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TORSTAR CORPORATION 2017 ANNUAL REPORT PB
20172017
ANNUAL REPORT
FINANCIAL HIGHLIGHTS
2017
2016
OPERATING RESULTS ($000)
Operating revenue
$615,685
$685,099
Segmented operating revenue (1)
691,600
761,697
Segmented Adjusted EBITDA (1)
Operating earnings (loss) (1)
Operating loss
Net loss
74,209
7,161
60,478
(14,428)
(18,484)
(61,051)
(29,288)
(74,836)
Cash provided by (used in) operating activities
15,404
(10,599)
Segmented Adjusted EBITDA - Percentage
of segmented operating revenue (1) 10.7% 7.9%
PER CLASS A AND CLASS B SHARES
Net loss
Dividends
($0.36)
$0.10
($0.93)
$0.18
Price range (high/low)
$2.10/$1.20
$2.90/$1.39
FINANCIAL POSITION ($000)
Cash and cash equivalents and restricted cash
$80,433
$87,221
Equity
$245,830
$326,170
The Annual Meeting of shareholders will be held Wednesday, May 9, 2018 at The Toronto Star Building,
3rd Floor Auditorium, One Yonge Street, Toronto, beginning at 10 a.m. It will also be webcast live on the Internet.
OPERATING REVENUE ($millions)
oPERATinG EARninGs (loss) ($millions) (1)
15
16
17
787
685
616
(14)
21
15
16
17
7
nET inComE (loss) PER sHARE
sEGmEnTED ADJUsTED EBiTDA ($millions) (1)
(5.02)
(0.93)
(0.36)
15
16
17
15
16
17
69
60
74
(1) These are non-IFRS measures. These along with other Non-IFRS measures appear in the President’s message. Refer to page 37 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 2017 ANNUAL REPORT 2
TORSTAR CORPORATION 2017 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
2017 was a year of transition and significant transformation at Torstar as the company welcomed John Boynton as its
new President and Chief Executive Officer and Publisher of the Toronto Star.
With the media world still facing revenue challenges, Mr. Boynton developed and launched a new transformation
strategy to lead the company to a more prosperous future. As part of that strategy, he created a new senior executive
team with specialties in digital media, data, advertising and marketing. He also reorganized the company into three
principal divisions: Daily News Brands, which includes newspapers and web properties associated with the Toronto
Star, The Hamilton Spectator, Waterloo Region Record, St. Catharines Standard, Niagara Falls Review, Welland Tribune,
Peterborough Examiner and our Metro publications in Toronto, Halifax, Calgary, Edmonton and Vancouver; Community
Brands, which includes our community publications and web properties; and Digital Ventures, which is unchanged and
includes our interest in VerticalScope, Workopolis and eyeReturn Marketing. Neil Oliver has been appointed Executive
Vice-President Torstar and President of Daily Brands while Ian Oliver has been appointed Executive Vice-President
Torstar and President of Community Brands and Operations.
In the final quarter of 2017 Torstar completed a transaction with Postmedia Network Inc. in which it purchased and
sold a number of daily and community newspapers. As a result of that transaction, Torstar acquired eight weekly
community newspapers, seven daily community newspapers and two free daily newspapers from Postmedia. We
continue to operate four of the newspapers we acquired, namely the St. Catharines Standard, Welland Tribune, Niagara
Falls Review and Peterborough Examiner, under our Daily Brands segment.
Throughout the year, our daily and weekly publications continued Torstar’s tradition of journalistic excellence. Despite
increasingly limited resources, our newspapers kept on producing award-winning investigative stories and impactful
local features. And at the Toronto Star, the commitment to observe and promote the Atkinson Principles was constant.
With ongoing advertising declines, the company was compelled once again to implement cost-reduction measures. As
a result, layoffs and buyouts were carried out across some of our divisions. Torstar has always reaped the benefits of
a dedicated and determined workforce. We want to pay tribute to those who have left the company and reassure them
their contribution will always be remembered.
Finally, Torstar benefits tremendously from an experienced and deeply committed Board of Directors. We welcomed
Linda Hughes as our new Lead Director, replacing Phyllis Yaffe who left to be Canada’s Consul General in New York
City. On behalf of the company, I want to thank the Board for their collective wisdom and keen strategic insight.
TORSTAR CORPORATION 2017 ANNUAL REPORT 2
TORSTAR CORPORATION 2017 ANNUAL REPORT 3
T O O U R S H A R E H O L D E R S
John Boynton
President and Chief Executive Officer
2017 was a year of transition for Torstar as we launched a major multi-year
transformation of our traditional news brands. We are undertaking this initiative
in light of the current business climate confronting the media industry and our
desire to become once again a company that is about growth. We have a long
way to go, but in 2017 we began preparing for the journey.
businesses are connected, informed, thrive and continuously grow along with
Torstar.
• Our purpose is to keep customers informed with what matters most to them,
to help make their lives, community, country and world better.
Torstar is not immune to the challenges that are placing the media industry
under pressure. Consumption of news and other content is changing as are
the types of news and content consumed and the formats of consumption.
At the same time, trust in the sources of news and information is becoming
increasingly important. Also, advertisers are evolving, moving from products
to solutions, from audiences to targeting individuals. Meanwhile, data and
automation technologies are presenting new opportunities for clients and
media companies alike.
At Torstar, we see the need for a new path forward given our increasingly digital,
hyper-local, hyper-targeted, time-pressed, mobile, data-driven world. In such
a world we need to rethink advertising, subscriptions, news and content. Still,
we have a solid base on which to start our journey. Torstar’s digital presence
across our core brands continued to show impressive growth, with aggregate
monthly average page views of 123 million pages, up 11% from 2016, with
greater engagement on mobile platforms.
In 2017, we began to make strides in this transformation. We announced
a new senior leadership team to head our current businesses and our
transformation efforts, building on core talent in what we already do well and
adding new leadership in areas where we need to be great. Also, we realigned
our management structure and operating segments to set us up for the
transformation and align our operations by type and brands. This resulted
in three reportable operating segments: Community Brands, which includes
our community weekly publications and web properties; Daily Brands, which
includes publications and web properties associated with the Toronto Star, The
Hamilton Spectator, Waterloo Region Record, the St. Catharines Standard, the
Niagara Falls Review, the Welland Tribune and the Peterborough Examiner, the
Metro papers in Halifax, Toronto, Edmonton, Calgary and Vancouver, and Sing
Tao; and lastly our Digital Ventures group, which is unchanged and includes our
interest in VerticalScope, Workopolis and eyeReturn Marketing.
We believe these changes will serve as the foundation that enables us to move
forward with our transformation plan.
Our new path forward rests on four pillars: first, a deep customer-centric
obsession; second, journalism excellence that fuels change while engaging
consumers and clients that in turn generate profitable revenue; third, an
advanced data-driven competency; and fourth, a culture that is selfless,
focused, agile, extremely collaborative and results-driven.
Important to remember is that the transformation is not a “one-hit-wonder/
all-eggs-in-one-basket” approach. Instead it is a portfolio of strategies that
redefines the core of the company and is more focused on the long term and
on a more sustainable future.
Key to the transformation is a strong, clear set of cultural values required to
embrace the new direction while building on the best of the existing values
from different divisions. We must be selfless and set our sights squarely on the
customer. We must be focused on where we can make a real difference and have
a big impact. We must be agile, able to make fast decisions and take immediate
action, learning from our successes and failures and moving on quickly. We
must be collaborative, working as a team and sharing our knowledge. We must
be results-driven, because to be successful we must embrace the realities that
results count.
The most significant transaction we completed in 2017 was with Postmedia
Network Inc., in which we purchased eight weekly community publications,
seven daily community newspapers and two free daily newspapers and sold 22
weekly community newspapers in eastern and southern Ontario and the Metro
Winnipeg and Metro Ottawa free daily publications. Readers and advertisers
of certain publications we acquired are now being serviced by one or more of
our other Community Brand properties while we welcome and operate our four
new daily newspapers acquired from Postmedia, namely the St. Catharines
Standard, Niagara Falls Review, Welland Tribune and Peterborough Examiner.
This transaction allows us to operate more efficiently.
At the core of our transformation are our mission, vision and purpose:
• Our mission is to profitably grow by delivering and engaging each paying
customer with trusted news, information and content that is most relevant
to their personal passions, needs and desire for positive change in our
communities and businesses.
• Our vision is a world where our customers, communities, country and
At the same time, we continue to strive to keep our costs in line with current
revenues trends, which is necessary to help us fund the transformation.
While the landscape is evolving quickly, we remain committed to maintaining
a strong financial foundation to support a longer-term transformation aimed at
enabling sustainable growth. We ended 2017 with $71.4 million in unrestricted
cash and no bank debt.
TORSTAR CORPORATION 2017 ANNUAL REPORT 4
TORSTAR CORPORATION 2017 ANNUAL REPORT 5
OPERATING RESULTS
Torstar’s results were affected by the continued pressures on print advertising.
As previously mentioned, Torstar now has three reportable operating segments:
Community Brands, Daily Brands and Digital Ventures.
Media Canada.
Torstar also has minority investments in associated businesses, including
an approximate 16% interest in Blue Ant Media Inc., an independent media
company led by media veteran Michael MacMillan. 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.
Our segmented adjusted EBITDA was $74.2 million in 2017, an improvement of
$13.7 million from the prior year. Segmented revenue was $691.6 million in 2017,
down $70.1 million, or 9.2%, from $761.7 million in 2016.
A FIRST YEAR
The Digital Ventures segment, which was created in 2015, was a significant
contributor in 2017 with segmented adjusted EBITDA of $26.9 million, down
$0.4 million compared to 2016. The results benefited from continued strong
performance at VerticalScope, where revenues in U.S. dollars were up 14% and
segmented adjusted EBITDA was up 6.5%. We expect another year of strong
growth at VerticalScope in 2018. VerticalScope remains a true Canadian digital
success story. It operates more than 600 digital verticals, including automotive,
power sports, and outdoor.
Our Community Brands operating segment is a diversified community media
business that is considered one of North America’s top performers. Community
Brands has more than 80 community newspapers delivered to almost 3 million
homes across Ontario, numerous digital operations, a large and successful flyer
distribution network, more than 90 magazines and more than 30 consumer
shows. Segmented adjusted EBITDA in 2017 was $31.5 million, down $4.4
million from prior year; segmented revenue was $304.3 million compared to
$332.4 million in 2016. Digital revenue showed solid growth in 2017 in local
digital advertising within the Community Brands segment. Revenues in the very
important flyer distribution category, which represents 36% of the Community
Brands’ revenue base, remained relatively resilient in 2017.
Our Daily Brands segment, which includes the Toronto Star, The Hamilton
Spectator, Waterloo Region Record, the St. Catharines Standard, the Niagara
Falls Review, the Welland Tribune, the Peterborough Examiner, our Metro papers
across Canada, Sing Tao Daily, The Kit and some of our digital properties,
reported adjusted EBITDA of $26.4 million, an improvement of $19.0 million
relative to 2016. The improvement included the benefit of a $13.4 million
digital tax credit. Revenues were down $40 million, or 11%, reflecting lower
print advertising revenues, particularly in the national advertising category.
Subscriber revenues were down a modest 3.6%. Excluding the impact of Toronto
Star Touch, which was discontinued in 2017, digital revenues grew 1.9% in 2017.
The Toronto Star, our flagship publication, remains Canada’s largest individual
weekday print title. In 2017 digital revenues grew in our core Daily Brands and
in 2018 are expected to continue to grow, benefiting from growth at thestar.com
and in local digital advertising at the daily newspaper sites.
It is a great privilege and honour to serve as President and Chief Executive
Officer of Torstar and as Publisher of the Toronto Star.
What has truly impressed me since I started at Torstar on March 31, 2017, has
been the quality and dedication of employees at all levels and in all divisions of
the company. From salespeople and journalists to printing plant staff and digital
developers, the commitment and skills of our people is extraordinary. Indeed, it
is our greatest strength.
Also, I am excited by a large number of things that I have seen across Torstar
since I started, including the strong growth in VerticalScope, our largest asset;
the powerful brands we have in the Toronto Star, our Metro and community
newspapers and niche online and ecommerce brands; our strong relationship in
the communities; the entrepreneurial and nimble spirit of our local teams; our
deep history in meaningful reporting and investigative journalism; and the fact
that Torstar has no debt.
At Torstar, we are also fortunate to have an excellent leadership team. Ian Oliver,
Executive Vice-President of Torstar and President of Community Brands and
Operations, along with Neil Oliver, Executive Vice-President and President of
Daily News Brands, are outstanding business leaders, operators and innovative
thinkers. We also benefit from the experience and expertise of Claude Galipeau,
our Chief Revenue Officer; Angus Frame, our Senior Vice-President, Digital
Product Management and Digital Product Development; John Souleles, our Chief
Data Officer; Geoff Wright, our Vice-President, Content Strategy; Anna Marie
Menezes, our Vice-President, Customer Revenue and Lifecycle Management;
Lorenzo DeMarchi, our Executive Vice-President and Chief Financial Officer;
Marie Beyette, Senior Vice-President, General Counsel and Corporate Secretary;
and Pam Laycock; Senior Vice-President, Transformation and Strategy. We also
benefit greatly from the leadership of Rob Laidlaw, the founder and CEO at
VerticalScope.
In this initial year of serving as President and CEO, I would also acknowledge
the support and encouragement of John Honderich, our Chair, and of the Board
of Directors as we worked through these challenging times. I look forward to
the Board’s support and counsel as we move forward with the transformation.
We are also pleased that our newspapers and digital businesses continued to
be recognized for outstanding editorial, advertising and marketing efforts. Two
Toronto Star journalists won National Newspaper Awards, one of the highest
honours in Canadian journalism. Murray Whyte, the Star’s art critic, won for
best Arts and Entertainment reporting and photographer Luca Oleniuk won the
Sports photo award. As well, the Star was nominated for two Michener Awards
for two series: its investigative work on the Panama Papers project and on the
Ontario Special Investigation probe into the shooting death of Andrew Loku.
Meanwhile, Community Brand newspapers won a total of 111 provincial, national
and international awards in 2017. They won 88 Ontario Community Newspaper
Association awards, including 34 first-place awards. They also won 11 awards
from Ontario Newspaper Association and 11 Great Idea Awards from News
Looking forward, we have a set of strategies that we will be implementing
throughout 2018, 2019 and 2020. Our customer obsession will enable us to
serve our clients more effectively, using award-winning journalism and advanced
customer data to improve the products and solutions we provide to customers
and advertisers. The transformation is about changing what we do and what we
are great at and what we are capable of at our core.
Indeed, we can see a path to growth again. It will take time and a lot of hard
work. But there can be a long future for Torstar and its brands, our incredibly
dedicated staff, our shareholders, our communities and, most importantly, our
customers.
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TORSTAR CORPORATION 2017 ANNUAL REPORT 5
N O T E S
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TORSTAR CORPORATION 2017 ANNUAL REPORT 7
T A 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 2017 ANNUAL REPORT 6
TORSTAR CORPORATION 2017 ANNUAL REPORT 7
N O T E S
TORSTAR CORPORATION 2017 ANNUAL REPORT 8
TORSTAR CORPORATION 2017 ANNUAL REPORT 9
TORSTAR – Management's Discussion and Analysis
For the year ended December 31, 2017
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, 2017 (the “2017 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 2017 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 2017, Torstar
realigned its management structure and operating segments in order to better align its operations by type of publication. The Company
now has three reportable operating segments: Community Brands ("Communities"), Daily Brands ("Dailies") and Digital Ventures. The
results for 2016 have been restated on a comparative basis to reflect these and other classification changes.
This MD&A is dated February 27, 2018 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”, “assume”, “predict”, “intend”, “would”, “could”, “if”, “may”
and similar expressions. This MD&A includes, among others, forward-looking statements regarding expectations relating to Torstar’s
achievement of transformation initiatives in Section 1 of this MD&A, the expected effects of the recent Postmedia transaction on Torstar’s
earnings and revenue in Sections 1 and 5 of this MD&A, estimates and expectations relating to contingent liabilities and impairment of
assets in Sections 3 and 4 of this MD&A, , expected savings including savings from restructuring initiatives and other cost reductions in
Sections 3, 4 and 5 of this MD&A, Torstar's outlook for 2018 including anticipated revenue trends and adjusted EBITDA, anticipated
growth at VerticalScope, anticipated operating expenses and capital expenditures, expected pension plan contributions, funding obligations
and expenses and the anticipated impact of the Ontario Government’s proposed new pension funding framework, and the potential merger
of our defined benefit pension plans with the CAAT jointly sponsored defined benefit pension plan in Section 5 of this MD&A, expectations
regarding cash flows and forecasted cash requirements and potential measures to increase liquidity, the impact of the Ontario Government's
planned new pension funding framework, 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, solvency liabilities and other expectations related to employee future benefit obligations and the potential impact of the Ontario
Government's planned new pension funding framework and new interim solvency relief measures 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 changing 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 and customers;
-the Company’s ability to build and 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;
TORSTAR CORPORATION 2017 ANNUAL REPORT 9
TORSTAR – Management's Discussion and Analysis
-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;
-cybersecurity and risks of security breaches;
-the Company’s ability to execute appropriate strategic growth initiatives including acquisitions;
-changes in employee future benefit obligations;
-unexpected costs or liabilities related to acquisitions and dispositions;
-investments in other businesses;
-reliance on printing operations;
-labour disruptions;
-newsprint costs;
-privacy, anti-spam, communications, competition, e-commerce, data use and environmental laws, health and safety regulations and
other laws and regulations applicable generally to the Company’s businesses;
-litigation;
-foreign exchange fluctuations and foreign operations;
-dependence on key personnel;
-availability of insurance;
-intellectual property rights and other content risks;
-credit risk;
-availability of capital and restrictions imposed by credit facilities;
-income tax and other taxes;
-dividend policy;
-controls over financial reporting, 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 conditions and competition; rates
of return and discount rates relating to pension expense and pension plan obligations; discount rates and trends in healthcare costs
relating to post employment benefits; expected future revenues; expected future liabilities; expected future cash flows and discount rates
relating to valuation of intangible assets; and successful development and launch of strategic initiatives and 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 2017 ANNUAL REPORT 10
TORSTAR – Management's Discussion and Analysis
Section
Page
Management’s Discussion and Analysis – Contents
12
13
15
22
27
28
30
30
32
35
35
36
37
37
39
40
1
2
3
4
5
6
7
8
9
Overview and Strategic Initiatives
A summary of our business and strategic initiatives
Highlights
Highlights for 2017 compared to 2016
Annual Operating Results
A discussion of our operating results for 2017 and 2016
Fourth Quarter Operating Results
A discussion of our fourth quarter operating results
Outlook
The outlook for our business in 2018
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 2017, 2016 and 2015
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 2017 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). During the fourth
quarter of 2017, Torstar realigned its management structure and operating segments in order to better align its operations
by type of publication. The Company now has three reportable operating segments: Community Brands ("Communities"),
Daily Brands ("Dailies") and Digital Ventures. Relevant comparative information has been restated to reflect these changes.
The Daily Brands include the daily Toronto Star newspaper and thestar.com, The Hamilton Spectator, the Waterloo Region
Record, the St. Catharines Standard, the Niagara Falls Review, the Welland Tribune and the Peterborough Examiner daily
newspapers, as well as each of their respective websites. The Dailies also include 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, the Dailies owns an interest in the Chinese-language Sing Tao Daily and its related publications in
Toronto, Vancouver and Calgary. The Dailies also include wheels.ca, toronto.com and other specialty publications and
magazines and distribution services.
The Community Brands include more than 80 weekly community newspapers, digital properties (including homefinder.ca,
save.ca, travelalerts.ca, and regional online sites, such as durhamregion.ca) and flyer distribution operations. The
Communities also have a number of specialty publications, directories and consumer shows. The Communities also included
wagjag.com (“WagJag”) until October 30, 2017 when it and related assets were sold for gross proceeds of $0.5 million.
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
215 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, 2017 included a 19% equity
investment in Black Press Ltd. (“Black Press”), a 16% equity investment in Blue Ant Media Inc. (“Blue Ant”), a 33% equity
investment in Canadian Press Enterprises Inc. (“Canadian Press”) and an approximate 22% interest in Nest Wealth Asset
Management Inc. ("Nest Wealth").
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, the Yukon, Saskatchewan, Manitoba, Washington, California, Hawaii and Ohio.
Blue Ant is a privately held, international content producer, distributor and channel operator founded in 2011. Blue Ant
creates content for multiple genres including factual, factual entertainment, short-form digital series and kids programming.
Their distribution business, offers a catalogue of 3,200+ hours of content, including the largest 4K natural history offering
on the market and their international channel business offers a portfolio of media brands.
Canadian Press operates The Canadian Press news agency.
Nest Wealth is an online investment portfolio manager, or 'robo-advisor' in the financial technology sector.
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. In 2015 we made a
significant investment in a high growth digital business opportunity in VerticalScope which has pursued a strategy of organic
and acquisition related growth. During 2017 we refocused efforts on a multi-year transformation of our traditional news
brands. At the core of this transformation our mission is to profitably grow by delivering and engaging each paying customer
TORSTAR CORPORATION 2017 ANNUAL REPORT 12
TORSTAR – Management's Discussion and Analysis
with trusted news, information and content that is most relevant to their personal passions, needs and desire for positive
change in our communities and businesses. We are striving to achieve this transformation, across our asset base, centred
on the following anchors:
• A deep customer-centric obsession;
• An advanced data driven competency;
•
Journalism excellence that fuels change around us while engaging consumers and clients that in turn generate profitable
revenue;
• Achieving further digital evolution of our asset base; and
• A selfless, focused, agile and extremely collaborative culture
While the landscape is evolving quickly, we remain committed to maintaining a strong financial foundation to support a
longer term transformation aimed at enabling sustainable growth.
2. Highlights
Highlights for 2017 compared to 2016
(in $000’s, except per share amounts)
2017
2016
Favourable
(Unfavourable)
Net loss from continuing operations
Per Share
Net loss attributable to equity shareholders
Per Share (Basic)
Adjusted earnings (loss) per share2
Operating loss1,2
Adjusted EBITDA1,2
($30,638)
($0.38)
(29,171)
($0.36)
$0.01
(25,134)
74,209
Revenues1,2
691,600
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:
($76,036)
($0.94)
(74,750)
($0.93)
($0.46)
(118,507)
60,478
761,697
$45,398
$0.56
45,579
$0.57
$0.47
93,373
13,731
(70,097)
•
In November 2017, we completed a transaction with Postmedia Network Inc. (“Postmedia”), in which we purchased
and sold a number of daily and community newspapers. As part of the transaction, we acquired eight weekly
community publications, seven daily community newspapers and two free daily newspapers from Postmedia. In
addition, we sold 22 weekly community newspapers in eastern and southern Ontario and the Metro Winnipeg and
Metro Ottawa free daily publications to Postmedia. Readers and advertisers of certain publications we acquired are
now being serviced by one or more of our other Community properties while we continue to operate four daily
newspapers acquired from Postmedia now included in our Daily Brands segment. This transaction is expected to
contribute to an improvement in annualized operating earnings in the range of $5 million to $7 million.
• On March 31, 2017, John Boynton was appointed President and Chief Executive Officer of Torstar and Publisher
of the Toronto Star. Mr. Boynton comes to Torstar with deep expertise in marketing, technology and business
transformation.
• Ended 2017 with $71.4 million of cash and cash equivalents and $9.1 million of restricted cash; Torstar has no bank
indebtedness.
• Cash provided by operating activities was $15.4 million in 2017 reflecting $22.9 million of cash generated by operating
activities partially offset by a $10.2 million increase in working capital.
TORSTAR CORPORATION 2017 ANNUAL REPORT 13
TORSTAR – Management's Discussion and Analysis
• Our net loss from continuing operations was $30.6 million ($0.38 per share) in 2017 compared to $76.0 million
($0.94 per share) in 2016. Our net loss in 2017 included $66.9 million of non-cash amortization and depreciation,
$28.1 million of which related to our investment in VerticalScope, and $11.1 million of non-cash impairment charges.
Our net loss in 2016 included $122.0 million of non-cash amortization and depreciation and $7.5 million of non-
cash impairment charges.
• Adjusted earnings per share was $0.01 in 2017, an improvement of $0.47 from an adjusted loss per share of $0.46
in 2016. Adjusted earnings per share included an $0.83 per share effect of amortization and depreciation.
• Our segmented adjusted EBITDA was $74.2 million in 2017, an improvement of $13.7 million from the prior year.
Segmented adjusted EBITDA in the Daily Brands segment was $26.4 million, an improvement of $19.0 million which
included the benefit of a $13.4 million digital media tax credit. This tax credit related to a claim made in respect of
2012 and not current year operations. Segmented adjusted EBITDA in the Community Brands segment was $31.5
million, down $4.4 million in 2017 while segmented adjusted EBITDA in the Digital Ventures segment was $26.9
million in 2017, down $0.4 million relative to 2016.
• Segmented revenue was $691.6 million in 2017, down $70.1 million (9.2%) from $761.7 million in 2016.
The following chart provides a continuity of earnings (loss) per share from the year ended December 31, 2016 to the year
ended December 31, 2017:
Loss per share from continuing operations attributable to equity shareholders in 2016
Earnings (Loss) Per
Share
Adjusted Earnings
(Loss) Per Share **
($0.94)
($0.46)
Changes
• Adjusted EBITDA *
• Amortization and depreciation *
• Operating earnings (loss) *
• Restructuring and other charges*
• Impairment of assets*
• Operating profit (loss) *
• Interest and financing costs
• Non-cash foreign exchange
• Income (loss) from associated businesses (excluding VerticalScope)
• Other income
• Change in deferred taxes (including associated businesses)
Earnings (loss) per share attributable to equity shareholders in 2017 from continuing
operations
Earnings per share from discontinued operations attributable to equity shareholders
in 2017
Earnings (loss) per share attributable to equity shareholders in 2017
0.17
0.68
(0.09)
0.35
(0.04)
0.22
0.01
0.01
(0.14)
(0.25)
(0.23)
($0.38)
$0.02
($0.36)
0.17
0.68
0.39
0.39
0.01
(0.14)
(0.25)
$0.01
$0.01
*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.
TORSTAR CORPORATION 2017 ANNUAL REPORT 14
TORSTAR – Management's Discussion and Analysis
3. Annual Operating Results
A discussion of our operating results for 2017 and 2016
Unless otherwise noted, the following is a discussion of our 2017 operating results relative to 2016. During the fourth
quarter of 2017, we realigned our management structure and operating segments in order to better align our operations
by type of publication. We now have the following three reportable operating segments: Community Brands, Daily Brands
and Digital Ventures. Relevant comparative information has been restated to reflect these changes.
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, 2017 and December 31, 2016 and provide a reconciliation to
the consolidated statement of income.
Adjustments
and
Eliminations¹
($75,915)
23,182
22,672
(30,061)
29,881
2,492
2,312
1,338
3,000
$6,650
Per Consolidated
Statement of Loss
$615,685
(245,906)
(325,631)
44,148
(36,987)
7,161
(17,512)
(8,133)
($18,484)
($30,638)
$1,350
($29,288)
(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
Restructuring and other charges
(11,136)
(6,533)
2017
Communities
Dailies
Digital
Ventures
Corporate
Total
Segmented *
$304,253
$315,050
$72,297
(140,098)
(132,643)
31,512
(13,352)
(595)
17,565
(100,229)
(188,439)
26,382
(21,491)
(199)
4,692
(22,062)
(23,290)
26,945
(32,025)
(1,414)
(6,494)
(981)
(11,133)
($6,699)
(3,931)
(10,630)
(284)
(10,914)
(200)
$691,600
(269,088)
(348,303)
74,209
(66,868)
(2,492)
4,849
(18,850)
(11,133)
$6,429
($1,841)
($18,608)
($11,114)
($25,134)
TORSTAR CORPORATION 2017 ANNUAL REPORT 15
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)**
Impairment of assets
Operating profit (loss)**
Loss from continuing operations
Income from discontinued
operations
Net loss
2016
Communities
Dailies
Digital
Ventures
Corporate
Total
Segmented *
Adjustments
and
Eliminations¹
Per Consolidated
Statement of Loss
$332,379
$355,337
$73,981
(155,187)
(141,333)
35,859
(12,865)
(528)
22,466
(137,847)
(210,077)
7,413
(29,451)
(268)
(22,306)
(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
$8,162
($54,837)
($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)
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.
Revenue
Segmented revenue was down $70.1 million or 9.2% in 2017 and included revenue growth of $4.8 million (12%) from
VerticalScope (14% revenue growth in USD). Segmented revenue in 2017 reflected declines of 16% in print advertising
revenues, with particular softness in national advertising revenues, a 6.6% decrease in distribution revenues and a 3.7%
decrease in subscriber revenue. The decrease in print advertising revenues was the result of decreases in both volume
and rate, whereas the decreases in flyer distribution and subscriber revenues were predominantly volume related.
Revenue excluding our proportionate share of revenue from joint ventures and our 56% interest in VerticalScope (“operating
revenue”) was down $69.4 million or 10%.
Digital revenue across all segments decreased 3.4% in 2017, reflecting lower revenues at eyeReturn, Workopolis, Toronto
Star Touch and WagJag partially offset by continued solid growth at VerticalScope as well as in local digital advertising
within the community websites in the Community Brands segment. Toronto Star Touch was discontinued effective July
31, 2017 and we sold WagJag and related assets for gross proceeds of $0.5 million on October 30, 2017, both of which
are accretive to our earnings. Digital revenues were 19% of total segment revenues in 2017 compared to 18% in 2016.
The following charts provide a breakdown of total segmented operating revenue for 2017 and 2016 ($ in millions):
Communities
Dailies
Year ended December 31, 2017
$
Print advertising
Digital advertising
Distribution
Subscriber
Other
Total
$125.5
30.7
110.9
0.7
36.4
$304.3
%
42%
10%
36%
12%
100%
$
$144.9
25.5
19.0
114.3
11.4
%
46%
8%
6%
36%
4%
Digital Ventures
$
%
$72.3
100%
Total
$
$270.4
128.5
129.9
115.0
47.8
%
39%
19%
18%
17%
7%
$315.1
100%
$72.3
100%
$691.6
100%
TORSTAR CORPORATION 2017 ANNUAL REPORT 16
TORSTAR – Management's Discussion and Analysis
Communities
Dailies
Year ended December 31, 2016
$
Print advertising
Digital advertising
Distribution
Subscriber
Other
Total
$145.8
31.9
117.1
0.9
36.6
$332.4
%
44%
10%
35%
11%
100%
$
$176.7
27.3
22.0
119.2
10.2
%
50%
8%
6%
33%
3%
Digital Ventures
$
%
$74.0
100%
Total
$
$322.5
133.1
139.1
120.1
46.8
%
42%
18%
18%
16%
6%
$355.3
100%
$74.0
100%
$761.7
100%
Salaries and benefits
Our segmented salaries and benefits costs were down $52.7 million or 16% in 2017 and included the benefit of a $13.4
million digital media tax credit (as this represents recoveries of previously incurred salary and benefits costs). Excluding
the impact of the tax credit, segmented salaries and benefit costs in 2017 were down $39.3 million or 12% reflecting the
benefit of savings from restructuring initiatives, including the closure of the Vaughan Printing Facility and lower staffing
costs associated with Toronto Star Touch, partially offset by increased salary and benefit costs at VerticalScope.
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 2017.
Segmented other operating costs were down $31.1 million (8.2%) in 2017 as a result of lower print volumes and the impact
of other cost reductions partially offset by the introduction of outsourcing costs related to printing of the Toronto Star as
well as increased operating costs at VerticalScope.
Adjusted EBITDA
Our segmented adjusted EBITDA was $74.2 million in 2017, an improvement of $13.7 million relative to the prior year.
Segmented adjusted EBITDA in the Daily Brands segment was $26.4 million, an improvement of $19.0 million relative to
2016. The improvement in 2017 included the benefit of a $13.4 million digital media tax credit. This tax credit related to
a claim made in respect of 2012 and not current year operations. Segmented adjusted EBITDA in the Community Brands
segment was $31.5 million in 2017, down $4.4 million relative to 2016, while segmented adjusted EBITDA in the Digital
Ventures segment was $26.9 million in 2017, a decrease of $0.4 million compared to 2016. Segmented adjusted EBITDA
in 2017 included $31.4 million of savings from restructuring initiatives and $2.2 million of costs related to our transformation
initiatives.
Amortization and depreciation
Total segmented amortization and depreciation decreased $55.1 million in 2017 primarily as a result of lower amortization
associated with our investment in VerticalScope as well as the impact of the transition of printing of the Toronto Star to
Transcontinental Printing in 2016.
Operating earnings (loss)
Segmented operating earnings were $4.8 million in 2017, compared to a segmented operating loss of $64.1 million in
2016. Operating earnings in 2017 included $28.1 million of amortization expense associated with our investment in
VerticalScope. The operating loss in 2016 included $74.8 million of amortization expense associated with our investment
in VerticalScope as well as the above mentioned amortization of equipment related to the transition of printing of the
Toronto Star.
Restructuring and other charges
Total segmented restructuring and other charges were $18.9 million in 2017, $16.5 million of which related to ongoing
efforts to reduce costs while $2.4 million related to restructuring associated with publications we acquired from Postmedia
in November 2017. Excluding the restructuring associated with publications we acquired from Postmedia, the 2017
restructuring initiatives are expected to result in annualized net savings of approximately $22.0 million and a reduction of
approximately 250 positions. Of the expected savings, $12.1 million was realized in 2017. Total segmented restructuring
and other charges of $46.9 million were recorded in 2016 which included a charge of $20.0 million for severance and
facility related expenses in respect of our decision to outsource printing of the Toronto Star.
TORSTAR CORPORATION 2017 ANNUAL REPORT 17
TORSTAR – Management's Discussion and Analysis
Over the last few years we have undertaken several restructuring initiatives in order to reduce our ongoing operating
costs. At December 31, 2017, our liability for payments in respect of these restructuring initiatives was $23.6 million (2016
- $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
2017
Expected net savings in:
2018
Annualized net savings
Year of Initiative
2015
2016
2017
Total
$10,000
$13,200
100
$19,900
16,600
$23,300
$36,500
$12,100
9,900
$22,000
$10,000
33,100
28,800
9,900
$81,800
Impairment of assets
During 2017, we incurred non-cash charges related to asset impairment of our goodwill and investments in joint ventures
totalling $11.1 million. During 2016, we incurred charges related to asset impairment of intangible assets and investments
in joint ventures totalling $7.5 million. These charges have no impact on cash flows.
In connection with our impairment test on December 31, 2017, we determined that the carrying amount of goodwill in the
Digital Ventures Cash Generating Unit ("CGU") exceeded its value in use ("VIU") and accordingly, we recorded an
impairment charge of $8.1 million in respect of goodwill in the Digital Ventures CGU. Please refer to the discussion of
Critical Accounting Policies and Estimates in Section 9 of this MD&A for further discussion. Also, during the first quarter
of 2017, we determined that the carrying amount of our joint venture investment in Workopolis exceeded the VIU and we
recorded an impairment charge of $3.0 million in respect of this investment as a result of a further downward revision in
longer term forecasted revenues reflecting further increased competition in the online recruitment and job search markets.
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 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.
Also, during the fourth quarter of 2016, following lower than forecasted performance in one of our digital CGUs in the
Community Brands segment in the quarter, we recorded an impairment charge of $0.8 million in respect of intangible
assets within this CGU.
Operating loss
In 2017, our segmented operating loss was $25.1 million compared to $118.5 million in 2016. Our 2017 segmented
operating loss included $66.9 million of non-cash amortization and depreciation, $11.1 million of non-cash impairment
charges. 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 operating loss excluding our proportionate share of operating profit (loss) from VerticalScope and joint ventures
decreased $42.6 million in 2017 compared to 2016.
Loss from joint ventures
Loss from joint ventures was $1.8 million in 2017 and $5.5 million in 2016. These losses primarily reflect non-cash
impairment charges of $3.0 million recorded in 2017 and $6.7 million recorded in 2016 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 both 2017 and 2016 respectively.
Loss from associated businesses
Loss from associated businesses was $6.8 million in 2017 compared to a loss of $34.9 million in 2016. The 2017 loss
included income of $1.4 million from Blue Ant and income of $0.7 million from Nest Wealth offset by a loss of $5.7 million
from Black Press and a loss of $3.2 million from VerticalScope. The 2017 loss from VerticalScope included $28.1 million
of amortization and depreciation expense. 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.
TORSTAR CORPORATION 2017 ANNUAL REPORT 18
TORSTAR – Management's Discussion and Analysis
Our share of Black Press’ net loss was $5.7 million in 2017 (income of $5.6 million in 2016), representing Black Press’
results through November 30, 2017. 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 $1.4 million in 2017 ($2.4 million in 2016) representing Blue Ant's results through
November 30, 2017 which included dilution gains of $2.9 million ($2.3 million in 2016). Our equity interest in Blue Ant
was 16% at the end of 2017 relative to 18% at the end of 2016. 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.
Shop.ca declared bankruptcy in 2016.
We did not record any income or loss during 2017 or 2016 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 ($5.3 million as of December 31, 2017) have
been offset by net income, OCI or additional investments are made. For the year ended December 31, 2017, we would
have reported income of $1.1 million and other comprehensive loss of $1.8 million from Canadian Press (2016 – income
of $0.3 million and other comprehensive loss of $1.8 million).
Investment in VerticalScope
We own a 56% interest in VerticalScope. During 2017, VerticalScope generated U.S. $32.3 million of cash from operations
and made acquisitions totalling U.S. $39.6 million. VerticalScope's debt, net of cash, was up U.S. $12.7 million from U.S.
$74.4 million at December 31, 2016 to U.S. $87.1 million at December 31, 2017. In 2017, VerticalScope entered into a
new five-year, US $200 million senior credit facility.
In connection with the investment in VerticalScope, during 2017 we recorded $28.1 million of amortization and depreciation
expense (2016 - $74.8 million). Further details of our accounting for this investment are outlined in our discussion of the
operating results for the Digital Ventures segment below.
Other income
Other income was $3.9 million in 2017 compared to other income of $24.3 million in 2016. Other income in 2017 included
a gain of $3.2 million related to the sale of publications to Postmedia and a gain of $0.5 million on the sale of WagJag
and related assets.
On November 27, 2017 we entered into an asset purchase agreement with Postmedia relating to the purchase and sale
of a number of community and daily newspapers. As part of the transaction, we acquired eight weekly community
publications, seven daily community newspapers and two free daily newspapers from Postmedia. As consideration for
the purchase, we sold 22 weekly community newspapers in eastern and southern Ontario and the Metro Winnipeg and
Metro Ottawa free daily publications to Postmedia. The transaction was a non-monetary transaction as there was no
cash exchanged. The estimated fair value of both the net assets acquired from Postmedia and the net assets we sold
was $3.5 million. We recognized a gain on sale of $3.2 million which represented the difference between the consideration
received, being the net assets acquired at fair value, and the carrying value of the net liabilities transferred and cost of
disposal.
Income and other taxes
We recorded income tax expense of $5.7 million in 2017 and an income tax recovery of $3.9 million in 2016. Excluding
the impact of non-deductible impairment charges, loss of joint ventures and associated businesses and the movement
in deferred income tax assets not recognized, our effective tax rate in 2017 would have been 24.9% (2016 - 24.6%).
Net loss from continuing operations
Our net loss from continuing operations was $30.6 million ($0.38 per share) in 2017, compared to a loss of $76.0 million
($0.94 per share) in 2016. Our loss in 2017 included $66.9 million of amortization and depreciation expense and $11.1
million of non-cash impairment charges. Our 2016 net loss included $122.0 million of non-cash amortization and
depreciation and $7.5 million of non-cash impairment charges.
TORSTAR CORPORATION 2017 ANNUAL REPORT 19
TORSTAR – Management's Discussion and Analysis
Income (loss) from discontinued operations
In connection with the sale of Harlequin in 2014, 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 income of $1.4 million in 2017 and income of $1.2 million
in 2016 relate to revised estimates of indemnity provisions related to legal costs, taxes and other costs.
Net income (loss) attributable to equity shareholders
Our net loss attributable to equity shareholders was $29.2 million ($0.36 per share) in 2017 compared to net loss attributable
to equity shareholders of $74.8 million ($0.93 per share) in 2016.
Segment Operating Results – Community Brands
Revenues
Revenues in the Community Brands segment were down $28.1 million or 8.5% in 2017. Local advertising revenues, on
a combined print and digital basis, which represents the largest portion of the Community Brands advertising revenues,
were down 9.5% in 2017. Within the combined print and digital local advertising revenues, declines in the real estate
category improved noticeably through the year. Flyer distribution revenues which represented 36% of the Community
Brands' total revenue in 2017 were down 5.3%. Flyer distribution revenues in the latter half of 2017 were negatively
impacted by financial challenges experienced by certain of our retail clients. National advertising revenues, on a combined
print and digital basis, which represents a less significant portion of the Community Brands overall revenue, were down
24% in 2017.
Relative to the prior year, digital revenues in the Community Brands segment were down 3.5% in 2017. Excluding WagJag,
which was sold on October 30, 2017 for gross proceeds of $0.5 million and which will be accretive to our earnings, digital
revenues in the Community Brands segment were up 2.5% in 2017. This was the result of continued strong growth in
local digital advertising revenue partially offset by lower revenues from other digital properties.
Salaries and benefits costs
The Community Brands' salaries and benefits costs were down $15.1 million or 9.7% in 2017 resulting from $10.9 million
of cost savings from restructuring as well as lower commission costs.
Other operating costs
The Community Brands' other operating costs were down $8.7 million or 6.2% in 2017, as a result of lower circulation
and lower flyer distribution costs, lower newsprint consumption and other cost reductions.
Adjusted EBITDA
The Community Brands' adjusted EBITDA was $31.5 million, down $4.4 million relative to the prior year primarily reflecting
the above noted revenue declines which was largely offset by total cost reductions of $23.8 million, including $10.9 million
in savings from restructuring initiatives.
Operating profit (loss)
The Community Brands' operating profit was $6.4 million in 2017, compared to operating profit of $8.2 million in 2016
largely reflecting lower adjusted EBITDA in 2017.
Segment Operating Results – Daily Brands
Revenues
Revenues from the Daily Brands were down $40.2 million or 11% in 2017 reflecting lower print advertising revenues,
particularly in the national advertising category. National advertising revenues, which represented 16% of the Daily Brands'
overall revenue in 2017, were down 32% in the year. In addition, local print advertising revenues, which represented more
than 20% of the Daily Brands total revenues in the year, were down 9.5% in 2017.
Subscriber revenues, which represented approximately 36% of the Daily Brands total revenue in 2017, were down a
modest 3.6%, while flyer distribution revenues which represented 6% of the Daily Brands total revenue in 2017 were down
14%.
Digital revenues from the Daily Brands were down 6.6% in 2017. Excluding Toronto Star Touch, which was discontinued
effective July 31, 2017, digital revenues from the Daily Brands grew 1.9% in 2017.
TORSTAR CORPORATION 2017 ANNUAL REPORT 20
TORSTAR – Management's Discussion and Analysis
Salaries and benefits costs
The Daily Brands' salaries and benefits costs were down $37.6 million or 27% in 2017 and included the benefit of a $13.4
million digital media tax credit (as this represents recoveries of previously incurred salary and benefits costs). This tax
credit related to a claim made in respect of 2012 and not current year operations. Excluding the impact of the tax credit,
segmented salaries and benefit costs in 2017 for the Daily Brands were down $24.2 million or 18% and reflected the
benefit of savings from restructuring initiatives, including the closure of the Vaughan Printing Facility and lower staffing
costs associated with the discontinuation of Toronto Star Touch.
Other operating costs
The Daily Brands' other operating costs were down $21.7 million or 10% in 2017 reflecting volume related reductions in
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 the third quarter of 2016.
Adjusted EBITDA
The Daily Brands adjusted EBITDA was $26.4 million in 2017, up $19.0 million from 2016. Excluding the benefit of the
$13.4 million digital media tax credit, adjusted EBITDA from the Daily Brands was up $5.6 million reflecting lower revenues
which were more than offset by lower net costs related to Toronto Star Touch, $18.7 million of net savings from restructuring
initiatives, and other cost reductions.
Operating profit (loss)
The Daily Brands' operating loss was $1.8 million in 2017, and included $6.5 million of restructuring and other charges
and $21.5 million of non-cash depreciation and amortization expense. The Daily Brands' operating loss in 2017 reflected
higher adjusted EBITDA and lower restructuring charges relative to 2016.
Segment Operating Results – Digital Ventures
Revenues
Digital Ventures revenues were down $1.7 million or 2.3% in 2017 as revenue growth of $4.8 million at VerticalScope was
offset by lower revenues from Workopolis and eyeReturn. Our proportionate share of VerticalScope's revenue in 2017
was $44.9 million which represented growth of 12% (14% growth in USD) relative to 2016 resulting from a combination
of organic revenue growth and growth from acquisitions.
Salaries and benefits costs
Digital Ventures’ salaries and benefits costs were up $0.7 million or 3.3% in 2017 reflecting lower salary and benefit costs
at Workopolis and eyeReturn, offset by increased salary and benefit costs at VerticalScope in support of organic and
acquisition related growth.
Other operating costs
Digital Ventures' other operating costs were down $2.1 million or 8.3% in 2017 reflecting lower costs at Workopolis and
eyeReturn, partially offset by increased costs at VerticalScope related to growth in the business.
Adjusted EBITDA
Digital Ventures' adjusted EBITDA decreased by $0.4 million to $26.9 million in 2017 reflecting lower adjusted EBITDA
at Workopolis and eyeReturn partially offset by EBITDA growth at VerticalScope. Our proportionate share of VerticalScope's
adjusted EBITDA was $24.8 million in 2017 representing an increase of 4.5% over 2016 (6.5% in USD). Adjusted EBITDA
at VerticalScope as a percentage of revenue in 2017 was 55%.
Operating loss
Digital Ventures' operating loss was $18.6 million in 2017, compared to an operating loss of $60.5 million in 2016, primarily
resulting from a $47.6 million decrease in amortization and depreciation expense (almost entirely related to the
VerticalScope acquisition).
TORSTAR CORPORATION 2017 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 2017 operating results relative to the fourth
quarter of 2016.
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, 2017 and December 31, 2016 and provide a reconciliation
to the consolidated statement of income.
Restructuring and other charges
(4,060)
(1,852)
(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)**
Income from continuing operations
Income from discontinued
operations
Net income
(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
Fourth Quarter 2017
Communities
Dailies
Digital
Ventures
Corporate
Total
Segmented*
Adjustments
&
Eliminations1
Per Consolidated
Statement of
Income
$86,061
$20,279
$189,525
($20,186)
$169,339
$83,185
(35,401)
(33,307)
14,477
(3,187)
(133)
11,157
(13,902)
(47,969)
24,190
(3,188)
17
21,019
($2,143)
(1,272)
(3,415)
(472)
(3,887)
(5,662)
(6,884)
7,733
(9,089)
(319)
(1,675)
(123)
(8,133)
(57,108)
(89,432)
42,985
(15,464)
(907)
26,614
(6,035)
(8,133)
5,744
6,040
(8,402)
8,530
907
1,035
123
$7,097
$19,167
($9,931)
($3,887)
$12,446
$1,158
(51,364)
(83,392)
34,583
(6,934)
27,649
(5,912)
(8,133)
$13,604
$7,847
$850
$8,697
Fourth Quarter 2016
Communities
Dailies
Digital
Ventures
Corporate
Total
Segmented*
Adjustments
&
Eliminations1
Per Consolidated
Statement of
Income
$92,176
$95,665
$20,828
$208,669
($20,261)
$188,408
(40,731)
(37,640)
13,805
(4,103)
(123)
9,579
(2,558)
(800)
$6,221
(30,171)
(54,028)
11,466
(2,743)
(84)
8,639
(1,418)
$7,221
(4,977)
(6,985)
8,866
(8,687)
(209)
(30)
16
(6,700)
($6,714)
($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
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.
Postmedia Transaction
In November 2017, we completed a transaction with Postmedia, in which we purchased and sold a number of daily and
community newspapers. As part of the transaction, we acquired eight weekly community publications, seven daily
TORSTAR CORPORATION 2017 ANNUAL REPORT 22
TORSTAR – Management's Discussion and Analysis
community newspapers and two free daily newspapers from Postmedia. In addition, we sold 22 weekly community
newspapers in eastern and southern Ontario and the Metro Winnipeg and Metro Ottawa free daily publications to
Postmedia. Readers and advertisers of certain publications we acquired are now being serviced by one or more of our
other Community properties while we continue to operate four daily newspapers acquired from Postmedia now included
in our Daily Brands segment. This transaction is expected to contribute to an improvement in annualized operating
earnings in the range of $5 million to $7 million. The Competition Act allows for a one-year period following the completion
of a merger transaction during which the Commissioner of Competition may bring an application to the Competition Tribunal
challenging the transaction on the basis that it prevents or lessens competition substantially in any relevant market. Please
see Section 16 of this MD&A for further discussion.
Revenue
Segmented revenue was down $19.2 million or 9.2% in the fourth quarter and included revenue growth of $0.8 million
(6.9%) from VerticalScope (12% in USD). Segmented revenue in the fourth quarter of 2017 reflected declines of 16% in
print advertising revenues, with particular softness in national advertising revenues, an 8.9% decrease in distribution
revenues and subscriber revenues which were comparable to the fourth quarter of 2016. As a result of the sale of a
number of our weekly community newspapers and our purchase of additional daily newspaper publications in November
2017 (refer to further discussion in Section 3 of this MD&A), revenues in the Community Brands segment were $2.7 million
lower in the fourth quarter of 2017, while revenues in the Daily Brands segment increased by $1.2 million in the fourth
quarter.
Operating revenue (excluding our proportionate share of revenues from our joint ventures and our 56% interest in
VerticalScope) was down $19.1 million or 10% in the fourth quarter of 2017.
Digital revenue in the fourth quarter of 2017 was down 1.1% relative to the fourth quarter of 2016 reflecting lower revenues
at eyeReturn, Workopolis, Toronto Star Touch and WagJag offset by continued solid growth at VerticalScope as well as
in local digital advertising within the community websites in the Communities segment. Toronto Star Touch was discontinued
effective July 31, 2017 and we sold WagJag and related assets for gross proceeds of $0.5 million on October 30, 2017,
both of which are accretive to our earnings. Digital revenues were 19% of total revenue in 2017 compared to 18% in
2016.
Salaries and benefits
Our segmented salaries and benefits costs decreased $20.5 million or 26% in the fourth quarter of 2017 and included the
benefit of a $13.4 million digital media tax credit (as this represents recoveries of previously incurred salary and benefits
costs). This tax credit related to a claim made in respect of 2012 and not current year operations. Excluding the impact
of the tax credit, segmented salaries and benefit costs in the fourth quarter of 2017 were down $7.1 million or 9.2%
reflecting the benefit of savings from restructuring initiatives, as well as lower staffing costs associated with Toronto Star
Touch and $0.7 million of lower costs associated with the sale of publications to Postmedia.
Other operating costs
Segmented other operating costs primarily consist of circulation/flyer distribution costs, newsprint costs and other
production costs which represented 42%, 12% and 14% respectively of segmented other operating costs in the fourth
quarter of 2017. Segmented other operating costs were down $9.7 million or 10% in the fourth quarter as a result of lower
print volumes and the impact of other cost reductions as well as $1.2 million of lower costs associated with the sale of
publications to Postmedia.
Adjusted EBITDA
Our segmented adjusted EBITDA was $43.0 million in the fourth quarter of 2017, an improvement of $11.1 million from
the fourth quarter of 2016. Segmented adjusted EBITDA in the Daily Brands segment was $24.2 million in the fourth
quarter of 2017, an improvement of $12.7 million relative to the fourth quarter of 2016 and which included the benefit of
a $13.4 million digital media tax credit. This tax credit related to a claim made in respect of 2012 and not current year
operations. Segmented adjusted EBITDA in the Community Brands segment was $14.5 million, up $0.7 million relative
to the comparable period in 2016 while segmented adjusted EBITDA in the Digital Ventures segment was $7.7 million, a
decrease of $1.2 million relative to the fourth quarter of 2016. Segmented adjusted EBITDA in the fourth quarter of 2017
included $5.7 million of savings from restructuring initiatives and $0.8 million of costs related to our transformation initiatives.
Operating earnings
Segmented operating earnings were $26.6 million in the fourth quarter of 2017, an improvement of $11.2 million from
operating earnings of $15.4 million in the fourth quarter of 2016 due primarily to an increase in adjusted EBITDA.
TORSTAR CORPORATION 2017 ANNUAL REPORT 23
TORSTAR – Management's Discussion and Analysis
Restructuring and other charges
Total segmented restructuring and other charges were $6.0 million in the fourth quarter of 2017 and $4.4 million in the
comparable period in 2016. Of the restructuring provisions in the fourth quarter of 2017, $3.6 million related to ongoing
efforts to reduce costs while $2.4 million related to restructuring associated with publications we acquired from Postmedia
in November 2017. Excluding the restructuring associated with publications we acquired from Postmedia, the 2017
restructuring initiatives are expected to result in annualized net savings of $2.8 million and a reduction of approximately
30 positions. $0.1 million of the savings associated with these initiatives were realized in the fourth quarter of 2017.
Impairment of assets
During the fourth quarter of 2017, we incurred non-cash charges related to asset impairment of $8.1 million in respect of
goodwill in the Digital Ventures CGU (2016 - $7.5 million related to intangible assets and investments in joint ventures).
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
In the fourth quarter of 2017 our segmented operating profit was $12.4 million compared to $3.5 million in the fourth
quarter of 2016.
Our operating profit, excluding our proportionate share of operating profit from our joint ventures and our investment in
VerticalScope, increased $3.3 million in the fourth quarter of 2017 to $13.6 million.
Income (loss) from joint ventures
Income from joint ventures was $0.6 million in the fourth quarter of 2017 compared to a loss of $6.5 million in the fourth
quarter of 2016. 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.
Income (loss) from associated businesses
Loss from associated businesses was $2.0 million in the fourth quarter of 2017 compared to income of $2.3 million in the
fourth quarter of 2016. The loss in the fourth quarter of 2017 included a loss of $2.9 million from Black Press and a loss
of $0.3 million from Blue Ant, partially offset by income of $1.5 million from VerticalScope. Income from VerticalScope in
the fourth quarter of 2017 included a $5.0 million gain related to one of their acquisitions as well as $8.1 million of
amortization expense. Income from associated businesses in the fourth quarter of 2016 included income of $2.2 million
from Black Press and $1.7 million from Blue Ant partially offset by a loss of $1.5 million from VerticalScope. The fourth
quarter 2016 loss from VerticalScope included $7.7 million of amortization expense.
Other income
Other income was $3.9 million in the fourth quarter of 2017 and $nil in the fourth quarter of 2016. Other income in the
fourth quarter of 2017 included a gain of $3.2 million related to the sale of publications to Postmedia as well as a gain of
$0.5 million on the sale of WagJag and related assets.
Income and other taxes
We recorded income tax expense of $6.9 million in the fourth quarter of 2017 and income tax expense of $4.2 million in
the fourth quarter of 2016. Excluding the impact of non-deductible impairment charges, loss of joint ventures and associated
businesses and the movement in deferred income tax assets not recognized, the Company’s effective tax rate in the fourth
quarter of 2017 would have been 23.7% (2016 - 18.6%).
Net income from continuing operations
Our net income from continuing operations was $7.8 million ($0.10 per share) in the fourth quarter of 2017. This compares
to net income of $0.7 million ($0.01 per share) in the fourth quarter of 2016.
The following chart provides a continuity of earnings per share from the fourth quarter of 2016 to the fourth quarter of
2017:
TORSTAR CORPORATION 2017 ANNUAL REPORT 24
TORSTAR – Management's Discussion and Analysis
Earnings per share from continuing operations attributable to equity
shareholders in 2016
Changes
• Adjusted EBITDA *
• Operating earnings (loss)*
• Restructuring and other charges*
• Impairment of assets*
• Operating profit *
• Income (loss) from associated businesses (excluding VerticalScope)
• Other income
• Change in deferred taxes (including associated businesses)
Earnings per share attributable to equity shareholders in 2017
Earnings (Loss) Per Share
Adjusted Earnings (Loss)
Per Share **
$0.01
0.14
0.15
(0.02)
(0.01)
0.12
(0.09)
0.05
0.02
$0.10
$0.16
0.14
0.30
0.30
(0.09)
0.11
$0.32
*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 from discontinued operations
Income from discontinued operations of $0.9 million in the fourth quarter of 2017 and $0.4 million in the fourth quarter of
2016 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, legal and other costs.
Segment Operating Results – Community Brands
Revenues
Revenues from the Community Brands segment were down $9.0 million or 9.8% in the fourth quarter of 2017, compared
to the fourth quarter of 2016 with $2.7 million of the decrease in revenue resulting from the sale of publications to Postmedia
in November 2017 (Refer to Section 3 of this MD&A). Local advertising revenues, which represent the largest portion of
the Community Brands' advertising revenues, on a combined print and digital basis, were down 9.8% in the fourth quarter
of 2017 (9.4% excluding the impact of the Postmedia transaction). Relative to earlier in the year, combined print and digital
declines in the real estate category improved noticeably in the fourth quarter. National advertising revenues, on a combined
print and digital basis, which represent a less significant portion of the Community Brands' overall revenue, were down
22% in the fourth quarter 2017 (14% excluding the impact of the Postmedia transaction) representing a slight improvement
in the trend relative to earlier in the year. Flyer distribution revenues which represented 38% of the Community Brands
total revenue in the fourth quarter of 2017 were down 8.3% (5.1% excluding the impact of the Postmedia transaction).
Revenues were negatively impacted by financial challenges experienced by certain of our retail clients.
Relative to the prior year, digital revenues in the Community Brands segment were down 3.1% in the fourth quarter of
2017. Excluding WagJag, which was sold on October 30, 2017, digital revenues in the Community Brands segment were
up 7.4% in the fourth quarter of 2017. This was the result of continued strong growth in local digital advertising revenue.
Salaries and benefits costs
The Community Brands' salaries and benefits costs were down $5.3 million or 13% in the fourth quarter of 2017 from the
fourth quarter of 2016 and included the benefit of $2.6 million in cost savings from restructuring as well as $0.9 million of
lower costs associated with the sale of publications to Postmedia.
Other operating costs
The Community Brands' other operating costs were down $4.3 million or 11% in the fourth quarter of 2017, relative to the
same period in 2016 as a result of volume related reductions in circulation and flyer distribution costs, lower newsprint
consumption and price, and other cost reductions including $2.1 million of lower costs associated with the sale of
publications to Postmedia.
Adjusted EBITDA
The Community Brands' adjusted EBITDA was up $0.7 million in the fourth quarter of 2017 from the fourth quarter of 2016
primarily reflecting the above noted revenue declines which was more than offset by the impact of $9.6 million in lower
total costs, including $2.6 million of savings related to restructuring initiatives.
TORSTAR CORPORATION 2017 ANNUAL REPORT 25
TORSTAR – Management's Discussion and Analysis
Operating profit
The Community Brands' operating profit was $7.1 million in the fourth quarter of 2017, an increase of $0.9 million from
$6.2 million in the fourth quarter of 2016 reflecting higher adjusted EBITDA and lower amortization and depreciation
expense partially offset by higher restructuring and other charges.
Segment Operating Results – Daily Brands
Revenues
Daily Brands segment revenues were down $9.6 million or 10% in the fourth quarter of 2017 from the fourth quarter of
2016 primarily reflecting lower print advertising revenues as national print advertising revenues, which represented 16%
of the Daily Brands' overall revenue in the fourth quarter of 2017, were down 30% relative to the fourth quarter of 2016
(29% excluding the impact pf the Postmedia transaction). In addition, local print advertising revenues, which represent
22% of the Daily Brands' total revenues in the quarter, were down 11% (13% excluding the impact of the Postmedia
transaction). Print advertising revenues from the Daily Brands segment were $0.5 million higher in the fourth quarter of
2017 as a result of the transaction with Postmedia in November 2017.
Subscriber revenues, which represented 34% of the Daily Brands total revenue in the fourth quarter of 2017, were
comparable to the fourth quarter of 2016 and included the benefit of an incremental $0.5 million in subscriber revenues
associated with the four daily newspapers we continued to operate following the Postmedia transaction. Excluding the
impact of the Postmedia transaction, subscriber revenues were down by $0.2 million or 1% in 2017. Flyer distribution
revenues, which represented 7% of the Daily Brands total revenue in the fourth quarter of 2017, were down 12% relative
to the comparable period in 2016.
Digital revenues from the Daily Brands segment grew 6.1% in the fourth quarter of 2017. Excluding Toronto Star Touch,
which was discontinued effective July 31, 2017, digital revenues from the Daily Brands grew 14% in the fourth quarter of
2017 representing a noticeable improvement from the trend earlier in the year. Results in the quarter reflected growth at
thestar.com and the other daily websites.
Salaries and benefits costs
The Daily Brands' salaries and benefits costs decreased $16.3 million (54%) in the fourth quarter of 2017 compared with
the fourth quarter of 2016 and included the benefit of a $13.4 million digital media tax credit. Excluding the impact of the
tax credit, segmented salaries and benefit costs in the fourth quarter of 2017 were down $2.9 million or 9.6% as a result
of savings from restructuring initiatives including lower staffing costs associated with the discontinuation of Toronto Star
Touch.
Other operating costs
The Daily Brands' other operating costs were down $6.0 million or 11% in the fourth quarter of 2017 compared with the
fourth quarter of 2016 reflecting lower costs for Toronto Star Touch, lower circulation and distribution costs, lower newsprint
consumption and other cost reductions including $0.9 million of lower costs associated with the sale of publications to
Postmedia.
Adjusted EBITDA
The Daily Brands' adjusted EBITDA was $24.2 million in the fourth quarter of 2017, up $12.7 million from the fourth quarter
of 2016. The improvement in the fourth quarter of 2017 included a $13.4 million digital media tax credit. Adjusting for the
tax credit, the Daily Brands' segmented adjusted EBITDA decreased $0.7 million in the fourth quarter as $3.1 million of
net savings from restructuring initiatives and other cost reductions did not fully offset the above noted revenue declines.
Operating profit
The Daily Brands' operating profit was $19.2 million in the fourth quarter of 2017, an increase of $12.0 million compared
to operating profit of $7.2 million in the fourth quarter of 2016. The improvement in operating profit in the fourth quarter
of 2017 primarily reflects improvement in adjusted EBITDA which included the benefit of a $13.4 million digital media tax
credit.
TORSTAR CORPORATION 2017 ANNUAL REPORT 26
TORSTAR – Management's Discussion and Analysis
Segment Operating Results – Digital Ventures
Revenues
Digital Ventures' revenues decreased $0.5 million (2.4%) in the fourth quarter of 2017, as revenue growth at VerticalScope
was more than offset by lower revenues from Workopolis and eyeReturn. Our proportionate share of VerticalScope's
revenue in the fourth quarter of 2017 was $12.4 million which represented growth of 6.9% (12% in USD) relative to the
fourth quarter of 2016 and which largely resulted from growth from acquisitions.
Salaries and benefits costs
Digital Ventures’ salaries and benefits costs were up $0.7 million or 14% in the fourth quarter of 2017 compared with the
fourth quarter of 2016 primarily reflecting lower salary and benefit costs at Workopolis and eyeReturn, offset by increased
salary and benefit costs in support of organic and acquisition related growth at VerticalScope.
Other operating costs
Digital Ventures' other operating costs were down $0.1 million or 1.4% in the fourth quarter of 2017 from the relative period
in 2016 reflecting lower costs at Workopolis and eyeReturn partially offset by increased costs at VerticalScope related to
growth in the business.
Adjusted EBITDA
Digital Ventures' adjusted EBITDA was $7.7 million in the fourth quarter of 2017, down $1.2 million from $8.9 million in
the fourth quarter of 2016 reflecting lower adjusted EBITDA at both eyeReturn and at VerticalScope. Our proportionate
share of adjusted EBITDA at VerticalScope was $6.6 million in the fourth quarter of 2017 which represented 53% of
revenue.
Operating profit (loss)
Digital Ventures' operating loss was $9.9 million in the fourth quarter of 2017, compared to an operating loss of $6.7 million
in the fourth quarter of 2016.
5. Outlook
The outlook for our business in 2018
In 2017, the Community Brands and the Daily Brands segments continued to face a challenging print advertising market
resulting from ongoing shifts in spending by advertisers particularly in the national advertising category while declines were
more moderate in the local advertising categories. While these trends have continued early into 2018, it is difficult to predict
if these trends will improve or worsen in the balance of the year. Flyer distribution revenues declined 6.6% in 2017 with flyer
distribution revenues in the latter half of 2017 being negatively impacted by the financial challenges experienced by certain
retail clients, and we expect flyer distribution revenues to continue to be impacted into the early part of 2018. Subscriber
revenues declined a modest 3.7% in 2017 and we expect these declines to increase marginally in 2018 as we focus on
subscriber profitability. Overall digital revenue at the Community Brands and Daily Brands is expected to grow in 2018 as
it continues to benefit from growth at thestar.com and in local digital advertising at both the daily newspaper sites and the
community sites offset by expected continued declines in other digital verticals.
We expect that the transaction with Postmedia in November 2017 will have a positive effect on earnings due to anticipated
synergies, but a negative effect on revenue. We expect that this transaction will contribute to an improvement in operating
earnings in the range of $5 million to $7 million in 2018. The full year impact of properties acquired and sold would have
resulted in a net reduction in revenue in 2017 of approximately $14 million ($22 million lower in the Community Brands
segment and $8 million higher in the Daily Brands segment).
Segmented operating earnings within the Digital Ventures segment predominantly reflect the underlying results of
VerticalScope. In the latter half of 2017, VerticalScope added cost to support additional organic and acquisition related
growth which we anticipate will translate into higher rates of growth in both revenue and adjusted EBITDA in 2018 relative
to the growth rates experienced in 2017.
In 2018, we expect the cost base to benefit from $9.9 million of savings related to restructuring initiatives undertaken to
date, exclusive of those related to the Postmedia transaction ($4.0 million in the Community Brands segment and $5.9
million in the Daily Brands segment). We are expecting to identify additional cost savings which we expect will largely offset
additional operating expenses in areas important to our transformation efforts. Capital expenditures in 2018 are currently
TORSTAR CORPORATION 2017 ANNUAL REPORT 27
TORSTAR – Management's Discussion and Analysis
anticipated to be in the range of $15 million, including approximately $5 million of additional capital spending related to
technology platforms in connection with our transformation activities.
From a cash flow perspective, we currently expect full year contributions to our registered defined benefit pension plans in
2018 to be approximately $9 million, down from $10.9 million in 2017, and roughly $1.5 million lower than the expected
expense included in our operating earnings in 2018. (Refer to further discussion in Section 8 of this MD&A).
The Ontario Government has now released final details of their proposed funding framework which is expected to be effective
beginning in 2019. While there can be no certainty that the Ontario Government's new funding framework will be enacted
as proposed, our preliminary analysis indicates that normal funding of our defined benefit pension plans for 2019 would be
in the range of $8 million - $12 million, subject to changes in pension asset returns and interest rates.
In addition, as a result of changes surrounding regulations of single employer and jointly-sponsored pension plans, we are
engaged in exploring a potential merger of our defined benefit pension plans with the CAAT jointly-sponsored defined benefit
pension plan. We are in the early stages of such a process. Various approvals, including government approvals, member
consent, final approval by Torstar and CAAT, would be required to complete such a merger and as a result, there can be
no certainty as to the potential outcome.
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 in the foreseeable future acknowledging that beginning in 2019 we anticipate
that funding of our registered defined benefit pension plans will be subject to the new funding framework that the Ontario
Government intends to enact sometime in 2018 (refer to further discussion in Section 8 of this MD&A). In the future we
may need to take additional measures to increase our liquidity and capital resources. We currently expect that we would
do so through the sale of investments or assets, obtaining additional debt or equity financing, reducing distributions to
shareholders or reducing capital expenditures.
In 2017, we generated $15.4 million of cash from operating activities, used $11.5 million of cash in investing activities and
used $7.9 million of cash in financing activities.
In the fourth quarter of 2017, we generated $23.6 million of cash from operating activities, used $1.7 million of cash in
investing activities and used $1.9 million in financing activities.
At December 31, 2017, we had $71.4 million of cash and cash equivalents as well as $9.1 million of restricted cash. Restricted
cash included $7.7 million held as collateral for outstanding standby letters of credit supporting an unfunded executive
retirement plan liability. At December 31, 2016 we had $75.4 million of cash and cash equivalents as well as $11.8 million
of restricted cash which included $10.5 million held as collateral for outstanding standby letters of credit supporting an
unfunded executive retirement plan liability.
Operating Activities
In 2017, we generated $15.4 million of cash from operating activities. This included $16.8 million of funding towards our
employee future benefit plans of which $10.9 million was contributed to registered defined benefit pension plans and $5.9
million was applied to unfunded pension and other post employment benefit plans. In addition, non-cash working capital
increased $10.2 million and restricted cash decreased $2.8 million in 2017. During 2016, we used $10.6 million of cash
from operating activities which included funding of $30.4 million of contributions to our employee future benefit plans, an
$11.0 million decrease in non-cash working capital and a $3.3 million decrease in restricted cash.
In the fourth quarter of 2017, we generated $23.6 million of cash from operating activities which included $1.2 million of
funding towards our employee future benefit plans and a $8.1 million increase in non-cash working capital. During the fourth
quarter of 2016 we generated cash of $11.7 million of cash from operating activities. This included $15.9 million of
contributions to our employee future benefit plans, a $2.5 million increase in non-cash working capital and a decrease of
$6.9 million in restricted cash.
TORSTAR CORPORATION 2017 ANNUAL REPORT 28
TORSTAR – Management's Discussion and Analysis
Investing Activities
During 2017, we used $11.5 million of cash in investing activities primarily for $11.4 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 2016, we generated $65.3 million of cash from 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 Community Brands real estate properties. We also received $22.8 million
from the release of escrowed cash related to the sale of Harlequin in February 2016.
During the fourth quarter of 2017, we used $1.7 million of cash from investing activities primarily for additions to property,
plant and equipment and intangible assets. During the fourth quarter of 2016, we used $4.2 million of cash in investing
activities.
Financing Activities
In 2017 we used cash of $7.9 million in financing activities which was primarily used for the payment of dividends. In 2016
cash of $14.5 million was used in financing activities with $14.3 million used for the payment of dividends.
We used cash of $1.9 million and $2.0 million for financing activities in the fourth quarters of 2017 and 2016 respectively,
which was primarily used in the payment of dividends.
Dividends per share were 2.5 cents in each quarter of 2017. 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.
Contractual Obligations and Other
As at December 31, 2017, 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
$37,849
49,118
$86,967
($4,601)
2018
$13,893
24,963
$38,856
($2,114)
2019 – 2020
$20,631
20,894
$41,525
($2,487)
2021 – 2022
$3,152
3,261
$6,413
2023+
$173
$173
On January 10, 2018 we received a notice from the Ontario Media Development Corporation approving one of our 2012
Ontario Interactive Digital Media Tax Credit claims. This claim will now be subject to audit by the Canada Revenue Agency
and we anticipate this will occur within the next 12 months. Accordingly, in the fourth quarter of 2017, we recorded a payroll
recovery of $13.4 million in our Daily Brands segment. While we have filed additional claims in respect of these credits,
there is uncertainty regarding timing and amounts (if any) that may ultimately be received under this program or any of these
tax credits. In addition, we are not eligible to make any further claims under this program for periods subsequent to April
23, 2015.
Outstanding Share and Share Option Information
As at February 23, 2018, we had 9,817,215 Class A voting shares and 71,037,088 Class B non-voting shares outstanding.
As at December 31, 2017 we had 9,817,215 Class A voting shares and 71,037,138 Class B non-voting shares outstanding.
More information on our share capital is provided in Note 20 of the 2017 Consolidated Financial Statements.
As at February 23, 2018, we had 6,953,187 (December 31, 2017 - 7,028,109) 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 2017
Consolidated Financial Statements.
TORSTAR CORPORATION 2017 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, we continue to enter into zero
cost collar arrangements to hedge the original net investment of U.S $137 million. As at December 31, 2016, the outstanding
collar arrangement for U.S. $137 million which matured in 2017 established a rate of exchange with a range of Cdn $1.19
to Cdn $1.46 for U.S. $1.00. In February 2017, in connection with the expiry of the 2016 collar arrangement we simultaneously
entered into a new U.S. $137.0 million zero cost collar arrangement maturing in 2018, with a range of Cdn $1.20 to Cdn
$1.40 for U.S. $1.00.
The collar arrangements were 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, and 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 2018, at the expiry of the 2017 collar arrangement we simultaneously entered into a new U.S. $137.0 million
zero cost collar arrangement maturing in August 2018, with a range of Cdn $1.15 to Cdn $1.31 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 obligations as at December 31:
($000’s)
Registered pension plans
Unregistered/unfunded pension plans
Post employment benefit plan
2017
($47,548)
(8,947)
(48,221)
($104,716)
2016
($12,661)
(10,658)
(47,015)
($70,334)
At December 31, 2017, our net deficit related to our defined benefit pension plans was $47.5 million, representing an
unfavourable movement of $17.7 million from a net deficit of $29.8 million at September 30, 2017 and an unfavourable
movement of $34.9 million from a net deficit of $12.7 million at December 31, 2016.
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
2017
($12,237)
(305)
(199)
($12,741)
2016
($15,236)
(612)
413
($15,435)
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.
TORSTAR CORPORATION 2017 ANNUAL REPORT 30
TORSTAR – Management's Discussion and Analysis
The significant assumptions made by management in 2017 and 2016 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
2017
2016
3.1% to 3.4%
3.2% to 3.8%
2.5%
2.5%
3.1% to 3.9%
2.0% to 2.5%
3.2% to 3.8%
2.5%
2018
3.1% to 3.4%
2.5%
The discount rates of 3.1% to 3.4% were the yields at December 31, 2017 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, 2017 of $114.2 million. A discount rate that was one percent lower would have increased the
value of the net pension plan obligation at December 31, 2017 by $130.2 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, 2017 would be approximately $5.0 million lower. If the estimated discount rate were one percent lower, the
obligation at December 31, 2017 would be approximately $6.1 million higher. For health care costs, the estimated trend
was for a 5.0% increase for the 2017 expense. For 2018, 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, 2017 would be approximately
$1.5 million higher. If the estimated increase in health care costs were one percent lower, the obligation at December 31,
2017 would be approximately $1.3 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 $35.8 million were recognized through OCI in 2017 and
actuarial losses of $1.7 million were recognized through OCI in 2016.
There have been two key developments which will also impact future funding of our defined benefit pension plans. First, on
May 19, 2017, the Ontario government announced that it is "implementing a new framework in respect of defined benefit
pension plans" which will include a new funding framework. (http://www.fin.gov.on.ca/en/pension/solvency/). In December
2017, the Ontario government also announced additional detail regarding the proposed funding framework.
According to the announcements, highlights of the new funding framework for defined benefit pension plans include: requiring
funding on enhanced going concern basis; changes to the going concern funding rules including shortening the amortization
period from 15 years to 10 years for funding a shortfall in the plan and consolidating special payment requirements into a
single schedule, requiring funding of a reserve within the plan, called a Provision for Adverse Deviation or PfAD and requiring
funding on a solvency basis in the event that a plan's funded status falls below 85 per cent (and not requiring funding on a
solvency basis where the plan's funded status is above 85 percent or higher).
TORSTAR CORPORATION 2017 ANNUAL REPORT 31
TORSTAR – Management's Discussion and Analysis
Second, in June 2017, the Ontario Government issued interim solvency relief measures applicable to December 31, 2016
actuarial valuations (https://www.ontario.ca/laws/regulation/r17225) which permit the implementation of new solvency
funding schedules required as a result of these actuarial valuations to be deferred for 24 months from January 1, 2017 to
January 1, 2019.
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, 2016. Based on these valuations, as well as the impact of interim solvency relief
measures applicable to December 31, 2016 actuarial valuations, we currently anticipate that 2018 minimum required funding
in respect of registered defined benefit pension plans will be approximately $9 million. While there can be no certainty that
the Ontario Government's new funding framework will be enacted as proposed, our preliminary analysis indicates that
normal funding of our defined benefit pension plans for 2019 would be in the range of $8 million - $12 million subject to
changes in pension asset returns and interest rates.
Based on the December 31, 2016 solvency report, we had an estimated solvency deficit of $119 million at December 31,
2016. 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 $148 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 0.13% in 2017 from December 31, 2016. Given the change in the discount rate, combined with asset returns from
December 31, 2016 through to December 31, 2017, we estimate that the solvency deficit for these plans at December 31,
2017 was approximately $98 million.
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 2017 Consolidated Financial Statements are outlined in Note 2 of
the 2017 Consolidated Financial Statements for the year ended December 31, 2017. Several new amendments and
interpretations applied for the first time in 2017. However, they had little or no impact on our consolidated financial statements.
Accounting Estimates and Judgements
The preparation of our 2017 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, tax credits 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 several 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:
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.
TORSTAR CORPORATION 2017 ANNUAL REPORT 32
TORSTAR – Management's Discussion and Analysis
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 2017 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 fair value less cost
to sell ("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 2017 Consolidated Financial
Statements for further details about the methods and assumptions used in estimating the recoverable amount.
As at December 31, 2017 the carrying value of investments, intangible assets and property, plant & equipment represented
35%, 8%, and 11% 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, 2016 the carrying value of
investments, intangible assets, property, plant and equipment and goodwill represented 33%, 10%, 11% and 1% respectively
of total assets. These values, for the applicable segments, are outlined in the notes to the 2017 Consolidated Financial
Statements. In the year ended December 31, 2017, we recorded impairment charges (on a segmented basis), related to
goodwill and investments totaling $11.1 million. In the year ended December 31, 2016, we recorded impairment charges
(on a segmented basis), related to intangible assets and investments totaling $7.5 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 2017.
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
TORSTAR CORPORATION 2017 ANNUAL REPORT 33
TORSTAR – Management's Discussion and Analysis
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 calculated 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 2017 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 2017 and 2016 for Black Press and until the third quarter of 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.
Determination of operating segments, reportable segments and CGUs
During the fourth quarter of 2017, we realigned our management structure and operating segments to better align our
operations by type of publication. Accordingly, we have three reportable operating segments for segment reporting purposes:
Community Brands, Daily Brands and Digital Ventures. “Corporate” is the provision of corporate services and administrative
support. Our chief operating decision-maker monitors the operating results of the operating units separately for the purpose
TORSTAR CORPORATION 2017 ANNUAL REPORT 34
TORSTAR – Management's Discussion and Analysis
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.
Each of the Communities, Dailies and Digital Ventures segments include CGUs which have been grouped together for
purposes of impairment testing. Within the Communities segment, we have identified a number of CGUs including the
community newspapers and their flyer distribution and printing operations as well as a number of separate digital CGUs.
Within the Dailies segment, we have identified the Toronto Star and the Metro publications as well as a number of other
smaller digital platforms as one CGU and the regional dailies as a separate CGU which includes the Hamilton Spectator,
Waterloo Region Record, St. Catharines Standard, Welland Tribute, Niagara Falls Review, Peterborough Examiner and
their respective flyer distribution operations. Within the Digital Ventures segment, we have identified eyeReturn 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(s) in our 2017 Consolidated Financial Statements. The following new standards or amendments
to accounting standards, which will be effective subsequent to 2017, are expected to have an impact on the interim or annual
consolidated financial statements or related disclosures:
In May 2014, the IASB issued IFRS 15 Revenue from Contracts with Customers 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 have evaluated the new standard and there is no material impact on the consolidated financial statements
from adoption of this standard. We plan to adopt the standard on its effective date of January 1, 2018.
In July 2014, the IASB issued a finalized version of IFRS 9 Financial Instruments which contains accounting requirements
for financial instruments. We have evaluated the application of IFRS 9 to Torstar and we expect that (i) portfolio investments
will be classified as fair value through other comprehensive income and, (ii) the hedge of the net investment in VerticalScope
will be treated as a continuing hedge and previously recognized gains from the change in fair value of the hedges will be
reclassified from retained earnings to a new category in the consolidated statement of changes in equity. We plan to adopt
the standard on its effective date of January 1, 2018.
In addition, we also will present additional disclosure upon adoption of both IFRS 9 and IFRS 15.
In January 2016, the IASB issued IFRS 16 Leases 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.
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, 2017, 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, 2017, our disclosure controls and procedures were effective.
TORSTAR CORPORATION 2017 ANNUAL REPORT 35
TORSTAR – Management's Discussion and Analysis
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, 2017.
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, 2017, that have materially affected, or are reasonably likely to materially affect, our internal controls over
financial reporting.
12. Selected Annual Information
A summary of selected annual financial information for 2017, 2016 and 2015
(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 and Diluted
Average number of shares outstanding during the year (in 000’s)
Basic and Diluted
Cash dividends per Class A voting and Class B non-voting share
Total assets
2017
$615,685
$691,600
($30,638)
($0.38)
(29,288)
(29,171)
2016
$685,099
$761,697
($76,036)
($0.94)
(74,836)
(74,750)
2015
$786,631
$843,640
($399,837)
($4.96)
(404,837)
(403,966)
($0.36)
($0.93)
($5.02)
80,785
$0.100
$481,227
80,653
$0.180
$564,491
80,400
$0.525
$696,416
*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 discontinuation of Toronto Star Touch in the third quarter of 2017, the sale of WagJag in the
fourth quarter of 2017 and the closure of Olive Media on December 31, 2015, digital revenues increased 0.3% in 2017, 18%
in 2016 and 14% in 2015. The increases in 2016 and 2015 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.
TORSTAR CORPORATION 2017 ANNUAL REPORT 36
TORSTAR – Management's Discussion and Analysis
Total assets have declined over the three-year period reflecting total impairment charges of $11.1 million in 2017, $7.5
million in 2016 and $361.1 million in 2015. In addition, on a segmented basis, we recorded amortization and depreciation
expenses totaling $66.9 million in 2017, $122.0 million in 2016, and $77.5 million in 2015, largely related to the investment
in VerticalScope in July 2015.
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,
2017
$169,339
Sep 30,
2017
$145,913
Jun 30,
2017
$161,757
Mar 31,
2017
$138,676
Dec 31,
2016
$188,408
Sep 30,
2016
$162,098
Jun 30,
2016
$177,912
Mar 31,
2016
$156,681
Quarter Ended
$7,847
($6,589)
($7,499)
($24,397)
$683
$1,081
($24,268)
($53,532)
Basic and Diluted
$0.10
($0.08)
($0.09)
($0.30)
$0.01
$0.01
($0.30)
($0.66)
Net Income (loss) attributable to
equity shareholders
Per Class A voting and Class B non-
voting share
$8,652
($6,557)
($6,988)
($24,278)
$1,264
$1,432
($23,923)
($53,523)
Basic and Diluted
$0.11
($0.08)
($0.09)
($0.30)
$0.01
$0.02
($0.30)
($0.66)
The summary of quarterly results illustrates the cyclical nature of revenues and operating profit in Daily Brands, Community
Brands 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 $4.9 million, $6.2 million, $1.7 million and $6.0 million in the first, second, third
and fourth quarters of 2017 and $31.8 million, $6.9 million, $3.7 million and $4.4 million in the first, second, third and fourth
quarters of 2016 respectively. Additionally, losses on impairment of assets (reported on a segmented basis) of $3.0 million
and $8.1 million were recorded in the first and fourth quarters of 2017 respectively and $7.5 million was recorded in the
fourth quarter of 2016.
In addition, the second and fourth quarters of 2017 included pre-tax recoveries from discontinued operations of $0.6 million
and $1.0 million respectively while 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, 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 loss, 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 2017 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 2017 ANNUAL REPORT 37
TORSTAR – Management's Discussion and Analysis
Adjusted EBITDA/Segmented Adjusted EBITDA
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.
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
2017
Fourth Quarter
2016
Fourth Quarter
2017
Fourth Quarter
2016
$12,446
6,035
8,133
$26,614
907
15,464
$42,985
$3,490
4,440
7,500
$15,430
918
15,563
$31,911
$13,604
5,912
8,133
$27,649
6,934
$34,583
$10,262
3,698
800
$14,760
7,349
$22,109
TORSTAR CORPORATION 2017 ANNUAL REPORT 38
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
Segmented
Per Consolidated Statement of Income
Twelve months
ended
December 31, 2017
Twelve months
ended
December 31, 2016
Twelve months
ended
December 31, 2017
Twelve months
ended
December 31, 2016
($25,134)
18,850
11,133
$4,849
2,492
66,868
$74,209
($118,507)
46,907
7,500
($64,100)
2,554
122,024
$60,478
($18,484)
17,512
8,133
$7,161
36,987
$44,148
($61,051)
45,823
800
($14,428)
44,020
$29,592
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
2017
2016
2017
2016
$0.32
(0.07)
(0.10)
(0.01)
0.05
(0.09)
$0.10
$0.16
(0.06)
(0.09)
$0.01
$0.01
(0.23)
(0.14)
0.01
0.05
(0.08)
($0.38)
($0.46)
(0.58)
(0.09)
0.30
(0.11)
($0.94)
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
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
TORSTAR CORPORATION 2017 ANNUAL REPORT 39
TORSTAR – Management's Discussion and Analysis
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 2017, 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, the distribution of inserts and flyers and the generation of
circulation/subscription revenue. Advertising revenue includes in-paper advertising, digital advertising and specialty
publications.
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. 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.
TORSTAR CORPORATION 2017 ANNUAL REPORT 40
TORSTAR – Management's Discussion and Analysis
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 flyers, digital classifieds, digital directories, social
media, mobile advertising, loyalty programs, ecommerce and digital retailers 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 large 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 and other 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 or effectively 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, and evolution of, 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 contribute to 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 in print 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 declining. 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
digital advertising revenue, it may have a negative impact on print circulation/subscription volumes and revenues and also
on print 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
TORSTAR CORPORATION 2017 ANNUAL REPORT 41
TORSTAR – Management's Discussion and Analysis
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.
We may become more reliant on print and digital circulation/subscription revenues in the future. Our ability to build and
maintain customers for digital content will depend on many factors, including consumer habits, the timely development and
evolution of adequate and adaptable digital infrastructure, delivery platforms and pricing practices, available alternatives,
delivery of high quality journalism and content, market acceptance of registration or subscription models and other factors.
In addition, the reputation of our digital platforms is an important factor in growing and maintaining traffic and generating
advertising and subscription revenue. The continuing availability of free high quality news content from competitors (including
subsidized public broadcasters) could undermine our ability to attract and retain paying customers for, and to generate
circulation/subscription revenues from, digital content. Advertisers’ and customers’ 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 and customer 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 and customer 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
Revenue from our publications, digital platforms and distribution operations is dependent on the prospects of our advertising
clients and the buying decisions of 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, our customers 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 Daily Brands and Community Brands 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 our various brands and VerticalScope’s brands 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.
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TORSTAR – Management's Discussion and Analysis
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 and circulation
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
We place considerable reliance upon technology and information systems ("IT"), including systems built internally as well
as those of third party service providers, throughout our operations, including for digital platforms, content delivery, circulation,
subscription, payment processing, email, back-office support, software provision and other functions. 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. Despite our IT performance
targets and security measures and those of our third-party service providers, our systems and those of our service providers
may be vulnerable to interruption, downtime, poor performance, damage or failure, including from obsolescence, 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 or issues. This could compromise our systems, disrupt our activities and result in lost revenue. In addition,
the information we store could be accessed, corrupted, publicly disclosed, lost or stolen, and the performance and continuing
uninterrupted service of our systems could be compromised. See also the risks and uncertainties described below related
to “Cybersecurity”.
Cybersecurity
Our businesses collect, use and store increasing amounts of sensitive data, including intellectual property, employee
information, business information and personal information (including internal information and information from clients,
customers, users of our digital platforms or services, suppliers and business partners). 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. We seek to mitigate emerging and existing cyber
risks through our continuous monitoring program, implementation of advanced technology based defense systems and
administrative controls which include entity wide security policies and procedures. 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 our systems and data or the systems and data of our 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, investigations, 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.
See also the risks and uncertainties described above relating to “Reliance on Technology and Information Systems”
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, and also include
our efforts to transform our traditional newsbrands. 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
TORSTAR CORPORATION 2017 ANNUAL REPORT 43
TORSTAR – Management's Discussion and Analysis
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 acquisition or divestiture 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.
In addition, acquisitions and divestitures are subject to regulatory risks. Please see “Government Regulations” below for
further discussion. In November 2017, we completed a transaction with Postmedia, in which we purchased and sold a
number of daily and community newspapers. As part of the transaction, we acquired eight weekly community publications,
seven daily community newspapers and two free daily newspapers from Postmedia. In addition, we sold 22 weekly
community newspapers in eastern and southern Ontario and the Metro Winnipeg and Metro Ottawa free daily publications
to Postmedia. The Competition Act allows for a one-year period following the completion of a merger transaction during
which the Commissioner of Competition may bring an application to the Competition Tribunal challenging the transaction
on the basis that it prevents or lessens competition substantially in any relevant market. If such a challenge were to be
brought successfully with respect to the Postmedia transaction it could adversely impact our businesses.
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.
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 changes in the funded status of our defined benefit pension
plans as well as increases to the net pension cost in subsequent financial years that could require increased funding
contributions to those plans, which could have an adverse effect on 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, 2016. As a result of these valuations along with interim solvency
relief measures associated with the Ontario Government’s proposed new funding framework in respect of defined benefit
pension plans, we expect the full year funding of our registered defined pension plans for 2018 to be in the range of $9
million. However, there is no guarantee that the funding requirements beyond 2018 will not increase when employer
contributions are expected to be determined by the new funding framework scheduled to be adopted by the Ontario
Government sometime prior to 2019.
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.
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.
TORSTAR CORPORATION 2017 ANNUAL REPORT 44
TORSTAR – Management's Discussion and Analysis
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”.
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 200 staff at One Yonge Street covered by a collective agreement which expires December
31, 2018.
Sing Tao has two collective agreements covering approximately 70 employees that expire in December 2018. Metro’s
Toronto operations have a collective agreement covering approximately 120 employees that will expire in March 2018.
At the other Daily Brands, there are thirteen agreements covering approximately 390 employees. One agreement covering
approximately 10 employees at the Peterborough Examiner expired in August 2017 and negotiations have commenced.
One agreement covering approximately 70 employees at the Hamilton Spectator and one agreement covering approximately
10 employees at the St. Catharines Standard expired in December 2017 and negotiations are expected to commence
shortly. An agreement covering one employee at the St. Catharines Standard expires March 2018. Two agreements covering
approximately 130 employees at the Hamilton Spectator and four agreements coving approximately 80 employees at the
Waterloo Region Record will expire at the end of December 2018. Two agreements covering approximately 85 employees
at the Hamilton Spectator will expire at the end of May 2019. One agreement covering four employees at the Niagara Falls
Review will expire at the end of December 2020.
The Community Brands Group has a total of ten collective agreements covering approximately 205 employees. There are
three agreements covering approximately 35 employees which expired December 2017 and negotiations are expected to
commence shortly. Two agreements covering approximately 20 employees will expire in August 2018, three agreements
covering approximately 35 employees will expire November 2019 and two agreements covering approximately 115
employees will expire December 2020.
Newsprint Costs
Newsprint is the single largest raw material expense for our newspaper operations and represents approximately 12% of
total operating costs for 2017. 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, and changes in trade agreements and arrangements. We primarily
source newsprint from two main suppliers. For 2018, we have fixed the cost of newsprint for a portion of the year with one
of our suppliers. Newsprint prices are currently expected to be somewhat higher than what we experienced in 2017. 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.
Government Regulations
General
Our businesses are subject to a variety of laws and regulations, policies and decisions, including laws applicable generally
to business and environmental, privacy, anti-spam, communications, competition and e-commerce laws. We may be notified
from time to time of additional laws, regulations, policies or decisions which governmental organizations or others may claim
should be applicable to certain of our businesses. We may also be subject to adverse outcomes of legal and regulatory
TORSTAR CORPORATION 2017 ANNUAL REPORT 45
TORSTAR – Management's Discussion and Analysis
proceedings. Adverse outcomes of legal and regulatory proceedings, as well as changes in, or the failure to comply with,
legislation, regulations, policies or decisions could adversely affect our operations. If we are required to alter our business
practices as a result of additional laws, regulations, policies or decisions, or adverse outcomes of legal and regulatory
proceedings, revenue could decrease, costs could increase and/or certain of our businesses could otherwise be harmed.
In addition, the costs and expenses associated with dealing with any requests, order or actions related to such legal and
regulatory proceedings, laws, regulations, policies and decisions, the diversion of management’s attention and resources
and any payments of related penalties, judgements or settlements could adversely impact certain of our businesses.
E-Commerce, Privacy, Confidential Information and Data Use and Protection
Laws relating to privacy, anti-spam, communications, data protection, e-commerce, direct marketing and digital advertising
and use of data and 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, data collected in the course of online behavioural
advertising, and other personal data 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”,
“Cybersecurity” and “Reputation”.
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,
that additional expenditures will not be required to meet current or future legislation, or that we will be able to secure materials
(such as recycled newsprint) that meet all applicable regulatory requirements. 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
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 2017 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. Although we maintain insurance for many of types of claims, there can
be no assurance that insurance will be available or adequate 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.
TORSTAR CORPORATION 2017 ANNUAL REPORT 46
TORSTAR – Management's Discussion and Analysis
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 2017 Consolidated Financial Statements). In addition, predominantly all of VerticalScope’s revenues (approximately
6% of Torstar’s 2017 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.
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.
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
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.
Intellectual Property Rights and Other Content Risks
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 (including those of VerticalScope) may be
defamatory, infringing, incorrect, negligent, unlawful or otherwise inappropriate. 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 reputation or 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 2017 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.
TORSTAR CORPORATION 2017 ANNUAL REPORT 47
TORSTAR – Management's Discussion and Analysis
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.
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 and other 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 and other 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.
Financial Reporting and Impairment
We are responsible for establishing and maintaining adequate internal controls over financial reporting, a process designed
to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with IFRS. Because of its inherent limitations, internal controls over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject
to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Economic, market, legal, regulatory, competitive, customer, contractual and other factors may affect the value of our long-
lived assets, intangible assets and investments. If any of these factors impair the value of these assets, IFRS requires that
TORSTAR CORPORATION 2017 ANNUAL REPORT 48
TORSTAR – Management's Discussion and Analysis
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 2017 ANNUAL REPORT 49
N O T E S
TORSTAR CORPORATION 2017 ANNUAL REPORT 50
TORSTAR – Consolidated Financial Statements
Consolidated Financial Statements – Contents
Management’s Report on Responsibility for Financial Reporting
Independent Auditors' 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 2017 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 (Loss)
Other Income
Discontinued Operations
Other Non-Cash Items Provided By (Used In) Operating Activities
Acquisitions, Divestitures And Portfolio Investments
Commitments And Contingencies
Related Party Transactions
TORSTAR CORPORATION 2017 ANNUAL REPORT 51
Page
52
53
54
55
56
57
58
59
59
74
75
76
76
76
77
80
81
82
82
83
83
86
89
90
91
91
98
99
102
102
103
103
104
105
105
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.
John Boynton
President and Chief Executive Officer
February 27, 2018
Lorenzo DeMarchi
Executive Vice-President and Chief Financial Officer
TORSTAR CORPORATION 2017 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, 2017 and 2016, 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, 2017 and 2016 and its financial performance and its cash flows for the years
then ended in accordance with International Financial Reporting Standards.
Toronto, Canada
February 27, 2018
Ernst & Young LLP
Chartered Professional Accountants
Licensed Public Accountants
TORSTAR CORPORATION 2017 ANNUAL REPORT 53
TORSTAR – Consolidated Financial Statements
Torstar Corporation
Consolidated Statement of Financial Position
(Thousands of Canadian Dollars)
As at
December 31, 2017
As at
December 31, 2016
Assets
Current:
Cash and cash equivalents
Restricted cash (note 5)
Receivables (note 15)
Inventories (note 6)
Derivative financial instruments (note 15)
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 taxes 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 (loss) (note 22)
Total equity attributable to equity shareholders
Minority interests
Total equity
Total liabilities and equity
(see accompanying notes)
ON BEHALF OF THE BOARD
$71,377
9,056
112,946
4,326
57
4,373
1,000
203,135
23,420
142,769
55,259
40,217
12,967
3,460
$481,227
$89,132
18,113
6,781
114,026
6,714
6,599
104,716
3,342
403,040
21,322
(176,180)
(2,207)
245,975
(145)
245,830
$481,227
John Honderich
Director
Paul Weiss
Director
TORSTAR CORPORATION 2017 ANNUAL REPORT 54
$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
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 (note 23)
Income and other taxes recovery (expense) (note 14)
Net loss from continuing operations
Income from discontinued operations (note 24)
Net loss
Attributable to:
Equity shareholders
Minority interests
Net income (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
2017
2016
$615,685
$685,099
(245,906)
(325,631)
(299,315)
(356,192)
(36,987)
(17,512)
(8,133)
(18,484)
(2,213)
493
(1,845)
(6,824)
3,935
(24,938)
(5,700)
(30,638)
1,350
(44,020)
(45,823)
(800)
(61,051)
(3,080)
298
(5,532)
(34,919)
24,348
(79,936)
3,900
(76,036)
1,200
($29,288)
($74,836)
($29,171)
($117)
($74,750)
($86)
($0.38)
$0.02
($0.36)
($0.94)
$0.01
($0.93)
TORSTAR CORPORATION 2017 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
2017
2016
($29,288)
($74,836)
Unrealized foreign currency translation adjustment (“CTA”) (no income tax effect)
38
27
Unrealized foreign currency translation adjustment for associated businesses (no
income tax effect) (note 8)
(7,489)
(5,459)
Net movement on available-for-sale financial assets
Income tax effect
Unrealized gain on hedge of net investment
Income tax effect
(332)
400
(7,383)
2,910
(400)
5,777
(800)
2,055
OCI that will not be reclassified subsequently to net income (loss):
Actuarial loss on employee benefits (note 19)
(35,757)
(1,734)
Actuarial gain (loss) on employee benefits for associated businesses (no income
tax effect) (note 8)
Comprehensive loss, net of tax
Attributable to:
Equity shareholders
Minority interests
(see accompanying notes)
66
(35,691)
(1,726)
(3,460)
($72,362)
($76,241)
($72,245)
($117)
($76,155)
($86)
TORSTAR CORPORATION 2017 ANNUAL REPORT 56
TORSTAR – Consolidated Financial Statements
Torstar Corporation
Consolidated Statement of Changes in Equity
(Thousands of Canadian Dollars)
Share capital
Contributed
surplus
Accumulated
deficit
Accumulated
other
comprehensive
income (loss)
(“AOCI”)
Total
attributable to
equity
shareholders
Minority
interests
Total equity
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
(74,750)
(74,750)
(86)
(74,836)
(3,460)
2,055
(1,405)
(1,405)
(78,210)
(14,514)
(2,315)
168
146
939
2,055
(76,155)
(86)
(76,241)
(14,346)
(14,346)
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
Net loss for the year
(29,171)
(29,171)
(117)
(29,288)
Other comprehensive loss
(35,691)
(7,383)
(43,074)
(43,074)
Total comprehensive loss
(64,862)
(7,383)
(72,245)
(117)
(72,362)
133
93
Dividends (note 20)
Issue of share capital –
other (note 20)
Share of associate paid in
capital (note 8)
Share-based
compensation expense
Distribution
(8,079)
(7,946)
(7,946)
(640)
525
93
(640)
525
(10)
93
(640)
525
(10)
At December 31, 2017
$403,040
$21,322
($176,180)
($2,207)
$245,975
($145)
$245,830
(see accompanying notes)
TORSTAR CORPORATION 2017 ANNUAL REPORT 57
TORSTAR – Consolidated Financial Statements
Torstar Corporation
Consolidated Statement of Cash Flows
(Thousands of Canadian Dollars)
Year ended December 31
2016
2017
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 (increase) in non-cash working capital
Cash provided by (used in) operating activities
Investing activities:
Additions to property, plant and equipment and intangible assets
Received from (investment in) associated businesses (note 8)
Sale of (investment in) joint ventures (note 7)
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
Other
Cash used in financing activities
Cash represented by:
Cash
Cash equivalents – short-term deposits
Net cash, end of year
(see accompanying notes)
$15,404
(11,520)
(7,881)
(3,997)
75,374
$71,377
($30,638)
36,987
6,500
1,845
2,187
6,824
194
8,133
15,393
(16,768)
(3,725)
(4,074)
22,858
2,791
(10,245)
$15,404
($11,402)
63
167
(873)
500
25
($11,520)
($7,946)
65
($7,881)
$36,068
35,309
$71,377
($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
TORSTAR CORPORATION 2017 ANNUAL REPORT 58
TORSTAR – Consolidated Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2017 and 2016
(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, 2017. These
consolidated financial statements have been authorized for issue in accordance with a resolution from the Board of
Directors on February 27, 2018.
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 2017 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 consolidated 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 2017 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 2017 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. The 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
TORSTAR CORPORATION 2017 ANNUAL REPORT 62
TORSTAR – Consolidated Financial Statements
gain or loss remains in AOCI and is recognized when the forecast transaction is ultimately recognized 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 varies 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 2017 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.
TORSTAR CORPORATION 2017 ANNUAL REPORT 64
TORSTAR – Consolidated Financial Statements
Depreciation is calculated using the straight-line basis over the estimated useful life of the asset as follows:
• Buildings
Structural
Components
• Machinery and equipment
Machinery and equipment
Furniture and fixtures
• Leasehold improvements
25 – 60 years
10 – 35 years
3 – 40 years
3 – 10 years
Term of the lease plus renewal periods, when renewal is reasonably assured
The useful lives and methods of depreciation and the assets’ residual values are reviewed at least annually, and the
depreciation charge is adjusted prospectively, if appropriate.
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
2 – 5 years
5 – 10 years
5 – 10 years
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) 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 Company will be
recognized at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration
TORSTAR CORPORATION 2017 ANNUAL REPORT 65
TORSTAR – Consolidated Financial Statements
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.
(k) 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.
(l)
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, 2017 and December 31, 2016, 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:
• 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.
TORSTAR CORPORATION 2017 ANNUAL REPORT 66
TORSTAR – Consolidated Financial Statements
• 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.
(m) 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.
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.
TORSTAR CORPORATION 2017 ANNUAL REPORT 67
TORSTAR – Consolidated Financial Statements
(n) 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 are 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.
(o) Share-based compensation plans
The Company has a share option plan, an employee share purchase plan (“ESPP”), two DSU plans and an RSU
plan.
Share option plan and ESPP
Eligible senior executives may be granted options to purchase Class B non-voting shares at an option price which
shall not be less than the closing market price of the shares on the last trading day before the grant. Share options
vest, and are expensed, over four years from the date of grant.
Under the Company’s ESPP, employees may subscribe for Class B non-voting shares of the Company to be paid
for through payroll deductions over two-year periods at a purchase price which is the lower of the market price on
the entry date or the market price at the end of the payment period. The value of the shares that an employee may
subscribe for is restricted to a maximum of 20% of salary at the beginning of the two-year period.
TORSTAR CORPORATION 2017 ANNUAL REPORT 68
TORSTAR – Consolidated Financial Statements
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. 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.
(p) 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.
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.
TORSTAR CORPORATION 2017 ANNUAL REPORT 69
TORSTAR – Consolidated Financial Statements
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.
(q) 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.
(r) 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, tax credits 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 2017 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(l).
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, 2017, the carrying value of investments, intangible assets and property plant and equipment
represented 35%, 8%, and 11% respectively of total assets and each reporting segment had investments and
intangible assets with carrying values subject to these estimates. 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. Additionally, as a result of rapid and significant shifts in the print and digital advertising
markets, expected future revenues and cash flows, the Company has recorded impairment charges related to goodwill
and investments totalling $11.1 million in the year ended December 31, 2017 ($7.5 million of impairment charges
related to intangible assets and investments in the year ended December 31, 2016). 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 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.
TORSTAR CORPORATION 2017 ANNUAL REPORT 71
TORSTAR – Consolidated Financial Statements
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
During the fourth quarter of 2017, the Company realigned its operating segments into Community Brands and Daily
Brands in order better align its operations by type of publication. The Company has three reportable operating
segments: Community Brands ("Communities"), Daily Brands ("Dailies") and Digital Ventures. “Corporate” is the
provision of corporate services and administrative support. Digital businesses outside the traditional newspaper
operations are managed as one operating segment - Digital Ventures, and remains 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 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.
TORSTAR CORPORATION 2017 ANNUAL REPORT 72
TORSTAR – Consolidated Financial Statements
Within the Communities operating segment, the Company has identified a number of CGUs including the community
newspapers and their flyer distribution, printing operations as well as a number of separate digital CGUs. In addition,
the Company has identified two CGUs within the Dailies operating segment, which includes all daily newspapers
and their respective flyer distribution 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.
(s) Changes in accounting policies
Policies adopted in 2017:
Several new amendments and interpretations applied for the first time in 2017. 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 Revenue from Contracts with Customers 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 has evaluated the new standard and there is no material impact on the
consolidated financial statements from the adoption of this standard. The Company plans to adopt the standard on
its effective date of January 1, 2018 and will present additional disclosure upon adoption.
IFRS 9 Financial Instruments
In July 2014, the IASB issued a finalized version of IFRS 9 Financial Instruments which contains accounting
requirements for financial instruments. The Company has evaluated the application of IFRS 9 and expects that (i)
portfolio investments will be classified as fair value through other comprehensive income and, (ii) the hedge of the
net investment in VerticalScope will be treated as a continuing hedge and previously recognized gains from the
change in fair value of the hedges will be reclassified from retained earnings to a new category in the consolidated
statement of changes in equity. The Company plans to adopt the standard on its effective date of January 1, 2018
and will also present additional disclosure upon adoption of IFRS 9.
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.
TORSTAR CORPORATION 2017 ANNUAL REPORT 73
TORSTAR – Consolidated Financial Statements
3. SEGMENTED INFORMATION
During the fourth quarter of 2017, the Company realigned its management structure and operating segments into
Community Brands and Daily Brands in order to better align its operations by type of publication. The Company has
three reportable operating segments: Communities, Dailies and Digital Ventures. Corporate is the provision of
corporate services and administrative support. Digital businesses outside the traditional newspaper operations are
managed as one operating segment - Digital Ventures, and remains 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 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.
Year ended December 31, 2017 Communities
Dailies
Digital
Ventures
Corporate
Total
Adjustments
and
Eliminations¹
Per
Consolidated
Statement of
Loss
Amortization and depreciation
(13,352)
(21,491)
Year ended December 31, 2016
Communities
Dailies
Digital
Ventures
Corporate
Total
Adjustments
and
Eliminations¹
Per
Consolidated
Statement of
Loss
Operating revenue
Salaries and benefits
Other operating costs
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
Operating revenue
Salaries and benefits
Other operating costs
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
$304,253
$315,050
$72,297
$691,600
($75,915)
$615,685
(140,693)
(100,428)
(132,643)
(188,439)
(11,136)
(6,533)
(23,476)
(23,290)
(32,025)
(981)
(11,133)
($6,983)
(271,580)
(3,931)
(348,303)
(200)
(66,868)
(18,850)
(11,133)
25,674
22,672
29,881
1,338
3,000
(245,906)
(325,631)
(36,987)
(17,512)
(8,133)
$6,429
($1,841)
($18,608)
($11,114)
($25,134)
$6,650
($18,484)
(2,213)
493
(1,845)
(6,824)
3,935
($24,938)
$332,379
$355,337
$73,981
$761,697
($76,598)
$685,099
(155,715)
(138,115)
(141,333)
(210,077)
(13,504)
(32,531)
(800)
(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)
$8,162
($54,837)
($60,464)
($11,368)
($118,507)
$57,456
($61,051)
(3,080)
298
(5,532)
(34,919)
24,348
($79,936)
TORSTAR CORPORATION 2017 ANNUAL REPORT 74
Amortization and depreciation
(12,865)
(29,451)
TORSTAR – Consolidated Financial Statements
¹ Adjustments and eliminations represent the elimination of the proportionately consolidated results of, and transactions with joint ventures
and VerticalScope.
The following charts provide a breakdown of total segmented operating revenue for the years ended December 31,
2017 and December 31, 2016.
Year ended December 31, 2017
$
%
$
%
$
%
$
%
Communities
Dailies
Digital Ventures
Total
Print advertising
Digital advertising
Distribution
Subscriber
Other
Total
$125,520
41.3%
$144,864
46.0%
$270,384
39.1%
30,747
10.1%
110,883
36.4%
25,495
18,991
8.1%
6.0%
715
0.2%
114,262
36.3%
36,388
12.0%
11,438
3.6%
$72,297
100.0%
128,539
18.6%
129,874
18.8%
114,977
16.6%
47,826
6.9%
$304,253
100.0%
$315,050
100.0%
$72,297
100.0%
$691,600
100.0%
Year ended December 31, 2016
$
%
$
%
$
%
$
%
Communities
Dailies
Digital Ventures
Total
Print advertising
Digital advertising
Distribution
Subscriber
Other
Total
$145,817
43.9%
$176,722
49.7%
$322,539
42.3%
31,854
9.6%
117,147
35.2%
27,288
21,965
7.7%
6.2%
934
0.3%
119,194
33.5%
36,627
11.0%
10,168
2.9%
$73,981
100.0%
133,123
17.5%
139,112
18.3%
120,128
15.8%
46,795
6.1%
$332,379
100.0%
$355,337
100.0%
$73,981
100.0%
$761,697
100.0%
Geographical information
The Company operates in the following main geographical areas:
Canada
United States
Total
Revenue¹
Non-current assets²
Year ended December 31
As at December 31
2017
$612,266
3,419
$615,685
2016
$681,731
3,368
$685,099
2017
$95,476
2016
$126,047
$95,476
$126,047
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 Free Daily News Group Inc., which is a New Brunswick corporation. The Company has
100% voting and equity securities interest in each of these corporations.
The principal activities of these subsidiaries are described in Note 3.
TORSTAR CORPORATION 2017 ANNUAL REPORT 75
TORSTAR – Consolidated Financial Statements
5. RESTRICTED CASH
At December 31, 2017, the Company had restricted cash totalling $9.1 million (December 31, 2016 – $11.8 million)
which includes $7.7 million (December 31, 2016 – $10.5 million) held as collateral for outstanding standby letters of
credit in respect of an unfunded executive retirement plan liability (Note 19).
In February 2016, the Company received $22.8 million related to the sale of Harlequin Enterprises Limited
("Harlequin") in August 2014 which had been held in an escrow account.
6. INVENTORIES
Work in progress
Raw materials
December 31, 2017
December 31, 2016
$73
4,253
$4,326
$118
4,711
$4,829
The Company expensed inventory costs of $39.5 million for the year ended December 31, 2017 (2016 – $42.9
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
2017
$27,463
(1,845)
(2,187)
(11)
$23,420
2016
$32,861
(5,532)
(159)
293
$27,463
TORSTAR CORPORATION 2017 ANNUAL REPORT 76
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
Other income
Income and other taxes
Net loss and Comprehensive loss
As at
As at
December 31, 2017
December 31, 2016
$7,324
6,260
13,584
16,786
$30,370
$6,216
734
23,420
$30,370
$7,880
6,049
13,929
21,227
$35,156
$6,825
868
27,463
$35,156
Year ended December 31
2017
$31,126
(12,609)
(14,327)
(1,816)
(814)
(3,000)
(1,440)
(5)
4
(3)
(1,444)
(401)
($1,845)
2016
$36,634
(14,739)
(16,167)
(3,203)
(780)
(6,700)
(4,955)
(21)
20
(4,956)
(576)
($5,532)
8. INVESTMENTS IN ASSOCIATED BUSINESSES
As of December 31, 2017, the Company’s investments in associated businesses include a 19.4% equity interest in
Black Press Ltd. (“Black Press”); a 15.9% equity investment in Blue Ant Media Inc. (“Blue Ant”); a 33.3% equity
interest in Canadian Press Enterprises Inc. (“Canadian Press”); a 56.4% equity investment in VerticalScope and a
TORSTAR CORPORATION 2017 ANNUAL REPORT 77
TORSTAR – Consolidated Financial Statements
22.3% interest in Nest Wealth Asset Management Inc. ("Nest Wealth"). The Company also had a 14.7% equity
investment in Shop.ca Network Inc. ("Shop.ca") until July 5, 2016.
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)
Loss of associated businesses
OCI – Actuarial loss on employee benefits
OCI – Foreign currency translation adjustment
Balance, end of year
Year ended December 31
2017
$157,897
(194)
(47)
(640)
(6,824)
66
(7,489)
2016
$202,203
(387)
500
(2,315)
(34,919)
(1,726)
(5,459)
$142,769
$157,897
The table below provides details of income and losses from associated businesses:
VerticalScope
Black Press
Blue Ant
Shop.ca
Nest Wealth
Total
Black Press
Net income (loss)
OCI
2017
($3,192)
(5,721)
1,370
719
($6,824)
2017
($7,434)
102
(91)
2016
($5,377)
(1,881)
73
2016
($42,237)
5,635
2,447
(613)
(151)
($34,919)
($7,423)
($7,185)
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, the Yukon, Saskatchewan, Manitoba, Washington, California,
Hawaii and Ohio. For the year ended December 31, 2017, the Company’s share of Black Press’ net loss was $5.7
million and other comprehensive income of $0.1 million (2016 – net income of $5.6 million and other comprehensive
loss of $1.9 million).
Blue Ant
Blue Ant is a privately held, international content producer, distributor and channel operator founded in 2011. Blue
Ant creates content for multiple genres including factual, factual entertainment, short-form digital series and kids
programming. Their distribution business, offers a catalogue of 3,200+ hours of content, including the largest 4K
natural history offering on the market and their international channel business offers a portfolio of media brands. The
Company’s equity interest at December 31, 2017 was 15.9% (December 31, 2016 – 18.3%). The Company’s share
of Blue Ant’s net income in 2017 was $1.4 million (2016 – net income of $2.4 million) and includes dilution gains of
$2.9 million in 2017 and $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 ($5.3 million as of December 31, 2017) have been offset by net income, other comprehensive
income or additional investments are made. For the year ended December 31, 2017, the Company would have
TORSTAR CORPORATION 2017 ANNUAL REPORT 78
TORSTAR – Consolidated Financial Statements
reported income of $1.1 million and other comprehensive loss of $1.8 million from Canadian Press (2016 – income
of $0.3 million and other comprehensive loss of $1.8 million).
Shop.ca
For the year ended December 31, 2016, the Company’s share of Shop.ca’s net loss was $0.6 million. Shop.ca
declared bankruptcy on July 5, 2016.
Nest Wealth
Nest Wealth is an online investment portfolio manager, or 'robo-advisor' in the financial technology sector. The
Company's share of Nest Wealth's income was $0.7 million for the year ended December 31, 2017 (2016 – 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.
The Company has acquired a 56.4% interest in VerticalScope. Pursuant to certain terms in the shareholders
agreement, the investment is accounted for as an associated business using the equity method.
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, 2017
As at December 31, 2016
$28,682
16,015
44,697
303,189
$347,886
$3,450
19,701
23,151
130,920
4,747
189,068
$347,886
$24,310
16,716
41,026
319,149
$360,175
$6,009
9,162
15,171
115,692
23,840
205,472
$360,175
TORSTAR CORPORATION 2017 ANNUAL REPORT 79
TORSTAR – Consolidated Financial Statements
(ii) Statements of Loss and Comprehensive Loss
Operating revenue
Net loss
Other comprehensive loss
Total comprehensive loss
Year ended December 31
2017
$79,572
($5,657)
(13,173)
($18,830)
2016
$71,043
($74,848)
(9,528)
($84,376)
Torstar’s comprehensive loss attributable to its interest in VerticalScope was $10.6 million for the year ended
December 31, 2017 ($47.6 million for the year ended December 31, 2016).
9. PROPERTY, PLANT AND EQUIPMENT
Building and
leasehold
improvements
Land
Machinery and
equipment
Total
Cost
Balance at December 31, 2015
$2,698
$124,870
$153,471
Additions
Disposals
Foreign exchange
Balance at December 31, 2016
Additions
Disposals
Foreign exchange
(1,291)
1,407
1,132
(62,371)
63,631
330
(2,770)
3,794
(44,595)
(1)
112,669
2,550
(7,696)
(3)
$281,039
4,926
(108,257)
(1)
177,707
2,880
(10,466)
(3)
Balance at December 31, 2017
$1,407
$61,191
$107,520
$170,118
Depreciation and impairment
Balance at December 31, 2015
Additions 1
Disposals
Balance at December 31, 2016
Additions
Impairments (note 12)
Disposals
Foreign exchange
$60,287
5,438
(26,962)
38,763
2,866
(2,770)
$102,959
$163,246
18,581
(44,565)
76,975
6,687
23
(7,682)
(3)
24,019
(71,527)
115,738
9,553
23
(10,452)
(3)
Balance at December 31, 2017
$38,859
$76,000
$114,859
Net book value
At December 31, 2015
At December 31, 2016
At December 31, 2017
$2,698
$1,407
$1,407
$64,583
$24,868
$22,332
$50,512
$35,694
$31,520
$117,793
$61,969
$55,259
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 2017 ANNUAL REPORT 80
TORSTAR – Consolidated Financial Statements
10. INTANGIBLE ASSETS
Cost
Balance at December 31, 2015
Additions - internally developed
Additions - purchased
Reclassifications ²
Disposals
Balance at December 31, 2016
Acquisitions (note 26)
Additions - internally developed 1
Additions - purchased
Disposals
Balance at December 31, 2017
Amortization and Impairment
Balance at December 31, 2015
Amortization
Impairments (note 12)
Reclassifications ²
Disposals
Balance at December 31, 2016
Amortization
Disposals
Indefinite
life
Finite life
Software
Other
Total
Total
$38,414
$94,814
$14,104
$108,918
$147,332
(38,414)
4,871
4,054
(16,531)
87,208
4,091
2,276
(26,018)
38,414
52,518
5,339
4,871
4,054
38,414
(16,531)
139,726
5,339
4,091
2,276
4,871
4,054
(16,531)
139,726
5,339
4,091
2,276
(26,018)
(26,018)
$67,557
$57,857
$125,414
$125,414
$19,276
$49,240
17,160
(19,276)
(16,531)
49,869
20,479
(26,018)
$10,995
2,841
800
19,276
33,912
6,955
$60,235
20,001
800
19,276
(16,531)
83,781
27,434
$79,511
20,001
800
(16,531)
83,781
27,434
(26,018)
(26,018)
Balance at December 31, 2017
$44,330
$40,867
$85,197
$85,197
Net book value
At December 31, 2015
At December 31, 2016
At December 31, 2017
$19,138
$45,574
$37,339
$23,227
$3,109
$18,606
$16,990
$48,683
$55,945
$40,217
$67,821
$55,945
$40,217
¹ This amount includes $0.8 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 Communities and Dailies segments to finite life intangible assets to be amortized over a period of five to
ten years.
TORSTAR CORPORATION 2017 ANNUAL REPORT 81
TORSTAR – Consolidated Financial Statements
11. GOODWILL
The following is a continuity of the Goodwill balance:
Balance, beginning of year
Impairment (note 12)
Balance, end of year
2017
$8,133
(8,133)
2016
$8,133
$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, 2017 and 2016 has been allocated to the following groups of CGUs:
Digital Ventures
12. IMPAIRMENT OF ASSETS
The Company recorded the following impairment on its assets:
Intangible assets (note 10)
Goodwill (note 11)
Investments in joint ventures (note 7)
Impairment Testing
December 31, 2017
December 31, 2016
$8,133
Year ended December 31
2017
8,133
8,133
3,000
$11,133
2016
800
800
6,700
$7,500
During the first quarter of 2017, the Company recorded a $3.0 million impairment charge in respect of its joint venture
investment in Workopolis. This resulted from a further downward revision in longer term forecasted revenues reflecting
further increased competition in the online recruitment and job search markets.
During the fourth quarter of 2017, the Company performed its annual goodwill impairment test In carrying out this
testing, it was determined that the carrying amount of the Digital Ventures CGU was below its recoverable amount,
calculated using the VIU approach, and recorded an impairment charge of $8.1 million for goodwill. The impairment
was a result of lower forecasted revenues reflecting the rapidly evolving digital advertising market. In addition, the
Company tested for impairment in one CGU in the Communities segment and one CGU in the Dailies segment and
no impairment was recorded.
2016
During 2016, the Company tested for impairment and then reclassified certain indefinite life intangible assets in the
Dailies and Communities segments to finite life intangible assets. In carrying out the associated impairment test, it
was determined that certain intangible assets in the Communities segment were impaired and accordingly the
Company recorded an impairment charge totalling $0.8 million in respect of these assets.
TORSTAR CORPORATION 2017 ANNUAL REPORT 82
TORSTAR – Consolidated Financial Statements
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.
The after-tax discount and perpetual growth rates used by the Company for the purpose of its impairment testing
for each of the CGUs or groups of CGUs in the following periods were:
Communities
Dailies
Digital Ventures
2017
2016
Discount
11.7%
12.1%-14.9%
13.3%
Growth
0.0%
0.0%
3.0%
Discount
11.7%
12.1% – 14.9%
13.3%
Growth
0.0%
0.0%
3.0%
The discount rates for the Dailies segment include a range reflective of both the traditional newspaper and digital
operations. These after-tax rates correspond to pre-tax rates in an estimated range of 14% – 19% for 2017 and
14% – 19% for 2016.
13. OTHER ASSETS
Portfolio investments
ESPP receivable
Other
14. INCOME TAXES
Income tax expense (recovery) is made up of the following:
December 31, 2017
December 31, 2016
$10,885
59
2,023
$12,967
$10,344
18
2,052
$12,414
Year ended December 31
2017
2016
Current income tax expense (recovery):
Current year
Recognition of previously unrecognized tax benefits
Adjustment for prior years
Deferred income tax expense:
Origination and reversal of temporary differences
Reduction in carrying amount of deferred income tax assets
Adjustment for prior years
Income tax expense (recovery) in the consolidated statement of
loss
Current income tax expense in OCI
Deferred income tax expense (recovery) in OCI
Income tax expense (recovery) in OCI
($1,000)
200
(800)
6,500
6,500
5,700
(400)
(400)
($7,400)
(1,500)
500
(8,400)
2,200
2,300
4,500
(3,900)
100
1,100
1,200
Total income tax expense (recovery)
$5,300
($2,700)
TORSTAR CORPORATION 2017 ANNUAL REPORT 83
TORSTAR – Consolidated Financial Statements
Income taxes of $1.0 million were paid and refunds of $9.6 million were received during the year from continuing
operations (2016 – $0.1 million paid and refunds of $6.8 million received).
Reconciliation of effective tax rate
The combined Canadian federal and provincial statutory rate was 26.5% in 2017 (2016 – 26.5%).
Year ended December 31
Loss before taxes from continuing operations
Recovery of income taxes based on Canadian statutory rate of 26.5%
(2016 - 26.5%)
Increase (decrease) in taxes resulting from:
Loss of joint ventures and associated businesses not recognized
Non-deductible impairment charges
Recognition of previously unrecognized tax benefits
Movement in deferred income tax assets not recognized
Non-taxable portion of capital gains
Non-deductible expenses and other permanent differences
Adjustment for prior years
Effect of lower provincial tax rates
2017
($24,938)
($6,600)
2,500
2,100
7,300
(600)
1,100
200
(300)
Income tax expense (recovery) in the consolidated statement of loss
$5,700
Effective income tax rate
(22.9)%
2017
2016
($79,936)
($21,200)
10,800
(1,500)
5,000
(1,400)
1,200
2,800
400
($3,900)
4.9%
The Company recognized losses on impairment of assets of $8.1 million (2016 - $0.8 million), which was not deductible
for tax purposes. Excluding the impact of non-deductible impairment charges, loss of joint ventures and associated
businesses and the movement in deferred income tax assets not recognized, the Company’s effective tax rate in
2017 would have been 24.9% (2016 - 24.6%).
2016
During 2016, the Canadian Cultural Property Export Review Board completed its review of the application in respect
of the 2014 Toronto Star photo archive donation 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 2017 ANNUAL REPORT 84
TORSTAR – Consolidated Financial Statements
Significant components of the Company’s deferred income tax assets and liabilities as at December 31, 2017 and
December 31, 2016 are as follows:
Recognized
in net income
(loss) from
continuing
operations
Recognized
in OCI from
continuing
operations
Recognized
in net income
(loss) from
discontinued
operations
December 31,
2017
December 31,
2016
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
$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
($279)
429
2,165
(100)
1,961
93
453
(2,294)
(16)
(6,284)
(2,628)
($6,500)
($200)
$400
$400
($200)
$571
(4,947)
(1,303)
712
3,732
3,168
979
(2,794)
$118
$3,460
(3,342)
$118
Recognized
in net income
(loss) from
continuing
operations
Recognized
in OCI from
continuing
operations
Recognized
in net income
(loss) from
discontinued
operations
December 31,
2016
December 31,
2015
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
$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)
$15,233
(2,315)
$12,918
($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
TORSTAR CORPORATION 2017 ANNUAL REPORT 85
TORSTAR – Consolidated Financial Statements
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, 2017, the Company had Canadian non-capital losses available for carry forward in continuing
operations of approximately $40.4 million (2016 – $28.5 million) that will expire between 2028 and 2037 for which it
has recognized a deferred income tax asset of $3.7 million (2016 – $3.3 million). The Company also had capital
losses of $29.9 million (2016 – $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.
As at December 31, 2017, the total non-capital losses, capital losses and deductible temporary differences for which
no deferred income tax asset has been recognized was $250.0 million (2016 – $160.0 million).
Investments in subsidiaries, associates and joint ventures
As at December 31, 2017, 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 $628.7 million (2016 – $580.9
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 1
Receivables
Available-for-sale, measured at fair value:
Portfolio investments 2
Foreign currency forward contracts
Other financial liabilities, measured at amortized cost:
Accounts payable and accrued liabilities
Provisions (current)
Provisions (non-current)
December 31, 2017
December 31, 2016
$71,377
9,056
90,183
22,763
112,946
10,885
57
(89,132)
(18,113)
(6,714)
$75,374
11,847
112,730
3,757
116,487
10,344
(472)
(101,133)
(28,473)
(11,104)
1Includes $14.9 million receivable for Digital Media Tax Credits. The Company received certification from the Ontario Media Development
Corporation that digital media tax credits for the year ended December 31, 2012 were eligible to be claimed. The Company is not eligible to
make any further claims under this program for periods subsequent to April 23, 2015. The claim, which will be subject to an audit by the Canada
Revenue Agency, primarily relates to the recovery of previously recognized compensation expenses. The Company recorded a recovery of
$13.4 million in compensation expense related to this claim.
2These amounts are included in Other assets in the consolidated statement of financial position.
TORSTAR CORPORATION 2017 ANNUAL REPORT 86
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, 2017
At December 31, 2016
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
$10,885
$10,344
- Foreign currency collar arrangements
$57
($472)
Changes in the fair value of Level 3 financial instruments were as follows:
Balance, beginning of year
Additions (note 26)
Distributions received
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
2017
$10,344
873
(332)
$10,885
2016
$7,439
368
(373)
2,910
$10,344
Year ended December 31
2017
$484
(185)
140
(2,652)
($2,213)
2016
$427
(355)
(81)
(3,071)
($3,080)
Interest paid during the year ended December 31, 2017 was $nil (2016 – $0.1 million). Interest received during the
year ended December 31, 2017 was $0.4 million (2016 – $0.5 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, 2017, the Company had $71.4 million in cash and cash equivalents (December 31,
2016 – $75.4 million).
TORSTAR CORPORATION 2017 ANNUAL REPORT 87
TORSTAR – Consolidated Financial Statements
The maturity profile of the Company’s financial liabilities, based on contractual undiscounted payments, is as follows:
2018
2019
2020
2021
2022
2023+
Total
Foreign currency collar arrangements
$57
Accounts payable and accrued
liabilities¹
Licenses
Provisions
87,771
1,361
18,113
$2,676
$1,360
$107,302
$2,676
$1,360
$779
$779
$682
$682
$1,684
$1,684
$57
87,771
1,361
25,294
$114,483
¹ This amount excludes the $1.4 million of Licenses payable in 2018.
(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, 2017
December 31, 2016
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
$44,874
42,570
7,095
260
94,799
(4,616)
$90,183
$55,624
52,247
10,151
65
118,087
(5,357)
$112,730
Year ended December 31
2017
($5,357)
3,478
(2,737)
($4,616)
2016
($5,294)
958
(1,021)
($5,357)
TORSTAR CORPORATION 2017 ANNUAL REPORT 88
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 entered into collar arrangements totaling U.S. $137.0
million which were designated as a hedge of the original net investment in VerticalScope. Any fluctuations in fair
value arising from fluctuations in the rate of exchange of Cdn. dollar per U.S. dollar within the collar range will be
recorded in net income while any fluctuations outside this collar range will be recorded in OCI to the extent of hedge
effectiveness to offset any gains or losses on translation of the net investment.
As at December 31, 2016, the collar arrangements for U.S. $137.0 million established a rate of exchange with a
range of Cdn. $1.19 to Cdn. $1.46 for U.S. $1.00 maturing in 2017.
During the three month period ended March 31, 2017, the Company rolled over the collar arrangements totaling
U.S. $137 million and simultaneously entered into a new U.S. $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.
The hedges were highly effective during the year ended December 31, 2017. The change in the fair value of the
hedges was a gain of $0.5 million which has been included in foreign exchange in the consolidated statement of
income (loss).
The net fair value of the collar options outstanding at December 31, 2017 was $0.1 million favourable (December
31, 2016 - $0.5 million unfavourable).
In February 2018, the Company rolled over the collar arrangement totaling U.S. $137.0 million and simultaneously
entered into a new U.S. $137.0 million zero cost collar arrangement with a range of Cdn. $1.15 to Cdn. $1.31 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, 2017 would have decreased net
income by $0.5 million (2016 – $0.4 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, 2017, capital under management was $245.8 million
(December 31, 2016 – $326.2 million). There have been no changes to the Company's approach to capital
management during the year.
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.
TORSTAR CORPORATION 2017 ANNUAL REPORT 89
TORSTAR – Consolidated Financial Statements
17. PROVISIONS
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
Provisions made during the year
Reversals of provisions during the year
Discontinued operations
Provisions received (paid) during the year
Interest accretion
Balance at December 31, 2017
Current
Non-current
Balance at December 31, 2016
Current
Non-current
Balance at December 31, 2015
Current
Non-current
Restructuring
Restructuring
$33,286
48,477
(3,989)
(40,900)
256
$37,130
18,509
(997)
(31,139)
134
$23,637
$16,923
$6,714
$26,026
$11,104
$20,058
$13,228
Other
$8,963
(1,400)
(10)
(5,106)
$2,447
(1,550)
293
$1,190
$1,190
$2,447
$8,963
Total
$42,249
48,477
(3,989)
(1,400)
(10)
(46,006)
256
$39,577
18,509
(997)
(1,550)
(30,846)
134
$24,827
$18,113
$6,714
$28,473
$11,104
$29,021
$13,228
During the year ended December 31, 2017, the Company recorded restructuring charges of $17.5 million related to
ongoing efforts to reduce costs. Restructuring charges of $11.1 million were recorded in the Communities Segment,
$6.2 million in the Dailies Segment and $0.2 million at Corporate.
In 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 Communities Segment; $31.7 million in the Dailies Segment and $0.6
million at Corporate.
The non-current restructuring provisions are expected to be paid out through 2029.
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 from discontinued
operations.
TORSTAR CORPORATION 2017 ANNUAL REPORT 90
TORSTAR – Consolidated Financial Statements
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. A settlement has been reached, but
remains subject to court approval. It is expected that the action will be certified on consent for purposes of effecting
settlement. While there can be no assurance as to the outcome of any litigation, based on the information currently
available to us, the Company does not believe that this litigation, including the Company’s contribution to the
anticipated settlement, will have a material effect on the Company’s financial position or results of operations.
18. OTHER LIABILITIES
Employees' shares subscribed (note 21(b))
RSU Plan (note 21(c))
DSU Plan (note 21(d))
Other employment benefits
Licenses
Other
19. EMPLOYEE BENEFITS
December 31, 2017
December 31, 2016
$627
853
1,982
1,515
1,622
$6,599
$765
754
1,651
1,401
1,308
1,737
$7,616
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.
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:
TORSTAR CORPORATION 2017 ANNUAL REPORT 91
TORSTAR – Consolidated Financial Statements
Net defined benefit plan obligations
Changes to the net defined benefit obligation were as follows:
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
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, 2017
Pension plans
Funded
$11,426
Unfunded 1
$21,238
Other post
employment
benefit plans
Total
$47,875
$80,539
14,401
835
599
15,835
3,351
(17,951)
12,661
12,237
562
12,799
32,938
(10,850)
$47,548
612
676
1,288
(1,782)
(10,086)
10,658
305
350
655
1,105
(3,471)
$8,947
187
(600)
1,796
1,383
165
(2,408)
47,015
199
1,740
1,939
1,714
15,200
235
3,071
18,506
1,734
(30,445)
70,334
12,741
2,652
15,393
35,757
(2,447)
$48,221
(16,768)
$104,716
1 As at December 31, 2017, the unfunded pension plan includes an executive retirement plan liability of $8.9 million (December 31,
2016 – $10.7 million) which is supported by an outstanding letter of credit of $7.7 million as at December 31, 2017 (December 31,
2016 – $10.5 million).
A summary of the components of the net defined benefit obligation as at December 31, 2017 and 2016 is as follows:
2017
Defined benefit obligations
Fair value of plan assets
Net defined benefit obligation
Recorded in:
Liabilities
Pension plans
Funded
Unfunded
Other post
employment
benefit plans
$938,427
(890,879)
$47,548
$8,947
$48,221
$8,947
$48,221
Total
$995,595
(890,879)
$104,716
$47,548
$8,947
$48,221
$104,716
TORSTAR CORPORATION 2017 ANNUAL REPORT 92
TORSTAR – Consolidated Financial Statements
2016
Defined benefit obligations
Fair value of plan assets
Net defined benefit obligation
Recorded in:
Assets
Liabilities
Pension plans
Funded
Unfunded
Other post
employment
benefit plans
$913,578
(900,917)
$12,661
$7,073
$19,734
$10,658
$47,015
$10,658
$47,015
$10,658
$47,015
Total
$971,251
(900,917)
$70,334
$7,073
$77,407
The following charts provide a summary of changes in the defined benefit obligation and the fair value of plan assets
during 2017 and 2016:
2017
Accrued benefit obligations:
Balance, beginning of year
Current service cost
Interest cost
Benefits paid
Remeasurement losses
Participant contributions
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
$913,578
$10,658
$47,015
$971,251
11,086
33,879
(75,973)
53,455
2,402
305
350
(3,471)
1,105
199
1,740
(2,447)
1,714
11,590
35,969
(81,891)
56,274
2,402
$938,427
$8,947
$48,221
$995,595
$900,917
33,317
20,517
(75,973)
10,850
2,402
(1,151)
$890,879
$47,548
($3,471)
3,471
($2,447)
2,447
$8,947
$48,221
$900,917
33,317
20,517
(81,891)
16,768
2,402
(1,151)
$890,879
$104,716
TORSTAR CORPORATION 2017 ANNUAL REPORT 93
TORSTAR – Consolidated Financial Statements
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
Net benefit expense for defined benefit plans recognized in the 2017 and 2016 consolidated statement of income or
loss is as follows:
Current service cost
Net interest expense
Administration costs
Net benefit expense
2017
2016
Current service cost
Net interest expense
Special termination benefits
Curtailment
Administration costs
Net benefit expense
Pension plans
Funded
$11,086
562
1,151
$12,799
Unfunded
$305
350
$655
Other post
employment
benefit plans
$199
1,740
Total
$11,590
2,652
1,151
$1,939
$15,393
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
TORSTAR CORPORATION 2017 ANNUAL REPORT 94
TORSTAR – Consolidated Financial Statements
Amounts recognized in the 2017 and 2016 consolidated statements of comprehensive income or loss (before tax):
2017
Remeasurement gains (losses):
Actuarial gain (loss) from:
Financial assumptions
Experience adjustment
Total actuarial losses
Return on plan assets excluding amounts
included in net interest expense
Amounts recognized in OCI
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
Pension plans
Funded
Unfunded
Other post
employment
benefit plans
Total
($47,827)
(5,628)
(53,455)
20,517
($32,938)
($68)
(1,037)
(1,105)
($2,165)
451
(1,714)
($50,060)
(6,214)
(56,274)
20,517
($1,105)
($1,714)
($35,757)
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)
The significant assumptions used by the Company in 2017 and 2016 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 2017 and 2016, the Company used the 2014 Private Sector Canadian Pensioners' Mortality Table
projected generationally using scale B with a multiplier applied at December 31, 2017 and December 31, 2016 (for
the larger plans, the multiplier ranged from 94% to 103%).
TORSTAR CORPORATION 2017 ANNUAL REPORT 95
TORSTAR – Consolidated Financial Statements
Pension plans
Other post employment benefit
plans
To determine benefit obligation at end of year:
Discount rate
3.1% to 3.4%
3.2% to 3.8%
3.4%
Rate of future compensation increase
2.5%
2.5%
2017
2016
2017
2016
3.8%
To determine benefit expense:
Discount rate
3.2% to 3.8%
3.1% to 3.9%
3.8%
3.9%
Rate of future compensation increase
2.5%
2.0% to 2.5%
Health care cost trend rates at end of year:
Initial rate
Ultimate rate
Year ultimate rate reached
Longevity for pensioners currently at age 65:
5.0%
5.0%
2018
4.8%
5.0%
2017
Male
Female
21.9 years
24.2 years
21.8 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, 2017
December 31, 2016
1% increase
1% decrease
1% increase
1% decrease
($114,175)
$130,189
($113,605)
$129,897
Rate of compensation increase
8,974
(8,822)
8,651
(8,503)
Other post employment benefit plans:
Discount rate
Per capita cost of health care
(5,028)
1,457
6,131
(1,267)
(4,880)
1,336
5,945
(1,166)
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 2.5% (December 31, 2016 – 2.4%).
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
consolidated statement of financial position.
TORSTAR CORPORATION 2017 ANNUAL REPORT 96
TORSTAR – Consolidated Financial Statements
Pension plan assets for the Canadian plans, measured as at December 31, 2017 and 2016 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
Government of United States
Pooled funds
Equity – North America
Fixed Income – Canadian corporations
2017
2016
$170,149
$147,457
82,095
75,052
91,146
69,963
308,782
17,927
861
845
74,059
$890,879
111,353
67,839
81,659
44,616
338,239
33,309
2,067
74,378
$900,917
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, 2017, the target allocation
mix was 28% equity securities and 72% fixed income securities for the Canadian plans (December 31, 2016 – 29%
equity securities and 71% fixed income securities).
The Company’s 2017 actual funding for its Canadian registered pension plans was approximately $11 million (2016
– $18 million). The Company has prepared actuarial reports as of December 31, 2016 for its significant plans.
Estimated funding in 2018 is expected to be approximately $9 million. The next required actuarial reports will be as
of December 31, 2019 for the majority of the Company's defined benefit pension plans.
The weighted average duration of the defined benefit obligation is 13.8 years (2016 – 12.9 years). As at December 31,
2017, the expected maturity profile of the undiscounted pension plan and other post employment benefits is $81
million in the next year, $509 million in 2 to 10 years and $1,362 million in over 10 years (December 31, 2016 – $49
million in the next year, $470 million in 2 to 10 years and $1,090 million in over 10 years for continuing operations).
Defined contribution plans
The total amount expensed for defined contribution plans in 2017 was $2.0 million (2016 – $1.8 million).
TORSTAR CORPORATION 2017 ANNUAL REPORT 97
TORSTAR – Consolidated Financial Statements
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.
(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
Other
Balance, end of period
Year ended December 31
2017
2016
Shares
Amount
Shares
Amount
9,826,215
(9,000)
9,817,215
$2,670
9,839,355
(2)
(13,140)
$2,668
9,826,215
$2,673
(3)
$2,670
70,891,322
$400,144
70,707,063
$399,827
9,000
85,280
50,911
625
2
133
92
1
13,140
93,201
76,868
1,050
71,037,138
$400,372
70,891,322
3
168
144
2
$400,144
$402,814
Total Class A and Class B shares
80,854,353
$403,040
80,717,537
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.
TORSTAR CORPORATION 2017 ANNUAL REPORT 98
TORSTAR – Consolidated Financial Statements
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
2017
80,785
2016
80,653
Outstanding share options totalling 7,028,109 (December 31, 2016 – 5,686,932), which are anti-dilutive, have been
excluded from the above calculation of dilutive securities.
(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: 2.5 cents (2016 – 6.5 cents)
Second quarter ended June 30: 2.5 cents (2016 – 6.5 cents)
Third quarter ended September 30: 2.5 cents (2016 – 2.5 cents)
Fourth quarter ended December 31: 2.5 cents (2016 – 2.5 cents)
Total dividends
21. SHARE-BASED COMPENSATION PLANS
(a) Share option plan
Year ended December 31
2017
$2,018
2,020
2,020
2,021
$8,079
2016
$5,236
5,243
2,018
2,017
$14,514
The maximum number of shares that may be issued under the share option plan is 18,000,000 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, 2017,
options to purchase 13,040,461 shares have been granted, net of options cancelled (December 31, 2016 –
11,669,284).
A summary of changes in the share option plan is as follows:
Units outstanding, beginning of year
Granted
Forfeited or expired
Units outstanding, end of year
2017
2016
Share options
5,686,932
2,205,018
(863,841)
7,028,109
Weighted
average
exercise price
$7.08
$1.70
$8.53
$5.12
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
TORSTAR CORPORATION 2017 ANNUAL REPORT 99
TORSTAR – Consolidated Financial Statements
As at December 31, 2017, outstanding share options were as follows:
Range of exercise price
$1.59 – $5.85
$6.33 – $7.81
$8.28 – $18.78
$1.59 – $18.78
Share options
outstanding
3,927,040
2,171,993
929,076
7,028,109
Weighted
average
remaining
contractual life
Weighted
average
exercise price
Share options
exercisable
Weighted
average
exercise price
8.20
5.31
2.71
6.58
$2.82
$6.80
$10.93
$5.12
1,422,855
1,920,586
929,076
4,272,517
$4.34
$6.84
$10.93
$6.89
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
2017
$0.31 – $0.44
1.0% – 1.5%
5.2% – 6.3%
2016
$0.30 – $0.35
0.6% – 1.1%
9.4%
37.4% – 40.5%
34.2% – 38.9%
Expected weighted average time until exercise (years)
6
6
(b) ESPP
As at December 31, outstanding employee subscriptions were as follows:
Maturing in
Subscription price at entry date
Number of shares
2017
2016
2018
$1.84
2019
$1.55
173,973
203,190
2017
$6.28
62,046
2018
$1.84
203,975
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)
2017
$0.24
0.6%
6.3%
47.8%
2
2016
$0.23
0.6%
14.3%
47.2%
2
TORSTAR CORPORATION 2017 ANNUAL REPORT 100
TORSTAR – Consolidated Financial Statements
(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
2017
975,734
(284,468)
794,372
(155,267)
87,198
1,417,569
2016
872,160
(294,936)
446,762
(124,075)
75,823
975,734
As at December 31, 2017, 769,489 units have been accrued at a value of $1.3 million of which 270,454 units have
been accrued in Accounts payable and accrued liabilities at a value of $0.5 million while 499,035 units have been
accrued in Other liabilities at a value of $0.9 million (December 31, 2016 – 679,576 units were accrued at a value
of $1.3 million of which 284,468 units were accrued in Accounts payable and accrued liabilities at a value of $0.5
million and 395,108 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 2018, 270,454 RSUs have vested and were paid.
(d) 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
2017
864,147
235,602
6,387
16,031
62,496
(25,682)
1,158,981
2016
657,483
160,072
10,833
21,913
96,595
(82,749)
864,147
As at December 31, 2017, the 1,158,191 units outstanding were valued at $2.0 million (December 31, 2016 –
864,147 units valued at $1.7 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.
In 2017, the Company has recognized share-based compensation expense totalling $1.1 million (2016 – $1.4
(e)
million).
TORSTAR CORPORATION 2017 ANNUAL REPORT 101
TORSTAR – Consolidated Financial Statements
22. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
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, 2015
OCI
As at December 31, 2016
OCI
$10,782
(5,432)
5,350
(7,451)
$346
2,510
2,856
68
($8,007)
4,977
(3,030)
Total
$3,121
2,055
5,176
(7,383)
As at December 31, 2017
($2,101)
$2,924
($3,030)
($2,207)
1Net of deferred income tax asset/liability of $nil (2016 – $nil).
2Net of deferred income tax liability of $nil (2016 – $400).
3Net of current income tax recovery of $500 (2016 – deferred income tax recovery of $500).
23. OTHER INCOME
Gain on sale of assets
Gain on sale of newspapers
Gain on sale of wagjag.com
Other
2017
Year ended December 31
2017
$3,225
500
210
$3,935
2016
$24,338
10
$24,348
The gain on sale of newspapers was related to the transaction with Postmedia Network Inc. (“Postmedia”) for the
purchase and sale of a number of community and daily newspapers (note 26).
In October 2017, wagjag.com and related assets were sold for gross proceeds of $0.5 million.
2016
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.
TORSTAR CORPORATION 2017 ANNUAL REPORT 102
TORSTAR – Consolidated Financial Statements
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,
2017, the Company reviewed its estimates and recorded a reduction in its provisions of $1.6 million (2016 – reduced
its provision by $1.4 million) as presented below:
(i)
Statement of Income
Gain on sale of Harlequin (note 17)
Income before taxes from discontinued operations
Income and other taxes
Net income from discontinued operations
Attributable to:
Equity shareholders
Year ended December 31
2017
$1,550
1,550
(200)
$1,350
2016
1,400
1,400
(200)
$1,200
$1,350
$1,200
Net income from discontinued operations attributable to equity
shareholders per Class A (voting) and Class B (non-voting) share
(note 20(c)):
Basic and Diluted
$0.02
$0.01
(ii) Statement of Comprehensive Income
Net income from discontinued operations
Comprehensive income from discontinued operations, net of tax
Attributable to:
Equity shareholders
Year ended December 31
2017
$1,350
$1,350
$1,350
2016
$1,200
$1,200
$1,200
25. OTHER NON-CASH ITEMS PROVIDED BY (USED IN) OPERATING ACTIVITIES
Share-based compensation plans
Foreign exchange
Restructuring provisions
Interest accretion
Other
Year ended December 31
2017
$955
(493)
(4,390)
185
(331)
($4,074)
2016
$740
(298)
(2,380)
355
(1,343)
($2,926)
TORSTAR CORPORATION 2017 ANNUAL REPORT 103
TORSTAR – Consolidated Financial Statements
26. ACQUISITIONS, DIVESTITURES AND PORTFOLIO INVESTMENTS
2017 Acquisitions
On November 27, 2017 the Company entered into an asset purchase agreement with Postmedia relating to the
purchase and sale of a number of community and daily newspapers. As part of the transaction, the Company acquired
eight weekly community publications, seven daily community newspapers and two free daily newspapers from
Postmedia. As consideration for the purchase, the Company sold 22 weekly community newspapers in eastern and
southern Ontario and the Metro Winnipeg and Metro Ottawa free daily publications to Postmedia. The transaction
was a non-monetary transaction as there was no cash exchanged. The estimated fair value of both the net assets
acquired from Postmedia and the net assets sold by the Company was $3.5 million. The difference between the
consideration received, being the net assets acquired at fair value, and the carrying value of the net liabilities
transferred and cost of disposal was recognized as a gain on disposal of newspapers (note 23). In the year ended
December, 31, 2017, the Company also incurred severance costs of $1.4 million and provisions for onerous leases
and contracts of $0.5 million and $0.5 million respectively, which are included in Restructuring and other charges
(note 17).
In 2017, revenue and operating earnings were $1.5 million lower ($2.7 million lower in Communities segment and
$1.2 million higher in the Dailies segment) and $0.3 million higher respectively as a result of this transaction. The
full year impact of properties acquired and sold would have resulted in a net reduction in revenue in 2017 of
approximately $14 million ($22 million lower in the Communities segment and $8 million higher in the Dailies segment).
The fair value of identifiable assets acquired and liabilities assumed were as follows:
Assets acquired
Prepaid expenses
Intangible assets (note 10)
Total assets acquired
Liabilities assumed
Accounts payable and accrued liabilities
Deferred revenue
Other liabilities
Total liabilities assumed
Net assets acquired at fair value
Communities
$36
5,339
5,375
(8)
(1,845)
(50)
(1,903)
$3,472
The Company transferred the following net liabilities to Postmedia and recognized a gain on disposal of newspapers
as follows:
Consideration for disposal
Prepaid assets
Deferred revenue
Net liabilities transferred
Consideration received (net assets acquired at fair value)
Disposal costs
Gain on disposal of newspapers
TORSTAR CORPORATION 2017 ANNUAL REPORT 104
Communities
$60
(112)
(52)
3,472
(299)
$3,225
TORSTAR – Consolidated Financial Statements
During the year ended December 31, 2017, the Company made additional investments of $0.9 million in its portfolio
investments in corporate.
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
Communities
Dailies
Corporate
Total
Contingent consideration on prior acquisitions
Portfolio investments
Total cash used in acquisitions and portfolio investments
$5
18
$23
$350
$350
$5
368
$373
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
$37,849
49,118
$86,967
2018
2019 – 2020
2021 – 2022
2023+
$13,893
24,963
$38,856
$20,631
20,894
$41,525
$3,152
3,261
$6,413
$173
$173
Receivable from office sub-leases
($4,601)
($2,114)
($2,487)
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
2017
$5,210
435
649
$6,294
2016
$5,163
1,837
65
1,535
$8,600
TORSTAR CORPORATION 2017 ANNUAL REPORT 105
TORSTAR – Consolidated Financial Statements
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
2017
2016
Associates
2017
2016
Sales to
Purchases from Amounts owed by Amounts owed to
$294
317
45
186
$156
158
8,085
8,233
$195
19
$22
41
380
1,121
Sales to and purchases of goods and services from related parties were made at market prices. In 2017, the Company
received in 2017 $0.4 million (2016 – $0.2 million) of rent from a joint venture. No provisions have been made for
doubtful debts in respect of amounts owed by related parties.
TORSTAR CORPORATION 2017 ANNUAL REPORT 106
TORSTAR CORPORATION 2017 ANNUAL REPORT 106
TORSTAR CORPORATION 2017 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 2017 ANNUAL REPORT 108
TORSTAR CORPORATION 2017 ANNUAL REPORT 109
BOARD OF DIRECTORS
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
John Boynton
President and Chief Executive Officer
Torstar Corporation
Director since 2017
TORSTAR CORPORATION 2017 ANNUAL REPORT 108
TORSTAR CORPORATION 2017 ANNUAL REPORT 109
N O T E S
TORSTAR CORPORATION 2017 ANNUAL REPORT 110
TORSTAR CORPORATION 2017 ANNUAL REPORT 111
TRANSFER AGENT & REGISTRAR
AST 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.astfinancial.com
inquiries@astfinancial.com
Torstar Class B non-voting shares
are traded on the Toronto Stock
Exchange under the symbol TS.B
CORPORATE OFFICE
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
JOHN BOYNTON
President and Chief
Executive Officer
LORENZO DEMARCHI
Executive Vice-President
and Chief Financial Officer
IAN OLIVER
Executive Vice-President
and President, Community
Brands and Operations
NEIL OLIVER
Executive Vice-President
and President, Daily
News Brands
MARIE E. BEYETTE
Senior Vice-President,
General Counsel and
Corporate Secretary
JENNIFER BARBER
Senior Vice-President
Finance
TORSTAR CORPORATION 2017 ANNUAL REPORT 110
TORSTAR CORPORATION 2017 ANNUAL REPORT 111
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