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Torstar Corporation Reports Third Quarter Results TORONTO, ONTARIO--(MARKET WIRE)--Oct 30, 2008 -- Torstar Corporation (Toronto:TS-B.TO - News) today reported financial
results for the third quarter and nine months ended September
30, 2008.
Highlights for the quarter (compared to the prior year): - Revenue of $372.1 million was up $2.9 million or 0.8% from $369.2 million including $1.2 million from the positive impact of foreign exchange. - EBITDA (operating profit before restructuring and other charges, interest, taxes, depreciation and amortization - see "Non-GAAP measures") was down $1.6 million in the quarter from $47.3 million to $45.7 million. - Torstar recorded a $3.4 million ($0.03 per share, after tax) restructuring charge and a $16.0 million ($0.20 per share) write-down to reduce the carrying value of Transit TV's assets. Torstar continues to operate Transit TV and to explore potential strategic opportunities. - Excluding the restructuring charge and write-down noted above, net income was $15.6 million ($0.20 per share) up $7.2 million ($0.09 per share) from $8.4 million ($0.11 per share) in 2007. Torstar reported a net loss of $2.7 million ($0.03 per share). - Net debt was $621.3 million at September 30, 2008, down $15.1 million from $636.4 million at June 30, 2008. "In the face of challenging economic conditions and trends, the third quarter operating results were down modestly", said Robert Prichard, Torstar's President and Chief Executive Officer. "Harlequin had a solid quarter and remains on course for a good year of growth. We also enjoyed strong revenue growth in our digital businesses which are performing well. Our principal challenges were in the daily and community newspapers where lower advertising revenues reduced profitability and employment advertising was particularly affected by the slowing Ontario economy. The newspapers also faced rising newsprint costs during the quarter." "The outlook remains challenging. The soft economy, higher newsprint costs and rising pension costs will negatively affect profitability. As a result we will remain very focused on strong cost management and will benefit in the fourth quarter and 2009 from restructuring efforts already undertaken. At the same time, we will aggressively grow our digital businesses, exploit growth opportunities in our community newspaper business and continue to build on Harlequin's success." The following chart provides a continuity of earnings per share from 2007 to 2008:
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Third Quarter Year to Date
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Net income per share 2007 $0.11 $0.69
Changes
- Operations 0.01 0.01
- Transit TV asset write-down (0.20) (0.20)
- Restructuring provisions (0.03) (0.25)
- Income from associated businesses 0.06 (0.02)
- Non-cash foreign exchange 0.02 0.08
- Unusual items 0.07
- One-time tax expense adjustments 0.01
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Net income per share 2008 ($0.03) $0.39
----------------------------------------------------------------------------OPERATING RESULTS - THIRD QUARTER AND YEAR TO DATE 2008 Overall Performance Total revenue was $372.1 million in the third quarter of 2008, up $2.9 million from $369.2 million in the third quarter of 2007. Newspapers and Digital revenue increased $0.5 million to $254.0 million with growth at Star Media Group's digital properties and jointly-owned newspapers and Metroland Media Group's distribution and Gold Book Directories offsetting the declines in advertising revenues at the newspapers. Book Publishing revenue was $118.1 million in the third quarter, up $2.4 million from $115.7 million in the same period last year. Higher revenues in North America Retail were offset by declines in North America Direct-To-Consumer and Overseas. Approximately one-half of the increase came from the favourable impact of foreign exchange rates in the quarter. Year to date total revenue was $1,123.3 million, down $20.3 million from $1,143.6 million in the same period last year. Newspapers and Digital revenue was $776.6 million year to date, down $10.9 million from $787.5 million last year. Book Publishing revenue was $346.7 million year to date, down $9.4 million from last year as a $13.0 million decline from the unfavourable impact of foreign exchange rates more than offset underlying growth of $3.6 million. Operating profit, before restructuring and other charges, was $31.7 million in the third quarter, down $1.8 million from $33.5 million in 2007. Including the $19.4 million of restructuring and other charges, operating profit was $12.3 million in the third quarter of 2008. Newspapers and Digital Segment operating profit was $20.6 million in the third quarter, down $1.3 million from $21.9 million in 2007. Book Publishing operating profit was $15.6 million in the third quarter of 2008, down $0.7 million from $16.3 million in 2007. The decrease was due to the unfavourable impact of foreign exchange rates as underlying results were flat. Corporate costs were $4.4 million in the third quarter of 2008, down $0.2 million from the third quarter of 2007. Year to date operating profit, before restructuring and other charges, was $104.4 million, down $8.2 million from $112.6 million in the same period last year. Including the $44.6 million restructuring and other charges, operating profit was $59.7 million year to date. Newspapers and Digital Segment operating profit was $67.2 million in the first nine months of 2008, down $11.6 million from $78.8 million last year. Year to date Book Publishing operating profit was $50.3 million in 2008, up $2.4 million from $47.9 million in 2007. Corporate costs were $13.1 million year to date in 2008 down $1.0 million from $14.1 million in 2007 from a combination of lower professional fees and executive compensation costs. In the third quarter of 2008, Torstar recorded $3.4 million ($0.03 per share, after tax) for restructuring provisions in the Star Media Group and $16.0 million ($0.20 per share) for a write-down to reduce the carrying value of Transit TV's assets. Year to date, restructuring provisions of $28.6 million ($0.25 per share, after tax) have been recorded related to voluntary and non-voluntary staff reductions in the newspapers as those businesses respond to their revenue challenges. The restructurings will result in a net reduction of 270 employees with expected annual savings of $18.0 million. Earnings before restructuring and other charges, interest, taxes, depreciation and amortization ("EBITDA" - see Non-GAAP measures), was $45.7 million in the third quarter of 2008, down $1.6 million from $47.3 million in 2007. Year to date, EBITDA was $146.8 million, down $7.7 million from $154.5 million in 2007.
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Third Quarter Year to Date
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(in $000's) 2008 2007 2008 2007
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Newspapers and Digital $33,293 $34,458 $105,844 $116,997
Book Publishing 16,795 17,477 53,993 51,522
Corporate (4,389) (4,586) (13,086) (14,068)
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EBITDA, excluding restructuring
provisions $45,699 $47,349 $146,751 $154,451
----------------------------------------------------------------------------Interest expense was $6.8 million in the third quarter of 2008, down $2.0 million from $8.8 million in the third quarter of 2007. Year to date interest expense was $21.7 million, down $4.4 million from $26.1 million last year. The decrease reflected lower average debt levels and slightly lower effective interest rates in 2008. The average net debt (long-term debt and bank overdraft net of cash and cash equivalents) was $628.9 million in the third quarter of 2008, down from $654.1 million in the third quarter of 2007. Torstar's effective interest rate was 4.3% in the third quarter and 4.6% year to date in 2008 down from 5.4% and 5.2% in the same periods in 2007. Net debt was $621.3 million at September 30, 2008, down $15.1 million from $636.4 million at June 30, 2008 and up $1.0 million from $620.3 million at December 31, 2007. Torstar reported a non-cash foreign exchange loss of $0.3 million in the third quarter of 2008 and a gain of $0.6 million year to date. Non-cash foreign exchange losses of $0.6 million and $2.4 million were reported in the third quarter and year to date in 2007 respectively. These gains/losses 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 $2.9 million in the third quarter of 2008 compared with a loss of $8.2 million in the third quarter of 2007. Year to date, income from associated businesses was $0.8 million in 2008 down $2.0 million from $2.8 million in 2007. Torstar reported a loss of $2.8 million from CTVgm in the third quarter of 2008, an improvement of $5.8 million from a loss of $8.6 million in the third quarter of 2007. Year to date Torstar's income from CTVgm was $3.5 million, up $3.4 million from $0.1 million in the same period last year. The improvement in the quarter and year to date related to unusual and one-time items. In the third quarter of 2008, CTVgm's results included gains on the sale of properties compared with a write-down of the investment in TQS in the third quarter of 2007. Year to date that positive difference was partially reduced by the second quarter provision of 2007 and 2008 Part II fees. For the quarter and year to date, CTVgm's operating results were down as softness in conventional television and higher amortization costs more than offset strength in specialty television advertising and reduced interest expense from lower debt levels. Torstar reported a loss from Black Press of $0.2 million in the third quarter of 2008 compared with income of $0.5 million in the third quarter of 2007. Year to date Torstar reported a loss from Black Press of $3.1 million in 2008 compared with income of $2.6 million in the same period last year. Results were down in the third quarter from a combination of lower U.S. revenues as the newspapers were negatively impacted by the U.S. economy, increased newsprint costs, higher amortization expense and higher effective tax rates. Year to date, results were also negatively impacted by the mark to market of its financial derivatives and a $2.1 million second quarter adjustment related to Black Press's future tax assets. Year to date Torstar has reported a net gain of $6.8 million from unusual items. In the second quarter, Torstar recognized a gain of $9.2 million on the disposition of excess land and a loss of $2.4 million on its portfolio investment in U.S. based LiveDeal Inc. On an after-tax basis the unusual items contributed $5.6 million of net income or $0.07 per share. Excluding the impact of the write-down related to the Transit TV capital assets, which was not tax-effected, Torstar's effective tax rate was 27.7% in the third quarter of 2008, compared with 47.4% in the third quarter of 2007. The lower effective tax rate in the third quarter of 2008 reflected the mix-of-income impact from items that were taxed at a capital gains rate and lower foreign losses that were not tax-effected. Year to date, Torstar's effective tax rate was 33.5% in 2008 compared with 37.6% in the same period last year. Year to date, the effective rate was impacted by these items as well as by one-time adjustments to tax expense recorded in the first quarter of both 2008 and 2007. The full year 2008 tax rate is expected to be approximately 30% excluding the impact of the Transit TV write-down and 35% including it. Torstar reported a net loss of $2.7 million, $0.03 per share, in the third quarter of 2008. Excluding the restructuring charge and the write-down related to Transit TV's assets, Torstar had net income of $15.6 million or $0.20 per share in the quarter. In the third quarter of 2007, Torstar had net income of $8.4 million or $0.11 per share. The improvement in the quarter is primarily from the lower losses from associated businesses. Year to date Torstar reported net income of $30.8 million, down $23.4 million from $54.2 million in the same period last year. Net income per share was $0.39 in the first nine months of 2008, down $0.30 from $0.69 in the same period last year. The average number of shares outstanding was 78.9 million in the third quarter and 78.8 million year to date 2008. In 2007, an average of 78.7 million shares was outstanding during the third quarter and 78.6 million during the first nine months. Transit TV At the end of the third quarter, Torstar recorded a write-down of $16.0 million to reduce the carrying value of Transit TV's assets. This write-down, which was included in "restructuring and other charges" on the consolidated statements of income, reduces Torstar's carrying value in Transit TV's net assets to approximately $1.1 million at September 30, 2008. Torstar continues to operate Transit TV and to explore potential strategic opportunities. OUTLOOK The economic outlook and higher newsprint pricing are expected to have a negative impact on the Newspapers and Digital Segment in the fourth quarter. The restructuring efforts of the newspapers during the first nine months of 2008 will result in a net reduction of 270 positions with savings expected to be $18.0 million annually. $4.5 million of the savings is expected to be realized in the fourth quarter of 2008 mitigating the impact of the challenges referred to above. Metroland Media Group has had a mixed year with modest growth in the second quarter but declines in the first and third. The newspaper advertising revenue declines in the third quarter reflected the weakening of the economy in Southern Ontario and we expect the economy to continue to have a negative impact during the fourth quarter. During the third quarter the Star Media Group showed growth as improved revenues and EBITDA in the digital businesses and other publications more than offset the declines at the Toronto Star. We expect the revenue challenges for the Toronto Star to continue into the fourth quarter, coupled with the cost challenge of higher newsprint pricing. We expect the digital properties to continue to grow revenue and EBITDA although they may face some of the same revenue challenges as the newspapers. Harlequin has had good results through the first nine months of 2008 with strong performance in North America Retail and digital manga sales in Japan. The fourth quarter should be in line with prior year resulting in good growth for the full-year. We remain concerned that the U.S. economy could have a negative impact on Harlequin's results, but to date there is no evidence of this. If the Canadian dollar remains at its current levels relative to the U.S. dollar and overseas currencies, we are anticipating a positive foreign exchange impact in the fourth quarter of approximately $2.0 million. The challenging economic conditions are likely to also have an impact on the results of our associated businesses. In addition, in comparing to the fourth quarter of 2007, Torstar's earnings from CTVgm in that quarter included a $5.2 million positive adjustment as future tax liabilities related to intangible assets were reduced to reflect the reduction in future Canadian income tax rates. Looking forward to 2009, we remain concerned about the economy and the impact it could have on our Newspapers and Digital results and our earnings from associated businesses. In addition, given year-to-date performance of global capital markets and current discount rates, we are currently anticipating higher pension expense in 2009 absent a market recovery before year end. OTHER On October 29, 2008, Torstar declared a quarterly dividend of 18.5 cents per share on its Class A voting shares and Class B non-voting shares, payable on December 31, 2008, to shareholders of record at the close of business on December 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 September 30, 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 October 30, 2008 at 8:15 a.m. to discuss its third quarter results. The dial-in number is 1-800-760-5361. 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 8 days by calling 1-800-558-5253 and entering reservation number 21396083. 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. 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 Canada Network, 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 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, effects of changes in market conditions on the financial position of pension plans and investments, 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.
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Torstar Corporation
Consolidated Balance Sheets
(Dollars in Thousands)
(Unaudited)
September 30 December 31
2008 2007
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Assets
Current:
Cash and cash equivalents $49,709 $34,096
Receivables 237,253 263,779
Inventories 32,836 31,807
Prepaid expenses 65,784 61,325
Prepaid and recoverable income taxes 7,430 3,097
Future income tax assets 20,001 19,010
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Total current assets 413,013 413,114
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Property, plant and equipment (net) 300,856 330,391
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Investment in associated businesses 434,794 434,294
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Goodwill (net) 575,068 562,120
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Other assets 194,765 182,948
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Future income tax assets 40,855 37,970
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Total assets $1,959,351 $1,960,837
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Liabilities and Shareholders' Equity
Current:
Bank overdraft $17,574 $3,616
Accounts payable and accrued liabilities 206,364 208,217
Income taxes payable 2,212 17,065
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Total current liabilities 226,150 228,898
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Long-term debt 653,470 650,798
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Other liabilities 96,130 89,678
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Future income tax liabilities 73,926 73,702
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Shareholders' equity:
Share capital 390,896 388,036
Contributed surplus 10,487 9,929
Retained earnings 522,303 535,242
Accumulated other comprehensive loss (14,011) (15,446)
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Total shareholders' equity 909,675 917,761
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Total liabilities and shareholders' equity $1,959,351 $1,960,837
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Torstar Corporation
Consolidated Statements of Income
(Dollars in Thousands)
(Unaudited)
Three months ended Nine months ended
September 30 September 30
2008 2007 2008 2007
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Operating revenue
Newspapers and digital $253,991 $253,533 $776,560 $787,496
Book publishing 118,124 115,667 346,711 356,111
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$372,115 $369,200 $1,123,271 $1,143,607
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Operating profit
Newspapers and digital $20,592 $21,851 $67,214 $78,814
Book publishing 15,563 16,253 50,296 47,878
Corporate (4,405) (4,601) (13,135) (14,111)
Restructuring and other charges (19,412) (44,637)
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12,338 33,503 59,738 112,581
Interest (6,774) (8,774) (21,653) (26,091)
Foreign exchange (282) (554) 624 (2,351)
Income (loss) of associated
businesses (2,901) (8,156) 796 2,770
Unusual items (9) 6,772
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Income before taxes 2,372 16,019 46,277 86,909
Income and other taxes (5,100) (7,600) (15,500) (32,700)
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Net income (loss) ($2,728) $8,419 $30,777 $54,209
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Earnings (loss) per Class A
and Class B share:
Net income (loss) - Basic ($0.03) $0.11 $0.39 $0.69
Net income (loss) - Diluted ($0.03) $0.11 $0.39 $0.69
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INTERIM MANAGEMENT'S DISCUSSION AND ANALYSIS
For the three and nine months ended September 30, 2008 and 2007
Dated: October 29, 2008The following review and analysis of Torstar Corporation's (the "Company" or "Torstar") operations and financial position for the three and nine months ended September 30, 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, effects of changes in market conditions on the financial position of pension plans and investments, 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, Wheels.ca, Workopolis, Olive Canada Network and eyeReturn; 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 - Third quarter and year to date 2008 Overall Performance Total revenue was $372.1 million in the third quarter of 2008, up $2.9 million from $369.2 million in the third quarter of 2007. Newspapers and Digital revenue increased $0.5 million to $254.0 million with growth at Star Media Group's digital properties and jointly-owned newspapers and Metroland Media Group's distribution and Gold Book Directories offsetting the declines in advertising revenues at the newspapers. Book Publishing revenue was $118.1 million in the third quarter, up $2.4 million from $115.7 million in the same period last year. Higher revenues in North America Retail were offset by declines in North America Direct-To-Consumer and Overseas. Approximately one-half of the increase came from the favourable impact of foreign exchange rates in the quarter. Year to date total revenue was $1,123.3 million, down $20.3 million from $1,143.6 million in the same period last year. Newspapers and Digital revenue was $776.6 million year to date, down $10.9 million from $787.5 million last year. Book Publishing revenue was $346.7 million year to date, down $9.4 million from last year as a $13.0 million decline from the unfavourable impact of foreign exchange rates more than offset underlying growth of $3.6 million. Operating profit, before restructuring and other charges, was $31.7 million in the third quarter, down $1.8 million from $33.5 million in 2007. Including the $19.4 million of restructuring and other charges, operating profit was $12.3 million in the third quarter of 2008. Newspapers and Digital Segment operating profit was $20.6 million in the third quarter, down $1.3 million from $21.9 million in 2007. Book Publishing operating profit was $15.6 million in the third quarter of 2008, down $0.7 million from $16.3 million in 2007. The decrease was due to the unfavourable impact of foreign exchange rates as underlying results were flat. Corporate costs were $4.4 million in the third quarter of 2008, down $0.2 million from the third quarter of 2007. Year to date operating profit, before restructuring and other charges, was $104.4 million, down $8.2 million from $112.6 million in the same period last year. Including the $44.6 million restructuring and other charges, operating profit was $59.7 million year to date. Newspapers and Digital Segment operating profit was $67.2 million in the first nine months of 2008, down $11.6 million from $78.8 million last year. Year to date Book Publishing operating profit was $50.3 million in 2008, up $2.4 million from $47.9 million in 2007. Corporate costs were $13.1 million year to date in 2008 down $1.0 million from $14.1 million in 2007 from a combination of lower professional fees and executive compensation costs. In the third quarter of 2008, Torstar recorded $3.4 million ($0.03 per share, after tax) for restructuring provisions in the Star Media Group and $16.0 million ($0.20 per share) for a write-down to reduce the carrying value of Transit TV's assets. Year to date, restructuring provisions of $28.6 million ($0.25 per share, after tax) have been recorded related to voluntary and non-voluntary staff reductions in the newspapers as those businesses respond to their revenue challenges. The restructurings will result in a net reduction of 270 employees with expected annual savings of $18.0 million. Earnings before restructuring and other charges, interest, taxes, depreciation and amortization ("EBITDA" - see Non-GAAP measures), was $45.7 million in the third quarter of 2008, down $1.6 million from $47.3 million in 2007. Year to date, EBITDA was $146.8 million, down $7.7 million from $154.5 million in 2007.
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Third Quarter Year to Date
------------------------------------------
(in $000's) 2008 2007 2008 2007
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Newspapers and Digital $33,293 $34,458 $105,844 $116,997
Book Publishing 16,795 17,477 53,993 51,522
Corporate (4,389) (4,586) (13,086) (14,068)
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EBITDA, excluding restructuring
provisions $45,699 $47,349 $146,751 $154,451
----------------------------------------------------------------------------Interest expense was $6.8 million in the third quarter of 2008, down $2.0 million from $8.8 million in the third quarter of 2007. Year to date interest expense was $21.7 million, down $4.4 million from $26.1 million last year. The decrease reflected lower average debt levels and slightly lower effective interest rates in 2008. The average net debt (long-term debt and bank overdraft net of cash and cash equivalents) was $628.9 million in the third quarter of 2008, down from $654.1 million in the third quarter of 2007. Torstar's effective interest rate was 4.3% in the third quarter and 4.6% year to date in 2008 down from 5.4% and 5.2% in the same periods in 2007. Net debt was $621.3 million at September 30, 2008, down $15.1 million from $636.4 million at June 30, 2008 and up $1.0 million from $620.3 million at December 31, 2007. Torstar reported a non-cash foreign exchange loss of $0.3 million in the third quarter of 2008 and a gain of $0.6 million year to date. Non-cash foreign exchange losses of $0.6 million and $2.4 million were reported in the third quarter and year to date in 2007 respectively. These gains/losses 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 $2.9 million in the third quarter of 2008 compared with a loss of $8.2 million in the third quarter of 2007. Year to date, income from associated businesses was $0.8 million in 2008 down $2.0 million from $2.8 million in 2007. Torstar reported a loss of $2.8 million from CTVgm in the third quarter of 2008, an improvement of $5.8 million from a loss of $8.6 million in the third quarter of 2007. Year to date Torstar's income from CTVgm was $3.5 million, up $3.4 million from $0.1 million in the same period last year. The improvement in the quarter and year to date related to unusual and one-time items. In the third quarter of 2008, CTVgm's results included gains on the sale of properties compared with a write-down of the investment in TQS in the third quarter of 2007. Year to date that positive difference was partially reduced by the second quarter provision of 2007 and 2008 Part II fees. For the quarter and year to date, CTVgm's operating results were down as softness in conventional television and higher amortization costs more than offset strength in specialty television advertising and reduced interest expense from lower debt levels. Torstar reported a loss from Black Press of $0.2 million in the third quarter of 2008 compared with income of $0.5 million in the third quarter of 2007. Year to date Torstar reported a loss from Black Press of $3.1 million in 2008 compared with income of $2.6 million in the same period last year. Results were down in the third quarter from a combination of lower U.S. revenues as the newspapers were negatively impacted by the U.S. economy, increased newsprint costs, higher amortization expense and higher effective tax rates. Year to date, results were also negatively impacted by the mark to market of its financial derivatives and a $2.1 million second quarter adjustment related to Black Press's future tax assets. Year to date Torstar has reported a net gain of $6.8 million from unusual items. In the second quarter, Torstar recognized a gain of $9.2 million on the disposition of excess land and a loss of $2.4 million on its portfolio investment in U.S. based LiveDeal Inc. On an after-tax basis the unusual items contributed $5.6 million of net income or $0.07 per share. Excluding the impact of the write-down related to the Transit TV capital assets, which was not tax-effected, Torstar's effective tax rate was 27.7% in the third quarter of 2008, compared with 47.4% in the third quarter of 2007. The lower effective tax rate in the third quarter of 2008 reflected the mix-of-income impact from items that were taxed at a capital gains rate and lower foreign losses that were not tax-effected. Year to date, Torstar's effective tax rate was 33.5% in 2008 compared with 37.6% in the same period last year. Year to date, the effective rate was impacted by these items as well as by one-time adjustments to tax expense recorded in the first quarter of both 2008 and 2007. The full year 2008 tax rate is expected to be approximately 30% excluding the impact of the Transit TV write-down and 35% including it. Torstar reported a net loss of $2.7 million, $0.03 per share, in the third quarter of 2008. Excluding the restructuring charge and the write-down related to Transit TV's assets, Torstar had net income of $15.6 million or $0.20 per share in the quarter. In the third quarter of 2007, Torstar had net income of $8.4 million or $0.11 per share. The improvement in the quarter is primarily from the lower losses from associated businesses. Year to date Torstar reported net income of $30.8 million, down $23.4 million from $54.2 million in the same period last year. Net income per share was $0.39 in the first nine months of 2008, down $0.30 from $0.69 in the same period last year. The average number of shares outstanding was 78.9 million in the third quarter and 78.8 million year to date 2008. In 2007, an average of 78.7 million shares was outstanding during the third quarter and 78.6 million during the first nine months. The following chart provides a continuity of earnings per share from 2007 to 2008:
----------------------------------------------------------------------------
Third Quarter Year to Date
----------------------------------------------------------------------------
Net income per share 2007 $0.11 $0.69
Changes
- Operations 0.01 0.01
- Transit TV asset write-down (0.20) (0.20)
- Restructuring provisions (0.03) (0.25)
- Income from associated businesses 0.06 (0.02)
- Non-cash foreign exchange 0.02 0.08
- Unusual items 0.07
- One-time tax expense adjustments 0.01
----------------------------------------------------------------------------
Net income per share 2008 ($0.03) $0.39
----------------------------------------------------------------------------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; Wheels.ca, Yourhome.ca, Healthzone.ca, Parentcentral.ca and Torstar Media Group Television ("TMG TV"). Star Media Group also includes Workopolis, Olive Canada Network, eyeReturn 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 ten 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 September 30, 2008 and 2007.
----------------------------------------------------------------------------
Operating
Operating Revenue Profit (Loss) Profit Margin
2008 2007 2008 2007 2008 2007
----------------------------------------------------------------------------
Metroland Media $135,077 $136,042 $20,586 $23,369 15.2% 17.2%
Star Media 118,098 116,945 1,283 1,038 1.1% 0.9%
Transit TV 816 546 (1,277) (2,556) n/a n/a
----------------------------------------------------------------------------
Segment Total $253,991 $253,533 $20,592 $21,851 8.1% 8.6%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Depreciation and
Amortization EBITDA EBITDA Margin
2008 2007 2008 2007 2008 2007
----------------------------------------------------------------------------
Metroland Media $3,914 $3,836 $24,500 $27,205 18.1% 20.0%
Star Media 8,035 7,900 9,318 8,938 7.9% 7.6%
Transit TV 752 871 (525) (1,685) n/a n/a
----------------------------------------------------------------------------
Segment Total $12,701 $12,607 $33,293 $34,458 13.1% 13.6%
----------------------------------------------------------------------------The following tables set out, in $000's, the results for the reporting units within the Newspapers and Digital Segment for the nine months ended September 30, 2008 and 2007.
----------------------------------------------------------------------------
Operating
Operating Revenue Profit (Loss) Profit Margin
2008 2007 2008 2007 2008 2007
----------------------------------------------------------------------------
Metroland Media $415,036 $420,961 $68,723 $74,630 16.6% 17.7%
Star Media 359,655 364,747 2,987 12,235 0.8% 3.4%
Transit TV 1,869 1,788 (4,496) (8,051) n/a n/a
----------------------------------------------------------------------------
Segment Total $776,560 $787,496 $67,214 $78,814 8.7% 10.0%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Depreciation and
Amortization EBITDA EBITDA Margin
2008 2007 2008 2007 2008 2007
----------------------------------------------------------------------------
Metroland Media $11,730 $11,447 $80,453 $86,077 19.4% 20.4%
Star Media 24,600 23,984 27,587 36,219 7.7% 9.9%
Transit TV 2,300 2,752 (2,196) (5,299) n/a n/a
----------------------------------------------------------------------------
Segment Total $38,630 $38,183 $105,844 $116,997 13.6% 14.9%
----------------------------------------------------------------------------Total revenue of the Newspapers and Digital Segment was $254.0 million in the third quarter of 2008, up $0.5 million from $253.5 million in the third quarter of 2007. Year to date total revenue of the Newspapers and Digital Segment was $776.6 million down $10.9 million from $787.5 million in the same period last year. Digital revenues were 6.7% of the total in the third quarter of 2008 and 6.1% year to date, up from 5.2% and 4.5% in the same periods in 2007. Rising newsprint prices started to have a negative impact on the newspapers' operating results this quarter. Newsprint prices were approximately 18% higher in the third quarter and flat year to date. Metroland Media Group Revenues were $135.1 million in the third quarter of 2008, down $0.9 million from $136.0 million in the third quarter of 2007 with higher revenues from distributions and Gold Book Directories more than offset by lower advertising and printing revenues at the newspapers. National and classified advertising categories were both down in the quarter. The continued softening of the Ontario economy resulted in declines in employment advertising in the quarter. Year to date revenues were $415.0 million in 2008, down $6.0 million from $421.0 million in the same period last year. Metroland Media Group's EBITDA was $24.5 million in the third quarter, down $2.7 million from $27.2 million in the third quarter of 2007. Year to date EBITDA was $80.5 million in 2008, down $5.6 million from $86.1 million last year. Labour cost savings continued to be realized from the restructuring efforts undertaken in 2007 and the first half of 2008 but were more than offset by higher newsprint and distribution costs in the third quarter. Operating profit was $20.6 million in the third quarter of 2008, down $2.8 million from $23.4 million in the third quarter of 2007. Year to date operating profit was $68.7 million in 2008, down $5.9 million from $74.6 million in the same period last year. Star Media Group Star Media Group had revenues of $118.1 million in the third quarter of 2008, an increase of $1.2 million from $116.9 million in the third quarter of 2007. Year to date revenues were $359.7 million in 2008, down $5.0 million from $364.7 million in the same period last year. Revenue grew over 28% at the Star Media Group digital properties in the third quarter and year to date with strong performance at Olive Canada Network, thestar.com and eyeReturn (which was acquired in the second quarter of 2008). The jointly-owned Sing Tao and Metro newspapers provided revenue growth in the third quarter and year to date from a combination of new products and market expansion. Toronto Star advertising revenues were down 8.5% in the third quarter of 2008 and 10.5% year to date with continued weakness in the Retail and Classified categories. Within Classified, employment advertising was particularly soft during the third quarter. Star Media Group's EBITDA was $9.3 million in the third quarter of 2008, up $0.4 million from $8.9 million in the third quarter of 2007. Year to date EBITDA was $27.6 million in 2008, down $8.6 million from $36.2 million in the same period last year. Newsprint costs were higher in the third quarter for the Toronto Star as the impact of higher newsprint prices more than offset reduced newsprint consumption. Payroll costs were lower in the quarter from the restructuring efforts undertaken in 2007 and the first quarter of 2008, offset partially by higher pension and benefit costs. The Star Media Group digital properties and the jointly-owned newspapers had EBITDA growth in the quarter from their increased revenues. The Star Media Group had an operating profit of $1.3 million in the third quarter of 2008, up $0.3 million from $1.0 million in the third quarter of 2007. Year to date operating profit was $3.0 million in 2008, down $9.2 million from $12.2 million in the same period last year. Transit TV Transit TV had an EBITDA loss of $0.5 million in the third quarter of 2008, an improvement of $1.2 million from a loss of $1.7 million in the same period last year. Year to date the EBITDA loss was $2.2 million in 2008, an improvement of $3.1 million from a loss of $5.3 million in 2007. The improvement reflected the continued focus on cost containment by Transit TV's management. At the end of the third quarter, Torstar recorded a write-down of $16.0 million to reduce the carrying value of Transit TV's assets. The write-down included $4.6 million of foreign currency translation loss that had previously been included in accumulated other comprehensive loss. This write-down, which was included in "restructuring and other charges" on the consolidated statements of income, reduces Torstar's carrying value in Transit TV's net assets to approximately $1.1 million at September 30, 2008. Torstar continues to operate Transit TV and to explore potential strategic opportunities. 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 and nine months ended September 30, 2008 and 2007.
----------------------------------------------------------------------------
Third Quarter Year to Date
--------------------------------------------
2008 2007 2008 2007
----------------------------------------------------------------------------
Revenue $118,124 $115,667 $346,711 $356,111
EBITDA $16,795 $17,477 $53,993 $51,522
Depreciation & amortization 1,232 1,224 3,697 3,644
--------------------------------------------
Operating profit $15,563 $16,253 $50,296 $47,878
--------------------------------------------
EBITDA margin 14.2% 15.1% 15.6% 14.5%
Operating profit margin 13.2% 14.1% 14.5% 13.4%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Third Quarter Year to Date
----------------------------------------------------------------------------
Reported revenue, prior year $115,667 $356,111
Impact of currency movements and foreign
exchange contracts 1,209 (13,017)
Change in underlying revenue 1,248 3,617
----------------------------------------------------------------------------
Reported revenue, current year $118,124 $346,711
----------------------------------------------------------------------------
Reported operating profit, prior year $16,253 $47,878
Impact of currency movements and foreign
exchange contracts (668) (3,787)
Change in underlying operating profit (22) 6,205
----------------------------------------------------------------------------
Reported operating profit, current year $15,563 $50,296
----------------------------------------------------------------------------Book Publishing revenues were up $1.2 million in the third quarter of 2008 excluding the impact of foreign exchange. North America Retail was up $4.5 million, North America Direct-To-Consumer was down $2.2 million and Overseas was down $1.1 million. Year to date, Book Publishing revenues were up $3.6 million excluding the impact of foreign exchange. North America Retail was up $7.8 million, North America Direct-To-Consumer was down $4.8 million and Overseas was up $0.6 million. Book Publishing operating profits were flat in the third quarter of 2008 excluding the impact of foreign exchange. North America Retail was up $0.4 million, North America Direct-To-Consumer was down $0.7 million and Overseas was up $0.3 million. Year to date Book Publishing operating profits were up $6.2 million excluding the impact of foreign exchange. North America Retail was up $5.6 million, North America Direct-To-Consumer was down $0.1 million and Overseas was up $0.7 million. North America Retail operating profits were up $0.4 million in the third quarter with the continuation of the improved net sales rates and positive adjustments to returns provisions. The revenue growth in the quarter was offset by higher product costs and increased promotional spending. North America Direct-To-Consumer operating profits were down $0.7 million in the third quarter from lower revenues. Revenue continued to be down in the quarter and year to date as the revenue growth from Internet book and digital sales was not sufficient to offset the decrease from fewer books sold in the traditional direct mail business. Lower costs, primarily reduced advertising and promotion spending in the traditional direct mail business offset some of the lower revenues in both the quarter and year to date. Overseas operating profits were up $0.3 million in the third quarter of 2008 with the contribution from the sales of digital manga (comics) content to SoftBank Creative Corp., (a division of Softbank Corp., one of the largest providers of cell phone services in Japan) more than offsetting lower sales in other overseas markets. The lower sales are in part due to the direct-to-consumer businesses in certain overseas markets facing the same revenue challenges as the North America Direct-To-Consumer division. 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 third quarter of 2008, $44.5 million of cash was generated by operations, $9.5 million was used for investing activities and $35.4 million was used for financing activities. Year to date, $85.2 million of cash was generated by operations, $34.9 million was used for investing activities and $49.8 million was used for financing activities. Operating activities Operating activities provided cash of $44.5 million in the third quarter of 2008, down from $60.6 million in the third quarter of 2007. Year to date, operating activities provided cash of $85.2 million, down $9.6 million from $94.8 million in the same period in 2007 primarily from the lower operating results. Non-cash working capital decreased by $16.3 million in the third quarter of 2008 as lower receivables (from the traditionally lower revenues in the third quarter) and higher payables (related to timing of payments) were offset by lower net current tax balances (timing of installments that are made evenly during the year compared with tax provisions recorded against lower earnings in the quarter) and higher prepaid expenses. These are normal trends in the third quarter and the most significant difference from the $32.3 million decrease in non-cash working capital in the third quarter of 2007 was related to net current tax balances. Year to date non-cash working capital decreased by $3.9 million with similar trends as in the third quarter as well as a net increase of $15.7 million in restructuring provisions. During the same period in 2007, there was a net decrease in restructuring provisions of $11.1 million. Investing activities During the third quarter of 2008, $9.5 million was used for investments, down from $11.6 million in the third quarter of 2007. Year to date $34.9 million was used for investments, up $7.5 million from $27.4 million in the same period last year. Additions to property plant and equipment were $6.2 million in the third quarter of 2008 and $15.8 million year to date. This was down from $11.7 million and $24.4 million in the same periods last year. Total year additions to property plant and equipment are expected to be approximately $30.0 million. Investments of $4.9 million were made in the third quarter including the acquisition of 50% of Save.ca. Year to date, investments of $23.6 million were made including the acquisition of Central Ontario Web and eyeReturn Marketing and Torstar's share of Workopolis' acquisition of the specialist online employment board business of Brainhunter Inc. Year to date, cash of $3.1 million was received on the sale of excess land. The balance of the proceeds ($6.2 million) was received in the form of a mortgage which matures December 12, 2009 but can be paid earlier at the option of the purchaser. Financing activities Cash of $35.4 million was used by financing activities during the third quarter of 2008 including $21.4 million for the repayment of bankers' acceptance and $14.5 million for the payment of dividends. In the third quarter of 2007, $20.1 million for the repayment of bankers' acceptance and $14.4 million was used for the payment of dividends. Year to date Torstar has paid $43.4 million of dividends and repaid $7.0 million of bankers' acceptance. In the same period last year Torstar paid $43.2 million of dividends and repaid $29.1 million of bankers' acceptance. Long-term debt At September 30, 2008, Torstar had long-term debt of $653.5 million outstanding. The debt consisted of U.S. dollar bankers' acceptance of $105.2 million, Canadian dollar bankers' acceptance of $447.8 million and Canadian dollar medium term notes of $100.0 million increased by $0.5 million related to fair value hedge adjustments. Torstar's long-term credit facility for $800 million is designated as a standby line in support of its bankers' acceptance borrowing program and also for its letters of credit. This allows the bankers' acceptance to be classified as long-term debt on Torstar's balance sheet. At September 30, 2008, $557.9 million was drawn under the facility and a $27.5 million letter of credit was outstanding relating to the executive retirement plan. Torstar has a $25.0 million medium term note that will mature on September 9, 2009. It is Torstar's intention to refinance the medium term note through the issuance of bankers' acceptance or through its long-term credit facility. As of September, the long-term credit facility had $214.6 million of available credit which is considered to be adequate to cover forecasted financing requirements including the refinancing of the $25.0 million medium term note. Therefore, the $25.0 million medium term note continues to be classified as long-term debt on Torstar's balance sheet. Contractual obligations There were no material changes in Torstar's significant contractual obligations during the third quarter of 2008. Foreign Exchange Torstar's practice has been to hedge, one year in advance on a quarterly basis, U.S. dollar revenues equivalent to approximately 50% of its expected U.S. dollar operating profit. During the third quarter and early October of 2008, Torstar made the decision to hedge the balance of its fourth quarter 2008 exposure and to increase the 2009 hedge targets to approximately 70%. In early October 2008, Torstar entered into a forward foreign exchange contract to sell $7.5 million U.S. dollars in the fourth quarter of 2008 at a rate of $1.19. As a result of this contract, Torstar has forward foreign exchange contracts to sell a total of $15.0 million U.S. dollars during the fourth quarter of 2008 at an average rate of $1.09. As of October 20, 2008, Torstar has entered into forward foreign exchange contracts to sell $47.1 million U.S. dollars in 2009 at an average rate of $1.10. 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 and higher newsprint pricing are expected to have a negative impact on the Newspapers and Digital Segment in the fourth quarter. The restructuring efforts of the newspapers during the first nine months of 2008 will result in a net reduction of 270 positions with savings expected to be $18.0 million annually. $4.5 million of the savings is expected to be realized in the fourth quarter of 2008 mitigating the impact of the challenges referred to above. Metroland Media Group has had a mixed year with modest growth in the second quarter but declines in the first and third. The newspaper advertising revenue declines in the third quarter reflected the weakening of the economy in Southern Ontario and we expect the economy to continue to have a negative impact during the fourth quarter. During the third quarter the Star Media Group showed growth as improved revenues and EBITDA in the digital businesses and other publications more than offset the declines at the Toronto Star. We expect the revenue challenges for the Toronto Star to continue into the fourth quarter, coupled with the cost challenge of higher newsprint pricing. We expect the digital properties to continue to grow revenue and EBITDA although they may face some of the same revenue challenges as the newspapers. Harlequin has had good results through the first nine months of 2008 with strong performance in North America Retail and digital manga sales in Japan. The fourth quarter should be in line with prior year resulting in good growth for the full-year. We remain concerned that the U.S. economy could have a negative impact on Harlequin's results, but to date there is no evidence of this. If the Canadian dollar remains at its current levels relative to the U.S. dollar and overseas currencies, we are anticipating a positive foreign exchange impact in the fourth quarter of approximately $2.0 million. The challenging economic conditions are likely to also have an impact on the results of our associated businesses. In addition, in comparing to the fourth quarter of 2007, Torstar's earnings from CTVgm in that quarter included a $5.2 million positive adjustment as future tax liabilities related to intangible assets were reduced to reflect the reduction in future Canadian income tax rates. Looking forward to 2009, we remain concerned about the economy and the impact it could have on our Newspapers and Digital results and our earnings from associated businesses. In addition, given year-to-date performance of global capital markets and current discount rates, we are currently anticipating higher pension expense in 2009 absent a market recovery before year end. INTERNAL CONTROLS OVER FINANCIAL REPORTING There have been no changes in Torstar's internal controls over financial reporting that occurred during the third 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. CRITICAL ACCOUNTING POLICIES AND ESTIMATES During the fourth quarter, Torstar will follow its normal practice of assessing intangible assets and goodwill for impairment using its annual assessment date of October 1 based on the results realized through the third quarter and the September 30th net book values. PENSION OBLIGATIONS The 2009 pension expense is sensitive to both investment performance and the discount rate as of December 31, 2008 and will be determined at that time. Given year-to-date performance of global capital markets, we are currently anticipating higher pension expense in 2009 absent a sharp market recovery or a significant increase in the discount rate before year end. Through the end of September, our pension plan assets experienced a negative 12.6% return, reflecting the general market performance. For every 1% short-fall against our return assumption of 7%, pension expense is estimated to increase by approximately $1.2 million. For each 1% increase (decrease) in the discount rate, pension expense is estimated to decrease (increase) by approximately $10.0 million. From a funding perspective, the next required actuarial valuation for the most significant plans, which will determine minimum pension contributions, will not be until December 31, 2009. CHANGES IN ACCOUNTING POLICIES In January 2008, the Canadian Institute of Chartered Accountants ("CICA") issued Section 3064 "Goodwill and Intangible assets" which will replace Section 3062 "Goodwill and Other Intangible assets" and Section 3450 "Research Development Costs" and will apply to Torstar effective January 1, 2009. The standard provides guidance on the criteria for recognition of intangible assets and clarifies the application of the matching concept to revenues and expenses whether the assets are acquired or internally generated. Torstar is reviewing the impact of adopting this standard on the consolidated financial statements. The CICA has confirmed that the use of International Financial Reporting Standards ("IFRS") will be required for interim and annual financial statements related to fiscal years beginning on or after January 1, 2011. At that date, Torstar will be required to prepare financial statements in accordance with IFRS. Torstar is currently reviewing the standards to determine the potential impact on its consolidated financial statements.
SUMMARY OF QUARTERLY RESULTS
(In thousands of dollars except for per share amounts)
----------------------------------------------------------------------------
Quarter Ended
Sept. 30/08 June 30/08 March 31/08 Dec. 31/07
----------------------------------------------------------------------------
Revenue $372,115 $399,506 $351,650 $402,930
Net income (loss) ($2,728) $36,962 ($3,457) $47,182
Net income (loss) per
Class A voting and
Class B non-voting share
Basic ($0.03) $0.47 ($0.04) $0.60
Diluted ($0.03) $0.47 ($0.04) $0.60
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Quarter Ended
Sept. 30/07 June 30/07 March 31/07 Dec. 31/06
----------------------------------------------------------------------------
Revenue $369,200 $396,965 $377,442 $414,610
Net income $8,419 $30,053 $15,737 $36,068
Net income per Class
A voting and Class B
non-voting share
Basic $0.11 $0.38 $0.20 $0.46
Diluted $0.11 $0.38 $0.20 $0.46The 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 and other charges have impacted the level of net income in several quarters. Restructuring provisions were $3.4 million in the third quarter of 2008, $4.4 million in the second quarter of 2008, $20.8 million in the first quarter of 2008, $7.5 million in the fourth quarter of 2007 and $11.7 million in the fourth quarter of 2006. In the third quarter of 2008, Torstar recorded a $16.0 million write-down related to Transit TV's assets. OTHER At September 30, 2008, Torstar had 9,892,667 Class A voting shares and 68,988,753 Class B non-voting shares outstanding. More information on Torstar share capital is provided in Note 8 of the interim consolidated financial statements. At September 30, 2008, Torstar had 5,192,162 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: Contacts:
Torstar Corporation
D. Holland
Executive Vice-President and Chief Financial Officer
(416) 869-4031
Website: http://www.torstar.com
Source: Torstar Corporation
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