SECURITIES AND EXCHANGE COMMISSION
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.
| 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) |
Registrants 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
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 | Managements 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 | ||||||||
2
| 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: MANAGEMENTS 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 Companys 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.
3
| 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.
4
| 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 |
5
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 registrants 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 registrants 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 registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrants 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 registrants ability to record, process, summarize and report financial data and have identified for the registrants 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 registrants internal controls; and
6. The registrants 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 |
6
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 registrants 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 registrants 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 registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrants 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 registrants ability to record, process, summarize and report financial data and have identified for the registrants 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 registrants internal controls; and
6. The registrants 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 |
7
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 registrants 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 registrants 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 registrants other certifying officers and I have disclosed, based on our most recent evaluation, to the registrants auditors and the audit committee of registrants 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 registrants ability to record, process, summarize and report financial data and have identified for the registrants 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 registrants internal controls; and
6. The registrants 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 |
8
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: Managements Discussion and Analysis of Financial Condition and
Results of Operations |
22 | ||||
Item 3: Quantitative and Qualitative Disclosure of Market Risk |
29 | ||||
9
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
10
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
11
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
12
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 | ||||||||||