Covers:Layout 1 3/16/10 1:14 PM Page 1 CORPORATION 2009 Annual Report AnnualReport 09_Final_print:Edit.Sect.06 second version 2 3/16/10 1:15 PM Page 2 Financial Highlights OPERATING RESULTS ($000) 2009 2008 Operating revenue $1,451,259 $1,533,753 EBITDA (1) 191,801 213,186 Operating profit 95,253 118,190 Net income (loss) 35,645 (181,504) Cash from operating activities 153,364 122,217 OPERATING RESULTS EBITDA – Percentage of revenue 13.2% 13.9% Operating profit – percentage of revenue 6.6% 7.7% Cash from operating activities – percentage of average shareholders’ equity 22.8% 15.4% PER CLASS A AND CLASS B SHARES Net income (loss) $0.45 ($2.30) Dividends $0.37 $0.74 Price range (high/low) $8.84/3.93 $19.20/6.69 FINANCIAL POSITION ($000) Long-term debt $552,976 $668,700 Shareholders’ equity $678,980 $665,034 2 The Annual Meeting of shareholders will be held Wed., May 5, 2010 at the Toronto Star building, 3rd Floor Auditorium, One Yonge Street, Toronto beginning at 10 a.m. It will also be webcast live on the Internet. OPERATING REVENUE ($MILLIONS) OPERATING PROFIT ($MILLIONS) 05 1,557 05 195 06 1,528 06 123 07 1,547 07 163 08 1,534 08 118 09 1,451 09 95 INCOME (LOSS) FROM CONTINUING OPERATIONS PER SHARE EBITDA ($MILLIONS) (1) 05 1.52 05 253 06 1.01 06 202 07 1.29 07 225 (2.01) 08 08 213 09 0.45 09 192 (1) Consolidated operating profit, as presented on the consolidated statements of income, which is before charges for interest and taxes adjusted for depreciation and amortization of intangible assets. It also excludes restructuring and other charges. Please see “Non-GAAP Measures” on page 7. This annual report contains forward-looking statements within the meaning of certain securities laws, including the “safe harbour“ provisions of the Securities Act (Ontario). We caution readers not to place undue reliance on these statements as a number of factors could cause our results to differ materially from the beliefs, plans, objectives, expectations, anticipations, estimates and intentions expressed in such forward-looking statements. Additional information about these factors is contained on page 7 under the heading “Forward-Looking Statements”. Torstar 2009 Annual Report 2 Torstar 2009 Annual Report AnnualReport 09_Final_print:Edit.Sect.06 second version 2 3/16/10 1:16 PM Page 3 JOHN HONDERICH Chair, Board of Directors Message from the Chair 2009 was a year of transition, transformation and consolidation for Torstar. The transition began with the election of five new members to the Torstar Board: Joan Dea, former EVP Strategy at BMO Financial Group; Dan Jauernig, President and CEO of Classified Ventures, LLC.; Alnasir Samji, retired Principal of Towers Perrin and Chair of the United Way (Toronto); Paul Weiss, retired Senior Partner of KPMG; and Phyllis Yaffe, retired CEO of Alliance Atlantis. The goal of this director renewal was to provide a formidable diversity of strategic, digital, finance and media expertise for Torstar. These new directors have collectively brought skill, sophistication, experience and a clarity of purpose that has already proved invaluable. As part of the transition, the Board also introduced the position of Lead Director to which Ms Yaffe was elected. The transition continued at the 2009 Annual Meeting with David Holland assuming the position of Interim President and Chief Executive Officer. Six months later - for the first time in 43 years at Torstar - the Board appointed someone from within the company as its permanent CEO. It would be the same David Holland, who has worked in every division of Torstar, including his previous position of Executive Vice-President and Chief Financial Officer. His integrity, deep strategic thinking and leadership skills have served him well as he has led the company through one of the most severe economic downturns in memory. At the same time, the Board approved the appointment of Lorenzo DeMarchi as Executive Vice-President and Chief Financial Officer. Most recently, he had served as Torstar's Vice-President, Corporate Development. Prior to that, he held several positions at Harlequin Enterprises, including Vice-President of Corporate Development. At the operational business level, Torstar is superbly served by its four business leaders. Harlequin CEO Donna Hayes led the celebration of the publishing firm's 60th anniversary while posting strong results in the face of the economic downturn. John Cruickshank, Publisher of the Toronto Star and President of Star Media Group, introduced transformative changes at Canada's largest newspaper while forging a vibrant editorial revival. Ian Oliver, President of Metroland Media Group, introduced innovative approaches to maintaining quality service to readers and advertisers in the face of tough economic times. Finally, President Tomer Strolight continued to innovate and transform Torstar Digital as the division was buffeted by the economic headwinds. Ultimately, Torstar is only as good as the thousands of employees who work for it. As is often said, adversity brings out the finest in people and I want to express my sincere appreciation for the dedication, loyalty and diligence of our workforce. It is the backbone of our success. Through this tough economic time, some very difficult decisions have had to be made, long-term employees let go and long-established practices eliminated. In this necessary time of downsizing, we honour the service and contribution of all those who have worked with us. We shall not forget their contribution. 2009 also marked my first year as Chair of the Board of this distinguished corporation. To my precedessor, the Hon. Frank Iacobucci, I extend my deep appreciation for a seamless transition. To my colleagues on the Board, I thank them for their patience, guidance and inspiration. Finally, to David Holland, the senior team, and the entire staff, I continue to be dazzled by their joint purpose in making Torstar succeed. Torstar 2009 Annual Report 3 AnnualReport 09_Final_print:Edit.Sect.06 second version 2 3/16/10 1:16 PM Page 4 DAVID HOLLAND President and Chief Executive Officer To Our Shareholders 1. Operating Results 2009 marked a significant milestone for Harlequin: its 60th anniversary in North America. The anniversary provided an 2009 was a good year for Torstar despite difficult conditions in the opportunity to celebrate Harlequin’s heritage, thank its loyal economy. While our revenues were affected by the downturn in the readers and introduce new readers around the world to the economy, described by many experts as the worst since the Great Harlequin brand. In appreciation for their commitment to Depression, we were disciplined on capital employment and cost Harlequin, readers received nearly 2 million free print editions and containment and at the same time maintained our commitment to were able to download more than 3 million free eBook samples. numerous strategic initiatives. It was a more difficult year in the Newspapers and Digital Division. Overall, Torstar earned EBITDA of $192 million compared to $213 Revenues were down, but the impact was mitigated by million a year ago. Total revenues were down 5.4% to $1.45 billion, restructuring efforts over the past two years. The impact of these with revenues from our Newspapers and Digital businesses falling initiatives has reduced our cost base by $58 million. It is never 9.7% while revenues from Harlequin increased 4.3%. The decline in easy to undertake restructuring of this magnitude, however we EBITDA can be attributed to an increase in pension expense of view it as a necessary step in our evolution as a media company. approximately $21 million. Excluding the increased pension As we continue these restructuring efforts, we are making every expense, results from the operations were stable, which we consider effort to improve both the quality of the content that we publish in an accomplishment given the tough economic climate of 2009. print and online for our audiences and the level of service that we We were particularly pleased with the significant progress we offer to our advertisers. achieved in reducing our net borrowings by $111 million from $627 We are also ensuring we continue to pursue opportunities in the million to $516 million by the end of 2009. In addition to using media environment critical to our future, including building out our cash flow to reduce our net borrowings, we also paid our dividend digital offerings and investing in the expansion of the Metro and funded restructuring efforts. In achieving this debt reduction, commuter newspaper across Canada. we want to acknowledge that we did benefit from the impact of the strengthening of the Canadian dollar on the translation of our U.S. The Star Media Group, which includes the Toronto Star, Metro, Sing dollar debt and favourable working capital movement. Most Tao and many of our digital properties, responded aggressively to importantly, though, this progress reflects the resilience and strong the weak economic conditions we saw in 2009. Earnings were cash flow characteristics of our franchises and management’s down just $12 million, although revenues fell $44 million discipline in approaching the employment of capital. compared to a year earlier. The substantial efforts on the cost side mitigated the majority of the revenue decline. Despite the poor Harlequin was a real anchor for Torstar as it confronted the economy, especially in Southern Ontario, Star Media Group economic headwinds of 2009 and the negative implications for our continued to make key strategic investments in print and digital economically sensitive revenue base in the Newspapers and Digital properties with the aim of stabilizing financial performance in the Division. As in previous years, Torstar benefited in 2009 from the short term and at the same time developing sustainable business diversity of its operation as Harlequin delivered 22% growth in models for the coming years.