<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
-----------
Date of Report (Date of earliest event reported): December 11, 1996
Hollinger International Inc.
(Exact name of registrant as specified in charter)
Delaware 0-24004 95-3518892
(State or other (Commission (IRS employer
jurisdiction of incorp.) file number) identification no.)
401 North Wabash Avenue,
Chicago, Illinois 60611
(Address of principal executive office) (Zip code)
Registrant's telephone number, including
area code: (312) 321-2299
<PAGE> 2
Pursuant to Item 7(a)(4) and (b)(2) of Form 8-K Hollinger International
Inc. amends and restates Item 7 in its entirety as follows:
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial statements of businesses acquired.
Southam Inc.
Auditors' Report
Consolidated Balance Sheets as of
December 31, 1995 and September 30, 1996
(unaudited)
Consolidated Statements of Income for the
Year Ended December 31, 1995 and the Nine
Months Ended September 30, 1996
(unaudited)
Consolidated Statements of Changes in
Financial Position for the Year Ended
December 31, 1995 and the Nine Months
Ended September 30, 1996 (unaudited)
Notes to the Consolidated Financial
Statements
(b) Pro forma financial information.
Hollinger International Inc. and Subsidiaries,
Pro Forma Condensed Consolidated Balance Sheet as of
September 30, 1996 (Unaudited)
Pro Forma Condensed Consolidated Statement of Operations
for the Nine Months Ended September 30, 1996 (Unaudited)
Pro Forma Condensed Consolidated Statement of Operations
for the Year Ended December 31, 1995 (Unaudited)
Notes to Pro Forma Condensed Consolidated Financial
Statements (Unaudited)
(c) Exhibits.
23.1 Consent of KPMG
-2-
<PAGE> 3
AUDITORS' REPORT
To the Board of Directors of
SOUTHAM INC.
We have audited the consolidated balance sheet of Southam Inc. as at
December 31, 1995 and the consolidated statements of income, deficit and
changes in financial position for the year ended December 31, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation.
In our opinion, these consolidated financial statements present fairly,
in all material respects, the financial position of the Company as at December
31, 1995 and the results of its operations and the changes in its financial
position for the year ended December 31, 1995 in accordance with generally
accepted accounting principles.
Accounting principles generally accepted in Canada vary in certain
significant respects from accounting principles generally accepted in the
United States. A description of certain significant differences, as applicable
to the Company, is included in note 16 to the consolidated financial
statements.
KPMG
Chartered Accountants
Toronto, Canada
February 22, 1996 except to Note 16 which
is as of February 18, 1997
<PAGE> 4
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
(thousands of Canadian dollars) 1995 1996
-------- --------
(unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and short-term investments $11,932 $69,860
Accounts receivable 170,618 143,290
Income taxes recoverable 6,129 --
Inventories (note 3) 23,851 17,002
Prepaid expenses 16,536 11,950
-------- --------
229,066 242,102
-------- --------
Investments (note 4)
Associated businesses 3,493 2,821
Other investments 23,515 6,074
Deferred income taxes recoverable 10,677 5,056
Fixed assets, less accumulated depreciation (note 5) 315,541 392,840
Goodwill, intangible and other assets (note 6) 240,823 309,359
-------- --------
$823,115 $958,252
======== ========
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities $124,756 $124,670
Income taxes payable 294
Deferred revenue 61,939 37,480
Current liability for workforce reduction (note 9) 23,155 23,206
Long-term debt due within one year (note 7) 7,785 --
-------- --------
217,635 188,050
Long-term debt (note 7) 179,491 321,827
Non-current liability for workforce reduction (note 9) 66,725 41,725
Deferred income taxes -- --
-------- --------
463,851 551,602
-------- --------
SHAREHOLDERS' EQUITY
Capital stock (note 8) 441,743 443,426
Deficit (82,364) (36,583)
Equity adjustment from foreign currency translation (115) (193)
-------- --------
359,264 406,650
-------- --------
$823,115 $958,252
======== ========
</TABLE>
Commitments and contingencies (note 15)
<PAGE> 5
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31, September 30,
(thousands of Canadian dollars) 1995 1996
-------- --------
(unaudited)
<S> <C> <C>
REVENUE FROM OPERATIONS
Newspapers $ 846,262 $ 655,379
Business communications 176,083 145,196
---------- ----------
1,022,345 800,575
---------- ----------
COST OF OPERATIONS
Operating expenses 909,808 719,814
Depreciation 35,655 27,433
Amortization of goodwill and circulation 8,319 6,916
Interest (note 7) 9,152 8,770
---------- ----------
962,934 762,933
---------- ----------
INCOME BEFORE SPECIAL CHARGES AND INCOME TAX 59,411 37,642
Special charges (note 9) (120,000) 38,663
---------- ----------
(LOSS) INCOME BEFORE INCOME TAXES (60,589) 76,305
Income taxes (recoverable) (note 10) (21,693) 19,123
---------- ----------
(LOSS) INCOME FROM CONTINUING OPERATIONS (38,896) 57,182
Loss from discontinued
operations (note 11) (14,526) -
---------- ----------
NET (LOSS) INCOME $ (53,422) $ 57,182
========== ==========
(LOSS) INCOME PER COMMON SHARE
From continuing operations $ (.51) .75
Discontinued operations (.19) -
---------- ----------
Net (loss) income $(.70) .75
========== ==========
Average number of common shares
outstanding (note 8) 76,251,719 76,005,342
========== ==========
</TABLE>
CONSOLIDATED STATEMENTS OF DEFICIT
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31, September 30,
(thousands of dollars) 1995 1996
-------- --------
(unaudited)
<S> <C> <C>
BALANCE at beginning of period $ (9,400) $ (82,364)
Net (loss) income (53,422) 57,182
---------- ----------
(62,822) (25,182)
---------- ----------
Deduct
Dividends on common shares
Cash - 1996 $.20 per share 15,215 11,401
1995 $.15 per share
Stock - 603 shares 8 -
---------- ----------
15,223 11,401
---------- ----------
Premium on redemption of common shares
for cancellation (note 8) 4,319 -
---------- ----------
BALANCE at end of period $ (82,364) $ (36,583)
========== ==========
</TABLE>
<PAGE> 6
CONSOLIDATED STATEMENTS OF
CHANGES IN FINANCIAL POSITION
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31, September 30,
(thousands of Canadian dollars) 1995 1996
-------- --------
(unaudited)
<S> <C> <C>
CASH PROVIDED FROM (USED FOR):
OPERATIONS
(Loss) income from continuing operations $ (38,896) $ 57,182
Add items not affecting cash:
Depreciation 35,655 29,433
Amortization 8,442 6,996
Deferred income taxes (27,634) 5,600
Loss on sale of fixed assets and investments 113 --
Special charges 120,000 (38,634)
----------- --------
Cash flow from operations 97,680 58,577
(Used for) Provided from non-cash working capital,
exclusive of payments related to workforce
downsizing (note 13) (14,483) 28,135
----------- --------
Payments related to workforce
downsizing (note 9) (34,330) (24,949)
----------- --------
48,867 61,763
----------- --------
FINANCING ACTIVITIES
Shares (redeemed) issued, net (7,068) 1,683
Dividends paid (15,215) (11,401)
Payment under contingent
value obligation (note 8) (19,697) --
Increase in long-term debt 62,776 134,551
----------- --------
20,796 (124,833
----------- --------
INVESTMENT ACTIVITIES
Additions to fixed assets (104,766) (93,711)
Acquisition of subsidiaries (note 14) (9,212) (136,349)
Investments acquired (1,183) (3,358)
Increase in other assets (261) (81)
Payments from employee stock purchase plans 857 564
Proceeds from sale of fixed assets
and investments 13,570 104,132
Dividends from associated businesses 200 135
----------- --------
(100,795) (128,668)
----------- --------
CASH (USED IN) PROVIDED FROM CONTINUING OPERATIONS (31,132) 57,928
CASH PROVIDED FROM DISCONTINUED OPERATIONS (note 11) 40,706 --
CASH, BEGINNING OF PERIOD 2,358 11,932
----------- ---------
CASH, END OF PERIOD $ 11,932 $ 69,860
=========== =========
</TABLE>
<PAGE> 7
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Tabulated dollars in thousands)
1. SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies followed by Southam Inc. and subsidiary
companies are summarized hereunder. All policies conform to Canadian generally
accepted accounting principles and have been consistently applied.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of all
subsidiaries. The results of operations of subsidiaries are included in the
consolidated financial statements from the dates of acquisition of control.
TRANSLATION OF FOREIGN SUBSIDIARIES' FINANCIAL STATEMENTS
The financial statements of foreign subsidiaries, all of which are
self-sustaining, are translated using the current rate method whereby assets and
liabilities are translated at year-end exchange rates and revenues and expenses
at average exchange rates for the year. Adjustments arising from the translation
of the financial statements are deferred and included in a separate component of
shareholders' equity.
INVENTORIES
Materials and supplies included in inventories are valued at the lower of
cost and replacement cost. Work in process is valued at the lower of cost and
net realizable value and includes the cost of raw materials, direct labour and
manufacturing overhead expenses. Retail merchandise is valued at the lower of
cost and net realizable value less normal profit margin.
FIXED ASSETS
Land, buildings, machinery and equipment and leasehold improvements are
stated at cost. The cost of major fixed assets acquired, constructed or
developed over time includes costs related to interest and preproduction prior
to the asset being substantially complete and ready for use. Depreciation is
provided primarily on a straight line basis, using rates of 2 1/2 per cent per
annum for buildings and 4 to 20 per cent per annum for machinery and equipment.
Leasehold improvements are amortized over the term of the applicable lease.
Capitalized preproduction costs are amortized over terms of up to 5 years from
the date the asset is substantially complete and ready for use.
GOODWILL AND INTANGIBLE ASSETS
The excess cost of acquiring businesses over the value assigned to
identifiable assets acquired is allocated first to intangible assets, mainly
newspaper circulation, and then to goodwill.
Purchased goodwill is recorded as an asset to be systematically amortized
by charges to earnings over periods not to exceed 40 years. The amount assigned
to newspaper circulation is amortized over 40 years. Unamortized amounts related
to goodwill and circulation will be written down in the event that estimated
undiscounted future net cash flows are less than the net carrying values.
PENSION COSTS
Pension costs related to current service are charged to income for the
period during which the services are rendered. This cost reflects management's
best estimates of the pension plans' expected investment yields, salary
escalations, mortality of members, terminations and the ages at which members
will retire. Adjustments arising from plan amendments, experience gains and
losses and changes in assumptions are being amortized over the expected average
remaining service life of employees.
2. SEGMENTED INFORMATION
Additional industry and geographic segmented information is set out under
the heading Segmented Information and forms part of these consolidated financial
statements. The industry and geographic segments for the company and its
principal wholly owned subsidiaries are as follows:
<PAGE> 8
<TABLE>
<CAPTION>
INDUSTRY CORPORATE ENTITY GEOGRAPHIC LOCATION
- -------- ---------------- -------------------
<S> <C> <C>
Newspapers Southam Inc. Canada
Business communications Southam Inc. Canada-United States
Book retailing (note 11) Coles Book Stores Limited Canada
Graphics (note 11) Dittler Brothers, Incorporated United States
</TABLE>
3. INVENTORIES
<TABLE>
<CAPTION>
1995
-------
<S> <C>
Materials and supplies $23,851
Work in process
Retail merchandise
-------
$23,851
=======
</TABLE>
4. INVESTMENTS
ASSOCIATED BUSINESSES
<TABLE>
<CAPTION>
1995
------
<S> <C>
Carrying value of investments
at beginning of year $2,538
Equity in earnings 140
Dividends received (200)
Investments, dispositions
& reclassifications 1,015
------
Carrying value of investments
at end of year $3,493
======
</TABLE>
OTHER INVESTMENTS
Other investments includes an amount of $18,016,000 at December 31, 1995
representing the value of minority interests and notes receivable taken back in
connection with the sale of discontinued operations (note 11). Interest income
of $1,080,000 related to these notes is netted against interest expense.
Investments in associated businesses are accounted for on the equity basis
and other investments are accounted for on the cost basis.
5. FIXED ASSETS
<TABLE>
<CAPTION>
1995
--------
<S> <C>
Cost:
Land $34,017
Buildings 164,266
Machinery and equipment 470,286
Leasehold improvements 1,950
--------
670,519
--------
Less accumulated
depreciation:
Buildings 63,405
Machinery and equipment 290,784
Leasehold improvements 789
--------
354,978
--------
Net book value $315,541
========
</TABLE>
The company capitalized interest in 1995 amounting to $1,249,000 related
to the construction and equipping of major production facilities for its
newspapers. The net carrying amount of these projects at December 31, 1995 for
which depreciation had not commenced was $45,868,000.
6. GOODWILL, INTANGIBLE AND OTHER ASSETS
<TABLE>
<CAPTION>
1995
--------
<S> <C>
Goodwill, at
amortized value $197,611
Newspaper circulation,
at amortized value 41,058
Other 2,154
--------
$240,823
========
</TABLE>
7. LONG-TERM DEBT
<TABLE>
<CAPTION>
1995
--------
<S> <C>
Short-term promissory notes at
variable rates of interest (a) (d)
Cdn. averaging 6.5% $41,500
U.S. averaging 6.0% 13,776
Notes
Maturing 1995, at 8.3% (a) (c) 7,000
Maturing 2000, at 7.90% 50,000
Maturing 2005, at 8.47% 75,000
--------
187,276
Less amounts included
in current liabilities 7,785
--------
$179,491
========
</TABLE>
<PAGE> 9
(a) The company's $200 million credit facilities with banks provide committed
lines of credit to July 31, 1996. A term loan option provides for
repayments in 1996 through 1998 as disclosed in (b) below. The amount of
the credit facility not borrowed at December 31, 1995 was $198 million. The
credit facilities are used primarily to support short-term promissory note
issuance and for general corporate purposes.
(b) Under the term loan option described in (a) above, the long-term debt
repayments including the term portion of the credit facility are: 1996 --
$7,785,000; 1997 -- $31,138,000; 1998 -- $20,759,000.
(c) The registered holder of a $7,000,000 note due December 15, 1995 was unable
to redeem it at maturity due to a dispute between it, its Canadian parent
and its U.S. subsidiary over legal title. The parties are involved in
bankruptcy proceedings in their respective jurisdictions. The note will be
redeemed when the issue of legal title is resolved. Interest is not payable
after the maturity date.
(d) The company has converted a portion of its variable rate interest exposure
to fixed rate. The company entered into a ten year $25,000,000 fixed rate
interest swap at 8.7%, maturing May, 2004. A 20 month $25,000,000 fixed
rate interest swap at 6.2%, matured December, 1995. The company pays
interest at the fixed rate and it receives interest based on the three
month bankers acceptance rate, which is reset quarterly, on the nominal
principal.
Interest expense related to continuing operations is comprised as set out
below. In addition, interest expense allocated to discontinued operations is
comprised as set out below. In addition, interest expense allocated to
discontinued operations in the year amounted to $260,000.
<TABLE>
<CAPTION>
1995
-------
<S> <C>
Long-term debt $10,232
Other income (1,080)
-------
$ 9,152
=======
</TABLE>
8. CAPITAL STOCK
The authorized share capital of the company is an unlimited number of
common shares.
COMMON SHARES
The issue or transfer of the company's shares to non-Canadian persons or
corporations is restricted to a maximum of 25 per cent of the number of shares
outstanding. This restriction ensures that the company will continue to have
Canadian status so that advertisers may deduct, for income tax purposes, the
cost of advertising in any of its publications.
SUMMARY OF COMMON SHARE TRANSACTIONS
<TABLE>
<CAPTION>
Common shares: 1995
- -------------- -----------------------
Shares Amount
---------- --------
<S> <C> <C>
Issued at January 1 76,443,066 $464,181
Stock dividends (a) 603 8
Employee stock investment plans
Executive stock option plan (b) 34,400 435
---------- --------
76,478,069 464,624
Less:
Shares purchased
for cancellation (c) 524,200 3,184
Payment under contingent
value obligation (d) 19,697
---------- --------
Issued at December 31 75,953,869 $441,743
========== ========
Average number of common
shares outstanding 76,251,719
==========
</TABLE>
<PAGE> 10
(a) During the second quarter of 1995 the company terminated the stock dividend
program by which shareholders could elect to receive dividends in shares.
(b) Under the company's executive stock option plan, the principal terms of
which are described below, options for 34,400 shares at a price of $12.63
per share were exercised.
(c) The company repurchased 524,200 common shares for a cash consideration of
$7,503,000. The excess purchase price over the average carrying value of
the shares, which amounted to $4,319,000, was charged to deficit.
(d) In connection with the acquisition of a subsidiary in 1990, the company
committed under a contingent value obligation to the payment in November,
1995 of an amount equal to 1.1 million times the excess, if any, of $32
over the market price of the company's shares at a specified earlier date
in 1995. An amount of $19,697,000 was paid pursuant to the contingent value
obligation, which has been recorded as a reduction in capital stock.
Under the company's employee share purchase plan, employees may subscribe
for common shares to be paid through payroll deductions over two-year periods
at a purchase price which is the lower of the market price on the entry date or
the market price at the end of the payment period. At December 31, outstanding
employee subscriptions were as follows:
<TABLE>
<CAPTION>
1995
-----------------------
Maturity April, 1997 July, 1996
- -------- ----------- ----------
<S> <C> <C>
Subscription price $ 15.11 $ 17.17
Number of shares 39,432 71,042
</TABLE>
On February 8, 1995 the Board of Directors approved amendments to the
Executive Share Purchase Plan to convert it into a stock option plan. Under the
Stock Option Plan, eligible employees may be granted options to acquire common
shares of the company at a price which is not less than the weighted average
trading price on The Toronto Stock Exchange for the three days prior to the
date of the grant. The maximum number of common shares which may be available
for award is 3,800,000.
Participants may exercise, on or after the first anniversary of the date
of grant up to 25% of the common shares subject to option and a further 25%, on
a cumulative basis, on or after each of the second, third and fourth
anniversaries. Shares must be paid for in full on exercise of an option.
Options may be immediately and fully exercisable on retirement, may be
exercised in part upon termination of employment otherwise than for cause, are
not assignable and expire six years after the date of grant.
The effective date of outstanding stock option grants, the maximum number
of shares which may be exercised under the grant and the exercise price, as at
December 31, 1995, are as follows:
<TABLE>
<CAPTION>
Number of Exercise
Effective Date of Grant Shares Price
- ----------------------- --------- -------
<S> <C> <C>
December 20, 1993 351,000 $17.31
March 14, 1994 213,000 $18.29
February 9, 1995 343,300 $12.63
May 1, 1995 60,000 $15.28
May 15, 1995 15,000 $15.31
September 1, 1995 20,000 $13.66
---------
1,002,300
=========
</TABLE>
<PAGE> 11
9. SPECIAL CHARGES
Special charges are comprised as follows:
<TABLE>
<CAPTION>
1995
--------
<S> <C>
Provision for workforce reduction $ 80,000
Write down of carrying value of fixed assets 30,000
Other 10,000
--------
$120,000
========
</TABLE>
During the year the company established a plan to reduce manpower costs in
its newspaper operations, under which a total of 700 full-time-equivalent
positions are expected to be eliminated. Included in special charges is an
amount of $80,000,000 representing the estimated cost of this workforce
reduction plan.
The company is making major investments to upgrade certain of its
production facilities which will involve the sale of existing facilities.
Included in special charges is an amount of $30,000,000 to reduce the carrying
amount of fixed assets to their net recoverable amount.
Other special charges of $10,000,000 includes the write down in the
carrying value of investments and other non-recurring costs.
Payments related to workforce downsizing of $34,330,000 in 1995 are
associated with a previous downsizing program.
10. INCOME TAXES (RECOVERABLE)
<TABLE>
<CAPTION>
1995
--------
<S> <C>
Current $ 5,941
Deferred (27,634)
--------
INCOME TAXES $(21,693)
========
</TABLE>
The following table reconciles the statutory federal and provincial income
tax rate to the consolidated effective tax rate on the income before income
taxes.
<TABLE>
<CAPTION>
1995
--------
<S> <C>
Loss before income taxes $(60,589)
--------
Recovery of income taxes based on
combined basic Canadian federal
and provincial income
tax rate of 44.9% $(27,204)
Adjustment to taxes resulting from:
Manufacturing and processing
profits deduction 5,224
Non-deductibility of amortization
of goodwill 2,091
Benefit of lower United States
tax rates and previously
unrecognized U. S. tax
loss carryforwards (3,307)
Other 1,503
--------
$(21,693)
========
Effective income tax rate 35.8%
========
</TABLE>
At December 31, 1995, for income tax purposes, the company has U.S. net
operating loss carryforwards of approximately $34,000,000 which expire between
2005 and 2007. The potential benefit of utilizing these loss carryforwards has
not been recognized in these consolidated financial statements.
11. DISCONTINUED OPERATIONS
On April 11, 1995 the company completed the sale of Coles Book Stores
Limited, its book retailing segment. Accordingly this segment has been treated
as a discontinued operation and the Consolidated Statements of Income and
Consolidated Statements of Changes in Financial Position for 1995 segregate the
results of operations and changes in financial position related thereto.
<PAGE> 12
Additional information related to the book retailing segment is as follows:
<TABLE>
<CAPTION>
1995
--------
<S> <C>
Revenue from operations $ 47,449
--------
Operating loss
before income taxes (3,404)
Income taxes recoverable (1,341)
--------
Operating loss (2,063)
Loss on disposition (taxes - nil) (463)
--------
Loss from discontinued operations $ (2,526)
========
</TABLE>
In 1991 the company approved a formal plan to divest its graphics
operations and this segment was treated as a discontinued operation in that
year. A provision for loss on disposition was recorded in 1991 and an additional
provision was recorded in 1992. These provisions included estimated results of
operations of unsold graphics businesses between the date of the formal plan to
divest and the estimated disposal dates. Subsequent operating results were
recorded against the provisions. In 1995, the last significant graphics
property, Dittler Brothers Incorporated, a printing company headquartered in
Atlanta, Georgia, was sold. Proceeds were less than the company's carrying value
and the loss from discontinued operations in 1995 includes a loss of $12,000,000
related to the sale of Dittler as well as an adjustment of the carrying value of
other residual graphics assets and liabilities. Revenues of the graphics
operations amounted to $94,039,000 in 1995.
The loss from discontinued operations included in the Consolidated
Statements of Income for 1995 of $14,526,000 is composed of a loss of
$2,526,000 related to book retailing and a loss of $12,000,000 from graphics.
These results include an allocation of interest expense relative to assets
employed (note 7).
Changes in financial position related to discontinued operations are
summarized below:
<TABLE>
<CAPTION>
1995
---------
<S> <C>
OPERATIONS
Operating income (loss) related
to discontinued operations:
Book retailing $ (2,063)
Graphics 2,684
--------
621
Add (deduct) items not affecting cash:
Depreciation 5,661
Amortization 222
Gain on sale of fixed assets
and investments
--------
Cash flow from operations 6,504
Used for non-cash working capital (34,462)
--------
(27,958)
--------
INVESTMENT ACTIVITIES
Additions to fixed assets (6,668)
Proceeds from sale of fixed
assets and investments,
net of disposition costs 75,332
--------
68,664
--------
Cash provided from
discontinued operations $ 40,706
========
</TABLE>
12. PENSION PLANS
The company's defined benefit pension plans are contributory plans that
provide benefits based on length of service and final average earnings. The
company has an obligation to ensure there are sufficient funds in the plans to
pay the benefits earned. A retirement allowance arrangement applicable to
certain full-time management level employees provides additional pension
benefits which the company does not pre-fund. The company also contributes to
various
<PAGE> 13
union sponsored multi-employer pension plans. The only obligation of the company
pertains to the remittance of required employer annual contributions.
The status of the defined benefit pension plans and retirement allowance
arrangement at December 31 is as follows:
<TABLE>
<CAPTION>
1995
--------
<S> <C>
Market value of assets $462,865
Projected benefit obligation 447,034
--------
Surplus of funded plans $ 15,831
========
Projected benefit obligation of
retirement allowance arrangement $ 17,079
========
</TABLE>
The components of pension expense are as follows:
<TABLE>
<CAPTION>
1995
--------
<S> <C>
Defined benefit plans and retirement
allowance arrangement $ 8,427
Employer contributions to
multi-employer plans 2,891
--------
Pension expense $ 11,318
========
</TABLE>
13. WORKING CAPITAL CHANGES
Cash provided from (used for) changes in non-cash working capital,
exclusive of payments related to workforce downsizing, is as follows:
<TABLE>
<CAPTION>
1995
--------
<S> <C>
Accounts receivable $1,946
Inventories (9,970)
Prepaid expenses (1,153)
Accounts payable and
accrued liabilities (5,265)
Income taxes (4,087)
Deferred revenue 4,046
--------
Cash (used for) non-cash
working capital $(14,483)
========
</TABLE>
14. ACQUISITION OF SUBSIDIARIES
The company acquired, during the years noted, the following businesses
which were accounted for using the purchase method, whereby operating results
are included from the date of acquisition.
1995
BUSINESS COMMUNICATIONS
- - In the first quarter, the shares of a company producing 18 consumer shows
in the western United States.
- - In the second quarter, the assets of five consumer shows in Ottawa,
Ontario, one consumer and two trade shows in Toronto, Ontario and one
consumer show in Buffalo, New York.
- - In the third quarter, the shares of a company producing a consumer show in
Winnipeg, Manitoba.
- - In the fourth quarter, the shares of a company producing three trade shows
in Alberta and one trade show in Toronto, Ontario and the assets of a
travel directory business in the United States.
<TABLE>
<CAPTION>
1995
--------
<S> <C>
Non-cash assets acquired:
Working capital $ (373)
Fixed assets 192
Goodwill 9,393
--------
Net non-cash assets acquired 9,212
Cash assumed 164
--------
Net assets acquired at
fair value for cash $ 9,376
========
</TABLE>
15. COMMITMENTS AND CONTINGENCIES
(a) The company has obligations under long-term operating leases extending for
various periods to the year 2017. The minimum aggregate payments in each
of the next five years are
<PAGE> 14
1996 -- $7,213,000, 1997 -- $5,442,000, 1998 -- $4,078,000, 1999 --
$3,093,000, 2000 -- $2,219,000 and $20,702,000 thereafter.
(b) The company is in the process of constructing and equipping production
facilities for certain of its newspapers. The company has contracted for,
or intends to contract for, a total of $200,000,000 over the period 1996 to
1998 in connection with completion of these projects.
(c) At December 31, 1995, the company had $49 million U.S. of forward exchange
contracts outstanding in connection with its strategy of hedging currency
exposure on its United States assets. These contracts have been marked to
market at December 31, 1995 and the unrealized gain of $52,000 is reflected
within Equity adjustments from foreign currency translation on the
Consolidated Balance Sheets.
(d) In 1991, the Director of Investigation and Research applied to the
Competition Tribunal for orders directing the company to dispose of certain
newspaper properties, published in Vancouver and the Lower Mainland area of
British Columbia, which were acquired by the company in 1990. The
Competition Tribunal accepted the Director's application in part, and
concluded that competition had been lessened in the market for residential
real estate advertising services in Vancouver's North Shore. The Tribunal
ordered the company to dispose of either the North Shore News or The Real
Estate Weekly. In August 1995, the Federal Court of Appeal confirmed this
order. It also ordered a rehearing by the Tribunal of the part of the case
involving the Vancouver Courier and the North Shore News, relating to
competition in the supply of print advertising services to Vancouver
retailers. The company has been granted leave to appeal the decisions of
the Federal Court of Appeal to the Supreme Court of Canada. The Federal
Court of Appeal's rehearing order and divestiture ruling have been stayed.
The company is unable to assess at this time the economic impact, if any,
that would result from a final divestiture order.
(e) A number of libel and other legal actions against the company are
outstanding. The company believes there are valid defenses to these
proceedings or sufficient insurance to protect it from material loss.
16. RECONCILIATION TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
(GAAP)
General
The following represents additional information to the Consolidated
Financial Statements of the Company that were prepared in accordance with
Canadian GAAP. Set out below are the material adjustments (net of deferred taxes
where applicable) to net income for the year ended December 31, 1995 and the
nine months ended September 30, 1996 and shareholders' equity as at
December 31, 1995 and as at September 30, 1996 which would need to be made in
order to conform to accounting principles generally accepted in the United
States.
<PAGE> 15
NET INCOME
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31, September 30,
1995 1996
-------- --------
(unaudited)
<S> <C> <C>
NET INCOME (LOSS) FOR THE PERIOD BASED ON CANADIAN GAAP $(53,422) $57,182
Preproduction costs (a) .................................. 668 --
Adjustment to income taxes (b) ........................... 1,642 --
Postretirement benefits other than pensions (c) .......... (3,414) (2,560)
-------- -------
NET INCOME (LOSS) FOR THE PERIOD BASED ON U.S. GAAP ...... $(54,526) $54,622
======== =======
</TABLE>
SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31, September 30,
1995 1996
-------- --------
(unaudited)
<S> <C> <C>
SHAREHOLDERS' EQUITY BASED ON CANADIAN GAAP .............. $359,264 $406,650
Income taxes (b) ......................................... 4,031 4,031
Postretirement benefits other than pensions (c) .......... (3,414) (5,974)
-------- --------
SHAREHOLDERS' EQUITY BASED ON U.S. GAAP .................. $359,881 $404,707
======== ========
</TABLE>
The areas of material difference between Canadian and U.S. GAAP and
their impact on the consolidated financial statements of the Company are set
out below.
(a) Preproduction Costs
The deferral of preproduction costs is not permitted under U.S. GAAP.
(b) Income Taxes
The deferral method of providing for income taxes is used under Canadian
GAAP. Under U.S. GAAP, the asset and liability method of accounting for
income taxes must be used.
<PAGE> 16
(c) Postretirement and postemployment benefits other than pensions
US GAAP requires that an employer's obligation for postretirement and
postemployment benefits expected to be provided to or for an employee be fully
accrued by the date that the employee attains full eligibility for all of the
benefits. Under Canadian GAAP, such benefits can be expensed as paid.
(d) Earnings per share
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31, September 30,
1995 1996
-------- --------
(unaudited)
<S> <C> <C>
Net income (loss) per common share and common equivalent share: $(0.71) $0.71
</TABLE>
Earnings per share amounts in accordance with U.S. GAAP are based on
U.S. GAAP net earnings. Earnings per common share and common equivalent share
were computed by dividing net earnings by the weighted average number of shares
of common stock and common stock equivalents outstanding during the year,
computed by application of the treasury stock method. Canadian GAAP includes
common stock equivalents in the earnings per share calculation only if dilutive.
Common equivalent shares are shares issued under the Executive Share Purchase
Plan.
<PAGE> 17
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following sets forth unaudited pro forma financial information for
Hollinger International Inc. and subsidiaries as of and for the periods noted.
The pro forma condensed consolidated balance sheet as of September 30, 1996 and
the pro forma condensed consolidated statements of operations for the twelve
months ended December 31, 1995 and the nine months ended September 30, 1996
reflect (1) (y) the acquisition of an additional 10.4% of outstanding common
shares of Southam in the fourth quarter of 1996 and (z) the consolidation of
historical International Group operations (which includes 40.3% of Southam and
100% of The Telegraph), (2) the consolidation of historical Southam operations
less the pro forma activity for discontinued operations of the Southam Show
group and the Construction Data group which were sold in the third and fourth
quarters of 1996, respectively plus (a) the acquisition of seven newspapers in
Ontario, Canada and (b) pro forma activity for Southam's fourth quarter 1996
acquisition of seven additional newspapers in eastern Canada and (3) the sale of
the 19.9% interest in Fairfax (the sale of the remaining 4.9% interest held by a
subsidiary of the Company is treated as a contingent sale for United States
accounting purposes). The above transactions have been reflected in the pro
forma condensed consolidated balance sheet as of September 30, 1996 assuming
that the transactions had been consummated as of that date and the pro forma
condensed consolidated statements of operations for the twelve months ended
December 31, 1995 and the nine months ended September 30, 1996 assuming the
transactions had been consummated as of January 1, 1995.
<PAGE> 18
<TABLE>
<CAPTION>
HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
(IN THOUSANDS)
(UNAUDITED)
PRO FORMA ADJUSTMENTS
HOLLINGER PRO FORMA ----------------------------- PRO FORMA
INTERNATIONAL INC. (a) SOUTHAM (b) DEBIT CREDIT TOTAL
----------------------- ----------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 94,768 80,275 341,300 (c) 51,517 (d) 123,526
341,300 (f)
Accounts receivable, net 146,925 108,194 255,119
Inventories 18,608 12,947 31,555
Other current assets 17,995 8,954 900 (d) 27,849
------------- ---------- ----------
Total current assets 278,296 210,370 438,049
Investments in affiliates, at equity 753,830 2,071 4,958 (d) 50,553 (e) 459,459
250,847 (c)
Property, plant and equipment, net 190,799 303,206 494,005
Intangible assets, net 874,304 272,230 112,514 (d) 220,191 (e) 1,038,857
Other assets 500,932 8,172 509,104
------------- ---------- ----------
$ 2,598,161 796,049 2,939,474
============= ========== ==========
Current liabilities:
Bank indebtedness $ 587,328 0 341,300 (f) 66,855 (d) 312,883
Current installments of long term debt 34,826 0 34,826
Accounts payable 34,813 92,604 127,417
Accrued expenses 87,949 16,814 104,763
Income taxes payable 9,364 7,604 16,968
Deferred revenue 28,137 26,627 54,764
Due to Hollinger Inc. (1,095) 0 (1,095)
------------- ---------- ----------
Total current liabilities 781,322 143,649 650,526
Long term debt, less current installment 371,908 300,765 672,673
Deferred income taxes 75,564 0 20,636 (c) 54,928
Capital lease obligations 12,730 0 12,730
Other liabilities 21,621 31,736 53,357
------------- ---------- ----------
Total liabilities 1,263,145 476,150 1,444,214
------------- ---------- ----------
Minority interest 0 0 49,155 (e) 49,155
------------- ---------- ----------
Redeemable preference shares of DTH and FDTH 527,246 0 527,246
------------- ---------- ----------
Series A Redeemable Stock 79,612 0 79,612
------------- ---------- ----------
Stockholders' Equity 728,158 319,899 319,899 (e) 111,089 (c) 839,247
------------- ---------- ----------
$ 2,598,161 796,049 2,939,474
============= ========== ==========
</TABLE>
<PAGE> 19
<TABLE>
<CAPTION>
HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS)
(UNAUDITED)
PRO FORMA ADJUSTMENTS
HOLLINGER PRO FORMA ----------------------------- PRO FORMA
INTERNATIONAL INC. (a) SOUTHAM (b) DEBIT CREDIT TOTAL
----------------------- ----------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
Operating revenues $ 774,782 564,564 1,339,346
Operating costs and expenses 679,225 498,881 1,178,106
Depreciation and amortization 39,320 25,464 2,109 (g) 71,894
5,001 (o)
------------- -------- ----------
Operating income 56,237 40,219 89,346
Other income (expense):
Interest expense, net (48,007) (7,491) 2,160 (h) 20,191 (k) (65,327)
22,351 (p)
5,509 (q)
Equity in earnings of affiliates 20,254 0 20,910 (i) 9,246 (r) 4,366
3,995 (j)
229 (o)
Other income, net 6,926 0 6,926
------------- -------- ----------
Earnings before income taxes,
extraordinary item, and minority interest 35,410 32,728 35,311
Income taxes 14,673 13,654 3,641 (l) 24,686
------------- -------- ----------
Earnings before extraordinary item
and minority interest 20,737 19,074 10,625
Extraordinary item (2,150) 0 (2,150)
------------- -------- ----------
Earnings before minority interest 18,587 19,074 8,475
Minority interest 12,770 0 9,403 (m) 3,537 (u) 18,636
------------- -------- ----------
Net earnings (loss) $ 5,817 19,074 (10,161)
============= ======== ==========
</TABLE>
<PAGE> 20
<TABLE>
<CAPTION>
HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
TWELVE MONTHS ENDED DECEMBER 31, 1995
(IN THOUSANDS)
(UNAUDITED)
PRO FORMA ADJUSTMENTS
HOLLINGER PRO FORMA ----------------------------- PRO FORMA
INTERNATIONAL INC. (a) SOUTHAM (b) DEBIT CREDIT TOTAL
----------------------- ----------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
Operating revenues $ 964,967 725,532 1,690,499
Operating costs and expenses 857,091 632,086 1,489,177
Depreciation and amortization 52,388 33,352 2,813 (g) 97,182
8,629 (o)
Restructuring charge 0 87,420 87,420
------------- -------- ----------
Operating income 55,488 (27,326) 16,720
Other income (expense):
Interest expense, net (38,599) (8,105) 2,881 (h) 35,076 (k) (80,208)
900 (n)
15,263 (q)
3,300 (s)
37,236 (p)
9,000 (t)
Equity in earnings of affiliates 16,449 0 19,789 (j) 22,974 (i) 7,323
12,006 (r)
305 (o)
Other income, net 13,609 56,669 111,089 (c) 181,367
------------- -------- ----------
Earnings before income taxes
and minority interest 46,947 21,238 125,202
Income taxes 18,108 1,131 18,282 (l) 957
------------- -------- ----------
Earnings before minority interest 28,839 20,107 124,244
Minority interest 22,637 0 9,913 (m) 13,256 (u) 19,294
------------- -------- ----------
Net earnings $ 6,202 20,107 104,950
============= ======== ==========
</TABLE>
<PAGE> 21
HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The pro forma adjustments reflect the following:
(a) Represents Hollinger International Inc.'s historical operations.
(b) Represents Southam's historical operations as adjusted to reflect the
acquisitions of a total of 14 newspapers and the discontinuance and sale
of Southam's Show group and Construction Data group and the associated
financing of approximately $88.6 million. Southam intends to apply a
significant portion of its cash balances to debt reduction.
(c) Represents the sale and the gain on sale of a 19.9% investment in Fairfax.
For financial reporting purposes, the sale of 12.0% of this investment was
recorded as a 1996 transaction, and 7.9% will be recorded as a 1997
transaction. The remaining 4.9% interest in Fairfax is treated as a
contingent sale.
(d) Represents the acquisition of the additional 10.4% interest in Southam,
the funds borrowed to fund the acquisition, and the financing fees
incurred for the bank credit facilities used to finance the acquisition.
(e) Represents the elimination of the Company's 50.7% ownership interest in
consolidating Southam and the related purchase accounting adjustment.
(f) Represents the repayment of bank debt from the sale of a 19.9% investment
in Fairfax.
(g) Represents the amortization of the intangible assets arising on the
acquisition of the additional 10.4% interest in Southam amortized on a
straight line basis over 40 years.
(h) Represents interest expense on the funds borrowed to fund the acquisition
of the additional 10.4% interest in Southam.
(i) Represents the elimination of the equity earnings of Southam.
(j) Represents the elimination of the equity earnings of Fairfax.
(k) Represents the elimination of interest expense resulting from the proceeds
of the $341.3 million from the sale of Fairfax used to pay down bank
indebtedness.
(l) Represents the tax effect of the pro forma adjustments.
(m) Represents the minority stockholders' interest in Southam's net earnings.
(n) Represents the amortization of the financing fees incurred on the funds
borrowed to fund the additional 10.4% interest in Southam.
(o) Represents the amortization of the excess purchase price on the
acquisition of all of the minority interest shares of The Telegraph. The
preliminary allocation of the excess purchase price results in $12.2
million ascribed to the investment in Fairfax and $345.2 million ascribed
to intangible assets of The Telegraph, both of which are amortized on a
straight line basis over 40 years.
(p) Represents interest expense on the net funds borrowed to fund the
acquisition of Telegraph Minority Shares and repayment of Telegraph bank
loans.
(q) Represents interest expense on the funds borrowed to fund the
acquisition of the additional 21.2% Southam interest.
(r) Represents the additional equity earnings (loss) of Southam, net of the
amortization of the underlying intangible assets, as a result of the
acquisition of an additional 21.2% interest in Southam.
(s) Represents amortization of approximately $3.3 million of financing fees
over the term of the facility in respect of the bank credit facility used
to finance the additional 21.2% shares of Southam.
(t) Represents amortization of approximately $9.0 million of financing fees
over the term of the facility in respect of the bank credit facilities
used to finance the acquisition of the Telegraph Minority Shares and to
repay the Telegraph bank loans.
(u) Represents the elimination of the minority stockholders' interest in The
Telegraph's net earnings resulting from the acquisition of the Telegraph
Minority Shares.
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this amendment to this report to be signed on
its behalf by the undersigned thereunto duly authorized.
HOLLINGER INTERNATIONAL INC.
By: /s/ KENNETH L. SEROTA
-------------------------
Kenneth L. Serota
Title: Vice President --
Law and Finance
Date: February 24, 1997
<PAGE> 23
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
23.1 Consent of KPMG
<PAGE> 1
Exhibit 23.1
The Board of Directors
Hollinger International Inc. and
Hollinger International Publishing Inc.
We consent to the incorporation by reference in the registration statements (No.
333-04697 and No. 333-1711) on Form S-3 and (No. 33-88810) on Form S-8 of
Hollinger International Inc. and the registration statement (No. 333-17113) of
Form S-3 of Hollinger International Publishing Inc. of our report dated February
22, 1996 except to Note 16 which is as of February 18, 1997 with respect to the
consolidated balance sheet of Southam Inc. as at December 31, 1995, and the
related consolidated statements of income, deficit, and changes in financial
position for the year ended December 31, 1995, which report appears in the Form
8-K/A of Hollinger International Inc. dated February 24, 1997.
/s/ KPMG
Chartered Accountants
Toronto, Canada
February 24, 1997
