Hollinger International, Inc. 6/30/01

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2001

OR

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to _____________

Commission File No. 0-24004

HOLLINGER INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)

     
Delaware 95-3518892


(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
     
401 North Wabash Avenue, Suite 740, Chicago, Illinois 60611

(Address of Principal executive offices) (Zip Code)

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

      Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  X    No     

      Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

         
Class Outstanding at August 8, 2001


Class A Common Stock par value $.01 per share 92,463,375 shares
 
Class B Common Stock par value $.01 per share 14,990,000 shares


INDEX

HOLLINGER INTERNATIONAL INC.

         
PART I FINANCIAL INFORMATION PAGE
Item 1 Condensed Financial Statements 1
Item 2 Management's Discussion and Analysis of Results of Operations and Financial Condition. 10
Item 3 Quantitative and Qualitative Analysis about Market Risk 19
PART II OTHER INFORMATION
Item 6 Exhibits and reports on Form 8-K 21
Signatures 22


PART I. FINANCIAL INFORMATION

Item 1. Condensed Financial Statements

HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months and Six Months Ended June 30, 2001 and June 30, 2000
(Amounts in Thousands, Except Per Share Data)
(Unaudited)

                                     
Three Months Ended June 30     Six Months Ended June 30


2001 2000 2001 2000




Operating revenues:
Advertising $ 215,191 $ 427,013 $ 450,186 $ 830,190
Circulation 72,989 117,392 147,226 238,434
Job printing 6,525 15,188 13,841 30,185
Other 11,468 14,522 21,270 24,530




Total operating revenues 306,173 574,115 632,523 1,123,339




Operating costs and expenses:
Newsprint 55,850 79,896 113,529 157,054
Compensation costs 96,619 178,302 198,070 354,112
Stock-based compensation (195 ) (878 )
Other operating costs 141,913 210,954 286,973 411,006
Infrequent items 1,672 1,710 3,855 4,330
Depreciation 9,677 16,272 18,847 32,705
Amortization 9,366 15,232 18,737 31,107




Total operating costs and expenses 314,902 502,366 639,133 990,314




Operating income (loss) (8,729 ) 71,749 (6,610 ) 133,025
Other income (expense):
Interest expense (20,741 ) (36,770 ) (39,846 ) (71,758 )
Amortization of debt issue costs (2,537 ) (2,585 ) (4,696 ) (5,159 )
Interest and dividend income 21,176 1,370 45,544 2,455
Other income, net (14,799 ) (4,241 ) (4,862 ) 20,860




Total other income (expense) (16,901 ) (42,226 ) (3,860 ) (53,602 )




Earnings (loss) before income taxes and
 minority interest
(25,630 ) 29,523 (10,470 ) 79,423
Provision for (recovery of) income taxes (2,339 ) 10,587 7,789 29,859




Earnings (loss) before minority interest (23,291 ) 18,936 (18,259 ) 49,564
Minority interest (7,756 ) 14,200 (4,110 ) 16,677




Net earnings (loss) $ (15,535 ) $ 4,736 $ (14,149 ) $ 32,887




Basic earnings (loss) per share $ (0.17 ) $ 0.03 $ (0.19 ) $ 0.29




Diluted earnings (loss) per share $ (0.17 ) $ 0.02 $ (0.19 ) $ 0.27




Weighted average shares outstanding-basic 101,830 98,539 100,346 98,538




Weighted average shares outstanding-diluted 101,830 104,096 100,346 104,993




1


HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Three and Six Months Ended June 30, 2001 and June 30, 2000
(Amounts in Thousands)
(Unaudited)

                                     
Three Months Ended June 30 Six Months Ended June 30


2001 2000 2001 2000




Net earnings (loss) $ (15,535 ) $ 4,736 $ (14,149 ) $ 32,887
Other comprehensive income (loss):
Unrealized gain (loss) on securities available 56,649 (8,671 ) 38,841 2,046
for sale
Foreign currency translation adjustment 10,271 (41,427 ) (35,447 ) (55,709 )




Comprehensive income (loss) $ 51,385 $ (45,362 ) $ (10,755 ) $ (20,776 )




2


HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
As of June 30, 2001 and December 31, 2000
(Amounts in Thousands)

                   
June 30, December 31,
2001 2000


(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 136,477 $ 137,671
Accounts receivable, net 264,122 275,826
Due from affiliates 41,546 39,692
Inventories 31,583 21,834
Other current assets 12,598 11,289


Total current assets 486,326 486,312
Investments 946,279 899,078
Property, plant and equipment, net of accumulated depreciation 337,556 360,596
Intangible assets, net of accumulated amortization 879,927 938,314
Deferred financing costs and other assets 39,370 66,697


$ 2,689,458 $ 2,750,997


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current installments of long-term debt $ 3,430 $ 4,753
Accounts payable and accrued expenses 258,127 292,381
Income taxes payable 376,706 386,678
Deferred revenue 53,037 60,006


Total current liabilities 691,300 743,818
Long-term debt, less current installments 874,665 807,495
Deferred income taxes 158,714 185,846
Other long-term liabilities 55,964 54,325


Total liabilities 1,780,643 1,791,484


Minority interest 72,500 89,228


Redeemable preferred stock 12,932 13,088


Stockholders’ equity:
Convertible preferred stock
Class A common stock 1,032 1,060
Class B common stock 150 150
Additional paid-in capital 638,089 748,503
Accumulated other comprehensive income (160,250 ) (163,644 )
Retained earnings 488,050 531,156


967,071 1,117,225
Class A common stock in treasury, at cost (132,896 ) (258,604 )
Issued shares in escrow (10,792 ) (1,424 )


Total stockholders’ equity 823,383 857,197


$ 2,689,458 $ 2,750,997


3


HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the Six Months Ended June 30, 2001 and June 30, 2000
(Amounts in Thousands)
(Unaudited)

                     
2001 2000


Cash Flows From Operating Activities:
Net earnings (loss) $ (14,149 ) $ 32,887
Items not involving cash:
Depreciation and amortization 37,584 63,812
Amortization of debt issue costs 4,696 5,159
Minority interest (4,110 ) 16,677
Gain on sale of investments (55 ) (31,024 )
Gain on sale of assets (56,465 ) (4 )
Non-cash interest (33,077 )
Other non-cash items 27,521 9,534
Changes in working capital, net (11,663 ) (53,818 )


Cash provided by (used in) operating activities (49,718 ) 43,223


Cash Flows From Investing Activities:
Capital expenditures (17,524 ) (35,007 )
Additions to investments (45,821 ) (42,936 )
Acquisitions, net (1,945 )
Proceeds from disposal of investments 1,143 46,385
Proceeds from disposal of assets 84,709 1,552
Other investing activities (1,230 )


Cash provided by (used in) investing activities 22,507 (33,181 )


Cash Flows From Financing Activities:
Proceeds from long-term debt 67,394 159,464
Repayments of long-term debt (3,882 ) (89,770 )
Payment of debt issue costs (2,236 )
Dividends and distributions to minority interests (12,983 ) (7,280 )
Cash dividends paid (28,957 ) (32,929 )
Other financing activities 3,658 (5,723 )


Cash provided by financing activities 25,230 21,526


Effect of exchange rate changes on cash 787 (1,582 )


Net increase (decrease) in cash and cash equivalents (1,194 ) 29,986
Cash and cash equivalents at beginning of period 137,671 39,903


Cash and cash equivalents at end of period $ 136,477 $ 69,889


Cash paid for interest $ 36,714 $ 69,939


Cash paid for taxes $ 34,959 $ 21,931


4


HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements
(Unaudited)

Note 1 — Unaudited Financial Statements

      The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. It is presumed that the reader has already read the Company’s Annual Report on Form 10-K for the year ended December 31, 2000.

      In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. The results of operations for interim periods are not necessarily indicative of the results that may be expected for the fiscal year. For further information, refer to the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2000.

Note 2 — Principles of Presentation and Consolidation

      The Company is a subsidiary of Hollinger Inc., a Canadian corporation, which at June 30, 2001 owned approximately 38.8% of the combined equity and approximately 73.0% of the combined voting power of the outstanding Common Stock of the Company, without giving effect to the future issuance of Class A Common Stock upon conversion of the Company’s remaining Series E Redeemable Convertible Preferred Stock (“Series E Preferred Stock”).

      The Consolidated Financial Statements include the accounts of the Company and its majority owned subsidiaries and other controlled entities. At June 30, 2001 the Company's interest in Hollinger's Canadian Newspapers, Limited Partnership was 87% and in the National Post was 50%.

      All significant intercompany balances and transactions have been eliminated. Certain reclassifications have been made in the 2000 financial statements to conform to the 2001 presentation.

5


HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)

Note 3 — Earnings per share

      The following table reconciles the numerator and denominator for the calculation of basic and diluted earnings per share for the three and six months ended June 30, 2001 and 2000:

                           
Three Months Ended June 30, 2001

Income Shares Per-Share
(Numerator) (Denominator) Amount



(in thousands)
Net loss $ (15,535 )
Add dividends:
Convertible preferred stock (2,137 )
Series E Preferred Stock (127 )

Basic EPS
Net loss available to common stockholders (17,799 ) 101,830 $ (0.17 )
Effect of dilutive securities
    None
Diluted EPS

Net loss available to common stockholders and assumed conversions $ (17,799 ) 101,830 $ (0.17 )


                           
Three Months Ended June 30, 2000

Income Shares Per-Share
(Numerator) (Denominator) Amount



(in thousands)
Net earnings $ 4,736
Deduct dividends:
Convertible preferred stock (2,137 )
Series E Preferred Stock (131 )

Basic EPS
Net income available to common stockholders 2,468 98,539 $ 0.03
Effect of dilutive securities
HCPH Special shares 4,937
Stock options 620
Diluted EPS

Net income available to common stockholders and assumed conversions $ 2,468 104,096 $ 0.02


6


HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)

                           
Six Months Ended June 30, 2001

Income Shares Per-Share
(Numerator) (Denominator) Amount



(in thousands)
Net loss $ (14,149 )
Add dividends:
Convertible preferred stock (4,274 )
Series E Preferred Stock (251 )

Basic EPS
Net loss available to common stockholders (18,674 ) 100,346 $ (0.19 )
Effect of dilutive securities
None
Diluted EPS


Net loss available to common stockholders and assumed conversions $ (18,674 ) 100,346 $ (0.19 )


                           
Six Months Ended June 30, 2000

Income Shares Per-Share
(Numerator) (Denominator) Amount



(in thousands)
Net earnings $ 32,887
Deduct dividends:
Convertible preferred stock (4,273 )
Series E Preferred Stock (264 )

Basic EPS
Net income available to common stockholders 28,350 98,538 $ 0.29
Effect of dilutive securities
Series E Preferred Stock 264 949
HCPH Special shares 4,937
Stock options 569
Diluted EPS


Net income available to common stockholders and assumed conversions $ 28,614 104,993 $ 0.27


7


HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)

Note 4 — Segment Information

      The Company operates principally in the business of publishing, printing and distribution of newspapers and magazines and holds investments principally in companies that operate in the same business as the Company. The Chicago Group and Community Group are located in the United States. XSTM Holdings (2000) Inc. (formerly Southam Inc.), Hollinger Canadian Newspapers, Limited Partnership and The National Post Company make up the Canadian Newspaper Group. Effective January 1, 2001 corporate overhead costs, which had previously been allocated, are disclosed separately in the Investment and Corporate Group. Segment information for the both the three months and six months ended June 30, 2000 has been restated to conform to the 2001 disclosure. The following is a summary of the segments of the Company:

                                                 
Three months ended June 30, 2001

Investment
U.K. Canadian and
Chicago Community Newspaper Newspaper Corporate
Group Group Group Group Group Total






(in thousands)
Revenues $ 115,451 $ 5,377 $ 115,912 $ 69,433 $ $ 306,173






Depreciation and amortization $ 9,153 $ 489 $ 4,814 $ 3,987 $ 600 $ 19,043






Operating income (loss), excluding
infrequent items and stock-based
compensation
$ 8,126 $ (713 ) $ 808 $ (9,344 ) $ (6,129 ) $ (7,252 )






Equity in loss of affiliates $ (2,003 ) $ $ (863 ) $ $ $ (2,866 )







Six months ended June 30, 2001

Investment
U.K. Canadian and
Chicago Community Newspaper Newspaper Corporate
Group Group Group Group Group Total






(in thousands)
Revenues $ 223,598 $ 10,281 $ 259,821 $ 138,823 $ $ 632,523






Depreciation and amortization $ 18,098 $ 1,036 $ 9,283 $ 8,198 $ 969 $ 37,584






Operating income (loss), excluding infrequent items and stock-based compensation $ 5,218 $ (2,044 ) $ 26,056 $ (23,093 ) $ (9,770 ) $ (3,633 )






Equity in loss of affiliates $ (2,265 ) $ $ (8,103 ) $ $ $ (10,368 )






Total assets $ 611,024 $ 60,314 $ 520,268 $ 528,365 $ 969,487 $ 2,689,458






Capital expenditures $ 5,522 $ 197 $ 9,751 $ 1,854 $ 200 $ 17,524






8


HOLLINGER INTERNATIONAL INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements — (Continued)
(Unaudited)

                                                 
Three months ended June 30, 2000

Investment
U.K. Canadian and
Chicago Community Newspaper Newspaper Corporate
Group Group Group Group Group Total






(in thousands)
Revenues $ 101,168 $ 21,745 $ 144,266 $ 306,936 $ $ 574,115






Depreciation and amortization $ 5,026 $ 1,815 $ 4,295 $ 19,931 $ 437 $ 31,504






Operating income (loss), excluding infrequent items and stock-based compensation $ 13,372 $ 2,876 $ 23,926 $ 37,198 $ (3,913 ) $ 73,459






Equity in earnings (loss) of affiliates $ (45 ) $ $ (2,326 ) $ 162 $ $ (2,209 )






                                                 
Six months ended June 30, 2000

Investment
U.K. Canadian and
Chicago Community Newspaper Newspaper Corporate
Group Group Group Group Group Total






(in thousands)
Revenues $ 194,261 $ 41,615 $ 300,847 $ 586,616 $ $ 1,123,339






Depreciation and amortization $ 10,164 $ 3,857 $ 8,837 $ 40,078 $ 876 $ 63,812






Operating income (loss), excluding infrequent items and stock-based compensation $ 21,724 $ 3,987 $ 57,901 $ 60,363 $ (6,620 ) $ 137,355






Equity in earnings (loss) of affiliates $ (90 ) $ $ (3,390 ) $ 354 $ $ (3,126 )






Total assets $ 480,889 $ 163,959 $ 545,865 $ 2,087,019 $ 179,740 $ 3,457,472






Capital expenditures $ 13,246 $ 1,622 $ 3,154 $ 16,801 $ 184 $ 35,007






Note 5 — Convertible Preferred Stock

      On May 31, 2001 the Company redeemed all 829,409 shares of Series C Preferred Stock for 7,052,464 shares of Class A Common Stock. The Series C Preferred Stock was held by Hollinger Inc.

Note 6 — Subsequent Event

      On July 31, 2001, the Company announced the sale of most of its remaining Canadian newspapers for approximately Cdn.$220 million, subject to adjustments. Included in this sale were community newspapers in Ontario such as The Kingston Whig- Standard, The Sault Star and the Peterborough Examiner. The consideration for this sale was paid in cash at closing.

9


ITEM 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION

OVERVIEW

The Company’s business is concentrated in the publishing, printing and distribution of newspapers and includes the Chicago Group, the Community Group, the U.K. Newspaper Group and the Canadian Newspaper Group. The Chicago Group includes the Chicago Sun-Times, Post Tribune and city and suburban newspapers in the Chicago metropolitan area. The Community Group includes one U.S. community newspaper and Jerusalem Post. The U.K. Newspaper Group includes the operating results of the Telegraph. The Canadian Newspaper Group includes results of XSTM Holdings (2000) Inc. (“Southam”), Hollinger Canadian Newspapers, Limited Partnership (“Hollinger L.P.”) and The National Post Company (“National Post”).

CONSOLIDATED RESULTS OF OPERATIONS

A net loss in the second quarter 2001 amounted to $15.5 million or a loss of $0.17 per share compared with net earnings of $4.7 million or earnings of $0.03 per share, in 2000. A net loss in the six months ended June 30, 2001 amounted to $14.1 million or a loss of $0.19 per share compared to net earnings of $32.9 million or earnings of $0.29 per share in 2000.

There were a number of infrequent and non-recurring items affecting the results of both years. In second quarter 2001 infrequent and non-recurring items amounted to a net loss of $11.7 million after income tax and minority interest and primarily consisted of gains on sales of certain Canadian properties, a loss in respect of the total return equity swap, duplicative start-up costs related to the new printing facility in Chicago and the write-off of investments. In the second quarter 2000, infrequent and non-recurring items amounted to a net loss of $14.0 million after income tax and minority interest and primarily included duplicative start-up costs related to the new printing facility in Chicago, severance costs in Canada, gains on assets sales, equity loss at Interactive Investor International plc (III) and the amount paid on mandatory retirement of Hollinger Canadian Publishing Holdings Inc. (“HCPH”) Special shares in excess of the recorded book amount.

In the six months ended June 30, 2001, infrequent and non-recurring items amounted to a net loss of $17.7 million after income tax and minority interest and primarily consisted of gains on sales of Canadian properties, a loss in respect of the total return equity swap, duplicative start-up costs related to the new printing facility in Chicago, equity losses at III and the write-off of investments. In the six months ended June 30, 2000, infrequent and non-recurring items amounted to a net loss of $1.1 million after income tax and minority interest and primarily consisted of duplicative start-up costs related to the new printing facility in Chicago, severance costs in Canada, gains on assets sales, including Trip.com and the partial interest in III and the amount paid on mandatory retirement of HCPH Special shares in excess of the recorded book amount.

Net earnings from comparable operations, which excludes infrequent and non-recurring items and assumes all instruments are dilutive, amounted to a net loss of $3.9 million or a loss of $0.04 per diluted share in the second quarter of 2001 compared with net earnings of $18.8 million or $0.17 per diluted share in 2000. Net earnings from comparable operations amounted to $3.6 million or $0.03 per diluted share in the six months ended June 30, 2001 compared with net earnings of $34.0 million or $0.30 per diluted share in 2000.

10


Operating revenue and operating income for the second quarter of 2001 was $306.2 million and a loss of $8.7 million compared with $574.1 million and operating income of $71.7 million in 2000. Operating revenue and operating income for the six months ended June 30, 2001 was $632.5 million and a loss of $6.6 million compared with $1,123.3 million and operating income of $133.0 million in 2000. The significant decrease in both operating revenue and operating income in the second quarter and six months ended June 30 is largely the result of the sales of Canadian properties in November 2000 and January 2001 and the sale of US Community properties in 2000 but also is due to lower operating results at Chicago Group (excluding the impact of the acquisition of Copley Group), the U.K. Newspaper Group and the remaining Canadian properties.

EBITDA for the second quarter of 2001 was $10.3 million compared with $103.3 million in 2000, a decrease of $93.0 million. EBITDA for the six months ended June 30, 2001 was $31.0 million compared with $196.8 million in 2000, a decrease of $165.8 million. Approximately $60.6 million of the second quarter decrease in EBITDA and $114.8 million of the decrease in EBITDA in the six months ended June 30 was due to assets sold. The balance of the reduction in EBITDA in both the second quarter and the six months was due to lower operating results at Chicago Group (excluding the impact of the acquisition of Copley Group), the U.K. Newspaper Group and the remaining Canadian properties.

Lower EBITDA in both the second quarter and six months ended June 30, 2001, was offset in part, by lower interest costs and increased interest and dividend income. Lower interest expense results from significantly lower debt levels in 2001 compared with 2000 as the Company’s Bank Credit Facility, which totaled $972.0 million, was repaid in November 2000 with part of the cash proceeds from the sale of properties to CanWest Global Communications Corp. (“CanWest”). The increased interest and dividend income primarily results from interest on the CanWest debentures and a dividend on CanWest shares. Both the CanWest shares and debentures were received as part of the proceeds from the sale of properties to CanWest.

Interest expense for the second quarter and six months ended June 30, 2001, was $20.7 million and $39.8 million versus $36.8 million and $71.8 million in 2000, reductions of $16.1 million and $32.0 million respectively. Interest and dividend income was $21.2 million and $45.5 million for the second quarter and six months ended June 30, 2001, compared to $1.4 million and $2.5 million in 2000, increases of $19.8 million and $43.0 million respectively. The proceeds from the sales of operations allowed for the combined $35.9 million and $75.0 million of increased interest and dividend income and interest expense reduction in the second quarter and first half of 2001 respectively.

Net other income in the second quarter 2001 amounted to expenses of $14.8 million and primarily included gains on sales of certain Canadian properties, a loss in respect of the total return equity swap, and the write-off of investments. Net other income in the second quarter 2000 amounted to expenses of $4.2 million and primarily included gains on asset sales, losses from equity accounted companies and foreign currency losses. Net other income in the six months ended June 30, 2001 amounted to expenses of $4.9 million and primarily included gains on sale of certain Canadian properties, a loss in respect of the total return equity swap, equity losses at III and the write-off of investments. Net other income in the in the six months ended June 30, 2000 was $20.9 million and primarily included gains on asset sales, losses from equity accounted companies and foreign currency losses.

Minority interest in 2001 includes the minority share of net earnings of Hollinger L.P. including the minority’s share of the gain on sale of Canadian properties, offset in part by the minority’s share of the National Post loss. In 2000 minority interest included the minority’s share of Hollinger L.P. and also included $10.9 million related to the amount paid on mandatory retirement of HCPH Special shares in excess of the recorded book amount.

11


                                   
Three Months Ended June 30, Six Months Ended June 30,


2001 2000 2001 2000




(dollar amounts in thousands) (dollar amounts in thousands)
Operating revenues:
  Chicago Group $ 115,451 $ 101,168 $ 223,598 $ 194,261
  Community Group 5,377 21,745 10,281 41,615
  U.K. Newspaper Group 115,912 144,266 259,821 300,847
  Canadian Newspaper Group 69,433 306,936 138,823 586,616
  Investment and Corporate Group




Total operating revenue $ 306,173 $ 574,115 $ 632,523 $ 1,123,339




Operating income (loss), excluding infrequent items and stock-based compensation:
  Chicago Group $ 8,126 $ 13,372 $ 5,218 $ 21,724
  Community Group (713 ) 2,876 (2,044 ) 3,987
  U.K. Newspaper Group 808 23,926 26,056 57,901
  Canadian Newspaper Group (9,344 ) 37,198 (23,093 ) 60,363
  Investment and Corporate Group (6,129 ) (3,913 ) (9,770 ) (6,620 )




Total operating income (loss), excluding infrequent items and stock-based compensation $ (7,252 ) $ 73,459 $ (3,633 ) $ 137,355




EBITDA:
  Chicago Group $ 17,279 $ 18,398 $ 23,316 $ 31,888
  Community Group (224 ) 4,691 (1,008 ) 7,844
  U.K. Newspaper Group 5,622 28,221 35,339 66,738
  Canadian Newspaper Group (5,357 ) 57,129 (14,895 ) 100,441
  Investment and Corporate Group (5,529 ) (3,476 ) (8,801 ) (5,744 )




Total EBITDA $ 11,791 $ 104,963 $ 33,951 $ 201,167




Operating revenues:
  Chicago Group 37.7 % 17.6 % 35.4 % 17.3 %
  Community Group 1.8 % 3.8 % 1.6 % 3.7 %
  U.K. Newspaper Group 37.8 % 25.1 % 41.1 % 26.8 %
  Canadian Newspaper Group 22.7 % 53.5 % 21.9 % 52.2 %
  Investment and Corporate Group 0.0 % 0.0 % 0.0 % 0.0 %




Total operating revenue 100.0 % 100.0 % 100.0 % 100.0 %




Operating income (loss), excluding infrequent items and stock-based compensation:
  Chicago Group -112.1 % 18.2 % -143.6 % 15.8 %
  Community Group 9.8 % 3.9 % 56.3 % 2.9 %
  U.K. Newspaper Group -11.1 % 32.6 % -717.2 % 42.2 %
  Canadian Newspaper Group 128.9 % 50.6 % 635.6 % 43.9 %
  Investment and Corporate Group 84.5 % -5.3 % 268.9 % -4.8 %




Total operating income (loss), excluding infrequent items and stock-based compensation 100.0 % 100.0 % 100.0 % 100.0 %




EBITDA:
  Chicago Group 146.5 % 17.5 % 68.7 % 15.9 %
  Community Group -1.9 % 4.5 % -3.0 % 3.9 %
  U.K. Newspaper Group 47.7 % 26.9 % 104.1 % 33.2 %
  Canadian Newspaper Group -45.4 % 54.4 % -43.9 % 49.9 %
  Investment and Corporate Group -46.9 % -3.3 % -25.9 % -2.9 %




Total EBITDA 100.0 % 100.0 % 100.0 % 100.0 %




EBITDA Margin:
  Chicago Group 15.0 % 18.2 % 10.4 % 16.4 %
  Community Group n/a 21.6 % n/a 18.8 %
  U.K. Newspaper Group 4.9 % 19.6 % 13.6 % 22.2 %
  Canadian Newspaper Group n/a 18.6 % n/a 17.1 %
  Investment and Corporate Group n/a n/a n/a n/a
Total EBITDA Margin 3.9 % 18.3 % 5.4 % 17.9 %
     
Notes: 1) EBITDA and operating income excludes infrequent items and stock-based compensation.
2) Results for 3 and 6 months ended June 30, 2000 have been restated to reflect the 2001 disclosure of Investment
    and Corporate Group. Corporate overhead costs which had previously been allocated are now disclosed as
    Investment and Corporate Group.

12


                                     
Three Months Ended June 30, Six Months Ended June 30,


2001 2000 2001 2000




(dollar amounts in thousands) (dollar amounts in thousands)
Chicago Group
Operating revenue
    Advertising
$ 89,066 $ 77,235 $ 170,315 $ 146,700
   Circulation 23,139 19,788 46,676 39,858
   Job printing and other 3,246 4,145 6,607 7,703




Total operating revenue 115,451 101,168 223,598 194,261




Operating costs
    Newsprint
19,540 16,615 38,426 31,439
   Compensation costs 44,584 37,071 91,182 74,548
   Other operating costs 34,048 29,084 70,674 56,386
   Depreciation 4,128 2,189 8,188 4,318
   Amortization 5,025 2,837 9,910 5,846




Total operating costs 107,325 87,796 218,380 172,537




Operating income, excluding infrequent items and stock-based compensation $ 8,126 $ 13,372 $ 5,218 $ 21,724




Community Group
Operating revenue
    Advertising
$ 1,743 $ 12,851 $ 3,328 $ 24,281
   Circulation 1,948 5,773 3,987 11,683
   Job printing and other 1,686 3,121 2,966 5,651




Total operating revenue 5,377 21,745 10,281 41,615




Operating costs
    Newsprint
521 1,792 1,042 3,664
   Compensation costs 2,445 7,731 4,756 15,292
   Other operating costs 2,635 7,531 5,491 14,815
   Depreciation 254 823 565 1,682
   Amortization 235 992 471 2,175




Total operating costs 6,090 18,869 12,325 37,628




Operating income (loss), excluding infrequent items and stock-based compensation $ (713 ) $ 2,876 $ (2,044 ) $ 3,987




U.K. Newspaper Group
Operating revenue
    Advertising
$ 77,759 $ 100,600 $ 183,641 $ 211,998
   Circulation 33,444 36,280 66,596 74,818
   Job printing and other 4,709 7,386 9,584 14,031




Total operating revenue 115,912 144,266 259,821 300,847




Operating costs
    Newsprint
23,737 23,001 49,440 48,371
   Compensation costs 23,355 24,736 47,025 48,597
   Other operating costs 63,198 68,308 128,017 137,141
   Depreciation 2,567 1,871 4,731 3,873
   Amortization 2,247 2,424 4,552 4,964




Total operating costs 115,104 120,340 233,765 242,946




Operating income, excluding infrequent items and stock-based compensation $ 808 $ 23,926 $ 26,056 $ 57,901




Canadian Newspaper Group
Operating revenue
    Advertising
$ 46,623 $ 236,327 $ 92,902 $ 447,211
   Circulation 14,458 55,551 29,967 112,075
   Job printing and other 8,352 15,058 15,954 27,330




Total operating revenue 69,433 306,936 138,823 586,616




Operating costs
    Newsprint
12,052 38,488 24,621 73,580
   Compensation costs 25,287 107,710 53,192 213,693
   Other operating costs 37,451 103,609 75,905 198,902
   Depreciation 2,298 11,149 4,734 22,351
   Amortization 1,689 8,782 3,464 17,727




Total operating costs 78,777 269,738 161,916 526,252




Operating income (loss), excluding infrequent items and stock-based compensation $ (9,344 ) $ 37,198 $ (23,093 ) $ 60,363




Investment and Corporate Group
Operating revenue
   Advertising
$ $ $ $
   Circulation
   Job printing and other




Total operating revenue




Operating costs
    Newsprint
   Compensation costs 948 1,054 1,915 1,982
   Other operating costs 4,581 2,422 6,886 3,762
   Depreciation 430 240 629 481
   Amortization 170 197 340 395




Total operating costs 6,129 3,913 9,770 6,620




Operating loss, excluding infrequent items and stock-based compensation $ (6,129 ) $ (3,913 ) $ (9,770 ) $ (6,620 )




     
Notes: 1) EBITDA and operating income excludes infrequent items and stock-based compensation.
2) Results for 3 and 6 months ended June 30, 2000 have been restated to reflect the 2001 disclosure of Investment
    and Corporate Group. Corporate overhead costs which had previously been allocated are now disclosed as
    Investment and Corporate Group.

13


                                     
Three Months Ended June 30, Six Months Ended June 30,


2001 2000 2001 2000




Percentage Percentage Percentage Percentage




Chicago Group
Operating revenue
    Advertising
77.2 % 76.3 % 76.2 % 75.5 %
   Circulation 20.0 % 19.6 % 20.9 % 20.5 %
   Job printing and other 2.8 % 4.1 % 2.9 % 4.0 %




Total operating revenue 100.0 % 100.0 % 100.0 % 100.0 %




Operating costs
    Newsprint
16.9 % 16.4 % 17.2 % 16.2 %
   Compensation costs 38.6 % 36.7 % 40.8 % 38.4 %
   Other operating costs 29.5 % 28.7 % 31.6 % 29.0 %
   Depreciation 3.6 % 2.2 % 3.7 % 2.2 %
   Amortization 4.4 % 2.8 % 4.4 % 3.0 %




Total operating costs 93.0 % 86.8 % 97.7 % 88.8 %




Operating income, excluding infrequent items and stock-based compensation 7.0 % 13.2 % 2.3 % 11.2 %




Community Group
Operating revenue
    Advertising
32.4 % 59.1 % 32.4 % 58.3 %
   Circulation 36.2 % 26.5 % 38.8 % 28.1 %
   Job printing and other 31.4 % 14.4 % 28.8 % 13.6 %




Total operating revenue 100.0 % 100.0 % 100.0 % 100.0 %




Operating costs
    Newsprint
9.7 % 8.2 % 10.1 % 8.8 %
   Compensation costs 45.5 % 35.6 % 46.3 % 36.8 %
   Other operating costs 49.0 % 34.6 % 53.4 % 35.6 %
   Depreciation 4.7 % 3.8 % 5.5 % 4.0 %
   Amortization 4.4 % 4.6 % 4.6 % 5.2 %




Total operating costs 113.3 % 86.8 % 119.9 % 90.4 %




Operating income (loss), excluding infrequent items and stock-based compensation -13.3 % 13.2 % -19.9 % 9.6 %




U.K. Newspaper Group
Operating revenue
    Advertising
67.1 % 69.8 % 70.7 % 70.4 %
   Circulation 28.8 % 25.1 % 25.6 % 24.9 %
   Job printing and other 4.1 % 5.1 % 3.7 % 4.7 %




Total operating revenue 100.0 % 100.0 % 100.0 % 100.0 %




Operating costs
    Newsprint
20.5 % 15.9 % 19.0 % 16.1 %
   Compensation costs 20.2 % 17.1 % 18.1 % 16.2 %
   Other operating costs 54.5 % 47.4 % 49.3 % 45.6 %
   Depreciation 2.2 % 1.3 % 1.8 % 1.3 %
   Amortization 1.9 % 1.7 % 1.8 % 1.6 %




Total operating costs 99.3 % 83.4 % 90.0 % 80.8 %




Operating income, excluding infrequent items and stock-based compensation 0.7 % 16.6 % 10.0 % 19.2 %




Canadian Newspaper Group
Operating revenue
    Advertising
67.2 % 77.0 % 66.9 % 76.2 %
   Circulation 20.8 % 18.1 % 21.6 % 19.1 %
   Job printing and other 12.0 % 4.9 % 11.5 % 4.7 %




Total operating revenue 100.0 % 100.0 % 100.0 % 100.0 %




Operating costs
    Newsprint
17.4 % 12.5 % 17.7 % 12.6 %
   Compensation costs 36.4 % 35.1 % 38.3 % 36.4 %
   Other operating costs 54.0 % 33.8 % 54.7 % 33.9 %
   Depreciation 3.3 % 3.6 % 3.4 % 3.8 %
   Amortization 2.4 % 2.9 % 2.5 % 3.0 %




Total operating costs 113.5 % 87.9 % 116.6 % 89.7 %




Operating income (loss), excluding infrequent items and stock-based compensation -13.5 % 12.1 % -16.6 % 10.3 %




     
Notes: 1) EBITDA and operating income excludes infrequent items and stock-based compensation.
2) Results for 3 and 6 months ended June 30, 2000 have been restated to reflect the 2001 disclosure of Investment
    and Corporate Group. Corporate overhead costs which had previously been allocated are now disclosed as
    Investment and Corporate Group.

14


GROUP OPERATING RESULTS

Chicago Group

Operating revenues for the Chicago Group were $115.5 million in the second quarter of 2001 and $223.6 million in the six months ended June 30, 2001 compared with $101.2 million and $194.3 million in 2000, increases of $14.3 million and $29.3 million respectively. The Copley Group, which was acquired in December 2000 added $20.6 million to operating revenue in the second quarter of 2001 and $40.2 million in the first six months of 2001. Operating revenue for operations owned in both years (“same store”) was $94.8 million in second quarter 2001 compared with $101.2 million in 2000, a decrease of $6.4 million. For the six months ended June 30, 2001 same store operating revenue was $183.4 million compared with $194.3 million in 2000, a decrease of $10.9 million. Advertising revenue on a same store basis was $73.2 million in second quarter 2001 compared with $77.2 million in 2000 a decrease of $4.0 million. Retail advertising was 5.0% lower and accounted for $1.8 million of the decrease. Classified advertising revenues were down $1.5 million or 5.0% during the quarter, almost entirely the result of lower recruitment advertising. National advertising revenues during the second quarter were flat compared with 2000. Advertising revenue on a same store basis was $139.5 million for the six months ended June 30, 2001 compared with $146.7 million in 2000 a decrease of $7.2 million.

Circulation revenue, on a same store basis, was $18.8 million in second quarter 2001 and $38.1 million in the six months ended June 30, 2001 compared with $19.8 million and $39.9 million in 2000, decreases of $1.0 million and $1.8 million respectively. The decreases are primarily at the Chicago Sun-Times where circulation revenue from both the daily and Sunday newspapers is lower. The decrease in Sunday revenue is mainly the result of lower circulation while the decrease in daily revenue results primarily from the elimination in the second quarter of the Chicago Sun-Times unprofitable “Midwest Editionthat was distributed to outlying communities.

Total operating costs, excluding infrequent items, in the second quarter 2001 were $107.3 million and in the six months ended June 30, 2001 were $218.4 million compared with $87.8 million and $172.5 million respectively in 2000. On a same store basis, total operating costs, excluding infrequent items, were $86.5 million in second quarter and $176.5 million in the six months ended June 30, 2001 compared with $87.8 million and $172.4 million in 2000, a decrease of $1.3 million in the second quarter and an increase of $4.1 million in the six months.

Newsprint expense, on a same store basis, was up $0.6 million in the quarter and $2.4 million in the six months. Actual second quarter consumption was down by approximately 9.9%, but the average cost-per-ton of newsprint increased 15% from the second quarter 2000. Depreciation charges in 2001 were higher than in 2000, as a result of the new printing facility.

On a same store basis operating income in second quarter 2001 was $8.3 million compared to $13.4 million in 2000 of, a decrease of $5.1 million. Operating income in the first six months of 2001 was $6.9 million compared to $21.8 million in 2000 of, a decrease of $14.9 million. These decreases result primarily from lower operating revenue, higher newsprint costs and the higher depreciation charge.

15


The Copley Group, which was acquired in December 2000, added $40.2 million to revenue and $2.8 million to EBITDA in 2001. It is expected that Copley’s operating results will improve as cost saving strategies and efficiencies are implemented.

U.K. Newspaper Group

Second quarter operating revenue for the U.K. Newspaper Group was $115.9 million in 2001 compared with $144.3 million in 2000. Operating revenue for the six months ended June 30, 2001 was $259.8 million compared with $300.8 million in 2000. In pounds sterling operating revenue for the second quarter of 2001 decreased 13.3% and for the six months ended June 30, 2001 decreased 5.9%.

The decrease in operating revenue primarily resulted from lower advertising revenue. Advertising revenue for the second quarter was £54.7 million compared to £65.6 million in 2000, a decrease of £10.9 million or 17% year on year. For the six months advertising revenue was £127.3 million compared to £135.0 million in 2000, a decrease of £7.7 million or 6% year on year. Display advertising was down 22.4% and classified advertising in total was down 11%, compared with the second quarter of 2000. Recruitment advertising in the second quarter was down 24% and automobile was down 4.5%, but property advertising revenue in the second quarter increased year-on-year by 13.1%.

In local currency, the UK Group’s newsprint expenses have increased year-on-year by 11.5% due to the significant increase in newsprint prices. Although newsprint consumption for the six months ended June 30, 2001, was similar to 2000, consumption during the second quarter 2001 was 2.4% lower than in 2000 due to lower paginations as a result of the lower advertising revenue.

Second quarter 2001 EBITDA was £4.0 million versus £18.4 million in 2000, a decrease of £14.4 million, primarily the result of lower revenue and newsprint cost increases. After currency conversion, EBITDA for the second quarter was $5.6 million in 2001 versus $28.2 million in 2000, a decrease of $22.6 million. For the six months ended June 30, 2001 EBITDA was £24.4 million versus £42.4 million in 2000, a decrease of £18.0 million, primarily the result of lower revenue and newsprint cost increases. After currency conversion, EBITDA for the six months was $35.3 million in 2001 versus $66.7 million in 2000, a decrease of $31.4 million.

Canadian Newspaper Group

Operating revenue and operating income in the Canadian Newspaper Group were $69.4 million and a loss of $9.3 million in the second quarter of 2001, compared with $306.9 million and operating income of $37.2 million in 2000. In the six months ended June 30, 2001 operating revenue and operating income were $138.8 million and a loss of $23.1 million, compared with $586.6 million and operating income of $60.4 million in 2000. The significant decrease in both operating revenue and operating income results primarily from the sale of operations in 2000 to CanWest and the sale of UniMedia Company completed in January 2001.

On a same store basis, including the results of the National Post, operating revenue and operating income were Cdn. $105.7 million and a loss of Cdn. $12.4 million in the second quarter of 2001, compared with Cdn. $100.3 million and a loss of Cdn. $5.8 million in 2000. For the six months ended June 30, 2001 operating revenue and operating income

16


were Cdn. $200.9 million and a loss of Cdn. $34.0 million, compared with Cdn. $192.4 million and a loss of Cdn. $20.3 million in 2000.

The National Post operating revenue in the second quarter 2001 was Cdn. $36.7 million compared to Cdn. $37.5 million in 2000, a decrease of Cdn. $0.8 million. National Post operating revenue in the six months ended June 30, 2001 was Cdn. $72.1 million compared to Cdn. $69.4 million in 2000, an increase of Cdn. $2.7 million. Advertising revenue at the National Post was Cdn. $1.3 million or 5.3% lower than in the second quarter of 2000, however, circulation revenue increased Cdn. $0.6 million or 7.2%.

The National Post operating results include the results of National Post online and of related magazines, Saturday Night magazine and National Post Business magazine. Prior to May 2000, Saturday Night magazine was a separate publication with its own subscriber base and was published ten times each year. Commencing May 2000, Saturday Night was published weekly and included free-of-charge with the weekend editions of the National Post. Saturday Night’s operating results in 2000 are included with the National Post from May onwards.

Community Group

Revenue and operating income in the second quarter 2001 were $5.4 million and a loss of $0.7 million, compared to $21.7 million and operating income of $2.9 million in 2000. For the first six months of 2001, revenue and operating income were $10.3 million and a loss of $2.0 million, compared to $41.6 million and operating income of $4.0 million in 2000. The significant decrease in both revenue and operating income results almost entirely from the sales of Community Group properties that occurred during 2000. At June 30, 2001 only one U.S. Community Group newspaper and The Jerusalem Post were still owned by the Company.

Investment and Corporate Group

Operating costs, excluding infrequent items and stock-based compensation, of the Investment and Corporate Group were $6.1 million in the second quarter 2001, compared with $3.9 million in 2000, an increase of $2.2 million. For the six months ended June 30, 2001, operating costs, excluding infrequent items and stock-based compensation, were $9.8 million, compared with $6.6 million in 2000, an increase of $3.2 million.

LIQUIDITY AND CAPITAL RESOURCES

Working Capital

Working capital consists of current assets less current liabilities. At June 30, 2001, working capital, excluding debt obligations, was a deficiency of $201.5 million compared to a deficiency of $252.8 million at December 31, 2000. Current assets were $486.3 million at both June 30, 2001 and

17


December 31, 2000. Current liabilities, excluding debt obligations, were $687.9 million at June 30, 2001, compared with $739.1 million at December 31, 2000.

Debt

Long-term debt, including the current portion, was $878.1 million at June 30, 2001 compared with $812.2 million at December 31, 2000.

EBITDA

EBITDA, which is the Company’s earnings before interest expense, amortization of debt issue costs, interest and dividend income, income taxes, depreciation and amortization, minority interest and other income (expense), net, was $10.3 million for the second quarter of 2001 compared with $103.3 million for the second quarter 2000 and $31.0 million for the six months ended June 30, 2001 compared to $196.8 million in 2000. The significant reduction in EBITDA results from both the sale of Canadian Newspaper Group properties and Community Group properties in 2000 and 2001 and from lower operating results at the Chicago Group, the U.K. Newspaper Group and the remaining Canadian properties. Approximately $60.6 million in the second quarter and $114.8 million in the six months, of the reduced EBITDA, was due to the assets sold. EBITDA is not intended to represent an alternative to operating income (as determined in accordance with generally accepted accounting principles) as an indicator of the Company’s operating performance, or to cash flows from operating activities (as determined in accordance with generally accepted accounting principles) as a measure of liquidity.

Because of all the changes during the past year, EBITDA is no longer as important in measuring the performance and value of the Company as it once was. For example, EBITDA includes all the National Post losses while only half of them are the responsibility of the Company, and EBITDA ignores the interest and investment income on the CanWest debentures and shares and the substantial reduction in debt and related interest expense reductions.

Cash Flows

Cash flows used in operating activities were $49.7 million in the six months ended June 30, 2001, compared with cash flows provided by operating activities of $43.2 million in 2000. Excluding changes in working capital (other than cash), cash flows used in operating activities were $38.1 million in 2001 and cash flows provided by operating activities were $97.0 million in 2000. The reduction in cash flows provided by operating activities compared with 2000 primarily results from the sales of Canadian Newspaper Group properties and Community Group properties and lower operating results at the Company’s remaining operations.

Cash flows provided by investing activities were $22.5 million in 2001, and cash flows used in investing activities were $33.2 million in 2000. The cash flows provided by investing activities in 2001 resulted primarily from the sale of UniMedia Company offset in part by capital expenditures and additions to investments.

Cash flows provided by financing activities were $25.2 million in 2001 and $21.5 million in 2000.

Capital Expenditures and Acquisition Financing

The Chicago Group, the Community Group, the U.K. Newspaper Group and the Canadian Newspaper Group have funded their capital expenditures and acquisition and investment activities out of cash provided by their respective operating activities and borrowings under the Company’s credit facility.

18


Dividends and Other Commitments

The amount available for the payment of dividends and other obligations by the Company at any time is a function of (i) restrictions in agreements binding the Company limiting its ability to pay dividends, management fees and other payments and (ii) restrictions in agreements binding the Company’s subsidiaries limiting their ability to pay dividends, management fees and other payments to the Company. The Company is party to a debt agreement that permits the payment of dividends at the present rate. However, certain agreements binding Hollinger International Publishing Inc. (Publishing) and other subsidiaries of the Company contain such restrictive provisions. As of June 30, 2001, the total amount of funds that would be unrestricted as to payment of dividends by Publishing under its debt instruments was approximately $24.8 million. The foregoing calculation is based on the sum of the following for the period October 1, 1998 to June 30, 2001: (i) an amount equal to the sum of (x) 50% of the consolidated net income (as defined by the Note indentures) of Publishing and its Restricted Subsidiaries or if it is a loss, reduced by 100% of such loss, and (y) 100% of the amortization expense of Publishing and its subsidiaries; (ii) 50% of the cash dividends received by Publishing and its restricted subsidiaries from any unrestricted subsidiaries; and (iii) one third of Publishing’s share of net after tax gain on sales of assets after March 31, 1999 up to a maximum aggregate of $50 million; and (iv) $270 million. In addition, the amount available for dividends is permitted to be increased, among other provisions, by the amount of net cash proceeds from capital contributions made to Publishing.

The amount available for the payment of dividends and other obligations by the Company at any time is limited by a number of binding agreements, but the Company expects its internal cash flow and financing resources to be adequate to meet its foreseeable requirements.

Other

Certain of the statements in this Form 10-Q may be deemed to be “forward looking” statements. Refer to the Company’s Annual Report on Form 10-K for a discussion of factors that may affect such statements.

Accounting Pronouncements

On July 20, 2001, the Financial Accounting Standards Board issued SFAS No. 141, Business Combinations and No. 142, Goodwill and Other Intangible Assets. SFAS 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method. Business combinations accounted for as poolings-of-interests and initiated prior to June 30, 2001 are grandfathered. SFAS 142 replaces the requirement to amortize intangible assets with indefinite lives and goodwill with a requirement for an impairment test. SFAS 142 also requires an evaluation of intangible assets and their useful lives and a transitional impairment test for goodwill and certain intangible assets upon adoption. After transition, the impairment tests will be performed annually. SFAS 142 is effective for fiscal years beginning after December 15, 2001, as of the beginning of the year. The Company has not yet determined the impact of the new accounting standards on its financial reporting.

Item 3. Quantitative and Qualitative Disclosure about Market Risk

      Newsprint  Newsprint prices continued to fluctuate and on a consolidated basis newsprint expense amounted to $113.5 million in 2001 and $157.1 million in 2000. Management believes that while newsprint prices could continue to show wide price variations in the future, prices for the balance of 2001 in North America are not expected to increase significantly from current levels. In the United Kingdom newsprint prices payable by the Company in 2001, which are subject to longer-term contracts, have increased from prices paid in 2000 because the contracts in effect for much of 2000 were booked at prices that were well below North American prices. Management believes that newsprint prices in the United Kingdom for the balance of 2001 will not vary significantly from those currently payable. Operating divisions take steps to ensure that they have sufficient supply of newsprint and have mitigated cost increases by adjusting pagination and page sizes and printing and distributing practices. Based on levels of usage during the six months ended June 30, 2001 and based on ownership levels at June 30, 2001, a change in the price of newsprint of $50 per tonne would increase or decrease year to date net earnings by about $5.4 million.

      Inflation  During the past three years, inflation has not had a material effect on the Company’s newspaper business in the United States, United Kingdom and Canada.

      Interest Rates  The Company has $66.0 million of debt on which interest is calculated at floating rates. As a result the Company is vulnerable to changes in interest rates. Increases in interest rates will reduce net earnings and declines in interest rates can result in increased earnings. Based on debt at June 30, 2001 which is subject to floating interest rates and June 30,

19


2001 ownership levels and foreign exchanges rates, a 1% change in the floating interest rates would increase or decrease the Company’s year to date net earnings by approximately $0.2 million.

      Foreign Exchange Rates  A substantial portion of the Company’s income is earned outside of the United States in currencies other than the United States dollar. As a result the Company’s income is vulnerable to changes in the value of the United States dollar. Increases in the value of the United States dollar can reduce net earnings and declines can result in increased earnings. Based on year to date 2001 earnings and ownership levels, a $0.05 change in the important foreign currencies would have the following effect on the Company’s reported year to date net earnings:

                 
Actual Average
2001 Rate Increase/Decrease


United Kingdom $1.45/£    $747,000
Canada $0.65/Cdn.$ $2,418,000

      Electronic Media  Management holds the view that newspapers will continue to be an important business segment. Among educated and affluent people, indications are that strong newspaper readership will continue. In fact, it is possible that readership will increase as the population ages. Alternate forms of information delivery such as the Internet could impact newspapers, but recognition of the Internet’s potential combined with a strong newspaper franchise could be a platform for Internet operations. Newspaper readers can be offered a range of Internet services as varied as the content. Virtually all of the Company’s larger newspapers are now published on the Internet as well as in the traditional newsprint format.

20


PART II. OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

        (a) Exhibits

        None

        (b) Reports on Form 8-K

        None

21


SIGNATURES

      Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

HOLLINGER INTERNATIONAL INC.
Registrant

           
Date: August 13, 2001 By: /S/ Jack A. Boultbee
Jack A. Boultbee
Executive Vice President

22