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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number
MediaNews Group, Inc.
(Exact name of registrant as specified in its charter)
Delaware 76-0425553
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification Number)
1560 Broadway
Denver, Colorado 80202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 837-0886
(MEDIANEWS GROUP IS THE SUCCESSOR ISSUER TO GARDEN STATE
NEWSPAPERS, INC., PURSUANT TO RULE 15d-5 UNDER THE
SECURITIES ACT OF 1933)
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether a registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
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INDEX TO MEDIANEWS GROUP, INC.
REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Item No. Page
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PART I - FINANCIAL INFORMATION
1 Financial Statements 3
2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 3
PART II - OTHER INFORMATION
1 Legal Proceedings 3
2 Changes in Securities 3
3 Defaults Upon Senior Securities 3
4 Submission of Matters to a Vote of Security Holders 3
5 Other Information 4
6 Exhibits and Reports on Form 8-K 4
</TABLE>
2
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PART I
- --------------------------------------------------------------------------------
ITEM 1. FINANCIAL STATEMENTS
The information required by this item is filed as part of this Form 10-Q. See
Index to Financial Information at page 5 of this Form 10-Q.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this item is filed as part of this Form 10-Q. See
Index to Financial Information at page 5 of this Form 10-Q.
PART II
- --------------------------------------------------------------------------------
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in litigation arising in the ordinary course of
business, none of which is expected to result in material loss.
ITEM 2. CHANGES IN SECURITIES
There were no changes in the rights of security holders during the quarter for
which this report is filed.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
There were no defaults upon senior securities during the quarter for which this
report is filed.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the quarter
for which this report is filed.
3
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ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
27 - Financial Data Schedule.
Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended September 30, 1999.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GARDEN STATE NEWSPAPERS, INC.
Dated: November 12, 1999 By: /s/ Joseph J. Lodovic, IV
---------------------- -------------------------------------
Joseph J. Lodovic, IV
Executive Vice President,
Chief Financial Officer and
Duly Authorized Officer of Registrant
4
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MEDIANEWS GROUP, INC.
Index to Financial Information
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS: PAGE
----
<S> <C>
Condensed Consolidated Balance Sheets.................................................... 6
Unaudited Condensed Consolidated Statements of Operations................................ 8
Unaudited Condensed Consolidated Statements of Cash Flows................................ 9
Notes to Unaudited Condensed Consolidated Financial Statements........................... 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................................................... 13
</TABLE>
5
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CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
MediaNews Group, Garden State
Inc. and Newspapers, Inc.
Subsidiaries and Subsidiaries
ASSETS September 30, 1999 June 30, 1999
------------------ ----------------
(in thousands)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents ........................................... $ 19,377 $ 2,882
Accounts receivable, less allowance for doubtful
accounts of $11,379 and $8,163 at September 30, 1999
and June 30, 1999, respectively .................................. 110,943 72,776
Inventories of newsprint and supplies ............................... 19,251 9,278
Prepaid expenses and other assets ................................... 7,288 4,574
Income tax receivable ............................................... 4,380 3,016
---------- ----------
TOTAL CURRENT ASSETS ............................................. 161,239 92,526
PROPERTY, PLANT AND EQUIPMENT
Land ................................................................ 31,268 25,151
Buildings and improvements .......................................... 116,616 84,437
Machinery and equipment ............................................. 357,444 242,077
---------- ----------
TOTAL PROPERTY, PLANT AND EQUIPMENT .............................. 505,328 351,665
Less accumulated depreciation and amortization ...................... 146,098 76,236
---------- ----------
NET PROPERTY, PLANT AND EQUIPMENT ................................ 359,230 275,429
OTHER ASSETS
Investment in newspaper partnerships ................................ 18,209 18,378
Subscriber accounts, less accumulated amortization of
$71,054 and $68,084 at September 30, 1999 and June 30,
1999, respectively ............................................... 125,106 127,075
Excess of cost over fair value of net assets acquired, less
Accumulated amortization of $29,478 and $26,319
at September 30, 1999 and June 30, 1999, respectively ............ 326,083 286,022
Covenants not to compete and other identifiable intangible
assets, less accumulated amortization of $26,202 and
$23,704 at September 30, 1999 and June 30, 1999, respectively .... 14,158 16,175
Other ............................................................... 42,847 13,973
---------- ----------
TOTAL OTHER ASSETS ............................................... 526,403 461,623
---------- ----------
TOTAL ASSETS ..................................................... $1,046,872 $ 829,578
========== ==========
</TABLE>
See notes to unaudited condensed consolidated financial statements
6
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CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
MediaNews Group, Garden State
Inc. and Newspapers, Inc.
Subsidiaries and Subsidiaries
LIABILITIES AND SHAREHOLDERS' DEFICIT September 30, 1999 June 30, 1999
------------------ ----------------
(in thousands, except share data)
<S> <C> <C>
CURRENT LIABILITIES
Trade accounts payable.................................................. $ 22,455 $ 7,831
Accrued liabilities..................................................... 63,389 46,862
Unearned income......................................................... 25,751 18,140
Current portion of long-term debt and obligations under capital leases.. 9,638 7,830
------------------ ----------------
TOTAL CURRENT LIABILITIES............................................. 121,233 80,663
OBLIGATIONS UNDER LONG-TERM DEBT AND CAPITAL LEASES........................ 856,773 750,107
OTHER LIABILITIES.......................................................... 15,211 7,543
DEFERRED INCOME TAXES...................................................... 39,765 18,370
MINORITY INTEREST.......................................................... 137,834 123,796
SHAREHOLDERS' DEFICIT
Common stock, par value $0.01 and $1.00 per share; at
September 30, 1999 and June 30, 1999, respectively; 2,314,346 and
1,000 shares authorized, issued and outstanding at September 30,
1999 and June 30, 1999, respectively.................................. 23 1
Additional paid-in capital.............................................. 3,610 --
Deficit................................................................. (127,577) (150,902)
------------------ ----------------
TOTAL SHAREHOLDERS' DEFICIT........................................... (123,944) (150,901)
------------------ ----------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT....................... $ 1,046,872 $ 829,578
================== ================
</TABLE>
See notes to unaudited condensed consolidated financial statements
7
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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended September 30,
-------------------------------------------
1999 1998
-------------------- -------------------
MediaNews Group, Garden State
Inc. and Newspapers, Inc.
Subsidiaries and Subsidiaries
-------------------- -------------------
(in thousands, except share data)
<S> <C> <C>
REVENUES
Advertising............................................. $ 184,278 $ 98,064
Circulation............................................. 38,366 26,301
Other................................................... 6,176 3,790
-------------------- -------------------
TOTAL REVENUES........................................ 228,820 128,155
COSTS AND EXPENSES
Cost of sales........................................... 81,311 43,033
Selling, general and administrative..................... 104,047 58,256
Depreciation and amortization........................... 15,568 10,290
Interest expense........................................ 18,750 13,032
Other (net)............................................. 892 795
-------------------- -------------------
TOTAL COSTS AND EXPENSES.............................. 220,568 125,406
GAIN ON SALE OF NEWSPAPER PROPERTY......................... 3,323 --
MINORITY INTEREST.......................................... (7,747) --
-------------------- -------------------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY LOSS.......... 3,828 2,749
INCOME TAX EXPENSE......................................... (330) (858)
-------------------- -------------------
INCOME BEFORE EXTRAORDINARY LOSS........................... 3,498 1,891
EXTRAORDINARY LOSS (NET OF TAXES OF $1,134)................ -- (2,499)
-------------------- -------------------
NET INCOME (LOSS).......................................... $ 3,498 $ (608)
==================== ===================
NET INCOME (LOSS) PER COMMON SHARE: Pro
Forma
Net income before extraordinary loss .................. $ 1.51 $ 1.18
Extraordinary loss .................................... -- (1.56)
-------------------- -------------------
Net income (loss) per common share .................... $ 1.51 $ (.38)
==================== ===================
Weighted average number of shares outstanding ......... 2,314,346 1,596,022
==================== ===================
</TABLE>
See notes to unaudited condensed consolidated financial statements
8
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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended September 30,
-------------------------------------------
1999 1998
-------------------- -------------------
MediaNews Group, Garden State
Inc. and Newspapers, Inc.
Subsidiaries And Subsidiaries
-------------------- -------------------
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ........................................................ $ 3,498 $ (608)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization .......................................... 15,202 10,135
Provision for losses on accounts receivable ............................ 2,953 1,591
Amortization of debt discount .......................................... 1,031 773
Net gain on sale of assets ............................................. (3,298) --
Debt repurchase premium ................................................ -- 3,633
Distributions in excess of earnings from Joint Operating Agreements .... 169 235
Change in defined benefit plan assets .................................. (585) --
Deferred income tax benefit ............................................ (253) (42)
Minority Interest ...................................................... 7,747 --
Change in operating assets and liabilities ............................. (9,238) (1,318)
-------------------- -------------------
NET CASH FLOWS FROM OPERATING ACTIVITIES ............................ 17,226 14,399
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of newspaper properties ........................................... 8,000 --
Acquisition of newspaper property ...................................... -- (48,201)
Cash acquired in acquisition ........................................... 856 --
Purchase of machinery and equipment (net) .............................. (4,403) (1,597)
-------------------- -------------------
NET CASH FLOWS FROM INVESTING ACTIVITIES ............................ 4,453 (49,798)
CASH FLOWS FROM FINANCING ACTIVITIES:
Reduction of long-term debt ............................................ (9,667) (39,727)
Reduction of non-operating liabilities ................................. (3,204) (168)
Debt repurchase premium ................................................ -- (3,633)
Issuance of long-term debt ............................................. 10,365 83,200
Distributions paid to minority interest ................................ (2,678) --
-------------------- -------------------
NET CASH FLOWS FROM FINANCING ACTIVITIES ............................ (5,184) 39,672
-------------------- -------------------
CHANGE IN CASH AND CASH EQUIVALENTS ......................................... 16,495 4,273
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ............................ 2,882 999
-------------------- -------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .................................. $ 19,377 $ 5,272
==================== ===================
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid .......................................................... $ 10,106 $ 8,289
==================== ===================
Income taxes paid ...................................................... $ 41 $ 3
==================== ===================
</TABLE>
See notes to unaudited condensed consolidated financial statements
9
<PAGE> 10
MEDIANEWS GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: REORGANIZATION AND BASIS OF PRESENTATION
As a result of a corporate reorganization, as is more fully described below,
MediaNews Group, Inc. (the "Company" or "MediaNews") has become the successor
issuer to Garden State Newspapers, Inc., pursuant to Rule 15d-5, under the
Securities Act of 1933.
Reorganization
o In June 1999, Affiliated Newspapers Investments, Inc., parent of Garden
State Newspapers, Inc., changed its name to MediaNews Group, Inc.
o On June 30, 1999, MediaNews purchased an additional 20% interest in The
Denver Post Corporation ("Denver Post"), bringing its total ownership
interest in the Denver Post to 80%. In addition, the Denver Post
Shareholder Agreement was modified, giving MediaNews control of the
Denver Post board of directors. Accordingly, the Denver Post became a
consolidated subsidiary of MediaNews.
o On September 1, 1999, Garden State Newspapers, Inc. was merged into
MediaNews, with MediaNews as the surviving corporation.
Basis of Presentation
As a result of the reorganization described above, the condensed
consolidated financial statements for September 30, 1999, included the
consolidated results of operations of MediaNews and its subsidiaries, which
includes the Denver Post and the subsidiaries formerly known as Garden State
Newspapers, Inc. and subsidiaries ("Garden State"). The financial statement data
for June 30, 1999 and the three month period ended September 30, 1998, included
in this 10Q, only includes Garden State. All significant intercompany accounts
and transactions have been eliminated upon consolidation.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS
Basis of Quarterly Financial Statements
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulations S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
consolidated financial statements and should be read in conjunction with the
consolidated financial statements and footnotes thereto included in Garden State
Newspapers, Inc.'s Annual Report on Form 10-K for the year ended June 30, 1999.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three month period ended September 30, 1999, are not
necessarily indicative of the results that may be expected for the year ended
June 30, 2000.
Income Taxes
The effective income tax rate varies from the federal statutory rate
primarily because of the nondeductibility of certain expenses and the
utilization of net operating losses that were previously subject to valuation
allowances.
Seasonality
Newspaper companies tend to follow a distinct and recurring seasonal
pattern, with higher advertising revenues in months containing significant
events or holidays. Accordingly, the fourth calendar quarter, or the Company's
second fiscal quarter, is the Company's strongest revenue quarter of the year.
Due to generally poor weather and lack of holidays, the first calendar quarter,
or the Company's third fiscal quarter, is the Company's weakest revenue quarter
of the year.
10
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MEDIANEWS GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS (CONTINUED)
Earnings Per Share
Earnings per share for the three months ended September 30, 1998, have been
restated to give effect to the merger of Garden State, into MediaNews as if the
merger occurred effective July 1, 1998. The pro forma weighted average
outstanding shares at September 30, 1998 is based on the historical number of
shares of tracking stock issued by MediaNews, which are attributable to Garden
State and its subsidiaries.
Disposition
Effective July 31, 1999, the California Newspapers Partnership sold the
assets of The Hemet News and Moreno Valley Times for a pre-tax gain of
approximately $3.3 million. Proceeds from the sale will be used to purchase
assets that cluster with newspapers owned by the California Newspapers
Partnership.
NOTE 3: LONG TERM DEBT
In conjunction with the previously described reorganization, MediaNews
borrowed $100.4 million under a new credit facility. Proceeds from this
borrowing were used to acquire an additional 20% interest in the Denver Post,
repay the Denver Post's bank debt, redeem the Denver Post's preferred stock plus
accrued dividends and pay fees and expenses on the related borrowings. In
conjunction with this transaction, MediaNews and the Denver Post also entered
into a Master Intercompany Note, representing the amount of borrowings under the
Company's new credit facility, which are directly attributable to the operations
of the Denver Post. Amounts borrowed under the Master Intercompany note are
guaranteed by the Denver Post. The Denver Post's debt guarantee is limited to
the Permitted Debt of the Denver Post as defined in the Denver Post Shareholder
Agreement between MediaNews and Media General.
The following table sets forth the approximate expected scheduled maturities
of long-term debt, excluding capital leases, of the Company for the fiscal years
indicated, (in thousands):
<TABLE>
<CAPTION>
<S> <C>
2000............................. $ 5,755
2001............................. 8,589
2002............................. 8,240
2003............................. 5,694
2004............................. 69,723
Thereafter....................... 757,507
-----------
$ 855,508
===========
</TABLE>
NOTE 4: COMMITMENTS
MediaNews has entered into newsprint swap agreements covering 75,000 metric
tons of newsprint, which expire over the next six to nine years. MediaNews uses
the agreements to minimize in part, the Company's exposure to the uncertainty of
future newsprint price fluctuations. Settlements are made on a monthly or
quarterly basis, and vary based on the difference between the fixed contract
price and the price as published in the Paper Trader (also known as the RISI
index). The weighted average fixed price of newsprint under the agreements is
$592 per metric ton. MediaNews accounts for amounts received or paid under these
agreements as an adjustment to newsprint expense. MediaNews also participates in
fixed price contracts, which currently allow the Company to purchase 30 pound
newsprint at a weighted average price of approximately $538 per metric ton.
The Denver Post Shareholder Agreement provides Media General and MediaNews
with a put and a call option, respectively, on Media General's remaining 20%
interest in the Denver Post. The put can be exercised by Media General beginning
June 30, 2001
11
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MEDIANEWS GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 4: COMMITMENTS (CONTINUED)
and expires June 30, 2004. The call option can be exercised beginning July 1,
2004 and expires June 30, 2005. The price of the put and call are the same and
is based on the appraised fair market value of the Denver Post, less Permitted
Debt of the Denver Post. MediaNews has one year to close on the purchase from
the date of the put notice.
NOTE 5: SUBSEQUENT EVENTS
Business Acquisition
Effective October 31, 1999, the Company acquired substantially all of the
assets used in the publication of the Deming Headlight, a morning newspaper
published in Deming, New Mexico, for approximately $2.0 million cash.
The newspaper has daily paid circulation of approximately 3,850.
The acquisition will be accounted for as a purchase; accordingly, the
Consolidated Financial Statements will include the operations of the acquired
newspaper from the date of acquisition.
12
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OPERATING RESULTS
Three Months Ended September 30, 1999 and 1998
Revenues
Revenues increased $100.7 million or 78.5% in the first quarter of fiscal
year 2000 as compared to the same quarter of fiscal year 1999. The increase in
revenue was primarily attributable to the consolidation of the Denver Post; the
formation of the California Newspapers Partnership ("CNP"), the August 21, 1998
acquisition of the 50% interest in the Charleston Newspaper joint venture, and
the October 1, 1998 acquisition of the Daily Times. Excluding newspaper
acquisitions, consolidation of the Denver Post and the CNP partnership, the
Company's remaining newspaper operations ("existing newspapers") had a 4.8%
increase in operating revenues for the first quarter of fiscal year 2000.
Advertising revenues at these newspapers increased by approximately 6.2%, driven
by continued growth in all advertising categories.
Cost of Sales
Cost of sales increased $38.3 million or 89.0% in the first quarter of
fiscal year 2000 compared to the same quarter of fiscal year 1999. The
aforementioned acquisitions, consolidation of the Denver Post and CNP
partnership caused the majority of the cost of sales increase for the quarter
ended September 30, 1999. Excluding newspaper acquisitions, consolidation of the
Denver Post and the CNP partnership, cost of sales decreased slightly, primarily
driven by decreased newsprint prices and production expenses, which was offset
by increases in editorial spending.
Selling, General and Administrative
Selling, general and administrative ("SG&A") expenses increased $45.5
million or 77.8% in the first quarter of fiscal year 2000 as compared to the
same quarter of fiscal year 1999. The aforementioned acquisitions, consolidation
of the Denver Post and the CNP partnership caused almost all of the SG&A expense
increase in the first quarter of fiscal year 2000. Excluding newspaper
acquisitions, consolidation of the Denver Post and the CNP partnership, SG&A
expense increased approximately 8.4%. The increase in SG&A is associated with
increases in advertising and circulation expenditures, which were primarily
related to ongoing efforts to increase advertising lineage and total paid
circulation. The substantial increase in the size of the Company also caused
corporate overhead to increase.
EBITDA
EBITDA adjusted for minority interest increased $8.1 million or 30.4%. The
majority of the increase was due to the consolidation of the Denver Post,
formation of CNP partnership and prior year acquisitions; however, the Company's
existing newspapers realized a 6.9% increase in EBITDA. EBITDA represents total
revenues less cost of sales and selling, general and administrative expense.
Although EBITDA is not a measure of performance calculated in accordance with
GAAP, the Company believes that EBITDA is an indicator and measurement of its
leverage capacity and debt service ability.
Depreciation and Amortization
Depreciation and amortization increased $5.3 million in the first quarter of
fiscal year 2000 as compared to the same period of fiscal year 1999. The
aforementioned consolidation of the Denver Post, formation of the CNP
partnership and acquisitions caused the majority of the increase in depreciation
and amortization expense.
Interest Expense
Interest expense increased $5.7 million in the first quarter of fiscal year
2000 as compared to the same period in fiscal year 1999. Interest expense
increased as a result of a $329.3 million increase in average debt outstanding,
primarily associated with acquisitions, debt repurchases and the inclusion of
debt related to the Denver Post and MediaNews, which was not previously part of
13
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Garden State's consolidated debt. This increase was partially offset by a 84
basis point decrease in the average interest rate, associated with repurchasing
the Company's 12% Senior Subordinated Secured Notes, which was funded with lower
cost bank debt.
Extraordinary Loss
In the first quarter of fiscal year 1999, Garden State repurchased $36.0
million of its 12% Senior Subordinated Secured Notes at a premium of
approximately $3.6 million. The premium, net of income taxes, was recorded as an
extraordinary loss. Based on the Company's current interest rates, the
repurchase has significantly reduced the Company's total interest expense.
Net Income
MediaNews Group recorded adjusted net income of approximately $1.5 million
in the first quarter of fiscal year 2000 after excluding the Company's share of
the gain on sale of a CNP newspaper property of approximately $2.0 million;
compared to and adjusted net income of $1.9 million in the first quarter of
fiscal year 1999 after excluding the extraordinary loss of $2.5 million. The
decrease in adjusted net income is primarily attributable to a $11.6 million
increase in operating profit as a result of acquisitions, consolidation of the
Denver Post and the California Newspapers Partnership and a $0.5 million
reduction in income tax expense resulting from the use of net operating loss
carryforwards. These increases in net income were offset by a $5.7 million
increase in interest expense, and a $7.7 million increase in allocations to
minority interests.
FINANCIAL CONDITION AND LIQUIDITY
Net cash flows from operating activities were approximately $17.2 million
and $14.4 million for the three months ended September 30, 1999 and 1998,
respectively. The $2.8 million increase in cash flow from operating activities
was primarily the result of the $8.1 million increase in EBITDA, adjusted for
minority interests, for the three months ended September 30, 1999, compared to
the same period of the prior year. The increase in EBITDA was offset by a $5.7
million change in operating assets and liabilities strictly due to timing
differences.
Net cash flows from investing activities were $4.5 million and ($49.8)
million for the three months ended September 30, 1999 and 1998, respectively.
The $54.3 million increase was primarily the result of the Company spending
$48.2 million on acquisitions in fiscal year 1999 compared to receiving $8.0
million in the first quarter of fiscal year 2000 from the sale of newspaper
properties.
Net cash flows from financing activities were ($5.2) million and $39.7
million for the three months ended September 30, 1999 and 1998, respectively.
The change of approximately $44.9 million was primarily attributable to the
Company paying down a net $2.5 million of long-term debt in the first three
months of fiscal 2000, compared to a net borrowing of $39.9 million in fiscal
1999. The majority of the 1999 borrowings were made in conjunction with the
previously discussed acquisition. The $3.6 million of debt repurchase premiums
in fiscal year 1999 also contributed to the change.
Liquidity
Based upon current and expected future operating results, management
believes that the Company will have sufficient cash flows from operations to
fund scheduled payments of principal and interest and to meet anticipated
capital expenditure and working capital requirements for at least the next
twelve months. MediaNews has $76.7 million available for future borrowings under
its bank credit agreement, net of approximately $4.8 million in outstanding
letters of credit, which should be more than sufficient to fund unanticipated
capital needs or other cash requirements should they arise.
14
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
NEAR TERM OUTLOOK
Newsprint Prices
Effective October 1, 1999, North American newsprint suppliers increased the
price of 30 pound newsprint by $50 per metric ton. Currently, North American 30
pound newsprint is averaging $515 per metric ton for large newsprint buyers.
However, we continued to purchase newsprint from Europe and Asia at prices below
$515 per metric ton after the October 1, 1999 price increase. To minimize the
influence of newsprint price fluctuations, MediaNews has entered into fixed
price newsprint contracts and newsprint swap agreements, which expire over the
next three months to nine years. The weighted average price for newsprint under
both the fixed price newsprint contracts and the newsprint swap, for fiscal
2000, is $580 per metric ton. Approximately 40% of our fiscal year 2000
consumption is expected to be purchased under these price contracts. In
addition, we have a contract that allows us to purchase 36,000 metric tons per
year at a price equal to the lowest price at which newsprint is sold to large
North America newsprint purchasers, subject to quarterly adjustment.
IMPACT OF YEAR 2000
The year 2000 issue results from computer programs that have time-sensitive
software, which may recognize a date using "00" as the year 1900 rather than the
year 2000. This could result in a system failure, disruption of operations,
and/or a temporary inability to conduct normal business activities. Based on a
recent assessment, we currently believe that with modifications to existing
software and conversions to new software, which has already or is scheduled to
occur, the year 2000 issue will not pose any significant operational problems.
If such modifications and conversions are not made, or are not completed in a
timely manner, the year 2000 issue could have a material impact on operations.
Our newspapers have completed the process of identifying computer systems
that require modification or replacement and we have substantially completed the
systematic replacement or modification of all our computer systems, which are
not year 2000 compliant. In addition, we have communicated with our significant
suppliers to determine the extent to which our interface systems are vulnerable
to those third parties' failure to resolve their own year 2000 issues. We
believe the necessary modifications and replacement of computer systems will be
completed by November 30, 1999, and thus no contingency plan has been developed.
15
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MEDIA NEWS
GROUP INC.'S FORM 10-Q FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 19,377
<SECURITIES> 0
<RECEIVABLES> 110,943
<ALLOWANCES> 11,379
<INVENTORY> 7,288
<CURRENT-ASSETS> 161,239
<PP&E> 505,328
<DEPRECIATION> 146,098
<TOTAL-ASSETS> 1,046,872
<CURRENT-LIABILITIES> 121,233
<BONDS> 856,773
0
0
<COMMON> 23
<OTHER-SE> (123,577)
<TOTAL-LIABILITY-AND-EQUITY> 1,046,872
<SALES> 228,820
<TOTAL-REVENUES> 228,820
<CGS> 81,311
<TOTAL-COSTS> 200,926
<OTHER-EXPENSES> 892
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,750
<INCOME-PRETAX> 3,828
<INCOME-TAX> 330
<INCOME-CONTINUING> 3,498
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,498
<EPS-BASIC> 1.51
<EPS-DILUTED> 1.51
</TABLE>
