<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
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 9, 1998
------------------------- -------------------------------
Class A Common Stock
par value $.01 per share 92,804,737 shares
Class B Common Stock
par value $.01 per share 14,990,000 shares
<PAGE> 2
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.
7
Part II OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K. 16
Signatures 17
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
------------ ----------- ------------- ------------
<S> <C> <C> <C> <C>
OPERATING REVENUES
Advertising 358,925 $ 368,292 $ 1,153,113 $ 1,129,210
Circulation 128,545 128,519 387,663 387,113
Job printing 14,418 19,388 48,547 56,741
Other 10,415 7,459 30,120 26,858
------------ ----------- ------------- ------------
Total operating revenues 512,303 523,658 1,619,443 1,599,922
------------ ----------- ------------- ------------
OPERATING COSTS AND EXPENSES
Newsprint 81,331 75,020 253,392 223,934
Compensation costs 171,743 185,636 523,834 544,574
Other operating costs 179,855 179,841 549,267 535,846
Direct subscription campaign costs, net and
infrequent items - 7,405 - 22,191
Depreciation and amortization 29,376 30,064 86,194 86,097
------------ ----------- ------------- ------------
Total operating costs and expenses 462,305 477,966 1,412,687 1,412,642
------------ ----------- ------------- ------------
Operating income 49,998 45,692 206,756 187,280
Other income (expense)
Interest expense (26,619) (28,269) (78,384) (83,863)
Amortization of debt issue costs (1,671) (817) (4,599) (5,966)
Equity in earnings of affiliates (170) 260 (949) 5,882
Interest and dividend income 2,507 1,698 6,249 7,879
Other income, net 90,364 1,684 324,880 69,753
------------ ----------- ------------- -------------
Total other income (expense) 64,411 (25,444) 247,197 (6,315)
------------ ----------- ------------- ------------
Earnings before income taxes, minority
interest and extraordinary item 114,409 20,248 453,953 180,965
Provision for income taxes 59,038 8,305 193,985 60,806
------------ ----------- ------------- ------------
Earnings before minority interest and
extraordinary item 55,371 11,943 259,968 120,159
Minority interest 37,842 6,334 78,189 30,999
------------ ----------- ------------- ------------
Earnings before extraordinary item 17,529 5,609 181,779 89,160
Extraordinary loss on debt extinguishments - - (5,067) -
------------ ----------- ------------- ------------
Net earnings $ 17,529 $ 5,609 $ 176,712 $ 89,160
============ =========== ============= ============
Basic earnings per share before extraordinary item $ 0.16 $ 0.05 $ 1.63 $ 0.79
============ =========== ============= ============
Diluted earnings per share before extraordinary
item $ 0.14 $ 0.05 $ 1.50 $ 0.73
============ =========== ============= ============
Basic earnings per share $ 0.16 $ 0.05 $ 1.58 $ 0.79
============ =========== ============= ============
Diluted earnings per share $ 0.14 $ 0.05 $ 1.46 $ 0.73
============ =========== ============= ============
Weighted average shares outstanding- basic 112,085 111,228 111,472 111,847
============ =========== ============= ============
Weighted average shares outstanding- diluted 121,650 121,546 121,058 122,041
============ =========== ============= ============
</TABLE>
1
<PAGE> 4
HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ASSETS 1998 1997
------------- ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 91,468 $ 107,384
Accounts receivable, net 256,052 315,894
Due from affiliates 34,576 18,411
Inventories 48,984 32,454
Other current assets 64,586 31,110
----------- ------------
Total current assets 495,666 505,253
Property, plant and equipment, net of
accumulated depreciation 619,716 615,579
Investments in affiliates 50,578 50,011
Other investments, at cost 97,298 75,720
Intangible assets, net of accumulated amortization 1,849,817 1,671,210
Deferred financing costs and other assets 106,574 106,148
=========== ============
$ 3,219,649 $ 3,023,921
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 6,294 $ 35,560
Accounts payable 99,572 101,925
Accrued expenses 166,905 195,109
Deferred revenue 87,752 85,887
Income taxes payable 90,718 30,407
Due to affiliates - -
----------- ------------
Total current liabilities 451,241 448,888
Long-term debt, less current installments 1,442,350 1,392,855
Other long-term liabilities 246,119 215,651
----------- ------------
Total liabilities 2,139,710 2,057,394
Minority interest 218,731 203,034
Redeemable preferred stock 33,325 75,891
Stockholders' equity:
Convertible preferred stock 6,377 195,104
Class A common stock 940 726
Class B common stock 150 150
Additional paid-in capital 590,149 358,871
Accumulated other comprehensive income-cumulative
translation adjustment (54,421) (27,978)
Retained earnings 299,741 175,802
----------- ------------
842,936 702,675
Class A common stock in treasury, at cost (15,053) (15,073)
----------- ------------
Total stockholders' equity 827,883 687,602
----------- ------------
$ 3,219,649 $ 3,023,921
=========== ============
</TABLE>
2
<PAGE> 5
HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 176,712 $ 89,160
Items not involving cash:
Depreciation and amortization 86,194 86,097
Amortization of debt issue costs 4,599 5,966
Equity in net earnings of affiliates, net (2,507) (3,429)
Minority interest 78,189 30,999
Gain on sale of investment - (63,320)
Gain on sale of assets (332,026) -
Other non-cash items 4,358 34,719
Changes in working capital net 23,046 (45,532)
---------- ----------
Cash provided by operating activities 38,565 134,660
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (102,892) (94,161)
Additions to investments (211,217) (66,914)
Acquisitions, net (307,134) (43,769)
Proceeds on disposal of investments and assets 600,222 239,833
Collections on long-term receivables 7,470 9,401
Other investing activities (6,105) (4,051)
---------- ----------
Cash provided by (used in) investing activities (19,656) 40,339
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 355,743 877,342
Repayments of long-term debt (308,454) (115,214)
Proceeds from short-term debt -
Repayments of short-term debt - (495,784)
Payment of debt issue costs (877) (37,221)
Changes due to affiliated companies (7,821) (299,600)
Proceeds from stock options exercised 1,890 -
Repurchase of common stock (1,671) (15,063)
Issue of common shares of a subsidiary 770 10,105
Repurchase of common shares of a subsidiary (22,226) -
Redemption of preference shares - (116,863)
Dividends to minority interests (3,025) (9,281)
Cash dividends paid (52,773) (41,052)
Acquisition paid for by Hollinger Inc.
Other financing activities - (17)
---------- ----------
Cash used in financing activities (38,444) (242,648)
---------- ----------
Effect of exchange rate changes on cash 3,619 (21,023)
---------- ----------
Net increase (decrease) in cash (15,916) (88,672)
Cash at beginning of period 107,384 148,550
---------- ----------
Cash at end of period $ 91,468 $ 59,878
========== ==========
</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, 1997.
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, 1997
NOTE 2 - PRINCIPLES OF PRESENTATION AND CONSOLIDATION
The Company is a subsidiary of Hollinger Inc., a Canadian corporation,
which at September 30, 1998 owned approximately 48.1% of the combined equity
ownership interest and approximately 76.9% 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 remaining
Preferred Redeemable Increased Dividend Equity Securities ("PRIDES") or upon
conversion of the Company's Series C Convertible Preferred Stock ("Series C
Preferred Stock") and the remaining Series D Redeemable Convertible Preferred
Stock ("Series D Preferred Stock").
All significant intercompany balances and transactions have been
eliminated. Certain reclassifications have been made in the 1997 financial
statements to conform to the 1998 presentation.
NOTE 3 - COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS
130 establishes reporting requirements for comprehensive income and its
components; however, the adoption of this statement has no effect on the
Company's net earnings or total stockholders' equity. SFAS 130 requires foreign
currency translation adjustments, which prior to adoption were reported
separately in stockholders' equity, to be included in other comprehensive
income. Total comprehensive income for the three months ended September 30, 1998
and 1997 was $1,211,000 and a loss of $14,224,000, respectively and for the nine
months ended September 30, 1998 and 1997 was $150,269,000 and $31,039,000,
respectively.
4
<PAGE> 7
HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4 - EARNINGS PER SHARE
The following table reconciles the numerator and denominator for the
calculation of basic and diluted earnings per share for the three months and
nine months ended September 30, 1998 and 1997:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Three months ended September 30, 1998
Income Shares Per-Share
(Numerator) (Denominator) Amount
- ---------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Basic EPS
Net income available to common stockholders $17,420 112,085 $0.16
Effect of dilutive securities
Series D Preferred Stock 109 5,067
HCPH Special Shares 3,898
Stock options 600
Diluted EPS
Net income available to common stockholders
and assumed conversions $17,529 121,650 $0.14
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Three months ended September 30, 1997
Income Shares Per-Share
(Numerator) (Denominator) Amount
- ----------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Basic EPS
Net income available to common stockholders $ 5,343 111,228 $0.05
Effect of dilutive securities
Series D Preferred Stock 266 5,603
HCPH Special Shares 4,448
Stock options 267
Diluted EPS
Net income available to common stockholders
and assumed conversions $ 5,609 121,546 $0.05
- ----------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE> 8
HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Nine months ended September 30, 1998
Income Shares Per-Share
(Numerator) (Denominator) Amount
- ----------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Basic EPS
Net income available to common stockholders $176,084 111,472 $1.58
Effect of dilutive securities
Series D Preferred Stock 628 5,087
HCPH Special Shares 3,897
Stock options 602
Diluted EPS
Net income available to common stockholders
and assumed conversions $176,712 121,058 $1.46
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Nine months ended September 30, 1997
Income Shares Per-Share
(Numerator) (Denominator) Amount
- ----------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Basic EPS
Net income available to common stockholders $88,360 111,847 $0.79
Effect of dilutive securities
Series D Preferred Stock 800 5,603
HCPH Special Shares 4,448
Stock options 143
Diluted EPS
Net income available to common stockholders
and assumed conversions $89,160 122,041 $0.73
- ----------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 5 - ACQUISITIONS AND DISPOSITIONS
During the second quarter Southam sold its American Trucker publishing
group and a 13,000 daily circulation newspaper in Western Canada. The proceeds
from the sales were used to reduce debt at Southam. The gains recognized on the
sales are included in other income.
On July 1, 1998, the Company announced the acquisition of the
Times-West Virginian in Fairmont, West Virginia, and The Meadville Tribune in
Meadville, Pennsylvania. The Times-West Virginian has daily circulation of
approximately 15,700 and The Meadville Tribune has a daily circulation of
approximately 16,300.
On July 20, 1998, Southam and HCPH announced that Southam had entered
into an agreement with Sun Media Corporation to purchase Sun Media's 80%
interest in The Financial Post Company. The Financial Post Company publishes The
Financial Post and other weekly newspapers. The Financial Post is a national
business daily in Canada with a daily circulation of approximately 100,000.
Southam and HCPH also entered into an agreement to sell to Sun Media the
following daily newspapers that are published in Ontario, Canada: The Hamilton
Spectator, The Record in Kitchener-Waterloo, The Cambridge Reporter and The
Daily Mercury in Guelph. The combined daily circulation of these newspapers is
approximately 200,000. The transaction
6
<PAGE> 9
HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
was completed on September 4, 1998. The
gains recognized on the sales of these newspapers are included in other income.
On August 31, 1998, Hollinger Canadian Publishing Holdings Inc.
("HCPH") acquired an additional 10.6% of the outstanding Southam common shares.
The purchase price was Cdn.$31.68 per share or Cdn.$261,985,752. At September
30, 1998, the interest of HCPH in Southam was approximately 70.2%.
NOTE 6 - CONVERSION OF PREFERRED STOCK
On August 4, 1998 the Company completed an Exchange Offer to exchange
any and all of its outstanding PRIDES for shares of Class A Common Stock. Of the
20,700,000 total PRIDES outstanding, 19,993,531 were exchanged for 18,394,048
shares of Class A Common Stock.
On September 30,1998, 408,551 shares of Series D Preferred Stock were
converted into 2,795,165 shares of Class A Common Stock.
NOTE 7 - SUBSEQUENT EVENTS
On October 1, 1998, the Company entered into "Total Return Equity Swap"
arrangements with four banks. Under these arrangements, the banks purchased
10,117,704 shares of the Company's Class A Common Stock from the Company's
parent for a price of $13.88 per share. In effect, the purchases were made on
behalf of the Company. The arrangements will be in place for between one and two
years (unless extended by mutual consent) and during that time all the benefits
and costs of ownership will accrue to the Company. The dividends on the shares
will be paid to the Company and the Company will pay interest at commercial
rates to the banks. At the end of the arrangement, the Company will pay the
banks $13.88 per share and the shares will be transferred to the Company or, at
the Company's option, the banks will resell the shares with any gain or loss
accruing to the Company.
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 includes the United States Newspaper Group, the
U.K. Newspaper Group and the Canadian Newspaper Group. The United States
Newspaper Group consists of the Chicago Group, which includes the Chicago
Sun-Times, Post Tribune in Gary, Indiana and suburban newspapers in the Chicago
metropolitan area, and the Community Group, which includes the Company's
community newspapers, operating in 23 states, and for reporting and
administrative purposes, Jerusalem Post. The U.K. Newspaper Group includes the
operating results of the Telegraph. The Canadian Newspaper Group includes
results of Southam Inc. ("Southam") and the Canadian Newspapers acquired from
Hollinger Inc.
In January 1998, the Company acquired the Post-Tribune in Gary, Indiana and sold
approximately 80 community newspapers for gross cash proceeds of approximately
$310.0 million. The proceeds were used to retire the AP-91 Senior Notes and
reduce outstanding debt on the Bank Credit Facility.
During the second quarter Southam sold its American Trucker publishing group and
a daily newspaper in Western Canada. The proceeds from these sales were used to
reduce debt at Southam.
During the third quarter, Southam acquired the Financial Post Company and sold
the Hamilton Spectator and The Record (Kitchener-Waterloo) both in Ontario,
Canada. Hollinger Canadian Publishing Holdings Inc. ("HCPH") acquired an
additional 10.6% interest in Southam and sold the Cambridge Record and the
Guelph Mercury. In addition in July 1998 Southam acquired the Victoria Times
Colonist and the Nanaimo Daily News and certain community newspapers on
Vancouver Island in British Columbia, Canada.
CONSOLIDATED RESULTS OF OPERATIONS
Third quarter 1998 net earnings were $17.5 million, or 16 cents per share
compared to $5.6 million, or 5 cents per share in 1997. Net earnings for the
nine months ended September 30, 1998 were $176.7 million, or $1.58 per share
compared to $89.2 million, or $0.79 per share for the same period in 1997.
Earnings before extraordinary items for the nine months ended September 30, 1998
were $181.8 million, or $1.63 per share. There were no extraordinary items in
1997. The extraordinary item represents the make-whole premium that was paid in
conjunction with retiring the AP-91 Senior Notes.
There were a number of non-recurring items affecting the results of the third
quarter 1998. Non-recurring items in the third quarter of 1997 were
insignificant. Non-recurring items in the third quarter of 1998 totaled $89.2
million before tax and consisted principally of the $79.4 million gain on sale
of Kitchener and Hamilton papers at Southam and $10.6 million gain on sale of
the Guelph and Cambridge papers at the Canadian Newspapers. Under GAAP, the book
value of our share of the assets of Southam was increased to reflect the price
that we paid for each purchase of Southam shares. However, pursuant to GAAP, no
such entry is made with respect to the minority's share of the assets. Since our
share purchases were relatively recent there was little gain recorded on our
share of the assets sold. On the minority's share of the assets sold a much
larger gain was reported since the book value of their share was much lower. The
minority's
8
<PAGE> 11
share of the gain is deducted as part of the minority interest "expense" item
and the effect of the Southam gains after tax on our reported net income was
only $2.1 million. Net earnings for the nine months ended September 30, 1998
have been increased by non-recurring items totaling $323.7 million before tax.
Such items include the third quarter items above and the gains on sale of
community newspapers and American Trucker and a daily newspaper at Southam, a
loss on disposal of assets, and redundancy costs. Net earnings for the nine
months ended September 30, 1997 have been increased by non-recurring items
totaling $53.5 million, net of tax and minority interest, which consisted
primarily of the gain on the sale of Fairfax and the gain on the sale of a
division of a Chicago joint venture. Excluding these non-recurring items, net
earnings contributed by operations for the third quarter of 1998 were $10.7
million or 10 cents per share compared with $5.7 million or 5 cents per share
for the third quarter of 1997 and for the nine months ended September 30, 1998
were $55.9 million or 50 cents per share compared with $35.6 million or 31 cents
per share in 1997. On a fully diluted basis and excluding the non-recurring
items, earnings per share contributed by operations for the third quarter were 9
cents per share for 1998 and 5 cents per share for 1997 and for the nine months
ended September 30 were 46 cents per share for 1998 and 29 cents per share for
1997.
Operating revenue for the third quarter of 1998 was $512.3 million compared to
$523.7 million in 1997. The decrease in operating revenue is primarily due to
disposals and the effects of foreign currency rates. In spite of the number of
disposals, circulation revenue remained consistent year over year. An analysis
of the detail reveals that foreign exchange reduced reported circulation revenue
by $4.4 million (when compared to 1997 exchange rates) and disposals, net of
acquisitions, reduced it by $4.6 million. Without these effects, there was a
year over year increase of $9.0 million that resulted from improved circulation
levels and pricing.
Third quarter advertising revenue decreased $9.4 million year over year with
disposals, net of acquisitions, accounting for $9.6 million and foreign exchange
accounting for $14.9 million. On a same store basis in local currency,
advertising revenue actually has increased for all divisions. Operating revenue
for the nine months ended September 30, 1998 increased $19.5 million to $1,619.4
million from $1,599.9 million in 1997. The increase in revenue was largely due
to continued improvements in advertising revenue which, in total, increased 2.1%
for the nine months ended September 30, 1998.
EBITDA for third quarter of 1998 increased 4.8% to $79.4 million from $75.8
million in 1997. EBITDA for the nine months ended September 30, 1998 increased
7.2% to $293.0 million from $273.4 million in the prior year. Operating income
increased 9.4% in the third quarter of 1998 and 10.4% for the first nine months
of 1998 from the respective periods in the prior year. EBITDA and operating
income continued to increase notwithstanding a number of disposals in the
Community and Canadian Newspapers Groups.
Total newsprint expense increased 2.1% and 7.2%, respectively, for the third
quarter 1998 and the nine months ended September 30, 1998 compared to the
respective periods in 1997. Total newsprint expense includes newsprint costs of
$4.7 million for the third quarter 1997 and $12.4 million for the nine months
ended September 30, 1997 associated with the direct subscription campaign. The
increase in newsprint expense for the third quarter results from increased
newsprint consumption offset by slightly lower newsprint prices. The increase
for the nine months ended September 30, 1998 results from both increased
consumption and higher average newsprint prices. The increased consumption is
mainly due to increased advertising volume. The Company doesn't expect
significant price fluctuations in the near future.
9
<PAGE> 12
Compensation costs decreased both in total and as a percentage of sales.
Compensation costs as a percentage of sales were 33.5% and 32.3% for the third
quarter and the first nine months of 1998, respectively compared to 35.4% and
34.0% for the third quarter and first nine months of 1997, respectively.
Operating costs, excluding the direct prepaid subscription campaign costs in
1997, as a percentage of sales increased from 34.3% in the third quarter of 1997
to 35.1% in 1998 and from 33.5% for the nine months ended September 30, 1997 to
33.9% in 1998.
Operating results during 1997 were affected by net costs of the direct prepaid
subscription campaign in the United Kingdom; these costs were disclosed
separately on the income statement. However, significant renewals at higher
subscription prices and the related improved advertising revenue eliminated the
loss from the direct prepaid subscription campaign and the costs and revenues
related to the campaign are no longer disclosed separately.
Interest expense decreased 5.8% for the third quarter 1998 and 6.5% for the nine
months ended September 30, 1998 from the respective periods in 1997. The lower
interest expense results from the retirement of the high interest rate AP-91
Senior Notes and the reduction of debt on the Bank Credit Facility with proceeds
from the first quarter 1998 sale of the community newspapers. Proceeds from the
sales at Southam in the second quarter 1998 were used to reduce Southam debt.
This was offset, in part, by increased debt as a result of the acquisition of
additional interests in Southam in July 1997 and August 1998.
Other income in 1998 includes the third quarter gains on sales of the Kitchener,
Hamilton, Guelph and Cambridge papers, the second quarter gains on sale of
American Trucker and the daily newspaper in Western Canada and the first quarter
gain on the sale of the community newspapers. In 1997 other income included a
$65.0 million pre-tax gain on the sale of the Fairfax investment and a
$2.1 million gain on disposal of assets.
Minority interest increased $31.5 million to $37.8 million in the third quarter
of 1998 from $6.3 million in 1997 and increased $47.2 million to $78.2 million
for the nine months ended September 30, 1998. The increase in the minority is
mainly due to increased earnings at Southam as a result of the second quarter
gains on sale of American Trucker and the Western Canadian daily newspaper and
the third quarter gain on sale of the two daily newspapers. Minority interest
for the nine months ended September 30, 1997 included dividends on preferred
stock of DTH and FDTH of $4.8 million. The preferred stock was retired in the
second quarter of 1997.
10
<PAGE> 13
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- ---------------------------------
1998 1997 1998 1997
-------- -------- ---------- ----------
Amount Amount Amount Amount
-------- -------- ---------- ----------
Operating revenues: (dollar amounts in thousands) (dollar amounts in thousands)
<S> <C> <C> <C> <C>
United States Newspaper Group $146,323 $156,625 $ 433,542 $ 462,966
U.K. Newspaper Group 127,185 109,099 406,770 359,435
Canadian Newspaper Group 238,795 257,934 779,131 777,521
-------- -------- ---------- ----------
Total operating revenue $512,303 $523,658 $1,619,443 $1,599,922
======== ======== ========== ==========
Operating income:
United States Newspaper Group $ 14,818 $ 19,034 $ 49,445 $ 64,066
U.K. Newspaper Group 8,547 246 46,623 17,158
Canadian Newspaper Group 26,633 26,412 110,688 106,056
-------- -------- ---------- ----------
Total operating income $ 49,998 $ 45,692 $ 206,756 $ 187,280
======== ======== ========== ==========
EBITDA:
United States Newspaper Group $ 25,018 $ 30,464 $ 78,583 $ 95,456
U.K. Newspaper Group 13,489 4,702 61,103 30,620
Canadian Newspaper Group 40,867 40,590 153,264 147,301
-------- -------- ---------- ----------
Total EBITDA $ 79,374 $ 75,756 $ 292,950 $ 273,377
======== ======== ========== ==========
Operating revenues:
United States Newspaper Group 28.6% 29.9% 26.8% 28.9%
U.K. Newspaper Group 24.8% 20.8% 25.1% 22.5%
Canadian Newspaper Group 46.6% 49.3% 48.1% 48.6%
-------- -------- ---------- ----------
Total operating revenue 100.0% 100.0% 100.0% 100.0%
-------- -------- ---------- ----------
Operating income:
United States Newspaper Group 29.6% 41.7% 24.0% 34.2%
U.K. Newspaper Group 17.1% 0.5% 22.5% 9.2%
Canadian Newspaper Group 53.3% 57.8% 53.5% 56.6%
-------- -------- ---------- ----------
Total operating income 100.0% 100.0% 100.0% 100.0%
======== ======== ========== ==========
EBITDA:
United States Newspaper Group 31.5% 40.2% 26.8% 34.9%
U.K. Newspaper Group 17.0% 6.2% 20.9% 11.2%
Canadian Newspaper Group 51.5% 53.6% 52.3% 53.9%
-------- -------- ---------- ----------
Total EBITDA 100.0% 100.0% 100.0% 100.0%
======== ======== ========== ==========
EBITDA Margin:
United States Newspaper Group 17.1% 19.5% 18.1% 20.6%
U.K. Newspaper Group 10.6% 4.3% 15.0% 8.5%
Canadian Newspaper Group 17.1% 15.7% 19.7% 18.9%
Total EBITDA Margin 15.5% 14.5% 18.1% 17.1%
</TABLE>
11
<PAGE> 14
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- ---------------------------------
1998 1997 1998 1997
-------- -------- ---------- ----------
Amount Amount Amount Amount
-------- -------- ---------- ----------
United States Newspaper Group (dollar amounts in thousands) (dollar amounts in thousands)
<S> <C> <C> <C> <C>
Operating revenue
Advertising $103,422 $106,879 $304,895 $313,165
Circulation 33,033 36,526 98,628 111,449
Job printing and other 9,868 13,220 30,019 38,352
-------- -------- -------- --------
Total operating revenue 146,323 156,625 433,542 462,966
-------- -------- -------- --------
Operating costs
Newsprint 23,382 21,704 69,355 64,632
Compensation costs 55,075 58,193 161,711 171,591
Other operating costs 42,848 46,264 123,893 131,287
Depreciation and amortization 10,200 11,430 29,138 31,390
-------- -------- -------- --------
Total operating costs 131,505 137,591 384,097 398,900
-------- -------- -------- --------
Operating income $ 14,818 $ 19,034 $ 49,445 $ 64,066
======== ======== ======== ========
U.K. Newspaper Group
Operating revenue
Advertising $ 80,586 $ 74,575 $ 270,542 $ 248,104
Circulation 41,251 31,296 121,646 98,738
Job printing and other 5,348 3,228 14,582 12,593
-------- -------- -------- --------
Total operating revenue 127,185 109,099 406,770 359,435
-------- -------- -------- --------
Operating costs
Newsprint 24,729 20,094 76,699 64,902
Compensation costs 20,203 21,294 65,013 64,777
Other operating costs 68,764 55,604 203,955 176,945
Direct subscription campaign costs, net - 7,405 - 22,191
Depreciation and amortization 4,942 4,456 14,480 13,462
-------- -------- -------- --------
Total operating costs 118,638 108,853 360,147 342,277
-------- -------- -------- --------
Operating income $ 8,547 $ 246 $ 46,623 $ 17,158
======== ======== ======== ========
Canadian Newspaper Group
Operating revenue
Advertising $ 174,917 $ 186,838 $ 577,676 567,941
Circulation 54,261 60,697 167,389 176,926
Job printing and other 9,617 10,399 34,066 32,654
-------- -------- -------- --------
Total operating revenue 238,795 257,934 779,131 777,521
-------- -------- -------- --------
Operating costs
Newsprint 33,220 33,222 107,338 94,400
Compensation costs 96,465 106,149 297,110 308,206
Other operating costs 68,243 77,973 221,419 227,614
Depreciation and amortization 14,234 14,178 42,576 41,245
-------- -------- -------- --------
Total operating costs 212,162 231,522 668,443 671,465
-------- -------- -------- --------
Operating income $ 26,633 $ 26,412 $110,688 $106,056
======== ======== ======== ========
</TABLE>
12
<PAGE> 15
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
Percentage Percentage Percentage Percentage
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
United States Newspaper Group
Operating revenue
Advertising 70.7% 68.3% 70.3% 67.6%
Circulation 22.6% 23.3% 22.7% 24.1%
Job printing and other 6.7% 8.4% 7.0% 8.3%
---------- ---------- ---------- ----------
Total operating revenue 100.0% 100.0% 100.0% 100.0%
---------- ---------- ---------- ----------
Operating costs
Newsprint 16.0% 13.9% 16.0% 14.0%
Compensation costs 37.6% 37.2% 37.3% 37.1%
Other operating costs 29.3% 29.5% 28.6% 28.4%
Depreciation and amortization 7.0% 7.3% 6.7% 6.8%
---------- ---------- ---------- ----------
Total operating costs 89.9% 87.9% 88.6% 86.3%
---------- ---------- ---------- ----------
Operating income 10.1% 12.1% 11.4% 13.7%
========== ========== ========== ==========
U.K. Newspaper Group
Operating revenue
Advertising 63.4% 68.3% 66.5% 69.0%
Circulation 32.4% 28.7% 29.9% 27.5%
Job printing and other 4.2% 3.0% 3.6% 3.5%
---------- ---------- ---------- ----------
Total operating revenue 100.0% 100.0% 100.0% 100.0%
---------- ---------- ---------- ----------
Operating costs
Newsprint 19.4% 18.4% 18.9% 18.1%
Compensation costs 15.9% 19.5% 16.0% 18.0%
Other operating costs 54.1% 51.0% 50.1% 49.2%
Direct subscription campaign costs, net -- 6.8% -- 6.2%
Depreciation and amortization 3.9% 4.1% 3.6% 3.7%
---------- ---------- ---------- ----------
Total operating costs 93.3% 99.8% 88.6% 95.2%
---------- ---------- ---------- ----------
Operating income 6.7% 0.2% 11.4% 4.8%
========== ========== ========== ==========
Canadian Newspaper Group
Operating revenue
Advertising 73.3% 72.5% 74.1% 73.0%
Circulation 22.7% 23.5% 21.5% 22.8%
Job printing and other 4.0% 4.0% 4.4% 4.2%
---------- ---------- ---------- ----------
Total operating revenue 100.0% 100.0% 100.0% 100.0%
---------- ---------- ---------- ----------
Operating costs
Newsprint 13.9% 12.9% 13.8% 12.1%
Compensation costs 40.4% 41.2% 38.1% 39.6%
Other operating costs 28.6% 30.2% 28.4% 29.3%
Depreciation and amortization 6.0% 5.5% 5.5% 5.3%
---------- ---------- ---------- ----------
Total operating costs 88.9% 89.8% 85.8% 86.3%
---------- ---------- ---------- ----------
Operating income 11.1% 10.2% 14.2% 13.7%
========== ========== ========== ==========
</TABLE>
13
<PAGE> 16
GROUP OPERATING RESULTS
UNITED STATES NEWSPAPER GROUP
CHICAGO GROUP
Revenue for the Chicago Group increased $9.7 million to $92.1 million in the
third quarter of 1998 from $82.4 million for the same period in 1997. For the
nine months ended September 30, Chicago Group revenue increased $33.3 million
from $247.3 million in 1997 to $280.6 million in 1998. The acquisition of the
Gary Post-Tribune in January 1998 added $7.6 million and $22.3 million to
revenue in the third quarter of 1998 and the first nine months of 1998,
respectively. Advertising revenue for Chicago Group entities owned in both years
increased 3.7% and 7.3% for the third quarter 1998 and the nine months ended
September 30, 1998, respectively. Circulation revenue for entities owned in both
years decreased by 4.8% and 4.0% for the third quarter of 1998 and first nine
months of 1998, respectively from the same periods in the prior year. This
decrease was primarily as a result of cover price discounting at the Chicago
Sun-Times in response to cover price reductions made by the competition.
On a "same store" basis, compensation costs as a percentage of revenue at the
Chicago Group were 40.1% and 39.0% for the third quarter 1998 and the nine
months ended September 30, 1998, respectively, compared to 39.9% and 39.5% in
the respective periods of 1997. Newsprint expense increased due to higher
newsprint prices and increased consumption. EBITDA on a "same store" basis
increased for both the third quarter and first nine months of 1998 by $0.2
million and $1.6 million, respectively. The increases are due to increased
advertising revenues, offset, in part, by a slight decrease in circulation
revenue and an increase in newsprint expense.
COMMUNITY GROUP
The overall decrease in Community Group operating revenues, EBITDA and operating
income is due to the sale of the 80 community newspapers in January 1998.
Revenue attributable to the newspapers sold was $25.8 million in the third
quarter of 1997 and $75.9 million for the nine months ended September 30, 1997.
On a "same store" basis, the Community Group revenues and EBITDA were $44.1
million and $13.4 million in the third quarter 1998 compared to $43.0 million
and $13.2 million in the third quarter of 1997. For the nine months ended
September 30, 1998, the Community Group revenues and EBITDA, on a "same store"
basis, were $124.5 million and $38.3 million compared to $121.6 million and
$37.3 million in 1997. For properties owned in both years, newsprint expense
increased 9.7% and 13.1% for the third quarter and first nine months of 1998
from the respective periods in the prior year primarily due to increases in both
newsprint prices and consumption. For properties owned in both years,
compensation costs as a percentage of revenue for the third quarter were 32.9%
in 1998 compared to 32.7% in 1997, and other operating costs were 25.0% in 1998
compared to 25.7% in 1997. For properties owned in both years, compensation
costs as a percentage of revenues for the first nine months were consistent at
32.9% for both periods and other operating costs were 24.4% in 1998 compared to
25.6% in 1997.
14
<PAGE> 17
U.K. NEWSPAPER GROUP
Third quarter operating revenue for the U.K. Newspaper Group increased 16.6%
from 1997. In pounds sterling, advertising revenue increased 6.2% and
circulation revenue increased 29.5%. For the nine months ended September 30,
1998, revenue increased 13.2%. The increase in circulation revenue was primarily
the result of the participants in the direct prepaid subscription program
renewing at higher prices.
EBITDA for the U.K. Newspaper Group was $13.5 million in the third quarter of
1998 compared to $4.7 million in 1997. EBITDA for the nine months ended
September 30, 1998 increased to $61.1 million from $30.6 million in 1997. The
results in 1997 included a deduction of $7.4 million and $22.2 million in the
third quarter and first nine months, respectively, for costs related to the
direct prepaid subscription campaign, which were shown as a separate item. This
expense included all costs, net of direct revenue, related to the campaign.
Beginning with the fourth quarter of 1997, the net costs of the campaign had
declined and advertising revenue had increased, sufficient that no separate
charge was necessary. Newsprint expense for the third quarter of 1998 remained
fairly consistent at $24.7 million compared to $24.8 million (including $4.7
million of newsprint costs associated with the direct subscription campaign) in
1997. Newsprint expense for the nine months ended September 30, 1998 was $76.7
million compared to $77.3 million (including $12.4 million of newsprint costs
associated with the direct subscription campaign). Even though newsprint
consumption had increased, newsprint prices remained lower as a result of longer
term pricing contracts entered into in the U.K. Compensation costs as a
percentage of revenue decreased to 15.9% in the third quarter of 1998 from 19.5%
in 1997 and 16.0% for the nine months ended September 30, 1998 from 18.0% in
1997. Other operating costs, excluding costs associated with the direct prepaid
subscription campaign in 1997, as a percentage of revenue were 54.1% in the
third quarter of 1998 compared to 51.0% in 1997 and 50.1% for the first nine
months of 1998 compared to 49.2% in 1997.
CANADIAN NEWSPAPER GROUP
Third quarter operating revenue for the Canadian Newspaper Group was $238.8
million in 1998 compared to $257.9 million in 1997, a decrease of 7.4%. The
decrease in revenue is due to disposals at both Southam and the Canadian
Newspaper Group and the effects of foreign currency rates. For the nine months
ended September 30, 1998 operating revenue remained relatively flat at $779.1
million compared to $777.5 million in 1997.
Operations at the Canadian Newspaper Group were affected by acquisitions and
disposals. Revenue and EBITDA for the third quarter, on a "same store" basis,
were Cdn.$322.8 million and Cdn.$66.1 million, respectively, in 1998 compared to
Cdn.$312.6 million and Cdn.$55.8 million, respectively, in 1997. Revenue and
EBITDA for the first nine months, on a "same store" basis, were Cdn.$1,017.4
million and Cdn.$229.4 million, respectively, in 1998 compared to Cdn.$952.5
million and Cdn.$196.5 million, respectively, in 1997.
Newsprint expense, as a percentage of sales, increased to 13.8% for the third
quarter of 1998 from 12.1% in 1997 and to 13.9% for the nine months ended
September 30,1998 from 12.9% in 1997. The increase in the third quarter is due
to increased consumption offset by a lower average newsprint price. For the nine
months ended September 30, the increase was due to both higher newsprint prices
and increased consumption. Compensation expense as a percentage of sales for the
third quarter decreased to 40.4% 1998 from 41.2% in 1997 and for the nine months
ended September 30, 1998 decreased to 38.1% from 39.6% in the same period of
1997.
15
<PAGE> 18
LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL
Working capital consists of current assets less current liabilities. Working
capital was $44.4 million at September 30, 1998 compared to $56.4 million at
December 31, 1997. Current assets were $495.7 million at September 30, 1998
compared with $505.3 million at December 31, 1997. Current liabilities,
excluding debt obligations, were $444.9 million at September 30, 1998, compared
with $413.3 million at December 31, 1997. The increase in current liabilities is
primarily due to the tax payable on the gain on sale of the community newspapers
and on the gains on sales of American Trucker and other newspapers at Southam.
DEBT
Long-term debt, including the current portion, was $1.45 billion at September
30, 1998, slightly up from $1.43 billion at December 31, 1997. Proceeds from the
sales of community newspapers and from the sale of operations at Southam have
offset the cost of the additional interest in Southam and other newspaper
acquisitions.
BANK CREDIT FACILITY
On March 30, 1998 the parties to the Bank Credit Facility entered into a Third
Amended and Restated Credit Agreement (the "Third Amendment"), amending and
restating the Bank Credit Facility. The Third Amendment amends certain terms and
conditions of the Bank Credit Facility, primarily extending the maturity date to
December 31, 2004, decreasing commitment fees, and increasing the amount of
dividends Publishing can pay to the Company for Class A Common Stock
repurchases.
CONVERSION OF PREFERRED STOCK
On August 4, 1998 the Company completed an Exchange Offer to exchange any and
all of its outstanding PRIDES for shares of Class A Common Stock. Of the
20,700,000 total PRIDES outstanding, 19,993,531 were exchanged for 18,394,048
shares of Class A Common Stock.
On September 30, 1998, 408,551 shares of Series D Preferred Stock were
converted into 2,795,165 shares of Class A Common Stock.
EBITDA
EBITDA, which represents the Company's earnings before interest expense,
amortization of debt issue costs, income taxes, depreciation and amortization,
minority interest, equity in earnings of affiliates and interest, dividend and
other income was $79.4 million for the third quarter of 1998 compared with $75.8
million for the same period in 1997 and $293.0 million for the nine months ended
September 30, 1998 compared with $273.4 million in 1997. The Company believes
that EBITDA is important to its ability to fund current operations and to
service debt.
16
<PAGE> 19
CASH FLOW
Cash flow from operating activities was $38.6 million for the first nine months
of 1998 compared with $134.7 million for the first nine months of 1997.
Cash flow used in investing activities was $19.6 million in 1998, largely due
the acquisition of the additional interest in Southam, and other newspaper
acquisitions and capital expenditures related to the new press facility at the
Chicago Group, offset, in part, by the sales of American Trucker and various
newspapers at Southam and the community group. Cash flow provided by investing
activities was $40.3 million in 1997, largely due to the sale of the interest in
Fairfax.
Cash flow used in financing activities was $38.4 million in 1998 compared to
$242.6 million in 1997. The 1997 cash flow used in financing activities was
primarily as a result of the payment to Hollinger Inc. for the Canadian
Newspapers and the redemption of the preference shares of DTH and FDTH.
CAPITAL EXPENDITURES AND ACQUISITION FINANCING
The United States Newspaper Group, the U.K. Newspaper Group and the Canadian
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.
DIVIDENDS AND OTHER COMMITMENTS
The Company's sales of Class A Common Stock and PRIDES have significantly
increased its dividend obligations and the Company also has significant debt
service obligations, capital expenditures, management fees due to Hollinger Inc.
and its affiliates and dividends on its Series C Preferred Stock and Series D
Preferred Stock.
The amount available for the payment of dividends and other obligations 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, 1998, the total amount of funds that would be unrestricted as to payment of
dividends by Publishing under its debt instruments would, under the more
restrictive provisions, have been approximately $31.6 million. The foregoing
calculation is based on the sum of the following for the period January 1, 1998
to September 30, 1998: (i) 50% of the sum of (x) consolidated net income of
Publishing and its Restricted Subsidiaries or if it is a loss, reduced by 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; 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 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 its requirements. On June 29, 1998, the Company announced an increase in
the quarterly dividend to $0.1375 per issued and outstanding
17
<PAGE> 20
share of Class A and B Common Stock from $0.10 per share. The increase will be
effective for the dividends paid October 15, 1998 to stockholders of record on
October 1, 1998.
18
<PAGE> 21
YEAR 2000 DISCLOSURE
The Company has analyzed its internally developed and purchased software that
utilize embedded date codes. Such embedded date codes may experience operating
problems with respect to dates on or after January 1, 2000, the so-called Year
2000 problem. A corporate-wide task force is in place, with all major business
segments involved. Exposure to this issue differs considerably from subsidiary
to subsidiary. The Company has already made modifications and during the
remainder of 1998 and 1999 plans to make further necessary modifications to the
identified software and to test systems. Within the United States Newspaper
Group, Community Group modifications are almost complete, with individual
company systems testing and verification underway, while at the Chicago Group,
primarily the Chicago Sun-Times, the necessary changes will not be complete
until mid-1999. Within the U.K. Newspaper Group and the Canadian Newspaper
Group, critical systems have been modified or replaced and individual systems
testing and verification are underway. The Company's most reasonably likely
worst case Year 2000 scenario is that the Company would incur additional costs
and lose some timeliness in producing some newspapers; however, the Company
believes that it will be able to produce newspapers. Because the Company's
systems are not integrated, the Company is preparing to handle the most
reasonably likely worst case scenario on a case by case basis. The Company is
also communicating with key suppliers, most notably newsprint vendors, and
others with which we do business to coordinate Year 2000 conversion. The Company
presently believes that, with modifications to existing software and converting
to new software, the Year 2000 problem will not pose significant operational
difficulties for the Company. It is not anticipated that modifying or replacing
software will have a material effect in any one year on the Company's financial
statements or results of operations taken as a whole. The Company estimates that
the total cost of Year 2000 remediation, including costs of modifying software
and hiring Year 2000 solution providers will not exceed $12 million, of which
the Company estimates $7 million has already been expended. Funding for such
remediation efforts will be generated from normal operations. No other
information technology projects have been materially deferred or delayed due to
Year 2000 efforts.
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 Form 10-K for a
discussion of factors that may affect such statements.
19
<PAGE> 22
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
20
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
HOLLINGER INTERNATIONAL INC.
Registrant
Date: November 13, 1998 By: /S/ J. A. Boultbee
---------------------------------
J. A. Boultbee
Executive Vice President, and
Chief Financial Officer
21
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JUL-01-1998 JUL-01-1997
<PERIOD-END> SEP-30-1998 SEP-30-1997
<CASH> 91,468 59,878
<SECURITIES> 0 0
<RECEIVABLES> 278,566 306,696
<ALLOWANCES> 22,514 26,597
<INVENTORY> 48,984 34,488
<CURRENT-ASSETS> 320,639 436,823
<PP&E> 1,021,743 1,079,580
<DEPRECIATION> 402,027 469,954
<TOTAL-ASSETS> 3,219,649 2,921,374
<CURRENT-LIABILITIES> 451,241 387,964
<BONDS> 1,448,644 1,431,916
39,702 273,622
0 0
<COMMON> 1,090 876
<OTHER-SE> 820,416 533,465
<TOTAL-LIABILITY-AND-EQUITY> 3,219,649 2,921,374
<SALES> 512,303 523,658
<TOTAL-REVENUES> 512,303 523,658
<CGS> 0 0
<TOTAL-COSTS> 462,305 477,966
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 26,619 28,270
<INCOME-PRETAX> 114,409 20,249
<INCOME-TAX> 55,371 8,305
<INCOME-CONTINUING> 17,529 5,609
<DISCONTINUED> 0 0
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<NET-INCOME> 17,529 5,609
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