<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
Amendment No. 1
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------- -------
Commission File No. 0-24004
HOLLINGER INTERNATIONAL INC.
----------------------------
(Exact name of registrant as specified in its charter)
Delaware 95-3518892
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
401 North Wabash Avenue, Suite 740, Chicago, Illinois 60611
-----------------------------------------------------------------
(Address of Principal executive offices) (Zip Code)
Registrant's telephone number, including area code (312) 321-2299
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---- ----
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Class Outstanding at November 14, 1996
----- --------------------------------
Class A Common Stock
par value $.01 per share 69,565,754 shares
Class B Common Stock
par value $.01 per share 14,990,000 shares
<PAGE> 2
The following Form 10-Q/A amends and restates the Form 10-Q of Hollinger
International Inc. for the quarter ended September 30, 1996 in its entirety.
INDEX
HOLLINGER INTERNATIONAL INC.
PART I. FINANCIAL INFORMATION PAGE
Item 1. Consolidated Financial Statements 1
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations. 8
PART II OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K. 17
Signatures 18
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1996
AND SEPTEMBER 30, 1995
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
OPERATING REVENUES
Advertising $160,195 $146,578 $490,131 $458,056
Circulation 73,941 68,271 228,290 187,244
Job Printing 13,272 12,410 39,372 36,008
Other 6,231 4,417 16,989 12,753
-------- --------- -------- --------
Total Operating Revenues 253,639 231,676 774,782 694,061
-------- --------- -------- --------
OPERATING COSTS AND EXPENSES
Newsprint 51,378 49,619 165,867 135,969
Compensation costs 72,467 65,848 217,373 201,929
Other operating costs 95,365 92,409 289,891 275,885
Depreciation and Amortization 14,477 12,793 39,320 38,116
Allocable Expense from Hollinger Inc. 2,374 1,413 6,094 4,187
-------- --------- -------- --------
Total Operating Costs and Expenses 236,061 222,082 718,545 656,086
-------- --------- -------- --------
Operating Income 17,578 9,594 56,237 37,975
-------- --------- -------- --------
Other Income (Expense)
Interest Expense, Net (22,148) (10,755) (48,007) (28,391)
Equity in Net Earnings of Affiliates 14,133 6,163 20,254 23,222
Gain on Sale of Marketable Securities -- -- -- 11,968
Other Income, Net 2,239 721 6,926 (404)
-------- --------- -------- --------
Total Other Income (Expense) (5,776) (3,871) (20,827) 6,395
-------- --------- -------- --------
Earnings Before Income Taxes, Minority
Interest and Extraordinary Item 11,802 5,723 35,410 44,370
Provision for Income Taxes 5,753 1,614 14,673 13,787
-------- --------- -------- --------
Earnings Before Minority Interest and
Extraordinary Item 6,049 4,109 20,737 30,583
Minority Interest 2,810 2,616 12,770 17,048
-------- --------- -------- --------
Earnings Before Extraordinary Item 3,239 1,493 7,967 13,535
Extraordinary Loss on Debt Extinguishments -- -- (2,150) --
-------- --------- -------- --------
Net Earnings $ 3,239 $ 1,493 $ 5,817 $ 13,535
======== ========= ======== ========
Earnings per Common Share
Earnings Before Extraordinary Item $ 0.03 $ 0.02 $ 0.09 $ 0.24
Extraordinary Loss on Debt Extinguishments -- -- (0.03) --
-------- --------- -------- --------
Net Earnings per Common Share $ 0.03 $ 0.02 $ 0.06 $ 0.24
======== ========= ======== ========
Weighted Average Shares Outstanding 89,772 56,956 76,344 56,956
======== ========= ======== ========
</TABLE>
1
<PAGE> 4
HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ASSETS 1996 1995
(UNAUDITED)
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 94,768 $ 23,810
Accounts Receivable, Net 146,925 134,511
Inventories 18,608 25,684
Other Current Assets 17,995 13,562
----------- ----------
Total Current Assets 278,296 197,567
Marketable securities, market value 50 --
Property, Plant and Equipment, Net of
Accumulated Depreciation 190,799 193,407
Intangible Assets, Net of Accumulated Amortization 874,304 529,694
Investments in Affiliates 753,830 463,527
Other Assets 500,882 185,910
----------- ----------
Total Assets $ 2,598,161 $1,570,105
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 34,813 $38,646
Accrued Expenses 87,949 50,874
Deferred Revenue 28,137 22,902
Income Taxes Payable 9,364 12,390
Bank Loans 587,328 147,866
Current Installments of Long-term Debt 34,826 27,552
Due to Hollinger Inc. (1,095) 21,512
----------- ----------
Total Current Liabilities 781,322 321,742
Long-term Debt 384,638 446,234
Other Long-term Liabilities 97,185 103,135
----------- ----------
Total Liabilities 1,263,145 871,111
Minority Interest -- 97,298
Redeemable Preferred Stock 606,858 306,452
Stockholders' Equity:
Convertible Preferred Stock 195,770 --
Class A Common Stock 696 420
Class B Common Stock 150 150
Additional Paid-in Capital 410,094 162,610
Cumulative Translation Adjustment 9,815 (3,987)
Retained Earnings 111,633 136,051
----------- ----------
Total Stockholders' Equity 728,158 295,244
----------- ----------
Total Liabilities and Stockholders Equity $ 2,598,161 $1,570,105
=========== ==========
</TABLE>
2
<PAGE> 5
HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Earnings $ 5,817 $ 13,535
Items not Involving Cash:
Depreciation and Amortization 39,320 38,116
Equity in Net Earnings of Affiliates, Net (13,830) (16,045)
Minority Interest 12,770 17,048
Gain on Sale of Investment -- (11,968)
Other Non-cash Items 14,554 1,265
Changes in Working Capital Net 8,213 (40,387)
-------- --------
Cash Provided by Operating Activities 66,844 1,564
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital Expenditures (15,950) (13,888)
Proceeds from Sales of Assets 15 169
Acquisitions, Net (42,176) (4,687)
Additions to Investments (659,481) --
Proceeds from Marketable Securities -- 17,700
Collections on Long-term Receivables 8,431 8,663
Other Investing Activities 63 (218)
-------- --------
Cash Provided by (Used in) Investing Activities (709,098) 7,739
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Long-term Debt 256,732 4,000
Repayments of Long-term Debt (450,266) (12,823)
Proceeds from Short-term Debt 642,450 24,125
Repayments of Short-term Debt (78,299) (25,621)
Changes Due to Affiliated Companies (24,394) (72,868)
Proceeds from Common Stock 443,530 0
Dividends to Minority Interests (22,749) (12,974)
Cash Dividends Paid (28,856) (1,751)
Other Financing Activities (26,896) 347
-------- --------
Cash Provided by (Used in) Financing Activities 711,252 (97,565)
-------- --------
Effect of Exchange Rate Changes on Cash 1,960 (415)
-------- --------
Net Increase (Decrease) in Cash 70,958 (88,677)
Cash at Beginning of Period 23,810 117,425
-------- --------
Cash at End of Period $ 94,768 $ 28,748
======== ========
</TABLE>
3
<PAGE> 6
HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - UNAUDITED FINANCIAL STATEMENTS
The accompanying condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. It is presumed that the reader has already
read the Company's Annual Report on Form 10-K for the year ended December 31,
1995.
In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation have been
included. The results of operations for interim periods are not necessarily
indicative of the results that may be expected for the fiscal year. For
further information, refer to the consolidated financial statements and
accompanying notes included in the Company's Annual Report on Form 10-K for the
year ended December 31, 1995.
NOTE 2 - PRINCIPLES OF CONSOLIDATION AND PRESENTATION
The Company is a subsidiary of Hollinger Inc., a Canadian corporation,
which owns approximately 57.5% of the combined equity ownership interest and
approximately 83.6% of the combined voting power of the outstanding Common
Stock of the Company, without giving effect to the future issuance of Class A
Common Stock in connection with the Company's Preferred Redeemable Increased
Dividend Equity Securities ("PRIDES") or upon conversion of the Company's
Series A Convertible Redeemable Preferred Stock ("Series A Preferred Stock").
All significant intercompany balances and transactions have been
eliminated. Certain reclassifications have been made in the 1995 financial
statements to conform to the 1996 presentation.
NOTE 3 - SALE OF SUBORDINATED NOTES, COMMON STOCK AND PRIDES
During the first quarter of 1996, the Company sold 16,100,000 shares of its
Class A Common Stock, par value $.01 per share ("Class A Common Stock") at $9.25
per share, and $250.0 million principal amount of 9.25% Senior Subordinated
Notes ("Subordinated Notes") through its subsidiary, Hollinger International
Publishing Inc. The combined net proceeds of these sales were $384.6 million.
This was used to repay $130.0 million of short-term bank debt, $160.0 million of
long-term bank debt, and $20.8 million of short-term debt due to Hollinger Inc.,
plus accrued interest in each case. The remaining proceeds were added to the
Company's cash and cash equivalents for general corporate purposes.
4
<PAGE> 7
HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
In early August 1996, the Company sold 11,500,000 shares of Class A Common
Stock at a price of $9.75 per share and 20,700,000 9-3/4% PRIDES at a price of
$9.75 per PRIDES. The PRIDES are depository shares representing one-half share
of Series B Convertible Preferred Stock of the Company that will mandatorily
convert on the mandatory conversion date of August 1, 2000 into one share of
Class A Common Stock and the right to receive an amount in cash equal to all
accrued and unpaid dividends therefrom, unless either previously redeemed or
converted at the option of their holder. The PRIDES will pay cumulative
quarterly dividends at a rate of 9.75% per annum (equivalent to $0.9506 per
PRIDES) and will have an aggregate liquidation preference equal to their price
plus any accrued and unpaid dividends thereon. The combined net proceeds of
these sales were $301.1 million which were used in the acquisition of the
Telegraph shares and for other purposes described in Note 4.
NOTE 4 - ACQUISITION OF THE TELEGRAPH MINORITY SHARES
On July 31, 1996, the Company completed its Scheme of Arrangement (the
"Scheme") to purchase all of the outstanding ordinary shares of The Telegraph
plc ("The Telegraph") which it did not already own. The purchase price for the
shares was 560p ($8.68) per share, plus a special cash dividend of 10p ($0.15)
per share and a contingent cash payment if The Telegraph's 24.7% interest in
Fairfax is sold in the next two years at a price (net of any tax incurred in the
disposal or distribution of disposal proceeds) in excess of $3.00 (Australian)
per share. The total consideration paid by the Company (including the special
dividend paid to holders of Telegraph minority shares and the net amount payable
in respect of outstanding Telegraph options, but not the contingent payment
related to Fairfax) was approximately $455.1 million. The acquisition was
effected by means of a "Scheme of Arrangement" under Section 425 of the
Companies Act of 1985 of Great Britain. As a result, The Telegraph became an
indirect wholly owned subsidiary of the Company. On the same date, The
Telegraph changed its name to the Telegraph Group Limited and canceled its
listing on the London Stock Exchange.
In connection with the Scheme, the Company entered into definitive
agreements with certain financial institutions for short term bank credit
facilities and bridge financing in the aggregate amount of approximately $625.0
million. On August 7, 1996, the Company borrowed approximately $130.0 million
under the Amended Publishing Bank Credit Facility and approximately $305.0
million under the FDTH Credit Facility. The proceeds from these facilities
together with the net proceeds of the concurrent offerings of Class A Common
Stock and PRIDES, were used to finance the Scheme (approximately $455.1
million), pay outstanding debt of the Telegraph (approximately $139.5 million)
and pay related transaction costs (approximately $8.1 million), to pay a
portion of the Southam Facility indebtedness (approximately $55 million), and
the balance was retained for general corporate purposes, including working
capital.
5
<PAGE> 8
HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
NOTE 5 - ISSUANCE OF PREFERRED STOCK OF SUBSIDIARY
On September 30, 1996, First DT Holdings Limited ("FDTH") issued 600
Fourth Preference Shares Series 1996 of FDTH (with an aggregate redemption
amount of $300 million) to Argsub Limited ("Argsub") in exchange for 600 newly
issued Second Preference Shares, Series 1996 of Argsub (with an aggregate
redemption amount of $300 million). The newly issued Second Preference Shares,
Series 1996 of Argsub have terms substantially identical to those of the newly
issued Fourth Preference Shares, Series 1996 of FDTH for which they were
exchanged.
NOTE 6 - EXTRAORDINARY ITEM
The extinguishment of three credit facilities, in February 1996, prior to
their expiration dates required the recognition of a loss on extinguishment of
debt of $3.5 million before tax benefits of $1.3 million. The loss represents
the write-off of unamortized deferred financing fees.
6
<PAGE> 9
HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
NOTE 7 - ACQUISITION OF ADDITIONAL 21.5% SOUTHAM INTEREST
On May 24, 1996, the Company entered into a short-term loan facility
with a Canadian chartered bank in the amount of Canadian $300 million (the
"Southam Facility"). The Southam Facility consists of a secured non-amortizing
credit facility guaranteed by Hollinger Inc. with a maturity date of February
28, 1997 subject to earlier prepayment in specified circumstances. The Company
borrowed $218.8 million (Canadian $298.8 million) under this facility and
advanced the proceeds to a subsidiary of Hollinger Inc. as a loan which was used
to finance the purchase of an additional 21.5% interest in the common shares of
Southam Inc. ("Southam") from Power Corporation of Canada. This purchase
increased the Company's and Hollinger Inc.'s combined holdings in Southam to
approximately 41.5% of Southam's outstanding common shares. The Company has an
irrevocable option to acquire the 21.5% of Southam shares from the Hollinger
subsidiary which it intends to exercise. Accordingly, the Company has recorded
the 21.5% interest in Southam retroactive to the date of acquisition. At
September 30, 1996, Cdn $212.2 million ($155.9 million) was outstanding under
the Southam Facility.
NOTE 8 - SUBSEQUENT EVENTS
On October 24, 1996, the Company announced that through a wholly-owned
subsidiary, it intends to make an offers to shareholders of Southam Inc. to
purchase on a pro-rata basis 7,000,000 common shares of Southam at a price of
Cdn$ 18.75 per share. On November 13, 1996, the Company announced an increase
in the price offered to Cdn $20.00 per share. The Special Committee of
Independent Directors of Southam have been advised that the offer is fair from
a financial point of view and the Special Committee intends to recommend that
Southam shareholders accept the offer. The Company has arranged a portion of
the financing for their offer through an amendment to an existing credit
facility of FDTH with the balance of the financing to be provided by cash on
hand. The offer expires on December 2, 1996 unless it is extended. If that
number of shares is acquired, the Hollinger group of companies will hold a
50.2% interest in Southam. Under the terms of the offer, the Company can, at
its sole option, acquire up to 8,500,000 common shares if more than 7,000,000
common shares are tendered and it may acquire all the shares tendered if less
than 7,000,000 common shares are tendered common shares.
7
<PAGE> 10
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
OVERVIEW
The Company's business is concentrated in the publishing, printing and
distribution of newspapers and is divided between the United States Newspaper
Group and the International Newspaper Group. The United States Newspaper Group
consists of the Chicago Group, comprised of the CHICAGO SUN-TIMES and suburban
newspapers in the Chicago metropolitan area and American Publishing Company,
comprised of the Company's community newspapers, operating in 28 states, and for
reporting and administrative purposes, Jerusalem Post. The International
Newspaper Group includes the operating results of the Telegraph and the
Company's equity share in the earnings of John Fairfax Holdings Limited
("Fairfax") and Southam.
CONSOLIDATED RESULTS OF OPERATIONS
Third quarter 1996 net earnings were $3.2 million, or 3 cents per share. This
compares with earnings of $1.5 million, or 2 cents per share, in 1995. Net
earnings for the nine months ended September 30, 1996 were $5.8 million, or 6
cents per share compared with $13.5 million, or 24 cents per share in 1995.
Earnings before extraordinary items in 1996 were $8.0 million, or 9 cents per
share compared with $13.5 million, or 24 cents per share in 1995. The 1995 nine
month earnings include a $12 million gain on the sale of an investment.
EBITDA for the third quarter increased 43.2% to $32.1 million from $22.4 million
in 1995. For the nine months ended September 30, 1996 EBITDA increased 25.6% to
$95.6 million from $76.1 million in 1995.
The solid increases in total revenues and EBITDA reflect the strong business
fundamentals of the Company. Operating income for the United States Newspaper
Group for the third quarter improved to $19.1 million from $9.4 million in
1995. Results in the quarter improved due to lower newsprint prices, continued
cost control, and the contribution from acquisitions of community newspapers
during the past twelve months.
The results of the 1996 third quarter were below the Company's
expectations due to the performance of its International Newspaper Group.
Improved circulation revenues of $1.5 million as a result of a cover price
increase in November 1995 and gains in advertising revenues of $5.9 million
were partially offset by increased newsprint and promotional costs. Although
there is a downward trend in the world price of newsprint, European price
changes often lag behind U.S. price changes and the Telegraph enters into
medium term supply contracts with vendors resulting in delays in increases and
reductions of newsprint costs. At the same time, the Telegraph is delivering
editions with increased pagination to an increased circulation base due to the
success of its direct subscription campaign and other promotional activities.
The direct subscription campaign and overall promotional initiatives, have
successfully added more than 100,000 prepaid subscribers to THE DAILY TELEGRAPH
circulation increasing its average weekday circulation to approximately 1.1
million, a trajectory that we are confident will extend into 1997.
Additionally, the International Newspaper Group is reducing the terms of many
of its newsprint supply contracts.
Operating revenues for the third quarter of 1996 increased 9.5% to $253.6
million from $231.7 million in 1995. Revenues for the nine months ended
September 30, 1996 increased 11.6% to $774.8 million from $694.1 million in
1995. The increase in revenues was largely due to cover price and advertising
revenue increases in the United Kingdom and to revenue contributed by the
community newspapers that were acquired during the past twelve months.
Operating income in the third quarter and nine months of 1996 increased
83.2% and 48.1%, respectively as compared to the same periods in the prior
year. The third quarter benefited from the effect of declining newsprint prices
in the United States. Total newsprint expense increased by 3.5% in the third
quarter of 1996 as compared to the same period in the prior year and newsprint
as a percent of sales was 20.3% for the third quarter of 1996 as compared to
21.4% for the third quarter of 1995. Newsprint expense for the nine months
ended September 30, 1996 increased 22.0% from 1995. Newsprint and other paper
costs, in general, increased substantially in 1995, reached and maintained peak
price levels in the fourth quarter of 1995 and the first quarter of 1996, and
started a declining trend in the second quarter of 1996 which continued through
the third quarter of 1996. Although there is a downward trend in the world
price of newsprint, European price changes often lag behind U.S. price changes,
resulting in delays in increases and reductions in newsprint costs in the
United Kingdom. Compensation costs as a percentage of sales have remained
relatively consistent between years, both in the third quarter and year to
date. Other operating costs, including allocable expenses from Hollinger Inc.
were 38.5% and 40.5% as a percentage of sales for the third quarter of 1996 and
1995, respectively, and 38.2% and 40.4% as a percentage of sales for the nine
months ended September 30, 1996 and 1995, respectively.
Depreciation and amortization increased for the third quarter and the
nine months ended September 30, 1996 from the comparable periods [Cin the prior
year. Increased depreciation and amortization resulting from the acquisition of
community newspapers and the increased intangible asset as a result of the
purchase of additional shares of The Telegraph in the fourth quarter of 1995
and the buyout of the minority interest of The Telegraph in August 1996
partially offset by decreased amortization from the reevaluation of the
remaining useful life of certain intangible assets.
Interest expense increased by 105.9% to $22.1 million for the third quarter of
1996 as compared to $10.8 million in 1995 and by 69.1% to $48.0 million for the
nine months ended September 30, 1996 as compared to $28.4 million in 1995. The
Company increased its borrowings in the last quarter of 1995 and during 1996 to
fund the purchase of the additional 21.5% interest in Southam, the buyout of
The Telegraph minority and other acquisitions of community newspapers.
Equity in net earnings of affiliates increased 129.3% to $14.1 million
in the third quarter of 1996 from $6.2 million 1995 and decreased 12.8% to
$20.3 million for the nine months ended September 30, 1996 from $23.2 million
in 1995. The increase in third quarter equity earnings was as a result of
improved net earnings at Southam. Net earnings at Southam increased for both
the quarter and year to date as compared to prior year primarily due to
acquisitions in the current year, improved advertising revenues and stabilizing
newsprint prices. In addition, to improved earnings, Southam recognized a
one-time gain on sale of their Construction Data Group. The Company also
realized the benefit, in the third quarter, of accounting for the additional
21.5% interest in Southam. The increase in equity earnings for the third
quarter was partially offset by declines at Fairfax in Australia resulting from
higher depreciation and interest costs related to the new production plant in
Sydney and continuing weakness in the Australian community.
9
<PAGE> 11
<TABLE>
<CAPTION>
Three Months Ended September 30,
-----------------------------------------------
1996 1995
---- ----
Amount Percent Amount Percent
------ ------- ------ -------
(dollar amounts in thousands)
<S> <C> <C> <C> <C>
Operating Revenues:
United States Newspaper Group $149,478 58.9% $135,922 58.7%
International Newspaper Group 104,161 41.1% 95,754 41.3%
-------- ------ -------- ------
Total Operating Revenue $253,639 100.0% $231,676 100.0%
======== ====== ======== ======
Operating Income:
United States Newspaper Group $ 19,093 108.6% $ 9,441 98.4%
International Newspaper Group (1,515) (8.6)% 153 1.6%
-------- ------ -------- ------
Total Operating Income $ 17,578 100.0% $ 9,594 100.0%
======== ====== ======== ======
United States Newspaper Group
Operating Revenue
Advertising $ 97,422 65.2% $ 89,694 66.0%
Circulation 35,920 24.0% 31,733 23.3%
Job Printing 16,136 10.8% 14,495 10.7%
-------- ------ -------- ------
Total Operating Revenue 149,478 100.0% 135,922 100.0%
-------- ------ -------- ------
Operating Costs
Newsprint 25,690 17.2% 26,634 19.6%
Compensation Costs 53,124 35.5% 48,637 35.8%
Other Operating Costs 39,581 26.5% 39,899 29.4%
Depreciation and Amortization 10,062 6.7% 10,282 7.6%
Allocable expenses from Hollinger Inc. 1,928 1.3% 1,029 0.8%
-------- ------ -------- ------
Total Operating Costs 130,385 87.2% 126,481 93.1%
-------- ------ -------- ------
Operating Income $ 19,093 12.8% $ 9,441 6.9%
======== ====== ======== ======
International Newspaper Group
Operating Revenue
Advertising $ 62,773 60.3% $ 56,884 59.4%
Circulation 38,021 36.5% 36,538 38.2%
Job Printing 3,367 3.2% 2,332 2.4%
-------- ------ -------- ------
Total Operating Revenue 104,161 100.0% 95,754 100.0%
-------- ------ -------- ------
Operating Costs
Newsprint 25,688 24.7% 22,985 24.0%
Compensation Costs 19,343 18.6% 17,212 18.0%
Other Operating Costs 55,784 53.6% 52,509 54.8%
Depreciation and Amortization 4,415 4.2% 2,511 2.6%
Allocable expenses from Hollinger Inc. 446 0.4% 384 0.4%
-------- ------ -------- ------
Total Operating Costs 105,676 101.4% 95,601 99.8%
-------- ------ -------- ------
Operating Income $ (1,515) (1.5)% $ 154 0.2%
======== ====== ======== ======
EBITDA:
United States Newspaper Group $ 26,155 91.0% $ 19,723 88.1%
International Newspaper Group 2,900 9.0% 2,664 11.9%
-------- ------ -------- ------
Total EBITDA $ 32,055 100.0% $ 22,387 100.0%
======== ====== ======== ======
EBITDA Margin
United States Newspaper Group 19.5% 14.5%
International Newspaper Group 2.8% 2.8%
Total EBITDA Margin 12.6% 9.7%
</TABLE>
10
<PAGE> 12
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-----------------------------------------------
1996 1995
---- ----
Amount Percent Amount Percent
------ ------- ------ -------
(dollar amounts in thousands)
<S> <C> <C> <C> <C>
Operating Revenues:
United States Newspaper Group $445,565 57.5% $405,317 58.4%
International Newspaper Group 329,217 42.5% 288,744 41.6%
-------- ------ -------- ------
Total Operating Revenue $774,782 100.0% $694,061 100.0%
======== ====== ======== ======
Operating Income:
United States Newspaper Group $ 42,703 75.9% $ 30,417 80.1%
International Newspaper Group 13,534 24.1% 7,558 19.9%
-------- ------ -------- ------
Total Operating Income $ 56,237 100.0% $ 37,975 100.0%
======== ====== ======== ======
United States Newspaper Group
Operating Revenue
Advertising $290,907 65.3% $268,945 66.4%
Circulation 108,395 24.3% 94,402 23.3%
Job Printing 46,263 10.4% 41,970 10.4%
-------- ------ -------- ------
Total Operating Revenue 445,565 100.0% 405,317 100.0%
-------- ------ -------- ------
Operating Costs
Newsprint 85,914 19.3% 73,385 18.1%
Compensation Costs 161,712 36.3% 148,268 36.6%
Other Operating Costs 120,627 27.1% 119,855 29.6%
Depreciation and Amortization 29,836 6.7% 30,306 7.5%
Allocable expenses from Hollinger Inc. 4,773 1.1% 3,086 0.8%
-------- ------ -------- ------
Total Operating Costs 402,862 90.4% 374,900 92.5%
-------- ------ -------- ------
Operating Income $ 42,703 9.6% $ 30,417 7.5%
======== ====== ======== ======
International Newspaper Group
Operating Revenue
Advertising $199,224 60.5% $189,111 65.5%
Circulation 119,895 36.4% 92,842 32.2%
Job Printing 10,098 3.1% 6,791 2.4%
-------- ------ -------- ------
Total Operating Revenue 329,217 100.0% 288,744 100.0%
-------- ------ -------- ------
Operating Costs
Newsprint 79,953 24.3% 62,584 21.7%
Compensation Costs 55,661 16.9% 53,662 18.6%
Other Operating Costs 169,264 51.4% 156,029 54.0%
Depreciation and Amortization 9,484 2.9% 7,810 2.7%
Allocable expenses from Hollinger Inc. 1,321 0.4% 1,101 0.4%
-------- ------ -------- ------
Total Operating Costs 315,683 95.9% 281,185 97.4%
-------- ------ -------- ------
Operating Income $ 13,534 4.1% $ 7,558 2.6%
======== ====== ======== ======
EBITDA:
United States Newspaper Group $ 72,539 75.9% $ 60,723 79.8%
International Newspaper Group 23,018 24.1% 15,368 20.2%
-------- ------ -------- ------
Total EBITDA $ 95,557 100.0% $ 76,091 100.0%
======== ====== ======== ======
EBITDA Margin
United States Newspaper Group 16.3% 15.0%
International Newspaper Group 7.0% 5.3%
Total EBITDA Margin 12.3% 11.0%
</TABLE>
11
<PAGE> 13
GROUP OPERATING RESULTS
UNITED STATES NEWSPAPER GROUP
United States Newspaper Group operating revenues increased
approximately 10% from the prior year for both the third quarter and the nine
months ended September 30, 1996, primarily as a result of increased revenues at
the Community Group. American Publishing Company (the Community Group)
operating revenues increased 24.9% to $67.7 million for the third quarter 1996
from $54.2 million in 1995 and 25.9% to $200.4 for the nine months ended
September 30, 1996 from $159.1 million in 1995. Acquisitions at the Community
Group added $19.3 million and $50.0 million to revenues for the quarter and
nine months ended September 30, 1996, respectively, while same publication
revenues increased 2.5%. Circulation revenues at the Chicago Group increased
2.1% for the third quarter and 4.7% for the nine months ended September 30,
1996 as compared to the same periods in the prior year. Gains in circulation
revenues at the Chicago Group were offset by declines in advertising revenues
due to continuing weaknesses in the retail advertising markets. These
fluctuations resulted in revenues at the Chicago Group remaining flat for both
the quarter and the nine months.
Third quarter operating income of the United States Newspaper Group
increased 102.2% to $19.1 million in 1996 from $9.4 million in the prior year,
while operating income for the nine months ended September 30, 1996 increased
40.4% to $42.7 million from $30.4 million in 1995. The third quarter benefited
from declining newsprint prices, while cost containment efforts at both the
Chicago Group and Community Group added to the increased operating income for
both the third quarter and the nine months ended September 30, 1996.
EBITDA for the third quarter increased 47.8% to $29.2 million in 1996
from $19.7 million in 1995 and for the nine months ended September 30, 1996
increased 19.5% to $72.5 million from $60.7 million in 1995. Recent
acquisitions at the Community Group added $4.7 million and $11.9 million to
EBITDA for the third quarter and nine months ended September 30, 1996,
respectively. Operating income for the United States Newspaper Group increased
by $9.7 million in the third quarter primarily as a result of revenue
enhancement, newsprint price reductions and cost containment efforts.
INTERNATIONAL NEWSPAPER GROUP
Third quarter operating revenues for the International Newspaper Group
increased 8.8% to $104.2 million in 1996 from $95.8 million in 1995. Operating
revenues for the nine months ended September 30, 1996 increased 14.0% to $329.2
million from $288.7 million in 1995. Advertising revenues increased 10.4% and
5.3% in the quarter and year to date, respectively. Circulation revenues grew
4.1% in the third quarter and 29.1% year to date as compared to the same
periods in the prior year. The increase in circulation revenues is primarily as
a result of the increased cover price of The Daily Telegraph. The increase in
revenues in pounds sterling, for the third quarter was 10.1% and 17.6% for the
nine months ended September 30, 1996 as compared to the same periods in the
prior year, but the increase value of the U.S. dollar versus the British pound
reduced the reported U.S. dollar increase.
The International Newspaper Group's operating income for the third
quarter decreased by $1.7 million. Additional amortization of intangible assets
as a result of the acquisition of The Telegraph minority reduced operating
income by $1.9 million. The benefits from increased circulation, advertising
and other revenues were partially offset by higher newsprint costs (largely due
to volume increases) and higher promotional costs during the usually weak third
quarter. Operating income for the nine months ended September 30, 1996
increased $6.0 million over 1995. Increased advertising circulation and other
Revenues during this period more than offset higher newsprint and promotional
costs.
Newsprint expenses increased for both the quarter and year to date as compared
with prior year as a result of both increased circulation, especially at The
Sunday Telegraph, and increased pagination. Although there is a downward trend
in the world price of newsprint, European price changes often lag behind U.S.
price changes and the Telegraph enters into medium term supply contracts with
vendors resulting in delays in increases and reductions of newsprint costs. At
the same time, the Telegraph is delivering editions with increased pagination
to an increased circulation base due to the success of its direct subscription
campaign and other promotional activities. The direct Subscription campaign
and overall promotional initiatives, have successfully added more than 100,000
prepaid subscribers to THE DAILY TELEGRAPH circulation increasing its average
weekday circulation to more than 1.1 million. Additionally, the Telegraph
is reducing the terms of many of its newsprint supply contracts. The increased
level of promotional activity at The Telegraph has continued through the third
quarter resulting in increased operating costs as compared to the prior year.
12
<PAGE> 14
LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL
Working capital consists of current assets less current liabilities. Current
assets were $278.3 million at September 30, 1996 compared with $197.6 million at
December 31, 1995. Most of the increase was due to a $71.0 million increase in
cash and cash equivalents which came about mainly as a result of financing
activities taken in the first and third quarters of 1996 including the public
offering of Class A Common Stock, Subordinated Notes and PRIDES. Accounts
receivable increased by $12.4 million primarily a result of acquisitions, while
inventories were reduced by $7.1 million as the easing of newsprint prices
reduced the need for inventory hedge buying. Current liabilities, excluding
debt obligations were $159.2 million at September 30, 1996, compared with
$124.8 million at December 31, 1995; the increase a result of acquisitions.
DEBT
Current debt obligations, excluding the current portion of long term debt,
included in current liabilities were $587.3 million at September 30, 1996
compared with $169.4 million at December 31, 1995. This increase was due to
borrowings of under the Southam Facility during the second quarter of 1996 and
under the Publishing and FDTH facilities in the third quarter of 1996. The
Southam Facility matures on February 28, 1997, subject to earlier prepayment in
specified circumstances and the FDTH and Publishing facilities mature on
February 7, 1997. Long-term debt, including the current portion, was $419.5
million at September 30, 1996 compared with $473.8 million at December 31,
1995. In September 1996, the Company made a $15 million principal payment on
the Senior Notes. The Company is also entering into an amended FDTH credit
facility to acquire the additional 9.2% interest in Southam pursuant to the
outstanding offer referred to in Note 8 to the consolidated financial
statements.
EBITDA
EBITDA, which represents the Company's earnings before interest expense, income
taxes, depreciation and amortization, minority interest, equity in earnings of
affiliates and other income was $95.6 million in the first nine months of 1996
compared with $76.1 million in the first nine months of 1995. The Company
believes that EBITDA largely determines its ability to fund current operations
and to service debt. These acquisitions have resulted in non-cash charges for
depreciation and amortization which have reduced net earnings, but
have not affected EBITDA.
CASH FLOWS
Cash flows from operating activities were $66.8 million for the nine
months ended September 30, 1996, compared with $1.6 million in 1995.
Excluding changes in working capital (other than cash), cash provided by
operating activities was $58.6 million in 1996 and $42.2 million in 1995.
13
<PAGE> 15
Cash flows related to investing activities were an outflow of $709.1 million in
1996, largely related to the acquisition of the additional 21.5% interest in
Southam, the minority buyout at the Telegraph and acquisitions at the community
group, and an inflow of $7.7 million in 1995, die largely to Telegraph's
proceeds from the sale of marketable securities of $17.7 million.
Cash flows related to financing activities were a net inflow of $711.3 million.
This results from proceeds from public offerings and credit facilities. Net cash
outflows of $97.6 million in 1995 largely reflect reductions in debt which were
possible due to large cash equivalent balances.
CAPITAL EXPENDITURES AND ACQUISITION FINANCING
The United States Newspaper Group and the International Newspaper Group have
funded their capital expenditures and acquisition and investment activities
out of cash provided by their respective operating activities, borrowings under
their bank credit facilities and, in the case of the United States Newspaper
Group, borrowings from institutional lenders, proceeds from the Company's
initial public offering in May 1994, concurrent debt and equity offerings in
February 1996 and concurrent Equity Offerings in August 1996.
In May 1996, Hollinger Inc. acquired additional common shares of Southam from a
third party. This acquisition was financed by the Company through borrowings
of approximately Cdn.$300 million under the Southam Facility. The Southam
facility is guaranteed by Hollinger Inc. The maturity date on the loan was
extended from November 26, 1996 to February 28,1997 or earlier upon occurrence
of certain events, namely (i) one banking day prior to the maturity date of the
Publishing Credit Facility, which is currently scheduled to mature on February
7, 1997; (ii) one banking day prior to the maturity date of the FDTH Credit
Facility, which is currently scheduled to mature on February 7, 1997; or (iii)
the closing date of any equity issue, debt financing, public or private
placement or high yield financing completed by the Company or any of its
subsidiaries or by Hollinger Inc. or certain of its Canadian subsidiaries. All
net proceeds of any financing referred to in (iii) above must be applied as a
permanent prepayment of the Southam Facility. The Hollinger Inc. guarantee of
the Southam Facility is secured by a pledge of the acquired Southam shares and
7,539,028 shares of Class A Common Stock and 14,990,000 shares of Class B
Common Stock of the Company held indirectly by Hollinger Inc.
In connection with the Scheme, the Company entered into definitive agreements
with certain financial institutions for short term bank credit facilities and
bridge financing, in the aggregate amount of approximately $625.0 million. On
August 7, 1996, the Company borrowed approximately $130.0 million under the
Amended Publishing Bank Credit Facility and approximately $305.0 million under
the FDTH Credit Facility, which funds, together with the net proceeds of the
concurrent offerings of Class A Common Stock and PRIDES, were used to finance
the Scheme of approximately $455.1 million, pay outstanding debt of the
Telegraph of approximately $139.5 million and pay related transaction costs of
approximately $8.1 million.
EXISTING DEBT OBLIGATIONS
The Company, Publishing and its principal subsidiaries are parties to various
debt agreements which have been entered into to fund acquisitions, working
capital requirements and other corporate purposes. At September 30, 1996 the
indebtedness of the Company was $1,006.8 million consisting of long-term debt
of $419.5 million, and current bank loans of $587.3 million and at December 31,
1995, the indebtedness of the Company was $ 621.7 million, consisting of
long-term debt of $473.8 million and current
14
<PAGE> 16
bank loans of $147.9 million. Of the Company's total debt, $587.3 million is
due on or prior to March 31, 1997.
DIVIDENDS AND OTHER COMMITMENTS
The Company's sales of Class A Common Stock and PRIDES has significantly
increased its dividends obligations and the Company also has significant debt
service obligations, capital expenditures, management fees due to Hollinger Inc.
and dividends on its Series A Redeemable Preferred Stock. Furthermore, the
Company's wholly owner subsidiaries, DTH and FDTH, have obligations in respect
of their redeemable preferred stock ( the "DTH and FDTH Preference Shares").
The Company has an agreement to compensate Hollinger Inc. for any payments made
by Hollinger Inc. to the holders of the DTH and FDTH Preference Shares in the
event such holders exercise their retraction rights set forth in the designation
of such shares and Hollinger Inc. purchases such shares pursuant to contractual
arrangements with the holders. The timing of any such payments by the Company
to Hollinger Inc. will be determined by Hollinger Inc. Hollinger Inc. has agreed
that, so long as the FDTH Credit Facility is outstanding, it will refrain from
demanding any such payment from the Company. The Company has been informed by
Hollinger Inc. that it is in compliance with the debt to equity ratio required
under the terms of the DTH and FDTH Preference Shares at September 30, 1996.
There can be no assurance, however, that Hollinger Inc. will continue to be in
compliance with such ratio.
The amount available for the payment of dividends and other obligation
by the Company at any time is a function of (i) restrictions in agreements
binding the Company limiting its ability to pay dividends, management fees and
other payments and (ii) restrictions in agreements binding the Company's
subsidiaries limiting their ability to pay dividends, management fees and other
payments to the Company. The Company is not a party to a debt agreement that
restricts the payment of dividends. However, certain agreements binding
Publishing and other subsidiaries of the Company contain such restrictive
provisions. As of September 30, 1996, the total amount of funds that would be
unrestricted as to payment of dividends, management fees and other payments by
Publishing under its debt instruments would, under the more restrictive
provisions, have been approximately $24.6 million. The foregoing calculation
is based on the sum of the following for the period January 1, 1996 to
September 30, 1996: (i) 50% of the sum of (x) consolidated net income of
Publishing and its Restricted Subsidiaries (principally it United State
subsidiaries), or if it is a loss, 100% of such loss, and (y) amortization
expense of Publishing and its subsidiaries; (ii) 50% of the cash dividends
received by Publishing and its restricted subsidiaries from any unrestricted
subsidiaries, including The Telegraph; and (iii) $25 million. In addition, the
amount available for dividends is permitted to be increased, among other
provisions, by the amount of net cash proceeds from capital contributions made
to Publishing. The Company's subsidiaries, American Publishing (1991) Inc. and
FDTH, also are parties to agreements that limit their respective abilities to
pay dividends ad make other payments to the Company.
The amount available for the payment of dividends and other obligations by the
Company at any time is limited by a number of binding agreements, but the
Company expects its internal cash flow and financing resources to be adequate
to meet is foreseeable requirements.
15
<PAGE> 17
FUTURE FINANCING PLANS
The Company is exploring various financing alternatives and may
directly or through a subsidiary issue high yield debt securities or other debt
or equity securities, refinance or extend the maturity of existing bank debt,
increase the amount that may be borrowed under the Amended Publishing Facility,
or monetize its investment in Fairfax. The amount, timing, and nature of any
financing alternative has not been determined.
OTHER
Certain of the statements in this Form 10-Q may be deemed to be "forward
looking" statements. Refer to the Company's Annual Report on the Form 10-K for
a discussion of factors that may affect such statements.
16
<PAGE> 18
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
The Company filed a current report on Form 8-K
on September 24, 1996, reporting an event under Item 5
on Form 8-K.
17
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this 10-Q/A to be signed on its behalf by the
undersigned, thereunto duly authorized.
HOLLINGER INTERNATIONAL INC.
Registrant
Date: December 30, 1996 By: /s/ J.A. Boultbee
--------------------
J.A. Boultbee
Vice President, Finance
and Treasury
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