HOLLINGER INTERNATIONAL INC
10-Q, 2000-11-14
NEWSPAPERS: PUBLISHING OR PUBLISHING & PRINTING
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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, 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
(State or other jurisdiction of
incorporation or organization)		 95-3518892
(I.R.S. Employer
Identification No.)
 
401 North Wabash Avenue, Suite 740, Chicago, Illinois
(Address of Principal executive offices)		 60611
(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 8, 2000
Class A Common Stock par value $.01 per share 84,147,169 shares
Class B Common Stock par value $.01 per share 14,990,000 shares

INDEX

HOLLINGER INTERNATIONAL INC.

             
PART I. FINANCIAL INFORMATION PAGE
Item 1. Condensed Consolidated Financial Statements 1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 11
Item 3. Quantitative and Qualitative Disclosure about Market Risk 17
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 6. Exhibits and reports on Form 8-K. 19
Signatures 20

PART I. FINANCIAL INFORMATION

Item 1. Condensed Financial Statements

HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three Months and Nine Months Ended September 30, 2000 and September 30, 1999
(Amounts in Thousands, Except Per Share Data)
(Unaudited)

                                   
Three Months Ended September 30 Nine Months Ended September 30
2000 1999 2000 1999
Operating revenues:
Advertising $ 373,732 $ 352,565 $ 1,203,922 $ 1,124,236
Circulation 118,444 120,256 356,878 365,299
Job printing 14,169 10,635 44,354 41,264
Other 11,129 15,759 35,659 39,508
Total operating revenues 517,474 499,215 1,640,813 1,570,307
Operating costs and expenses:
Newsprint 76,517 76,699 233,571 234,274
Compensation costs 172,449 171,943 526,561 517,400
Stock-based compensation 1,652 — 1,652 —
Other operating costs 198,837 201,420 609,843 581,304
Infrequent items 1,109 462 5,439 1,327
Depreciation 16,262 15,641 48,967 47,342
Amortization 15,630 15,078 46,737 45,340
Total operating costs and expenses 482,456 481,243 1,472,770 1,426,987
Operating income 35,018 17,972 168,043 143,320
Other income (expense):
Interest expense (40,384 ) (32,790 ) (112,142 ) (97,332 )
Amortization of debt issue costs (2,622 ) (2,669 ) (7,781 ) (7,437 )
Interest income 2,999 2,394 5,283 6,234
Other income (expense), net 6,035 13,928 27,066 343,407
Total other income (expense) (33,972 ) (19,137 ) (87,574 ) 244,872
Earnings (loss) before income taxes, minority interest and extraordinary item 1,046 (1,165 ) 80,469 388,192
Provision for income taxes 2,769 (2,852 ) 32,628 141,650
Earnings (loss) before minority interest and extraordinary item (1,723 ) 1,687 47,841 246,542
Minority interest 2,198 1,601 18,875 3,059
Earnings (loss) before extraordinary item (3,921 ) 86 28,966 243,483
Extraordinary item from debt extinguishments — — — (5,183 )
Net earnings (loss) $ (3,921 ) $ 86 $ 28,966 $ 238,300
Basic earnings (loss) per share before extraordinary item $ (0.06 ) $ (0.02 ) $ 0.22 $ 2.27
Diluted earnings (loss) per share before extraordinary item $ (0.06 ) $ (0.02 ) $ 0.22 $ 2.02
Basic earnings (loss) per share $ (0.06 ) $ (0.02 ) $ 0.22 $ 2.22
Diluted earnings (loss) per share $ (0.06 ) $ (0.02 ) $ 0.22 $ 1.98
Weighted average shares outstanding-basic 98,705 101,851 98,594 104,241
Weighted average shares outstanding-diluted 98,705 101,851 102,943 120,242

1

HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the Three and Nine Months Ended September 30, 2000 and September 30, 1999
(Amounts in Thousands)
(Unaudited)

                                   
Three Months Ended September 30 Nine Months Ended September 30
2000 1999 2000 1999
Net earnings (loss) $ (3,921 ) $ 86 $ 28,966 $ 238,300
Other comprehensive income (loss):
Unrealized gain on marketable securities (3,906 ) 196 (1,860 ) (2,200 )
Foreign currency translation adjustment (30,322 ) 22,844 (86,031 ) 31,178
Comprehensive income (loss) $ (38,149 ) $ 23,126 $ (58,925 ) $ 267,278

2

HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

As of September 30, 2000 and December 31, 1999
(Amounts in Thousands)

                   
September 30, December 31,
2000 1999
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 88,430 $ 39,903
Accounts receivable, net 327,764 334,383
Due from affiliates 38,053 —
Inventories 45,862 28,217
Other current assets 17,830 14,448
Total current assets 517,939 416,951
 
Investments 213,082 208,166
Property, plant and equipment, net of accumulated depreciation 693,396 711,627
Intangible assets, net of accumulated amortization 1,899,131 2,031,610
Deferred financing costs and other assets 121,017 134,670
$ 3,444,565 $ 3,503,024
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current installments of long-term debt $ 5,449 $ 40,695
Accounts payable and accrued expenses 338,486 348,591
Income taxes payable 43,547 61,259
Deferred revenue 87,006 79,521
Total current liabilities 474,488 530,066
Long-term debt, less current installments 1,809,282 1,613,241
Other long-term liabilities 275,598 288,000
Total liabilities 2,559,368 2,431,307
 
Minority interest 75,546 155,901
 
Redeemable preferred stock 13,023 13,591
 
Stockholders’ equity:
Convertible preferred stock — 6,377
Class A common stock 1,058 998
Class B common stock 150 150
Additional paid-in capital 711,801 652,705
Accumulated other comprehensive income (112,383 ) (24,492 )
Retained earnings 456,503 475,315
1,057,129 1,111,053
Class A common stock in treasury, at cost (249,770 ) (147,955 )
Issued shares in escrow (10,731 ) (60,873 )
Total stockholders’ equity 796,628 902,225
$ 3,444,565 $ 3,503,024

3

HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

For the Nine Months Ended September 30, 2000 and September 30, 1999
(Amounts in Thousands)
(Unaudited)

                       
2000 1999
Cash Flows From Operating Activities:
Net earnings $ 28,966 $ 238,300
Items not involving cash:
Depreciation and amortization 95,704 92,682
Amortization of debt issue costs 7,781 7,437
Minority interest 18,875 3,059
Gain on sale of assets (42,650 ) (335,117 )
Other non-cash items 14,016 17,248
Changes in working capital net (47,309 ) 5,174
Cash provided by operating activities 75,383 28,783
Cash Flows From Investing Activities:
Capital expenditures (58,890 ) (95,522 )
Additions to investments (57,976 ) (403,302 )
Acquisitions, net (1,963 ) (38,415 )
Proceeds from disposal of investments 85,987 534,903
Other investing activities (1,345 ) (1,316 )
Cash used in investing activities (34,187 ) (3,652 )
Cash Flows From Financing Activities:
Proceeds from long-term debt 327,343 1,272,395
Repayments of long-term debt (155,420 ) (1,167,929 )
Payment of debt issue costs (3,085 ) (36,218 )
Repurchase of common shares — (112,255 )
Redemption of preferred stock — (18,214 )
Redemption of Special shares of subsidiary (58,164 ) —
Changes in amounts (due from) due to affiliates (37,304 ) 34,831
Dividends to minority interests (10,923 ) (109,862 )
Deemed dividend — (6,201 )
Cash dividends paid (47,779 ) (49,454 )
Issuance of Partnership units — 154,648
Other financing activities (4,379 ) (5,601 )
Cash provided by (used in) financing activities 10,289 (43,860 )
Effect of exchange rate changes on cash (2,958 ) 22,104
Net increase in cash 48,527 3,375
Cash at beginning of period 39,903 57,788
Cash at end of period $ 88,430 $ 61,163
Cash paid for interest $ 135,491 $ 127,952
Cash paid for taxes $ 24,929 $ 134,810

4

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 September 30, 2000 owned approximately 38.7% of the combined equity ownership interest and approximately 74.1% 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

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 and nine months ended September 30, 2000 and 1999, respectively:

                           
Three Months Ended September 30, 2000
Income Shares Per-Share
(Numerator) (Denominator) Amount
(in thousands)
Net earnings (loss) $ (3,921 )
Deduct dividends:
  Convertible preferred stock (2,138 )
  Series E Preferred Stock (128 )
Basic EPS
Net income (loss) available to common stockholders (6,187 ) 98,705 $ (0.06 )
Effect of dilutive securities
  None
Diluted EPS
Net income (loss) available to common stockholders and assumed conversions $ (6,187 ) 98,705 $ (0.06 )
                           
Three Months Ended September 30, 1999
Income Shares Per-Share
(Numerator) (Denominator) Amount
(in thousands)
Net earnings $ 86
Deduct dividends:
Convertible preferred stock (2,305 )
Series E Preferred Stock (131 )
Basic EPS
Net income (loss) available to common stockholders (2,350 ) 101,851 $ (0.02 )
Effect of dilutive securities
  None
Diluted EPS
Net income (loss) available to common stockholders and assumed conversions $ (2,350 ) 101,851 $ (0.02 )

6

                           
Nine Months Ended September 30, 2000
Income Shares Per-Share
(Numerator) (Denominator) Amount
(in thousands)
Net earnings $ 28,966
Deduct dividends:
  Convertible preferred stock (6,412 )
  Series E Preferred Stock (392 )
Basic EPS
Net income available to common stockholders 22,162 98,594 $ 0.22
Effect of dilutive securities
  HCPH Special shares — 3,291
  Stock options — 1,058
Diluted EPS
Net income available to common stockholders and assumed conversions $ 22,162 102,943 $ 0.22
                           
Nine Months Ended September 30, 1999
Income Shares Per-Share
(Numerator) (Denominator) Amount
(in thousands)
Net earnings $ 238,300
Deduct dividends:
  Convertible preferred stock (6,915 )
  Series E Preferred Stock (131 )
Basic EPS
Net income available to common stockholders 231,254 104,241 $ 2.22
Effect of dilutive securities
  Convertible preferred stock 6,915 8,778
  Series E Preferred Stock 131 956
HCPH Special shares — 5,501
Stock options — 766
Diluted EPS
Net income available to common stockholders and assumed conversions $ 238,300 120,242 $ 1.98

7

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, the Canadian Newspapers and the Hollinger L.P. make up the Canadian Newspaper Group. The following is a summary of the segments of the Company:

                                         
Three months ended September 30, 2000
U.K. Canadian
Chicago Community Newspaper Newspaper
Group Group Group Group Total
(in thousands)
 
Revenues $ 96,863 $ 17,540 $ 128,845 $ 274,226 $ 517,474
Depreciation and amortization $ 5,817 $ 1,598 $ 4,200 $ 20,277 $ 31,892
Operating income, excluding infrequent items and stock-based compensation $ 7,473 $ 58 $ 12,755 $ 17,493 $ 37,779
Equity in earnings (loss) of affiliates $ (45 ) $ — $ (899 ) $ 161 $ (783 )
                                         
Nine months ended September 30, 2000
U.K. Canadian
Chicago Community Newspaper Newspaper
Group Group Group Group Total
(in thousands)
 
Revenues $ 291,124 $ 59,155 $ 429,692 $ 860,842 $ 1,640,813
Depreciation and amortization $ 16,130 $ 5,489 $ 13,265 $ 60,820 $ 95,704
Operating income, excluding infrequent items and stock-based compensation $ 28,072 $ 3,781 $ 68,934 $ 74,347 $ 175,134
Equity in earnings (loss) of affiliates $ (135 ) $ — $ (4,289 ) $ 515 $ (3,909 )
Total assets $ 481,300 $ 147,831 $ 529,354 $ 2,060,936 $ 3,219,421
Capital expenditures $ 20,626 $ 2,782 $ 9,928 $ 25,149 $ 58,485

8

                                         
Three months ended September 30, 1999
U.K. Canadian
Chicago Community Newspaper Newspaper
Group Group Group Group Total
(in thousands)
 
Revenues $ 96,479 $ 20,298 $ 127,434 $ 255,004 $ 499,215
Depreciation and amortization $ 4,784 $ 1,893 $ 4,658 $ 19,384 $ 30,719
Operating income, excluding infrequent items and stock-based compensation $ 8,941 $ 2,114 $ 5,919 $ 1,460 $ 18,434
Equity in earnings (loss) of affiliates $ (222 ) $ — $ (606 ) $ 9 $ (819 )
                                         
Nine months ended September 30, 1999
U.K. Canadian
Chicago Community Newspaper Newspaper
Group Group Group Group Total
(in thousands)
 
Revenues $ 289,139 $ 75,473 $ 407,142 $ 798,553 $ 1,570,307
Depreciation and amortization $ 14,484 $ 7,198 $ 14,326 $ 56,674 $ 92,682
Operating income, excluding infrequent items and stock-based compensation $ 30,954 $ 7,275 $ 51,995 $ 54,423 $ 144,647
Equity in earnings (loss) of affiliates $ (434 ) $ — $ (606 ) $ 412 $ (628 )
Total assets $ 454,183 $ 162,033 $ 620,151 $ 2,094,701 $ 3,331,068
Capital expenditures $ 33,882 $ 4,205 $ 3,025 $ 53,093 $ 94,205

Capital expenditures for the corporate entities were $405,000 and $1,317,000 for the nine months ended September 30, 2000 and 1999, respectively.

Reconciliation of segment assets to total assets:

                 
September 30,
2000 1999
Segment assets $3,219,421 3,331,068
Corporate assets 225,144 110,014
Total assets $3,444,565 3,441,082

9

Note 5 — Stock-based Compensation

On March 31, 2000, the FASB issued Interpretation No. 44 “Accounting for Certain Transactions involving Stock Compensation” (FIN 44) which provided guidance on several implementation issues related to Accounting Principle Board Opinion No. 25. The most relevant to the Company was the clarification of the accounting for stock options that have been repriced. The Company adopted FIN 44 effective July 1, 2000.

In 1999, the Company repriced a series of stock options which had originally been issued in 1998. Under FIN 44, these repriced options effectively change to a variable stock option award and are subject to compensation expense. Accordingly, the stock-based compensation expense determined for the three months ended September 30, 2000 amounted to $1,652,000 and has been charged against income.

Note 6 — Bank Credit Facility

In June 2000, Hollinger International Publishing Inc., Hollinger Canadian Publishing Holdings Inc. ("HCPH"), The Telegraph Group Limited, Southam, HIF and a group of financial institutions increased the term loan component of the Fourth Amended and Restated Credit Facility (Restated Credit Facility) by $100,000,000. This additional term loan matures on September 30, 2005 and bears interest at the option of the respective borrowers, at a rate per annum tied to specified floating rates on a reserve adjusted Eurocurrency rate, in each case plus a specified margin determined based on leverage ratios.

The Restated Credit Facility now totals $975,000,000 consisting of a $575,000,000 revolving credit line maturing on September 30, 2004, a $300,000,000 term loan maturing December 31, 2004 and a $100,000,000 term loan maturing September 30, 2005.

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 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 and for reporting and administrative purposes, The 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.”).

      In April 2000, the Company announced a restructuring process whereby certain newspaper assets would be made available for sale, merger or affiliation.

      On July 31, 2000, the Company announced that an agreement had been entered into to sell to CanWest Global Communications Corp. (“CanWest”) for approximately $2.35 billion (Cdn $3.5 billion), subject to adjustments, the following Canadian Newspaper assets:

•   a 50% interest in the National Post, while continuing as managing partner;
 
•   all metropolitan and a large number of community newspapers in Canada (including the Ottawa Citizen, Vancouver Sun, the Province, the Calgary Herald, the Edmonton Journal, the Montreal Gazette, The Windsor Star, The Regina Leader Post, the Star Phoenix and The Victoria Times-Colonist);
 
•   the Southam Magazine and Information Group, and
 
•   certain operating Canadian Internet properties including canada.com.

      The purchase price will be payable as to approximately $470 million (Cdn$700 million) in shares of CanWest and as to the balance, 75% in cash and 25% in subordinated debentures of a senior company in the CanWest group. The sale is expected to be completed November 15, 2000.

      On August 2, 2000, the Company announced the sale of its remaining U.S. Community newspapers for approximately $215 million to four buyers: Bradford Publications Company, Newspapers Holdings, Inc. of Alabama, Paxton Media Group, Inc. and Forum Communications Company. These sales were all completed by October 31, 2000.

      On November 10, 2000, the Company announced the sale of UniMedia Company, which is part of the Canadian Newspaper Group, to Gesca Ltd., a subsidiary of Power Corporation of Canada. The publications being sold are French language newspapers and include 3 paid circulation dailies (Le Droit, Le Quotidien and Le Soleil) and 15 weekly newspapers published in Quebec and Ontario. This sale is expected to close in the fourth quarter of 2000.

CONSOLIDATED RESULTS OF OPERATIONS

Third quarter 2000 net loss was ($3.9) million or a loss of ($0.06) per share compared with net earnings of $0.1 million or a loss of ($0.02) per share in 1999. Net earnings for the nine months ended September 30, 2000 were $29.0 million or $0.22 per share compared with $238.3 million or $2.22 per share in 1999. Earnings before extraordinary items for the nine months ended September 30, 1999 were $243.5 million or $2.27 per share. The extraordinary item in 1999 represented the write-off of previously deferred financing fees related to the early retirement of a Bank Credit Facility. There were no extraordinary items in 2000.

There were a number of infrequent and non-recurring items affecting the results of both years. In the third quarter of 2000 infrequent and non-recurring items amounted to a net loss of $0.7 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, gains on asset sales, equity loss at Interactive Investor International (III) and stock-based compensation. In the third quarter of 1999, infrequent and non-recurring items amounted to a net gain of $11.6 million after income tax and minority interest. These primarily consisted of gains on sale of assets and a gain resulting from the issuance of Partnership units for several Canadian Newspapers.

In the nine months ended September 30, 2000, infrequent and non-recurring items amounted to a net loss of $1.8 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, gains on asset sales, including Trip.com and the partial interest in III, the amount paid on mandatory retirement of HCPH Special shares in excess of the recorded book amount and stock-based compensation. In the nine months ended September 30, 1999, infrequent and non-recurring items amounted to a net gain of $208.6 million and primarily consisted of gains on sales of U.S. community newspapers and a gain resulting from the issuance of Partnership units for several Canadian newspapers.

In the third quarter 2000 stock-based compensation expense amounted to $1.7 million and related to the 1999 repricing of stock options originally issued by the Company in 1998. The expense was determined in accordance with FIN 44 which the Company adopted on July 1, 2000.

Net loss from comparable operations, which excludes infrequent and non-recurring items and assumes all instruments are dilutive, amounted to ($3.2) million in third quarter 2000 or ($0.03) loss per diluted share compared with a loss of ($11.5) million or ($0.10 ) loss per diluted share in 1999. Included in these third quarter losses is a net loss from Internet operations of $6.2 million in 2000 or ($0.06) per diluted share compared to a net loss from Internet operations of $2.3 million or ($0.02) per diluted share in 1999. Net earnings from comparable operations amounted to $30.7 million in the nine months ended September 30, 2000 or $0.27 per diluted share compared with $29.7 million or $0.25 per diluted share in 1999. Included in these nine month earnings is a net loss from Internet operations of $17.9 million in 2000 or ($0.16) loss per diluted share compared to a net loss from Internet operations of $4.4 million or ($0.04) loss per diluted share in 1999.

Operating revenue for the third quarter of 2000 was $517.5 compared with $499.2 million in 1999, an increase of 3.7%. Operating revenue for the nine months ended September 30, 2000 was $1,640.8 million compared with $1,570.3 million in 1999, an increase of 4.5%.

Operating income in the third quarter of 2000 was $35.0 million compared with $18.0 million in 1999, an increase of 94.4%. Operating income from comparable operations in the third quarter of 2000 was $37.8 million compared with $18.4 million in 1999, an increase of 104.9%. Operating income for the nine months ended September 30, 2000 was $168.0 million compared with $143.3 million in 1999, an increase of 17.3%. Operating income from comparable operations for the nine months ended September 30, 2000 was $175.1 million compared with $144.6 million in 1999, an increase of 21.1%.

Interest expense for the third quarter 2000 was $40.4 million compared with $32.8 million in 1999, an increase of $7.6 million. For the nine months ended September 30, 2000 interest expense was $112.1 million compared with $97.3 million in 1999, an increase of $14.8 million. These increases result from increased interest rates, an increase in debt levels and the impact of expensing rather than capitalizing interest costs related to the new Chicago plant.

Other income in the third quarter 2000 totalled $6.0 million and included gains on asset sales, losses from equity accounted companies and foreign currency losses. Other income in the third quarter of 1999 amounted to $13.9 million and primarily included gains on sales of U.S. community newspapers and a gain resulting from the issuance of Partnership units for several Canadian newspapers. Other income for the nine months ended September 30, 2000 was $27.1 million and included gains on asset sales, losses from equity accounted companies and foreign currency losses. Other income for the nine months ended September 30, 1999 was $343.4 million and included gains on sales of U.S. community newspapers and a gain resulting from the issuance of Partnership units for several Canadian newspapers.

Minority interest in the nine months ended September 30, 2000 was $18.9 million compared with $3.1 million in 1999. Minority interest in 2000 primarily represents the minority’s share of Hollinger L.P. and also includes $10.9 million related to the amount paid on mandatory retirement of HCPH Special shares in excess of the recorded book amount. Minority interest in 1999 represents the minority’s share of Hollinger L.P. for May to September and the minority’s share of net earnings of Southam prior to the Company acquiring the remaining minority share of Southam in January and February 1999.

11

                                   
Three Months Ended September 30, Nine Months Ended September 30,
2000 1999 2000 1999
(dollar amounts in thousands) (dollar amounts in thousands)
Operating revenues:
Chicago Group $ 96,863 $ 96,479 $ 291,124 $ 289,139
Community Group 17,540 20,298 59,155 75,473
U.K. Newspaper Group 128,845 127,434 429,692 407,142
Canadian Newspaper Group 274,226 255,004 860,842 798,553
Total operating revenue $ 517,474 $ 499,215 $ 1,640,813 $ 1,570,307
Operating income, excluding infrequent items and stock-based compensation:
Chicago Group $ 7,473 $ 8,941 $ 28,072 $ 30,954
Community Group 58 2,114 3,781 7,275
U.K. Newspaper Group 12,755 5,919 68,934 51,995
Canadian Newspaper Group 17,493 1,460 74,347 54,423
Total operating income, excluding infrequent items and stock-based compensation $ 37,779 $ 18,434 $ 175,134 $ 144,647
EBITDA:
Chicago Group $ 13,290 $ 13,725 $ 44,202 $ 45,438
Community Group 1,656 4,007 9,270 14,473
U.K. Newspaper Group 16,955 10,577 82,199 66,321
Canadian Newspaper Group 37,770 20,844 135,167 111,097
Total EBITDA $ 69,671 $ 49,153 $ 270,838 $ 237,329
Operating revenues:
Chicago Group 18.7 % 19.3 % 17.7 % 18.4 %
Community Group 3.4 % 4.1 % 3.6 % 4.8 %
U.K. Newspaper Group 24.9 % 25.5 % 26.2 % 25.9 %
Canadian Newspaper Group 53.0 % 51.1 % 52.5 % 50.9 %
Total operating revenue 100.0 % 100.0 % 100.0 % 100.0 %
Operating income, excluding infrequent items and stock-based compensation:
Chicago Group 19.8 % 48.5 % 16.0 % 21.4 %
Community Group 0.2 % 11.5 % 2.2 % 5.0 %
U.K. Newspaper Group 33.8 % 32.1 % 39.4 % 36.0 %
Canadian Newspaper Group 46.2 % 7.9 % 42.4 % 37.6 %
Total operating income, excluding infrequent items and stock-based compensation 100.0 % 100.0 % 100.0 % 100.0 %
EBITDA:
Chicago Group 19.1 % 27.9 % 16.3 % 19.2 %
Community Group 2.4 % 8.2 % 3.4 % 6.1 %
U.K. Newspaper Group 24.3 % 21.5 % 30.3 % 27.9 %
Canadian Newspaper Group 54.2 % 42.4 % 50.0 % 46.8 %
Total EBITDA 100.0 % 100.0 % 100.0 % 100.0 %
EBITDA Margin:
Chicago Group 13.7 % 14.2 % 15.2 % 15.7 %
Community Group 9.4 % 19.7 % 15.7 % 19.2 %
U.K. Newspaper Group 13.2 % 8.3 % 19.1 % 16.3 %
Canadian Newspaper Group 13.8 % 8.2 % 15.7 % 13.9 %
Total EBITDA Margin 13.5 % 9.8 % 16.5 % 15.1 %

12

                                     
Three Months Ended September 30, Nine Months Ended September 30,
2000 1999 2000 1999
(dollar amounts in thousands) (dollar amounts in thousands)
Chicago Group
Operating revenue
  Advertising		 $ 73,270 $ 72,509 $ 219,970 $ 216,797
Circulation 19,528 20,128 59,386 60,800
Job printing and other 4,065 3,842 11,768 11,542
Total operating revenue 96,863 96,479 291,124 289,139
Operating costs
  Newsprint		 16,460 15,807 47,899 50,039
Compensation costs 35,730 37,385 110,615 110,776
Other operating costs 31,383 29,562 88,408 82,886
Depreciation 2,192 2,202 6,592 6,674
Amortization 3,625 2,582 9,538 7,810
Total operating costs 89,390 87,538 263,052 258,185
Operating income, excluding infrequent items and stock-based compensation $ 7,473 $ 8,941 $ 28,072 $ 30,954
Community Group
Operating revenue
  Advertising		 $ 10,275 $ 11,926 $ 34,556 $ 44,994
Circulation 4,929 5,898 16,612 20,791
Job printing and other 2,336 2,474 7,987 9,688
Total operating revenue 17,540 20,298 59,155 75,473
Operating costs
  Newsprint		 1,657 1,895 5,321 7,552
Compensation costs 6,625 7,319 21,996 28,151
Other operating costs 7,602 7,077 22,568 25,297
Depreciation 847 809 2,548 3,121
Amortization 751 1,084 2,941 4,077
Total operating costs 17,482 18,184 55,374 68,198
Operating income, excluding infrequent items and stock-based compensation $ 58 $ 2,114 $ 3,781 $ 7,275
U.K. Newspaper Group
Operating revenue
  Advertising		 $ 84,821 $ 81,604 $ 296,819 $ 269,133
Circulation 37,430 39,363 112,248 118,775
Job printing and other 6,594 6,467 20,625 19,234
Total operating revenue 128,845 127,434 429,692 407,142
Operating costs
  Newsprint		 21,867 23,466 70,238 72,728
Compensation costs 23,121 22,660 72,233 67,343
Other operating costs 66,902 70,731 205,022 200,750
Depreciation 1,814 2,075 5,812 6,520
Amortization 2,386 2,583 7,453 7,806
Total operating costs 116,090 121,515 360,758 355,147
Operating income, excluding infrequent items and stock-based compensation $ 12,755 $ 5,919 $ 68,934 $ 51,995
Canadian Newspaper Group
Operating revenue
  Advertising		 $ 205,366 $ 186,526 $ 652,577 $ 593,312
Circulation 56,557 54,867 168,632 164,933
Job printing and other 12,303 13,611 39,633 40,308
Total operating revenue 274,226 255,004 860,842 798,553
Operating costs
  Newsprint		 36,533 35,531 110,113 103,955
Compensation costs 106,973 104,579 321,717 311,130
Other operating costs 92,950 94,050 293,845 272,371
Depreciation 11,409 10,555 34,015 31,027
Amortization 8,868 8,829 26,805 25,647
Total operating costs 256,733 253,544 786,495 744,130
Operating income, excluding infrequent items and stock-based compensation $ 17,493 $ 1,460 $ 74,347 $ 54,423

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Three Months Ended September 30, Nine Months Ended September 30,
2000 1999 2000 1999
Percentage Percentage Percentage Percentage
Chicago Group
Operating revenue
  Advertising		 75.6 % 75.2 % 75.6 % 75.0 %
Circulation 20.2 % 20.9 % 20.4 % 21.0 %
Job printing and other 4.2 % 3.9 % 4.0 % 4.0 %
Total operating revenue 100.0 % 100.0 % 100.0 % 100.0 %
Operating costs
  Newsprint		 17.0 % 16.4 % 16.5 % 17.3 %
Compensation costs 36.9 % 38.7 % 38.0 % 38.3 %
Other operating costs 32.4 % 30.6 % 30.4 % 28.7 %
Depreciation 2.3 % 2.3 % 2.2 % 2.3 %
Amortization 3.7 % 2.7 % 3.3 % 2.7 %
Total operating costs 92.3 % 90.7 % 90.4 % 89.3 %
Operating income, excluding infrequent items and stock-based compensation 7.7 % 9.3 % 9.6 % 10.7 %
Community Group
Operating revenue
  Advertising		 58.6 % 58.7 % 58.4 % 59.7 %
Circulation 28.1 % 29.1 % 28.1 % 27.5 %
Job printing and other 13.3 % 12.2 % 13.5 % 12.8 %
Total operating revenue 100.0 % 100.0 % 100.0 % 100.0 %
Operating costs
  Newsprint		 9.4 % 9.3 % 9.0 % 10.0 %
Compensation costs 37.9 % 36.1 % 37.2 % 37.3 %
Other operating costs 43.3 % 34.9 % 38.2 % 33.5 %
Depreciation 4.8 % 4.0 % 4.3 % 4.1 %
Amortization 4.3 % 5.3 % 4.9 % 5.4 %
Total operating costs 99.7 % 89.6 % 93.6 % 90.3 %
Operating income, excluding infrequent items and stock-based compensation 0.3 % 10.4 % 6.4 % 9.7 %
U.K. Newspaper Group
Operating revenue
  Advertising		 65.8 % 64.0 % 69.1 % 66.1 %
Circulation 29.1 % 30.9 % 26.1 % 29.2 %
Job printing and other 5.1 % 5.1 % 4.8 % 4.7 %
Total operating revenue 100.0 % 100.0 % 100.0 % 100.0 %
Operating costs
  Newsprint		 17.0 % 18.4 % 16.3 % 17.9 %
Compensation costs 17.9 % 17.8 % 16.8 % 16.5 %
Other operating costs 51.9 % 55.5 % 47.8 % 49.3 %
Depreciation 1.4 % 1.7 % 1.4 % 1.6 %
Amortization 1.9 % 2.0 % 1.7 % 1.9 %
Total operating costs 90.1 % 95.4 % 84.0 % 87.2 %
Operating income, excluding infrequent items and stock-based compensation 9.9 % 4.6 % 16.0 % 12.8 %
Canadian Newspaper Group
Operating revenue
  Advertising		 74.9 % 73.2 % 75.8 % 74.3 %
Circulation 20.6 % 21.5 % 19.6 % 20.7 %
Job printing and other 4.5 % 5.3 % 4.6 % 5.0 %
Total operating revenue 100.0 % 100.0 % 100.0 % 100.0 %
Operating costs
  Newsprint		 13.3 % 13.9 % 12.8 % 13.0 %
Compensation costs 39.0 % 41.0 % 37.4 % 39.0 %
Other operating costs 33.9 % 36.9 % 34.1 % 34.1 %
Depreciation 4.2 % 4.1 % 4.0 % 3.9 %
Amortization 3.2 % 3.5 % 3.1 % 3.2 %
Total operating costs 93.6 % 99.4 % 91.4 % 93.2 %
Operating income, excluding infrequent items and stock-based compensation 6.4 % 0.6 % 8.6 % 6.8 %

14

GROUP OPERATING RESULTS
Chicago Group

Revenue for the Chicago Group was $96.9 million for the third quarter of 2000 compared with $96.5 million in 1999. Revenue for the nine months ended September 30, 2000 was $291.1 million compared with $289.1 million in 1999. Advertising revenue for the third quarter 2000 increased marginally to $73.3 million from $72.5 million in 1999 and for the nine months ended September 2000 increased to $220.0 million from $216.8 million in 1999 an increase of 1.5%. General advertising revenue was up 17% over the third quarter of 1999 and up 19% year-to-date. Classified advertising was up slightly versus the same period in the prior year, primarily driven by growth in automotive. Retail advertising was down 6% compared with the third quarter 1999. This decline was primarily attributable to the loss of local and territory advertising as well as a decline in preprint business reflecting advertisers’ tightened distribution networks.

Circulation revenue in the third quarter was $19.5 million down $0.6 million or 3.0% from 1999. In the nine months ended September 30, 2000 circulation revenue was $59.4 million down $1.4 million or 2.3% from 1999. The decline for the quarter was largely due to price discounting needed to build market share. The average ABC circulation for the Chicago Sun-Times reflects an increase in circulation of about 1% for the six months ended September 30, 2000 compared with the same period in 1999 as provided by the September Publisher’s Statement.

EBITDA excluding infrequent items and stock-based compensation in the third quarter of 2000 was $13.3 million compared with $13.7 million in 1999, a decrease of $0.4 million or 3.1%. For the nine months ended September 30, 2000 EBITDA was $44.2 million compared with $45.4 million, a decrease of $1.2 million or 2.7%. Operating income, excluding infrequent items and stock-based compensation in the third quarter of 2000 decreased $1.5 million or 16.4% and for the nine months ended September 30, 2000 decreased $2.9 million or 9.3%.

EBITDA in the third quarter included a $0.9 million loss from Internet operations compared with a loss of $0.1 million in 1999. The EBITDA loss from Internet operations for the nine months ended September 30, 2000 was $2.3 million compared with $0.4 million in 1999.

The decreases in both EBITDA and operating income in the third quarter 2000 and nine months ended September 30, 2000 compared with 1999 primarily result from virtually flat operating revenue and increased losses from Internet operations.

Community Group

The overall decrease in Community Group operating revenues, EBITDA and operating income in the third quarter and the nine months ended September 30, 2000 compared with 1999 is primarily due to the sale in 1999 and 2000 of Community Group properties. Revenue and EBITDA attributable to newspapers sold prior to September 30, 2000 were $0.6 million and $0.1 million in the third quarter of 2000 and $4.3 million and $1.1 million in the third quarter of 1999. For the nine months ended September 30, 2000, revenue and EBITDA attributable to newspapers sold were $7.6 million and $1.9 million in 2000 and $28.5 million and $6.2 million in 1999. For properties owned in both years, Community Group revenues and EBITDA were $9.0 million and $1.3 million in the third quarter 2000 compared with $9.2 million and $2.4 million in 1999 and for the nine months ended September 30, 2000 were $27.1 million and $5.5 million compared with $26.9 million and $6.8 million in 1999. During October 2000, virtually all remaining United States Community Group properties, not in the general Chicago area, were sold.

U.K. Newspaper Group

Third quarter operating revenue for the U.K. Newspaper Group was $128.8 million in 2000 compared with $127.4 million in 1999. Operating revenue for the nine months ended September 30, 2000 was $429.7 million compared with $407.1 million in 1999. In pounds sterling, operating revenue for the third quarter 2000 increased 9.9% and for the nine months ended September 30, 2000 increased 10.6% from 1999.

Revenue growth was the result of increased advertising at The Telegraph, which in pounds sterling, increased 13.2% for the quarter and 15.5% for the nine months ended September 30, 2000 compared with 1999. Display advertising increased 7.8% in the third quarter and 16.6% in the nine months ended September 30, compared with 1999. The growth in display advertising included a 19.4% increase in financial advertising in the third quarter and 32.7% increase in the nine months ended September 30, 2000 compared with 1999. Classified advertising increased 11.4% over the third quarter of 1999 primarily driven by recruitment advertising growth of 14.5%.

Circulation revenue in the third quarter 2000 was $37.4 million compared with $39.4 million in 1999, a decrease of $2.0 million or 4.9%. However in pounds sterling circulation revenue for the third quarter in 2000 was £25.3 million compared with £24.6 million in 1999, an increase of £0.7 million or 3%. For the nine months ended September 30, 2000 circulation revenue was $112.2 million compared with $118.8 million in 1999 a decrease of $6.6 million or 5.5%. However in pounds sterling circulation revenue was virtually flat at £73.0 million in 2000 compared with £73.6 million in 1999.

EBITDA, excluding infrequent items and stock-based compensation, when expressed in pounds sterling for the third quarter 2000 was £11.6 million compared with £6.6 million in 1999, an increase of 75.8%. For the nine months ended September 30, 2000, EBITDA excluding infrequent items and stock-based compensation, was £53.0 million compared with £40.9 million in 1999, an increase of 29.5%. After currency conversion, EBITDA, excluding infrequent items and stock-based compensation was $17.0 million in the third quarter 2000 compared with $10.6 million in 1999, an increase of 60.3% and was $82.2 million in the nine months ended September 30, 2000 compared with $66.3 million in 1999, an increase of 23.9%.

The increase in EBITDA, excluding infrequent items and stock-based compensation, is primarily the result of the increased advertising revenue partly offset by losses related to Internet activity. The loss from Internet operations was $1.7 million in the third quarter compared with a break even position in 1999 and was $3.2 million in the nine months ended September 30, 2000 compared with $0.3 million in 1999.

Newsprint prices in pounds sterling were about 2% lower in the third quarter of 2000 and 4% lower for the nine months ended September 30, 2000 compared with 1999.

Canadian Newspaper Group

Third quarter operating revenue for the Canadian Newspaper Group was $274.2 million compared with $255.0 million in 1999, an increase of 7.5%. Operating revenue for the nine months ended September 30, 2000 was $860.8 million compared with $798.6 million in 1999, an increase of 7.8%. In Canadian dollars, operating revenue for the third quarter 2000 increased 7.3% and for the nine months ended September 30, 2000 increased 6.6% over 1999.

EBITDA and operating income, both excluding infrequent items and stock-based compensation were $37.8 million and $17.5 million in the third quarter 2000 compared with $20.8 million and $1.5 million in 1999, both significant increases year-over-year. In the nine months ended September 30, 2000 EBITDA and operating income, both excluding infrequent items and stock-based compensation were $135.2 million and $74.3 million compared with $111.1 million and $54.4 million in 1999, increases of 21.7% and 36.6% respectively.

The increased EBITDA and operating income, excluding infrequent items and stock-based compensation for both the quarter and year-to-date was primarily the result of increased advertising revenues and improved results at the National Post partly offset by increased losses from Internet operations. Advertising revenue in the third quarter 2000 was $205.4 million, an increase of $18.9 million over advertising revenue of $186.5 million in 1999. This increased revenue has resulted in increased EBITDA and operating income since the increased direct costs associated with this revenue have been largely offset by savings in other areas.

National Post revenue grew to $20.3 million in the third quarter 2000 from $15.5 million in 1999, a 31% improvement. For the nine months ended September 30, 2000 operating revenue was $64.6 million, an increase of $17.6 million or 37.5% from 1999 revenue of $47.0 million. This growth was primarily driven by increased advertising revenue but circulation revenue also improved from 1999. National Post EBITDA loss for the third quarter 2000 was $9.3 million, a $4.8 million improvement over the $14.1 million EBITDA loss in 1999. For the nine months ended September 30, 2000 National Post EBITDA loss was $24.0 million, a $13.6 million improvement from the $37.6 million EBITDA loss in 1999.

The EBITDA loss from Internet operations was $5.8 million in the third quarter 2000 compared with $2.5 million in 1999 and was $16.1 million in the nine months ended September 30, 2000 compared with $5.5 million in 1999.

Canadian Newspaper Group EBITDA, excluding infrequent items and stock-based compensation, operating results of the National Post and Internet operations was $52.9 million for the third quarter 2000 compared with $37.5 million in 1999 and was $175.2 million for the nine months ended September 30, 2000 compared with $154.2 million in 1999.

The results of operations which the Company has agreed to sell to CanWest Global Communications Corp, as announced July 31, 2000 are included in the Canadian Newspaper Group for the full quarter. The sale to CanWest is expected to be completed on November 15, 2000.

LIQUIDITY AND CAPITAL RESOURCES

Working Capital

Working capital consists of current assets less current liabilities. At September 30, 2000, working capital was $43.5 million compared to a deficiency of $113.1 million at December 31, 1999. Current assets were $517.9 million at September 30, 2000 compared with $417.0 million at December 31, 1999. Current liabilities, excluding debt obligations, were $469.0 million at September 30, 2000, compared with $489.4 million at December 31, 1999. The increase in current assets primarily results from an increase in cash and in an amount receivable from an affiliate.

Debt

Long-term debt, including the current portion, was $1.81 billion at June 30, 2000 compared with $1.65 billion at December 31, 1999. The increase in long-term debt primarily results from the cash payout on the mandatory exchange of HCPH Special shares and a loan to an affiliate.

Bank Credit Facility

In June 2000, Hollinger International Publishing Inc., HCPH, The Telegraph Group Limited, Southam, HIF and a group of financial institutions increased the term loan component of the Fourth Amended and Restated Credit Facility (Restated Credit Facility) by $100.0 million. This additional term loan matures on September 30, 2005 and bears interest at the option of the respective borrowers, at a rate per annum tied to specified floating rates on a reserve adjusted Eurocurrency rate, in each case plus a specified margin determined based on leverage ratios.

15

The Restated Credit Facility now totals $975.0 million consisting of a $575.0 million revolving credit line maturing on September 30, 2004, a $300.0 million term loan maturing December 31, 2004 and a $100.0 million term loan maturing September 30, 2005.

EBITDA

EBITDA, which represents the Company’s earnings before interest expense, amortization of debt issue costs, interest income, income taxes, depreciation and amortization, minority interest and other income was $66.9 million for the third quarter of 2000 compared with $48.7 million for the third quarter 1999 and $263.7 million for the nine months ended September 30, 2000 compared to $236.0 million in 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.

Cash Flows

Cash flows from operating activities were $75.4 million for the nine months ended September 30, 2000, compared with $28.8 million in 1999.

Cash flows used in investing activities were $34.2 million in 2000 and $3.7 million in 1999. 1999 had large cash inflows from the sale of community newspapers which were in part offset by the acquisition of the remaining interest in Southam.

Cash flows provided by financing activities were $10.3 million in 2000, compared with $43.9 million used in financing activities in 1999.

Capital Expenditures and Acquisition Financing

The Chicago Group, 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, 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, 2000, the total amount of funds that would be unrestricted as to payment of dividends by Publishing under its debt

16

instruments was approximately $239.3 million. The foregoing calculation is based on the sum of the following for the period October 1, 1998 to September 30, 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.

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.

Item 3. Quantitative and Qualitative Disclosure about Market Risk

      Newsprint Newsprint prices continued to fluctuate and, on a consolidated basis, newsprint expense amounted to $233.6 million for the nine months ended September 30, 2000 and $234.3 million in the same period in 1999. Management believes that while newsprint prices have generally increased over the last year, they will be more stable in the near term 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 nine months ended September 30, 2000 and based on properties and ownership levels at September 30, 2000, a change in the price of newsprint of $50 per ton would increase or decrease year-to-date net earnings by about $13.4 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 September 30, 2000 which is subject to floating interest rates and September 30, 2000 ownership levels and foreign exchanges rates, a 1% change in the floating interest rates would increase or decrease the Company’s year to date net earnings by approximately $4.3 million. The Company had $1.81 billion of interest bearing debt at September 30, 2000 of which approximately 50% was floating rate.

17

      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 year to date 2000 earnings and ownership levels, a $0.05 change in the important foreign currencies would have the following effect on the Company’s reported year-to-date net earnings:

                 
Actual Average
2000 Rate Increase/Decrease
United Kingdom $ 1.55/£ $ 1,179,000
Canada $ 0.68/Cdn.$ $    664,000

      Electronic Media Management holds the view that newspapers will continue to be an important business segment. Indications are that strong newspaper readership, among educated and affluent people, 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 the traditional newsprint form. The concern most frequently expressed regarding the commercial viability of newspapers is that they will lose their classified advertising revenue. Our classified advertising has been placed on the Internet and linked with other newspapers to make regional or national networks.

18

PART II. OTHER INFORMATION

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS


                                     None.




ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

       
a) Exhibits
     27. Financial Data Schedule


b) Reports on Form 8-K
                None.

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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, 2000

          /s/ Fred A. Creasey
    By:_________________________
  FRED A. CREASEY
                                    GROUP CORPORATE CONTROLLER

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