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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 December 31, 2000
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 Number
MEDIANEWS GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 76-0425553
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification Number)
1560 Broadway
Denver, Colorado 80202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 563-6360
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Indicate by check mark whether a registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities and 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
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INDEX TO MEDIANEWS GROUP, INC.
REPORT ON FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 2000
Item No. Page
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PART 1 - FINANCIAL INFORMATION
1 Financial Statements 3
2 Management's Discussion and Analysis of Financial Condition and Results of Operations 3
PART II - OTHER INFORMATION
1 Legal Proceedings 3
2 Changes in Securities 3
3 Defaults Upon Senior Securities 3
4 Submission of Matters to a Vote of Security Holders 3
5 Other Information 4
6 Exhibits and Reports on Form 8-K 4
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3
PART I
ITEM 1: FINANCIAL STATEMENTS
The information required by this item is filed as part of this Form 10-Q. See
Index to Financial Information on page 5 of this Form 10-Q.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANAYLISIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain statements contained herein are forward-looking statements. These
forward-looking statements are subject to certain risks and uncertainties that
could cause actual results and events to differ materially from those
anticipated. Potential risks and uncertainties that could adversely affect the
Company's ability to obtain these results include, without limitation, the
following factors: (a) increased consolidation among major retailers or other
events that may adversely affect business operations of major customers and
depress the level of local and national advertising (b) an economic downturn in
some or all of the Company's principal newspaper markets that may lead to
decreased circulation or decreased local or national advertising (c) a decline
in general newspaper readership patterns as a result of competitive alternative
media or other factors (d) an increase in newsprint costs over the level
anticipated (e) labor disputes which may cause revenue declines or increased
labor costs (f) acquisitions of new businesses or dispositions of existing
businesses (g) increases in interest or financing costs and (h) rapid
technological changes and frequent new product introductions prevalent in
electronic publishing, including the evolution of the Internet.
The information required by this item is filed as part of this Form 10-Q. See
Index to Financial Information on page 5 of this Form 10-Q.
PART II
ITEM 1: LEGAL PRECEEDINGS
The Company is involved in litigation arising in the ordinary course of
business, none of which is expected to result in material loss.
ITEM 2: CHANGES IN SECURITIES
There were no changes in the rights of security holders during the quarter for
which this report is filed.
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
There were no defaults upon senior securities during the quarter for which this
report is filed.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the quarter
for which this report is filed.
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4
ITEM 5: OTHER INFORMATION
None.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
27 - Financial Data Schedule.
Reports on Form 8-K
No reports on Form 8K were filed during the quarter ended December 31, 2000.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MEDIANEWS GROUP, INC.
Dated: February 13, 2001 By: /s/Ronald A. Mayo
----------------- -----------------
Ronald A. Mayo
Vice President and Chief Financial Officer and
Duly Authorized Officer of Registrant
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5
MEDIANEWS GROUP, INC
Index to Financial Information
Page
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ITEM 1: FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheets................................ 6
Unaudited Condensed Consolidated Statements of Operations............ 8
Unaudited Condensed Consolidated Statements of Cash Flows............ 9
Notes to Unaudited Condensed Consolidated Financial Statements....... 10
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS............................................ 13
5
6
MEDIANEWS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (Restated)
December 31, June 30,
2000 2000
------------ ------------
(In thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents .............................................. $ 7,217 $ 144,632
Accounts receivable, less allowance for doubtful accounts
of $12,880 and $9,910 at December 31, 2000
and June 30, 2000, respectively ................................... 132,296 108,544
Inventories of newsprint and supplies .................................. 22,167 19,708
Prepaid expenses and other assets ...................................... 6,014 6,245
------------ ------------
TOTAL CURRENT ASSETS .............................................. 167,694 279,129
PROPERTY, PLANT AND EQUIPMENT
Land ................................................................... 28,319 28,300
Buildings and improvements ............................................. 126,424 124,451
Machinery and equipment ................................................ 384,189 369,032
------------ ------------
TOTAL PROPERTY, PLANT AND EQUIPMENT ............................... 538,932 521,783
Less accumulated depreciation and amortization ......................... 170,256 157,011
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NET PROPERTY, PLANT AND EQUIPMENT ................................. 368,676 364,772
OTHER ASSETS
Investment in newspaper partnerships ................................... 11,541 10,499
Subscriber accounts, less accumulated amortization of
$84,094 and $76,705 at December 31, 2000 and June 30, 2000,
respectively ...................................................... 111,471 110,414
Excess of cost over fair value of net assets acquired, less
accumulated amortization of $40,278 and $34,917 at
December 31, 2000 and June 30, 2000, respectively ................. 503,635 317,575
Covenants not to compete and other indentifiable intangible
assets, less accumulated amortization of $28,523 and $27,486 at
December 31, 2000 and June 30, 2000, respectively ................. 9,359 10,292
Other .................................................................. 47,923 46,211
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TOTAL OTHER ASSETS ................................................ 683,929 494,991
TOTAL ASSETS ...................................................... $ 1,220,299 $ 1,138,892
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See notes to unaudited condensed consolidated financial statements
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7
MEDIANEWS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (Restated)
December 31, June 30,
2000 2000
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(In thousands, except share data)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable ................................................... $ 27,221 $ 22,409
Accrued liabilities ...................................................... 62,541 63,060
Unearned income .......................................................... 25,944 25,632
Current portion of long-term debt and obligations under capital leases ... 12,540 18,611
------------ ------------
TOTAL CURRENT LIABILITIES ........................................... 128,246 129,712
LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES ...................... 858,733 828,197
OTHER LIABILITIES ........................................................ 19,550 18,288
DEFERRED INCOME TAXES .................................................... 55,328 27,345
MINORITY INTEREST ........................................................ 144,288 135,066
SHAREHOLDERS' DEFICIT
Common stock, par value $.001 per share; 3,300,000 shares authorized
and 2,298,346 shares issued and outstanding ......................... 2 2
Additional paid in capital ............................................... 3,631 3,631
Accumulated other comprehensive loss ..................................... (1,309) (655)
Retained earnings (deficit) .............................................. 13,830 (694)
Common stock in treasury, at cost, 16,000 shares ......................... (2,000) (2,000)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY .......................................... 14,154 284
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .......................... $ 1,220,299 $ 1,138,892
============ ============
See notes to unaudited condensed consolidated financial statements
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8
MEDIANEWS GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended December 31, Six Months Ended December 31,
2000 1999 2000 1999
(Restated) (Restated)
-------------- -------------- -------------- --------------
(In thousands, except share data)
REVENUES
Advertising ..................................... $ 212,920 $ 200,541 $ 392,851 $ 384,784
Circulation ..................................... 40,222 37,528 74,402 75,363
Other ........................................... 10,578 6,318 18,866 12,260
-------------- -------------- -------------- --------------
TOTAL REVENUES ............................... 263,720 244,387 486,119 472,407
COSTS AND EXPENSES
Cost of sales ................................... 92,234 86,440 174,976 168,258
Selling, general and administrative ............. 112,738 104,208 215,882 206,304
Depreciation and amortization ................... 17,403 15,594 32,847 31,101
Interest expense ................................ 20,477 18,857 38,995 37,672
Other (net) ..................................... 4,078 2,930 5,464 3,509
-------------- -------------- -------------- --------------
TOTAL COSTS AND EXPENSES ..................... 246,930 228,029 468,164 446,844
EQUITY INCOME IN JOA ................................. 1,246 1,138 1,687 1,948
GAIN ON SALE OF NEWSPAPER PROPERTIES ................. 23,629 -- 23,629 3,323
MINORITY INTEREST .................................... 11,755 9,764 19,103 19,272
-------------- -------------- -------------- --------------
INCOME BEFORE INCOME TAXES ........................... 29,910 7,732 24,168 11,562
INCOME TAX EXPENSE ................................... 10,844 1,698 9,644 2,028
-------------- -------------- -------------- --------------
NET INCOME ........................................... $ 19,066 $ 6,034 $ 14,524 $ 9,534
============== ============== ============== ==============
NET INCOME PER COMMON SHARE:
Net income per common share .......................... $ 8.30 $ 2.63 $ 6.33 $ 4.15
============== ============== ============== ==============
Weighted average number of shares outstanding ........ 2,298,346 2,298,346 2,298,346 2,298,346
============== ============== ============== ==============
See notes to unaudited condensed consolidated financial statements
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9
MEDIANEWS GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended December 31,
2000 1999
(Restated)
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(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ..................................................... $ 14,524 $ 9,534
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization .............................. 32,791 31,101
Provision for losses on accounts receivable ................ 5,536 5,612
Amortization of debt discount .............................. 1,676 1,990
Net gain on sale of newspaper assets ....................... (23,480) (1,714)
Equity income in JOA ....................................... (1,687) (1,948)
Change in defined benefit plan assets ...................... (1,205) (1,170)
Deferred income tax expense ................................ 7,517 665
Minority interest .......................................... 19,103 19,272
Change in operating assets and liabilities ................. (16,830) (23,401)
------------ ------------
NET CASH FLOWS FROM OPERATING ACTIVITIES ................ 37,945 39,941
CASH FLOWS FROM INVESTING ACTIVITIES:
Distributions from equity investment in JOA ................ 710 1,825
Sale of newspaper properties ............................... 32,000 8,000
Business Acquisition ....................................... (206,931) (3,200)
Purchase of machinery and equipment (net) .................. (11,622) (13,975)
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NET CASH FLOWS FROM INVESTING ACTIVITIES ................ (185,843) (7,350)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt ................................. 95,278 27,158
Reduction of long-term debt and other liabilities .......... (73,447) (51,074)
Distributions paid to minority interest .................... (11,348) (10,945)
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NET CASH FLOWS FROM FINANCING ACTIVITIES ................ 10,483 (34,861)
CHANGE IN CASH AND CASH EQUIVALENTS ............................ (137,415) (2,270)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ............... 144,632 4,745
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CASH AND CASH EQUIVALENTS AT END OF PERIOD ..................... $ 7,217 $ 2,475
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SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid .............................................. $ 38,376 $ 31,489
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Income taxes paid .......................................... $ 6,184 $ 159
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See notes to unaudited condensed consolidated financial statements
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10
MEDIANEWS GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS
Basis of Quarterly Financial Statements
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulations S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
consolidated financial statements and should be read in conjunction with the
consolidated financial statements and footnotes thereto included in MediaNews
Group, Inc.'s ("MediaNews") Annual Report on Form 10-K for the year ended June
30, 2000. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three and six month periods ended December
31, 2000, are not necessarily indicative of the results that may be expected for
the year ended June 30, 2001.
Joint Operating Agencies
As of December 31, 2000, York Newspaper, Inc. and Charleston Publishing
Company, subsidiaries of the Company, in York, PA and Charleston, WV,
respectively, were the only two subsidiaries that participated in joint
operating agencies ("JOA"). Beginning on January 23, 2001, The Denver Post
Company will be accounted for as a JOA in accordance with EITF 00-1 which
requires the equity method of accounting.
A joint operating agency performs the production, sales, distribution and
administrative functions for two or more newspapers in the same market under the
terms of a JOA. Editorial control of newspapers in a JOA continues to be
separate and outside of a joint operating agency. The Company had previously
included in its consolidated financial statements its pro-rata share of the
revenues and expenses generated by the operations of its JOA's on a line-by-line
basis, in addition to the editorial expenses related to its newspapers operated
under its JOA. However, the Financial Accounting Standards Board issued EITF
00-1, (Balance Sheet and Income Statement Display under the Equity Method of
Investments in Certain Partnerships and Other Unincorporated Joint Ventures)
effective for periods ending after June 15, 2000, which prohibits the use of
pro-rata consolidation except in the extractive and constructive industries.
EITF 00-1 also requires that all previously reported financial statements be
reclassified to conform with the current presentation. York Newspapers, Inc. has
a controlling interest in the York JOA and, accordingly, the December 31, 1999
financial statements have been restated to consolidate the results of the York
JOA with those of the Company. The December 31, 1999 financial statements have
also been restated to reflect the Company's investment in the Charleston JOA
under the equity method of accounting. See Note 3 of the June 30, 2000 Notes to
Consolidated Financial Statements for additional discussion.
Change in Accounting Principle
As of July 1, 1998, the Company adopted Statement of Financial Accounting
Standards SFAS No. 130, (Reporting Comprehensive Income). SFAS No. 130 requires
the disclosure of comprehensive income, which includes, in addition to net
income, other comprehensive income consisting of unrealized gains and losses,
which are not previously included in the traditional income statement. While the
Company adopted SFAS No. 130 on July 1, 1998, it did not have any items of
comprehensive income until it adopted SFAS No. 133 (Accounting for Derivative
Instruments and Hedging Activities) on July 1, 2000. Under SFAS No. 133, the
Company's newsprint swap contracts are recorded at fair value and changes in the
value of the contract net of income taxes is reported in comprehensive income.
For purposes of calculating income taxes related to comprehensive income, the
Company uses its combined statutory rate for federal and state income taxes.
Newsprint consumed under these contracts is reflected in retained earnings in
the period of use. The Company has restated the prior period financial
statements, presented herein, to conform with the current presentation. A
reconciliation of net income to comprehensive income (loss) is as follows:
Three Months Ended December 31, Six Months Ended December 31,
-------------------------------- --------------------------------
2000 1999 2000 1999
-------------- -------------- -------------- --------------
Net income, as reported ........................... $ 19,066 $ 6,034 $ 14,524 $ 9,534
Other comprehensive income (loss), net of taxes ... (476) 655 (654) 1,547
-------------- -------------- -------------- --------------
Total comprehensive income (loss) ............ $ 18,590 $ 6,689 $ 13,870 $ 11,081
============== ============== ============== ==============
Reclassification
Certain balances for the three and six month periods ended December 31,
1999 have been restated to conform with current classification.
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11
MEDIANEWS GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS (CONTINUED)
Income Taxes
The effective income tax rate varies from the federal statutory rate primarily
because of the non-deductibility of certain expenses.
Seasonality
Newspaper companies tend to follow a distinct and recurring seasonal
pattern, with higher advertising revenues in months containing significant
events or holidays. Accordingly, the fourth calendar quarter, or the Company's
second fiscal quarter, is the Company's strongest revenue quarter of the year.
Due to generally poor weather and lack of holidays, the first calendar quarter,
or the Company's third fiscal quarter, is the Company's weakest revenue quarter
of the year.
NOTE 2: LONG TERM DEBT
On January 2, 2001, MediaNews entered into an amended and restated credit
agreement that provided for a $125.0 million term loan (subsequently increased
to $150.0 million, on February 8, 2001), in addition to MediaNews' existing
$350.0 million Bank Credit Facility. Borrowings under the term loan bear
interest at rates based upon, at the Company's option, Eurodollar or prime rates
plus a spread, based on MediaNews' leverage ratio. Term loan borrowing margins
for Eurodollar and prime borrowing vary from 2.375% to 1.5% and 1.125% to 0.25%,
respectively. During the first six months of the term loan the Eurodollar and
prime borrowings margins are set at 2.375% and 1.125%, respectively. The term
loan requires quarterly installments as follows: $15.0 million on September 30
and December 31, 2003, $9.375 million on March 31, 2004 through December 31,
2005 and $11.25 million on March 31, 2006 through December 31, 2006. Borrowing
margins under the existing $350.0 million credit facility remain unchanged and
are 25 to 50 basis points lower than the term loan.
The following table sets forth the approximate expected scheduled
maturities of long-term debt of the Company for the fiscal years indicated,
excluding capital leases, the impact of the acquisitions and Denver JOA and the
acquisition of Kearns-Tribune, LLC, as described in Note 4, Recent Events, (in
thousands):
2001 ...................................... $ 10,991
2002 ...................................... 9,621
2003 ...................................... 7,434
2004 ...................................... 69,367
2005 ...................................... 109,793
Thereafter ................................ 646,660
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$853,866
========
The acquisition and Denver JOA payment received described in Note 4
increased the Company's net long-term debt by a net of approximately $133.0
million subsequent to December 31, 2000.
NOTE 3: ACQUISITIONS AND DISPOSITIONS
Business Acquisition
Effective October 1, 2000, the Company acquired substantially all of the
assets used in the publication of the Connecticut Post, a morning newspaper
published in Bridgeport, Connecticut, for approximately $194.0 million in cash,
net of working capital and post closing adjustments. The newspaper has daily and
Sunday paid circulation of approximately 79,000 and 90,000, respectively.
Proceeds of approximately $145.0 million from the sale of newspapers on June 30,
2000 and borrowing under the Company's bank credit facility were used to fund
the acquisition.
Effective October 1, 2000, the Company acquired substantially all of the
assets used in the publication of Breckenridge American, a bi-weekly newspaper
and radio stations, KLXK and KROO, located in Breckenridge, Texas for
approximately $1.0 million.
Effective October 1, 2000, Gannett contributed the Independent Journal,
published in Marin, California, to the California Newspapers Partnership.
Effective with the contribution, MediaNews, Donrey and Gannett's interest in the
California Newspapers Partnership were adjusted to 54.23%, 26.28% and 19.49%,
respectively. Prior to the contribution, MediaNews held a 58.5% interest in the
partnership. The Independent Journal will be operated in conjunction with the
ANG Newspaper Group.
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MEDIANEWS GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3: ACQUISITIONS AND DISPOSITIONS (CONTINUED)
Disposition
Effective October 31, 2000, the Company sold substantially all the assets
used in the publication of the Daily Nonpareil, in Council Bluffs, Iowa and the
related daily and weekly newspapers located in the Southwestern Iowa cluster, in
exchange for $32.0 million in cash and substantially all the assets of the
Current-Argus, a daily newspaper located in Carlsbad, New Mexico, valued at
approximately $7.0 million, plus adjustments for working capital. The
Current-Argus has daily and Sunday circulation of approximately 8,400 and 8,700,
respectively. The sale resulted in a pre tax gain of approximately $23.6
million.
The acquisitions above were accounted for as purchases; accordingly, the
Unaudited Condensed Consolidated Financial Statements include the operations of
the acquisitions from the date of acquisition.
NOTE 4: RECENT EVENTS
On January 2, 2001, MediaNews purchased the stock of Kearns-Tribune, LLC
for $200.0 million in cash. Kearns-Tribune, LLC owns the masthead of The Salt
Lake Tribune and a 50% interest in the Newspaper Agency Corporation ("NAC"). The
NAC is operated under the terms of a JOA between Kearns-Tribune, LLC and the
Deseret Publishing Company. Under the terms of the JOA, the NAC is responsible
for performing all the business functions of The Salt Lake Tribune and the
Deseret News, including advertising and circulation sales, production and
distribution. News and editorial related to The Salt Lake Tribune are completely
separate from the NAC and are the sole responsibility of Kearns-Tribune, LLC.
While Kearns-Tribune, LLC owns 50% of the NAC, net income of the JOA is
distributed 58% to Kearns-Tribune, LLC and 42% to the Deseret News Publishing
Company. The acquisition of Kearns-Tribune, LLC will be accounted for as a
purchase, accordingly the results of its operation will be included in the
consolidated financial statements of MediaNews beginning January 2, 2001.
On January 22, 2001, MediaNews Group and E.W. Scripps Company ("Scripps"),
owner of The Rocky Mountain News, completed the formation of the Denver
Newspaper Agency (the "Agency"). Upon formation of the Agency, MediaNews and
Scripps each contributed substantially all of their operating assets used in the
publication of The Denver Post and The Rocky Mountain News to the Agency. In
addition to the assets contributed to the Agency, Scripps paid MediaNews $60.0
million to obtain a 50% interest in the Agency. MediaNews will recognize a gain
on the payment from Scripps in its third fiscal quarter.
12
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OPERATING RESULTS
Results of Operations
Set forth below is certain summary historical financial data for three and six
month periods ended December 31, 2000 and 1999, including the percentage change.
Summary Historical Financial Data
(Dollars in thousands)
Three Months Ended December 31, Six Months Ended December 31,
------------------------------------------- ------------------------------------------
2000 1999 2000 vs. 1999 2000 1999 2000 vs. 1999
----------- ----------- ------------- ----------- ----------- -------------
Total Revenues ....................... $ 263,720 $ 244,387 7.9% $ 486,119 $ 472,407 2.9%
Cost of Sales ........................ 92,234 86,440 6.7 174,976 168,258 4.0
Selling, General and Adminstrative ... 112,738 104,208 8.2 215,882 206,304 4.6
Depreciation and Amortization ........ 17,403 15,594 11.6 32,847 31,101 5.6
Interest Expense ..................... 20,477 18,857 8.6 38,995 37,672 3.5
Other ................................ 4,078 2,930 39.3 5,464 3,509 55.7
----------- ----------- ------------- ----------- ----------- -------------
Total Costs and Expenses .......... 246,930 228,029 8.3 468,164 446,844 4.8
Equity Income in JOA ................. 1,246 1,138 9.5 1,687 1,948 (13.4)
Net Income ........................... $ 19,066 $ 6,034 216.0% $ 14,524 $ 9,534 52.3%
=========== =========== ============= =========== =========== =============
EBITDA ............................... 58,748 53,739 9.3 95,261 97,845 2.6
Minority Interest EBITDA ............. (15,349) (12,355) 24.2 (25,436) (22,892) 11.1
Unconsolidated EBITDA for JOA's ...... 1,287 1,395 (7.7) 2,152 2,503 (14.0)
----------- ----------- ------------- ----------- ----------- -------------
Net EBITDA Available .............. $ 44,686 $ 42,779 4.5 $ 71,977 $ 77,456 (7.1)
=========== =========== ============= =========== =========== =============
NOTE: Net EBITDA Available represents the EBITDA available to us after
deducting EBITDA related to minority interest and adding the EBITDA of
our unconsolidated JOA. Net EBITDA available is the same under the
Summary Supplement Pro Forma Financial Data presented below.
Summary Supplemental Pro Forma Financial Data
The following summary supplemental pro forma financial data presents the
results of operations of our investments in the York Newspapers Company and the
Charleston Newspapers, both operated under JOA's, using pro-rata consolidation
for all periods presented. Prior to the Financial Accounting Standards Board
issuing EITF 00-1, we presented the results of our JOA interests using pro-rata
consolidation. See Note 1 of the unaudited condensed consolidated financial
statements for additional discussion.
THE INFORMATION IN THE FOLLOWING TABLE IS NOT PRESENTED IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND
DOES NOT COMPLY WITH ARTICLE 11 OF REGULATION S-X
Summary Historical Financial Data
(Dollars in thousands)
Three Months Ended December 31, Six Months Ended December 31,
----------------------------------------- ------------------------------------------
2000 1999 2000 vs. 1999 2000 1999 2000 vs. 1999
----------- ----------- ------------- ----------- ----------- --------------
Total Revenues ....................... $ 263,415 $ 244,566 7.7% $ 485,923 $ 472,934 2.7%
Cost of Sales ........................ 92,992 87,141 6.7 176,521 169,666 4.0
Selling, General and Adminstrative ... 112,740 104,347 8.0 216,313 206,735 4.6
Depreciation and Amortization ........ 17,434 15,626 11.6 33,056 31,194 6.0
Interest Expense ..................... 20,413 18,790 8.6 38,862 37,540 3.5
Other ................................ 4,034 3,214 25.7 5,505 4,094 34.4
----------- ----------- ------------- ----------- ----------- --------------
Total Costs and Expenses .......... 247,613 229,118 8.1 470,257 449,229 4.7
Net Income ........................... $ 19,066 $ 6,034 216.0% $ 14,524 $ 9,534 52.3%
=========== =========== ============= =========== =========== ==============
13
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Three Months Ended December 31, 2000 and 1999
Revenues
Revenues increased $19.3 million or 7.9% in the second quarter of fiscal
year 2001 as compared to the same quarter of fiscal year 2000. The increase in
revenue was primarily attributable to the acquisition of the Connecticut Post on
October 1, 2000, the October 31, 2000 acquisition of Carlsbad and the October 1,
2000 addition of Marin to the California Newspaper Partnership. These
acquisitions were offset in part by the June 30, 2000, sale of the
Express-Times, the Gloucester County Times, Today's Sunbeam, The Bridgeton News
and the North Jersey Weekly Newspaper Group and the October 31, 2000 sale of
Council Bluffs. Excluding newspaper acquisitions and dispositions, our remaining
newspaper operations ("existing newspapers") posted a $9.1 million or 4.0%
increase in operating revenues for the second quarter of fiscal year 2001.
National and classified revenues at the existing newspapers increased by 1.8%
and 5.4%, respectively. However, these increases were offset in part by a 2.3%
decrease in retail advertising. Certain of our Southern California newspapers
experienced the majority of the retail advertising decrease. Our internet
revenue increased approximately $1.1 million, while circulation revenue declined
1.2%. The circulation revenue decrease is primarily due to temporary declines in
volume at certain of our Southern California newspapers, as a result of a
strategy to replace higher churn short term circulation orders with longer term
more profitable circulation. This strategy also produces current and long term
circulation expense savings.
Cost of Sales
Cost of sales increased $5.8 million or 6.7% in the second quarter of
fiscal year 2001 compared to the same quarter of fiscal year 2000. Excluding the
aforementioned acquisitions and dispositions the cost of sales increased 3.8%.
The majority of this increase in cost of sales was caused by newsprint price
increases. Excluding newspaper acquisitions and dispositions, newsprint
consumption for the quarter ended December 31, 2000 and 1999 was down 3.6%,
while the average cost per metric ton of newsprint consumed during these same
periods increased approximately 11.8%.
Selling, General and Administrative
Selling, general and administrative ("SG&A") expenses increased $8.5
million or 8.2% in the second quarter of fiscal year 2001 as compared to the
same quarter of fiscal year 2000. Excluding the aforementioned acquisitions and
dispositions, SG&A expense increased 5.7% in the second quarter of fiscal year
2001. The increase in SG&A is primarily associated with increased circulation
delivery cost at the Denver Post and increased advertising commissions in the
California Newspaper Partnership, driven by their advertising revenue growth.
Other Expense
Other expense increased approximately $1.1 million in the second quarter of
fiscal year 2001 as compared to the same quarter of fiscal year 2000. The
majority of the increase is due to one time spending associated with the Denver
Newspaper Agency ("DNA") planning. The DNA expenses are primarily related to
transition team payroll and consulting fees related to integration planning in
anticipation of the Denver JOA.
EBITDA
Total EBITDA increased $5.0 million or 9.3% while EBITDA adjusted for
minority interest increased $1.9 million or 4.5%. The majority of the increase
in EBITDA was due to the aforementioned acquisitions, which was partially offset
by the dispositions described above and increases in operating expenses at The
Denver Post associated with the then pending JOA transaction. EBITDA at existing
newspapers increased 1.2%; however, after excluding the Denver Post and the
effect of newsprint increases EBITDA at our existing newspapers increased 8.8%.
EBITDA represents total revenues less cost of sales and selling, general and
administrative expense. Although EBITDA is not a measure of performance
calculated in accordance with GAAP, the Company believes that EBITDA is an
indicator and measurement of its leverage capacity and debt service ability.
Net Income
MediaNews Group recorded adjusted net income of approximately $4.0 million
in the second quarter of fiscal year 2001, after excluding the after tax gain on
sale of Council Bluffs, compared to net income of $6.0 million in the second
quarter of fiscal year 2000. The decrease in adjusted net income is primarily
attributable to a $0.6 million increase in income tax expense, excluding income
taxes associated with the Council Bluffs sale; a $1.6 million increase in
interest expense as a result of a 50 basis point increase in the average
interest rate and a $1.1 million increase in other expense, as discussed above.
These increases in expenses were offset by a $0.8 million increase in operating
profit, net of minority interest.
14
15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Six Months Ended December 31, 2000 and 1999
Revenues
Revenues increased $13.7 million or 2.9% in the first six months of fiscal
year 2001 as compared to the same period of fiscal year 2000. The increase in
revenue was primarily attributable to the October 1, 2000 acquisition of the
Connecticut Post, the October 31, 2000 acquisition of Carlsbad, and the October
1, 2000 addition of Marin to the California Newspaper Partnership. The increases
from acquisitions were offset in part by the June 30, 2000, sale of the
Express-Times, the Gloucester County Times, Today's Sunbeam, The Bridgeton News
and the North Jersey Weekly Newspaper Group and the October 31, 2000 sale of
Council Bluffs. Excluding newspaper acquisitions and dispositions, our existing
newspaper operations posted a $15.9 million or 3.6% increase in operating
revenues for the six month period of fiscal year 2001. National and classified
revenues at the existing newspapers increased by 4.5% and 6.5%, respectively.
However, these increases were offset in part by a 3.2% decrease in retail
advertising. Certain of our Southern California newspapers experienced the
majority of the retail advertising decrease. The Company's internet revenue
increased $2.1 million, while circulation revenue declined 2.5%. The circulation
revenue decrease is primarily due to temporary declines in circulation volume at
certain of our Southern California newspapers as a result of strategy to replace
higher churn short term circulation orders with longer term more profitable
circulation. This strategy also produces current and long-term circulation
expense savings.
Cost of Sales
Cost of sales increased $6.7 million or 4.0% in the first six months of
fiscal year 2001 compared to the same period in fiscal year 2000. Excluding the
aforementioned acquisitions and dispositions, cost of sales increased 4.8%. The
majority of this increase in cost of sales was caused by newsprint price
increases. Excluding newspaper acquisitions and dispositions, newsprint
consumption for the six months ended December 31, 2000 and 1999 declined 3.0%,
while the average cost per metric ton of newsprint consumed during these same
periods increased approximately 10.6%.
Selling, General and Administrative
Selling, general and administrative ("SG&A") expenses increased $9.6
million or 4.6% in the six months of fiscal year 2001 as compared to the same
six month period of fiscal year 2000. Excluding the aforementioned acquisitions
and dispositions, SG&A expense increased 6.6% in the second six month period of
fiscal year 2001. The increase in SG&A is primarily associated with increased
circulation delivery cost at the Denver Post and increased in advertising
commissions in the California Newspaper Partnership associated with their
advertising revenue growth.
Other Expense
Other expense increased approximately $2.0 million in the six months of
fiscal year 2001 as compared to the same quarter of fiscal year 2000. The
majority of the increase is due to increases in our equity losses in our
investment in AdOne and one time spending associated with the Denver Newspaper
Agency ("DNA") planning. The DNA expenses are primarily related to transition
team payroll and consulting fees related to integration planning in anticipation
of the Denver JOA.
EBITDA
Total EBITDA decreased $2.6 million or 2.6%, while EBITDA adjusted for
minority interest decreased $5.5 million or 7.1%. The majority of the decrease
was due to the June 30, 2000, disposition since the proceeds from the sale were
not reinvested in the Connecticut Post until October 1, 2000. Also contributing
to the decrease were increases in operating expenses at The Denver Post in
conjunction with the then pending JOA transaction and increased newsprint
prices, which was only offset in part by the aforementioned acquisitions.
Excluding the Denver Post, our existing newspapers EBITDA was up 1.4%; however,
excluding the Denver Post and the effect of newsprint, increases, EBITDA at our
existing newspapers increased 3.1%. EBITDA represents total revenues less cost
of sales and selling, general and administrative expense. Although EBITDA is not
a measure of performance calculated in accordance with GAAP, the Company
believes that EBITDA is an indicator and measurement of its leverage capacity
and debt service ability.
Net Income
MediaNews Group recorded an adjusted loss of approximately $0.5 million in
the first six months of fiscal year 2001, after excluding the after tax gain on
sale of Council Bluffs, compared to an adjusted net income of $7.5 million in
the second quarter of fiscal year 2000, after excluding the Company's share of
the gain on sale of a CNP newspaper property of approximately $2.0 million. The
decrease in adjusted net income is primarily attributable to a $5.4 million
decrease in operating profit, net of minority interest, primarily as a result of
dispositions, strategic spending at the Denver Post and newsprint price
increases; a $1.3 million increase in interest expense as a result of a 33 basis
point increase in the average interest rate and a $2.0 million increase in other
expense discussed above.
15
16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION AND LIQUIDITY
Net cash flows from operating activities were approximately $37.9 million
and $39.9 million for the six months ended December 31, 2000 and 1999,
respectively. The $2.0 million decrease in cash flow from operating activities
was primarily the result of the $5.5 million decrease in EBITDA adjusted for
minority interests and a $3.5 million increase in tax payments net of accruals
for the six months ended December 31, 2000, compared to the same period of the
prior year. These decreases were offset by a $6.6 million decrease in the change
in operating assets and liabilities due to timing differences.
Net cash flows from investing activities were ($185.8) million and ($7.4)
million for the six months ended December 31, 2000 and 1999, respectively. The
$178.4 million change was primarily the result of the $200.0 million acquisition
of the Connecticut Post, offset by a net $24.0 million increase in proceeds from
the sale of newspapers.
Net cash flows from financing activities were $10.5 million and ($34.9)
million for the six months ended December 31, 2000 and 1999, respectively. The
change of approximately $45.4 million was primarily attributable to our
borrowing a net $21.8 million of long term debt in fiscal 2001 compared to
paying down a net $23.9 million in fiscal 2000. The increase in borrowings in
fiscal year 2001 is associated with acquisitions. The $0.4 million increase in
distributions to minority interest also contributed to the change.
Liquidity
Based upon current and expected future operating results, we believe that
we will have sufficient cash flows from operations to fund scheduled payments of
principal and interest and to meet anticipated capital expenditure and working
capital requirements for at least the next twelve months. As of the date of this
report, we have approximately $61.5 million available for future borrowings
under our bank credit agreement, net of approximately $2.5 million in
outstanding letters of credit, which should be more than sufficient to fund
unanticipated capital needs or other cash requirements should they arise.
NEAR TERM OUTLOOK
Newsprint Prices
North American newsprint suppliers announced a $50 per metric ton price
increase for 30 pound newsprint to be effective March 1, 2001. We are uncertain
as to whether all or a portion of the price increase will become effective, due
to uncertainty about future newsprint demand, resulting from the recent decline
in newspaper advertising lineage and more newspapers now being produced using
the smaller 50 inch web width. If the price increase is fully implemented, North
American 30 pound newsprint will average $660 per metric ton for large newsprint
buyers. To minimize the influence of newsprint price fluctuations, we have
entered into fixed price newsprint contracts and newsprint swap agreements for
approximately 141,000 metric tons of newsprint in fiscal year 2001. The weighted
average price for newsprint under both the fixed price newsprint contracts and
the newsprint swap, for fiscal 2001, is $563 per metric ton.