2003 MANAGEMENT’S DISCUSSION AND ANALYSISDigital; and Book Publishing. The Newspapers and Digital...

TORSTAR CORPORATION INTERIM MANAGEMENT’S DISCUSSION AND ANALYSIS

For the three months ended March 31, 2010 and 2009

Dated: May 4, 2010

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INTERIM MANAGEMENT’S DISCUSSION AND ANALYSIS

For the three months ended March 31, 2010 and 2009 Dated: May 4, 2010 The following review and analysis of Torstar Corporation’s (the “Company” or “Torstar”) operations and financial position for the three months ended March 31, 2010 and 2009 is supplementary to, and should be read in conjunction with the audited consolidated financial statements of Torstar Corporation for the year ended December 31, 2009 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 22, 2010. 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 Torstar’s operations or by a reporting unit or segment. EBITDA is not the actual cash provided by operating activities and is not a recognized measure of financial performance under GAAP. Torstar calculates EBITDA as the consolidated, segment or reporting unit operating profit as presented on the consolidated statements of income which is before charges for interest and taxes, adjusted for depreciation and amortization of intangible assets. Torstar also excludes restructuring and other charges from its calculation of EBITDA. Torstar’s method of calculating EBITDA may differ from other companies and accordingly may not be comparable to measures used by other companies. Forward-looking statements Certain statements in this 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, except as may be required by law. By their very nature, forward-looking statements require management to make assumptions and are subject to inherent risks and uncertainties. There is a significant risk that predictions, forecasts, conclusions or projections will not prove to be accurate, that management’s assumptions may not be accurate and that actual results, performance or achievements may differ significantly from such predictions, forecasts, conclusions or projections expressed or implied by such forward-looking statements. We caution readers to not place undue reliance on the forward-looking statements in this 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.

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These factors include, but are not limited to: general economic conditions in the principal markets in which the Company operates, the Company’s ability to operate in highly competitive industries, the Company’s ability to compete with other forms of media, the Company’s ability to attract advertisers, cyclical and seasonal variations in the Company’s revenues, labour disruptions, newsprint costs, foreign exchange fluctuations, investments, restrictions imposed by existing credit facilities and availability of capital, pension fund obligations, results of impairment tests, reliance on its printing operations, reliance on technology and information systems, interest rates, availability of insurance, litigation, environmental regulations, dependence on key personnel, control of Torstar by the voting trust, loss of reputation, confidential information, intellectual property rights and uncertainties associated with critical accounting estimates. We caution that the foregoing list is not exhaustive of all possible factors, as other factors could adversely affect our results. 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 publishes over 100 newspapers including the Toronto Star, Canada’s largest daily newspaper, The Mississauga News, Oshawa This Week and The Hamilton Spectator. It also includes leading digital properties such as thestar.com, toronto.com, Insurance Hotline, Wheels.ca, flyerland.ca, goldbook.ca, Workopolis, Olive Media and eyeReturn Marketing. The Book Publishing Segment represents Harlequin Enterprises Limited, (“Harlequin”) 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 – First quarter 2010 Overall Performance Total revenue was $334.2 million in the first quarter of 2010, down $4.8 million from $339.0 million in the first quarter of 2009. Excluding the $10.1 million decrease from the stronger Canadian dollar, total revenue would have been up $5.3 million in the quarter. Newspapers and Digital revenue was $221.4 million in the quarter, up $6.9 million from $214.5 million in 2009 with strong national advertising in both print and digital media. Retail and employment advertising remained soft during the quarter. Book Publishing revenue was $112.8 million in the first quarter of 2010, down $11.7 million from $124.5 million in the first quarter of 2009 including the $10.1 million decrease from the stronger Canadian dollar relative to a year ago. The North America Direct-To-Consumer division had strong growth in digital revenues in the first quarter that were offset by lower North America Retail and Overseas revenues.

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Operating profit before restructuring and other charges was $32.5 million in the first quarter of 2010, up $20.9 million from $11.6 million in the first quarter of 2009. Including the $8.3 million of restructuring and other charges, operating profit was $24.2 million in the first quarter of 2010, up $38.5 million from an operating loss of $14.3 million in 2009 (which included $25.9 million of restructuring and other charges). Newspapers and Digital Segment operating profit was $13.2 million in the first quarter of 2010, up $18.0 million from an operating loss of $4.8 million in the same quarter last year as results benefited from revenue improvement and lower newsprint pricing, lower pension costs and labour cost savings from restructuring initiatives. Book Publishing operating profit was $22.7 million in the first quarter of 2010, up $2.1 million from $20.6 million in the first quarter of 2009, including a positive $0.4 million from the impact of foreign exchange. Operating results were up in the North America Direct-To-Consumer division and down in the North America Retail and Overseas divisions. Corporate costs were $3.3 million in the first quarter, down $0.9 million from $4.2 million in the same period last year. The decrease primarily relates to the mark-to-market of a stock-based compensation hedging instrument. EBITDA1, excluding restructuring and other charges, was $44.7 million in 2010, up $19.9 million from $24.8 million in 2009.

(in $000’s) 2010 2009 Newspapers and Digital $24,265 $7,157 Book Publishing 23,728 21,788 Corporate (3,312) (4,137) EBITDA, excluding restructuring and other charges $44,681 $24,808

Restructuring and other charges Restructuring and other charges of $8.3 million were recorded in the first quarter of 2010 compared with $25.9 million in the first quarter of 2009. The 2010 amount related to restructuring provisions in the Newspaper and Digital Segment. In 2009, the restructuring and other charges included $12.8 million related to the transition in leadership at Torstar Corporate, $11.7 million for restructuring provisions in the Newspapers and Digital Segment and $1.4 million related to the closure of a distribution centre in Harlequin’s U.K. operation. The restructuring charges in the Newspapers and Digital segment reflect the ongoing focus on reducing operating costs in both Metroland Media Group and Star Media Group. Total annual savings from the first quarter 2010 restructuring activities are expected to be approximately $6.9 million (with approximately $0.1 million realized in the first quarter of 2010 and $3.5 million to be realized during the next three quarters of 2010) and a reduction of approximately 100 positions. In addition, further savings of $12.8 million are expected in 2010 (including $5.1 million realized in the first quarter) related to restructuring efforts that were undertaken in prior years.

1 EBITDA is calculated as 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. See “non-GAAP measures”.

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Interest Interest expense was $4.3 million in the first quarter of 2010, down $1.3 million from $5.6 million in the first quarter of 2009. The lower expense reflects the lower level of average net debt during the quarter and the slightly lower effective interest rates. The average net debt (long-term debt and bank overdraft net of cash and cash equivalents) was $504.5 million in the first quarter of 2010, down $118.6 million from $623.1 million in the same period last year. Torstar’s effective interest rate was 3.4% in the first quarter of 2010 and 3.6% in the first quarter of 2009. Net debt was $493.2 million at March 31, 2010, down $22.6 million from $515.8 million at December 31, 2009. Foreign Exchange Torstar reported a non-cash foreign exchange loss of $0.8 million in the first quarter of 2010. This loss arose from the translation of foreign-currency (primarily U.S. dollars) denominated assets and liabilities into Canadian dollars. The amount of the gain or loss in any year will vary depending on the movement in relative value of the Canadian dollar and on whether Torstar has a net asset or net liability position in the foreign currency. In the first quarter of 2009, a non-cash foreign exchange loss of $0.3 million was reported. Loss from associated businesses The loss from associated businesses was $4.3 million in the first quarter of 2010 compared with a loss of $7.0 million in the first quarter of 2009. Torstar’s share of CTVgm’s net loss was $4.4 million in the first quarter of 2010 compared with a loss of $6.9 million in the first quarter of 2009. CTVgm’s advertising revenues were very strong in the first quarter of 2010 due to the winter Olympics and improved economic conditions. CTVgm benefited in the quarter from lower costs including the replacement of Part II licence fees with a lower fee regime and lower restructuring charges. These savings were partially offset by higher interest expense. In the first quarter of 2009, CTVgm had recorded an after tax $5.3 million write-down of the carrying value of certain conventional television licences that CTVgm had decided not to renew. Offsetting the write-down was a gain on the sale of one-half of CTVgm’s interest in Maple Leaf Sports and Entertainment Ltd. Torstar is not currently recording its share of Black Press’s results. Torstar’s carrying value in Black Press was reduced to nil in the fourth quarter of 2008. Under Canadian GAAP a negative carrying value is not recorded, but any deficit must be recovered prior to the reporting of any further results. Torstar’s share of Black Press’s net income would have been a loss of $3.6 million in the first quarter of 2010, including a $3.1 million impairment loss related to a customer-related intangible asset and goodwill related to a printing operation. Excluding the impairment charge, Torstar’s share of Black Press’s net income would have been a loss of $0.5 million compared with income of $1.0 million in the first quarter of 2009. Black Press’s operating results improved in the quarter as revenue declines slowed and significant cost savings, including lower interest expense, were realized. Offsetting these improvements were higher non-recurring expenses and income taxes.

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Income and other taxes Torstar’s effective tax rate was 50.0% in the first quarter of 2010 and 21.0% in the first quarter of 2009. In both years the loss from associated businesses was not tax affected. Excluding the impact from not tax-affecting the losses, the effective tax rate would have been 38.7% in 2010 and 28.4% in 2009. The higher effective tax rate in 2010 reflects the mix of income in the quarter compared to the prior year. Net income (loss) Torstar reported net income of $7.4 million or $0.09 per share in the first quarter of 2010. In the first quarter of 2009 Torstar reported a net loss of $21.4 million or $0.27 per share. The average number of Class A and Class B non-voting shares outstanding was 79.0 million in the first quarter of 2010 up slightly from 78.9 million in the first quarter of 2009. The following chart provides a continuity of earnings per share from 2009 to 2010:

Net loss per share 2009 ($0.27) Changes Operations 0.18 Restructuring and other charges 0.15 Loss from associated businesses

o Impairments 0.07 o Other (0.03)

Non-cash foreign exchange (0.01) Net income per share 2010 $0.09

Segment Operating Results – Newspapers and Digital The Newspapers and Digital Segment includes the Star Media Group and Metroland Media Group (“Metroland”). Star Media Group includes the Toronto Star, Canada’s largest daily newspaper which is read in print and online (thestar.com) by more than 2.8 million readers every week. Online, thestar.com is one of the most-visited newspaper websites in Canada. Star Media Group also includes Torstar Syndication Services (provides editorial content to newspapers and other media), Wheels.ca and insurancehotline.com (both jointly with Metroland Media Group), parentcentral.ca, healthzone.ca, yourhomes.ca, toronto.com (an online destination for events and attractions in the Greater Toronto Area), eyeReturn Marketing (a leading provider of online marketing services) and the Torstar Digital corporate group. In addition to the above wholly-owned operations, Star Media Group also includes Torstar’s proportionate interests in Sing Tao Daily, Metro, Workopolis, and Olive Media. Sing Tao Daily publishes a Chinese language newspaper in Canada with editions in Toronto, Vancouver and Calgary. It is also involved in printing, outdoor advertising, Chinese telephone directories, radio and weekly magazine publishing. Torstar jointly owns the Canadian operations of Sing Tao Daily with Sing Tao Holdings Limited. Metro is a free daily newspaper that is published in Toronto, Vancouver, Ottawa, Calgary and Edmonton, jointly by Torstar and Metro International S.A. and in Halifax, jointly by

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Torstar, Metro International S.A. and Transcontinental Media G.P. Torstar owns 50% of Workopolis, Canada’s leading provider of Internet recruitment and job search solutions, and 75% of Olive Media, a leader in the online advertising market in Canada with the ability to reach over 15 million unique Canadian visitors monthly on its portfolio of top-tier sites including thestar.com, nytimes.com, CNET.com, cyberpresse.ca, and tetesaclaques.tv. Gesca Ltd. is Torstar’s partner in both of these partnerships. Metroland Media Group publishes in print and online more than 100 community newspapers including The Mississauga News and Oshawa This Week and three daily newspapers – The Hamilton Spectator, the Waterloo Region Record and the Guelph Mercury. Its online properties include Wheels.ca and insurancehotline.com (both jointly with Star Media Group), flyerland.ca, HomeFinder.ca, gottarent.com, and 50% interests in Save.ca and LeaseBusters.com. Metroland Media Group also publishes the Gold Book print and online directories, a number of specialty publications, operates several consumer shows throughout Ontario and Torstar Media Group Television (a 24-hour direct response television business and commercial production house). Metroland Media Group has eight web press facilities which print the Metroland newspapers but also engage in commercial printing. 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 March 31, 2010 and 2009. 2010 2009 Metroland

Media Star Media

Total

Metroland Media

Star Media

Total

Operating revenue $114,390 $107,054 $221,444 $112,229 $102,300 $214,529 EBITDA $14,779 $9,486 $24,265 $10,255 ($3,098) $7,157 Depreciation & amortization

3,742

7,294

11,036

4,060

7,933

11,993

Operating profit $11,037 $2,192 $13,229 $6,195 ($11,031) ($4,836) EBITDA margin 12.9% 8.9% 11.0% 9.1% n/a 3.3% Operating profit margin

9.6%

2.0%

6.0%

5.5%

n/a

n/a

Total revenue of the Newspapers and Digital Segment was $221.4 million in the first quarter of 2010, up $6.9 million or 3.2% from $214.5 million in the first quarter of 2009. Digital revenues grew 37.8% in the first quarter of 2010 and were 9.0% of the total Newspapers and Digital revenue in 2010, up from 6.7% in 2009. EBITDA was up $17.1 million in the quarter as improved revenues, lower newsprint pricing ($4.2 million), lower pension costs ($2.7 million) and savings in labour costs from restructuring initiatives ($5.1 million) more than offset investment in the digital operations. Metroland Media Group Metroland Media Group revenues were $114.4 million in the first quarter of 2010 up $2.2 million from $112.2 million in the first quarter of 2009. Revenues were up in the quarter for print advertising, distributions and digital media. National and real estate advertising

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were higher at both the daily and community newspapers. Classified revenues were down in the quarter but at lower rates of decline than were experienced in 2009. Employment advertising continued to be soft in the first quarter. Metroland Media Group benefited from lower newsprint pricing ($2.1 million), lower pension costs ($0.6 million) as well as labour cost savings ($2.3 million) in the daily and community newspapers from the restructuring undertaken last year. Offsetting a portion of these cost savings was the continued investment in Metroland’s digital operations. Metroland Media Group’s EBITDA was $14.8 million in the first quarter of 2010 up $4.5 million from $10.3 million in the first quarter of 2009. Operating profit was $11.0 million in the first quarter of 2010 up $4.8 million from $6.2 million in the same period last year. Star Media Group Star Media Group revenues were $107.1 million in the first quarter of 2010, up $4.8 million from $102.3 million in the first quarter of 2009. Advertising revenues were up 2.1% in the quarter at the Toronto Star with growth in national advertising more than offsetting lower retail and classified advertising. Employment advertising continued to be soft during the first quarter. Revenue at Star Media Group’s digital properties was up 17.6% in the quarter driven by strong national advertising sales across the group and improved revenue at Workopolis. Revenues for the jointly-owned Metro newspapers continued to improve with growth in all markets. Sing Tao also had higher revenues in the quarter for both their newspapers and magazines. Star Media Group benefited from lower newsprint pricing ($2.1 million) in the quarter, lower pension costs ($2.1 million) and labour cost savings ($2.8 million) from the restructuring undertaken last year. The group also benefited from lower first quarter marketing costs in the digital properties based on the timing of promotions year over year. During the first quarter of 2010, Sing Tao completed the negotiations of two collective agreements covering approximately 125 employees. The new agreements will expire at the end of 2012. Star Media Group EBITDA was $9.5 million in the first quarter of 2010, up $12.6 million from a loss of $3.1 million in the first quarter of 2009. Operating profit was $2.2 million in the first quarter of 2010, up $13.2 million from a loss of $11.0 million in the same period last year. 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 (which includes direct mail, Internet and digital sales) and Overseas.

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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 months ended March 31, 2010 and 2009.

2010 2009 Revenue $112,775 $124,478 EBITDA $23,728 $21,788 Depreciation & amortization 1,051 1,171 Operating profit $22,677 $20,617 EBITDA margin 21.0% 17.5% Operating profit margin 20.1% 16.6%

Reported revenue, prior year $124,478 Impact of currency movements and foreign exchange contracts (10,064) Change in underlying revenue (1,639) Reported revenue, current year $112,775 Reported operating profit, prior year $20,617 Impact of currency movements and foreign exchange contracts 446 Change in underlying operating profit 1,614 Reported operating profit, current year $22,677

Book Publishing revenues were down $1.6 million in the first quarter of 2010 excluding the impact of foreign exchange. North America Retail was down $3.2 million, North America Direct-To-Consumer was up $3.1 million and Overseas was down $1.5 million. Book Publishing operating profits were up $1.6 million in the first quarter of 2010 excluding the impact of foreign exchange. North America Retail was down $0.8 million, North America Direct-To-Consumer was up $3.0 million and Overseas was down $0.6 million. North America Retail revenues were down in the quarter due to lower positive adjustments to prior year returns provisions compared to the first quarter of 2009 and fewer books sold, partially due to a change in the publication schedule. Offsetting a portion of the lower volumes was a positive mix in cover prices, lower inventory write-downs (higher in the first quarter of 2009 due to the bankruptcy of a U.S. distributor) and lower promotional spending. North America Direct-To-Consumer had significant growth in digital revenues in the first quarter driven by the growing popularity of eReaders. In the traditional direct mail business, revenues were flat year over year while operating profit was up due to lower promotional spending in the quarter.

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Overseas operating results were lower in the first quarter of 2010 with declines in Japan and France more than offsetting growth in Australia, Holland and Germany. The Japanese operation continues to be challenged by a very difficult book industry and an economic recession. As expected, the contribution from the agreement with SoftBank Creative Corp., (a division of Softbank Corp., one of the largest providers of cell phone services in Japan) to distribute digital manga (comic) content on cell phones and Internet distribution sites declined in the quarter consistent with the contracted delivery schedule. Sales were down in France in both the retail and direct-to-consumer businesses in the quarter. LIQUIDITY AND CAPITAL RESOURCES Overview Torstar’s businesses generate a significant amount of cash flow from operations. These funds are generally used for capital expenditures, acquisitions, distributions to shareholders and debt repayment. Long-term debt is used to supplement funds from operations as required, generally for capital expenditures or acquisitions. Approximately 60% of Torstar’s long-term facility will not mature until January 2012. The remaining 40% of the facility was renewed to January 2011 in late 2009 and has the ability to be extended at Torstar’s option through January 2012. At March 31, 2010, Torstar had $181.2 million of available credit under the long-term debt facility after providing for the refinancing of the $75.0 million medium term notes that will mature in September 2010. It is expected that future cash flows from operating activities, combined with the long-term debt facilities available will be adequate to cover forecasted financing requirements. In the first quarter of 2010, $31.1 million of cash was generated by operations, $3.3 million was used for investing activities and $24.1 million was used for financing activities. Cash and cash equivalents net of bank overdraft increased by $2.1 million in the quarter from $37.2 million to $39.3 million. Operating Activities Operating activities provided cash of $31.1 million in the first quarter of 2010, up $7.6 million from $23.5 million in the first quarter of 2009. The increase was the combination of improved income from operations partially offset by a smaller decrease in non-cash working capital. Other adjustments to operating cash flows were a source of cash of $4.9 million in the first quarter of 2010. This included an adjustment for pension funding in the quarter that was $1.6 million lower than the pension expense. Non-cash working capital investment decreased $2.1 million in the first quarter of 2010. This reduction was primarily a combination of lower accounts receivable offset by a decrease in accounts payable in the quarter. Accounts receivable generally decline in the first quarter reflecting the lower level of revenue in the first quarter compared to the fourth. Accounts payable and accrued liabilities declined in the quarter as decreases in trade payables and other accruals more than offset a net increase of $2.0 million related to restructuring provisions. The trade payables and other accruals normally decrease in the first quarter due to the timing of payments. In the first quarter of 2009, the

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movements in accounts receivable and accounts payable and accrued liabilities were similar except that there was a net increase of $15.0 million related to restructuring provisions. Investing Activities During the first quarter of 2010, $3.3 million was used for investments, down from $4.5 million in the first quarter of 2009. Additions to property, plant and equipment were $3.2 million in the first quarter of 2010, down from $4.6 million in the first quarter of 2009. In the first quarter of 2010, $0.2 million was paid relating to the acquisition of a small community newspaper and earn-out payments for previous acquisitions in the Newspapers and Digital segment. There were no acquisitions made in the first quarter of 2009. Financing Activities Cash of $24.1 million was used in financing activities during the first quarter of 2010 including $17.2 million of debt repayment and $7.3 million for the payment of dividends. In the first quarter of 2009, $26.5 million of cash was used for debt repayment and $7.3 million for the payment of dividends. Net Debt Net debt was $493.2 million at March 31, 2010, down $22.6 million from $515.8 million at December 31, 2009. The $22.6 million decrease included $17.2 million of long-term debt repayments, $1.1 million from the strengthening Canadian dollar and $4.3 million from changes in cash, bank overdraft and the value of the fair value hedge related to the medium term notes. Long-term Debt At March 31, 2010, Torstar had long-term debt of $532.5 million outstanding. The debt consisted of U.S. dollar bankers’ acceptances of $88.9 million, Canadian dollar bankers’ acceptances of $367.7 million and Canadian dollar medium term notes of $75.0 million increased by $0.9 million related to fair value hedge adjustments. Torstar’s long-term credit facility for $735 million acts as a standby line in support of letters of credit. At March 31, 2010, $456.9 million was drawn under the facility and a $21.9 million letter of credit was outstanding relating to an executive retirement plan. Torstar has a $75.0 million medium term note that will mature in September 2010. It is Torstar’s intention to refinance the medium term note through the issuance of bankers’ acceptances or through its long-term credit facility. As of March 31, 2010, the long-term credit facility had $256.2 million of available credit which would adequately cover the refinancing of the $75.0 million medium term note. Therefore, the $75.0 million medium term note continues to be classified as long-term debt on Torstar’s balance sheet. After providing for the refinancing of the $75.0 million medium term note, Torstar’s credit facility has $181.2 million of available credit.

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Contractual Obligations There were no material changes in Torstar’s significant contractual obligations during the first quarter of 2010. Funding of Post Employment Benefits The most significant group of Torstar’s defined benefit pension plans (in terms of assets and obligations) is required to prepare actuarial reports as of December 31, 2009. Torstar expects to take advantage of the recent regulatory changes which will allow Torstar to defer increases in the funding of the defined benefit registered pension plans until 2011. The 2010 funding for Torstar’s defined benefit pension plans is expected to be approximately $16.0 million, which is slightly lower than the level of funding in 2009. Funding for these plans could increase in 2011 depending on the results of the December 31, 2009 actuarial reports and changes in capital market conditions before the end of 2010. FINANCIAL INSTRUMENTS Foreign Exchange During the first quarter of 2010, Torstar realized a gain of $2.8 million on forward foreign exchange contracts to sell $11.4 million U.S. dollars at an average rate of $1.27. Torstar has entered into forward foreign exchange contracts to sell $34.2 million U.S. dollars during the next three quarters of 2010 at an average rate of $1.14 and $22.5 million U.S. dollars in 2011 at an average rate of $1.08. These U.S. dollar contracts are designated as revenue hedges for accounting purposes and any resulting gains or losses are recognized in Book Publishing revenues as realized. OUTLOOK The Newspapers and Digital Segment had revenue growth of 3.2% in the first quarter of 2010. This modest growth was achieved relative to a weak performance in the first quarter of 2009. This may signal a return to a more stable revenue performance in 2010, but the continued softness of the retail and employment advertising categories suggests that it is too soon to anticipate a robust recovery. This modest revenue growth has continued into April. The businesses will benefit from the lower cost base achieved from restructuring efforts over the past few years. In the next three quarters of 2010, the Segment will benefit from $11.2 million of labour cost savings from restructuring activities undertaken in 2009 and 2010 and $6.9 million in lower pension expense. Torstar has arrangements in place with its suppliers that will fix the price for the majority of Torstar’s newsprint requirements in 2010. As a result, over the balance of 2010, the newsprint pricing year over year comparative will be slightly negative as newsprint pricing decreased significantly during 2009. Harlequin’s 2010 outlook continues to be for relatively stable year over year results despite the anticipated impact on earnings from the strengthening Canadian dollar. The growth in the North America digital sales and the acquisition of the other half of the German joint venture in April 2010 (see Subsequent Events) will help to offset the expected decline from the Softbank contribution. The continued strengthening of the Canadian dollar is expected to have a negative impact on Harlequin’s full year 2010 earnings. In the first quarter of 2010, Harlequin realized a net benefit of $0.4 million from foreign exchange (including the impact of the U.S. dollar hedges). If the Canadian dollar

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remains at its current levels relative to the U.S. dollar and overseas currencies, Harlequin anticipates a negative foreign exchange impact of approximately $5.5 million (including the impact of the U.S. dollar hedges) for the balance of the year. Torstar’s effective interest rate will increase in 2010 due to the higher interest rate spread that will be applicable to borrowings under its long-term credit facility. SUMMARY OF QUARTERLY RESULTS (In thousands of dollars except for per share amounts) In the following chart, the 2008 quarterly results have been restated to reflect Transit TV as a discontinued operation and for the retrospective adoption of CICA Handbook Section 3064.

Quarter Ended Mar 31/10 Dec 31/09 Sept 30/09 June 30/09

Revenue $334,219 $394,785 $343,734 $373,733 Net income (loss) from continuing operations $7,414 $57,355 $4,037 ($4,362) Net income (loss) $7,414 $57,355 $4,037 ($4,362) Net income (loss) from continuing operations per Class A voting and Class B non-voting share Basic $0.09 $0.73 $0.05 ($0.06) Diluted $0.09 $0.73 $0.05 ($0.06) Net income (loss) per Class A voting and Class B non-voting share Basic $0.09 $0.73 $0.05 ($0.06) Diluted $0.09 $0.73 $0.05 ($0.06)

Quarter Ended Mar 31/09 Dec 31/08 Sept 30/08 June 30/08

Revenue $339,007 $412,351 $371,299 $398,823 Net income (loss) from continuing operations ($21,385) ($211,661) $16,566 $37,548 Net income (loss) ($21,385) ($213,917) ($748) $36,178 Net income (loss) from continuing operations per Class A voting and Class B non-voting share Basic ($0.27) ($2.68) $0.21 $0.48 Diluted ($0.27) ($2.68) $0.21 $0.48 Net income (loss) per Class A voting and Class B non-voting share Basic ($0.27) ($2.71) ($0.01) $0.46 Diluted ($0.27) ($2.71) ($0.01) $0.46

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The summary of quarterly results illustrates the cyclical nature of revenues and operating profit in the Newspapers and Digital Segment. The second and fourth quarters are generally the strongest for the newspapers however the revenue declines realized in 2008 and 2009 has reduced some of the cyclical impact. Book Publishing revenues will vary depending on the publishing schedule and the impact of foreign exchange rates. The lower revenues in the Newspapers and Digital Segment have had a negative impact on net income over the past eight quarters. Restructuring and other charges have also impacted the level of net income. In 2010, the first quarter had restructuring and other charges of $8.3 million. In 2009, the first, second, third and fourth quarters had restructuring and other charges of $25.9 million, $3.8 million, $1.1 million and $13.0 million respectively. In 2008, the second, third and fourth quarters had restructuring and other charges of $4.4 million, $3.4 million and $13.1 million respectively. A net loss was reported in the fourth quarter of 2008 as a result of losses from associated businesses and a write-down of investments. The loss from associated businesses was driven by accounting for impairment losses in intangible assets and goodwill. CHANGES IN ACCOUNTING POLICIES Future Accounting Changes – Consolidated Financial Statements and Non-Controlling Interests In January 2009, the Canadian Accounting Standards Board (“AcSB”) released Section 1601 “Consolidated Financial Statements” and Section 1602 “Non-Controlling Interests”, which replace Section 1600 “Consolidated Financial Statements”. Section 1601 establishes standards for the preparation of consolidated financial statements and Section 1602 establishes standards for accounting for a non-controlling interest in a subsidiary in the consolidated financial statements of the parent, subsequent to a business combination. Section 1602 is equivalent to the corresponding provisions of International Accounting Standard (“IAS”) 27, “Consolidated and Separate Financial Statements”. For Torstar, these sections will apply to interim and annual consolidated financial statements relating to fiscal years beginning on or after January 1, 2011. Earlier adoption is permitted but must be applied together with Section 1582 “Business Combinations”. Torstar will adopt these standards on January 1, 2011 and does not anticipate a significant impact from the adoption of these standards on its consolidated financial statements. Future Accounting Changes – Business Combinations In January 2009, the AcSB released Section 1582, which replaces Section 1581 “Business Combinations”. It provides the Canadian equivalent to IFRS 3 (Revised) “Business Combinations”. For Torstar, this section applies prospectively to business combinations for which the acquisition is on or after January 1, 2011. Earlier adoption is permitted but must be applied together with Section 1601 “Consolidated Financial Statements” and Section 1602 “Non-Controlling Interests”. Torstar will adopt this standard on January 1, 2011. Under this standard, Torstar will be required to expense transaction costs and also make an initial determination of contingent purchase

14


obligations. Any differences between the initial determination and actual payments will be recorded in net income. Future Accounting Changes – Multiple Deliverable Revenue Arrangements In December 2009, the CICA issued EIC-175 “Multiple Deliverable Revenue Arrangements” which replaces EIC-142 “Revenue Arrangements with Multiple Deliverables” and may be applied prospectively and will apply to Torstar effective January 1, 2011. The abstract includes updated guidance on whether multiple deliverables exist, how the deliverables in any arrangement should be separated, and the consideration allocated. Torstar is reviewing the guidance to assess the potential impact on its consolidated financial statements. Future Accounting Changes – International Financial Reporting Standards 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. IFRS uses a conceptual framework similar to Canadian GAAP, but there are significant differences on recognition, measurement, presentation and disclosures. Torstar will be required to prepare financial statements in accordance with IFRS starting with the interim financial statements for the quarter ended March 31, 2011. These statements will require 2010 comparatives in accordance with IFRS. As a result, the financial statements that will be prepared under Canadian GAAP for 2010 will need to be restated to conform to IFRS for comparative purposes. Torstar’s Transition Date is January 1, 2010. During the first quarter of 2010, Torstar has continued its implementation of the IFRS standards including the analysis and valuation work required to quantify the impact on Torstar’s opening balance sheet and to restate the 2010 results under the IFRS standards. These adjustments and the related income tax adjustments have not yet been finalized. Torstar has also continued to monitor the ongoing changes to the IFRS standards during the quarter. The proposed amendment to IAS 31 “Joint Ventures” is one IFRS standard that Torstar has identified that will have a significant impact on Torstar’s financial reporting due to the number of joint arrangements that Torstar is a party to. Under Canadian GAAP, Torstar proportionately consolidates its joint ventures. When implemented, the amended IAS 31 will require Torstar’s joint ventures to be accounted for using the equity method. This will have no effect on net income but it will result in a number of presentation reclassifications. Under the equity method, joint venture results are reflected within one line in each of the statements of income, financial position and cash flow as part of income from associated businesses and investments in associated businesses. Torstar was originally expecting to have to adopt the amended standard as part of its IFRS conversion. However, at this time, it is not clear whether the amendment will be effective for 2011. If it is not effective for 2011, Torstar will be able to continue to proportionately consolidate its joint ventures for 2011 and the 2010 comparative period.

15


Torstar has also continued the process of identifying, designing and implementing the required modifications to its reporting systems. RISKS AND UNCERTAINTIES There have been no material changes in any risks or uncertainties facing Torstar since the year ended December 31, 2009. CONTROLS AND PROCEDURES Changes in Internal Control over Financial Reporting There have been no changes in Torstar’s internal controls over financial reporting that occurred during the first quarter of 2010, the most recent interim period, that have materially affected, or are reasonably likely to materially affect, Torstar’s internal controls over financial reporting. SUBSEQUENT EVENTS Subsequent to the end of the quarter, Harlequin acquired full ownership of its German publishing business, Cora Verlag, from Axel Springer Verlag, Harlequin’s joint venture partner in Germany since 1976. The purchase price of €7.0 million (approximately $9.6 million) will be payable over the next two years. On April 30, 2010 Torstar submitted an offer to purchase the newspaper and digital businesses of Canwest Limited Partnership and its related entities (the “Canwest Assets”). In addition to Torstar, Fairfax Financial Holdings Limited is participating in the offer for the benefit of its investment portfolios. The offer was submitted pursuant to a confidential bidding process and details of the offer cannot be disclosed. There can be no assurance that Torstar’s offer will be accepted or that a transaction will be consummated. Should Torstar be successful, a purchase of the Canwest Assets would be material to Torstar. OTHER Share Data At March 31, 2010, Torstar had 9,875,407 Class A voting shares and 69,134,209 Class B non-voting shares outstanding. More information on Torstar share capital is provided in Note 8 of the interim consolidated financial statements. At March 31, 2010, Torstar had 4,234,520 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.ca.

http://www.sedar.com/

http://www.torstar.ca/

T o r s t a r C o r p o r a t i o nC o n s o l i d a t e d B a l a n c e S h e e t s

(Thousands of Dollars)(Unaudited)

March 31 December 312010 2009

AssetsCurrent: Cash and cash equivalents $42,097 $39,238 Receivables 216,299 253,306 Inventories (note 5) 31,530 33,953 Prepaid expenses and other current assets 54,579 51,501 Prepaid and recoverable income taxes 2,530 2,997 Future income tax assets 20,385 19,540Total current assets 367,420 400,535

Property, plant and equipment (net) 244,870 251,817Investment in associated businesses (note 7) 175,625 178,828Intangible assets 49,628 51,619Goodwill (net) 581,839 581,842Other assets 138,264 140,108Future income tax assets 31,375 33,693

Total assets $1,589,021 $1,638,442

Liabilities and Shareholders' EquityCurrent: Bank overdraft $2,823 $2,052 Accounts payable and accrued liabilities 191,736 218,971 Income taxes payable 16,774 19,158Total current liabilities 211,333 240,181

Long-term debt (note 2) 532,485 552,976Other liabilities 104,357 103,408Future income tax liabilities 61,952 62,897

Shareholders' equity: Share capital (note 8) 391,660 391,626 Contributed surplus 12,685 11,901 Retained earnings 292,412 292,306 Accumulated other comprehensive loss (note 6) (17,863) (16,853)Total shareholders' equity 678,894 678,980

Total liabilities and shareholders' equity $1,589,021 $1,638,442(See accompanying notes)

T o r s t a r C o r p o r a t i o n C o n s o l i d a t e d S t a t e m e n t s o f I n c o m e


2010 2009Operating revenue

Newspapers and digital $221,444 $214,529Book publishing 112,775 124,478

$334,219 $339,007Operating profit

Newspapers and digital $13,229 ($4,836)Book publishing 22,677 20,617Corporate (3,327) (4,153)Restructuring and other charges (note 12) (8,332) (25,900)

24,247 (14,272)Interest (4,289) (5,558)Foreign exchange (844) (250)Loss of associated businesses (note 7) (4,300) (7,005)Income (loss) before taxes 14,814 (27,085)Income and other taxes (7,400) 5,700

Net income (loss) $7,414 ($21,385)

Earnings (loss) per Class A and Class B share (note 8(b)):Net income (loss) - Basic and Diluted $0.09 ($0.27)

(See accompanying notes)

Three months ended March 31

T o r s t a r C o r p o r a t i o n


2010 2009

Net income (loss) $7,414 ($21,385)

Other comprehensive income (loss), net of tax:Unrealized foreign currency translation adjustment (2,304) (1,967)Unrealized loss on available-for-sale financial assets (31) (447)Realized loss (gain) on cash flow hedges transferred to net income (1,782) 1,116Unrealized change in fair value of cash flow hedges 2,010 132Realized loss (gain) on cash flow hedges for associated businesses transferred to net income 897 (317)Unrealized change in fair value of cash flow hedges for associated businesses 200 (107)

Other comprehensive loss (1,010) (1,590)

Comprehensive income (loss) $6,404 ($22,975)(See accompanying notes)

C o n s o l i d a t e d S t a t e m e n t s o f C o m p r e h e n s i v eI n c o m e



2010 2009

Share capital (note 8) $391,660 $391,013

Contributed surplusBalance, beginning of period $11,901 $11,018Stock-based compensation expense 784 350Balance, end of period $12,685 $11,368

Retained earningsBalance, beginning of period $292,306 $288,934Net income (loss) 7,414 (21,385)Dividends (7,308) (7,297)Balance, end of period $292,412 $260,252

Accumulated other comprehensive lossBalance, beginning of period ($16,853) ($25,896)Other comprehensive loss (1,010) (1,590)Balance, end of period (note 6) ($17,863) ($27,486)

Total shareholders' equity $678,894 $635,147(See accompanying notes)


T o r s t a r C o r p o r a t i o nC o n s o l i d a t e d S t a t e m e n t s O f C h a n g e s I n

S h a r e h o l d e r s' E q u i t y


2010 2009

Cash was provided by (used in) Operating activities $31,099 $23,527 Investing activities (3,294) (4,512) Financing activities (24,132) (33,597)Increase (decrease) in cash 3,673 (14,582)Effect of exchange rate changes (1,585) (73)Cash, beginning of period 37,186 41,362Cash, end of period $39,274 $26,707Operating activities: Net income (loss) $7,414 ($21,385) Depreciation and amortization 12,102 13,180 Future income taxes 290 1,582 Loss of associated businesses (note 7) 4,300 7,005 Other (note 13) 4,931 4,425

29,037 4,807Decrease in non-cash working capital 2,062 18,720Cash provided by operating activities $31,099 $23,527Investing activities: Additions to property, plant and equipment and intangible assets ($3,200) ($4,638) Acquisitions and investments (158) Other 64 126Cash used in investing activities ($3,294) ($4,512)Financing activities: Repayment of bankers' acceptances ($17,217) ($26,501) Dividends paid (7,275) (7,263) Other 360 167Cash used in financing activities ($24,132) ($33,597)

Cash represented by: Cash $30,572 $15,621 Cash equivalents 11,525 14,003 Cash and cash equivalents 42,097 29,624 Bank overdraft (2,823) (2,917)

$39,274 $26,707(See accompanying notes)


T o r s t a r C o r p o r a t i o nC o n s o l i d a t e d S t a t e m e n t s O f C a s h F l o w s

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in thousands unless otherwise stated)

1

1. ACCOUNTING POLICIES

The accounting policies used in the preparation of these unaudited interim consolidated

financial statements conform with those in Torstar Corporation’s December 31, 2009 audited

annual consolidated financial statements. These interim financial statements do not include

all of the disclosures included in the annual financial statements and accordingly should be

read in conjunction with the annual consolidated financial statements.

Future accounting changes

Consolidated Financial Statements and Non-Controlling Interests

In January 2009, the AcSB released Section 1601 “Consolidated Financial Statements” and

Section 1602 “Non-Controlling Interests”, which replace Section 1600 “Consolidated

Financial Statements”. Section 1601 establishes standards for the preparation of

consolidated financial statements. Section 1602 establishes standards for accounting for a

non-controlling interest in a subsidiary in the consolidated financial statements of the parent,

subsequent to a business combination. Section 1602 is equivalent to the corresponding

provisions of IAS 27, “Consolidated and Separate Financial Statements”. For the

Company, these sections will apply to interim and annual consolidated financial statements

relating to fiscal years beginning on or after January 1, 2011. Earlier adoption is permitted

but must be applied together with Section 1582 “Business Combinations”. The Company

will adopt these standards on January 1, 2011 and does not anticipate a significant impact

from the adoption of these standards on its consolidated financial statements.

Business Combinations

In January 2009, the AcSB released Section 1582, which replaces Section 1581 “Business

Combinations”. It provides the Canadian equivalent to IFRS 3 (Revised) "Business

Combinations". For the Company, this section applies prospectively to business

combinations for which the acquisition is on or after January 1, 2011. Earlier adoption is

permitted but must be applied together with Section 1601 “Consolidated Financial

Statements” and Section 1602 “Non-Controlling Interests”. The Company will adopt this

standard on January 1, 2011. Under this standard, the Company will be required to

expense transaction costs and also make an initial determination of contingent purchase

obligations. Any differences between the initial determination and actual payments will be

recorded in net income.


2

Multiple Deliverable Revenue Arrangements

In December 2009, the CICA issued EIC-175 “Multiple Deliverable Revenue Arrangements”

which replaces EIC-142 “Revenue Arrangements with Multiple Deliverables” and may be

applied prospectively and will apply to the Company effective January 2011. The abstract

includes updated guidance on whether multiple deliverables exist, how the deliverables in

an arrangement should be separated, and the consideration allocated. The Company is

reviewing the guidance to assess the potential impact on its consolidated financial

statements.

2. LONG-TERM DEBT

As at

March 31, 2010

As at

December 31, 2009

Bankers’ acceptances:

Cdn. dollar denominated $367,707 $381,819

U.S. dollar denominated 88,853 94,687

$456,560 $476,506

Medium Term Notes:

Cdn. dollar denominated (note 2(b)) 75,000 75,000

Fair value hedge 925 1,470

75,925 76,470

$532,485 $552,976

(a) The Company has long-term credit facilities with its bankers which consist of a $425 million

revolving loan that matures in January 2012 and a $310 million revolving operating loan that

matures in January 2011 and can be extended with the consent of all parties for an

additional 364-day period, or can be converted to a 364-day term loan at the Company’s

option, neither to extend beyond January 2012. The credit facilities may be drawn in

Canadian or U.S. dollars, and must be drawn from the operating loan in priority to the

revolving loan. The credit facilities are subject to financial tests and other covenants

including the requirement to meet a minimum fixed charge coverage ratio and to not exceed

a maximum level of debt compared to cash flow.

All bankers’ acceptances with a term of less than one year have been classified as long-term

debt as the Company has the ability to refinance these amounts under its long-term credit

facilities. The interest rate spread above the bankers’ acceptances rate if in Canadian

dollars, or LIBOR rate if in U.S. dollars, varies based on the Company’s long-term credit

rating and was a blended rate of 2.3% at March 31, 2010. The carrying values of the

bankers’ acceptances approximate their fair value at March 31, 2010.


3

The Company is party to three interest rate swap agreements with major Canadian

chartered banks that fix the interest rate on $250 million of Canadian dollar borrowings for

five years ending September 2011. As a result, the Company will pay quarterly a fixed rate

of 4.3% per annum (plus the interest rate spread based on the Company’s long term credit

rating) and will receive quarterly floating rate payments based on 90 day bankers’

acceptances rates. These swap contracts have been designated as hedges. The fair value

of these swap agreements was $9.9 million unfavourable at March 31, 2010 (December 31,

2009 - $11.9 million unfavourable).

The average rate on Canadian dollar bank borrowings outstanding at March 31, 2010 was

3.5% (December 31, 2009 – 1.4%). Including the effect of the above noted swap

arrangements, the effective rate was 4.7% (December 31, 2009 – 3.9%).

In May 2008, the Company entered into two interest rate swap agreements that fix the

interest rate on U.S. $80 million of borrowings at approximately 4.2% (plus the interest rate

spread) for seven years ending May 2015. These swaps have been designated as hedges.

The fair value of the U.S. interest rate swap arrangement at March 31, 2010 was $5.7 million

unfavourable (December 31, 2009 - $4.8 million unfavourable).

Bank debt outstanding at March 31, 2010 included U.S. dollar borrowings of U.S. $87.5

million (December 31, 2009 – U.S. $90.5 million) at an average rate of 2.5% (December 31,

2009 – 1.2%). Including the effect of the above noted swap arrangements the effective rate

was 6.3% (December 31, 2009 – 4.8%).

(b) The Company issued in September 2005, $75 million 3.85% medium term notes which

mature in September 2010. The Company has entered into swap agreements effectively

converting this debt into floating rate debt based on 90-day bankers’ acceptances rates plus

0.39%. Interest on the medium term notes as well as the payments under the swap

agreements is paid semi-annually. The swap agreements have been designated as fair

value hedges and mature on the due dates of the respective notes.

These medium term notes are classified as long-term debt as the Company has the ability

and intent to refinance these amounts under its long-term credit facilities.

The effective interest rate on the medium term notes outstanding at March 31, 2010 was

0.9% (December 31, 2009 -.0.9%). The fair value of the medium term notes at March 31,

2010 approximates the face value (December 31, 2009 - $0.1 million favourable). The fair

value of the interest rate swap agreements related to the medium term notes were $0.9

million favourable at March 31, 2010 (December 31, 2009 - $1.5 million favourable). In

accordance with the accounting policy for a fair value hedge, the debt has been increased

by $0.9 million to $75.9 million (December 31, 2009 - increased by $1.5 million to $76.5

million). There was no impact on net income or other comprehensive income.


4

3. FINANCIAL INSTRUMENTS

Fair value of financial instruments

The carrying value of the Company’s financial instruments approximate their fair values unless otherwise noted.

As at

March 31, 2010

As at

December 31, 2009

Financial assets:

Held for trading, measured at fair value

Cash and cash equivalents $42,097 $39,238

Loans and receivables, measured at amortized cost

Trade accounts receivable 198,257 233,675

Other receivables 12,620 13,564

210,877 247,239

Derivatives included in Receivables 5,422 6,067

Receivables per Balance Sheet $216,299 253,306

Available for sale, measured at cost

Portfolio investments¹ 811 811

Available for sale, measured at fair value

Portfolio investments¹ 41 72

Derivatives designated as effective hedges, measured at fair value:

Foreign currency forward contracts2 5,422 6,067

Interest rate swaps – cash flow hedges¹ (15,602) (16,632)

Interest rate swaps – fair value hedges¹ 925 1,470

Derivatives

Other¹,³ 1 1

Other¹,³ (1) (1)

Financial liabilities:

Held for trading, measured at fair value

Bank overdraft 2,823 2,052

Other financial liabilities, measured at amortized cost

Long term debt 532,485 552,976

Accounts payable and accrued liabilities 191,736 218,971

¹ These amounts are included in Other assets or Other liabilities ² Included in Receivables or Accounts payable and accrued liabilities ³ See section below on CTVgm arrangements


5

Risk management

The Company is exposed to various risks related to its financial assets and liabilities. These

risk exposures are managed on an ongoing basis.

Credit risk

In the normal course of business, the Company is exposed to credit risk from its accounts

receivable from customers. The carrying amounts for accounts receivable are net of

applicable allowances for doubtful accounts and returns, which are estimated based on past

experience, specific risks associated with the customer and other relevant information.

The Company is also exposed to credit-related losses in the event of non-performance by

counterparties to derivative instruments. The Company manages its counterparty risk by

only accepting major financial institutions with high credit ratings, as approved by the Board

of Directors, as counterparties.

The maximum exposure to credit risk is the carrying value of the financial assets.

The following table sets out details of the age of trade receivables and provision for bad

debts and book returns:

As at

March 31, 2010

As at

December 31, 2009

Gross accounts receivable:

Current $224,134 $249,297

Up to three months past due date 62,844 84,962

Three to twelve months past due date 5,355 4,422

Impaired 7,137 6,051

299,470 344,732

Allowance for doubtful accounts (14,695) (13,398)

Book returns provision (86,518) (97,659)

$198,257 $233,675

Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as

they fall due or at a reasonable cost. The Company manages liquidity risk primarily by

maintaining sufficient unused capacity within its long term debt facilities. The unused

capacity at March 31, 2010 was approximately $181 million (December 31, 2009 - $162

million), taking into account the $75 million Medium Term Notes maturing in September

2010. Further information with respect to the maturity profile of the Company’s financial

liabilities is provided in Note 9 of the Company’s December 31, 2009 audited annual

consolidated financial statements.


6

Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates and

interest rates will affect the Company’s income or the value of its financial instruments.

a) Foreign currency risk

The Company is exposed to foreign currency risk through Harlequin’s international

operations. The most significant foreign currency exposure is to movements in the U.S.

dollar/Cdn. dollar exchange rate. To manage this exchange risk in its operating results,

the Company’s practice is to enter into forward foreign exchange contracts to hedge a

portion of its U.S dollar revenues as detailed in Note 11. A $0.05 higher (lower) average

U.S. dollar/Cdn. dollar exchange rate during the three month period ended March 31,

2010 would have increased (decreased) net income by approximately $0.2 million (2009

- $0.1 million)

From time to time, the Company may also enter into forward foreign exchange contracts

to hedge other currencies (Yen, Euro, Pound Sterling) realized in Harlequin’s overseas

operations.

In order to offset the exchange risk on its balance sheet from net U.S. dollar

denominated assets, the Company maintains a certain level of U.S. dollar denominated

debt as indicated in Note 2(a). These net assets are primarily current in nature and to

the extent that the amount of net U.S. dollar assets differs from the amount of the U.S.

dollar debt, a non-cash foreign exchange gain or loss is recognized in earnings. A $0.05

change in average exchange rate would not have had a significant impact on the

consolidated financial statements.

b) Interest rate risk

The Company’s interest rate risk arises from borrowings issued at or swapped into

variable rates which expose the Company to cash flow interest rate risk. The Company

manages this risk through the use of interest rate swap contracts to fix the interest rate

on a portion of the debt as detailed in Note 2.

An assumed 1% increase in the Company’s short term borrowing rates during the three

month period ended March 31, 2010 would have decreased net income by $0.4 million

(2009 - $0.5 million), with an equal but opposite effect for an assumed 1% decrease in

interest rates.

The Company does not engage in trading or other speculative activities with respect to

derivative financial instruments.


7

CTVgm arrangements

As part of the renegotiated CTVgm credit facility, the shareholders of CTVgm, including

Torstar, could be required to purchase a portion of CTVgm’s financial obligations to its

lenders. Torstar’s maximum exposure under the arrangement would be $45 million. To

offset its exposure, Torstar has also entered into a separate arrangement with another

CTVgm shareholder which allows Torstar to assign its purchase obligation. As a result of

these two arrangements, Torstar anticipates no new net exposure. Torstar’s lenders have

recognized the two arrangements as being an effective offset and have agreed, with certain

conditions attached, not to treat Torstar’s arrangement with CTV’s lenders as a guarantee

under the terms of Torstar’s credit facility.

Under Canadian GAAP, Torstar will value separately the two arrangements at their fair

values at each reporting period. On inception, Torstar management determined that both

arrangements had only a nominal value. As of March 31, 2010, the Company’s

management has determined that there is no evidence of deterioration of CTVgm’s and

other CTVgm shareholder’s credit quality, that would impact the assigned carrying value of

both arrangements.

4. CAPITAL MANAGEMENT

The Company’s capital management objectives are to maintain financial flexibility in order to

preserve its capacity to meet its financial commitments, to pay dividends and to meet its

potential obligations resulting from internal growth and acquisitions.

The Company defines capital as:

• Shareholders’ equity

• Long term debt

• Bank overdraft net of cash and cash equivalents

Total managed capital was as follows:

As at

March 31, 2010

As at

December 31, 2009

Shareholders’ equity $678,894 $678,980

Long term debt 532,485 552,976

Bank overdraft 2,823 2,052

Cash and cash equivalents (42,097) (39,238)

$1,172,105 $1,194,770

The Company manages its capital structure in accordance with changes in economic

conditions. In order to maintain or adjust its capital structure, subject to capital market

conditions, the Company may elect to adjust the amount of debt outstanding, adjust the


8

amount of dividends paid to shareholders, return capital to its shareholders, repurchase its

shares in the marketplace or issue new shares.

The Company is currently meeting all its financial commitments. The Company’s credit

facilities are subject to financial tests and other covenants with which it was in compliance at

March 31, 2010.

There have been no changes in the Company’s approach to capital management during the

period.

The Company is not subject to any external capital requirements.

5. INVENTORIES

As at

March 31, 2010

As at

December 31, 2009

Finished goods $11,156 $11,164

Work in progress 9,735 11,292

Raw materials 10,639 11,497

$31,530 $33,953

The Company has expensed inventory costs of $47.0 million for the three months ended

March 31, 2010 (2009 - $55.6 million).

The Company recorded a write-down of $0.7 million for the three months ended March 31,

2010 (2009 - $1.3 million).

6. ACCUMULATED OTHER COMPREHENSIVE LOSS (NET OF TAX)

Foreign

currency

translation

adjustment

Unrealized

gains

(losses) on

cash flow

hedges

Unrealized

gains

(losses) on

available-for-

sale

securities

Unrealized

loss on

associated

businesses’

cash flow

hedges Total

As at December 31, 2009 $(4,323)¹ ($7,626)² ($340)³ ($4,564) ($16,853) Other comprehensive income (loss) (2,304) 228 (31) 1,097 (1,010) As at March 31, 2010

($6,627) ($7,398)² ($371)³ ($3,467) ($17,863)

1Net of future income tax benefit of $nil (2009 – nil). ²Net of future income tax benefit of $2,782 (2009 – $2,939). ³Net of future income tax liability of $nil (2009 – nil).


9

7. INVESTMENT IN ASSOCIATED BUSINESSES

The Company’s Investment in associated businesses includes a 20% equity interest in

CTVglobemedia Inc. (“CTVgm”), a 19.35% equity interest in Black Press Ltd. and a 30%

equity interest in Q-ponz Inc. The Investment in associated businesses is comprised of the

following:


2010 2009

Balance, beginning of period $178,828 $201,571 Loss of associated businesses (4,300) (7,005) Change in investees’ accumulated other comprehensive income (loss) 1,097 (424)

Balance, end of period $175,625 $194,142

The 2009 loss of associated businesses includes the after tax effect of an intangible asset

impairment loss for CTVgm of $5.3 million related to the write-down of the carrying value of

certain conventional television licenses that CTVgm had decided not to renew.

Outlined below is summarized financial information for 100% of CTVgm, including fair value

adjustments, as at February 28, 2010 and November 30, 2009 and for the three months

ended February 28, 2010 and February 29, 2009:

February 28,

2010

November 30,

2009

Balance Sheet

Current assets $624,016 $582,042

Property, plant and equipment 541,094 535,667

Intangible assets 2,227,957 2,255,913

Goodwill 298,325 298,325

Other assets 14,779 25,189

$3,706,171 $3,697,136

Current Liabilities $457,047 $447,523

Long-term debt 1,912,975 1,934,598

Other liabilities and non-controlling interests 465,655 428,019

Shareholders’ equity 870,494 886,996

$3,706,171 $3,697,136


10

Three months ended

February 28,

2010

February 28,

2009

Statements of Income (Loss)

Revenues $674,882 $502,747

Operating profit $38,916 ($2,950)

Impairment loss on intangible assets - ($30,800)

Net loss ($21,986) ($34,590)

Statements of Comprehensive Income (Loss)

Net loss ($21,986) ($34,590)

Other comprehensive income (loss) $5,484 ($2,120)

Comprehensive loss ($16,502) ($36,710)

8. SHARE CAPITAL

a) A summary of changes to the Company’s share capital is as follows:


2010 2009

Shares Amount Shares Amount

Class A shares (voting)

Balance, beginning of period 9,875,407 $2,683 9,892,667 $2,688

Converted to Class B (10,080) (3)

Balance, end of period 9,875,407 $2,683 9,882,587 $2,685

Class B shares (non-voting)

Balance, beginning of period 69,129,929 $388,943 68,999,095 $388,290

Converted from Class A 10,080 3

Dividend reinvestment plan 4,055 33 7,471 34

Issued under Employee Share

Purchase Plan 225 1

175

1

Balance, end of period 69,134,209 $388,977 69,016,821 $388,328

Total Class A and Class B shares 79,009,616 $391,660

78,899,408

$391,013

b) Earnings per share

Basic per share amounts have been determined by dividing net income by the weighted

average number of Class A and Class B shares outstanding during the period. The

treasury stock method is used for the calculation of the dilutive effect of stock options

and other dilutive securities. In calculating diluted per share amounts under the treasury


11

stock method, the numerator remains unchanged from the basic per share calculation as

the assumed exercise of the Company’s stock options and employee share purchase

plan does not result in an adjustment to income. The reconciliation of the denominator

in calculating diluted per share amounts is as follows:


2010 2009

(in thousands)

Basic 79,005 78,892

Effect of dilutive securities

- stock options 196

- ESPP 115

Diluted 79,316 78,892

9. STOCK-BASED COMPENSATION

The Company has five stock-based compensation plans: an executive share option plan,

an employee share purchase plan, an executive restricted share unit (“RSU”) plan, a

deferred share unit (“DSU”) plan for employees and a DSU plan for non-employee directors.

a) A summary of changes in the executive share option plan is as follows:

Share options

Weighted average

exercise price

December 31, 2009 3,487,880 $20.10

Granted 854,678 $6.33

Forfeited or expired (108,038) $20.77

March 31, 2010 4,234,520 $17.31

Options exercisable at March 31, 2010 are as follows:

Range of exercise price

Share options

exercisable

Weighted average

exercise price

$5.75 – 8.37 124,914 $8.37

$15.75 – 19.61 357,458 $19.26

$20.30 – 22.20 1,670,601 $21.68

$25.50 – 29.01 588,837 $27.31

$5.75 – 29.01 2,741,810 $21.97

The fair value of the executive share options granted in 2010 was estimated to be $1.10

per option at the date of grant using the Black-Scholes option pricing model with the

assumptions of a risk free interest rate of 2.9%, expected dividend yield of 5.9%,

expected volatility of 31.9% and an expected time until exercise of 6 years.


12

b) RSU Plan

A summary of changes in the RSU plan is as follows:

Units

December 31, 2009 473,274

Vested and paid (92,643)

Granted 250,551

March 31, 2010 631,182

As at March 31, 2010, 263,768 units have been accrued at a value of $2.6 million

(December 31, 2009 – 313,714 units accrued at a value of $2.0 million).

The Company has entered into a derivative instrument in order to lock in the expense

for 484,794 RSU’s. Changes in the fair value of this instrument are recorded as

compensation expense and offset the impact of changes in the value of the RSU’s that

have been accrued. As the RSU’s are accrued over the three-year period until the

RSU’s vest, there will not be an exact offset each period.

c) The Company has recognized in 2010 compensation expense totalling $1.1 million

(2009 - $1.6 million) for the stock options granted in 2007 to 2010, RSUs granted in

2008 to 2010 and the employee share purchase plans originating in 2008 to 2009.

d) The Company has a DSU Plan for executives and non-employee directors. As at March

31, 2010, 376,387 units were outstanding at a value of $3.8 million (December 31, 2009

– 357,490 units at a value of $2.3 million). The Company has entered into a derivative

instrument in order to offset its exposure to 298,600 units. Changes in the fair value of

this instrument are recorded as compensation expense and offset the impact of changes

in the value of the outstanding deferred share units.

10. EMPLOYEE FUTURE BENEFITS

The Company maintains a number of defined benefit plans and defined contribution plans,

which provide pension benefits to its employees in Canada and the United States. Post

employment benefits other than pensions are also available to employees, primarily in the

Canadian newspapers operations, which provide for various health and life insurance

benefits.

The Company has expensed net pension benefit costs of $7.0 million, for the three months

ended March 31, 2010 (2009 - $13.6 million, including $4.2 million recorded in restructuring

and other charges). With respect to post-employment benefits other than pensions, for the

quarter ended March 31, 2010 the net benefit cost was $0.5 million (2009 - $1.1 million).


13

11. FORWARD FOREIGN EXCHANGE CONTRACTS AND OPTIONS

As described in Note 19 of the Company’s December 31, 2009 annual financial statements,

the Company has entered into various forward foreign exchange contracts. The Company

has entered into forward foreign exchange contracts which establish a rate of exchange of

Canadian dollar per U.S. dollar of $1.17 for U.S. $45.6 million in 2010 and $1.08 for U.S.

$22.5 million in 2011 (December 31, 2009 - $1.17 for U.S. $45.6 million in 2010 and $1.11

for U.S. $5.0 million in 2011). These U.S. dollar contracts have been designated as hedges.

At March 31, 2010, the net fair value of the foreign exchange contracts was $5.4 million

favourable (December 31, 2009 - $6.1 million favourable).

12. RESTRUCTURING AND OTHER CHARGES

During the three months ended March 31, 2010, the Company recorded restructuring

provisions of $8.3 million (2009 - $11.7 million) related to staff reductions in the Newspapers

and Digital Segment.

During the three months ended March 31, 2009, the Company recorded restructuring

provisions of $1.4 million in the Book Publishing Segment for the closure of a distribution

centre in the U.K., and $12.8 million related to the leadership transition at Corporate.

The following table indicates the change in the amount of restructuring provisions included in

Accounts payable and accrued liabilities:


2010 2009

Balance, beginning of period $25,463 $29,390 Provision during the period 8,332 25,900 Payments during the period:

Prior years’ provision (5,497) (10,153) Current year provision (800) (722)

Balance, end of period $27,498 $44,415


14

13. OTHER CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES


2010 2009

Employee future benefits $1,610 $3,299 Stock-based compensation plans 2,259 (930) Foreign exchange 844 250 Lease inducement 1,587 Other 218 219 $4,931 $4,425

14. COMPARATIVE FINANCIAL STATEMENTS

The comparative consolidated financial statements have been reclassified from statements

previously presented to conform to the presentation of the 2010 consolidated financial

statements.

15. SUBSEQUENT EVENTS

Subsequent to the end of the quarter, Harlequin acquired full ownership of its German

publishing business, Cora Verlag, from Axel Springer Verlag, Harlequin’s joint venture

partner in Germany since 1976. The total purchase price of €7.0 million (approximately $9.6

million) is payable over the next two years.

On April 30, 2010, the Company submitted an offer to purchase the newspaper and digital

businesses of Canwest Limited Partnership and its related entities (the “Canwest Assets”).

In addition to the Company, Fairfax Financial Holdings Limited is participating in the offer for

the benefit of its investment portfolios. The offer was submitted pursuant to a confidential

bidding process and details of the offer cannot be disclosed. There can be no assurance

that the Company’s offer will be accepted or that a transaction will be consummated.

Should the Company be successful, a purchase of the Canwest Assets would be material to

the Company.

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2003 MANAGEMENT’S DISCUSSION AND ANALYSISDigital; and Book Publishing. The Newspapers and Digital...

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