By: Mark Fitzgerald
For all its troubles in 2004 — including litigation with Conrad Black and other former executives, the sale of its prestigious Daily Telegraph in London, and a circulation scandal at its flagship Chicago Sun-Times — Hollinger International Inc. says it turned a profit last year.
In a Form 8-K filing of unaudited financial information with the U.S. Securities and Exchange Commission Friday, Hollinger portrays itself as a company with big legal expenses — and a potentially enormous tax liability — that is making and profit, and that has also paid down its debt substantially through the sale of newspaper properties and the former Sun-Times office building.
Hollinger reported a net income in 2004 of $234.7 million, or $2.59 a share. It said it ended 2003 with a net loss of $74.3 million, or 85 cents a share.
Revenue in 2004 increased 4.3% to $553.9 million from $531.3 million the year before.
Hollinger said its losses from continuing operations in 2004 amounted to $163.9 million, or a loss of $1.81 per share. In 2003, it said losses from continuing operations were $89.2 million, or a loss of $1.02 per share.
Legal costs amounted to $60.1 million during 2004, and another $10.1 million in 2003, Hollinger reported.
Hollinger’s balance sheet for 2004 includes $867.5 million in accruals to cover contingent liabilities for taxes and interest it says it may be required to pay in “various tax jurisdictions.”
“The accruals to cover contingent tax liabilities also relate to management fees, ‘non-competition’ payments and other items that have been deducted in arriving at taxable income, which deductions may be disallowed by taxing authorities,” Hollinger says in the management discussion part of the 8-K filing. It says the accruals it has recorded are adequate to pay back taxes and penalties if the deductions are disallowed.
A special committee at Hollinger investigating alleged self-dealing charges that Black, former Hollinger CFO and Sun-Times Publisher F. David Radler, and other key executives ran a “corporate kleptocracy” that “looted” the company of some $400 million in improper deals and fees, including allegedly phony non-compete fees related to newspaper sales.
Radler is expected to plead guilty in federal court in Chicago next week to charges he conspired to divert more than $32 million to companies he owned or controlled. Black is widely seen as the ultimate target of the investigation by U.S. Attorney Patrick Fitzgerald, but he has not been charged with any crime.
Hollinger’s 8-K filing suggests getting rid of the high-spending Black and Radler helped decrease its operating loss in 2004. It notes that it stopped paying management fees to a holding company controlled by Black and Radler, and that it dropped $19.2 million in expenses by getting rid of its corporate airplane and discontinuing the lease on another.
Hollinger said its long-term debt — which stood at $319.2 million at the end of 2003 — was $14.4 million at the end of 2004. During the year, Hollinger retied approximately $294 million of 9% senior notes. Hollinger drew down debt significantly in 2003 as well, retiring $504.9 million of the principal amount of 9.25% notes that were due in 2006 and 2007.
In filing the 8-K form, Hollinger acknowledged that it had said on Aug. 29 that it would file the long-overdue audited 10-K annual report for 2004 by the end of markets on Sept. 15.
But the market opened and closed Thursday and nothing was filed. Instead, Hollinger issued a statement saying it would file an 8-K on Friday, and that the 2004 10-K would be filed when it has completed implementing the internal controls over financial reporting required under the Sarbanes-Oxley Act of 2002.
?When the company furnishes its 2004 10-K, it expects to report that its internal controls over financial reporting were not effective as of December 31, 2004,? Hollinger said in the statement.