SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 6-K
Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the month of November 30, 1998
HOLLINGER INC.
(Translation of registrant's name into English)
10 Toronto Street
Toronto, Ontario M5C 2B7
CANADA
(Address of principal executive offices)
(Indicate by check mark whether the registrant
files or will file annual reports under cover of Form 20-F or
Form 40-F.)
Form 20-F Form 40-F x
(Indicate by check mark whether the registrant by
furnishing the information contained in this form is also
thereby furnishing the information to the Commission pursuant
to Rule 12g3-2(b) under the Securities Exchange Act of 1934.)
Yes No x
<PAGE>
EXHIBIT LIST
Sequential
Exhibit Description Page Number
99.1 Interim Report of Hollinger Inc. 4
for the nine months ended September
30, 1998
<PAGE>
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 INC.
Date: December 3, 1998 by /s/ Charles G. Cowan, Q.C.
-----------------------------
Name: Charles G. Cowan, Q.C.
Title: Vice President and
Secretary
Hollinger Inc.
[GRAPHIC]
Interim Report
9 Months Ended
September 30, 1998
<PAGE>
Consolidated Financial Highlights
Nine months ended September 30 1998 1997
- -----------------------------------------------------------------------
(millions of dollars)
Total revenue................................ 2,432.3 2,255.3
- -----------------------------------------------------------------------
Net earnings................................. 59.5 176.7
- -----------------------------------------------------------------------
Cash flow provided by
operations (note)....................... 288.1 301.7
- -----------------------------------------------------------------------
(dollars)
- -----------------------------------------------------------------------
Net earnings per Retractable Common
Share.................................... 1.78 2.89
Cash flow provided by operations per
Retractable Common Share (note).......... 8.66 5.02
- -----------------------------------------------------------------------
Note
Cash flow provided by operations is before any increase or decrease in
non-cash operating working capital, the cash used for discontinued operations,
prepaid subscription program and other costs and foreign currency
translation adjustment.
===========================================================================
Throughout this report, Hollinger Inc. is referred to as "Hollinger" or the
"Company", Hollinger International Inc. is referred to as "Hollinger
International Inc." or "Hollinger International" and Hollinger Canadian
Publishing Holdings Inc. is referred to as "HCPH". The word "company"
refers to one or other of Hollinger Inc.'s subsidiary companies, depending
on the context.
In this report, reference to "dollars" and "$" are to Canadian dollars,
"U.S.$" are to United States dollars and "pounds sterling" and "(pound)"
are to lawful currency of the United Kingdom.
"EBITDA" means earnings before interest, taxes, depreciation and
amortization.
<PAGE>
T O T H E S H A R E H O L D E R S
===========================================================================
Third Quarter Earnings
Earnings before unusual items, income taxes and minority interest were
$170.0 million for the nine months ended September 30, 1998 compared to
$205.6 million for 1997.
Operating results, in particular at Southam and The Telegraph, continued to
improve in 1998. However, these improved results were reduced by dividends
on the Series I and II exchangeable Non-Voting Preference Shares. These
dividends are required to be disclosed as interest expense under accounting
rules for financial instruments. The dividends on the common shares that
the preference shares replaced had no effect on net earnings.
Unusual items in the third quarter of 1998 consisted principally of the
gains at Southam on the sale of the Kitchener and Hamilton papers, gains on
the sale of the Guelph and Cambridge papers, an accounting loss on the
dilution of the investment in Southam and a provision against the cost of
an investment. Virtually all of the third quarter unusual items net of
taxes in respect of Southam relate to the minority shareholders in Southam
since the book values of Hollinger's share of the assets sold were adjusted
to market value when the Southam shares were purchased.
Unusual items in the third quarter of 1997, consisted primarily of a loss
in respect of the direct prepaid subscription program at The Telegraph.
Purchase of Additional Shares of Southam Inc.
In August 1998, HCPH, a subsidiary company, purchased 8,268,900 common
shares of Southam Inc. representing approximately 10.6% of the then
outstanding Southam common shares. The purchase price was $31.68 per share
or $261,959,000 in the aggregate. This acquisition, together with the
purchase for cancellation of Southam common shares under its normal course
issuer bid, increased the interest of HCPH in Southam to approximately
70.2% at the present time.
Completion of Certain Transactions
On September 4, 1998, Southam Inc., and HCPH completed the following
transactions:
1. the acquisition by Southam Inc. of Sun Media Corporation's 80%
interest in The Financial Post
Company;
2. the sale by Southam Inc. to Sun Media Corporation of the Hamilton
Spectator and The Record (Kitchener-Waterloo); and
3. the sale by HCPH to Sun Media Corporation of the Cambridge Reporter
and the Guelph Mercury.
<PAGE>
===========================================================================
In addition, Southam Inc. acquired from Pearson plc their 20% interest in
The Financial Post Company, to own 100%.
Offer to Purchase Retractable Common Share Purchase Warrants
On September 8, 1998 the Company announced that it intended to make an
offer for all of its common share purchase warrants for one warrant
purchase right for each warrant. Each warrant purchase right entitled the
holder to purchase one 1998 common share purchase warrant on or before
September 30, 1998 for $0.40 cash. Each 1998 warrant entitles the holder to
purchase one retractable common share of the Company on or before March 31,
2000 for $24.00 cash. The Company's offer expired at 5:00 p.m. on September
30, 1998 and approximately 1.5 million new warrants were subsequently
issued. These new warrants will not be listed on any stock exchange. The
balance of about 1.2 million unexercised warrants expired.
Additional Financing
On October 1, 1998, the Company announced that it had made arrangements
with various banks to raise an aggregate amount of approximately U.S.$140
million which would be used to redeem its outstanding LYONs on or after
November 4, 1998. The banks agreed to acquire an aggregate of 10,117,705
Class A Common Shares of Hollinger International, a portion of which were
acquired by way of conversion of securities convertible into Class A Common
Shares held by the Company and the retraction of retractable common shares
acquired by the Company's controlling shareholder, The Ravelston
Corporation Limited,
upon the exercise on September 30, 1998 of warrants held by it. In a
related transaction, Hollinger International Inc. entered into forward
purchase contracts in respect of the acquisition by the banks of an
aggregate of 10,117,705 of its Class A Common Shares for a price of U.S.
$13.88 per share. As a result, Ravelston will continue to control, directly
and indirectly, 20,801,307 retractable common shares (approximately 62.9%)
of the Company and the Company will continue to own a 49% equity interest
(approximately 78% voting interest) in Hollinger International.
Tender and Redemption of LYONs
On November 2, 1998, the Company announced that it would offer holders of
its outstanding Liquid Yield Option Notes ("LYONs") the right to tender
their LYONs to the Company on December 4, 1998 and December 31, 1998 for
U.S.$416.02 and U.S.$417.82 in cash, respectively, per U.S.$1,000 of stated
amount at maturity (such purchase prices constituting
<PAGE>
the accreted value of the LYONs based on the stated 6% interest rate). This
right was in addition to the right contained in the indenture for holders
to tender their LYONs on November 4, 1998 for U.S.$413.95 in cash.
Holders of U.S.$208,008,000 stated amount of LYONs tendered their LYONs on
November 4, 1998 leaving U.S.$131,245,000 stated amount outstanding
(current value approximately U.S.$54,000,000).
The Company also stated on November 2, 1998 that it would consider offering
its continuing LYONs holders the right to exchange their LYONs for a new
zero coupon security convertible into Hollinger International Class A
Common Stock at a fixed conversion rate with a final determination to be
announced later that month based on a variety of factors, including the
stability of the financial markets. On November 13, 1998, the Company
announced that it had decided that, owing to current market conditions, it
would not, at this time, consider further the prospect of offering to its
current LYONs holders a new zero coupon security. In addition, the Company
has determined that it will redeem for cash (effective December 31, 1998)
any LYONs not tendered on December 4, 1998 or December 31, 1998.
Retraction Price of Retractable Common Shares
The retraction price of the outstanding retractable common shares of the
Company as of October 9, 1998 is $13.00 per share. As at October 31, 1998
there were 32,941,272 retractable common shares outstanding.
Hollinger International Inc.
Hollinger International's operations are composed of the U.S. Newspapers
Group consisting of the Chicago Group (including the Chicago Sun-Times) and
the Community Group (American Publishing Company and The Jerusalem Post),
the U.K. Newspaper Group, consisting of the Telegraph Group Limited, and
the Canadian Newspaper Group (held by HCPH) consisting of the interest in
Southam Inc., the Sterling Newspapers Company and UniMedia Inc.
On August 4, 1998, Hollinger International completed its offer to exchange
any and all of its outstanding PRIDES for shares of its Class A Common
Stock. Approximately 20,000,000 of the 20,700,000 outstanding PRIDES were
exchanged for approximately 18,400,000 shares of Class A Common Stock.
<PAGE>
===========================================================================
On October 1, 1998, Hollinger International announced that it had entered
into forward purchase contracts in respect of the acquisition by a group of
banks of an aggregate of 10,117,705 of its Class A Common Shares for a
price of U.S.$13.88 per share.
Information regarding Hollinger International Inc.'s third quarter 1998
operations is contained in Form 10-Q which has been filed by that company
with the United States Securities and Exchange Commission.
Telegraph Group Limited
Telegraph Group Limited continued to show a strong performance during the
third quarter of 1998. The company's EBITDA for the nine months ended
September 30, 1998 was (pound)32.3 million compared to (pound)15.3 million
during the corresponding period in 1997.
During the third quarter, circulation revenue increased over the same
period last year by 29%. This reflects the steady increase in subscription
price for the Advance Purchase Programme over last year and the full impact
of the 5p increase in the Monday issue of The Daily Telegraph (since
September 1997) and The Sunday Telegraph (since January 1998). The ABC net
circulation figure for The Daily Telegraph for the period April 1998 to
September 1998 was 1,067,984 over 300,000 ahead of its nearest competitor,
The Times. The Daily Telegraph sold an average of 1,068,760 copies during
September 1998.
The Sunday Telegraph's ABC net circulation figure for the period April 1998
to September 1998 was 836,232 and The Sunday Telegraph sold an average of
850,991 copies during September 1998.
Electronic Telegraph (ET) now has a daily readership of 55,000 and
advertising revenue continues to increase. For the second year running, ET
has been voted "Best UK Newspaper on the Web".
Advertising revenue for the third quarter was up by 6% over the third
quarter of 1997, although there has been a slowdown in recruitment and
financial advertising. Other classified sections (including travel,
automobiles and property which have increased year-on-year by 30%, 32% and
19% respectively) continued to perform well, and display advertising
performed strongly in September after a slow start to the quarter.
Newsprint costs remain relatively flat year-on-year despite increases in
pagination and no significant increases are expected in the fourth quarter.
In general, publishing and production costs have only increased by a modest
amount year-on-year.
<PAGE>
===========================================================================
The Chicago Group
The Chicago Group third quarter 1998 operating revenue increased 12% over
the third quarter of 1997, due to continued growth in advertising revenue
and acquisitions. The acquisition of the Gary Post-Tribune in the first
quarter of 1998 added to revenue and EBITDA at the Chicago Group. Third
quarter 1998 revenue and EBITDA for Chicago Group businesses owned in both
years increased 1% and 2% respectively, from 1997.
The Community Group
In January 1998, the Community Group sold approximately 80 newspapers with
a total paid daily circulation of approximately 240,000. This resulted in
an overall decrease in Community Group operating revenue, EBITDA and
operating income. On a "same store" basis the Community Group third quarter
1998 operating revenue and EBITDA increased 3% and 1% respectively, from
1997.
Southam Inc.
During the third quarter of 1998, Southam newspaper group revenue increased
5% over 1997 driven mainly by advertising. Southam reported net income of
$139.7 million of $1.80 per share, compared with $20.1 million of $0.26 per
share in 1997. Included in the current results reported by Southam are
unusual pre-tax gains of $184.1 million; the principal components of the
gains arose on the sale of the Hamilton Spectator and The Record
(Kitchener-Waterloo). Excluding unusual items, net income for the third
quarter was $21.7 million or $0.28 per share.
During the quarter the company made two major acquisitions totalling $334
million. The Victoria Time-Colonist and the Nanaimo Daily News as well as
a number of weekly newspapers were acquired on July 17, 1998 and The
Financial Post was acquired on September 4, 1998. On October 27, 1998, the
company launched Canada's first truly national newspaper, the National
Post. The Financial Post is the business component of the company's new
National Post. Initial circulation figures for the National Post are almost
500,000 copies daily across Canada.
Canadian Newspaper Group
Sterling Newspapers Company revenue and EBITDA in the third quarter 1998
was comparable to that of the same period in 1997. During the third quarter
of 1998 Sterling sold the Cambridge Reporter and the
Guelph Mercury. For businesses owned in both years revenue and EBITDA in
the third quarter 1998 increased 2% and 10% respectively, over the same
period in 1997.
<PAGE>
===========================================================================
At UniMedia, total revenue for the quarter was $30.1 million, an increase
of $1.8 million, or 6% over the corresponding period of 1997. This increase
was mainly a result of higher revenues at the company's religious
publishing house and increased printing revenue. Total operating costs of
$26.8 million were 9% higher than in the comparable period of last year.
This increase results primarily from higher newsprint prices, increased
consumption of paper and other printing supplies due to the increased
printing revenue and statutory wage increases. As a result, third quarter
EBITDA decreased by $378,000 to $3.3 million.
Year 2000 Computer Concerns
The Company is on schedule for its review of potential year 2000 computer
problems. All important applications have been identified, reviewed and
found to be compliant or have been replaced or corrected or remediation
plans are in process. The project will be completed by the end of 1998 with
a few exceptions. For those exceptions remediation work will be completed
early in 1999. As stated in the 1997 Management Discussion and Analysis
there will be no special charges and the program will have no material
effect on the Company's financial condition or reported results.
General
At September 30, 1998, Hollinger's publishing interests included 116 daily
newspapers and 321 non-daily newspapers. Total paid daily circulation,
including The Daily Telegraph and the Chicago Sun-Times, was approximately
4.4 million. The total circulation of the non-dailies was approximately 6.6
million.
Cash Dividends
A regular quarterly dividend of 15 (cent) per retractable common share has
been declared payable on December 10, 1998 to shareholders of record on
November 25, 1998.
/s/ Conrad M. Black
----------------------------
November 20, 1998 Conrad M. Black
Chairman of the Board and
Chief Executive Officer
<PAGE>
===========================================================================
MARKET VALUE INFORMATION
BALANCE SHEET
- ----------------------------------------------------------------------------
(in thousands of dollars except where noted)
September 30 December 31
1998 1997
------------- -----------
(not audited)
ASSETS
Investment in Hollinger International... $ 1,316,707 $ 1,266,084
Other investments....................... 25,846 38,177
Other assets............................ 369,924 92,663
----------- -----------
$ 1,712,477 $ 1,396,924
=========== ===========
LIABILITIES
Exchangeable shares..................... $ 546,440 $ 563,232
Convertible debt........................ 209,913 304,613
Other liabilities....................... 260,512 140,018
----------- -----------
1,016,865 1,007,863
----------- -----------
NET ASSETS REPRESENTING SHAREHOLDERS'
EQUITY
Capital stock........................... 414,473 172,903
Convertible instruments................. 19,589 28,032
Net unrealized appreciation of investments
and other assets........................ 582,871 425,324
Net unrealized increase in liabilities.. (57,384) (34,740)
Retained earnings....................... (263,937) (202,458)
----------- -----------
695,612 389,061
----------- -----------
$ 1,712,477 $ 1,396,924
=========== ===========
Retractable common shares outstanding... 42,840,457 33,245,133
----------- -----------
Net asset value per retractable common
share................................... $ 16.24 $ 11.70
=========== ===========
Note:
1. The Company's capital stock includes the effect of the issue of
9,765,700 retractable common shares on exercise of a like number of
retractable common share purchase warrants on September 30, 1998. On
October 1, 1998 all of the 9,765,700 retractable common shares issued
as described above were retracted for shares of Class A Common Stock
of Hollinger International Inc., thereby reducing capital stock.
STATEMENT OF INCOME AND EXPENSES
(not audited)
- -------------------------------------------------------------------------
(in thousands of dollars)
Nine months
ended
September 30
1998
------------
Income
Dividends............................. $ 78,180
Interest and other.................... 1,319
Net management fees................... 8,400
---------
87,899
Expenses
Administrative and other expenses..... 7,533
Interest expense...................... 50,842
Unusual items......................... 1,644
---------
60,019
Income before income taxes............ 27,880
Income tax expense.................... (2,168)
---------
Net income for the period............. $ 25,712
=========
Earnings per retractable common share. 0.76
=========
<PAGE>
===========================================================================
<TABLE>
<CAPTION>
SCHEDULE OF SEGMENTED EARNINGS
(not audited)
- ---------------------------------------------------------------------------------------------------
(in thousands of dollars)
United United Other
Total Canada States Kingdom Countries
--------------------------------------------------------------
Three months ended September 30, 1998
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales.............................. $ 793,216 $ 366,666 $ 213,710 $ 204,637 $ 8,203
Cost of sales and expenses......... (655,071) (301,650) (176,084) (169,607) (7,730)
Corporate expenses-allocated....... - 2,510 (1,253) (1,190) (67)
Depreciation and amortization...... (54,918) (23,507) (15,004) (15,860) (547)
Net foreign currency gains
(losses)..................... (520) (442) (84) 6 -
Investment and other income........ 4,869 1,189 531 3,060 89
--------- --------- --------- --------- --------
Publishing operating profit........ 87,576 44,766 21,816 21,046 (52)
Net earnings (loss) in equity
accounted companies.......... (75) - (257) - 182
--------- --------- --------- --------- --------
Segmented profit................... 87,501 $ 44,766 $ 21,559 $ 21,046 $ 130
========= ========= ========= ========
Interest expense................... (62,635)
---------
24,866
Income taxes....................... (20,708)
Minority interest.................. (15,412)
---------
(11,254)
---------
Unusual items...................... 115,981
Income taxes....................... (75,032)
Minority interest.................. (52,969)
---------
(12,020)
---------
Net earnings....................... $ (23,274)
=========
</TABLE>
<TABLE>
<CAPTION>
Three months ended September 30, 1997
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales.............................. $ 739,518 $ 360,761 $ 210,463 $ 161,785 $ 6,509
Cost of sales and expenses......... (605,392) (302,249) (166,166) (130,621) (6,356)
Corporate expenses-allocated....... - 3,578 (2,683) (742) (153)
Depreciation and amortization...... (49,059) (20,923) (15,296) (12,343) (497)
Net foreign currency gains (losses) 219 315 194 (400) 110
Investment and other income........ 2,590 860 1,042 688 -
--------- --------- --------- --------- --------
Publishing operating profit........ 87,876 42,342 27,554 18,367 (387)
Net earnings in equity
accounted companies.......... 329 - 187 - 142
--------- --------- --------- --------- --------
Segmented profit................... 88,205 $ 42,342 $ 27,741 $ 18,367 $ (245)
========= ========= ========= ========
Interest expense................... (45,285)
--------
42,920
Income taxes....................... (21,816)
Minority interest.................. (16,973)
---------
4,131
---------
Unusual items...................... (8,448)
Income taxes....................... 2,371
Minority interest.................. 2,761
---------
(3,316)
---------
Net earnings....................... $ 815
=========
</TABLE>
Notes to the Schedule of Segmented Earnings.
1. The Company operates principally in the business of publishing,
printing and distribution of newspapers and magazines and holds
investments principally in companies which operate in the same
business as the Company. Other investments held by the Company are
not sufficient to warrant classification as a separate industry
segment.
2. The "Other Countries" geographic segment includes operations
primarily in Israel and the Cayman Islands.
3. Corporate expenses have been allocated on an estimated usage basis.
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE OF SEGMENTED EARNINGS
(not audited)
- -----------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars)
United United Other
Total Canada States Kingdom Countries
--------------------------------------------------------------
Nine months ended September 30, 1998
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales............................... $2,419,519 $1,155,086 $ 612,032 $ 629,472 $ 22,929
Cost of sales and expenses.......... (1,933,812) (922,633) (501,422) (488,936) (20,821)
Corporate expenses-allocated........ - 7,968 (3,979) (3,778) (211)
Depreciation and amortization....... (154,131) (67,382) (39,886) (45,299) (1,564)
Net foreign currency gains.......... 1,366 1,037 356 (27) -
Investment and other income......... 12,790 4,353 3,435 4,821 181
---------- ---------- --------- --------- ---------
Publishing operating profit......... 345,732 178,429 70,536 96,253 514
Net earnings in equity
accounted companies........... (793) - (1,379) - 586
---------- ---------- -------- --------- ---------
Segmented profit.................... 344,939 $ 178,429 $ 69,157 $ 96,253 $ 1,100
========== ========= ========= ==========
Interest expense.................... (174,914)
----------
170,025
Income taxes........................ (92,483)
Minority interest................... (78,535)
----------
(993)
----------
Unusual items....................... 409,204
Income taxes........................ (196,873)
Minority interest................... (151,829)
----------
(60,502)
----------
Net earnings........................ (59,509)
==========
</TABLE>
<TABLE>
<CAPTION>
Nine months ended September 30, 1997
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales............................... $ 2,243,691 $1,080,340 $ 616,481 $ 525,735 $ 21,135
Cost of sales and expenses.......... (1,782,897) (878,590) (482,753) (402,366) (19,188)
Corporate expenses-allocated........ - 11,739 (8,763) (2,479) (497)
Depreciation and amortization....... (143,196) (60,787) (43,556) (37,383) (1,470)
Net foreign currency gains.......... 1,171 451 - 578 142
Investment and other income......... 11,597 4,531 3,093 3,973 -
----------- ---------- --------- --------- --------
Publishing operating profit......... 330,366 157,684 84,502 88,058 122
Net earnings in equity
accounted companies........... 1,174 59 734 - 381
----------- ---------- --------- --------- --------
Segmented profit.................... 331,540 $ 157,743 $ 85,236 $ 88,058 $ 503
========== ========= ========= ========
Interest expense.................... (133,251)
-----------
198,289
Income taxes........................ (85,306)
Minority interest................... (76,174)
-----------
36,809
-----------
Unusual items....................... 176,113
Income taxes........................ (15,523)
Minority interest................... (24,535)
-----------
136,055
Unusual items in equity accounted
companies.......................... 7,345
Minority Interest................... (3,495)
-----------
3,850
-----------
Net earnings........................ $ 176,714
===========
</TABLE>
Notes to the Schedule of Segmented Earnings.
1. The Company operates principally in the business of publishing,
printing and distribution of newspapers and magazines and holds
investments principally in companies which operate in the same
business as the Company. Other investments held by the Company are
not sufficient to warrant classification as a separate industry
segment.
2. The "Other Countries" geographic segment includes operations
primarily in Israel and the Cayman Islands.
3. Corporate expenses have been allocated on an estimated usage basis.
<PAGE>
CONSOLIDATED BALANCE SHEET
- -----------------------------------------------------------------------
(in thousands of dollars)
September 30 December 31
1998 1997
------------ -----------
(not audited)
ASSETS
Current assets
Cash....................... $ 259,033 $ 158,868
Accounts receivable........ 718,445 519,123
Inventory.................. 76,902 48,713
------------ ------------
1,054,380 726,704
Investments................ 82,872 50,054
Capital assets............. 4,081,694 3,586,945
Goodwill and other assets.. 698,820 612,693
------------ ------------
$ 5,917,766 $ 4,976,396
============ ============
LIABILITIES
Current liabilities
Bank indebtedness.......... $ 333,461 $ 48,839
Accounts payable and
accrued expenses........... 518,514 525,238
Income taxes payable....... 129,279 38,897
Current portion of long-
term debt.................. 35,260 77,002
Exchangeable shares........ - 146,547
------------ ------------
1,016,514 836,523
Long-term debt............. 2,289,286 2,079,646
Exchangeable shares........ 546,440 416,685
Convertible instruments.... 201,201 294,672
------------ ------------
4,053,441 3,627,526
------------ ------------
MINORITY INTEREST AND
DEFERRED CREDITS 1,763,416 1,440,730
------------ ------------
SHAREHOLDERS' EQUITY
Capital stock.............. 414,473 172,903
Convertible instruments.... 19,589 28,032
Retained earnings.......... (348,421) 292,271)
------------ ------------
85,641 (91,336)
Equity adjustment from
foreign currency
translation................ 15,268 (524)
------------ ------------
100,909 (91,860)
------------ ------------
$ 5,917,766 $ 4,976,396
============ ============
Note to the Consolidated Balance Sheet:
1. The Company's capital stock includes the effect of the issue of
9,765,700 retractable common shares on exercise of a like number of
retractable common share purchase warrants on September 30, 1998. On
October 1, 1998 all of the 9,765,700 retractable common shares issued
as described above were retracted for shares of Class A Common Stock
of Hollinger International Inc., thereby reducing capital stock.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF EARNINGS
(not audited)
- -----------------------------------------------------------------------------------------------------------------------------
(in thousands of dollars)
Three months ended Nine months ended
September 30 September 30
1998 1997 1998 1997
----------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Revenue
Sales............................... $793,216 $739,518 $2,419,519 $2,243,691
Investment and other income......... 4,869 2,590 12,790 11,597
-------- -------- ---------- ----------
798,085 742,108 2,432,309 2,255,288
-------- -------- ---------- ----------
Expenses
Cost of sales and expenses.......... 655,071 605,392 1,933,812 1,782,897
Depreciation and amortization....... 54,918 49,059 154,131 143,196
Interest expense.................... 62,635 45,285 174,914 133,251
-------- -------- ---------- ----------
772,624 699,736 2,262,857 2,059,344
-------- -------- ---------- ----------
Net earnings (loss) in equity
accounted companies
Before net unusual items............ (75) 329 (793) 1,174
Net unusual items................... - - - 7,345
-------- -------- ---------- ----------
(75) 329 (793) 8,519
-------- -------- ---------- ----------
Net foreign currency (losses)
gains......................... (520) 219 1,366 1,171
-------- -------- ---------- ----------
Earnings before the undernoted...... 24,866 42,920 170,025 205,634
Unusual items....................... 115,981 (8,448) 409,204 176,113
Income taxes........................ (95,740) (19,445) (289,356) (100,829)
Minority interest................... (68,381) (14,212) (230,364) (104,204)
-------- -------- ---------- ----------
Net earnings (loss)................. (23,274) 815 59,509 176,714
Dividends on preference shares
including related taxes....... - (1,192) - (3,680)
-------- -------- ---------- ----------
Earnings (loss) applicable to
retractable common shares...... $(23,274) $ (377) $ 59,509 $ 173,034
======== ======== ========== ==========
(dollars) (dollars)
Net earnings (loss) per retractable
common share (note 2)
Basic............................... $(0.71) $(0.02) $1.78 $2.89
====== ====== ===== =====
Fully diluted....................... $(0.71) $(0.02) $1.50 $1.94
====== ====== ===== =====
Cash flow provided by operations per
retractable common share (note 1)
Basic............................... $2.30 $1.37 $8.66 $5.02
===== ===== ===== =====
Fully diluted....................... $2.30 $1.37 $6.47 $3.19
===== ===== ===== =====
</TABLE>
Notes to the Consolidated Statement of Earnings:
1. Cash flow provided by operations per retractable common share is
based on cash flow provided by operations which is before any
increase or decrease in non-cash operating working capital, the cash
used by discontinued operations, prepaid subscription program and
other costs and foreign currency translation adjustment.
2. Earnings per retractable common share is based on earnings applicable
to retractable common shares reduced by an equity accretion in
respect of the equity-linked convertible securities.
<PAGE>
CONSOLIDATED STATEMENT
OF CHANGES IN
FINANCIAL POSITION
(not audited)
- -------------------------------------------------------------------------------
(in thousands of dollars)
Nine months ended
September 30
1998 1997
---------- ----------
CASH PROVIDED BY (USED FOR):
Operations
Net earnings.......................... $ 59,509 $ 176,714
Unusual items......................... (409,204) (176,113)
Current income taxes related to
unusual items...................... 218,029 13,341
Items not involving cash:
Depreciation and amortization...... 154,131 143,196
Deferred income taxes.............. 14,787 30,048
Net loss (earnings) in equity
accounted companies, net of
dividends received.............. 793 (1,263)
Minority interest.................. 230,364 104,204
Other.............................. 19,679 11,540
---------- ---------
Cash flow provided by
operations......................... 288,088 301,667
Change in non-cash
operating working capital.......... 3,952 (880,716)
Cash used for
discontinued operations............ (2,865) (1,304)
Prepaid subscription program and
other costs........................ (751) (28,799)
Foreign currency translation 23,377 (5,009)
adjustment......................... ---------- ---------
311,801 (614,161)
---------- ---------
Financing
Issue of capital stock................ 185,299 -
Issue of exchangeable shares.......... 119,078 -
Redemption and cancellation of
capital stock...................... (155,698) (47)
Redemption and cancellation of
exchangeable shares................ (105,975) -
Capital stock of subsidiaries
purchased for cancellation by
subsidiaries....................... (34,977) (20,822)
Issue of capital stock
of subsidiaries.................... 44,077 119,522
Increase in long-term debt and
deferred liabilities............... 126,010 845,270
Redemption and retirement of
convertible debt................... (16,110) (121,761)
Decrease in capital lease
obligations........................ (6,150) (1,723)
Dividends, including special
dividend........................... (15,482) (183,808)
Dividends paid by subsidiaries to
minority interests................. (36,699) (20,248)
---------- ---------
103,373 616,383
---------- ---------
- ------------------------------------------------------------------------------
Nine months ended
September 30
1998 1997
---------- ---------
Investment
Proceeds on disposal of
fixed assets....................... 22,913 3,375
Additions to fixed assets and
assets under capital leases........ (170,213) (141,674)
Additions to investments.............. (44,909) (3,328)
Proceeds on disposal of investments
and marketable securities.......... 4,339 340,475
Additions to circulation.............. (47,895) (43,765)
Additions to goodwill and
other assets....................... (13,199) (53,454)
Investments in newspaper operations,
net of cash acquired of
$11,894,000........................ (708,756) (222,829)
Reduction of investment in newspaper
operations........................ 642,711 10,780
---------- ---------
(315,009) (110,420)
---------- ---------
Increase (decrease) in cash
position.............................. 100,165 (108,198)
Cash at beginning of period........... 158,868 204,674
---------- ---------
Cash at end of period................. $ 259,033 $ 96,476
========== =========
<PAGE>
<TABLE>
<CAPTION>
RECONCILIATION TO UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (GAAP)
(not audited)
- ----------------------------------------------------------------------------------------------
(in thousands of Canadian dollars)
Three months ended Nine months ended
September 30 September 30
1998 1997 1998 1997
--------- -------- -------- ---------
<S> <C> <C> <C> <C>
Net earnings (loss) for the period based on
Canadian GAAP................................. $(23,274) $ 815 $ 59,509 $ 176,714
Capitalization of betterments, net of related
amortization.................................. (3,163) (4,380) (10,536) (12,100)
Acquired tax losses............................... 176 118 508 354
Start-up costs, net of amortization
and write-offs................................ 214 78 641 401
Gain on sale of Fairfax shares (note 2)........... - - - 6,352
Business combinations (note 5).................... 233 657 699 (108,046)
Foreign exchange (note 3)......................... (66) (60) (196) (585)
Compensation to employees......................... (277) (14) (796) (42)
Redemption premium on
convertible securities........................ - 139 - (17,638)
Adjustment to tax provision....................... 11,100 - 15,100 7,200
Financial instruments (note 4).................... 1,177 (2,615) 3,095 (5,427)
Settlement of convertible securities (note 7)..... - - 492 -
--------- ------- -------- ---------
Net earnings (loss) for the
period based on U.S. GAAP..................... $(13,880) $(5,262) $ 68,516 $ 47,183
========= ======= ======== =========
Earnings (loss) per retractable common share (dollars) (dollars)
Earnings (loss) per retractable common share and
retractable common share equivalents:
Earnings (loss) from continuing operations
(notes 6 and 8).......................... $(.042) $(0.07) $2.05 $0.78
====== ====== ===== =====
Earnings (loss) before extraordinary items.... $(0.42) $(0.07) $2.05 $0.78
====== ====== ===== =====
Net earnings (loss)........................... $(0.42) $(0.11) $2.06 $0.74
====== ====== ===== =====
Earnings (loss) per retractable common share-
assuming full dilution:
Earnings (loss) from continuing operations
(notes 6 and 8).......................... $(.042) $(0.07) $1.70 $0.74
------ ------ ----- -----
Earnings (loss) before extraordinary items.... $(0.42) $(0.07) $1.70 $0.74
------- ------ ----- -----
Net earnings (loss)........................... $(0.42) $(0.11) $1.71 $0.71
------- ------- ----- -----
</TABLE>
Notes to the Reconciliation to United States GAAP.
1. The above represents additional information to the Consolidated
Statement of Earnings of the Company which was prepared in accordance
with Canadian GAAP. Set out above are the material adjustments (net of
deferred income taxes, minority interest and foreign exchange rate
adjustments where applicable) to net earnings for the nine months
ended September 30,1998 and September 30, 1997 and the three months
ended September 30, 1998 and September 30, 1997 in order to conform to
accounting principles generally accepted in the United States.
2. Primarily, as a result of the capitalization of betterments in
accordance with Canadian GAAP, the carrying value of the Company's
investments in Fairfax is lower under U.S. GAAP, resulting in the
gains on the sale of the Fairfax investment being higher under U.S.
GAAP.
3. Under Canadian GAAP, the unrealized foreign exchange gain or loss on
the translation of the U.S. dollar Liquid Yield Option Notes (LYONs)
into Canadian dollars which is not considered a hedge against a U.S.
dollar investment is being deferred or amortized over the term of the
notes. Under U.S. GAAP this exchange gain or loss is expensed in the
current year.
4. Under the new accounting standards for financial instruments, a
portion of certain of the Company's convertible instruments are
classified as equity rather than debt. Under U.S. GAAP, no portion of
the convertible instruments would be classified as equity and the
related interest expense on the equity component would be classified
as an interest expense rather than as a dividend equivalent. In
addition, Canadian GAAP requires the carrying value of the debt
component of an instrument be increased over time to its settlement
amount on maturity, through a charge to interest expense. Under U.S.
GAAP, no portion of the instrument would be classified as equity and
accordingly this adjustment to interest expense is not required.
Canadian GAAP also requires the value ascribed to certain subsidiary
special shares be increased over the life of the shares to the
Company's optional cash settlement amount through a periodic charge to
earnings. Under U.S. GAAP the shares are recorded at their fair value
on the date of issue and such a charge to increase their carried
amount is not required.
5. U.S. GAAP requires that the transfer of the Canadian Newspaper Group
be accounted for at historical values using "as-if pooling of
interests" accounting, resulting in no gain on the sale of the
properties and no additional amount being ascribed to circulation.
6. A loss on extinguishment of debt can be classified as an extraordinary
item under U.S. GAAP but not under Canadian GAAP.
7. Cash payments on conversion of the LYONs are treated as capital
transactions under Canadian GAAP. Under U.S. GAAP, the gain or loss
on cash settlement must be reflected in income.
8. A gain or loss on settlement of convertible securities can be classified
as an extraordinary item under U.S. GAAP.
<PAGE>
Transfer Agents and Registrars
Retractable common shares and Series II Exchangeable
Non-Voting Preference Shares:
Montreal Trust Company of Canada, Toronto, Montreal
and Vancouver, Canada
The Bank of Nova Scotia Trust Company of New York
New York, New York, USA
Warrants to Purchase Retractable Common Shares of
Hollinger Inc.:
Montreal Trust Company of Canada, Toronto
Trustees
Liquid Yield Option Notes due 2013:
CIBC Mellon Trust Company, Toronto, Canada
The Bank of Nova Scotia Trust Company of New York
New York, New York, USA
Stock Exchange Listings
The Retractable common shares are listed on the Toronto, Montreal, and
Vancouver stock exchanges (stock symbol HLG.C), and are also quoted on the
Nasdaq National Market System (trading symbol HLGCF).
The Series II Exchangeable Non-Voting Preference Shares are listed on the
Toronto, Montreal and Vancouver stock exchanges (trading symbol HLG.PR.B.).
The Liquid Yield Option Notes due 2013 are listed on Nasdaq Small-Cap
Market (trading symbol HLGLF).
Investor Information
Holders of the Company's securities and other interested parties seeking
information about the Company should communicate with the Vice-President,
Strategic and Corporate Development, at 10 Toronto Street, Toronto, Ontario
M5C 2B7, Tel (416) 363-8721, Fax (416) 364-0832.
Share Information
For information relating to retractable common shares and Series II
Preference Shares holdings, dividends, lost share certificates, etc.,
please communicate with: Montreal Trust Company of Canada, Tel: (416)
981-9500 or 1-800-663-9097 (toll free in Canada and U.S.) Fax: (416)
981-9800
Major Electronic Web Sites
Hollinger International http://www.hollinger.com
Telegraph http://www.telegraph.co.uk
Chicago Sun-Times http://www.suntimes.com
Chicago Network http://www.chicago-news.com
Jerusalem Post http://www.jpost.co.il
Southam http://www.canada.com
UniMedia http://www.lesoleil.com
http://www.ledroit.com
Star-Phoenix http://www.saskstar.sk.ca
Leader-Post http://www.leader-post.sk.ca
Version francaise
Pour recevoir ce rapport en francais s'adresser a: Compagnie Montreal Trust
du Canada, 151, rue Front ouest, 8e etage, Toronto (Ontario) M5J 2N1.
Hollinger Inc.
10 Toronto Street, Toronto, Ontario, M5C 2B7
General Enquiries: Telephone (416) 363-8721
Fax: (416) 364-2088
