<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 March 31, 2000
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 May 8, 2000
--------------------- --------------------------
Class A Common Stock
par value $.01 per share 88,308,215 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. Condensed Financial Statements 1
Item 2. Management's Discussion and Analysis of Financial Condition 9
and Results of Operations.
Item 3. Quantitative and Qualitative Analysis about Market Risk 17
Part II OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K. 19
Signatures 20
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
2000 1999
-------------- -------------
<S> <C> <C>
OPERATING REVENUES
Advertising $ 403,177 $ 374,067
Circulation 121,042 123,033
Job printing 14,997 15,813
Other 10,008 11,789
-------------- -------------
Total operating revenues 549,224 524,702
-------------- -------------
OPERATING COSTS AND EXPENSES
Newsprint 77,158 79,688
Compensation costs 175,810 172,187
Other operating costs 200,052 183,277
Infrequent items 2,620 290
Depreciation 16,433 16,089
Amortization 15,875 14,896
-------------- -------------
Total operating costs and expenses 487,948 466,427
-------------- -------------
Operating income 61,276 58,275
Other income (expense)
Interest expense (34,988) (31,600)
Amortization of debt issue costs (2,574) (1,910)
Interest income 1,085 2,403
Other income, net 25,101 228,342
-------------- -------------
Total other income (expense) (11,376) 197,235
-------------- -------------
Earnings before income taxes and minority interest 49,900 255,510
Provision for income taxes 19,272 108,633
-------------- -------------
Earnings before minority interest 30,628 146,877
Minority interest 2,477 (290)
-------------- -------------
Net earnings $ 28,151 $ 147,167
============== =============
Basic earnings per share $ 0.26 $ 1.35
============== =============
Diluted earnings per share $ 0.25 $ 1.20
============== =============
Weighted average shares outstanding- basic 98,537 107,434
============== =============
Weighted average shares outstanding- diluted 113,601 122,537
============== =============
</TABLE>
1
<PAGE> 4
HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
2000 1999
-------------- -------------
<S> <C> <C>
Net earnings $ 28,151 $ 147,167
Other comprehensive income (loss):
Unrealized gain on marketable securities 10,717 --
Foreign currency translation adjustment (14,282) 772
-------------- -------------
Comprehensive income $ 24,586 $ 147,939
============== =============
</TABLE>
2
<PAGE> 5
HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2000 AND DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
ASSETS 2000 1999
------------ -------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 31,558 $ 39,903
Accounts receivable, net 334,491 334,383
Inventories 37,951 28,217
Other current assets 18,711 14,448
------------ -------------
Total current assets 422,711 416,951
Property, plant and equipment, net of
accumulated depreciation 711,024 711,627
Investments 240,619 208,166
Intangible assets, net of accumulated amortization 2,005,970 2,031,610
Deferred financing costs and other assets 196,954 134,670
------------ -------------
$ 3,577,278 $ 3,503,024
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 40,394 $ 40,695
Accounts payable and accrued expenses 312,708 348,591
Income taxes payable 46,631 61,259
Deferred revenue 83,043 79,521
------------ -------------
Total current liabilities 482,776 530,066
Long-term debt, less current installments 1,656,750 1,613,241
Other long-term liabilities 360,577 288,000
------------ -------------
Total liabilities 2,500,103 2,431,307
Minority interest 153,729 155,901
Redeemable preferred stock 13,501 13,591
Stockholders' equity:
Convertible preferred stock - 6,377
Class A common stock 1,019 998
Class B common stock 150 150
Additional paid-in capital 674,045 652,705
Accumulated other comprehensive income (28,057) (24,492)
Retained earnings 487,856 475,315
------------ -------------
1,135,013 1,111,053
Class A common stock in treasury, at cost (167,619) (147,955)
Issued shares in escrow (57,449) (60,873)
------------ -------------
Total stockholders' equity 909,945 902,225
------------ -------------
$ 3,577,278 $ 3,503,024
============ =============
</TABLE>
3
<PAGE> 6
HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 28,151 $ 147,167
Items not involving cash:
Depreciation and amortization 32,308 30,985
Amortization of debt issue costs 2,574 1,910
Minority interest 2,477 (290)
Gain on sale of investments (27,529) -
Gain on sale of assets (16) (228,105)
Other non-cash items 9,597 (470)
Changes in working capital, net (60,076) 65,503
------------- -------------
Cash provided by (used in) operating activities (12,514) 16,700
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (18,925) (28,843)
Additions to investments (31,783) (372,266)
Acquisitions, net (1,700) (21,672)
Proceeds from disposal of investments 33,552 440,600
Other investing activities 3,410 1,326
------------- -------------
Cash provided by (used in) investing activities (15,446) 19,145
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 64,793 438,297
Repayments of long-term debt (22,427) (261,926)
Payment of debt issue costs (369) (26,298)
Repurchase of common shares - (45,164)
Redemption of preferred stock - (18,770)
Changes in amounts due to affiliates - 28,812
Dividends and distributions to minority interests (3,632) (102,047)
Cash dividends paid (15,610) (16,650)
Other financing activities (1,346) (1,574)
------------- -------------
Cash provided by (used in) financing activities 21,409 (5,320)
------------- -------------
Effect of exchange rate changes on cash (1,794) 2,980
------------- -------------
Net increase (decrease) in cash (8,345) 33,505
Cash at beginning of period 39,903 57,788
------------- -------------
Cash at end of period $ 31,558 $ 91,293
============= =============
Cash paid for interest $ 55,176 $ 47,230
============= =============
Cash paid for taxes $ 35,060 $ 22,478
============= =============
</TABLE>
4
<PAGE> 7
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 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, 1999.
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, 1999
NOTE 2 - PRINCIPLES OF PRESENTATION AND CONSOLIDATION
The Company is a subsidiary of Hollinger Inc., a Canadian corporation,
which at March 31, 2000 owned approximately 40.2% of the combined equity and
approximately 74.7% 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 upon conversion of the Company's Series C Convertible Preferred Stock
("Series C Preferred Stock") and the remaining Series E Redeemable Convertible
Preferred Stock ("Series E Preferred Stock").
All significant intercompany balances and transactions have been
eliminated. Certain reclassifications have been made in the 1999 financial
statements to conform to the 2000 presentation.
5
<PAGE> 8
HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
NOTE 3 - 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 ended
March 31, 2000 and 1999:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Three months ended March 31, 2000
Income Shares Per-Share
(Numerator) (Denominator) Amount
- ---------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C>
Basic EPS
Net income available to common stockholders $ 25,882 98,537 $ 0.26
Effect of dilutive securities
Convertible preferred stock 2,137 8,182
Series E Preferred Stock 132 966
HCPH Special Shares - 5,400
Stock options - 516
Diluted EPS
Net income available to common stockholders
and assumed conversions $ 28,151 113,601 $ 0.25
- ---------------------------------------------------------------------------------------------------------------------------
Three months ended March 31, 1999
Income Shares Per-Share
(Numerator) (Denominator) Amount
- ---------------------------------------------------------------------------------------------------------------------------
(in thousands, except per share data)
Basic EPS
Net income available to common stockholders $ 144,862 107,434 $ 1.35
Effect of dilutive securities
Convertible preferred stock 2,305 8,778
Series D Preferred Stock - 931
HCPH Special Shares - 4,831
Stock options - 563
Diluted EPS
Net income available to common stockholders
and assumed conversions $ 147,167 122,537 $ 1.20
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE> 9
HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
NOTE 4 - SEGMENT INFORMATION
The Company operates principally in the business of publishing,
printing and distribution of newspapers and magazines and holds investments
principally in companies that operate in the same business as the Company.
Southam Inc., the Canadian Newspapers and Hollinger Canadian Newspapers, Limited
Partnership make up the Canadian Newspaper Group. The following is a summary of
the segments of the Company:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Three months ended March 31, 2000
-----------------------------------------------------------------------------
U.K. Canadian
Chicago Community Newspaper Newspaper
Group Group Group Group Total
- --------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Revenues $ 93,093 19,870 156,581 279,680 $ 549,224
- --------------------------------------------------------------------------------------------------------------------
Depreciation and amortization $ 5,213 2,061 4,664 20,370 $ 32,308
- --------------------------------------------------------------------------------------------------------------------
Operating income, excluding infrequent items $ 7,891 1,001 33,217 21,787 $ 63,896
- --------------------------------------------------------------------------------------------------------------------
Equity in earnings (loss) of affiliates $ (45) - (1,064) 192 $ (917)
- --------------------------------------------------------------------------------------------------------------------
Total assets $ 466,939 165,047 582,894 2,222,307 $ 3,437,187
- --------------------------------------------------------------------------------------------------------------------
Capital expenditures $ 7,380 976 1,053 9,411 $ 18,820
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
Three months ended March 31, 1999
-----------------------------------------------------------------------------
U.K. Canadian
Chicago Community Newspaper Newspaper
Group Group Group Group Total
- --------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Revenues $ 90,956 33,142 142,821 257,783 $ 524,702
- --------------------------------------------------------------------------------------------------------------------
Depreciation and amortization $ 4,864 3,127 4,842 18,152 $ 30,985
- --------------------------------------------------------------------------------------------------------------------
Operating income, excluding infrequent items $ 8,081 2,393 29,080 19,011 $ 58,565
- --------------------------------------------------------------------------------------------------------------------
Equity in earnings (loss) of affiliates $ (276) - - 121 $ (155)
- --------------------------------------------------------------------------------------------------------------------
Total assets $ 431,166 230,587 633,829 2,046,919 $ 3,342,501
- --------------------------------------------------------------------------------------------------------------------
Capital expenditures $ 12,986 2,203 1,706 11,295 $ 28,190
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE> 10
HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(UNAUDITED)
Capital expenditures for the corporate entities were $105,000 and $653,000 for
the quarters ended March 31, 2000 and 1999, respectively.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Reconciliation of segment assets to total assets:
March 31,
--------------------------------------
2000 1999
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Segment assets $ 3,437,187 $ 3,342,501
Corporate assets 140,091 122,169
- --------------------------------------------------------------------------------------------------------------------
Total assets $ 3,577,278 $ 3,464,670
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE> 11
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 Chicago Group, the Community Group,
the U.K. Newspaper Group and the Canadian Newspaper Group. The Chicago Group
includes the Chicago Sun-Times, Post Tribune and city and suburban newspapers in
the Chicago metropolitan area. The Community Group includes the Company's U.S.
community newspapers, operating in 12 states, and Jerusalem Post. The U.K.
Newspaper Group includes the operating results of the Telegraph. The Canadian
Newspaper Group includes results of Southam Inc. ("Southam"), the Canadian
Newspapers and the Hollinger Canadian Newspapers, Limited Partnership
("Hollinger L.P.").
CONSOLIDATED RESULTS OF OPERATIONS
First quarter 2000 net earnings were $28.2 million or $0.26 per share compared
with $147.2 million or $1.35 per share in 1999.
There were a number of infrequent and non-recurring items affecting the results
of both years. In first quarter 2000 infrequent and non-recurring items amounted
to $13.0 million after income tax and minority interest and primarily consisted
of duplicative start-up costs related to the new printing facility in Chicago,
severance costs in Canada and the gains on sale of the interest in Trip.com and
sale of the partial interest in Interactive Investor International. In 1999,
infrequent and non-recurring items amounted to $129.3 million after income tax
and minority interest and primarily included the gain on the February 1999 sale
of community newspapers net of costs. Non-recurring items are primarily included
in other income, net.
In addition, Community Group operations sold during 1999, added in the first
quarter of 1999, $15.3 million to operating revenue, $1.2 million to operating
income and $0.7 million to net earnings.
Net earnings from comparable operations, which excludes infrequent and
non-recurring items and also excludes net earnings from divested properties,
amounted to $15.2 million in 2000 or 13 cents per diluted share compared with
$17.1 million or 14 cents per diluted share in 1999. Included in these earnings
are a net loss from internet operations of $3.2 million in 2000 or a 3 cent loss
per diluted share compared to a net loss from internet operations of $1.0
million in 1999 or 1 cent loss per diluted share.
Operating revenue for the first quarter of 2000 was $549.2 million compared with
$524.7 million in 1999, an increase of 4.7%. Operating revenue from comparable
operations for the first quarter 2000 was $549.2 million compared with $509.4
million in 1999, an increase of 7.8%. Operating income in 2000 was $61.3 million
compared with $58.3 million in 1999, an increase of 5.1%. Operating income from
comparable operations in 2000 was $63.9 million compared with $57.4 million in
1999, an increase of 11.4%.
Interest expense for the first quarter 2000 was $35.0 million compared with
$31.6 million in 1999, an increase of $3.4 million. This increase results from
both increased interest rates and an increase in debt levels.
9
<PAGE> 12
Other income in the first quarter 2000 was $25.1 million compared with $228.3
million in 1999. Other income in 2000 primarily includes the gain on sale of the
interest in Trip.com and the sale of the partial interest in Interactive
Investor International. In 1999, other income primarily consisted of a gain on
the sale of Community Group operations.
Minority interest in 2000 represents the minority's share of net earnings of
Hollinger L.P. Minority interest in 1999 represents the minority's share of net
earnings of Southam. The remaining minority shares of Southam were acquired by
the Company in January and February 1999.
10
<PAGE> 13
Three Months Ended March 31,
-----------------------------
2000 1999
-------------- -------------
Amount Amount
-------------- -------------
(dollar amounts in thousands)
Operating revenues:
Chicago Group $ 93,093 $ 90,956
Community Group 19,870 33,142
U.K. Newspaper Group 156,581 142,821
Canadian Newspaper Group 279,680 257,783
-------------- ------------
Total operating revenue $ 549,224 $ 524,702
============== ============
Operating income, excluding infrequent items:
Chicago Group $ 7,891 $ 8,081
Community Group 1,001 2,393
U.K. Newspaper Group 33,217 29,080
Canadian Newspaper Group 21,787 19,011
-------------- ------------
Total operating income, excluding infrequent items $ 63,896 $ 58,565
============== ============
EBITDA, excluding infrequent items:
Chicago Group $ 13,104 $ 12,945
Community Group 3,062 5,520
U.K. Newspaper Group 37,881 33,922
Canadian Newspaper Group 42,157 37,163
-------------- ------------
Total EBITDA, excluding infrequent items $ 96,204 $ 89,550
============== ============
Operating revenues:
Chicago Group 17.0% 17.4%
Community Group 3.6% 6.3%
U.K. Newspaper Group 28.5% 27.2%
Canadian Newspaper Group 50.9% 49.1%
-------------- ------------
Total operating revenue 100.0% 100.0%
============== ============
Operating income, excluding infrequent items:
Chicago Group 12.3% 13.8%
Community Group 1.6% 4.1%
U.K. Newspaper Group 52.0% 49.7%
Canadian Newspaper Group 34.1% 32.4%
-------------- ------------
Total operating income 100.0% 100.0%
============== ============
EBITDA, excluding infrequent items:
Chicago Group 13.6% 14.4%
Community Group 3.2% 6.2%
U.K. Newspaper Group 39.4% 37.9%
Canadian Newspaper Group 43.8% 41.5%
-------------- ------------
Total EBITDA, excluding infrequent items 100.0% 100.0%
============== ============
EBITDA Margin, excluding infrequent items:
Chicago Group 14.1% 14.2%
Community Group 15.4% 16.7%
U.K. Newspaper Group 24.2% 23.8%
Canadian Newspaper Group 15.1% 14.4%
Total EBITDA Margin, excluding infrequent items 17.5% 17.1%
============== ============
11
<PAGE> 14
Three Months Ended March 31,
------------------------------
2000 1999
------------- -------------
Amount Amount
------------- -------------
(dollar amounts in thousands)
Chicago Group
Operating revenue
Advertising $ 69,465 $ 67,229
Circulation 20,070 19,971
Job printing and other 3,558 3,756
------------ --------------
Total operating revenue 93,093 90,956
------------ --------------
Operating costs
Newsprint 14,824 16,609
Compensation costs 37,635 36,250
Other operating costs 27,530 25,152
Depreciation 2,170 2,278
Amortization 3,043 2,586
------------ --------------
Total operating costs 85,202 82,875
------------ --------------
Operating income, excluding infrequent items $ 7,891 $ 8,081
============ ==============
Community Group
Operating revenue
Advertising $ 11,430 $ 20,017
Circulation 5,910 9,053
Job printing and other 2,530 4,072
------------ --------------
Total operating revenue 19,870 33,142
------------ --------------
Operating costs
Newsprint 1,872 3,748
Compensation costs 7,598 12,543
Other operating costs 7,338 11,331
Depreciation 869 1,387
Amortization 1,192 1,740
------------ --------------
Total operating costs 18,869 30,749
------------ --------------
Operating income, excluding infrequent items $ 1,001 $ 2,393
============ ==============
U.K. Newspaper Group
Operating revenue
Advertising $ 111,398 $ 96,765
Circulation 38,538 39,747
Job printing and other 6,645 6,309
------------ --------------
Total operating revenue 156,581 142,821
------------ --------------
Operating costs
Newsprint 25,370 24,685
Compensation costs 24,121 22,486
Other operating costs 69,209 61,728
Depreciation 2,069 2,207
Amortization 2,595 2,635
------------ --------------
Total operating costs 123,364 113,741
------------ --------------
Operating income, excluding infrequent items $ 33,217 $ 29,080
============ ==============
Canadian Newspaper Group
Operating revenue
Advertising $ 210,884 $ 190,056
Circulation 56,524 54,262
Job printing and other 12,272 13,465
------------ --------------
Total operating revenue 279,680 257,783
------------ --------------
Operating costs
Newsprint 35,092 34,646
Compensation costs 106,456 100,908
Other operating costs 95,975 85,066
Depreciation 11,325 10,217
Amortization 9,045 7,935
------------ --------------
Total operating costs 257,893 238,772
------------ --------------
Operating income, excluding infrequent items $ 21,787 $ 19,011
============ ==============
12
<PAGE> 15
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
2000 1999
---------- ----------
Percentage Percentage
---------- ----------
<S> <C> <C>
Chicago Group
Operating revenue
Advertising 74.6% 73.9%
Circulation 21.6% 22.0%
Job printing and other 3.8% 4.1%
------ ------
Total operating revenue 100.0% 100.0%
------ ------
Operating costs
Newsprint 15.9% 18.3%
Compensation costs 40.4% 39.9%
Other operating costs 29.6% 27.7%
Depreciation 2.3% 2.5%
Amortization 3.3% 2.8%
------ ------
Total operating costs 91.5% 91.2%
------ ------
Operating income, excluding infrequent items 8.5% 8.8%
====== ======
Community Group
Operating revenue
Advertising 57.6% 60.4%
Circulation 29.7% 27.3%
Job printing and other 12.7% 12.3%
------ ------
Total operating revenue 100.0% 100.0%
------ ------
Operating costs
Newsprint 9.4% 11.3%
Compensation costs 38.2% 37.8%
Other operating costs 36.9% 34.2%
Depreciation 4.4% 4.1%
Amortization 6.0% 5.3%
------ ------
Total operating costs 94.9% 92.7%
------ ------
Operating income, excluding infrequent items 5.1% 7.3%
====== ======
U.K. Newspaper Group
Operating revenue
Advertising 71.2% 67.8%
Circulation 24.6% 27.8%
Job printing and other 4.2% 4.4%
------ ------
Total operating revenue 100.0% 100.0%
------ ------
Operating costs
Newsprint 16.2% 17.3%
Compensation costs 15.4% 15.7%
Other operating costs 44.2% 43.2%
Depreciation 1.3% 1.5%
Amortization 1.7% 1.9%
------ ------
Total operating costs 78.8% 79.6%
------ ------
Operating income, excluding infrequent items 21.2% 20.4%
====== ======
Canadian Newspaper Group
Operating revenue
Advertising 75.4% 73.8%
Circulation 20.2% 21.0%
Job printing and other 4.4% 5.2%
------ ------
Total operating revenue 100.0% 100.0%
------ ------
Operating costs
Newsprint 12.5% 13.4%
Compensation costs 38.1% 39.1%
Other operating costs 34.3% 33.0%
Depreciation 4.0% 4.0%
Amortization 3.2% 3.1%
------ ------
Total operating costs 92.1% 92.6%
------ ------
Operating income, excluding infrequent items 7.9% 7.4%
====== ======
</TABLE>
13
<PAGE> 16
GROUP OPERATING RESULTS
- -----------------------
CHICAGO GROUP
Revenues for the Chicago Group increased $2.1 million to $93.1 million in the
first quarter of 2000 from $91.0 million in 1999. Advertising revenue in 2000
increased $2.2 million over the same period in the prior year. National
advertising increased year over year as a result of increased telecom, dot-com
and financial advertising. Classified and retail advertising were virtually flat
compared with last year.
EBITDA, excluding infrequent items in 2000 increased $0.2 million to $13.1
million from $12.9 million in 1999. EBITDA in 2000 included $0.8 million loss
from internet operations compared with $0.1 million loss in 1999. Operating
income in 2000 was $7.9 million compared with $8.1 million in 1999.
Newsprint expense in 2000 decreased $1.8 million to $14.8 million from $16.6
million in 1999, a decrease of 10.7%. Newsprint prices in the first quarter of
2000 were approximately 14% lower than in the first quarter of 1999. The lower
newsprint prices were offset in part by increased consumption.
The increased advertising revenue and lower newsprint expense were virtually
offset by increased compensation costs and other operating costs resulting in
EBITDA for the quarter increasing only marginally from the first quarter of
1999.
COMMUNITY GROUP
The overall decrease in Community Group operating revenues, EBITDA and operating
income is due to the sale of community newspaper properties in 1999.
Revenue and EBITDA attributable to the newspapers sold were $15.3 million and
$2.7 million respectively in the first quarter of 1999. For properties owned in
both years Community Group revenues and EBITDA were $19.9 million and $3.1
million in 2000 compared to $17.8 million and $2.8 million in 1999.
U.K. NEWSPAPER GROUP
First quarter operating revenue for the U.K. Newspaper Group was $156.6 million
in 2000 compared to $142.8 million in 1999. In pounds sterling, advertising
revenue increased 17.1% and circulation revenue decreased 1.5%. All categories
of advertising showed improvement. Display advertising grew 23.2% year-over-year
in total, including a 35.2% increase in financial advertising and a 17.2%
increase in non-financial advertising. Classified advertising grew 10.3% over
1999, primarily as a result of recruitment advertising growth of 12.4%.
EBITDA, excluding infrequent items, for the U.K. Newspaper Group was $37.9
million in the first quarter 2000 compared to $33.9 million in 1999. Operating
income excluding infrequent items in 2000 was $33.2 million compared to $29.1
million. Newsprint expense for the first quarter 2000 was $25.4 million
compared to $24.7 million in 1999. The increase in newspaper expense was as a
result of increased consumption partly offset by lower newsprint prices.
Compensation costs as a percentage of revenues remained fairly consistent at
15.4% in 2000 compared to 15.7% in 1999. Other operating costs as a percentage
of revenue increase to 44.2%
14
<PAGE> 17
in 2000 from 43.2% in 1999. The increase in other operating costs resulted from
the timing of promotional costs in 2000 compared with 1999.
CANADIAN NEWSPAPER GROUP
First quarter operating revenue for the Canadian Newspaper Group was $279.7
million compared with $257.8 million in 1999. EBITDA and operating income both
excluding infrequent items, for the first quarter of 2000 were $42.2 million and
$21.8 million respectively, compared to $37.2 million and $19.0 million
respectively in 1999. This represents a growth from 1999, in EBITDA excluding
infrequent items, of 13.4% and in operating income, excluding infrequent items,
of 14.6%. The improvement in both EBITDA and operating income was in large
part, the result of improved operating results at the National Post partly
offset by increased losses from internet operations. The National Post EBITDA
loss for the first quarter 2000 was $7.6 million, a $4.0 million improvement
over the EBITDA loss of $11.6 million in the first quarter of 1999, reflecting a
44% increase in revenue year-over-year. EBITDA losses from internet operations
were $3.2 million in 2000 compared with a loss of $1.5 million in 1999.
Newsprint expense increased $0.5 million in 2000 to $35.1 million compared with
$34.6 million in 1999. This increase represents increased consumption offset by
a newsprint price decline year-over-year. Compensation costs as a percentage of
revenue were 38.1% in 2000 compared with 39.1% in 1999 and other operating
costs as a percentage of revenue increased to 34.3% in 2000 from 33.0% in 1999.
The increase in other operating costs was primarily a result of the timing of
promotional costs in 2000 compared with 1999.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
WORKING CAPITAL
- ---------------
Working capital consists of current assets less current liabilities. At March
31, 2000, there was a working capital deficiency of $60.1 million compared to a
deficiency of $113.1 million at December 31, 1999. Current assets were $422.7
million at March 31, 2000 compared with $417.0 million at December 31, 1999.
Current liabilities, excluding debt obligations, were $442.4 million at March
31, 2000, compared with $489.4 million at December 31, 1999.
DEBT
- ----
Long-term debt, including the current portion, was $1.70 billion at March 31,
2000 compared with $1.65 billion at December 31, 1999.
EBITDA
- ------
EBITDA, which is the Company's earnings before interest expense, amortization of
debt issue costs, interest income, income taxes, depreciation and amortization,
minority interest and other income, net was $93.6 million for the first quarter
of 2000 compared with $89.3 million for the first quarter 1999. EBITDA is not
intended to represent an alternative to operating income (as determined in
accordance with generally accepted accounting principles) as an indicator of the
Company's operating performance, or to cash flows from operating activities (as
determined in accordance with generally accepted accounting principles) as a
measure of liquidity. The Company believes that EBITDA largely determines its
ability to fund current operations and to service debt due to the significant
number of acquisitions made by the Company which have resulted in non-cash
charges for depreciation and amortization. These non-cash charges have adversely
affected net earnings, but have not affected EBITDA.
15
<PAGE> 18
CASH FLOWS
- ----------
Cash flows used in operating activities were $12.5 million in the first
quarter of 2000, compared with cash flow provided by operating activities of
$16.7 million in the first quarter of 1999. Excluding changes in working capital
(other than cash), cash provided by operating activities was $47.6 million in
2000 and cash used in operating activities was $48.8 million in 1999.
Cash flows used in investing activities were $15.4 million in 2000, and cash
flow provided by investing activities was $19.1 million in 1999.
Cash flows provided by financing activities were $21.4 million in 2000 and cash
flows used in financing activities were $5.3 million in 1999.
CAPITAL EXPENDITURES AND ACQUISITION FINANCING
- ----------------------------------------------
The Chicago Group, the Community 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 and borrowings under the Bank Credit Facilities.
DIVIDENDS AND OTHER COMMITMENTS
- -------------------------------
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, managements 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 Hollinger
International Publishing Inc. (Publishing) and other subsidiaries of the Company
contain such restrictive provisions. As of March 31, 2000, the total amount of
funds that would be unrestricted as to payment of dividends by Publishing under
its debt instruments was approximately $322.9 million. The foregoing calculation
is based on the sum of the following for the period October 1, 1998 to March 31,
2000: (i) an amount equal to the sum of (x) 50% of the consolidated net income
(as defined by the Note indentures) of Publishing and its Restricted
Subsidiaries or if it is a loss, reduced by 100% of such loss, and (y) 100% of
the 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) one third of Publishing's share of net
after tax gain on sales of assets after March 31, 1999 up to a maximum aggregate
of $50 million; and (iv) $270 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 foreseeable requirements.
16
<PAGE> 19
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 statement.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
NEWSPRINT Newsprint prices continued to fluctuate and on a consolidated
basis newsprint expense amounted to $77.2 million in 2000 and $79.7 million in
1999. Management believes that while newsprint prices could continue to show
wide price variations in the future, they will be more stable than they were a
few years ago. Operating divisions take steps to ensure that they have
sufficient supply of newsprint and have mitigated cost increases by adjusting
pagination and page sizes and printing and distributing practices. Based on
levels of usage during the three months ended March 31, 2000 and based on
properties and ownership levels at March 31, 2000, a change in the price of
newsprint of $50 per tonne would increase or decrease quarterly net earnings by
about $4.3 million.
INFLATION During the past three years, inflation has not had a material
effect on the Company's newspaper business in the United States, United Kingdom
and Canada.
INTEREST RATES The Company has significant debt on which interest is
calculated at floating rates. As a result the Company is vulnerable to changes
in interest rates. Increases in interest rates will reduce net earnings and
declines in interest rates can result in increased earnings. Based on debt at
March 31, 2000 which is subject to floating interest rates and March 31, 2000
ownership levels and foreign exchanges rates, a 1% change in the floating
interest rates would increase or decrease the Company's first quarter net
earnings by approximately $1.2 million. The Company has $1.69 billion of
interest bearing debt at March 31, 2000 of which approximately 46% was floating
rate.
FOREIGN EXCHANGE RATES A substantial portion of the Company's income is
earned outside of the United States in currencies other than the United States
dollar. As a result the Company's income is vulnerable to changes in the value
of the United States dollar. Increases in the value of the United States dollar
can reduce net earnings and declines can result in increased earnings. Based on
first quarter 2000 earnings and ownership levels, a $0.05 change in the
important foreign currencies would have the following effect on the Company's
reported first quarter net earnings.
Actual Average
2000 Rate Increase/Decrease
-----------------------------------------------------------------------------
United Kingdom $1.61/pounds $604,000
Canada $0.69/Cdn.$ $937,000
-----------------------------------------------------------------------------
ELECTRONIC MEDIA Management holds the view that newspapers will continue
to be an important business segment. Among educated and affluent people,
indications are that strong newspaper readership will continue. In fact, it is
possible that readership will increase as the population ages.
Alternate forms of information delivery such as the Internet could impact
newspapers, but recognition of the Internet's potential combined with a strong
newspaper franchise could be a platform for Internet operations. Newspaper
readers can be offered a range of Internet services as varied as the content.
Virtually all newspapers are now published on the Internet as well as in
17
<PAGE> 20
the traditional newsprint format. The concern most frequently expressed
regarding the commercial viability of newspapers is that they will lose their
classified advertising revenue. We have put our classified advertising on the
Internet and linked this with other newspapers to make regional or national
networks.
18
<PAGE> 21
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
None
19
<PAGE> 22
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: May 15, 2000 By: /S/ Cindy E. Horowitz
------------------------
Cindy E. Horowitz
Executive Vice President, and
Chief Financial Officer
20
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