-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WURzYNzPtIaQEJjjlmdH8N1OxExWEAPn6gjbW9WPH78SV2mf6nf0XrkpnuSwzUG/ QZQEw2qNC7q420UKeWVYMg== 0000950128-97-000601.txt : 19970225 0000950128-97-000601.hdr.sgml : 19970225 ACCESSION NUMBER: 0000950128-97-000601 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961211 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19970224 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HOLLINGER INTERNATIONAL INC CENTRAL INDEX KEY: 0000868512 STANDARD INDUSTRIAL CLASSIFICATION: NEWSPAPERS: PUBLISHING OR PUBLISHING & PRINTING [2711] IRS NUMBER: 953518892 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-14164 FILM NUMBER: 97542414 BUSINESS ADDRESS: STREET 1: 401 NORTH WABASH AVE STREET 2: SUITE 740 CITY: CHICAGO STATE: IL ZIP: 60611 BUSINESS PHONE: 3123212299 MAIL ADDRESS: STREET 1: 401 NORTH WABASH AVE STREET 2: SUITE 740 CITY: CHICAGO STATE: IL ZIP: 60611 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN PUBLISHING COMPANY DATE OF NAME CHANGE: 19940204 8-K/A 1 HOLLINGER INTERNATIONAL INC. 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------- FORM 8-K/A AMENDMENT NO. 1 CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ----------- Date of Report (Date of earliest event reported): December 11, 1996 Hollinger International Inc. (Exact name of registrant as specified in charter) Delaware 0-24004 95-3518892 (State or other (Commission (IRS employer jurisdiction of incorp.) file number) identification no.) 401 North Wabash Avenue, Chicago, Illinois 60611 (Address of principal executive office) (Zip code) Registrant's telephone number, including area code: (312) 321-2299 2 Pursuant to Item 7(a)(4) and (b)(2) of Form 8-K Hollinger International Inc. amends and restates Item 7 in its entirety as follows: Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. (a) Financial statements of businesses acquired. Southam Inc. Auditors' Report Consolidated Balance Sheets as of December 31, 1995 and September 30, 1996 (unaudited) Consolidated Statements of Income for the Year Ended December 31, 1995 and the Nine Months Ended September 30, 1996 (unaudited) Consolidated Statements of Changes in Financial Position for the Year Ended December 31, 1995 and the Nine Months Ended September 30, 1996 (unaudited) Notes to the Consolidated Financial Statements (b) Pro forma financial information. Hollinger International Inc. and Subsidiaries, Pro Forma Condensed Consolidated Balance Sheet as of September 30, 1996 (Unaudited) Pro Forma Condensed Consolidated Statement of Operations for the Nine Months Ended September 30, 1996 (Unaudited) Pro Forma Condensed Consolidated Statement of Operations for the Year Ended December 31, 1995 (Unaudited) Notes to Pro Forma Condensed Consolidated Financial Statements (Unaudited) (c) Exhibits. 23.1 Consent of KPMG -2- 3 AUDITORS' REPORT To the Board of Directors of SOUTHAM INC. We have audited the consolidated balance sheet of Southam Inc. as at December 31, 1995 and the consolidated statements of income, deficit and changes in financial position for the year ended December 31, 1995. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 1995 and the results of its operations and the changes in its financial position for the year ended December 31, 1995 in accordance with generally accepted accounting principles. Accounting principles generally accepted in Canada vary in certain significant respects from accounting principles generally accepted in the United States. A description of certain significant differences, as applicable to the Company, is included in note 16 to the consolidated financial statements. KPMG Chartered Accountants Toronto, Canada February 22, 1996 except to Note 16 which is as of February 18, 1997 4 CONSOLIDATED BALANCE SHEETS
December 31, September 30, (thousands of Canadian dollars) 1995 1996 -------- -------- (unaudited) ASSETS Current assets Cash and short-term investments $11,932 $69,860 Accounts receivable 170,618 143,290 Income taxes recoverable 6,129 -- Inventories (note 3) 23,851 17,002 Prepaid expenses 16,536 11,950 -------- -------- 229,066 242,102 -------- -------- Investments (note 4) Associated businesses 3,493 2,821 Other investments 23,515 6,074 Deferred income taxes recoverable 10,677 5,056 Fixed assets, less accumulated depreciation (note 5) 315,541 392,840 Goodwill, intangible and other assets (note 6) 240,823 309,359 -------- -------- $823,115 $958,252 ======== ======== LIABILITIES Current liabilities Accounts payable and accrued liabilities $124,756 $124,670 Income taxes payable 294 Deferred revenue 61,939 37,480 Current liability for workforce reduction (note 9) 23,155 23,206 Long-term debt due within one year (note 7) 7,785 -- -------- -------- 217,635 188,050 Long-term debt (note 7) 179,491 321,827 Non-current liability for workforce reduction (note 9) 66,725 41,725 Deferred income taxes -- -- -------- -------- 463,851 551,602 -------- -------- SHAREHOLDERS' EQUITY Capital stock (note 8) 441,743 443,426 Deficit (82,364) (36,583) Equity adjustment from foreign currency translation (115) (193) -------- -------- 359,264 406,650 -------- -------- $823,115 $958,252 ======== ========
Commitments and contingencies (note 15) 5 CONSOLIDATED STATEMENTS OF INCOME
Nine Months Year Ended Ended December 31, September 30, (thousands of Canadian dollars) 1995 1996 -------- -------- (unaudited) REVENUE FROM OPERATIONS Newspapers $ 846,262 $ 655,379 Business communications 176,083 145,196 ---------- ---------- 1,022,345 800,575 ---------- ---------- COST OF OPERATIONS Operating expenses 909,808 719,814 Depreciation 35,655 27,433 Amortization of goodwill and circulation 8,319 6,916 Interest (note 7) 9,152 8,770 ---------- ---------- 962,934 762,933 ---------- ---------- INCOME BEFORE SPECIAL CHARGES AND INCOME TAX 59,411 37,642 Special charges (note 9) (120,000) 38,663 ---------- ---------- (LOSS) INCOME BEFORE INCOME TAXES (60,589) 76,305 Income taxes (recoverable) (note 10) (21,693) 19,123 ---------- ---------- (LOSS) INCOME FROM CONTINUING OPERATIONS (38,896) 57,182 Loss from discontinued operations (note 11) (14,526) - ---------- ---------- NET (LOSS) INCOME $ (53,422) $ 57,182 ========== ========== (LOSS) INCOME PER COMMON SHARE From continuing operations $ (.51) .75 Discontinued operations (.19) - ---------- ---------- Net (loss) income $(.70) .75 ========== ========== Average number of common shares outstanding (note 8) 76,251,719 76,005,342 ========== ==========
CONSOLIDATED STATEMENTS OF DEFICIT
Nine Months Year Ended Ended December 31, September 30, (thousands of dollars) 1995 1996 -------- -------- (unaudited) BALANCE at beginning of period $ (9,400) $ (82,364) Net (loss) income (53,422) 57,182 ---------- ---------- (62,822) (25,182) ---------- ---------- Deduct Dividends on common shares Cash - 1996 $.20 per share 15,215 11,401 1995 $.15 per share Stock - 603 shares 8 - ---------- ---------- 15,223 11,401 ---------- ---------- Premium on redemption of common shares for cancellation (note 8) 4,319 - ---------- ---------- BALANCE at end of period $ (82,364) $ (36,583) ========== ==========
6 CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
Nine Months Year Ended Ended December 31, September 30, (thousands of Canadian dollars) 1995 1996 -------- -------- (unaudited) CASH PROVIDED FROM (USED FOR): OPERATIONS (Loss) income from continuing operations $ (38,896) $ 57,182 Add items not affecting cash: Depreciation 35,655 29,433 Amortization 8,442 6,996 Deferred income taxes (27,634) 5,600 Loss on sale of fixed assets and investments 113 -- Special charges 120,000 (38,634) ----------- -------- Cash flow from operations 97,680 58,577 (Used for) Provided from non-cash working capital, exclusive of payments related to workforce downsizing (note 13) (14,483) 28,135 ----------- -------- Payments related to workforce downsizing (note 9) (34,330) (24,949) ----------- -------- 48,867 61,763 ----------- -------- FINANCING ACTIVITIES Shares (redeemed) issued, net (7,068) 1,683 Dividends paid (15,215) (11,401) Payment under contingent value obligation (note 8) (19,697) -- Increase in long-term debt 62,776 134,551 ----------- -------- 20,796 (124,833 ----------- -------- INVESTMENT ACTIVITIES Additions to fixed assets (104,766) (93,711) Acquisition of subsidiaries (note 14) (9,212) (136,349) Investments acquired (1,183) (3,358) Increase in other assets (261) (81) Payments from employee stock purchase plans 857 564 Proceeds from sale of fixed assets and investments 13,570 104,132 Dividends from associated businesses 200 135 ----------- -------- (100,795) (128,668) ----------- -------- CASH (USED IN) PROVIDED FROM CONTINUING OPERATIONS (31,132) 57,928 CASH PROVIDED FROM DISCONTINUED OPERATIONS (note 11) 40,706 -- CASH, BEGINNING OF PERIOD 2,358 11,932 ----------- --------- CASH, END OF PERIOD $ 11,932 $ 69,860 =========== =========
7 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Tabulated dollars in thousands) 1. SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies followed by Southam Inc. and subsidiary companies are summarized hereunder. All policies conform to Canadian generally accepted accounting principles and have been consistently applied. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of all subsidiaries. The results of operations of subsidiaries are included in the consolidated financial statements from the dates of acquisition of control. TRANSLATION OF FOREIGN SUBSIDIARIES' FINANCIAL STATEMENTS The financial statements of foreign subsidiaries, all of which are self-sustaining, are translated using the current rate method whereby assets and liabilities are translated at year-end exchange rates and revenues and expenses at average exchange rates for the year. Adjustments arising from the translation of the financial statements are deferred and included in a separate component of shareholders' equity. INVENTORIES Materials and supplies included in inventories are valued at the lower of cost and replacement cost. Work in process is valued at the lower of cost and net realizable value and includes the cost of raw materials, direct labour and manufacturing overhead expenses. Retail merchandise is valued at the lower of cost and net realizable value less normal profit margin. FIXED ASSETS Land, buildings, machinery and equipment and leasehold improvements are stated at cost. The cost of major fixed assets acquired, constructed or developed over time includes costs related to interest and preproduction prior to the asset being substantially complete and ready for use. Depreciation is provided primarily on a straight line basis, using rates of 2 1/2 per cent per annum for buildings and 4 to 20 per cent per annum for machinery and equipment. Leasehold improvements are amortized over the term of the applicable lease. Capitalized preproduction costs are amortized over terms of up to 5 years from the date the asset is substantially complete and ready for use. GOODWILL AND INTANGIBLE ASSETS The excess cost of acquiring businesses over the value assigned to identifiable assets acquired is allocated first to intangible assets, mainly newspaper circulation, and then to goodwill. Purchased goodwill is recorded as an asset to be systematically amortized by charges to earnings over periods not to exceed 40 years. The amount assigned to newspaper circulation is amortized over 40 years. Unamortized amounts related to goodwill and circulation will be written down in the event that estimated undiscounted future net cash flows are less than the net carrying values. PENSION COSTS Pension costs related to current service are charged to income for the period during which the services are rendered. This cost reflects management's best estimates of the pension plans' expected investment yields, salary escalations, mortality of members, terminations and the ages at which members will retire. Adjustments arising from plan amendments, experience gains and losses and changes in assumptions are being amortized over the expected average remaining service life of employees. 2. SEGMENTED INFORMATION Additional industry and geographic segmented information is set out under the heading Segmented Information and forms part of these consolidated financial statements. The industry and geographic segments for the company and its principal wholly owned subsidiaries are as follows: 8
INDUSTRY CORPORATE ENTITY GEOGRAPHIC LOCATION - -------- ---------------- ------------------- Newspapers Southam Inc. Canada Business communications Southam Inc. Canada-United States Book retailing (note 11) Coles Book Stores Limited Canada Graphics (note 11) Dittler Brothers, Incorporated United States
3. INVENTORIES
1995 ------- Materials and supplies $23,851 Work in process Retail merchandise ------- $23,851 =======
4. INVESTMENTS ASSOCIATED BUSINESSES
1995 ------ Carrying value of investments at beginning of year $2,538 Equity in earnings 140 Dividends received (200) Investments, dispositions & reclassifications 1,015 ------ Carrying value of investments at end of year $3,493 ======
OTHER INVESTMENTS Other investments includes an amount of $18,016,000 at December 31, 1995 representing the value of minority interests and notes receivable taken back in connection with the sale of discontinued operations (note 11). Interest income of $1,080,000 related to these notes is netted against interest expense. Investments in associated businesses are accounted for on the equity basis and other investments are accounted for on the cost basis. 5. FIXED ASSETS
1995 -------- Cost: Land $34,017 Buildings 164,266 Machinery and equipment 470,286 Leasehold improvements 1,950 -------- 670,519 -------- Less accumulated depreciation: Buildings 63,405 Machinery and equipment 290,784 Leasehold improvements 789 -------- 354,978 -------- Net book value $315,541 ========
The company capitalized interest in 1995 amounting to $1,249,000 related to the construction and equipping of major production facilities for its newspapers. The net carrying amount of these projects at December 31, 1995 for which depreciation had not commenced was $45,868,000. 6. GOODWILL, INTANGIBLE AND OTHER ASSETS
1995 -------- Goodwill, at amortized value $197,611 Newspaper circulation, at amortized value 41,058 Other 2,154 -------- $240,823 ========
7. LONG-TERM DEBT
1995 -------- Short-term promissory notes at variable rates of interest (a) (d) Cdn. averaging 6.5% $41,500 U.S. averaging 6.0% 13,776 Notes Maturing 1995, at 8.3% (a) (c) 7,000 Maturing 2000, at 7.90% 50,000 Maturing 2005, at 8.47% 75,000 -------- 187,276 Less amounts included in current liabilities 7,785 -------- $179,491 ========
9 (a) The company's $200 million credit facilities with banks provide committed lines of credit to July 31, 1996. A term loan option provides for repayments in 1996 through 1998 as disclosed in (b) below. The amount of the credit facility not borrowed at December 31, 1995 was $198 million. The credit facilities are used primarily to support short-term promissory note issuance and for general corporate purposes. (b) Under the term loan option described in (a) above, the long-term debt repayments including the term portion of the credit facility are: 1996 -- $7,785,000; 1997 -- $31,138,000; 1998 -- $20,759,000. (c) The registered holder of a $7,000,000 note due December 15, 1995 was unable to redeem it at maturity due to a dispute between it, its Canadian parent and its U.S. subsidiary over legal title. The parties are involved in bankruptcy proceedings in their respective jurisdictions. The note will be redeemed when the issue of legal title is resolved. Interest is not payable after the maturity date. (d) The company has converted a portion of its variable rate interest exposure to fixed rate. The company entered into a ten year $25,000,000 fixed rate interest swap at 8.7%, maturing May, 2004. A 20 month $25,000,000 fixed rate interest swap at 6.2%, matured December, 1995. The company pays interest at the fixed rate and it receives interest based on the three month bankers acceptance rate, which is reset quarterly, on the nominal principal. Interest expense related to continuing operations is comprised as set out below. In addition, interest expense allocated to discontinued operations is comprised as set out below. In addition, interest expense allocated to discontinued operations in the year amounted to $260,000.
1995 ------- Long-term debt $10,232 Other income (1,080) ------- $ 9,152 =======
8. CAPITAL STOCK The authorized share capital of the company is an unlimited number of common shares. COMMON SHARES The issue or transfer of the company's shares to non-Canadian persons or corporations is restricted to a maximum of 25 per cent of the number of shares outstanding. This restriction ensures that the company will continue to have Canadian status so that advertisers may deduct, for income tax purposes, the cost of advertising in any of its publications. SUMMARY OF COMMON SHARE TRANSACTIONS
Common shares: 1995 - -------------- ----------------------- Shares Amount ---------- -------- Issued at January 1 76,443,066 $464,181 Stock dividends (a) 603 8 Employee stock investment plans Executive stock option plan (b) 34,400 435 ---------- -------- 76,478,069 464,624 Less: Shares purchased for cancellation (c) 524,200 3,184 Payment under contingent value obligation (d) 19,697 ---------- -------- Issued at December 31 75,953,869 $441,743 ========== ======== Average number of common shares outstanding 76,251,719 ==========
10 (a) During the second quarter of 1995 the company terminated the stock dividend program by which shareholders could elect to receive dividends in shares. (b) Under the company's executive stock option plan, the principal terms of which are described below, options for 34,400 shares at a price of $12.63 per share were exercised. (c) The company repurchased 524,200 common shares for a cash consideration of $7,503,000. The excess purchase price over the average carrying value of the shares, which amounted to $4,319,000, was charged to deficit. (d) In connection with the acquisition of a subsidiary in 1990, the company committed under a contingent value obligation to the payment in November, 1995 of an amount equal to 1.1 million times the excess, if any, of $32 over the market price of the company's shares at a specified earlier date in 1995. An amount of $19,697,000 was paid pursuant to the contingent value obligation, which has been recorded as a reduction in capital stock. Under the company's employee share purchase plan, employees may subscribe for common shares to be paid through payroll deductions over two-year periods at a purchase price which is the lower of the market price on the entry date or the market price at the end of the payment period. At December 31, outstanding employee subscriptions were as follows:
1995 ----------------------- Maturity April, 1997 July, 1996 - -------- ----------- ---------- Subscription price $ 15.11 $ 17.17 Number of shares 39,432 71,042
On February 8, 1995 the Board of Directors approved amendments to the Executive Share Purchase Plan to convert it into a stock option plan. Under the Stock Option Plan, eligible employees may be granted options to acquire common shares of the company at a price which is not less than the weighted average trading price on The Toronto Stock Exchange for the three days prior to the date of the grant. The maximum number of common shares which may be available for award is 3,800,000. Participants may exercise, on or after the first anniversary of the date of grant up to 25% of the common shares subject to option and a further 25%, on a cumulative basis, on or after each of the second, third and fourth anniversaries. Shares must be paid for in full on exercise of an option. Options may be immediately and fully exercisable on retirement, may be exercised in part upon termination of employment otherwise than for cause, are not assignable and expire six years after the date of grant. The effective date of outstanding stock option grants, the maximum number of shares which may be exercised under the grant and the exercise price, as at December 31, 1995, are as follows:
Number of Exercise Effective Date of Grant Shares Price - ----------------------- --------- ------- December 20, 1993 351,000 $17.31 March 14, 1994 213,000 $18.29 February 9, 1995 343,300 $12.63 May 1, 1995 60,000 $15.28 May 15, 1995 15,000 $15.31 September 1, 1995 20,000 $13.66 --------- 1,002,300 =========
11 9. SPECIAL CHARGES Special charges are comprised as follows:
1995 -------- Provision for workforce reduction $ 80,000 Write down of carrying value of fixed assets 30,000 Other 10,000 -------- $120,000 ========
During the year the company established a plan to reduce manpower costs in its newspaper operations, under which a total of 700 full-time-equivalent positions are expected to be eliminated. Included in special charges is an amount of $80,000,000 representing the estimated cost of this workforce reduction plan. The company is making major investments to upgrade certain of its production facilities which will involve the sale of existing facilities. Included in special charges is an amount of $30,000,000 to reduce the carrying amount of fixed assets to their net recoverable amount. Other special charges of $10,000,000 includes the write down in the carrying value of investments and other non-recurring costs. Payments related to workforce downsizing of $34,330,000 in 1995 are associated with a previous downsizing program. 10. INCOME TAXES (RECOVERABLE)
1995 -------- Current $ 5,941 Deferred (27,634) -------- INCOME TAXES $(21,693) ========
The following table reconciles the statutory federal and provincial income tax rate to the consolidated effective tax rate on the income before income taxes.
1995 -------- Loss before income taxes $(60,589) -------- Recovery of income taxes based on combined basic Canadian federal and provincial income tax rate of 44.9% $(27,204) Adjustment to taxes resulting from: Manufacturing and processing profits deduction 5,224 Non-deductibility of amortization of goodwill 2,091 Benefit of lower United States tax rates and previously unrecognized U. S. tax loss carryforwards (3,307) Other 1,503 -------- $(21,693) ======== Effective income tax rate 35.8% ========
At December 31, 1995, for income tax purposes, the company has U.S. net operating loss carryforwards of approximately $34,000,000 which expire between 2005 and 2007. The potential benefit of utilizing these loss carryforwards has not been recognized in these consolidated financial statements. 11. DISCONTINUED OPERATIONS On April 11, 1995 the company completed the sale of Coles Book Stores Limited, its book retailing segment. Accordingly this segment has been treated as a discontinued operation and the Consolidated Statements of Income and Consolidated Statements of Changes in Financial Position for 1995 segregate the results of operations and changes in financial position related thereto. 12 Additional information related to the book retailing segment is as follows:
1995 -------- Revenue from operations $ 47,449 -------- Operating loss before income taxes (3,404) Income taxes recoverable (1,341) -------- Operating loss (2,063) Loss on disposition (taxes - nil) (463) -------- Loss from discontinued operations $ (2,526) ========
In 1991 the company approved a formal plan to divest its graphics operations and this segment was treated as a discontinued operation in that year. A provision for loss on disposition was recorded in 1991 and an additional provision was recorded in 1992. These provisions included estimated results of operations of unsold graphics businesses between the date of the formal plan to divest and the estimated disposal dates. Subsequent operating results were recorded against the provisions. In 1995, the last significant graphics property, Dittler Brothers Incorporated, a printing company headquartered in Atlanta, Georgia, was sold. Proceeds were less than the company's carrying value and the loss from discontinued operations in 1995 includes a loss of $12,000,000 related to the sale of Dittler as well as an adjustment of the carrying value of other residual graphics assets and liabilities. Revenues of the graphics operations amounted to $94,039,000 in 1995. The loss from discontinued operations included in the Consolidated Statements of Income for 1995 of $14,526,000 is composed of a loss of $2,526,000 related to book retailing and a loss of $12,000,000 from graphics. These results include an allocation of interest expense relative to assets employed (note 7). Changes in financial position related to discontinued operations are summarized below:
1995 --------- OPERATIONS Operating income (loss) related to discontinued operations: Book retailing $ (2,063) Graphics 2,684 -------- 621 Add (deduct) items not affecting cash: Depreciation 5,661 Amortization 222 Gain on sale of fixed assets and investments -------- Cash flow from operations 6,504 Used for non-cash working capital (34,462) -------- (27,958) -------- INVESTMENT ACTIVITIES Additions to fixed assets (6,668) Proceeds from sale of fixed assets and investments, net of disposition costs 75,332 -------- 68,664 -------- Cash provided from discontinued operations $ 40,706 ========
12. PENSION PLANS The company's defined benefit pension plans are contributory plans that provide benefits based on length of service and final average earnings. The company has an obligation to ensure there are sufficient funds in the plans to pay the benefits earned. A retirement allowance arrangement applicable to certain full-time management level employees provides additional pension benefits which the company does not pre-fund. The company also contributes to various 13 union sponsored multi-employer pension plans. The only obligation of the company pertains to the remittance of required employer annual contributions. The status of the defined benefit pension plans and retirement allowance arrangement at December 31 is as follows:
1995 -------- Market value of assets $462,865 Projected benefit obligation 447,034 -------- Surplus of funded plans $ 15,831 ======== Projected benefit obligation of retirement allowance arrangement $ 17,079 ========
The components of pension expense are as follows:
1995 -------- Defined benefit plans and retirement allowance arrangement $ 8,427 Employer contributions to multi-employer plans 2,891 -------- Pension expense $ 11,318 ========
13. WORKING CAPITAL CHANGES Cash provided from (used for) changes in non-cash working capital, exclusive of payments related to workforce downsizing, is as follows:
1995 -------- Accounts receivable $1,946 Inventories (9,970) Prepaid expenses (1,153) Accounts payable and accrued liabilities (5,265) Income taxes (4,087) Deferred revenue 4,046 -------- Cash (used for) non-cash working capital $(14,483) ========
14. ACQUISITION OF SUBSIDIARIES The company acquired, during the years noted, the following businesses which were accounted for using the purchase method, whereby operating results are included from the date of acquisition. 1995 BUSINESS COMMUNICATIONS - - In the first quarter, the shares of a company producing 18 consumer shows in the western United States. - - In the second quarter, the assets of five consumer shows in Ottawa, Ontario, one consumer and two trade shows in Toronto, Ontario and one consumer show in Buffalo, New York. - - In the third quarter, the shares of a company producing a consumer show in Winnipeg, Manitoba. - - In the fourth quarter, the shares of a company producing three trade shows in Alberta and one trade show in Toronto, Ontario and the assets of a travel directory business in the United States.
1995 -------- Non-cash assets acquired: Working capital $ (373) Fixed assets 192 Goodwill 9,393 -------- Net non-cash assets acquired 9,212 Cash assumed 164 -------- Net assets acquired at fair value for cash $ 9,376 ========
15. COMMITMENTS AND CONTINGENCIES (a) The company has obligations under long-term operating leases extending for various periods to the year 2017. The minimum aggregate payments in each of the next five years are 14 1996 -- $7,213,000, 1997 -- $5,442,000, 1998 -- $4,078,000, 1999 -- $3,093,000, 2000 -- $2,219,000 and $20,702,000 thereafter. (b) The company is in the process of constructing and equipping production facilities for certain of its newspapers. The company has contracted for, or intends to contract for, a total of $200,000,000 over the period 1996 to 1998 in connection with completion of these projects. (c) At December 31, 1995, the company had $49 million U.S. of forward exchange contracts outstanding in connection with its strategy of hedging currency exposure on its United States assets. These contracts have been marked to market at December 31, 1995 and the unrealized gain of $52,000 is reflected within Equity adjustments from foreign currency translation on the Consolidated Balance Sheets. (d) In 1991, the Director of Investigation and Research applied to the Competition Tribunal for orders directing the company to dispose of certain newspaper properties, published in Vancouver and the Lower Mainland area of British Columbia, which were acquired by the company in 1990. The Competition Tribunal accepted the Director's application in part, and concluded that competition had been lessened in the market for residential real estate advertising services in Vancouver's North Shore. The Tribunal ordered the company to dispose of either the North Shore News or The Real Estate Weekly. In August 1995, the Federal Court of Appeal confirmed this order. It also ordered a rehearing by the Tribunal of the part of the case involving the Vancouver Courier and the North Shore News, relating to competition in the supply of print advertising services to Vancouver retailers. The company has been granted leave to appeal the decisions of the Federal Court of Appeal to the Supreme Court of Canada. The Federal Court of Appeal's rehearing order and divestiture ruling have been stayed. The company is unable to assess at this time the economic impact, if any, that would result from a final divestiture order. (e) A number of libel and other legal actions against the company are outstanding. The company believes there are valid defenses to these proceedings or sufficient insurance to protect it from material loss. 16. RECONCILIATION TO UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP) General The following represents additional information to the Consolidated Financial Statements of the Company that were prepared in accordance with Canadian GAAP. Set out below are the material adjustments (net of deferred taxes where applicable) to net income for the year ended December 31, 1995 and the nine months ended September 30, 1996 and shareholders' equity as at December 31, 1995 and as at September 30, 1996 which would need to be made in order to conform to accounting principles generally accepted in the United States. 15 NET INCOME
Nine Months Year Ended Ended December 31, September 30, 1995 1996 -------- -------- (unaudited) NET INCOME (LOSS) FOR THE PERIOD BASED ON CANADIAN GAAP $(53,422) $57,182 Preproduction costs (a) .................................. 668 -- Adjustment to income taxes (b) ........................... 1,642 -- Postretirement benefits other than pensions (c) .......... (3,414) (2,560) -------- ------- NET INCOME (LOSS) FOR THE PERIOD BASED ON U.S. GAAP ...... $(54,526) $54,622 ======== =======
SHAREHOLDERS' EQUITY
December 31, September 30, 1995 1996 -------- -------- (unaudited) SHAREHOLDERS' EQUITY BASED ON CANADIAN GAAP .............. $359,264 $406,650 Income taxes (b) ......................................... 4,031 4,031 Postretirement benefits other than pensions (c) .......... (3,414) (5,974) -------- -------- SHAREHOLDERS' EQUITY BASED ON U.S. GAAP .................. $359,881 $404,707 ======== ========
The areas of material difference between Canadian and U.S. GAAP and their impact on the consolidated financial statements of the Company are set out below. (a) Preproduction Costs The deferral of preproduction costs is not permitted under U.S. GAAP. (b) Income Taxes The deferral method of providing for income taxes is used under Canadian GAAP. Under U.S. GAAP, the asset and liability method of accounting for income taxes must be used. 16 (c) Postretirement and postemployment benefits other than pensions US GAAP requires that an employer's obligation for postretirement and postemployment benefits expected to be provided to or for an employee be fully accrued by the date that the employee attains full eligibility for all of the benefits. Under Canadian GAAP, such benefits can be expensed as paid. (d) Earnings per share
Nine Months Year Ended Ended December 31, September 30, 1995 1996 -------- -------- (unaudited) Net income (loss) per common share and common equivalent share: $(0.71) $0.71
Earnings per share amounts in accordance with U.S. GAAP are based on U.S. GAAP net earnings. Earnings per common share and common equivalent share were computed by dividing net earnings by the weighted average number of shares of common stock and common stock equivalents outstanding during the year, computed by application of the treasury stock method. Canadian GAAP includes common stock equivalents in the earnings per share calculation only if dilutive. Common equivalent shares are shares issued under the Executive Share Purchase Plan. 17 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION The following sets forth unaudited pro forma financial information for Hollinger International Inc. and subsidiaries as of and for the periods noted. The pro forma condensed consolidated balance sheet as of September 30, 1996 and the pro forma condensed consolidated statements of operations for the twelve months ended December 31, 1995 and the nine months ended September 30, 1996 reflect (1) (y) the acquisition of an additional 10.4% of outstanding common shares of Southam in the fourth quarter of 1996 and (z) the consolidation of historical International Group operations (which includes 40.3% of Southam and 100% of The Telegraph), (2) the consolidation of historical Southam operations less the pro forma activity for discontinued operations of the Southam Show group and the Construction Data group which were sold in the third and fourth quarters of 1996, respectively plus (a) the acquisition of seven newspapers in Ontario, Canada and (b) pro forma activity for Southam's fourth quarter 1996 acquisition of seven additional newspapers in eastern Canada and (3) the sale of the 19.9% interest in Fairfax (the sale of the remaining 4.9% interest held by a subsidiary of the Company is treated as a contingent sale for United States accounting purposes). The above transactions have been reflected in the pro forma condensed consolidated balance sheet as of September 30, 1996 assuming that the transactions had been consummated as of that date and the pro forma condensed consolidated statements of operations for the twelve months ended December 31, 1995 and the nine months ended September 30, 1996 assuming the transactions had been consummated as of January 1, 1995. 18
HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET SEPTEMBER 30, 1996 (IN THOUSANDS) (UNAUDITED) PRO FORMA ADJUSTMENTS HOLLINGER PRO FORMA ----------------------------- PRO FORMA INTERNATIONAL INC. (a) SOUTHAM (b) DEBIT CREDIT TOTAL ----------------------- ----------- ------------ -------------- ------------ Current assets: Cash and cash equivalents $ 94,768 80,275 341,300 (c) 51,517 (d) 123,526 341,300 (f) Accounts receivable, net 146,925 108,194 255,119 Inventories 18,608 12,947 31,555 Other current assets 17,995 8,954 900 (d) 27,849 ------------- ---------- ---------- Total current assets 278,296 210,370 438,049 Investments in affiliates, at equity 753,830 2,071 4,958 (d) 50,553 (e) 459,459 250,847 (c) Property, plant and equipment, net 190,799 303,206 494,005 Intangible assets, net 874,304 272,230 112,514 (d) 220,191 (e) 1,038,857 Other assets 500,932 8,172 509,104 ------------- ---------- ---------- $ 2,598,161 796,049 2,939,474 ============= ========== ========== Current liabilities: Bank indebtedness $ 587,328 0 341,300 (f) 66,855 (d) 312,883 Current installments of long term debt 34,826 0 34,826 Accounts payable 34,813 92,604 127,417 Accrued expenses 87,949 16,814 104,763 Income taxes payable 9,364 7,604 16,968 Deferred revenue 28,137 26,627 54,764 Due to Hollinger Inc. (1,095) 0 (1,095) ------------- ---------- ---------- Total current liabilities 781,322 143,649 650,526 Long term debt, less current installment 371,908 300,765 672,673 Deferred income taxes 75,564 0 20,636 (c) 54,928 Capital lease obligations 12,730 0 12,730 Other liabilities 21,621 31,736 53,357 ------------- ---------- ---------- Total liabilities 1,263,145 476,150 1,444,214 ------------- ---------- ---------- Minority interest 0 0 49,155 (e) 49,155 ------------- ---------- ---------- Redeemable preference shares of DTH and FDTH 527,246 0 527,246 ------------- ---------- ---------- Series A Redeemable Stock 79,612 0 79,612 ------------- ---------- ---------- Stockholders' Equity 728,158 319,899 319,899 (e) 111,089 (c) 839,247 ------------- ---------- ---------- $ 2,598,161 796,049 2,939,474 ============= ========== ==========
19
HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 1996 (IN THOUSANDS) (UNAUDITED) PRO FORMA ADJUSTMENTS HOLLINGER PRO FORMA ----------------------------- PRO FORMA INTERNATIONAL INC. (a) SOUTHAM (b) DEBIT CREDIT TOTAL ----------------------- ----------- ------------ -------------- ------------ Operating revenues $ 774,782 564,564 1,339,346 Operating costs and expenses 679,225 498,881 1,178,106 Depreciation and amortization 39,320 25,464 2,109 (g) 71,894 5,001 (o) ------------- -------- ---------- Operating income 56,237 40,219 89,346 Other income (expense): Interest expense, net (48,007) (7,491) 2,160 (h) 20,191 (k) (65,327) 22,351 (p) 5,509 (q) Equity in earnings of affiliates 20,254 0 20,910 (i) 9,246 (r) 4,366 3,995 (j) 229 (o) Other income, net 6,926 0 6,926 ------------- -------- ---------- Earnings before income taxes, extraordinary item, and minority interest 35,410 32,728 35,311 Income taxes 14,673 13,654 3,641 (l) 24,686 ------------- -------- ---------- Earnings before extraordinary item and minority interest 20,737 19,074 10,625 Extraordinary item (2,150) 0 (2,150) ------------- -------- ---------- Earnings before minority interest 18,587 19,074 8,475 Minority interest 12,770 0 9,403 (m) 3,537 (u) 18,636 ------------- -------- ---------- Net earnings (loss) $ 5,817 19,074 (10,161) ============= ======== ==========
20
HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS TWELVE MONTHS ENDED DECEMBER 31, 1995 (IN THOUSANDS) (UNAUDITED) PRO FORMA ADJUSTMENTS HOLLINGER PRO FORMA ----------------------------- PRO FORMA INTERNATIONAL INC. (a) SOUTHAM (b) DEBIT CREDIT TOTAL ----------------------- ----------- ------------ -------------- ------------ Operating revenues $ 964,967 725,532 1,690,499 Operating costs and expenses 857,091 632,086 1,489,177 Depreciation and amortization 52,388 33,352 2,813 (g) 97,182 8,629 (o) Restructuring charge 0 87,420 87,420 ------------- -------- ---------- Operating income 55,488 (27,326) 16,720 Other income (expense): Interest expense, net (38,599) (8,105) 2,881 (h) 35,076 (k) (80,208) 900 (n) 15,263 (q) 3,300 (s) 37,236 (p) 9,000 (t) Equity in earnings of affiliates 16,449 0 19,789 (j) 22,974 (i) 7,323 12,006 (r) 305 (o) Other income, net 13,609 56,669 111,089 (c) 181,367 ------------- -------- ---------- Earnings before income taxes and minority interest 46,947 21,238 125,202 Income taxes 18,108 1,131 18,282 (l) 957 ------------- -------- ---------- Earnings before minority interest 28,839 20,107 124,244 Minority interest 22,637 0 9,913 (m) 13,256 (u) 19,294 ------------- -------- ---------- Net earnings $ 6,202 20,107 104,950 ============= ======== ==========
21 HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) The pro forma adjustments reflect the following: (a) Represents Hollinger International Inc.'s historical operations. (b) Represents Southam's historical operations as adjusted to reflect the acquisitions of a total of 14 newspapers and the discontinuance and sale of Southam's Show group and Construction Data group and the associated financing of approximately $88.6 million. Southam intends to apply a significant portion of its cash balances to debt reduction. (c) Represents the sale and the gain on sale of a 19.9% investment in Fairfax. For financial reporting purposes, the sale of 12.0% of this investment was recorded as a 1996 transaction, and 7.9% will be recorded as a 1997 transaction. The remaining 4.9% interest in Fairfax is treated as a contingent sale. (d) Represents the acquisition of the additional 10.4% interest in Southam, the funds borrowed to fund the acquisition, and the financing fees incurred for the bank credit facilities used to finance the acquisition. (e) Represents the elimination of the Company's 50.7% ownership interest in consolidating Southam and the related purchase accounting adjustment. (f) Represents the repayment of bank debt from the sale of a 19.9% investment in Fairfax. (g) Represents the amortization of the intangible assets arising on the acquisition of the additional 10.4% interest in Southam amortized on a straight line basis over 40 years. (h) Represents interest expense on the funds borrowed to fund the acquisition of the additional 10.4% interest in Southam. (i) Represents the elimination of the equity earnings of Southam. (j) Represents the elimination of the equity earnings of Fairfax. (k) Represents the elimination of interest expense resulting from the proceeds of the $341.3 million from the sale of Fairfax used to pay down bank indebtedness. (l) Represents the tax effect of the pro forma adjustments. (m) Represents the minority stockholders' interest in Southam's net earnings. (n) Represents the amortization of the financing fees incurred on the funds borrowed to fund the additional 10.4% interest in Southam. (o) Represents the amortization of the excess purchase price on the acquisition of all of the minority interest shares of The Telegraph. The preliminary allocation of the excess purchase price results in $12.2 million ascribed to the investment in Fairfax and $345.2 million ascribed to intangible assets of The Telegraph, both of which are amortized on a straight line basis over 40 years. (p) Represents interest expense on the net funds borrowed to fund the acquisition of Telegraph Minority Shares and repayment of Telegraph bank loans. (q) Represents interest expense on the funds borrowed to fund the acquisition of the additional 21.2% Southam interest. (r) Represents the additional equity earnings (loss) of Southam, net of the amortization of the underlying intangible assets, as a result of the acquisition of an additional 21.2% interest in Southam. (s) Represents amortization of approximately $3.3 million of financing fees over the term of the facility in respect of the bank credit facility used to finance the additional 21.2% shares of Southam. (t) Represents amortization of approximately $9.0 million of financing fees over the term of the facility in respect of the bank credit facilities used to finance the acquisition of the Telegraph Minority Shares and to repay the Telegraph bank loans. (u) Represents the elimination of the minority stockholders' interest in The Telegraph's net earnings resulting from the acquisition of the Telegraph Minority Shares. 22 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this amendment to this report to be signed on its behalf by the undersigned thereunto duly authorized. HOLLINGER INTERNATIONAL INC. By: /s/ KENNETH L. SEROTA ------------------------- Kenneth L. Serota Title: Vice President -- Law and Finance Date: February 24, 1997 23 EXHIBIT INDEX Exhibit No. Description ----------- ----------- 23.1 Consent of KPMG EX-23.1 2 HOLLINGER INTERNATIONAL INC. 1 Exhibit 23.1 The Board of Directors Hollinger International Inc. and Hollinger International Publishing Inc. We consent to the incorporation by reference in the registration statements (No. 333-04697 and No. 333-1711) on Form S-3 and (No. 33-88810) on Form S-8 of Hollinger International Inc. and the registration statement (No. 333-17113) of Form S-3 of Hollinger International Publishing Inc. of our report dated February 22, 1996 except to Note 16 which is as of February 18, 1997 with respect to the consolidated balance sheet of Southam Inc. as at December 31, 1995, and the related consolidated statements of income, deficit, and changes in financial position for the year ended December 31, 1995, which report appears in the Form 8-K/A of Hollinger International Inc. dated February 24, 1997. /s/ KPMG Chartered Accountants Toronto, Canada February 24, 1997 -----END PRIVACY-ENHANCED MESSAGE-----