Sun-Times Media Group Inc – ‘8-K’ for 10/5/04 – EX-99

On:  Wednesday, 10/6/04, at 7:15pm ET   ·   As of:  10/7/04   ·   For:  10/5/04   ·   Accession #:  950142-4-3461   ·   File #:  1-14164

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Current Report   —   Form 8-K
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 8-K         Current Report                                         6     22K 
 2: EX-99       Exhibit 99.1                                           5     23K 
 3: EX-99       Exhibit 99.2                                           2     11K 
 4: EX-99       Exhibit 99.3                                           2     10K 

EX-99   —   Exhibit 99.1

EX-99
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                                                                    EXHIBIT 99.1
                                                                    ------------

P R E S S   R E L E A S E                                                       

 HOLLINGER INTERNATIONAL ANNOUNCES FINDINGS OF INTERNAL REVIEW
 AT THE CHICAGO SUN -TIMES

 ADVERTISER COMPENSATION PROGRAM INSTITUTED;
 COMPANY TO TAKE CHARGE OF $27 MILLION
--------------------------------------------------------------------------------

CHICAGO, IL, OCTOBER 5, 2004 - Hollinger International Inc. (NYSE: HLR) ("the   
Company") today announced the findings of a previously disclosed internal review
conducted by the Audit Committee of the Board of Directors into practices that  
resulted in the overstatement of circulation figures at THE CHICAGO SUN-TIMES   
over the past several years under prior leadership of that publication. In      
addition, the Audit Committee conducted a Company-wide review and found that    
certain circulation inflation practices were also employed at two other Chicago 
area newspapers, THE DAILY SOUTHTOWN AND THE STAR, as well as at THE JERUSALEM  
POST.                                                                           

The Audit Committee was assisted in this review by the Chicago law firm of      
Gardner Carton & Douglas LLP, as well as the Company's General Counsel and the  
Forensic Services practice of Deloitte & Touche LLP.                            

The Company said that, as a result of the findings of the Audit Committee, it   
has recorded a pre-tax charge of $27 million to cover the estimated cost of     
resolving advertiser claims related to the reduced circulation. Senior          
management at the Company's Chicago Group has developed a program to compensate 
advertisers of THE CHICAGO SUN-TIMES, which will be implemented immediately.    

The Company said the Audit Committee review determined that for the Audit Bureau
of Circulations ("ABC") reports commencing in 1998, single-copy circulation     
figures for THE CHICAGO SUN-TIMES' weekday and Sunday editions were improperly  
overstated. There was no inflation of circulation figures for the Saturday      
edition. The inflated circulation data was submitted to ABC, which then reported
these figures in its annual audit reports issued with respect to THE CHICAGO    
SUN-TIMES.                                                                      

Inflation of THE CHICAGO SUN-TIMES single-copy circulation began modestly and   
increased over time. The average inflation that occurred in the twelve-month    
period ending March 1997 (and reported by ABC in April 1998) was 2,814 copies   
per day during the week, and 672 copies on Sundays. In the most recent report of
THE CHICAGO SUN-TIMES circulation published by ABC (for the period ending March 
2003), the average single-copy inflation had grown to 50,191 weekday copies and 
17,318 Sunday copies. The inflation of circulation continued and grew during the
most recent twelve-month period ending March 28, 2004, but these circulation    
figures were never included in an ABC audit report.                             

A table detailing the average amount by which publicly reported single-copy     
circulation was overstated is attached.                                         

The Audit Committee's review has determined that the circulation inflation      
practices at THE CHICAGO SUN-TIMES were instigated and implemented by the       
newspaper's former management. The officers who were responsible for these      
practices are no longer employed by the Company. The Company has also taken     
disciplinary action against                                                     

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certain other employees and implemented procedures to help ensure that similar  
circulation overstatements do not occur in the future.                          

Gordon A. Paris, Interim Chairman and Chief Executive Officer, said, "This      
review, as well as other actions that we have taken in recent months,           
demonstrate Hollinger International's commitment to the highest standards for   
integrity and openness in everything we do. We intend to ensure that all of     
Hollinger International's publications, led by THE CHICAGO SUN-TIMES, establish 
and maintain best practices in accuracy and transparency in circulation figure  
reporting."                                                                     

The internal review has concluded that circulation at THE CHICAGO SUN-TIMES was 
inflated primarily using three different methods, all of which have been        
terminated by current management. Two of these methods were directed at         
suppressing or manipulating the number of newspapers that were counted each day 
as unsold returns, since circulation is calculated by subtracting the number of 
newspapers returned each day from the number of newspapers printed. The third   
method involved the use of recycling proceeds to purchase newspapers through a  
charitable program that distributes newspapers to local schools.                

These three circulation inflation methods operated as follows:                  

o    ABC rules permit newspaper publishers to eliminate circulation     
     statistics on certain days from figures reported to ABC, if certain
       criteria are met. These days are commonly referred to as "elimination
     days." THE CHICAGO SUN-TIMES shifted returns, rather than recording
   them on the days that newspapers were actually returned. Internal
        records were also altered in order to make it appear that certain days
    qualified as elimination days when they otherwise did not qualify.

        The term "shifting returns" is the practice of accounting for a number
      of returned newspapers on elimination days or on days that otherwise
      may not be as important to advertisers, rather than on days they are
         actually returned. Shifting returns is believed to be a common practice
        in competitive newspaper markets, although it is not permissible under
ABC rules.                                                    

  o    THE CHICAGO SUN-TIMES would compensate newspaper distributors for not
       returning unsold papers. THE CHICAGO SUN-TIMES personnel would advise
      distributors not to return some or all of their unsold newspapers at
       the end of a given day. Credits would then be processed internally to
      reimburse the distributors for their cost and to compensate them for
these unsold papers.                                          

o    THE CHICAGO SUN-TIMES would direct recycling proceeds due to THE   
    CHICAGO SUN-TIMES to be deposited into a charitable trust that was
       established for the purpose of purchasing and distributing newspapers
      in local schools. This practice had the effect of having THE CHICAGO
SUN-TIMES purchase its own newspapers.                        

John Cruickshank, Publisher of THE CHICAGO SUN-TIMES and Chief Operating Officer
of Hollinger International's Chicago Group, said, "With the publication of the  
results of this very thorough review, we have created the circumstances to point
the paper, and our whole organization, towards the future. The unacceptable     
practices we uncovered and discontinued betrayed the trust placed in us by      
advertisers and wasted valuable resources that could have been invested in our  
journalism and customer service,                                                

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merchandising and marketing. However, we are pleased that over the past several 
months, since ending these practices, we have been able to make significant     
improvements at our paper."                                                     

"Right now, we are intently focused on implementing a program for compensating  
our advertisers that is designed to be fair and appropriate from their          
perspective. I look forward to continuing to provide our readers and advertisers
with the highest possible quality newspapers," concluded Mr. Cruickshank.       

THE CHICAGO SUN-TIMES intends to make restitution to all of its advertisers for 
losses associated with the overstatements in the ABC circulation figures. THE   
CHICAGO SUN-TIMES has been engaged in an ongoing dialogue with its key          
advertisers and will be presenting restitution and other incentive programs     
tailored to individual advertiser needs.                                        

The Company said that since it first discovered and reported this matter to ABC 
it has kept ABC informed and updated on the review process, and has worked      
constructively with that organization.                                          

The review by the Audit Committee also determined that certain circulation      
inflation practices were employed at the Company's THE DAILY SOUTHTOWN, THE STAR
and THE JERUSALEM POST newspapers. At THE DAILY SOUTHTOWN, records were         
manipulated in order to increase the reported number of newspapers that were    
actually printed. At both THE DAILY SOUTHTOWN and THE STAR, recycling proceeds  
were used to purchase newspapers in a manner similar to the practice employed at
THE CHICAGO SUN-TIMES. Since the inflation practices at THE DAILY SOUTHTOWN and 
THE STAR began in mid-2003, none of the inflated circulation figures have been  
published in ABC circulation audit reports. At THE JERUSALEM POST,              
representatives of the newspaper's advertising and marketing areas              
misrepresented the circulation figures to advertisers. There is no independent  
third-party such as ABC that audits or reports circulation figures for Israeli  
newspapers. These practices have been discontinued at these papers, and it is   
expected that the impact of the overstatement practices at these three          
newspapers will not have a material impact on the Company.                      

Hollinger International Inc. is a newspaper publisher with English-language     
newspapers in North America, Israel and Canada. Its assets include THE CHICAGO  
SUN-TIMES and a large number of community newspapers in the Chicago area, THE   
JERUSALEM POST and THE INTERNATIONAL JERUSALEM POST in Israel, several local    
newspapers in Canada, a portfolio of new media investments, and a variety of    
other assets.                                                                   

CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS: CERTAIN STATEMENTS MADE IN  
THIS RELEASE ARE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE 
SECURITIES LITIGATION REFORM ACT OF 1995 (THE "ACT"). FORWARD-LOOKING STATEMENTS
INCLUDE, WITHOUT LIMITATION, ANY STATEMENT THAT MAY PREDICT, FORECAST, INDICATE 
OR IMPLY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS, AND MAY CONTAIN THE WORDS 
"BELIEVE," "ANTICIPATE," "EXPECT," "ESTIMATE," "PROJECT, "WILL BE," "WILL       
CONTINUE," "WILL LIKELY RESULT," "IS SUBJECT TO," OR SIMILAR WORDS OR PHRASES.  
FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES, WHICH MAY CAUSE     
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE FORWARD-LOOKING STATEMENTS. THE    
RISKS AND UNCERTAINTIES ARE DETAILED FROM TIME TO TIME IN REPORTS FILED BY      
HOLLINGER INTERNATIONAL WITH THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING  
IN ITS FORMS 10 K AND 10 Q. NEW RISK FACTORS EMERGE FROM TIME TO TIME AND IT IS 
NOT POSSIBLE FOR MANAGEMENT TO PREDICT ALL SUCH RISK FACTORS, NOR CAN IT ASSESS 
THE IMPACT OF ALL SUCH RISK FACTORS ON THE COMPANY'S BUSINESS OR THE EXTENT TO  
WHICH ANY FACTOR, OR COMBINATION OF FACTORS, MAY CAUSE ACTUAL RESULTS TO DIFFER 
MATERIALLY FROM THOSE CONTAINED IN ANY FORWARD-LOOKING STATEMENTS. GIVEN THESE  
RISKS AND                                                                       

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UNCERTAINTIES, INVESTORS SHOULD NOT PLACE UNDUE RELIANCE ON FORWARD-LOOKING     
STATEMENTS AS A PREDICTION OF ACTUAL RESULTS.                                   

 -- TABLE FOLLOWS --

CONTACTS:                                                                       
US/CANADA MEDIA                                                                 
Molly Morse                                                                     
Kekst and Company                                                               
212-521-4826                                                                    
molly-morse@kekst.com                                                           

UK MEDIA                                                                        
Jeremy Fielding                                                                 
Kekst and Company                                                               
jeremy-fielding@kekst.com                                                       
1-212-521-4825                                                                  

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The following chart sets forth the average amount by which publicly reported    
single-copy circulation was overstated in each year of the period under review: 

                                                        [Enlarge/Download Table]

---------------------------------------------------------------------------------------------------------------- 
                                DAILY AND SUNDAY CIRCULATION OVERSTATEMENT(1)                                    
---------------------------------------------------------------------------------------------------------------- 
                                     DAILY                                         SUNDAY                        
---------------------------------------------------------------------------------------------------------------- 
                                                         TOTAL                                        TOTAL      
                                                      OVERSTATED                                    OVERSTATED   
                                                      SALES AS A                                    SALES AS A   
                       ABC REPORTED       TOTAL       PERCENT OF     ABC REPORTED       TOTAL       PERCENT OF   
    PUBLICATION          AVERAGE       OVERSTATED      REPORTED        AVERAGE       OVERSTATED      REPORTED    
      DATE(2)         CIRCULATION     SALES PER DAY   CIRCULATION    CIRCULATION    SALES PER DAY   CIRCULATION  
-----------------------------------------------------------------------------------------------------------------
                                                                                                                 
    APRIL 1998           493,998          2,814          0.57%         440,696           672           0.15%     
-----------------------------------------------------------------------------------------------------------------
    APRIL 1999           488,909          3,768          0.77%         427,662          3,164          0.74%     
-----------------------------------------------------------------------------------------------------------------
    APRIL 2000           481,685          9,106          1.89%         408,915          8,987          2.20%     
-----------------------------------------------------------------------------------------------------------------
    APRIL 2001           474,533         16,667          3.51%         402,779          6,043          1.50%     
-----------------------------------------------------------------------------------------------------------------
    APRIL 2002           477,354         28,746          6.02%         385,649         10,702          2.77%     
-----------------------------------------------------------------------------------------------------------------
    APRIL 2003           481,980         33,517          6.95%         377,640         12,321          3.26%     
-----------------------------------------------------------------------------------------------------------------
    APRIL 2004           482,421         50,191         10.40%         376,401         17,318          4.60%     
-----------------------------------------------------------------------------------------------------------------

1.   A PORTION OF THE OVERSTATED CIRCULATION RELATED TO PAPERS THAT, WHILE      
DISTRIBUTED, WERE INELIGIBLE FOR INCLUSION IN ABC REPORTED CIRCULATION
   BECAUSE THEY WERE PURCHASED WITH THE COMPANY'S FUNDS THROUGH A CHARITABLE
    TRUST THAT BUYS PAPERS FOR DISTRIBUTION IN LOCAL SCHOOLS. FOR EXAMPLE, THE
  OVERSTATEMENT OF DAILY CIRCULATION IN THE APRIL 2004 ABC REPORT INCLUDED
8,402 INELIGIBLE SCHOOL SALES PER DAY, OR 16.7% OR THE TOTAL DAILY    
   CIRCULATION INFLATION. SUNDAY INELIGIBLE SCHOOL CIRCULATION FOR THIS SAME
PERIOD TOTALED 5,243 COPIES PER DAY, OR 30.3% OF THE SUNDAY INFLATION.

2.   UNDER ABC PRACTICE, THERE IS A LAG OF AT LEAST 12 MONTHS BETWEEN THE TIME  
ACTUAL CIRCULATION OF THE NEWSPAPER OCCURRED AND WHEN IT IS REPORTED  
PUBLICLY THROUGH THE ABC REPORT. FOR EXAMPLE, INFLATION OF CIRCULATION
  OCCURRING IN THE 52-WEEK PERIOD ENDING MARCH 1997 WAS NOT REPORTED UNTIL
PUBLICATION OF THE COMPANY'S CIRCULATION INFORMATION IN APRIL 1998.   

Dates Referenced Herein

				Referenced-On Page
This ‘8-K’ Filing		Date		First		Last			Other Filings
Filed as of:		10/7/04							None on these Dates
Filed on:		10/6/04
For Period End:		10/5/04		1
		3/28/04		1
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