9a99n031_pcs

S w

9A99N031 TORSTAR CORPORATION William Jin prepared this case under the supervision of Professor Robert White solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. Ivey Management Services prohibits any form of reproduction, storage or transmittal without its written permission. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Management Services, c/o Richard Ivey School of Business, The University of Western Ontario, London, Ontario, Canada, N6A 3K7; phone (519) 661-3208; fax (519) 661-3882; e-mail [email protected]. Copyright 1998, Ivey Management Services Version: (A) 2010-01-21 On April 25, 1998, Robert Steacy, vice-president of finance of Torstar Corporation (Torstar), was reviewing the corporations financial situation in preparation for the forthcoming board of directors meeting scheduled for April 28, 1998. Key items on the boards agenda included Torstars dividend policy and share repurchase strategy, along with Torstars ability to acquire strategic investments and to maintain capital expenditure requirements. Historically, Torstars dividend policy was to pay out 30 per cent to 35 per cent of the previous years operating cash flows. Dividend payments were made quarterly; the most recent quarterly dividend was $0.26 per share and the ex-dividend date was December 11, 1997. For the three months ended March 31, 1998, Torstar repurchased 589,300 Class B shares for cancellation through the facilities of the Toronto Stock Exchange at an average price of $50.50 per share for a total consideration of $29.8 million, under the December 17, 1997, issuers bid (see Exhibits 1 and 2). See Exhibit 3 for summary financial statements. Torstar published Canadas largest newspaper, The Toronto Star (The Star). The Star was one of three general media daily newspapers that serviced the Toronto market. The Toronto Sun, the flashy tabloid published by Sun Media Corp. was its cross-town rival. With the purchase of the London Free Press in March 1997, Sun Media had three major dailies in prime markets across Canada. Sun Media also published the Financial Post, a national business newspaper. The Globe and Mail, Canadas only national general media daily, published by the Thomson Group, also serviced the Toronto market. On April 8, 1998 Southam Inc. announced plans to launch a second national newspaper. Over the two years following the purchase of 12 dailies and seven weeklies from Thomson in July 1995, Southam and majority shareholder, Hollinger Inc., acquired numerous newspapers. Together, they now owned 59 daily newspapers coast to coast. COMPANY BACKGROUND Torstar Corporation was incorporated on February 6, 1958, under the predecessor legislation of the Business Corporation Act (Ontario) to acquire as a going concern the assets and liabilities of the Toronto Daily Star, first published in 1892. The publication of the Toronto Star was the principal activity of Torstar

Aut

horiz

ed fo

r us

e on

ly b

y A

chut

h K

esav

an in

Bus

ines

s 50

13 &

Bus

ines

s 50

39 a

t Lak

ehea

d U

nive

rsity

from

Jan

05,

201

5 to

Apr

17,

201

5.U

se o

utsi

de th

ese

para

met

ers

is a

cop

yrig

ht v

iola

tion.

9A99N031

prior to 1975, with other interests in commercial printing and community newspaper publishing. The scope of Torstars activities had expanded since 1975 through the acquisition of interests in domestic and international book publishing and supplementary educational products. In 1994, Torstar acquired Frank Schaffer Publications, Inc., a publisher of supplementary education materials, as a cornerstone for a supplementary education division. In 1996 and 1997, the company acquired six more publishers and lines of supplementary educational products, including Troll Communications LLC (Troll). Exhibit 4 summarizes the acquisitions made over the last five years. As a result of these strategic acquisitions, Torstar became a broadly based information and entertainment communications company with primary interests in the newspaper, book publishing and supplementary education industries (see Exhibit 5). At the end of fiscal 1997, Torstar operated under three key business segments (see Exhibit 6 for segmented financial information). Newspapers The newspaper division comprised one daily newspaper, The Star, and 42 community newspapers through its wholly owned subsidiary, Metroland Printing, Publishing & Distribution Ltd. (Metroland). Revenues from the Toronto Star rose from $358 million in fiscal 1996 to $403 million in fiscal 1997, with increased operating profits from $25 million in fiscal 1996 to $52 million in fiscal 1997 and increased cash flow from $55 million in fiscal 1996 to $84 million in fiscal 1997. Increase in revenues and profitability was mainly attributable to higher advertising revenues from increased linage sales and higher advertising rates, along with increased revenues from flyer distribution. Similarly, revenues from Metroland increased from $151 million in fiscal 1996 to $189 million in fiscal 1997. Operating profits grew from $19 million in fiscal 1996 to $35 million in fiscal 1997 and cash flow increased from $24 million in fiscal 1996 to $41 million in fiscal 1997. Profitability improvements were based on the same economic benefits that the Toronto Star had experienced. Management views on the future of its newspaper division were two-fold. The first was that the advertising revenues would be sustainable, with minor improvements in the growth of advertising revenues. Advertising growth was directly impacted by the correlation between economic activity and media spending. In the spring of 1998, the economic conditions of Ontario were positive and revenue growth rates of five to seven per cent were expected from management. The second issue was the concern that newsprint cost had increased from fiscal 1997 average prices of $750 per tonne to between $825 and $875 per tonne. Based on Torstars total estimated usage of 123,000 tonnes of newsprint in fiscal 1998, management believed that the increase in newsprint cost would be about $9 million more than 1997 prices. Overall, management expected that the earning strength of the newspaper division would be sustainable, with modest expected growth for fiscal 1998 and fiscal 1999. Book Publishing The book publishing segment focused on the sale of series romance fiction paperbacks through its wholly owned subsidiary, Harlequin Enterprises Limited (Harlequin). In 1997, Harlequin sold approximately 165 million books in 23 languages in more than 100 international markets. Revenues from the book publishing division decreased slightly from $509 million in fiscal 1996 to $490 in fiscal 1997, with flat operating profits of $81 million. Also, cash flow increased from $93 million in fiscal

Aut

horiz

ed fo

r us

e on

ly b

y A

chut

h K

esav

an in

Bus

ines

s 50

13 &

Bus

ines

s 50

39 a

t Lak

ehea

d U

nive

rsity

from

Jan

05,

201

5 to

Apr

17,

201

5.U

se o

utsi

de th

ese

para

met

ers

is a

cop

yrig

ht v

iola

tion.

9A99N031

1996 to $95 million in fiscal 1997. Most of the revenue decrease was a result of foreign currency exchange differences. This division was well managed and had a strong brand name and marketing focus that were being expanded to foreign markets. Harlequin over the last two years had experienced declining unit sales, increased investment into other geographical regions of the world and higher spending on new product development. This had been offset by an increase in revenue per unit as the market for longer books and single titles had expanded over the last two years. Management expected to spend $6 million in fiscal 1998 to assist in future expansion into foreign markets such as China and for the development of new products, as well as a $3 million increase in paper cost. Management expected flat profit with price increases offsetting higher paper and product development costs. Supplementary Education The Childrens Supplementary Education Products (CSEP) division published supplementary educational products for teachers and parents through its wholly owned subsidiaries, Frank Schaffer Publications, Inc., Tom Snyder Productions Inc., Delta Education Inc., Troll Communications Inc. and Brighter Vision, Inc. Revenues from CSEP increased from $57 million in fiscal 1996 to $216 million in fiscal 1997. Operating profits decreased from $5 million in fiscal 1996 to $2 million in fiscal 1997 and cash flow grew from $8 million in fiscal 1996 to $10 million in fiscal 1997. Most of the revenue increase was a result of 1997 acquisitions, the full year impact of Delta Education, and internal growth of other segments. However, management was disappointed with the weaker than expected Schaffer profits, and with Troll losses which reduced operating profit margins from nine per cent in 1996 to one per cent in 1997. In addition, the recent acquisitions increased goodwill amortization by six times, or to $6 million in fiscal 1997, thus reducing net operating results. Torstar believed that the operating management of this division would be able to consolidate and fully integrate its investments (seven acquisitions over the last four years) and to improve its returns in fiscal 1998. Profits were expected to increase significantly in 1998 and 1999. Recently, Torstar had been focusing on its expansion in the Internet and new electronic media market segments by launching CitySearch, an online directory, and TSTV, a cable television station in Metropolitan Toronto in 1997. INSTITUTIONAL OWNERSHIP As of March 31, 1998, Torstars share structure comprised approximately five million Class A voting shares and approximately 34 million Class B non-voting shares (approximately eight million were owned by holders of the Class A shares). The Class A shares were closely held (see Exhibit 7) and not traded. The Class B shares were traded on the Toronto Stock Exchange. Over the period 1995 through 1997 Torstar repurchased 1,987,200 Class B shares with the excess cash available from operations. Approximately 20 active institutional investors held Torstar Class B shares at the end of December 1997. Overall, they were happy with Torstars stock performance over the last few years. They viewed Torstar as a pure play investment into a newspaper and book publisher, aside from the recent investments into supplementary education. Recent acquisitions by CSEP were not viewed as favorably as the historical expansion of the newspaper and book divisions.

Aut

horiz

ed fo

r us

e on

ly b

y A

chut

h K

esav

an in

Bus

ines

s 50

13 &

Bus

ines

s 50

39 a

t Lak

ehea

d U

nive

rsity

from

Jan

05,

201

5 to

Apr

17,

201

5.U

se o

utsi

de th

ese

para

met

ers

is a

cop

yrig

ht v

iola

tion.

9A99N031

With respect to cash distributions, institutional holders preferred Torstars historical share repurchases and historical dividend pay outs to using cash to acquire investments outside of Torstars core strengths. From their viewpoint, if they wanted to invest in different industries, they would rather make direct investments in other public pure plays. Institutional holders felt that buying back shares would result in fewer shares outstanding, thus theoretically resulting in higher equity value (anti-dilutive). Furthermore, share repurchases, in general, were viewed as a signal that management had confidence in its own company. CAPITAL EXPENDITURES Normal on-going capital expenditures were expected to be $25 million to $30 million each year. The capital cycle in the publishing industry was approximately six years. Torstar had recently modernized its plant; consequently, no major capital expenditures were forecast for the near future. However, management recognized that over the next three years extra capital expenditures would have to be made to reflect Torstars budgeted increased capital program. Higher spending was a result of incremental spending on systems and facilities budgeted for fiscal 1998. Plans were underway for the newspaper division to move into the 50,000-square foot facilities adjacent to the downtown newspaper operations. Estimated cost to renovate and update the facilities was approximately $5 million. In addition, the newspaper division had capital expenditures budgeted for on-going equipment and computer system upgrades. In total, the Torstar budgeting team allocated approximately $14 million in additional capital expenditures for fiscal 1998. Torstar had also budgeted an additional $4 million for the CSEP division. Once again, this incremental expense related to systems and facilities upgrades. As a result of the budgeting, management expected to spend approximately $45 million to $50 million each year in total capital expenditures over the next three years. RECENT DIVERSIFICATION AND ACQUISITION STRATEGY During fiscal 1997, Torstar sold its interest in Hebdo Mag International and Miles Kimball, netting proceeds of $295 million and posting a gain of $169 million. As a result of the sale, Torstar had a tax liability of approximately $50 million. With respect to Torstars acquisition strategy, its management acquisition criteria were as follows: 1. Buy companies at early stages in their life cycles. Examples: Harlequin in 1975, and Hebdo Mag

International in 1989. 2. Buy companies that fit synergistically with the core business. Example: purchasing Inland Publishing

in 1981 and combining it with Metrospan created immediate value. 3. Purchase a group of complementary companies that were stronger by being together and, if possible,

where value was added through their core competencies.

Aut

horiz

ed fo

r us

e on

ly b

y A

chut

h K

esav

an in

Bus

ines

s 50

13 &

Bus

ines

s 50

39 a

t Lak

ehea

d U

nive

rsity

from

Jan

05,

201

5 to

Apr

17,

201

5.U

se o

utsi

de th

ese

para

met

ers

is a

cop

yrig

ht v

iola

tion.

9A99N031

In fiscal 1997, Torstar completed its $200 million acquisition of Troll. Integration was key to the companys acquisition strategy. At the end of the year, management did not think that there were any acquisitions that had the same potential or size that the Troll acquisition offered. Instead, the management team had determined a wish list of 15 private targets, ranging from approximately $10 million to $20 million each. Once again, consistent with its policy, the team was interested in acquiring these companies only if they could be acquired at the right price and if their integration into the respective Torstar product division were possible. Since acquisitions would require management time and focus, a three-year time frame was determined to be reasonable to look at and possibly acquire these respective synergistic companies. Steacy did not expect to acquire all 15 prospects and he estimated that Torstar would likely acquire half of them at a cost of approximately $150 million over the next three years. THE DECISION For the board of directors meeting Steacy had to draft a memorandum stating the pros, cons and recommendations with respect to the amount of regular dividends, special dividends and share repurchase. The sale of Hebdo provided additional financial flexibility ($131 million of the outstanding debt was transferred); Torstars long-term debt outstanding was reduced from $321 million in 1996 to $197 million in 1997 resulting in a debt-to-total-assets ratio of 18 per cent. Management believed that a 30 per cent target debt-to-total-assets ratio was more appropriate, and that if a suitable strategic acquisition appeared in the future, a 50 per cent debt-to-total-assets ratio could be carried by the Torstar operations. Torstars share price peaked at $54 in February 1998 and closed at $44 on April 24, 1998. Over the previous five years stock prices had risen to historical highs (see Exhibit 8) and the merger and acquisition market was very active, reflecting a strong economy. Summaries of analysts research reports on Torstar are presented in Exhibit 9. An excerpt of a research report discussing the potential impact of the launch of Southam Inc.s new national newspaper on Torstar is presented in Exhibit 10.

Aut

horiz

ed fo

r us

e on

ly b

y A

chut

h K

esav

an in

Bus

ines

s 50

13 &

Bus

ines

s 50

39 a

t Lak

ehea

d U

nive

rsity

from

Jan

05,

201

5 to

Apr

17,

201

5.U

se o

utsi

de th

ese

para

met

ers

is a

cop

yrig

ht v

iola

tion.

9A99N031

Exhibit 1

PRESS RELEASE DECEMBER 17, 1997

December 16, 19971 Torstar Corporation (Torstar) announced today that it has filed with, and had been accepted by, The Toronto Stock Exchange a notice of intention to make a normal course issuer bid. Torstar may purchase from time to time, if it is considered advisable, commencing December 18, 1997, at prevailing market prices up to one million Class B non-voting shares on the open market through the facilities of The Toronto Stock Exchange. Torstar had, at September 30, 1997, 34,003,366 Class B non-voting shares issued and outstanding. To the knowledge of the directors of Torstar, the public float of Class B non-voting shares is comprised of 26,100,329 shares. Unless amended, the issuer bid will terminate upon Torstar purchasing a total of one million Class B non-voting shares (approximately 2.9 per cent of issued capital), Torstar providing notice of termination or December 17, 1998, whichever is earlier. The company believes that from time to time the market price of the Class B shares may not adequately reflect the value of its business and its future business prospects and therefore represents a worthwhile investment which is in the best interest of both the company and its shareholders. In the 12 months ending December 18, 1997 the company purchased 542,200 Class B non-voting shares. Torstar Corporation is a broadly based publishing company. Its operations include The Toronto Star, Canadas largest daily newspaper; Metroland Printing, Publishing & Distributing, publishers of community newspapers and distributors of advertising materials; Harlequin Enterprises, the worlds largest publisher of series romance fiction; the Childrens Supplementary Educational Publishing Division, which publishes and produces educational products for teachers, parents and children under the Frank Schaffer, Tom Snyder Productions, Delta Education, Brighter Vision and Troll Communications names. Torstars news releases are available on the Internet at:

http://www.torstar.com/corporate For further information contact R. J. Steacy, vice-president of finance (416) 869-4031.

1Released after the close of stock trading on December 16, 1997.

Aut

horiz

ed fo

r us

e on

ly b

y A

chut

h K

esav

an in

Bus

ines

s 50

13 &

Bus

ines

s 50

39 a

t Lak

ehea

d U

nive

rsity

from

Jan

05,

201

5 to

Apr

17,

201

5.U

se o

utsi

de th

ese

para

met

ers

is a

cop

yrig

ht v

iola

tion.

9A99N031

Exhibit 2

TRADING STATISTICS CLASS B SHARES FOR DECEMBER 1997

DateOpening Opening Opening Closing Closing Closing Trans- Shares

Price Bid Ask Price Bid Ask actions Traded971201 46.25 46.25 46.75 46.25 46.25 46.45 29 116,174 971202 46.25 46.25 48.25 47.75 47.35 47.95 35 110,431 971203 47.50 47.50 48.25 48.25 48.25 48.75 27 17,952 971204 48.25 48.00 48.25 47.75 47.75 48.25 25 22,125 971205 48.00 48.00 48.25 48.25 48.00 48.25 34 34,979 971208 48.00 48.00 48.75 48.00 48.00 48.75 48 58,326 971209 48.05 47.50 48.25 48.65 48.40 48.65 23 507,353 971210 48.45 48.00 48.50 48.25 48.25 48.80 21 141,500 971211 47.90 47.90 48.00 48.30 48.25 48.30 27 72,340 971212 48.20 48.00 48.50 47.60 48.00 48.25 9 17,805 971215 48.10 47.00 48.00 47.50 47.50 47.90 15 144,875 971216 47.50 47.50 48.00 47.60 47.50 47.85 35 38,446 971217 47.85 47.25 48.00 48.45 48.45 48.50 33 501,893 971218 48.50 48.00 48.50 50.00 49.00 49.55 31 23,032 971219 50.00 47.50 52.25 49.75 49.50 49.75 37 31,012 971222 49.50 49.50 52.25 50.00 49.25 50.00 28 60,454 971223 49.50 49.50 50.00 49.85 49.50 49.85 12 6,866 971224 49.85 49.25 50.00 49.25 49.55 49.85 4 1,850 971229 50.50 50.25 52.25 50.25 50.00 50.40 13 2,021 971230 50.25 50.25 52.25 49.90 49.65 49.90 18 11,936 971231 50.00 49.00 50.00 50.00 50.00 50.45 22 18,797

Share Price Number of

Aut

horiz

ed fo

r us

e on

ly b

y A

chut

h K

esav

an in

Bus

ines

s 50

13 &

Bus

ines

s 50

39 a

t Lak

ehea

d U

nive

rsity

from

Jan

05,

201

5 to

Apr

17,

201

5.U

se o

utsi

de th

ese

para

met

ers

is a

cop

yrig

ht v

iola

tion.

9A99N031

Exhibit 3

SUMMARY FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS

(CDN$000)

1993 1994 1995 1996 1997Assets (restated)Current:

Cash and short-term investments 98,747$ 34,545$ 61,694$ 52,486$ 47,998$ Receivables 117,158 139,864 145,285 162,606 226,195 Inventories 36,706 52,144 58,850 48,059 93,528 Prepaid expenses 53,645 61,670 61,442 59,312 72,738 Prepaid and recoverable income taxes 27,965 10,985 13,208 12,207 17,388 Discontinued operations - - - 272,340 -

Total current assets 334,221 299,208 340,479 607,010 457,847 Property, plant and equipment 475,621 454,308 436,342 412,027 399,227 Goodwill and other assets 222,553 326,447 373,018 303,726 513,416 Total Assets 1,032,395$ 1,079,963$ 1,149,839$ 1,322,763$ 1,370,490$

Liabilities and Shareholders' EquityCurrent:

Bank indebtedness 8,940$ 11,424$ 28,182$ 9,504$ 14,948$ Accounts payable and acc.liab. 175,183 164,718 168,276 151,374 204,082 Income taxes payable 27,065 35,323 33,873 32,469 90,037 Current portion of long-term debt - 394 2,921 7,122 7,431 Discontinued operations 70,000 - - 203,242 -

Total current liabilities 281,188 211,859 233,252 403,711 316,498 Long-term debt 190,460 286,191 333,050 321,813 197,322 Deferred income taxes 2,230 2,199 6,233 19,107 65,747 Employees' shares subscribed 5,661 5,276 4,597 4,279 5,462 Shareholders' equity:

Share Capital 288,034 292,720 292,876 286,195 287,780 Retained Earnings 263,554 273,707 271,901 281,453 485,609 Foreign currency translation adjustment 1,268 8,011 7,930 6,205 12,072

Total shareholders' equity 552,856 574,438 572,707 573,853 785,461 Total liabilities and

shareholders' equity 1,032,395$ 1,079,963$ 1,149,839$ 1,322,763$ 1,370,490$

Actual Year ended December 31

Aut

horiz

ed fo

r us

e on

ly b

y A

chut

h K

esav

an in

Bus

ines

s 50

13 &

Bus

ines

s 50

39 a

t Lak

ehea

d U

nive

rsity

from

Jan

05,

201

5 to

Apr

17,

201

5.U

se o

utsi

de th

ese

para

met

ers

is a

cop

yrig

ht v

iola

tion.

9A99N031

Exhibit 3 (continued)

SUMMARY FINANCIAL STATEMENTS CONSOLIDATED INCOME STATEMENTS

(CDN$000)

1993 1994 1995 1996 1997Operating Revenue:

Newspapers 418,855$ 444,028$ 479,069$ 512,545$ 598,158$ Book publishing 443,825 473,501 484,825 509,262 489,674 Supplementary education - 18,064 36,155 56,736 215,969

Total Revenues 862,680 935,593 1,000,049 1,078,543 1,303,801

Operating Expenses:Newspapers 447,440 425,302 468,767 476,819 518,106 Book publishing 381,236 402,763 407,861 428,333 408,340 Supplementary education - 14,919 31,531 51,596 213,845

Total Expenses 828,676 842,984 908,159 956,748 1,140,291

Operating Profits:Newspapers (28,585) 18,726 10,302 35,726 80,052 Book publishing 62,589 70,738 76,964 80,929 81,334 Supplementary education - 3,145 4,624 5,140 2,124 Corporate (5,965) (6,678) (7,711) (7,767) (6,696)

Operating Profits 28,039 85,931 84,179 114,028 156,814 Interest expense (net) (10,489) (15,051) (16,547) (16,650) (19,733) Foreign exchange (2,025) (869) 275 826 1,379 Unusual items (31,070) - - - -

Income (loss) before taxes (15,545) 70,011 67,907 98,204 138,460 Income and other taxes 3,000 (29,100) (26,100) (35,500) (48,800) Income (loss) before earnings

(losses) of associate businesses (12,545) 40,911 41,807 62,704 89,660 Earnings (losses) of associated businesses - - (5,700) (3,171) 358 Income (loss) from continuing operations (12,545)$ 40,911$ 36,107$ 59,533$ 90,018$

Discontinued Operations 4,837 170,170 Reported Net Income (12,545)$ 40,911$ 36,107$ 64,370$ 260,188$

Actual - Year ended December 31,

Aut

horiz

ed fo

r us

e on

ly b

y A

chut

h K

esav

an in

Bus

ines

s 50

13 &

Bus

ines

s 50

39 a

t Lak

ehea

d U

nive

rsity

from

Jan

05,

201

5 to

Apr

17,

201

5.U

se o

utsi

de th

ese

para

met

ers

is a

cop

yrig

ht v

iola

tion.

9A99N031


SUMMARY FINANCIAL STATEMENTS CONSOLIDATED CASH FLOW

(CDN$000)

1995 1996 1997Cash was provided by (used in):

Operating activities 78,314$ 102,879$ 130,036$ Investing activities (93,550) (139,110) (282,782) Discontinued operations 5,470 (58,693) 462,209 Dividends (30,886) (35,099) (40,260)

Decrease (increase) in net borrowings (40,652) (130,023) 269,203 Effect of exchange rate changes 1,657 1,082 (9,506) Net borrowings, beginning of year (263,464) (302,459) (431,400) Net borrowings, end of year (302,459)$ (431,400)$ (171,703)$

Operating Activities:Income before earnings (loss) of associated business 43,495$ 62,704$ 89,660$ Depreciation 39,899 38,868 43,982 Amortization 13,016 11,127 16,391 Deferred income taxes 3,704 12,973 14,607 Other 132 (126) (965) Operating cash flow 100,246 125,546 163,675 Increase in non-cash working capital (21,932) (22,667) (33,639)

Cash provided by operating activities 78,314$ 102,879$ 130,036$

Investing Activities:Acquisitions (58,751)$ (63,483)$ (239,690)$ Distribution services agreement - (21,795) - Additions to property, plant and equipment (20,262) (29,811) (26,605) Purchase of shares for cancellation (9,682) (27,510) (19,752) Other (4,855) 3,489 3,265

Cash used in investing activities (93,550)$ (139,110)$ (282,782)$

Net borrowings represented by:Long-term debt (including current portion) (335,971)$ (328,935)$ (204,753)$ Cash and short-term investmentsNet of bank indebtedness 33,512 42,982 33,050 Discontinued operations net borrowings - (145,447) -

(302,459)$ (431,400)$ (171,703)$

Aut

horiz

ed fo

r us

e on

ly b

y A

chut

h K

esav

an in

Bus

ines

s 50

13 &

Bus

ines

s 50

39 a

t Lak

ehea

d U

nive

rsity

from

Jan

05,

201

5 to

Apr

17,

201

5.U

se o

utsi

de th

ese

para

met

ers

is a

cop

yrig

ht v

iola

tion.

9A99N031


FREE CASH FLOW ANALYSIS Operating Cash Flow Less Dividends Less Capex. Free Cash Flow

1995 1996 1997

$ 78.3

$102.9

$130.0

($30.9)

($35.1)

($40.3)

($20.3)

($29.8)

($26.6)

$27.2

$38.0

$63.1

Management Projections

1998 1999

$50.0

$50.0

OPTIONS/GRANTS DURING MOST RECENT COMPLETED FINANCIAL YEAR UNDER TORSTAR SHARE OPTION PLAN1

Name Securities2

Under Options

(#)

Per Cent of Total Options

Granted to Employees in

Financial Year

Exercise or Base Price

($/Security)

Market Price of Securities Underlying Options on

Date of Grant ($/Security)

Expiration Date

David Galloway Brian Hickey John Honderich John Baxter Robert Steacy

60,000

30,000

30,000

10,000

20,000

15.2

7.6

7.6

2.5

5.1

33.00

33.00

33.00

33.00

33.00

33.00

33.00

33.00

33.00

33.00

02/01/2008

02/01/2008

02/01/2008

02/01/2008

02/01/2008

1Torstar Corporation, Information Circular, Dated as of March 9, 1998. 2Torstar is the issuer. The securities are Class B non-voting shares.

Aut

horiz

ed fo

r us

e on

ly b

y A

chut

h K

esav

an in

Bus

ines

s 50

13 &

Bus

ines

s 50

39 a

t Lak

ehea

d U

nive

rsity

from

Jan

05,

201

5 to

Apr

17,

201

5.U

se o

utsi

de th

ese

para

met

ers

is a

cop

yrig

ht v

iola

tion.

9A99N031


SUMMARY FINANCIAL STATEMENTS INTERIM FINANCIAL STATEMENTS

(CDN$000)

1st Q. 1997 2nd Q. 1997 3rd Q. 1997 4th Q. 1997 1st Q. 1998(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)

Operating Revenue:Newspapers 132,652$ 151,100$ 138,734$ 175,672$ 147,789$ Book publishing 123,464 120,985 125,827 119,398 126,252 Supplementary education 19,887 34,516 65,427 96,139 73,278

Total Revenues 276,003 306,601 329,988 391,209 347,319 Operating Expenses:

Newspapers 111,419 129,270 127,457 149,960 127,698 Book publishing 103,996 99,094 104,824 100,426 104,327 Supplementary education 21,934 30,880 65,117 95,914 76,665

Total Expenses 237,349 259,244 297,398 346,300 308,690 Operating Profits:

Newspapers 21,233 21,830 11,277 25,712 20,091 Book publishing 19,468 21,891 21,003 18,972 21,925 Supplementary education (2,047) 3,636 310 225 (3,387) Corporate (1,913) (1,612) (1,606) (1,565) (1,526)

Operating Profits 36,741 45,745 30,984 43,344 37,103 Interest expense (net) (4,026) (4,310) (6,631) (4,766) (2,789) Foreign exchange (125) (125) (100) 1,729 - Unusual items - - - - -

Income before taxes 32,590 41,310 24,253 40,307 34,314 Income and other taxes (12,000) (14,800) (9,000) (13,000) (12,600) Income before earnings (losses)

of associated businesses 20,590 26,510 15,253 27,307 21,714 Earnings of associated businesses 358 - - - - Income from cont. operations 20,948$ 26,510$ 15,253$ 27,307$ 21,714$ Discontinued Operations (101) 2,197 (456) 168,530 - Reported Net Income 20,847$ 28,707$ 14,797$ 195,837$ 21,714$ Average shares o/s ($000s) 39,151 39,107 39,060 39,044 38,989 Earnings per Class A and Class B shares:Income from cont. operations $0.54 $0.68 $0.40 $0.70 $0.56Net Income $0.53 $0.74 $0.38 $5.01 $0.56Dividends per share $0.26 $0.26 $0.26 $0.26Operating profit (loss) before depreciation and amortization:

Newspapers 37,200$ 41,373$ 20,617$ 36,846$ 29,807$ Book publishing 22,848 25,304 24,403 22,197 25,308 Supplementary education (940) 5,009 2,603 3,768 (395) Corporate (1,754) (1,456) (1,449) (1,404) (1,369)

57,354$ 70,230$ 46,174$ 61,407$ 53,351$

Aut

horiz

ed fo

r us

e on

ly b

y A

chut

h K

esav

an in

Bus

ines

s 50

13 &

Bus

ines

s 50

39 a

t Lak

ehea

d U

nive

rsity

from

Jan

05,

201

5 to

Apr

17,

201

5.U

se o

utsi

de th

ese

para

met

ers

is a

cop

yrig

ht v

iola

tion.

9A99N031


As of As of As of As of 1st Q. 1998March 31, 1997 June 30, 1997 Sept. 30, 1997 Dec. 31, 1997 March 31, 1998

(Unaudited) (Unaudited) (Unaudited) Audited (Unaudited)AssetsTotal current assets 597,634$ 622,315$ 650,000$ 457,847$ 427,008$ Property, plant and equipment 405,766 403,697 403,797 399,227 393,178 Goodwill and other assets 321,245 335,466 512,047 513,416 506,475 Total assets 1,324,645$ 1,361,478$ 1,565,844$ 1,370,490$ 1,326,661$

Liabilities and Shareholder's EquityTotal current liabilities 368,720$ 376,345$ 425,891$ 316,498$ 235,241$ Long-term Debt 350,978 364,139 510,007 197,322 251,844 Other Liabilities 30,807 36,905 41,130 71,209 71,946 Total shareholders' equity 574,140 584,089 588,816 785,461 767,630 Total liabilities and

shareholders' equity 1,324,645$ 1,361,478$ 1,565,844$ 1,370,490$ 1,326,661$

Aut

horiz

ed fo

r us

e on

ly b

y A

chut

h K

esav

an in

Bus

ines

s 50

13 &

Bus

ines

s 50

39 a

t Lak

ehea

d U

nive

rsity

from

Jan

05,

201

5 to

Apr

17,

201

5.U

se o

utsi

de th

ese

para

met

ers

is a

cop

yrig

ht v

iola

tion.

9A99N031


3 months 6 months 9 months 12 months 3 monthsEnded Ended Ended Ended Ended

March 30, June 30, Sept. 30, Dec. 30, March 30,1997 1997 1997 1997 1998

(Unaudited) (Unaudited) (Unaudited) (Audited) (Unaudited)Cash was provided by (Used in):

Operating activities 25,603$ 54,570$ 92,844$ 130,036$ 27,972$ Investing activities (36,495) (75,431) (272,077) (282,782) (31,794) Discontinued operations (2,349) 4,931 39,384 462,209 (48,567) Dividends (10,120) (20,085) (30,165) (40,260) (10,090)

Decrease (increase) in net borrowings (23,361) (36,015) (170,014) 269,203 (62,479) Effect of exchange rate changes (568) 1,383 36 (9,506) 1,507 Net borrowings, beginning of year (431,400) (431,400) (431,400) (431,400) (171,703) Net borrowings, end of year (455,329)$ (466,032)$ (601,378)$ (171,703)$ (232,675)$

Operating Activities:Income before earnings of

associated business 20,590$ 47,100$ 62,353$ 89,660$ 21,714$ Depreciation 9,924 20,175 30,964 43,982 11,472 Amortization 3,366 6,945 11,346 16,391 4,776 Deferred income taxes 7,500 12,200 16,500 14,607 875 Other 568 896 620 (965) 10 Operating cash flow 41,948 87,316 121,783 163,675 38,847 Increase in non-cash working capital (16,345) (32,746) (28,939) (33,639) (10,875)

Cash provided by operating activities 25,603$ 54,570$ 92,844$ 130,036$ 27,972$ Investing Activities:

Acquisitions (26,296)$ (43,682)$ (235,546)$ (239,690)$ -$ Distribution services agreement - - - - - Additions to property, plant and equipment (4,538) (12,704) (18,465) (26,605) (5,467) Purchase of shares for cancellation (8,741) (18,912) (19,752) (19,752) (29,758) Other 3,080 (133) 1,686 3,265 3,431

Cash used in investing activities (36,495)$ (75,431)$ (272,077)$ (282,782)$ (31,794)$ Net borrowings represented by:

Long-term debt (incl. current portion) (358,176)$ (371,321)$ (654,812)$ (204,753)$ (259,210)$ Cash and short-term investments

net of bank indebtedness 43,348 38,099 53,434 33,050 26,535 Disc. operations net borrowings (140,501) (132,810) - - -

(455,329)$ (466,032)$ (601,378)$ (171,703)$ (232,675)$ A

utho

rized

for

use

only

by

Ach

uth

Kes

avan

in B

usin

ess

5013

& B

usin

ess

5039

at L

akeh

ead

Uni

vers

ity fr

om J

an 0

5, 2

015

to A

pr 1

7, 2

015.

Use

out

side

thes

e pa

ram

eter

s is

a c

opyr

ight

vio

latio

n.

9A99N031

Exhibit 4

RECENT INVESTMENTS AND DIVESTITURES Investments Business Company Date Purchase Price

in Cdn$000s 1997 Online auctions Internet Liquidators

International Inc. January 1,475

Online information on arts, entertainment events, community activities and local businesses

Strategic partnership with CitySearch

April 750

Infocommercials Direct To You March 17 1,700 Supplementary

education Judy/Instructo Group of Co.

March 12 26,995

Supplementary education

Full Option Science Sys. May 2 16,225


Troll Communications LLC

July 18 192,130

Newspapers Community newspapers and trade shows

Various 4,340

1996 Supplementary education

Tom Snyder Productions

March 29 33,852


Delta Educations Inc. November 22 28,978

Newspapers Community newspapers March 14 653 Newspapers Through Hebdo Mag

International acquired controlling interests in free advertising newspapers in Italy, Russia, The Netherlands, Switzerland, United Kingdom and Ireland

December 75,000

1995 Computerized national resume database

JCI Technologies (28 per cent)

February 3,600

Aut

horiz

ed fo

r us

e on

ly b

y A

chut

h K

esav

an in

Bus

ines

s 50

13 &

Bus

ines

s 50

39 a

t Lak

ehea

d U

nive

rsity

from

Jan

05,

201

5 to

Apr

17,

201

5.U

se o

utsi

de th

ese

para

met

ers

is a

cop

yrig

ht v

iola

tion.

9A99N031

Exhibit 4 (continued) Investments Business Company Date Purchase Price

in Cdn$000s Supplementary

education Warren Publishing House

September 30 5,700

Computerized national resume database

Increased investment to 39 per cent in JCI Technologies

February 2,700

Publisher of photo classified materials

Increased investment in Hebdo Mag International

December 10,000

1994 Cable TV service featuring movie theatre listings

The Popcorn Channel (40 per cent investment in a joint venture with The New York Times)


Frank Schaffer Productions

May 31 81,400

1993 Multimedia products 16 per cent interest in Discis Inc.

December 23 4,171

1992 Consumer catalogue Exposures Incorporated (Consolidated into Miles Kimball Company)

December 31 8,701

Divestitures 1997 U.S. catalogue

marketing Miles Kimball Company August 28 32,000

Publisher of photo classified materials

Hebdo Mag International

October 3 295,000 plus131,000 in debt

reduction1996 Computerized national

resume database JCI Technologies (28 per cent)

Written-off

Cable TV service featuring movie theatre listings

The Popcorn Channel (40 per cent investment in a joint venture with The New York Times)

Written-off

1992 Newspaper 28 per cent stake in Southam Inc.

January 8 258,649

Aut

horiz

ed fo

r us

e on

ly b

y A

chut

h K

esav

an in

Bus

ines

s 50

13 &

Bus

ines

s 50

39 a

t Lak

ehea

d U

nive

rsity

from

Jan

05,

201

5 to

Apr

17,

201

5.U

se o

utsi

de th

ese

para

met

ers

is a

cop

yrig

ht v

iola

tion.

9A99N031

Exhibit 5

OPERATING COMPANIES PRODUCTS AND SERVICES The Toronto Star John A Honderich, Publisher The Toronto Star: StarWeek Magazine For Rent

The Best of The Star Toronto Star Ventures: Toronto Star CitySearch,

T-O Online Toronto Star Television Eye Weekly Magazine Real Estate News Metroland Printing Publishing & Distributing John Baxter, President Acton Free Press Ajax / Pickering News Advertiser Alliston Herald / Courier Aurora Era-Banner Barrie Advance Barrys Bay This Week Bolton Enterprise Brampton Guardian Burlington Post City of York Guardian Clarington This Week Collingwood / Wasaga Connection East York Mirror Erin Advocate Etobicoke Guardian Flamborough Post Georgetown Independent Georgina Era-Banner Halton Hills Weekend Kingston This Week Lindsay This Week Markham Economist & Sun

Midland / Penetanguishene Mirror Milton Canadian Champion Mississauga News Newmarket Era-Banner Northumberland News North York Mirror Oakville Beaver Oakville North News Orillia Today Oshawa This Week Peterborough This Week Pickering News Advertiser Port Perry This Week Richmond Hill Liberal Scarborough Mirror Stouffville Tribune Thornhill Liberal Uxbridge Tribune Vaughan Liberal Whitby This Week Todays Seniors City Parent

Aut

horiz

ed fo

r us

e on

ly b

y A

chut

h K

esav

an in

Bus

ines

s 50

13 &

Bus

ines

s 50

39 a

t Lak

ehea

d U

nive

rsity

from

Jan

05,

201

5 to

Apr

17,

201

5.U

se o

utsi

de th

ese

para

met

ers

is a

cop

yrig

ht v

iola

tion.

9A99N031

Exhibit 5 (continued) Harlequin Enterprises Brian E. Hickey, Chairman and CEO Harlequin Mills & Boon U.K. Harlequin Australia Harlequin Holland Harlequin Japan Harlequin Scandinavia Harlequin Spain Harlequin Poland Harlequin Czech Republic Harlequin New Zealand Joint Ventures: Harlequin Germany Harlequin France Harlequin Italy Harlequin Greece Harlequin Hungary Childrens Supplementary Educational Publishing Brian E. Hickey, Chairman and CEO Frank Schaffer Publications Tom Snyder Productions Delta Education Troll Communications Warren Publishing House Judy / Instructo Group of Co. Good Apple Brighter Vision

Aut

horiz

ed fo

r us

e on

ly b

y A

chut

h K

esav

an in

Bus

ines

s 50

13 &

Bus

ines

s 50

39 a

t Lak

ehea

d U

nive

rsity

from

Jan

05,

201

5 to

Apr

17,

201

5.U

se o

utsi

de th

ese

para

met

ers

is a

cop

yrig

ht v

iola

tion.

9A99N031

Exhibit 6

ANALYSIS OF GEOGRAPHICAL AND BUSINESS SEGMENTS (CDN$000)

Operating Revenue Operating Profit Identifiable Assets 1996 1997 1996 1997 1996 1997 Canada $536,091 $621,447 $44,380 $81,768 $487,831 $560,709United States 335,770 480,182 44,753 45,495 358,755 636,440Principally in United Kingdom, Japan, Germany, Australia, Italy, and France

206,682 202,172 32,682 36,247

133,475 104,293

Corporate (7,767) (6,696) 70,362 69,048 $1,078,543 $1,303,801 $114,048 $156,814 $1,050,423 $1,370,490

Operating Revenue (%) Operating Profit (%) 1996 1997 1996 1997 Newspapers 47.5 45.9 31.3 51.0Book Publishing 47.2 37.6 71.0 51.9Supplementary Education 5.3 16.5 4.5 1.4Corporate 6.8 4.3 100.0 100.0 100.0 100.0

A

utho

rized

for

use

only

by

Ach

uth

Kes

avan

in B

usin

ess

5013

& B

usin

ess

5039

at L

akeh

ead

Uni

vers

ity fr

om J

an 0

5, 2

015

to A

pr 1

7, 2

015.

Use

out

side

thes

e pa

ram

eter

s is

a c

opyr

ight

vio

latio

n.

9A99N031

Exhibit 7

CLASS A SHARE OWNERSHIP Shareholder Class A Shares Percentage of Votes Ruth Hindmarsh Group 923,628 18.5% Honderich Group 729,178 14.6%

Executors of the Estate of Joseph S. Atkinson

1,555,474

31.3%

Thall Investments 729,162 14.6% Campbell Group 729,180 14.6%

Source: Torstar Corporation Information Circular, dated as of March 9, 1998.

Exhibit 8

TSE 300 TOTAL RETURN INDEX MONTHLY JANUARY 1993 TO DECEMBER 1997

0

5000

10000

15000

20000

9301

9307

9401

9407

9501

9507

9601

9607

9701

9707

TSE3

00 T

otal

Ret

urn

Inde

x

Aut

horiz

ed fo

r us

e on

ly b

y A

chut

h K

esav

an in

Bus

ines

s 50

13 &

Bus

ines

s 50

39 a

t Lak

ehea

d U

nive

rsity

from

Jan

05,

201

5 to

Apr

17,

201

5.U

se o

utsi

de th

ese

para

met

ers

is a

cop

yrig

ht v

iola

tion.

9A99N031

Exhibit 9

SUMMARY ANALYSIS RESEARCH REPORTS ON TORSTAR AS OF APRIL 1998

Projected EPS Date Investment Dealer 1998E 1999E 2000E Recommendation

April 28, 1998 RBC Dominion Securities

Andrea Horan, CFA

$2.69 $3.25 $3.77 Strong Buy 1 year target: $59.00 3 year target: $78.00

April 30, 1998 TD Securities Jeremy H. Burge Richard C. Neshevich

$2.61 $3.08 Buy up to $50.00 Fair current value: $51 12 month target: $56.00

April 28, 1998 Scotia Capital Markets Sue Scully

$2.75 $3.23 Strong buy 1 year target: $60.00

April 29, 1998 Deacon Capital B. Wolfenden

$2.75 $3.15 Upgraded to an Accumulate 1 year target: $48.00

April 29, 1998 CIBC Wood Gundy Bob Bek

$2.62 $3.00 Maintain Hold

April 28, 1998 Nesbitt Burns Doug Kirk

$2.71 $3.17 3 Rating Maintained 1 year target: $55.00

April 30, 1998 Griffiths McBurney Paul P. Kew, CFA

$2.80 $3.26 Buy Target: $61.00

April 29, 1998 Bunting Warbung Stephannie Larocque, CFA

$2.75 $3.10 Change from Accumulate to Buy 12 month target: $55.00

A

utho

rized

for

use

only

by

Ach

uth

Kes

avan

in B

usin

ess

5013

& B

usin

ess

5039

at L

akeh

ead

Uni

vers

ity fr

om J

an 0

5, 2

015

to A

pr 1

7, 2

015.

Use

out

side

thes

e pa

ram

eter

s is

a c

opyr

ight

vio

latio

n.

9A99N031

Exhibit 10

THE IMPACT OF THE LAUNCH OF A NEW NATIONAL NEWSPAPER BY SOUTHAM INC.1 Much has been made of the launch of Southams new, yet-to-be-named, national newspaper. Little is known about it, but we do know that: it will have two editions, one being a Toronto edition; it will be published five days a week only; Southam is likely to initially distribute some 200,000 to 250,000 free copies, about half of

them in the Greater Toronto Area. Viewpoints on the street have stated that this new newspaper will have a major impact on the profitability of the Toronto newspapers, including The Toronto Star. The key to newspaper advertising is reach and/or the demographics and size of the readership. The Toronto Star has a daily circulation during the week of over 450,000 and on Saturday of

over 700,000. Average weekday readership is over 1.3 million compared to The Toronto Suns 780,000 and

the Globe and Mails 500,000. This is 51.5 per cent of total readership (source: NADbank97).

The average readership reach (as a percentage of the total market) of the three main Toronto dailies in the Toronto CMA 18-years-of-age-or-older market for 1997 is: Weekday Saturday The Toronto Star 39.6% 52.1% The Toronto Sun 22.6% 11.4% Globe and Mail 14.6% 13.8%

Source: Torstar 1997 AIF. Advertisers will always be attracted to the advertising media which have the biggest market reach, the biggest readership and well known demographic profile.

1Excerpt from: Jeremy H. Burge and Richard C. Neshevich, Torstar Corp., TD Securities Inc. Research Report, April 1998.

Aut

horiz

ed fo

r us

e on

ly b

y A

chut

h K

esav

an in

Bus

ines

s 50

13 &

Bus

ines

s 50

39 a

t Lak

ehea

d U

nive

rsity

from

Jan

05,

201

5 to

Apr

17,

201

5.U

se o

utsi

de th

ese

para

met

ers

is a

cop

yrig

ht v

iola

tion.

9A99N031

Exhibit 10 (continued) While the launch of a new paper will have some impact on the market dynamics, we make the following key points: Metroland will be comparatively unaffected by this and it produces over 30 per cent of the

total newspaper divisions revenue. The Toronto Star has only some $60 million of national advertising revenues, and this is the

segment that is most likely to come under attack from the a new national newspaper. Even if Southam gives away 150,000 papers in the Toronto area, its circulation will be just one-third of The Toronto Stars and perhaps the readership as little as 20 per cent of that of The Toronto Stars. Even then, advertisers might not give the same weighting to a paper that is given away as they would to one that is purchased by its readers. The Star is unlikely to lose significant advertising market share, but the national advertising rates could fall. A 20 per cent fall in rates with no volume increase (unlikely due to the price elasticity relationship) would reduce revenues by less than $10 million and EPS by less than $0.10. Even if cover prices fell by 10 per cent, EPS would fall by less than $0.10.

It will be the Globe and Mail with its heavy exposure to national advertising that will be the

most affected by this new paper. With by far the largest circulation and readership in Canadas largest city, the Star will still offer attractive exposure for national advertisers.

However, to be prudent, we have reduced our existing estimates as follows: EPS for 1998 and 1999 down from $2.73 and $3.22 to $2.63 and $3.08, respectively. This

would reflect either: (i) a 15 per cent reduction in cover prices, or (ii) a 20 per cent reduction in national advertising rates. In the case of the 1998 results, the $0.10 EPS reduction is very conservative since the new national paper will not be out until the fourth quarter.

CFPS for 1998 and 1999 down from $4.41 and $4.90 to $4.33 and $4.84. Even with these conservative numbers, Torstars shares will generate attractive profit growth. CSEP will not be a material contributor to Torstars profit growth until late 1998. Management is still positive that CSEP can now grow so that it produces some $50 million in revenues and $60 million to $75 million in EBITDA by 2000. We are expecting a conservative EBITDA in 1999 of $41 million. If CSEP comes even close to its 2000 target, it will become a meaningful EPS and CFPS growth contributor to the group and should be a material driver of the share price. From time to time, the market mistakes managements quiet demeanor as a sign of a lack of aggression. CEO David Galloway is a quietly spoken intellectual. Yet investors would be wise to acknowledge that this fronts an intelligently competitive individual. He and his management team are more than ready to meet and succeed in this projected competitive marketplace.

Aut

horiz

ed fo

r us

e on

ly b

y A

chut

h K

esav

an in

Bus

ines

s 50

13 &

Bus

ines

s 50

39 a

t Lak

ehea

d U

nive

rsity

from

Jan

05,

201

5 to

Apr

17,

201

5.U

se o

utsi

de th

ese

para

met

ers

is a

cop

yrig

ht v

iola

tion.

9a99n031_pcs

Documents