Torstar Corporation
TSX : TS.B

Torstar Corporation

April 30, 2008 06:30 ET

Torstar Corporation Reports First Quarter Results

TORONTO, ONTARIO--(Marketwire - April 30, 2008) - Torstar Corporation (TSX:TS.B) today reported financial results for the first quarter ended March 31, 2008.

Highlights for the quarter:

- EBITDA (operating profit before restructuring provisions, interest, taxes, depreciation and amortization - see "non-GAAP measures") was down $12.1 million or 25.1% in the quarter from $48.3 million to $36.2 million.

- Revenue of $351.7 million was down $25.7 million or 6.8% from $377.4 million. (Revenue was down $14.9 million or 3.9% excluding the impact of foreign exchange.)

- A $20.8 million ($13.8 million or $0.17 per share, after tax) restructuring provision was recorded in the first quarter of 2008. Annual savings are expected to be $12.0 million.

- Torstar reported a net loss of $3.5 million ($0.04 per share) compared with net income of $15.7 million ($0.20 per share) in 2007. Net income before restructuring provisions was $10.3 million ($0.13 per share).

- Net debt was $639.4 million at March 31, 2008, up $19.1 million from $620.3 million at December 31, 2007.

"This was a difficult quarter for our newspaper businesses as both revenue and earnings were down. The earnings decline was magnified by a substantial restructuring charge in the newspaper division. In contrast, Harlequin delivered a solid quarter and is on track for a good year," said Robert Prichard, Torstar's President and Chief Executive Officer. "Our newspaper division faced soft revenue trends, particularly in national advertising, which negatively affected the daily and community newspapers. In Metroland Media Group, we have experienced more positive trends in April and we continue to expect Metroland to deliver growth year over year despite the relatively slow start to the year. In the Star Media Group we are taking aggressive steps to reduce costs in the face of the soft revenue outlook. Digital revenues continue to grow strongly with growth in excess of 30 percent. Harlequin's outlook is positive. We expect modest growth this year (excluding foreign exchange) unless there is a major economic slowdown in the U.S. retail environment. The slight decline in Harlequin's first quarter earnings was relative to an exceptional quarter a year ago. Harlequin is also experiencing accelerating progress with its digital media strategy which will contribute to earnings growth in 2008 and beyond."



The following chart provides a continuity of earnings per share from 2007
to 2008:

----------------------------------------------------------------
Net income per share 2007 $0.20
Changes
- Operations (0.09)
- Restructuring provisions (0.17)
- Income from associated businesses (0.02)
- Non-cash foreign exchange 0.02
- One-time tax expense adjustments 0.02
----------------------------------------------------------------
Net loss per share 2008 ($0.04)
----------------------------------------------------------------


OPERATING RESULTS - FIRST QUARTER 2008

Overall Performance

Total revenue was $351.7 million in the first quarter of 2008, down $25.7 million from $377.4 million in the first quarter of 2007. Newspapers and Digital revenue decreased $11.1 million to $241.9 million as the newspapers were negatively affected by the weakness in the Ontario economy and the calendar. Easter weekend was in the first quarter of 2008 and in the second quarter of 2007. Reported Book Publishing revenue was $109.7 million in the first quarter, down $14.8 million from $124.5 million in the same period last year. The decrease included $10.8 million from the unfavourable impact of foreign exchange rates and also reflected the strength of the publishing schedule in the first quarter of 2007.

Operating profit, including a $20.8 million restructuring provision, was $1.4 million in the first quarter of 2008, down $33.0 million from $34.4 million in 2007. Excluding the restructuring provision, operating profit was $22.2 million in the first quarter. Newspapers and Digital Segment operating profit was $10.6 million in the first quarter, down $9.3 million from $19.9 million in 2007. Book Publishing operating profit was $16.2 million in the first quarter of 2008, down $2.9 million from $19.1 million in 2007 including a decrease of $2.3 million from the unfavourable impact of foreign exchange rates. Corporate costs were $4.6 million in the first quarter of 2008, down $0.1 million from the first quarter of 2007.

In the first quarter of 2008, a restructuring provision of $20.8 million was recorded related to a combination of voluntary and non-voluntary staff reductions in the newspapers. The restructurings will result in a net reduction of 160 employees with expected annual savings of $12.0 million.

Earnings before restructuring provisions, interest, taxes, depreciation and amortization ("EBITDA" - see Non-GAAP measures), was $36.2 million in the first quarter of 2008, down $12.1 million from $48.3 million in 2007.



----------------------------------------------------------------------
----------------------------------------------------------------------
2008 2007
----------------------------------------------------------------------
----------------------------------------------------------------------
Newspapers and Digital $23,328 $32,689
----------------------------------------------------------------------
Book Publishing 17,417 20,329
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Corporate (4,538) (4,672)
----------------------------------------------------------------------
----------------------------------------------------------------------
EBITDA, excluding restructuring provisions $36,207 $48,346
----------------------------------------------------------------------
----------------------------------------------------------------------


Interest expense was $7.8 million in the first quarter of 2008, down $0.9 million from $8.7 million in the first quarter of 2007. The decrease reflected lower average debt levels and slightly lower effective interest rates in the quarter. The average net debt (long-term debt and bank overdraft net of cash and cash equivalents) was $629.8 million in the first quarter of 2008, down from $687.5 million in the first quarter of 2007. Torstar's effective interest rate was 5.0% in the first quarter of 2008 and 5.1% in 2007. Net debt was $639.4 million at March 31, 2008, up $19.1 million from $620.3 million at December 31, 2007.

Torstar reported a non-cash foreign exchange gain of $0.8 million in the first quarter of 2008. This gain arose from the translation of foreign-currency denominated assets and liabilities into Canadian dollars. The amount of the gain or loss in any period will vary depending on the movement in relative value of the Canadian dollar and on whether Torstar has a net asset or net liability position in the foreign currency.

Torstar reported a loss from associated businesses of $1.2 million in the first quarter of 2008 compared with income of $0.5 million in the first quarter of 2007. The first quarter of 2008 included a loss of $0.5 million from Torstar's investment in CTVgm compared with income of $0.6 million last year. The $1.1 million decline from 2007 was primarily as a result of the Writers Guild of America strike having a negative impact on CTVgm's conventional television advertising revenues and an adjustment to CTVgm's future income tax assets for a reduction in Canadian federal income tax rates. Torstar's loss from Black Press was $0.9 million in the first quarter of 2008 compared with a loss of $0.1 million in 2007. The larger first quarter loss in 2008 reflected the negative impact of financial derivatives being marked to market, not a change in the underlying business performance.

Torstar's effective tax rate was 49.6% in the first quarter of 2008 compared with 39.8% in the first quarter of 2007. The first quarter of both years included one-time adjustments to tax expense. In 2008, the adjustment was a recovery of prior year taxes of $1.3 million. In 2007, tax expense was increased by $0.5 million due to changes in foreign tax rates. Excluding these adjustments, Torstar's effective tax rate was 30.6% in the first quarter of 2008 and 37.9% in the first quarter of 2007. The lower effective tax rate in 2008 was the result of lower statutory tax rates and the mix of income in the quarter. The full-year 2008 tax rate is expected to be approximately 33%.

Torstar reported a net loss of $3.5 million ($0.04 per share) in the first quarter of 2008, compared with net income of $15.7 million ($0.20 per share) in the first quarter of 2007. Net income before restructuring provisions was $10.3 million ($0.13 per share) in the first quarter of 2008. The average number of shares outstanding was 78.7 million in the first quarter of 2008 and 78.4 million in 2007.

Transit TV

In early 2008, Torstar announced a strategic sales relationship with IdeaCast Inc., (a U.S. provider of custom television content and advertising to health clubs) and a letter of intent giving IdeaCast an option to acquire Transit TV in the second quarter of 2008. In April 2008, IdeaCast provided notice it does not intend to exercise its option to acquire Transit TV within the option period. At the same time IdeaCast proposed extending the sales relationship and Torstar is currently in the process of finalizing the terms of this extension. Torstar's carrying value in Transit TV's net assets at March 31, 2008 was approximately $18.5 million.

OUTLOOK

The economic outlook in both Canada and the U.S. continues to cause uncertainty for Torstar's businesses in 2008. In the first quarter the newspapers experienced revenue declines which appear to have been related to the economy as well as the calendar. The community newspapers are experiencing positive trends in April but the daily newspapers continue to face revenue challenges. It is expected that in the latter half of the year, newsprint pricing will be higher than in the last six months of 2007.

In response to these revenue and cost challenges, the newspapers undertook a restructuring during the first quarter of 2008. The combination of voluntary and non-voluntary staff reductions will result in a net reduction of 160 positions with savings expected to be $12.0 million annually. These savings will begin to be realized over the next three quarters with $6.0 million expected to be realized in 2008.

As expected, Harlequin's earnings in the first quarter (excluding foreign exchange) were slightly below the first quarter of 2007 due to the strong publishing schedule a year ago. We continue to expect modest growth from Harlequin for the year unless there is a major economic slowdown in the U.S. retail environment. The uncertainty in the U.S. economy does not appear to have affected Harlequin's U.S. sales in the first quarter. However, if the U.S. economy softens further it could have a negative impact on the remainder of the year. Harlequin will begin to realize revenue and operating profit in the second quarter of 2008 related to an agreement signed in the first quarter with SoftBank Creative Corp. (one of the largest providers of cell phone services in Japan) to provide digital manga (comics) content.

Foreign currency will continue to be a factor in Harlequin's reported earnings during 2008. If the Canadian dollar remains at its current level relative to the U.S. dollar and overseas currencies through the rest of the year, it is anticipated that there would be a negative year over year foreign exchange impact of approximately $3.5 million on Harlequin's full-year 2008 reported results (with $2.3 million already realized in the first quarter).

OTHER

On April 29, 2008, Torstar declared a quarterly dividend of 18.5 cents per share on its Class A share and Class B non-voting shares, payable on June 30, 2008, to shareholders of record at the close of business on June 12, 2008. Torstar advises that, for the purposes of the Income Tax Act, Canada and for any relevant provincial tax legislation, this dividend is designated as an eligible dividend.

ADDITIONAL INFORMATION

For additional information, please refer to Torstar's consolidated financial statements and interim management's discussion and analysis ("MD&A") for the period ended March 31, 2008. The MD&A has been attached to this press release. The MD&A and the consolidated financial statements will be filed today with Sedar and are available on Torstar's corporate website www.torstar.com.

CONFERENCE CALL

Torstar has scheduled a conference call for April 30, 2008 at 8:00 a.m. to discuss its first quarter results. The dial-in number is 1-800-732-5617. A live broadcast of the conference call will be available over the Internet on the Investor Relations (Conference Calls) page on Torstar's website www.torstar.com. A recording of the conference call will be available for 9 days by calling 416-626-4100 or 1-800-558-5253 and entering reservation number 21380927. An online archive of the broadcast will be available within one hour of the completion of the call and will be accessible by visiting the Investor Relations (Conference Calls) page on Torstar's website www.torstar.com.

INVESTOR DAY

Torstar has scheduled its annual Investor Day for June 24, 2008. For further information please contact David Holland, Executive Vice-President and Chief Financial Officer, Torstar Corporation. (416) 869-4031.

About Torstar Corporation

Torstar Corporation is a broadly based media company listed on the Toronto Stock Exchange (TS.B). Its businesses include the Star Media Group led by the Toronto Star, Canada's largest daily newspaper and digital properties including thestar.com, toronto.com, LiveDeal.ca, Workopolis, and Olive Canada Network; Metroland Media Group, publishers of community and daily newspapers in Ontario; and Harlequin Enterprises, a leading global publisher of books for women.

Non-GAAP Measures

Management uses both operating profit, as presented in the consolidated statements of income, and EBITDA as measures to assess the performance of the reporting units and business segments. EBITDA is a measure that is also used by many of Torstar's shareholders, creditors, other stakeholders and analysts as a proxy for the amount of cash generated by the reporting unit or segment. EBITDA is not the actual cash provided by operating activities and is not a recognized measure of financial performance under GAAP. Torstar calculates EBITDA as the reporting unit or segment's operating profit before restructuring provisions, interest, unusual items, taxes, depreciation and amortization of intangible assets. Torstar's method of calculating EBITDA may differ from other companies and accordingly, may not be comparable to measures used by other companies.

Forward-looking statements

Certain statements in this press release and in the Company's oral and written public communications may constitute forward-looking statements that reflect management's expectations regarding the Company's future growth, results of operations, performance and business prospects and opportunities as of the date of this press release. Generally, these forward-looking statements can be identified by the use of forward-looking terminology such as "anticipate", "believe", "plan", "forecast", "expect", "intend", "would", "could", "if", "may" and similar expressions. All such statements are made pursuant to the "safe harbour" provisions of applicable Canadian securities legislation. These statements reflect current expectations of management regarding future events and operating performance, and speak only as of the date of this press release. 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.

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 to not place undue reliance on the forward-looking statements in this press release 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. 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.

These factors include, but are not limited to: general economic conditions in the principal markets in which the Company operates, the Company's ability to operate in highly competitive industries, the Company's ability to compete with other forms of media, the Company's ability to attract advertisers, cyclical and seasonal variations in the Company's revenues, newsprint costs, labour disruptions, foreign exchange fluctuations, restrictions imposed on existing credit facilities, litigation, and uncertainties associated with critical accounting estimates.

We caution that the foregoing list is not exhaustive of all possible factors, as other factors could adversely affect our results. For more information, please see the discussion of risks affecting Torstar and its businesses in Torstar's 2007 Management's Discussion & Analysis as well as the discussion in the Company's current Annual Information Form. Copies of both documents are available at www.sedar.com and on Torstar's corporate website www.torstar.com .

In addition, a number of assumptions, including those assumptions specifically identified throughout this press release, were applied in making the forward-looking statements set forth in this press release. Some of the key assumptions include, without limitation, assumptions regarding the performance of the North American economy; tax laws in the countries in which we operate; continued availability of printing operations; continued availability of financing on appropriate terms; exchange rates; market competition; and successful development of new products. There is a risk that some or all of these assumptions may prove to be incorrect.

Torstar's new releases are available on the Internet at www.torstar.com.



---------------------------------------------------------------------
Torstar Corporation
Consolidated Balance Sheets
(Dollars in Thousands)
(Unaudited)
March 31 December 31
2008 2007
---------------------------------------------------------------------

Assets
Current:
Cash and cash equivalents $36,799 $34,096
Receivables 238,147 263,779
Inventories 32,850 31,807
Prepaid expenses 64,043 61,325
Prepaid and recoverable income taxes 11,976 3,097
Future income tax assets 21,545 19,010
---------------------------------------------------------------------
Total current assets 405,360 413,114
---------------------------------------------------------------------

Property, plant and equipment (net) 321,435 330,391
---------------------------------------------------------------------
Investment in associated businesses 432,754 434,294
---------------------------------------------------------------------
Goodwill (net) 564,593 562,120
---------------------------------------------------------------------
Other assets 184,173 182,948
---------------------------------------------------------------------
Future income tax assets 41,747 37,970
---------------------------------------------------------------------
Total assets $1,950,062 $1,960,837
---------------------------------------------------------------------
---------------------------------------------------------------------

Liabilities and Shareholders' Equity
Current:
Bank overdraft $4,455 $3,616
Accounts payable and accrued liabilities 198,839 208,217
Income taxes payable 11,643 17,065
---------------------------------------------------------------------
Total current liabilities 214,937 228,898
---------------------------------------------------------------------

Long-term debt 671,702 650,798
---------------------------------------------------------------------
Other liabilities 94,353 89,678
---------------------------------------------------------------------
Future income tax liabilities 71,312 73,702
---------------------------------------------------------------------

Shareholders' equity:
Share capital 388,292 388,036
Contributed surplus 10,629 9,929
Retained earnings 517,233 535,242
Accumulated other comprehensive loss (18,396) (15,446)
---------------------------------------------------------------------
Total shareholders' equity 897,758 917,761
---------------------------------------------------------------------
Total liabilities and shareholders'
equity $1,950,062 $1,960,837
---------------------------------------------------------------------
---------------------------------------------------------------------



---------------------------------------------------------------------
Torstar Corporation
Consolidated Statements of Income
(Dollars in Thousands)
(Unaudited)
Three months ended
March 31
2008 2007
---------------------------------------------------------------------

Operating revenue
Newspapers and digital $241,931 $252,986
Book publishing 109,719 124,456
---------------------------------------------------------------------
$351,650 $377,442
---------------------------------------------------------------------
---------------------------------------------------------------------
Operating profit
Newspapers and digital $10,571 $19,948
Book publishing 16,197 19,123
Corporate (4,555) (4,686)
Restructuring provisions (20,817)
---------------------------------------------------------------------
1,396 34,385
Interest (7,810) (8,734)
Foreign exchange 794 (15)
(Loss) income of associated businesses (1,237) 501
---------------------------------------------------------------------
Income (loss) before taxes (6,857) 26,137
Income and other taxes 3,400 (10,400)
---------------------------------------------------------------------
Net income (loss) ($3,457) $15,737
---------------------------------------------------------------------
---------------------------------------------------------------------

Earnings (loss) per Class A and Class B share:
Net income (loss) - Basic ($0.04) $0.20
Net income (loss) - Diluted ($0.04) $0.20
---------------------------------------------------------------------
---------------------------------------------------------------------


INTERIM MANAGEMENT'S DISCUSSION AND ANALYSIS

For the three months ended March 31, 2008 and 2007

Dated: April 30, 2008

The following review and analysis of Torstar Corporation's (the "Company" or "Torstar") operations and financial position for the three months ended March 31, 2008 and 2007 is supplementary to, and should be read in conjunction with the audited consolidated financial statements of Torstar Corporation for the year ended December 31, 2007 set forth in the Company's Annual Report for such fiscal year and incorporated by reference in the Company's renewal Annual Information Form dated March 18, 2008.

Torstar reports its financial results under Canadian generally accepted accounting principles ("GAAP") in Canadian dollars. Per share amounts are calculated using the weighted average number of shares outstanding for the applicable period.

Non-GAAP Measures

Management uses both operating profit, as presented in the consolidated statements of income, and EBITDA as measures to assess the performance of the reporting units and business segments. EBITDA is a measure that is also used by many of Torstar's shareholders, creditors, other stakeholders and analysts as a proxy for the amount of cash generated by the reporting unit or segment. EBITDA is not the actual cash provided by operating activities and is not a recognized measure of financial performance under GAAP. Torstar calculates EBITDA as the reporting unit or segment's operating profit before restructuring provisions, interest, taxes, depreciation and amortization. Torstar's method of calculating EBITDA may differ from other companies and accordingly, may not be comparable to measures used by other companies.

Forward-looking statements

Certain statements in this MD&A and in the Company's oral and written public communications may constitute forward-looking statements that reflect management's expectations regarding the Company's future growth, results of operations, performance and business prospects and opportunities as of the date of this report. Generally, these forward-looking statements can be identified by the use of forward-looking terminology such as "anticipate", "believe", "plan", "forecast", "expect", "intend", "would", "could", "if", "may" and similar expressions. All such statements are made pursuant to the "safe harbour" provisions of applicable Canadian securities legislation. These statements reflect current expectations of management regarding future events and operating performance, and speak only as of the date of this report. 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.

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 to not 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. 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.

These factors include, but are not limited to: general economic conditions in the principal markets in which the Company operates, the Company's ability to operate in highly competitive industries, the Company's ability to compete with other forms of media, the Company's ability to attract advertisers, cyclical and seasonal variations in the Company's revenues, newsprint costs, labour disruptions, foreign exchange fluctuations, restrictions imposed on existing credit facilities, reliance on its printing operations, reliance on technology and information systems, litigation, and uncertainties associated with critical accounting estimates.

We caution that the foregoing list is not exhaustive of all possible factors, as other factors could adversely affect our results. For more information, please see the discussion starting on page 24 of the Company's 2007 Annual Report concerning the effect certain risk factors could have on actual results, as well as the discussion in the Company's current Annual Information Form, which is incorporated herein by reference.

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. Some of the key assumptions include, without limitation, assumptions regarding the performance of the North American economy; tax laws in the countries in which we operate; continued availability of printing operations; continued availability of financing on appropriate terms; exchange rates; market competition; and successful development of new products. There is a risk that some or all of these assumptions may prove to be incorrect.

OVERVIEW

Torstar Corporation is a broadly based media company listed on the Toronto Stock Exchange (TS.B). Torstar reports its operations in two segments: Newspapers and Digital; and Book Publishing. The Newspapers and Digital Segment includes the Star Media Group led by the Toronto Star, Canada's largest daily newspaper and digital properties including thestar.com, toronto.com, LiveDeal.ca, Workopolis, and Olive Canada Network; and Metroland Media Group, publishers of community and daily newspapers in Ontario. Its Book Publishing Segment represents Harlequin Enterprises Limited, a leading global publisher of books for women. Torstar also has investments in CTVglobemedia Inc. ("CTVgm") and Black Press Limited which are accounted for as Associated Businesses, using the equity method.

OPERATING RESULTS - First Quarter 2008

Overall Performance

Total revenue was $351.7 million in the first quarter of 2008, down $25.7 million from $377.4 million in the first quarter of 2007. Newspapers and Digital revenue decreased $11.1 million to $241.9 million as the newspapers were negatively affected by the weakness in the Ontario economy and the calendar. Reported Book Publishing revenue was $109.7 million in the first quarter, down $14.8 million from $124.5 million in the same period last year. The decrease included $10.8 million from the unfavourable impact of foreign exchange rates and also reflected the strength of the publishing schedule in the first quarter of 2007.

Operating profit, including a $20.8 million restructuring provision, was $1.4 million in the first quarter of 2008, down $33.0 million from $34.4 million in 2007. Excluding the restructuring provision, operating profit was $22.2 million in the first quarter. Newspapers and Digital Segment operating profit was $10.6 million in the first quarter, down $9.3 million from $19.9 million in 2007. Book Publishing operating profit was $16.2 million in the first quarter of 2008, down $2.9 million from $19.1 million in 2007 including a decrease of $2.3 million from the unfavourable impact of foreign exchange rates. Corporate costs were $4.6 million in the first quarter of 2008, down $0.1 million from the first quarter of 2007.

In the first quarter of 2008, a restructuring provision of $20.8 million was recorded related to a combination of voluntary and non-voluntary staff reductions in the newspapers. The restructurings will result in a net reduction of 160 employees with expected annual savings of $12.0 million.

Earnings before restructuring provisions, interest, taxes, depreciation and amortization ("EBITDA" - see Non-GAAP measures), was $36.2 million in the first quarter of 2008, down $12.1 million from $48.3 million in 2007.



----------------------------------------------------------------------
----------------------------------------------------------------------
2008 2007
----------------------------------------------------------------------
----------------------------------------------------------------------
Newspapers and Digital $23,328 $32,689
----------------------------------------------------------------------
Book Publishing 17,417 20,329
----------------------------------------------------------------------
Corporate (4,538) (4,672)
----------------------------------------------------------------------
----------------------------------------------------------------------
EBITDA, excluding restructuring provisions $36,207 $48,346
----------------------------------------------------------------------
----------------------------------------------------------------------


Interest expense was $7.8 million in the first quarter of 2008, down $0.9 million from $8.7 million in the first quarter of 2007. The decrease reflected lower average debt levels and slightly lower effective interest rates in the quarter. The average net debt (long-term debt and bank overdraft net of cash and cash equivalents) was $629.8 million in the first quarter of 2008, down from $687.5 million in the first quarter of 2007. Torstar's effective interest rate was 5.0% in the first quarter of 2008 and 5.1% in 2007. Net debt was $639.4 million at March 31, 2008, up $19.1 million from $620.3 million at December 31, 2007.

Torstar reported a non-cash foreign exchange gain of $0.8 million in the first quarter of 2008. This gain arose from the translation of foreign-currency denominated assets and liabilities into Canadian dollars. The amount of the gain or loss in any period will vary depending on the movement in relative value of the Canadian dollar and on whether Torstar has a net asset or net liability position in the foreign currency.

Torstar reported a loss from associated businesses of $1.2 million in the first quarter of 2008 compared with income of $0.5 million in the first quarter of 2007. The first quarter of 2008 included a loss of $0.5 million from Torstar's investment in CTVgm compared with income of $0.6 million last year. The $1.1 million decline from 2007 was primarily as a result of the Writers Guild of America strike having a negative impact on CTVgm's conventional television advertising revenues and an adjustment to CTVgm's future income tax assets for a reduction in Canadian federal income tax rates. Torstar's loss from Black Press was $0.9 million in the first quarter of 2008 compared with a loss of $0.1 million in 2007. The larger first quarter loss in 2008 reflected the negative impact of financial derivatives being marked to market, not a change in the underlying business performance.

Torstar's effective tax rate was 49.6% in the first quarter of 2008 compared with 39.8% in the first quarter of 2007. The first quarter of both years included one-time adjustments to tax expense. In 2008, the adjustment was a recovery of prior year taxes of $1.3 million. In 2007, tax expense was increased by $0.5 million due to changes in foreign tax rates. Excluding these adjustments, Torstar's effective tax rate was 30.6% in the first quarter of 2008 and 37.9% in the first quarter of 2007. The lower effective tax rate in 2008 was the result of lower statutory tax rates and the mix of income in the quarter. The full-year 2008 tax rate is expected to be approximately 33%.

Torstar reported a net loss of $3.5 million in the first quarter of 2008, compared with net income of $15.7 million in 2007. Net loss per share was $0.04 in the first quarter, a decrease of $0.24 from net income of $0.20 per share in the first quarter of 2007. Net income before restructuring provisions was $10.3 million ($0.13 per share) in the first quarter of 2008. The average number of shares outstanding was 78.7 million in the first quarter of 2008 and 78.4 million in 2007.



The following chart provides a continuity of earnings per share from 2007
to 2008:

-----------------------------------------------------------------
Net income per share 2007 $0.20
Changes
- Operations (0.09)
- Restructuring provisions (0.17)
- Income from associated businesses (0.02)
- Non-cash foreign exchange 0.02
- One-time tax expense adjustments 0.02
-----------------------------------------------------------------
Net loss per share 2008 ($0.04)
-----------------------------------------------------------------


SEGMENT OPERATING RESULTS - Newspapers and Digital Segment

The Newspapers and Digital Segment includes the Star Media Group; Metroland Media Group; and Transit Television Network ("Transit TV").

Star Media Group includes the Toronto Star, with the largest circulation and readership of any daily newspaper in Canada; Torstar's interests in Sing Tao Daily and the Toronto, Ottawa, Vancouver, Edmonton, Calgary and Halifax editions of Metro; thestar.com; toronto.com; LiveDeal Canada; and Torstar Media Group Television ("TMG TV"). Star Media Group also includes Workopolis, Olive Canada Network and the Torstar Digital corporate group.

Metroland Media Group publishes in print and online more than 100 community newspapers and three daily newspapers - The Hamilton Spectator, the Waterloo Region Record and the Guelph Mercury. It is also the publisher of Gold Book Directories, a number of specialty publications, and operates several consumer shows throughout Ontario. Metroland Media Group has nine web press facilities which print the Metroland newspapers but also engage in commercial printing.

Transit TV is a U.S. based operation that delivers full motion, broadcast-quality information and entertainment to passengers on buses and rail transit on screens mounted in the vehicle.

The following tables set out, in $000's, the results for the reporting units within the Newspapers and Digital Segment for the three months ended March 31, 2008 and 2007.



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Operating Revenue Operating Profit (Loss) Profit Margin
2008 2007 2008 2007 2008 2007
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Metroland
Media $126,190 $133,033 $16,312 $19,904 12.9% 15.0%
Star Media 115,371 119,435 (3,892) 2,922 n/a 2.4%
Transit TV 370 518 (1,849) (2,878) n/a n/a

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Segment Total $241,931 $252,986 $10,571 $19,948 4.4% 7.9%
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Depreciation and
Amortization EBITDA EBITDA Margin
2008 2007 2008 2007 2008 2007
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Metroland
Media $3,906 $3,788 $20,218 $23,692 16.0% 17.8%
Star Media 8,077 7,990 4,185 10,912 3.6% 9.1%
Transit TV 774 963 (1,075) (1,915) n/a n/a

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Segment Total $12,757 $12,741 $23,328 $32,689 9.6% 12.9%
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Total revenue of the Newspapers and Digital Segment was $241.9 million in the first quarter of 2008, down $11.1 million from $253.0 million in 2007. Digital revenues were 5.9% of the total in 2008, up from 4.0% in 2007.

The Newspapers and Digital Segment was negatively affected by the calendar during the first quarter of 2008. Most stores are closed for two days on Easter weekend and advertisers, accordingly, tend to reduce their advertising spend around that weekend. Easter weekend was in the first quarter of 2008 and in the second quarter of 2007.

Metroland Media Group

Revenues of $126.2 million were down $6.8 million in the first quarter of 2008 at Metroland Media Group with declines at both the community and daily newspapers. Advertising revenue was down 4.1% at the community newspapers and down 8.9% at the daily newspapers. Both felt the impact of Easter weekend as well as lower National advertising and the impact of a slower Ontario economy. Distribution revenues were stable in the quarter for both the community and daily newspapers.

Metroland Media Group's EBITDA was $20.2 million in the quarter, down $3.5 million from the first quarter of 2007. This reflected the lower revenues offset partially by lower newsprint pricing and improved results from the Gold Book Directories. Operating profit was $16.3 million in the quarter, down $3.6 million from $19.9 million in the first quarter of 2007.

Star Media Group

Star Media Group had revenues of $115.4 million in the first quarter of 2008, a decrease of $4.0 million from $119.4 million in the first quarter of 2007. Revenue growth at the digital properties and jointly-owned Metro newspapers was not sufficient to offset declines in revenue at the Toronto Star. Advertising revenue at the Toronto Star was down 12.7% in the quarter across all categories including the impact of Easter weekend and the slowing economy. Circulation revenue was stable in the quarter. Workopolis, Olive Canada Network and thestar.com all experienced strong revenue growth with combined revenues up 28.2% in the quarter. The Metro newspapers' revenue continued to grow during the quarter including the positive impact of the Edmonton, Calgary and Halifax expansions.

Star Media Group's EBITDA was $4.2 million in the first quarter of 2008, down $6.7 million from $10.9 million in the same period in 2007. Revenue declines at the Toronto Star were only partially offset by a 14% decrease in newsprint consumption (including the positive impact of the web-width reduction in 2007) and a 12% decrease in newsprint pricing from the same period last year. The revenue growth in the digital properties and the Metro newspapers was offset by higher costs related to those expansions and increased promotional costs at some of the digital properties. The Star Media Group had an operating loss of $3.9 million in the first quarter of 2008, compared with income of $2.9 million in the first quarter of 2007.

Transit TV

Transit TV had an EBITDA loss of $1.1 million in the first quarter of 2008, an improvement of $0.8 million from a loss of $1.9 million in the same period last year. This improvement reflected the continued focus on cost containment by Transit TV's management.

In early 2008, Torstar announced a strategic sales relationship with IdeaCast Inc., (a U.S. provider of custom television content and advertising to health clubs) and a letter of intent giving IdeaCast an option to acquire Transit TV in the second quarter of 2008. In April 2008, IdeaCast provided notice that it does not intend to exercise its option to acquire Transit TV within the option period. At the same time IdeaCast proposed extending the sales relationship and Torstar is currently in the process of finalizing the terms of this extension. Torstar's carrying value in Transit TV's net assets at March 31, 2008 was approximately $18.5 million.

Segment Operating Results - Book Publishing

The Book Publishing Segment reports the results of Harlequin, a leading global publisher of books for women. Harlequin publishes books around the world in a variety of genres and formats, selling through the retail channel and directly to the consumer by mail and the Internet. Harlequin's publishing operations are comprised of three divisions: North America Retail, North America Direct-To-Consumer and Overseas.

The following tables set out, in $000's, a summary of operating results for the Book Publishing Segment and a continuity of revenue and operating profit, including the impact of foreign currency movements, for the three months ended March 31, 2008 and 2007.



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2008 2007
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Revenue $109,719 $124,456
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EBITDA $17,417 $20,329
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Depreciation & amortization 1,220 1,206
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Operating profit $16,197 $19,123
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EBITDA margin 15.9% 16.3%
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Operating profit margin 14.8% 15.4%
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Reported revenue, prior year $124,456
Impact of currency movements and foreign exchange contracts (10,817)
Change in underlying revenue (3,920)
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Reported revenue, current year $109,719
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Reported operating profit, prior year $19,123
Impact of currency movements and foreign exchange contracts (2,277)
Change in underlying operating profit (649)
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Reported operating profit, current year $16,197
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Book Publishing revenues were down $3.9 million in the first quarter of 2008 excluding the impact of foreign exchange. North America Retail was down $2.8 million, North America Direct-To-Consumer was down $1.2 million and Overseas was up $0.1 million.

Book Publishing operating profits were down $0.6 million in the first quarter of 2008 excluding the impact of foreign exchange. North America Retail was flat, North America Direct-To-Consumer was up $0.3 million and Overseas was down $0.9 million.

North America Retail revenues were lower in the first quarter of 2008 reflecting the very strong single-title publishing schedule in the first quarter of 2007. Lower costs, including lower product costs from the mix of books published in the quarter, offset the revenue declines to produce flat year over year operating profit.

North America Direct-To-Consumer revenue was down in the first quarter of 2008 with the continuing trend of fewer books sold in the traditional direct mail business more than offsetting an increase in Internet book and digital sales. Operating profits were up slightly due to lower costs, primarily reduced advertising and promotion spending in the traditional direct mail business.

Overseas operating profits were down $0.9 million in the first quarter of 2008 with growth in France and the Nordic group more than offset by declines in Japan, Germany and the investment in India. During the first quarter of 2008, Harlequin signed an agreement to provide digital manga (comics) content to SoftBank Creative Corp., a division of Softbank Corp., one of the largest providers of cell phone services in Japan.

LIQUIDITY AND CAPITAL RESOURCES

Overview

Funds are generally used for capital expenditures, debt repayment and distributions to shareholders. Long-term debt is used to supplement funds from operations and as required for acquisitions. It is expected that future cash flows from operating activities, combined with the credit facilities available will be adequate to cover forecasted financing requirements.

In the first quarter of 2008, $11.2 million of cash was generated by operations, $12.3 million was used for investing activities and $0.4 million was provided by financing activities.

Operating activities

Operating activities provided cash of $11.2 million in the first quarter of 2008, up $6.2 million from $5.0 million in 2007 as the lower operating results were offset by lower pension funding and a decrease in non-cash working capital. During the first quarter of 2007, a $4.1 million "other" operating use of cash was recorded primarily related to pension funding in excess of the pension expense.

Non-cash working capital decreased by $1.0 million in the first quarter of 2008 as decreases in accounts receivables more than offset tax payments and a net decrease in accounts payable.

Investing activities

During the first quarter of 2008, $12.3 million was used for investments, up from $6.9 million in 2007.

Additions to property plant and equipment were $4.1 million in the first quarter of 2008, down from $5.4 million in the first quarter of 2007. Investments of $7.8 million were made in the first quarter of 2008 in the Newspapers and Digital Segment including Torstar's share of Workopolis' acquisition of Brainhunter Inc.

Financing activities

Cash of $0.4 million was provided by financing activities during the first quarter of 2008, compared with a use of $0.4 million in the same period last year. Torstar issued $14.5 million of bankers' acceptances in the first quarter of 2008, $1.0 million higher than the $13.5 million issued in 2007. Dividends of $14.4 million were paid in both years.

Long-term debt

At March 31, 2008, Torstar had long-term debt of $671.7 million outstanding. The debt consisted of U.S. dollar bankers' acceptance of $107.4 million, Canadian dollar bankers' acceptance of $463.9 million and Canadian dollar medium term notes of $100.0 million increased by $0.4 million related to fair value hedge adjustments.

Torstar's long-term credit facility for $800 million is also designated as a standby line in support of letters of credit. At March 31, 2008, $574.6 million was drawn under the facility and a $27.5 million letter of credit was outstanding relating to the executive retirement plan. The remaining credit of $197.9 million is considered to be adequate to cover forecasted financing requirements.

Contractual obligations

There were no material changes in Torstar's significant contractual obligations during the first quarter of 2008.

Foreign Exchange

As of March 31, 2008, Torstar has entered into forward foreign exchange contracts to sell $27.0 million U.S. dollars during the next three quarters of 2008 at an average rate of $1.02 and $8.5 million U.S. dollars in 2009 at an average rate of $1.02.

KEY FACTORS AND RELATED RISKS

There have been no material changes in any risks or uncertainties facing Torstar since the year ended December 31, 2007.

OUTLOOK

The economic outlook in both Canada and the U.S. continues to cause uncertainty for Torstar's businesses in 2008. In the first quarter the newspapers experienced revenue declines which appear to have been related to the economy as well as the calendar. The community newspapers are experiencing positive trends in April but the daily newspapers continue to face revenue challenges. It is expected that in the latter half of the year, newsprint pricing will be higher than in the last six months of 2007.

In response to these revenue and cost challenges, the newspapers undertook a restructuring during the first quarter of 2008. The combination of voluntary and non-voluntary staff reductions will result in a net reduction of 160 positions with savings expected to be $12.0 million annually. These savings will begin to be realized over the next three quarters with $6.0 million expected to be realized in 2008.

As expected, Harlequin's earnings in the first quarter (excluding foreign exchange) were slightly below the first quarter of 2007 due to the strong publishing schedule a year ago. We continue to expect modest growth from Harlequin for the year unless there is a major economic slowdown in the U.S. retail environment. The uncertainty in the U.S. economy does not appear to have affected Harlequin's U.S. sales in the first quarter. However, if the U.S. economy softens further it could have a negative impact on the remainder of the year. Harlequin will begin to realize revenue and operating profit in the second quarter of 2008 related to the agreement with SoftBank.

Foreign currency will continue to be a factor in Harlequin's reported earnings during 2008. If the Canadian dollar remains at its current level relative to the U.S. dollar and overseas currencies through the rest of the year, it is anticipated that there would be a negative year over year foreign exchange impact of approximately $3.5 million on Harlequin's full-year 2008 reported results (with $2.3 million already realized in the first quarter).

INTERNAL CONTROLS OVER FINANCIAL REPORTING

There have been no changes in Torstar's internal controls over financial reporting that occurred during the first quarter of 2008, the most recent interim period, that have materially affected, or are reasonably likely to materially affect, Torstar's internal controls over financial reporting.

CHANGES IN ACCOUNTING POLICIES

On January 1, 2008, Torstar adopted the CICA Handbook Section 1535 "Capital Disclosures", Section 3031 "Inventories", Section 3862 "Financial Instruments - Disclosures" and Section 3863 "Financial Instruments - Presentation" as described in Note 1(s) of the annual consolidated financial statements, with no restatement of prior periods.

Capital Disclosures

Section 1535 establishes standards for disclosure of both qualitative and quantitative information that enable users to evaluate the entity's objectives, policies and processes for managing capital; the disclosure and compliance with any externally imposed capital requirements and the consequences of any non-compliance.

Inventories

Section 3031 prescribes the measurement of inventories at the lower of cost and net realizable value, with guidance on cost determination including the allocation of overheads and other costs to inventory. Reversals of previous write-downs to net realizable value are permitted when there is a subsequent increase in the value of inventories.

Financial instruments

Sections 3862 and 3863 together replace Section 3861 "Financial Instruments - Disclosures and Presentation", revising and enhancing its disclosure requirements while carrying forward unchanged its presentation requirements. These new sections emphasize disclosures of the nature and extent of risks arising from financial instruments to which the entity is exposed and how those risks are managed.

There was no impact from these changes in accounting policies on net income for the three months ended March 31, 2008. More information regarding the adoption of these new Sections is included in Note 1 to the interim consolidated financial statements.



SUMMARY OF QUARTERLY RESULTS

(In thousands of dollars except for per share amounts)

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Quarter Ended
March 31/08 Dec. 31/07 Sept. 30/07 June 30/07
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Revenue $351,650 $402,930 $369,200 $396,965
Net income (loss) ($3,457) $47,182 $8,419 $30,053

Net income (loss) per Class A voting and Class B non-voting share
Basic ($0.04) $0.60 $0.11 $0.38
Diluted ($0.04) $0.60 $0.11 $0.38
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Quarter Ended
March 31/07 Dec. 31/06 Sept. 30/06 June 30/06
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Revenue $377,442 $414,610 $366,216 $390,331
Net income $15,737 $36,068 $7,667 $25,631

Net income per Class A voting and Class B non-voting share
Basic $0.20 $0.46 $0.10 $0.33
Diluted $0.20 $0.46 $0.10 $0.33
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The summary of quarterly results illustrates the cyclical nature of revenues and operating profit in the Newspapers and Digital Segment. The fourth and second quarters are generally the strongest for the newspapers.

Restructuring provisions have impacted the level of net income in several quarters. Restructuring provisions were $20.8 million in the first quarter of 2008, $7.5 million in the fourth quarter of 2007, $11.7 million in the fourth quarter of 2006 and $7.0 million in the third quarter of 2006.

OTHER

At March 31, 2008, Torstar had 9,906,927 Class A voting shares and 68,846,527 Class B non-voting shares outstanding. More information on Torstar share capital is provided in Note 8 of the interim consolidated financial statements.

At March 31, 2008, Torstar had 5,299,206 options to purchase Class B non-voting shares outstanding to executives and non-executive directors. More information on Torstar's stock option plan is provided in Note 9 of the interim consolidated financial statements.

Additional information relating to Torstar including the Annual Information Form is available on SEDAR at www.sedar.com and on Torstar's corporate website at www.torstar.com.

Contact Information

  • Torstar Corporation
    D. Holland
    Executive Vice-President and Chief Financial Officer
    (416) 869-4031
    Website: www.torstar.com