Higher Digital Royalties Drag on Harlequin Earnings

Higher royalties paid for ebook sales is putting a damper on Harlequin’s profitability, the company said in a release (below) this morning outlining its performance over the past two quarters.

Earnings before interest, taxes, depreciation and amortization (EBITDA) for Harlequin was down $10.3 million in the first six months of the year to about $30 million. The culprit is higher royalties paid on ebook sales. In the first quarter this year, the company also showed poorer than expected results and blamed a “challenged print environment.”

Earlier this year, a Federal District judge dismissed a class-action lawsuit filed against Harlequin relating to payments of royalties to authors on digital sales. The judge said the plaintiffs had failed to make a claim.

[Press Release]

TORSTAR – Management’s Discussion and Analysis For the three and six months ended June 30, 2013

This Management’s Discussion and Analysis (“MD&A”) comments on the financial condition and results of operations of Torstar Corporation (“Torstar” or the “Company”), for the three and six months ended June 30, 2013 and updates the MD&A for fiscal year ended December 31, 2012 (the “Annual MD&A”). The information contained herein should be read in conjunction with the audited consolidated financial statements of Torstar Corporation for the year ended December 31, 2012 and the annual MD&A which are 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, 2013.

The Company prepares its condensed consolidated financial statements in accordance with International Financial Reporting Standards (“IFRS”) as set out in the Handbook of The Canadian Institute of Chartered Accountants (“CICA Handbook”). All financial information contained in this MD&A and in the condensed consolidated financial statements has been prepared in accordance with IFRS, except for certain “Non-IFRS Measures” as described in Section 11 of this MD&A.

This MD&A is dated July 30, 2013 and all amounts are denominated in Canadian dollars, unless otherwise noted. Per share amounts are calculated using the weighted average number of shares outstanding for the applicable period.

Effective January 1, 2013, Torstar applied, for the first time, certain IFRS accounting standards and amendments which required restatement of previously presented financial statements. These include IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements, IFRS 12 Disclosure of Interests in Other Entities, IAS 19 (Revised 2011) Employee Benefits, IAS 28 Investments in Associates and Joint Ventures and amendments to IAS 1 Presentation of Financial Statements. Accordingly, the comparative financial information provided in this MD&A has been restated to reflect the adoption of these accounting standards. The effect of Torstar’s application of these standards is discussed further in Section 7 of this MD&A.

Additional information relating to Torstar, including the 2012 Consolidated Financial Statements, Annual Report and Annual Information Form, are available on the Torstar website at www.torstar.com and on SEDAR at www.sedar.com.

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, financial performance and
business prospects and opportunities as of the date of this MD&A. 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. This MD&A includes, but is not limited to, forward-looking statements regarding the Company’s outlook for the balance of 2013 in Section 3 of this MD&A. 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 MD&A. 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.

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 not to 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.

These factors include, but are not limited to:
• the Company’s ability to operate in highly competitive industries;
• the Company’s ability to compete with other newspapers and other forms of media and media platforms;
• general economic conditions in the principal markets in which the Company operates;
• the Company’s ability to attract and retain advertisers;
• the Company’s ability to maintain adequate circulation levels;
• the Company’s ability to attract and retain readers;
• the Company’s ability to retain and grow its digital audience and profitably develop its digital businesses;
• the trend towards digital books and the Company’s ability to distribute its books through the changing distribution landscape;
• the Company’s ability to accurately estimate the rate of book returns through the wholesale and retail channels;
• the popularity of its authors and its ability to retain popular authors;
• labour disruptions;
• newsprint costs;
• the Company’s ability to reduce costs;
• foreign exchange fluctuations;
• credit risk;
• restrictions imposed by existing credit facilities, debt financing and availability of capital;
• changes in pension fund obligations;
• results of impairment tests;
• reliance on its printing operations;
• reliance on technology and information systems;
• risks related to business development and acquisition integration;
• interest rates;
• availability of insurance;
• litigation;
• environmental, privacy, anti-spam, communications and e-commerce laws and other laws and regulations applicable generally to the Company’s businesses;
• dependence on key personnel;
• dependence on third party suppliers and service providers;
• loss of reputation;
• product liability;
• intellectual property rights;
• control of the Company by the Voting Trust; 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 which the Company believes are reasonable as of the date of this MD&A. Some of the key assumptions include, without limitation, assumptions regarding the performance of the North American and global economies; 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; rates of return and discount rates relating to pension expense and pension plan obligations; royalty rates, expected future revenues, expected future cash flows and discount rates relating to valuation of goodwill and intangible assets; and successful development of new products.

There is a risk that some or all of these assumptions may prove to be incorrect.
For more information, please see the discussion of risks affecting the Company and its businesses starting on page 31 in the Company’s Annual MD&A which is incorporated herein by reference, and a copy of which is available on Torstar’s website at
www.torstar.com and on SEDAR at www.sedar.com.

When relying on our forward-looking statements to make decisions with respect to the Company and its securities, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. 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.





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