Torstar Corporation
TSX : TS.B

Torstar Corporation

May 06, 2009 06:30 ET

Torstar Corporation Reports First Quarter Results

TORONTO, ONTARIO--(Marketwire - May 6, 2009) - Torstar Corporation (TSX:TS.B) today reported financial results for the first quarter March 31, 2009.

Highlights for the quarter:

- Revenue of $339.0 million was down $12.3 million as growth in Book Publishing was more than offset by lower advertising revenue in the Newspapers and Digital Segment.

- EBITDA (operating profit before charges for interest, taxes, depreciation and amortization of intangible assets, and restructuring and other charges - see "non-GAAP measures") of $24.8 million was down 35% or $13.5 million. The decline was from the Newspapers and Digital Segment as Book Publishing EBITDA was up $3.3 million in the quarter.

- Torstar recorded a $25.9 million ($0.23 per share after tax) restructuring charge in the quarter.

- Torstar reported a net loss of $21.4 million or $0.27 per share compared with a net loss of $3.0 million or $0.04 per share in the first quarter of 2008.

- Net debt was $619.0 million at March 31, 2009, down $8.3 million from $627.3 million at December 31, 2008.

"The first quarter was a tale of two solitudes: Harlequin delivered an excellent quarter of growth while our newspaper businesses confronted lower advertising revenues as a result of the recession," said Robert Prichard, President and CEO of Torstar Corporation. "Harlequin has made a strong start and is on course for another solid year. Despite the global recession, Harlequin's overall performance remains strong with digital revenue growth offsetting some print declines in Japan and the U.K. Revenue in the newspapers and digital segment was down 11 percent as the recession has hurt numerous advertising categories led by employment, real estate and automotive. While aggressive cost management across our newspaper businesses mitigated the impact of the revenue reduction, it has been insufficient to prevent a sharp drop in profitability. The newspapers also faced higher pension costs and newsprint pricing in the quarter which accentuated the reduction in profitability."

"Looking forward, we are cautiously optimistic the worst is behind us. The combination of the expected gradual economic recovery, the full cost savings impact of our aggressive restructuring efforts and softening newsprint pricing should see the percentage declines in the newspaper division lessen as the year unfolds."

"David Holland assumes the leadership of Torstar today as we complete our planned transition. He takes the helm with the full support of the Board and senior management team and my very best wishes."


The following chart provides a continuity of earnings per share from 2008 to 2009:



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Net loss per share 2008 ($0.04)
Changes
- Operations (0.07)
- Restructuring and other charges (0.05)
- Loss from associated businesses (0.07)
- Non-cash foreign exchange (0.04)
- One-time tax expense adjustment (2008) (0.02)
- Discontinued operations 0.02
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Net loss per share 2009 ($0.27)
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OPERATING RESULTS - First quarter 2009

Overall Performance

Total revenue was $339.0 million in the first quarter of 2009, down $12.3 million from $351.3 million in the first quarter of 2008. Newspapers and Digital revenue was $214.5 million in the quarter, down $27.1 million from $241.6 million in 2008 with lower advertising revenue in most categories particularly those that are more subject to the impact of the economy such as employment and real estate advertising. Book Publishing revenue was $124.5 million in the first quarter of 2009, up $14.8 million from $109.7 million in the first quarter of 2008 including an $11.5 million increase from the weaker Canadian dollar relative to a year ago. North America Retail and Overseas revenues were up in the quarter, more than offsetting declines in North America Direct-To-Consumer.

Operating profit before restructuring and other charges was $11.6 million in the first quarter of 2009, down $13.5 million from $25.1 million in the first quarter of 2008. Including the $25.9 million of restructuring and other charges, an operating loss of $14.3 million was incurred in the first quarter of 2009, down $18.6 million from an operating profit of $4.3 million in 2008 (which included $20.8 million of restructuring and other charges). Newspapers and Digital Segment operating loss was $4.8 million in the first quarter of 2009, down $17.2 million from an operating profit of $12.4 million in the same quarter last year. The segment realized labour cost savings from restructurings undertaken in 2008 that more than offset higher newsprint prices and higher pension costs in the quarter. However, the cost savings were not sufficient to offset the revenue declines. Book Publishing operating profit was $20.6 million in the first quarter of 2009, up $3.3 million from $17.3 million in the first quarter of 2008, including $1.1 million from the impact of foreign exchange. Underlying results were up in the Overseas division, down slightly in North America Retail and flat in North America Direct-To-Consumer. Corporate costs were $4.2 million in the first quarter, down $0.4 million from $4.6 million in the same period last year.

EBITDA(1), excluding restructuring and other charges, was $24.8 million in 2009, down $13.5 million from $38.3 million in 2008.



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2009 2008(2)
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Newspapers and Digital $7,157 $24,403
Book Publishing 21,788 18,481
Corporate (4,137) (4,538)
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EBITDA, excluding restructuring and other charges $24,808 $38,346
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Restructuring and other charges

Restructuring and other charges of $25.9 million were recorded in the first quarter of 2009 compared with $20.8 million in the first quarter of 2008. The 2009 amount included $12.8 million related to the transition in leadership at Torstar Corporate, $11.7 million for restructuring provisions in the Newspapers and Digital Segment and $1.4 million related to the closure of a distribution centre in Harlequin's U.K. operation. In 2008, the restructuring charges were all related to the Newspapers and Digital Segment.

The restructuring charges in the Newspapers and Digital segment reflect the ongoing focus on reducing operating costs in both Metroland Media Group and Star Media Group in response to the revenue declines being realized. Total annual savings from the 2009 restructuring activities are expected to be approximately $16.2 million (with approximately $11.6 million realized during 2009) and a reduction of approximately 260 positions. In addition, further savings of $21.7 million are expected in 2009, including $6.9 million realized in the first quarter, related to restructuring efforts that were undertaken in 2008.

Late in the first quarter, Harlequin announced the decision to close its direct-to-consumer distribution centre in the U.K. and to outsource that function. This will result in annual savings of $0.6 million and a reduction of approximately 16 positions. Approximately one-half of these savings will be realized in the second half of 2009.

Interest

Interest expense was $5.6 million in the first quarter of 2009, down $2.2 million from $7.8 million in the first quarter of 2008. The lower expense reflects lower effective interest rates. The average net debt (long-term debt and bank overdraft net of cash and cash equivalents) was $623.1 million in the first quarter of 2009, down $6.7 million from $629.8 million in the same period last year. Torstar's effective interest rate was 3.6% in the first quarter of 2009 and 5.0% in the first quarter of 2008. Net debt was $619.0 million at March 31, 2009, down $8.3 million from $627.3 million at December 31, 2008.

Foreign Exchange

Torstar reported a non-cash foreign exchange loss of $0.3 million in the first quarter of 2009. This loss arose from the translation of foreign-currency (primarily U.S. dollars) denominated assets and liabilities into Canadian dollars. The amount of the gain or loss in any year 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. In the first quarter of 2008, a non-cash foreign exchange gain of $0.4 million was reported.

Loss from associated businesses

The loss from associated businesses was $7.0 million in the first quarter of 2009 compared with a loss of $1.2 million in the first quarter of 2008.

Torstar's share of CTVgm's net loss was $6.9 million in the first quarter of 2009 compared with a loss of $0.5 million in the first quarter of 2008. Advertising revenues were down for conventional television and radio as the current economic downturn resulted in soft market demand. Operating expenses were higher in the quarter as programming and production expenses increased, including costs related to the 2010 Olympics. During the quarter, CTVgm announced restructuring activities and the decision to not renew several of its "A" conventional television licenses. As a result of these decisions net income was reduced by restructuring provisions and the write-down of the carrying value of the television licenses. Partially offsetting these expenses was lower interest expense and a gain on the sale of one-half of CTVgm's interest in Maple Leaf Sports and Entertainment Ltd.

Torstar did not record its share of Black Press's net loss in the first quarter of 2009 as to do so would have resulted in a negative carrying value for the investment. Torstar's carrying value in Black Press was reduced to nil in the fourth quarter of 2008 as a result of estimated impairment losses related to Black Press's U.S. newspaper operations. Black Press is in the process of finalizing the amount of the impairment losses. In the first quarter of 2008, Torstar's share of Black Press's net loss was $0.9 million reflecting a traditionally weaker quarter and non-cash losses recorded on marking financial derivatives to market.

Income and other taxes

Torstar's effective tax recovery rate was 21.0% in the first quarter of 2009. During the first quarter of 2008 Torstar's effective tax recovery rate was 43.5% excluding a one-time adjustment of $1.3 million for a recovery of prior period taxes. The lower effective tax recovery rate in 2009 reflects the mix of income in the quarter compared to the prior year including losses that were not tax affected.

Loss from continuing operations

Torstar reported a loss from continuing operations of $21.4 million in the first quarter of 2009 compared with a loss of $1.2 million in the same period last year.

Discontinued operations

Transit TV ceased operations in early 2009 and the two Transit TV subsidiaries filed a voluntary petition for relief under Chapter 7 of the United States Bankruptcy Code. Accordingly, the Transit TV results for 2008 have been restated to be shown as discontinued operations.

Net loss

Torstar reported a net loss of $21.4 million or $0.27 per share in the first quarter of 2009. In the first quarter of 2008 Torstar reported a net loss of $3.0 million or $0.04 per share. The average number of Class A and Class B non-voting shares outstanding was 78.9 million in the first quarter of 2009 up slightly from 78.7 million in the first quarter of 2008.

OUTLOOK

After a challenging first quarter for the Newspapers and Digital segment and the continued weakness in the Ontario economy, Torstar expects that advertising revenue will continue to be soft through the balance of the year. The segment is also facing higher pension costs. In contrast, the year over year impact of newsprint pricing is expected to moderate in the last three quarters of 2009. In response to these challenges, the Newspapers and Digital segment has continued with the restructuring efforts begun last year to reduce costs. $7.3 million of these cost savings were realized in the first quarter and $26.0 million are expected to be realized over the next three quarters.

Harlequin had a strong first quarter and is expected to have full-year growth but not at the rate realized in the first quarter. The first quarter included the benefit of the SoftBank digital sales in Japan which began in the second quarter of 2008 and therefore will have a lower year over year benefit during the next three quarters. Harlequin's revenues, to date, have not been significantly affected by the global, and in particular, the U.S. economic situation. This could change either as a result of decreased consumer spending or from disruptions to the U.S. retail distribution system. Harlequin's 2009 results will benefit from the weaker Canadian dollar relative to the U.S. dollar. In 2008, including the impact of the U.S. dollar contracts, Harlequin's U.S. dollar earnings were translated at a rate of approximately $1.07. For 2009, Torstar has U.S. dollar contracts for $50.1 million U.S. at an average exchange rate of $1.12. The balance of Harlequin's U.S. earnings in 2009 will be translated at the average exchange rates realized during the year.

OTHER

On May 5, 2009, Torstar declared a quarterly dividend of 9.25 cents per share on its Class A shares and Class B non-voting shares, payable on June 30, 2009, to shareholders of record at the close of business on June 12, 2009. 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, 2009. Both documents 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 May 6, 2009 at 8:15 a.m. to discuss its first quarter results. The dial-in number is 1-800-771-6781. 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 2148987. An online archive of the broadcast will be available shortly after the completion of the call and will be accessible by visiting the Investor Relations (Conference Calls) page on Torstar's website www.torstar.com.

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, Wheels.ca, Workopolis, Olive Media, and eyeReturn; 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 Torstar or by a 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 consolidated, segment or reporting unit operating profit before charges for interest, taxes, depreciation and amortization of intangible assets. Torstar also excludes restructuring and other charges from its calculation of EBITDA. 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 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, except as may be required by law.

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, labour disruptions, newsprint costs, foreign exchange fluctuations, investments, restrictions imposed by existing credit facilities and availability of capital, pension fund obligations, reliance on its printing operations, reliance on technology and information systems, interest rates, availability of insurance, litigation, environmental regulations, dependence on key personnel, control of Torstar by the voting trust, loss of reputation, intellectual property rights 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 2008 Management's Discussion & Analysis which is 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.

(1) EBITDA is calculated as operating profit before interest, taxes, depreciation and amortization of intangible assets. It also excludes restructuring and other charges. See "non-GAAP measures".

(2) The Newspapers and Digital 2008 EBITDA has been restated to reflect Transit TV as a discontinued operation and the Book Publishing 2008 EBITDA has been restated for the retrospective adoption of CICA Handbook Section 3064.



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Torstar Corporation
Consolidated Balance Sheets
(Dollars in Thousands)
(Unaudited)

March 31 December 31
2009 2008
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Assets
Current:
Cash and cash equivalents $29,624 $45,787
Receivables 220,772 273,658
Inventories 40,962 41,075
Prepaid expenses 65,267 59,814
Prepaid and recoverable income taxes 30,595 13,719
Future income tax assets 23,594 25,716
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Total current assets 410,814 459,769
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Property, plant and equipment 290,374 298,475
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Investment in associated businesses 194,142 201,571
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Intangible assets 34,129 34,667
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Goodwill (net) 577,101 577,116
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Other assets 153,266 156,543
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Future income tax assets 47,175 50,592
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Total assets $1,707,001 $1,778,733
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Liabilities and Shareholders' Equity
Current:
Bank overdraft $2,917 $4,425
Accounts payable and accrued liabilities 218,826 238,600
Income taxes payable 15,877 10,057
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Total current liabilities 237,620 253,082
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Long-term debt 645,665 668,700
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Other liabilities 118,489 119,827
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Future income tax liabilities 70,080 72,090
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Shareholders' equity:
Share capital 391,013 390,978
Contributed surplus 11,368 11,018
Retained earnings 260,252 288,934
Accumulated other comprehensive loss (27,486) (25,896)
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Total shareholders' equity 635,147 665,034
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Total liabilities and shareholders' equity $1,707,001 $1,778,733
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Torstar Corporation
Consolidated Statements of Income
(Dollars in Thousands)
(Unaudited)

Three months ended March 31
2009 2008
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Operating revenue
Newspapers and digital $214,529 $241,561
Book publishing 124,478 109,719
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$339,007 $351,280
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Operating profit (loss)
Newspapers and digital ($4,836) $12,420
Book publishing 20,617 17,261
Corporate (4,153) (4,555)
Restructuring and other charges (25,900) (20,817)
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(14,272) 4,309
Interest (5,558) (7,810)
Foreign exchange (250) 370
Loss of associated businesses (7,005) (1,237)
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Loss before taxes (27,085) (4,368)
Income and other taxes 5,700 3,200
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Loss from continuing operations (21,385) (1,168)
Discontinued operations (1,849)
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Net loss ($21,385) ($3,017)
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Loss per Class A and Class B share:
Loss from continuing operations -
Basic and Diluted ($0.27) ($0.02)
Net loss - Basic and Diluted ($0.27) ($0.04)
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Contact Information

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