HOLLINGER INTERNATIONAL INC
8-K, 2000-12-01
NEWSPAPERS: PUBLISHING OR PUBLISHING & PRINTING
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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): November 16, 2000

HOLLINGER INTERNATIONAL INC.
(Exact name of Registrant as specified in its Charter)

         
DELAWARE
(State or other Jurisdiction of
Incorporation)		 0-24004
(Commission File Number) 		95-3518892
(IRS Employer Identification
No.)

401 NORTH WABASH AVENUE SUITE 740
CHICAGO, ILLINOIS 60611
(Address of principal executive offices)

Registrant’s telephone number, including area code: (312) 321-2299

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Item 2. Acquisition or Disposition of Assets.

      On November 16, 2000, the Registrant and the Registrant’s affiliates, Southam Inc. and Hollinger Canadian Newspapers, Limited Partnership (together with the Registrant, the “Selling Group”) completed the sale of Canadian newspapers and related assets to CanWest Global Communications Corp. (“CanWest”). Included in the sale were the following assets of the Selling Group:

      •   a 50% interest in the National Post, while continuing as managing partner;
 
      •   their metropolitan and a large number of their community newspapers in Canada (including the Ottawa Citizen, the 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); and
 
      •   their operating Canadian Internet properties, including “canada.com”.

      The aggregate sale price of these properties was approximately CDN $3.1 billion (US $2.0 billion), plus interest and subject to adjustments. The principle followed in determining the amount of such consideration was arm’s length negotiations.

      The sale resulted in the Hollinger group receiving approximately CDN $1.7 billion (US $1.1  billion) cash, approximately CDN $685 million (US $440 million) in voting and non-voting shares of CanWest valued for these purposes at CDN $25.00 per share (representing an approximate 15.1% equity interest and 5.7% voting interest) and subordinated non-convertible debentures of a holding company in the CanWest group having an aggregate principal amount of approximately CDN $750 million (US $483 million) bearing interest initially at 12 1/8% per annum.

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      Further details of the transaction are contained in the press release dated November 16, 2000 (see Exhibit 99 hereto), which press release is incorporated herein by reference.

Item 7. Financial Statements, Pro Forma Financial Information and Exhibits

            (b) Pro forma Financial Information

      The following unaudited consolidated pro forma balance sheet as of September 30, 2000 gives effect to the disposition of assets described above as if the transaction had occurred on that date. The following unaudited consolidated pro forma statements of operations for the nine months ended September 30, 2000 and the year ended December 31, 1999 give effect to the disposition of assets as though it had occurred on January 1, 1999.

      The unaudited pro forma adjustments are based upon available information and certain assumptions that management believes are reasonable in the circumstances. The adjustments are described in the accompanying notes.

      The unaudited pro forma financial information are not necessarily indicative of what the Company’s financial position or results of operations would have been if the disposition had occurred on January 1, 1999 nor are they necessarily indicative of the Company’s financial position or results of operations for any future date or period.

      The unaudited consolidated pro forma financial information should be read in conjunction with the Company’s financial statements and notes thereto included in the Company’s Annual Report on Form 10-K and the Company’s quarterly reports on Form 10-Q.

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HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED PRO FORMA BALANCE SHEET
As of September 30, 2000
(Amounts in Thousands)

                                   
As reported
by Hollinger Operations Sold Pro Forma Pro Forma
International Inc. to CanWest(a) Adjustments Balance Sheet
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 88,430 $ — $ 122,800   (b) $ 211,230
Accounts receivable, net 327,764 120,979 206,785
Due from affiliates 38,053 — 38,053
Inventories 45,862 19,116 26,746
Other current assets 17,830 3,739 14,091
Total current assets 517,939 143,834 122,800 496,905
Investments 213,082 — 721,000   (b) 934,082
Property, plant and equipment, net of
    accumulated depreciation		 693,396 337,825 — 355,571
Intangible assets, net of accumulated
    amortization		 1,899,131 1,008,549 — 890,582
Deferred financing costs and other assets 121,017 (17,082 ) (7,201 )(h) 130,898
$ 3,444,565 $ 1,473,126 $ 836,599 $ 2,808,038
LIABILITIES AND STOCKHOLDERS'
    EQUITY
Current liabilities:
Current installments of long-term debt $ 5,449 $ — $ — $ 5,449
Accounts payable and accrued expenses 338,486 86,136 — 252,350
Income taxes payable 43,547 — 104,551   (b) 148,098
Deferred revenue 87,006 19,805 — 67,201
Total current liabilities 474,488 105,941 104,551 473,098
Long-term debt, less current installments 1,809,282 — (972,000 )(b) 837,282
Other long-term liabilities 275,598 43,729 351,692  (b) 583,561
Total liabilities 2,559,368 149,670 (515,757 ) 1,893,941

Minority interest		 75,546 53,649    (c) 107,261   (d) 129,158

Redeemable preferred stock		 13,023 — — 13,023

Stockholders’ equity:
Class A common stock 1,058 — — 1,058
Class B common stock 150 — — 150
Additional paid-in capital 711,801 — — 711,801
Accumulated other comprehensive income (112,383 ) — — (112,383 )
Retained earnings 456,503 1,269,807 1,245,095    431,791
1,057,129 1,269,807 1,245,095 1,032,417
Class A common stock in treasury, at cost (249,770 ) — — (249,770 )
Issued shares in escrow (10,731 ) — — (10,731 )
Total stockholders’ equity 796,628 1,269,807 1,245,095 771,916
$ 3,444,565 $ 1,473,126 $ 836,599 $ 2,808,038

      The accompanying notes are an integral part of these financial statements.

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HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
For the Twelve Months Ended December 31, 1999
(Amounts in Thousands, Except Per Share Data)

                                   
As reported by
Hollinger Operations Sold Pro Forma Pro Forma
International Inc. to CanWest (a) Adjustments Income Statement
Operating revenues:
Advertising $ 1,557,033 $ 595,466 $ — $ 961,567
Circulation 487,002 137,330 — 349,672
Job printing and other 103,367 41,248 — 62,119
Total operating revenues 2,147,402 774,044 — 1,373,358
Operating costs and expenses:
Newsprint 310,850 101,927 — 208,923
Compensation costs 684,365 277,232 — 407,133
Other operating costs 791,931 185,200 (3,250 ) (f) 603,481
Infrequent items 22,046 — — 22,046
Depreciation 64,153 31,369 — 32,784
Amortization 61,255 25,451 — 35,804
Total operating costs and expenses 1,934,600 621,179 (3,250 ) 1,310,171
Operating income 212,802 152,865 3,250 63,187
Other income (expense):
Interest expense (131,600 ) — 57,019   (g) (74,581 )
Amortization of debt issue costs (16,209 ) — 8,686   (h) (7,523 )
Interest income 7,716 — 61,256   (i) 68,972
Other income (expense), net 340,117 470 (9,187 ) (j) 330,460
Total other income (expense) 200,024 470 117,774 317,328
Earnings before income taxes, minority
    interest and extraordinary item		 412,826 153,335 121,024 380,515
Provision for income taxes 155,203 65,246 44,306   (k) 134,263
Earnings before minority interest and
    extraordinary item		 257,623 88,089 76,718 246,252
Minority interest 7,088 3,697   (e) (20,052 ) (l) (16,661 )
Earnings before extraordinary item 250,535 84,392 96,770 262,913
Extraordinary item from debt
    extinguishments		 (5,183 ) — — (5,183 )
Net earnings $ 245,352 $ 84,392 $ 96,770 $ 257,730
Basic earnings per share before
    extraordinary item		 $ 2.35 $ 2.47
Diluted earnings per share before
    extraordinary item		 $ 2.13 $ 2.24
Basic earnings per share $ 2.30 $ 2.42
Diluted earnings per share $ 2.09 $ 2.19
Weighted average shares outstanding-
    basic		 102,553 102,553
Weighted average shares outstanding-diluted 117,610 117,610

     The accompanying notes are an integral part of these financial statements.

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HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 2000
(Amounts in Thousands, Except Per Share Data)

                                   
As reported by
Hollinger Operations Sold Pro Forma Pro Forma
International Inc. to CanWest (a) Adjustments Income Statement
(Unaudited)
Operating revenues:
Advertising $ 1,203,922 $ 470,873 $ — $ 733,049
Circulation 356,878 102,861 — 254,017
Job printing and other 80,013 23,012 — 57,001
Total operating revenues 1,640,813 596,746 — 1,044,067
Operating costs and expenses:
Newsprint 233,571 78,662 — 154,909
Compensation costs 526,561 220,655 — 305,906
Stock based compensation 1,652 — — 1,652
Other operating costs 609,843 146,840 (5,000 )(f) 458,003
Infrequent items 5,439 — — 5,439
Depreciation 48,967 23,905 — 25,062
Amortization 46,737 19,655 — 27,082
Total operating costs and expenses 1,472,770 489,717 (5,000 ) 978,053
Operating income 168,043 107,029 5,000 66,014
Other income (expense):
Interest expense (112,142 ) — 53,797   (g) (58,345 )
Amortization of debt issue costs (7,781 ) — 2,133   (h) (5,648 )
Interest income 5,283 — 46,376   (i) 51,659
Other income (expense), net 27,066 540 11,299   (j) 37,825
Total other income (expense) (87,574 ) 540 113,605 25,491
Earnings before income taxes,
    minority interest		 80,469 107,569 118,605 91,505
Provision for income taxes 32,628 45,221 43,661   (k) 31,068
Earnings before minority interest 47,841 62,348 74,944 60,437
Minority interest 18,875 5,127   (e) (9,129 ) (l) 4,619
Net earnings $ 28,966 $ 57,221 $ 84,073 $ 55,818

Basic earnings per share		 $ 0.22 $ 0.50
Diluted earnings per share $ 0.22 $ 0.48
Weighted average shares outstanding-
    basic		 98,594 98,594
Weighted average shares outstanding-
    diluted		 102,943 103,875

      The accompanying notes are an integral part of these financial statements.

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Notes to Pro Forma Consolidated Financial Information

      The pro forma financial information has been derived by the application of pro forma adjustments to our historical financial statements as of the dates noted. Pro forma adjustments to the pro forma consolidated financial statements are described in the following notes:

      (a)   Operations sold to CanWest represents the assets, liabilities, revenues and costs of the operations sold to
              CanWest as previously described in Item 2.

      (b)   Gross proceeds at fair value received on sale of the Canadian newspapers and related assets were as
              follows:

         
US $000
Cash 1,116,000
CanWest Debentures 448,000
CanWest shares 273,000
$ 1,837,000

              Costs of the transaction are estimated at Cdn. $33,000,000 or U.S.$21,200,000.

              The cash was used to pay down long-term debt as follows:

         
US $000
Bank Credit Facility 922,200
Southam notes 49,800
$ 972,000

              Interest income, on the excess cash of approximately $123 million, has not been included in the
              determination of net earnings on a pro forma basis.

              Income taxes totalling approximately $456 million have been provided in respect of the assets sold,
              being $104 million of current income taxes and $352 million of deferred income taxes.

      (c)   Represents the minority interest in Hollinger Canadian Newspapers, Limited Partnership's share of the
              book value of net assets sold to CanWest.

      (d)   Represents the minority interest in Hollinger Canadian Newspapers, Limited Partnership's share of the
              sales proceeds and CanWest's interest in the National Post at book value.

      (e)   Represents the minority interest in Hollinger Canadian Newspapers, Limited Partnership's share of the
              results of the operations sold to CanWest.

      (f)   Represents the reduction in management and administrative fees charged to the group by Hollinger Inc.
              and its affiliates as a result of the sale of the properties.

      (g)   Represents the interest expense on the long-term debt repaid with the cash proceeds.

      (h)   Represents the write off of deferred finance costs and related amortization in respect of the debt repaid with
              the cash proceeds.

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       (i)   Represents interest income on the CanWest debenture at 12 1/8% per annum.

       (j)   Represents foreign exchange gain or loss resulting from the translation of debt denominated in foreign
              currency that was repaid with the cash proceeds.

      (k)   Represents provision for income tax on the pro forma adjustments.

      (l)    Represents the minority interest share of interest income on the CanWest debenture held by the Hollinger
              Canadian Newspaper, Limited Partnership and CanWest's 50% share of the net losses of the National Post.

            (c) Exhibits

      The exhibits required to be filed as part of this Current Report on Form 8-K, are listed in the attached Index to Exhibits.

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SIGNATURE

      Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Current Report on Form 8-K to be signed on its behalf by the undersigned hereunto duly authorized.

     
HOLLINGER INTERNATIONAL INC.
 
 
Date: December 1, 2000 By:   /s/   Fred Creasey

        Name: Fred Creasey
        Title: Group Corporate Controller

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Index to Exhibits

     
Exhibit Number Description
2.1 Transaction Agreement dated July 30, 2000 among Hollinger International Inc., Southam Inc., Hollinger Canadian Newspapers, Limited Partnership, HCN Publications Company and CanWest Global Communications Corporation.
 
2.2 Amending Agreement to the Transaction Agreement dated November 15, 2000 among Hollinger International Inc., Southam Inc., Hollinger Canadian Newspapers, Limited Partnership, HCN Publications Company and CanWest Global Communications Corporation.
 
Pursuant to Reg. S-K, Item 601(b)(2), the Registrant agrees to furnish a copy of the Disclosure Schedules to such agreements to the Commission upon request.
 
99.1 Press release dated November 16, 2000.
 


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