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EXHIBIT 99.2.3
KEARNS-TRIBUNE LLC
Consolidated Financial Statements
For the year ended December 31, 2000
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Kearns-Tribune LLC
Consolidated Financial Statements
Year ended December 31, 2000
CONTENTS
Report of Independent Auditors...........................................................................1
Financial Statements
Consolidated Balance Sheet...............................................................................2
Consolidated Statement of Income.........................................................................4
Consolidated Statement of Member's Equity................................................................5
Consolidated Statement of Cash Flows.....................................................................6
Notes to Consolidated Financial Statements...............................................................7
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Report of Independent Auditors
The Board of Directors
Kearns-Tribune LLC
We have audited the accompanying consolidated balance sheet of Kearns-Tribune
LLC as of December 31, 2000, and the related statements of income, member's
equity and cash flows for year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Kearns-Tribune LLC
at December 31, 2000, and the results of its operations and its cash flows for
the year then ended, in conformity with accounting principles generally accepted
in the United States.
March 2, 2001
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Kearns-Tribune LLC
Consolidated Balance Sheet
December 31, 2000
ASSETS
Current assets:
Cash and cash equivalents $ 1,162,708
Accounts receivable 14,741
Receivables from related parties 723,041
Prepaid expenses 196,025
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Total current assets 2,096,515
Property, plant and equipment:
Land 2,200,000
Buildings and improvements 10,823,956
Machinery and equipment 33,686,086
Furniture and fixtures 821,368
Automobiles 3,807,317
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51,338,727
Less accumulated depreciation (15,542,675)
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Net property, plant and equipment 35,796,052
Other assets:
Investment in the Newspaper Agency Corporation,
net 202,416,482
Equity investment in unconsolidated subsidiary 4,320,568
Cash value of life insurance 1,654,760
Prepaid pension costs 10,605,347
Note receivable--related party 572,978
Other assets 88,140
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Total other assets 219,658,275
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Total assets $ 257,550,842
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LIABILITIES AND MEMBER'S EQUITY
Current liabilities:
Trade accounts payable $ 356,912
Accounts payable to related parties 128,607
Accrued employee compensation 1,355,786
Other accrued liabilities 25,197
Current portion of long-term debt 106,667
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Total current liabilities 1,973,169
Long-term debt, less current portion 1,280,000
Postretirement and postemployment benefit liability 1,101,134
Deferred compensation 1,421,468
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Total liabilities 5,775,771
Member's equity:
Member's interest, including net capital contributed
by Parent 237,191,481
Retained earnings 14,583,590
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Total member's equity 251,775,071
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Total liabilities and member's equity $257,550,842
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See accompanying notes.
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Kearns-Tribune LLC
Consolidated Statement of Income
Year ended December 31, 2000
Revenues $ 1,057,309
Costs and expenses:
Editorial costs 7,613,250
General and administrative 4,469,959
Depreciation 6,098,385
Other expense 490,592
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Total costs and expenses 18,672,186
Equity in earnings of the Newspaper Agency
Corporation, net of amortization of $12,891,615 21,646,050
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Income before income taxes 4,031,173
Income tax expense 1,451,202
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Net income $ 2,579,971
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See accompanying notes.
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Kearns-Tribune LLC
Consolidated Statement of Member's Equity
December 31, 2000
MEMBER'S RETAINED
INTEREST EARNINGS
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Balance at January 1, 2000 $ 258,811,122 $ 12,003,619
Net income -- 2,579,971
Net capital distributed to Parent (21,619,641) --
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Balance at December 31, 2000 $ 237,191,481 $ 14,583,590
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See accompanying notes.
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Kearns-Tribune LLC
Consolidated Statement of Cash Flows
Year ended December 31, 2000
OPERATING ACTIVITIES
Net income $ 2,579,971
Adjustments to reconcile net income to net cash
provided by operating activities:
Undistributed earnings of equity investments, net (983,418)
Depreciation 6,098,385
Amortization 12,891,615
Loss on sale of fixed assets 353,009
Changes in operating assets and liabilities:
Trade accounts receivable (50,348)
Receivable from related parties 443,338
Prepaid expenses (146,586)
Trade accounts payable and accrued liabilities 432,777
Pension asset and liability (2,702,952)
Deferred compensation (152,808)
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Net cash provided by operating activities 18,762,983
INVESTING ACTIVITIES
Capital expenditures (1,983,108)
Proceeds from disposition of property, plant and
equipment 33,152
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Net cash used in investing activities (1,949,956)
FINANCING ACTIVITIES
Reduction of long-term debt (106,667)
Capital contributions and distributions, net (21,619,641)
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Net cash used in financing activities (21,726,308)
Net decrease in cash and cash equivalents (4,913,281)
Cash and cash equivalents at beginning of year 6,075,989
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Cash and cash equivalents at end of year $ 1,162,708
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See accompanying notes.
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Kearns-Tribune LLC
Notes to Consolidated Financial Statements
December 31, 2000
1. ORGANIZATION AND BUSINESS
Kearns-Tribune LLC (the "Company") publishes The Salt Lake Tribune, a daily
newspaper through the Newspaper Agency Corporation (the "NAC"), which is
operated under the terms of a joint operating agreement ("JOA"). The Company and
the Deseret News Publishing Company each own a 50% interest in the NAC. While
the Company owns a 50% interest in the NAC, the net income of the NAC is
distributed 58% to the Company and 42% to the Deseret News Publishing Company.
The Company also has a wholly owned subsidiary, Nimitz Paper Company, which owns
6% of the common stock of the Ponderay Paper Company.
On January 2, 2001, AT&T Broadband (the "Parent"), negotiated the sale of the
Company, and its 50% interest in the NAC, to MediaNews Group, Inc.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The financial statements include the accounts of the Company and its wholly
owned subsidiary, Nimitz Paper Company. All intercompany accounts and
transactions have been eliminated in the consolidation.
JOINT OPERATING AGENCY INVESTMENT
The Company accounts for its 50% common stock ownership of the NAC under the
equity method. Accordingly, the Company records its portion of the earnings
generated by the operations of the NAC as equity in earnings of the NAC (see
Note 3). Equity in earnings of the NAC includes the amortization of intangibles
created by the original purchase by the Parent of the Company and its NAC
investment. The intangibles resulting from this original purchase have not been
pushed down to the NAC.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, which are primarily used by the NAC in the
publishing of the newspapers, have not been contributed to the JOA, but are
owned as joint tenants in common with the Deseret News Publishing Company. These
assets have been recorded at the estimated fair market value at the date of
acquisition, or cost. Plant and equipment are depreciated using the
straight-line method over the useful lives of individual assets, which range
from three to fifteen years.
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Kearns-Tribune LLC
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS
Intangible assets relating to the original purchase by the Parent of the Company
and its NAC investment are recorded as part of the investment in the NAC at
their estimated fair values as of the date of acquisition. The excess of cost
over fair value of net assets acquired is being amortized using the
straight-line method over a period of 25 years. The advertiser list is being
amortized using the straight-line method over a period of 11 years. Other
identifiable intangible assets include subscriber lists and assembled
workforces, and are being amortized using the straight-line method over periods
that range from three to twenty-five years. The amortization of these
intangibles is being recognized as part of the equity in earnings of the NAC in
the statement of income.
TRANSACTIONS WITH PARENT
The Company accounts for intercompany transactions with its Parent company
through contributed capital. During 2000, the Company made net capital
distributions to its Parent in the amount of $21,619,641. These distributions
were partially offset by cash contributions from the Parent as well as certain
expenses of the Company such as payroll costs, taxes, etc. paid on its behalf by
the Parent.
INCOME TAXES
For the year ended December 31, 2000, the Company's income taxes were included
in its Parent's consolidated tax return. The Company has recorded a current
income tax provision on a pro forma basis, as if it was a stand-alone entity,
using a federal income tax rate of 32% and a state income tax of 4%. As
previously discussed, the Company has recorded the current taxes payable through
contributed capital.
ADVERTISING COSTS
The Company expenses all advertising costs as incurred. Advertising costs were
$868,710 in 2000.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with original
maturities to the Company of three months or less to be cash equivalents.
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Kearns-Tribune LLC
Notes to Consolidated Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in accordance with generally accepted
accounting principles requires the use of estimates and assumptions that affect
the reported amount of assets, liabilities, revenues and expenses. Actual
results could differ from the estimates.
3. JOINT OPERATING AGREEMENT
In August 1952 (amended and restated on June 1, 1982 and January 2, 2001), the
Company entered into a joint operating agreement with the Deseret News
Publishing Company ("DNPC") and formed the NAC to manage, print, circulate,
distribute, and handle the advertising for The Salt Lake Tribune and The Deseret
News. The Company and DNPC (the "Principals") individually or as joint tenants
in common own all of the buildings, machinery and equipment used in the
operations of the NAC. In addition, under the agreement, the NAC, acting upon
approval from the Principals, may procure equipment that is deemed necessary or
advisable for the efficient publication of the newspapers. The NAC bills the
Principals, at cost, for such equipment purchases and other direct charges. The
JOA agreement, as amended and restated, expires December 31, 2012, with renewal
options beyond that date.
The Principals also maintain separate control and direction of their editorial
and news departments and advertising policies of their respective newspapers.
In 1997, AT&T Broadband acquired the Company and as a result certain intangibles
were created related to the purchase that have been "pushed down" to the
financial statements of the Company, including goodwill, and subscriber lists
and assembled workforces. These intangibles almost exclusively relate to the
assets and operations originally contributed to the NAC and, as a result, have
been combined for financial reporting purposes with the Company's equity
investment in the NAC, net of related accumulated amortization of $45.6 million.
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Kearns-Tribune LLC
Notes to Consolidated Financial Statements (continued)
3. JOINT OPERATING AGREEMENT (CONTINUED)
SUMMARIZED FINANCIAL INFORMATION OF THE NEWSPAPER AGENCY CORPORATION
The following is summarized balance sheet and statement of income information
for the NAC as of and for the year ended December 31, 2000 (in thousands):
Assets:
Current assets $ 27,428
Noncurrent assets 15,449
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Total assets $ 42,877
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Liabilities and member's equity:
Current liabilities $ 7,595
Noncurrent liabilities 16,259
Member's equity 19,023
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Total liabilities and member's equity $ 42,877
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Statement of income data:
Total revenues $132,798
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Total operating costs $ 73,251
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Earnings from operations $ 59,547
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Net earnings $ 1,363
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Since the Company owns 50% of the NAC and accounts for the investment under the
equity method, the effects of the acquisition of the Company, and its NAC
investment, by the Parent have not been pushed down to the NAC level.
4. RELATED-PARTY TRANSACTIONS
Transactions between the Company and the NAC are summarized as follows:
2000
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Current receivables $252,139
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Current payables $ 83,924
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Newsprint sales, net $190,816
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Rental income $249,600
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Kearns-Tribune LLC
Notes to Consolidated Financial Statements (continued)
4. RELATED-PARTY TRANSACTIONS (CONTINUED)
The Company has contracted with the Salt Lake Tribune Publishing Company (the
"SLTPC") to provide management services to the Company through July 31, 2002.
Key officers of the Company are employed by the SLTPC. Transactions with the
SLTPC are summarized as follows:
2000
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Current receivables $470,902
Current payables 44,683
Management fees 301,433
In connection with the original purchase by the Parent of the Company, Silver
King Group LLC ("SKG"), a company owned by the Gallivan family (a related party
to the Company), entered into an agreement with the Company to purchase assets
consisting primarily of land, oil and gas royalties, and patents for $10.87
million. On November 30, 1997, such purchase was consummated and SKG paid the
Company $9.5 million of the $10.87 million purchase price in cash and the
remainder of such purchase price in the form of a non-interest bearing
promissory note. As of December 31, 2000, $572,978 of such note remains
outstanding.
5. EQUITY INVESTMENT
The Company, through its wholly owned subsidiary, the Nimitz Paper Company, owns
a 6% interest in the Ponderay Paper Mill. The Company accounts for this
investment under the equity method. The Company's equity loss in this
unconsolidated subsidiary was $56,700 for the year ended December 31, 2000.
Separate financial results for this unconsolidated subsidiary were not
significant to the financial position or operations of the Company.
6. LONG-TERM DEBT
In February 1986, the Company entered into a long-term debt agreement with two
former shareholders. The Company is required to make quarterly payments of
$26,667, plus interest through 2013 under the terms of the agreement. As a
result, annual principal payments in the amount of $106,667 are due for the
years ended December 31, 2001 through 2005, with a cumulative amount of $853,332
due for the years thereafter. The interest rate as of December 31, 2000 was
5.67%, and is adjusted annually based on the effective yield of the current
one-year U.S. Treasury Bill.
Cash paid for interest in 2000 was $78,107. Interest expense in 2000 was
$80,884.
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Kearns-Tribune LLC
Notes to Consolidated Financial Statements (continued)
7. EMPLOYEE BENEFIT PLANS
Pension Plan
The Company has a noncontributory defined benefit pension plan covering
substantially all employees with service in excess of one year. Benefits are
provided upon retirement, disability, death or termination of employment.
Benefits are payable in monthly installments, in an amount determined as a
percentage of compensation. The Company makes contributions in amounts
determined by the Board of Directors based on minimum and maximum funding levels
recommended by the plan's actuaries.
The following table sets forth the plan's benefit obligations, fair value of
plan assets, and funded status at December 31, 2000:
Benefit obligation at beginning of year $ 4,253,259
Interest cost 317,464
Benefits paid (313,895)
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Benefit obligation at end of year $ 4,256,828
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Fair value of plan assets at beginning of year $ 14,777,540
Actual return on plan assets (320,248)
Benefits paid (313,895)
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Fair value of plan assets at end of year $ 14,143,397
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Funded status of plan $ 9,886,569
Unrecognized net gain (2,571,362)
Unrecognized net transition asset (564,021)
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Prepaid benefit cost $ 6,751,186
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Weighted average assumption:
Discount rate 7.7%
Rate of compensation increase 9.0%
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Kearns-Tribune LLC
Notes to Consolidated Financial Statements (continued)
7. EMPLOYEE BENEFIT PLANS (CONTINUED)
The components of the Company's net benefit cost associated with its defined
benefit retirement plan, at December 31, 2000 are as follows:
Interest cost $ 317,464
Actual return on assets 320,248
Net gain recognition (155,983)
Transition asset recognition (112,803)
Deferred investment loss (1,636,101)
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Net benefit income $(1,267,175)
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Postretirement Health Plan
In addition to the Company's defined benefit pension plan, the Company sponsors
a health care plan that provides postretirement medical benefits to full-time
employees who meet minimum age service requirements. The postretirement plan is
contributory, with retiree contributions adjusted annually, and contains other
cost-sharing features such as deductibles and coinsurance. The Company's current
funding policy is to fund the postretirement plan when the benefits are paid.
The following table sets forth the plan's benefit obligations, fair value of
plan assets, and funded status at December 31, 2000:
Benefit obligation at beginning of year $ 716,853
Service cost 7,882
Interest cost 53,558
Benefits paid (67,324)
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Benefit obligation at end of year $ 710,969
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Fair value of plan assets at beginning of year $ --
Employer contributions 67,324
Benefits paid (67,324)
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Fair value of plan assets at end of year $ --
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Funded status of plan $ (710,969)
Unrecognized actuarial gain (390,165)
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Accrued postretirement cost $(1,101,134)
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Weighted average discount rate 7.75%
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Kearns-Tribune LLC
Notes to Consolidated Financial Statements (continued)
7. EMPLOYEE BENEFIT PLANS (CONTINUED)
For measurement purposes, a 7.5% annual rate of increase in the per capita cost
of covered health care benefits was assumed for 2000 and assumed to grade to
6.75% in 2002 and remain constant thereafter. The components of Company's net
benefit cost associated with its postretirement health plan at December 31, 2000
is as follows:
Service cost $ 7,882
Interest cost 53,558
Actuarial gain (27,128)
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Net benefit cost $ 34,312
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An increase or decrease of 1.0% in the health care cost trend rate would not
have a material effect on the service and interest cost, or the accumulated
postretirement benefit obligation as of and for the period ended December 31,
2000.
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