Torstar Corporation
TSX : TS.B

Torstar Corporation

July 29, 2009 06:30 ET

Torstar Corporation Reports Second Quarter Results

TORONTO, ONTARIO--(Marketwire - July 29, 2009) - Torstar Corporation (TSX:TS.B) today reported financial results for the second quarter and six months ended June 30, 2009.

Highlights for the quarter:

- Revenue of $373.7 million was down $25.1 million or 6.3% from $398.8 million including the year over year $19.2 million from the positive impact of foreign exchange.

- EBITDA (operating profit before charges for interest, taxes, depreciation and amortization of intangible assets, and restructuring and other charges -- see "non-GAAP measures") was down $9.6 million in the quarter from $64.2 million to $54.6 million.

- During the second quarter Torstar's loss from associated businesses included a charge of $29.9 million ($0.38 per share) related to a valuation allowance that was provided against certain of CTVgm's future income tax assets.

- Excluding the impact of the valuation allowance, Torstar would have reported net income of $25.5 million or $0.32 per share compared with $36.2 million or $0.46 per share in the same period last year. Including the valuation allowance, Torstar reported a net loss of $4.4 million or $0.06 per share in the second quarter.

- Net debt was $623.6 million at June 30, 2009 down $3.7 million from $627.3 million at December 31, 2008.

"Results continue to be mixed with the decline in Newspapers and Digital more than offsetting the growth at Harlequin and lower corporate costs," said David Holland, Interim President and Chief Executive Officer of Torstar Corporation. "The challenging economic environment is taking its toll on revenue in the Newspapers and Digital division particularly in those categories vulnerable to a downturn in economic activity such as employment and real estate. However, on the cost side, the restructuring efforts undertaken to date are making a difference, mitigating, in part, the impact of the revenue decline we are currently experiencing. The Harlequin business continues to perform well despite economic conditions."

"Looking forward, given the uncertain economic outlook, we continue to anticipate that Newspapers and Digital revenues will be soft for the balance of 2009. The benefits of the restructuring activities and a more benign newsprint pricing environment will offset, in part, the impact of the anticipated revenue challenge. At Harlequin, we anticipate reporting growth for the year including the favourable impact of foreign exchange."

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



-----------------------------------------------------------------------
Second Quarter Year to Date
-----------------------------------------------------------------------
Net income (loss) per share 2008 $0.46 $0.42
Changes
- Operations (0.09) (0.16)
- Restructuring and other charges 0.01 (0.04)
- Loss from associated businesses (0.41) (0.48)
- Non-cash foreign exchange 0.02 (0.02)
- Gain on sale of land (2008) (0.10) (0.10)
- Investment write-down (2008) 0.03 0.03
- One-time tax expense adjustment (2008) 0.00 (0.02)
- Discontinued operations 0.02 0.04
-----------------------------------------------------------------------
Net income (loss) per share 2009 ($0.06) ($0.33)
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OPERATING RESULTS -- Second quarter and year to date 2009

Overall Performance

Total revenue was $373.7 million in the second quarter of 2009, down $25.1 million or 6.3% from $398.8 million in the second quarter of 2008. Newspapers and Digital revenue was $249.6 million in the quarter, down $30.4 million or 10.9% from $280.0 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. Book Publishing revenue was $124.1 million in the second quarter of 2009, up $5.2 million or 4.4% from $118.9 million in the second quarter of 2008 as a $7.7 million increase from the weaker Canadian dollar relative to a year ago more than offset a $2.5 million decline in underlying revenues. North America Retail and North America Direct-To-Consumer revenues were both down in the quarter, more than offsetting increases in Overseas.

Year to date total revenue was $712.7 million, down $37.4 million or 5.0% from $750.1 million in the first six months of 2008. Newspapers and Digital revenue was $464.2 million year to date, down $57.3 million or 11% from $521.5 million in the same period last year. Book Publishing revenue was $248.6 million year to date, up $20.0 million or 8.7% from $228.6 million in the same period last year including a $19.2 million increase from the weaker Canadian dollar.

Operating profit before restructuring and other charges was $41.5 million in the second quarter of 2009, down $9.0 million from $50.5 million in the second quarter of 2008. Including the $3.8 million of restructuring and other charges, an operating profit of $37.7 million was reported in the second quarter of 2009, down $8.4 million from an operating profit of $46.1 million in 2008 (which included $4.4 million of restructuring and other charges). Year to date, operating profit before restructuring and other charges was $53.1 million, down $22.5 million from $75.6 million in the first six months of 2008. Including the $29.7 million of restructuring and other charges, an operating profit of $23.4 million was reported year to date, down $27.0 million from an operating profit of $50.4 million in the same period last year (which included $25.2 million of restructuring and other charges).

Newspapers and Digital Segment operating profit was $25.2 million in the second quarter of 2009, down $12.2 million from an operating profit of $37.4 million in the second quarter last year. Year to date, Newspapers and Digital Segment operating profit was $20.3 million, down $29.5 million from $49.8 million in the same period last year. Labour cost savings from restructuring initiatives, reduced newsprint consumption and general cost containment efforts helped to offset the lower revenue and higher pension costs in the second quarter and year to date.

Book Publishing operating profit was $19.7 million in the second quarter of 2009, up $2.4 million from $17.3 million in the second quarter of 2008, including $2.0 million from the impact of foreign exchange. Year to date, Book Publishing operating profit was $40.3 million, up $5.8 million from $34.5 million in the first six months of 2008, including $3.1 million from the impact of foreign exchange. Underlying results were up in the Overseas and North America Direct-To-Consumer divisions and down in North America Retail for both the second quarter and year to date.

Corporate costs were $3.3 million in the second quarter, down $0.9 million from $4.2 million in the second quarter last year. Year to date, corporate costs were $7.5 million, down $1.2 million from $8.7 million in the first six months of 2008. The lower costs in the second quarter primarily reflected lower compensation expense.

EBITDA (see "Non-GAAP measures"), excluding restructuring and other charges, was $54.6 million in the second quarter of 2009, down $9.6 million from $64.2 million in 2008. Year to date, EBITDA was $79.4 million, down $23.1 million from $102.5 million in 2008.



--------------------------------------------------------------------
Second Quarter Year to Date
--------------------------------------------------------------------
(in $000's) 2009 2008 2009 2008
--------------------------------------------------------------------
Newspapers and Digital $37,083 $49,819 $44,240 $74,222
Book Publishing 20,774 18,519 42,562 37,000
Corporate (3,292) (4,159) (7,429) (8,697)
--------------------------------------------------------------------
EBITDA, excluding
restructuring and other
charges $54,565 $64,179 $79,373 $102,525
--------------------------------------------------------------------


Restructuring and other charges

Restructuring and other charges of $3.8 million were recorded in the second quarter of 2009 compared with $4.4 million in the second quarter of 2008. In both years, the amount related to restructuring provisions in the Newspapers and Digital Segment. Year to date, restructuring and other charges were $29.7 million in 2009 and $25.2 million in 2008. The 2009 year to date amount included $12.8 million related to the transition in leadership at Torstar Corporate, $15.5 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 the first six months of 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 second quarter 2009 restructuring activities are expected to be approximately $3.0 million (with approximately $0.7 million realized during 2009) and a reduction of approximately 58 positions. In addition, savings of $16.2 million are expected in the second half of 2009 related to restructuring efforts that were undertaken in 2008 and the first quarter of 2009.

Late in the first quarter of 2009, 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 $5.3 million in the second quarter of 2009, down $1.8 million from $7.1 million in the second quarter of 2008. The lower expense reflects lower effective interest rates and lower debt levels. The average net debt (long-term debt and bank overdraft net of cash and cash equivalents) was $621.3 million in the second quarter of 2009, down $16.6 million from $637.9 million in the same period last year. Torstar's effective interest rate was 3.4% in the second quarter of 2009 and 4.4% in the second quarter of 2008.

Year to date, interest expense was $10.8 million, down $4.1 million from $14.9 million in the same period last year. The lower expense reflects lower effective interest rates and slightly lower debt levels. Year to date, the average net debt (long-term debt and bank overdraft net of cash and cash equivalents) was $623.3 million, down $8.7 million from $632.0 million in the same period last year. Year to date Torstar's effective interest rate was 3.5% compared with 4.6% in the first six months of 2008.

Net debt was $623.6 million at June 30, 2009, down $3.7 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 six months 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 2008, a non-cash foreign exchange gain of $0.2 million and $0.6 million were reported in the second quarter and year to date respectively.

Loss from associated businesses

The loss from associated businesses was $27.7 million in the second quarter of 2009 compared with income of $4.9 million in the second quarter of 2008. Year to date, the loss from associated businesses was $34.7 million compared with income of $3.7 million in the same period last year.

Torstar's share of CTVgm's net loss was $27.6 million in the second quarter of 2009 Included in this second quarter loss was a $29.9 million valuation allowance that was provided against certain of CTVgm's future income tax assets. Excluding the impact of the valuation allowance, Torstar's share of CTVgm's income was $2.3 million in the second quarter compared with $6.9 million in the second quarter of 2008. The lower net income in the second quarter of 2009 reflected lower advertising revenues in television, radio and print as the economy continued to be weak. Higher amortization and interest costs in the current year were offset by a one time unfavourable adjustment made in the second quarter of 2008 related to Part II licence fees.

Year to date, Torstar's share of CTVgm's net loss was $34.5 million. Excluding the impact of the $29.9 million second quarter valuation allowance, Torstar's share of CTVgm's net loss was $4.6 million compared with net income of $6.4 million in the first six months of 2008. The year to date decline in earnings reflects lower revenues combined with higher programming and production expenses, CTVgm announced restructuring activities and the decision to not renew several of its "A" conventional television licences. As a result of these decisions net income was reduced by restructuring provisions and the write-down of the carrying value of the television licences. Partially offsetting these expenses was lower interest expense and a first quarter 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 six months 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 finalized the amount of the impairment losses during the second quarter which were consistent with the estimate used by Torstar. In the second quarter of 2008, Torstar's share of Black Press's net loss was $2.0 million reflecting a traditionally weaker quarter and non-cash losses recorded on marking financial derivatives to market. Year to date in 2008, Torstar's share of Black Press's net loss was $2.9 million.

Gain on sale of land

In the second quarter of 2008, Torstar recognized a gain of $9.2 million on the disposition of excess land.

Investment write-down

In the second quarter of 2008, Torstar recorded a write-down of $2.4 million on its portfolio investment in U.S. based LiveDeal Inc. to fair value.

Income and other taxes

Torstar recorded a second quarter tax provision of $9.1 million on income before taxes of $4.7 million. Torstar's effective tax rate was 28.1% in the second quarter of 2009, excluding the impact of the $27.7 million loss from associated businesses which was not tax affected. During the second quarter of 2008 Torstar's effective tax rate was 26.3%.

Year to date, Torstar recorded a tax provision of $3.4 million on a loss before taxes of $22.3 million. Torstar's effective tax rate was 27.5% year to date, excluding the impact of the $34.7 million loss from associated businesses which was not tax affected. During the first six months of 2008, Torstar's effective tax rate was 24.7% excluding a one-time adjustment of $1.3 million for a recovery of prior period taxes.

The effective tax rates in both periods in 2009 were slightly higher than in the prior year due to the mix of income year over year including items in 2008 that were tax affected at a capital gains rate.

Loss from continuing operations

Torstar reported a loss from continuing operations of $4.4 million in the second quarter of 2009 compared with income of $37.5 million in the second quarter of 2008. Year to date, Torstar reported a loss from continuing operations of $25.7 million compared with income of $36.4 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 $4.4 million or $0.06 per share in the second quarter of 2009. In the second quarter of 2008 Torstar reported net income of $36.2 million or $0.46 per share. Year to date, Torstar reported a net loss of $25.7 million or $0.33 per share. In the first six months of 2008 Torstar reported net income of $33.2 million or $0.42 per share.

Outstanding shares

The average number of Class A and Class B non-voting shares outstanding was 79.0 million in the second quarter of 2009 and 78.9 million year to date. In 2008, 78.8 million were outstanding in both the second quarter and first six months.

OUTLOOK

The continued weakness in the Ontario economy has resulted in revenue challenges for the Newspapers and Digital segment during the first six months of 2009. Torstar expects that advertising revenue will continue to be soft through the balance of the year. The segment will continue to face higher pension costs. In contrast, if newsprint pricing stays at current levels, the second half of 2009 will benefit from year over year savings. In response to these challenges, the Newspapers and Digital segment has continued with the restructuring efforts to reduce costs. The restructuring initiatives have resulted in savings of $17.1 million in the first six months of 2009 and are expected to generate savings of $16.9 million in the second half of the year.

Harlequin had a solid first six months and is expected to have full-year growth but not at the rate realized in the first half. The first six months 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 two quarters. Harlequin continues to face risk from the global and, in particular, the U.S. economic situation including disruptions to the U.S. retail distribution system and potential further reductions in consumer spending. Harlequin's 2009 results will benefit from a year over year 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

The Torstar Board of Directors has confirmed that at this time there is no search underway for a Chief Executive Officer and that the timing of a decision regarding a search will be made prior to the end of the year.

On July 28, 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 September 30, 2009, to shareholders of record at the close of business on September 11, 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 June 30, 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 July 29, 2009 at 8:15 a.m. to discuss its second quarter results. The dial-in number is 1-800-924-3217. 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 21428962. 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's operations 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.



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

June 30 December 31
2009 2008
------------------------------------------------------------------------
Assets
Current:
Cash and cash equivalents $35,465 $45,787
Receivables 237,678 273,658
Inventories 38,271 41,075
Prepaid expenses 59,428 59,814
Prepaid and recoverable income taxes 24,394 13,719
Future income tax assets 20,293 25,716
------------------------------------------------------------------------
Total current assets 415,529 459,769
------------------------------------------------------------------------

Property, plant and equipment (net) 280,963 298,475
------------------------------------------------------------------------
Investment in associated businesses 163,516 201,571
------------------------------------------------------------------------
Intangible assets 35,748 34,667
------------------------------------------------------------------------
Goodwill 579,300 577,116
------------------------------------------------------------------------
Other assets 148,701 156,543
------------------------------------------------------------------------
Future income tax assets 41,228 50,592
------------------------------------------------------------------------
Total assets $1,664,985 $1,778,733
------------------------------------------------------------------------
------------------------------------------------------------------------

Liabilities and Shareholders' Equity
Current:
Bank overdraft $9,139 $4,425
Accounts payable and accrued liabilities 183,790 238,600
Income taxes payable 17,737 10,057
------------------------------------------------------------------------
Total current liabilities 210,666 253,082
------------------------------------------------------------------------

Long-term debt 649,923 668,700
------------------------------------------------------------------------
Other liabilities 105,234 119,827
------------------------------------------------------------------------
Future income tax liabilities 68,969 72,090
------------------------------------------------------------------------

Shareholders' equity:
Share capital 391,544 390,978
Contributed surplus 11,525 11,018
Retained earnings 248,584 288,934
Accumulated other comprehensive loss (21,460) (25,896)
------------------------------------------------------------------------
Total shareholders' equity 630,193 665,034
------------------------------------------------------------------------

Total liabilities and shareholders' equity $1,664,985 $1,778,733
------------------------------------------------------------------------
------------------------------------------------------------------------


--------------------------------------------------------------------------
Torstar Corporation
Consolidated Statements of Income
(Dollars in Thousands)
(Unaudited)

Three months ended June 30 Six months ended June 30
2009 2008 2009 2008
--------------------------------------------------------------------------
Operating revenue
Newspapers and
digital $249,634 $279,955 $464,163 $521,516
Book publishing 124,099 118,868 248,577 228,587
--------------------------------------------------------------------------
$373,733 $398,823 $712,740 $750,103
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Operating profit
Newspapers and
digital $25,162 $37,421 $20,326 $49,841
Book publishing 19,664 17,274 40,281 34,535
Corporate (3,308) (4,175) (7,461) (8,730)
Restructuring and
other charges (3,805) (4,408) (29,705) (25,225)
--------------------------------------------------------------------------
37,713 46,112 23,441 50,421
Interest (5,256) (7,069) (10,814) (14,879)
Foreign exchange (11) 190 (261) 560
Income (loss) of
associated
businesses (27,708) 4,934 (34,713) 3,697
Gain on sale of land 9,200 9,200
Investment write-down (2,419) (2,419)
--------------------------------------------------------------------------
Income (loss) before
taxes 4,738 50,948 (22,347) 46,580
Income and other
taxes (9,100) (13,400) (3,400) (10,200)
--------------------------------------------------------------------------
Income (loss) from
continuing operations (4,362) 37,548 (25,747) 36,380
Discontinued
operations (1,370) (3,219)
--------------------------------------------------------------------------
Net (loss) income ($4,362) $36,178 ($25,747) $33,161
--------------------------------------------------------------------------
--------------------------------------------------------------------------

Earnings (loss) per
Class A and Class B
share:
Net income (loss)
from continuing
operations - Basic
and Diluted ($0.06) $0.48 ($0.33) $0.46
Net income (loss) -
Basic and Diluted ($0.06) $0.46 ($0.33) $0.42
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Contact Information

  • Torstar Corporation
    D. Holland
    Interim President and Chief Executive Officer
    (416) 869-4776
    www.torstar.com