2 0 1 6
TORSTAR CORPORATION 2016 ANNUAL REPORT PB
A N N U A L R E P O R T
FINANCIAL HIGHLIGHTS
2016
2015
OPERATING RESULTS ($000)
Operating revenue
$685,099
$786,631
Segmented operating revenue (1)
761,697
843,640
Segmented Adjusted EBITDA (1)
Operating earnings (loss) (1)
Operating profit (loss)
Net loss
60,478
(14,428)
69,296
21,235
(61,051)
(354,069)
(74,836)
(404,837)
Cash provided by (used in) operating activities
(10,599)
38,050
Segmented Adjusted EBITDA - Percentage
of segmented operating revenue (1) 7.9% 8.2%
PER CLASS A AND CLASS B SHARES
Net loss
Dividends
($0.93)
$0.18
($5.02)
$0.525
Price range (high/low)
$2.90/$1.39
$7.50/$2.55
FINANCIAL POSITION ($000)
Cash and cash equivalents and restricted cash
$87,221
$73,076
Equity
$326,170
$419,737
The Annual Meeting of shareholders will be held Wednesday, May 3, 2017 at The Toronto Star Building,
3rd Floor Auditorium, One Yonge Street, Toronto, beginning at 10 a.m. It will also be webcast live on the Internet.
OPERATING REVENUE ($millions)
oPERATinG EARninGs (loss) ($millions) (1)
14
15
16
858
787
685
61
21
14
15
16
(14)
nET inComE (loss) PER sHARE
sEGmEnTED ADJUsTED EBiTDA ($millions) (1)
(5.02)
(0.93)
14
15
16
2.16
14
15
16
104
69
60
(1) These are non-IFRS measures. These along with other Non-IFRS measures appear in the President’s message. Refer to page 38 for a reconciliation of IFRS measures.
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 9 under the
heading “Forward-Looking Statements”.
TORSTAR CORPORATION 2016 ANNUAL REPORT 2
TORSTAR CORPORATION 2016 ANNUAL REPORT 3
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
2016 was a year of transition and evolution for Torstar as the company witnessed the retirement of two senior executives and
the consolidation of its digital strategy.
The headwinds buffeting the newspaper industry have continued unabated, yet the company’s major new investment,
VerticalScope Holdings Inc., showed ever-improving results throughout the year, confirming our expectation that it could be
an engine of growth for Torstar. Our second major investment was in Toronto Star Touch, an innovative and highly acclaimed
app designed for tablets, which has not been as successful as expected.
On the editorial side, both the Toronto Star and Metroland newspapers have maintained their tradition of editorial excellence.
Despite more limited resources, major investigative projects and insightful local reporting have been the hallmark of papers
across the company.
With ongoing economic pressures, the need for the company to take out cost has continued. Layoffs were carried out in most
properties and the company decided to close the Vaughan Press Centre, which had printed the Toronto Star for 24 years. The
property was later sold for net proceeds of $53.6 million. Torstar has always benefited tremendously from a dedicated and
skilled workforce. We want to salute those who are no longer with the company and reassure them their service will not be
forgotten.
As mentioned before, there were two significant resignations in 2016. President and Chief Executive Officer David Holland
announced mid-year his intent to step down once an orderly transition could take place. In early May, 2016, John Cruickshank,
Publisher of the Toronto Star and President of Star Media Group, formally stepped down. After that date, David Holland
has acted as interim Publisher and head of Star Media Group. We all owe a great deal of gratitude to David for his selfless
dedication to both jobs and his steady stewardship of the company through some very turbulent times. After almost eight
years at the helm, he leaves Torstar debt free, with an exciting new investment in VerticalScope and the company’s newspapers
still viewed as the most respected in the nation.
David has been ably assisted throughout by Chief Financial Officer and Executive Vice-President Lorenzo DeMarchi. Both Ian
Oliver, President of Metroland Media Group, and Chris Goodridge, Senior Vice-President, Digital Ventures, have continued to
provide critical leadership in our community newspaper and digital divisions.
Finally, Torstar has been fortunate to have a fully committed and strategic Board of Directors. We were very sorry to lose
Phyllis Yaffe as our Lead Director as she accepted an invitation from Prime Minister Justin Trudeau to be Canada’s Consul
General in New York City. Phyllis was an outstanding director whose strategic perspective was simply superb. We thank her
wholeheartedly for her years of service. And I want to thank the entire Board for its dedication and insights.
TORSTAR CORPORATION 2016 ANNUAL REPORT 2
TORSTAR CORPORATION 2016 ANNUAL REPORT 3
T O O U R S H A R E H O L D E R S
David Holland
President and Chief Executive Officer
2016 proved to be a significant year of transition, evolution and progress for
Torstar. The business environment in the industry continued to be challenging,
but Torstar made substantial progress on several important fronts. Our earnings
base shifted meaningfully towards our digital operations in 2016 thanks to the
very strong performance of VerticalScope, our most significant digital asset.
We successfully transitioned printing of the Toronto Star to Transcontinental,
achieving significant operating savings and generating almost $54 million in
cash from the sale of the property. And our digital presence across our properties
continued to show impressive growth with total average monthly page views of
118 million, up 20% versus the previous year, with greater engagement with us,
particularly on mobile platforms.
In our media operations, we were not immune from the continuing print
advertising industry structural challenge in 2016. We experienced this in both
Star Media Group (SMG) and Metroland Media Group (MMG) where run-of-
press revenues were under pressure. At the same time, two very large and
important revenue categories, subscriber revenue at SMG and flyer distribution
revenue at MMG, showed more resilience. SMG subscriber revenue was down
6% and MMG flyer distribution revenue was down 4%. These two categories
represent 30% of Torstar overall segmented revenue.
We made significant progress in evolving Torstar Corporation towards a more
digital future in 2016. Across SMG and MMG, digital revenue grew by 3%,
excluding the impact of the closure of Olive Media, led by increasing sales of
digital solutions by MMG to local business and by growth in more sophisticated
forms of digital advertising at thestar.com.
Even more significant was the growth and contribution related to our investment
in VerticalScope. We invested $180 million mid-way through 2015. In 2016,
our first full year of ownership of our interest, VerticalScope contributed $23.7
million of adjusted EBITDA, representing approximately 40% of Torstar’s overall
segmented adjusted EBITDA for the year.
VerticalScope had a very strong year with revenue up 21% and adjusted EBITDA
up 20%. The company generated significant free cash flow in the year that was
used for a number of acquisitions and to reduce debt. VerticalScope’s strong
North American position in several key digital audience verticals including
automotive, power sports, and outdoor, its expertise in programmatic technology
and talented leadership make it one of Canada’s unique digital success stories.
As was anticipated at the time of the original investment, VerticalScope is
growing nicely and making a meaningful contribution to the continuing evolution
of our asset and earnings base.
As we work through the continuing transition, we remain committed to
maintaining a solid financial position and ended 2016 with $75 million in
unrestricted cash and cash equivalents and no bank debt. This foundation
enables Torstar to take a long-term view in its decision-making through this
period of transition, taking the steps necessary to increasingly position Torstar
for a more digitally oriented future.
OPERATING RESULTS
Torstar’s results were affected by the continued pressures on print advertising.
Segment adjusted EBITDA was $60 million, down $9 million compared to the
prior year. As previously mentioned, we were very pleased with VerticalScope’s
performance in our first full calendar year of reporting results.
We finished 2016 in a solid financial position, benefitting from the sale of the
Vaughan printing facility and in the important area of pensions we expect
our funding requirements for our defined benefit pension plans in 2017 to be
similar to the previous year.
Star Media Group, which includes the Toronto Star, Metro, Sing Tao, The Kit
and some of our digital properties, reported adjusted EBITDA of $0.7 million,
down $18.7 million. The decline in EBITDA includes the absence of $7.1 million
of digital media tax credits and the loss of $7.6 million of contribution from the
absence of commercial printing and the closure of Olive Media, both of which
benefitted 2015 results. The remaining decline was attributable to declining print
advertising revenues at the Toronto Star and Metro, offset by considerable efforts
on cost. We took several major steps to reduce costs, including closing the
Vaughan printing facility, offering a voluntary severance plan, and consolidating
Metro’s Toronto-based operations at our One Yonge Street headquarters in
Toronto. Segmented revenue was down 18% to $280 million, due in part to
the closure of the Olive Media operation and the commercial printing operation
at the Vaughan printing facility. Adjusted for these factors, segmented revenue
was down $40.4 million, or 12%, in 2016. After adjusting for the closure of Olive
Media, we were pleased that digital revenues continued to progress, up 6.1%.
The Toronto Star, our flagship publication, enjoyed successes on a number of
fronts, continuing its tradition of editorial excellence in the print edition and
maintaining a lead of more than twice as many weekday readers as its closest
paid daily competitor in the Greater Toronto Area. Metro Toronto is the second-
most-read weekday newspaper in the Greater Toronto Area. Some 3 million
Toronto-area adults engage with the Star or Metro in an average week. The
Toronto Star remains Canada’s largest newspaper in terms of print readers,
with 1.5 million readers nationally on an average weekday. As well, Metro also
publishes daily print editions in Vancouver, Calgary, Edmonton, Winnipeg,
Ottawa and Halifax. We are firmly committed to growing the Metro publications
in those communities.
At Metroland Media, we have a diversified community media business that is
widely recognized as one of North America’s top performers. Metroland now
has two daily papers, more than 100 community newspapers across Ontario,
numerous digital operations, a very large and successful flyer distribution
network, magazines and consumer shows. At Metroland, segmented adjusted
EBITDA in 2016 was $42.5 million, down $7.0 million from prior year, and
segmented revenue was down 8.8% to $407.6 million. Metroland remains
focused on development of multi-platform solutions for its local customer base.
In the very important flyer distribution category, which represents approximately
one-third of Metroland’s revenue base, revenues were down a more modest 3.8%.
TORSTAR CORPORATION 2016 ANNUAL REPORT 4
TORSTAR CORPORATION 2016 ANNUAL REPORT 5
We are also pleased our newspapers and digital businesses continued to be
recognized for outstanding editorial, advertising and marketing efforts.
print and digital media and marketing solutions organization of the future,
with particular emphasis on growing the local revenue base across platforms.
Metroland community newspapers won an impressive 177 provincial, national
and international awards in 2016 for editorial, advertising and promotions
excellence. It won 42 Local Media Association awards, the fourth straight year
that Metroland topped all newspaper companies in North America in this
important award contest. As well, The Hamilton Spectator’s Jon Wells won a
prestigious National Newspaper Award in the explanatory work category for
his feature on McMaster University’s anatomy lab entitled “Body and Soul.”
Metroland publications also won 35 awards from the Canadian Community
Newspaper Association and 99 awards from the Ontario Community Newspaper
Association. Such honours are recognition of the team effort made by Metroland
employees to maintain and grow its leadership position in the community
newspaper industry. A team from the Toronto Star captured the top prize at
the National Newspaper Awards, winning the Project of the Year category for an
investigation into missing and murdered indigenous women in Canada entitled
“Gone.” Reporters David Bruser, Jim Rankin, Joanna Smith, Tanya Talaga and
Jennifer Wells, along with data analyst Andrew Bailey, dug into the disturbing
trend of women who have disappeared in their communities.
The Digital Ventures segment, which was created in 2015, became a significant
contributor in 2016 with segmented adjusted EBITDA of $27.3 million, up
$15.6 million compared to prior year. The results benefited from the full-year
inclusion of VerticalScope in 2016 and growth at VerticalScope. Segmented
adjusted EBITDA for VerticalScope alone was $23.7 million, up 20% versus
prior year. With its community-based audiences in desirable verticals, results
are benefitting from both increasing higher-yield direct sales and continuing to
build their programmatic revenue base.
This is my last message to shareholders after serving as Torstar’s President and
Chief Executive Officer since 2009. In July, 2016, I announced my intention to
retire and assist with the transition to my successor. On March 3, 2017, I am
officially retiring and Torstar announced that John Boynton will be the new
President and Chief Executive Officer of Torstar and Publisher of the Toronto Star.
His experience and sales and marketing acumen will be great assets in his
new role. I wish him the very best in leading the many dedicated employees of
Torstar in the continued evolution of the company.
OUR GREATEST STRENGTH – PEOPLE
We have many strengths across our operations, but no strength is greater or
more critical than the talented, committed and passionate people at all levels
of our company. They continue to weather the challenge and seek out the
opportunities ahead with great energy and distinction.
Guiding these employees is a very talented executive team, including Ian Oliver
at Metroland Media, Chris Goodridge at Digital Ventures, and in the Corporate
office Lorenzo DeMarchi, our Executive Vice-President and Chief Financial
Officer. We also benefit greatly from the leadership of Rob Laidlaw, the founder
and CEO at VerticalScope.
Ian Oliver is an outstanding community newspaper leader who consistently
draws on his long experience to champion the innovation needed to succeed in
the long run in this highly competitive space.
Torstar also has minority investments in associated businesses, including an
approximate 18-per-cent interest in Blue Ant Media Inc., an independent media
company led by media veteran Michael MacMillan. We were pleased with Blue
Ant’s progress in 2016 and remain confident in the company as it focuses on
global growth opportunities.
Chris Goodridge is a forward-thinking, very talented executive at the forefront of
Torstar’s efforts to orient to its more digital future through both his oversight of
our increasingly important Digital Ventures segment and his leadership of digital
efforts within Star Media Group.
In addition, Torstar has a minority investment in Black Press, a company led
by David Black that publishes more than 150 newspapers, including weeklies,
dailies and shoppers in Canada and the U.S.
LOOKING FORWARD AND SUCCESSION
We are embracing the multi-platform media environment in which we operate.
We are striving to adapt and are demonstrating our willingness to take bold but
measured steps to enhance value over the long term for Torstar as a whole.
We are focused on our strategic priorities:
• Achieving further digital evolution of our asset base through reinvestment in
and support of VerticalScope’s growth;
• Continuing to build digital capabilities and grow digital revenue within our
wholly-owned operations;
• Continuing to optimize print revenues and reduce costs;
• Across our media operations, increasingly focusing on the unique
characteristics of our various audiences to generate revenue opportunity;
• Continuing to exploit Metro’s unique strengths to build value in the franchise;
• Successfully evolving Metroland Media Group into the community-focused
I have benefited greatly from relying on their efforts.
We are also very fortunate to be partnered with Rob Laidlaw, one of Canada’s
most successful leading digital entrepreneurs, the Chief Executive Officer of
VerticalScope.
In the corporate office, I am very grateful to Lorenzo DeMarchi who has provided
much wise counsel as my partner as we have navigated the organization through
this turbulent period.
I have also been very fortunate to have benefited from the support and wise
counsel of John Honderich, our Chair, and all the members of the Board of
Directors throughout my eight-year tenure.
It has been both a privilege and an honour to have worked at Torstar for 31
years, most recently as President and Chief Executive Officer. The company has
many strengths and I believe it will successfully transition through this period.
We have made some tough choices in recent years. I have no doubt there will
be difficult choices ahead. The great news is that we are positioned to make
the right choices that are in the long-term interests of the company.
I wish my successor and the Board great wisdom in making the choices ahead.
TORSTAR CORPORATION 2016 ANNUAL REPORT 4
TORSTAR CORPORATION 2016 ANNUAL REPORT 5
TORSTAR CORPORATION 2016 ANNUAL REPORT 6
TORSTAR CORPORATION 2016 ANNUAL REPORT 7
TA B L E O F C O N T E N T S
Management’s Discussion & Analysis
Management’s Statement of Responsibility
Independent Auditors’ Report to Shareholders
Consolidated Financial Statements
Board of Directors
Corporate Information
9
52
53
54
108
111
TORSTAR CORPORATION 2016 ANNUAL REPORT 6
TORSTAR CORPORATION 2016 ANNUAL REPORT 7
TORSTAR CORPORATION 2016 ANNUAL REPORT 8
TORSTAR CORPORATION 2016 ANNUAL REPORT 9
TORSTAR – Management's Discussion and Analysis
For the year ended December 31, 2016
The following management’s discussion and analysis (“MD&A”) of Torstar Corporation’s (“Torstar”, "we", "our" 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, 2016 (the “2016 Consolidated Financial Statements”).
We report our financial results under International Financial Reporting Standards (“IFRS”) as set out in the CPA Canada Standards and
Guidance Collection. All financial information contained in this MD&A and in the 2016 Consolidated Financial Statements has been
prepared in accordance with IFRS, except for certain “Non-IFRS Measures” as described in Section 14 of this MD&A. Per share amounts
are calculated using the weighted average number of shares outstanding for the applicable period. In addition, during 2016, we reclassified
the manner in which certain items are categorized including the exclusion of share based compensation from our definition of adjusted
EBITDA. The results for 2015 have been restated on a comparative basis to reflect these and other classification changes.
This MD&A is dated February 28, 2017 and all amounts are in Canadian dollars unless otherwise noted.
Additional information relating to Torstar, including our Annual Information Form, is available on our website at www.torstar.com and 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”, “estimate”, “intend”, “would”, “could”, “if”, “may” and similar
expressions. This MD&A includes, among others, forward-looking statements regarding estimates and expectations relating to contingent
liabilities and impairment of assets in Section 3 of this MD&A, estimates and expectations relating to contingent liabilities in Section 4 of
the MD&A, Torstar's expectations regarding expected savings including savings from restructuring initiatives in Sections 3, 4 and 5 of
this MD&A, Torstar's outlook for 2017 including anticipated revenue trends and adjusted EBITDA, expected costs related to Toronto Star
Touch, pension plan funding obligations and expenses, anticipated capital expenditures and non-cash amortization charges in Section
5 of this MD&A, expectations regarding cash flows and forecasted cash requirements, the potential impact of the Ontario Government's
solvency funding review, expected pension plan funding requirements and timing and amount of digital media tax credits in Section 6 of
this MD&A, expectations regarding the costs, obligations, contributions, return on plan assets, discount rates, required funding, other
expectations related to employee future benefit obligations and the potential impact of the Ontario Government's solvency funding review
in Section 8 of this MD&A, expectations described in connection with critical accounting policies and estimates and judgements in Section
9 of this MD&A, expectations regarding recent accounting pronouncements in Section 10 of this MD&A and expectations regarding risks
and uncertainties in Section 16 of this MD&A. 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:
-the Company’s ability to operate in highly competitive industries;
-the Company’s ability to compete with digital media, other newspapers and other forms of media;
-the Company’s ability to respond to the shift to digital media and the shift by advertisers to other digital platforms;
-the Company’s ability to attract, grow and retain its digital audience and profitably develop its digital platforms;
-the Company’s ability to attract and retain advertisers;
-the Company’s ability to maintain adequate circulation/subscription levels;
-the Company’s ability to attract and retain readers and traffic;
-the Company’s ability to integrate the technology associated with new digital platforms;
-general economic conditions and customer prospects in the principal markets in which the Company operates;
-the Company’s ability to reduce costs;
-loss of reputation;
-dependence on third party suppliers and service providers;
-reliance on technology and information systems and risks of security breaches;
-changes in employee future benefit obligations;
TORSTAR CORPORATION 2016 ANNUAL REPORT 9
TORSTAR – Management's Discussion and Analysis
-the Company’s ability to execute appropriate strategic growth initiatives including acquisitions;
-unexpected costs or liabilities related to acquisitions and dispositions;
-investments in other businesses;
-labour disruptions;
-reliance on printing operations;
-newsprint costs;
-litigation;
-privacy, anti-spam, communications, e-commerce and environmental laws, health and safety regulations and other laws and regulations
applicable generally to the Company’s businesses;
-foreign exchange fluctuations and foreign operations;
-availability of insurance;
-dependence on key personnel;
-intellectual property rights;
-credit risk;
-availability of capital and restrictions imposed by credit facilities;
-income tax and other taxes;
-dividend policy;
-results of impairment tests and uncertainties associated with critical accounting estimates
-holding company structure; and
-control of the Company by the Voting Trust.
Torstar cautions that the foregoing list is not exhaustive of all possible factors, as other factors could adversely affect Torstar’s 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 economies; tax laws; continued
availability of printing operations; availability of financing on appropriate terms; exchange rates; market competition; rates of return and
discount rates relating to pension expense and pension plan obligations; expected future revenues; expected future liabilities; expected
future cash flows and discount rates relating to valuation of goodwill and intangible assets; and successful development and launch of
new products. There is a risk that some or all of these assumptions may prove to be incorrect. There is no assurance regarding the
amount and timing of future dividends. 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 2016 ANNUAL REPORT 10
TORSTAR – Management's Discussion and Analysis
Section
Page
Management’s Discussion and Analysis – Contents
12
13
14
22
27
28
30
30
32
35
36
37
38
38
41
41
1
2
3
4
5
6
7
8
9
Overview and Strategic Initiatives
A summary of our business and strategic initiatives
Highlights
Highlights for 2016 compared to 2015
Annual Operating Results
A discussion of our operating results for 2016 and 2015
Fourth Quarter Operating Results
A discussion of our fourth quarter operating results
Outlook
The outlook for our business in 2017
Liquidity and Capital Resources
A discussion of our cash flow, liquidity, credit facilities and other disclosures
Financial Instruments
A summary of our financial instruments
Employee Benefit Obligations
A summary of our employee benefit obligations
Critical Accounting Policies and Estimates
A description of accounting estimates and judgements that are critical to determining our
financial results, and changes to accounting policies
10 Recent Accounting Pronouncements
A discussion of recent IFRS developments that will affect our business
11 Controls and Procedures
12 Selected Annual Information
A discussion of our disclosure controls and internal controls over financial reporting
A summary of selected annual financial information for 2016, 2015 and 2014
13 Summary of Quarterly Results
A summary view of our quarterly financial performance
14
Reconciliation and Definition of Non-IFRS Measures
A description and reconciliation of certain non-IFRS and additional IFRS measures used by
management
15 Enterprise Risk Management
Enterprise risks and uncertainties Torstar is facing and how we manage these risks
16 Risks and Uncertainties
Risks and uncertainties facing our business
TORSTAR CORPORATION 2016 ANNUAL REPORT 11
TORSTAR – Management's Discussion and Analysis
1. Overview and Strategic Initiatives
A summary of our business and strategic initiatives
Torstar is a broadly based Canadian media company listed on the Toronto Stock Exchange (Symbol:TS.B). Torstar has
three reportable operating segments: Metroland Media Group (“MMG”), Star Media Group (“SMG”) and Digital Ventures.
Metroland Media Group includes The Hamilton Spectator and the Waterloo Region Record daily newspapers and more
than 100 weekly community newspapers, digital properties (including homefinder.ca, save.ca, travelalerts.ca, wagjag.com
(“WagJag”) and the regional online sites, such as durhamregion.ca) and flyer distribution operations. Metroland Media
Group also has a number of specialty publications, directories and consumer shows.
Star Media Group includes the daily Toronto Star newspaper, Toronto Star Touch and thestar.com. Star Media Group also
includes Free Daily News Group Inc. (“Metro”), which publishes the English-language Metro free daily newspapers in several
of Canada’s largest cities, and through a joint venture arrangement, Star Media Group owns an interest in the Chinese-
language Sing Tao Daily and its related publications in Toronto, Vancouver and Calgary. Star Media Group also includes
wheels.ca, toronto.com and other specialty publications and magazines and distribution services and our interest in Olive
Media. Olive Media ceased operations effective January 1, 2016.
Digital Ventures includes our 56% interest in VerticalScope, eyeReturn Marketing Inc. (“eyeReturn”) and our joint venture
interest in Workopolis. Our investment in VerticalScope is classified as an associated business rather than a consolidated
subsidiary or joint venture as a result of certain terms in the applicable shareholders’ agreement. VerticalScope is a Toronto-
based vertically focused digital media company with expertise in programmatic advertising and which has approximately
170 employees and services the North American market through its network of user forums and premium content sites
offering advertisers access to large audiences in popular verticals including automotive, powersports, outdoors, home and
health.
We also have several other investments in Associated Businesses, which at December 31, 2016 included a 19% equity
investment in Black Press Ltd. (“Black Press”), an 18% equity investment in Blue Ant Media Inc. (“Blue Ant”) and a 33%
equity investment in Canadian Press Enterprises Inc. (“Canadian Press”). We also had a 15% equity investment in Shop.ca
Network Inc. (“Shop.ca”) until its bankruptcy in the third quarter of 2016.
Blue Ant is a media company founded in 2011 that creates and distributes video content across a range of traditional and
new media platforms in categories such as Outdoor Life, Nature and Science, Style and Do-It-Yourself ("DIY"), Music and
Gaming.
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, California, Hawaii and Ohio.
Canadian Press operates The Canadian Press news agency.
Competitive Landscape and Strategic Initiatives
Over the last several years, the media landscape, and the newspaper industry in particular, has continued to experience
significant changes. These changes include an increasing percentage of consumer time spent with new digital and mobile
platforms and fragmentation of audiences across an increasing array of digital media options which has resulted in a structural
shift in advertising spending from various traditional media, including newspapers, to digital media as well as a significant
increase in the availability of advertising impressions on digital platforms. Having made a significant investment in a high
growth digital business opportunity in VerticalScope, we are continuing to transform Torstar's asset base. While the landscape
is evolving quickly, we remain committed to maintaining a strong financial foundation and we are embracing the multi-
platform environment in which we operate and we are striving to adapt and strengthen our position, across our asset base,
through the following strategic initiatives:
• Continuing to advance digitally across our businesses;
• Continuing to optimize print revenues and reduce costs, while investing and delivering in those areas of highest value
to our print customers;
• Continuing to evolve the Metro publications across Canada;
TORSTAR CORPORATION 2016 ANNUAL REPORT 12
TORSTAR – Management's Discussion and Analysis
• Successfully evolving Metroland Media Group into the community focused print and digital media and marketing solutions
organization of the future by building on the foundation of tight connections with our local communities; and
• Achieve further digital evolution of our asset base through both organic and acquisition growth at VerticalScope.
2. Highlights
Highlights for 2016 compared to 2015
(in $000’s, except per share amounts)
2016
2015
Favourable
(Unfavourable)
Net loss from continuing operations
Per Share
Net loss attributable to equity shareholders
Per Share (Basic)
Adjusted loss Per Share2
Operating loss1,2
Adjusted EBITDA1,2
($76,036)
($0.94)
(74,750)
($0.93)
($0.46)
(118,507)
60,478
Revenues1,2
761,697
1 Includes proportionately consolidated share of joint ventures and VerticalScope's operations.
2These are Non-IFRS or additional IFRS measures, refer to Section 14 of this MD&A.
Highlights:
($399,837)
($4.96)
$323,801
$4.02
(403,966)
($5.02)
($0.10)
(403,079)
69,296
843,640
329,216
$4.09
($0.36)
284,572
(8,818)
(81,943)
•
In July 2016, printing of The Toronto Star was successfully transitioned to Transcontinental Printing
("Transcontinental") and in September 2016, we sold the Vaughan Printing Facility and surrounding lands for net
proceeds of $53.6 million recognizing a gain of $21.8 million on the sale.
• During 2016, $22.8 million of restricted cash was released from the Harlequin escrow. We ended 2016 with $75.4
million of cash and cash equivalents as well as $11.8 million of restricted cash; Torstar has no bank indebtedness.
• Our net loss from continuing operations was $76.0 million ($0.94 per share) in 2016 and $399.8 million ($4.96 per
share) in 2015. Our net loss in 2016 included $122.0 million of non-cash amortization and depreciation, $74.8 million
of which related to our investment in VerticalScope, and $7.5 million of non-cash impairment charges. Our net loss
in 2015 included $361.1 million of non-cash impairment charges and $77.5 million of non-cash amortization and
depreciation.
• Our net loss attributable to equity shareholders was $74.8 million ($0.93 per share) in 2016 compared to net loss
attributable to equity shareholders of $404.0 million ($5.02 per share) in 2015.
• Adjusted loss per share was $0.46 in 2016, up $0.36 from adjusted loss per share of $0.10 in 2015. Adjusted loss
per share included a $0.55 per share effect of amortization and depreciation.
• Our segmented adjusted EBITDA was $60.5 million in 2016, down $8.8 million from $69.3 million in 2015 including
the negative impact of the loss of $7.6 million in contribution from commercial printing and the closure of Olive
Media, the absence of $7.1 million of digital media tax credits recorded in 2015 and the impact of revenue declines.
These negative factors were partially offset by $34.5 million of net savings from restructuring initiatives, other cost
reductions, $3.6 million of lower net investment in Toronto Star Touch (including $1.2 million of savings from
restructuring) and $14.4 million of additional adjusted EBITDA from our investment in VerticalScope. Digital ventures
adjusted EBITDA represented approximately 45% of total segmented adjusted EBITDA in 2016, up from
approximately 17% in 2015 and largely due to our investment in VerticalScope in July of 2015. In the first full year
TORSTAR CORPORATION 2016 ANNUAL REPORT 13
TORSTAR – Management's Discussion and Analysis
of our investment, VerticalScope's U.S. dollar revenues and adjusted EBITDA increased approximately 21% and
20% respectively, relative to the full year in 2015.
• Segmented revenue was $761.7 million in 2016, down $81.9 million (9.7%) from $843.6 million in 2015.
The following chart provides a continuity of earnings per share from the year ended December 31, 2015 to the year ended
December 31, 2016:
Loss per share from continuing operations attributable to equity shareholders in 2015
Earnings (Loss) Per
Share
Adjusted Earnings
(Loss) Per Share **
($4.96)
($0.10)
Changes
• Adjusted EBITDA *
• Amortization and depreciation *
• Operating earnings (loss) *
• Restructuring and other charges*
• Impairment of assets*
• Operating loss *
• Interest and financing costs
• Non-cash foreign exchange
• Income from associated businesses (excluding VerticalScope)
• Other income
• Change in deferred taxes (including associated businesses)
Loss per share attributable to equity shareholders in 2016 from continuing operations
Earnings per share from discontinued operations attributable to equity shareholders
in 2016
Loss per share attributable to equity shareholders in 2016
(0.11)
(0.55)
(5.62)
(0.19)
4.39
(1.42)
(0.01)
0.02
0.12
0.33
0.02
($0.94)
$0.01
($0.93)
(0.11)
(0.55)
(0.76)
(0.76)
(0.01)
0.12
0.19
($0.46)
($0.46)
*Includes proportionately consolidated share of joint ventures and VerticalScope's operations. These are Non-IFRS or additional IFRS measures, refer to
Section 14 of this MD&A.
**Refer to Section 14 for a reconciliation of earnings (loss) per share to adjusted earnings (loss) per share and a definition of adjusted earnings (loss) per
share.
3. Annual Operating Results
A discussion of our operating results for 2016 and 2015
Unless otherwise noted, the following is a discussion of our 2016 operating results relative to 2015. We have three
reportable operating segments for segment reporting purposes: MMG, SMG and Digital Ventures. As a result of the
increasing significance of segmented financial results from our investment in VerticalScope relative to our total segmented
financial results, during 2016 we revised our definition of adjusted EBITDA to exclude share based compensation. We
made this change because of the relative significance and variability of this non-cash expense in our proportionate share
of VerticalScope's financial results and we believe that the exclusion of this non-cash expense from adjusted EBITDA
provides greater insight for investors, analysts and readers, in regards to our segmented earnings excluding non-cash
expenses. Refer to Section 14 for more information. In addition, the paywall at thestar.com was eliminated effective April
1, 2015. Revenues associated with the paywall were not material and have been excluded from the prior period for
comparison purposes in the discussions of digital and subscriber revenues below.
Relevant comparative information has been restated to reflect these changes.
TORSTAR CORPORATION 2016 ANNUAL REPORT 14
TORSTAR – Management's Discussion and Analysis
Overall Performance
As noted above, we have three reportable operating segments to which Corporate costs have not been
allocated. Management of the segments are accountable for the revenues, adjusted EBITDA, operating earnings and
operating profit of the segments including our proportionate share of joint venture operations as well as our 56% interest
in VerticalScope. When reported in the consolidated statement of income, joint ventures and our 56% investment in
VerticalScope (which, pursuant to certain terms in the shareholders agreement, is classified as an Associated Business
rather than a consolidated subsidiary or joint venture), are accounted for using the equity method. The net income is
included in “Income (loss) from joint ventures” and “Income (loss) from associated businesses”, as applicable. We own
a significantly higher percentage of VerticalScope relative to our other Associated Businesses.
The following tables set out our segmented results which include our proportionate share of results from VerticalScope
and our joint ventures for the years ended December 31, 2016 and December 31, 2015 and provide a reconciliation to
the consolidated statement of income.
(in $000’s)
Operating revenue
Salaries and benefits
Other operating costs
Adjusted EBITDA**
Amortization & depreciation
Share based compensation
Operating earnings (loss)**
Impairment of assets
Operating profit (loss)**
Loss from continuing operations
Income from discontinued
operations
Net loss
2016
MMG
SMG
Digital
Ventures
Corporate
Total
Segmented*
Adjustments
&
Eliminations1
Total Per
Consolidated
Statement of
Income
$407,646
$280,070
$73,981
(188,175)
(176,942)
42,529
(14,382)
(528)
27,619
(104,859)
(174,468)
743
(27,934)
(268)
(27,459)
(21,361)
(25,352)
27,268
(79,642)
(1,128)
(53,502)
(262)
(6,700)
($7,448)
(2,614)
(10,062)
(66)
(630)
(10,758)
(610)
$761,697
(321,843)
(379,376)
60,478
(122,024)
(2,554)
(64,100)
(46,907)
(7,500)
($76,598)
22,528
23,184
(30,886)
78,004
2,554
49,672
1,084
6,700
$13,315
($59,990)
($60,464)
($11,368)
($118,507)
$57,456
$685,099
(299,315)
(356,192)
29,592
(44,020)
—
(14,428)
(45,823)
(800)
($61,051)
($76,036)
$1,200
($74,836)
Restructuring and other charges
(13,504)
(32,531)
(800)
2015
(in $000’s)
Operating revenue
Salaries and benefits
Other operating costs
Adjusted EBITDA**
Amortization & depreciation
Share based compensation
Operating earnings (loss)**
Restructuring and other charges
Impairment of assets
MMG
SMG
Digital
Ventures
Corporate
Total
Segmented*
$447,064
$343,555
$53,021
(207,831)
(189,755)
49,478
(14,055)
(600)
34,823
(19,777)
(265,936)
(126,148)
(198,057)
19,350
(14,991)
(944)
3,415
(10,634)
(79,145)
(18,118)
(23,160)
11,743
(48,428)
(749)
($8,864)
(2,411)
(11,275)
(37)
(180)
(37,434)
(11,492)
(899)
(16,000)
$843,640
(360,961)
(413,383)
69,296
(77,511)
(2,473)
(10,688)
(31,310)
(361,081)
Operating profit (loss)**
($250,890)
($86,364)
($54,333)
($11,492)
($403,079)
Loss from continuing operations
Loss from discontinued operations
Net loss
1
Reflects eliminations of our proportionate share of joint ventures and our 56% interest in VerticalScope
*Includes our proportionately consolidated share of joint venture operations and VerticalScope
**These are non-IFRS or additional IFRS measures, refer to Section 14 of this MD&A
TORSTAR CORPORATION 2016 ANNUAL REPORT 15
Adjustments
&
Eliminations1
Total Per
Consolidated
Statement of
Income
($57,009)
19,137
19,988
(17,884)
47,334
2,473
31,923
1,087
16,000
$49,010
$786,631
(341,824)
(393,395)
51,412
(30,177)
—
21,235
(30,223)
(345,081)
($354,069)
($399,837)
($5,000)
($404,837)
TORSTAR – Management's Discussion and Analysis
Revenue
Segmented revenue was down $81.9 million or 9.7% with revenues negatively impacted by several factors including the
absence of $14.6 million of net revenue associated with the closure of Olive Media at the end of 2015 and the absence
of $8.9 million of commercial printing revenue at the Vaughan Printing Facility. These negative factors were partially offset
by increased revenue of $24.9 million from VerticalScope, $20.0 million of which was the result of including a full year of
revenue in 2016, relative to a partial year in 2015 and $4.9 million or 29% of year over year comparable period revenue
growth at VerticalScope. Adjusting for the non-recurring factors, segmented revenue was down $78.8 million or 9.3% in
2016.
Revenue excluding our proportionate share of revenue from joint ventures and our 56% interest in VerticalScope (“operating
revenue”) was down $101.5 million or 13%. Adjusting for the above noted factors, operating revenue was down $78.4
million or 10.0%.
Segmented revenue in 2016 reflected declines of 15% in print advertising revenues, with particular softness in national
advertising revenues, a 6.8% decrease in subscriber revenue, approximately 1% of which was due to the closure of the
Guelph Mercury, and a 5.1% decrease in distribution revenues.
Excluding the impact of Olive Media, digital revenue across all segments increased 18% in 2016, largely resulting from
our investment in VerticalScope as well as revenues from Toronto Star Touch and continued growth in local digital
advertising within the community websites at Metroland Media Group. These revenue increases were partially offset by
lower revenues at Workopolis and WagJag. Digital revenues were 18% of total segment revenues in 2016 compared to
15% in 2015.
The following charts provide a breakdown of total segmented operating revenue for 2016 and 2015 ($ in millions):
Year ended
December 31, 2016
Print advertising
Digital advertising
Distribution
Subscriber
Other
Total
Year ended
December 31, 2015
Print advertising
Digital advertising
Distribution
Subscriber
Other
Total
MMG
SMG
$
$174.0
36.4
131.2
25.9
40.1
%
43%
9%
32%
6%
10%
$
$148.5
22.7
7.9
94.2
6.7
%
53%
8%
3%
34%
2%
Digital Ventures
$
%
$74.0
100%
Total
$
$322.5
133.1
139.1
120.1
46.8
%
42%
18%
18%
16%
6%
$407.6
100%
$280.1
100%
$74.0
100%
$761.7
100%
MMG
SMG
$
$200.3
37.7
136.5
28.4
44.2
%
45%
8%
31%
6%
10%
$
$180.8
35.2
10.1
100.5
17.0
%
53%
10%
3%
29%
5%
Digital Ventures
$
%
$53.0
100%
Total
$
$381.1
125.9
146.5
128.9
61.2
%
45%
15%
17%
15%
7%
$447.1
100%
$343.6
100%
$53.0
100%
$843.6
100%
Salaries and benefits
Our segmented salaries and benefits costs were down $39.2 million or 11% in 2016 including the absence of $7.1 million
of digital media tax credits recorded in 2015. Segmented salaries and benefit costs in 2016 reflected the benefit of savings
from restructuring initiatives, including the closure of the Vaughan Printing Facility and lower commission costs partially
offset by the inclusion of our proportionate share of salaries and benefit costs of VerticalScope and higher staffing costs
associated with Toronto Star Touch.
TORSTAR CORPORATION 2016 ANNUAL REPORT 16
TORSTAR – Management's Discussion and Analysis
Other operating costs
Segmented other operating costs primarily consist of circulation/flyer distribution costs, newsprint costs and other
production costs which represented 40%, 12% and 12% respectively of segmented other operating costs in 2016.
Segmented other operating costs were down $34.0 million (8.2%) as a result of lower print volumes and the impact of
other cost reductions partially offset by fees associated with outsourcing the printing of the Toronto Star effective July
2016, as well as increased costs related to our proportionate share of VerticalScope’s other operating costs.
Adjusted EBITDA
Our segmented adjusted EBITDA was $60.5 million in 2016, down $8.8 million from 2015 including the negative impact
of the loss of $7.6 million in contribution from commercial printing and the closure of Olive Media, the absence of $7.1
million of digital media tax credits recorded in 2015 and the impact of revenue declines. These negative factors were
partially offset by $34.5 million of net savings from restructuring initiatives, other cost reductions, $3.6 million of lower net
investment in Toronto Star Touch (including $1.2 million of savings from restructuring) and $14.4 million of additional
adjusted EBITDA from our investment in VerticalScope.
Amortization and depreciation
Total segmented amortization and depreciation increased $44.5 million in 2016, which included an increase of $30.5
million associated with our investment in VerticalScope on July 28, 2015 as well as $9.3 million of accelerated amortization
of equipment related to the transition of printing of the Toronto Star effective July 3, 2016.
Operating earnings (loss)
Segmented operating loss was $64.1 million in 2016, compared to a segmented operating loss of $10.7 million in 2015.
The loss in 2016 included the impact of $74.8 million of amortization expense associated with our investment in
VerticalScope (2015 - $44.3 million) as well as the above mentioned accelerated amortization of equipment related to the
transition of printing of the Toronto Star.
Restructuring and other charges
Total segmented restructuring and other charges were $46.9 million in 2016 and largely related to ongoing efforts to reduce
costs including a charge of $20.0 million for severance and facility related expenses in respect of our decision to outsource
printing of the Toronto Star. The 2016 restructuring initiatives are expected to result in annualized net savings of
approximately $36.5 million and a reduction of approximately 590 positions. Of the expected savings, $19.9 million was
realized in 2016. Total segmented restructuring and other charges of $31.3 million were recorded in 2015.
Over the last few years we have undertaken several restructuring initiatives in order to reduce our ongoing operating
costs. At December 31, 2016, our liability for payments in respect of these restructuring initiatives was $37.1 million. The
following chart provides a year-over-year summary of the realized and expected net savings by year:
(in $000’s)
Realized net savings in:
2015
2016
Expected net savings in:
2017
Annualized net savings
Year of Initiative
2014
2015
2016
Total
$9,700
2,600
2,500
$14,800
$10,000
13,200
100
$23,300
$19,900
16,600
$36,500
$19,700
35,700
19,200
$74,600
Impairment of assets
During 2016, we incurred non-cash charges related to asset impairment of our intangible assets and investments in joint
ventures totalling $7.5 million. During 2015, we incurred charges related to asset impairment of property, plant and
equipment, goodwill and investments in joint ventures totalling $361.1 million. These charges have no impact on cash
flows.
In carrying out our impairment testing during the fourth quarter of 2016, we determined that the carrying amount of our
joint venture investment in Workopolis exceeded the value in use ("VIU") and we recorded an impairment charge of $6.7
million in respect of this investment as a result of a further downward revision in longer term forecasted revenues reflecting
continued increased competition in the online recruitment and job search markets as well as prevailing economic conditions.
We also recorded a $16.0 million impairment charge in respect of our joint venture investment in Workopolis during 2015
TORSTAR CORPORATION 2016 ANNUAL REPORT 17
TORSTAR – Management's Discussion and Analysis
reflecting the above noted factors. Also, during the fourth quarter of 2016, following lower than forecasted performance
in one of our digital Cash Generating Units ("CGUs") at Metroland Media Group in the quarter, we recorded an impairment
charge of $0.8 million in respect of intangible assets within this CGU.
During the third quarters of 2016 and 2015, we conducted impairment tests on the carrying value of intangible assets and
goodwill. While no impairments of these assets were identified during our 2016 testing, in carrying out this testing in 2015,
we determined that the carrying amount of goodwill in the Metroland Media Group of CGUs exceeded the VIU and we
recorded an impairment charge of $135.0 million for goodwill and a charge of $0.4 million for intangible assets in the
Metroland Media Group of CGUs. This impairment was the result of lower revenue projections reflecting current economic
conditions coupled with lower forecasted longer term revenues resulting from continued shifts in spending by advertisers.
In addition, in connection with our impairment test on December 31, 2015, we determined that the carrying amount of
goodwill in the Metroland Media Group of CGUs and the Star Media Group of CGUs exceeded their fair value less cost
to sell ("FVLCS") and accordingly, we recorded impairment charges of $130.6 million in respect of goodwill in the Metroland
Media Group of CGUs and $70.8 million in respect of goodwill and $8.0 million in respect of intangible assets in the Star
Media Group of CGUs. Please refer to the discussion of Critical Accounting Policies and Estimates in Section 9 of this
MD&A for further discussion.
Operating loss
In 2016, our segmented operating loss was $118.5 million compared to $403.1 million in 2015. Our 2016 segmented
operating loss included $122.0 million of non-cash amortization and depreciation and $7.5 million of non-cash impairment
charges. Our 2015 segmented operating loss included $361.1 million of non-cash impairment charges and $77.5 million
of non-cash amortization and depreciation.
Our operating loss excluding our proportionate share of operating profit (loss) from VerticalScope and our joint ventures
operating profit (loss) decreased $293.0 million in 2016 compared to 2015.
Interest and financing costs
Interest and financing costs increased $1.1 million in 2016 primarily reflecting lower interest earned on cash and cash
equivalents.
Loss from joint ventures
Loss from joint ventures was $5.5 million in 2016 and $14.2 million in 2015. These losses primarily reflect non-cash
impairment charges of $6.7 million recorded in 2016 and $16.0 million recorded in 2015 related to our joint venture
investment in Workopolis, as discussed above. Excluding the impact of these charges, income from joint ventures was
$1.2 million in 2016 and $1.8 million in 2015 largely reflecting lower adjusted EBITDA at both Workopolis and Sing Tao
as well as restructuring charges at Sing Tao.
Loss from associated businesses
Loss from associated businesses was $34.9 million in 2016 compared to a loss of $29.0 million in 2015. The 2016 loss
included income of $5.6 million from Black Press and $2.4 million from Blue Ant offset by a loss of $0.6 million from
Shop.ca and a loss of $42.2 million from VerticalScope. The 2016 loss from VerticalScope included $74.8 million of
amortization and depreciation expense. The 2015 loss included income of $3.0 million from Black Press offset by a loss
of $3.0 million from Shop.ca, a loss of $1.9 million from Blue Ant and a loss of $27.0 million from VerticalScope. The 2015
loss from VerticalScope included $44.2 million of amortization and depreciation expense.
Our share of Black Press’ net income was $5.6 million in 2016 ($3.0 million in 2015), representing Black Press’ results
through November 30, 2015. Black Press has a February fiscal year end and therefore does not have coterminous quarter-
ends with us.
Our share of Blue Ant's net income was $2.4 million in 2016 ($1.9 million loss in 2015) representing Blue Ant's results
through November 30, 2016. Our equity interest in Blue Ant was 18% at the end of 2016 relative to 23% at the end of
2015. Blue Ant has raised additional capital during calendar 2016 at a value approximately 40% higher than our weighted
average cost per share. Blue Ant has an August fiscal year end and therefore does not have coterminous quarter-ends
with us.
Our share of the Shop.ca net loss was $0.6 million in 2016 which reduced the carrying value of our investment to nil. Our
share of Shop.ca's net loss was $3.0 million in 2015. Shop.ca declared bankruptcy in 2016.
TORSTAR CORPORATION 2016 ANNUAL REPORT 18
TORSTAR – Management's Discussion and Analysis
We did not record any income or loss during 2016 or 2015 in respect of our investment in Canadian Press as the carrying
value had previously been reduced to $nil. We will begin to report our share of Canadian Press’ results once the
unrecognized losses, including Other Comprehensive Income (“OCI”) losses ($4.6 million as of December 31, 2016) have
been offset by net income, OCI or additional investments are made. For the year ended December 31, 2016, the Company
would have reported income of $0.3 million and other comprehensive loss of $1.8 million from Canadian Press (2015 –
income of $0.5 million and OCI of $0.4 million).
Investment in VerticalScope
In 2015, we acquired a 56% interest in VerticalScope. Pursuant to certain terms in the shareholders agreement, the
investment is accounted for as an associated business using the equity method, rather than a subsidiary or joint venture.
The results of VerticalScope are reported as part of our Digital Ventures Segment in our segmented reporting.
In connection with the investment in VerticalScope, and consistent with the general methodology VerticalScope uses
when making its acquisitions, we allocated the difference between the fair value of the purchase price paid and the book
value of the net assets of VerticalScope to customer relationships, technology, domain names, acquired content and
goodwill. The amortization periods for these intangible assets generally range from 5-10 years, with the exception of
acquired content which, consistent with VerticalScope’s accounting policy, is amortized over one year. Given the relatively
large value allocated to acquired content (U.S. $60.6 million) and the one year amortization period associated with it, we
have incurred large amortization charges related to these intangible assets through the end of July 2016.
Our 56% share of VerticalScope's 2016 net loss included $74.8 million in respect of amortization and depreciation expense.
This included amortization of fair value differences of intangible assets identified when we made our investment in
VerticalScope as well as the amortization of fair value differences which VerticalScope has identified on acquisitions it
has made subsequent to July 28, 2015. Amortization and depreciation has been very significant and has been the primary
contributor to the decrease in the carrying value of our investment from approximately $180 million at the time of our
investment (net of a distribution we received in the third quarter of 2015 and anticipated at the time of the investment) to
$115 million at December 31, 2016. Further details of the operating results for this investment during 2016 are outlined
in our discussion of the operating results for the Digital Ventures segment below.
During 2016 VerticalScope generated U.S. $22.4 million of cash from operations and made acquisitions and investments
totalling U.S. $15.7 million. VerticalScope's debt, net of cash on hand, was U.S. $74.4 million at December 31, 2016
down U.S. $6.4 million from U.S. $80.8 million at December 31, 2015.
Other income (expense)
Other income was $24.3 million in 2016 compared to other expenses of $1.8 million in 2015. Other income in 2016 included
a gain of $21.8 million on the sale of the Vaughan Printing Facility and surrounding lands, a gain of $1.3 million on the
sale of a real estate property in Guelph and an additional $1.3 million gain recognized on the sale of one of Metroland
Media Group's real estate properties in Mississauga.
Income and other taxes
We recorded an income tax recovery of $3.9 million in 2016 and an income tax recovery of $2.3 million in 2015. The tax
recovery in 2016 reflects deferred income tax assets not recognized, adjustment to deferred tax assets related to prior
years and losses from associated businesses which are not deductible for tax purposes. The tax recovery in 2015 reflected
the non-deductibility of non-cash impairment charges and losses from associated businesses for tax purposes.
Net loss from continuing operations
Our net loss from continuing operations was $76.0 million ($0.94 per share) in 2016, compared to a loss of $399.8 million
($4.96 per share) in 2015. Our loss in 2016 included $122.0 million of amortization and depreciation expense and $7.5
million of non-cash impairment charges. Our 2015 net loss included $361.1 million of non-cash impairment charges and
$77.5 million of non-cash amortization and depreciation.
Income (loss) from discontinued operations
On August 1, 2014 Torstar sold all of the shares of Harlequin Enterprises Limited ("Harlequin") to a division of HarperCollins
Publishers L.L.C., a subsidiary of News Corp., for a purchase price of $455.0 million, subject to certain adjustments for
working capital and other related items. In connection with the sale of Harlequin, Torstar indemnified the Purchaser for
costs and fees related to certain matters including certain tax and pre-existing litigation matters and estimated the exposure
under these indemnities and recorded a contingent liability in respect of these matters. The gain of $1.2 million in 2016
primarily reflects recoveries related to insurance reserves as well as revised estimates of provisions related to legal costs
TORSTAR CORPORATION 2016 ANNUAL REPORT 19
TORSTAR – Management's Discussion and Analysis
and taxes. The loss from discontinued operations of $5.0 million in 2015 also reflected revised estimates of provisions
related to taxes and legal costs.
Net income (loss) attributable to equity shareholders
Our net loss attributable to equity shareholders was $74.8 million ($0.93 per share) in 2016 compared to net loss attributable
to equity shareholders of $404.0 million ($5.02 per share) in 2015.
Segment Operating Results – Metroland Media Group
Revenues
Metroland Media Group revenues were down $39.5 million or 8.8% in 2016. In 2016, local advertising revenues, on a
combined print and digital basis, which represents the largest portion of Metroland Media Group's advertising revenues,
were down 9.1%. Within the combined print and digital local advertising revenues, the real estate category was much
weaker than the local retail category where declines were more moderate. National advertising revenues, on a combined
print and digital basis, which represents a less significant portion of Metroland Media Group's overall revenue, were down
20% in 2016. Flyer distribution revenues which represented 32% of Metroland Media Group's total revenue in 2016, were
down 3.8% in the year. Digital revenues at Metroland Media Group in 2016 were comparable to 2015.
Salaries and benefits costs
Metroland Media Group’s salaries and benefits costs were down $19.6 million or 9.4% in 2016 as a result of cost savings
from restructuring as well as lower commission costs.
Other operating costs
Metroland Media Group’s other operating costs were down $12.9 million or 6.8% in 2016, as a result of lower circulation
and lower flyer distribution costs, lower newsprint consumption and other cost reductions.
Adjusted EBITDA
Metroland Media Group adjusted EBITDA was down $7.0 million in 2016 which primarily reflects the above noted revenue
decline which was largely offset by the impact of $18.1 million in savings from restructuring initiatives as well as other
cost reductions.
Operating profit (loss)
Metroland Media Group operating profit was $13.3 million in 2016, compared to operating loss of $250.9 million in 2015.
Our operating profit in 2016 included $13.5 million of restructuring and other charges and $0.8 million of non-cash
impairment charges. Our loss in 2015 included $265.9 million of non-cash impairment charges and $19.8 million of
restructuring and other charges.
Segment Operating Results – Star Media Group
Revenues
Star Media Group revenues were down $63.5 million or 18% in 2016 which included the absence of revenue associated
with the closures of Olive Media and the commercial printing operation at the Vaughan Printing Facility. Adjusting for
these items, Star Media Group segmented revenues were down $40.4 million (12%) in 2016, primarily reflecting lower
print advertising revenues. This decline was largely the result of pressures on national advertising at both the Toronto
Star and Metro as well as retail advertising revenues at the Toronto Star. While regional revenue at Metro in Toronto
continued to be under pressure in 2016, pressures on regional revenues in certain western markets were more moderate.
In addition, subscriber revenues at the Toronto Star declined 5.2% in the 2016. These declines were partially offset by
revenue from Toronto Star Touch.
Excluding the absence of revenue associated with the closure of Olive Media, Star Media Group’s digital revenues were
up 6.1% in 2016 primarily due to incremental revenue from Toronto Star Touch.
Salaries and benefits costs
Star Media Group’s salaries and benefits costs were down $21.2 million or 17% in 2016 including the absence of $7.1
million of digital media tax credits recorded in 2015. The decrease in salary and benefit costs in 2016 reflected the benefit
of savings from restructuring initiatives, including the closure of the Vaughan Printing Facility and lower pension costs
partially offset by increased staffing costs associated with Toronto Star Touch.
TORSTAR CORPORATION 2016 ANNUAL REPORT 20
TORSTAR – Management's Discussion and Analysis
Other operating costs
Star Media Group’s other operating costs were down $23.6 million or 12% in 2016 reflecting lower circulation and distribution
costs, lower newsprint consumption and other cost reductions, including lower costs associated with Toronto Star Touch.
These cost reductions were partially offset by incremental costs associated with outsourcing the printing of the Toronto
Star effective July 2016.
Adjusted EBITDA
Star Media Group adjusted EBITDA was $0.7 million in 2016, down $18.7 million from 2015. The decline in segment
adjusted EBITDA in 2016 included the absence of $7.1 million of digital media tax credits; the loss of $7.6 million of
contribution from the absence of commercial printing and the closure of Olive Media, as well as the impact of revenue
declines, partially offset by $3.6 million of lower net investment in Toronto Star Touch and an incremental $14.8 million of
net savings from restructuring initiatives, as well as other cost reductions.
Operating profit (loss)
Star Media Group operating loss was $60.0 million in 2016, which included $32.5 million of restructuring and other charges
and $27.9 million of non-cash depreciation and amortization expense. Star Media Group's operating loss reflected lower
adjusted EBITDA and higher restructuring charges offset by lower impairment charges. Star Media Group operating loss
was $86.4 million in 2015.
Segment Operating Results – Digital Ventures
Revenues
Digital Ventures revenues were up $21.0 million or 40%, in 2016, including $24.9 million of additional revenue resulting
from our investment in VerticalScope with $20.0 million resulting from a full year in 2016 relative to a partial year in 2015,
and $4.9 million in year over year comparable period revenue growth. VerticalScope's U.S. dollar revenue grew 21% in
2016 relative to the full year in 2015 through a combination of organic revenue growth and growth from acquisitions. Our
proportionate share of VerticalScope's revenue in 2016 was $40.1 million. The increase in revenue in the Digital Ventures
segment in 2016 also reflected lower revenues at Workopolis.
Salaries and benefits costs
Digital Ventures’ salaries and benefits costs were up $3.3 million or 18% in 2016. The increase in 2016 included the impact
of the inclusion of a full year of our proportionate share of VerticalScope's salaries and benefits costs. VerticalScope's
U.S. dollar denominated salaries and benefits costs increased in 2016 relative to 2015 reflecting additional staffing required
to support revenue growth. Salaries and benefits costs at eyeReturn and Workopolis were lower in 2016 and included
the benefit of $1.6 million of savings from restructuring initiatives at Workopolis.
Other operating costs
Digital Ventures' other operating costs were up $2.2 million or 9.5% in 2016 resulting from the inclusion of a full year of
our proportionate share of VerticalScope's other operating costs, partially offset by lower costs at both Workopolis and
eyeReturn. VerticalScope's U.S. dollar denominated other operating costs increased in 2016 reflecting growth in the
underlying business.
Adjusted EBITDA
Digital Ventures' adjusted EBITDA increased by $15.6 million to $27.3 million in 2016 largely due to $14.4 million of
additional adjusted EBITDA from VerticalScope. Our results from VerticalScope included $10.4 million of adjusted EBITDA
resulting from the inclusion of a full year of adjusted EBITDA in 2016 relative to a partial year in 2015 and $4.0 million
which was the result of year over year comparable period growth. VerticalScope's U.S. dollar adjusted EBITDA grew by
20% in 2016, relative to the full year in 2015. Our proportionate share of VerticalScope's adjusted EBITDA was $23.7
million in 2016. Digital Ventures adjusted EBITDA in 2016 also reflected increased EBITDA at eyeReturn which was
partially offset by lower adjusted EBITDA at Workopolis.
Operating loss
Digital Ventures' operating loss was $60.5 million in 2016, compared to an operating loss of $54.3 million in 2015, resulting
from a $15.6 million improvement in adjusted EBITDA and a $9.3 million decrease in non-cash impairment charges which
was entirely offset by $31.2 million of increased amortization and depreciation expense, (almost entirely related to the
VerticalScope acquisition).
TORSTAR CORPORATION 2016 ANNUAL REPORT 21
TORSTAR – Management's Discussion and Analysis
4. Fourth Quarter Operating Results
A discussion of our fourth quarter operating results
Unless otherwise noted, the following is a discussion of our fourth quarter 2016 operating results relative to the fourth
quarter of 2015. We have three reportable operating segments for segment reporting purposes: MMG, SMG and Digital
Ventures. As a result of the increasing significance of segmented financial results from our investment in VerticalScope
relative to our total segmented financial results, during 2016 we revised our definition of adjusted EBITDA to exclude
share based compensation. We made this change because of the relative significance and variability of this non-cash
expense in our proportionate share of VerticalScope's financial results and we believe that the exclusion of this non-cash
expense from adjusted EBITDA provides greater insight for investors, analysts and readers, in regards to our segmented
earnings excluding non-cash expenses. Refer to Section 14 for more information. Relevant comparative information has
been restated to reflect these changes.
Overall Performance
The following tables set out our segmented results which include our proportionate share of results from VerticalScope
and our joint ventures for the three months ended December 31, 2016 and December 31, 2015 and provide a reconciliation
to the consolidated statement of income.
Fourth Quarter 2016
MMG
$112,650
(49,152)
(46,569)
16,929
(4,485)
(123)
12,321
(2,558)
(800)
$8,963
SMG
$75,191
(21,750)
(45,099)
8,342
(2,361)
(84)
5,897
(1,418)
$4,479
Digital
Ventures
$20,828
(4,977)
(6,985)
8,866
(8,687)
(209)
(30)
16
(6,700)
($6,714)
(in $000’s)
Operating revenue
Salaries and benefits
Other operating costs
Adjusted EBITDA**
Amortization & depreciation
Share based compensation
Operating earnings (loss)**
Restructuring and other charges
Impairment of assets
Operating profit (loss)**
Income from continuing operations
Income from discontinued
operations
Net income
Corporate
Total
Segmented*
Adjustments
&
Eliminations1
Total Per
Consolidated
Statement of
Income
$208,669
($20,261)
$188,408
($1,760)
(466)
(2,226)
(30)
(502)
(2,758)
(480)
($3,238)
(77,639)
(99,119)
31,911
(15,563)
(918)
15,430
(4,440)
(7,500)
$3,490
4,798
5,661
(9,802)
8,214
918
(670)
742
6,700
$6,772
(72,841)
(93,458)
22,109
(7,349)
—
14,760
(3,698)
(800)
$10,262
$683
$400
$1,083
TORSTAR CORPORATION 2016 ANNUAL REPORT 22
TORSTAR – Management's Discussion and Analysis
(in $000’s)
Operating revenue
Salaries and benefits
Other operating costs
Adjusted EBITDA**
Amortization & depreciation
Share based compensation
Operating earnings (loss)**
Restructuring and other charges
Impairment of assets
MMG
$120,399
(52,629)
(49,345)
18,425
(3,624)
(148)
14,653
(3,958)
(130,569)
SMG
$92,890
(33,513)
(56,572)
2,805
(5,333)
(178)
(2,706)
(2,730)
(78,752)
Fourth Quarter 2015
Digital
Ventures
Corporate
Total
Segmented*
$19,740
(5,694)
(7,551)
6,495
(28,258)
(536)
(22,299)
(808)
(4,000)
($1,960)
(380)
(2,340)
(5)
319
(2,026)
$233,029
(93,796)
(113,848)
25,385
(37,220)
(543)
(12,378)
(7,496)
(213,321)
Adjustments
&
Eliminations1
($19,280)
6,290
5,789
(7,201)
27,911
543
21,253
841
4,000
Operating profit (loss)**
($119,874)
($84,188)
($27,107)
($2,026)
($233,195)
$26,094
Loss from continuing operations
Loss from discontinued operations
Net loss
1
Reflects eliminations of our proportionate share of joint ventures and our 56% interest in VerticalScope
*Includes our proportionately consolidated share of joint venture operations and VerticalScope
**These are non-IFRS or additional IFRS measures, refer to Section 14 of this MD&A.
Total Per
Consolidated
Statement of
Income
$213,749
(87,506)
(108,059)
18,184
(9,309)
—
8,875
(6,655)
(209,321)
($207,101)
($233,413)
($1,100)
($234,513)
Revenue
Segmented revenue was down $24.3 million or 10% with revenues negatively impacted by several factors including the
absence of $5.0 million of net revenue associated with the closure of Olive Media at the end of 2015 and the absence of
$2.3 million of commercial printing revenue at the Vaughan Printing Facility. Adjusting for these factors, segmented
revenue was down $17.1 million or 7.3% in the fourth quarter of 2016 which included revenue growth of $2.3 million (25%)
from VerticalScope.
Segmented revenue in the fourth quarter reflected declines of 13% in print advertising revenues, with particular softness
in national advertising revenues, a 7.1% decrease in subscriber revenue, which included the impact of the closure of the
Guelph Mercury, and a 3.0% decrease in distribution revenues.
Operating revenue (excluding our proportionate share of revenues from our joint ventures and our 56% interest in
VerticalScope) was down $25.3 million or 12%.
Excluding the impact of Olive Media, digital revenue across all segments increased 2.1% in the fourth quarter of 2016,
largely resulting from growth at VerticalScope and in local digital advertising at Metroland Media Group partially offset by
lower revenues at Save.ca, Workopolis and WagJag. Digital revenues were 18% of total segment revenues in the fourth
quarter of 2016 comparable with the fourth quarter of 2015.
Salaries and benefits
Our segmented salaries and benefits costs decreased $16.2 million or 17% in the fourth quarter of 2016 including the
benefit of savings from restructuring initiatives, including the closure of the Vaughan Printing Facility, lower commission
costs, and lower staffing costs associated with Toronto Star Touch.
Other operating costs
Segmented other operating costs primarily consist of circulation/flyer distribution costs, newsprint costs and other
production costs which represented 41%, 12% and 13% respectively of segmented other operating costs in the fourth
quarter of 2016. Segmented other operating costs were down $14.7 million or 13% as a result of lower print volumes and
the impact of other cost reductions partially offset by fees associated with outsourcing the printing of the Toronto Star
effective the third quarter of 2016.
Adjusted EBITDA
Our segmented adjusted EBITDA was $31.9 million in the fourth quarter of 2016, up $6.5 million from the fourth quarter
of 2015 benefiting from $2.4 million of higher contribution from our Digital Ventures segment which included 34% growth
TORSTAR CORPORATION 2016 ANNUAL REPORT 23
TORSTAR – Management's Discussion and Analysis
in adjusted EBITDA at VerticalScope. In the newspaper operations segmented adjusted EBITDA at Star Media Group
was up $5.5 million in the fourth quarter of 2016 while Metroland Media Group was down $1.5 million in the quarter.
Amortization and depreciation
Total segmented amortization and depreciation decreased $21.6 million in the fourth quarter of 2016 which was primarily
the result of lower amortization associated with our investment in VerticalScope.
Operating earnings (loss)
Segmented operating earnings was $15.4 million in the fourth quarter of 2016, an improvement of $27.8 million from an
operating loss of $12.4 million in the fourth quarter of 2015. This improvement was the result of an increase in adjusted
EBITDA combined with lower amortization and depreciation expense.
Restructuring and other charges
Total segmented restructuring and other charges were $4.4 million in the fourth quarter of 2016 and $7.5 million in the
comparable period of 2015. Restructuring provisions in the fourth quarter of 2016 are expected to result in annualized
net savings of $1.8 million and a reduction of approximately 20 positions. $0.2 million of the savings associated with these
initiatives were realized in the fourth quarter of 2016.
Impairment of assets
During the fourth quarter of 2016, we incurred non-cash charges related to asset impairment of investments in joint
ventures and intangible assets totalling $7.5 million (2015 - goodwill and investments in joint ventures $213.3 million). Of
the impairment charges in the fourth quarter, $6.7 million was in respect of our joint venture investment in Workopolis and
the balance of which related to intangible assets at Metroland Media Group. These charges had no impact on cash flows
and are discussed further in the discussion of annual operating results in Section 3 of this MD&A.
Operating profit (loss)
In the fourth quarter of 2016 our segmented operating profit was $3.5 million compared to an operating loss of $233.2
million in the fourth quarter of 2015. Our profit in the fourth quarter of 2016 included $15.6 million of amortization and
depreciation expense and $7.5 million of non-cash impairment charges. Our loss in the fourth quarter of 2015 included
$213.3 million of in non-cash impairment charges and $37.2 million of amortization and depreciation expense.
Our operating profit, excluding our proportionate share of operating profit (loss) from our joint ventures and our investment
in VerticalScope increased $217.4 million in the fourth quarter of 2016 to $10.3 million.
Loss from joint ventures
Loss from joint ventures was $6.5 million in the fourth quarter of 2016 compared to a loss of $4.4 million in the fourth
quarter of 2015. The loss in the fourth quarter of 2016 included a non-cash impairment charge of $6.7 million related to
our joint venture investment in Workopolis (2015 - $4.0 million), as discussed further in the discussion of annual operating
results in Section 3 of this MD&A.
Income (loss) from associated businesses
Income from associated businesses was $2.3 million in the fourth quarter of 2016 compared to a loss of $17.9 million in
the fourth quarter of 2015. The 2016 fourth quarter included income of $2.2 million from Black Press, income of $1.7
million from Blue Ant, partially offset by a loss of $1.5 million from VerticalScope. The fourth quarter loss from VerticalScope
included $7.7 million of amortization expense. The loss in the fourth quarter of 2015 included income of $0.9 million from
Black Press offset by a loss of $1.3 million from Blue Ant, a loss of $0.7 million from Shop.ca, and a loss of $16.6 million
from VerticalScope. The 2015 fourth quarter loss from VerticalScope included $26.9 million of amortization expense.
Investment in VerticalScope
During 2015, we acquired a 56% interest in VerticalScope. In connection with the investment in VerticalScope, during the
fourth quarters of 2016 and 2015 we recorded $7.7 million and $26.9 million of additional amortization and depreciation
expense. Further details of our accounting for this investment is included in Section 3 of this MD&A and further details of
the operating results for this investment during the fourth quarter of 2016 are outlined in our discussion of the operating
results for the Digital Ventures segment below.
Other income (expense)
Other income was nil in the fourth quarter of 2016 compared to other expenses of $2.0 million in the fourth quarter of
2015. Other expense in the fourth quarter of 2015 included a partial write-down of $2.3 million in respect of one of our
portfolio investments partially offset by a $0.2 million gain on the sale of an asset and $0.1 million of other income.
TORSTAR CORPORATION 2016 ANNUAL REPORT 24
TORSTAR – Management's Discussion and Analysis
Income and other taxes
We recorded a tax expense of $4.2 million in the fourth quarter of 2016. This compares to an income tax recovery of $0.6
million in the fourth quarter of 2015. The income tax expense in the fourth quarter of 2016 reflects deferred income tax
assets not recognized and losses from associated businesses which are not deductible for tax purposes. The income tax
recovery recorded in the fourth quarter of 2015 reflected the non-deductibility of non-cash impairment charges and losses
from associated businesses for tax purposes.
Net income (loss) from continuing operations
Our net income from continuing operations was $0.7 million ($0.01 per share) in the fourth quarter of 2016. This compares
to net loss of $233.4 million ($2.90 per share) in the fourth quarter of 2015.
The following chart provides a continuity of earnings per share from the fourth quarter of 2015 to the fourth quarter of
2016:
Loss per share from continuing operations attributable to equity shareholders
in 2015
($2.90)
($0.10)
Earnings (Loss) Per Share
Adjusted Earnings (Loss)
Per Share **
Changes
• Adjusted EBITDA *
• Amortization and depreciation *
• Operating earnings (loss)*
• Restructuring and other charges*
• Impairment of assets*
• Operating profit *
• Non-cash foreign exchange
• Income from associated businesses (excluding VerticalScope)
• Other income
• Change in deferred taxes (including associated businesses)
Earnings per share attributable to equity shareholders in 2016
0.08
0.27
(2.55)
0.04
2.55
0.04
0.01
0.06
0.02
(0.12)
$0.01
0.08
0.27
0.25
0.25
0.06
(0.15)
$0.16
*Includes proportionately consolidated share of joint ventures and 56% interest in VerticalScope. These include Non-IFRS or additional IFRS measures,
refer to Section 14
**Refer to Section 14 for a reconciliation of earnings (loss) per share to adjusted earnings (loss) per share and a definition of adjusted earnings (loss)
per share
Income (loss) from discontinued operations
Income from discontinued operations of $0.4 million in the fourth quarter of 2016 and the loss from discontinued operations
of $1.1 million in the fourth quarter of 2015 relate to adjustments made to provisions for indemnities associated with the
sale of Harlequin in 2014. These adjustments reflect revised estimates of the amounts of these provisions in respect of
taxes, and legal and other costs.
Segment Operating Results – Metroland Media Group
Revenues
Metroland Media Group revenues were down $7.7 million or 6.4% in the fourth quarter of 2016. Local advertising revenues,
on a combined print and digital basis, were down 9.5% in the fourth quarter. Similar to the experience earlier in the year,
local advertising revenues, on a combined print and digital basis, included a more modest decrease in local retail advertising
revenues combined with weakness in the real estate category. Flyer distribution revenues continued to be relatively stable
in the fourth quarter, down only 1.5%. National advertising revenues, on a combined print and digital basis, were down
11% in the fourth quarter, reflecting some moderation in the revenue trend relative to earlier in the year.
Metroland Media Group’s total digital revenues were up slightly in the fourth quarter of 2016 as a result of strong growth
in local digital advertising revenue partially offset by lower revenues from Save.ca and WagJag.
Salaries and benefits costs
Metroland Media Group’s salaries and benefits costs were down $3.4 million or 6.5% in the fourth quarter of 2016 as a
result of cost savings from restructuring as well as lower commission costs.
TORSTAR CORPORATION 2016 ANNUAL REPORT 25
TORSTAR – Management's Discussion and Analysis
Other operating costs
Metroland Media Group’s other operating costs were down $2.7 million or 5.5% in the fourth quarter of 2016, as a result
of lower circulation and flyer distribution costs, lower newsprint consumption and price, and other cost reductions.
Adjusted EBITDA
Metroland Media Group adjusted EBITDA was down $1.5 million in the fourth quarter of 2016 primarily reflecting the above
noted revenue declines which were only partially offset by the impact of $6.2 million in lower total costs, including $3.6
million of savings related to restructuring initiatives.
Operating profit (loss)
Metroland Media Group operating profit was $9.0 million in the fourth quarter of 2016. This compares to an operating
loss of $119.9 million in the fourth quarter of 2015. The improvement in operating profit in the fourth quarter of 2016
primarily reflects a decline of $129.8 million in impairment charges.
Segment Operating Results – Star Media Group
Revenues
Star Media Group revenues were down $17.7 million or 19% in the fourth quarter of 2016 which included the absence of
revenue associated with the closure of Olive Media and the absence of commercial printing revenue at the Vaughan
Printing Facility. Adjusting for these items, Star Media Group segmented revenues were down $10.4 million (11%) in the
fourth quarter primarily reflecting lower print advertising revenues. The decline in print advertising revenues in the fourth
quarter was largely the result of weakness in both national and retail advertising revenues at the Toronto Star. At Metro,
regional revenues were weak in the fourth quarter while national revenue declines experienced some moderation relative
to the trend experienced in the first half of the year. In addition, subscriber revenues at the Toronto Star declined 5.9%
in the fourth quarter of 2016.
Excluding the absence of revenue associated with the closure of Olive Media, Star Media Group’s digital revenues were
down 3.4% in the fourth quarter of 2016, primarily as a result of lower national revenues at thestar.com.
Salaries and benefits costs
Star Media Group’s salaries and benefits costs decreased $11.7 million (35%) in the fourth quarter of 2016 reflecting the
benefit of savings from restructuring initiatives, including the closure of the Vaughan Printing Facility and $1.2 million of
lower staffing costs associated with Toronto Star Touch.
Other operating costs
Star Media Group’s other operating costs were down $11.5 million or 20% in the fourth quarter of 2016 reflecting $7.8
million of lower costs in respect of Toronto Star Touch, lower circulation and distribution costs, lower newsprint consumption
and other cost reductions partially offset by incremental costs associated with outsourcing the printing of the Toronto Star
effective the third quarter of 2016.
Adjusted EBITDA
Star Media Group adjusted EBITDA was $8.3 million in the fourth quarter of 2016, up $5.5 million from the fourth quarter
of 2015. The improvement in the fourth quarter of 2016 includes the loss of $3.7 million in contribution from commercial
printing at the Vaughan Printing Facility and the closure of Olive Media, offset by $9.0 million of lower net investment in
Toronto Star Touch, including savings from restructuring. Adjusting for these factors, Star Media Group segmented adjusted
EBITDA increased $0.2 million in the fourth quarter, due to $7.2 million of net savings from restructuring initiatives and
other cost reductions, partially offset by the above noted revenue declines.
Operating profit (loss)
Star Media Group operating profit was $4.5 million in the fourth quarter of 2016, compared to an operating loss of $84.2
million in the fourth quarter of 2015. The improvement in operating profit in the fourth quarter of 2016 primarily reflects
the absence of $78.8 million of impairment charges recorded in the fourth quarter of 2015.
TORSTAR CORPORATION 2016 ANNUAL REPORT 26
TORSTAR – Management's Discussion and Analysis
Segment Operating Results – Digital Ventures
Revenues
Digital Ventures revenues increased $1.1 million (5.6%) in the fourth quarter of 2016, due to revenue growth of $2.3 million
at VerticalScope, partially offset by lower revenues from Workopolis. Our proportionate share of VerticalScope's revenue
in the fourth quarter of 2016 was $11.6 million which represented growth of 25% relative to the fourth quarter of 2015
resulting from a combination of organic revenue growth and growth from acquisitions.
Salaries and benefits costs
Digital Ventures’ salaries and benefits costs were down $0.7 million or 12% in the fourth quarter of 2016 primarily reflecting
lower salary and benefit costs at Workopolis and eyeReturn, partially offset by increased salary and benefit costs at
VerticalScope. Salaries and benefits costs in the fourth quarter of 2016 also included the benefit of $0.2 million of savings
from restructuring initiatives at Workopolis.
Other operating costs
Digital Ventures' other operating costs were flat in the fourth quarter of 2016 reflecting lower costs at Workopolis and
eyeReturn, offset by increased costs at VerticalScope reflecting growth in the underlying business.
Adjusted EBITDA
Digital Ventures adjusted EBITDA was $8.9 million in the fourth quarter of 2016, up $2.4 million from $6.5 million in the
fourth quarter of 2015 primarily due to growth at VerticalScope. Our proportionate share of VerticalScope's adjusted
EBITDA was $7.5 million in the fourth quarter of 2016 representing an increase of 34% over the fourth quarter of 2015.
Relative to the prior year, adjusted EBITDA at Workopolis increased $0.2 million in the fourth quarter of 2016 while adjusted
EBITDA at eyeReturn was consistent with the prior year in the fourth quarter.
Operating loss
Digital Ventures' operating loss was $6.7 million in the fourth quarter of 2016, compared to an operating loss of $27.1
million in the fourth quarter of 2015. The improvement in the operating loss in the third quarter of 2016 was the result of
the above noted improvements in adjusted EBITDA as well as a significant decrease in amortization and depreciation
expense.
5. Outlook
The outlook for our business in 2017
In 2016, Metroland Media Group and Star Media Group continued to face a challenging print advertising market resulting
from ongoing shifts in spending by advertisers and indications are that the revenue challenges experienced at Star Media
Group and Metroland Media Group in 2016 have continued early into 2017. However, it is difficult to predict if the trends
experienced in 2016 will continue through 2017. Flyer distribution revenues and revenues from subscribers declined
moderately in 2016 and this trend is expected to continue in 2017. In 2017, Metroland Media Group and Star Media Group
overall digital revenue is expected to be stable with expected growth in certain business lines offsetting expected declines
in other areas.
Within the Digital Ventures segment, the trend in revenue and adjusted EBITDA growth from a combination of organic growth
and acquisitions at VerticalScope experienced in 2016 has continued early into 2017 and is expected to remain strong
through the balance of 2017.
Cost reduction will remain an ongoing important area of focus for us in 2017. Net savings related to restructuring initiatives
undertaken through the end of 2016 are expected to be $17.0 million in 2017 ($6.1 million in Metroland Media Group, $10.9
million in the Star Media Group). In addition, we expect the net investment in Toronto Star Touch in 2017 to be between $2
million and $4 million for the full year in 2017, (including the benefit of an additional $2.2 million of savings from restructuring
initiatives undertaken to date and not included above) down from approximately $11 million in 2016.
Expenses related to our registered defined benefit pension plans are currently expected to decrease by approximately $3
million to approximately $11 million in 2017. However, from a cash flow perspective, in 2017, similar to 2016, we anticipate
that the required funding of our registered defined benefit pension plans to remain at approximately $18 million. We are
required to file updated actuarial valuation reports in respect of our largest registered defined benefit pension plans as of
December 31, 2016. These valuations will determine the minimum future funding requirements in respect of these plans
beyond 2017.
TORSTAR CORPORATION 2016 ANNUAL REPORT 27
TORSTAR – Management's Discussion and Analysis
Capital expenditures in 2017 are currently anticipated to be reduced to between $12 million and $13 million.
In addition, in 2017, we anticipate our 56% share of VerticalScope's non-cash amortization charges, including those related
to intangible assets identified at the time of our investment (refer to discussion of Investment in VerticalScope in Section 3
of this MD&A), to drop to approximately $7 - $8 million per quarter excluding any potential impact of acquisitions completed
in 2017.
6. Liquidity and Capital Resources
A discussion of our cash flow, liquidity, credit facilities and other disclosures
We use cash and cash equivalents on hand and the cash generated by our operations to fund working capital, capital
expenditures, distributions to shareholders, and acquisitions. Based on our current and anticipated level of operations, it is
expected that our future cash flows from operating activities, combined with existing cash and cash equivalents, will be
adequate to cover forecasted cash requirements through the end of 2018, acknowledging that beyond 2017, our cash
requirements are expected to increase significantly in respect of our defined benefit pension plans. Based on our estimated
solvency deficit at December 31, 2016 and the Ontario Government's determination of minimum funding requirements, the
minimum required funding for our defined benefit pension plans is expected to increase significantly beginning in 2018. The
Ontario Government has released a consultation paper on solvency funding in Ontario, (Refer to further discussion in Section
8 - Employee Benefit Obligations). While there can be no certainty as to the outcome of the Ontario Government's solvency
funding review or the availability of funding relief measures, if such funding relief were to materialize and be applicable to
us, it is possible that it could significantly reduce our minimum required funding in respect of our defined benefit pension
plans.
Given the above noted factors, beyond 2018, we may need to take additional measures to increase our liquidity and capital
resources, including through the sale of investments or assets, obtaining additional debt or equity financing, reducing
distributions to shareholders or reducing capital expenditures.
In 2016, we used $10.6 million of cash in operating activities, generated $65.3 million of cash from investing activities and
used $14.5 million of cash in financing activities.
In the fourth quarter of 2016, we generated $11.7 million of cash from operating activities, used $4.2 million of cash in
investing activities and used $2.0 million in financing activities.
At December 31, 2016 we had $75.4 million of cash and cash equivalents as well as $11.8 million of restricted cash.
Restricted cash included $10.5 million held as collateral for outstanding standby letters of credit supporting an unfunded
executive retirement plan liability. At December 31, 2015 we had $35.2 million of cash and cash equivalents as well as
$37.9 million of restricted cash. Restricted cash was comprised of $15.2 million held as collateral for outstanding standby
letters of credit (substantially all of which was in respect of a standby letter of credit supporting an unfunded executive
retirement plan liability) and $22.8 million which was held in escrow in respect of the sale of Harlequin.
Operating Activities
In 2016, we used $10.6 million of cash in operating activities. Cash used in operating activities included $30.4 million of
funding towards our employee future benefit plans of which $18.0 million was contributed to registered defined benefit
pension plans and $12.4 million was applied to unfunded pension and other post employment benefit plans. This was
partially offset by an $11.0 million decrease in non-cash working capital and a $3.3 million decrease in restricted cash.
During 2015, we generated $38.1 million of cash from operating activities which included funding of $20.4 million of
contributions to our employee future benefit plans and a $12.0 million decrease in non-cash working capital.
In the fourth quarter of 2016, we generated $11.7 million of cash from operating activities which included $15.9 million of
funding towards our employee future benefit plans ($5.3 million was contributed to registered defined benefit pension plans
and $10.6 million was applied to unfunded pension and other post employment benefit plans) and a $2.5 million increase
in non-cash working capital, partially offset by a $6.9 million decrease in restricted cash. During the fourth quarter of 2015
we generated cash of $16.2 million of cash from operating activities which included $5.9 million of contributions to our
employee future benefit plans, a $5.9 million decrease in non-cash working capital and a decrease of $2.5 million in restricted
cash.
TORSTAR CORPORATION 2016 ANNUAL REPORT 28
TORSTAR – Management's Discussion and Analysis
Investing Activities
During 2016, we generated $65.3 million of cash in investing activities. This included the receipt of $61.0 million in proceeds
on the sale of assets, including $53.6 million received on the sale of the Vaughan Printing Facility and surrounding lands
and $7.4 million in respect of the sale of two Metroland Media Group real estate properties. We also received $22.8 million
from the release of escrowed cash related to the sale of Harlequin in February 2016. These receipts were offset in part by
$17.7 million in additions to property, plant and equipment and intangible assets (excluding our proportionate share of
additions related to our joint ventures and 56% interest in VerticalScope).
During 2015, we used $213.5 million of cash in investing activities. This included a $180.0 million investment in VerticalScope
(net of a $22.1 million distribution received in the fourth quarter of 2015, which was anticipated at the time of the initial
investment), a $1.5 million investment in Nest Wealth Asset Management Inc., an associated business, $30.6 million for
additions to property, plant and equipment and intangible assets (excluding Torstar’s proportionate share of additions related
to our joint ventures and our 56% interest in VerticalScope) and $2.1 million for acquisitions and portfolio investments.
Portfolio investments included an investment in CanadaStays.com. Additions to intangible assets included $10.7 million of
additions related to Toronto Star Touch.
During the fourth quarter of 2016 we used $4.2 million of cash from investing activities primarily for additions to property,
plant and equipment and intangible assets. During the fourth quarter of 2015 we generated $14.1 million of cash in investing
activities. This included a $22.1 million distribution from VerticalScope, as anticipated at the time of the initial investment,
partially offset by $6.6 million for additions to property, plant and equipment and intangible assets and $1.5 million of
investments in associated businesses which represented the payment of costs associated with our investment in
VerticalScope in the third quarter of 2015.
Financing Activities
In 2016 we used cash of $14.5 million in financing activities which was primarily used for the payment of dividends. In 2015
cash of $40.7 million was used in financing activities with $41.5 million used for the payment of dividends.
We used cash of $2.0 million and $10.3 million for financing activities in the fourth quarters of 2016 and 2015 respectively
which was primarily used in the payment of dividends.
Dividends per share were 6.5 cents in each of the first and second quarters of 2016, and 2.5 cents in the third and fourth
quarter of 2016. Dividends per share were 13.125 cents in each of the first, second, third and fourth quarters of 2015.
Contractual Obligations and Other
As at December 31, 2016, we had the following significant contractual obligations which were not included in our liabilities
in the Statement of Financial Position.
(In 000's)
Nature of the Obligation
Office leases
Services
Total
Receivable from office sub-leases
Total
$45,243
62,806
$108,049
($7,619)
2017
$14,462
22,319
$36,781
($3,013)
2018 – 2019
$24,179
33,032
$57,211
($3,602)
2020 – 2021
$6,555
7,455
$14,010
($1,004)
2022+
$47
$47
In 2015, we received cash proceeds of $7.1 million in digital media tax credits, net of expenses, in respect of claims filed
for the year ended December 31, 2010. While we have filed additional claims in respect of these credits, there is uncertainty
with regard to timing and amounts (if any) that may ultimately be received under this program.
Outstanding Share and Share Option Information
As at February 24, 2017, we had 9,826,215 Class A voting shares and 70,891,397 Class B non-voting shares outstanding.
As at December 31, 2016 we had 9,826,215 Class A voting shares and 70,891,322 Class B non-voting shares outstanding.
More information on our share capital is provided in Note 20 of the 2016 Consolidated Financial Statements.
As at February 24, 2017, we had 6,380,203 (December 31, 2016 - 5,686,932) options to purchase Class B non-voting
shares outstanding to executives. More information on Torstar’s share option plan is provided in Note 21 of the 2016
Consolidated Financial Statements.
TORSTAR CORPORATION 2016 ANNUAL REPORT 29
TORSTAR – Management's Discussion and Analysis
7. Financial Instruments
A summary of our financial instruments
Foreign Exchange
In order to offset the foreign exchange risk associated with the investment in VerticalScope in July 2015, we entered into a
hedge of the net investment using 90 day rolling forward foreign exchange contracts, which established a rate of exchange
of Canadian dollar per U.S. dollar of $1.30 for U.S. $153.8 million as of the date of the investment. At December 31, 2015,
we had forward foreign exchange contracts in place, which established a rate of exchange of Canadian dollar per U.S. dollar
of $1.34 for U.S. $137.0 million. The forward foreign exchange contracts were designated as a hedge of the net investment
in VerticalScope. Gains or losses on the translation of the effective portion of the designated hedge amount were transferred
to OCI to offset any gains or losses on translation of the net investment. Any changes to the U.S. dollar/Canadian dollar
exchange rate would be offset by the gains or losses on translation of the net investment to the extent of hedge effectiveness.
In 2016, we extinguished all of the U.S. rolling forward contracts we had in place and simultaneously entered into a $137.0
million zero cost collar arrangement with a range of Canadian $1.46 to Canadian $1.19 for U.S. $1.00. These collar options
were also designated as a hedge of the net investment in VerticalScope. Any fluctuations in fair value arising from fluctuations
in the rate of exchange of Canadian dollar per U.S. dollar outside this collar range is recorded in OCI on the effective portion
of the designated hedge. Any gains or losses related to the ineffective portion of the hedge are recorded in net income.
While there are no cash payments or receipts while inside the collar range, any fluctuations within the collar range are
recorded in net income.
In February 2017, we extinguished the collar arrangement we had in place in and simultaneously entered into a new $137.0
million zero cost collar arrangement maturing in 2018, with a range of Canadian $1.40 to Canadian $1.20 for U.S. $1.00.
8. Employee Benefit Obligations
A summary of our employee benefit obligations
We have several registered defined benefit pension plans which provide pension benefits to our employees, and an
unregistered, unfunded defined benefit pension plan that provides pension benefits to eligible senior management executives
of Torstar. In addition, we have a number of capital accumulation (defined contribution) plans. We also have a post-
employment benefit plan that provides health and life insurance benefits to certain grandfathered employees, primarily in
the newspaper operations.
We had the following employee future benefit assets (obligations) as at December 31:
($000’s)
Registered pension plans
Unregistered/unfunded pension plans
Post employment benefit plan
2016
($12,661)
(10,658)
(47,015)
($70,334)
2015
($11,426)
(21,238)
(47,875)
($80,539)
At December 31, 2016, our net deficit related to our defined benefit pension plans was $12.7 million, a favourable movement
of $69.6 million from a net deficit of $82.3 million at September 30, 2016 and an unfavourable movement of $1.3 million
from a net deficit of $11.4 million at December 31, 2015.
We have recognized the following expense in operating profit related to the defined benefit obligations:
($000’s)
Registered pension plans
Unregistered/unfunded pension plans
Post employment benefits plan
2016
($15,236)
(612)
413
($15,435)
2015
($17,452)
(537)
(364)
($18,353)
TORSTAR CORPORATION 2016 ANNUAL REPORT 30
TORSTAR – Management's Discussion and Analysis
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 salary increases, employee turnover, retirement ages of employees, mortality rates and expected health
care costs. 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 management in 2016 and 2015 were:
To determine the net benefit obligation at the end of the year:
Discount rate
Rate of future compensation increase
To determine benefit expense:
Discount rate
Rate of future compensation increase
To determine the pension benefit expense for the following year:
Discount rate
Rate of future compensation increase
2016
2015
3.2% to 3.8%
2.5%
3.1% to 3.9%
2.0% to 2.5%
3.5% to 3.9%
2.25% to 2.75%
3.1% to 3.9%
2.0% to 2.5%
2017
3.2% to 3.8%
2.5%
The discount rates of 3.2% to 3.8% were the yields at December 31, 2016 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 value of the net pension plan
obligation at December 31, 2016 of $113.6 million. A discount rate that was one percent lower would have increased the
value of the net pension plan obligation at December 31, 2016 by $129.9 million.
Management has estimated the rate of future compensation increases to be 2.5%. 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. If the estimated discount rate were one percent higher, the obligation at
December 31, 2016 would be approximately $4.9 million lower. If the estimated discount rate were one percent lower, the
obligation at December 31, 2016 would be approximately $5.9 million higher. For health care costs, the estimated trend
was for a 4.8% increase for the 2016 expense. For 2017, health care costs are estimated to increase by 5.0%. If the
estimated increase in health care costs were one percent higher, the obligation at December 31, 2016 would be approximately
$1.3 million higher. If the estimated increase in health care costs were one percent lower, the obligation at December 31,
2016 would be approximately $1.2 million lower.
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 returns and as other assumptions change. The
most significant actuarial gains and losses arise from changes in the discount rate used to value the pension plan obligations
as well as differences in the actual and estimated returns earned on pension plan assets. We recognize these actuarial
gains and losses as realized, through OCI. Actuarial losses of $1.7 million were recognized through OCI in 2016 and
actuarial losses of $3.4 million were recognized through OCI in 2015.
Ontario pension plan regulations require that the funded status of registered pension plans be determined no less frequently
than every three years through an actuarial solvency report. Any incremental solvency deficits determined by such reports
must normally be funded over a five-year period. As all of our pension plans are registered in Ontario, solvency valuations
are a key determinant of ongoing defined benefit pension contribution requirements.
Actuarial reports for our most significant group of registered defined benefit pension plans (in terms of assets and obligations)
were completed as of December 31, 2013 and form the basis on which required annual funding was set for 2015 through
2017. Based on these valuations, we expect the required annual funding for our registered defined benefit plans for 2017
TORSTAR CORPORATION 2016 ANNUAL REPORT 31
TORSTAR – Management's Discussion and Analysis
to be approximately $18 million similar to our funding level in 2016. Our next required actuarial reports will be as of December
31, 2016.
Based on the December 31, 2013 solvency report, we had an estimated solvency deficit of $45.3 million at December 31,
2013. This report also indicated that a 100 basis point change in the discount rate used to calculate solvency liabilities
would result in a change in liabilities of approximately $119 million. The blended discount rate of the most significant group
of our registered defined benefit pension plans which management uses to calculate the estimated solvency deficit decreased
by 0.02% in 2016 and by 0.74% from December 31, 2013. Given the change in the discount rate, combined with asset
returns from December 31, 2013 through to December 31, 2016, we estimate that the solvency deficit for these plans at
December 31, 2016 was approximately $122 million.
Subsequent to December 31, 2013, we have taken steps to immunize approximately one quarter of the registered defined
benefit pension plan liabilities and accordingly, management now estimates that a 100 basis point movement in the discount
rate used to estimate solvency liabilities would result in an approximate $70 million change in the remaining solvency
liabilities.
On July 26, 2016, the Ontario Government released a consultation paper on solvency funding in Ontario. According to the
consultation paper, which can be found at http://www.fin.gov.on.ca/en/pension/solvency/review-solvency-funding.html “Over
the last several years, sponsors of defined benefit pension plans, have faced funding pressures associated with persistently
low interest rates. The stated purpose of the solvency funding review is to develop a balanced set of solvency funding
reforms that would focus on plan sustainability, affordability and benefit security, and take into account the interests of
pension stakeholders - including sponsors, unions, members and retirees. Further temporary solvency relief measures are
intended to provide plan sponsors with flexibility as the funding review proceeds." Feedback on key policy issues associated
with pension plan funding in Ontario was due to the Ministry of Finance by September 30, 2016. This was to be followed
by the development of proposed funding reforms which was to include synthesis and analysis of feedback and continued
consultation. There can be no certainty as to the outcome of the Ontario Government's solvency funding review or the
availability of funding relief measures. However, if such funding relief were to materialize and be applicable to us, it is
possible that it could significantly reduce our minimum required funding in respect of our defined benefit pension plans.
9. Critical Accounting Policies and Estimates
A description of accounting estimates and judgements that are critical to determining our financial results, and changes
to accounting policies
Accounting Policies
The accounting policies used in the preparation of the 2016 Consolidated Financial Statements are outlined in Note 2 of
the 2016 Consolidated Financial Statements for the year ended December 31, 2016. Several new amendments and
interpretations applied for the first time in 2016. However, they had little or no impact on our consolidated financial statements.
Accounting Estimates and Judgements
The preparation of our 2016 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:
TORSTAR CORPORATION 2016 ANNUAL REPORT 32
TORSTAR – Management's Discussion and Analysis
Employee Future Benefits
The accrued net 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 rate of compensation increase, employee turnover, retirement ages,
mortality rates, 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 salary increases, health care costs and
demographic employee data. The most significant assumption is the discount rate.
The discount rate used to determine the present value of the net defined benefit obligation 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.
Management’s current estimates, along with a sensitivity analysis are further discussed under “Employee Future Benefit
Obligations” in this MD&A and are disclosed in Note 19 of the 2016 Consolidated Financial Statements.
Impairment of non-financial assets
At each reporting date, we are required to assess our investments, intangible assets, property, plant and equipment 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, we estimate the recoverable amount of the asset, CGU or group of
CGUs and compare it to the carrying value. In addition, irrespective of whether there is any indication of impairment, we
are required to test intangible assets with an indefinite useful life and goodwill for impairment at least annually. We complete
our annual testing during the fourth quarter of each year.
For intangible assets other than goodwill, we are 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.
The test for impairment for property, plant and equipment, intangible assets, investments or goodwill is to compare the
recoverable amount of the asset or CGU to the carrying value. The recoverable amount is the greater of FVLCS, and VIU.
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.
We have computed the FVLCS using a forward EBITDA multiple that requires market participant assumptions about future
cash flows and forward multiples. In calculating the recoverable amount, under either a VIU or FVLCS methodology,
management is required to make several assumptions, including, but not limited to, expected future revenues, expected
future cash flows, forward multiples and discount rates. Our 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 we are currently anticipating. We have also made certain assumptions for the forward
multiples, discount and terminal growth rates to reflect possible variations in the cash flows. However, the risk premiums
expected by market participants, as reflected in forward multiples, 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 may have a significant impact on the fair value of the investment, CGU or group of CGUs or
intangible assets and the results of the related impairment testing. Refer to Note 12 of the 2016 Consolidated Financial
Statements for further details about the methods and assumptions used in estimating the recoverable amount.
As at December 31, 2016 the carrying value of investments, intangible assets, property, plant & equipment and goodwill
represented 33%, 10%, 11% and 1% respectively of total assets and each reporting segment had investments, intangible
assets and property, plant and equipment with carrying values subject to these estimates. As at December 31, 2015 the
carrying value of investments, intangible assets, property, plant and equipment and goodwill represented 34%, 10%, 17%
and 1% respectively of total assets. These values, for the applicable segments, are outlined in the notes to the 2016
Consolidated Financial Statements. In the year ended December 31, 2016, we have recorded impairment charges (on a
segmented basis), related to intangible assets and investments totaling $7.5 million in 2016. In the year ended December
31, 2015, we have recorded impairment charges (on a segmented basis), related to goodwill, intangible assets and
investments totaling $361.1 million. These charges impact net income but have no effect on cash flow. Refer to the discussion
of "Impairment of assets" in Section 3 for further detail surrounding the impairment of asset charges recorded during 2016.
TORSTAR CORPORATION 2016 ANNUAL REPORT 33
TORSTAR – Management's Discussion and Analysis
Taxes
We are subject to income taxes in Canada and in certain foreign jurisdictions. Significant judgement is required in determining
the 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 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 our ability to utilize tax losses carried forward
is to a large extent judgement-based. If our future taxable results differ significantly from those expected, we would be
required to increase or decrease the carrying value of the deferred tax assets with a potentially material impact in our
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 our income taxes is provided in Note 14 of the 2016 Consolidated Financial Statements.
Significant judgements made by management are described below.
Classification of investments as portfolio investments, associated businesses, joint ventures and subsidiaries
Classification of investments requires judgement on whether we control, have 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 we have over an investment, management considers ownership
percentages, board representation as well as other relevant provisions in shareholder agreements. Black Press, Blue Ant
and Shop.ca have been classified as associated businesses based on management’s judgement that we have, 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 2016 and 2015 for Black Press and throughout 2015 until the third
quarter 2016 for Shop.ca and since the third quarter of 2016 for Blue Ant. Similarly, VerticalScope has been classified as
an associated business, rather than a consolidated subsidiary or joint venture, based on management’s judgement that we
have, based on provisions in the shareholders agreement, significant influence despite owning 56% of the voting rights.
Classification of cash equivalents
Classification of cash equivalents requires judgement on whether short-term investments are easily convertible into cash.
Short-term investments with maturities on acquisition of 90 days or less are presumed to be cash equivalents due to the
short holding period of the investment. We have classified our short-term investments with original maturities on acquisition
of over 90 days but less than 365 days as cash equivalents based on management’s judgement that the short-term
investments are liquid as we have a contractual right to convert them into cash with 30 days’ notice.
TORSTAR CORPORATION 2016 ANNUAL REPORT 34
TORSTAR – Management's Discussion and Analysis
Determination of operating segments, reportable segments and CGUs
We have three reportable operating segments for segment reporting purposes: Metroland Media Group, Star Media Group
and Digital Ventures. “Corporate” is the provision of corporate services and administrative support. Each of the Star Media
Group, Metroland Media Group and Digital Ventures segments include CGUs which have been grouped together for purposes
of reviewing performance and impairment testing. Our chief operating decision-maker monitors the operating results of the
operating units separately for the purpose of assessing performance. Segment performance is evaluated based on operating
profit which corresponds to operating profit as measured in the consolidated financial statements except that it includes the
proportionately consolidated share of joint venture operations. Decisions regarding resource allocation are made at the
reportable segment level.
Within the MMG operating segment, we have identified a number of CGUs including the daily newspapers and their flyer
distribution operations, the community newspapers and their flyer distribution and printing operations as well as a number
of separate digital CGUs. In addition, we have identified SMG as one CGU which includes the Toronto Star and the Metro
publications as well as a number of other smaller digital platforms and publications. Within the Digital Ventures segment,
we have identified eyeReturn Marketing as one CGU.
10. Recent Accounting Pronouncements
A discussion of recent IFRS developments that will affect our business
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(t) in our 2016 Consolidated Financial Statements. The following new standards or amendments
to accounting standards, which will be effective subsequent to 2016, are expected to have an impact on the interim or annual
consolidated financial statements or related disclosures:
IFRS 15 Revenue from Contracts with Customers
In May 2014, the IASB issued IFRS 15 which specifies how and when an entity will recognize revenue as well as requiring
such entities to provide users of financial statements with more informative, relevant disclosures. The standard provides a
single, principles based five-step model to be applied to all contracts with customers. We do not anticipate early adoption
and we plan to adopt the standard on its effective date of January 1, 2018. We have reviewed our significant sources of
revenue and to date, we have not identified any areas for which the recognition of revenue will change significantly with the
adoption of the new standard. We will continue to assess the impact of IFRS 15 on our less significant sources of revenue
as well as disclosure requirements.
IFRS 9 Financial Instruments
In July 2014, the IASB issued a finalized version of IFRS 9 which contains accounting requirements for financial instruments
replacing IAS 39 Financial Instruments: Recognition and Measurement. The standard contains requirements in the following
areas: Classification and Measurement; Impairment; Hedge Accounting; and Derecognition. We do not anticipate early
adoption and plan to adopt the standard on its effective date of January 1, 2018.
Our review of IFRS 9 performed to date indicates the following impacts:
•
financial assets such as receivables which were previously classified as "loans and receivables" under IAS 39, will
now be classified as "amortized cost" under IFRS 9 while most financial liabilities will continue to be measured at
"amortized cost".
• The quantitative retrospective and prospective hedge effectiveness assessment within the 80-125 percent threshold
to qualify for hedge accounting will no longer apply. Rather, once a hedge relationship qualifies for hedge accounting,
retrospective effectiveness testing and voluntary discontinuation of hedge accounting are not permitted. Hedge
accounting can only discontinue where the qualifying criteria are no longer met.
We will continue to assess the impact of IFRS 9 on the consolidated financial statements.
IFRS 16 Leases
In January 2016, the IASB issued IFRS 16 which supersedes IAS 17 Leases and related interpretations. The new standard
provides a single lessee accounting model which eliminates the distinction between operating and finance leases, by requiring
lessees to recognize assets and liabilities for all leases unless the underlying asset has a low value or the lease term is 12
months or less. Lessor accounting remains largely unchanged and the distinction between operating and finance leases is
retained. We do not anticipate early adoption and we plan to adopt the standard on its effective date of January 1, 2019.
We are in the process of reviewing the standard to determine the impact on the consolidated financial statements.
TORSTAR CORPORATION 2016 ANNUAL REPORT 35
TORSTAR – Management's Discussion and Analysis
11. Controls and Procedures
A discussion of our 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, 2016, under the supervision of, and with the participation of the CEO and CFO, we evaluated the
effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our CEO
and CFO have concluded that, as at December 31, 2016, our disclosure controls and procedures were effective.
Internal Controls over Financial Reporting
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; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our 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, management acknowledges that
our 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 2013 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, 2016.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal controls over financial reporting that occurred during the three months ended
December 31, 2016, that have materially affected, or are reasonably likely to materially affect, our internal controls over
financial reporting.
TORSTAR CORPORATION 2016 ANNUAL REPORT 36
TORSTAR – Management's Discussion and Analysis
12. Selected Annual Information
A summary of selected annual financial information for 2016, 2015 and 2014
(in $000’s - except per share amounts)
Revenue
Segmented Revenue *
Net loss from continuing operations
Per Class A voting and Class B non-voting share - Basic and
Diluted
Net income (loss)
Net income (loss) attributable to equity shareholders
Per Class A voting and Class B non-voting share
Basic
Diluted
Average number of shares outstanding during the year (in 000’s)
Basic
Diluted
Cash dividends per Class A voting and Class B non-voting share
Total assets
2016
$685,099
$761,697
($76,036)
($0.94)
(74,836)
(74,750)
($0.93)
($0.93)
80,653
80,653
$0.180
$564,491
2015
$786,631
$843,640
($399,837)
($4.96)
(404,837)
(403,966)
($5.02)
($5.02)
80,400
80,400
$0.525
$696,416
2014
$858,134
$904,618
($49,598)
($0.62)
173,064
172,685
$2.16
$2.15
80,078
80,254
$0.525
$1,143,521
*Includes proportionately consolidated share of joint venture operations and VerticalScope. This is a non-IFRS or additional IFRS measures, refer to Section
14 of this MD&A.
Revenue has declined each year reflecting a structural shift within the advertising industry from print media to digital media.
Excluding the impact of the closure of Olive Media on December 31, 2015, digital revenues increased 18% in 2016 and 14%
in 2015. These increases were primarily related to the investment in VerticalScope in July 2015.
Over the three year period, significant labour cost savings have been realized in the newspaper operations 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.
In addition, 2014 included a $224.6 million pre-tax gain on the sale of Harlequin, while 2015 included additional charges of
$5.0 million related to provisions for indemnities in respect of the sale of Harlequin.
Total assets have declined over the three year period reflecting total impairment charges of $7.5 million in 2016, $361.1
million in 2015 and $97.9 million in 2014. In addition, on a segmented basis, we recorded amortization and depreciation
expenses totalling $122.0 million in 2016, and $77.5 million in 2015, largely related to the investment in VerticalScope in July
2015.
TORSTAR CORPORATION 2016 ANNUAL REPORT 37
TORSTAR – Management's Discussion and Analysis
13. Summary of Quarterly Results
A summary view of our quarterly financial performance
The following table presents selected financial information for each of the eight most recently completed quarters:
(in $000’s - except per share
amounts)
Revenue
Net Income (loss) from continuing
operations
Per Class A voting and Class B non-
voting share -
Dec 31,
2016
$188,408
Sep 30,
2016
$162,098
Jun 30,
2016
$177,912
Mar 31,
2016
$156,681
Dec 31,
2015
$213,749
Sept 30,
2015
$185,386
Jun 30,
2015
$206,327
Mar 31,
2015
$181,169
Quarter Ended
$683
$1,081
($24,268)
($53,532)
($233,413)
($164,834)
($1,131)
($459)
Basic and Diluted
$0.01
$0.01
($0.30)
($0.66)
($2.90)
($2.04)
($0.01)
($0.01)
Net Income (loss) attributable to
equity shareholders
Per Class A voting and Class B non-
voting share
$1,264
$1,432
($23,923)
($53,523)
($234,817)
($164,337)
($1,118)
($3,694)
Basic
Diluted
$0.01
$0.01
$0.02
$0.02
($0.30)
($0.30)
($0.66)
($0.66)
($2.91)
($2.91)
($2.05)
($2.05)
($0.01)
($0.01)
($0.05)
($0.05)
The summary of quarterly results illustrates the cyclical nature of revenues and operating profit in Star Media Group, Metroland
Media Group and Digital Ventures. The second and fourth quarters are generally the strongest with the first and third quarters
being the softest.
Restructuring and other charges have also affected the level of net income for several quarters. Reported on a segmented
basis, restructuring and other charges were $31.8 million, $6.9 million, $3.7 million and $4.4 million in the first, second, third
and fourth quarters of 2016 and $3.8 million, $15.9 million, $4.2 million and $7.5 million in the first, second, third and fourth
quarters of 2015, respectively. Additionally, losses on impairment of assets (reported on a segmented basis) of $7.5 million
were recorded in the fourth quarter of 2016 and $147.8 million and $213.3 million were recorded in the third and fourth
quarters of 2015, respectively.
In addition, the second, third and fourth quarters of 2016 included pre-tax recoveries from discontinued operations of $0.5
million, $0.4 million and $0.5 million respectively, while the first, third and fourth quarters of 2015 included additional pre-tax
charges related to discontinued operations of $4.0 million, $0.5 million and $1.3 million, all of which related to provisions for
indemnities in respect of the sale of Harlequin.
14. Reconciliation and Definition of Non-IFRS Measures
A description and reconciliation of certain non-IFRS and additional IFRS measures used by management
In addition to operating profit, an additional IFRS measure, as presented in the consolidated statement of income,
management uses the following non-IFRS measures: segmented revenue, adjusted EBITDA (and where applicable
segmented adjusted EBITDA), operating earnings (loss) (and where applicable segmented operating earnings (loss)) and
adjusted earnings (loss) per share, as measures to assess the consolidated performance and the performance of the
reporting units and business segments.
Segmented revenue
Segmented revenue is calculated in the same manner as operating revenue in the 2016 Consolidated Financial Statements,
except that it is calculated using total segment results which includes our proportionately consolidated share of revenues
from joint ventures and our 56% interest in VerticalScope. Management of each segment is accountable for the revenues,
including the proportionately consolidated share of revenues from joint venture operations. We believe that segmented
revenue is a useful measure for investors as it is a measure of the revenues for which management of each segment is
accountable. The intent of segmented revenue is to provide additional useful information to investors, analysts and readers
of our financial statements. The measure does not have any standardized meaning under IFRS and accordingly may not
be comparable to measures used by other companies.
TORSTAR CORPORATION 2016 ANNUAL REPORT 38
TORSTAR – Management's Discussion and Analysis
Adjusted EBITDA/Segmented Adjusted EBITDA
As a result of the increasing significance of segmented financial results from our investment in VerticalScope relative to our
total segmented financial results, effective 2016 we have revised our definition of adjusted EBITDA to exclude share based
compensation. We made this change because of the relative significance and variability of this non-cash expense in our
proportionate share of VerticalScope's financial results and we believe that the exclusion of this non-cash expense from
adjusted EBITDA provides greater insight for investors, analysts and readers in regards to our segmented earnings excluding
non-cash expenses. We have accordingly restated prior period comparative figures.
Management believes that adjusted EBITDA is an important proxy for the amount of cash generated by our ongoing operations
(or by a reporting unit or business segment) to generate liquidity to fund future capital needs and we use this metric for this
purpose. Adjusted EBITDA is not the actual cash provided by operating activities and is not a recognized measure of financial
performance under IFRS. We calculate adjusted EBITDA as operating revenue, less salaries and benefits and other
operating costs, as presented on the consolidated statement of income (loss), and exclude share based compensation,
restructuring and other charges and impairment of assets. Share based compensation is eliminated as it is a non-cash
expense that fluctuates significantly from period to period, in particular for VerticalScope as a result of industry compensation
practices. Restructuring and other charges and impairment of assets are eliminated as these activities are not related to
ongoing operations as of the end of the period. The exclusion of impairment of assets also eliminates the non-cash impact.
Adjusted EBITDA is also used by investors and analysts for valuation purposes. The intent of adjusted EBITDA is to provide
additional useful information to investors, analysts and readers of our financial statements. The measure does not have
any standardized meaning under IFRS and accordingly may not be comparable to measures used by other companies
(including calculating EBITDA on an adjusted basis to exclude restructuring and other charges, impairment of assets and
share based compensation). Segmented adjusted EBITDA is calculated in the same manner described above, except that
it is calculated using total segment results including proportionately consolidated results for joint ventures and our 56%
interest in VerticalScope for which management is accountable.
Operating earnings (loss)/Segmented operating earnings (loss)
Operating earnings (loss) is used by management to represent the results of ongoing operations inclusive of amortization
and depreciation. We use operating earnings (loss) as a measure of the amount of income (loss) generated by our ongoing
operations (or by a reporting unit or business segment) after giving effect to amortization and depreciation. We believe this
metric is also useful for investors for this purpose. We calculate operating earnings (loss) as operating revenue less salaries
and benefits, other operating costs, share based compensation and amortization and depreciation. Operating earnings
(loss) excludes restructuring and other charges and impairment of assets. Restructuring and other charges and impairment
of assets are eliminated as these activities are not related to ongoing operations as of the end of the period. Our method
of calculating operating earnings (loss) (including calculating operating earnings (loss) on an adjusted basis to exclude
restructuring and other charges and impairment of assets) may differ from other companies and accordingly may not be
comparable to measures used by other companies. The intent of operating earnings (loss) is to provide additional useful
information to investors, analysts and readers of our financial statements. The measure does not have any standardized
meaning under IFRS, is not a recognized measure of financial performance under IFRS, and accordingly may not be
comparable to measures used by other companies. Segmented operating earnings (loss) is calculated in the same manner
described above, except that it is calculated using total segment results including proportionately consolidated operating
earnings (loss) for joint ventures and our 56% interest in VerticalScope for which management is accountable.
The following is a reconciliation of adjusted EBITDA and operating earnings (loss) (and segmented adjusted EBITDA/
segmented operating earnings (loss) - as applicable) with operating profit (loss) (segmented operating profit (loss) - as
applicable). Adjusted EBITDA, segmented adjusted EBITDA, operating earnings (loss) and segmented operating earnings
(loss) are regularly reported to the chief operating decision maker and correspond to the definitions used in our historical
discussions.
TORSTAR CORPORATION 2016 ANNUAL REPORT 39
TORSTAR – Management's Discussion and Analysis
Operating profit (loss)
Add: Restructuring and other charges
Add: Impairment of assets
Operating earnings (loss)
Add: Share based compensation
Add: Amortization and depreciation
Adjusted EBITDA
Operating profit (loss)
Add: Restructuring and other charges
Add: Impairment of assets
Operating earnings (loss)
Add: Share based compensation
Add: Amortization and depreciation
Adjusted EBITDA
Segmented
Per Consolidated Statement of Income
Fourth Quarter
2016
Fourth Quarter
2015
Fourth Quarter
2016
Fourth Quarter
2015
$3,490
4,440
7,500
$15,430
918
15,563
$31,911
($233,195)
7,496
213,321
($12,378)
543
37,220
$25,385
$10,262
3,698
800
$14,760
7,349
$22,109
($207,101)
6,655
209,321
$8,875
9,309
$18,184
Segmented
Per Consolidated Statement of Income
Twelve months
ended
December 31, 2016
Twelve months
ended
December 31, 2015
Twelve months
ended
December 31, 2016
Twelve months
ended
December 31, 2015
($118,507)
46,907
7,500
($64,100)
2,554
122,024
$60,478
($403,079)
31,310
361,081
($10,688)
2,473
77,511
$69,296
($61,051)
45,823
800
($14,428)
44,020
$29,592
($354,069)
30,223
345,081
$21,235
30,177
$51,412
Adjusted earnings (loss) per share
Adjusted earnings (loss) per share is used by management to represent the per share earnings (loss) of results of our
ongoing operations (or by a reporting unit or business segment) and is not a recognized measure of financial performance
under IFRS. We believe this metric is also useful for investors for this purpose. We calculate adjusted earnings (loss) per
share as earnings (loss) per share from continuing operations less the per share effect of restructuring and other charges,
impairment of assets, non-cash foreign exchange, other income (expense) and change in deferred taxes. Restructuring
and other charges and impairment of assets are eliminated as these activities are not related to ongoing operations as of
the end of the period. Non-cash foreign exchange, other income (expense) and changes in deferred taxes are eliminated
as these are not related to routine operating activities. The intent of presenting adjusted earnings (loss) per share is to
provide additional useful information to investors, analysts and readers of our financial statements. Our method of calculating
adjusted earnings (loss) per share may differ from other companies and accordingly may not be comparable to measures
used by other companies. The measure does not have any standardized meaning under IFRS, is not a recognized measure
of financial performance under IFRS, and accordingly may not be comparable to measures used by other companies. The
following is a reconciliation of adjusted earnings per share to earnings per share.
Adjusted earnings (loss) per share
• Restructuring and other charges
•
Impairment of assets
• Non-cash foreign exchange
• Other income (expense)
• Change in deferred taxes
Earnings (loss) per share from continuing operations
Fourth Quarter
Twelve months ended December 31
2016
2015
2016
2015
$0.16
(0.06)
(0.09)
($0.10)
(0.08)
(2.67)
(0.02)
(0.03)
$0.01
($2.90)
($0.46)
(0.58)
(0.09)
0.30
(0.11)
($0.94)
($0.10)
(0.29)
(4.53)
(0.02)
(0.02)
($4.96)
Operating profit (loss)/Segmented operating profit (loss)
Operating profit (loss) is an additional IFRS measure. Management uses operating profit (loss) to measure the results of
operations inclusive of impairments and restructuring and other charges. Operating profit (loss) appears in our consolidated
statement of income (loss). We believe that operating profit (loss) provides additional useful information to investors, analysts
and readers of our financial statements. The measure does not have any standardized meaning under IFRS and accordingly
may not be comparable to measures used by other companies. Our method of calculating operating profit (loss) may differ
TORSTAR CORPORATION 2016 ANNUAL REPORT 40
TORSTAR – Management's Discussion and Analysis
from other companies and accordingly may not be comparable to measures used by other companies. Segmented operating
profit (loss) is calculated in the same manner described above, except that it is calculated using total segment results
including proportionately consolidated results for joint ventures and our 56% interest in VerticalScope for which management
is accountable.
15. Enterprise Risk Management
Enterprise risks and uncertainties Torstar is facing and how we manage these risks
Definition of Business Risk
We define business risk as the degree of exposure associated with the achievement of key strategic, financial, organizational
and process objectives in relation to the effectiveness and efficiency of operations, the reliability and integrity of financial
reporting, compliance with laws, regulations, policies, procedures and contracts and safeguarding of assets within an ethical
organizational culture.
Our enterprise risks are largely derived from our business environment and are fundamentally linked to our strategies and
business objectives. We strive to proactively mitigate our risk exposures through performance planning, effective business
operational management and risk response strategies which can include mitigating, transferring, retaining and/or avoiding
risks. We also strive to avoid taking on undue risk exposures whenever possible and to ensure alignment of exposures with
business strategies, objectives, values and risk tolerances.
Section 16 summarizes the principal risks and uncertainties that could affect our future business results.
Torstar’s Risk and Control Assessment Process
In 2016, we used a multi-level enterprise risk and control assessment process that incorporated the insight of employees
throughout the organization.
At a high level, during the year, we performed an assessment of key business and strategic risks in order to capture changing
business risks, monitor key risk mitigation activities and provide ongoing updates and assurance to the Audit Committee.
This assessment included interviews with senior managers. Additionally, our assessment process incorporated input from
internal and external audit, internal control over financial reporting compliance activities and risk assessment activities, as
well as input from other relevant internal and external compliance and audit processes. Key enterprise risks were identified,
defined and prioritized, and risks were classified into discrete risk categories.
Lastly, we conducted detailed risk assessments through various compliance activities and risk management initiatives (e.g.
health and safety, network and IT vulnerability, fraud and ethics assessments and environmental assessments). The results
of these multiple risk assessments were evaluated, prioritized, updated and integrated into the key risk profile during the
year.
Board risk governance and oversight
In carrying out the above noted process, we have also ensured that the key risks identified in the key risk matrix were
assigned for oversight by the Board, or one or more Board committees, as outlined in the Board’s terms of reference and
Board Committee mandates.
16. Risks and Uncertainties
Risks and uncertainties facing our business
We are 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 our financial condition, financial performance or our business.
The actual effect of any event on our business could be materially different from what is anticipated. The risks described
below impact some or all of our businesses, including our investment in VerticalScope. This description of risks does not
include all possible risks.
Revenue Risks
Our revenue is primarily dependent upon the sale of advertising and, to a lesser extent, the distribution of inserts and flyers
and the generation of circulation/subscription revenue. Advertising revenue includes in-paper advertising, digital advertising
and specialty publications.
TORSTAR CORPORATION 2016 ANNUAL REPORT 41
TORSTAR – Management's Discussion and Analysis
Competition and Digital Shift
There has been a continuing structural shift within the advertising industry from print to digital advertising and, as a result,
digital media generates significant competition for advertising. This shift has and will continue to negatively impact print
advertising revenue and appears to be permanent. Competition also comes from a variety of other sources such as free
and paid local, regional and national newspapers, radio, broadcast and cable television, magazines, outdoor, direct
marketing, flyers, directories, and other communications and advertising media.
In addition, the shift to digital media has resulted in a significant increase in competition from global competitors. Competitors
are increasingly larger, may have interests in multiple forms of media and may be more successful in attracting advertising
revenue.
Digital competition is not limited to platforms that provide news and news aggregation. Competitors include but are not
limited to providers of search engine marketing, display advertising, digital classifieds, digital directories, social media,
mobile advertising and video advertising. In addition, online advertising networks, exchanges, real-time bidding and
programmatic buying channels that allow advertisers to target audiences are playing an increasingly significant role in the
advertising industry. Our platforms and sites, including those of VerticalScope, face competition for users, readers and
advertisers. Our existing and potential future digital competitors range from start-up operations with low cost structures to
global players that may have access to greater operational, financial and other resources than us. The extent and nature
of competition has intensified over the past several years as a result of the rapid and continued development of digital media
alternatives, and this has resulted in the fragmentation of audiences. We expect intense competition to continue. Advertisers
also have increased access to data and greater ability to reach customers directly with digital technologies, which may
contribute to reduced spending on external advertising. We may not be able to successfully adapt to these rapid changes
and increasing number of digital media options, to respond as quickly to new or emerging technologies and changes in
consumer behavior as our competitors, or to distinguish our products and services from those of our competitors.
In response to this shift to digital media, we have been investing significant time and resources in our digital platforms to
evolve our existing products and develop new products, including mobile platforms, video and other evolving content delivery
platforms. There is a risk that we will be unable to successfully attract or retain users and advertisers with our existing or
new digital platforms. Revenue generated by our advertising offerings will depend, to a large extent, on their perceived
effectiveness and the continued growth in digital advertising. Thus far, digital advertising revenues have not offset a significant
portion of lost print advertising revenue and we may not be successful in replacing print revenue declines in the future. In
addition, some of our digital platforms are in an early stage of development or implementation and may not achieve profitability.
We also use third party platforms to distribute some of our content and advertising. These third parties may discontinue or
modify their platforms which could restrict access to our content, result in the loss of a direct relationship with consumers,
and impact our ability to generate revenue through these platforms.
In addition, our success on mobile platforms depends upon the ability to provide advertising for most mobile connected
devices, as well as the major operating systems that run on them. The design of mobile devices and operating systems is
controlled by third parties with whom we do not have any formal relationships. These parties frequently introduce new
devices, and from time to time they may introduce new operating systems or modify existing ones. In addition, these parties
may also impact the ability to access specified content on mobile devices. If our solutions were unable to work or provide
advertising on these devices, our ability to generate revenue could be significantly harmed.
Finally, the use of technology to restrict or block the targeting or display of advertising by device manufacturers, network
carriers or consumers could increase, and this may have an adverse impact on our ability to provide advertising inventory
and attract advertisers to our platforms.
Content, Audience and Readership
Advertisers often base their decisions about where to advertise on readership and circulation data. Print readership levels,
in addition to generating circulation/subscription revenues, have traditionally been an important factor in the ability of a
newspaper to generate advertising revenues. General trends affecting the newspaper industry, including changes in
everyday lifestyle and technology have meant that people, and particularly younger audiences are devoting less time to
reading print newspapers than they once did and as a result print newspaper readership is aging. If these or other trends
continue to result in declining print circulation, circulation revenues and the ability to maintain advertising rates may be
adversely affected. While digital readership appears to be an important factor in the ability of a newspaper to generate
TORSTAR CORPORATION 2016 ANNUAL REPORT 42
TORSTAR – Management's Discussion and Analysis
digital advertising revenue, it may have a negative impact on print circulation/subscription volumes and revenues and also
on readership.
Our reputation for quality journalism and content is an important factor in maintaining readership levels. We strive to provide
content across numerous platforms 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 and platforms for content and
the newsworthiness of current events, among other intangible factors, may also contribute to the fluctuation in readership
levels, and accordingly, limit our ability to generate advertising and circulation/subscription revenue.
Digital readership and traffic levels are a key driver of how digital advertisers base their decisions about where to advertise
digitally. In order to be successful, we need to generate traffic on our digital platforms that is valuable to advertisers. With
the increase in alternative digital content providers and digital platforms, we face the risk that we may not be able to sufficiently
attract and retain a base of frequent and engaged visitors to our digital platforms. This is particularly important for certain
of our platforms, including those of VerticalScope, that rely on user generated content and forum discussions. If usage is
insufficient or if we do not meet advertisers’ expectations by delivering quality traffic, we may not be able to create enough
advertiser interest in our digital platforms, or our advertising partners may pay less or cease doing business with us altogether.
We may incur additional costs to attract readers and increase our platform usage and we may not be able to recover these
costs through advertising revenues. In addition, certain new and evolving content delivery platforms may present more
limited opportunities for advertising.
The reputation of our digital platforms is an important factor in growing and maintaining traffic and generating advertising
revenue. Advertisers’ perceptions of the attractiveness of the content on our digital platforms, including in some cases user
generated content and forum discussions, will impact our ability to generate advertising revenue. Public preferences and
tastes, general economic conditions, the availability of alternative sources of and platforms for content and forum discussions
may also contribute to the fluctuation in traffic levels, and accordingly, limit our ability to generate advertising revenue. To
some degree, our traffic levels are dependent on internet search engines and our ability to influence search engine rankings
as we depend in part on various internet search engines to direct traffic to our platforms and properties. Our ability to
influence search engine rankings of platforms and properties through search engine optimization efforts is limited. Changes
by internet search engines in their algorithms could cause us to receive less user traffic.
Economic Conditions and Customer Prospects
Advertising revenue in our newspapers and digital platforms is dependent on the prospects of our advertising customers,
which can be affected by a variety of factors, including prevailing economic conditions and the level of consumer confidence.
Adverse economic conditions generally, and economic weakness and uncertainty have had and may continue to have a
negative impact on the advertising industry and on our operations. Certain of our local and national advertisers operate in
industries that are sensitive to adverse economic conditions and are subject to increasing competition, including car
manufacturers and dealers, home builders, financial services, telecommunications, travel, department and grocery stores
and other retailers and a downturn that impacts any of these industries could also have an adverse impact on Torstar’s
revenue. In addition, a change in an advertiser’s individual business, prospects or competitive position could alter their
spending priorities and impact their advertising budgets, which could have an adverse effect on our revenue.
Cost Structure
Our Metroland Media Group and Star Media Group segments are characterized by a relatively high fixed cost structure and
accordingly, a change in revenue could have a disproportionately negative effect on our financial performance. Over the
last several years, we have reduced costs in a number of ways including by reducing staff and outsourcing certain services.
It is becoming increasingly difficult to continue to reduce costs from current levels. Our ability to achieve cost savings may
be impacted by the level of unionization at our newspaper operations, existing third-party suppliers and service providers
and our ability to outsource additional components of our business operations in the future (see “Dependence on Third-
Party Suppliers and Service Providers” below). In addition, reductions in staff and cost control measures may impact our
ability to attract and retain key employees (see “Dependence on Key Personnel” below).
Loss of Reputation
Our customers, shareholders and employees place considerable reliance on our good reputation, including our significant
businesses and brands and our ability to maintain our existing customer relationships and generate new customers depends
greatly on this reputation. The Toronto Star’s reputation for high-quality journalism and content makes this brand a key
asset and its continued success depends in part on our ongoing ability to preserve and leverage the value of this brand.
Our ability to preserve and leverage the value of Metroland Media Group’s brands, VerticalScope’s brands and other brands
TORSTAR CORPORATION 2016 ANNUAL REPORT 43
TORSTAR – Management's Discussion and Analysis
is also important to our success. In addition, as we outsource services and develop brand extensions, we may work with
third party service providers or vendors whose actions could impact our reputation and the value of our brands. The loss
or tarnishing of our reputation through negative publicity or otherwise, whether true or not, could have an adverse impact
on our business, operations or financial condition.
Dependence on Third-Party Suppliers and Service Providers
We rely on third-party suppliers and service providers for certain key services including distribution, printing (including
printing of the Toronto Star), call center services, certain information technology functions and digital publishing platforms,
including cloud computing and storage and certain page production, advertising production and sales, content delivery and
content supply requirements. In addition, we may outsource additional components of our business operations in the future.
Our business or operations could be interrupted or otherwise adversely impacted by our third-party suppliers and service
providers experiencing business difficulties or interruptions, the suppliers or service providers being unable or unwilling to
provide services as anticipated or by our being unable to transition to, integrate with or effectively utilize the services of the
third-party suppliers and service providers. In such event, we may be unable to find alternate service providers in a timely
and efficient manner and on acceptable terms, if at all. In addition, delays in delivery or other service disruptions could have
a negative impact on our subscriber base and our ability to generate revenue.
Reliance on Technology and Information Systems and Risk of Security Breaches
We place considerable reliance upon technology and information systems ("IT"), including those of third party service
providers, throughout our operations, including for digital platforms, content delivery, payment processing, email, back-office
support, software provision and other functions. Our businesses also collect, use and store sensitive data, including
intellectual property, employee information, business information and personal information (including internal information
and information from customers, users of our digital platforms or services, suppliers and business partners). The continuing,
uninterrupted and secure performance of our systems is critical to our businesses. We have a steering committee in place
which oversees technology and information systems security and we provide periodic reports to the Audit Committee. We
constantly re-assess our IT security threat landscape and its impact on our risk exposure. Emerging and existing cyber
risks are mitigated through our continuous monitoring program, implementation of advanced technology based defense
systems and administrative controls which include entity wide security policies and procedures. Despite our security
measures and those of our third-party service providers, our systems and those of our service providers may be vulnerable
to interruption, damage or failure from loss of power, hacking or other unauthorized access, viruses, worms or other
destructive or disruptive software, process breakdowns, human error, denial of service attacks, advanced persistent threats,
malicious social engineering or other similar events. This could compromise our systems and the information we store could
be accessed, corrupted, publicly disclosed, lost or stolen.
Businesses in general have seen a rise in cyberattacks (including by state-sponsored and criminal organizations and other
individuals and groups) and as a result risks associated with these kinds of attacks continue to increase. While we have
implemented controls and taken other preventative actions to protect our systems against attacks, we can give no assurance
that these controls and preventative actions will be effective or that the systems of its service providers will be adequately
protected.
The occurrence of any of these events could have an adverse effect on our operations and revenues, including through a
disruption of our services or disclosure of personal or confidential information, which could harm our reputation, require us
to expend resources to remedy such a breach or defend against further attacks, subject us to litigation, fines or liability
including under privacy or other applicable laws or divert management’s attention and resources. In addition, protecting
against these events is costly and requires ongoing monitoring and updating as technologies change. The techniques used
to obtain unauthorized access, disable or degrade service or sabotage systems change frequently and are becoming more
sophisticated, and consequently we and our service providers may be unable to anticipate, prevent, identify or adequately
remediate such incidents. Our general liability insurance may not cover these risks and consequently we could be required
to expend significant resources in connection with any costs, liabilities or losses that may be incurred.
Employee Future Benefits
Relative to our size, and when compared to other companies, we have large pension liabilities, funding requirements and
costs. The funded status of our defined benefit pension plans and our contribution obligations may be impacted by many
factors, including changes to pension laws, regulations and interpretations thereof, changes to benefits provided to plan
participants, changes to actuarial assumptions and methods, changes in participant demographics, mortality, plan
experience, changes to the discount rate used to determine our contribution obligations and the rate of return on plan assets.
Changes to any of the foregoing factors could produce further underfunding in our defined benefit pension plans as well as
TORSTAR CORPORATION 2016 ANNUAL REPORT 44
TORSTAR – Management's Discussion and Analysis
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 our cash flows, liquidity and financial condition.
The most significant group of our registered defined benefit pension plans (in terms of assets and obligations) completed
the preparation of actuarial reports as of December 31, 2013. While the required funding resulting from these reports should
not change until 2018, there is no guarantee that the funding requirements beyond 2017 will not increase.
In addition to the registered defined benefit pension plans, we also have an unregistered, unfunded defined benefit pension
plan that provides pension benefits to eligible senior management executives and a post-employment benefits plan that
provides health and life insurance benefits to certain grandfathered employees. These plans are being funded as payments
are made. The liabilities associated with these plans may be affected by several factors, including changes to benefits
provided to plan participants, changes to actuarial assumptions and methods, changes in participant demographics and
plan experience, and the discount rate used to assess plan obligations.
Strategic Initiatives, Acquisitions and Dispositions
Our growth, including growth of our investment in VerticalScope, is dependent on the ability to identify, develop and execute
appropriate strategic initiatives, which may involve organic growth, growth through acquisition or investment. Acquisitions
and investments involve numerous risks, such as: difficulties in integrating operations, technologies, products and personnel;
diversion of financial and management resources from existing operations; operating under commercial agreements entered
into by an acquisition target; risks of entering new markets; potential loss of key employees; and inability to generate sufficient
revenue to offset acquisition or investment costs.
There is no guarantee that any such opportunities will be available to us or that they will be available at an appropriate price.
The implementation of our strategic initiatives is subject to the risks affecting our businesses generally, the risks associated
with identifying and implementing new strategies and the risks associated with acquisitions, investments or expansions.
Strategic initiatives may not successfully generate revenues or improve operating profit and, if they do, it may take longer
or cost more than anticipated. In addition, there is no assurance that the implementation or integration of any strategic
initiative, acquisition or expansion will be successful.
Unexpected Costs or Liabilities Related to Acquisitions and Dispositions
From time to time, we may make acquisitions or sell certain investments, subsidiaries, real property and other assets and
these transactions may affect our costs, revenues, profitability and financial position. Transaction agreements may provide
for certain post-closing adjustments and indemnities or the assumption of certain liabilities and we may be subject to
unexpected costs or liabilities in connection with such transactions. For example, we may have, or may be required to
provide representations, warranties and/or indemnities to third party purchasers which may expose us to costs or liabilities
for breaches of representations and warranties or indemnity claims including as a result of unexpected or unknown changes.
Investments in Other Businesses
We hold investments in businesses that we do not hold a controlling interest in and/or in which we do not exercise control
over the management, strategic direction or daily operations.
Labour Disruptions
We have a number of collective agreements at our 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 our business.
The Toronto Star has approximately 210 staff at One Yonge Street covered by a collective agreement which expires December
31, 2018.
Sing Tao has two collective agreements covering approximately 60 employees that expires in December 2018. Metro’s
Toronto operations have a collective agreement covering approximately 110 employees that will expire in March 2018.
Metroland Media Group has a total of 20 collective agreements covering approximately 600 employees. There are ten
collective agreements covering approximately 205 employees within the community newspapers. Negotiations have begun
for three agreements covering approximately 35 employees which expired in November 2016 and for two agreements
covering approximately 115 employees which expired in December 2016. Three agreements covering approximately 35
TORSTAR CORPORATION 2016 ANNUAL REPORT 45
TORSTAR – Management's Discussion and Analysis
employees will expire in December 2017 and two agreements covering approximately 20 employees will expire in August
2018.
At the Metroland Media Group daily newspapers, there are nine agreements covering approximately 395 employees. One
agreement covering approximately 65 employees at the Hamilton Spectator and four agreements covering approximately
85 employees at the Waterloo Region Record will expire in December 2017. Two agreements covering approximately 155
employees at the Hamilton Spectator will expire at the end of December 2018. Two agreements covering approximately
90 employees at the Hamilton Spectator will expire at the end of May 2019.
Reliance on Printing Operations
Our newspaper operations place considerable reliance on the functioning of printing operations for the printing of our various
publications. We transitioned printing of the Toronto Star in 2016 to Transcontinental following the closure of the Toronto
Star's Vaughan Printing Facility. In the event that any of our print facilities or third party contracted print facilities experience
a shutdown or disruption, we and/or the third party printer will attempt to mitigate potential damage by shifting the printing
to our remaining facilities or outsourcing such work to a third party commercial printer. However, given our reliance on such
facilities, such a shutdown or disruption could result in being unable to print or distribute some publications, and consequently
could have an adverse effect. See also the risks and uncertainties described above related to “Dependence on Third-Party
Suppliers and Service Providers”.
Newsprint Costs
Newsprint is the single largest raw material expense for our newspaper operations and represents approximately 12% of
total operating costs for 2016. Newsprint is priced as a commodity with the price varying widely from time to time.
We could face a risk in supply of newsprint and/or increased prices as a result of a reduction in the number of suppliers
(due to financial instability, restructuring or consolidation) or as a result of mill closures and/or changes in grades and types
of newsprint supplied. Volatility in the price of newsprint may also be caused by other factors influencing supplier profitability
including increased raw material and energy costs. We primarily source newsprint from three main suppliers. For 2017,
we have fixed the cost of newsprint with two of our suppliers and have negotiated a pricing band with our third supplier.
Newsprint prices are currently expected to be somewhat higher than what we experienced in 2016. There can be no
assurance that we will be able to extend these arrangements in future years or that we will not be exposed in the future to
volatile or increased newsprint costs which could have an adverse effect on our financial performance.
Litigation
We are involved in various legal actions, which arise in the ordinary course of business. These actions include the litigation
as described in Note 17 to our 2016 Consolidated Financial Statements and under the heading “Legal Proceedings” in our
most recent Annual Information Form. In particular, given the nature of our businesses, we have had, and may have,
litigation claims filed which are related to the publication of our editorial and other content, copyright or trademark infringement,
privacy, electronic communications and anti-spam, personal injury, product liability, breach of contract, misleading
advertising, unfair competition or other legal claims. We may also be exposed to potential liability in connection with the
sale and promotion of products through the product business that was previously operated by Metroland Media Group
(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 we maintain 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 nor have a negative impact on our results.
We could incur significant costs in investigating and defending such claims, even if ultimately found not to be liable.
Government Regulations
General
Our businesses are subject to a variety of laws and regulations, including laws applicable generally to business and
environmental, privacy, anti-spam, communications and e-commerce laws. We 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
our businesses. If we are required to alter our business practices as a result of any laws and regulations, revenue could
decrease, costs could increase and/or certain of our businesses could otherwise be harmed. In addition, the costs and
expenses associated with defending any actions related to such additional laws and regulations, the diversion of
TORSTAR CORPORATION 2016 ANNUAL REPORT 46
TORSTAR – Management's Discussion and Analysis
management’s attention and resources and any payments of related penalties, judgements or settlements could adversely
impact certain of our businesses.
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. Legislation and regulations, including changes to
the manner in which such legislation and regulations are interpreted and enforced by regulators and courts in Canada and
other jurisdictions, may impose limits on the collection and use of certain kinds of information, including without limitation
online and mobile analytics, profiling data, geo-location data and data collected in the course of online behavioural advertising,
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 communications and computer programs, invasion of privacy, privacy breaches and breach notification, cyber-
crime and access could adversely impact our businesses.
In connection with many of our businesses, we routinely obtain personal and confidential information relating to our customers
and users of our digital platforms or services, which may include potentially sensitive personal information. Our practices
involving collection, use, disclosure and retention of personal information continue to evolve in light of changes in information
technology and analytics technology and services. The potential misuse or inadvertent or unauthorized dissemination of
such information could violate applicable laws, cause damage to our relationships with our customers or others, cause
damage to our brands and reputation, impair our ability to attract and retain our audiences, or result in legal or regulatory
actions. See also the risks and uncertainties described above related to “Reliance on Technology and Information Systems
and Risk of Security Breaches”.
Environmental and Health and Safety
We are subject to a variety of environmental, health and safety 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 and employee health and safety. Environmental, health and safety laws and regulations
have become increasingly stringent, and such laws and regulations are expected to continue to change. While we have
an environmental policy, an environmental committee and health and safety policies and committees in place to assist in
monitoring compliance with applicable legislation, there can be no assurance that all applicable liabilities have been identified
or that additional expenditures will not be required to meet current or future legislation. Compliance with existing and new
environmental, health and safety laws and regulations may subject us to unexpected costs and a failure to comply with
present or future laws or regulations could result in fines, civil or criminal sanctions, third-party claims or other costs, including
costs or expenses required to modify existing business processes.
Foreign Exchange Fluctuations and Foreign Operations
Our investment in VerticalScope is denominated in U.S. dollars, VerticalScope’s functional currency. To offset the exposure
to Torstar’s U.S. dollar investment in VerticalScope, we have entered into forward foreign exchange collar contracts to sell
U.S. dollars. As a result, our cash flows and operating results may be affected by changes in the value of the Canadian
dollar relative to the U.S. dollar (See additional information on foreign exchange risks in Section 7 of this MD&A and in Note
15 to our 2016 Consolidated Financial Statements). In addition, predominantly all of VerticalScope’s revenues (approximately
5% of Torstar’s 2016 segmented operating revenues) are earned in U.S. dollars. As a result, Torstar’s share of VerticalScope’s
revenues and operating earnings are affected by changes in the value of the Canadian dollar relative to the U.S. dollar.
In addition, exclusive of our interest in VerticalScope, certain of our revenues, expenses and monetary assets and liabilities
are denominated in currencies other than the Canadian dollar, largely the U.S. dollar. To the extent that the value of the
Canadian dollar changes relative to the applicable foreign currencies, this will result in a foreign currency gain or loss
reflected in our earnings.
Over the past few years, the Canadian currency has become increasingly volatile and may retain the same or higher levels
of volatility in the coming years. To the extent that this continues, such volatility may be reflected in our operating results in
the form of additional costs and reduced revenues.
Availability of Insurance
We have insurance, including media liability, property and casualty and directors’ and officers’ liability insurance, in place
to address certain material insurable risks. Such insurance is subject to certain coverage limits, exclusions and deductibles
that we believe are reasonable given the cost of procuring insurance. There is no assurance that such insurance will continue
TORSTAR CORPORATION 2016 ANNUAL REPORT 47
TORSTAR – Management's Discussion and Analysis
to be available on an economically feasible basis, that all events that could give rise to a loss or liability are insurable or
insured, that amounts owing from insurers will be collected or that the insurance coverage will be sufficient to cover every
material loss or claim that may occur involving our operations or assets.
Dependence on Key Personnel
We are dependent to a large extent upon the continued services of our senior management team and other key employees
such as editorial, digital, sales and technical personnel, and including key employees of companies we invest in such as
VerticalScope. There is intense competition for qualified managers and skilled employees and our failure to recruit, train
and retain such employees could have an adverse effect on our business, financial condition or operating results.
Intellectual Property Rights
We place considerable importance on the protection of our intellectual property rights. Our businesses generate a significant
volume of content every day, including text, photographs, images, graphics and interactive content such as third-party posts
and links. On occasion, third parties may infringe upon our rights and changes and advancements in technology and the
wide dissemination of content have made the enforcement of intellectual property rights more challenging. In addition, third
parties may contest our intellectual property rights and there is a risk that some of the content we generate may be defamatory
or infringing, and that content generated by users of our platforms and services may be defamatory or infringing. There
can be no assurance that our actions will be adequate to prevent the infringement of our intellectual property rights, or
protect us against claims by third parties. If third parties were to contest the validity or scope of our intellectual property
rights or to allege violation of their rights, such challenges could result in the limitation or loss of intellectual property rights
and other damages and regardless of their validity, such claims could cause us to incur significant costs in investigating
and defending such claims and have a negative impact on our results. See also the risks and uncertainties described above
related to “Litigation”.
Credit Risk
Credit risk is the risk of our financial loss if a customer or counterparty to a financial asset fails to meet its contractual
obligations. In the normal course of business, we are exposed to credit risk for accounts receivable from our customers
and counterparties holding cash and cash equivalents, restricted cash and derivatives.
While we apply a prudent approach to the granting of credit to customers, the collectability of accounts receivable could
deteriorate to a greater extent than provided for in our 2016 Consolidated Financial Statements. Accounts receivable are
carried at net realizable value and the allowance for doubtful accounts has been determined based on several factors,
including the aging of accounts receivable, evaluation of significant individual credit risk accounts and historical experience.
If such collectability estimates prove inaccurate, adverse adjustments to future operating results could occur and could be
material.
Our cash and cash equivalents, restricted cash and derivative instruments are held with Canadian chartered banks. While
we regularly review the financial condition of these counterparties, a failure of a counterparty could adversely affect our
consolidated financial condition.
Availability of Capital and Restrictions Imposed by Credit Facilities
If internal funds are not available from our operations, we may be required to raise additional financing through public or
private equity or debt financings, or other arrangements with corporate sources or other sources of financing to fund
operations and meet our financial commitments. However, there is no assurance that additional funding, if required, will be
available to us in amounts or on terms acceptable to us, if at all.
We may from time to time, enter into agreements for additional financing, including agreements in respect of credit facilities.
Such agreements may impose a number of restrictions on us including but not limited to restrictions on certain distributions
as well as compliance with certain financial covenants and compliance with other affirmative and negative covenants.
In addition, the agreement governing certain indebtedness of VerticalScope imposes a number of restrictions and includes
restrictions on certain distributions. The agreement also requires compliance with certain financial covenants and compliance
with other affirmative and negative covenants.
These restrictions may limit flexibility in planning for and reacting to business or industry changes and strategic objectives
and may make us more vulnerable to adverse economic and industry conditions.
TORSTAR CORPORATION 2016 ANNUAL REPORT 48
TORSTAR – Management's Discussion and Analysis
Income Tax and Other Taxes
We collect, pay and accrue income and other taxes. We have also recorded significant amounts of deferred income tax
liabilities and current income tax expense, and calculated these amounts based on substantively enacted income tax rates
in effect at the relevant time. A legislative change in these rates could have a material impact on the amounts recorded and
payable in the future.
We have also recorded the benefit of income and other tax positions based on estimates, using accounting principles that
recognize the benefit of income tax positions when it is more likely than not that the ultimate determination of the tax treatment
of a position will result in the related benefit being realized. The assessment of the likelihood and amount of income tax
benefits, as well as the timing of realization of such amounts, can materially affect the determination of net income or cash
flows.
While we believe that we have paid and provided for adequate amounts of tax, significant judgement is required in interpreting
tax legislation and regulations in relation to our businesses. Our tax filings are subject to audit by the relevant government
revenue authorities and the results of the government audit could materially change the amount of our actual income tax
expense, income taxes payable or receivable, other taxes payable or receivable and deferred income tax assets or liabilities
and could, in certain circumstances, result in an assessment of interest and penalties.
Dividends
Decisions on the declaration and payment of dividends are made on a quarterly basis by our Board of Directors based on
our overall financial performance and cash flow outlook. There is no guarantee that dividends will be declared or that we
will continue to make dividend payments at the current level.
Impairment
Economic, market, legal, regulatory, competitive, customer, contractual and other factors may affect the value of our long-
lived assets, intangible assets, investments and goodwill. If any of these factors impair the value of these assets, IFRS
requires that we reduce their carrying value and recognize an impairment charge. This would reduce our reported assets
and earnings in the year the impairment charge is recognized.
Holding Company Structure
We have no material sources of income or assets, other than the interests that we hold in our subsidiaries, joint arrangements
and other entities. As a holding company, our ability to meet our financial obligations is dependent primarily upon the receipt
of cash dividends, interest and principal payments on intercompany advances, and other payments and distributions from
our subsidiaries, joint arrangements and other entities in which we have an interest together with proceeds we raise through
the issuance of equity and the incurrence of debt, and from proceeds received on the sale of assets. The payment of
dividends and other amounts by our subsidiaries, joint arrangements and other entities in which we have an interest may
be subject to statutory or contractual restrictions, are contingent upon the earnings of those entities and are subject to
various business and other considerations.
Control of Torstar by the Voting Trust
Almost 99% of our 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 all matters
submitted to a vote of shareholders of Torstar.
TORSTAR CORPORATION 2016 ANNUAL REPORT 49
N OT E S
TORSTAR CORPORATION 2016 ANNUAL REPORT 50
2016_TORSTAR AR.indd 50
2017-03-07 3:47 PM
TORSTAR – Consolidated Financial Statements
Consolidated Financial Statements – Contents
Management’s Report on Responsibility for Financial Reporting
Independent Auditor’s Report
Consolidated Statement of Financial Position
Consolidated Statement of Loss
Consolidated Statement of Comprehensive Loss
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the 2016 Consolidated Financial Statements:
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
Corporate Information
Significant Accounting Policies
Segmented Information
Investments In Subsidiaries
Restricted Cash
Inventories
Investments In Joint Ventures
Investments In Associated Businesses
Property, Plant And Equipment
Intangible Assets
Goodwill
Impairment Of Assets
Other Assets
Income Taxes
Financial Instruments
Capital Management
Provisions
Other Liabilities
Employee Benefits
Share Capital
Share-Based Compensation Plans
Accumulated Other Comprehensive Income
Other Income (Expense)
Discontinued Operations
Other Non-Cash Items Provided By (Used In) Operating Activities
Acquisitions And Portfolio Investments
Commitments And Contingencies
Related Party Transactions
TORSTAR CORPORATION 2016 ANNUAL REPORT 51
Page
52
53
54
55
56
57
58
59
59
74
76
77
77
77
78
81
82
83
83
85
85
88
91
92
93
93
99
101
103
104
104
105
105
106
107
TORSTAR – Consolidated Financial Statements
MANAGEMENT’S REPORT ON RESPONSIBILITY FOR FINANCIAL REPORTING
Management is responsible for preparation of the consolidated financial statements, notes hereto and other financial
information contained in this annual report. The consolidated financial statements have been prepared in conformity
with International Financial Reporting Standards using the best estimates and judgements of management, where
appropriate. Information presented elsewhere in this annual report is consistent with that in the consolidated financial
statements.
Management is also responsible for maintaining a system of internal control designed to provide reasonable
assurance that assets are safeguarded and that accounting systems provide timely, accurate and reliable
information.
The Board of Directors is responsible for ensuring that management fulfills its responsibilities for financial reporting
and internal control. The Board is assisted in exercising its responsibilities by the Audit Committee of the Board.
The Committee meets quarterly with management and the internal and external auditors, and separately with the
internal and external auditors, to satisfy itself that management’s responsibilities are properly discharged, and to
discuss accounting and auditing matters. The Committee reviews the consolidated financial statements and
recommends approval of the consolidated financial statements to the Board.
The internal and external auditors have full and unrestricted access to the Audit Committee to discuss their audits
and their related findings as to the integrity of the financial reporting process.
David P. Holland
President and Chief Executive Officer
February 28, 2017
Lorenzo DeMarchi
Executive Vice-President and Chief Financial Officer
TORSTAR CORPORATION 2016 ANNUAL REPORT 52
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 statement of financial position as at December 31, 2016 and 2015, and the consolidated statements of
loss, comprehensive loss, changes in equity and cash flows for the years then ended, and a summary of significant
accounting policies and other explanatory information.
Management’s responsibility for the consolidated financial statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in
accordance with 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, 2016 and 2015 and its financial performance and its cash flows for the years
then ended in accordance with International Financial Reporting Standards.
Toronto, Canada
February 28, 2017
TORSTAR CORPORATION 2016 ANNUAL REPORT 53
TORSTAR – Consolidated Financial Statements
Torstar Corporation
Consolidated Statement of Financial Position
(Thousands of Canadian Dollars)
As at
December 31, 2016
As at
December 31, 2015
Assets
Current:
Cash and cash equivalents
Restricted cash (note 5)
Receivables (note 15)
Inventories (note 6)
Prepaid expenses
Prepaid and recoverable income taxes
Total current assets
Investments in joint ventures (note 7)
Investments in associated businesses (note 8)
Property, plant and equipment (note 9)
Intangible assets (note 10)
Goodwill (note 11)
Other assets (note 13)
Employee benefits (note 19)
Deferred income tax assets (note 14)
Total assets
Liabilities and Equity
Current:
Accounts payable and accrued liabilities (note 15)
Derivative financial instruments (note 15)
Provisions (note 17)
Income tax payable
Total current liabilities
Provisions (note 17)
Other liabilities (note 18)
Employee benefits (note 19)
Deferred income tax liabilities (note 14)
Equity:
Share capital (note 20)
Contributed surplus
Accumulated deficit
Accumulated other comprehensive income (note 22)
Total equity attributable to equity shareholders
Minority interests
Total equity
Total liabilities and equity
(see accompanying notes)
ON BEHALF OF THE BOARD
$75,374
11,847
116,487
4,829
4,467
9,271
222,275
27,463
157,897
61,969
55,945
8,133
12,414
7,073
11,322
$564,491
$101,133
472
28,473
7,212
137,290
11,104
7,616
77,407
4,904
402,814
20,797
(102,599)
5,176
326,188
(18)
326,170
$564,491
$35,141
37,935
144,997
6,231
5,944
5,780
236,028
32,861
202,203
117,793
67,821
8,133
9,422
6,922
15,233
$696,416
$122,296
6,543
29,021
5,943
163,803
13,228
9,872
87,461
2,315
402,500
19,858
(7,560)
3,121
417,919
1,818
419,737
$696,416
John Honderich
Director
Paul Weiss
Director
TORSTAR CORPORATION 2016 ANNUAL REPORT 54
TORSTAR – Consolidated Financial Statements
Torstar Corporation
Consolidated Statement of Loss
(Thousands of Canadian Dollars except per share amounts)
Operating revenue
Salaries and benefits
Other operating costs
Amortization and depreciation (notes 9 and 10)
Restructuring and other charges (note 17)
Impairment of assets (note 12)
Operating loss
Interest and financing costs (note 15)
Foreign exchange
Loss from joint ventures (note 7)
Loss from associated businesses (note 8)
Other income (expense) (note 23)
Income and other taxes recovery (note 14)
Net loss from continuing operations
Income (loss) from discontinued operations (note 24)
Net loss
Attributable to:
Equity shareholders
Minority interests
Net Loss attributable to equity shareholders per Class A (voting) and Class
B (non-voting) share (note 20(c)):
Basic and Diluted:
From continuing operations
From discontinued operations
(see accompanying notes)
Year ended December 31
2016
2015
$685,099
$786,631
(299,315)
(356,192)
(44,020)
(45,823)
(800)
(61,051)
(3,080)
298
(5,532)
(34,919)
24,348
(79,936)
3,900
(76,036)
1,200
(341,824)
(393,395)
(30,177)
(30,223)
(345,081)
(354,069)
(2,046)
(1,022)
(14,170)
(28,993)
(1,837)
(402,137)
2,300
(399,837)
(5,000)
($74,836)
($404,837)
($74,750)
($403,966)
($86)
($871)
($0.94)
$0.01
($0.93)
($4.96)
($0.06)
($5.02)
TORSTAR CORPORATION 2016 ANNUAL REPORT 55
TORSTAR – Consolidated Financial Statements
Torstar Corporation
Consolidated Statement of Comprehensive Loss
(Thousands of Canadian Dollars)
Net loss
Other comprehensive income (loss) (“OCI”) that are or may be reclassified
subsequently to net income (loss):
Year ended December 31
2016
2015
($74,836)
($404,837)
Unrealized foreign currency translation adjustment (“CTA”) (no income tax effect)
27
(19)
Unrealized foreign currency translation adjustment for associated businesses (no
income tax effect) (note 8)
(5,459)
10,780
Net movement on available-for-sale financial assets
Income tax effect
Unrealized gain (loss) on hedge of net investment
Income tax effect
OCI that will not be reclassified subsequently to net income (loss):
Actuarial loss on employee benefits (note 19)
Income tax effect
Reduction in carrying amount of deferred income tax assets (note 14)
Actuarial loss on employee benefits for associated businesses (no income tax
effect) (note 8)
Total other comprehensive loss, net of tax
Comprehensive loss, net of tax
Attributable to:
Equity shareholders
Minority interests
(see accompanying notes)
2,910
(400)
5,777
(800)
2,055
(1,734)
(1,726)
(3,460)
($1,405)
346
(9,307)
1,300
3,100
(3,417)
900
(6,000)
(588)
(9,105)
($6,005)
($76,241)
($410,842)
($76,155)
($86)
($409,971)
($871)
TORSTAR CORPORATION 2016 ANNUAL REPORT 56
TORSTAR – Consolidated Financial Statements
Torstar Corporation
Consolidated Statement of Changes in Equity
(Thousands of Canadian Dollars)
Share
capital
Contributed
surplus
Retained
earnings
(accumulated
deficit)
Accumulated
other
comprehensive
income
(“AOCI”)
Total
attributable to
equity
shareholders
Minority
interests Total equity
At December 31, 2014
$400,577
$18,708
$447,725
$21
$867,031
$2,689
$869,720
Net loss for the year
Other comprehensive
income (loss)
Total comprehensive
income (loss)
Dividends (note 20)
Exercise of share options
(note 20)
Issue of share capital –
other (note 20)
Share-based
compensation expense
682
473
768
(79)
1,229
(403,966)
(403,966)
(871)
(404,837)
(9,105)
3,100
(6,005)
(6,005)
(413,071)
3,100
(409,971)
(871)
(410,842)
(42,214)
(41,532)
(41,532)
394
768
1,229
394
768
1,229
At December 31, 2015
$402,500
$19,858
($7,560)
$3,121
$417,919
$1,818
$419,737
Net loss for the year
Other comprehensive
income (loss)
Total comprehensive
income (loss)
Dividends (note 20)
Issue of share capital –
other (note 20)
Share of associate paid in
capital (note 8)
Share-based
compensation expense
Distribution
168
146
(74,750)
(74,750)
(86)
(74,836)
(3,460)
2,055
(1,405)
(1,405)
(78,210)
2,055
(76,155)
(86)
(76,241)
(14,514)
(14,346)
(14,346)
(2,315)
939
146
(2,315)
939
146
(2,315)
939
(1,750)
(1,750)
At December 31, 2016
$402,814
$20,797
($102,599)
$5,176
$326,188
($18)
$326,170
(see accompanying notes)
TORSTAR CORPORATION 2016 ANNUAL REPORT 57
TORSTAR – Consolidated Financial Statements
Torstar Corporation
Consolidated Statement of Cash Flows
(Thousands of Canadian Dollars)
Year ended December 31
2015
2016
Cash was provided by (used in)
Operating activities
Investing activities
Financing activities
Increase (decrease) in cash
Cash, beginning of year
Cash, end of year
Operating activities:
Net loss from continuing operations
Amortization and depreciation (notes 9 and 10)
Deferred income taxes (note 14)
Loss from joint ventures (note 7)
Distributions from joint ventures (note 7)
Loss from associated businesses (note 8)
Dividend from associated businesses (note 8)
Impairment of assets (note 12)
Non-cash employee benefit expense (note 19)
Employee benefits funding (note 19)
Gain on sale of assets (note 23)
Other (note 25)
Decrease in restricted cash (note 5)
Decrease in non-cash working capital
Cash provided by (used in) operating activities
Investing activities:
Additions to property, plant and equipment and intangible assets
Investment in associated businesses (note 8)
Investment in joint ventures (note 7)
Return of capital from associated business (note 8)
Acquisitions and portfolio investments (note 26)
Receipt of escrowed cash from the sale of Harlequin (note 5)
Proceeds from sale of assets (note 23)
Other
Cash provided by (used in) investing activities
Financing activities:
Dividends paid
Exercise of share options
Other
Cash used in financing activities
Cash represented by:
Cash
Cash equivalents – short-term deposits
Net cash, end of period
(see accompanying notes)
($10,599)
65,337
(14,505)
40,233
35,141
$75,374
($76,036)
44,020
4,500
5,532
159
34,919
387
800
18,506
(30,445)
(24,338)
(2,926)
(24,922)
3,338
10,985
($10,599)
($17,670)
(500)
(293)
(373)
22,750
61,037
386
$65,337
($14,346)
(159)
($14,505)
$25,237
50,137
$75,374
$38,050
(213,513)
(40,735)
(216,198)
251,339
$35,141
($399,837)
30,177
14,170
7,500
28,993
193
345,081
21,459
(20,409)
(2,249)
25,078
965
12,007
$38,050
($30,602)
(203,587)
22,094
(2,106)
411
277
($213,513)
($41,532)
394
403
($40,735)
$34,738
403
$35,141
TORSTAR CORPORATION 2016 ANNUAL REPORT 58
TORSTAR – Consolidated Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2016 and 2015
(Tabular amounts in thousands of Canadian dollars except per share amounts)
1. CORPORATE INFORMATION
Torstar Corporation (the "Company") 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 3.
2. SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of preparation
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,
2016. These consolidated financial statements have been authorized for issue in accordance with a resolution
from the Board of Directors on February 28, 2017.
Comparative figures for previous periods have been restated to conform to the current year presentation.
(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 over which it has control. The Company controls an investee when the Company is exposed to,
or has rights to, variable returns from its relationship with the investee and has the ability to affect those returns
through its power over the investee. The Company considers all relevant facts and circumstances in assessing
whether or not the Company’s voting rights in an investee are sufficient to give it power. These facts and
circumstances include: the size of the Company’s holding of voting rights relative to the size and dispersion of
holdings of the other vote holders; potential voting rights held by the Company, other vote holders or other
parties; and rights arising from other contractual arrangements. The financial statements of subsidiaries are
included in the consolidated financial statements from the date control commences and are de-consolidated
on the date when control ceases.
Profit or loss and each component of OCI are attributed to the equity holders of the Company and to the minority
interests, even if this results in the minority interests having a deficit balance.
Intra-group balances and transactions are eliminated on consolidation. Unrealized gains arising from
transactions with equity-accounted investees are eliminated against the investment to the extent of the
Company’s interest in the investee. Unrealized losses are eliminated in the same way as unrealized gains, but
only to the extent that there is no evidence of impairment.
(d) Investments in joint ventures and associated businesses
A joint venture is a type of joint arrangement in which the parties that have joint control of the arrangement have
rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an
arrangement, which exists only when decisions about the relevant activities require unanimous consent of the
parties sharing control.
TORSTAR CORPORATION 2016 ANNUAL REPORT 59
TORSTAR – Consolidated Financial Statements
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.
The considerations made in determining joint control or significant influence are similar to those necessary to
determine control over subsidiaries.
Investments in joint ventures and associates are accounted for using the equity method, whereby the investment
is carried in the consolidated statement of financial position at cost (which includes acquisition-related fees)
plus post-acquisition changes in the Company’s share of the net assets of the investment. Goodwill relating
to the joint venture or associate is included in the carrying amount of the investment and is neither amortized
nor individually tested for impairment. When the Company’s share of losses of a joint venture or associate
exceeds the Company’s carrying value of the investment, the Company discontinues recognizing its share of
further losses. Additional losses are recognized only to the extent that the Company has incurred legal or
constructive obligations or made payments on behalf of the joint venture or associate.
The consolidated statement of income or loss reflects the Company’s share of the results of operations of the
joint venture or associate. Where there has been a change recognized directly in the OCI of the joint venture
or associate, the Company recognizes its share of any changes and discloses this, when applicable, in OCI.
When there has been a change recognized directly in the equity of the joint venture or associate, the Company
recognizes, when applicable, its share of any changes in the statement of changes in equity.
The financial statements of the joint venture or associate are prepared for the same reporting period as the
Company except when the joint venture or associate does not have coterminous year-end and quarter-ends
with the Company, in which case the most recent period-end available in a quarter is used. When necessary,
adjustments are made to bring the accounting policies of the joint venture or associate in line with those of the
Company.
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 joint venture or associate is impaired and consequently
whether it is necessary to recognize an impairment loss with respect to the Company’s investment. If this is
the case, the Company calculates the amount of impairment as the difference between the recoverable amount
of the investment and its carrying value and recognizes the impairment in the consolidated statement of income
or loss.
Upon loss of significant influence over an associate, the Company measures and recognizes any retained
investment at its fair value. Upon loss of joint control over a joint venture, the Company considers whether it
has significant influence, in which case the retained investment is accounted for as an associate using the
equity method, otherwise the Company measures and recognizes any retained investment as a portfolio
investment at its fair value. Any difference between the carrying amount of the investment and the fair value
of the retained investment or proceeds from disposal of the investment is recognized in profit or loss.
(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.
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 or loss, except for qualifying cash flow and
net investment hedges for which these exchange differences are deferred in accumulated other comprehensive
income or loss (“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.
TORSTAR CORPORATION 2016 ANNUAL REPORT 60
TORSTAR – Consolidated Financial Statements
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 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 in 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 or loss.
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 are classified as current
assets in the consolidated statement of financial position and include current receivables, cash and cash
equivalents. 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 reduced
by estimated bad debt provisions which are determined by reference to past experience and expectations.
Cash and cash equivalents consist of cash in bank and highly liquid short-term investments.
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 or loss.
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 or loss.
TORSTAR CORPORATION 2016 ANNUAL REPORT 61
TORSTAR – Consolidated Financial Statements
Other financial liabilities
Other financial liabilities are measured at amortized cost using the effective interest rate method. Other financial
liabilities include accounts payable and accrued liabilities and 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 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 or loss 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.
Collar arrangements and foreign exchange contracts to sell U.S. dollars have been designated as hedges
against the foreign currency exposure on the net investment in VerticalScope. Gains and losses on these
instruments, to the extent of hedge effectiveness, are transferred to OCI to offset the gains and losses on
translation of the net investment. The portion of the hedge that is deemed ineffective is recorded in the
consolidated statement of income or loss.
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 or loss 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
TORSTAR CORPORATION 2016 ANNUAL REPORT 62
TORSTAR – Consolidated Financial Statements
in the consolidated statement of income or loss. 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 or loss.
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 or loss 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. 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 or loss.
Net investment hedges
These are hedges of the Company’s net investment in its foreign operations, currently VerticalScope. 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 or loss 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 or loss.
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 or loss.
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 or loss.
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.
TORSTAR CORPORATION 2016 ANNUAL REPORT 63
TORSTAR – Consolidated Financial Statements
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 derivative instruments to manage its exposure
associated with changes in the fair value of its DSU plans and the cost of its RSU plan, and foreign exchange
forward contracts and collar arrangements to hedge the foreign currency exposure on its net investment in
VerticalScope. 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 the foreign exchange forward contracts and collar arrangements 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 fair value of portfolio investments that have quoted market prices is classified within Level 1 except when
the securities are not actively traded and thus classified within Level 2. The fair value of portfolio investments
that do not have quoted market prices is classified within Level 3 and determined when possible using a valuation
technique that maximizes the use of observable market inputs and unobservable market inputs such as earnings
multiples and cash flow projections.
(g) Inventories
Inventories are valued at the lower of cost and net realizable value. 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. Raw materials are valued at purchase cost on a first in, first out basis. The cost of finished
goods and work in progress includes raw materials, translation and printing and production costs. 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) Property, plant and equipment
Property, plant and equipment are stated at cost or at fair value as deemed cost, net of accumulated depreciation
and any accumulated impairment losses. 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 or loss as incurred.
Depreciation is calculated using the straight-line basis over the estimated useful life of the asset as follows:
• Buildings
Structural
Components
25 – 60 years
10 – 35 years
• Machinery and Equipment
Machinery and Equipment
Furniture and Fixtures
3 – 40 years
3 – 10 years
TORSTAR CORPORATION 2016 ANNUAL REPORT 64
TORSTAR – Consolidated Financial Statements
• Leasehold Improvements
assured
Term of the lease plus renewal periods, when renewal is reasonably
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.
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 or loss when the asset is
derecognized.
(i)
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
• Trademarks
• Domain names
• Other
3 – 10 years
2 – 10 years
5 – 10 years
5 – 10 years
5 – 10 years
Intangible assets with indefinite useful lives are not amortized. These included newspaper mastheads and
trade and certain 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.
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 or loss 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 or loss.
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
TORSTAR CORPORATION 2016 ANNUAL REPORT 65
TORSTAR – Consolidated Financial Statements
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
loss 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 business 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 or
loss. After initial recognition, goodwill is measured at cost less any accumulated impairment losses.
(l) Non-current assets held for sale and discontinued operations
The Company classifies non-current assets and disposal groups as held for sale if their carrying amounts will
be recovered principally through a sale rather than through continuing use. Such non-current assets and
disposal groups classified as held for sale are measured at the lower of their carrying amount and fair value
less costs to sell.
The criteria for held for sale classification is regarded as met only when the sale is highly probable and the
asset or disposal group is available for immediate sale in its present condition. Remaining actions required to
complete the sale should indicate that it is unlikely that significant changes to the sale will be made or that the
sale will be withdrawn. Additionally, the sale should be expected within one year from the date of the classification.
Property, plant and equipment and intangible assets are not depreciated or amortized once classified as held for
sale. Assets and liabilities classified as held for sale are presented separately as current items in the consolidated
statement of financial position.
A disposal group qualifies as a discontinued operation if it is:
• A component of the Company that is a cash generating unit (“CGU”) or a group of CGUs;
• A major line of business or major geographical area; or
• Classified as held for sale or already disposed in such a way.
Discontinued operations are excluded from the results of continuing operations and are presented as a single
amount, net of tax, as income or loss from discontinued operations in the consolidated statement of income or
loss.
(m) Impairment of non-financial assets
Property, plant and equipment, intangible assets and goodwill are tested for impairment when events or changes
in circumstances indicate the carrying value may not be recoverable. Additionally, intangible assets with an
indefinite useful life and goodwill are subject to an annual impairment test. For the purpose of measuring
recoverable amounts, assets are grouped at the lowest levels for which there are separately identifiable cash
inflows (a CGU). The test for impairment for property, plant and equipment, intangible assets 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 ("FVLCS"), and value in use ("VIU"). An impairment loss is recognized
for the amount by which the asset’s carrying value exceeds its recoverable amount. In its assessment of the
recoverable amounts of the group of CGUs at both December 31, 2016 and December 31, 2015, the Company
considered both the VIU and FVLCS approaches.
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. For internal management purposes, goodwill is monitored
at the operating segment level which represents a group of CGUs. Goodwill is not amortized.
The Company evaluates impairment losses, other than goodwill impairment, for potential reversals when events
or circumstances warrant such consideration.
The VIU 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 VIU calculations are:
TORSTAR CORPORATION 2016 ANNUAL REPORT 66
TORSTAR – Consolidated Financial Statements
• Earnings before interest, taxes, depreciation and amortization, restructuring and other charges, and
impairment of assets (“Adjusted 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.
• Adjusted 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 or group of CGUs operates. The projections
are based on the most recent financial budgets, approved by the Company’s Board of Directors, three year
strategic plans and management forecasts beyond that period.
• In calculating the VIU, the Company uses a discount rate in order to establish values for each CGU or group
of CGUs. The discount rate applied to each calculation is a pre-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.
The FVLCS calculation uses projections for a one year period and a forward multiple. The key assumptions
in the fair value less cost to sell calculation are:
• Earnings before interest, taxes, depreciation and amortization, restructuring and other charges, and
impairment of assets (“Adjusted EBITDA”). The projections are based on the most recent financial budgets
approved by the Company’s Board of Directors.
• Forward multiples which are based on public market data including information from analysts covering the
Company as well as competitor data.
(n) Revenue recognition
The Company has a number of different revenue streams. Print and digital advertising revenue is primarily
generated through the provision of advertisements in print publications as well as on various digital platforms.
Revenue from circulation/subscribers is largely generated by home delivery subscriptions; single copy sales
at newsstands and vending machines; and the provision of digital format subscriptions. Distribution revenue
is primarily generated from the delivery of flyers to consumers on behalf of advertisers. Other revenues are
generated from the provision of commercial printing for external customers as well as the sale of various
products.
Print advertising and distribution revenue
Revenue related to print advertising and flyer distribution is recognized when a print advertisement or flyer is
included in the newspaper and the newspapers are delivered to the reader.
Digital advertising revenue
The Company has a number of digital advertising revenue streams. The majority of the Company’s digital
revenue is recognized when advertisements are placed on digital platforms and to a lesser extent when a user
clicks on an advertisement, on a per click basis.
Circulation/subscription revenue
In respect of revenue from circulation/subscribers related to print newspapers, the Company recognizes revenue
at the time of delivery of the newspaper to the customer/subscriber. Revenue from single copy sales is
recognized net of a provision for returns based on historical rates of returns. In the case of revenue from
subscribers, revenue is recognized proportionately over the term of the subscription.
TORSTAR CORPORATION 2016 ANNUAL REPORT 67
TORSTAR – Consolidated Financial Statements
Other revenue
Other revenue is recognized upon delivery to or at the time that goods are made available to the customer. For
example, when products are printed for external customers, revenue is recognized at the time that such materials
are made available to the customer. In the case of product sales, revenue is recognized per the terms of
delivery.
(o) 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 net asset or net 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. The service
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 salary increases, retirement ages of employees and expected health care costs.
• 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.
• Net interest is determined by multiplying the net defined benefit liability or asset by the discount rate used
to determine the defined benefit obligation (at the beginning of the year) and is included in Interest and
financing costs in the consolidated statement of income or loss.
• Past service costs are recognized immediately in the consolidated statement of income or loss.
• Current service costs, past service costs, special termination benefits, curtailment gains or losses and
administration costs are recognized in the consolidated statement of income or loss and are included in
Salaries and benefits or Restructuring and other charges, as applicable.
• 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. 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.
• 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 limited
to the extent to which the Company can reduce the future contributions to the plan.
Company contributions to defined contribution plans are expensed as incurred.
Termination benefits are expensed at the earlier of the time at which the Company can no longer withdraw the
offer of those benefits and the time at which the Company recognizes costs for a restructuring. Benefits which
are not expected to be settled wholly within twelve months from the end of the reporting period are discounted.
(p) 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.
TORSTAR CORPORATION 2016 ANNUAL REPORT 68
TORSTAR – Consolidated Financial Statements
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 is issued on the basis of the closing
market price per share of Class B non-voting shares of the Company on the Toronto Stock Exchange on the
date of issue. 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. With
effect from the 2015 fiscal year, subsequent RSU grants accrue dividend equivalents payable in additional units
in an amount equal to dividends paid on Class B non-voting shares of the Company. 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.
(q) Taxes
Tax expense comprises current and deferred tax. Tax expense is recognized in the consolidated statement of
income or loss, unless it relates to items recognized outside the consolidated statement of income or loss. Tax
expense relating to items recognized outside of the consolidated statement of income or loss is recognized in
correlation to the underlying transaction in either OCI or equity.
TORSTAR CORPORATION 2016 ANNUAL REPORT 69
TORSTAR – Consolidated Financial Statements
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 income tax
Deferred income 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 income 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 income 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 income 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 income 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.
(r) 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.
(s) 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.
TORSTAR CORPORATION 2016 ANNUAL REPORT 70
TORSTAR – Consolidated Financial Statements
The more significant estimates and assumptions made by management are described below:
Employee benefits
The valuation by independent actuaries uses management’s assumptions for rate of compensation increase,
trends in healthcare costs, employee turnover and expected mortality. However, the most significant assumption
is the discount rate which is used to determine the present value of the future cash flows that are expected to
be required to settle employee benefit obligations. The discount rate is based on the market yield on long-term
high-quality corporate bonds with maturities matching the estimated cash flows from the benefit plan at the time
of estimation. A lower discount rate would result in a higher employee benefit obligation. Further details about
the assumptions used are provided in Note 19.
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,
CGU or group of CGUs exceeds its recoverable amount, which is the higher of its FVLCS and its VIU. The
FVLCS calculation is based on available data from binding sales transactions in arm’s length transactions of
similar assets or observable market prices for similar transactions, adjusted for the specific facts and
circumstances, less incremental costs for disposing of the asset. The VIU calculation is based on a discounted
cash flow model. The key estimates and assumptions used in arriving at the FVLCS and VIU are outlined in
Note 2(m).
In calculating the recoverable amount, management is required to make several assumptions, including, but
not limited to, expected future revenues, expected future cash flows, forward multiples and discount rates.
Management's 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 is currently anticipated. Management has also made certain assumptions for the forward multiples,
discount and terminal growth rates to reflect possible variations in the cash flows, however, the risk premiums
expected by market participants, as reflected in forward multiples, 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 may have a significant impact on the fair
value of the investment, CGU or group of CGUs or intangible assets and the results of the related impairment
testing.
As at December 31, 2016, the carrying value of investments, intangible assets, property plant and equipment
and goodwill represented 33%, 10%, 11% and 1% respectively of total assets and each reporting segment had
investments and intangible assets with carrying values subject to these estimates. As at December 31, 2015,
the carrying value of investments, intangible assets, property, plant and equipment and goodwill represented
34%, 10%, 17% and 1% respectively of total assets. Additionally, as a result of rapid and significant shifts in
the print and digital advertising markets, expected future revenues and cash flows have changed significantly.
The Company has recorded impairment charges related to investments and intangible assets totalling $7.5
million in the year ended December 31, 2016 ($361.1 million of impairment charges related to goodwill, intangible
assets and investments in the year ended December 31, 2015). These charges impact net income or loss but
have no effect on cash flows.
More details are provided in Note 12.
Taxes
The Company is subject to income taxes in Canada, and the discontinued operations were also subject to
income taxes in 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 income 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
TORSTAR CORPORATION 2016 ANNUAL REPORT 71
TORSTAR – Consolidated Financial Statements
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 income 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 income tax assets with a potentially material
impact on the Company’s consolidated statement of financial position and consolidated statement of
comprehensive income or loss. The carrying amount of deferred income 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 income tax assets. Unrecognized deferred income 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 14.
Significant judgements made by management are described below:
Classification of investments as subsidiaries, joint ventures, associated businesses and portfolio investments.
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.
The Company has classified its investment in VerticalScope as an associated business (rather than being
consolidated subsidiary or classified as a joint venture) based on management’s judgement that the Company
does not have control but has significant influence, based on rights to board representation and other provisions
in the shareholders agreement. The Company has classified its investments in Black Press Ltd., Blue Ant
Media Inc. and up until July 5, 2016, Shop.ca Network Inc. as associated businesses based on management’s
judgement that the Company has significant influence despite holding less than 20%, based on rights to board
representation and other provisions in the respective shareholders’ agreements.
Classification of cash equivalents
Classification of cash equivalents requires judgement on whether the short-term investments are easily
convertible into cash. Short-term investments with maturities on acquisition of 90 days or less are presumed
to be cash equivalents due to the short holding period of the investment. The Company has classified its short-
term investments with original maturities on acquisition of over 90 days but less than 365 days as cash
equivalents based on management’s judgement that the short-term investments are liquid as the Company has
a contractual right to convert them into cash upon 30 days notice without loss of interest after the initial 30 days.
Determination of operating segments, reportable segments and CGUs
The Company has three reportable operating segments: Metroland Media Group ("MMG"), Star Media Group
("SMG") and Digital Ventures. “Corporate” is the provision of corporate services and administrative support.
The Company has aligned its operating segments such that digital businesses outside the traditional newspaper
operations are managed as one operating segment – Digital Ventures, which meets the quantitative threshold
criteria and accordingly has become a separate reportable segment.
The Company’s chief operating decision-maker (“CODM”) monitors the operating results of the operating
segments for the purpose of assessing performance. Segment performance is evaluated based on operating
TORSTAR CORPORATION 2016 ANNUAL REPORT 72
TORSTAR – Consolidated Financial Statements
profit which corresponds to operating profit as measured in the consolidated financial statements except that
it includes the proportionately consolidated share of joint venture operations. Decisions regarding resource
allocation are made at the reportable operating segment level.
Within the MMG operating segment, the Company has identified a number of CGUs including the daily
newspapers and their flyer distribution operations, the community newspapers and their flyer distribution and
printing operations as well as a number of separate digital CGUs. In addition, the Company has identified SMG
as one CGU which includes the Toronto Star and the Metro publications as well as a number of other smaller
digital platforms and publications. Within the Digital Ventures segment, the Company has identified eyeReturn
Marketing as one CGU.
(t) Changes in accounting policies
Policies adopted in 2016:
Several new amendments and interpretations applied for the first time in 2016. However, they had little or no
impact on the consolidated financial statements of the Company.
The Company has not early adopted any other standard, interpretation or amendment that has been issued
but is not yet effective.
Future changes in accounting standards:
There are several new standards and amendments to accounting standards which will be effective for the
Company subsequent to 2017, however, only the following new standards are expected to have a material
impact on the interim or annual consolidated financial statements or disclosures of the Company:
IFRS 15 Revenue from Contracts with Customers
In May 2014, the IASB issued IFRS 15 which specifies how and when an entity will recognize revenue as well
as requiring such entities to provide users of financial statements with more informative, relevant disclosures.
The standard provides a single, principles based five-step model to be applied to all contracts with customers.
The Company does not anticipate early adoption and plans to adopt the standard on its effective date of January
1, 2018. The Company has reviewed its significant sources of revenue and has identified areas that may affect
disclosures but is not expected to significantly impact revenue recognition relative to the current policy. The
Company will continue to assess the impact of IFRS 15 on its less significant sources of revenue as well as
disclosure requirements.
IFRS 9 Financial Instruments
In July 2014, the IASB issued a finalized version of IFRS 9 which contains accounting requirements for financial
instruments replacing IAS 39 Financial Instruments: Recognition and Measurement. The standard contains
requirements in the following areas: Classification and Measurement; Impairment; Hedge Accounting; and
Derecognition. The Company does not anticipate early adoption and plans to adopt the standard on its effective
date of January 1, 2018.
The Company's review of IFRS 9 performed to date indicates the following impacts:
•
financial assets such as receivables which were previously classified as "loans and receivables" under
IAS 39, will now be classified as "amortized cost" under IFRS 9 while most financial liabilities will continue
to be measured at "amortized cost".
• The quantitative retrospective and prospective hedge effectiveness assessment within the 80-125 percent
threshold to qualify for hedge accounting will no longer apply. Rather, once a hedge relationship qualifies
for hedge accounting, retrospective effectiveness testing and voluntary discontinuation of hedge
accounting are not permitted. Hedge accounting can only discontinue where the qualifying criteria are
no longer met.
The Company will continue to assess the impact of IFRS 9 on the consolidated financial statements.
TORSTAR CORPORATION 2016 ANNUAL REPORT 73
TORSTAR – Consolidated Financial Statements
IFRS 16 Leases
In January 2016, the IASB issued IFRS 16 which supersedes IAS 17 Leases and related interpretations. The
new standard provides a single lessee accounting model which eliminates the distinction between operating
and finance leases, by requiring lessees to recognize assets and liabilities for all leases unless the underlying
asset has a low value or the lease term is 12 months or less. Lessor accounting remains largely unchanged
and the distinction between operating and finance leases is retained. The Company does not anticipate early
adoption and plans to adopt the standard on its effective date of January 1, 2019. The Company is in the
process of reviewing the standard to determine the impact on the consolidated financial statements.
3. SEGMENTED INFORMATION
The Company has identified three reportable segments: MMG, SMG and Digital Ventures to which Corporate costs
have not been allocated. Management of each segment is accountable for the revenues and segment operating
profit or loss which includes the proportionately consolidated share of joint venture operations and in the case of the
Digital Ventures segment, the Company’s 56% interest in VerticalScope which, as a result of terms in the applicable
shareholders agreement, is classified as an associated business (rather than being a consolidated subsidiary or
classified as a joint venture). The Company owns a significantly higher percentage of VerticalScope relative to its
other associated businesses.
Segment profit or loss has been defined as segmented operating profit or loss which corresponds to operating profit
or loss as presented in the consolidated statement of income or loss but includes the proportionately consolidated
share of joint venture operations as well as the Company’s 56% interest in VerticalScope. All other income and
expense items are managed on a Company basis and are not provided to the CODM at the operating segment level.
Also, assets and liabilities are not provided to the CODM at the operating segment level. These items are therefore
not allocated to the operating segments.
MMG publishes The Hamilton Spectator and the Waterloo Region Record daily newspapers and has more than 100
weekly community newspapers, digital properties (including homefinder.ca, save.ca, travelalerts.ca, wagjag.com
(“WagJag”) and the regional online sites, such as durhamregion.ca) and flyer distribution operations. MMG also has
a number of specialty publications, directories and consumer shows.
SMG includes the daily Toronto Star newspaper, Toronto Star Touch and thestar.com. SMG also includes Free Daily
News Group Inc. (“Metro”), which publishes the English-language Metro free daily commuter papers in several of
Canada’s largest cities, and through a joint venture arrangement, SMG owns an interest in the Chinese-language
Sing Tao Daily and its related publications in Toronto, Vancouver and Calgary. SMG also includes wheels.ca,
toronto.com, other specialty publications and magazines and distribution services as well as the Company's interest
in Olive Media. Olive Media ceased operations effective January 1, 2016.
Digital Ventures includes the Company's 56% interest in VerticalScope, eyeReturn Marketing Inc. and the Company’s
50% interest in workopolis.com (“Workopolis”).
TORSTAR CORPORATION 2016 ANNUAL REPORT 74
TORSTAR – Consolidated Financial Statements
Year ended December 31, 2016
MMG
SMG
Digital
Ventures
Corporate
Total
Adjustments
and
Eliminations
¹
Per
Consolidated
Statement of
Income
Operating revenue
Salaries and benefits
Other operating costs
Amortization and depreciation
Restructuring and other charges
Impairment of assets
Reportable segment operating
profit (loss)
Interest and financing costs
Foreign exchange
Loss from joint ventures
Loss from associated businesses
Other income
Loss before taxes from continuing
operations
$407,646
$280,070
$73,981
$761,697
($76,598)
$685,099
(188,703)
(105,127)
(176,942)
(174,468)
(14,382)
(13,504)
(800)
(27,934)
(32,531)
(22,489)
(25,352)
(79,642)
(262)
(6,700)
($8,078)
(324,397)
(2,614)
(379,376)
(66)
(122,024)
(610)
(46,907)
(7,500)
25,082
23,184
78,004
1,084
6,700
(299,315)
(356,192)
(44,020)
(45,823)
(800)
$13,315
($59,990)
($60,464)
($11,368)
($118,507)
$57,456
($61,051)
(3,080)
298
(5,532)
(34,919)
24,348
($79,936)
Year ended December 31, 2015
MMG
SMG
Digital
Ventures
Corporate
Total
Adjustments
and
Eliminations¹
Per
Consolidated
Statement of
Income
Operating revenue
Salaries and benefits
Other operating costs
Amortization and depreciation
Restructuring and other charges
Impairment of assets
$447,064
$343,555
$53,021
$843,640
($57,009)
$786,631
(208,431)
(127,092)
(189,755)
(198,057)
(14,055)
(19,777)
(265,936)
(14,991)
(10,634)
(79,145)
(18,867)
(23,160)
(48,428)
(899)
(16,000)
($9,044)
(363,434)
(2,411)
(413,383)
(37)
(77,511)
(31,310)
(361,081)
21,610
19,988
47,334
1,087
16,000
(341,824)
(393,395)
(30,177)
(30,223)
(345,081)
Reportable segment operating loss
($250,890)
($86,364)
($54,333)
($11,492)
($403,079)
$49,010
($354,069)
Interest and financing costs
Foreign exchange
Loss from joint ventures
Loss from associated businesses
Other expense
Loss before taxes from continuing
operations
(2,046)
(1,022)
(14,170)
(28,993)
(1,837)
($402,137)
¹ Adjustments and eliminations represent the elimination of the proportionately consolidated results of, and transactions with, joint
ventures and VerticalScope.
TORSTAR CORPORATION 2016 ANNUAL REPORT 75
TORSTAR – Consolidated Financial Statements
The following charts provide a breakdown of total segmented operating revenue for the years ended December 31,
2016 and December 31, 2015.
Year ended
December 31, 2016
MMG
SMG
Digital Ventures
Total
$
%
$
%
$
%
$
Print advertising
$174,004
42.7%
$148,535
53.0%
$322,539
Digital advertising
36,411
8.9%
131,232
32.2%
25,913
40,086
6.4%
9.8%
22,731
7,880
8.1%
2.8%
94,215
33.7%
6,709
2.4%
$73,981
100.0%
133,123
139,112
120,128
46,795
%
42.3%
17.5%
18.3%
15.8%
6.1%
$407,646
100.0%
$280,070
100.0%
$73,981
100.0%
$761,697
100.0%
MMG
SMG
Digital Ventures
Total
Year ended
December 31, 2015
$
%
$
Print advertising
$200,294
44.8%
$180,789
Digital advertising
37,702
8.4%
136,465
30.5%
28,420
44,183
6.4%
9.9%
35,208
10,064
100,479
17,015
%
52.7%
10.2%
2.9%
29.2%
5.0%
$
%
$
$53,021
100.0%
125,931
$381,083
146,529
128,899
61,198
%
45.2%
14.9%
17.4%
15.3%
7.2%
$447,064
100.0%
$343,555
100.0%
$53,021
100.0%
$843,640
100.0%
Distribution
Subscriber
Other
Total
Distribution
Subscriber
Other
Total
Geographical information
The Company operates in the following main geographical areas:
Canada
United States
Other
Total
Revenue¹
Non-current assets²
Year ended December 31
As at December 31
2016
$681,731
3,368
2015
2016
2015
$781,036
$126,047
$193,747
4,132
1,463
$685,099
$786,631
$126,047
$193,747
¹ Revenue is allocated based on the country in which the order is received.
² Non-current assets include property, plant and equipment; intangible assets and goodwill.
4. INVESTMENTS IN SUBSIDIARIES
The Company’s material subsidiaries are: Toronto Star Newspapers Limited and Metroland Media Group Ltd., which
are Ontario corporations and Metro, which is a New Brunswick corporation. The Company has 100% voting and
equity securities interest in each of these corporations.
The Company also has a 75% interest in the Olive Media partnership. The 25% interest that the Company does not
own is reflected in Minority interests. Effective January 1, 2016, Olive Media ceased operations and the Toronto Star
assumed responsibility for its digital advertising sales previously handled by Olive Media.
The principal activities of these subsidiaries are described in Note 3.
TORSTAR CORPORATION 2016 ANNUAL REPORT 76
TORSTAR – Consolidated Financial Statements
5. RESTRICTED CASH
At December 31, 2016, the Company had restricted cash totalling $11.8 million which included $10.5 million
(December 31, 2015 – $15.1 million) held as collateral for outstanding standby letters of credit in respect of an
unfunded executive retirement plan liability (Note 19).
At December 31, 2015, the Company had restricted cash totalling $37.9 million comprised of $15.2 million held as
collateral for outstanding standby letters of credit and $22.8 million related to the sale of Harlequin in August 2014,
which was held in an escrow account until the end of the escrow term on February 1, 2016 when the funds were
released to the Company.
6. INVENTORIES
Finished goods
Work in progress
Raw materials
December 31, 2016
December 31, 2015
$118
4,711
$4,829
$1,178
129
4,924
$6,231
The Company expensed inventory costs of $42.9 million for the year ended December 31, 2016 (2015 – $50.4
million).
7. INVESTMENTS IN JOINT VENTURES
The Company’s joint ventures include investments in Workopolis (50%) and Sing Tao Daily (approximately 50%).
The table below provides a continuity of Investments in joint ventures:
Balance, beginning of year
Loss from joint ventures
Distributions from joint ventures
Investment and other
Balance, end of year
Year ended December 31
2016
$32,861
(5,532)
(159)
293
$27,463
2015
$54,531
(14,170)
(7,500)
$32,861
TORSTAR CORPORATION 2016 ANNUAL REPORT 77
TORSTAR – Consolidated Financial Statements
Summarized Supplemental Financial Information
The following is summarized supplemental financial information based on the Company’s proportionate share of the
joint ventures:
(i)
Statement of Financial Position
Cash and cash equivalents
Other current assets
Total current assets
Total non-current assets
Total assets
Current liabilities
Other non-current liabilities
Total equity
Total liabilities and equity
(ii) Statements of Loss and Comprehensive Loss
Operating revenue
Salaries and benefits
Other operating costs
Amortization and depreciation
Restructuring and other charges
Impairment of assets (note 12)
Operating loss
Interest and financing costs
Foreign exchange
Income and other taxes
As at
As at
December 31, 2016
December 31, 2015
$7,880
6,049
13,929
21,227
$35,156
$6,825
868
27,463
$35,156
$5,308
7,244
12,552
30,442
$42,994
$8,923
1,210
32,861
$42,994
Year ended December 31
2016
$36,634
(14,739)
(16,167)
(3,203)
(780)
(6,700)
(4,955)
(21)
20
(4,956)
(576)
2015
$42,020
(17,670)
(17,522)
(3,016)
(1,087)
(16,000)
(13,275)
(24)
(66)
(13,365)
(805)
Net loss and Comprehensive loss
($5,532)
($14,170)
8. INVESTMENTS IN ASSOCIATED BUSINESSES
As of December 31, 2016, the Company’s investments in associated businesses include a 19.4% equity interest in
Black Press Ltd. (“Black Press”); a 18.3% equity investment in Blue Ant Media Inc. (“Blue Ant”); a 33.3% equity
interest in Canadian Press Enterprises Inc. (“Canadian Press”) and a 56.4% equity investment in VerticalScope.
The Company also had a 14.7% equity investment in Shop.ca Network Inc. ("Shop.ca") until July 5, 2016.
TORSTAR CORPORATION 2016 ANNUAL REPORT 78
TORSTAR – Consolidated Financial Statements
The table below provides a continuity of Investments in associated businesses:
Balance, beginning of year
Dividends received
Investments during the year
Sale of investment
Share of associate paid in capital (with minority interest)
Return of capital
Loss of associated businesses
OCI – Actuarial loss on employee benefits
OCI – Foreign currency translation adjustment
Balance, end of year
Year ended December 31
2016
$202,203
(387)
500
(2,315)
(34,919)
(1,726)
(5,459)
$157,897
2015
$39,960
(193)
203,587
(256)
(22,094)
(28,993)
(588)
10,780
$202,203
The table below provides details of income and losses from associated businesses:
VerticalScope
Black Press
Blue Ant
Shop.ca
Other
Total
Black Press
Net income (loss)
2016
2015
($42,237)
($26,950)
5,635
2,447
(613)
(151)
3,000
(1,859)
(3,025)
(159)
OCI
2015
$9,985
207
2016
($5,377)
(1,881)
73
($34,919)
($28,993)
($7,185)
$10,192
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, California, Hawaii and Ohio. For the year ended
December 31, 2016, the Company’s share of Black Press’ net income was $5.6 million and other comprehensive
loss of $1.9 million (2015 – net income of $3.0 million and other comprehensive income of $0.2 million).
Blue Ant
Blue Ant is a media company founded in 2011 that creates and distributes video content across a range of traditional
and new media platforms in categories such as Outdoor Life, Nature and Science, Style and Do-It-Yourself ("DIY"),
Music and Gaming. During 2016, the Company invested an additional $0.5 million in Blue Ant. The Company’s
equity interest at December 31, 2016 was 18.3% (December 31, 2015 – 23.1%). The Company’s share of Blue Ant’s
net income in 2016 was $2.4 million (2015 – net loss of $1.9 million) and includes dilution gains of $2.3 million in
2016.
Canadian Press
Canadian Press operates The Canadian Press news agency. The Company’s carrying value in Canadian Press
was previously reduced to nil. The Company will begin to report its share of Canadian Press’ results once the
unrecognized losses ($4.6 million as of December 31, 2016) have been offset by net income, other comprehensive
income or additional investments are made. For the year ended December 31, 2016, the Company would have
reported income of $0.3 million and other comprehensive loss of $1.8 million from Canadian Press (2015 – income
of $0.5 million and other comprehensive income of $0.4 million).
TORSTAR CORPORATION 2016 ANNUAL REPORT 79
TORSTAR – Consolidated Financial Statements
Shop.ca
For the year ended December 31, 2016, the Company’s share of Shop.ca’s net loss was $0.6 million (2015 – $3.0
million). Shop.ca declared bankruptcy on July 5, 2016.
Other
The Company has investments in other associated businesses for which a loss of $0.2 million was recorded for the
year ended December 31, 2016 (2015 – loss of $0.2 million).
VerticalScope
VerticalScope is a Toronto-based vertically focused digital media company with expertise in programmatic advertising
which services the North American market through its network of user forums and premium content sites offering
advertisers access to large audiences in popular verticals including automotive, powersports, outdoors, home and
health.
On July 28, 2015, the Company acquired a 56.4% interest in VerticalScope. The total purchase price including
transaction costs was $202 million. Pursuant to certain terms in the shareholders agreement, the investment is
accounted for as an associated business using the equity method. On October 22, 2015, the Company received a
return of capital of $22.1 million.
The following is summarized supplemental financial information for 100% of VerticalScope including the Company’s
fair value adjustments on acquisition of the investment:
(i)
Statement of Financial Position
Cash and cash equivalents
Other current assets
Total current assets
Total non-current assets
Total assets
Current portion long-term debt
Other current liabilities
Total current liabilities
Long-term debt
Other non-current liabilities
Total equity
Total liabilities and equity
As at December 31, 2016
As at December 31, 2015
$24,310
16,716
41,026
319,149
$360,175
$6,009
9,162
15,171
115,692
23,840
205,472
$360,175
$10,716
15,109
25,825
445,129
$470,954
$6,193
6,892
13,085
113,676
56,786
287,407
$470,954
TORSTAR CORPORATION 2016 ANNUAL REPORT 80
TORSTAR – Consolidated Financial Statements
(ii) Statements of Loss and Comprehensive Loss
Operating revenue
Net loss
Other comprehensive income (loss)
Total comprehensive loss
Year ended December 31
2016
$71,043
($74,848)
(9,528)
($84,376)
2015
$26,896
($47,757)
17,694
($30,063)
Torstar’s comprehensive loss attributable to its interest in VerticalScope was $47.6 million for the year ended
December 31, 2016 ($17.0 million for the period from July 29, 2015 through December 31, 2015).
9. PROPERTY, PLANT AND EQUIPMENT
Building and
leasehold
improvements
Land
Machinery and
equipment
Total
Cost
Balance at December 31, 2014
$2,698
$124,731
$157,278
$284,707
Additions
Disposals
Foreign exchange
Balance at December 31, 2015
Additions
Disposals
Foreign exchange
1,563
(1,424)
124,870
1,132
(62,371)
8,695
(12,507)
5
153,471
3,794
(44,595)
(1)
10,258
(13,931)
5
281,039
4,926
(108,257)
(1)
2,698
(1,291)
Balance at December 31, 2016
$1,407
$63,631
$112,669
$177,707
Depreciation and impairment
Balance at December 31, 2014
Additions
Impairments (note 12)
Disposals
Foreign exchange
Balance at December 31, 2015
Additions 1
Disposals
Balance at December 31, 2016
Net book value
At December 31, 2014
At December 31, 2015
At December 31, 2016
$55,079
6,331
297
(1,420)
60,287
5,438
(26,962)
$38,763
$69,652
$64,583
$24,868
$104,571
10,762
93
(12,469)
2
102,959
18,581
(44,565)
$76,975
$52,707
$50,512
$35,694
$159,650
17,093
390
(13,889)
2
163,246
24,019
(71,527)
$115,738
$125,057
$117,793
$61,969
$2,698
$2,698
$1,407
1 As a result of the decision to outsource printing of the Toronto Star, additional depreciation expense totalling $9.3 million was recorded in respect
of certain machinery and equipment.
TORSTAR CORPORATION 2016 ANNUAL REPORT 81
TORSTAR – Consolidated Financial Statements
10. INTANGIBLE ASSETS
Cost
Balance at December 31, 2014
Additions - internally developed
Additions - purchased
Disposals
Balance at December 31, 2015
Additions - internally developed 1
Additions - purchased
Reclassifications ²
Disposals
Balance at December 31, 2016
Amortization and Impairment
Balance at December 31, 2014
Amortization
Impairments (note 12)
Disposals
Balance at December 31, 2015
Amortization
Impairments (note 12)
Reclassifications ²
Disposals
Indefinite
life
Finite life
Software
Other
Total
Total
$38,414
$73,778
$17,659
$91,437
$129,851
38,414
4,834
22,845
(6,643)
94,814
4,871
4,054
(3,555)
14,104
(38,414)
38,414
(16,531)
4,834
22,845
(10,198)
108,918
4,871
4,054
38,414
(16,531)
4,834
22,845
(10,198)
147,332
4,871
4,054
(16,531)
$87,208
$52,518
$139,726
$139,726
$10,909
8,367
19,276
(19,276)
$43,636
12,230
$13,696
854
$57,332
13,084
$68,241
13,084
8,367
(6,626)
49,240
17,160
(16,531)
(3,555)
10,995
2,841
800
19,276
(10,181)
(10,181)
60,235
20,001
800
19,276
(16,531)
79,511
20,001
800
(16,531)
Balance at December 31, 2016
$49,869
$33,912
$83,781
$83,781
Net book value
At December 31, 2014
At December 31, 2015
At December 31, 2016
$27,505
$19,138
$30,142
$45,574
$37,339
$3,963
$3,109
$18,606
$34,105
$48,683
$55,945
$61,610
$67,821
$55,945
¹ This amount includes $3.1 million for software in development for which amortization has not commenced.
² During the year ended December 31, 2016, the Company both tested for impairment and then reclassified certain indefinite life
intangible assets in the SMG and MMG segments to finite life intangible assets to be amortized over a period of five to ten years.
TORSTAR CORPORATION 2016 ANNUAL REPORT 82
TORSTAR – Consolidated Financial Statements
11. GOODWILL
The following is a continuity of the Goodwill balance:
Balance, beginning of year
Acquisitions (note 26)
Impairment (note 12)
Balance, end of year
2016
$8,133
$8,133
2015
$344,417
40
(336,324)
$8,133
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. For internal management purposes, certain CGUs have been grouped
together as goodwill is monitored at the operating segment level.
Goodwill at December 31, 2016 and 2015 has been allocated to the following groups of CGUs:
Digital Ventures
12. IMPAIRMENT OF ASSETS
The Company recorded the following impairment on its assets:
Property, plant and equipment (note 9)
Intangible assets (note 10)
Goodwill (note 11)
Investments in joint ventures (note 7)
Impairment Testing
December 31, 2016
December 31, 2015
$8,133
$8,133
Year ended December 31
2016
$800
800
6,700
$7,500
2015
$390
8,367
336,324
345,081
16,000
$361,081
During 2016, the Company tested for impairment and then reclassified certain indefinite life intangible assets in the
SMG and MMG segments to finite life intangible assets. In carrying out the associated impairment test, it was
determined that certain intangible assets in the MMG segment were impaired and accordingly the Company recorded
an impairment charge totalling $0.8 million in respect of these assets.
In addition, the Company also recorded a $6.7 million impairment charge in respect of its joint venture investment
in Workopolis during the fourth quarter of 2016. This resulted from a further downward revision in longer term
forecasted revenues reflecting continued increased competition in the online recruitment and job search markets as
well as prevailing economic conditions. The Company performed its annual impairment test in the fourth quarter of
2016. No further impairments were identified as a result of this test.
2015
During the three months ended September 30, 2015 and at October 1, 2015, the Company's annual impairment test
date, the Company conducted impairment tests on the carrying value of property, plant and equipment, intangible
assets with a finite useful life, intangible assets with an indefinite useful life and goodwill. In carrying out this testing,
TORSTAR CORPORATION 2016 ANNUAL REPORT 83
TORSTAR – Consolidated Financial Statements
it was determined that the carrying amount of the Metroland Media Group of CGUs exceeded the recoverable amount
of $251.2 million, which was calculated using the VIU approach and the Company recorded an impairment charge
of $135.0 million for goodwill in the Metroland Media Group of CGUs. This impairment was the result of lower revenue
projections reflecting current economic conditions coupled with lower forecasted longer term revenues reflecting an
acceleration in the shift in spending by advertisers from print advertising to digital advertising.
The Company also recorded a $12.0 million impairment charge in respect of its joint venture investment in Workopolis
during the third quarter of 2015 resulting from lower forecasted revenues attributable to continued increases in
competition in the online recruitment and job search markets as well as prevailing economic conditions.
As a result of the significant change in the market capitalization of the Company during the three months ended
December 31, 2015, which was an indicator of impairment, the Company performed an additional impairment test
as at December 31, 2015. In doing so it was determined that the carrying amount of the Metroland Media Group of
CGUs and Star Media Group of CGUs exceeded their recoverable amounts. As a result the Company recorded a
charge of $130.6 million in respect of goodwill in the Metroland Media Group of CGUs, $70.8 million in respect of
goodwill and $8.0 million in respect of intangible assets in the Star Media Group of CGUs. In its assessment of the
recoverable amounts of the group of CGUs, the Company considered both the VIU and FVLCS approaches and
concluded that due to increased measurement uncertainties involved with the VIU approach, FVLCS was a more
reliable and appropriate methodology as at December 31, 2015 and accordingly, the Company calculated the
recoverable amount using a forward multiple of forecasted adjusted forward EBITDA. As the fair value, (as determined
using Level 3 of the fair value of the hierarchy – please refer to Note 2 (g) for further discussion) of the Metroland
Media Group of CGUs and Star Media Group of CGUs at December 31, 2015 were equal to their carrying value
after recording the above noted impairments, any change in the forward multiple or forecasted adjusted forward
EBITDA would impact the recoverable amount. A 5% decrease in the forward multiple and a 5% decrease in
forecasted adjusted EBITDA would decrease the recoverable amount by approximately $11.1 million and $8.8 million
respectively.
In carrying out this testing in the three months ended December 31, 2015, the Company also recorded a further
impairment charge of $4.0 million related to its joint venture investment in Workopolis resulting from a further
downward revision in longer term forecasted revenues reflecting the prevailing business environment.
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 its annual impairment
testing for each of the groups of CGUs in the following periods were:
Metroland Media Group
Star Media Group
Digital Ventures
2016
2015
Discount
11.7%
12.1% – 14.9%
13.3%
Growth
0.0%
0.0%
3.0%
Discount
11.7%
Growth
0.0%
12.0% – 14.8%
0.0% – 0.9%
13.2%
3.0%
The discount rates for the Star Media Group include a range reflective of both the traditional newspaper operations
and the Toronto Star Touch. These after-tax rates correspond to pre-tax rates in an estimated range of 14% – 19%
for 2016 and 14% – 19% for 2015. The forward multiples used for performing the December 31, 2015 impairment
test were based on market data of recent transactions as well as analyst reports covering the Company.
TORSTAR CORPORATION 2016 ANNUAL REPORT 84
TORSTAR – Consolidated Financial Statements
13. OTHER ASSETS
Portfolio investments
ESPP receivable
Other
14. INCOME TAXES
Income tax expense is made up of the following:
Current income tax expense (recovery):
Current year
Recognition of previously unrecognized tax benefits
Adjustment for prior years
Deferred income tax expense (recovery):
Origination and reversal of temporary differences
Recognition of previously unrecognized tax benefits
Reduction in carrying amount of deferred income tax assets
Adjustment for prior years
Income tax recovery in the consolidated statement of loss
Current income tax expense (recovery) in OCI
Deferred income tax expense (recovery) in OCI
Reduction in carrying amount of deferred income tax assets in OCI
Income tax expense in OCI
Total income tax expense (recovery)
December 31, 2016
December 31, 2015
$10,344
18
2,052
$12,414
$7,439
115
1,868
$9,422
Year ended December 31
2016
2015
($7,400)
(1,500)
500
(8,400)
2,200
2,300
4,500
(3,900)
100
1,100
1,200
($2,700)
($2,200)
(100)
(2,300)
(28,000)
(400)
28,200
200
(2,300)
(600)
(1,600)
6,000
3,800
$1,500
Income taxes of $0.1 million were paid and refunds of $6.8 million were received during the year from continuing
operations (2015 – $7.1 million paid and refunds of $0.4 million received).
TORSTAR CORPORATION 2016 ANNUAL REPORT 85
TORSTAR – Consolidated Financial Statements
Reconciliation of effective tax rate
The combined Canadian federal and provincial statutory rate was 26.5% in 2016 (2015 – 26.5%).
Year ended December 31
2016
2015
Loss before taxes from continuing operations
($79,936)
($402,137)
Provision for income taxes based on Canadian statutory rate of 26.5%
(2015 – 26.5%)
($21,200)
($106,600)
Increase (decrease) in taxes resulting from:
Loss of joint ventures and associated businesses not recognized
10,800
Non-deductible impairment charges
Recognition of previously unrecognized tax benefits
Movement in deferred income tax assets not recognized
Non-taxable portion of capital losses (gains)
Non-deductible expenses and other permanent differences
Adjustment for prior years
Effect of lower provincial tax rates
(1,500)
5,000
(1,400)
1,200
2,800
400
10,300
62,100
(400)
28,500
800
1,800
100
1,100
Income tax recovery in the consolidated statement of loss
($3,900)
($2,300)
Effective income tax rate
4.9%
0.6%
In 2014, the Company made a gift of the complete Toronto Star photo archive containing more than one million
vintage photographs from approximately 1900 to 2000 to the Toronto Public Library. An application was submitted
to the Canadian Cultural Property Export Review Board to treat this gift as a donation of Canadian cultural property
and to determine its value. The Company reported an estimated income tax recovery of $6.0 million in respect of
this donation.
During 2016, the Canadian Cultural Property Export Review Board completed its review of the application and
concluded on both the value of the donation and the Canadian cultural property designation. The review board
concluded on a lower value for the donation than originally estimated by independent valuations. The adjustment
for prior years includes an adjustment of $3.0 million to the estimated income tax recovery in respect of this donation.
In 2016, the Company utilized a previously unrecognized tax benefit related to its equity investment in Shop.ca to
reduce current tax expense.
Deferred income tax assets and liabilities
Net deferred income tax assets
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts used for income tax purposes.
TORSTAR CORPORATION 2016 ANNUAL REPORT 86
TORSTAR – Consolidated Financial Statements
Significant components of the Company’s deferred income tax assets and liabilities as at December 31, 2016 and
December 31, 2015 are as follows:
Recognized
in net income
or loss from
continuing
operations
Recognized
in OCI from
continuing
operations
Recognized
in net income
or loss from
discontinued
operations
December 31,
2016
December 31,
2015
$1,124
(4,639)
(6,259)
900
(1,761)
666
2,776
8,779
1,098
($274)
(737)
2,791
(100)
(200)
(47)
503
(2,217)
(103)
7,776
2,458
$12,918
(1,492)
(2,624)
($4,500)
($700)
(400)
($900)
($1,100)
($900)
$850
(5,376)
(3,468)
100
(1,961)
619
3,279
5,662
995
5,884
(166)
$6,418
$11,322
(4,904)
$6,418
Provisions for returns and doubtful accounts
Property, plant and equipment
Intangible assets
Financial instruments
Provision for employee benefit obligations
Share-based payment transactions
Tax losses carried forward
Provisions
Goodwill
Excess tax basis over carrying value of
investments
Other
Net deferred income tax assets
As reported in the consolidated statement
of financial position
Deferred income tax assets
Deferred income tax liabilities
Net deferred income tax assets
Provisions for returns and doubtful accounts
Property, plant and equipment
Intangible assets
Financial instruments
$15,233
(2,315)
$12,918
December 31,
2014
$1,520
(7,163)
(7,409)
($396)
2,524
1,150
200
Recognized
in net income
or loss from
continuing
operations
Recognized
in OCI from
continuing
operations
Reclassified
to Assets
held
for sale
December 31,
2015
Provision for employee benefit obligations
19,950
(16,611)
Share-based payment transactions
Tax losses carried forward
Provisions
Goodwill
Excess tax basis over carrying value of
investments
Other
Net deferred income tax assets
As reported in the consolidated statement of
financial position
Deferred income tax assets
Deferred income tax liabilities
Net deferred income tax assets
1,769
6,770
7,657
(16,266)
7,845
1,745
$16,418
$28,126
(11,708)
$16,418
(1,103)
(3,994)
222
17,364
(69)
713
TORSTAR CORPORATION 2016 ANNUAL REPORT 87
$700
(5,100)
900
($4,400)
$900
$1,124
(4,639)
(6,259)
900
(1,761)
666
2,776
8,779
1,098
7,776
2,458
$12,918
$15,233
(2,315)
$12,918
TORSTAR – Consolidated Financial Statements
As at December 31, 2016, the Company has unrecognized deferred income tax assets in respect of deductible
temporary differences and tax losses of $160.0 million (2015 – $138.7 million).
The Company has tax losses available to be carried forward and has recognized a deferred income tax asset in
respect of these losses to the extent that it is probable that they will be utilized before they expire.
At December 31, 2016, the Company had Canadian non-capital losses available for carry forward in continuing
operations of approximately $28.5 million (2015 – $10.5 million) that will expire between 2028 and 2036 for which it
has recognized a deferred income tax asset of $3.3 million (2015 – $2.8 million). The Company also had capital
losses of $2.9 million (2015 – $2.9 million) that can be carried forward indefinitely and applied against future capital
gains, for which no deferred income tax asset has been recognized.
Investments in subsidiaries, associates and joint ventures
As at December 31, 2016, the excess of the tax basis over the carrying value of investments in subsidiaries, associates
and joint ventures for which a deferred income tax asset has not been recognized was $580.9 million (2015 – $516.3
million).
15. 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
Restricted cash (current)
Trade accounts receivable
Other receivables
Receivables
Available-for-sale, measured at fair value:
Portfolio investments¹
December 31, 2016
December 31, 2015
$75,374
11,847
112,730
3,757
116,487
$35,141
37,935
140,930
4,067
144,997
10,344
7,439
Derivatives designated as effective hedges, measured at fair value:
Foreign currency forward contracts
(472)
(6,543)
Other financial liabilities, measured at amortized cost:
Accounts payable and accrued liabilities
Provisions (current)
Provisions (non-current)
(101,133)
(28,473)
(11,104)
(122,296)
(29,021)
(13,228)
¹ These amounts are included in Other assets in the consolidated statement of financial position.
TORSTAR CORPORATION 2016 ANNUAL REPORT 88
TORSTAR – Consolidated Financial Statements
The fair value of financial assets and liabilities by level of hierarchy was as follows:
Measured at fair value:
Portfolio investments
Derivative financial instruments:
At December 31, 2016
At December 31, 2015
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
$10,344
$7,439
- Foreign currency collar arrangements
($472)
- Foreign currency forward contracts
($6,543)
Changes in the fair value of Level 3 financial instruments were as follows:
Balance, beginning of year
Additions (note 26)
Distributions received
Net losses included in net income (note 23)
Exchange differences and OCI
Balance, end of year
Interest and financing costs
Interest earned on short-term investments
Interest accretion costs
Interest – other
Net financial expense related to employee benefit plans
Year ended December 31
2016
$7,439
368
(373)
2,910
$10,344
2015
$7,372
2,021
(2,300)
346
$7,439
Year ended December 31
2016
$427
(355)
(81)
(3,071)
($3,080)
2015
$1,925
(802)
(63)
(3,106)
($2,046)
Interest paid during the year ended December 31, 2016 was $0.1 million (2015 – $0.1 million). Interest received
during the year ended December 31, 2016 was $0.5 million (2015 – $1.9 million).
Risk management
The Company is exposed to various risks related to its financial assets and liabilities, which include liquidity risk,
credit risk and market risk. These risk exposures are managed on an ongoing basis.
(i) 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 by maintaining sufficient balances in cash and cash
equivalents. As at December 31, 2016, the Company had $75.4 million in cash and cash equivalents (December 31,
2015 – $35.1 million).
TORSTAR CORPORATION 2016 ANNUAL REPORT 89
TORSTAR – Consolidated Financial Statements
The maturity profile of the Company’s financial liabilities, based on contractual undiscounted payments, is as follows:
2017
2018
2019
2020
2021
2022+
Total
Foreign currency collar arrangements
$472
Accounts payable and accrued
liabilities¹
Licenses
Provisions
98,925
2,208
$1,375
28,473
5,650
1,688
$1,179
$130,078
$7,025
$1,688
$1,179
$793
$793
$2,384
$2,384
$472
98,925
3,583
40,167
$143,147
¹ This amount excludes the $2.2 million of Licenses payable in 2017.
(ii) 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 allowances for doubtful accounts. Allowances for doubtful
accounts are estimated based on past experience, specific risks associated with the customer and other relevant
information.
The Company is exposed to credit related losses in the event of non-performance by counterparties to derivative
instruments. 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:
December 31, 2016
December 31, 2015
Gross accounts receivable:
Current
Up to three months past due date
Three to twelve months past due date
Impaired
Allowances for doubtful accounts
The continuity of the allowance for doubtful accounts is as follows:
Balance, beginning of year
Utilized
Income statement movements
Balance, end of year
$55,624
52,247
10,151
65
118,087
(5,357)
$63,101
72,811
10,105
207
146,224
(5,294)
$112,730
$140,930
Year ended December 31
2016
($5,294)
958
(1,021)
($5,357)
2015
($6,186)
2,685
(1,793)
($5,294)
TORSTAR CORPORATION 2016 ANNUAL REPORT 90
TORSTAR – Consolidated Financial Statements
(iii) Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates will affect
the Company’s income or the value of its financial instruments.
a. Foreign currency risk
The Company’s primary exposure to foreign currency risk is through its investment in VerticalScope, which is
denominated in the U.S. dollar. In order to offset the foreign exchange risk on its consolidated statement of financial
position from its net investment in VerticalScope, the Company had entered into rolling forward foreign exchange
contracts as of the date of the investment. The forward foreign exchange contracts were designated as a hedge
of the net investment in VerticalScope. Gains or losses on the translation of the effective portion of the designated
hedge amount were transferred to OCI to offset any gains or losses on translation of the net investment. Any
changes to the U.S. dollar/Cdn. dollar exchange rate would be offset by the gains or losses on translation of the
net investment to the extent of hedge effectiveness.
As at December 31, 2015, the forward contracts outstanding established a rate of exchange of Cdn. dollar per U.S.
dollar of $1.34 for U.S. $137.0 million in 2016.
During the year ended December 31, 2016, the Company extinguished the U.S. dollar rolling forward contracts and
simultaneously entered into three collar arrangements totalling $137.0 million with a range of Cdn. $1.46 to Cdn.
$1.19 for U.S. $1.00 maturing in 2017. The collar options have been designated as a hedge of the net investment
in VerticalScope. Any fluctuations in fair value arising from fluctuations in the rate of exchange of Cdn. dollar per
U.S. dollar outside this collar range will be recorded in OCI to the extent of hedge effectiveness while any fluctuations
within the collar range will be recorded in net income or loss.
The hedges were highly effective during the years ended December 31, 2016 and December 31, 2015. The
ineffective portion of the hedges resulted in a gain of $0.6 million for the year ended December 31, 2016 (2015 –
loss of $1.7 million) and has been included in foreign exchange in the consolidated statement of income or loss.
The net fair value of the collar options outstanding at December 31, 2016 was $0.5 million unfavourable (December
31, 2015 – the net fair value of the forward contracts outstanding was $6.5 million unfavourable). Forward foreign
exchange contracts settled during the year ended December 31, 2016 were $0.3 million favourable (2015 – $4.4
million unfavourable).
In February 2017, the Company rolled over the three collar arrangements totalling $137.0 million and simultaneously
entered into a new $137.0 million zero cost collar arrangement with a range of Cdn. $1.20 to Cdn. $1.40 for U.S.
$1.00 maturing in 2018.
b. Interest rate risk
The Company is currently exposed to interest rate risk on its cash equivalents. An assumed decrease of 1% in the
Company’s short-term investment rates during the year ended December 31, 2016 would have decreased net
income by $0.4 million (2015 – $1.0 million), with an equal but opposite effect for an assumed increase of 1% in
short-term investment rates.
16. 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 meet its potential obligations resulting from internal growth and acquisitions
and to pay dividends.
The Company defines capital as total equity. At December 31, 2016, capital under management was $326.2 million
(December 31, 2015 – $419.7 million). There have been no changes to the Company's approach to capital
management during the year.
TORSTAR CORPORATION 2016 ANNUAL REPORT 91
TORSTAR – Consolidated Financial Statements
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, issue new shares or sell assets.
The Company is currently meeting all its financial commitments. The Company is not subject to any external capital
requirements.
17. PROVISIONS
Balance at December 31, 2014
Provisions made during the year
Reversals of provisions during the year
Discontinued operations
Adjustment to contingent consideration
Provisions paid during the year
Interest accretion
Balance at December 31, 2015
Provisions made during the year
Reversals of provisions during the year
Discontinued operations
Adjustment to contingent consideration
Provisions paid during the year
Interest accretion
Balance at December 31, 2016
Current
Non-current
Balance at December 31, 2015
Current
Non-current
Balance at December 31, 2014
Current
Non-current
Restructuring
Restructuring
Other
Total
$30,818
28,328
(1,054)
(25,504)
698
$33,286
48,477
(3,989)
(40,900)
256
$37,130
$26,026
$11,104
$20,058
$13,228
$14,051
$16,767
$8,539
137
(137)
5,800
(5)
(5,371)
$8,963
(1,400)
(10)
(5,106)
$2,447
$2,447
$8,963
$8,532
$7
$39,357
28,465
(1,191)
5,800
(5)
(30,875)
698
$42,249
48,477
(3,989)
(1,400)
(10)
(46,006)
256
$39,577
$28,473
$11,104
$29,021
$13,228
$22,583
$16,774
During the year ended December 31, 2016, the Company recorded restructuring charges of $45.8 million. The
restructuring charges included $44.5 million related to ongoing efforts to reduce costs (including a provision of $20.0
million in respect of the outsourcing of printing of the Toronto Star to Transcontinental Printing) as well as additional
charges of $0.5 million in respect of inventory related to MMG's decision to phase out product sales and $0.8 million
write-off of receivables. Restructuring charges of $13.5 million were recorded in the MMG Segment; $31.7 million
in the SMG Segment and $0.6 million at Corporate.
In 2015, the Company recorded restructuring and other charges of $30.2 million, which included restructuring charges
of $30.2 million and other charges of less than $0.1 million. The restructuring charges included $27.3 million related
to ongoing efforts to reduce costs as well as additional charges of $2.6 million in respect of inventory related to
MMG's decision to phase out product sales and $0.3 million write-off of receivables. Restructuring charges of $19.7
million were recorded in the MMG Segment and $10.5 million in the SMG Segment.
The non-current restructuring provisions are expected to be paid out through 2029.
TORSTAR CORPORATION 2016 ANNUAL REPORT 92
TORSTAR – Consolidated Financial Statements
Other
In connection with the sale of Harlequin, the Company indemnified the Purchaser for costs and fees related to certain
matters including certain tax and pre-existing litigation matters. The Company assessed the fees that it may incur
as well as the probability of occurrence of any losses in respect of these matters, estimated the exposure under
these indemnities and recorded a contingent liability in respect of these matters. The Company reviews the estimates
at each reporting period and any required adjustments are included in the determination of Income (loss) from
discontinued operations.
Other provisions also include provisions for contingent consideration, which 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.
The Company is also involved in various legal actions, which arise in the ordinary course of business. 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.
On October 21, 2016, the Company accepted service of a proposed class action proceeding that has been
commenced in the Ontario Superior Court of Justice against the Company, certain of its subsidiaries and employees,
and other third parties relating to the sale and display of certain advertisements on the wheels.ca and autocatch.com
digital properties. The representative plaintiffs are two used car dealers. They are seeking damages based on
alleged breach of contract, negligence, and misleading marketing practices. The action has not yet been certified
as a class action. While there can be no assurance as to the outcome of any litigation, based on information currently
available to us, the Company believes the claims are without merit and intends to defend itself vigorously.
18. OTHER LIABILITIES
Employees' shares subscribed (note 21(b))
RSU Plan (note 21(c))
DSU Plan (note 21(e))
Other employment benefits
Licenses
Other
19. EMPLOYEE BENEFITS
December 31, 2016
December 31, 2015
$765
754
1,651
1,401
1,308
1,737
$7,616
$1,294
778
1,828
1,504
3,419
1,049
$9,872
The Company maintains a number of defined benefit plans which provide pension benefits to its employees in the
Province of Ontario. The Ontario registered pension plans are regulated by the Financial Services Commission of
Ontario. Pension benefits are calculated based on a combination of years of service and compensation levels. The
contributions for the most significant plans are based on career average earnings with a base year upgrade.
Pensionable earnings for years of service prior to the base year are calculated using the base year earnings. The
current base year for Canadian plans is 2005. None of the plans include mandatory indexing provisions. The assets
of the funded plans are held by third party trustees. Funding for the plans is comprised of employer and employee
contributions. The determination of the minimum level of Company contributions is calculated using actuarial valuations
that are prepared by independent actuaries based on the provisions in each plan and legislative regulations. The
obligations for unfunded plans are paid when the obligation falls due. All defined benefit pension plans are closed to
new members.
TORSTAR CORPORATION 2016 ANNUAL REPORT 93
TORSTAR – Consolidated Financial Statements
The Company also maintains defined contribution plans in Canada. Employee contributions are matched by the
Company according to plan formulae and the contributions are held and managed by third party providers. The
Company has no further payment obligations once the matching contributions have been paid.
Other post employment benefits plans provide for various health and life insurance benefits to employees in the
newspaper operations hired prior to August 23, 2000. The annual costs are calculated by independent actuaries and
are based on historical and projected usage patterns and costs.
Governance of the above plans is the Company’s responsibility. The Pension Committee of the Company’s Board
of Directors provides oversight of the registered pension plans and defined contribution plans in Canada.
Information concerning the Company’s post employment benefit plans is as follows:
Net defined benefit plan obligations
Changes to the net defined benefit obligation (asset) were as follows:
At December 31, 2014
Expense recognized in the consolidated
statement of income or loss:
Salaries and benefits
Interest and financing costs
Amounts recognized in OCI
Contributions to plans
At December 31, 2015
Expense recognized in the consolidated
statement of income or loss:
Salaries and benefits
Restructuring and other charges
Interest and financing costs
Amounts recognized in OCI
Contributions to plans
At December 31, 2016
Pension plans
Funded
$11,687
Unfunded 1
$16,783
Other post
employment
benefit plans
Total
$47,602
$76,072
17,452
683
18,135
(445)
(17,951)
11,426
14,401
835
599
15,835
3,351
(17,951)
$12,661
537
604
1,141
3,393
(79)
21,238
612
676
1,288
(1,782)
(10,086)
$10,658
364
1,819
2,183
469
(2,379)
47,875
187
(600)
1,796
1,383
165
(2,408)
$47,015
18,353
3,106
21,459
3,417
(20,409)
80,539
15,200
235
3,071
18,506
1,734
(30,445)
$70,334
1 As at December 31, 2016, the unfunded pension plan includes an executive retirement plan liability of $10.7 million (December 31,
2015 – $21.2 million) which is supported by an outstanding letter of credit of $10.5 million as at December 31, 2016 (December 31,
2015 – $15.1 million).
TORSTAR CORPORATION 2016 ANNUAL REPORT 94
TORSTAR – Consolidated Financial Statements
A summary of the components of the net defined benefit obligation as at December 31, 2016 and 2015 is as follows:
2016
Pension plans
Defined benefit obligations
Fair value of plan assets
Net defined benefit obligation
Recorded in:
Assets
Liabilities
2015
Defined benefit obligations
Fair value of plan assets
Net defined benefit obligation
Recorded in:
Assets
Liabilities
Funded
$913,578
(900,917)
$12,661
$7,073
$19,734
Unfunded
$10,658
Other post
employment
benefit plans
$47,015
$10,658
$47,015
$10,658
$47,015
Pension plans
Funded
Unfunded
Other post
employment
benefit plans
$920,659
(909,233)
$11,426
$6,922
$18,348
$21,238
$47,875
$21,238
$47,875
$21,238
$47,875
Total
$971,251
(900,917)
$70,334
$7,073
$77,407
Total
$989,772
(909,233)
$80,539
$6,922
$87,461
The following charts provide a summary of changes in the defined benefit obligation and the fair value of plan assets
during 2016 and 2015:
2016
Accrued benefit obligations:
Balance, beginning of year
Current service cost
Interest cost
Benefits paid
Remeasurement losses (gains)
Participant contributions
Special termination benefits
Curtailment
Balance, end of year
Plans’ assets:
Fair value, beginning of year
Interest income included in net interest expense
Remeasurement gains
Benefits paid
Employer contributions
Participant contributions
Administration costs
Fair value, end of year
Funded status – deficit
Pension Plans
Funded
Unfunded
Other post
employment
benefit plans
Total
$920,659
$21,238
$47,875
$989,772
612
676
(10,086)
(1,782)
12,896
35,247
(68,940)
9,919
2,962
1,022
(187)
$913,578
$10,658
187
1,796
(2,408)
165
(600)
$47,015
$909,233
34,648
6,568
(68,940)
17,951
2,962
(1,505)
$900,917
$12,661
(10,086)
10,086
(2,408)
2,408
$10,658
$47,015
13,695
37,719
(81,434)
8,302
2,962
1,022
(787)
$971,251
$909,233
34,648
6,568
(81,434)
30,445
2,962
(1,505)
$900,917
$70,334
TORSTAR CORPORATION 2016 ANNUAL REPORT 95
TORSTAR – Consolidated Financial Statements
2015
Accrued benefit obligations:
Balance, beginning of year
Current service cost
Interest cost
Benefits paid
Remeasurement losses (gains)
Participant contributions
Past service cost
Balance, end of year
Plans’ assets:
Fair value, beginning of year
Interest income included in net interest expense
Remeasurement losses
Benefits paid
Employer contributions
Participant contributions
Administration costs
Fair value, end of year
Funded status – deficit
Pension Plans
Funded
Unfunded
Other post
employment
benefit plans
Total
$930,398
$16,783
$47,602
$994,783
14,805
35,840
(63,024)
(2,082)
3,542
1,180
537
604
(79)
3,393
364
1,819
(2,379)
469
15,706
38,263
(65,482)
1,780
3,542
1,180
$920,659
$21,238
$47,875
$989,772
$918,711
35,157
(1,637)
(63,024)
17,951
3,542
(1,467)
$909,233
$11,426
(79)
79
(2,379)
2,379
$21,238
$47,875
$918,711
35,157
(1,637)
(65,482)
20,409
3,542
(1,467)
$909,233
$80,539
Net benefit expense for defined benefit plans recognized in the 2016 and 2015 consolidated statement of income or
loss is as follows:
2016
Current service cost
Net interest expense
Special termination benefits
Curtailment
Administration costs
Net benefit expense
Pension plans
Unfunded
$612
676
Funded
$12,896
599
1,022
(187)
1,505
Other post
employment
benefit plans
$187
1,796
(600)
Total
$13,695
3,071
1,022
(787)
1,505
$15,835
$1,288
$1,383
$18,506
2015
Pension plans
Unfunded
$537
604
Funded
$14,805
683
1,180
1,467
Other post
employment
benefit plans
$364
1,819
Total
$15,706
3,106
1,180
1,467
$18,135
$1,141
$2,183
$21,459
Current service cost
Net interest expense
Past service cost
Administration costs
Net benefit expense
TORSTAR CORPORATION 2016 ANNUAL REPORT 96
TORSTAR – Consolidated Financial Statements
Amounts recognized in the 2016 and 2015 consolidated statements of comprehensive income or loss (before tax):
2016
Remeasurement gains (losses):
Actuarial gain (loss) from:
Financial assumptions
Demographic assumptions
Experience adjustment
Total actuarial gains (losses)
Return on plan assets excluding amounts
included in net interest expense
Amounts recognized in OCI
2015
Remeasurement gains (losses):
Actuarial gain (loss) from:
Financial assumptions
Demographic assumptions
Experience adjustment
Total actuarial gains (losses)
Return on plan assets excluding amounts
included in net interest expense
Amounts recognized in OCI
Pension plans
Funded
Unfunded
Other post
employment
benefit plans
Total
($12,049)
2,130
(9,919)
6,568
($3,351)
($533)
($12,485)
$97
2,018
(333)
1,782
368
(165)
2,018
2,165
(8,302)
6,568
($1,734)
$1,782
($165)
Pension plans
Funded
Unfunded
Other post
employment
benefit plans
Total
$2,560
(478)
2,082
(1,637)
$445
($1,401)
(1,842)
(150)
(3,393)
($211)
(258)
(469)
($3,393)
($469)
$948
(1,842)
(886)
(1,780)
(1,637)
($3,417)
The significant assumptions used by the Company in 2016 and 2015 are noted below. Assumptions regarding future
mortality are based on actuarial advice in accordance with published mortality statistics and experience. For the
Canadian plans in 2016 and 2015, the Company used the 2014 Private Sector Canadian Pensioners' Mortality Table
projected generationally using scale B with a multiplier applied at December 31, 2016 and December 31, 2015 (for
the larger plans, the multiplier ranged from 94% to 103%).
TORSTAR CORPORATION 2016 ANNUAL REPORT 97
TORSTAR – Consolidated Financial Statements
Pension plans
Other post employment benefit
plans
To determine benefit obligation at end of year:
Discount rate
3.2% to 3.8%
3.1% to 3.9%
3.8%
Rate of future compensation increase
2.5%
2.0% to 2.5%
2016
2015
2016
2015
3.9%
To determine benefit expense:
Discount rate
3.1% to 3.9%
3.5% to 3.9%
3.9%
3.9%
Rate of future compensation increase
2.0% to 2.5% 2.25% to 2.75%
Health care cost trend rates at end of year:
Initial rate
Ultimate rate
Year ultimate rate reached
Longevity for pensioners currently at age 65:
4.8%
5.0%
2017
4.6%
5.0%
2017
Male
Female
21.8 years
24.2 years
21.7 years
24.2 years
The effect of a one percent increase or decrease in significant financial assumptions used for the Company’s pension
and other post employment benefit plans would result in an increase (decrease) in the accrued benefit obligation:
Pension plans:
Discount rate
December 31, 2016
December 31, 2015
1% increase
1% decrease
1% increase
1% decrease
($113,605)
$129,897
($116,645)
$133,583
Rate of compensation increase
8,651
(8,503)
8,642
(8,494)
Other post employment benefit plans:
Discount rate
Per capita cost of health care
(4,880)
1,336
5,945
(1,166)
(5,121)
1,264
6,266
(1,102)
For the significant pension plans, the impact of a change in longevity rates if members were one year younger than
their actual age would increase the net benefit obligation by 2.4% (December 31, 2015 – 2.2%).
The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant,
which in practice is unlikely to occur as changes in some of the assumptions may be correlated. The calculation of
the sensitivities uses the same methods that were applied when calculating the net accrued benefit obligation in the
statement of financial position.
TORSTAR CORPORATION 2016 ANNUAL REPORT 98
TORSTAR – Consolidated Financial Statements
Pension plan assets for the Canadian plans, measured as at December 31, 2016 and 2015 are as follows:
Investments quoted in active markets:
Cash and cash equivalents
Equity investments
Canada
United States
Outside North America
Unquoted investments:
Fixed income
Government of Canada
Provinces and municipalities of Canada
Canadian Corporations
Pooled funds
Equity – North America
Fixed Income – Canadian Corporations
2016
2015
$147,457
$144,532
111,353
67,839
81,659
44,616
338,239
33,309
2,067
74,378
$900,917
90,726
66,602
83,497
56,989
331,900
41,486
2,726
90,775
$909,233
Through its defined benefit plans, the Company is exposed to a number of risks the most significant of which include
changes in long-term discount rates used to calculate plan liabilities, the rate of return on plan assets, and changes
in demographics, mortality and plan experience. These factors impact the potential for inadequate plan funding,
unfunded obligations and increases in contributions.
The Company periodically reviews its targeted investment portfolio mix. At December 31, 2016, the target allocation
mix was 29% equity securities and 71% fixed income securities for the Canadian plans (December 31, 2015 – 36%
equity securities and 64% fixed income securities).
The Company’s 2016 actual funding for its Canadian registered pension plans was approximately $18 million (2015
– $18 million). The Company has prepared actuarial reports as of December 31, 2013 for its significant plans.
Estimated funding in 2017 is expected to be approximately $18 million. The next required actuarial reports will be as
of December 31, 2016.
The weighted average duration of the defined benefit obligation is 12.9 years (2015 – 12.9 years). As at December 31,
2016, the expected maturity profile of the undiscounted pension plan and other post employment benefits is $49
million in the next year, $470 million in 2 to 10 years and $1,090 million in over 10 years (December 31, 2015 – $49
million in the next year, $471 million in 2 to 10 years and $1,148 million in over 10 years for continuing operations).
Defined contribution plans
The total amount expensed for defined contribution plans in 2016 was $1.8 million (2015 – $1.9 million).
20. 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.
TORSTAR CORPORATION 2016 ANNUAL REPORT 99
TORSTAR – Consolidated Financial Statements
(ii) Voting provisions
Class B shares are non-voting unless the Company has failed to pay the full quarterly preferential dividend (7.5
cents per annum) on the Class B non-voting shares in each of eight consecutive quarters.
(iii) Restrictions on transfer
Registration of the transfer of any of the Company’s shares may be refused if such transfer could jeopardize
either the ability of the Company to engage in broadcasting or its status as a Canadian newspaper or periodical
publisher.
(b) Summary of changes in the Company’s share capital:
Class A shares (voting)
Balance, beginning of period
Converted to Class B
Balance, end of period
Class B shares (non-voting)
Balance, beginning of period
Converted from Class A
Dividend reinvestment plan
Issued under ESPP
Share option plan
Other
Balance, end of period
Year ended December 31
2016
2015
Shares
Amount
Shares
Amount
9,839,355
(13,140)
9,826,215
$2,673
9,851,964
(3)
(12,609)
$2,670
9,839,355
$2,676
(3)
$2,673
70,707,063
$399,827
70,355,301
$397,901
13,140
93,201
76,868
1,050
3
168
144
2
12,609
151,466
119,650
67,187
850
70,891,322
$400,144
70,707,063
3
682
763
473
5
$399,827
$402,500
Total Class A and Class B shares
80,717,537
$402,814
80,546,418
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 (loss) per share
Basic earnings (loss) per share amounts have been determined by dividing net income or loss attributable to equity
shareholders by the weighted average number of Class A and Class B shares outstanding during the period.
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 the ESPP does not
result in an adjustment to income or loss.
The reconciliation of the denominator in calculating diluted per share amounts is as follows:
(thousands of shares)
Weighted average number of shares outstanding, basic and diluted
Year ended December 31
2016
80,653
2015
80,400
Outstanding share options totalling 5,686,932 (December 31, 2015 – 5,543,589), which are anti-dilutive, have been
excluded from the above calculation of dilutive securities.
TORSTAR CORPORATION 2016 ANNUAL REPORT 100
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, and in total:
First quarter ended March 31: 6.5 cents (2015 – 13.125 cents)
Second quarter ended June 30: 6.5 cents (2015 – 13.125 cents)
Third quarter ended September 30: 2.5 cents (2015 – 13.125 cents)
Fourth quarter ended December 31: 2.5 cents (2015 – 13.125 cents)
Total dividends
21. SHARE-BASED COMPENSATION PLANS
(a) Share option plan
Year ended December 31
2016
$5,236
5,243
2,018
2,017
$14,514
2015
$10,536
10,555
10,558
10,565
$42,214
The maximum number of shares that may be issued under the share option plan is 15,000,000 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, 2016,
options to purchase 11,669,284 shares have been granted, net of options cancelled (December 31, 2015 –
11,555,941).
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
2016
2015
Share options
5,543,589
1,389,039
(1,245,696)
5,686,932
Weighted
average
exercise price
$8.66
$2.78
($9.31)
$7.08
Share options
4,752,118
1,406,876
(67,187)
(548,218)
5,543,589
Weighted
average
exercise price
$9.89
$6.52
($5.87)
($13.72)
$8.66
The weighted average share price when the options were exercised during 2015 was $7.07.
As at December 31, 2016, outstanding share options were as follows:
Range of exercise price
$2.78 – $8.37
$12.21 – $22.14
$2.78 – $22.14
Share options
outstanding
5,044,310
642,622
5,686,932
Weighted
average
remaining
contractual life
6.67 years
2.35 years
6.18 years
Weighted
average
exercise price
Share options
exerciseable
Weighted
average
exercise price
$6.00
$15.54
$7.08
2,459,886
642,622
3,102,508
$7.35
$15.54
$9.05
TORSTAR CORPORATION 2016 ANNUAL REPORT 101
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
2016
$0.30 – $0.35
0.6% – 1.1%
9.4%
2015
$0.81 – $0.93
1.3% – 1.5%
8.1%
34.2% – 38.9%
36.1% – 44.1%
Expected weighted average time until exercise (years)
6
6
In January 2017, 776,447 share options were granted at an exercise price of $1.91 per share.
(b) ESPP
As at December 31, outstanding employee subscriptions were as follows:
Maturing in
Subscription price at entry date
Number of shares
2016
2015
2017
$6.28
62,046
2018
$1.84
203,975
2016
$7.65
91,581
2017
$6.28
94,515
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)
(c) RSU plan
A summary of changes in the RSU plan is as follows:
Units outstanding, beginning of year
Vested and paid
Granted
Forfeited
Dividend equivalents
Units outstanding, end of year
2016
$0.23
0.6%
14.3%
47.2%
2
2015
$0.62
0.6%
8.4%
34.9%
2
2016
872,160
(294,936)
446,762
(124,075)
75,823
975,734
2015
827,936
(191,181)
256,858
(52,389)
30,936
872,160
In 2014, the Company amended the RSU plan to accrue dividend equivalents on all grants beginning with the 2015
fiscal year, payable in additional units in an amount equal to dividends paid on Class B non-voting shares of the
Company. The dividend equivalents are expensed over the vesting period of the grant.
As at December 31, 2016, 679,576 units have been accrued at a value of $1.3 million of which 284,468 units have
been accrued in Accounts payable and accrued liabilities at a value of $0.5 million while 395,108 units have been
accrued in Other liabilities at a value of $0.8 million (December 31, 2015 – 574,918 units were accrued at a value
TORSTAR CORPORATION 2016 ANNUAL REPORT 102
TORSTAR – Consolidated Financial Statements
of $1.6 million of which 294,936 units were accrued in Accounts payable and accrued liabilities at a value of $0.8
million and 279,982 units were accrued in Other liabilities at a value of $0.8 million).
The Company has entered into a derivative instrument in order to lock in the expense for 345,300 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 the RSUs are accrued over the three-year period until the RSUs
vest, there will not be an exact offset each period.
In January 2017, 498,514 RSUs were granted and 284,468 RSUs have vested and were paid.
In 2016, the Company has recognized share-based compensation expense totalling $1.4 million (2015 – $1.7
(d)
million).
(e) DSU plan
A summary of changes in the DSU plan is as follows:
Units outstanding, beginning of year
Granted
Directors’ mandatory retainer
Directors’ voluntary election
Dividends
Redemption
Units outstanding, end of year
2016
657,483
160,072
10,833
21,913
96,595
(82,749)
864,147
2015
554,876
57,260
7,202
13,290
69,836
(44,981)
657,483
As at December 31, 2016, the 864,147 units outstanding were valued at $1.7 million (December 31, 2015 – 657,483
units valued at $1.8 million).
The Company has entered into a derivative instrument in order to offset its exposure to 490,000 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.
22. ACCUMULATED OTHER COMPREHENSIVE INCOME
The following is a continuity for the components of Accumulated other comprehensive income:
Foreign CTA 1
Available-for-sale
securities 2
Net investment
hedge 3
As at December 31, 2014
OCI
As at December 31, 2015
OCI
$21
10,761
10,782
(5,432)
As at December 31, 2016
$5,350
346
346
$2,510
$2,856
Total
$21
3,100
3,121
2,055
(8,007)
(8,007)
4,977
($3,030)
$5,176
1Net of deferred income tax asset/liability of $nil (2015 – $nil).
2Net of deferred income tax liability of $400 (2015 – $nil).
3Net of current income tax recovery of $500 (2015 – deferred income tax asset of $700 and current income tax recovery of $600).
TORSTAR CORPORATION 2016 ANNUAL REPORT 103
TORSTAR – Consolidated Financial Statements
23. OTHER INCOME (EXPENSE)
Gain on sale of assets
Investment write-down and loss
Gain on sale of associated business
Adjustment to contingent consideration
Other
2016
Year ended December 31
2016
$24,338
10
$24,348
2015
($2,300)
155
5
303
($1,837)
In February 2016, the Company sold a real estate property in Mississauga for net cash proceeds of $5.5 million and
recorded a gain of $1.3 million.
In July 2016, the Company sold a real estate property in Guelph for net cash proceeds of $1.9 million and recorded
a gain of $1.3 million.
In September 2016, the Company sold the Vaughan printing facility and surrounding lands for net cash proceeds of
$53.6 million and recorded a gain of $21.8 million.
2015
The Company recorded a write-down of $2.3 million in respect of one of its portfolio investments.
24. DISCONTINUED OPERATIONS
On August 1, 2014, the Company sold all of the shares of Harlequin (which previously represented the Company’s
Book Publishing Segment) to a division of HarperCollins Publishers L.L.C., a subsidiary of News Corp. (the
“Purchaser”). In connection with the sale, the Company indemnified the Purchaser for costs and fees related to certain
matters including certain tax and pre-existing litigation matters for which the Company estimated the exposure under
these indemnities and recorded a contingent liability in respect of these matters. During the year ended December 31,
2016, the Company reviewed its estimates and recorded a reduction in its provisions of $1.4 million (2015 – recorded
an additional charge of $5.8 million) as presented below:
(i)
Statement of Income
Gain (loss) on sale of Harlequin (note 17)
Income before taxes from discontinued operations
Income and other taxes
Net income (loss) from discontinued operations
Attributable to:
Equity shareholders
Year ended December 31
2016
$1,400
1,400
(200)
$1,200
2015
(5,800)
(5,800)
800
($5,000)
$1,200
($5,000)
Net income (loss) from discontinued operations attributable to
equity shareholders per Class A (voting) and Class B (non-voting)
share (note 20(c)):
Basic and Diluted
$0.01
($0.06)
TORSTAR CORPORATION 2016 ANNUAL REPORT 104
TORSTAR – Consolidated Financial Statements
(ii) Statement of Comprehensive Income (Loss)
Net income (loss) from discontinued operations
Comprehensive income (loss) from discontinued operations, net of
tax
Attributable to:
Equity shareholders
Year ended December 31
2016
$1,200
$1,200
2015
($5,000)
($5,000)
$1,200
($5,000)
25. OTHER NON-CASH ITEMS PROVIDED BY (USED IN) OPERATING ACTIVITIES
Share-based compensation plans
Foreign exchange
Restructuring provisions
Investment write-down and loss
Gain on sale of investments
Interest accretion
Other
Year ended December 31
2016
$740
(298)
(2,380)
355
(1,343)
($2,926)
2015
($1,645)
1,022
(4,237)
2,300
(155)
802
(336)
($2,249)
26. ACQUISITIONS AND PORTFOLIO INVESTMENTS
2016 Acquisitions
During the year ended December 31, 2016, the Company made additional investments of $0.4 million in its portfolio
investments as indicated below:
Year ended December 31, 2016
Contingent consideration on prior acquisitions
Portfolio investments
Total cash used in acquisitions and portfolio investments
MMG
Segment
SMG
Segment
Corporate
Total
$5
18
$23
$350
$350
$5
368
$373
2015 Acquisitions
During the year ended December 31, 2015, the Company completed an acquisition in its MMG Segment for less
than $0.1 million. The Company also made portfolio investments for cash of $2.0 million.
In addition, the Company made payments of less than $0.1 million for contingent consideration in respect of prior
year acquisitions (Carroll Publishing in the MMG Segment and Inside Queen's Park in the SMG Segment).
Total cash used for acquisition and portfolio investments was $2.1 million.
TORSTAR CORPORATION 2016 ANNUAL REPORT 105
TORSTAR – Consolidated Financial Statements
The acquisition made was in respect of London Baby Expo (a consumer show for baby products) on March 1, 2015.
This acquisition contributed approximately $0.1 million of revenue and less than $0.1 million of operating profit in
the MMG Segment in 2015. If the acquisition had occurred on January 1, 2015, the Company's consolidated revenues
and operating loss would have remained unchanged at $786.6 million and $354.1 million respectively.
The portfolio investments have been classified as AFS financial assets and included $1.8 million for an 8.1% interest
in CanadaStays.com and approximately $0.2 million for a 0.5% interest in Kensington Venture Fund.
The fair value of assets acquired and liabilities assumed from the acquisition and portfolio investments completed
are as follows:
Year ended December 31, 2015
Assets
Goodwill
Working Capital
Total purchase price and cash consideration paid
Contingent consideration on prior acquisitions
MMG
Segment
SMG
Segment
Corporate
Total
$40
(4)
36
27
63
$22
22
$40
(4)
36
49
85
Portfolio investments
$2,021
2,021
Total cash used in acquisitions and portfolio investments
$63
$22
$2,021
$2,106
27. COMMITMENTS AND CONTINGENCIES
The Company has guaranteed sub-lease payments to a third party of approximately U.S. $1 million per year, ending
December 31, 2018. The sub-lease is collateralized by a U.S. $0.7 million irrevocable letter of credit provided on
behalf of the sub-lessee.
Along with the other shareholders of Kanetix Ltd. ("Kanetix"), 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
Total
Total
$45,243
62,806
$108,049
2017
2018 – 2019
2020 – 2021
2022+
$14,462
22,319
$36,781
$24,179
33,032
$57,211
$6,555
7,455
$14,010
$47
$47
Receivable from office sub-leases
($7,619)
($3,013)
($3,602)
($1,004)
TORSTAR CORPORATION 2016 ANNUAL REPORT 106
TORSTAR – Consolidated Financial Statements
28. RELATED PARTY TRANSACTIONS
The aggregate amounts of remuneration for the Company’s key management (including directors), recognized in
the consolidated statement of income or loss and OCI, are set out below:
Salaries and benefits
Post-employment benefits
Share based payments
Other benefits
Total
Year ended December 31
2016
$5,163
1,837
65
$1,535
$8,600
2015
$5,476
3,480
(765)
$8,191
The following summarizes the total value of sales to, purchases from and amounts owed to and by the Company’s
joint ventures and associates.
Joint Ventures
2016
2015
Associates
2016
2015
Sales to
Purchases from Amounts owed by Amounts owed to
$317
319
186
$158
13
8,233
8,680
$195
216
0
52
$41
1,121
1,347
Sales to and purchases of goods and services from related parties were made at market prices. The Company
received in 2016 $0.2 million (2015 – $nil) of rent from a joint venture. No provisions have been made for doubtful
debts in respect of amounts owed by related parties.
TORSTAR CORPORATION 2016 ANNUAL REPORT 107
BOARD OF DIRECTORS
John A. Honderich
Chair, Torstar Corporation
Former Publisher, Toronto Star
Director since 2004
Campbell R. Harvey
Professor of Finance
Duke University
Director since 1992
Martin E. Thall
President and Chief Executive Officer
Thall Group of Companies
Director since 2002
Elaine B. Berger
Corporate Director
Director since 2006
Daniel A. Jauernig
President and Chief Operating Officer
Element Fleet Management Corp.
Director since 2009
Alnasir Samji
Managing Principal
Alderidge Consulting
Director since 2009
TORSTAR CORPORATION 2016 ANNUAL REPORT 108
TORSTAR CORPORATION 2016 ANNUAL REPORT 109
BOARD OF DIRECTORS
David P. Holland
President and Chief Executive Officer
Torstar Corporation
Director since 2009
Paul R. Weiss
Corporate Director
Director since 2009
Linda Hughes
Chancellor Emerita, University of Alberta
Former Publisher, Edmonton Journal
Director since 2010
Dorothy Strachan
Partner
Strachan-Tomlinson Inc.
Director since 2013
Daryl Aitken
Owner
Fabric Spark
Director since 2015
TORSTAR CORPORATION 2016 ANNUAL REPORT 108
TORSTAR CORPORATION 2016 ANNUAL REPORT 109
N OT E S
TORSTAR CORPORATION 2016 ANNUAL REPORT 110
TORSTAR CORPORATION 2016 ANNUAL REPORT 111
CORPORATE OFFICE
TRANSFER AGENT & REGISTRAR
CST Trust Company
P.O. Box 700
Postal Station B
Montreal, QC
H3B 3K3
AnswerLine (416) 682-3860 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
JENNIFER BARBER
Senior Vice-President
Finance
CHRIS GOODRIDGE
Senior Vice-President
Digital Ventures
TORSTAR CORPORATION 2016 ANNUAL REPORT 110
TORSTAR CORPORATION 2016 ANNUAL REPORT 111
2 0 1 6
A N N U A L R E P O R T
TORSTAR CORPORATION 2016 ANNUAL REPORT 112
TORSTAR CORPORATION 2016 ANNUAL REPORT PB