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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, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number
MEDIANEWS GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 76-0425553
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification Number)
1560 Broadway
Denver, Colorado 80202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 563-6360
--------------
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, 2000
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<CAPTION>
Item No. Page
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PART 1 - FINANCIAL INFORMATION
<S> <C> <C>
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 on 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 on page 5 of this Form 10-Q.
PART II
ITEM 1: LEGAL PRECEEDINGS
The Company is involved in litigation arising in the ordinary course of
business, none of which is expected to result in material loss.
ITEM 2: CHANGES IN SECURITIES
There were no changes in the rights of security holders during the quarter for
which this report is filed.
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
There were no defaults upon senior securities during the quarter for which this
report is filed.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
quarter for which this report is filed.
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
On July 14, 2000, the Company filed an 8K regarding the pending purchase of the
Connecticut Post and the sale of the Express Times, the Gloucester County
Times, Today's Sunbeam, the Bridgeton News and the Company's North Jersey
weekly group. The 8K also included pro forma financial statements giving effect
to these acquisition and disposition transactions.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MEDIANEWS GROUP, INC.
Dated: November 13, 2000 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>
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Page
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ITEM 1: FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheets................................ 6
Unaudited Condensed Consolidated Statements of Operations............ 8
Unaudited Condensed Consolidated Statements of Cash Flows............ 9
Notes to Unaudited Condensed Consolidated Financial Statements....... 10
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............................... 13
</TABLE>
5
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MEDIANEWS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited) Restated
September 30, June 30,
ASSETS 2000 2000
---------- ----------
(In thousands)
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents ............................................. $ 145,791 $ 144,632
Accounts receivable, less allowance for doubtful accounts
of $10,260 and $9,910 at September 30, 2000
and June 30, 2000, respectively .................................... 117,735 108,544
Inventories of newsprint and supplies ................................. 20,722 19,708
Prepaid expenses and other assets ..................................... 5,711 6,245
---------- ----------
TOTAL CURRENT ASSETS ............................................... 289,959 279,129
PROPERTY, PLANT AND EQUIPMENT
Land .................................................................. 28,300 28,300
Buildings and improvements ............................................ 123,222 124,451
Machinery and equipment ............................................... 375,739 369,032
---------- ----------
TOTAL PROPERTY, PLANT AND EQUIPMENT ................................ 527,261 521,783
Less accumulated depreciation and amortization ........................ 165,209 157,011
---------- ----------
NET PROPERTY, PLANT AND EQUIPMENT .................................. 362,052 364,772
OTHER ASSETS
Investment in newspaper partnerships .................................. 10,750 10,499
Subscriber accounts, less accumulated amortization of
$81,116 and $76,705 at September 30, 2000 and June 30, 2000,
respectively ....................................................... 106,003 110,414
Excess of cost over fair value of net assets acquired, less
accumulated amortization of $36,412 and $34,917 at
September 30, 2000 and June 30, 2000, respectively ................. 316,080 317,575
Covenants not to compete and other indentifiable intangible
assets, less accumulated amortization of $28,827 and $27,486 at
September 30, 2000 and June 30, 2000, respectively ................. 9,101 10,292
Other ................................................................. 46,900 46,211
---------- ----------
TOTAL OTHER ASSETS ................................................. 488,834 494,991
TOTAL ASSETS ....................................................... $1,140,845 $1,138,892
========== ==========
</TABLE>
See notes to unaudited condensed consolidated financial statements
6
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MEDIANEWS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED) RESTATED
SEPTEMBER 30, JUNE 30,
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) 2000 2000
------------ -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C>
CURRENT LIABILITIES
Trade accounts payable.................................................... $ 23,604 $ 22,409
Accrued liabilities....................................................... 59,770 63,060
Unearned income........................................................... 24,487 25,632
Current portion of long-term debt and obligations under capital leases.... 17,012 18,611
----------- -----------
TOTAL CURRENT LIABILITIES.............................................. 124,873 129,712
LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES....................... 841,037 828,197
OTHER LIABILITIES......................................................... 18,840 18,288
DEFERRED INCOME TAXES..................................................... 24,819 27,345
MINORITY INTEREST......................................................... 135,713 135,066
SHAREHOLDERS' DEFICIT
Common stock, par value $0.001 per share; at September 30, 2000 and
June 30, 2000, respectively; 3,000,000 shares authorized and
2,298,346 shares issued and outstanding at September 30, 2000 and
June 30, 2000, respectively............................................ 2 2
Additional paid in capital................................................ 3,631 3,631
Accumulated other comprehensive loss...................................... (834) (655)
Deficit................................................................... (5,236) (694)
Common stock in treasury, at cost, 16,000 shares.......................... (2,000) (2,000)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT)................................... (4,437) 284
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)................... $ 1,140,845 $ 1,138,892
=========== ===========
</TABLE>
See notes to unaudited condensed consolidated financial statements
7
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MEDIANEWS GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
RESTATED
2000 1999
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(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C>
REVENUES
Advertising........................................... $ 179,931 $ 184,243
Circulation........................................... 34,180 37,835
Other................................................. 8,288 5,942
----------- -----------
TOTAL REVENUES..................................... 222,399 228,020
COSTS AND EXPENSES
Cost of sales......................................... 82,742 81,817
Selling, general and administrative................... 103,144 102,097
Depreciation and amortization......................... 15,444 15,507
Interest expense...................................... 18,518 18,815
Other (net)........................................... 1,385 581
----------- -----------
TOTAL COSTS AND EXPENSES........................... 221,233 218,817
EQUITY INCOME IN JOA..................................... 441 810
GAIN ON SALE OF NEWSPAPER PROPERTIES..................... -- 3,323
MINORITY INTEREST........................................ 7,349 9,508
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES........................ (5,742) 3,828
INCOME TAX BENEFIT (EXPENSE)............................. 1,200 (330)
----------- -----------
NET INCOME (LOSS)........................................ $ (4,542) $ 3,498
=========== ===========
NET INCOME (LOSS) PER COMMON SHARE:
Net income (loss) per common share.................... $ (1.98) $ 1.51
=========== ===========
Weighted average number of shares outstanding......... 2,298,346 2,314,346
=========== ===========
</TABLE>
See notes to unaudited condensed consolidated financial statements
8
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MEDIANEWS GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
RESTATED
2000 1999
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ..................................................... $ (4,542) $ 3,498
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization ....................................... 15,444 15,507
Provision for losses on accounts receivable ......................... 2,364 2,968
Amortization of debt discount ....................................... 855 1,031
Net gain on sale of newspaper assets ................................ (2) (3,298)
Equity income in JOA ................................................ (441) (810)
Change in defined benefit plan assets ............................... (602) (585)
Deferred income tax benefit ......................................... (2,900) (253)
Minority interest ................................................... 7,349 9,508
Change in operating assets and liabilities .......................... (14,917) (8,801)
--------- ---------
NET CASH FLOWS FROM OPERATING ACTIVITIES ......................... 2,608 18,765
CASH FLOWS FROM INVESTING ACTIVITIES:
Distributions from equity investment in JOA ......................... 300 775
Sale of newspaper properties ........................................ -- 8,000
Cash acquired in acquisition ........................................ -- 856
Purchase of machinery and equipment (net) ........................... (5,458) (4,442)
--------- ---------
NET CASH FLOWS FROM INVESTING ACTIVITIES ......................... (5,158) 5,189
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt .......................................... 18,993 10,365
Reduction of long-term debt and other liabilities ................... (8,584) (12,905)
Distributions paid to minority interest ............................. (6,700) (4,591)
--------- ---------
NET CASH FLOWS FROM FINANCING ACTIVITIES ......................... 3,709 (7,131)
CHANGE IN CASH AND CASH EQUIVALENTS ..................................... 1,159 16,823
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ........................ 144,632 4,745
========= =========
CASH AND CASH EQUIVALENTS AT END OF PERIOD .............................. $ 145,791 $ 21,568
========= =========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid ....................................................... $ 16,871 $ 10,106
========= =========
Income taxes paid ................................................... $ 2,929 $ 41
========= =========
</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: SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS
Basis of Quarterly Financial Statements
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulations S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
consolidated financial statements and should be read in conjunction with the
consolidated financial statements and footnotes thereto included in MediaNews
Group, Inc.'s ("MediaNews") Annual Report on Form 10-K for the year ended June
30, 2000. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three month period ended September 30, 2000,
are not necessarily indicative of the results that may be expected for the year
ended June 30, 2001.
Joint Operating Agencies
York Newspaper, Inc. and Charleston Publishing Company, subsidiaries of
the Company, participate in joint operating agencies in York, PA and
Charleston, WV, respectively. A joint operating agency performs the production,
sales, distribution and administrative functions for two or more newspapers in
the same market under the terms of a joint operating agreement ("JOA").
Editorial control of the newspapers continues to be separate and outside of a
joint operating agency. The Company had previously included in its consolidated
financial statements, its pro-rata share of the revenues and expenses generated
by the operations of its JOA's on a line-by-line basis, in addition to the
editorial expenses related to its newspapers operated under the JOA. However,
the Financial Accounting Standards Board issued EITF 00-1, (Balance Sheet and
Income Statement Display under the Equity Method of Investments in Certain
Partnerships and Other Unincorporated Joint Ventures) effective for periods
ending after June 15, 2000, which prohibits the use of pro-rata consolidation
except in the extractive and constructive industries. EITF 00-1 also requires
that all previously reported financial statements be reclassified to conform
with the current presentation. York Newspapers, Inc. has a controlling interest
in the York JOA and, accordingly, the September 30, 1999 financial statements
have been restated to consolidate the results of the York JOA with those of the
Company. The September 30, 1999 financial statements have also been restated to
reflect the Company's investment in the Charleston JOA under the equity method
of accounting. See Note 3 of the June 30, 2000 Notes to Consolidated Financial
Statements for additional discussion.
Change in Accounting Principle
As of July 1, 1998, the Company adopted Statement of Financial Accounting
Standards SFAS No. 130, (Reporting Comprehensive Income). SFAS No. 130 requires
the disclosure of comprehensive income, which includes, in addition to net
income, other comprehensive income consisting of unrealized gains and losses,
which are not previously included in the traditional income statement. While
the Company adopted SFAS No. 130 on July 1, 1998, it did not have any items of
comprehensive income until it adopted SFAS No. 133 (Accounting for Derivative
Instruments and Hedging Activities) on July 1, 2000. Under SFAS No. 133, the
Company's newsprint forward contracts are recorded at fair value and changes in
the value of the contract net of income taxes is reported in comprehensive
income. For purposes of calculating income taxes related to comprehensive
income, the Company uses its combined statutory rate for federal and state
income taxes. Newsprint consumed under these contracts is reflected in retained
earnings in the period of use. The Company has restated the prior period
financial statements, presented herein, to conform with the current
presentation. A reconciliation of net income (loss) to comprehensive income
(loss) is as follows:
<TABLE>
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THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------
2000 1999
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Net income (loss), as reported .................... $(4,542) $ 3,498
Other comprehensive income (loss), net of taxes ... (179) 893
------- -------
Total comprehensive income (loss) .............. $(4,721) $ 4,391
======= =======
</TABLE>
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NOTE 1: SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS (CONTINUED)
Reclassification
Certain balances for the quarter ended September 30, 1999 have been
restated to conform with current classification.
Income Taxes
The effective income tax rate varies from the federal statutory rate
primarily because of the non-deductibility 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.
NOTE 2: LONG TERM DEBT
The following table sets forth the approximate expected scheduled
maturities of long-term debt of the Company for the fiscal years indicated,
excluding capital leases and the impact of the acquisitions and dispositions
described in Note 3, Recent Events, (in thousands):
<TABLE>
<S> <C>
2001............ $ 9,201
2002............ 8,597
2003............ 7,698
2004............ 54,178
2005............ 107,075
Thereafter...... 645,631
--------
$ 832,380
</TABLE>
The acquisition and disposition transactions described in Note 4 increased
the Company's long-term debt by a net of $24.7 million subsequent to September
30, 2000.
NOTE 3: RECENT EVENTS
Business Acquisition
Effective October 1, 2000, the Company acquired substantially all of the
assets used in the publication of the Connecticut Post, a morning newspaper
published in Bridgeport, Connecticut, for approximately $200.0 million in cash,
net of working capital. The newspaper has daily and Sunday paid circulation of
approximately 79,000 and 90,000, respectively. Proceeds of approximately $145.0
million from the sale of newspapers on June 30, 2000 and borrowing under the
Company's bank credit facility were used to fund the acquisition.
Effective October 1, 2000, the Company acquired substantially all of the
assets used in the publication of Breckenridge American, a bi-weekly newspaper
and radio stations, KLXK and KROO, located in Breckenridge, Texas for
approximately $1.0 million in cash.
Effective October 1, 2000, Gannett contributed the Independent Journal,
published in Marin, California, to the California Newspapers Partnership.
Effective with the contribution, MediaNews, Donrey and Gannett's interest in
the California Newspapers Partnership were adjusted to 54.23%, 26.28% and
19.49%, respectively. Prior to the contribution, MediaNews held a 58.5%
interest in the partnership. The Independent Journal will be operated in
conjunction with the ANG Newspaper Group.
11
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MEDIANEWS GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3: RECENT EVENTS (CONTINUED)
These acquisitions will be accounted for as purchases; accordingly, the
Consolidated Financial Statements will include the operations of the
acquisitions from the date of acquisition.
Disposition
Effective October 31, 2000, the Company sold substantially all the assets
used in the publication of the Daily Nonpareil, in Council Bluffs, Iowa and the
related daily and weekly newspapers located in the Southwestern Iowa cluster,
in exchange for $32.0 million in cash and substantially all the assets of the
Current-Argus, a daily newspaper located in Carlsbad, New Mexico, plus
adjustments for working capital. The Current-Argus has daily and Sunday
circulation of approximately 8,400 and 8,700, respectively. The sale resulted
in an estimated pre tax gain of approximately $24.7 million.
12
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OPERATING RESULTS
Set forth below is certain summary historical financial data for quarter ended
September 30, 2000 and 1999, including the percentage change between quarters.
SUMMARY HISTORICAL FINANCIAL DATA
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MEDIANEWS GROUP, INC. & SUBSIDIARIES
--------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------------------
2000 1999 2000 VS. 1999
--------- --------- -------------
<S> <C> <C> <C>
Total Revenues ....................... $ 222,399 $ 228,020 (2.5)%
Cost of Sales ........................ 82,742 81,817 1.1
Selling, General and Administrative... 103,144 102,097 1.0
Depreciation and Amortization ........ 15,444 15,507 (0.4)
Interest Expense ..................... 18,518 18,815 (1.6)
Other ................................ 1,385 581 138.4
--------- --------- -------
Total Costs and Expenses .......... 221,233 218,817 1.1
Equity income in JOA ................. 441 810 (45.6)
Net Income (Loss) .................... $ (4,542) $ 3,498 (229.8)%
========= ========= =======
</TABLE>
SUMMARY SUPPLEMENTAL PRO FORMA FINANCIAL DATA
The following summary supplemental pro forma financial data presents
the results of operations of our investments in the York Newspapers Company and
the Charleston Newspapers, both operated under JOA's, using pro-rata
consolidation for all periods presented. Prior to the Financial Accounting
Standards Board issuing EITF 00-1, we presented the results of our JOA
interests using pro-rata consolidation. See Note 1 of the Unaudited Condensed
Consolidated Financial Statements for additional discussion.
THE INFORMATION IN THE FOLLOWING TABLE IS NOT PRESENTED IN ACCORDANCE WITH
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND DOES NOT COMPLY WITH ARTICLE 11 OF
REGULATION S-X
<TABLE>
<CAPTION>
MEDIANEWS GROUP, INC. & SUBSIDIARIES
------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30,
------------------------------------------
2000 1999 2000 VS. 1999
--------- --------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Total Revenues ....................... $ 222,508 $ 228,368 (2.6)%
Cost of Sales ........................ 83,529 82,525 1.2
Selling, General and Administrative... 103,573 102,388 1.2
Depreciation and Amortization ........ 15,622 15,568 0.3
Interest Expense ..................... 18,449 18,750 (1.6)
Other ................................ 1,471 885 66.2
--------- --------- ----
Total Costs and Expenses .......... 222,644 220,116 1.1
Net Income (Loss) .................... $ (4,542) $ 3,498 (229.8)%
========= ========= ====
</TABLE>
13
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Three Months Ended September 30, 2000 and 1999
Revenues
Revenues decreased $5.6 million or 2.5% in the first quarter of fiscal
year 2001 as compared to the same quarter of fiscal year 2000. The decrease in
revenue was primarily attributable to the June 30, 2000, sale of the
Express-Times, the Gloucester County Times, Today's Sunbeam, The Bridgeton News
and the North Jersey Weekly Newspaper Group. Excluding newspaper dispositions,
the Company's remaining newspaper operations ("existing newspapers") posted a
$7.1 million or 3.3% increase in operating revenues for the first quarter of
fiscal year 2001. National and classified revenues at the existing newspapers
increased by 8.0% and 7.5%, respectively. However, these increases were offset
in part by a 1.5% decrease in retail advertising. The Company's Southern
California newspapers experienced the majority of the retail advertising
decrease, which was largely due to decreases in spending by the entertainment
industry in promoting films. The Company's internet revenue increased $1.0
million, while circulation revenue declined $1.3 million. Circulation revenue
decreased as a result of the Company selling a larger number of discount
subscriptions in order to grow circulation volumes.
Cost of Sales
Cost of sales increased $0.9 million or 1.1% in the first quarter of
fiscal year 2001 compared to the same quarter of fiscal year 2000. Excluding
the aforementioned dispositions the cost of sales increased 5.9%. The majority
of this increase in cost of sales was caused by newsprint price increases.
Excluding newspaper dispositions, newsprint consumption for the quarter ended
September 30, 2000 and 1999 was flat, while the average cost per ton of
newsprint consumed during these same periods increased approximately 9%.
Selling, General and Administrative
Selling, general and administrative ("SG&A") expenses increased $1.1
million or 1.0% in the first quarter of fiscal year 2001 as compared to the
same quarter of fiscal year 2000. Excluding the aforementioned dispositions,
SG&A expense increased 7.4% in the first quarter of fiscal year 2001. The
increase in SG&A is primarily associated with increased circulation delivery
and order solicitation expenses at the Denver Post. Daily and Sunday
circulation at the Denver Post for the quarter ended September 30, 2000,
compared to the same period for the prior year, increased 9.9% and 12.2%,
respectively.
Other Expense
Other expense increased approximately $0.8 million in the first quarter of
fiscal year 2001 as compared to the same quarter of fiscal year 2000. The
majority of the increase is due to increases in the Company's equity losses in
its investment in AdOne and one time spending associated with the Denver
Newspaper Agency ("DNA") planning. DNA expenses primarily related to transition
team payroll and consulting expenses related to integration planning.
EBITDA
EBITDA adjusted for minority interest decreased $7.4 million or 21.9%. The
majority of the decrease was due to the aforementioned dispositions, increases
in operating expenses at The Denver Post in conjunction with the pending JOA
transaction and increased newsprint prices. The negative impacted of the
dispositions discussed above is expected to reverse in the second quarter of
fiscal year 2001 as annual EBITDA of the Connecticut Post (acquired October 1,
2000) is expected to substantially exceed the EBITDA of the aforementioned
dispositions. Excluding the Denver Post, the Company's remaining newspapers
EBITDA was flat with the same quarter of the prior year. EBITDA represents total
revenues less cost of sales and selling, general and administrative expense.
Although EBITDA is not a measure of performance calculated in accordance with
GAAP, the Company believes that EBITDA is an indicator and measurement of its
leverage capacity and debt service ability.
Net Income
MediaNews Group recorded a loss of approximately $4.5 million in the first
quarter of fiscal year 2001 compared to an adjusted net income of $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. The
decrease in adjusted net income is primarily attributable to a $8.0 million
decrease in operating profit resulting from the aforementioned dispositions and
strategic spending at the Denver
14
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Three Months Ended September 30, 2000 and 1999 (continued)
Post. These declines were partially offset by a $1.5 million reduction in
income tax expense. Also contributing to the decrease in net income was the
negative arbitrage on the approximately $145.0 million of cash from the
aforementioned disposition transaction, which was held in trust in the first
quarter of fiscal year 2001, awaiting reinvestment in the Connecticut Post to
complete the tax deferred exchange of newspapers.
FINANCIAL CONDITION AND LIQUIDITY
Net cash flows from operating activities were approximately $2.6 million
and $18.8 million for the three months ended September 30, 2000 and 1999,
respectively. The $16.2 million decrease in cash flow from operating activities
was primarily the result of the $7.4 million decrease in EBITDA, adjusted for
minority interests, for the three months ended September 30, 2000, compared to
the same period of the prior year, combined with a $6.1 million change in
operating assets and liabilities due to timing differences.
Net cash flows from investing activities were ($5.2) million and $5.2
million for the three months ended September 30, 2000 and 1999, respectively.
The $10.4 million decrease was primarily the result of a $8.0 million decrease
in proceeds from the sale of newspapers combined with increased spending of $1.0
million on purchases of machinery and equipment. In fiscal year 2001 the
majority of the increase in capital spending is in conjunction with the pending
JOA in Denver.
Net cash flows from financing activities were $3.7 million and ($7.1)
million for the three months ended September 30, 2000 and 1999, respectively.
The change of approximately $10.8 million was primarily attributable to the
Company paying down a net $10.4 million of long-term debt in the first three
months of fiscal 2001, compared to borrowing of $2.5 million in fiscal 2000.
The $1.2 million increase in distributions to minority interest 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. As of the date of this report, MediaNews has approximately $65.0
million available for future borrowings under its bank credit agreement, net of
approximately $2.5 million in outstanding letters of credit, which should be
more than sufficient to fund unanticipated capital needs or other cash
requirements should they arise.
NEAR TERM OUTLOOK
Newsprint Prices
Effective September 1, 2000, North American newsprint suppliers increased
the price of 30 pound newsprint by $50 per metric ton. Currently, North American
30 pound newsprint is averaging $610 per metric ton for large newsprint buyers.
To minimize the influence of newsprint price fluctuations, MediaNews has entered
into fixed price newsprint contracts and newsprint Swap agreements. The weighted
average price for newsprint under both the fixed price newsprint contracts and
the newsprint swap, for fiscal 2001, is $563 per metric ton. Approximately 49%
of our fiscal year 2001 consumption is expected to be purchased under these
contracts.
15
<PAGE> 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
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<S> <C>
27 Financial Data Schedule
</TABLE>
