18
2018
ANNUAL
REPORT
2018
ANNUAL
REPORT
TORSTAR CORPORATION 2018 ANNUAL REPORT PB
2018
FINANCIAL HIGHLIGHTS
2018
2017
OPERATING RESULTS ($000)
Operating revenue
$543,391
$615,685
Segmented operating revenue (1)
615,031
691,600
Segmented Adjusted EBITDA (1)
Operating earnings (1)
Operating profit (loss)
Net loss
60,765
7,649
74,209
7,161
(9,876)
(18,484)
(31,570)
(29,288)
Cash provided by operating activities
14,444
15,404
Segmented Adjusted EBITDA - Percentage
of segmented operating revenue (1) 9.9% 10.7%
PER CLASS A AND CLASS B SHARES
Net loss
Dividends
($0.39)
$0.10
($0.36)
$0.10
Price range (high/low)
$1.92/$0.57
$2.10/$1.20
FINANCIAL POSITION ($000)
Cash and cash equivalents and restricted cash
$75,402
$80,433
Equity
$229,447
$245,830
The Annual Meeting of shareholders will be held Wednesday, May 8, 2019, at The Toronto Star Building,
3rd Floor Auditorium, One Yonge Street, Toronto, beginning at 10 a.m. It will also be webcast live on the Internet.
OPERATING REVENUE ($millions)
oPERATinG EARninGs (loss) ($millions) (1)
16
17
18
616
543
685
(14)
16
17
18
7
8
nET inComE (loss) PER sHARE
sEGmEnTED ADJUsTED EBiTDA ($millions) (1)
(0.93)
(0.36)
(0.39)
16
17
18
16
17
18
60
61
74
(1) These are non-IFRS measures. These along with other Non-IFRS measures appear in the President’s message. Refer to page 39 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”.
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18
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
2018 was a watershed year at Torstar as the company formally began a transformation initiative designed to lead it to
a more prosperous future.
Unveiled by Torstar President and Chief Executive Officer John Boynton, the plan called for both digital registration
and then digital subscription at our Daily News Brands and Community Brands news products. This transformation
process will continue throughout 2019 as we further hone and refine our efforts. A premium digital subscription
service was also created as new content acquisitions in business and national politics were completed. As part of the
transformation process, our Chief Executive Officer strove to create a new culture to facilitate success along with a
massive training program. As part of this program, new departments with new skills were created.
The company also made two significant editorial appointments in 2018. First, Irene Gentle was appointed as the first
woman Editor of the Toronto Star. Second, one of the world’s acknowledged leaders in editorial transformation, Fredric
Karen from Sweden, was appointed Senior Vice President Editorial for Torstar. His responsibilities extend across the
entire company.
Throughout the year, Torstar joined others in attempting to persuade the federal government to provide some relief to
the struggling news media industry based on the premise that a strong democracy requires an equally vigilant and
strong free press. Ottawa responded with three initiatives: 1) a refundable tax credit for media companies producing
original Canadian content; 2) a non-refundable tax credit for Canadians who subscribe to Canadian media websites;
and 3) charitable treatment for efforts to help and sustain public service journalism. Details of these three initiatives
have yet to be revealed, but these initiatives are to be welcomed.
Despite continuing economic pressures, our daily and community publications remained committed to making
editorial excellence a priority. We understand that to succeed in a new digital subscription environment, we must
offer subscribers top-quality editorial content. During the year, Torstar won 60 first-place international, national and
provincial awards for our journalism excellence. It is imperative that this tradition continues.
As the transformation unfolded, the company continued its restructuring, which resulted again in significant cost-
reduction measures. As a result, layoffs and buyouts were implemented across all divisions. One of the great ongoing
strengths of Torstar has been the dedication and loyalty of its workforce. We want to pay a special tribute to those who
left the company, understanding that their contribution will never be forgotten.
Finally, Torstar benefits greatly from a committed and very experienced Board of Directors. On behalf of the company,
I want to thank the Directors for their dedication, commitment and wisdom as we work through the transformation.
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18 John Boynton
President and Chief Executive Officer
T O O U R S H A R E H O L D E R S
2018 was a year of great change at Torstar as we completed the first full
year of our multi-year transformation, with every part of the company
participating fully in this important initiative to transform Torstar to meet
the needs of consumers and clients in an increasingly digital, mobile and
data world.
Journal and expanded business news content with Bloomberg. In addition,
we increased content and coverage in Community Brands print and digital
editions and expanded the role of The Kit, our fashion and beauty product
across many of our digital news products.
We spent a good part of 2017 planning the transformation and restructuring
of our organization for the coming changes. In 2018 we began to execute the
plan, focusing on processes, infrastructure and other non-customer-facing
initiatives. In the second half of the year we began to introduce initiatives to
both consumers and advertisers.
At the core of this transformation, which we will continue to pursue
aggressively throughout 2019 and beyond, is our mission 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.
Several key trends inform our path forward. First, print media is challenged
and will continue to decline; second, consumers of all ages are getting more
and more of their news and information from mobile devices; third, the
advertising business is evolving to a more results-driven, precision, always-
on, full-funnel activity; fourth, the digital world has exponentially expanded;
and fifth, data is now the competitive engine behind digital.
To achieve our goal of becoming a growth company again, Torstar, like all
media organizations, must meet the demand from customers for quality
content and journalism of value. We are now seeing that customers are
prepared to support quality journalism in Canada and in many places across
the world. At the same time, we are moving quickly to compete better in
providing advertisers with the advanced data analytics they now require
to make smart advertising decisions. In this age of data, advertisers need
much more information about consumers than ever before to help them
make informed buying decisions.
During 2018, we completed a great deal of detailed organizational
restructuring; created new departments, attracting new skills vital to our
future growth; invested heavily on new data infrastructure, digital platforms,
technology and tools; integrated a new Executive Leadership Team across
the company; implemented a major inter-departmental training program;
and fully developed a set of cultural values designed to embrace and succeed
in the transformation initiative.
2018 was also the year to begin to execute a long series of initiatives aimed
directly at customers and clients. In March we launched a major national
expansion with a rebranding as StarMetro of our Metro urban commuter
newspapers and a more robust digital offering on thestar.com in Vancouver,
Calgary, Edmonton, Toronto and Halifax. In October, 2018, we acquired
iPolitics, a leading Ottawa-based digital subscription political news outlet
that has strengthened our digital content offerings in politics. We bolstered
our business offerings through a strategic partnership with The Wall Street
We introduced user registrations on thestar.com in July, 2018. We also
expanded this single sign-on capability across all our Community Brands
news sites in the fall. In late September we launched paid digital subscriptions
on thestar.com, ending the year with almost 10,000 digital-only subscribers.
In the fourth quarter of 2018 we launched a beta trial for subscription
offerings in three initial markets within our Community Brands segment. All
these initiatives are important steps in our transformation journey.
From a financial perspective, Torstar also took an important step forward
in receiving approval from the members of our eight registered defined
benefit pension plans to proceed with the merger of the Torstar plans with
the Colleges of Applied Arts & Technology Pension Plan (the CAAT Plan)
effective October 1, 2018. The merger remains subject to the consent of the
Superintendent of Financial Services (Ontario), which is not expected to
occur before the second half of 2019.
2018 was also the year that governments and customers were awakening to
the rapid market changes and forces affecting news companies. There was
a growing awareness that some large multinational digital companies have
quietly become dominant and this has created an uneven playing field.
This situation is challenging for some Canadian media companies and
to the economic and social health of our democracy. These multinational
competitors do not employ journalists in Canada to report on news; rather
they distribute for free news articles that have been generated mainly
by large Canadian news companies. It is the content generated by these
Canadian news organizations that is helping to generate the traffic and high
consumer engagement that these large multinational competitors now enjoy.
In its fall economic statement, the federal government outlined measures
to give a tax incentive to digital news subscribers and a refundable tax
credit to qualifying news outlets that “produce a wide variety of news and
information of interest to Canadians.” The measures will also allow non-profit
media organizations to give charitable receipts to donors. We welcome these
measures.
However, the Canadian media industry still faces challenges due not only
to the availability of news content distributed free by global technology
companies, but also because of the shift by advertisers to digital media
dominated by multinational companies. These multinational competitors
may have sales tax and other tax advantages over Canadian companies and
they also hold vast pools of first-party user data about Canadians.
Australia and countries in Europe are acting to address the issues that
domestic news organizations are facing as a result of these large multinational
competitors. After a lengthy review, the Australian Competition and
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Consumer Commission has recommended sweeping changes to regulations
and oversight of multinational tech giants, tax deductions for news publishers
and a complete review of the difference in rules Australian publishers and
broadcasters face compared to multinational competitors. After a two-
year review, the European Union has struck a deal on new copyright rules
under which multinational tech giants will be forced to negotiate licensing
agreements with rights holders, such as news media companies, to publish
their content. The Canadian government has yet to initiative similar reviews.
We urge the federal government to review these measures and act quickly to
adopt appropriate measures in Canada. Canadian news organizations deserve
to be paid for the content they produce and to be able to compete on a level
playing field.
OPERATING RESULTS
Torstar’s overall results in 2018 were affected by the continued pressures on
print advertising.
We ended the year with $68.2 million of cash and cash equivalents and $7.2
million of restricted cash; Torstar has no bank indebtedness. Cash provided by
operating activities was $14.4 million in 2018 reflecting $21.4 million of cash
generated by operating activities partially offset by an $8.8-million increase in
working capital. This is important as we have already invested money in 2018
on the transformation as noted above and we have another year to invest so
this cash balance helps.
Our segmented adjusted EBITDA was $60.8 million in 2018, a decrease of
$13.4 million from the prior year and included the benefit of $23.9 million
of digital media tax credits. Segmented revenue was $615.0 million in 2018,
down $76.6 million, or 11%, from $691.6 million in 2017.
The Digital Ventures segment, which was created in 2015, was a significant
contributor in 2018 with segmented adjusted EBITDA of $24.4 million, a
decrease of $2.5 million compared to 2017, $1.2 million of which was the
result of the sale of Workopolis in early April. The operating loss included
$38.9 million of non-cash amortization and depreciation related to our
investment in Vertical Scope. We have a significant investment in an
attractive digital business in VerticalScope, which has pursued a strategy
of organic and acquisition related growth. VerticalScope operates more
than 1,500 user forums and premium content sites, including automotive,
power sports, outdoors, home and health. It has the largest multi-platform
automotive resource audience in the United States with more than 35 million
unique visitors a month across desktop, mobile and tablet platforms as
measured by ComScore in December, 2018.
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, numerous
digital operations, a large flyer distribution network as well as magazines and
consumer shows. Segmented adjusted EBITDA in 2018 was $23.5 million,
down $8.0 million from prior year and included the benefit of a $0.5 million
digital media tax credit. Segmented revenue was $258.2 million compared to
$305.3 million in 2017. Digital revenue showed solid growth in 2018 in local
digital advertising within the Community Brands segment. The important flyer
distribution category remained a solid contributor in 2018, representing 37%
of the Community Brands revenue base. Digital revenues were up 3% in 2018
on a same-store basis. This was due primarily to continued strong growth in
local revenue at the Community Brands news sites.
Our Daily Brands segment, which includes the Toronto Star, The Hamilton
Spectator, Waterloo Region Record, St. Catharines Standard, Niagara Falls
Review, Welland Tribune, Peterborough Examiner, our StarMetro papers
across Canada, Sing Tao Daily, The Kit and some of our digital properties,
reported adjusted EBITDA of $25.3 million, down $1.1 million relative to 2017,
and included the benefit of a $23.4 million digital media tax credit. Revenues
were down $24.1 million, or 8%, primarily the result of lower print advertising
revenues. Subscriber revenues, which represent 41% of the Daily Brands’ total
revenue in 2018, grew 4% relative to 2017. Digital revenues grew 5% in 2018
and reflected growth at the regional daily websites as well as growth in other
digital revenue streams at the Toronto Star. The Toronto Star, our flagship
publication, remains Canada’s largest individual weekday print title.
Torstar also has minority investments in associated businesses, including an
approximate 16% equity investment in Blue Ant Media Inc., an independent
media company. In addition, Torstar has a minority investment in Black Press
Ltd., a company that publishes more than 150 titles in print and online in
Canada and the U.S.
One thing that is not changing in our transformation is our commitment to
quality journalism and to provide accurate and timely news and information
that helps customers make informed decisions about their daily lives and the
communities in which they live.
In 2018, that commitment was acknowledged with Torstar winning a total
of 60 first-place international, national and provincial awards for journalism
excellence, including six National Newspaper Awards, one of the highest
honours in Canadian journalism, in areas ranging from business reporting to
explanatory work, sports reporting, local reporting and photography. These
awards are well-deserved tributes to the winners for their outstanding work
and confirm Torstar’s reputation of producing quality journalism in all our
publications.
OUR GREATEST STRENGTH
We have many strengths in all our operations across Canada, but no strength
is greater than the talented and committed employees at all levels of our
company.
Guiding these employees is a very talented executive leadership team
including Lorenzo DeMarchi, our Executive Vice-President and Chief Financial
Officer; Marie Beyette, Senior Vice-President, General Counsel and Corporate
Secretary; Jennifer Barber, Senior Vice-President, Finance and CFO Community
and Daily News Brands; Ian Oliver, Executive Vice-President of Torstar and
President of Community Brands and Operations; Neil Oliver, Executive Vice-
President and President of Daily News Brands; Fredric Karen, Senior Vice-
President, Editorial; Pary Bell, Senior Vice-President of Commercial Products
and Sales Operations; Angus Frame, Senior Vice-President, Digital Product
Management and Digital Product Development; Pam Laycock, Senior Vice-
President, Transformation and Strategy; Anna Marie Menezes, Vice-President,
Customer Revenue and Lifecycle Management; Trish Hewitt, Senior Vice-
President, Human Resources; Geoff Wright, Vice-President, Content Strategy;
and John Souleles, Chief Data Officer. We also benefit from the leadership of
Rob Laidlaw, the founder and CEO at VerticalScope.
I was also very fortunate to have the support and wise counsel of John
Honderich, our Chair, and all the members of the Board of Directors during
the year.
Finally, I would like to say thank you to our more than 3,000 employees across
the company for their passion and dedication. Their determination to succeed
is a huge advantage as we continue to move forward with our multi-year
transformation.
At Torstar, we are excited about our future in the years ahead.
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18
N O T E S
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18
18
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
56
57
60
116
119
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18
N O T E S
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TORSTAR – Management's Discussion and Analysis
For the year ended December 31, 2018
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, 2018 (the “2018 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 2018 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. The Company has three reportable
operating segments: Community Brands (or "Communities"), Daily Brands (or "Dailies") and Digital Ventures.
This MD&A is dated February 26, 2019 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 estimates and expectations relating
to the expected net proceeds from the Workopolis transaction in Sections 1 and 2 of this MD&A, expectations regarding our transformation
efforts, including our efforts to obtain digital subscription revenue, add value to our audiences and collect and use data, and maintain a
strong financial foundation to enable sustainable growth over the long term in Sections 1, 2 and 5 of this MD&A, expectations related to
the merger of our defined benefit pension plans with the Colleges of Applied Arts & Technology ("CAAT") jointly sponsored defined benefit
pension plan (including the expected benefits of the transaction, the anticipated obtaining and timing of regulatory consent, expected
funding and expenses for registered defined benefit obligations and contributions to the CAAT Plan) in Sections 2, 5, and 8 of this MD&A,
estimates and expectations relating to contingent liabilities and impairment of assets in Sections 3, 4 and 13 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 2019 including anticipated revenue trends, anticipated growth and results at VerticalScope, anticipated effects of adopting the new
IFRS 16 standard on lease accounting and its impact on adjusted EBITDA and cash flow, anticipated capital expenditures, the anticipated
timing and amount of digital media tax credits, and the proposed new refundable tax credit to support labour costs for qualifying news
organizations in Section 5 of this MD&A, expectations regarding cash flows and forecasted cash requirements and potential measures
to increase liquidity, 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 (and potential reimbursement), solvency liabilities and
other expectations related to employee future benefit obligations and the impact of 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 (including the anticipated effects of adopting the new IFRS 16 standard) 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 charge for news content used by search, social media and other technology companies;
-the Company’s ability to attract and retain advertisers and customers;
-the Company’s ability to build and maintain adequate circulation/subscription levels;
TORSTAR CORPORATION 2018 ANNUAL REPORT 9
TORSTAR – Management's Discussion and Analysis
-the Company’s ability to attract and retain readers and traffic;
-the Company’s ability to integrate the technology associated with new digital platforms;
-general economic conditions and customer prospects in the principal markets in which the Company operates;
-the Company’s ability to reduce costs;
-loss of reputation;
-dependence on third party suppliers and service providers;
-reliance on technology and information systems;
-cybersecurity, data protection 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;
-distribution 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, and any related regulatory proceedings;
-litigation;
-foreign exchange fluctuations and foreign operations;
-dependence on and competition for key personnel;
-availability of insurance;
-intellectual property rights and other content risks;
-income tax and other taxes;
-credit risk;
-availability of capital and restrictions imposed by credit facilities;
-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; successful development and launch of strategic initiatives and new products; and expected
benefits from the transaction with CAAT. 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 2018 ANNUAL REPORT 10
TORSTAR – Management's Discussion and Analysis
Section
Page
Management’s Discussion and Analysis – Contents
12
14
16
24
30
31
32
33
35
37
37
38
39
39
42
42
1
2
3
4
5
6
7
8
9
Overview and Strategic Initiatives
A summary of our business and strategic initiatives
Highlights
Highlights for 2018 compared to 2017
Annual Operating Results
A discussion of our operating results for 2018 and 2017
Fourth Quarter Operating Results
A discussion of our fourth quarter operating results
Outlook
The outlook for our business in 2019
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 2018, 2017 and 2016
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 2018 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). The Company
has three reportable operating segments: Community Brands ("Communities"), Daily Brands ("Dailies") and Digital Ventures.
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” or
"StarMetro"), which publishes the English-language StarMetro free daily newspapers in several of Canada’s largest cities,
and through a joint venture arrangement, Torstar's interest in the Chinese-language Sing Tao Daily and its related publications
in Toronto, Vancouver and Calgary. The Dailies also include wheels.ca, and other specialty publications and magazines
and distribution services.
The Communities include more than 80 weekly community newspapers, digital properties (including homefinder.ca, save.ca,
travelalerts.ca, and regional online sites, such as durhamregion.com) and flyer distribution operations. The Communities
also include a number of specialty publications, directories and consumer shows.
Digital Ventures includes our 56% interest in VerticalScope Holdings Inc. ("VerticalScope") and includes eyeReturn Marketing
Inc. (“eyeReturn”). Digital Ventures also includes our joint venture interest in the company that operated Workopolis. On
April 12, 2018, workopolis.com and related assets were sold to Recruit Holdings Co., Ltd. In connection with the sale and
subsequent wind up of the remaining Workopolis business, we estimate that net proceeds will be in the range of $4.0 million,
$3.8 million of which has been received to date.
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 220 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, 2018 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 Alaska.
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 in the financial technology sector.
Competitive Landscape and Strategic Initiatives
Over the past 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 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.
We have a significant investment in VerticalScope which benefits from these trends and which has pursued a strategy of
organic and acquisition related growth. Throughout 2018, our core operations have focused efforts on the execution of a
TORSTAR CORPORATION 2018 ANNUAL REPORT 12
TORSTAR – Management's Discussion and Analysis
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 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. In 2017, we spent the first
six months of this transformation initiative planning and restructuring our organization for the coming changes and in 2018
we began executing our plan. During the first six months of the year we focused on processes, infrastructure and other non-
customer-facing initiatives while the last half of the year was more focused on customer-facing initiatives.
Our progress in 2018 along our multi-year transformation plan included:
• A major national expansion of digital offerings on thestar.com combined with a reinvention of our Metro urban
commuter newspapers in Vancouver, Calgary, Edmonton, Toronto and Halifax centred on more robust digital local
offerings on thestar.com and nationally leveraging the Star brand and its history and unique position of local and
investigative reporting.
Introduction of user registration on thestar.com and across our news sites within the Community Brands segment
as a first step in adding value to our audiences through the enhanced collection and use of data.
•
• Strengthened our digital content offerings in politics through the acquisition of iPolitics and in business through a
strategic partnership with Wall Street Journal.
• Expanded the role of The Kit (fashion and beauty), Homefinder (real estate content and home/condo search) and
Wheels.ca and AutoCatch.ca (for auto enthusiasts and buyers) incorporating them into our digital news sites
nationally.
Launched digital subscription offerings on thestar.com late in the third quarter.
Launched a paid print and digital subscription pilot in three test markets within our Community Brands segment in
the fourth quarter of 2018.
•
•
• Strengthened our talent base and implemented foundational technologies in the areas of data infrastructure,
advanced analytics capabilities and customer life cycle management capabilities.
TORSTAR CORPORATION 2018 ANNUAL REPORT 13
TORSTAR – Management's Discussion and Analysis
2. Highlights
Highlights for 2018 compared to 2017
(in $000’s, except per share amounts)
2018
2017
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
($38,045)
($0.47)
(31,524)
($0.39)
($0.11)
(36,231)
60,765
Revenues1,2
615,031
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:
($30,638)
($0.38)
(29,171)
($0.36)
$0.01
(25,134)
74,209
691,600
($7,407)
($0.09)
(2,353)
($0.03)
($0.12)
(11,097)
(13,444)
(76,569)
• Ended 2018 with $68.2 million of cash and cash equivalents and $7.2 million of restricted cash; Torstar has no bank
indebtedness. Cash provided by operating activities was $14.4 million in 2018 reflecting $21.4 million of cash
generated by operating activities partially offset by an $8.8 million increase in working capital.
• We launched a major national expansion with a reinvention of our Metro urban commuter newspapers and more
robust digital local offerings on thestar.com in Vancouver, Calgary, Edmonton, Toronto, Halifax and nationally,
leveraging the Star brand and its history and unique position of local and investigative reporting.
• Earlier in the year, we introduced single sign-on (user registration) on thestar.com and in the fourth quarter, we
launched this across all our news sites within the Community Brands segment to add value to our audiences through
the enhanced collection and use of data.
•
•
Late in the third quarter we launched paid digital subscription offerings on thestar.com and finished the year with
almost 10,000 digital only subscribers.
In the fourth quarter of 2018, we began testing subscription offerings in three select pilot markets within our
Community Brands segment.
• On October 1, 2018, we acquired the assets of iPolitics, a digital subscription based political news outlet based in
Ottawa that provides extensive digital online coverage of federal and provincial politics. The purchase of iPolitics
complements the political coverage by the Toronto Star’s Ottawa and Queen’s Park bureaus and contributes selected
content as part of our basic digital subscription offering on thestar.com.
• On September 27, 2018, we received approval from the members of our eight registered defined benefit pension
plans (the “Torstar Plans”) to proceed with the merger of the Torstar Plans with the Colleges of Applied Arts &
Technology Pension Plan (the “CAAT Plan”) effective October 1, 2018, with Torstar and certain of its subsidiaries
becoming participating employers under the CAAT Plan. The merger remains subject to the consent of the
Superintendent of Financial Services (Ontario), which is not expected to occur prior to the second half of 2019.
TORSTAR CORPORATION 2018 ANNUAL REPORT 14
TORSTAR – Management's Discussion and Analysis
•
In 2018 we sold our portfolio investment in Kanetix Ltd. for cash proceeds of $5.7 million and recorded a gain before
tax of $2.7 million in other comprehensive income. On April 12, 2018, Workopolis.com and Workopolis' related
assets were sold to Recruit Holdings Co., Ltd. Following the sale and subsequent wind up of the remaining Workopolis
business, we estimate that net proceeds will be in the range of $4.0 million, $3.8 million of which has been received
to date.
• Our net loss from continuing operations was $38.0 million ($0.47 per share) in 2018 compared to $30.6 million
($0.38 per share) in 2017. Our net loss in 2018 included $66.7 million of non-cash amortization and depreciation,
$38.9 million of which related to our investment in VerticalScope, and $8.0 million of non-cash impairment charges.
Our net loss in 2017 included $66.9 million of non-cash amortization and depreciation and $11.1 million of non-
cash impairment charges.
• Adjusted loss per share was $0.11 in 2018 compared to adjusted earnings per share of $0.01 in 2017. Adjusted
loss per share included an $0.82 per share effect of amortization and depreciation.
• Our segmented adjusted EBITDA was $60.8 million in 2018, down $13.4 million relative to the prior year and included
the benefit of $23.9 million of digital media tax credits (2017 - $13.4 million). Excluding the benefit of these tax
credits, adjusted EBITDA was $36.9 million in 2018, down $23.9 million relative to 2017.
• Segmented revenue was $615.0 million in 2018, down $76.6 million (11%) from $691.6 million in 2017.
The following chart provides a continuity of earnings (loss) per share from the year ended December 31, 2017 to the year
ended December 31, 2018:
Earnings (Loss) Per
Share
Adjusted Earnings
(Loss) Per Share **
Earnings (Loss) per share from continuing operations attributable to equity
shareholders in 2017
Changes
• Adjusted EBITDA *
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
• Other
Loss per share attributable to equity shareholders in 2018 from continuing operations
Earnings per share from discontinued operations attributable to equity shareholders
in 2018
Loss per share attributable to equity shareholders in 2018
($0.38)
(0.17)
(0.55)
(0.02)
0.04
(0.53)
0.01
(0.02)
0.05
(0.04)
0.06
($0.47)
$0.08
($0.39)
$0.01
(0.17)
(0.16)
(0.16)
0.01
0.05
(0.01)
($0.11)
($0.11)
*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 2018 ANNUAL REPORT 15
TORSTAR – Management's Discussion and Analysis
3. Annual Operating Results
A discussion of our operating results for 2018 and 2017
Unless otherwise noted, the following is a discussion of our 2018 operating results relative to 2017. 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, 2018 and December 31, 2017 and provide a reconciliation to
the consolidated statement of income.
2018
Communities
Dailies
Digital
Ventures
Corporate
Total
Segmented *
Adjustments
and
Eliminations¹
Per Consolidated
Statement of Loss
(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
(9,610)
$543,391
(219,296)
(289,497)
34,598
(26,949)
7,649
(17,525)
($9,876)
($38,045)
$6,475
($31,570)
$258,237
$289,931
$66,863
(123,200)
(111,521)
23,516
(11,846)
(391)
11,279
(91,647)
(172,936)
25,348
(12,812)
(63)
12,473
(8,068)
(8,000)
(21,229)
(21,234)
24,400
(42,073)
(1,614)
(19,287)
($6,807)
(5,692)
(12,499)
(2)
259
(12,242)
(2,662)
(114)
$615,031
(242,883)
(311,383)
60,765
(66,733)
(1,809)
(7,777)
(20,454)
(8,000)
($71,640)
23,587
21,886
(26,167)
39,784
1,809
15,426
2,929
8,000
$1,669
($3,595)
($21,949)
($12,356)
($36,231)
$26,355
TORSTAR CORPORATION 2018 ANNUAL REPORT 16
TORSTAR – Management's Discussion and Analysis
2017
Communities
Dailies
Digital
Ventures
Corporate
Total
Segmented *
$305,303
$314,000
$72,297
(140,098)
(133,693)
31,512
(13,352)
(595)
17,565
(100,229)
(187,389)
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)
$7,505
($2,917)
($18,608)
($11,114)
($25,134)
Restructuring and other charges
(10,060)
(7,609)
(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
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)
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
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 paid daily 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 and subsequently closed 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. Refer to Section 16 of this MD&A for further discussion. As
a result of publications sold and acquired, revenues in the Community Brands segment were estimated to be $22.4 million
lower in 2018, while revenues in the Daily Brands segment were $8.2 million higher in 2018. Revenues in 2018 were
also impacted by the sale of Workopolis in April 2018 and wagjag.com in October 2017. When we refer to "same store
basis" in this section of this MD&A, the comparisons have been adjusted to exclude these properties.
Segmented revenue was down $76.6 million or 11% in 2018 and included revenue growth of $5.1 million (11%) from
VerticalScope (12% revenue growth in U.S. dollars). On a same store basis, segmented revenue was down $45.8 million
(7%) in 2018.
Revenue excluding our proportionate share of revenue from joint ventures and our 56% interest in VerticalScope (“operating
revenue”) was down $72.3 million or 12%.
On a same store basis, subscriber revenues were down 1%, print advertising revenues were down 18% and flyer distribution
revenues' were down 5% respectively from prior year.
On a same store basis, digital revenue across all segments increased 2% in 2018, reflecting continued solid growth in
local digital advertising within the community websites and growth in other digital revenue streams at the Star as well as
growth at VerticalScope. Digital revenues were 20% of total segment revenues in 2018 compared to 19% in 2017.
TORSTAR CORPORATION 2018 ANNUAL REPORT 17
TORSTAR – Management's Discussion and Analysis
The following charts provide a breakdown of total segmented operating revenue for 2018 and 2017 (in $000's):
Communities
Dailies
Digital ventures
Total Segmented
Year ended December 31, 2018
$
Print advertising
Digital advertising
Flyer distribution
Print and digital subscriber
$99,375
26,306
95,531
460
%
38%
10%
37%
$
$110,811
26,796
21,573
120,138
36,565
15%
10,613
%
38%
9%
7%
41%
5%
$
%
$
$66,863
100%
119,965
$210,186
117,104
120,598
47,178
%
34%
20%
19%
20%
7%
$258,237
100%
$289,931
100%
$66,863
100%
$615,031
100%
Communities
Dailies
Digital ventures
Total Segmented
Year ended December 31, 2017
$
Print advertising
Digital advertising
Flyer distribution
Print and digital subscriber
$125,519
30,747
110,883
715
%
41%
10%
36%
$
$138,863
25,495
23,275
115,818
37,439
13%
10,549
%
44%
8%
7%
37%
4%
$
%
$
$72,297
100%
128,539
$264,382
134,158
116,533
47,988
%
38%
19%
19%
17%
7%
$305,303
100%
$314,000
100%
$72,297
100%
$691,600
100%
Other
Total
Other
Total
Salaries and benefits
Our segmented salaries and benefits costs were down $26.2 million or 10% in 2018 and included the benefit of $23.9
million of digital media tax credits (2017 - $13.4 million) as this represents recoveries of previously incurred salary and
benefits costs. Excluding the impact of these tax credits, segmented salaries and benefit costs in 2018 were down $15.7
million or 6% reflecting $6.5 million of lower costs associated with the Postmedia transaction as well as the benefit of
savings from restructuring initiatives. These reductions were partially offset by the impact of higher minimum wage in
Ontario, additional staffing related to our transformation activities as well as increased salary and benefit costs associated
with acquisition related growth 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%, 11% and 14% respectively of segmented other operating costs in 2018.
Segmented other operating costs were down $36.9 million or 11% in 2018 largely as a result of $13.9 million of lower
costs associated with the sale of publications in 2017 as well as lower print volumes and the impact of other cost reductions,
in part associated with an increased focus on print subscriber profitability, partially offset by additional costs related to our
transformation activities.
Adjusted EBITDA
Our segmented adjusted EBITDA was $60.8 million in 2018, down $13.4 million relative to the prior year and included
the benefit of a $23.9 million digital media tax credit (2017 - $13.4 million). Excluding the benefit of these tax credits,
adjusted EBITDA was $36.9 million in 2018, down $23.9 million relative to 2017.
Segmented adjusted EBITDA in the Daily Brands segment was $25.3 million, down $1.1 million relative to 2017 and
included the benefit of $23.4 million of digital media tax credits (2017 - $13.4 million). These tax credits relate to claims
made in respect of prior year operations. Segmented adjusted EBITDA in the Community Brands segment was $23.5
million in 2018, down $8.0 million relative to 2017 and included the benefit of a $0.5 million digital media tax credit.
Segmented adjusted EBITDA in the Digital Ventures segment was $24.4 million in 2018, a decrease of $2.5 million
compared to 2017, $1.2 million of which was the result of the sale of Workopolis in early April 2018. Corporate costs,
including external professional fees, were also $1.9 million higher in 2018 compared to 2017.
TORSTAR CORPORATION 2018 ANNUAL REPORT 18
TORSTAR – Management's Discussion and Analysis
Adjusted EBITDA in 2018 included an incremental $6.2 million in segmented adjusted EBITDA resulting from synergies
associated with the Postmedia transaction, as well as $18.5 million of savings related to restructuring initiatives offset by
$14.6 million of costs related to our transformation activities and higher professional fees.
Our transformation efforts in 2018 have been concentrated on the launch of digital subscriptions on thestar.com and the
launch of subscriptions in certain markets in our Community Brands segment, a major national digital expansion, an
exclusive deal with the Wall Street Journal, the roll out of user registrations to add value to our audiences through the
enhanced collection and use of data, an increased investment in investigative journalism, hyper-local and local content,
development of our data infrastructure, advanced analytics capability, customer life cycle management capabilities and
a new technology stack for client and customer facing executions.
Amortization and depreciation
Total segmented amortization and depreciation decreased by $0.2 million in 2018 to $66.7 million as a result of higher
amortization related to acquisitions made at VerticalScope in 2018 offset by lower amortization associated with our Daily
and Community Brands segments.
Operating earnings (loss)
Segmented operating loss was $7.8 million in 2018, compared to segmented operating earnings of $4.8 million in 2017.
Operating loss in 2018 included $38.9 million of amortization expense associated with our investment in VerticalScope
(2017 - $28.1 million) and the benefit of $23.9 million of digital media tax credits (2017 - $13.4 million).
Restructuring and other charges
Total segmented restructuring and other charges were $20.5 million in 2018, and are expected to result in annualized net
savings of $19.9 million. This has resulted in the reduction of approximately 450 positions with $8.7 million of the savings
realized in 2018. Total segmented restructuring and other charges of $18.9 million were recorded 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.
Over the last few years we have undertaken several restructuring initiatives in order to reduce our ongoing operating
costs. At December 31, 2018, our liability for payments in respect of these restructuring initiatives was $18.0 million (2017
- $23.6 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:
2016
2017
2018
Expected net savings in:
2019
2020
Annualized net savings
Year of Initiative
2016
2017
2018
Total
$19,900
16,600
$12,100
9,900
$36,500
$22,000
$8,700
11,100
100
$19,900
$19,900
28,700
18,600
11,100
100
$78,400
Impairment of assets
During 2018, we incurred non-cash charges related to impairment of our investments in joint ventures totalling $8.0 million.
During 2017, we incurred charges related to asset impairment of intangible assets and investments in joint ventures
totalling $11.1 million. These charges have no impact on cash flows.
During the fourth quarter of 2018, we concluded that there were indicators of impairment for our joint venture investment
in Sing Tao Daily resulting from lower forecasted revenues that reflect challenges in the print advertising market. In
carrying out the impairment test, we determined that the carrying amount of the joint venture investment in Sing Tao Daily
exceeded its value in use ("VIU") and accordingly, we recorded an impairment charge of $8.0 million.
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 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
TORSTAR CORPORATION 2018 ANNUAL REPORT 19
TORSTAR – Management's Discussion and Analysis
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.
Operating loss
In 2018, our segmented operating loss was $36.2 million compared to $25.1 million in 2017. Our 2018 segmented
operating loss included $66.7 million of non-cash amortization and depreciation, $38.9 million of which related to our
investment in VerticalScope, and $8.0 million of non-cash impairment charges. Our 2017 segmented operating loss
included $66.9 million of non-cash amortization and depreciation and $11.1 million of non-cash impairment charges.
Our operating loss excluding our proportionate share of operating profit (loss) from VerticalScope and joint ventures
decreased $8.6 million in 2018 compared to 2017.
Loss from joint ventures
Loss from joint ventures was $5.4 million in 2018 and $1.8 million in 2017. These losses primarily reflect non-cash
impairment charges of $8.0 million recorded in 2018 related to our joint venture investment in Sing Tao and $3.0 million
recorded in 2017 related to our joint venture investment in Workopolis, as discussed above. Excluding the impact of the
impairment charges, income from joint ventures was $2.6 million in 2018 and $1.2 million in 2017 respectively. The loss
from joint ventures in 2018 also included a $3.7 million gain on the sale of Workopolis.com and related assets that were
sold on April 12, 2018 as well as $1.8 million of restructuring charges related to the closure of the remaining Workopolis
business following the sale.
Loss from associated businesses
Loss from associated businesses was $20.4 million in 2018 compared to a loss of $6.8 million in 2017. The loss from
associated businesses was heavily influenced by VerticalScope's amortization and depreciation policy related to U.S.
$47.8 million of acquisitions completed in 2018 (2017 - U.S. $37.9 million).
The 2018 loss included income of $2.3 million from Black Press offset by a loss of $0.6 million from Nest Wealth, a loss
of $1.3 million from Blue Ant and a loss of $20.7 million from VerticalScope. The 2018 loss from VerticalScope included
$38.9 million of amortization and depreciation expense and $2.3 million of acquisitions related expense resulting from
adjustments to contingent considerations and interest accretion costs. 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 and $5.0 million gain related to one of their acquisitions in 2017.
Our share of Black Press’ net income was $2.3 million in 2018 (loss of $5.7 million in 2017), representing Black Press’
results through November 30, 2018. 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 loss was $1.3 million in 2018 (income of $1.4 million in 2017) representing Blue Ant's results
through November 30, 2018 which included dilution gains of $0.4 million ($2.9 million in 2017). Our equity interest in Blue
Ant was 16% at the end of 2018 comparable with our equity interest at the end of 2017. Blue Ant has an August fiscal
year end and therefore does not have coterminous quarter-ends with us.
We did not record any income or loss during 2018 or 2017 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 ($5.9 million as of December 31, 2018) have
been offset by net income, OCI or additional investments are made. For the year ended December 31, 2018, we would
have reported a net loss of $0.1 million and other comprehensive loss of $0.5 million from Canadian Press (2017 – income
of $1.1 million and other comprehensive loss of $1.8 million).
Investment in VerticalScope
We own a 56% interest in VerticalScope. During 2018, VerticalScope generated U.S. $19.7 million of cash from operations
and made acquisitions totalling U.S. $47.8 million. VerticalScope's debt, net of cash, increased U.S. $31.3 million from
U.S. $87.1 million at December 31, 2017 to U.S. $118.4 million at December 31, 2018. In 2017, VerticalScope entered
into a new five-year, US $200 million senior credit facility.
In connection with the investment in VerticalScope, during 2018 we recorded $38.9 million of amortization and depreciation
expense (2017 - $28.1 million).
TORSTAR CORPORATION 2018 ANNUAL REPORT 20
TORSTAR – Management's Discussion and Analysis
Other income
Other income was $0.3 million in 2018 compared to $3.9 million in 2017. Other income in 2018 primarily related to a gain
on the sale of a real estate property. 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 an income tax recovery of $0.1 million in 2018 and an income tax expense of $5.7 million in 2017. We have
not recognized the benefit of net deferred income tax assets on the consolidated statement of financial position.
Net loss from continuing operations
Our net loss from continuing operations was $38.0 million ($0.47 per share) in 2018, compared to a loss of $30.6 million
($0.38 per share) in 2017. Our loss in 2018 included $66.7 million of amortization and depreciation expense, $38.9 million
of which related to our investment in VerticalScope, and $8.0 million of non-cash impairment charges. Our 2017 net loss
included $66.9 million of non-cash amortization and depreciation and $11.1 million of non-cash impairment charges.
Income 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 $6.5 million in 2018 and $1.4 million in 2017
relate to revised estimates of indemnity provisions related to legal costs, taxes and other costs. Income in 2018 also
included an income tax recovery of $6.2 million, primarily related to an adjustment to the income tax expense related to
the sale of Harlequin.
Net loss attributable to equity shareholders
Our net loss attributable to equity shareholders was $31.5 million ($0.39 per share) in 2018 compared to net loss attributable
to equity shareholders of $29.2 million ($0.36 per share) in 2017.
Segment Operating Results – Community Brands
Revenues
Revenues in the Community Brands segment were down $47.1 million or 15% in 2018 with an estimated $22.4 million of
the decrease in revenue resulting from publications purchased and sold in 2017. Local print advertising revenues, which
represent the largest portion of the Community Brands' advertising revenues, were down 21% in 2018 (11% on a same
store basis). National print advertising revenues, which represent only approximately 4% of the Community Brands' overall
revenue, were down 22% in 2018 (14% on a same store basis). Flyer distribution revenues which represented
approximately 37% of the Community Brands' total revenue in 2018 were down 14% in 2018 and were largely impacted
by the sale of publications in 2017 as well as the closure of certain retail clients in mid-2017. On a same store basis and
adjusting for the loss of certain retail clients, flyer distribution revenues were down 2% in 2018.
On a same store basis, digital revenues in the Community Brands segment were up 3% in 2018. This was the result of
continued strong growth in local digital revenue at the community news sites, offset by declines in properties in other
digital verticals.
Salaries and benefits costs
The Community Brands' salaries and benefits costs were down $16.9 million or 12% in 2018 and included the benefit of
$9.1 million of cost savings from restructuring initiatives as well as $8.0 million of lower costs associated with the sale of
publications to Postmedia and a $0.5 million digital media tax credit, partially offset by additional costs resulting from an
increase in the minimum wage in Ontario as well as additional staffing related to our transformation activities.
TORSTAR CORPORATION 2018 ANNUAL REPORT 21
TORSTAR – Management's Discussion and Analysis
Other operating costs
The Community Brands' other operating costs were down $22.2 million or 17% in 2018, resulting from $18.7 million of
lower costs associated with the sale of publications in 2017 as well as volume related reductions in circulation and flyer
distribution costs, lower newsprint consumption, and other cost reductions partially offset by additional costs related to
our transformation activities.
Adjusted EBITDA
The Community Brands' adjusted EBITDA was $23.5 million, down $8.0 million relative to the prior year primarily reflecting
the impact of lower revenues as well as additional costs related to our transformation activities. The declines were partially
offset by $9.1 million of savings related to restructuring initiatives as well as $4.3 million of synergies associated with the
transaction with Postmedia.
Operating profit (loss)
The Community Brands' operating profit was $1.7 million in 2018, compared to operating profit of $7.5 million in 2017
largely reflecting lower adjusted EBITDA partially offset by lower amortization and depreciation and lower restructuring
and other charges.
Segment Operating Results – Daily Brands
Revenues
Revenues from the Daily Brands were down $24.1 million or 8% in 2018 and included an incremental $8.2 million in
revenue associated with daily publications purchased and sold in late 2017.
Encouragingly, subscriber revenues which represented 41% of the Daily Brands' total revenue in 2018 grew 4% relative
to 2017. On a same store basis, subscriber revenues were down only 1% in 2018. Flyer distribution revenues, which
represented 7% of the Daily Brands' total revenue in 2018, were down 7% in 2018 (also down 7% on a same store basis).
The decrease in revenue in 2018 was primarily the result of lower print advertising revenues. Local print advertising
revenues, which represented approximately 23% of the Daily Brands' total revenues in 2018, were down 12% relative to
the respective period in 2017 (13% on a same store basis). National print advertising revenues, which now represent
only 10% of the Daily Brands' overall revenue, continued to be more challenged and were down 40% in 2018 (41% on a
same store basis).
Digital revenues from the Daily Brands segment were up 5% in 2018 (down 3% on a same store basis) and reflected
growth at the regional daily websites as well as growth in other digital revenue streams at the Star.
Salaries and benefits costs
The Daily Brands' salaries and benefits costs were down $8.6 million or 9% in 2018 and included the benefit of $23.4
million of digital media tax credits (2017 - $13.4 million) as these represent recoveries of previously incurred salary and
benefits costs. These tax credits related to claims made in respect of 2012 through 2015. Excluding the impact of the tax
credits, segmented salaries and benefit costs in 2018 for the Daily Brands increased $1.4 million or 1% reflecting $1.6
million of incremental costs associated with the new dailies as well as additional staffing related to our transformation
partially offset by the benefit of savings from restructuring initiatives and lower staffing costs associated with the
discontinuation of Toronto Star Touch in 2017.
Other operating costs
The Daily Brands' other operating costs were down $14.5 million or 8% in 2018 reflecting lower volume related circulation
and distribution costs, lower newsprint consumption and other cost reductions, partially offset by $4.8 million of incremental
costs associated with the Postmedia transaction as well as additional costs related to our transformation activities.
Adjusted EBITDA
The Daily Brands adjusted EBITDA was $25.3 million in 2018, down $1.1 million from 2017 and included the benefit of
$23.4 million of digital media tax credits (2017 - $13.4 million). Excluding the benefit of the 2017 and 2018 digital media
tax credits, adjusted EBITDA from the Daily Brands was down $11.1 million as a result of lower revenues and additional
costs related to our transformation activities which were partially offset by an incremental $1.9 million of adjusted EBITDA
resulting from synergies associated with the transaction with Postmedia as well as $9.4 million of savings related to
restructuring initiatives.
TORSTAR CORPORATION 2018 ANNUAL REPORT 22
TORSTAR – Management's Discussion and Analysis
Operating profit (loss)
The Daily Brands' operating loss was $3.6 million in 2018, and included $8.1 million of restructuring and other charges,
$8.0 million of impairment charges and $12.8 million of non-cash depreciation and amortization expense. The Daily
Brands' operating loss in 2018 reflected lower adjusted EBITDA and higher impairment charges relative to 2017.
Segment Operating Results – Digital Ventures
Revenues
Digital Ventures revenues were down $5.4 million or 7% in 2018 largely reflecting the absence of revenue from Workopolis
following the sale in April 2018. Adjusting for the sale of Workopolis, Digital Ventures revenues were up $2.6 million or
4% in 2018 as a result of revenue growth of $5.1 million at VerticalScope, partially offset by lower revenues at eyeReturn.
Our proportionate share of VerticalScope's revenue in 2018 was $50.0 million, which represented growth of 11% (12%
in U.S. dollars) reflecting growth from acquisitions. Organic growth at VerticalScope has been negatively affected by
reductions in search related traffic volumes.
Salaries and benefits costs
Digital Ventures’ salaries and benefits costs were down $0.9 million or 4% in 2018 reflecting the absence of salary and
benefit costs following the Workopolis sale partially offset by increased salary and benefit costs associated with acquisition
related growth at VerticalScope.
Other operating costs
Digital Ventures' other operating costs were down $2.1 million or 9% in 2018 reflecting the absence of costs following the
Workopolis sale partially offset by increased costs at VerticalScope related to investment in their technology platform and
acquisition related growth in the business.
Adjusted EBITDA
Digital Ventures' adjusted EBITDA decreased by $2.5 million to $24.4 million in 2018, $1.2 million of which related to the
Workopolis sale in early April 2018 and lower adjusted EBITDA at eyeReturn and VerticalScope. Our proportionate share
of VerticalScope's adjusted EBITDA was $23.9 million in 2018 representing a decrease of 4% over 2017 (3% in U.S.
dollars). Adjusted EBITDA at VerticalScope as a percentage of revenue was 48% in 2018.
Operating loss
Digital Ventures' operating loss was $21.9 million in 2018, compared to an operating loss of $18.6 million in 2017 primarily
resulting from a $10.1 million increase in amortization and depreciation expense primarily associated with acquisition
activity at VerticalScope.
TORSTAR CORPORATION 2018 ANNUAL REPORT 23
TORSTAR – Management's Discussion and Analysis
4. Fourth Quarter Operating Results
A discussion of our fourth quarter operating results
Overall Performance
Unless otherwise noted, the following is a discussion of our fourth quarter 2018 operating results relative to the fourth
quarter of 2017. 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, 2018 and December 31, 2017 and provide
a reconciliation to the consolidated statement of income.
Restructuring and other charges
(3,883)
(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
(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
Fourth Quarter 2018
Communities
Dailies
Digital
Ventures
Corporate
Total
Segmented*
Adjustments
&
Eliminations1
Per Consolidated
Statement of
Income
$69,094
$76,273
$18,428
$163,795
($18,935)
$144,860
(28,984)
(27,284)
12,826
(2,929)
(147)
9,750
(21,257)
(42,975)
12,041
(3,413)
(49)
8,579
(2,166)
(8,000)
($1,701)
(1,035)
(2,736)
(2)
645
(2,093)
(5,171)
(5,613)
7,644
(9,316)
(647)
(2,319)
(338)
$5,867
($1,587)
($2,657)
($2,093)
(57,113)
(76,907)
29,775
(15,660)
(198)
13,917
(6,387)
(8,000)
($470)
6,219
5,523
(7,193)
8,747
198
1,752
511
8,000
$10,263
(50,894)
(71,384)
22,582
(6,913)
15,669
(5,876)
$9,793
($3,257)
$175
($3,082)
Fourth Quarter 2017
Communities
Dailies
Digital
Ventures
Corporate
Total
Segmented*
Adjustments
&
Eliminations1
Per Consolidated
Statement of
Income
$85,782
$20,279
$189,525
($20,186)
$169,339
$83,464
(35,401)
(33,509)
14,554
(3,187)
(133)
11,234
(13,902)
(47,767)
24,113
(3,188)
17
20,942
($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
$7,672
$18,592
($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
Restructuring and other charges
(3,562)
(2,350)
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
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 paid daily
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
TORSTAR CORPORATION 2018 ANNUAL REPORT 24
TORSTAR – Management's Discussion and Analysis
and advertisers of certain publications we acquired and subsequently closed 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. Refer to Section 16 of this MD&A for further discussion. 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,
revenues in the Community Brands segment were $4.3 million lower in the fourth quarter of 2018, while revenues in the
Daily Brands segment increased by $1.5 million in the fourth quarter of 2018. Revenues in the fourth quarter of 2018
were also impacted by the sale of Workopolis in April 2018 and wagjag.com in October 2017.
In addition, as a result of a variation in the quarterly publishing calendar in 2018 relative to last year, our first quarter 2018
revenue benefited from additional publishing days in both the Daily Brands and Community Brands Segment. This variance
in the publishing calendar reversed in the fourth quarter of 2018 when there were fewer publishing days relative to the
fourth quarter of 2017. The impact of these shifts in the calendar in the fourth quarter of 2018 was net lower revenue of
$3.6 million (Community Brands - $2.5 million, Daily Brands - $1.1 million). The impact on adjusted EBITDA as a result
of these shifts was minimal.
When we refer to "same store basis" in this section of this MD&A, the comparisons have been adjusted to exclude the
purchased and sold properties as well as the differences related to timing of the publishing calendar.
Segmented revenue was down $25.7 million or 14% in the fourth quarter of 2018 and included revenue growth of $1.6
million or 13% from VerticalScope (9% in U.S. dollars).
Operating revenue (excluding our proportionate share of revenues from our joint ventures and our 56% interest in
VerticalScope) was down $24.5 million or 14% in the fourth quarter of 2018.
On a same store basis in the fourth quarter of 2018, subscriber revenues increased 1%, print advertising revenues were
down 19% and flyer distribution revenues were down 5% respectively from the fourth quarter of 2017.
On a same store basis, digital revenue across all segments increased 2% in the fourth quarter of 2018, reflecting continued
solid growth in local digital advertising within the community news sites and growth in other digital revenue streams at
the Star as well as growth at VerticalScope partially offset by declines in other digital properties. Digital revenues were
21% of total segment revenues in the fourth quarter of 2018 compared to 19% in the fourth quarter of 2017.
The following charts provide a breakdown of total segmented operating revenue (in $000s):
Fourth Quarter 2018
Print advertising
Digital advertising
Flyer distribution
Print and digital subscriber
Other
Total
Fourth Quarter 2017
Print advertising
Digital advertising
Flyer distribution
Print and digital subscriber
Other
Total
Communities
Dailies
Digital ventures
Total Segmented
$
$25,214
7,395
27,200
116
9,169
%
36%
11%
39%
14%
$
$28,716
7,907
6,478
30,306
2,866
%
38%
10%
8%
40%
4%
$
%
$
$18,428
100%
$53,930
33,730
33,678
30,422
12,035
%
33%
21%
21%
19%
6%
$69,094
100%
$76,273
100%
$18,428
100%
$163,795
100%
Communities
Dailies
Digital ventures
Total Segmented
$
$32,992
8,217
31,673
165
%
40%
10%
38%
10,417
12%
$
$37,702
7,601
7,715
29,704
3,060
%
44%
9%
9%
35%
3%
$
%
$
$20,279
100%
$70,694
36,097
39,388
29,869
13,477
%
37%
19%
21%
16%
7%
$83,464
100%
$85,782
100%
$20,279
100%
$189,525
100%
TORSTAR CORPORATION 2018 ANNUAL REPORT 25
TORSTAR – Management's Discussion and Analysis
Salaries and benefits
Our segmented salaries and benefits costs in the fourth quarter of 2018 were comparable to the fourth quarter of 2017
and included the benefit of $7.8 million of digital media tax credits compared to $13.4 million in 2017. These tax credits
represent recoveries of previously incurred salary and benefits costs related to claims made in respect of prior year
operations. Excluding the impact of these tax credits, segmented salaries and benefit costs in the fourth quarter of 2018
were down $5.6 million or 8% in the quarter reflecting $1.1 million of lower costs associated with the Postmedia transaction
as well as the benefit of savings from restructuring initiatives. These reductions were partially offset by the impact of higher
minimum wage in Ontario and additional staffing related to our transformation activities.
Other operating costs
Segmented other operating costs primarily consist of circulation and flyer distribution costs, newsprint costs and other
production costs which represented 43%, 12% and 15% respectively of segmented other operating costs in the fourth
quarter of 2018. Segmented other operating costs were down $12.5 million or 14% in the fourth quarter of 2018 largely
as a result $2.4 million of lower costs associated with the sale of publications to Postmedia as well as lower print volumes
and the impact of other cost reductions, in part associated with an increased focus on print subscriber profitability, partially
offset by additional costs related to our transformation activities.
Adjusted EBITDA
Our segmented adjusted EBITDA was $29.8 million in the fourth quarter of 2018, a decline of $13.2 million from the fourth
quarter of 2017 and included the benefit of $7.8 million of digital media tax credits (fourth quarter of 2017 - $13.4 million).
Excluding the impact of the digital media tax credits, adjusted EBITDA in the fourth quarter of 2018 was down $7.6 million
relative to the fourth quarter of 2017.
Segmented adjusted EBITDA in the Daily Brands segment was $12.0 million in the fourth quarter of 2018 and included
the benefit of $7.3 million of digital media tax credits (fourth quarter of 2017 - $13.4 million). Excluding the impact of the
digital media tax credits, adjusted EBITDA in the Daily Brands segment in the fourth quarter of 2018 was down $6.0 million
relative to the fourth quarter of 2017. Segmented adjusted EBITDA in the Community Brands segment was $12.8 million,
down $1.8 million relative to the comparable period in 2017 and included the benefit of $0.5 million of digital media tax
credits. Segmented adjusted EBITDA in the Digital Ventures segment was $7.6 million, a decrease of $0.1 million relative
to the fourth quarter of 2017.
The fourth quarter of 2018 included an incremental $0.8 million in segmented adjusted EBITDA resulting from synergies
associated with the Postmedia transaction, as well as $3.8 million of savings related to restructuring initiatives offset by
$3.7 million of costs related to our transformation activities.
Operating earnings
Segmented operating earnings were $13.9 million in the fourth quarter of 2018, down $12.7 million from operating earnings
of $26.6 million in the fourth quarter of 2017 largely due to lower adjusted EBITDA partially offset by lower share based
compensation expense.
Restructuring and other charges
Total segmented restructuring and other charges were $6.4 million in the fourth quarter of 2018 and $6.0 million in the
comparable period in 2017. Restructuring initiatives undertaken in the fourth quarter of 2018 are expected to result in
annualized net savings of $6.9 million and have resulted in the reduction of approximately 200 positions with $0.1 million
of the savings associated with these restructuring initiatives realized in the fourth quarter of 2018.
Impairment of assets
During the fourth quarter of 2018, we incurred non-cash impairment charges of $8.0 million in respect of investments in
joint ventures (2017 - $8.1 million in respect of goodwill in the Digital Ventures segment). These charges had no impact
on cash flows and are discussed further in the discussion of annual operating results in Section 3 of this MD&A.
Operating profit (loss)
In the fourth quarter of 2018 our segmented operating loss was $0.5 million compared to operating profit of $12.4 million
in the fourth quarter of 2017. Excluding the impact of the digital media tax credits, operating loss in the fourth quarter of
2018 was $8.3 million compared to operating loss of $1.0 million in the fourth quarter of 2017.
Our operating profit, excluding our proportionate share of operating profit from our joint ventures and our investment in
VerticalScope, decreased $3.8 million in the fourth quarter of 2018 to $9.8 million.
TORSTAR CORPORATION 2018 ANNUAL REPORT 26
TORSTAR – Management's Discussion and Analysis
Income (loss) from joint ventures
Loss from joint ventures was $7.9 million in the fourth quarter of 2018 compared to an income of $0.6 million in the fourth
quarter of 2017. The loss in the fourth quarter of 2018 included a non-cash impairment charge of $8.0 million related to
our joint venture investment in Sing Tao.
Loss from associated businesses
Loss from associated businesses was $5.0 million in the fourth quarter of 2018 compared to a loss of $2.0 million in the
fourth quarter of 2017. The loss in the fourth quarter of 2018 included income of $1.1 million from Black Press, a loss of
$0.8 million from Blue Ant and a loss of $5.1 million from VerticalScope. The loss from VerticalScope in the fourth quarter
of 2018 included $8.6 million of amortization expense and $2.3 million of acquisitions related expense resulting from
adjustments to contingent considerations and interest accretion costs. 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.
Other income
Other income was $nil in the fourth quarter of 2018 and $3.9 million in the fourth quarter of 2017. 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 $nil in the fourth quarter of 2018 and income tax expense of $6.9 million in the fourth
quarter of 2017. We have not recognized the benefit of net deferred income tax assets on the consolidated statement of
financial position.
Net income (loss) from continuing operations
Our net loss from continuing operations was $3.3 million ($0.04 per share) in the fourth quarter of 2018. This compares
to net income of $7.8 million ($0.10 per share) in the fourth quarter of 2017.
The following chart provides a continuity of earnings per share from the fourth quarter of 2017 to the fourth quarter of
2018:
Earnings (Loss) Per Share
Adjusted Earnings (Loss)
Per Share **
Earnings per share from continuing operations attributable to equity
shareholders in 2017
Changes
• Adjusted EBITDA *
Operating earnings (loss)*
• Restructuring and other charges*
Operating profit (loss) *
• Interest and financing costs
• Income (loss) from associated businesses (excluding VerticalScope)
• Other income
• Other
Earnings (loss) per share attributable to equity shareholders in 2018
$0.10
(0.16)
(0.06)
(0.01)
(0.07)
0.02
0.04
(0.05)
0.02
($0.04)
$0.32
(0.16)
0.16
0.16
0.02
0.04
(0.07)
$0.15
*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 $0.2 million in the fourth quarter of 2018 and $0.9 million in the fourth quarter of
2017 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.
TORSTAR CORPORATION 2018 ANNUAL REPORT 27
TORSTAR – Management's Discussion and Analysis
Segment Operating Results – Community Brands
Revenues
Revenues from the Community Brands segment were down $14.4 million or 17% in the fourth quarter of 2018, with an
estimated $4.3 million of the decrease in revenue resulting from publications purchased and sold in 2017. Local print
advertising revenues, which represent the largest portion of the Community Brands' advertising revenues, were down
20% in the fourth quarter of 2018 (10% on a same store basis). National print advertising revenues, which represent only
4% of the Community Brands' overall revenue, were down 39% in the fourth quarter of 2018 (31% on a same store basis).
Flyer distribution revenues which represented approximately 39% of the Community Brands' total revenue in the fourth
quarter of 2018 were down 14% and were largely impacted by the sale of publications to Postmedia in 2017. On a same
store basis, flyer distribution revenues were down 4% in the fourth quarter of 2018.
On a same store basis, digital revenues in the Community Brands segment were up 5% in the fourth quarter of 2018.
This was the result of continued very strong growth in local digital revenue at the community sites, offset by declines in
properties in other digital verticals.
Salaries and benefits costs
The Community Brands' salaries and benefits costs were down $6.4 million or 18% in the fourth quarter of 2018 and
included the benefit of $2.1 million in cost savings from restructuring as well as $1.5 million of lower costs associated with
the sale of publications to Postmedia and a $0.5 million digital media tax credit partially offset by additional costs resulting
from an increase in the minimum wage in Ontario as well as additional staffing related to our transformation activities.
Other operating costs
The Community Brands' other operating costs were down $6.2 million or 19% in the fourth quarter of 2018, resulting from
$3.3 million of lower costs associated with the sale of publications to Postmedia as well as volume related reductions in
circulation and flyer distribution costs, lower newsprint consumption, and other cost reductions partially offset by additional
costs related to our transformation activities.
Adjusted EBITDA
The Community Brands' adjusted EBITDA was down $1.8 million in the fourth quarter of 2018 from the comparable period
in 2017 reflecting the impact of lower revenues as well as additional costs related to our transformation activities. The
declines were partially offset by $2.1 million of savings related to restructuring initiatives, a $0.5 million digital media tax
credit as well as $0.6 million of synergies associated with the transaction with Postmedia.
Operating profit
The Community Brands' operating profit was $5.9 million in the fourth quarter of 2018, a decrease of $1.8 million from
$7.7 million in the fourth quarter of 2017 primarily reflecting lower adjusted EBITDA.
Segment Operating Results – Daily Brands
Revenues
Daily Brands segment revenues were down $9.5 million or 11% in the fourth quarter of 2018 and included an incremental
$1.5 million in revenue associated with daily publications purchased and sold in late 2017.
Encouragingly, subscriber revenues which now represented approximately 40% of the Daily Brands' total revenue in the
fourth quarter of 2018 grew 2% relative to the comparable period in 2017. On a same store basis, subscriber revenues
in the fourth quarter of 2018 were up 1% compared to the fourth quarter of 2017. Flyer distribution revenues, which
represented 8% of the Daily Brands' total revenue in the fourth quarter of 2018, were down 16% in the quarter (down 12%
on a same store basis).
The decrease in revenue in the fourth quarter of 2018 was primarily the result of lower print advertising revenues. Local
print advertising revenues, which represented approximately 22% of the Daily Brands' total revenues in the fourth quarter
of 2018, were down 19% relative to the respective period in 2017 (19% on a same store basis). National print advertising
revenues, which now represent only 11% of the Daily Brands' overall revenue, continued to be more challenged and were
down 38% in the fourth quarter of 2018 (37% on a same store basis).
Digital revenues from the Daily Brands segment were up 4% in the fourth quarter of 2018 (down 4% on a same store
basis). Results in the fourth quarter of 2018 reflected growth at the regional daily websites as well as growth in other
digital revenue streams at the Star.
TORSTAR CORPORATION 2018 ANNUAL REPORT 28
TORSTAR – Management's Discussion and Analysis
Salaries and benefits costs
The Daily Brands' salaries and benefits costs increased $7.4 million (53%) in the fourth quarter of 2018 and included the
benefit of $7.3 million of digital media tax credits (2017 - $13.4 million). Excluding the impact of these tax credits, segmented
salaries and benefit costs increased $1.3 million or 5% in the fourth quarter reflecting $0.4 million of incremental costs
associated with the new dailies and additional staffing related to our transformation, partially offset by the benefit of savings
from restructuring initiatives.
Other operating costs
The Daily Brands' other operating costs were down $4.8 million or 10% in the fourth quarter of 2018 reflecting lower
volume related circulation and distribution costs, lower newsprint consumption and other cost reductions, partially offset
by $0.9 million of incremental costs associated with the Postmedia transaction as well as additional costs related to our
transformation activities.
Adjusted EBITDA
The Daily Brands' adjusted EBITDA was $12.0 million in the fourth quarter of 2018, down $12.1 million from the fourth
quarter of 2017. Excluding the impact of the 2017 and 2018 digital media tax credits, adjusted EBITDA from the Daily
Brands was down $6.0 million due to lower revenues and additional costs related to our transformation activities which
were partially offset by an incremental $0.2 million of adjusted EBITDA resulting from synergies associated with the
transaction with Postmedia as well as $1.6 million of savings related to restructuring initiatives.
Operating profit
The Daily Brands' operating loss was $1.6 million in the fourth quarter of 2018 compared to operating profit of $18.6 million
in the fourth quarter of 2017 primarily reflecting lower adjusted EBITDA and higher impairment charges related to our joint
venture investment in Sing Tao Daily.
Segment Operating Results – Digital Ventures
Revenues
Digital Ventures' revenues decreased $1.9 million or 9% in the fourth quarter of 2018, largely reflecting the absence of
revenue from Workopolis following the sale in April 2018. Adjusting for the sale of Workopolis, Digital Ventures revenues
were up $0.4 million or 2% in the fourth quarter of 2018 as a result of revenue growth of $1.6 million at VerticalScope,
partially offset by lower revenues at eyeReturn. Our proportionate share of VerticalScope's revenue in the fourth quarter
of 2018 was $14.0 million which represented growth of 13% (9% in U.S. dollars) relative to the fourth quarter of 2017 and
which largely resulted from acquisition related growth.
Salaries and benefits costs
Digital Ventures’ salaries and benefits costs were down $0.5 million or 9% in the fourth quarter of 2018 compared to the
fourth quarter of 2017 largely reflecting the absence of salary and benefit costs following the Workopolis sale.
Other operating costs
Digital Ventures' other operating costs were down $1.3 million or 19% in the fourth quarter of 2018 from the comparable
period in 2017 reflecting the absence of costs at Workopolis following the sale in April 2018 and lower costs at eyeReturn,
partially offset by increased costs at VerticalScope related to investment in their technology platform and acquisition related
growth in the business.
Adjusted EBITDA
Digital Ventures' adjusted EBITDA was $7.6 million in the fourth quarter of 2018, down $0.1 million from $7.7 million in
the fourth quarter of 2017, reflecting higher adjusted EBITDA at VerticalScope partially offset by lower adjusted EBITDA
at eyeReturn and the absence of $0.3 million of EBITDA related to the Workopolis sale in early April 2018. Our proportionate
share of adjusted EBITDA at VerticalScope was $7.2 million in the fourth quarter of 2018 which represented 52% of
VerticalScope's revenue.
TORSTAR CORPORATION 2018 ANNUAL REPORT 29
TORSTAR – Management's Discussion and Analysis
Operating profit (loss)
Digital Ventures' operating loss was $2.7 million in the fourth quarter of 2018, compared to an operating loss of $9.9 million
in the fourth quarter of 2017 primarily the result of an impairment charge of $8.1 million in the fourth quarter of 2017 that
did not recur in 2018.
5. Outlook
The outlook for our business in 2019
In 2018, the Community Brands and the Daily Brands segments continued to face a challenging print advertising market
resulting from ongoing shifts in spending by advertisers. While these trends have continued early into 2019, it is difficult to
predict if these trends will improve or worsen in the balance of the year. On a same store basis, flyer distribution revenues
declined 5% in 2018 and we expect this trend will be slightly worse in 2019. On a same store basis, subscriber revenues
declined 1% in 2018, and we expect this trend will deteriorate modestly in 2019 as we continue to increase focus on subscriber
profitability. Overall digital advertising revenue growth at the Community Brands and Daily Brands is expected to strengthen
in 2019, benefiting from growth in local digital advertising at the community news sites and in digital revenue growth at the
Star partially offset by expected continued declines in other digital verticals. In addition, we expect revenue will begin to
benefit from a growing digital subscription stream in 2019 as we increase focus on attracting new digital subscribers.
Within the Digital Ventures segment, VerticalScope revenue is expected to show moderate growth on a full year basis with
expected softness in the first half of the year more than offset with anticipated growth in the back half of 2019. Results in
the year will reflect the impact of prior period acquisitions, an expected gradual stabilization of organic growth challenges
and an increased level of investment in their technology platform as well as the benefits of cost savings initiatives and
platform consolidation already completed.
We expect the cost base in 2019 to benefit from $11 million of restructuring savings related to restructuring initiatives
undertaken to date and we also expect to continue to execute additional cost savings in the balance of the year.
Beginning on January 1, 2019, we will adopt the new IFRS 16 standard on lease accounting. The adoption of the lease
standard will have a positive impact on adjusted EBITDA in respect of rent expense, which will be offset by increased
depreciation expense and interest expense. On a comparative basis, we estimate that the impact on the adjusted EBITDA
for 2018 for the removal of the rent expense to be approximately $5.4 million (Dailies Segment approximately $1.6 million,
Communities segment approximately $3.2 million and Digital Ventures segment approximately $0.6 million), split evenly
over the four quarters. This change will have no impact on cash flow.
From a cash flow perspective, we anticipate that capital expenditures for 2019 will be in the range of $16 - $17 million,
including approximately $8 million of capital spending related to technology platforms in connection with our transformation
activities. In addition, at December 31, 2018 we had net receivables related to digital media tax credits totaling $20.4 million
which have been approved by the Ontario Media Development Corporation ("OMDC"). The amount and timing of any cash
realized from these receivables is dependent upon the final review and approval by the Canada Revenue Agency which is
expected to be completed in 2019.
On September 27, 2018, we received approval from the members of the Torstar Plans to proceed with the merger of the
Torstar Plans with the CAAT Plan effective October 1, 2018, with Torstar and certain of its subsidiaries becoming participating
employers under the CAAT Plan. The merger remains subject to the consent of the Superintendent of Financial Services
(Ontario), which is not expected to occur prior to the second half of 2019.
Following the consent of the Superintendent of Financial Services (Ontario), the liabilities for all past benefits under the
Torstar Plans will be transferred to the CAAT Plan together with the assets of the Torstar Plans, and the CAAT Plan will
assume responsibility for all pension benefit payments to members of the Torstar Plans going forward. No additional cash
funding related to the transferred liabilities is expected to be required from Torstar in connection with the merger. Effective
October 1, 2018, members of the Torstar Plans began accruing benefits under the new DBplus provisions of the CAAT Plan.
Beginning in January 1, 2019, most Torstar employees including those previously enrolled in defined contribution type benefit
plans began accruing benefits under the CAAT Plan. Pension expense and contributions related to the CAAT plan are
based on a fixed percentage of earnings with the expense expected to be approximately $4 million lower in 2019 than our
combined 2018 expense for our registered defined benefit plans and defined contribution type plans. In 2019, we expect
contributions to the CAAT plan to be equivalent to the related expense.
TORSTAR CORPORATION 2018 ANNUAL REPORT 30
TORSTAR – Management's Discussion and Analysis
In the 2018 Fall Economic Update, the Federal Government announced a new refundable tax credit to support labour costs
for qualifying news organizations starting in 2019. It is possible that we may benefit from this program, however, there can
be no certainty that the refundable tax credit will be enacted as proposed, or that we will be a qualifying news organization
under the program.
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. 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, reducing capital expenditures, obtaining additional debt or equity financing or reducing distributions
to shareholders.
In 2018, we generated $14.4 million of cash from operating activities, used $9.8 million of cash in investing activities and
used $7.8 million of cash in financing activities.
In the fourth quarter of 2018, we generated $29.2 million of cash from operating activities, used $7.4 million of cash in
investing activities and used $2.0 million in financing activities.
At December 31, 2018, we had $68.2 million of cash and cash equivalents as well as $7.2 million of restricted cash. Restricted
cash included $5.8 million held as collateral for outstanding standby letters of credit supporting an unfunded executive
retirement plan liability. At December 31, 2017 we had $71.4 million of cash and cash equivalents as well as $9.1 million
of restricted cash which included $7.7 million held as collateral for outstanding standby letters of credit supporting an
unfunded executive retirement plan liability.
Operating Activities
In 2018, we generated $14.4 million of cash from operating activities. This included $11.0 million of funding towards our
employee future benefit plans of which $6.6 million was contributed to registered defined benefit pension plans and $4.4
million was applied to unfunded pension and other post-employment benefit plans. In addition, non-cash working capital
increased $8.8 million and restricted cash decreased $1.9 million in 2018. During 2017, we generated $15.4 million of cash
from operating activities which included funding of $16.8 million of contributions to our employee future benefit plans, a
$10.2 million increase in non-cash working capital and a $2.8 million decrease in restricted cash.
In the fourth quarter of 2018, we generated $29.2 million of cash from operating activities which included $0.6 million of
funding towards our employee future benefit plans and a $6.3 million decrease in non-cash working capital. During the
fourth quarter of 2017 we generated cash of $23.6 million of cash from operating activities. This included $1.2 million of
contributions to our employee future benefit plans and an $8.1 million increase in non-cash working capital.
Investing Activities
During 2018, we used $9.8 million of cash in investing activities for $14.4 million of 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), $2.2 million for acquisitions and portfolio investments and received $6.5 million of proceeds from the sale
of assets.
During 2017, we used $11.5 million of cash from investing activities primarily for additions to property, plant and equipment
and intangible assets.
During the fourth quarter of 2018, we used $7.4 million of cash from investing activities primarily for $6.4 million in additions
to property, plant and equipment and intangible assets and $1.1 million for acquisitions and portfolio investments. During
the fourth quarter of 2017, we used $1.7 million of cash in investing activities.
TORSTAR CORPORATION 2018 ANNUAL REPORT 31
TORSTAR – Management's Discussion and Analysis
Financing Activities
We used cash of $7.8 million and $7.9 million in financing activities in 2018 and 2017 respectively, which was primarily used
for the payment of dividends.
We used cash of $2.0 million and $1.9 million in financing activities in the fourth quarters of 2018 and 2017 respectively,
which was primarily used in the payment of dividends.
Dividends per share were 2.5 cents in each quarter of 2018 and 2017.
Contractual Obligations and Other
As at December 31, 2018, 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
$39,863
33,920
$73,783
($3,292)
2019
$13,240
17,654
$30,894
($1,966)
2020 – 2021
$18,581
14,290
$32,871
($1,326)
2022 – 2023
$8,042
1,976
$10,018
During the year ended December 31, 2018, we received $18.4 million related to the digital media tax credit claim in respect
of the period ended December 31, 2012 which was approved by the OMDC in the fourth quarter of 2017. In the fourth
quarter of 2018, we recorded an additional recovery of $4.4 million in salaries and benefits expense in the Dailies segment,
which was the difference between the $13.4 million we accrued for this claim in the fourth quarter of 2017 and the amount
we received, and also recorded $0.6 million of interest income related to this claim.
In 2018, we also received certification from the OMDC for two digital media tax credit claims in respect of the periods ended
December 31, 2010 and April 23, 2015. These claims, which are subject to an audit by the Canada Revenue Agency,
primarily relate to the recovery of previously recognized compensation expense. We have recorded a recovery of $19.5
million in salaries and benefits expense ($19.0 million in the Dailies segment and $0.5 million in the Communities segment)
and $0.9 million of interest income related to these two claims.
In addition, we have filed two additional digital media tax credit claims, the review of which by the OMDC has not yet been
completed and as a result, there is uncertainty regarding timing and amounts (if any) that may ultimately be received. 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 22, 2019, we had 9,808,215 Class A voting shares and 71,304,128 Class B non-voting shares outstanding.
As at December 31, 2018 we had 9,808,215 Class A voting shares and 71,304,053 Class B non-voting shares outstanding.
More information on our share capital is provided in Note 20 of the 2018 Consolidated Financial Statements.
As at February 22, 2019, we had 8,572,983 (December 31, 2018 - 8,661,064) 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 2018
Consolidated Financial Statements.
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 $137.0 million. In February 2018, at the expiry of a
previous 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. In July 2018, we settled the outstanding collar
arrangement and simultaneously entered into a new U.S. $137.0 million zero cost collar arrangement maturing in July 2019,
with a range of Cdn $1.19 to Cdn $1.39 for U.S. $1.00.
TORSTAR CORPORATION 2018 ANNUAL REPORT 32
TORSTAR – Management's Discussion and Analysis
The collar arrangements were designated as a hedge of the net investment in VerticalScope. When the rate of exchange
is above or below the collar range, the changes in fair value are recorded in OCI to the extent of hedge effectiveness. When
the rate of exchange is within the collar range, while there are no cash payments, the change in fair value reflect the cost
of hedging and are recorded in OCI to the extent of hedge effectiveness and accumulated in a separate component of equity
within AOCI. Any gains or losses related to the ineffective portion of the hedge are recorded in net income.
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
2018
($42,620)
(7,308)
(44,641)
($94,569)
2017
($47,548)
(8,947)
(48,221)
($104,716)
At December 31, 2018, our net deficit related to our registered defined benefit pension plans was $42.6 million, representing
a favourable movement of $4.9 million from a net deficit of $47.5 million at December 31, 2017.
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
2018
($9,023)
(375)
(221)
($9,619)
2017
($12,237)
(305)
(199)
($12,741)
The cost and obligations of pensions and post employment benefits earned by employees is calculated annually by
independent actuaries using the projected unit credit method prorated on service and management’s best estimate of
assumptions for salary increases, employee turnover, retirement ages of employees, mortality rates and expected health
care costs. On an interim basis, management estimates the changes in the actuarial gains and losses. These estimates
are adjusted to actual when the annual calculations are completed by the independent actuaries.
The significant assumptions made by management in 2018 and 2017 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
2018
2017
3.5% to 3.9%
3.1% to 3.4%
2.5%
2.5%
3.1% to 3.4%
3.2% to 3.8%
2.5%
2.5%
2019
3.5% to 3.9%
2.5%
The discount rates of 3.5% to 3.9% were the yields at December 31, 2018 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
TORSTAR CORPORATION 2018 ANNUAL REPORT 33
TORSTAR – Management's Discussion and Analysis
higher (holding all other assumptions constant) would have resulted in a decrease in the value of the net pension plan
obligation at December 31, 2018 of $99.0 million. A discount rate that was one percent lower would have increased the
value of the net pension plan obligation at December 31, 2018 by $112.2 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, 2018 would be approximately $4.6 million lower. If the estimated discount rate were one percent lower, the
obligation at December 31, 2018 would be approximately $5.6 million higher. For health care costs, the estimated trend
was for a 5.0% increase for the 2018 expense. For 2019, 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, 2018 would be approximately
$1.4 million higher. If the estimated increase in health care costs were one percent lower, the obligation at December 31,
2018 would be approximately $1.2 million lower.
Due to the extensive use of estimates in the benefit calculations, actuarial gains and losses arise over time as discount
rates change, when actual return performance differs from the estimated returns and as other assumptions change. The
most significant actuarial gains and losses arise from changes in the discount rate used to value the pension plan obligations
as well as differences in the actual and estimated returns earned on pension plan assets. We recognize these actuarial
gains and losses as realized, through OCI. Actuarial gains of $12.3 million were recognized through OCI in 2018 and
actuarial losses of $35.8 million were recognized through OCI in 2017.
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, 2017. Based on these valuations, as well as the impact of recently introduced solvency
relief measures, we currently anticipate that 2019 minimum required funding in respect of registered defined benefit pension
plans will be approximately $2 million. However, we anticipate that this minimum required funding will be reimbursed to
Torstar in connection with the merger with the CAAT Plans discussed below.
Based on the December 31, 2017 solvency report, we had an estimated solvency deficit of $103 million at December 31,
2017. 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 $140 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 increased
by 0.21% in 2018 from December 31, 2017. Given the change in the discount rate, combined with asset returns from
December 31, 2017 through to December 31, 2018, we estimate that the solvency deficit for these plans at December 31,
2018 was approximately $123 million.
On September 27, 2018, the Company received approval from the members of its eight registered defined benefit pension
plans to proceed with the merger of the Torstar Plans with the CAAT Plan effective October 1, 2018, with Torstar and certain
of its subsidiaries becoming participating employers under the CAAT Plan. The merger remains subject to the consent of
the Superintendent of Financial Services (Ontario), which is not expected to occur prior to the second half of 2019.
Following the consent of the Superintendent of Financial Services (Ontario), the liabilities for all past benefits under the
Torstar Plans will be transferred to the CAAT Plan together with the assets of the Torstar Plans, and the CAAT Plan will
assume responsibility for all pension benefit payments to members of the Torstar Plans going forward. Effective October
1, 2018, members of the Torstar Plans began accruing benefits under the new DBplus provisions of the CAAT Plan and the
Company expensed $1.0 million for contributions made to the CAAT Plan in the fourth quarter of 2018. Effective January
1, 2019, most employees that participated in our defined contribution type plans also began participating in the CAAT Plan.
Most employees hired after January 1, 2019 will also participate in the CAAT Plan. Pension expense and contributions
related to the CAAT Plan are based on a fixed percentage of earnings.
TORSTAR CORPORATION 2018 ANNUAL REPORT 34
TORSTAR – Management's Discussion and Analysis
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 2018 Consolidated Financial Statements are outlined in Note 2 of
the 2018 Consolidated Financial Statements for the year ended December 31, 2018, including the nature and impact of the
adoption of IFRS 15 Revenue from Contracts with Customers and IFRS 9 Financial Instruments, effective January 1, 2018.
We have not early adopted any standard, interpretation or amendment that has been issued but is not yet effective.
Accounting Estimates and Judgements
The preparation of our 2018 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.
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 2018 Consolidated Financial Statements.
Impairment of non-financial assets
At each reporting date, we are required to assess our investments, intangible assets, and property plant and equipment 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. 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 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
TORSTAR CORPORATION 2018 ANNUAL REPORT 35
TORSTAR – Management's Discussion and Analysis
inflows that are largely independent of those from other assets or groups of assets. 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 2018 Consolidated Financial
Statements for further details about the methods and assumptions used in estimating the recoverable amount.
As at December 31, 2018 the carrying value of investments, intangible assets and property, plant & equipment represented
34%, 8%, and 12% 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, 2017 the carrying value of
investments, intangible assets and property, plant and equipment represented 35%, 8% and 11% respectively of total assets.
These values, for the applicable segments, are outlined in the notes to the 2018 Consolidated Financial Statements. In the
year ended December 31, 2018, we recorded impairment charges (on a segmented basis), related to investments totaling
$8.0 million. In the year ended December 31, 2017, we recorded impairment charges (on a segmented basis), related to
goodwill and investments totaling $11.1 million. These charges impact net income but have no effect on cash flow. Refer
to the discussion of "Impairment of assets" in Section 3 for further detail surrounding the impairment of asset charges
recorded during 2018.
Income and other tax credits
We have recorded the benefit of digital media tax credits based on estimates, using accounting principles that recognize
the benefit 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 and the timing of realization of such amounts
can materially affect the determination of net income or cash flows. Refer to Note 15 of the 2018 Consolidated Financial
Statements for further details on the digital media tax credits.
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 and Blue
Ant 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 2018 and 2017 for Black Press and 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.
TORSTAR CORPORATION 2018 ANNUAL REPORT 36
TORSTAR – Management's Discussion and Analysis
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
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 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 StarMetro 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 Tribune, 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 2018 Consolidated Financial Statements. The following new standards or amendments
to accounting standards, which will be effective subsequent to 2018, are expected to have an impact on the interim or annual
consolidated financial statements or related disclosures:
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 the right-of-use assets and related financial 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 finalizing our analysis and we anticipate that the application
of IFRS 16 will result an increase in both assets and liabilities of approximately $16 million on transition. The adoption of
the lease standard will have a positive impact on adjusted EBITDA in respect of rent expense which will be offset by increased
amortization and depreciation expense of approximately $5 million and interest accretion expense of approximately $1.5
million for the full year. On a comparative basis, we estimate that the impact on the adjusted EBITDA for 2018 for the
removal of the rent expense to be approximately $5.4 million (Dailies Segment approximately $1.6 million, Communities
segment approximately $3.2 million and Digital Ventures segment approximately $0.6 million), split evenly over the four
quarters.
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.
TORSTAR CORPORATION 2018 ANNUAL REPORT 37
TORSTAR – Management's Discussion and Analysis
As at December 31, 2018, 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, 2018, our disclosure controls and procedures were effective.
Internal Controls Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal controls over financial reporting. These
controls include policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of Torstar; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial statements in accordance with IFRS, and that receipts and
expenditures are being made only in accordance with authorizations of management and directors; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets
that could have a material effect on the financial statements.
All control systems contain inherent limitations, no matter how well designed. As a result, management acknowledges that
our internal controls over financial reporting will not prevent or detect all misstatements due to error or fraud. In addition,
management’s evaluation of controls can provide only reasonable, not absolute, assurance that all control issues that may
result in material misstatements, if any, have been detected.
Management, under the supervision of, and with the participation of the CEO and CFO, assessed the effectiveness of
internal controls over financial reporting, using the 2013 Committee of Sponsoring Organizations of the Treadway
Commission (COSO) framework, and based on that assessment concluded that internal controls over financial reporting
were effective as at December 31, 2018.
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, 2018, 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 2018, 2017 and 2016
(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
2018
$543,391
$615,031
($38,045)
($0.47)
(31,570)
(31,524)
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)
($0.39)
($0.36)
($0.93)
80,990
$0.10
$426,792
80,785
$0.10
$481,227
80,653
$0.18
$564,491
*Includes proportionately consolidated share of joint venture operations and VerticalScope. This is a non-IFRS or additional IFRS measure, 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 sale of Workopolis in the second quarter of 2018, the publications purchased and sold from the transaction
with Postmedia in the fourth quarter of 2017, the discontinuation of Toronto Star Touch in the third quarter of 2017, and the
sale of WagJag in the fourth quarter of 2017, digital revenues increased 2% in 2018, 0% in 2017 and 18% in 2016.
TORSTAR CORPORATION 2018 ANNUAL REPORT 38
TORSTAR – Management's Discussion and Analysis
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.
Total assets have declined over the three-year period reflecting total impairment charges of $8.0 million in 2018, $11.1
million in 2017 and $7.5 million in 2016. In addition, on a segmented basis, we recorded amortization and depreciation
expenses totaling $66.7 million in 2018, $66.9 million in 2017 and $122.0 million in 2016.
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,
2018
$144,860
Sep 30,
2018
$126,388
Jun 30,
2018
$143,171
Mar 31,
2018
$128,972
Dec 31,
2017
$169,339
Sep 30,
2017
$145,913
Jun 30,
2017
$161,757
Mar 31,
2017
$138,676
Quarter Ended
($3,257)
($18,777)
$4,849
($20,860)
$7,847
($6,589)
($7,499)
($24,397)
Basic and Diluted
($0.04)
($0.23)
$0.06
($0.18)
$0.10
($0.08)
($0.09)
($0.30)
Net Income (loss) attributable to
equity shareholders
Per Class A voting and Class B non-
voting share
($3,117)
($18,753)
$4,848
($14,502)
$8,652
($6,557)
($6,988)
($24,278)
Basic and Diluted
($0.04)
($0.23)
$0.06
($0.18)
$0.11
($0.08)
($0.09)
($0.30)
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 $4.4 million, $7.6 million, $2.1 million and $6.4 million in the first, second, third
and fourth quarter of 2018 and $4.9 million, $6.2 million, $1.7 million and $6.0 million in the first, second, third and fourth
quarters of 2017 respectively. Additionally, losses on impairment of assets (reported on a segmented basis) of $8.0 million
were recorded in the fourth quarters of 2018 and $3.0 million and $8.1 million were recorded in the first and fourth quarters
of 2017 respectively.
In addition, the first quarter of 2018 included an income tax recovery of $6.3 million from discontinued operations in respect
of the sale of Harlequin. The fourth quarter of 2018 included pre-tax recoveries from discontinued operations of $0.3 million
while the second and fourth quarters of 2017 included pre-tax recoveries from discontinued operations of $0.6 million and
$1.0 million, all of which related to provisions for indemnities in respect of the sale of Harlequin.
14. Reconciliation and Definition of Non-IFRS Measures
A description and reconciliation of certain non-IFRS and additional IFRS measures used by management
In addition to operating profit, an additional IFRS measure, as presented in the consolidated statement of 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 2018 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
TORSTAR CORPORATION 2018 ANNUAL REPORT 39
TORSTAR – Management's Discussion and Analysis
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.
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
2018
Fourth Quarter
2017
Fourth Quarter
2018
Fourth Quarter
2017
($470)
6,387
8,000
$13,917
198
15,660
$29,775
$12,446
6,035
8,133
$26,614
907
15,464
$42,985
$9,793
5,876
$15,669
6,913
$22,582
$13,604
5,912
8,133
$27,649
6,934
$34,583
TORSTAR CORPORATION 2018 ANNUAL REPORT 40
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, 2018
Twelve months
ended December
31, 2017
Twelve months
ended December
31, 2018
Twelve months
ended December
31, 2017
($36,231)
20,454
8,000
($7,777)
1,809
66,733
$60,765
($25,134)
18,850
11,133
$4,849
2,492
66,868
$74,209
($9,876)
17,525
$7,649
26,949
$34,598
($18,484)
17,512
8,133
$7,161
36,987
$44,148
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
• Other
Earnings (loss) per share from continuing operations
Fourth Quarter
Twelve months ended December 31
2018
$0.15
(0.08)
(0.10)
(0.01)
($0.04)
2017
$0.32
(0.07)
(0.10)
(0.01)
0.05
(0.09)
$0.10
2018
($0.11)
(0.25)
(0.10)
(0.02)
0.01
($0.47)
2017
$0.01
(0.23)
(0.14)
0.01
0.05
(0.08)
($0.38)
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.
TORSTAR CORPORATION 2018 ANNUAL REPORT 41
TORSTAR – Management's Discussion and Analysis
15. Enterprise Risk Management
Enterprise risks and uncertainties Torstar is facing and how we manage these risks
Definition of Business Risk
We define business risk as the degree of exposure associated with the achievement of key strategic, financial, organizational
and process objectives in relation to the effectiveness and efficiency of operations, the reliability and integrity of financial
reporting, compliance with laws, regulations, policies, procedures and contracts and safeguarding of assets within an ethical
organizational culture.
Our enterprise risks are largely derived from our business environment and are fundamentally linked to our strategies and
business objectives. We strive to proactively mitigate our risk exposures through performance planning, effective business
operational management and risk response strategies which can include mitigating, transferring, retaining and/or avoiding
risks. We also strive to avoid taking on undue risk exposures whenever possible and to ensure alignment of exposures with
business strategies, objectives, values and risk tolerances.
Section 16 summarizes the principal risks and uncertainties that could affect our future business results.
Torstar’s Risk and Control Assessment Process
In 2018, 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
subscription revenue. Advertising revenue includes in-paper advertising, digital advertising and specialty publications.
Competition and Digital Shift
We operate in a highly competitive environment. Our publications, platforms and sites, including those of VerticalScope,
face intense competition for users, readers, subscribers and advertisers.
TORSTAR CORPORATION 2018 ANNUAL REPORT 42
TORSTAR – Management's Discussion and Analysis
There has been a continuing structural shift within the media industry from print to digital formats and, as a result, digital
media generates significant competition for advertising and subscription revenue and readership. This shift has and will
continue to negatively impact our print advertising revenue and, to a lesser extent, our print subscription revenue. Digital
competition is not limited to platforms that provide news and news aggregation. Our digital 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. 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.
Our existing and potential future digital competitors range from start-up operations with low cost structures to large global
players who may not be subject to the same regulatory requirements and restrictions as Canadian companies. The shift to
digital media has resulted in a significant increase in competition from global competitors, including large U.S. and
international news and other content providers, as well as global technology giants and digital platform providers such as
Google, Facebook, Apple and Amazon. These competitors are increasingly larger, and may have sales tax and other tax
advantages over Canadian companies, and access to greater operational, financial and other resources. They may have
interests in multiple forms of media, hold vast pools of user data, provide greater audience reach, and offer more sophisticated
targeting capabilities, and they may be more successful in attracting advertising and subscription revenue.
Global technology giants have taken a dominant share of the digital advertising market, including advertising revenue and
advertising revenue growth. We anticipate that this trend will continue. 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. As programmatic advertising becomes more prevalent, advertisers are increasingly
showing a preference for lower priced advertising solutions, which in turn puts downward pressure on the price of all
advertising services. 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 and revenue sources, including digital subscription offerings, mobile
platforms, video and other evolving content delivery platforms. There is a risk that we will be unable to successfully attract
or retain subscribers, 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. To date, 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
early stages 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 and impact our ability to generate revenue through these platforms. In addition, distribution
of our content and advertising on third party delivery platforms may hamper our ability to form a direct relationship with
consumers, limit our opportunity to effectively monetize our own digital products, and negatively impact our control over the
distribution of our content.
Consumers are increasingly relying on mobile devices to consume news and other content. Our success on mobile platforms
depends upon the ability to provide a combination of content, advertising and digital subscriptions 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, some of whom are the same global technology giants with whom we compete for advertising
revenue. Through their mobile devices and operating systems, these third parties have the unique ability to obtain control
and significant geolocation and other data that is becoming increasingly essential to effectively service the growing number
of advertisers who wish to target their ads by user location and behavior. This could negatively affect our ability to offer
effective advertising solutions as compared to our competitors and our ability to generate advertising revenue. 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 platforms or content on mobile devices. For example,
they may choose to feature or pre-load their own content, platforms or services on the mobile devices and operating systems
TORSTAR CORPORATION 2018 ANNUAL REPORT 43
TORSTAR – Management's Discussion and Analysis
they design, which could deter or impede consumers from downloading, accessing or using our content, platforms and
services. If our solutions were unable to work or attract consumers or we were otherwise unable to effectively provide content
or advertising on these mobile devices, our ability to generate revenue could be significantly harmed.
Demand for newer forms of advertising, such as video, branded content and other custom advertising, is rising. However,
the margin on revenues from some of these newer forms of advertising is typically lower than the margin generated from
print advertising and traditional digital display advertising. As a greater percentage of our advertising revenue comes from
these lower margin advertisements, we may experience further downward pressure on our advertising revenue margins.
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.
Our ability to grow and retain advertising and subscription revenue in this evolving competitive environment depends on a
number of factors both within and outside of our control, including, among others:
• Our ability to deliver quality journalism and other content that engages our customers;
• The performance, popularity, usefulness, and reliability of our products and services, and the platforms on which they
are offered;
• Our ability to successfully adapt our products and services to continually evolving mediums, delivery and distribution
methods and business models;
• Our ability to adapt to rapid industry changes and an increasing number of digital media options, and respond quickly
and effectively to new and emerging technologies and changes in consumer behavior;
• The perceived value of our products and services;
• The availability of competitive products and services from U.S. and international news organizations that offer low priced
digital products in Canada;
• The availability of free news content, including from global technology giants and subsidized public broadcasters;
• Our ability to charge for news content used by search, social media and other technology companies;
• Our ability to effectively develop, promote and monetize existing and new products and services; and
• Our ability to distinguish our products and services from those of our competitors.
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 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 are devoting less time to reading print newspapers than they once did and as a
result print newspaper readership has been declining. This will continue to put negative pressure on print subscription
revenues and print advertising revenues. While digital readership is an important factor in the ability of a newspaper to
generate digital subscription and advertising revenue, it has had a negative impact on print subscription volumes and
revenues and also on print readership. Our digital advertising and digital subscription revenue has not replaced, and may
not replace in full, print advertising and print subscription revenue lost as a result of the digital shift.
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
forum discussions, the newsworthiness of current events, public perceptions regarding the credibility of media organizations
and journalism in general, among other intangible factors, may also contribute to the fluctuation in readership levels, and
accordingly, limit our ability to generate advertising and subscription revenue.
Digital readership, traffic levels and the ability to target consumers are key drivers of how digital advertisers base their
decisions about where to advertise digitally. In order to be successful in digital advertising, we need to generate traffic on
our digital platforms and gather and leverage data that is valuable to advertisers. With the increase in alternative digital
content providers and digital platforms (including customized news feeds, news aggregation websites, and social media
and mobile based content delivery platforms), we face the risk that we may not be able to sufficiently attract and retain a
base of frequent and engaged visitors to our digital platforms. This is particularly important for certain of our platforms,
including those of VerticalScope, that rely on user generated content and forum discussions. If usage is insufficient or if we
do not meet advertisers’ expectations by delivering quality traffic, we may not be able to create enough advertiser interest
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TORSTAR – Management's Discussion and Analysis
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 or subscription revenues. In addition, certain new and evolving content delivery platforms may present more
limited opportunities for advertising.
We are becoming more reliant on subscription revenues. We recently implemented a pay model for online readership for
thestar.com, and certain of our other news sites (such as thespec.com and therecord.com) also offer paid digital subscriptions.
We also recently launched a paid print and digital subscription pilot in a number of test markets within our Community Brands
segment. Our ability to build and maintain customers for digital content depends on many factors, including consumer
habits, the timely development and evolution of adequate and adaptable digital infrastructure, delivery platforms, perceived
product value, available alternatives, delivery of high quality journalism and content, market acceptance of registration and
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 who provide consumers with content competitive
to ours in multiple mediums including digital, television and radio), could undermine our ability to attract and retain paying
customers for, and to generate 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 subscription revenue. In addition, while a pay model may increase
subscription revenues, we also face the risk of reduced page views and print and online readership levels, which could have
a negative impact on advertising revenues.
Our traffic levels (including those of VerticalScope) are dependent on internet search engines and our ability to influence
search engine rankings as we depend in part on various internet search engines and social media properties (some of which
are controlled by the same global technology giants with whom we compete for advertising revenue) to direct traffic to our
platforms and properties. Our ability to influence the search engine rankings of these platforms and properties through
search engine optimization efforts is limited. Changes by internet search engines and social media properties in their
algorithms, including changes affecting how content is displayed or prioritized within those engines and platforms, have
caused and could in the future cause us to immediately and without warning receive less user traffic and affect our ability
to generate advertising and subscription revenue.
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 and shifts in their industries. 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, increased labour costs (including from increases in the minimum
wage), 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. Our ability to preserve and leverage the value of our various brands and VerticalScope’s brands
is also important to our success. In particular, the Toronto Star’s and thestar.com’s reputation for high-quality journalism
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TORSTAR – Management's Discussion and Analysis
and content makes these brands a key asset and their continued success depends in part on our ongoing ability to preserve
and leverage the value of these brands. Our brands could be damaged by events or trends both within and outside of our
control that erode consumer trust. The perceived reliability of our journalism might suffer as a result of negative publicity,
or a general erosion of the public’s confidence in the credibility of mainstream media organizations. 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, or a general reduction among consumers in trust in journalism or in the demand for reliable
content sources could have an adverse impact on our business, operations or financial condition.
Dependence on Third-Party Suppliers and Service Providers
We rely increasingly on third-party suppliers and service providers for certain key services including distribution, printing
(including printing of the Toronto Star), call center services, digital subscription and registration functions, certain information
technology functions, including cloud computing and data storage, use and access, digital publishing and circulation
platforms, 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, by the suppliers or service providers being unable or unwilling to provide services as anticipated,
by a lack of competition between existing or potential suppliers or service providers in the marketplace (for example, due
to there being limited suppliers or service providers for a particular service), 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. These systems often come from multiple
third party vendors and must be interconnected and integrated in order to effectively support our operations. Certain systems
may not have been designed with such connection in mind, and performing the required integrations may take more effort,
time and money than originally anticipated. In addition, there is a risk that certain systems may not be able to connect
effectively, securely, in a way that is error-free, or at all. This could challenge our systems’ ability to support our businesses’
goals, and affect our ability to operate and transform our businesses in our preferred manner and at our desired pace. We
have a steering committee in place which oversees technology and information systems security. We provide periodic reports
to the Audit Committee. We continually 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 susceptible to interruption, downtime, poor performance, breach, vulnerabilities,
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, phishing, 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 collect, use and store could be inappropriately accessed,
corrupted, publicly disclosed or exposed, 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 and Data
Protection”.
Cybersecurity and Data Protection
Our businesses collect, use and store increasing amounts of data, much of which is confidential, including intellectual
property, employee information, personal information and business information (such as 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 the risk of these kinds of attacks continues to increase. Attackers may use a blend of technology and social
engineering techniques (including phishing intended to prompt employees and users to disclose information or unintentionally
provide access to systems or data, denial of service attacks, and other techniques), to disrupt service or extract data. We
seek to mitigate emerging and existing cyber risks through our continuous monitoring program, implementation of advanced
technology based defense systems and technological, physical 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
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and those of our service providers, or the data that we and our service providers collect, use and store, 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 inappropriate disclosure of personal or confidential information, which could harm our reputation,
require us to expend resources to remedy such an event 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 at VerticalScope) is dependent on the ability to identify, develop and execute appropriate
strategic initiatives. Strategic initiatives may involve organic growth, growth through acquisition or investment, and strategic
partnerships and content arrangements, as well as our efforts to transform our traditional news brands and to generate new
digital revenue streams. 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 partnerships, and, for certain initiatives,
the risks associated with acquisitions, investments or expansions. Strategic initiatives may not successfully generate
revenues or improve operating profit. 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 particular strategic initiative will be successful.
Acquisitions and investments involve numerous additional risks, such as: difficulties in integrating operations, technologies,
products and personnel; diversion of financial and management resources from existing operations; operating under
commercial agreements entered into by an acquisition target; risks of entering new markets; potential loss of key employees;
and inability to generate sufficient revenue to offset acquisition or investment costs. There is no guarantee that any such
acquisition or divestiture will be available to us or that it will be available at an appropriate price. In addition, acquisitions
and divestitures are subject to regulatory risks. Please see “Government Regulations” below for further discussion.
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. 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 provided, 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
On September 27, 2018, we received approval from the members of our eight registered defined benefit pension plans
(the “Torstar Plans”) to proceed with the merger of the Torstar Plans with the Colleges of Applied Arts & Technology Pension
Plan (the “CAAT Plan”) effective October 1, 2018, with Torstar and certain of its subsidiaries becoming participating employers
under the CAAT Plan. The merger remains subject to the consent of the Superintendent of Financial Services (Ontario),
which is not expected to occur prior to the second half of 2019. However, there can be no assurance that the consent of
the Superintendent of Financial Services (Ontario) will be obtained within the expected timeframe, or at all.
Effective October 1, 2018, employees that participated in the Torstar Plans began participating in the CAAT Plan with respect
to the accrual of future benefits. Effective January 1, 2019, most employees that participated in our group retirement savings/
deferred profit-sharing plans and defined contribution plans ceased participating in those plans and began participating in
the CAAT Plan. Most new employees hired after January 1, 2019 will also participate in the CAAT Plan. Participating in
the multiemployer CAAT Plan requires us to make periodic contributions to the CAAT Plan. As a participating employer in
the CAAT Plan, we do not have the ability to reduce these contributions, and a failure to make the required contributions
could subject us to penalties including interest on unpaid contributions and collection costs. A breach by Torstar of the
agreement with CAAT could also subject us to the risk of CAAT terminating our participation in the CAAT Plan. In addition,
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in the event of a distressed wind-up of the CAAT Plan with a deficiency, there is a risk to Torstar of residual liability in respect
of its own employees and former employees.
If the consent of the Superintendent of Financial Services (Ontario) is obtained, the liabilities for all past benefits under the
Torstar Plans will be transferred to the CAAT Plan together with the assets of the Torstar Plans, and the CAAT Plan will
assume responsibility for all related pension benefit payments to members of the Torstar Plans going forward. Although no
additional cash funding related to the transferred liabilities is expected to be required from Torstar in connection with the
merger, there is a risk that Torstar may be required to contribute additional funds under certain circumstances, including in
the event of a breach by Torstar of certain representations and covenants pursuant to the agreement between Torstar and
CAAT.
If the consent of the Superintendent of Financial Services (Ontario) is not obtained, Torstar would retain the liabilities for all
past benefits under the Torstar Plans, and there is a risk that Torstar or the CAAT Plan could terminate Torstar’s ongoing
participation in the CAAT Plan.
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.
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. These obligations and liabilities will continue following
the expected merger of the Torstar Plans with the CAAT Plan.
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. This includes a significant investment in VerticalScope, where
we effectively share control over certain key matters, and a number of smaller investments in other businesses.
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 and the limited number of printers in the marketplace with sufficient capacity to print our publications, 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 175 staff at One Yonge Street covered by a collective agreement which expired December
31, 2018 and negotiations are expected to commence shortly.
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TORSTAR – Management's Discussion and Analysis
Sing Tao has two collective agreements covering approximately 80 employees that expired in December 2018 and
negotiations are expected to commence shortly. StarMetro Toronto operations have a collective agreement covering
approximately 80 employees that will expire in March 2020. A first collective agreement is currently being negotiated for
13 employees at the StarMetro Vancouver operations.
At the other Daily Brands, there are thirteen collective agreements covering approximately 390 employees. One agreement
covering approximately 10 employees at the St. Catharines Standard expired in December 2017 and an agreement covering
one employee at the St. Catharines Standard expired March 2018 and negotiations have commenced for both agreements.
Two agreements covering approximately 135 employees at the Hamilton Spectator and four agreements covering
approximately 80 employees at the Waterloo Region Record expired at the end of December 2018 and negotiations are
expected to commence shortly. Two agreements covering approximately 80 employees at the Hamilton Spectator will expire
at the end of May 2019. One agreement covering approximately 10 employees at the Peterborough Examiner will expire
in August 2019. One agreement covering approximately 70 employees at the Hamilton Spectator will expire at the end of
December 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 200 employees. There are
two agreements covering approximately 20 employees which expired August 2018 and negotiations are expected to
commence shortly. Three agreements covering approximately 40 employees will expire in November 2019 and five
agreements covering approximately 140 employees will expire December 2020.
Newsprint Costs
Newsprint is the single largest raw material expense for our newspaper operations and represents approximately 11% of
total operating costs for 2018. 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, limitations on the supply of raw materials, and changes in trade
agreements and arrangements. We primarily source newsprint from two main suppliers. For 2019, 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 higher than
what we experienced in 2018. 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.
Distribution Costs
We rely on third party service providers to deliver many of our products to customers. These service providers range in size
and scale from large distribution businesses to individual independent contractors. Significant increases in our fees and
costs associated with engaging these third party service providers (including increases due to wage increases, rising fuel
prices, severe weather events, changes in employment laws, regulatory assessments of employment status or other matters)
could materially increase our distribution expenses and/or have an adverse effect on our business, results and 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 such as 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 are or should be applicable to certain of our businesses. We may also be subject to adverse outcomes of legal
and regulatory 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 and/or our reputation. If we
are required to alter our business practices as a result of additional or changed 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.
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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 the collection and use of consumer data have become more prevalent and increasingly restrictive in recent years both
within Canada and in other parts of the world. These laws are evolving, and the way in which they are interpreted and
enforced by regulators and courts in Canada and other jurisdictions is likely to continue to change in the future. For example,
legislation and regulations - both within and outside of Canada - impose limits on our collection and use of certain kinds of
information (including without limitation personal information gathered through 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. The costs of compliance and/or non-compliance with industry, legislative or regulatory initiatives
to address these changes, 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
unauthorized 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 Canadian
and foreign laws and in information technology and analytics technology and services. Any 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 Data Protection” and “Loss of 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
Regulatory Proceedings
In November 2017 we completed a transaction with Postmedia, in which we purchased and sold a number of daily and
community newspapers. The Competition Act (Canada) 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. The Commissioner
did not bring such an application. The Competition Bureau has indicated that it is investigating the transaction under the
conspiracy provisions of the Competition Act. We do not believe we have contravened the Competition Act. However, the
Competition Bureau’s ongoing investigation of the Postmedia transaction, including any developments that are or are
perceived to be unfavourable to us, could result in reputational damage, legal costs, diversion of management’s attention
and resources, fines, penalties or judgements, or otherwise adversely impact our businesses.
Litigation
We are involved in various legal actions, which arise in the ordinary course of business. These actions include the litigation
as described under the heading “Legal Proceedings” in 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.
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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
16 to our 2018 Consolidated Financial Statements). In addition, predominantly all of VerticalScope’s revenues (approximately
8% of Torstar’s 2018 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 and Competition for 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 increasingly intense competition for qualified managers and skilled employees (including in data,
technology and product development focused roles which are key to our transformation) 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. Some of this content - in particular, carefully researched pieces of investigative journalism - is expensive and
time-consuming to produce. However, once such content is published, we are often unable to prevent third parties from
using the facts and ideas it contains to create their own stories on similar topics with comparatively little investment. In
addition, unauthorized parties may attempt to copy or otherwise unlawfully obtain and use our content, services, and other
intellectual property, and we cannot always effectively prevent such unauthorized uses or misappropriation of our intellectual
property, or any resulting confusion that may arise among consumers or advertisers. 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”.
Income Tax and Other Tax Credits
We have recorded the benefit of digital media tax credits based on estimates, using accounting principles that recognize
the benefit when it is more likely than not that the ultimate determination of the tax treatment of a position will result in the
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TORSTAR – Management's Discussion and Analysis
related benefit being realized. The assessment of the likelihood and amount and the timing of realization of such
amounts can materially affect the determination of net income or cash flows.
We have also recorded significant amounts of current and deferred income tax expense related to our investment in
VerticalScope, 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.
While we believe that we have 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, tax credits, 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.
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 2018 Consolidated Financial Statements. Accounts receivable are
carried at net realizable value and the allowance for doubtful accounts has been determined based on several factors,
including the aging of accounts receivable, evaluation of significant individual credit risk accounts and historical experience.
If such collectability estimates prove inaccurate, adverse adjustments to future operating results could occur and could be
material.
Our cash and cash equivalents, restricted cash and derivative instruments are held with Canadian chartered banks. While
we regularly review the financial condition of these counterparties, a failure of a counterparty could adversely affect our
consolidated financial condition.
Availability of Capital and Restrictions Imposed by Credit Facilities
If internal funds are not available from our operations, we may be required to raise additional financing through public or
private equity or debt financings, or other arrangements with corporate sources or other sources of financing to fund
operations and meet our financial commitments. However, there is no assurance that additional funding, if required, will be
available to us in amounts or on terms acceptable to us, if at all.
We may from time to time, enter into agreements for additional financing, including agreements in respect of credit facilities.
Such agreements may impose a number of restrictions on us including but not limited to restrictions on certain distributions
as well as compliance with certain financial covenants and compliance with other affirmative and negative covenants.
In addition, the agreement governing certain indebtedness of VerticalScope imposes a number of restrictions and includes
restrictions on certain distributions. The agreement also requires compliance with certain financial covenants and compliance
with other affirmative and negative covenants.
These restrictions may limit flexibility in planning for and reacting to business or industry changes and strategic objectives
and may make us more vulnerable to adverse economic and industry conditions.
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
TORSTAR CORPORATION 2018 ANNUAL REPORT 52
TORSTAR – Management's Discussion and Analysis
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
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 2018 ANNUAL REPORT 53
18
N O T E S
TORSTAR CORPORATION 2017 ANNUAL REPORT 54
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 2018 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
29
Corporate Information
Significant Accounting Policies
Segmented Information
Revenue From Contracts With Customers
Investments In Subsidiaries
Restricted Cash
Inventories
Investments In Joint Ventures
Investments In Associated Businesses
Property, Plant And Equipment
Intangible Assets
Impairment Of Assets
Other Assets
Income Taxes
Financial Instruments
Capital Management
Provisions
Other Liabilities
Employee Benefits
Share Capital
Share-Based Compensation Plans
Other Components Of Equity
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
Transition to IFRS 9
TORSTAR CORPORATION 2018 ANNUAL REPORT 55
Page
56
57
60
61
62
63
64
65
65
82
83
84
84
84
84
85
88
89
90
90
91
94
98
98
99
99
106
107
110
110
111
112
112
113
114
114
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 26, 2019
Lorenzo DeMarchi
Executive Vice-President and Chief Financial Officer
TORSTAR CORPORATION 2018 ANNUAL REPORT 56
TORSTAR – Consolidated Financial Statements
INDEPENDENT AUDITOR'S REPORT
To the Shareholders of Torstar Corporation
Opinion
We have audited the consolidated financial statements of Torstar Corporation and its subsidiaries (the “Company”),
which comprise the consolidated statement of financial position as at December 31, 2018 and 2017, and the
consolidated statement of loss, consolidated statement of comprehensive loss, consolidated statement of changes
in equity and consolidated statement of cash flows for the years then ended, and notes to the consolidated financial
statements, including a summary of significant accounting policies.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects the
consolidated financial position of the Company as at December 31, 2018 and 2017, and its consolidated financial
performance and its consolidated cash flows for the years then ended in accordance with International Financial
Reporting Standards (IFRSs).
Basis for opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities
under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial
Statements section of our report. We are independent of the Company in accordance with the ethical requirements
that are relevant to our audit of the consolidated financial statements in Canada, and we have fulfilled our ethical
responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
Other information
Management is responsible for the other information. The other information comprises:
– Management Discussion and Analysis
– The information, other than the consolidated financial statements and our auditor’s report thereon, in the Annual
Report
Our opinion on the consolidated financial statements does not cover the other information and we do not express
any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information,
and in doing so, consider whether the other information is materially inconsistent with the consolidated financial
statements or our knowledge obtained in the audit or otherwise appears to be materially misstated.
We obtained Management’s Discussion and Analysis prior to the date of this auditor’s report. If, based on the work
we have performed, we conclude that there is a material misstatement of this other information, we are required to
report that fact in this auditor's report. We have nothing to report in this regard.
The Annual Report is expected to be made available to us after the date of the auditor’s report. If based on the work
we will perform on this other information, we conclude there is a material misstatement of other information, we are
required to report that fact to those charged with governance.
Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in
accordance with IFRSs, and for such internal control as management determines is necessary to enable the
TORSTAR CORPORATION 2018 ANNUAL REPORT 57
TORSTAR – Consolidated Financial Statements
preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or
error.
In preparing the consolidated financial statements, management is responsible for assessing the Company’s ability
to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going
concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or
has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole
are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our
opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with Canadian generally accepted auditing standards will always detect a material misstatement when
it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of users taken on the basis of these
consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional
judgment and maintain professional skepticism throughout the audit. We also:
•
Identify and assess the risks of material misstatement of the consolidated financial statements, whether due
to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence
that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion,
forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit 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
Company’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates
and related disclosures made by management.
• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based
on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may
cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material
uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the
consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions
are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or
conditions may cause the Company to cease to continue as a going concern.
• Evaluate the overall presentation, structure, and content of the consolidated financial statements, including
the disclosures, and whether the consolidated financial statements represent the underlying transactions and
events in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business
activities within the Company to express an opinion on the consolidated financial statements. We are
responsible for the direction, supervision and performance of the company audit. We remain solely responsible
for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing
of the audit and significant audit findings, including any significant deficiencies in internal control that we identify
during our audit.
TORSTAR CORPORATION 2018 ANNUAL REPORT 58
TORSTAR – Consolidated Financial Statements
We also provide those charged with governance with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships and other matters that may
reasonably be thought to bear on our independence, and where applicable, related safeguards.
The engagement partner on the audit resulting in this independent auditor’s report is Scott Kerr.
Toronto, Canada
February 26, 2019
TORSTAR CORPORATION 2018 ANNUAL REPORT 59
TORSTAR – Consolidated Financial Statements
Torstar Corporation
Consolidated Statement of Financial Position
(Thousands of Canadian Dollars)
As at
December 31, 2018
As at
December 31, 2017
Assets
Current:
Cash and cash equivalents
Restricted cash (note 6)
Receivables (note 15)
Inventories (note 7)
Derivative financial instruments (note 15)
Prepaid expenses
Prepaid and recoverable income taxes
Total current assets
Investments in joint ventures (note 8)
Investments in associated businesses (note 9)
Property, plant and equipment (note 10)
Intangible assets (note 11)
Other assets (note 13)
Deferred income tax assets (note 14)
Total assets
Liabilities and Equity
Current:
Accounts payable and accrued liabilities (15)
Deferred revenue (note 4)
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
Other components of equity (note 22)
Total equity attributable to equity shareholders
Minority interests
Total equity
Total liabilities and equity
(see accompanying notes)
ON BEHALF OF THE BOARD
$68,227
7,175
105,143
3,918
5,152
332
189,947
12,692
131,216
49,205
32,592
11,140
$426,792
$61,814
13,844
2,843
13,247
515
92,263
5,343
5,170
94,569
403,437
21,928
(198,384)
2,657
229,638
(191)
229,447
$426,792
$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
$72,962
16,170
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 2018 ANNUAL REPORT 60
TORSTAR – Consolidated Financial Statements
Torstar Corporation
Consolidated Statement of Loss
(Thousands of Canadian Dollars except per share amounts)
Year ended December 31
2018
2017
Operating revenue (note 4)
$543,391
$615,685
Salaries and benefits
Other operating costs
Amortization and depreciation (notes 10 and 11)
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 8)
Loss from associated businesses (note 9)
Other income (note 23)
Loss before taxes from continuing operations
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)
(219,296)
(289,497)
(26,949)
(17,525)
(9,876)
(1,332)
(1,414)
(5,414)
(20,394)
303
(38,127)
82
(38,045)
6,475
($31,570)
($31,524)
($46)
(245,906)
(325,631)
(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
($29,288)
($29,171)
($117)
($0.47)
$0.08
($0.39)
($0.38)
$0.02
($0.36)
TORSTAR CORPORATION 2018 ANNUAL REPORT 61
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
2018
2017
($31,570)
($29,288)
Unrealized foreign currency translation adjustment (“CTA”) (no income tax effect)
(33)
38
Unrealized foreign currency translation adjustment for associated businesses (no
income tax effect) (note 9)
8,046
(7,489)
Net movement on available-for-sale financial assets
Income tax effect (note 14)
Unrealized loss on hedge of net investment (cost of hedging) (no income tax
effect) (note 15)
Realized loss on hedge of net investment (cost of hedging) (no income tax effect)
(note 15)
(332)
400
(7,383)
(1,498)
(120)
6,395
OCI that will not be reclassified subsequently to net income (loss):
Actuarial gain (loss) on employee benefits (note 19)
12,287
(35,757)
Actuarial gain on employee benefits for associated businesses (no income tax
effect) (note 9)
795
66
Fair value change on equity instruments at FVOCI (note 22)
Income tax effect (note 14)
Total other comprehensive income (loss), net of tax
3,106
(300)
15,888
$22,283
(35,691)
($43,074)
Comprehensive loss, net of tax
($9,287)
($72,362)
Attributable to:
Equity shareholders
Minority interests
(see accompanying notes)
($9,241)
($46)
($72,245)
($117)
TORSTAR CORPORATION 2018 ANNUAL REPORT 62
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”)
Fair value
reserve of
financial
assets at
FVOCI
Total
attributable to
equity
shareholders
Minority
interests
Total equity
At December 31, 2016
$402,814
$20,797
($102,599)
$5,176
$326,188
($18)
$326,170
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 9)
Share-based compensation
expense
Distribution
(29,171)
(29,171)
(117)
(29,288)
(35,691)
(7,383)
(43,074)
(43,074)
(64,862)
(7,383)
(72,245)
(117)
(72,362)
133
93
525
(8,079)
(640)
(7,946)
(7,946)
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
Adoption of IFRS 9 (note 2)
1,943
(2,867)
403,040
21,322
(174,237)
(5,074)
924
924
245,975
(145)
245,830
At January 1, 2018
(adjusted)
Net loss for the year
Other comprehensive
income (loss)
Total comprehensive income
(loss)
Dividends (note 20)
Issue of share capital – other
(note 20)
Share-based compensation
expense
Transfer of fair value of
financial assets upon
disposal (note 22)
(31,524)
(31,524)
(46)
(31,570)
13,082
6,395
2,806
22,283
22,283
(18,442)
6,395
2,806
(9,241)
(46)
(9,287)
(8,099)
(7,944)
(7,944)
242
606
242
606
2,394
(2,394)
155
242
606
At December 31, 2018
$403,437
$21,928
($198,384)
$1,321
$1,336
$229,638
($191)
$229,447
(see accompanying notes)
TORSTAR CORPORATION 2018 ANNUAL REPORT 63
TORSTAR – Consolidated Financial Statements
Torstar Corporation
Consolidated Statement of Cash Flows
(Thousands of Canadian Dollars)
Year ended December 31
2017
2018
Cash was provided by (used in)
Operating activities
Investing activities
Financing activities
Decrease in cash
Cash, beginning of year
Cash, end of year
Operating activities:
Net loss from continuing operations
Amortization and depreciation (notes 10 and 11)
Deferred income taxes (note 14)
Loss from joint ventures (note 8)
Distributions from joint ventures (note 8)
Loss from associated businesses (note 9)
Dividend from associated businesses (note 9)
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 6)
Increase in non-cash working capital
Cash provided by operating activities
Investing activities:
Additions to property, plant and equipment and intangible assets
Received from associated businesses (note 9)
Sale of joint ventures (note 8)
Acquisitions and portfolio investments (note 26)
Proceeds from sale of assets (notes 22 and 23)
Other (note 23)
Cash 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)
$14,444
(9,838)
(7,756)
(3,150)
71,377
$68,227
($38,045)
26,949
(282)
5,414
5,314
20,394
13,163
(11,023)
(292)
(207)
21,385
1,881
(8,822)
$14,444
($14,411)
(2,228)
6,490
311
($9,838)
($7,944)
188
($7,756)
$32,752
35,475
$68,227
$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
TORSTAR CORPORATION 2018 ANNUAL REPORT 64
TORSTAR – Consolidated Financial Statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2018 and 2017
(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, 2018. These
consolidated financial statements have been authorized for issue in accordance with a resolution from the Board of
Directors on February 26, 2019.
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 2018 ANNUAL REPORT 65
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.
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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
Financial assets and liabilities are classified, at initial recognition, as subsequently measured at amortized cost, fair
value through OCI, and fair value through profit and loss ("FVTPL").
The classification of financial assets at initial recognition is based on the financial asset’s contractual cash flow
characteristics and the Company’s business model for managing the assets. In order for a financial asset to be
classified and measured at amortized cost or fair value through OCI ("FVOCI"), it needs to give rise to cash flows
that are ‘solely payments of principal and interest ("SPPI")’ on the principal amount outstanding. This assessment
is referred to as the SPPI test and is performed at an instrument level. The Company’s business model for managing
financial assets refers to how it manages its financial assets in order to generate cash flows. The business model
determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both.
The Company classifies its financial assets and liabilities into the following categories:
• Financial assets and liabilities at amortized cost (debt instruments)
• Financial assets at FVOCI, with gains or losses recycled to profit or loss on derecognition (debt instruments)
• Financial assets at FVOCI, with no recycling of gains or losses to profit or loss on derecognition (equity
instruments)
• Financial assets and liabilities at FVTPL
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 amortized costs (debt instruments)
The Company measures financial assets at amortized cost if both the following conditions are met:
• Hold-to-Collect business model test - the financial asset is held within a business model with the objective to
hold financial assets in order to collect contractual cash flows; and
• 'SPPI' contractual cash flow characteristics test - the contractual terms of the financial asset give rise to cash
flows that are solely payments of principal and interest on the principal amount outstanding on a specified
date.
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 and restricted
cash. 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.
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
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TORSTAR – Consolidated Financial Statements
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.
Financial assets at FVOCI with no recycling (Equity Instruments)
Upon initial recognition, the Company can irrevocably elect to classify its unquoted equity instruments (portfolio
investments) at FVOCI with no recycling of gains or losses to profit or loss on derecognition. The classification is
determined on an instrument-by-instrument basis. Each of the portfolio investments meets the definition of definition
of Equity under IAS 32, Financial Instruments: Presentation and are not held for trading. The portfolio investments
are carried at fair value with the changes in fair value reported as unrealized gains or losses within OCI. Equity
instruments classified in FVOCI are not subject to an impairment assessment.
Gains and losses on these financial assets are never recycled to profit or loss. Dividends are recognized as other
income in the statement of profit or loss when the right of payment has been established.
The Company elected to classify irrevocably its non-listed equity investments under this category. The cumulative
fair value changes and impairment losses previously reported in AOCI and retained earnings have been reclassified
on the Consolidated Statement of Changes in Equity to a new equity category.
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 FVTPL.
Assets and liabilities in this category include derivative financial instruments that are not designated as hedging
instruments in hedge relationships.
Financial instruments at FVTPL are carried at fair value. Related realized and unrealized gains and losses are
included in the consolidated statement of income or loss.
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.
A financial liability is derecognized when the obligation under the liability is discharged, cancelled or expires.
Impairment of financial assets
For trade receivables and contract assets, the Company applies a simplified approach in calculating expected credit
losses ("ECLs") and recognizes a loss allowance based on lifetime ECLs at each reporting date. The Company has
established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking
factors specific to the debtors and the economic environment.
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 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.
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TORSTAR – Consolidated Financial Statements
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 Holdings Inc. ("VerticalScope"). Changes in
fair value on these instruments arising from fluctuations in the rate of exchange of Cdn. dollar per U.S. dollar within
the collar range are recognized in OCI to the extent of hedge effectiveness and accumulated in a separate component
of equity. Fair value changes from movement in the foreign exchange rate within the collar range reflect the cost of
hedging as the options have no intrinsic value. When the rate of exchange is above or below the collar range, the
changes in fair value are recorded in OCI to the extent of hedge effectiveness with the portion related to the cost of
hedging accumulated in the separate component of equity. 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
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.
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TORSTAR – Consolidated Financial Statements
Embedded derivatives
An embedded derivative is a component of a hybrid instrument that also includes a non-derivative host contract,
with the effect that a portion of the cash flows of the combined instrument 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.
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.
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TORSTAR – Consolidated Financial Statements
The fair value of the foreign exchange forward contracts and collar arrangements is classified within Level 2 as it is
based on foreign currency rates quoted by banks and is the difference between the forward exchange rate and the
contract rate.
The fair value of portfolio investments that have quoted market prices is classified within Level 1 except when the
securities are not actively traded and thus classified within Level 2. The fair value of portfolio investments that do
not have quoted market prices is classified within Level 3 and determined when possible using a valuation technique
that maximizes the use of observable market inputs and unobservable market inputs such as earnings multiples and
cash flow projections.
(g) Inventories
Inventories are valued at the lower of cost and net realizable value. Net realizable value is the estimated selling
price in the ordinary course of business, less estimated costs of completion and estimated costs necessary to make
the sale. Raw materials are valued at purchase cost on a first in, first out basis. The cost of finished goods and
work in progress includes raw materials, translation and printing and production costs. Provisions are made for slow
moving and obsolete inventory. If the carrying value exceeds the net realizable amount, a writedown is recognized.
The writedown may be reversed in a subsequent period if the circumstances causing it no longer exist.
(h) Property, plant and equipment
Property, plant and equipment are stated at cost or at fair value as deemed cost, net of accumulated depreciation
and any accumulated impairment losses. Cost includes expenditures that are directly attributable to the acquisition
of the asset. When significant parts of property, plant and equipment are required to be replaced in intervals, the
Company recognizes such parts as individual assets with specific useful lives and depreciation, respectively.
Likewise, when a major inspection is performed, its cost is recognized in the carrying amount of the plant and
equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are
recognized in the consolidated statement of income or loss as incurred.
Depreciation is calculated using the straight-line basis over the estimated useful life of the asset as follows:
• Buildings
Structural
Components
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.
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TORSTAR – Consolidated Financial Statements
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
which is deemed to be an asset or liability will be recognized in accordance with IFRS 9, Financial Instruments, 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.
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TORSTAR – Consolidated Financial Statements
(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, 2018 and December 31, 2017, 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, and impairment of assets (“Normalized 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.
• Normalized 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, and impairment of assets (“Normalized 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 all of which are derived from contracts with customers.
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 subscribers is largely generated by home delivery subscriptions;
single copy sales at newsstands and vending machines; and the provision of digital subscriptions. Flyer distribution
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TORSTAR – Consolidated Financial Statements
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
and services.
Revenue is measured based on the consideration specified in a contract and the Company recognizes revenue
when it transfers control of a product or provides a service to a customer. A corresponding receivable is similarly
recognized in instances where credit terms are extended as this is the point in time that the consideration is
unconditional because only the passage of time is required before the payment is due. No element of financing is
deemed present as normal credit terms are 30 days or less upon delivery. The contracts with customers typically
have no further separate performance obligations to which a portion of the transaction price should be allocated nor
are subject to variable consideration. When payment is received in advance of the criteria being met for recognition
of revenue, a contract liability is recognized in deferred revenue. With respect to incremental costs such as sales
commissions incurred in obtaining a contract, the Company has elected to apply the practical expedient to expense
these costs when incurred as the term of the Company’s contracts are one year or less.
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.
Subscription revenue
In respect of revenue from 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 digital 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.
(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.
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TORSTAR – Consolidated Financial Statements
• 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 and to the Colleges of Applied Arts & Technology Pension Plan
(the "CAAT Plan") 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.
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.
TORSTAR CORPORATION 2018 ANNUAL REPORT 75
TORSTAR – Consolidated Financial Statements
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.
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.
TORSTAR CORPORATION 2018 ANNUAL REPORT 76
TORSTAR – Consolidated Financial Statements
(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 and tax credits. Estimates are also made by management when recording the fair
value of assets acquired and liabilities assumed in a business combination.
Estimates are based on a number of factors, including historical experience, current events and other assumptions
that management believes are reasonable under the circumstances. By their nature, these estimates are subject
to measurement uncertainty and actual results could differ. Estimates and underlying assumptions are reviewed on
an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised
and in any future periods affected.
The more significant estimates and assumptions made by management are described below:
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 for impairment 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
TORSTAR CORPORATION 2018 ANNUAL REPORT 77
TORSTAR – Consolidated Financial Statements
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, 2018, the carrying value of investments, intangible assets and property plant and equipment
represented 34%, 8%, and 12% respectively of total assets and each reporting segment had investments and
intangible assets with carrying values subject to these estimates. As at December 31, 2017, the carrying value of
investments, intangible assets, and property, plant and equipment represented 35%, 8%, 11% respectively of total
assets. Additionally, as a result of lower forecasted revenues that reflect the continued challenges in the print
advertising market, expected future revenues and cash flows, the Company has recorded impairment charges related
to investments totalling $8.0 million in the year ended December 31, 2018 ($11.1 million of impairment charges
related to goodwill and investments in the year ended December 31, 2017). These charges impact net income or
loss but have no effect on cash flows.
More details are provided in Note 12.
Income and other tax credits
The Company has recorded the benefit of digital media tax credits based on estimates, using accounting principles
that recognize the benefit 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 and the timing
of realization of such amounts can materially affect the determination of net income or cash flows. More details are
provided in Note 15.
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. and Blue Ant Media 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.
TORSTAR CORPORATION 2018 ANNUAL REPORT 78
TORSTAR – Consolidated Financial Statements
Classification of cash equivalents
Classification of cash equivalents requires judgement on whether the short-term investments are easily convertible
into cash. Short-term investments with maturities on acquisition of 90 days or less are presumed to be cash equivalents
due to the short holding period of the investment. The Company has classified its short-term investments with original
maturities on acquisition of over 90 days but less than 365 days as cash equivalents based on management’s
judgement that the short-term investments are liquid as the Company has a contractual right to convert them into
cash upon 30 days notice without loss of interest after the initial 30 days.
Determination of operating segments, reportable segments and CGUs
The Company has three reportable operating segments: 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.
Within the Communities operating segment, the Company has 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. 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.
Determination of allowance for doubtful accounts
The Company applies a simplified approach in calculating ECLs for trade receivables and contract assets that have
maturity of 12 months or less and do not contain a significant financing component and recognises a loss allowance
based on lifetime ECLs at each reporting date. The Company has established a provision matrix that is based on
its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic
environment.
(s) Changes in accounting policies
Policies adopted in 2018:
Several new amendments and interpretations applied for the first time in 2018. The nature and impact of the adoption
of the most significant of these standards is described below. The Company has not early adopted any other standard,
interpretation or amendment that has been issued but is not yet effective.
IFRS 15, Revenue from Contracts with Customers
Effective January 1, 2018, the Company adopted 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. Under IFRS 15, revenue is recognized when a customer obtains control of
the goods or services. The Company adopted the standard in accordance with the modified retrospective transitional
approach. There were no transitional adjustments or changes to the Company’s revenue recognition policies required
on adoption of this standard. The Company’s contracts with customers are for a term of one year or less. The
Company expenses its incremental costs of obtaining a contract when incurred in accordance with the practical
expedient in IFRS 15.92 as the amortization period would have been one year or less. The Company records deferred
revenues primarily from subscribers when cash payments are received or due in advance of the Company’s
performance. The standard requires disclosure with respect to contract assets and contract liabilities. Deferred
revenue was previously included in the Consolidated Statement of Financial Position as part of current accounts
TORSTAR CORPORATION 2018 ANNUAL REPORT 79
TORSTAR – Consolidated Financial Statements
payable and accrued liabilities. Upon adoption of IFRS 15, deferred revenue has been separately disclosed in current
liabilities.
IFRS 9, Financial Instruments
The Company adopted IFRS 9, Financial Instruments, effective January 1, 2018, which replaced IAS 39, Financial
Instruments. With the exception of hedge accounting, which the Company has applied prospectively, the Company
has applied IFRS 9 retrospectively.
The Company has not restated comparative information for 2017 for financial instruments in the scope of IFRS 9.
Therefore, the comparative information for 2017 is reported under IAS 39 and is not comparable to the information
presented for 2018 in accordance with IFRS 9. Differences arising from the adoption of IFRS 9 have been recognized
directly in accumulated deficit as of January 1, 2018.
The measurement categories for financial assets under IAS 39 FVTPL, available for sale (“AFS”), held-to-maturity
and amortized cost) have been replaced by the following categories under IFRS 9:
• Financial assets and liabilities at amortized cost (debt instruments)
• Financial assets at FVOCI, with gains or losses recycled to profit or loss on derecognition (debt instruments)
• Financial assets at FVOCI, with no recycling of gains or losses to profit or loss on derecognition (equity
instruments)
• Financial assets and liabilities at FVTPL
Under IFRS 9, the classification of debt instruments is based on two criteria: a company’s business model for managing
the assets; and whether the assets' contractual cash flows represent ‘solely payments of principal and interest’ on
the principal amount outstanding (the SPPI criterion). The assessment of a company’s business models and
contractual cash flows of debt instruments is made as of the date of initial application.
Under IFRS 9, equity instruments are generally classified as FVTPL. For equity instruments that are not held for
trading, a company can make an irrevocable election on initial recognition to classify the instrument as FVOCI with
no recycling of gains or losses to profit or loss on derecognition. This election is available on an instrument-by-
instrument basis.
Financial assets and liabilities at amortized cost
On adoption of IFRS 9, the Company’s loans and receivables will continue to be subsequently measured at amortized
cost, as these assets are held in order to collect contractual cash flows and the contractual terms give rise to cash
flows on specified dates that are solely payments of principal and interest on the principal amount outstanding. Loans
and receivables are initially recognized at fair value plus transaction costs and subsequently measured at amortized
cost using the effective interest method less any impairment.
The accounting for the Company’s financial liabilities remains the same as it was under IAS 39. Other financial
liabilities will continue to be measured at amortized cost using the effective interest rate method.
Financial assets at FVOCI with no recycling
On adoption of IFRS 9, the Company has irrevocably elected to classify its unquoted equity instruments (portfolio
investments) at FVOCI with no recycling of gains or losses to profit or loss on derecognition. Each of the portfolio
investments meet the definition of equity under IAS 32, Financial Instruments: Presentation and are not held for
trading. On January 1, 2018, the carrying value of the portfolio investments was $10.9 million and was included in
other assets in the Consolidated Statement of Financial Position. The portfolio investments continue to be carried
at fair value with changes in fair value reported as unrealized gains or losses within OCI. Equity instruments classified
as FVOCI are not subject to an impairment assessment under IFRS 9. Under IAS 39, the Company’s portfolio
investments were classified as AFS financial assets.
On adoption of IFRS 9, the cumulative gain of $2.9 million related to the change in fair value of AFS financial assets
previously reported in AOCI and the cumulative impairment loss (net of tax) of $2.0 million previously reported in
TORSTAR CORPORATION 2018 ANNUAL REPORT 80
TORSTAR – Consolidated Financial Statements
accumulated deficit have both been reclassified on the Consolidated Statement of Changes in Equity to a new fair
value reserve of financial assets at FVOCI (note 22).
Financial assets and liabilities at FVTPL
On adoption of IFRS 9, the Company has continued to classify certain financial assets and liabilities at FVTPL.
Assets and liabilities in this category include derivative financial instruments that are not designated as hedging
instruments in hedge relationships. The Company had not classified any financial instruments as held-to-maturity,
and therefore there is no impact on the elimination of this measurement category under IFRS 9.
Derivative instruments and hedging
The Company has applied hedge accounting prospectively. At the date of the initial application, all of the Company’s
existing hedging relationships were eligible to be treated as continuing hedging relationships.
The Company has continued to designate the change in the intrinsic fair value of the collar arrangements to sell U.S.
dollars as hedges against the foreign currency exposure on its net investment in VerticalScope. Under IFRS 9,
changes in fair value arising from fluctuations in the rate of exchange of Cdn. dollar per U.S. dollar within the collar
range are recognized in OCI to the extent of hedge effectiveness and accumulated in a separate component of equity
rather than net income under IAS 39. Fair value changes from movement in the foreign exchange rate within the
collar range reflect the cost of hedging as the options have no intrinsic value. When the rate of exchange is above
or below the collar range, the changes in fair value are recorded in OCI to the extent of hedge effectiveness with the
portion related to the cost of hedging accumulated in the separate component of equity. The ineffective portion is
recognized in the consolidated statement of income or loss.
As at December 31, 2017, the cumulative change in the fair value of the collar options was a gain of $0.1 million
related to the cost of hedging. On adoption of IFRS 9, the cumulative gain of $0.1 million has been reclassified from
accumulated deficit to a separate component of equity within AOCI (note 22).
Impairment
For Trade and other receivables, the Company has applied the standard’s simplified approach and has calculated
expected credit losses based on lifetime expected credit losses. The Company has established a provision matrix
that is based on the Company’s historical credit loss experience, adjusted for forward-looking factors specific to the
customers and the economic environment. There are no differences between the ending impairment allowances for
trade and other receivables under IAS 39 and the opening loss allowance under IFRS 9.
Future changes in accounting standards:
There are several new standards and amendments to accounting standards which will be effective for the Company
subsequent to 2018, 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 16, Leases
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 right-of-use assets and liabilities for the rights and obligations
created by leases. The right-of-use asset will be depreciated over the term of the lease. The lease liability will be
initially measured at the present value of the lease payments payable over the term of the lease and will accrue
interest. Limited recognition exemptions may apply if 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 plans to adopt the standard on its effective date of January 1, 2019 using a modified
retrospective approach. The Company is in the process of finalizing its analysis and we anticipate that the application
of IFRS 16 will result in an increase in both assets and liabilities of approximately $16 million on transition. The
Company also estimates that the adoption of this standard will result in a decrease in other operating expenses and
TORSTAR CORPORATION 2018 ANNUAL REPORT 81
TORSTAR – Consolidated Financial Statements
a corresponding increase in amortization and depreciation expense of approximately $5 million as well as interest
accretion expense of approximately $1.5 million for the full year.
3. SEGMENTED INFORMATION
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 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, 2018 Communities
Dailies
Digital
Ventures
Corporate
Total
Adjustments
and
Eliminations¹
Per
Consolidated
Statement of
Loss
Operating revenue
Salaries and benefits
Other operating costs
Amortization and depreciation
(11,846)
(12,812)
(123,591)
(91,710)
(111,521)
(172,936)
(22,843)
(21,234)
(42,073)
($6,548)
(244,692)
(5,692)
(311,383)
(2)
(66,733)
$258,237
$289,931
$66,863
$615,031
($71,640)
$543,391
25,396
21,886
39,784
2,929
8,000
(219,296)
(289,497)
(26,949)
(17,525)
(9,610)
(8,068)
(8,000)
(2,662)
(114)
(20,454)
(8,000)
$1,669
($3,595)
($21,949)
($12,356)
($36,231)
$26,355
($9,876)
(1,332)
(1,414)
(5,414)
(20,394)
303
($38,127)
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)
$305,303
$314,000
$72,297
$691,600
($75,915)
$615,685
(140,693)
(100,428)
(133,693)
(187,389)
(10,060)
(7,609)
(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)
$7,505
($2,917)
($18,608)
($11,114)
($25,134)
$6,650
($18,484)
(2,213)
493
(1,845)
(6,824)
3,935
($24,938)
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
¹ Adjustments and eliminations represent the elimination of the proportionately consolidated results of, and transactions with joint
ventures and VerticalScope.
TORSTAR CORPORATION 2018 ANNUAL REPORT 82
TORSTAR – Consolidated Financial Statements
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
2018
$533,805
9,586
$543,391
2017
$612,266
3,419
$615,685
2018
$81,797
2017
$95,476
$81,797
$95,476
¹ Revenue is allocated based on the country in which the order is received.
² Non-current assets include property, plant and equipment and intangible assets.
4. REVENUE FROM CONTRACTS WITH CUSTOMERS
(a) Disaggregation of revenue from contracts with customers
The following charts provide a breakdown of total disaggregated operating revenue for the years ended December
31, 2018 and 2017:
Year ended December 31, 2018
Communities
Dailies
Digital
Ventures
Total
Segmented
Eliminations
Total
Consolidated
Print advertising
Digital advertising
Flyer Distribution
Print and digital subscriber
Other
Total
$99,375
$110,811
$210,186
($13,140)
$197,046
$66,863
26,306
95,531
460
36,565
26,796
21,573
120,138
10,613
119,965
117,104
120,598
47,178
(54,286)
(2,133)
(2,081)
65,679
117,104
118,465
45,097
$258,237
$289,931
$66,863
$615,031
($71,640)
$543,391
Year ended December 31, 2017
Communities
Dailies
Digital Ventures
Total
Segmented
Eliminations
Total
Consolidated
Print advertising
Digital advertising
Flyer Distribution
Print and digital subscriber
Other
Total
(b) Contract balances
$125,519
$138,863
$264,382
($14,867)
$249,515
$72,297
30,747
110,883
715
37,439
25,495
23,275
115,818
10,549
128,539
134,158
116,533
47,988
(57,204)
(2,378)
(1,466)
71,335
134,158
114,155
46,522
$305,303
$314,000
$72,297
$691,600
($75,915)
$615,685
The following table provides information about trade accounts receivable and deferred revenue:
Trade accounts receivable
Deferred revenue
December 31, 2018
December 31, 2017
$77,873
13,844
$90,183
16,170
TORSTAR CORPORATION 2018 ANNUAL REPORT 83
TORSTAR – Consolidated Financial Statements
The amount of $16.2 million recognized in deferred revenue at December 31, 2017 has been recognized as
revenue in the year ended December 31, 2018.
5. INVESTMENTS IN SUBSIDIARIES
The Company’s material subsidiaries are: Toronto Star Newspapers Limited and Metroland Media Group Ltd., which
are Ontario corporations. 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.
6. RESTRICTED CASH
At December 31, 2018, the Company had restricted cash totalling $7.2 million (December 31, 2017 – $9.1 million)
which includes $5.8 million (December 31, 2017 – $7.7 million) held as collateral for outstanding standby letters of
credit in respect of an unfunded executive retirement plan liability (Note 19).
7. INVENTORIES
Work in progress
Raw materials
December 31, 2018
December 31, 2017
$108
3,810
$3,918
$73
4,253
$4,326
The Company expensed inventory costs of $33.6 million for the year ended December 31, 2018 (2017 – $39.5
million).
8. 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
2018
$23,420
(5,414)
(5,314)
$12,692
2017
$27,463
(1,845)
(2,187)
(11)
$23,420
On April 12, 2018, workopolis.com and related assets were sold to a subsidiary of Recruit Holdings Co., Ltd.
The loss from joint ventures in the twelve months ended December 31, 2018 included a $3.7 million gain on the sale
of assets in Workopolis as well as $1.8 million of restructuring charges related to the closure of the remaining Workopolis
business. In connection with the sale and subsequent wind-up of the remaining Workopolis business, the Company
received a distribution from the joint venture of $3.8 million.
TORSTAR CORPORATION 2018 ANNUAL REPORT 84
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
Gain on sale of assets and other
Income and other taxes
Net loss and Comprehensive loss
As at
As at
December 31, 2018
December 31, 2017
$5,714
5,474
11,188
5,655
$16,843
$3,522
629
12,692
$16,843
$7,324
6,260
13,584
16,786
$30,370
$6,216
734
23,420
$30,370
Year ended December 31
2018
$21,667
(9,197)
(10,412)
(852)
(2,157)
(8,000)
(8,951)
11
5
3,743
(5,192)
(222)
($5,414)
2017
$31,126
(12,609)
(14,327)
(1,816)
(814)
(3,000)
(1,440)
(5)
4
(3)
(1,444)
(401)
($1,845)
9. INVESTMENTS IN ASSOCIATED BUSINESSES
As of December 31, 2018, the Company’s investments in associated businesses include a 19.4% equity interest in
Black Press Ltd. (“Black Press”); a 15.6% 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
22.3% interest in Nest Wealth Asset Management Inc. ("Nest Wealth").
TORSTAR CORPORATION 2018 ANNUAL REPORT 85
TORSTAR – Consolidated Financial Statements
The table below provides a continuity of Investments in associated businesses:
Balance, beginning of year
Dividends received
Sale of investment
Share of associate paid in capital (with minority interest)
Loss of associated businesses
OCI – Actuarial gain on employee benefits
OCI – Foreign currency translation adjustment
Balance, end of year
Year ended December 31
2018
$142,769
(20,394)
795
8,046
$131,216
2017
$157,897
(194)
(47)
(640)
(6,824)
66
(7,489)
$142,769
The table below provides details of income and losses from associated businesses:
VerticalScope
Black Press
Blue Ant
Nest Wealth
Total
Black Press
Net income (loss)
OCI
2018
($20,701)
2,294
(1,349)
(638)
2017
($3,192)
(5,721)
1,370
719
2018
$8,136
552
153
2017
($7,434)
102
(91)
($20,394)
($6,824)
$8,841
($7,423)
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 Alaska. For the year ended December 31, 2018, the Company’s share of Black Press’ net income was
$2.3 million and other comprehensive income of $0.6 million (2017 – net loss of $5.7 million and other comprehensive
income of $0.1 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, 2018 was 15.6% (December 31, 2017 – 15.9%). The Company’s
share of Blue Ant’s net loss in 2018 was $1.3 million (2017 – net income of $1.4 million) and includes dilution gains
of $0.4 million in 2018 and $2.9 million in 2017.
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 ($5.9 million as of December 31, 2018) have been offset by net income, other comprehensive
income or additional investments are made. For the year ended December 31, 2018, the Company would have
reported net loss of $0.1 million and other comprehensive loss of $0.5 million from Canadian Press (2017 – net
income of $1.1 million and other comprehensive loss of $1.8 million).
TORSTAR CORPORATION 2018 ANNUAL REPORT 86
TORSTAR – Consolidated Financial Statements
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 net loss was $0.6 million for the year ended December 31, 2018 (2017 – net
income of $0.7 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 acquired a 56.4% interest in VerticalScope in 2015. 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
As at December 31, 2018
As at December 31, 2017
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
(ii) Statements of Loss and Comprehensive Loss
Operating revenue
Net loss
Other comprehensive loss
Total comprehensive loss
$21,923
18,468
40,391
334,318
$374,709
$3,752
24,675
28,427
176,418
169,864
$374,709
$28,682
16,015
44,697
303,189
$347,886
$3,450
19,701
23,151
130,920
4,747
189,068
$347,886
Year ended December 31
2018
$88,558
($36,684)
14,418
($22,266)
2017
$79,572
($5,657)
(13,173)
($18,830)
Torstar’s comprehensive loss attributable to its interest in VerticalScope was $12.6 million for the year ended
December 31, 2018 ($10.6 million for the year ended December 31, 2017).
TORSTAR CORPORATION 2018 ANNUAL REPORT 87
TORSTAR – Consolidated Financial Statements
10. PROPERTY, PLANT AND EQUIPMENT
Building and
leasehold
improvements
Land
Machinery and
equipment
Total
Cost
Balance at December 31, 2016
$1,407
Additions
Disposals
Foreign exchange
Balance at December 31, 2017
1,407
Acquisitions (note 26)
Additions
Disposals
Foreign exchange
(19)
$63,631
330
(2,770)
61,191
154
580
(2,501)
$112,669
$177,707
2,550
(7,696)
(3)
107,520
88
3,019
(2,786)
4
2,880
(10,466)
(3)
170,118
242
3,599
(5,306)
4
Balance at December 31, 2018
$1,388
$59,424
$107,845
$168,657
Depreciation and impairment
Balance at December 31, 2016
Additions
Disposals
Foreign exchange
Balance at December 31, 2017
Additions
Disposals
Foreign exchange
$38,763
2,866
(2,770)
38,859
3,890
(1,701)
$76,975
$115,738
6,687
(7,659)
(3)
76,000
5,102
(2,701)
3
9,553
(10,429)
(3)
114,859
8,992
(4,402)
3
Balance at December 31, 2018
$41,048
$78,404
$119,452
Net book value
At December 31, 2016
At December 31, 2017
At December 31, 2018
$1,407
$1,407
$1,388
$24,868
$22,332
$18,376
$35,694
$31,520
$29,441
$61,969
$55,259
$49,205
TORSTAR CORPORATION 2018 ANNUAL REPORT 88
TORSTAR – Consolidated Financial Statements
11. INTANGIBLE ASSETS
Cost
Balance at December 31, 2016
Acquisitions (note 26)
Additions - internally developed
Additions - purchased
Disposals
Balance at December 31, 2017
Acquisitions (note 26)
Additions - internally developed 1
Additions - purchased 1
Disposals
Balance at December 31, 2018
Amortization and Impairment
Balance at December 31, 2016
Amortization
Disposals
Balance at December 31, 2017
Amortization
Disposals
Balance at December 31, 2018
Net book value
At December 31, 2016
At December 31, 2017
At December 31, 2018
Finite life
Software
Other
Total
$87,208
4,091
2,276
(26,018)
67,557
2,179
7,258
(6,884)
$52,518
5,339
57,857
946
(26)
$139,726
5,339
4,091
2,276
(26,018)
125,414
946
2,179
7,258
(6,910)
$70,110
$58,777
$128,887
$49,869
20,479
(26,018)
44,330
9,418
(6,833)
$46,915
$37,339
$23,227
$23,195
$33,912
6,955
40,867
8,539
(26)
$49,380
$18,606
$16,990
$9,397
$83,781
27,434
(26,018)
85,197
17,957
(6,859)
$96,295
$55,945
$40,217
$32,592
¹ These amounts include $1.1 million for software in development for which amortization has not commenced.
TORSTAR CORPORATION 2018 ANNUAL REPORT 89
TORSTAR – Consolidated Financial Statements
12. IMPAIRMENT OF ASSETS
The Company recorded the following impairment on its assets:
Goodwill
Investments in joint ventures (note 8)
Impairment Testing
Year ended December 31
2018
$8,000
$8,000
2017
$8,133
3,000
$11,133
During the fourth quarter of 2018, the Company concluded that there were indicators of impairment as a result of
the significant change in the market capitalization of the Company. The Company performed impairment tests as
at December 31, 2018 for all of the CGUs within the Dailies, Communities, and Digital Ventures segments. In carrying
out the impairment test, the Company estimated the recoverable amount based on the FVLCS using a forward
multiple of Normalized EBITDA and compared it to the carrying value of the CGU (note 2(l)). No impairment charges
were recorded related to the impairment testing. A 10% decline in the forecasted normalized EBITDA would have
resulted in an impairment in the Communities CGU and one of the Dailies CGU.
The Company also concluded that there were indicators of impairment for its joint venture investment in Sing Tao
Daily resulting from lower forecasted revenues that reflect the continued challenges in the print advertising market.
In carrying out the impairment test, it was determined that the carrying amount of the joint venture investment in
Sing Tao Daily exceeded its recoverable amount using the VIU approach. The after-tax discount rate used in estimating
the recoverable amount was 13.0%. As a result, the Company recorded an impairment charge of $8.0 million.
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.
13. OTHER ASSETS
Portfolio investments (note 15)
ESPP receivable
Other
December 31, 2018
December 31, 2017
$9,211
101
1,828
$11,140
$10,885
59
2,023
$12,967
TORSTAR CORPORATION 2018 ANNUAL REPORT 90
TORSTAR – Consolidated Financial Statements
14. INCOME TAXES
Income tax expense (recovery) is made up of the following:
Current income tax expense (recovery):
Current year
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
Deferred income tax expense (recovery) in OCI
Income tax expense (recovery) in OCI
Total income tax expense
Year ended December 31
2018
2017
$200
200
(300)
118
(100)
(282)
(82)
300
300
$218
($1,000)
200
(800)
6,500
6,500
5,700
(400)
(400)
$5,300
Income taxes of $0.1 million were paid and refunds of $0.6 million were received during the year from continuing
operations (2017 – $1.0 million paid and refunds of $9.6 million received).
Reconciliation of effective tax rate
The combined Canadian federal and provincial statutory rate was 26.5% in 2018 (2017– 26.5%).
Year ended December 31
2018
2017
Loss before taxes from continuing operations
($38,127)
($24,938)
Recovery of income taxes based on Canadian statutory rate of 26.5%
(2017 - 26.5%)
Increase (decrease) in taxes resulting from:
Loss of joint ventures and associated businesses not recognized
Non-deductible impairment charges
Reduction in carrying amount of deferred income tax assets
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
Income tax expense (recovery) in the consolidated statement of loss
Effective income tax rate
($10,100)
($6,600)
6,700
118
(700)
2,800
1,100
100
(100)
($82)
0.2%
2,500
2,100
7,300
(600)
1,100
200
(300)
$5,700
(22.9)%
TORSTAR CORPORATION 2018 ANNUAL REPORT 91
TORSTAR – Consolidated Financial Statements
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 2018 would have
been 25.1% (2017 - 24.9%).
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.
Significant components of the Company’s deferred income tax assets and liabilities as at December 31, 2018 and
December 31, 2017 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,
2018
December 31,
2017
Provisions for returns and doubtful accounts
Property, plant and equipment
Intangible assets
Share-based payment transactions
Tax losses carried forward
Provisions
Goodwill
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
$571
(4,947)
(1,303)
712
3,732
3,168
979
(2,794)
$118
$3,460
(3,342)
$118
$44
567
(2,045)
(266)
3,666
34
(349)
(1,369)
$282
$615
(4,380)
(3,348)
446
7,398
3,102
630
(4,463)
($100)
($100)
($300)
($300)
TORSTAR CORPORATION 2018 ANNUAL REPORT 92
TORSTAR – Consolidated Financial Statements
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
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, 2018, the Company had Canadian non-capital losses available for carry forward in continuing
operations of approximately $65.4 million (2017 – $40.4 million) that will expire between 2028 and 2038 for which it
has recognized a deferred income tax asset of $7.4 million (2017 – $3.7 million). The Company also had capital
losses of $26.2 million (2017 – $29.9 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, 2018, the total non-capital losses, capital losses and deductible temporary differences for which
no deferred income tax asset has been recognized was $249.3 million (2017 – $250.0 million).
Investments in subsidiaries, associates and joint ventures
As at December 31, 2018, 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 $683.8 million (2017 – $628.7
million).
TORSTAR CORPORATION 2018 ANNUAL REPORT 93
TORSTAR – Consolidated Financial Statements
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 (note 4)
Other receivables
Receivables
FVOCI
Portfolio investments 1
Foreign currency forward contracts
Other financial liabilities, measured at amortized cost:
Accounts payable and accrued liabilities
Provisions (current)
Provisions (non-current)
December 31, 2018
December 31, 2017
$68,227
7,175
77,873
27,270
105,143
9,211
(2,843)
(61,814)
(13,247)
(5,343)
$71,377
9,056
90,183
22,763
112,946
10,885
57
(72,962)
(18,113)
(6,714)
1These amounts are included in Other assets in the consolidated statement of financial position.
Other receivables include a $23.1 million receivable for Digital Media Tax Credits (December 31, 2017 - $14.9
million) and accounts payable and accrued liabilities include $2.7 million of professional fees related to these tax
credits (December 31, 2017 - $1.5 million).
During the year ended December 31, 2018, the Company received a refund of $20.7 million and made a payment
of $2.3 million for professional fees related to the claim approved by the OMDC in 2017. The Company recorded
a recovery, net of professional fees, of $4.4 million in salaries and benefits expense in the Dailies segment, which
was the difference between the $13.4 million accrued for this claim in 2017 and the amount received. The Company
also recorded $0.6 million of interest income related to this claim in 2018.
The Company also received certification from the Ontario Media Development Corporation ("OMDC") for digital
media tax credits in respect of the periods ended December 31, 2010 and April 23, 2015. These claims, which will
be subject to an audit by the Canada Revenue Agency, primarily relate to the recovery of previously recognized
salaries and benefits expenses. During the year ended December 31, 2018, the Company recorded a recovery,
net of professional fees, of $19.5 million in salaries and benefits expense ($19.0 million in the Dailies segment and
$0.5 million in the Communities segment) and $0.9 million of interest income related to these two claims.
TORSTAR CORPORATION 2018 ANNUAL REPORT 94
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, 2018
At December 31, 2017
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
$9,211
$10,885
Foreign currency collar arrangements
($2,843)
$57
Changes in the fair value of Level 3 financial instruments were as follows:
Balance, beginning of year
Additions (note 26)
Distributions received
Disposals (note 22)
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
2018
$10,885
1,125
(243)
(2,968)
412
$9,211
2017
$10,344
873
(332)
$10,885
Year ended December 31
2018
$594
(130)
1,748
(3,544)
($1,332)
2017
$484
(185)
140
(2,652)
($2,213)
Interest paid during the year ended December 31, 2018 was $nil (2017 – $nil). Interest received during the year
ended December 31, 2018 was $1.9 million (2017 – $0.4 million).
Other interest includes interest of $1.5 million related to the Digital Media Tax credits.
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, 2018, the Company had $68.2 million in cash and cash equivalents (December 31,
2017 – $71.4 million).
TORSTAR CORPORATION 2018 ANNUAL REPORT 95
TORSTAR – Consolidated Financial Statements
The maturity profile of the Company’s financial liabilities, based on contractual undiscounted payments, is as follows:
2019
2020
2021
2022
2023
2024+
Total
Foreign currency collar arrangements
($2,843)
Accounts payable and accrued
liabilities
Provisions
(61,814)
(13,247)
($2,145)
($812)
($691)
($581)
($1,187)
($2,843)
(61,814)
(18,663)
($77,904)
($2,145)
($812)
($691)
($581)
($1,187)
($83,320)
(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. An impairment analysis
is performed at each reporting date using a provision matrix to measure expected credit losses. The expected credit
losses are estimated using reasonable and supportable information that is available at the reporting date about
past events, current conditions and forecasts of future economic conditions. The provision rates are based on days
past due for groupings of various customer segments with similar loss patterns (i.e., by geographical region, product
type, customer type and rating).
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.
Generally, trade receivables are written-off if past due for more than one year and are not subject to enforcement
activity. The maximum exposure to credit risk at the reporting date is the carrying value of the financial assets.
The following table sets out the ageing of the trade receivables and the expected credit losses:
December 31, 2018
Current
<30 days
Trade receivables
Days past due
30-60 days 61-90 days
>91 days
Total
Expected credit loss rate
1%
1%
3%
23%
46%
Estimated total gross carrying amount
Expected credit loss
$38,712
(259)
$24,111
(296)
$9,657
(307)
$4,268
(981)
$5,449
(2,481)
$82,197
(4,324)
December 31, 2017
Trade receivables
Days past due
Current
<30 days
30-60 days
61-90 days
>91 days
Total
Expected credit loss rate
1%
1%
3%
31%
53%
Estimated total gross carrying amount
Expected credit loss
$44,874
(296)
$29,591
(359)
$11,741
(376)
$4,421
(1,354)
$4,172
(2,231)
$94,799
(4,616)
TORSTAR CORPORATION 2018 ANNUAL REPORT 96
TORSTAR – Consolidated Financial Statements
The continuity of the allowance for expected credit loss is as follows:
Expected credit loss, beginning of year
Utilized
Income statement movements
Expected credit loss, end of year
(iii) Market risk
Year ended December 31
2018
($4,616)
1,637
(1,345)
($4,324)
2017
($5,357)
3,478
(2,737)
($4,616)
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 totalling 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 are recognized in OCI to the extent of hedge effectiveness and accumulated in a separate component
of equity within AOCI. Fair value changes from movement in the foreign exchange rate within the collar range
reflect the cost of hedging as the options have no intrinsic value. When the rate of exchange is above or below the
collar range, the changes in fair value are recorded in OCI to the extent of hedge effectiveness with the portion
related to the cost of hedging accumulated in the separate component of equity.
As at December 31, 2017, the collar arrangements for U.S. $137.0 million established a rate of exchange with a
range of Cdn. $1.20 to Cdn. $1.40 for U.S. $1.00 in 2018.
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.
In July 2018, the Company settled 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. $1.19 to Cdn. $1.39 for U.S. $1.00
maturing in July 2019. During the third quarter, the Company recorded a $0.2 million loss on the settlement of the
collar arrangement, with the effective portion of $0.1 million recorded in OCI and $0.1 million recorded in foreign
exchange in the consolidated statement of loss.
During the year ended December 31, 2018, the change in the fair value of the collar options was a loss of $2.9
million. The effective portion of the hedge was $1.5 million which related to the cost of hedging and has been
recorded in OCI. The ineffective portion of $1.4 million has been included in foreign exchange in the consolidated
statement of loss.
The net fair value of the collar options outstanding at December 31, 2018 was $2.8 million unfavourable (December
31, 2017 – $0.1 million favourable).
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, 2018 would have decreased net
income by $0.4 million (2017 – $0.5 million), with an equal but opposite effect for an assumed increase of 1% in
short-term investment rates.
TORSTAR CORPORATION 2018 ANNUAL REPORT 97
TORSTAR – Consolidated Financial Statements
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, 2018, capital under management was $229.4 million
(December 31, 2017 – $245.8 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.
17. PROVISIONS
Balance at December 31, 2016
Provisions made during the year
Reversals of provisions during the year
Discontinued operations
Provisions paid during the year
Interest accretion
Balance at December 31, 2017
Provisions made during the year
Reversals of provisions during the year
Discontinued operations
Provisions paid during the year
Interest accretion
Balance at December 31, 2018
Current
Non-current
Balance at December 31, 2017
Current
Non-current
Balance at December 31, 2016
Current
Non-current
Restructuring
Restructuring
$37,130
18,509
(997)
(31,139)
134
$23,637
18,537
(1,012)
(23,305)
116
$17,973
$12,630
$5,343
$16,923
$6,714
$26,026
$11,104
Other
$2,447
(1,550)
293
$1,190
(275)
(298)
$617
$617
$1,190
$2,447
Total
$39,577
18,509
(997)
(1,550)
(30,846)
134
$24,827
18,537
(1,012)
(275)
(23,603)
116
$18,590
$13,247
$5,343
$18,113
$6,714
$28,473
$11,104
During the year ended December 31, 2018, the Company recorded restructuring charges of $17.5 million related to
ongoing efforts to reduce costs. Restructuring charges of $9.6 million were recorded in the Communities Segment,
$7.8 million in the Dailies Segment and $0.1 million at Corporate.
In 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.
TORSTAR CORPORATION 2018 ANNUAL REPORT 98
TORSTAR – Consolidated Financial Statements
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.
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.
In November 2017, the Company completed a transaction with Postmedia, in which it purchased and sold a number
of daily and community newspapers. The Competition Act (Canada) 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. The Commissioner did not bring such an application. The Competition Bureau has indicated
that it is investigating the transaction under the conspiracy provisions of the Competition Act. The Company does
not believe it has contravened the Competition Act.
18. OTHER LIABILITIES
Employees' shares subscribed (note 21(b))
RSU Plan (note 21(c))
DSU Plan (note 21(d))
Other employment benefits
Other
19. EMPLOYEE BENEFITS
December 31, 2018
December 31, 2017
$524
553
1,202
1,612
1,279
$5,170
$627
853
1,982
1,515
1,622
$6,599
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 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. 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.
On September 27, 2018, the Company received approval from the members of its eight registered defined benefit
pension plans to proceed with the merger of the Torstar Plans with CAAT Plan effective October 1st, 2018, with Torstar
TORSTAR CORPORATION 2018 ANNUAL REPORT 99
TORSTAR – Consolidated Financial Statements
and certain of its subsidiaries becoming participating employers under the CAAT Plan. The merger remains subject
to the consent of the Superintendent of Financial Services (Ontario), which is not expected to occur prior to the second
half of 2019.
Following the consent of the Superintendent of Financial Services (Ontario), the liabilities for all past benefits under
the Torstar Plans will be transferred to the CAAT Plan together with the assets of the Torstar Plans, and the CAAT
Plan will assume responsibility for all pension benefit payments to members of the Torstar Plans going forward.
Other post employment benefits plans provide for various health and life insurance benefits to employees in the
newspaper operations hired prior to August 23, 2000. The annual costs are calculated by independent actuaries and
are based on historical and projected usage patterns and costs.
Governance of the above plans is the Company’s responsibility. The Pension Committee of the Company’s Board
of Directors provides oversight of the registered pension plans and defined contribution plans in Canada.
Information concerning the Company’s post employment benefit plans is as follows:
Net defined benefit plan obligations
Changes to the net defined benefit obligation were as follows:
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
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, 2018
Pension plans
Funded
$12,661
Unfunded 1
$10,658
Other post
employment
benefit plans
$47,015
12,237
562
12,799
32,938
(10,850)
47,548
9,023
1,706
10,729
(9,009)
(6,648)
$42,620
305
350
655
1,105
(3,471)
8,947
375
236
611
(557)
(1,693)
$7,308
199
1,740
1,939
1,714
(2,447)
48,221
221
1,602
1,823
(2,721)
(2,682)
$44,641
Total
$70,334
12,741
2,652
15,393
35,757
(16,768)
104,716
9,619
3,544
13,163
(12,287)
(11,023)
$94,569
1 As at December 31, 2018, the unfunded pension plan includes an executive retirement plan liability of $7.3 million (December 31,
2017 – $8.9 million) which is supported by an outstanding letter of credit of $5.8 million as at December 31, 2018 (December 31,
2017 – $7.7 million).
TORSTAR CORPORATION 2018 ANNUAL REPORT 100
TORSTAR – Consolidated Financial Statements
A summary of the components of the net defined benefit obligation as at December 31, 2018 and 2017 is as follows:
2018
Defined benefit obligations
Fair value of plan assets
Net defined benefit obligation
Recorded in:
Liabilities
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
$848,348
(805,728)
$42,620
$7,308
$44,641
$7,308
$44,641
Total
$900,297
(805,728)
$94,569
$42,620
$7,308
$44,641
$94,569
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
The following charts provide a summary of changes in the defined benefit obligation and the fair value of plan assets
during 2018 and 2017:
2018
Accrued benefit obligations:
Balance, beginning of year
Current service cost
Interest cost
Benefits paid
Remeasurement gains
Participant contributions
Balance, end of year
Plans’ assets:
Fair value, beginning of year
Interest income included in net interest expense
Remeasurement losses
Benefits paid
Employer contributions
Participant contributions
Administration costs
Fair value, end of year
Funded status – deficit
Pension Plans
Funded
Unfunded
Other post
employment
benefit plans
Total
$938,427
$8,947
$48,221
$995,595
7,028
30,873
(77,566)
(51,885)
1,471
375
236
(1,693)
(557)
221
1,602
(2,682)
(2,721)
7,624
32,711
(81,941)
(55,163)
1,471
$848,348
$7,308
$44,641
$900,297
$890,879
29,167
(42,876)
(77,566)
6,648
1,471
(1,995)
$805,728
$42,620
($1,693)
1,693
($2,682)
2,682
$7,308
$44,641
$890,879
29,167
(42,876)
(81,941)
11,023
1,471
(1,995)
$805,728
$94,569
TORSTAR CORPORATION 2018 ANNUAL REPORT 101
TORSTAR – Consolidated Financial Statements
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
Net benefit expense for defined benefit plans recognized in the 2018 and 2017 consolidated statement of loss is as
follows:
2018
2017
Current service cost
Net interest expense
Administration costs
Net benefit expense
Current service cost
Net interest expense
Administration costs
Net benefit expense
Pension plans
Funded
Unfunded
$7,028
1,706
1,995
$10,729
$375
236
$611
Pension plans
Funded
$11,086
562
1,151
$12,799
Unfunded
$305
350
$655
Other post
employment
benefit plans
$221
1,602
Total
$7,624
3,544
1,995
$1,823
$13,163
Other post
employment
benefit plans
$199
1,740
Total
$11,590
2,652
1,151
$1,939
$15,393
TORSTAR CORPORATION 2018 ANNUAL REPORT 102
TORSTAR – Consolidated Financial Statements
Amounts recognized in the 2018 and 2017 consolidated statements of comprehensive income or loss (before tax):
2018
Remeasurement gains (losses):
Actuarial gain (loss) from:
Financial assumptions
Demographic assumptions
Experience adjustment
Total actuarial gains
Return on plan assets excluding amounts
included in net interest expense
Amounts recognized in OCI
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
Pension plans
Funded
Unfunded
Other post
employment
benefit plans
Total
$54,759
(2,874)
51,885
(42,876)
$9,009
$2,474
$57,472
$239
264
54
557
247
2,721
$557
$2,721
264
(2,573)
55,163
(42,876)
$12,287
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)
The significant assumptions used by the Company in 2018 and 2017 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 2018 and 2017, the Company used the 2014 Private Sector Canadian Pensioners' Mortality Table
projected generationally using scale B with a multiplier applied at December 31, 2018 and 2017 (for the larger plans,
the multiplier ranged from 94% to 103%).
TORSTAR CORPORATION 2018 ANNUAL REPORT 103
TORSTAR – Consolidated Financial Statements
Pension plans
Other post employment benefit
plans
To determine benefit obligation at end of year:
Discount rate
3.5% to 3.9%
3.1% to 3.4%
3.9%
Rate of future compensation increase
2.5%
2.5%
2018
2017
2018
2017
3.4%
To determine benefit expense:
Discount rate
3.1% to 3.4%
3.2% to 3.8%
3.4%
3.8%
Rate of future compensation increase
2.5%
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%
2019
5.0%
5.0%
2018
Male
Female
21.9 years
24.3 years
21.9 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, 2018
December 31, 2017
1% increase
1% decrease
1% increase
1% decrease
($98,992)
$112,232
($114,175)
$130,189
Rate of compensation increase
8,120
(7,981)
8,974
(8,822)
Other post employment benefit plans:
Discount rate
Per capita cost of health care
(4,565)
1,410
5,550
(1,224)
(5,028)
1,457
6,131
(1,267)
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, 2017 – 2.5%).
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 2018 ANNUAL REPORT 104
TORSTAR – Consolidated Financial Statements
Pension plan assets for the Canadian plans, measured as at December 31, 2018 and 2017 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
Canadian Equity
US Equity
International Equity
North American Equity
Fixed Income - Canadian Bond
Fixed Income - Canadian Corporations
2018
$1,587
33,972
2,796
85,701
291,884
389,788
$805,728
2017
$170,149
82,095
75,052
91,146
69,963
308,782
17,927
861
845
74,059
$890,879
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, 2018, the target allocation
mix was 53% equity securities and 47% fixed income securities for the Canadian plans (December 31, 2017 – 28%
equity securities and 72% fixed income securities).
The Company’s 2018 actual funding for its Canadian registered pension plans was approximately $7 million (2017 –
$11 million). The Company has prepared actuarial reports as of December 31, 2017 for its significant plans.
The weighted average duration of the defined benefit obligation is 13.2 years (2017 – 13.8 years). As at December 31,
2018, the expected maturity profile of the undiscounted pension plan and other post employment benefits is $80
million in the next year, $508 million in 2 to 10 years and $1,237 million in over 10 years (December 31, 2017 – $81
million in the next year, $509 million in 2 to 10 years and $1,362 million in over 10 years).
Defined contribution plans
The total amount expensed for defined contribution plans in 2018 was $2.1 million (2017 – $2.0 million).
Colleges of Applied Arts & Technology Pension Plan
Effective October 1, 2018, members of the Torstar Plans began accruing benefits under the new DBplus provisions
of the CAAT Plan and the Company expensed $1.0 million for contributions made to the CAAT plan. Effective January
TORSTAR CORPORATION 2018 ANNUAL REPORT 105
TORSTAR – Consolidated Financial Statements
1, 2019, most employees that participated in the Company's defined contribution type plans began participating in
the CAAT Plan. Most employees hired after January 1, 2019 will also participate in the CAAT Plan.
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
2018
2017
Shares
Amount
Shares
Amount
9,817,215
(9,000)
9,808,215
$2,668
(12)
$2,656
9,826,215
(9,000)
9,817,215
$2,670
(2)
$2,668
71,037,138
$400,372
70,891,322
$400,144
9,000
123,373
134,292
250
12
155
242
9,000
85,280
50,911
625
71,304,053
$400,781
71,037,138
2
133
92
1
$400,372
$403,040
Total Class A and Class B shares
81,112,268
$403,437
80,854,353
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
TORSTAR CORPORATION 2018 ANNUAL REPORT 106
TORSTAR – Consolidated Financial Statements
the basic per share calculation as the assumed exercise of the Company’s share options and the ESPP does not
result in an adjustment to income or loss.
The reconciliation of the denominator in calculating diluted per share amounts is as follows:
(thousands of shares)
Weighted average number of shares outstanding, basic and diluted
Year ended December 31
2018
80,990
2017
80,785
Outstanding share options totalling 8,661,064 (December 31, 2017 – 7,028,109), 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 (2017 – 2.5 cents)
Second quarter ended June 30: 2.5 cents (2017 – 2.5 cents)
Third quarter ended September 30: 2.5 cents (2017 – 2.5 cents)
Fourth quarter ended December 31: 2.5 cents (2017 – 2.5 cents)
Total dividends
21. SHARE-BASED COMPENSATION PLANS
(a) Share option plan
Year ended December 31
2018
$2,021
2,026
2,026
2,026
$8,099
2017
$2,018
2,020
2,020
2,021
$8,079
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, 2018,
options to purchase 14,673,416 shares have been granted, net of options cancelled (December 31, 2017 –
13,040,461).
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
2018
2017
Share options
7,028,109
2,300,844
(667,889)
8,661,064
Weighted
average
exercise price
$5.12
$1.72
$6.50
$4.11
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
TORSTAR CORPORATION 2018 ANNUAL REPORT 107
TORSTAR – Consolidated Financial Statements
As at December 31, 2018, outstanding share options were as follows:
Range of exercise price
$1.59 – $5.85
$6.33 – $7.81
$8.28 – $12.21
$1.59 – $12.21
Share options
outstanding
5,818,759
2,094,155
748,150
8,661,064
Weighted
average
remaining
contractual life
Weighted
average
exercise price
Share options
exercisable
Weighted
average
exercise price
7.83
4.29
2.12
6.48
$2.43
$6.80
$9.66
$4.11
1,827,509
1,985,952
748,150
4,561,611
$3.90
$6.81
$9.66
$6.11
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
2018
$0.34 – $0.38
1.72% – 1.97%
5.8%
2017
$0.31 – $0.44
1.0% – 1.5%
5.2% – 6.3%
36.0% – 39.1%
37.4% – 40.5%
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
2018
2017
2019
$1.55
2020
$1.62
2018
$1.84
2019
$1.55
163,207
167,267
173,973
203,190
The fair value of the subscriptions on the subscription date and the key assumptions used are as follows:
Fair value
Risk-free interest rate
Expected dividend yield
Expected share price volatility
Expected time until exercise (years)
(c) RSU plan
A summary of changes in the RSU plan is as follows:
Units outstanding, beginning of year
Vested and paid
Granted
Forfeited
Dividend equivalents
Units outstanding, end of year
2018
$0.11
2.1%
6.2%
31.3%
2
2017
$0.24
0.6%
6.3%
47.8%
2
2018
1,417,569
(270,454)
722,284
(122,404)
153,458
1,900,453
2017
975,734
(284,468)
794,372
(155,267)
87,198
1,417,569
TORSTAR CORPORATION 2018 ANNUAL REPORT 108
TORSTAR – Consolidated Financial Statements
As at December 31, 2018, 1,117,692 units have been accrued at a value of $0.9 million of which 417,040 units have
been accrued in accounts payable and accrued liabilities at a value of $0.3 million while 700,652 units have been
accrued in other liabilities at a value of $0.6 million (December 31, 2017 – 769,489 units were accrued at a value of
$1.3 million of which 270,454 units were accrued in accounts payable and accrued liabilities at a value of $0.5 million
and 499,035 units were accrued in other liabilities at a value of $0.9 million).
The Company has entered into a derivative instrument in order to lock in the expense for 610,000 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 2019, 417,040 RSUs 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
2018
1,158,981
263,158
8,336
53,575
109,252
(68,163)
1,525,139
2017
864,147
235,602
6,387
16,031
62,496
(25,682)
1,158,981
As at December 31, 2018, the 1,525,139 units outstanding were valued at $1.2 million (December 31, 2017 –
1,158,191 units valued at $2.0 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 2018, the Company has recognized share-based compensation expense totalling $0.2 million (2017 – $1.1
(e)
million).
TORSTAR CORPORATION 2018 ANNUAL REPORT 109
TORSTAR – Consolidated Financial Statements
22. OTHER COMPONENTS OF EQUITY
The following is a continuity for the other components of equity:
As at December 31, 2016
OCI
As at December 31, 2017
Adoption of IFRS 9
Foreign
CTA 1
$5,350
(7,451)
(2,101)
January 1, 2018 (adjusted) (note 2)
(2,101)
OCI
8,013
Transfer of fair value of financial
assets upon disposal
Available-
for-sale
securities 2
Net
investment
hedge 3
$2,856
($3,030)
68
2,924
(2,924)
(3,030)
(3,030)
$57
57
(1,618)
Net
investment
hedge
(cost of
hedging)4
Accumulated
other
comprehensive
income (loss)
(“AOCI”)
Fair value
reserve of
financial
assets at
FVOCI 5
Other
component
s of equity
$5,176
(7,383)
(2,207)
(2,867)
(5,074)
6,395
$5,176
(7,383)
(2,207)
(1,943)
(4,150)
9,201
(2,394)
$2,657
$924
924
2,806
(2,394)
$1,336
As at December 31, 2018
$5,912
($3,030)
($1,561)
$1,321
1Net of deferred income tax asset/liability of $nil (2017 – $nil).
2Net of deferred income tax asset/liability of $nil (2017 – $nil).
3Net of current income tax recovery of $500 (2017 – $500).
4Net of deferred income tax asset/liability of $nil (2017 – $nil).
5Net of deferred income tax asset of $nil (2017 – $300).
During the year ended December 31, 2018, the Company sold our portfolio investment in Kanetix Ltd. for cash
proceeds of $5.7 million and recorded a gain before tax of $2.7 million ($2.4 million after tax) in other comprehensive
income.
23. OTHER INCOME
Gain on sale of assets
Gain on sale of newspapers
Gain on sale of wagjag.com
Other
2018
Year ended December 31
2018
$292
11
$303
2017
$3,225
500
210
$3,935
In August 2018, the Company sold a real estate property for net cash proceeds of $0.8 million and recorded a gain
of $0.1 million.
In September 2018, the Company recorded a gain of $0.2 million from the release of escrow related to the sale of
the former Vaughan printing facility and surrounding lands in 2016.
TORSTAR CORPORATION 2018 ANNUAL REPORT 110
TORSTAR – Consolidated Financial Statements
2017
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.
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,
2018, the Company reviewed its estimates and recorded a reduction in its provisions by $0.3 million (2017 - $1.6
million). The Company also recorded an income tax recovery of $6.2 million, primarily related to an adjustment to
the income tax expense related to the sale of Harlequin recorded in 2014.
(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
2018
$275
275
6,200
$6,475
$6,475
2017
$1,550
1,550
(200)
$1,350
$1,350
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
$0.08
$0.02
(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
2018
$6,475
$6,475
$6,475
2017
$1,350
$1,350
$1,350
TORSTAR CORPORATION 2018 ANNUAL REPORT 111
TORSTAR – Consolidated Financial Statements
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
2018
($474)
1,414
(1,371)
130
94
($207)
2017
$955
(493)
(4,390)
185
(331)
($4,074)
26. ACQUISITIONS, DIVESTITURES AND PORTFOLIO INVESTMENTS
2018 Acquisitions
On October 1, 2018, the Company completed an asset acquisition from iPolitics Inc. for a total purchase price of
approximately $1.4 million in its Dailies segment, including a $0.3 million holdback. The assets acquired include
$0.5 million of net working capital and $0.9 million of finite-life intangible assets. The acquisition contributed
approximately $0.6 million of revenue and $0.1 million of operating profit in the Dailies segment. If the acquisition
had occurred on January 1, 2018, the Company's consolidated revenues and operating loss would have been $2.2
million and $0.5 million higher.
During the year ended December 31, 2018, the Company made additional investments of $1.1 million in its portfolio
investments in corporate (December 31, 2017 - $0.9 million).
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 the 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).
TORSTAR CORPORATION 2018 ANNUAL REPORT 112
TORSTAR – Consolidated Financial Statements
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
27. COMMITMENTS AND CONTINGENCIES
Communities
$60
(112)
(52)
3,472
(299)
$3,225
The Company has guaranteed obligations of a subtenant to a third party in respect of a sublease. The sublease
expired on December 31, 2018 but the guarantee remains in effect until June 30, 2019. To date, we are not aware
of any matters which would be expected to give rise to any liability under this guarantee.
In addition, the Company has the following significant contractual obligations:
Nature of the obligation
Office leases
Services
Total
Total
$39,863
33,920
$73,783
2019
$13,240
17,654
$30,894
2020 – 2021
2022 – 2023
$18,581
14,290
$32,871
$8,042
1,976
$10,018
Receivable from office sub-leases
($3,292)
($1,966)
($1,326)
TORSTAR CORPORATION 2018 ANNUAL REPORT 113
TORSTAR – Consolidated Financial Statements
28. RELATED PARTY TRANSACTIONS
The aggregate amounts of remuneration for the Company’s key management (including directors), recognized in
the consolidated statement of income or loss and OCI, are set out below:
Salaries and benefits
Post-employment benefits
Share based payments
Total
Year ended December 31
2018
$8,140
570
627
$9,337
2017
$5,210
435
649
$6,294
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
2018
2017
Associates
2018
2017
Sales to
Purchases from Amounts owed by Amounts owed to
$102
294
45
45
$30
156
7,150
8,085
$198
93
33
19
$22
300
380
The Company received in 2018 $0.2 million (2017 – $0.4 million) of rent from a joint venture. No provisions have
been made for expected credit losses in respect of amounts owed by related parties.
29. TRANSITION TO IFRS 9
Fair value of financial instruments
A reconciliation between the classification and measurement of the carrying amounts under IAS 39 to the balances
reported under IFRS 9 as of January 1, 2018 is as follows:
January 1, 2018
IAS 39
IFRS 9
Financial assets:
Cash and cash equivalents
Restricted cash (current)
Trade accounts receivable
Other receivables
Receivables
$71,377
9,056
90,183
22,763
112,946
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Portfolio investments¹
10,885
Available-for-sale,
measured at fair value
FVOCI
Foreign currency forward contracts
57
Hedge, fair value
Hedge, fair value
Accounts payable and accrued liabilities
(72,962)
Amortized cost
Amortized cost
1These amounts are included in Other assets in the consolidated statement of financial position.
TORSTAR CORPORATION 2018 ANNUAL REPORT 114
18
N O T E S
TORSTAR CORPORATION 2018 ANNUAL REPORT 114
TORSTAR CORPORATION 2018 ANNUAL REPORT 115
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 Investment Officer,
NCM Capital Inc.
Director since 2009
Alnasir Samji
Managing Principal
Alderidge Consulting
Director since 2009
18
TORSTAR CORPORATION 2018 ANNUAL REPORT 116
TORSTAR CORPORATION 2018 ANNUAL REPORT 117
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
18
TORSTAR CORPORATION 2018 ANNUAL REPORT 117
TORSTAR CORPORATION 2018 ANNUAL REPORT 116
18
N O T E S
TORSTAR CORPORATION 2018 ANNUAL REPORT 118
TORSTAR CORPORATION 2018 ANNUAL REPORT 119
18 1818CORPORATE OFFICE
Torstar Class B non-voting shares
are traded on the Toronto Stock
Exchange under the symbol TS.B
JOHN A. HONDERICH
Chair
TRANSFER AGENT & REGISTRAR
AnswerLine (416) 682-3860 or
OFFICERS OF TORSTAR
AST Trust Company (Canada)
www.astfinancial.com/ca-en
inquiries@astfinancial.com
(toll-free in North America)
Telephone: (416) 869-4010
Website: www.torstar.com
e-mail: torstar@torstar.ca
Fax: (416) 869-4183
1-800-387-0825
Postal Station B
One Yonge Street
Toronto, Ontario
Montreal, QC
P.O. Box 700
H3B 3K3
M5E 1E6
Canada
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 and CFO
Community &
Daily News Brands
TORSTAR CORPORATION 2018 ANNUAL REPORT 118
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