- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) January 29, 1998
--------------------------------
Garden State Newspapers, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 22-2675173
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State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
1560 Broadway, Suite 1450, Denver, CO 80202
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (303) 837-0886
-----------------------------
N/A
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(Former name or former address, if changed since last report.)
Amendment No. 1
The Company's current report on Form 8-K dated January 29, 1998, is hereby
amended and supplemented as follows.
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits.
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Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
The following Financial Statements and Pro Forma Financial Information are
hereby filed as a part of this report.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
(1) The audited financial statements of Tower Media Inc (wholly owned
subsidiary of Jack Kent Cooke Incorporated) as of and for the year
ended December 28, 1997.
(b) PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
(1) Unaudited pro forma consolidated balance sheet as of December 31,
1997.
(2) Unaudited pro forma condensed consolidated statement of operations for
the six months ended December 31, 1997 and the year ended June 30,
1997.
2
GARDEN STATE NEWSPAPERS, INC.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
On January 29, 1998, Garden State Newspapers acquired substantially all the
assets used in the publication of the DAILY NEWS, a daily newspaper published in
the San Fernando Valley of Los Angeles, California, with daily and Sunday
circulation of approximately 202,000 and 215,000, respectively. The accompanying
unaudited pro forma consolidated balance sheet as of December 31, 1997, gives
effect to the acquisition of the DAILY NEWS as if the acquisition had occurred
as of December 31, 1997.
The accompanying unaudited pro forma consolidated statements of operations for
the six months ended December 31, 1997 and the year ended June 30, 1997, give
effect to the July 31, 1997 acquisition of THE SUN, a daily newspaper published
in Lowell Massachusetts with daily and Sunday circulation of approximately
52,000 and 55,000, respectively, and the acquisition of the DAILY NEWS,
collectively referred to as the "Acquisitions," as if the Acquisitions had
occurred on July 1, 1997 and July 1, 1996.
These pro forma statements are not necessarily indicative of the future
operations or of the consolidated results of operations had the Acquisitions
actually taken place on July 1, 1996 or July 1, 1997. The pro forma financial
information should be read in conjunction with the Company's historical
financial statements and notes thereto appearing in the Company's Forms 10-K and
10-Q for the periods ended June 30, 1997 and December 31, 1997, respectively.
The Company has previously filed a Form 8-K for the July 31, 1997, acquisition
of THE SUN, described above.
3
GARDEN STATE NEWSPAPERS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
December 31, 1997
(IN THOUSANDS)
ASSETS Acquisition
and
As Pro Forma
Reported Adjustments Pro Forma
-------- ----------- ---------
CURRENT ASSETS
Cash and cash equivalents. . . . . . . . . . . . . . . . $ 19,019 $ (9,393) (a) $ 9,626
Accounts receivable, less allowance
for doubtful accounts. . . . . . . . . . . . . . . . . 44,704 11,808 56,512
Inventories of newsprint and supplies. . . . . . . . . . 6,530 3,321 9,851
Prepaid expenses and other assets. . . . . . . . . . . . 4,119 406 4,525
-------- -------- --------
TOTAL CURRENT ASSETS. . . . . . . . . . . . . . . . . 74,372 6,142 80,514
PROPERTY, PLANT AND EQUIPMENT
Land . . . . . . . . . . . . . . . . . . . . . . . . . . 9,207 7,670 (b) 16,877
Buildings and improvements . . . . . . . . . . . . . . . 45,276 14,080 (b) 59,356
Machinery and equipment. . . . . . . . . . . . . . . . . 130,504 27,989 (b) 158,493
-------- -------- --------
Total Property, Plant and Equipment . . . . . . . . . 184,987 49,739 234,726
Less accumulated depreciation and amortization . . . . . 53,589 -- (c) 53,589
-------- -------- --------
Net Property, Plant and Equipment . . . . . . . . . . 131,398 49,739 181,137
OTHER ASSETS
Investment in partnership. . . . . . . . . . . . . . . . 7,178 -- 7,178
Subscriber accounts, net of accumulated
amortization . . . . . . . . . . . . . . . . . . . . . 84,734 20,000 (b) 104,734
Excess of cost over fair value of net assets acquired,
net of accumulated amortization. . . . . . . . . . . . 201,689 59,528 (d) 261,217
Covenants not to compete and other identifiable
intangible assets, net of accumulated amortization . . 21,660 -- 21,660
Other. . . . . . . . . . . . . . . . . . . . . . . . . . 5,532 1,160 (e) 6,692
-------- -------- --------
TOTAL OTHER ASSETS. . . . . . . . . . . . . . . . . . 320,793 80,688 401,480
-------- -------- --------
TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . . . . . $526,563 $136,569 $663,132
-------- -------- --------
-------- -------- --------
SEE NOTE 1 TO UNAUDITED PRO FORMA FINANCIAL INFORMATION.
4
GARDEN STATE NEWSPAPERS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
December 31, 1997
(IN THOUSANDS)
Acquisition
And
As Pro Forma
Reported Adjustments Pro Forma
-------- ----------- ---------
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES
Trade accounts payable . . . . . . . . . . . . . . . . . $ 4,591 $ 887 $ 5,478
Accrued liabilities. . . . . . . . . . . . . . . . . . . 37,260 12,939 (f) 50,199
Unearned income. . . . . . . . . . . . . . . . . . . . . 11,094 2,743 13,837
Income taxes . . . . . . . . . . . . . . . . . . . . . . 5,858 -- 5,858
Current portion of long-term debt. . . . . . . . . . . . 4,857 -- 4,857
-------- -------- --------
TOTAL CURRENT LIABILITIES. . . . . . . . . . . . . . 63,660 16,569 80,229
LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATION. . . . . . . . . . . . . . . . . . . . . . . . 408,953 117,600 (g) 526,553
OTHER LIABILITIES. . . . . . . . . . . . . . . . . . . . . 5,199 2,400 (g) 7,599
DEFERRED INCOME TAXES. . . . . . . . . . . . . . . . . . . 17,189 -- 17,189
SHAREHOLDER'S EQUITY
Common stock . . . . . . . . . . . . . . . . . . . . . . 1 -- 1
Additional paid in capital . . . . . . . . . . . . . . . 78,570 -- 78,570
Deficit . . . . . . . . . . . . . . . . . . . . . . . . (47,009) -- (47,009)
-------- -------- --------
TOTAL SHAREHOLDER'S EQUITY . . . . . . . . . . . . . . 31,562 -- 31,562
-------- -------- --------
TOTAL LIABILITIES AND
SHAREHOLDER'S EQUITY. . . . . . . . . . . . . . . . . . . $526,563 $136,569 $663,132
-------- -------- --------
-------- -------- --------
SEE NOTE 1 TO UNAUDITED PRO FORMA FINANCIAL INFORMATION.
5
GARDEN STATE NEWSPAPERS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 1997
(IN THOUSANDS)
DAILY NEWS
Acquisition
And
As Pro Forma
Reported Adjustments Note 3 Pro Forma
-------- ----------- ------ ---------
OPERATING REVENUES . . . $ 188,990 $ 52,041 (a) $ 241,031
COST AND EXPENSES
Cost of Sales . . . . . 64,941 18,947 (b) 83,888
Selling, General
and Administrative . . 76,739 25,321 (c)(d) 102,060
Depreciation and
Amortization . . . . . 16,507 3,089 (e) 19,596
Interest Expense . . . . 20,141 5,296 (f) 25,437
Other (net) . . . . . . 7,947 -- 7,947
--------- -------- ---------
TOTAL COST AND EXPENSES 186,275 52,653 238,928
GAIN ON SALE OF
NEWSPAPER PROPERTY . . . 31,829 -- 31,829
INCOME (LOSS) BEFORE
INCOME TAXES . . . . . . 34,544 (612) 33,932
INCOME TAX BENEFIT
(EXPENSE) . . . . . . . (6,929) -- (6,929)
--------- -------- ---------
NET INCOME (LOSS) . . . . $ 27,615 $ (612) $ 27,003
--------- -------- ---------
--------- -------- ---------
SEE NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION.
6
GARDEN STATE NEWSPAPERS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1997
(IN THOUSANDS)
THE SUN DAILY NEWS
Acquisition Acquisition
And And
As Pro Forma Pro Forma
Reported Adjustments Note 2 Adjustments Note 3 Pro Forma
-------- ----------- ------ ----------- ------ ---------
OPERATING REVENUES . . $ 302,902 $ 23,836 (a) $ 101,209 (a) $ 427,947
COST AND EXPENSES
Cost of Sales . . . . 106,476 7,770 (b)(c) 45,777 (b) 160,023
Selling, General
and Administrative . 127,837 9,063 (b)(d)(e)(f) 43,643 (c)(d) 180,543
Depreciation and
Amortization . . . . 24,689 4,498 (g) 6,179 (e) 35,366
Interest Expense . . . 31,903 4,787 (h) 10,629 (f) 47,319
Other (net). . . . . . 7,995 -- -- 7,995
--------- --------- --------- ----------
TOTAL COST AND EXPENSES 298,300 26,118 106,228 431,246
GAIN ON SALE OF
NEWSPAPER PROPERTY . . 30,575 -- -- 30,575
INCOME (LOSS) BEFORE
INCOME TAXES AND
EXTRAORDINARY LOSS . . 34,577 (2,282) (5,019) 27,276
INCOME TAX BENEFIT (i)
(EXPENSE). . . . . . . (1,066) 817 -- (249)
--------- --------- --------- ----------
NET INCOME (LOSS) BEFORE
EXTRAORDINARY LOSS . . $ 33,511 $ (1,465) $ (5,019) $ 27,027
--------- --------- --------- ----------
--------- --------- --------- ----------
SEE NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION.
7
GARDEN STATE NEWSPAPERS, INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
NOTE 1: UNAUDITED PRO FORMA BALANCE SHEET
The following are pro forma adjustments to the historical balance
sheet to reflect the January 29, 1998 acquisition of the DAILY NEWS.
(a) Reduce cash on hand by the amount used to fund the acquisition of the
DAILY NEWS, net of cash acquired.
(b) Record property, plant and equipment and subscriber lists at their
estimated fair market value at the date of acquisition.
(c) Eliminate accumulated depreciation.
(d) Record the excess of cost over the fair market value of assets
acquired.
(e) Record pension assets acquired in conjunction with the acquisition of
the DAILY NEWS.
(f) Adjust accrued liabilities to accrue the estimated organization,
closing and other costs associated with completing the acquisition of
the DAILY NEWS.
(g) Record long-term debt incurred in conjunction with the acquisition of
the DAILY NEWS.
8
GARDEN STATE NEWSPAPERS, INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
NOTE 2: UNAUDITED PRO FORMA ADJUSTMENTS FOR THE SUN ACQUISITION
The following are pro forma adjustments to the historical financial
statements of THE SUN, acquired July 31, 1997, for the twelve months
ended June 30, 1997.
(a) Historical advertising revenues have been increased to give effect to
the elimination of prompt payment discounts provided by the prior
owners.
(b) Certain personnel who were employed by the newspaper prior to the
acquisition were not hired or replaced. In addition, certain
employees' wages were reduced and bonuses eliminated. Accordingly, the
cost of employing these individuals was eliminated or reduced.
(c) Cost of sales was adjusted to reflect the newsprint savings of
adjusting the web width of the press to 50 inches from 54 inches and
to reflect the Company's cost of newsprint. The web width reduction
was completed in September 1997.
(d) Certain expenses of the prior owners, such as vehicles, insurance,
professional fees, donations, club dues and entertainment expenses,
have been eliminated as these expenses will not be incurred by the
Company.
(e) Effective with the acquisition, the newspaper began requiring the
employees to pay a portion of their health care costs. Prior to the
acquisition the newspaper paid all health care costs. Accordingly, an
adjustment has been made to reduce employee benefit costs to reflect
the contributions to be made by employees.
(f) Bad debt expense was reduced to reflect historical write-offs in lieu
of accruals in excess of bad debt reserve requirements.
(g) Depreciation and amortization expense of the acquired assets has been
adjusted to reflect the fair market value of the assets acquired and
the useful lives assigned to these assets.
(h) Interest expense has been adjusted to reflect the amount borrowed to
fund the acquisition.
(i) Income taxes have been adjusted to reflect the income tax benefit of
$0.8 million that would have been reported had the newspaper been
owned during the pro forma period.
9
GARDEN STATE NEWSPAPERS, INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION--CONTINUED
NOTE 3: UNAUDITED PRO FORMA ADJUSTMENTS FOR THE DAILY NEWS ACQUISITION
The following pro forma adjustments to the historical financial
statement of the DAILY NEWS, acquired January 29, 1998, for the six
months ended December 31, 1997, and the twelve months ended June 30,
1997.
(a) Net circulation sales at the Daily News have been increased to reflect
sales tax savings that occur as a result of changing the method of
calculation. The calculation method was changed upon acquisition.
(b) Cost of sales has been reduced to reflect newsprint saving as a result
of adjusting the press web width from 54-5/8 inches to 50 inches. The
web width reduction was completed in October 1997, prior to the
acquisition.
(c) The historical financial statements did not include the cost of
employing a publisher. The historical cost has been adjusted to
include $300,000, the estimated cost of this expense.
(d) Selling, general and administrative expense has been adjusted to
reflect pension expense savings. Upon acquisition, the pension plan
was frozen, after which the plan became over funded.
(e) Depreciation and amortization expense of the acquired assets has been
adjusted to reflect the fair market value of the acquired assets and
the useful lives assigned to these assets.
(f) Interest expense has been adjusted to reflect the amount borrowed to
fund the acquisition of the assets.
10
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 hereunto duly authorized.
GARDEN STATE NEWSPAPERS, INC.
Date: April 9, 1998 By: /s/ Joseph J. Lodovic, IV
---------------------------------
Joseph J. Lodovic, IV
Executive Vice President,
Chief Financial Officer
11
Financial Statements
Tower Media Inc
(a wholly-owned subsidiary of
Jack Kent Cooke Incorporated)
YEAR ENDED DECEMBER 28, 1997
WITH REPORT OF INDEPENDENT AUDITORS
Tower Media Inc
(a wholly-owned subsidiary of Jack Kent Cooke Incorporated)
Financial Statements
Year ended December 28, 1997
CONTENTS
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . 1
Audited Financial Statements
Balance Sheet. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Statement of Income and Accumulated Deficit. . . . . . . . . . . . . . . . . . 3
Statement of Cash Flows. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . 5
Report of Independent Auditors
The Board of Directors
Tower Media Inc
We have audited the accompanying balance sheet of Tower Media Inc (a
wholly-owned subsidiary of Jack Kent Cooke Incorporated) as of December 28, 1997
and the related statements of income and accumulated deficit and cash flows for
the 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 generally accepted auditing standards.
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 financial statements referred to above present fairly, in
all material respects, the financial position of Tower Media Inc (a wholly-owned
subsidiary of Jack Kent Cooke Incorporated) at December 28, 1997 and the results
of its operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
\s\ ERNST & YOUNG LLP
-----------------
Ernst & Young LLP
Denver, Colorado
March 27, 1998
1
Tower Media Inc
(a wholly-owned subsidiary of Jack Kent Cooke Incorporated)
Balance Sheet
December 28, 1997
(IN THOUSANDS, EXCEPT PAR VALUE AND SHARE AMOUNTS)
ASSETS
Current assets:
Cash and cash equivalents $13,815
Accounts receivable, net of an allowance for
doubtful accounts of $851 12,942
Inventories 2,903
Prepaid expenses and other current assets 474
-------
Total current assets 30,134
Property, plant and equipment, net 33,264
Intangible assets, net of accumulated amortization of
$2,049 1,232
-------
Total assets $64,630
-------
-------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 3,676
Accrued compensation and benefits 7,070
Other accrued liabilities 1,260
Deferred revenue 3,551
Due to an affiliate 2
-------
Total current liabilities 15,559
Commitments and contingencies
Shareholder's equity:
Common stock, $1.00 par value:
Authorized shares--2,500
Issued and outstanding shares--1,000 1
Additional paid-in capital 81,643
Accumulated deficit (32,573)
-------
Total shareholder's equity 49,071
-------
Total liabilities and shareholder's equity $64,630
-------
-------
SEE ACCOMPANYING NOTES.
2
Tower Media Inc
(a wholly-owned subsidiary of Jack Kent Cooke Incorporated)
Statement of Income and Accumulated Deficit
Year ended December 28, 1997
(IN THOUSANDS)
Revenues:
Advertising $ 83,272
Circulation 16,985
Other 327
----------
Total revenue 100,584
Operating expenses:
Cost of sales 52,732
Selling, general and administrative 36,096
Depreciation and amortization expense 6,034
Amortization expense on intangible assets 408
----------
95,270
----------
Income from operations 5,314
----------
Other income (expense):
Interest income 354
Other expense, net (828)
----------
(474)
----------
Net income 4,840
Accumulated deficit at beginning of the year (37,413)
----------
Accumulated deficit at end of the year $ (32,573)
----------
----------
SEE ACCOMPANYING NOTES.
3
Tower Media Inc
(a wholly-owned subsidiary of Jack Kent Cooke Incorporated)
Statement of Cash Flows
Year ended December 28, 1997
(IN THOUSANDS)
OPERATING ACTIVITIES
Net income $ 4,840
Adjustments to reconcile net income to net cash
provided by operating activities:
Net change in allowance for doubtful accounts 4
Depreciation and amortization 6,442
Changes in operating assets and liabilities:
Accounts receivable (537)
Inventories (681)
Prepaid expenses and other current assets (45)
Accounts payable 983
Accrued compensation and benefits (288)
Other accrued liabilities (589)
Deferred revenue 66
-------
Net cash provided by operating activities 10,195
INVESTING ACTIVITIES
Additions to property, plant and equipment, net (1,837)
Principal payments on notes receivable 293
-------
Net cash used in investing activities (1,544)
FINANCING ACTIVITIES
Change in due from (to) affiliates 2,833
-------
Net cash provided by financing activities 2,833
-------
Net increase in cash and cash equivalents 11,484
Cash and cash equivalents at beginning of year 2,331
-------
Cash and cash equivalents at end of year $13,815
-------
-------
SEE ACCOMPANYING NOTES.
4
Tower Media Inc
(a wholly-owned subsidiary of Jack Kent Cooke Incorporated)
Notes to Financial Statements
December 28, 1997
(IN THOUSANDS)
1. ORGANIZATION
Tower Media Inc (the "Company") was incorporated on August 30, 1991, as a
wholly-owned subsidiary of Cooke Media Group Inc. ("CMG"), which is a
wholly-owned subsidiary of Jack Kent Cooke Incorporated ("JKCI"). On February
14, 1992, the operating assets and liabilities of the Los Angeles Daily News
division of CMG were transferred from CMG to the Company. The Los Angeles Daily
News is a local daily newspaper serving Los Angeles and the surrounding areas.
The Company's fiscal year ends on the last Sunday of each calendar year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and footnotes. Although
these estimates are based on management's knowledge of current events and
actions they may undertake in the future, actual results could differ from those
estimates.
CASH EQUIVALENTS
The Company considers all highly liquid investments with initial maturities of
three months or less when acquired to be cash equivalents. Substantially all of
the cash and cash equivalents at December 28, 1997 consist of interest-bearing
financial instruments.
CONCENTRATION OF CREDIT RISK
Management of the Company does not believe there is a significant concentration
of credit risk primarily due to its Los Angeles, California based customers and
its nationally recognized customers. The Company generally does not require
collateral and losses on uncollectible receivables have been within management's
expectations.
5
Tower Media Inc
(a wholly-owned subsidiary of Jack Kent Cooke Incorporated)
Notes to Financial Statements (continued)
(IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
As of December 28, 1997, approximately 25% of the Company's employees were
represented by unions. The union contract with two groups of employees under
the Graphic Communication Union expired in 1996 and those employees have
continued to work without a contract. Such employees, which represent
approximately 8% of the Company's workforce, did not strike in 1996 when their
contracts expired and, as of March 27, 1998, there are no indications that the
employees are considering striking. There are no pending negotiations in
connection with the expired union contract. The Company does not believe such
employees will strike within the foreseeable future but there are no assurances
to that effect.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Repairs and maintenance are
expensed as incurred. Depreciation and amortization are provided on the
straight-line method over the estimated useful lives of the underlying assets,
which are generally as follows:
Buildings and improvements 19 to 40 years
Furniture and equipment 3 to 10 years
INTANGIBLE ASSETS AND OTHER LONG-LIVED ASSETS
Intangible assets primarily consist of a newspaper subscriber list, which is
recorded at cost and amortized using the straight-line method over an estimated
useful life of 9 years.
REVENUE RECOGNITION
Circulation revenue is generally billed in advance and is deferred until
newspapers are delivered. Advertising revenue is recognized as earned.
ADVERTISING COSTS
The Company expenses all advertising costs as incurred. Advertising costs were
approximately $4,031 for the year ended December 28, 1997, which included barter
related transactions. Advertising costs are recorded as part of selling,
general and administrative expenses in the accompanying financial statements.
6
Tower Media Inc
(a wholly-owned subsidiary of Jack Kent Cooke Incorporated)
Notes to Financial Statements (continued)
(IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market, and consist primarily of newsprint, ink and other related items.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments as reported in the accompanying
balance sheet approximate their fair value.
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at December 28, 1997:
Land $ 5,219
Building and improvements 30,143
Furniture and equipment 64,659
--------
100,021
Less accumulated depreciation and amortization 66,757
--------
$ 33,264
--------
--------
4. INCOME TAXES
A consolidated federal tax return is filed by JKCI. The Company has a tax
sharing arrangement with JKCI requiring that the Company provide for income
taxes as if it were a separate taxable entity. Under the arrangement, the
Company will receive deductions for its net operating loss carryforwards and
carrybacks only in years when it has taxable income. Such benefit will be
limited by the amount of the Company's net operating loss carryforwards and
carrybacks actually utilized in the consolidated federal income tax return.
The Company utilizes the liability method to account for income taxes. Under
this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse. Temporary differences arise
primarily from differences in depreciation and
7
Tower Media Inc
(a wholly-owned subsidiary of Jack Kent Cooke Incorporated)
Notes to Financial Statements (continued)
(IN THOUSANDS)
4. INCOME TAXES (CONTINUED)
amortization for financial statement and income tax purposes and unused net
operating loss carryforwards.
Significant components of the Company's deferred tax assets at December 28, 1997
are as follows:
Deferred tax assets:
Depreciation $ 5,414
Amortization 24,067
Net operating loss carryforwards 22,915
Allowance for doubtful accounts 368
Accrued vacation 586
Other 33
--------
Gross deferred tax assets 53,383
Valuation allowance (53,383)
--------
Net deferred tax assets $ -
--------
--------
The Company has provided full valuation allowances for its deferred income tax
assets at both the beginning and end of 1997.
At December 28, 1997, the Company had unused net operating loss carryforwards
for federal and state income tax purposes of approximately $56 million and $34
million, respectively. Accordingly, for the year ended December 28, 1997, no
federal or state income tax was recognized. The federal and state net operating
loss carryforwards expire in years 2007 through 2011 and years 1998 through
2001, respectively.
5. EMPLOYEE BENEFIT PLANS
The Daily News Pension Plan (the "Plan") covers substantially all full-time
employees who have attained age 21 and completed one year of service, excluding
those employees covered under separate collective bargaining agreements.
Contributions to the Plan are actuarially determined by the projected unit
credit method. The Company's policy is to make the minimum required
contributions as required by the applicable Internal Revenue Service and
Department of Labor regulations. Pension benefits are calculated by taking 1%
of average earnings for pension service subsequent to July 1, 1991, plus the
accrued benefit at July 1, 1991, if any, under a prior pension plan. Plan
assets consist principally
8
Tower Media Inc
(a wholly-owned subsidiary of Jack Kent Cooke Incorporated)
Notes to Financial Statements (continued)
(IN THOUSANDS)
5. EMPLOYEE BENEFIT PLANS (CONTINUED)
of investments in U.S. government obligations, equity securities, corporate
bonds and money market funds.
The following table details the components of pension expense, the funded status
of the Plan, amounts recognized in the Company's balance sheet and major
assumptions used to determine these amounts as of and for the year ended
December 28, 1997:
Components of pension expense:
Service cost $ 658
Interest cost 1,163
Actual return on Plan assets (1,951)
Net amortization and deferral 584
-------
Total pension expense, included in operating expenses $ 454
-------
-------
Fair value of Plan assets $16,280
Actuarial present value of accumulated
benefit obligations:
Vested (14,202)
Nonvested (665)
Provision for future salary increases (1,621)
-------
Plan assets less than projected benefit obligation (208)
Unrecognized prior service credit (1,656)
Unrecognized net gain (1,766)
Unrecognized net transition liability 121
-------
Accrued pension cost, included in accrued
compensation and benefits $(3,509)
-------
-------
Discount rate 7.75%
Rate of increase in compensation 4.50%
Expected long-term rate of return on Plan assets 8.50%
The discount rate increased from 7.50% in the prior year; however, the impact on
the actuarial present value of accumulated benefit obligations was not
significant.
9
Tower Media Inc
(a wholly-owned subsidiary of Jack Kent Cooke Incorporated)
Notes to Financial Statements (continued)
(IN THOUSANDS)
5. EMPLOYEE BENEFIT PLANS (CONTINUED)
The above amounts were calculated based on the presumption that the Plan would
continue. However, as a result of the transaction disclosed in Note 8, all
future benefits under the Plan were frozen as of January 30, 1998. Due to the
freezing of Plan benefits, the rate of increase in compensation will not be
taken into account prospectively in calculating the accumulated benefit
obligation, which will result in a reduction of the accumulated benefit
obligation.
The Daily News 401(k) Savings Plan covers most full-time employees who
voluntarily elect to contribute from 2% to 16% of their eligible compensation to
the plan. The Company makes matching contributions of 25% of a participant's
elective salary deferral, up to 6% of each participant's total compensation. The
Company does not make matching contributions for employees covered under
separate collective bargaining agreements. The Company's matching contributions
were $167 in 1997.
6. COMMITMENTS AND CONTINGENCIES
The Company leases certain facilities and equipment primarily under operating
leases which expire on various dates through 2001. Certain of the leases
contain annual escalation clauses, which have been included in the future
minimum rental payments below, and require the Company to pay additional
expenses such as maintenance, taxes, insurance and other operating costs. In
certain agreements, the Company also maintains renewal options. Future minimum
rental payments under noncancelable operating leases for the Company's fiscal
years ending December are as follows:
1998 $102
1999 83
2000 83
2001 1
----
$269
----
----
Rent expense under all operating lease agreements was $155 for the year ended
December 28, 1997.
The Company is involved in various legal proceedings arising in the ordinary
course of business. Management believes such proceedings are without merit or,
if decided adversely, would not materially affect the Company's financial
condition, results of operations or cash flows.
10
Tower Media Inc
(a wholly-owned subsidiary of Jack Kent Cooke Incorporated)
Notes to Financial Statements (continued)
(IN THOUSANDS)
7. RELATED PARTY TRANSACTIONS
At December 29, 1996, the Company was owed $2.8 million from JKCI for amounts
previously advanced. During 1997, the Company advanced an additional $4.2
million and was fully repaid by JKCI prior to December 28, 1997. The advances
did not bear interest.
The $2 due to an affiliate at December 28, 1997 relates to miscellaneous
activity with an affiliate of JKCI.
An executive officer of the Company is compensated by JKCI without an allocation
or chargeback to the Company. The base salary and incentive bonuses for the
executive officer for the year ended December 28, 1997 were $300 and $340,
respectively.
8. SUBSEQUENT EVENT - ASSET DISPOSITION
On January 30, 1998, pursuant to an Asset Purchase and Sale Agreement, the
Company sold substantially all of its operating assets and liabilities, together
with certain fixed and intangible assets, to Garden State Newspapers, Inc. for
approximately $130 million in cash, subject to certain purchase price
adjustments.
9. YEAR 2000 (UNAUDITED)
The Company has determined that it will need to modify or replace significant
portions of its software so that its computer systems will function properly
with respect to dates in the year 2000 and beyond. The Company also has
initiated discussions with its significant suppliers, large customers and
financial institutions to ensure that those parties have appropriate plans to
remediate Year 2000 issues where their systems interface with the Company's
systems or otherwise impact its operations. The Company is assessing the extent
to which its operations are vulnerable should those organizations fail to
remediate properly their computer systems.
The Company's Year 2000 initiative is being managed by its internal staff and is
designed to ensure that there is no adverse effect on the Company's core
business operations and that transactions with customers, suppliers and
financial institutions are fully supported. The Company is under way with these
efforts, which are scheduled to be completed in early 1999. While the Company
believes its planning efforts are adequate to address its Year 2000 concerns,
there can be no guarantee that the systems
11
Tower Media Inc
(a wholly-owned subsidiary of Jack Kent Cooke Incorporated)
Notes to Financial Statements (continued)
(IN THOUSANDS)
9. YEAR 2000 (UNAUDITED) (CONTINUED)
of other companies on which the Company's systems and operations rely will be
converted on a timely basis and will not have a material effect on the Company.
The cost of the Year 2000 initiatives is not expected to be material to the
Company's results of operation or financial position.
12