2002 Annual Report Our Year at a Glance

Torstar Corporation 2002 Annual Report Our Year at a Glance Financial Highlights 1 Message from the Chairman 2 To Our Shareholders 4 Newspapers Torstar Media Group 7 Toronto Star 8 Metroland 10 Regional Dailies 12 Harlequin Enterprises 15 Management’s Discussion and Analysis 19 Consolidated Financial Statements 28 Notes 32 Seven-Year Highlights 42 Corporate Information 43 he Annual Meeting of Shareholders will be held Wednesday, April 30, 2003 at the Metro Convention Centre, 255 Front Street West, Toronto, Room 206, beginning at 10 a.m. It will also be Webcast live on Ttmgtv.ca with interactive capabilities. Torstar Corporation is a broadly based-media company listed on the Toronto Stock Exchange (TS.B). Its businesses include daily newspapers led by the Toronto Star, Canada’s largest daily newspaper, The Hamilton Spectator, The Record (Kitchener, Cambridge and Waterloo), the Guelph Mercury, and their Internet-related businesses; Metroland Printing, Publishing & Distributing, publishers of approximately 70 community newspapers in Southern Ontario; and Harlequin Enterprises, a leading global publisher of women’s fiction. “The Board of Directors is extremely pleased that the baton of leadership has passed so smoothly and successfully.” John R. Evans Chairman, Board of Directors MESSAGE FROM THE CHAIRMAN n May 1, 2002, Robert Prichard assumed responsibility as Chief Executive Officer, having joined Torstar in May, 2001 as President of the Torstar Media Group. The Oseamless transition of leadership was made possible by the strong sense of shared stewardship with David Galloway, retiring CEO. It will come as no surprise to anyone who has worked with Robert Prichard that he has addressed his new responsibilities with unmatched energy and enthusiasm and demonstrated the steepest possible learning curve in gaining an appreciation of each of the businesses of Torstar. The Board of Directors is extremely pleased that the baton of leadership has passed so smoothly and successfully. Governance has been front and centre for all corporations in 2002. Torstar has undertaken a thorough review of its governance processes to ensure that they are in line with benchmark thinking and in compliance with the expectations of the regulatory agencies. Full disclosure of our current governance practices can be found in the Information Circular. Beyond the obligations to comply with the letter of best practice of governance, there is a less easily defined spirit of governance, equally important to the corporation, which combines the independence of directors and respect for dissent with a unity of purpose of board and management. The year also saw major changes in the composition of the board. Retiring from the board are Edward Donegan, David Lay and Murray Cockburn. Mr. Donegan brought exceptional knowledge of newspapers, served on several board committees and was Chairman of the Audit Committee during the final five years of his term. Mr. Lay joined the board in 1993, served on the Audit and Pension Committees and was Chair of the Pension Committee for the past five years. Mr. Cockburn has served Torstar with distinction for many years, as a senior officer and director, and we have benefited from his extensive knowledge of the corporation and the newspaper industry. We thank the retiring directors for their commitment and service to Torstar. We welcome to the board Spencer Lanthier, former Chair and Chief Executive Officer of KPMG, and look forward to welcoming Neil Clark, Sabi Marwah and Ron Osborne, subject to shareholder approval at the annual meeting. All have enviable records of achievement in business and will bring new strengths and perspectives to Torstar. The report of the President and Chief Executive Officer which follows describes the substantial achievements during 2002. On behalf of the board, I congratulate all those throughout Torstar who made these achievements possible. John R. Evans Chairman, Board of Directors 2 > 2002 Torstar Annual Report Leadership: It’s about teamwork. It’s about people. A decision to put our product in the forefront. Celebrating the individuals as parts of the whole. Torstar’s leadership team. Front row, left to right: Murray Skinner, President, Metroland; Jagoda Pike, Publisher, Hamilton Spectator, Senior Vice-President, Regional Daily Newspapers, Torstar Media Group; Donna Hayes, Publisher and Chief Executive Officer, Harlequin; John Honderich, Publisher, Toronto Star. Back row: John Evans, Chairman of the Board, Torstar; Robert Prichard, President and Chief Executive Officer, Torstar; Karen Hanna, Senior Vice President, Human Resource Strategy, Torstar; Robert Steacy, Executive Vice President and Chief Financial Officer, Torstar. 2002 Torstar Annual Report > 3 “Torstar’s businesses don’t just produce strong financial results. They also make a profound difference in the lives of those we serve.” J. Robert S. Prichard President and Chief Executive Officer, Torstar TO OUR SHAREHOLDERS and is increasingly profitable. Furthermore, the Star is well poised to benefit from further economic recovery, 2002 was a very good year for Torstar. All of our and, in particular, recovery in help wanted and careers operating businesses produced good results and two – advertising. Harlequin and Metroland – gave us record results. The Our regional dailies, led by the Hamilton Spectator, overall improvements over 2001 were dramatic and, at provide further strength and scale to our leadership in Torstar as a whole, we enjoyed our highest earnings the southern Ontario market, and enjoyed good results before interest, taxes, depreciation and amortization in 2002. Furthermore, we repositioned the Record in (EBITDA) in our history. These results allowed us to Kitchener-Waterloo as a morning daily, strengthened add further strength to our already strong balance sheet its editorial content and substantially increased and announce a 10 per cent dividend increase for 2003. circulation and readership. Equally important, in 2002 we devoted energy and Metroland had a superb year. EBITDA grew by 31 per resources to preparing Torstar for future growth. cent. After a modest setback in 2001, Metroland is squarely back on its trajectory of double-digit growth Our Businesses that has seen EBITDA grow from $24 million in 1996 to Torstar has two principal businesses: newspapers and its new record of $68.2 million in 2002, a compound book publishing. And in these two businesses, we have annual growth rate (CAGR) of 19 per cent. Furthermore, outstanding franchises: the pre-eminent daily newspaper the vast majority of this growth has been organic as the franchise in Canada’s most important media market, led Metroland business model of entrepreneurship and by Canada’s largest daily, the Toronto Star; the leading decentralization unleashes individual initiative and weekly and community newspaper business in Canada creativity in the pursuit of opportunity and profit. under the Metroland banner; and the world’s leading 2002 was also a year of record results for Harlequin. publisher of romance and women’s fiction in Harlequin Harlequin ranks with Canada’s most successful global Enterprises. companies. While headquartered in Toronto, Harlequin These businesses give Torstar enviable strengths and earns 97 per cent of its revenues outside Canada, selling prospects. As market leaders, our businesses play from books around the world. With its sights firmly set on strength – they know their markets and their customers, being the world’s leading publisher of romance and they attract great people, they have the resources to women’s fiction, Harlequin delivered 20 per cent weather tough times and constantly invest for future growth in earnings and achieved a new record total of growth, and they are fuelled by a legacy of achievement $126.7 million EBITDA. This extends Harlequin’s and ambitions for the future. remarkable record of profit growth in 16 of the last 20 Torstar’s businesses don’t just produce strong financial years. Harlequin’s most impressive results were in the results. They also make a profound difference in the North American retail market but we also made lives of those we serve. Our newspapers are essential important progress in refocusing the overseas pillars of a democratic society, advancing our communities operations, stabilizing the direct-to-consumer business and strengthening our citizenry. Our books enjoy and fully harnessing the investments previously made extraordinary popularity, selling more than 146 million in eHarlequin. Harlequin is clearly demonstrating that copies a year around the world and repeatedly placing its focus on romance and women’s fiction, using its high on the New York Times and USA Today bestseller multi-channel and global strategy, can distinguish lists. Harlequin as a high-margin book publisher with exceptional strength and prospects. Our Results 2002 was a year of recovery and growth for our Our Future newspapers, after a difficult year in 2001. Revenue Past achievements and good results provide a strong growth, cost containment, favourable newsprint pricing foundation but are not sufficient to propel Torstar into and a strengthening economy combined to produce the future. For that, we are focused on strategies for major year-over-year improvements in our results. growth. For each of our operating businesses, we have Our daily newspapers, led by the Toronto Star, set demanding multi-year financial goals and performed well in the recovering economy. With challenged the businesses to respond with strategies disciplined cost containment and growing revenues, the and plans to meet them. Toronto Star nearly doubled its EBITDA in 2002. While All of our businesses have impressive records. Our still battling in a fiercely competitive market, the Star challenge is to improve upon them. We are building thrived where others faltered. The Star remains the plans to improve the margins in all of our daily dominant newspaper in the market by a wide margin newspapers, maintain double-digit growth at 4 > 2002 Torstar Annual Report To Our Shareholders Metroland and raise Harlequin’s growth rate above its prospect of war and instability in the Middle East, historic CAGR of five to six per cent.

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