benefit plans:
Discount rate
Per capita cost of health care
Net benefit expense
Accrued benefit obligation
1% Increase
1% Decrease
1% Increase
1% Decrease
($818)
($206)
($130,921)
$151,387
(7,327)
1,102
153
98
7,327
(1,059)
(204)
(85)
11,003
(10,686)
(5,305)
1,289
6,533
(1,117)
TORSTAR CORPORATION 2012 ANNUAL REPORT 86
TORSTAR - Consolidated Financial Statements
Pension plan assets, measured as at December 31, 2012 and 2011 are as follows:
Equity investments
Fixed income investments
Total
2012
48%
52%
100%
2011
51%
49%
100%
The estimate for the expected long-term rate of return in plan assets is calculated based on the Company’s
targeted investment portfolio mix of 50% equity investment and 50% fixed income investment (December 31,
2011 – 55% and 45% respectively). In determining the expected rate of return, the Company considers historical
returns and input from investment advisors and actuaries.
Based on actuarial reports that were completed as of December 31, 2011, Torstar’s 2012 minimum funding
obligation for its registered pension plans was $46 million. Actual Company contributions in 2012 were $72
million as the Company chose to fund beyond the minimum funding obligation. The Company will be required to
prepare another set of actuarial reports as of December 31, 2012. Estimated minimum funding requirements in
2013 will be approximately $65 million.
Capital accumulation plans
The total amount expensed for capital accumulation plans in 2012 was $3.5 million (2011 - $3.1 million).
17. SHARE CAPITAL
(a) Rights attaching to the Company’s share capital:
(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.
(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.
TORSTAR CORPORATION 2012 ANNUAL REPORT 87
TORSTAR - Consolidated Financial Statements
(b) Summary of changes in the Company’s share capital:
Class A shares (voting)
Balance, beginning of year
Converted to Class B
Balance, end of year
Class B shares (non-voting)
Balance, beginning of year
Converted from Class A
Dividend reinvestment plan
Issued under ESPP
Share option plan
Other
Balance, end of year
Year ended December 31
2012
2011
Shares
Amount
Shares
Amount
9,868,706
(7,152)
9,861,554
$2,681
(2)
$2,679
9,873,337
(4,631)
9,868,706
$2,682
(1)
$2,681
69,654,273
7,152
32,919
127,739
58,450
1,775
69,882,308
$392,653
2
282
1,315
478
16
$394,746
69,244,753
4,631
24,624
334,997
43,818
1,450
69,654,273
$390,134
1
273
1,853
376
16
$392,653
Total Class A and Class B shares
79,743,862
$397,425
79,522,979
$395,334
An unlimited number of Class B shares is authorized. While the number of Class A shares is unlimited, the
issuance of further Class A shares, may under certain circumstances, require unanimous board approval.
(c) Earnings per share
Basic earnings per share amounts have been determined by dividing net income attributable to equity
shareholders 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 share 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 share options
and ESPP 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
- share options
- ESPP
Weighted average number of shares outstanding, diluted
79,946
Year ended December 31
2011
79,400
2012
79,671
275
536
13
79,949
Outstanding stock options totaling 1,989,134 (2011 – 2,651,922), which are out of the money have been
excluded from the above calculation of dilutive securities.
TORSTAR CORPORATION 2012 ANNUAL REPORT 88
TORSTAR - Consolidated Financial Statements
(d) Dividends
The following dividends were declared and distributed by the Company per Class A (voting) share and Class
B (non-voting) share:
First quarter ended March 31: 12.5 cents (2011 – 9.25 cents)
Second quarter ended June 30: 13.125 cents (2011 – 12.5 cents)
Third quarter ended September 30: 13.125 cents (2011 – 12.5 cents)
Fourth quarter ended December 31: 13.125 cents (2011 – 12.5 cents)
Total dividends
18. SHARE-BASED COMPENSATION PLANS
(a) Share option plan
Year ended December 31
2011
2012
$7,320
$9,945
9,937
10,463
9,939
10,464
9,939
10,464
$37,135
$41,336
The maximum number of shares that may be issued under the share 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
share 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. As of December 31, 2012, options to purchase 9,713,058 shares have been granted, net of
options cancelled (December 31, 2011 – 9,784,433).
A summary of changes in the share option plan is as follows:
Units outstanding, beginning of year
Granted
Exercised
Forfeited or expired
Units outstanding, end of year
2012
Weighted
average
exercise price
$16.11
$8.28
($7.07)
($20.32)
$14.12
Share
options
3,995,656
656,233
(58,450)
(727,608)
3,865,831
2011
Weighted
average
exercise price
$17.19
$12.21
($7.40)
($21.4)
$16.11
Share
options
4,149,077
488,813
(43,818)
(598,416)
3,995,656
The weighted average share price when the options were exercised was $9.98.
As at December 31, 2012, outstanding share options were as follows:
Range of
exercise price
$5.75 – 8.37
$12.21 – 19.61
$21.85 – 22.14
$25.50 – 29.01
$5.75 – 29.01
Share
options
outstanding
Weighted average
remaining
contractual life
Weighted
average
exercise price
Share
options
exercisable
Weighted
average
exercise price
1,876,697
972,326
541,221
475,587
3,865,831
7.4 years
6.0 years
2.2 years
0.5 years
6.4 years
$7.59
$15.88
$22.06
$27.27
$14.12
711,143
628,122
541,221
475,587
2,356,073
$7.24
$17.89
$22.06
$27.27
$17.53
TORSTAR CORPORATION 2012 ANNUAL REPORT 89
TORSTAR - Consolidated Financial Statements
The fair value of the share options on the date of grant and the key assumptions used are as follows:
Fair Value
Risk-free interest rate
Expected dividend yield
Expected share price volatility
Expected weighted average time until exercise (years)
2012
$1.51 – $1.80
1.3% – 1.5%
6.0%
36.7 – 42.8%
6
2011
$3.49 – $3.61
2.4% – 2.7%
3.0%
35.4 – 41.1%
6
Subsequent to year-end, 835,752 share options were granted at an exercise price of $7.81 per share.
(b) ESPP
As at December 31, outstanding employee subscriptions were as follows:
Maturing in
Subscription price at entry date
Number of shares
2013
$12.53
123,004
2014
$10.10
137,278
2012
$10.74
163,339
2013
$12.53
148,690
2012
2011
The fair value of the subscriptions on the subscription date and the key assumptions used are as follows:
Fair Value
Risk-free interest rate
Expected dividend yield
Expected share price volatility
Expected time until exercise (years)
2012
$1.35
1.1%
5.2%
32.2%
2
2011
$2.30
1.5%
4.0%
39.0%
2
(c) RSU plan
A summary of changes in the RSU plan is as follows:
Units outstanding, beginning of year
Vested and paid
Granted
Forfeited
Units outstanding, end of year
2012
657,307
(262,053)
217,478
(37,528)
575,204
2011
627,252
(113,368)
146,341
(2,918)
657,307
As at December 31, 2012, 374,456 units have been accrued at a value of $2.9 million of which 234,165 units
have been accrued in Accounts payable and accrued liabilities at a value of $1.8 million and 140,291 units
have been accrued in Other liabilities at a value of $1.1 million (December 31, 2011 – 455,055 units accrued
at a value of $3.8 million of which 262,053 units have been accrued in Accounts payable and accrued
liabilities at a value of $2.2 million and 192,952 units have been accrued in Other liabilities at a value of $1.6
million).
The Company has entered into a derivative instrument in order to hedge the expense for 441,194 RSUs.
Changes in the fair value of this instrument are recorded as compensation expense and offset the impact of
changes in the value of the RSUs that have been accrued. As RSUs are accrued over the three-year vesting
period, there is not an exact offset each period.
TORSTAR CORPORATION 2012 ANNUAL REPORT 90
TORSTAR - Consolidated Financial Statements
(d) In 2012, the Company recognized share-based compensation expense totaling $2.8 million (2011 - $4.4
million).
(e) DSU plan
A summary of changes in the DSU plan is as follows:
Units outstanding, beginning of year
Granted
Mandatory retainer
Voluntary election
Dividends
Redemption
Units outstanding, end of year
2012
320,605
50,724
8,843
41,223
24,541
(46,046)
399,890
2011
262,868
34,854
9,467
9,524
22,880
(18,988)
320,605
As at December 31, 2012, the 399,890 units outstanding were valued at $3.1 million (December 31, 2011 –
320,605 units valued at $2.7 million).
The Company has entered into a derivative instrument in order to offset its exposure to 378,600 units.
Changes in the fair value of this instrument are recorded as compensation expense and offset the impact of
changes in the value of the outstanding DSUs.
19. ACCUMULATED OTHER COMPREHENSIVE LOSS (NET OF TAX)
Foreign
currency
translation
adjustment
($6,332)
6,041
($291)1
(5,102)
Cash flow
hedges
($6,770)
446
($6,324)²
2,048
As at December 31, 2010
OCI
As at December 31, 2011
OCI
As at December 31, 2012
($5,393)¹
($4,276)²
1Net of deferred income tax asset of $nil (2011 – $nil).
²Net of deferred income tax asset of $1,470 (2011 – $2,070).
³Net of current income tax recovery of $nil (2011 – $250)
Available-
for-sale
securities
Net
investment
hedge
($100)
(29)
($129)1
123
($6)¹
(1,542)
($1,542)³
1,518
($24)³
Total
($13,202)
4,916
($8,286)
(1,413)
($9,699)
20. ACQUISITIONS AND INVESTMENTS
2012 Acquisitions
In 2012, the Company completed acquisitions with a total purchase price of $2.7 million, of which $2.2 million and
$0.5 million related to the Media Segment and the Book Publishing Segment respectively. The $2.7 million total
purchase price included $1.8 million of cash; $0.2 million of deferred purchase payments and a $0.7 million
estimate of the fair value of contingent consideration. The Company also made portfolio investments for cash of
$1.1 million.
In addition, the Company made deferred purchase payments of $3.1 million and payments of $5.9 million for
contingent consideration in respect of prior year acquisitions in the Media Segment. The deferred purchase
TORSTAR CORPORATION 2012 ANNUAL REPORT 91
TORSTAR - Consolidated Financial Statements
payments were made in respect of the acquisitions of Performance Printing, Autocatch and Gottarent. The
contingent consideration payments related to WagJag and Rosebud.
Total cash used for acquisitions and portfolio investments in 2012 was $11.9 million.
The Media Segment acquisitions included Flyermail (a flyer distributor in the Kingston and Belleville regions) on
May 17, 2012; Target Vacations (an online retail e-commerce business-to-consumer travel agency) on August 3,
2012; Deal of The Day (a discount deal website) on August 7, 2012 and Carroll Publishing (a community
newspaper in St. Thomas, Ontario) on October 31, 2012.
The Media Segment acquisitions were accounted for using the purchase method. The amount of goodwill that is
deductible for tax purposes is $0.8 million. Goodwill recognized on the acquisitions was comprised of integration
with existing web-based products; new market penetration; access to knowledge and expertise of travel
management team and workforce.
On January 20, 2012, the Book Publishing Segment acquired Heartsong Presents (a book club).
These acquisitions contributed $0.6 million of revenue and $nil operating profit in the Media Segment and $1.4
million of revenue and $0.1 million of operating profit in the Book Publishing Segment in 2012. If the acquisitions
had occurred on January 1, 2012, the Company’s consolidated revenues and operating profit would have been
$1,487.3 million and $139.1 million respectively.
The portfolio investments of $1.1 million included an investment of $1.0 million in TeamSnap, Inc. (an online
activity management technology platform) on December 21, 2012. These portfolio investments have been
classified as AFS financial assets.
The fair value of assets acquired and liabilities assumed from the acquisitions completed are as follows:
Year ended December 31, 2012
Assets:
Property, plant and equipment (note 4)
Indefinite-life intangible assets (note 6)
Finite-life intangible assets (note 6)
Goodwill (note 7)
Non-cash working capital
Total purchase price
Deferred payments (Accounts payable)
Deferred payments (Other liabilities)
Contingent consideration
Cash consideration paid
Deferred payments on prior acquisitions
Contingent consideration on prior acquisitions
Investments
Media
Segment
Book
Publishing
Segment
$18
50
1,172
1,074
(144)
2,170
(100)
(99)
(546)
1,425
3,086
5,946
10,457
1,095
$101
506
(129)
478
(147)
331
331
Total
$18
151
1,678
1,074
(273)
2,648
(100)
(99)
(693)
1,756
3,086
5,946
10,788
1,095
Total cash used in acquisitions and investments
$11,552
$331
$11,883
TORSTAR CORPORATION 2012 ANNUAL REPORT 92
TORSTAR - Consolidated Financial Statements
2011 Acquisitions
During the year ended December 31, 2011, the Company completed acquisitions and portfolio investments in its
Media Segment with a total purchase price of $124.4 million, including $0.6 million for portfolio investments. The
purchase price included $91.3 million of cash; $2.1 million of deferred purchase payments; $10.8 million for a call
option liability; a $1.1 million estimate of the fair value of contingent consideration and gains on remeasurement
for step acquisitions of $19.1 million. The contingent consideration related to two of the Media Segment
acquisitions. Both contingent consideration calculations are based on profit levels realized by the acquired
businesses up to five years following the acquisition and are payable by the Company between 2013 and 2017.
In addition, the Company also made payments of $9.6 million for deferred purchase payments and $0.8 million of
contingent consideration in respect of prior year acquisitions. The deferred purchase payments included $6.9
million in respect of the Book Publishing Segment’s prior year acquisition of the remaining 50% of its German
publishing business, Cora Verlag from Axel Springer Verlag, its joint venture partner in Germany since 1976. The
remaining $2.7 million deferred purchase payments were in the Media Segment for eyeReturn Marketing and
Gottarent. The $0.8 million contingent consideration was also paid in the Media Segment.
Total cash used for acquisitions and portfolio investments during the year was $101.8 million, as indicated in the
chart below.
The Media Segment acquisitions included Autocatch.com (a web-based classified advertising solution for vehicle
dealers and sellers) on February 15, 2011; Brant News (a community newspaper publishing and flyer distribution
business operating in the Brantford area) on April 15, 2011; exercising the option to purchase an additional
16.67% of Tuango (a Quebec-based daily deal business) on April 18, 2011, bringing the Company’s interest to
50%; Starmail Distributors (a distribution business operating in London, Ontario) on June 1, 2011; the remaining
50% of save.ca (an online coupon website providing consumers with savings on leading packaged goods brands)
on June 16, 2011; The Kit (a digital beauty magazine) on July 28, 2011; Foodscrooge (an online group buying site
focused on heavily discounted food offerings) on September 28, 2011; an additional 40% interest in Free Daily
News Group (publishes the Metro newspapers in Toronto, Vancouver, Ottawa, Calgary, Edmonton, London,
Winnipeg and Halifax, “Metro”) on October 14, 2011 bringing the Company’s interest to 90% and Performance
Printing Limited (a newspaper publisher and flyer distributor in several Eastern Ontario communities with a
commercial printing operation in Smiths Falls) on October 17, 2011.
The acquisition of the additional interest in Metro and save.ca were step acquisitions in which the Company
obtained control of both entities. The Company remeasured its previously held interest to the acquisition dates’
fair values of $58.0 million and $4.7 million for Metro and save.ca respectively, resulting in a gain on
remeasurement of $19.1 million which has been recorded as Other income in the consolidated statement of
income.
As part of the Metro transaction, the Company and Metro International S.A. entered into put and call
arrangements with regards to the 10% of Metro that remains owned by Metro International S.A.. The put and call
are both exerciseable at the same fixed price starting in October 2014. The Company recorded a $10.8 million
discounted value of the call option liability as part of the business combination.
The Media Segment acquisitions were accounted for using the purchase method. The amount of goodwill that is
deductible for tax purposes is $8.4 million. Goodwill recognized on the acquisitions was comprised of integration
with existing web-based products; market reputation; access to existing network of carriers and existing
readership. The Starmail acquisition facilitated the launch of a community newspaper in the London, Ontario
region.
These acquisitions contributed $20.6 million of revenue and $2.4 million of operating profit in the Media Segment
in 2011. If the acquisitions had occurred on January 1, 2011, the Company’s consolidated revenues and
operating profit would have been $1,594.6 million and $192.9 million respectively.
The portfolio investments of $0.6 million included $0.5 million in Social Game Universe (a Toronto-based
developer and publisher of social games) on April 21, 2011. These portfolio investments have been classified as
AFS financial assets.
TORSTAR CORPORATION 2012 ANNUAL REPORT 93
TORSTAR - Consolidated Financial Statements
The fair value of assets acquired and liabilities assumed from the acquisitions completed are as follows:
Year ended December 31, 2011
Assets:
Property, plant and equipment (note 4)
Indefinite-life intangible assets (note 6)
Finite-life intangible assets (note 6)
Goodwill (note 7)
Deferred tax assets
Non-cash working capital
Liabilities:
Other liabilities
Deferred tax liabilities
Minority interests
Total purchase price
Gain on remeasurement for step acquisitions
Deferred payments (Accounts payable)
Call option liability
Contingent consideration
Cash consideration paid
Deferred payments on prior acquisitions
Contingent consideration on prior acquisitions
Investments
Media Segment
Others
Total
Metro
Book
Publishing
Segment
$353
20,047
49,986
492
7,293
20
78,191
(19,026)
59,165
(10,789)
48,376
48,376
$8,362
9,856
8,469
19,012
350
3,134
(1,352)
(2,258)
45,573
(29)
45,544
(2,080)
(1,087)
42,377
2,667
823
45,867
600
$8,715
9,856
28,516
68,998
842
10,427
(1,352)
(2,258)
20
123,764
(19,055)
104,709
(2,080)
(10,789)
(1,087)
90,753
2,667
823
94,243
600
$6,950
6,950
Total
$8,715
9,856
28,516
68,998
842
10,427
(1,352)
(2,258)
20
123,764
(19,055)
104,709
(2,080)
(10,789)
(1,087)
90,753
9,617
823
101,193
600
Total cash used in acquisitions and investments $48,376
$46,467
$94,843
$6,950
$101,793
21. GAIN ON SALE OF ASSETS AND OTHER INCOME
During the year ended December 31, 2012, the Company recognized a gain on sale of assets of $9.8 million
which consists of $2.7 million from the sale of assets of Insurance Hotline; $3.7 million from the sale of Sing Tao’s
land and buildings and $3.4 million from the sale of a portion of its interest in Tuango. The Company also
recognized other income of $10.4 million related to the Tuango sale transaction.
Insurance Hotline
On November 15, 2012, the Company sold the assets of Insurance Hotline for net proceeds of $7.0 million which
included cash of approximately $2.0 million and a 12.6% investment in Kanetix Ltd. (an online Canadian
insurance marketplace) valued at $5.0 million. This investment has been classified as an AFS financial asset.
The Company recorded a gain of $2.7 million on the transaction.
Sing Tao
On April 10, 2012, Sing Tao closed the sale of its land and buildings in Toronto. Sing Tao will continue to occupy
the premises for a transition period of 10 to 18 months. The Company’s share of the net proceeds was $6.0
million which included cash of $2.5 million and a mortgage receivable for $3.5 million which will mature in 18 to 24
months from the date of the sale. The Company recorded a gain of $3.7 million, its share of the gain on the sale.
Tuango
On February 29, 2012, the Company sold a portion of its 50% interest in Tuango for net proceeds of $3.9 million
and recorded a gain on sale of assets of $3.4 million. The Company retained a 38.2% interest in Tuango.
TORSTAR CORPORATION 2012 ANNUAL REPORT 94
TORSTAR - Consolidated Financial Statements
In addition, the Company issued an option, exerciseable within three years, to the purchaser to acquire an
additional 4.9% interest for $1.8 million which is at the same fair value basis as the sale transaction noted above.
If the purchaser exercises this option, the Company’s ownership interest in Tuango will be reduced to 33.3%. The
option has been valued at an estimated current fair value of $0.3 million which has been included in Other
liabilities in the consolidated statement of financial position.
As a result of the sale transaction and revised shareholders’ agreement, the Company lost joint control and
changed from proportionately consolidation to accounting for the investment as an associated business using the
equity method.
Upon the loss of joint control, the Company remeasured its current investment at the sale date fair value of $13.8
million, resulting in a gain on remeasurement of $10.4 million which has been recorded as Other income in the
consolidated statement of income.
22. INVESTMENT WRITE-DOWN
The Company recorded the following investment write-downs in 2012 and 2011:
Write-down of investment in Multimedia Nova Corporation
Write-down of investment in Q-ponz Inc.
Year ended December 31
2012
($93)
2011
($93)
($544)
($544)
23. OTHER NON-CASH ITEMS PROVIDED BY (USED IN) OPERATING ACTIVITIES
Share-based compensation plans
Foreign exchange
Restructuring provisions
Gain on remeasurement of Tuango (note 21)
Gain on sale of assets (note 21)
Media inventory provided to Shop.ca (note 5)
Interest accretion
Other
Year ended December 31
2012
$1,263
246
(2,604)
(10,407)
(9,811)
(3,847)
1,018
(712)
($24,854)
2011
($350)
3,477
82
(19,055)
2,667
(312)
($13,491)
24. COMMITMENTS AND CONTINGENCIES
The Company has guaranteed sub-lease payments to a third party of approximately U.S. $1 million for each of
the next 6 years. The sub-lease is secured by a U.S. $0.7 million irrevocable letter of credit by the sub-lessee.
Subsequent to year end, the sub-lessee has filed for protection under Chapter 11 of the United States Bankruptcy
Code. It is unclear if the sub-lessee will be able to honour its commitments under the sub-lease going forward.
Along with the other shareholders of Kanetix Ltd., the Company has pledged its shares in Kanetix in support of
the Kanetix credit facility. In addition, the Company has the following significant contractual obligations:
Nature of the Obligation
Office leases
Services
Acquisitions
Equipment leases
Total
Total
$120,429
14,888
14,651
1,933
$151,901
2013
$19,423
7,811
2,154
695
$30,083
2014 - 2015
$37,636
5,418
12,241
930
$56,225
2016 - 2017
$33,902
1,354
256
308
$35,820
2018+
$29,468
305
$29,773
TORSTAR CORPORATION 2012 ANNUAL REPORT 95
TORSTAR - Consolidated Financial Statements
25. RELATED PARTY TRANSACTIONS
The aggregate amounts of compensation expense for the Company’s key management (including directors) are
set out below:
Salaries and benefits
Post-employment benefits
Share based payments
Other long-term benefits
Total
Year ended December 31
2011
2012
$8,603
$7,012
2,247
2,996
2,996
2,611
986
276
$14,832
$12,895
The following summarizes the sales to, purchases from and amounts owed to and by the Company’s joint
ventures and associates:
Joint Ventures
2012
2011
Associates
2012
2011
Sales to
Purchases from Amounts owed by Amounts owed to
$3,262
3,180
3,847
$695
1,152
9,198
7,264
$576
823
$281
368
1,313
708
Sales to and purchases of goods and services from related parties were made at market prices. No provisions
have been made for doubtful debts in respect of amounts owed by related parties.
26. JOINT VENTURES
The Company proportionately consolidates its interest in joint ventures. The significant joint ventures in the Media
Segment include Workopolis (50%) and Sing Tao Daily (approximately 50%). Prior to October 14, 2011, Free
Daily News Group (publishes the Metro newspapers) was also a joint venture. Harlequin also conducts some of
its business overseas with joint venture partners, the most significant of which are in France (50%) and Italy
(50%). The Company’s proportionate share of revenue from these businesses is $82.1 million (2011 – $140.4
million) and operating profit is $1.9 million (2011 – $18.4 million).
Below is the summarized financial information for the Company’s proportionate share of its interest in joint
ventures included in the consolidated statement of financial position:
Current assets
Property, plant and equipment
Intangible assets
Goodwill
Other assets
Deferred income tax assets
Current liabilities
Other liabilities
Deferred income tax liabilities
December 31,
2012
December 31,
2011
$29,365
5,237
20,655
47,419
3,500
118
19,018
485
722
$31,228
6,970
22,251
59,382
195
19,007
459
225
TORSTAR CORPORATION 2012 ANNUAL REPORT 96
TORSTAR - Consolidated Financial Statements
27. SEGMENTED INFORMATION
The Company has two reportable segments: Media and Book Publishing. “Corporate” is the provision of
corporate services and administrative support.
The Media Segment publishes four daily newspapers: the Toronto Star, The Hamilton Spectator, the Waterloo
Region Record, and the Guelph Mercury. The Media Segment also publishes over 100 community newspapers
in Ontario. In addition the Company has a 90% interest in Free Daily News Group Inc. which publishes the
English-language Metro newspapers in several Canadian cities; and through a joint venture arrangement, the
Company owns an interest in the Chinese-language Sing Tao Daily and its related publications in Toronto,
Vancouver and Calgary. Most of the Company’s newspapers have an established digital presence, and the
Company also operates a number of other digital businesses including toronto.com, Wheels.ca, flyerland.ca,
goldbook.ca, Workopolis, Olive Media, eyeReturn Marketing and wagjag.com. The Media Segment derives its
revenues from advertising, circulation, distribution, third-party printing and other.
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. Harlequin derives its revenue from the publishing and distribution of books in both printed and
digital formats.
The Company also has investments in Black Press, Blue Ant, Canadian Press, Shop.ca and Tuango, which the
Company presents as associated businesses.
Segment profit or loss has been defined as operating profit which corresponds to operating profit as presented in
the consolidated statement of income. All other income and expense items are managed on a Company basis
and are not provided to the chief operating decision-maker (“CODM”) at the operating segment level. Assets and
liabilities are also not provided to the CODM at the operating segment level. These items are therefore not
allocated to the operating segments.
Year ended December 31, 2012
Media
Book
Publishing
Total
segments
Corporate
Consolidated
Operating Revenue
$1,059,261
$426,483
$1,485,744
$1,485,744
Salaries and benefits
Other operating costs
Amortization and depreciation
Restructuring and other charges
Impairment of assets
(414,135)
(500,417)
(34,027)
(16,498)
(13,003)
(96,002)
(253,550)
(4,107)
(1,280)
(510,137)
(753,967)
(38,134)
(17,778)
(13,003)
($10,698)
(3,210)
(48)
(520,835)
(757,177)
(38,182)
(17,778)
(13,003)
Reportable segment operating profit
$81,181
$71,544
$152,725
($13,956)
$138,769
Interest and financing costs
Adjustment to contingent consideration
Foreign exchange
Loss of associated businesses
Gain on sale of assets
Other income
Investment write-down and loss
Income before taxes
(8,759)
(258)
(246)
(3,295)
9,811
10,407
(93)
$146,336
TORSTAR CORPORATION 2012 ANNUAL REPORT 97
TORSTAR - Consolidated Financial Statements
Year ended December 31, 2011
Media
Book
Publishing
Total
segments
Corporate
Consolidated
Operating Revenue
$1,089,330
$459,427
$1,548,757
Salaries and benefits
Other operating costs
Amortization and depreciation
Restructuring and other charges
(398,842)
(518,818)
(29,415)
(18,860)
(100,014)
(273,320)
(3,695)
(551)
(498,856)
(792,138)
(33,110)
(19,411)
($12,227)
(3,287)
(55)
$1,548,757
(511,083)
(795,425)
(33,165)
(19,411)
Reportable segment operating profit
$123,395
$81,847
$205,242
($15,569)
$189,673
(16,629)
630
(3,477)
(2,157)
19,055
74,590
(544)
$261,141
Interest and financing costs
Adjustment to contingent consideration
Foreign exchange
Loss of associated businesses
Other income
CTV Inc. – gain on sale
Investment write-down
Income before taxes
Geographical information
Revenue is allocated based on the country in which the order is received.
The Company operates in the following main geographical areas:
Canada
United States
Other¹
Total
Revenue
Year ended December 31,
2012
$1,056,198
219,809
209,737
$1,485,744
2011
$1,111,538
226,111
211,108
$1,548,757
¹ Principally – United Kingdom, Japan, Germany, Australia, Sweden and France.
28. COMPARATIVE INFORMATION
Some of the 2011 comparative figures have been reclassified to conform to the current year presentation.
29. SUBSEQUENT EVENTS
Subsequent to year end, a sub-lessee for which the Company had guaranteed sub-lease payments (Note 24)
filed for protection under Chapter 11 of the United States Bankruptcy Code. It is unclear if the sub-lessee will be
able to honour its commitments under the sub-lease going forward.
Through March 4, 2013, a series of restructuring initiatives have been undertaken in the Media Segment. These
initiatives include the intended outsourcing of certain functions, and other voluntary and involuntary staff
reductions which are currently expected to impact approximately 100 employees.
TORSTAR CORPORATION 2012 ANNUAL REPORT 98
N OT E S
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
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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
elaine b. berger
Corporate Director
Director since 2006
Daniel a. Jauernig
President and Chief Executive Officer
Classified Ventures, LLC
Director since 2009
Joan t. Dea
Managing Director
Beckwith Investments
Director since 2009
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BOARD OF DIRECTORS
alnasir samji
Managing Principal, 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 Emeritus, University of Alberta
Former Publisher, Edmonton Journal
Director since 2010
b. neil clark
Corporate Director
Director since 2011
TORSTAR CORPORATION 2012 ANNUAL REPORT 100
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CorPorate offiCe
traNsfer ageNt & registrar
CIBC Mellon Trust Company
c/o Canadian Stock Transfer Company Inc.
P.O. Box 700
Postal Station B
Montreal, QC
H3B 3K3
AnswerLine (416) 682-3680 or
1-800-387-0825
(toll-free in North America)
www.canstockta.com
inquiries@canstockta.com
Torstar Class B non-voting shares are traded
on the Toronto Stock Exchange under the
symbol TS.B
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
JenniFer BarBer
Senior Vice-President Finance
D. toDD sMitH
Treasurer
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2012
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