TORONTO STAR METROLAND · Metroland publishes 77 community newspapers, a number of specialty...

CORPORATE OFFICEONE YONGE STREET

TORONTO, ONTARIO M5E 1P9

(416) 869-4010

www.torstar.com

SHARES LISTEDTORSTAR CLASS B SHARES ARE TRADED

ON THE TORONTO STOCK EXCHANGE UNDER

TS.nv.b

TRANSFER AGENT AND REGISTRARCIBC MELLON TRUST COMPANY

AUDITORSERNST & YOUNG LLP,

TORONTO

TORONTO STAR

METROLAND

CITYMEDIA GROUP

TORSTAR DIGITAL

HARLEQUIN ENTERPRISES

T O R S T A R C O R P O R A T I O N

2ND QUARTER REPORT

J U N E 3 0 , 2 0 0 5

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For the three and six months ended June 30, 2005 and 2004

The following review and analysis of Torstar Corporation’s (the “Company” or“Torstar”) operations and financial position for the three and six months ended June30, 2005 and 2004 should be read in conjunction with the audited consolidatedfinancial statements and Management’s Discussion and Analysis of TorstarCorporation for the year ended December 31, 2004 set forth in the Company’sAnnual Report for such fiscal year and incorporated by reference in the Company’srenewal Annual Information Form dated March 21, 2005.

Certain statements in this report may constitute forward-looking statements thatreflect management’s expectations regarding the Company’s future growth, results ofoperations, performance and business prospects and opportunities. Wherever possi-ble, words such as “anticipate”, “believe”, “expect”, “intend” and similar expressionshave been used to identify these forward-looking statements. Such forward-lookingstatements involve risks, uncertainties and other factors which may cause actualresults, performance or achievements of the company to be materially different fromany future results, performance or achievements expressed or implied by such for-ward-looking statements. References in this discussion to “Torstar” are to TorstarCorporation and its subsidiaries.

Torstar reports its financial results under Canadian generally accepted accountingprinciples (“GAAP”). However, management believes that many of the company’sshareholders, creditors, other stakeholders and analysts prefer to assess the compa-ny’s performance using earnings before interest, unusual items, taxes, depreciationand amortization of intangible assets (“EBITDA”) as an estimate of the cash generat-ed by the business, in addition to the GAAP measures. Torstar calculates segmentEBITDA as operating profit before depreciation and amortization of intangible assets.Torstar’s method of calculating EBITDA may differ from other companies and accord-ingly, may not be comparable to measures used by other companies.

Torstar Corporation is a broadly based media company listed on the TorontoStock Exchange (TS.nv.b). Its businesses include newspapers led by theToronto Star, Canada’s largest daily newspaper; CityMedia Group, publishersof daily and community newspapers in Southwestern Ontario; MetrolandPrinting, Publishing & Distributing, publishers of more than 75 communitynewspapers in Southern Ontario; and Harlequin Enterprises, a leading globalpublisher of women’s fiction.

Torstar reports its operations in two segments: Newspapers and BookPublishing.

INTERIM MANAGEMENT’S DISCUSSION AND ANALYSIS

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RESULTS OF OPERATIONS – Second quarter and year to date 2005Overall PerformanceNewspaper revenues were $272.7 million in the second quarter of 2005,up $9.8 million or 3.7% from $262.9 million in the second quarter of2004. Book Publishing revenues were $132.8 million in the second quar-ter, down $3.3 million from the same period last year as $2.9 million ofunderlying revenue growth was more than offset by the impact of foreignexchange rates. Total revenues were $405.4 million in the quarter up $6.4million from $399.0 million in 2004.

Year to date Newspaper revenues were $504.6 million up $17.0 million, or3.5% from $487.6 million in the same period in 2004. Book publishingrevenues were $262.0 million in the first six months of 2005 down $11.2million from 2004 primarily due to the impact of foreign exchange rates.Total revenues were $766.5 million year to date up $5.7 million from$760.8 million in the same period last year.

Newspaper operating profit was $42.1 million in the second quarter up$0.7 million from $41.4 million in the second quarter of 2004 with higherprofits at CityMedia and Metroland more than offsetting the increasedinvestment in the Transit Television Network’s (TTN) business and the slightdecrease in profits at the Toronto Star. Year to date, Newspaper operatingprofit was $58.7 million down $1.4 million from $60.1 million in the sameperiod in 2004 as the higher TTN operating losses more than offsetimproved newspaper results.

Book Publishing operating profits were $23.4 million in the second quarterof 2005 up $0.5 million from $22.9 million in the same period last yearincluding the positive impact of the foreign exchange hedge contracts. Yearto date Book Publishing operating profits were $48.0 million down $1.0million from $49.0 million in 2004 as lower North America Retail resultsmore than offset improvements in the North America Direct-To-Consumerand Overseas results.

Corporate costs were $4.5 million in the second quarter of 2005 and $9.4million year to date. These costs were up $0.7 million in the quarter and$1.3 million year to date. The increase in costs includes higher accountingexpense for stock options, mark-to-market adjustments on deferred shareunits and higher pension costs.

Interest expense was $2.6 million in the second quarter of 2005, consis-tent with the second quarter of 2004. Year to date, interest expense was$4.9 million down $0.5 million from $5.4 million in 2004. Interest rateswere flat year over year while debt levels were lower in the first quarter of2005 and flat in the second quarter compared with the same periods in2004.


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There were no unusual items in the second quarter of 2005 or 2004. Inthe first quarter of 2005, the unusual gain of $1.4 million was from thesale of the land and building in Kitchener that had previously been occupiedby The Record.

The effective tax rate was 38.8% in the second quarter of 2005 and 38.9%year to date. These rates were slightly higher than the effective rate of38.5% in the second quarter and year to date in 2004. Higher TTN startuplosses that were not tax-effected in either year added 0.6% and 0.8% tothe 2005 second quarter and year to date effective tax rates respectively.

Net income was $36.1 million or $0.46 per share in the second quarter of2005, up $0.3 million or $0.01 per share from $35.8 million or $0.45 pershare in the second quarter of 2004. The increase of $0.01 per share inthe quarter reflected the lower number of shares outstanding. The weightedaverage number of shares outstanding during the second quarter was 78.1million down 1.6 million from 79.7 million in the second quarter of 2004.The decrease was the result of the normal course issuer bid for 2 millionshares that Torstar completed between May 2004 and April 2005 offset inpart by shares issued on the exercise of stock options.

Year to date net income was $57.3 million or $0.73 per share in 2005,down $1.5 million or $0.01 per share from $58.8 million or $0.74 pershare in the same period in 2004. On a year to date per share basis oper-ating profits net of tax were down $0.03, while the unusual gain and fewershares outstanding contributed $0.01 each. The weighted average numberof shares outstanding year to date in 2005 was 78.1 million down 1.2 mil-lion from 79.3 million in the same period of 2004.

NewspapersThe Newspaper segment includes the newspaper and commercial printingresults of the Toronto Star, CityMedia Group and Metroland Printing,Publishing and Distributing; Torstar Digital; Torstar Media Group Television(“TMG TV”) and Transit Television Network (“TTN”). CityMedia Group pub-lishes three daily newspapers – The Hamilton Spectator, The Record(Kitchener, Cambridge and Waterloo) and the Guelph Mercury – along with10 community newspapers and a number of specialty publications.Metroland publishes 77 community newspapers, a number of specialty pub-lications, operates several consumer shows and publishes the jointly ownedToronto daily commuter paper Metro and the Chinese language newspaperSing Tao Daily. Torstar Digital was established in 2005 as a reporting unitfor the Newspaper segment’s independent Internet operations includingworkopolis, Toronto.com and the Torstar Digital corporate group. Eachnewspaper reports the results for its own website within the newspaperresults.


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Selected financial information for the Newspaper segment (in $000’s):

For the three months ended June 30:Toronto Torstar

Star Metroland CityMedia Digital1 Other2 Total

2005

Revenue $111,544 $110,902 $42,643 $4,194 $3,374 $272,657

Operating profit 12,818 23,365 7,902 703 (2,639) 42,149

Depreciation 8,536 2,108 1,424 130 745 12,943

Segment EBITDA $21,354 $25,473 $9,326 $833 ($1,894) $55,092

Margins:

– Operating profit 11.5% 21.1% 18.5% 16.8% n/a 15.5%

– EBITDA 19.1% 23.0% 21.9% 19.9% n/a 20.2%

20043

Revenue4 $118,690 $96,056 $40,875 $3,614 $3,694 $262,929

Operating profit 13,198 22,006 6,881 838 (1,483) 41,440

Depreciation 8,541 1,416 1,460 174 468 12,059

Segment EBITDA $21,739 $23,422 $8,341 $1,012 ($1,015) $53,499

Margins:


– EBITDA 18.3% 24.4% 20.4% 28.0% n/a 20.3%


1 Torstar Digital was established in 2005 as a reporting unit for the Newspaper segment’s independent Internet

operations including workopolis and Toronto.com and the Torstar Digital corporate group. Each newspaper reports

the results for its own website within the newspaper results.

2 Consists of TMG TV and TTN.

3 The 2004 results have been restated to include the workopolis and Toronto.com results in Torstar Digital.

4 2004 quarterly revenue and margins for the Toronto Star and CityMedia have been restated from those previ-

ously presented to reflect the change in accounting for circulation revenues gross of certain distribution costs. This

change was implemented in the fourth quarter of 2004.

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For the six months5 ended June 30:Toronto Torstar

Star Metroland CityMedia Digital Other Total

2005

Revenue $212,670 $199,168 $78,210 $8,329 $6,187 $504,564

Operating profit 14,787 37,005 10,424 1,758 (5,318) 58,656

Depreciation 17,003 4,059 2,847 254 1,457 25,620

Segment EBITDA $31,790 $41,064 $13,271 $2,012 ($3,861) $84,276

Margins:


– EBITDA 14.9% 20.6% 17.0% 24.2% n/a 16.7%

2004

Revenue $221,542 $176,175 $76,332 $6,936 $6,607 $487,592

Operating profit 14,254 37,138 9,849 1,672 (2,863) 60,050

Depreciation 17,123 2,853 2,921 349 891 24,137

Segment EBITDA $31,377 $39,991 $12,770 $2,021 ($1,972) $84,187

Margins:


– EBITDA 14.2% 22.7% 16.7% 29.1% n/a 17.3%


5 Torstar Digital results have been restated from the first quarter presentation to include only workopolis,

Toronto.com and the Torstar Digital corporate group. The financial results from the websites directly related to the

newspapers are now included with the newspaper results.

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Newspaper segment revenues were up $9.8 million in the second quarterand $17.0 million year to date with higher revenues at Metroland,CityMedia and Torstar Digital more than offsetting declines at the TorontoStar.

During the second quarter Torstar completed the purchase of several com-munity newspapers and the Toronto Wine & Cheese Show. The newspapersacquired include The Bracebridge Examiner, The Gravenhurst Banner, TheMuskokan, the Meaford Express, the Thornbury Courier-Herald, the ParrySound North Star and the Parry Sound Beacon Star. These businesses willall be reported with Metroland.

The Toronto Star’s revenues were down $7.1 million in the second quarterof 2005 and $8.9 million year to date as linage declines of 8.6% continuedto negatively impact advertising revenues. Careers linage was up 9.2% inthe quarter while national, retail and travel were down 10.7%, 4.9% and7.5% respectively. National linage was negatively impacted in the secondquarter by lower automotive advertising. Year to date, careers linage wasup 5.2% while national, retail and travel were down 3.1%, 7.6% and10.3%. The Star’s effective average line rate was negatively impacted dur-ing the second quarter by the mix of business but was up 2.7% year todate. Toronto Star circulation revenues were up $0.4 million in the quarterand $1.0 million year to date, reflecting the increases in home delivery andsingle copy prices.

Metroland’s revenues were up $14.8 million in the second quarter and$23.0 million year to date with growth from advertising, distributions andnew products. Advertising linage at the community newspapers was up9.4% in the second quarter and 8.3% year to date. Distribution volumeswere up 11.3% in the quarter and 10.3% year to date. Revenue growthfrom new products included directories magazines, and Metro’s expansioninto Vancouver and Ottawa.

CityMedia’s revenues were up $1.8 million in the quarter and $1.9 millionyear to date from improved advertising revenues at both the daily and com-munity newspapers. Linage was up 5.8% in the quarter at The HamiltonSpectator with a strong performance from local advertising.

Newsprint expenses were down $1.2 million in the quarter and $1.6 millionyear to date in the Newspaper segment. About two-thirds of the cost sav-ings were due to lower average newsprint prices in 2005. Lower consump-tion at the Toronto Star due to planned paging decreases and lower linagewas partially offset by higher consumption at Metroland for new productsincluding the Metro expansion. Payroll costs were up $3.3 million in thequarter and $5.0 million year to date. Metroland, TTN and Torstar Digital allhad higher payroll costs reflecting the investments in growth by these oper-ations. The Toronto Star and The Hamilton Spectator had lower payrollcosts from the restructuring programs that occurred in the third quarter of2004.


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Other expenses were higher in the quarter and year to date for Metroland,TTN and Torstar Digital from the growth in the businesses. CityMedia con-tinued to incur strike costs during the second quarter from the strike by TheHamilton Web mailroom and production staff. Depreciation expense washigher at Metroland and TTN from the expanded operations and Metroland’snew printing press that became operational in the second quarter of 2004.

TTN’s Los Angeles installation began, as scheduled, late in the second quar-ter of 2005. In May 2005 Gerry Noble was appointed President and CEOand has relocated to TTN’s head office in Orlando, Florida. TTN had EBITDAlosses of $2.4 million in the second quarter and $4.6 million year to dateup as expected from $1.6 million and $3.1 million in the same periods in2004. Operating losses were $3.1 million in the quarter and $5.9 millionyear to date up from $2.0 million and $3.8 million in the same periods lastyear as TTN continues to build out the business.

Book PublishingThe Book Publishing segment reports the results of Harlequin EnterprisesLimited, a leading global publisher of women’s fiction. Harlequin publisheswomen’s fiction around the world, selling books through the retail channeland directly to the consumer by mail and the Internet. Harlequin’s women’sfiction publishing operations are comprised of three divisions: North AmericaRetail, North America Direct-To-Consumer and Overseas.

As an international publisher, Harlequin’s results are affected by changes inforeign exchange rates relative to the Canadian dollar. The most significantis the change in the U.S.$/Cdn.$ exchange rate. To offset some of this risk,Torstar has entered into forward foreign exchange and option contracts forU.S. dollars and Euros.

The following charts identify the impact of foreign currency movements, for-eign currency hedges and underlying operations on reported revenue andoperating profit for the three and six months ended June 30 (in $000’s):

Three Months Six Months2005 2004 2005 2004

Reported revenue,prior year $136,109 $145,173 $273,194 $295,064

Impact of currency movements (8,357) (22) (14,965) (11,000)

Impact of U.S. dollar hedges6 2,117 4,433 4,069 9,508

Change in operating revenue 2,911 (13,475) (326) (20,378)

Reported revenue,current year $132,780 $136,109 $261,972 $273,194

6 The U.S. dollar hedges were reported in revenue effective January 1, 2004. The impact of the U.S. dollar

hedges in 2004 is the full gain on the hedges while the 2005 impact is the incremental gain year over year.

Torstar has hedged $76 million of its 2005 U.S. dollar revenue at $1.59 ($75 million at $1.58 in 2004). There

are no hedges in place for 2006.


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Three Months Six Months

2005 2004 2005 2004

Reported operating profit, prior year $22,871 $29,159 $48,992 $59,056

Impact of currency movements (2,269) (163) (4,210) (4,146)

Impact of U.S. dollar hedges 2,117 1,003 4,069 4,693

Impact of other currency hedges 665 (659) 139 59

Change in operating profit (13) (6,469) (1,026) (10,670)

Reported operating profit,current year $23,371 $22,871 $47,964 $48,992

Depreciation and amortization 1,970 2,152 3,942 4,103

Segment EBITDA $25,341 $25,023 $51,906 $53,095

Harlequin’s revenues were up $2.9 million in the second quarter excludingthe impact of foreign exchange. North America Retail was up $2.7 million,North America Direct-To-Consumer was down $1.9 million and Overseaswas up $2.1 million. Year to date revenues were down $0.3 million exclud-ing the impact of foreign exchange. North America Retail was up $0.6 mil-lion, North America Direct-To-Consumer was down $3.2 million andOverseas was up $2.3 million.

Harlequin’s operating profits were flat in the second quarter excluding theimpact of foreign exchange. North America Retail was down $2.2 million,North America Direct-To-Consumer was up $0.9 million and Overseas wasup $1.3 million. Year to date operating profits were down $1.0 millionexcluding the impact of foreign exchange. North America Retail was down$5.7 million, North America Direct-To-Consumer was up $2.0 million andOverseas was up $2.7 million.

The reported increase in North America Retail second quarter revenuesresulted from the favourable effect of a mid-year 2004 series price increaseand a very difficult second quarter in 2004. The second quarter 2005 NorthAmerica Retail series volumes were below the second quarter of 2004 butwere in line with the fourth quarter of 2004 and the first quarter of 2005.Higher product costs and promotional spending contributed to the loweroperating profits both in the second quarter and year to date.

The lower North America Direct-To-Consumer revenues were from lower vol-umes that are consistent with the longer-term trend of a declining numberof books sold. Operating profits were up in the quarter and year to date asreduced promotional spending and a mid-year 2004 price increase morethan offset the impact of lower volumes.


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The reported increases in Overseas revenues and operating profits for thesecond quarter and year to date arose primarily as actual returns for retailsales were lower than previously provided for. The U.K. continued to faceretail volume declines for both series and single titles. In Japan a decline inseries volumes was partially offset by improved single title performance.

Harlequin’s reported operating profit margin was 17.6% in the second quar-ter and 18.3% year to date up from 16.8% and 17.9% in the same periodsin 2004. Harlequin’s margins are impacted by the gains realized on foreignexchange hedges that were in place for 2004 and 2005. Excluding theimpact of the foreign exchange hedge gains from revenue and operatingprofit as calculated below, the operating profit margin was 13.1% in thesecond quarter and 13.6% year to date down from 14.3% and 14.8% inthe same periods in 2004. There are no hedges in place for 2006.

Three Months Six Months

2005 2004 2005 2004

Reported revenue $132,780 $136,109 $261,972 $273,194

Hedge gains 6,550 4,433 13,577 9,508

Revenue before hedges $126,230 $131,676 $248,395 $263,686

Reported operating profit $23,371 $22,871 $47,964 $48,992

Hedge gains 6,834 4,052 14,097 9,889

Operating profit before hedges $16,537 $18,819 $33,867 $39,103

Reported margins 17.6% 16.8% 18.3% 17.9%

Margins excluding hedges 13.1% 14.3% 13.6% 14.8%

Associated BusinessesTorstar has a 19.35% equity investment in Black Press Ltd. and a 30%equity interest in Q-ponz Inc. Black Press Ltd. is a privately held companythat publishes 95 newspapers (both dailies and weeklies) and has 17 print-ing plants in Western Canada, Washington State and Hawaii. Q-ponz Inc. isa coupon envelope business based in Toronto.

Black Press has performed strongly showing growth, benefiting from robusteconomic conditions in British Columbia and Alberta. Torstar’s income fromassociated businesses was $0.6 million in the second quarter of 2005 and$0.5 million year to date.


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LIQUIDITY AND CAPITAL RESOURCESOverviewFunds are generally used for capital expenditures, debt repayment and dis-tributions to shareholders. Long-term debt is used to supplement fundsfrom operations and as required for acquisitions. It is expected that futurecash flows from operating activities, combined with the credit facilities avail-able will be adequate to cover forecasted financing requirements.

In the second quarter of 2005, $17.1 million of cash was generated byoperations, $31.9 million was used for investing activities and $19.4 millionwas generated by financing activities. Cash and cash equivalents, net ofbank overdraft, increased by $4.1 million in the quarter and $6.0 millionyear to date to $46.8 million at June 30, 2005.

Operating activitiesOperating activities provided cash of $17.1 million in the second quarterdown $11.2 million from $28.3 million in the second quarter of 2004. Thedecline was related to the level of pension funding during the second quar-ter of 2005 and a $10.0 million larger increase in non-cash working capi-tal. Non-cash working capital increased $32.4 million in the second quarterof 2005 from higher newspaper receivables (second quarter revenues arehigher than first quarter) and lower payables due to the timing of paymentsincluding payments to authors, distributors and payments related to the2004 restructuring provisions. The increase in non-cash working capital washigher than the increase of $22.4 million in the second quarter of 2004due to the timing of payments including income tax installments, distributorincentives and customer refunds.

Year to date non-cash working capital increased by $49.8 million comparedwith an increase of $17.3 million in the same period last year.

Investing activitiesDuring the second quarter, $31.9 million was used for investing activities up$17.9 million from $14.0 million in the same period last year. TheMetroland acquisitions of several community newspapers and the TorontoWine and Cheese Show used $23.6 million of cash in the second quarter of2005 and additions to capital assets used $8.2 million.

Year to date capital additions were $18.0 million, down $5.7 million from$23.7 million in the first six months of 2004. In 2004 press additions wereunderway at both Metroland and CityMedia. During the first quarter of2005, net proceeds of $5.7 million were received from the sale of propertyin Kitchener that had previously been occupied by The Record.


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Financing activitiesFinancing activities provided $19.4 million of cash during the second quar-ter of 2005 compared with an $11.5 million use of cash in 2004.

During the second quarter of 2005, Torstar increased its long-term debt by$33.4 million. Average debt outstanding during the second quarter was$303 million in 2005 and $308 million in 2004. At June 30, 2005, Torstarhad $57 million of available credit facilities after providing for outstandingletters of credit, commercial paper and the medium term notes that willmature in September 2005.

Cash dividends of $14.1 million were paid in the second quarter of 2005,up $0.4 million from $13.7 million in 2004. The increase reflected thehigher dividend rate partially offset by a lower number of shares outstand-ing. During the second quarter of 2005, Torstar purchased 70,100 sharesfor a total price of $1.7 million under the normal course issuer bid thatopened on May 7, 2004. In the second quarter of 2004, 377,600 shareswere purchased for a total price of $10.2 million.

Torstar commenced a normal course issuer bid on May 6, 2005, effectivefor one year, to repurchase for cancellation up to 2 million Class B shares.No shares were purchased under this bid during the second quarter of2005. Torstar intends to purchase approximately 2 million shares over thenext three quarters absent any significant acquisitions.

Contractual ObligationsThere were no changes in Torstar’s significant contractual obligations duringthe first six months of 2005.

OUTLOOKTorstar’s newspapers continue to face multiple competitors both in print andother media for advertising in Southern Ontario. However, the growth thatwas realized in advertising revenues by Torstar’s smaller city dailies andcommunity newspapers during the second quarter is encouraging.

Harlequin continues to focus on its strategic plan for 2005, which includesa significant increase in the level of North American retail advertising andpromotional investment spending, primarily in the second half of the year.The 2005 publishing schedule also anticipates lower volumes in the fourthquarter of 2005 compared to the fourth quarter of 2004.


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SUMMARY OF QUARTERLY RESULTS(In thousands of dollars except for per share amounts)

Quarter ended June 30, 2005 March 31, 2005 Dec. 31, 2004 Sept. 30, 2004

Revenue $405,437 $361,099 $414,523 $366,540

Net Income $36,112 $21,139 $42,592 $11,309

Net income per Class A voting and Class B non-voting share

Basic $0.46 $0.27 $0.54 $0.14

Diluted $0.46 $0.27 $0.54 $0.14

Quarter ended June 30, 2004 March 31, 2004 Dec. 31, 2003 Sept. 30, 2003

Revenue $399,038 $361,748 $387,840 $368,040

Net Income $35,764 $23,038 $30,355 $29,715

Net income per Class A voting and Class B non-voting share

Basic $0.45 $0.29 $0.39 $0.38

Diluted $0.44 $0.29 $0.38 $0.38

The summary of quarterly results illustrates the cyclical nature of revenuesand operating profits in the Newspaper Segment. The fourth quarter (endedDecember 31) tends to be the strongest for the daily newspapers. Theweekly and community newspapers have a more even performance duringthe year. The fourth quarter of 2003 (ended December 31) and the thirdquarter of 2004 (ended September 30) included unusual losses of $7.8million and $12.3 million that negatively impacted net income and netincome per share in those quarters.

RECENT DEVELOPMENTSSubsequent to the end of the quarter, Metroland completed the purchase ofPaton Publishing. Paton Publishing, located in Mississauga, does contractpublishing and focused marketing campaigns aimed principally at youthaudiences.

On July 18, 2005, the Toronto Star announced a voluntary severance pro-gram for management staff at the Vaughan printing facility as part of theStar’s ongoing focus on reducing costs and improving margins.

On July 27, 2005 Torstar announced the October 2005 launch of a newweekly glossy celebrity magazine, called Weekly Scoop, to be sold on news-stands across Canada.


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OTHERAt June 30, 2005, Torstar had 9,916,522 Class A voting shares and68,227,589 Class B non-voting shares outstanding and 5,475,168 optionsto purchase Class B non-voting shares outstanding to executives and non-executive directors. More information on Torstar’s share capital and stockoption plan is provided in Notes 3 and 4 of the consolidated financial state-ments.

Additional information relating to Torstar is available on SEDAR atwww.sedar.com.

Dated: July 27, 2005.


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Three months ended Six months endedJune 30 June 30

(thousands of dollars) 2005 2004 2005 2004

Operating revenueNewspapers $272,657 $262,929 $504,564 $487,592Book publishing 132,780 136,109 261,972 273,194

$405,437 $399,038 $766,536 $760,786

Operating profitNewspapers $42,149 $41,440 $58,656 $60,050Book publishing 23,371 22,871 47,964 48,992Corporate (4,537) (3,814) (9,442) (8,146)

60,983 60,497 97,178 100,896Interest (2,595) (2,626) (4,892) (5,408)Foreign exchange (407) (405) (655) (195)Unusual items (note 8) 1,350

Income before taxes 57,981 57,466 92,981 95,293Income and other taxes (22,500) (22,100) (36,200) (36,700)

Income before income of associated businesses 35,481 35,366 56,781 58,593Income of associated businesses 631 398 470 209

Net income $36,112 $35,764 $57,251 $58,802

Earnings per Class A and Class B share (note 3(c)):

Net income – Basic $0.46 $0.45 $0.73 $0.74Net income – Diluted $0.46 $0.44 $0.73 $0.73

(See accompanying notes)

Torstar Corporation Consolidated Statements of Income(Unaudited)

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June 30 December 31

(thousands of dollars) 2005 2004

AssetsCurrent:

Cash and cash equivalents $48,813 $47,229Receivables 249,970 247,942Inventories 34,297 35,236Prepaid expenses 79,756 68,250Future income tax assets 23,299 23,851

Total current assets 436,135 422,508

Property, plant and equipment (net) 377,732 392,141Investment in associated businesses 23,517 22,954Goodwill (net) 499,624 499,637Other assets (note 7) 141,102 114,731Future income tax assets 58,015 58,056

Total assets $1,536,125 $1,510,027

Liabilities and Shareholders' EquityCurrent:

Bank overdraft $1,984 $6,414Accounts payable and accrued liabilities 186,254 214,352Income taxes payable 14,641 23,917

Total current liabilities 202,879 244,683

Long-term debt (note 2) 365,070 317,829

Other liabilities 84,206 83,177

Future income tax liabilities 70,577 70,677

Shareholders' equity:Share capital (note 3) 371,755 369,140Contributed surplus 3,660 2,442Retained earnings 444,046 425,787Foreign currency translation adjustment (6,068) (3,708)

Total shareholders' equity 813,393 793,661

Total liabilities and shareholders' equity $1,536,125 $1,510,027


Torstar Corporation Consolidated Balance Sheets(Unaudited)

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Three months ended Six months endedJune 30 June 30

(thousands of dollars) 2005 2004 2005 2004

Cash was provided by (used in)Operating activities $17,079 $28,311 $36,318 $70,723Investing activities (31,875) (13,967) (35,814) (28,208)Financing activities 19,366 (11,487) 6,567 (52,857)

Increase (decrease) in cash 4,570 2,857 7,071 (10,342)Effect of exchange rate changes (467) 87 (1,057) 567Cash, beginning of period 42,726 37,698 40,815 50,417

Cash, end of period $46,829 $40,642 $46,829 $40,642

Operating activities:Net income $36,112 $35,764 $57,251 $58,802Depreciation 14,289 13,600 28,314 27,017Amortization 641 644 1,280 1,285Future income taxes 500 (4) 700 337Income of associated businesses (631) (398) (470) (209)Other (1,463) 1,143 (965) 755

49,448 50,749 86,110 87,987Increase in non-cash working capital (32,369) (22,438) (49,792) (17,264)

Cash provided by operating activities $17,079 $28,311 $36,318 $70,723

Investing activities:Additions to property, plant and equipment ($8,219) ($11,117) ($17,968) ($23,702)Acquisitions (note 7) (23,604) (1,635) (23,604) (3,340)Investment in associated businesses (note 7) (1,413) (1,413)Other (note 8) (52) 198 5,758 247

Cash used in investing activities ($31,875) ($13,967) ($35,814) ($28,208)

Financing activities:Issuance of commercial paper (net) $33,409 $10,663 $45,212 $35,938Repayment of mid-term notes (75,000)Dividends paid (14,147) (13,676) (28,299) (27,300)Exercise of stock options (note 3(a)) 1,164 723 1,743 21,735Purchase of shares for cancellation (note 3(b)) (1,740) (10,212) (13,068) (10,212)Other 680 1,015 979 1,982

Cash provided by (used in) financing activities $19,366 ($11,487) $6,567 ($52,857)

Cash represented by:Cash and cash equivalents $48,813 $43,421 $48,813 $43,421Bank overdraft (1,984) (2,779) (1,984) (2,779)

$46,829 $40,642 $46,829 $40,642


Torstar Corporation Consolidated Statements Of Cash Flows(Unaudited)

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Torstar Corporation Consolidated Statements Of Retained Earnings(Unaudited)

Six months endedJune 30

(thousands of dollars) 2005 2004

Retained earnings, beginning of period $425,787 $395,758

Net income 57,251 58,802

Dividends (28,914) (27,770)

Premium paid on repurchase of shares for cancellation (note 3(b)) (10,078) (8,200)

Retained earnings, end of period $444,046 $418,590


Torstar Corporation Notes to the Interim Consolidated Financial Statements(Dollar amounts in thousands unless otherwise stated)

1. Accounting policiesThe accounting policies used in the preparation of these unauditedinterim consolidated financial statements conform with those in TorstarCorporation’s December 31, 2004 audited annual consolidated finan-cial statements. These interim financial statements do not include all ofthe disclosures included in the annual financial statements and accord-ingly should be read in conjunction with the annual consolidated finan-cial statements.

2. Long-term debt

As at As atJune 30, 2005 December 31, 2004

Commercial paper:

Cdn. Dollar denominated $190,589 $156,792

U.S. Dollar denominated 129,481 116,037

320,070 272,829

Medium Term Notes:

Cdn. Dollar denominated 45,000 45,000

$365,070 $317,829

All commercial paper and medium term notes with a term of less thanone year have been classified as long-term debt as the company hasthe ability and intention to refinance these amounts under its existingcredit facilities.

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The carrying values of the various long-term debt instruments approximatetheir fair value at June 30, 2005. The company entered into an interestrate swap agreement that will fix the interest rate on U.S. $80 million ofborrowings at approximately 3.5% for four years beginning December2003. The fair value of the U.S. interest rate swap arrangement was $1.2million favourable at June 30, 2005.

3. Share Capitala) A summary of changes to the company’s share capital is as follows:

Class A shares (voting)

At June 30, 2005 there were 9,916,522 Class A shares outstandingwith a stated value of $2,694. The only changes in the Class A sharessince December 31, 2004 were the conversion to Class B shares of1,953 shares with a stated value of $1.

Class B shares (non-voting)

Shares Amount

December 31, 2004 68,533,752 $366,445

Converted from Class A 1,953 1

Issued under Employee Share Purchase Plan 128,959 3,225

Stock options exercised 95,900 1,743

Purchased for cancellation (559,200) (2,990)

Dividend reinvestment plan 25,306 615

Other 919 22

June 30, 2005 68,227,589 $369,061

Total Class A and Class B shares 78,144,111 $371,755

b) The company commenced a normal course issuer bid on May 6, 2005,effective for one year, to repurchase for cancellation up to 2 millionClass B shares, representing approximately 2.9% of the company’s out-standing Class B shares. As at June 30, 2005 no shares were repur-chased under this bid. A similar issuer bid, which commenced May 7,2004, was completed in the second quarter. 2,000,000 Class Bshares were repurchased and cancelled since the beginning of thisissuer bid at an average repurchase price of $24.02 per share for atotal consideration of $48,044. During 2005, 559,200 Class B shareswere repurchased at an average price of $23.37 per share for a totalconsideration of $13,068. Retained earnings were reduced by$10,078 representing the excess of the cost of the shares repur-chased over their stated value.

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c) Earnings per share

Basic per share amounts have been determined by dividing net incomeby the weighted average number of shares outstanding during the peri-od. Diluted per share amounts have taken into consideration the dilu-tive effect of stock options and the employee share purchase plan. Theweighted average number of Class A and Class B shares outstanding(in thousands) were:

Three months ended June 30 Six months ended June 30

2005 2004 2005 2004

Basic 78,098 79,669 78,132 79,310

Diluted 78,707 80,935 78,560 80,357

d) During the six months ended June 30, 2005, controlling shareholderssold 10,000 Class B shares.

4. Stock-based compensationThe company has four stock-based compensation plans: an executive shareoption plan, an employee share purchase plan, a deferred share unit planfor employees and a deferred share unit plan for non-employee directors.

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

Weighted averageShare options exercise price

December 31, 2004 4,936,962 $22.63

Granted 643,531 22.00

Exercised (95,900) (18.18)

Cancelled (9,425) (25.53)

June 30, 2005 5,475,168 $22.63

Options exercisable at June 30, 2005 are as follows:

Range of Share options Weighted averageexercise price exercisable exercise price

$15.75–18.05 488,100 $17.11

$18.50–22.20 2,144,614 $20.96

$25.00–29.01 1,028,160 $25.78

$15.75–29.01 3,660,874 $21.80


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b) The company has recognized in 2005 compensation expense totalling$1.1 million (2004 - $0.8 million) for the stock options granted in2003 to 2005 and the employee share purchase plans originating in2004 and 2005. The fair value of the executive stock options grantedin 2005 was estimated to be $3.48 (2004 - $5.52) per option at thedate of grant using the Black-Scholes option pricing model with theassumptions of a risk-free interest rate of 3.7% (2004 – 4.1%),expected dividend yield of 3.4% (2004 – 2.4%), expected volatility of20.7% (2004 – 20.6%) and an expected time until exercise of 5 years.

c) No compensation expense has been recognized for the company’sstock-based compensation plans granted in 2002. Had compensationcost for the company’s stock-based compensation plans been deter-mined based on the fair value method of accounting for stock-basedcompensation, the company’s net income and earnings per sharewould have been reduced to the pro forma amounts indicated below:

Three months Six months ended June 30 ended June 30

2005 2004 2005 2004

Net income – As reported $36,112 $35,764 $57,251 $58,802

– Pro forma $35,685 $35,118 $56,397 $57,532

Earnings per share — Basic – As reported $0.46 $0.45 $0.73 $0.74

– Pro forma $0.46 $0.44 $0.72 $0.73

Earnings per share — Diluted – As reported $0.46 $0.44 $0.73 $0.73

– Pro forma $0.45 $0.43 $0.72 $0.72

d) The company has a Deferred Share Unit Plan for executives and non-employee directors. As at June 30, 2005, 149,880 units wereoutstanding at a value of $3.7 million. During the second quarter, thecompany entered into a derivative instrument in order to offset itsexposure to 139,868 units. Changes in the fair value of this instrumentwill be recorded as compensation expense and will offset the impact ofchanges in the value of the outstanding deferred share units.


5. Employee Future BenefitsThe company maintains a number of defined benefit plans, which providepension benefits to its employees in Canada and the United States. Postemployment benefits other than pensions are also available to employees,primarily in the Canadian newspapers operations, which provide for varioushealth and life insurance benefits.

The company has expensed net pension benefit costs of $8.1 million forthe six months ended June 30, 2005 (2004 - $7.7 million) and $3.9 mil-lion for the quarter ended June 30, 2005 (2004 - $3.9 million). Withrespect to post-employment benefits other than pensions, for the sixmonths and quarter ended June 30, 2005 the net benefit cost was $2.2million and $1.2 million respectively (2004 - $1.9 million and $1.0 millionrespectively).

6. Forward Foreign Exchange Contracts and OptionsAs described in Note 13 of the company’s December 31, 2004 annualfinancial statements, the company has entered into various forward foreignexchange contracts and option contracts.

During the first half of 2005 the company entered into an offsetting positionfor 2.0 million of its 4.0 million 2006 Euro forward foreign exchange con-tracts.

The company has marked to market its outstanding Euro forward foreignexchange contracts at June 30, 2005. As a result, an unrealized gain of$0.4 million was included in the operating profit of the book publishing seg-ment for the six months ended June 30, 2005.

7. AcquisitionsThe company completed a number of community newspaper acquisitionsduring 2005 and 2004. In 2005, the total purchase price of $23.6 millionhas been included in Other assets pending the completion of the final allo-cation of the purchase prices. In 2004, the total purchase price was $3.3million of which $2.8 million was allocated to goodwill. The company alsoacquired on June 17, 2004 a 30% equity interest in an associated busi-ness.

8. Unusual items During the first quarter of 2005, the company recognized a $1.4 milliongain from the completion of the sale of the land and building previouslyoccupied by The Record in Kitchener. Net proceeds were $5.7 million.


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CORPORATE OFFICEONE YONGE STREET

TORONTO, ONTARIO M5E 1P9

(416) 869-4010

www.torstar.com

SHARES LISTEDTORSTAR CLASS B SHARES ARE TRADED

ON THE TORONTO STOCK EXCHANGE UNDER

TS.nv.b

TRANSFER AGENT AND REGISTRARCIBC MELLON TRUST COMPANY

AUDITORSERNST & YOUNG LLP,

TORONTO

TORONTO STAR

METROLAND

CITYMEDIA GROUP

TORSTAR DIGITAL

HARLEQUIN ENTERPRISES

T O R S T A R C O R P O R A T I O N

2ND QUARTER REPORT

J U N E 3 0 , 2 0 0 5

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