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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 December 31, 2002
     
    OR
     
o   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
(State or other Jurisdiction of
Incorporation or organization)
  76-0425553
(I.R.S. Employer
Identification Number)
     
1560 Broadway
Denver, Colorado
(Address of principal executive offices)
  80202
(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 o



 


TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
ITEM 4: CONTROLS AND PROCEDURES
PART II — OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
ITEM 2: CHANGES IN SECURITIES
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5: OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
CERTIFICATIONS
EX-99.1 Certification Pursuant to 18 USC Sec. 1350
EX-99.2 Certification Pursuant to 18 USC Sec. 1350


Table of Contents

INDEX TO MEDIANEWS GROUP, INC.
REPORT ON FORM 10-Q FOR THE QUARTER ENDED
DECEMBER 31, 2002

                     
Item No.           Page

         
       
PART I — FINANCIAL INFORMATION
       
  1    
Financial Statements
    3  
  2    
Management’s Discussion and Analysis of Financial Condition and Results of Operations
    3  
  3    
Quantitative and Qualitative Disclosure of Market Risk
    3  
  4    
Controls and Procedures
    3  
       
PART II — OTHER INFORMATION
       
  1    
Legal Proceedings
    4  
  2    
Changes in Securities
    4  
  3    
Defaults Upon Senior Securities
    4  
  4    
Submission of Matters to a Vote of Security Holders
    4  
  5    
Other Information
    4  
  6    
Exhibits and Reports on Form 8-K
    4  

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PART I – FINANCIAL INFORMATION

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 9 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 9 of this Form 10-Q.

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK

The information required by this item is filed as part of this Form 10-Q. See Index to Financial Information on page 9 of this Form 10-Q.

ITEM 4: CONTROLS AND PROCEDURES

Within 90 days prior to the date of this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer, President, and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934. Based upon that evaluation, the Chief Executive Officer, President, and Chief Financial Officer concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms. We have determined that there have been no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to our most recent evaluation.

The Company’s management, including the CEO, President, and CFO, does not expect that our disclosure controls or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons or by collusion of two or more people. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

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PART II – OTHER INFORMATION

ITEM 1: LEGAL PROCEEDINGS

The information required by this item is filed as part of this Form 10-Q as Note 7 of the Notes to Unaudited Condensed Consolidated Financial Statements. See Index to Financial Information on page 9 of this Form 10-Q.

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.

ITEM 5: OTHER INFORMATION

None.

ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K

Exhibits

99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Reports on Form 8-K

There were no reports on Form 8-K during the quarter for which this report is filed.

 
FORWARD-LOOKING STATEMENTS

Certain statements contained herein and elsewhere in this report are forward-looking statements that are based on our current expectations. Such statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The terms “expect,” “anticipate,” “intend,” “believe,” and “project” and similar words or expressions are intended to identify forward-looking statements. These statements speak only as of the date of this report. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results and events to differ materially from those anticipated and should be viewed with caution. Potential risks and uncertainties that could adversely affect our ability to obtain these results, which in most instances are beyond our control, include, without limitation, the following factors: (a) increased consolidation among major retailers, bankruptcy or other events that may adversely affect business operations of major customers and depress the level of local and national advertising, (b) an economic downturn in some or all of our principal newspaper markets that may lead to decreased circulation or decreased local or national advertising, (c) a decline in general newspaper readership patterns as a result of competitive alternative media or other factors, (d) increases in newsprint costs over the level anticipated, (e) labor disputes which may cause revenue declines or increased labor costs, (f) acquisitions of new businesses or dispositions of existing businesses, (g) costs or difficulties related to the integration of businesses acquired by us may be greater than expected, (h) increases in interest or financing costs, (i) rapid technological changes and frequent new product introductions prevalent in electronic publishing, including the evolution of the Internet and (j) other unanticipated events and conditions. It is not possible to foresee or identify all such factors. We make no commitment to update any forward-looking statement or to disclose any facts, events, or circumstances after the date hereof that may affect the accuracy of any forward-looking statements.

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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:   February 12, 2003   By:   /s/ Ronald A. Mayo
   
     
            Ronald A. Mayo
Vice President,
Chief Financial Officer and
Duly Authorized Officer of Registrant

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CERTIFICATIONS

I, William Dean Singleton, certify that:

1. I have reviewed this quarterly report on Form 10-Q of MediaNews Group, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: February 12, 2003

 
/S/ William Dean Singleton

(William Dean Singleton)
Vice Chairman, Chief Executive Officer and Director

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CERTIFICATIONS

I, Joseph J. Lodovic, IV, certify that:

1. I have reviewed this quarterly report on Form 10-Q of MediaNews Group, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: February 12, 2003

 
/S/ Joseph J. Lodovic, IV

(Joseph J. Lodovic, IV)
President

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CERTIFICATIONS

I, Ronald A. Mayo, certify that:

1. I have reviewed this quarterly report on Form 10-Q of MediaNews Group, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: February 12, 2003

 
/S/ Ronald A. Mayo

(Ronald A. Mayo)
Vice President and Chief Financial Officer

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MEDIANEWS GROUP, INC.
Index to Financial Information

           
      Page
     
Item 1: Financial Statements:
       
 
Condensed Consolidated Balance Sheets
    10  
 
Unaudited Condensed Consolidated Statements of Operations
    12  
 
Unaudited Condensed Consolidated Statements of Cash Flows
    13  
 
Notes to Unaudited Condensed Consolidated Financial Statements
    14  
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations
    22  
Item 3: Quantitative and Qualitative Disclosure of Market Risk
    29  

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MEDIANEWS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

                   
      (Unaudited)        
      December 31,   June 30,
ASSETS   2002   2002

 
 
      (In thousands)
CURRENT ASSETS
               
Cash and cash equivalents
  $ 5,338     $ 2,029  
Accounts receivable, less allowance for doubtful accounts of $10,638 at December 31, 2002 and $10,669 at June 30, 2002
    90,039       79,008  
Inventories of newsprint and supplies
    12,753       10,205  
Prepaid expenses and other assets
    6,495       7,760  
Income taxes receivable
    4,316       6,137  
 
   
     
 
 
TOTAL CURRENT ASSETS
    118,941       105,139  
PROPERTY, PLANT AND EQUIPMENT
               
Land
    38,525       37,225  
Buildings and improvements
    106,196       103,915  
Machinery and equipment
    315,693       306,630  
 
   
     
 
 
TOTAL PROPERTY, PLANT AND EQUIPMENT
    460,414       447,770  
Less accumulated depreciation and amortization
    156,380       144,418  
 
   
     
 
 
NET PROPERTY, PLANT AND EQUIPMENT
    304,034       303,352  
OTHER ASSETS
               
Investment in unconsolidated JOAs
    234,009       244,549  
Subscriber accounts, less accumulated amortization of $121,836 at December 31, 2002 and $112,595 at June 30, 2002
    96,399       98,303  
Excess of cost over fair value of net assets acquired
    408,714       381,945  
Newspaper mastheads
    147,037       145,282  
Covenants not to compete and other identifiable intangible assets, less accumulated amortization of $34,451 at December 31, 2002 and $33,581 at June 30, 2002
    5,887       5,415  
Other
    39,942       39,199  
 
   
     
 
 
TOTAL OTHER ASSETS
    931,988       914,693  
 
TOTAL ASSETS
  $ 1,354,963     $ 1,323,184  
 
   
     
 

See notes to unaudited condensed consolidated financial statements

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MEDIANEWS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

                   
      (Unaudited)        
      December 31,   June 30,
LIABILITIES AND SHAREHOLDERS' EQUITY   2002   2002

 
 
      (In thousands, except share data)
CURRENT LIABILITIES
               
Trade accounts payable
  $ 8,199     $ 12,417  
Accrued liabilities
    58,709       65,332  
Unearned income
    21,184       21,085  
Current portion of long-term debt and obligations under capital leases
    3,121       7,707  
 
   
     
 
 
TOTAL CURRENT LIABILITIES
    91,213       106,541  
LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES
    945,780       949,383  
OTHER LIABILITIES
    29,836       30,462  
DEFERRED INCOME TAXES
    66,832       56,290  
MINORITY INTEREST
    178,452       156,007  
SHAREHOLDERS’ EQUITY
               
Common stock, par value $0.001; 3,000,000 shares authorized, 2,314,346 shares issued and 2,298,346 shares outstanding
    2       2  
Additional paid-in capital
    3,631       3,631  
Accumulated other comprehensive loss, net of taxes
    (14,983 )     (14,030 )
Retained earnings
    56,200       36,898  
Common stock in treasury, at cost, 16,000 shares
    (2,000 )     (2,000 )
 
   
     
 
 
TOTAL SHAREHOLDERS’ EQUITY
    42,850       24,501  
 
   
     
 
 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
  $ 1,354,963     $ 1,323,184  
 
   
     
 

See notes to unaudited condensed consolidated financial statements

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MEDIANEWS GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                                     
        Three Months Ended   Six Months Ended
        December 31,   December 31,
       
 
        2002   2001   2002   2001
       
 
 
 
        (In thousands, except share data)  
REVENUES
                               
 
Advertising
  $ 150,294     $ 139,885     $ 285,113     $ 274,770  
 
Circulation
    35,335       34,830       70,080       70,486  
 
Other
    9,645       8,765       19,713       17,395  
 
 
   
     
     
     
 
   
TOTAL REVENUES
    195,274       183,480       374,906       362,651  
COSTS AND EXPENSES
                               
 
Cost of sales
    63,754       65,432       124,714       130,592  
 
Selling, general and administrative
    90,001       80,819       176,900       163,932  
 
Depreciation and amortization
    11,685       13,434       22,356       26,035  
 
Interest expense
    16,475       19,145       33,470       39,507  
 
Other (income) expense, net
    2,806       2,303       1,028       3,559  
 
 
   
     
     
     
 
   
TOTAL COSTS AND EXPENSES
    184,721       181,133       358,468       363,625  
EQUITY INCOME IN UNCONSOLIDATED JOAS
    21,230       11,896       35,810       22,838  
MINORITY INTEREST
    (11,811 )     (9,788 )     (20,277 )     (17,637 )
 
 
   
     
     
     
 
NET INCOME BEFORE TAXES
    19,972       4,455       31,971       4,227  
INCOME TAX EXPENSE
    (7,792 )     (1,976 )     (12,669 )     (1,876 )
 
 
   
     
     
     
 
NET INCOME
  $ 12,180     $ 2,479     $ 19,302     $ 2,351  
NET INCOME PER COMMON SHARE:
                               
 
Net income per common share
  $ 5.30     $ 1.08     $ 8.40     $ 1.02  
 
 
   
     
     
     
 
 
Weighted average number of shares outstanding
    2,298,346       2,298,346       2,298,346       2,298,346  
 
 
   
     
     
     
 

See notes to unaudited condensed consolidated financial statements

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MEDIANEWS GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                         
            Six Months Ended December 31,
           
            2002   2001
           
 
            (In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
               
 
Net income
  $ 19,302     $ 2,351  
 
Adjustments to reconcile net income to net cash flows from operating activities:
               
     
Depreciation and amortization
    22,356       26,035  
     
Provision for losses on accounts receivable
    4,765       4,027  
     
Amortization of debt discount
    1,056       1,384  
     
Gain on sale of assets
    (1,284 )     (1,354 )
     
Equity income in unconsolidated JOAs
    (35,810 )     (22,838 )
     
Equity (income) losses in non-JOA equity investments
    (768 )     842  
     
Change in defined benefit plan assets
    73       (326 )
     
Deferred income tax expense
    11,531       1,766  
     
Minority interest
    20,277       17,637  
     
Unrealized loss on hedging activities, reclassified to earnings from accumulated other comprehensive loss
    441        
     
Unrealized gain on interest rate swaps
    (1,864 )      
 
Change in operating assets and liabilities
    (21,893 )     (2,146 )
 
 
   
     
 
       
NET CASH FLOWS FROM OPERATING ACTIVITIES
    18,182       27,378  
CASH FLOWS FROM INVESTING ACTIVITIES:
               
 
Distributions from unconsolidated JOAs
    40,752       14,549  
 
Distributions from non-JOA equity investments
    441       385  
 
Investments in non-JOA equity investments
    (1,000 )     (1,230 )
 
Business acquisitions
    (40,424 )      
 
Cash contributed by partners for business acquisitions
    18,457        
 
Purchases of machinery and equipment
    (8,643 )     (6,220 )
 
Proceeds from the sale of assets
    1,232       2,482  
 
 
   
     
 
   
NET CASH FLOWS FROM INVESTING ACTIVITIES
    10,815       9,966  
CASH FLOWS FROM FINANCING ACTIVITIES:
               
 
Issuance of long-term debt
    48,015       49,103  
 
Reduction of long-term debt and other liabilities
    (57,935 )     (64,686 )
 
Distributions paid to minority interest
    (15,768 )     (21,116 )
 
 
   
     
 
   
NET CASH FLOWS FROM FINANCING ACTIVITIES
    (25,688 )     (36,699 )
INCREASE IN CASH AND CASH EQUIVALENTS
    3,309       645  
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    2,029       7,149