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) March 31, 1999
-------------------------------
Garden State Newspapers, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 22-2675173
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(State or other (Commission File Number) (IRS Employer Identification No.)
jurisdiction of
incorporation)
1560 Broadway, Suite 1450, Denver, CO 80202
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (303) 837-0886
---------------------------
N/A
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report.)
Amendment No. 1
The Company's current report on Form 8-K dated March 31, 1999, is hereby amended
and supplemented as follows.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
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 The Sun Company of San
Bernardino, California and Subsidiary (The Sun), reported and
consolidated financial statements December 27, 1998.
(2) The audited combined financial statements of Donrey,
California as of and for the year ended December 31, 1998,
together with Auditor's report.
(b) PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
(1) Unaudited pro forma consolidated balance sheet as of March 31,
1999.
(2) Unaudited pro forma condensed consolidated statement of
operations for the nine months ended March 31, 1999 and the
year ended June 30, 1998.
2
GARDEN STATE NEWSPAPERS, INC.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
On March 31, 1999 (effective April 1, 1999) Garden State, through its wholly
owned subsidiary, West Coast MediaNews LLC, formed the California Newspaper
Partnership with Donrey Newspapers LLC ("Donrey") and the Sun Company of San
Bernardino California ("Gannett"). We contributed Alameda Newspaper Group,
comprised of six daily newspapers published in the San Francisco Bay area; San
Gabriel Valley Newspapers, which includes three daily newspapers published in
the Los Angeles area; and the Times-Standard, a daily newspaper published in
Eureka, California; and all the weekly publications published by these daily
newspapers in exchange for a 58.8% partnership interest. Donrey contributed ten
daily newspapers and two non-daily newspapers, located in California, most of
which are located in close proximity to Garden State's California newspaper
publications, in exchange for a 28.5% partnership interest. Gannett contributed
the San Bernardino County Sun in exchange for a 12.7% partnership interest. The
California Newspaper Partnership publishes twenty-one daily newspapers with
average daily and Sunday paid circulation of approximately 607,000 approximately
573,000, respectively, at September 30, 1998. The accompanying unaudited pro
forma consolidated balance sheet as of March 31, 1999, gives effect to the
formation of the partnership as if it was effective March 31, 1999.
The accompanying unaudited pro forma consolidated statements of operation for
the nine months ended March 31, 1999 and the year ended June 30, 1998, give
effect to the California Newspapers Partnership as if it had occurred effective
July 1, 1998 and 1997, respectively.
These pro forma statements are not necessarily indicative of the future
operations or of the consolidated results of operations had the formation of the
partnership actually taken place on July 1, 1997 or July 1, 1998. 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, 1998 and March 31, 1999,
respectively.
3
GARDEN STATE NEWSPAPERS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
March 31, 1999
(IN THOUSANDS)
ASSETS The Sun
Company
of
As San Donrey Pro Forma
Reported Bernardino California Note 1 Pro Forma
-------- ---------- ---------- ------ ---------
CURRENT ASSETS
Cash and cash equivalents............................. 80,087 $ -- $ -- $80,087
Accounts receivable, less allowance
for doubtful accounts................................ 57,641 4,025 5,839 (a) 67,505
Inventories of newsprint and supplies................. 9,297 894 980 (a) 11,170
Prepaid expenses and other assets..................... 4,292 90 201 (a) 4,583
-------- -------- -------- --------
TOTAL CURRENT ASSETS.............................. 151,317 5,008 7,020 163,345
PROPERTY, PLANT AND EQUIPMENT
Land.................................................. 16,471 2,974 3,782 (b) 23,227
Buildings and improvements............................ 62,443 8,981 8,808 (b) 80,232
Machinery and equipment............................... 187,617 34,640 18,745 (b) 241,002
-------- -------- -------- --------
Total Property, Plant and Equipment............... 266,531 46,595 31,335 344,461
Less accumulated depreciation and amortization........ 75,213 -- -- 75,213
-------- -------- -------- --------
Net Property, Plant and Equipment................. 191,318 46,595 31,335 269,248
OTHER ASSETS
Investment in partnerships ........................... 17,411 -- -- 17,411
Subscriber accounts, net of accumulated
Amortization......................................... 96,473 1,800 30,280 (b) 128,553
Excess of cost over fair value of net assets acquired,
net of accumulated amortization...................... 287,196 -- -- 287,196
Covenants not to compete and other identifiable
intangible assets, net of accumulated amortization... 15,967 -- -- 15,967
Other................................................. 13,412 -- -- 13,412
-------- -------- -------- --------
TOTAL OTHER ASSETS................................ 430,459 1,800 30,280 462,539
-------- -------- -------- --------
TOTAL ASSETS............................................ $773,094 $53,403 $68,635 $895,132
-------- -------- -------- --------
-------- -------- -------- --------
SEE NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION.
4
GARDEN STATE NEWSPAPERS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
March 31, 1999
(IN THOUSANDS)
The Sun
Company
of
As San Donrey Pro Forma
Reported Bernardino California Note 1 Pro Forma
-------- ---------- ---------- ------ ---------
LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES
Trade accounts payable...................................... $ 2,459 $ 1,199 $ 227 (c) $ 3,885
Accrued liabilities......................................... 49,743 658 2,397 (c) 52,798
Unearned income............................................. 14,984 1,217 2,028 (c) 18,228
Income taxes................................................ 1,001 -- -- 1,001
Current portion of long-term debt........................... 6,184 -- -- 6,184
-------- ------- ------- --------
TOTAL CURRENT LIABILITIES............................... 74,371 3,073 4,652 82,096
LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATION................................................... 651,389 -- -- 651,389
OTHER LIABILITIES............................................. 7,102 -- -- 7,102
DEFERRED INCOME TAXES......................................... 16,289 -- 16,289
MINORITY INTEREST............................................. -- 50,330 63,983 (d) 114,313
SHAREHOLDER'S EQUITY
Common stock................................................ 1 -- -- 1
Additional paid in capital.................................. 65,984 -- -- 65,984
Deficit .................................................... (42,042) -- -- (42,042)
-------- ------- ------- --------
TOTAL SHAREHOLDER'S EQUITY................................ 23,943 -- -- 23,943
-------- ------- ------- --------
TOTAL LIABILITIES AND
SHAREHOLDER'S EQUITY......................................... $773,094 $53,403 $68,635 $895,132
-------- ------- ------- --------
-------- ------- ------- --------
SEE NOTE 1 TO UNAUDITED PRO FORMA FINANCIAL INFORMATION.
5
GARDEN STATE NEWSPAPERS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED MARCH 31, 1999
(IN THOUSANDS)
The Sun
Company
of Pro
As San Donrey Pro Forma Forma
Reported Bernardino California Adjustments Note 2 Pro Forma
-------- ---------- ---------- ----------- ------ ---------
OPERATING REVENUES.............. $398,905 $34,344 $64,579 $ -- $497,828
COST AND EXPENSES
Cost of Sales.................. 131,454 12,888 18,608 (1,148) (a), (b) 161,802
Selling, General
and Administrative............ 178,645 16,119 29,333 (1,177) (b) 222,920
Depreciation and
Amortization.................. 31,756 3,051 9,614 (7,127) (c) 37,294
Interest Expense............... 40,463 -- -- -- 40,463
Other (net).................... 7,921 -- -- -- 7,921
-------- ------- ------- ------- --------
TOTAL COST AND EXPENSES........ 390,239 32,058 57,555 (9,452) 470,400
MINORITY INTEREST............... -- -- -- 17,268 (d) 17,268
-------- ------- ------- ------- --------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY LOSS.............. 8,666 2,286 7,024 (7,816) 10,160
INCOME TAX BENEFIT
(EXPENSE)...................... (3,530) (921) -- 567 (e) (3,884)
EXTRAORDINARY LOSS.............. (2,154) -- -- -- (2,154)
-------- ------- ------- ------- --------
NET INCOME (LOSS)............... $ 2,982 $ 1,365 $ 7,024 $(7,249) $ 4,122
-------- ------- ------- ------- --------
-------- ------- ------- ------- --------
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, 1998
(IN THOUSANDS)
The Sun
Company
of
As San Donrey Pro Forma Pro Forma
Reported Bernardino California Adjustments Note 2 Pro Forma
-------- ---------- ---------- ----------- ------ ---------
OPERATING REVENUES.............. $435,421 $44,343 $77,238 $ -- $557,002
COST AND EXPENSES
Cost of Sales.................. 145,412 16,243 21,486 (1,148) (a), (b) 181,993
Selling, General
and Administrative............ 191,894 21,249 34,339 (1,336) (b) 246,146
Depreciation and
Amortization.................. 38,857 3,983 12,818 (9,416) (c) 46,242
Interest Expense............... 45,311 -- -- -- 45,311
Other (net).................... 11,384 -- -- 11,384
-------- ------- ------- -------- --------
TOTAL COST AND EXPENSES........ 432,858 41,475 68,643 (11,900) 531,076
GAIN ON SALE OF
NEWSPAPER PROPERTY............. 31,829 -- -- -- 31,829
MINORITY INTEREST............... -- -- -- 19,985 (d) 19,985
-------- ------- ------- -------- --------
INCOME BEFORE TAXES............. 34,392 2,868 8,595 (8,085) 37,770
INCOME TAX BENEFIT
(EXPENSE)...................... (4,792) (1,176) -- 705 (e) (5,263)
-------- ------- ------- -------- --------
NET INCOME ..................... $ 29,600 $ 1,692 $ 8,595 $ (7,380) $ 32,507
-------- ------- ------- -------- --------
-------- ------- ------- -------- --------
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 required to
consolidate the assets and liabilities contributed by The Sun
Company of San Bernardino and Donrey California, as of March
31, 1999.
(a) Record the current assets contributed to the California
Newspapers Partnership by The Sun Company of San Bernardino
and Donrey California as of March 31, 1999.
(b) Reflects the estimated fair market value of property, plant &
equipment and subscriber lists contributed to the California
Newspapers Partnership by The Sun Company of San Bernardino
and Donrey California.
(c) Record the current liabilities contributed to the California
Newspapers Partnership by The Sun Company of San Bernardino
and Donrey California as of March 31, 1999.
(d) Minority interest liability assumed in conjunction with the
California Newspapers partnership.
8
GARDEN STATE NEWSPAPERS, INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
NOTE 2: UNAUDITED PRO FORMA ADJUSTMENTS, STATEMENT OF OPERATIONS
The following are pro forma adjustments to the historical
financial statements of The Sun Company of San Bernardino and
Donrey California for the nine months ended March 31, 1999 and
the fiscal year ended June 30, 1998.
(a) Adjust newsprint and supplement expenses to reflect the market
price of materials.
(b) Eliminate corporate charges from the parent companies of The
Sun Company of San Bernardino and Donrey California.
(c) Adjust depreciation and amortization expense to reflect the
fair market value of the assets contributed to the California
Newspapers Partnership and the useful lives assigned to the
assets.
(d) Record the minority interest in the California Newspapers
Partnership related to Gannett's and Donrey's ownership
interest.
(e) Adjust income tax expense to reflect the increase in income
associated with consolidating the operations of the California
Newspapers Partnership with the Company.
9
DONREY CALIFORNIA
COMBINED FINANCIAL STATEMENTS
AS OF AND FOR THE YEAR ENDED
DECEMBER 31, 1998
TOGETHER WITH AUDITORS' REPORT
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of DR Partners:
We have audited the accompanying combined balance sheet of Donrey California
(the newspaper businesses described in Note 1) as of December 31, 1998, and the
related combined statements of income, parent company's investment and cash
flows for the year then ended. These financial statements are the responsibility
of Donrey California'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 Donrey California as of
December 31, 1998, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Little Rock, Arkansas,
May 14, 1999.
DONREY CALIFORNIA
COMBINED BALANCE SHEET
AS OF DECEMBER 31, 1998
(in thousands)
ASSETS
Current assets:
Cash $ 666
Trade and other receivables, net 6,883
Inventories 558
Prepaid expenses 683
--------
Total current assets 8,790
Property, plant and equipment, net 36,025
Intangible assets, net 64,256
Deposits 76
--------
$109,147
--------
LIABILITIES AND PARENT COMPANY'S INVESTMENT
Current liabilities:
Accounts payable $ 1,108
Accrued expenses 3,689
Deferred income 1,926
--------
Total current liabilities 6,723
Commitments and contingencies (Notes 5 and 9)
Parent company's investment 102,424
--------
$109,147
--------
--------
The accompanying notes to combined financial statements
are an integral part of this combined balance sheet.
DONREY CALIFORNIA
COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
(in thousands)
Revenues:
Advertising $57,993
Circulation 20,176
Other 1,393
-------
79,562
-------
Expenses:
Salaries, wages and employee benefits 27,582
Newsprint, ink and other production supplies 9,083
Newspaper distribution 8,276
Agency commissions 1,591
Supplies and postage 1,810
Occupancy 2,076
Depreciation and amortization 12,818
Other 8,111
-------
71,347
-------
Net income $ 8,215
-------
-------
The accompanying notes to combined financial statements
are an integral part of this combined statement.
DONREY CALIFORNIA
COMBINED STATEMENT OF PARENT COMPANY'S INVESTMENT
FOR THE YEAR ENDED DECEMBER 31, 1998
(in thousands)
Balance at December 31, 1997 $112,432
Net income 8,215
Distributions, net (18,223)
--------
Balance at December 31, 1998 $102,424
--------
--------
The accompanying notes to combined financial statements
are an integral part of this combined statement.
DONREY CALIFORNIA
COMBINED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
(in thousands)
Cash flows provided by operating activities:
Net income $ 8,215
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 12,818
Other, net 229
Increase (decrease) in cash resulting from changes in assets
and liabilities:
Trade and other receivables 581
Inventories 268
Other (99)
Accounts payable (723)
Accrued expenses 1,046
Deferred income 166
--------
Total adjustments 14,286
--------
Net cash provided by operating activities 22,501
--------
Cash flows used in investing activities:
Capital expenditures (4,186)
--------
Cash flows used in financing activities:
Distributions to parent company, net (18,223)
--------
Net increase in cash and cash equivalents 92
Cash, beginning of year 574
--------
Cash, end of year $ 666
--------
--------
The accompanying notes to combined financial statements
are an integral part of this combined statement.
DONREY CALIFORNIA
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(Dollars in thousands)
1. ORGANIZATION AND BUSINESS COMBINATIONS:
Donrey California represents the following 12 newspaper businesses of DR
Partners (the "Parent," a Nevada general partnership also known as Donrey Media
Group): Inland Valley Daily Bulletin, Chico Enterprise-Record, Daily Democrat of
Woodland, Ukiah Daily Journal, Orville Mercury Register, Advocate-News of Fort
Bragg, Vallejo Times-Herald, Hemet News, Lompoc Record, Daily News of Red Bluff,
Redlands Daily Facts and Valley Times of Moreno Valley.
Through a series of transactions effected March 31, 1999, pursuant to agreements
with certain other newspaper holding companies, the Parent contributed
substantially all of the assets and certain liabilities of Donrey California in
the formation of California Newspapers Partnership ("CNP"). In exchange for this
contribution, the Parent received a 28.5% interest in CNP, a Delaware general
partnership, which will be operated by the majority general partner and its
affiliates.
The accompanying combined financial statements include the accounts of these 12
operations. All significant intercompany transactions have been eliminated in
combination.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INVENTORIES-
Inventories consist of newsprint, which is valued at the lower of cost (last-in,
first-out method ("LIFO")) or market, and materials and supplies, which are
valued at the lower of cost (weighted-average method) or market.
PROPERTY, PLANT AND EQUIPMENT-
Property, plant and equipment are recorded at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the related
assets which are as follows:
Estimated
Useful Lives
------------
Buildings and improvements 10-40 years
Machinery and equipment 3-10 years
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
INTANGIBLE ASSETS-
Intangible assets resulted from the acquisition of the Parent by Stephens Group,
Inc. and affiliates in 1993. The purchase price for the Parent was allocated to
Donrey California based on its operating income relative to the consolidated
operating income of the Parent during the fiscal year preceding the acquisition.
The excess of the purchase price allocated to Donrey California over net
tangible assets acquired was attributed to subscription lists based on a fair
value calculation and the excess was assigned to goodwill. Intangible assets are
being amortized over the following estimated lives:
Amortizable
Lives
-----------
Goodwill 40 years
Subscription lists 7 years
DEFERRED INCOME-
Deferred income consists primarily of deferred subscription income. Deferred
subscription income represents amounts received from subscribers in advance of
newspaper deliveries and is recognized as newspaper revenue over the
subscription terms.
INCOME TAXES-
Income tax liabilities, if any, accrue to the partners of the Parent;
accordingly, no provision for or liabilities related to income taxes have been
reflected in the accompanying combined financial statements.
ALLOCATION OF OVERHEAD COSTS-
Certain management and administrative functions have been performed by the
Parent on behalf of Donrey California, including the payment of certain
operating expenses and cash management. In connection with the administrative
arrangement mentioned above, Donrey California has remitted cash receipts, less
necessary operating cash balances, to the Parent. The excess of cash remitted
over expenses paid by the Parent has been reflected as distributions in the
accompanying combined statement of parent company's investment.
The accompanying statement of income includes expenses totaling $638,
representing management's estimate of the costs of providing the management and
administrative services referred to above. Although management believes its
estimate fairly presents the costs actually expended in support of the Donrey
California newspaper businesses, the financial position, results of operations
and cash flows reported in the accompanying combined financial statements could
differ significantly from those experienced if Donrey California operated
autonomously.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
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 reported amounts of assets, liabilities, revenues and expenses and
disclosure of contingent assets and liabilities. The estimates and assumptions
used in preparing the accompanying combined financial statements are based upon
management's evaluation of the relevant facts and circumstances as of the date
of these statements. However, actual results may differ from the estimates and
assumptions used in preparing the accompanying combined financial statements.
3. TRADE AND OTHER RECEIVABLES:
Trade and other receivables consisted of the following at December 31, 1998:
Trade accounts receivable $7,075
Other receivables 112
------
7,187
Allowance for doubtful accounts (304)
------
$6,883
------
------
Donrey California's trade receivables arise primarily from unsecured credit
granted to customers for newspaper advertisements. Customers include retail
stores, hotels and various other advertisers, including individuals. Management
believes that the carrying amounts of these receivables are reasonable estimates
of their fair values.
4. INVENTORIES:
Inventories consisted of the following at December 31, 1998:
Newsprint $502
Materials and supplies 56
----
$558
----
----
As of December 31, 1998, replacement costs of newsprint exceeded the recorded
LIFO costs by approximately $495. During the year ended December 31, 1998, the
liquidation of LIFO inventories decreased newsprint expense and, therefore,
increased net income by approximately $102.
5. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consisted of the following at December 31, 1998:
Land $ 8,124
Buildings and improvements 17,913
Machinery and equipment 29,655
--------
55,692
Accumulated depreciation (20,315)
--------
35,377
Construction in progress 648
--------
$ 36,025
--------
--------
Depreciation expense related to property, plant and equipment totaled
approximately $4,992 for the year ended December 31, 1998.
Donrey California estimates an additional $237 will be required for the
completion of construction in progress at December 31, 1998.
6. INTANGIBLE ASSETS:
Intangible assets consisted of the following at December 31, 1998:
Goodwill $ 62,077
Subscription lists 43,916
---------
105,993
Accumulated amortization (41,737)
---------
$ 64,256
---------
---------
Amortization expense related to intangibles totaled approximately $7,826 for the
year ended December 31, 1998.
7. ACCRUED EXPENSES:
Accrued expenses consisted of the following at December 31, 1998:
Payroll, vacation and related accruals $2,642
Donrey Retirement Savings Plan contributions 694
Other 353
------
$3,689
------
------
8. PROFIT-SHARING PLAN:
The Parent maintains a contributory, defined contribution profit-sharing plan
(the "Donrey Retirement Savings Plan") covering all employees who were active
participants in superseded plans or who have attained the age of 18 and have
completed 1,000 hours of service in a 12-month period. Employer contributions to
the Donrey Retirement Savings Plan are made at the discretion of the Parent and
are allocated to eligible participants' accounts based on their compensation,
subject to certain limitations. All eligible employees may also contribute a
percentage of their compensation, subject to certain limitations, as a 401(k)
contribution. Donrey California's allocation of the Parent's contributions to
the Donrey Retirement Savings Plan for the year ended December 31, 1998 totaled
$694 and has been included in salaries, wages and employee benefits in the
accompanying combined statement of income.
9. COMMITMENTS AND CONTINGENCIES:
Various suits and claims arising in the ordinary course of business are pending
against Donrey California. While the ultimate effect of such actions cannot be
ascertained at this time, based on information presently available, consultation
with legal counsel and the availability of insurance coverage, it is the opinion
of management that resolution of such actions should not have a material effect
on operating results or financial condition.
THE SUN COMPANY OF SAN BERNARDINO,
CALIFORNIA AND SUBSIDIARY (THE SUN)
REPORT AND CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 27, 1998
REPORT OF INDEPENDENT ACCOUNTANTS
May 3, 1999
To the Board of Directors and Shareholders
of MediaNews Group
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations and of cash flows present fairly, in all
material respects, the financial position of the San Bernardino County Sun and
its subsidiary (the "Company"), a subsidiary of Gannett Co., Inc. ("Gannett"),
at December 27, 1998, and the results of their operations and their cash flows
for the 52 week period ended December 27, 1998, in conformity with generally
accepted accounting principles. 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
of these statements in accordance with generally accepted auditing standards
which 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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
On March 31, 1999, the Sun was contributed by Gannett to California Newspapers
Partnership in exchange for a partnership interest in California Newspapers
Partnership.
PricewaterhouseCoopers LLP
THE SUN COMPANY OF SAN BERNARDINO, CALIFORNIA AND SUBSIDIARY (THE SUN)
CONSOLIDATED BALANCE SHEET (IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 27, 1998
ASSETS
Current assets
Cash $ 135
Trade receivables, less allowance for
doubtful receivables of $222 4,447
Inventories 2,361
Prepaid expenses and other current assets 85
-------
7,028
Property, plant and equipment, net 51,407
Excess of acquisition cost over the value of
assets acquired 10,823
-------
Total assets $69,258
-------
-------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities
Accounts payable $ 1,178
Accrued expenses 1,154
Deferred income 873
-------
Total liabilities 3,205
Commitments and contingencies
Shareholder's Equity
Common stock, $10 par value: 2,500 shares authorized,
100 shares issued and outstanding 1
Additional paid-in capital 11,394
Retained earnings 25,512
Parent Company's investment in The Sun 29,146
-------
Total shareholder's equity 66,053
Total liabilities and shareholder's equity $69,258
-------
-------
The accompanying notes are an integral part of these financial statements.
THE SUN COMPANY OF SAN BERNARDINO, CALIFORNIA AND SUBSIDIARY (THE SUN)
CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS)
FOR THE YEAR ENDED DECEMBER 27, 1998
Net operating revenues
Newspaper advertising $35,914
Newspaper circulation 8,807
Other revenues 925
-------
45,646
Operating Expenses
Operating expenses, exclusive of depreciation and amortization 30,822
Selling, general and administrative expenses, exclusive of depreciation
and amortization 6,758
Depreciation and amortization 4,184
Corporate general and administrative and other intercompany expenses 608
-------
42,372
-------
Income before income taxes 3,274
Provision for income taxes 1,342
-------
Net Income 1,932
Retained earnings, beginning of year 23,580
-------
Retained earnings, end of year $25,512
-------
-------
The accompanying notes are an integral part of these financial statements.
THE SUN COMPANY OF SAN BERNARDINO, CALIFORNIA AND SUBSIDIARY (THE SUN)
CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS)
FOR THE YEAR ENDED DECEMBER 27, 1998
Cash flow from operating activities:
Net income $ 1,932
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,184 Changes in operating assets and
liabilities:
Decrease in trade receivables 436
Decrease in inventories 673
Decrease in prepaid expenses and other current assets 37
Decrease in accounts payable (502)
Increase in accrued expenses and other current liabilities 201
-------
Net cash provided by operating activities 6,961
Cash flows from investing activities:
Purchase of property, plant and equipment (1,248)
Cash flow from financing activities:
Net Funds remitted to Parent Company (5,578)
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Net increase in cash 135
Cash at beginning of year -
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Cash at end of year $ 135
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The accompanying notes are an integral part of these financial statements.
THE SUN COMPANY OF SAN BERNARDINO, CALIFORNIA AND SUBSIDIARY (THE SUN)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 DESCRIPTION OF BUSINESS
These financial statements include the operations of The Sun Company of San
Bernardino, California and its subsidiary (collectively referred to as "The Sun"
or the "company"). The Sun publishes The San Bernardino County Sun, a daily
newspaper founded in 1894 and provides related commercial printing services. The
Sun is a subsidiary of Gannett Co., Inc. (the "Parent company" or "Gannett"). On
March 31, 1999, The San Bernardino County Sun was contributed by Gannett to
California Newspapers Partnership, a general partnership incorporated in
Delaware, in exchange for a partnership interest.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION: The consolidated financial statements include the accounts of the
company and its subsidiary after elimination of all significant intercompany
transactions and profits.
FISCAL YEAR: The company's fiscal year ends on the last Sunday of the calendar
year. The company's 1998 fiscal year ended on December 27, 1998, and encompassed
a 52-week period.
INVENTORIES: Inventories, consisting principally of newsprint, printing ink,
plate material and production film for the company's newspaper publishing
operations, are valued at the lower of cost (first-in, first-out) or market.
Please refer to Note 3 - Related Party Transactions for a discussion of
newsprint purchasing.
PROPERTY AND DEPRECIATION: Property, plant and equipment are recorded at cost,
and depreciation is provided generally on a straight-line basis over the
estimated useful lives of the assets. The principal estimated useful lives are:
buildings and improvements, 10 to 40 years; machinery, equipment and fixtures,
four to 30 years.
EXCESS OF ACQUISITION COST OVER FAIR VALUE OF ASSETS ACQUIRED: The excess of
acquisition cost over the fair value of assets acquired represents the cost of
intangible assets at the time the Sun was acquired by the Parent Company in
1969. In accordance with Opinion 17 of the Accounting Principles Board of the
American Institute of Certified Public Accountants, the excess acquisition cost
is not amortized because it originated prior to October 31, 1970.
INCOME TAXES: The Sun's operating results are included in the consolidated
federal income tax return of Gannett; however, the income tax provision is
computed at The Sun's effective income tax rate for 1998 of 41%, as if a
separate return is filed for The Sun for federal and state income tax purposes.
The income tax liability, as well as any deferred tax assets and liabilities,
are included in the Parent Company's investment in The Sun.
USE OF ESTIMATES: The preparation of financial statements in conformity 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 these estimates.
CONCENTRATION OF CREDIT RISK: A significant portion of The Sun's trade
receivables is due from local and regional businesses in the San Bernardino
area.
NOTE 3 RELATED PARTY TRANSACTIONS
Certain corporate general and administrative expenses are allocated through the
intercompany account to The Sun by the Parent Company. Such costs consist of
corporate management and administrative salaries, and other costs related to
corporate overhead. The costs are allocated to The Sun based on its relative
revenue amounts compared to the Parent Company's consolidated revenue amounts,
which management believes is a reasonable method of allocation. Amounts
allocated are not necessarily indicative of the costs that would be required to
operate The Sun on a stand-alone basis. All intercompany transactions are
included in the Parent Company's investment in The Sun.
In 1998, The Sun provided commercial printing services for USA Today, a daily
newspaper owned by Gannett. The California Newspapers Partnership will continue
to provide commercial printing services to USA Today at agreed-upon rates.
Excess cash on hand or cash requirements of The Sun are transferred to (from)
the Parent company on a regular basis. The Sun does not record interest income
(expense) on these amounts. Interest income of the subsidiary of the Parent
company of $274,000 is included in other revenues.
Newsprint and certain other items are purchased centrally by Gannett and charged
to The Sun.
NOTE 4 PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment as of December 27, 1998 follows (in thousands):
Land $ 3,347
Building improvements 26,837
Machinery, equipment and fixtures 57,219
Construction in progress 251
--------
87,654
Less accumulated depreciation and amortization (36,247)
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Net property and equipment $ 51,407
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--------
NOTE 5 COMMITMENTS AND CONTINGENCIES
LEASE OBLIGATIONS: Future minimum annual rental payments under noncancelable
operating leases as of December 27, 1998 are as follows (in thousands):
1999 72
2000 68
2001 69
2002 14
----
$223
----
----
Rental expense was approximately $217,000 for 1998.
LITIGATION: The company is a defendant in judicial and administrative
proceedings involving matters incidental to its business. The company's
management does not believe that any material liability will be imposed as a
result of these matters. If the proceedings brought against the company prior to
March 31, 1999 result in any liability, they will be settled by the Parent
Company.
NOTE 6 EMPLOYEE BENEFIT PLANS
Employees of The Sun are eligible for various retirement plans provided by
Gannett, under which substantially all full-time employees are covered. The
Gannett Retirement Plan, a defined benefit pension plan, is The Sun's principal
retirement plan and covers its eligible employees. Benefits under the Gannett
Retirement Plan are based on years of service and final average pay. The Sun's
pension cost was approximately $3,000 in 1998. Since The Sun's employees are not
specifically identified within the pension fund, the benefit obligation and plan
assets related to the Sun are not determinable.
Gannett provides health care and life insurance benefits to certain retired
employees. Certain employees of The Sun become eligible for benefits after
meeting certain age and service requirements. The cost of providing retiree
health care and life insurance benefits is actuarially determined for the
consolidated Parent Company and accrued over the service period of the active
employee group. The Sun's postretirement benefit cost was approximately $5,000
in 1998.
Most employees of The Sun who are scheduled to work at least 1,000 hours during
each year are also eligible to participate in the Gannett 401(k) Savings Plan.
Employees may elect to save up to 15% of compensation on a pre-tax basis subject
to certain limits. Beginning January 1, 1998, Gannett matched 50% of the first
6% of employer contributions. Expenses allocated by the Parent Company for the
401(K) Savings Plan in 1998 were approximately $213,000, based upon actual
participation.
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: June 11, 1999 By: /S/ JOSEPH J. LODOVIC, IV
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Joseph J. Lodovic, IV
Executive Vice President,
Chief Financial Officer