Registration of Securities Issued in a Business-Combination Transaction — Form S-4
Filing Table of Contents
Document/Exhibit Description Pages Size
1: S-4 Registration of Securities Issued in a 145 919K
Business-Combination Transaction
2: EX-5.1 Opinion of Hughes Hubbard & Reed LLP 2 11K
3: EX-23.1 Consent of Independent Auditors of Medianews 1 5K
4: EX-25.1 Statement of Eligibility of Trustee 7 21K
5: EX-99.1 Letter of Transmittal 13 69K
6: EX-99.2 Offer to Exchange 2 10K
7: EX-99.3 Offer to Exchange 2 12K
8: EX-99.4 Notice of Guaranteed Delivery 3 11K
S-4 — Registration of Securities Issued in a Business-Combination Transaction
Document Table of Contents
REGISTRATION NO. 333-_______
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
-----------------
MEDIANEWS GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 2711 76-0425553
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identification Number)
incorporation or Code Number)
organization)
1560 Broadway, Suite 2100
Denver, Colorado 80202
(303) 563-6360
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
Ronald A. Mayo
Vice President and Chief Financial Officer
MediaNews Group, Inc.
1560 Broadway, Suite 2100
Denver, Colorado 80202
(303) 563-6464
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
COPIES OF CORRESPONDENCE TO:
James Modlin, Esq.
Hughes Hubbard & Reed LLP
One Battery Park Plaza
New York, New York 10004-1482
(212) 837-6000
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. |_|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
CALCULATION OF REGISTRATION FEE
[Enlarge/Download Table]
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TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES AMOUNT OFFERING PRICE AGGREGATE OFFERING REGISTRATION
TO BE REGISTERED TO BE REGISTERED PER UNIT<F1> OFFERING PRICE FEE
-------------------------- ---------------- ---------------- ------------------ ------------
6 3/8% Senior Subordinated
Notes due 2014 $150,000,000 100% $150,000,000 $19,005
----------
<FN>
<F1>Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457(f)(2) under the Securities Act
of 1933.
</FN>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and is not soliciting an offer to buy these
securities in any state where the offer or sale is not permited.
SUBJECT TO COMPLETION, DATED , 2004
PROSPECTUS
$150,000,000
MEDIANEWS GROUP, INC.
OFFER TO EXCHANGE
6 3/8% SENIOR SUBORDINATED NOTES DUE 2014
THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR
6 3/8% SENIOR SUBORDINATED NOTES DUE 2014
($150,000,000 AGGREGATE PRINCIPAL AMOUNT ISSUED JANUARY 26, 2004)
We are offering to issue the registered 6 3/8% Senior Subordinated Notes
due 2014 to satisfy our obligations contained in the registration rights
agreement entered into when the unregistered 6 3/8% Senior Subordinated Notes
due 2014 were sold in transactions exempt from, or not subject to, registration
under the Securities Act of 1933.
The terms of the registered notes, also referred to as the exchange notes,
will be substantially identical to the terms of the unregistered notes, except
that the issuance of the exchange notes will be registered under the Securities
Act of 1933 and the transfer restrictions, registration rights and provisions
for additional interest relating to the unregistered notes will not apply to the
exchange notes.
The exchange notes will mature on April 1, 2014. We will pay interest on
the exchange notes on January 1 and July 1 of each year. We may redeem the
exchange notes at any time on or after October 1, 2008. In addition, until
October 1, 2006 we may redeem up to 35% of the exchange notes with the net
proceeds of one or more qualified equity offerings. If we undergo a change of
control or sell certain of our assets, we may be required to offer to purchase
exchange notes from holders. The exchange notes will be unsecured and
subordinated to all of our existing and future senior debt.
There is no existing market for the exchange notes. The exchange notes will
not be listed on any national securities exchange.
The exchange of unregistered notes will not be a taxable event for U.S.
federal income tax purposes.
Unregistered notes may be tendered only in integral multiples of $1,000.
You may withdraw a tender of unregistered notes at any time prior to the
expiration of the exchange offer. All unregistered notes that are validly
tendered and not validly withdrawn will be exchanged. The exchange offer is
subject to customary conditions, including the condition that the exchange offer
not violate applicable law or any applicable interpretation of the staff of the
Securities and Exchange Commission.
The exchange offer expires at 5:00 p.m., New York City time, on ,
2004, unless the exchange offer is extended.
THE EXCHANGE NOTES AND THE EXCHANGE OFFER INVOLVE RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE 10.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------------------
THE DATE OF THIS PROSPECTUS IS , 2004.
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TABLE OF CONTENTS
PAGE
Prospectus Summary.............................................................1
Risk Factors..................................................................10
Use of Proceeds...............................................................16
Capitalization................................................................17
Selected Consolidated Financial Data..........................................18
Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................................21
Business......................................................................44
Management....................................................................53
Description of Other Obligations..............................................59
The Exchange Offer............................................................63
Description of Exchange Notes.................................................72
Book-Entry; Delivery and Form.................................................92
Plan of Distribution..........................................................94
Certain United States Federal Income Tax Considerations.......................95
Legal Matters.................................................................96
Experts.......................................................................97
Index to Consolidated Financial Statements...................................F-1
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to exchange unregistered notes for
exchange notes only in jurisdictions where offers and sales are permitted. The
information contained in this prospectus is accurate only as of the date of this
prospectus, regardless of the time of delivery of this prospectus or of any sale
of exchange notes.
EACH BROKER-DEALER THAT RECEIVES EXCHANGE NOTES FOR ITS OWN ACCOUNT
PURSUANT TO THE EXCHANGE OFFER MUST ACKNOWLEDGE THAT IT WILL DELIVER A
PROSPECTUS IN CONNECTION WITH ANY RESALE OF EXCHANGE NOTES. THE LETTER OF
TRANSMITTAL STATES THAT BY SO ACKNOWLEDGING AND BY DELIVERING A PROSPECTUS, A
BROKER-DEALER WILL NOT BE DEEMED TO ADMIT THAT IT IS AN "UNDERWRITER" WITHIN THE
MEANING OF THE SECURITIES ACT. THIS PROSPECTUS, AS IT MAY BE AMENDED OR
SUPPLEMENTED FROM TIME TO TIME, MAY BE USED BY A HOLDER OF UNREGISTERED NOTES
THAT TENDERS SUCH NOTES IN THE EXCHANGE OFFER AND INDICATES IN ITS LETTER OF
TRANSMITTAL (OR OTHERWISE TO US IN WRITING) THAT IT IS A BROKER-DEALER THAT
ACQUIRED SUCH UNREGISTERED NOTES AS A RESULT OF MARKET MAKING OR OTHER TRADING
ACTIVITIES, IN CONNECTION WITH RESALES OF EXCHANGE NOTES RECEIVED IN EXCHANGE
FOR UNREGISTERED NOTES WHERE THE UNREGISTERED NOTES WERE ACQUIRED BY THE
BROKER-DEALER AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING
ACTIVITIES. WE HAVE AGREED TO FURNISH EACH "PARTICIPATING BROKER-DEALER" (AS
DEFINED BELOW) WHO HAS DELIVERED TO US PROPER NOTICE, WITHOUT CHARGE, AS MANY
COPIES OF THIS PROSPECTUS AS SUCH PARTICIPATING BROKER-DEALER MAY REASONABLY
REQUEST. SEE "PLAN OF DISTRIBUTION."
INDUSTRY DATA
In this prospectus we rely on and refer to information regarding market
data obtained from internal surveys, market research, publicly available
information and industry publications. Although we believe the information is
reliable, we cannot guarantee the accuracy or completeness of the information
and have not independently verified it.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act.
Forward-looking statements contained herein and elsewhere in this prospectus are
based on 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 prospectus. 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, and 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
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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 ongoing 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.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports and other information with
the Commission. You can inspect and copy these reports and other information at
the public reference facilities of the Commission in Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549. You can also obtain copies of these
materials from the public reference section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. Please call the
Commission at 1-800-SEC-0330 for further information on the public reference
rooms. The Commission also maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission (http://www.sec.gov).
In addition, pursuant to the indenture governing the unregistered notes and
the exchange notes, we agree to the extent permitted by the Commission to file
with the Commission and in all events to distribute to the Trustee (as defined)
such annual, quarterly and current reports as are specified in Section 13 or
15(d) of the Securities Exchange Act of 1934, as amended, or the "Exchange Act."
We will do this without regard to whether we are subject to the informational
requirements of the Exchange Act.
We have agreed that, for so long as any unregistered notes remain
outstanding, we will furnish to holders and beneficial owners of our
unregistered notes and to prospective purchasers designated by such holders the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act to permit compliance with Rule 144A in connection with resales of
the unregistered notes.
During the course of this exchange offer and prior to exchange, we invite
each offeree of the exchange notes to ask us questions concerning the terms and
conditions of the exchange offer and to obtain any additional information
necessary to verify the accuracy of the information in this prospectus which is
material to this exchange offer to the extent that we possess such information
or can acquire it without unreasonable effort or expense. You may obtain a copy
of the indenture summarized in this prospectus, without charge, by request
directed to Ronald A. Mayo, at MediaNews Group, Inc., 1560 Broadway, Suite 2100,
Denver, CO 80202, (303) 563-6464.
This prospectus constitutes a part of a registration statement on Form S-4
filed by us with the Securities and Exchange Commission under the Securities
Act. This prospectus omits certain of the information contained in the
registration statement, and reference is hereby made to the registration
statement for further information with respect to us and the securities offered
hereby for exchange. Because the prospectus may not contain all the information
that you may find important, you should review the full text of the indenture,
material contracts and other documents we have included in the registration
statement.
1
PROSPECTUS SUMMARY
IN THIS PROSPECTUS, UNLESS THE CONTEXT OTHERWISE REQUIRES, THE WORDS
"MEDIANEWS," "WE," "OUR," "US" AND "COMPANY" REFER TO MEDIANEWS GROUP, INC., THE
ISSUER OF THE UNREGISTERED NOTES AND THE EXCHANGE NOTES, AND ITS SUBSIDIARIES.
THE FOLLOWING SUMMARY CONTAINS BASIC INFORMATION ABOUT US AND THIS EXCHANGE
OFFER. IT LIKELY DOES NOT CONTAIN ALL THE INFORMATION THAT IS IMPORTANT TO YOU.
FOR A MORE COMPLETE UNDERSTANDING OF THIS EXCHANGE OFFER, WE ENCOURAGE YOU TO
READ THIS ENTIRE DOCUMENT AND THE DOCUMENTS TO WHICH WE HAVE REFERRED YOU.
THE COMPANY
GENERAL
We are one of the largest private newspaper companies in the United States
in terms of daily paid circulation. We control 40 market dominant daily, and
approximately 65 non-daily, newspapers in nine states, including suburban
markets in close proximity to the San Francisco Bay area, Los Angeles, New York,
Baltimore and Boston. We also own metropolitan daily newspapers, in Denver and
Salt Lake City, that operate under joint operating agency agreements. The
newspapers we control had combined daily and Sunday paid circulation of
approximately 1.7 million and 2.3 million, respectively, as of September 30,
2003. In addition, we have a 33.8% interest in a partnership controlled by
Gannett, the largest newspaper company in the United States. This partnership
operates six daily newspapers in Texas and New Mexico with a combined daily
circulation of approximately 130,000.
We have grown primarily through strategic acquisitions, partnerships and,
to a lesser extent, internal growth. One of our key strategies is geographic
clustering. This strategy involves acquiring newspapers or partnering with
newspapers in markets contiguous to those in which we already operate.
Clustering has allowed us to realize substantial revenue synergies and cost
efficiencies, resulting in higher operating cash flow growth at those newspapers
than they would have achieved on a stand-alone basis. We have acquired, or
obtained through partnerships, 22 daily newspapers since the beginning of fiscal
year 1999, and approximately 70 daily newspapers since our inception in 1985.
Our newspapers are generally positioned in markets that have limited
competition for local advertising dollars and in markets that we believe have
above average population and sales growth potential. Our metropolitan newspapers
generate much of their revenues from high margin national and employment
advertising, which is strongly influenced by national and local economic trends.
On the other hand, our suburban newspapers generate the majority of their
revenues from local retail, classified and circulation sales, which we believe
are less affected by national economic trends and therefore tend to provide a
more stable base of operating cash flow.
We also operate, in conjunction with our suburban newspapers, sizeable
weekly newspaper groups that target the diverse communities and advertising
opportunities that exist in and around large cities. In addition to relying on
small local retailers, local classifieds and restaurants for advertising, which
provides a more stable base of operating cash flow, suburban weekly newspapers
allow us to attract a different base of advertisers, improve competitive
positioning, reduce the threat of competition from direct mail and shoppers
(free circulars) and achieve greater household penetration in our newspaper
markets. Our largest suburban weekly newspaper groups operate in conjunction
with our San Francisco Bay area newspapers, Los Angeles Newspapers Group and
CONNECTICUT POST.
Our principal executive offices are located at 1560 Broadway, Suite 2100,
Denver, Colorado 80202, and our telephone number at that address is (303)
563-6360.
INDUSTRY BACKGROUND
Newspapers address the specific needs of the communities they serve by
publishing a broad spectrum of local news as well as special editions that are
targeted to specific advertisers and readers. In most communities, the local
newspaper provides the primary voice for local news and information, including
business, sports, government and social as well as political commentary, making
a newspaper's content attractive to both readers and advertisers. We believe
that a local newspaper's close relationship with its readers and the local
community is one of the primary reasons why newspapers remain a dominant medium
for local advertising, accounting for approximately 41% of all local media
advertising expenditures in the United States in calendar 2002.(1)
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(1) Source: NAA.org Newspaper Association of America 2003 Facts About
Newspapers
2
We believe that newspapers are the last mass medium available for
advertisers to reach a broad spectrum of consumers. In addition, newspapers are
one of the few forms of mass media used by readers for both editorial and
advertising content. Independent studies have shown that 43% of Sunday newspaper
readers value advertising as much as news and editorial content.(2) Readers of
newspapers also tend to be more highly educated and have higher incomes than
non-newspaper readers, with a recent survey showing over 61% of college
graduates and 64% of households with incomes greater than $75,000 reading a
daily newspaper.(1) Because of the desirable demographic and market reach of
daily newspapers, we believe that they represent the most cost-effective means
for advertisers to reach a broad and affluent spectrum of consumers.
With the exception of a few of the largest, most cities in the United
States do not have more than one daily newspaper. In addition, start-ups of
daily newspapers that compete in a meaningful way with existing daily newspapers
are rare.
OPERATING STRENGTHS AND STRATEGIES
Our long-term operating strategy is to increase revenues and operating cash
flows through geographic clustering, partnerships and internal growth. Our
internal growth strategy is built on our key strengths, which include new
revenue streams, local news leadership, circulation growth and prudent cost
controls. We also continue to pursue strategic acquisition opportunities and
drive revenue growth in our Internet operations by leveraging our local content
across a diverse array of advertising categories, including employment,
automotive and other classified verticals.
GEOGRAPHIC CLUSTERS AND PARTNERSHIPS. We pioneered the clustering
concept and have utilized acquisitions, partnerships and joint operating
agencies ("JOAs") to leverage our newspapers' labor, editorial content,
sales resources and production facilities across a broad platform. We
believe this strategy allows us to achieve higher operating margins at our
clustered newspapers than we would realize from those newspapers on a
stand-alone basis.
NEW REVENUE STREAMS. We focus on developing and implementing new
revenue initiatives across all of our newspapers. These initiatives include
niche publications and other strategies that target new advertising
customers. We have also formed strategic alliances, such as a relationship
with a direct mail provider designed to increase our share of the mid-week
preprint and print and delivery business in four of our markets, including
most recently Los Angeles and the San Francisco Bay area. In addition, we
utilize market research, demographic studies, zoning, established local
market penetration and active community involvement to develop and
implement marketing programs that meet the needs of our advertisers and
allow our newspapers to maximize their share of the available advertising
dollars in the market.
LOCAL NEWS LEADERSHIP. We believe that we have assembled the largest
local news gathering resources in our markets and are committed to being
the leading provider of high quality local news in those markets. Our focus
on in-depth local news coverage sets us apart from other news sources in
our markets, contributing to reader loyalty and increasing franchise value.
We regularly receive annual awards from national and/or state newspaper
organizations, recognizing our commitment to high quality news and
editorial content.
CIRCULATION GROWTH. Circulation growth is essential to maintaining and
growing the long-term franchise value at our newspapers. Accordingly, we
have invested and will continue to invest in circulation promotion,
marketing and management incentive programs that are designed to increase
home delivery and single copy sales and readership of our newspapers.
COST CONTROLS. We focus on cost control with a particular emphasis on
managing staffing levels and the related employment costs, as labor
represents one of our largest expenses. To better manage our labor costs,
we invest in state of the art equipment, improving productivity and the
quality of our products. We were the first newspaper company in the United
States to convert all of our newspapers to a 50-inch web width, permanently
reducing the newspaper width and our newsprint consumption by approximately
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(1) Source: NAA.org Newspaper Association of America 2003 Facts About
Newspapers
(2) Source: Scarborough research
3
8%. We also purchase newsprint at a discount to industry indexes as a
result of being one of the largest newspaper companies in the United
States.
LEVERAGE THE INTERNET. MediaNews Group Interactive ("MNGI"), our
Internet subsidiary, provides our newspapers with the tools, technologies
and services that they need to maintain their presence as the leading local
news and information Web site(s) in each of the communities that they
serve. MNGI is zealously focused on leveraging our extensive news gathering
resources and our existing sales infrastructure in both print and
electronic media to increase the profitability of our local media
franchises.
SUPERIOR MANAGEMENT. Our management team has a proven track record of
successfully acquiring, including through partnerships, approximately 70
newspapers that have been successfully integrated into our operations. Our
senior executives have spent the majority of their careers in the newspaper
industry operating, acquiring and integrating newspapers.
STRATEGIC ACQUISITIONS. In the past we have sought to acquire
newspapers that are contiguous to our existing newspapers and that
represent compelling values based on expected operating cash flow growth
from clustering synergies, efficiencies or otherwise. We may from time to
time continue to evaluate and pursue strategic or targeted acquisitions
that meet our strict criteria, including our goal of not increasing our
leverage ratio over the long-term. Leverage ratio is defined as total debt
divided by Adjusted EBITDA Available to Company (as defined).
FINANCING DEVELOPMENTS
On January 26, 2004, we issued $150 million aggregate principal amount of 6
3/8% Senior Subordinated Notes due 2014 in a private placement to initial
purchasers, who resold those notes to qualified institutional buyers under Rule
144A of the Securities Act of 1933. We intend to use the net proceeds from our
offering of the 6 3/8% Notes, cash on hand and borrowings under our bank credit
facility, to finance the repurchase (by tender offer, in the open market or
otherwise) or redemption, no later than August 1, 2004, of all of our $200
million aggregate principal amount 8 5/8% Senior Subordinated Notes due 2011.
The 8 5/8% Senior Subordinated Notes may be redeemed at our election beginning
on July 1, 2004. Pending such purchase or redemption, we used the net proceeds
from our offering of 6 3/8% Notes to reduce outstanding revolving credit
borrowings under our bank credit facility. These 6 3/8% Senior Subordinated
Notes due 2014 are the unregistered notes for which the registered exchange
notes are offered in exchange pursuant to this exchange offer.
On December 30, 2003, we refinanced our former bank credit facility, which
at the time of its replacement had provided for borrowings of up to $485
million. Our new bank credit facility provides for borrowings of up to $600
million, consisting of a $350 million revolving credit facility and a $250
million "term loan B" facility. The final maturity of the revolving credit
facility is December 30, 2009 and the final maturity of the term loan B facility
is December 30, 2010. The new bank credit facility is guaranteed by our
subsidiaries (with certain exceptions). See "Description of Other Obligations -
New Bank Credit Facility."
On November 25, 2003, we issued $300 million aggregate principal amount of
6 7/8% Senior Subordinated Notes due 2013 in a private placement to initial
purchasers, who resold those notes to qualified institutional buyers under Rule
144A of the Securities Act of 1933 and to persons outside of the United States
under Regulation S under the Securities Act of 1933. We used the net proceeds
from the sale of these 6 7/8% Senior Subordinated Notes and other available
funds to repurchase or redeem all of our $300 million aggregate principal amount
8 3/4% Senior Subordinated Notes due 2009. On February 23, 2004, we filed a
registration statement with the Commission in order to register the exchange of
our outstanding 6 7/8% Senior Subordinated Notes for new notes that are
otherwise substantially identical to the outstanding 6 7/8% Senior Subordinated
Notes, except that the transfer restrictions, registration rights and provisions
for additional interest relating to the outstanding 6 7/8% Senior Subordinated
Notes would not apply to the new notes.
4
THE EXCHANGE OFFER
The following is a brief summary of the terms of the exchange offer. For a
more complete description of the terms of the exchange offer, see "The Exchange
Offer" in this prospectus.
WHENEVER WE REFER IN THIS PROSPECTUS TO THE 6 3/8% SENIOR SUBORDINATED
NOTES DUE 2014 ISSUED ON JANUARY 26, 2004, WE WILL REFER TO THEM AS THE
"UNREGISTERED NOTES." WHENEVER WE REFER IN THIS PROSPECTUS TO THE 6 3/8% SENIOR
SUBORDINATED NOTES DUE 2014 THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, WE WILL REFER TO THEM AS THE "EXCHANGE NOTES."
The Exchange Offer.......... We are offering to exchange $1,000 principal
amount of our registered 6 3/8% Senior
Subordinated Notes due 2014 for each $1,000
principal amount of our unregistered 6 3/8% Senior
Subordinated Notes due 2014 that are properly
tendered and accepted, referred to in this
prospectus as the exchange offer. As of the date
of this prospectus, $150,000,000 aggregate
principal amount of unregistered notes is
outstanding. We will issue exchange notes on or
promptly after the expiration date of the exchange
offer. We refer you to "The Exchange Offer."
Resale of the
Exchange Notes.............. Based upon interpretations by the staff of the
Commission set forth in certain no-action letters
issued to third parties, we believe that the
exchange notes issued in this exchange offer in
exchange for unregistered notes may be offered for
resale, resold and otherwise transferred by a
holder without compliance with the registration
and prospectus delivery provisions of the
Securities Act of 1933 (the "Securities Act");
provided you (1) exchange the unregistered notes
for the exchange notes in the ordinary course of
business and you do not participate, intend to
participate, or have an arrangement with any other
person to participate, in the distribution of the
exchange notes, (2) are not a broker-dealer who
purchases such exchange notes directly from us to
resell pursuant to Rule 144A or any other
available exemption under the Securities Act, and
(3) are not an "affiliate" of us within the
meaning of Rule 405 under the Securities Act.
If, however, you acquire the exchange notes in the
exchange offer for the purposes of distributing or
participating in the distribution of the exchange
notes, you cannot rely on the position of the
staff of the Commission enumerated above and must
comply with the registration and prospectus
delivery requirements of the Securities Act in
connection with any resale transaction.
Registration
Rights Agreement............ We sold the unregistered notes on January 26,
2004, to certain initial purchasers pursuant to a
purchase agreement dated as of January 26, 2004,
by and among us and the initial purchasers.
Pursuant to this purchase agreement, we and the
initial purchasers entered into a registration
rights agreement, dated as of January 26, 2004,
which grants the holders of the unregistered notes
certain exchange and registration rights. This
exchange offer is intended to satisfy these
rights, which terminate upon the consummation of
the exchange offer. We refer you to "The Exchange
Offer--Termination of Certain Rights." The holders
of the exchange notes are not entitled to any
exchange or registration rights with respect to
the exchange notes.
Expiration Date............. The exchange offer will expire at 5:00 p.m., New
York City time, on ____________ __, 2004, unless
we, in our sole discretion, extend the exchange
offer, in which case the term "expiration date"
shall mean the latest date and time to which the
exchange offer is extended.
Accrued Interest on the
Exchange Notes and
Unregistered Notes.......... Interest on each exchange note will accrue (A)
from the later of (i) the last interest payment
date on which interest was paid on the
unregistered note surrendered in exchange
therefor, or (ii) if the unregistered note is
surrendered for exchange on a date in a period
which includes the record date for an interest
payment date to occur on or after the date of such
5
exchange and as to which interest will be paid,
the date of such interest payment date or (B) if
no interest has been paid on such unregistered
note, from January 26, 2004. Holders of
unregistered notes that are accepted for exchange
will be deemed to have waived the right to receive
any payment in respect of interest accrued from
the date of the last interest payment date that
was made in respect of the unregistered notes
until the date of the issuance of the exchange
notes. Consequently, holders of exchange notes
will receive the same interest payments that they
would have received had they not accepted the
exchange offer.
Conditions to the
Exchange Offer.............. The exchange offer is subject to certain customary
conditions, which may be waived by us. Other than
United States federal and state securities laws,
we do not need to satisfy any regulatory
requirements or obtain any regulatory approval to
conduct the exchange offer. We refer you to "The
Exchange Offer--Certain Conditions to the Exchange
Offer." The Exchange Offer is not conditioned upon
any minimum aggregate principal amount of
unregistered notes being tendered for exchange.
Special Procedures for
Beneficial Owners........... Any beneficial owner whose unregistered notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and who wishes to tender such unregistered notes
in the exchange offer should contact such
registered holder promptly and instruct such
registered holder to tender on such beneficial
owner's behalf. We refer you to "The Exchange
Offer--Procedures for Tendering." If such
beneficial owner wishes to tender on such owner's
behalf, such owner must, prior to completing and
executing the Letter of Transmittal and delivering
such owner's unregistered notes, either make
appropriate arrangements to register ownership of
the unregistered notes in such owner's name or
obtain a properly completed bond power from the
registered holder. The transfer of registered
ownership may take considerable time and may not
be able to be completed prior to the expiration
date of the exchange offer.
Procedures for
Tendering Notes............. If you wish to accept the exchange offer you must
complete, sign and date the Letter of Transmittal,
or a facsimile thereof, in accordance with the
instructions contained in it and in this
prospectus, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile, together
with such unregistered notes you wish to exchange
and any other required documentation to The Bank
of New York, as exchange agent, at the address set
forth in the Letter of Transmittal. By executing
the Letter of Transmittal, each holder will
represent to us that, among other things,
o any exchange notes received by it will be
acquired by it in the ordinary course of its
business,
o it has and will have no arrangement or
understanding with any person to participate in
the distribution of exchange notes in violation
of the Securities Act,
o it is not an "affiliate," as defined in Rule
405 under the Securities Act, of us,
o if such holder is not a broker-dealer, that it
is not engaged in and does not intend to engage
in, the distribution of exchange notes,
o if such holder is a broker-dealer that will
receive exchange notes for its own account in
exchange for unregistered notes that were
acquired as a result of market-making or other
trading activities, that it will deliver a
prospectus in connection with any resale of
such exchange notes, and
6
o that it is not acting on behalf of any persons
or entities who could not truthfully make the
foregoing representations. We refer you to "The
Exchange Offer--Procedures for Tendering."
Guaranteed Delivery
Procedures.................. If you wish to tender your unregistered notes and
your unregistered notes are not immediately
available or you cannot deliver your unregistered
notes, the Letter of Transmittal or any other
document required by the Letter of Transmittal to
the Exchange Agent prior to the expiration date of
the exchange offer, then you must tender your
unregistered notes according to the guaranteed
delivery procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures."
Acceptance of the
Unregistered Notes and
Delivery of the Exchange
Notes....................... Upon the terms and subject to the conditions to
the exchange offer, we will accept for exchange
any and all unregistered notes validly tendered
and not withdrawn prior to the expiration date of
the exchange offer. The exchange notes issued
pursuant to the exchange offer will be delivered
on the earliest practicable date following the
expiration date of the exchange offer. We refer
you to "The Exchange Offer--Terms of the Exchange
Offer."
Withdrawal Rights........... Tenders of unregistered notes may be withdrawn at
any time prior to the expiration date of the
exchange offer. We refer you to "The Exchange
Offer--Withdrawal of Tenders."
Certain United States
Federal Income Tax
Considerations.............. For a discussion of certain United States federal
income tax considerations relating to the exchange
of the unregistered notes for the exchange notes,
we refer you to "Certain United States Federal
Income Tax Considerations."
Exchange Agent.............. The Bank of New York is serving as the Exchange
Agent in connection with the Exchange Offer. The
Bank of New York also serves as Trustee under the
Indenture governing the exchange notes.
Consequences of Failure
to Exchange................. The unregistered notes which are not exchanged for
the exchange notes pursuant to the exchange offer
will remain restricted securities. Accordingly,
such unregistered notes may be resold only in
accordance with the provisions of the Indenture
governing the unregistered notes (1) to a person
whom the seller reasonably believes is a qualified
institutional buyer in a transaction meeting the
requirements of Rule 144A, (2) in a transaction
meeting the requirements of Rule 144 under the
Securities Act, (3) outside the United States to a
non-United States person in a transaction meeting
the requirements of Rule 904 under the Securities
Act, (4) in accordance with another exemption from
the registration requirements of the Securities
Act, and subject to an opinion of counsel
satisfactory to us if we so request, (5) to us, or
(6) pursuant to an effective registration
statement and, in each case, in accordance with
any applicable securities laws of any state of the
United States or any other applicable
jurisdiction. We refer you to "Risk
Factors-Consequences of failure to exchange
unregistered notes."
Use of Proceeds............. We will not receive any proceeds from the exchange
of the unregistered notes pursuant to the exchange
offer.
7
THE EXCHANGE NOTES
The exchange notes have the same financial terms as the unregistered notes;
those terms are summarized below. Certain of the terms and conditions described
below are subject to important limitations and exceptions. The "Description of
the Notes" section of this prospectus contains a more detailed description of
the terms and conditions of the exchange notes.
Issuer...................... MediaNews Group, Inc.
Securities Offered.......... $150,000,000 principal amount of 6 3/8% senior
subordinated notes due 2014.
Maturity.................... April 1, 2014
Interest Rate............... 6 3/8% per year (calculated using a 360-day year).
Interest Payment Dates...... Each January 1 and July 1, commencing on the date
following their issuance. Interest will accrue
from the issue date of the exchange notes.
Sinking Fund................ None.
Ranking..................... The exchange notes will be our senior subordinated
unsecured obligations ranking equally with all of
our existing and future senior subordinated
obligations. The exchange notes are subordinated
to all of our existing and future senior debt, are
senior to all of our future debt that is expressly
subordinated to the exchange notes and will be
effectively subordinated to all debt and
liabilities of our subsidiaries, including their
guarantees of our bank credit facility.
Optional Redemption......... We cannot redeem the exchange notes until October
1, 2008. Thereafter we may redeem some or all of
the exchange notes at the redemption prices listed
in the "Description of Exchange Notes" section
under the heading "Optional Redemption," plus
accrued interest.
Optional Redemption After
Public Equity Offerings..... At any time (which may be more than once) before
October 1, 2006, we can choose to redeem up to 35%
of the outstanding exchange notes with money that
we raise in one or more qualified equity
offerings, as long as:
o we pay 106.375% of the face amount of the
exchange notes, plus interest,
o we redeem the exchange notes within 120 days of
completing such equity offering, and
o an amount of notes equal to at least 65% of the
aggregate principal amount of unregistered
notes issued on January 26, 2004 remains
outstanding afterwards.
Change of Control Offer..... If a change of control of the Company occurs, we
must give holders of the exchange notes the
opportunity to sell us their exchange notes at
101% of their face amount, plus accrued interest.
We might not be able to pay you the required price
for exchange notes you present to us at the time
of a change of control, because:
o we might not have enough funds at that time, or
o the terms of our senior debt may prevent us
from paying.
8
Asset Sale Proceeds......... If we or our subsidiaries engage in asset sales,
we generally must either invest the net cash
proceeds from such sales in our business within a
period of time, prepay debt or make an offer to
purchase a principal amount of the exchange notes
equal to the excess net cash proceeds. The
purchase price of the exchange notes will be 100%
of their principal amount, plus accrued interest.
Certain Indenture
Provisions.................. The indenture governing the exchange notes
contains covenants that, among other things, limit
our (and certain of our subsidiaries') ability to:
o incur additional debt,
o pay dividends or distributions on our capital
stock or repurchase our capital stock,
o make certain investments,
o create liens on our assets to secure certain
debt,
o enter into transactions with affiliates,
o merge or consolidate with another company, and
o transfer or sell assets.
These covenants are subject to a number of
important limitations and exceptions. See
"Description of Exchange Notes -- Certain
Covenants."
Risk Factors................ Investing in the exchange notes involves
substantial risks. See "Risk Factors" for a
description of certain of the risks you should
consider before participating in this exchange
offer.
9
RATIO OF EARNINGS TO FIXED CHARGES
Our ratio of earnings to fixed charges was as follows for each of the
periods indicated:
[Enlarge/Download Table]
MEDIANEWS GROUP, INC. & SUBSIDIARIES
----------------------------------------------------------
GARDEN STATE
NEWSPAPERS INC. & SIX MONTHS ENDED
SUBSIDIARIES<F1> FISCAL YEARS ENDED JUNE 30, DECEMBER 31,
-------------------- ------------------------------- -------------------
1999 2000 2001 2002 2003 2002 2003
-------------------- ------ ------ ------ ------ ------- ------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
Ratio of earnings to fixed charges........ 1.3x 3.0x 2.0x 1.5x 2.5x 2.5x 2.5x
<FN>
<F1> CORPORATE REORGANIZATION. During fiscal years 1999 and 2000 we underwent a
corporate reorganization, whereby, MediaNews Group, Inc. (MediaNews) became
the successor issuer to Garden State Newspapers, Inc. The reorganization
included our June 30, 1999 purchase of an additional 20% interest in The
Denver Post Corporation, bringing our total ownership interest in The
Denver Post Corporation to 80%. In addition, The Denver Post Shareholder
Agreement was modified, giving us control of The Denver Post Corporation
board of directors. Accordingly, effective June 30, 1999, The Denver Post
Corporation became a consolidated subsidiary. Additionally, on September 1,
1999, Garden State Newspapers, Inc. was merged into MediaNews, with
MediaNews as the surviving corporation. As a result of this reorganization,
the ratio of earnings to fixed charges for each fiscal year after 1999
includes the consolidated results of MediaNews and its subsidiaries
(including The Denver Post Corporation, parent company for THE DENVER POST
and Eastern Colorado Publishing Company). The ratio of earnings to fixed
charges for fiscal year 1999 includes Garden State Newspapers, Inc.
information only.
</FN>
10
RISK FACTORS
BEFORE DECIDING TO SURRENDER YOUR UNREGISTERED NOTES FOR THE EXCHANGE NOTES
PURSUANT TO THE EXCHANGE OFFER YOU SHOULD BE AWARE THAT OUR ABILITY TO MAKE
PAYMENTS OF INTEREST AND PRINCIPAL AND THE VALUE OF THE EXCHANGE NOTES IN THE
SECONDARY MARKET ARE SUBJECT TO VARIOUS RISKS, INCLUDING THOSE DESCRIBED BELOW.
YOU SHOULD CONSIDER CAREFULLY THESE RISK FACTORS TOGETHER WITH ALL OF THE OTHER
INFORMATION INCLUDED IN THIS PROSPECTUS BEFORE YOU DECIDE TO EXCHANGE YOUR
UNREGISTERED NOTES FOR THE EXCHANGE NOTES PURSUANT TO THIS EXCHANGE OFFER.
RISKS RELATING TO THE COMPANY
ADVERTISING REVENUES -- WE DEPEND ON ADVERTISING REVENUES THAT ARE AFFECTED BY A
NUMBER OF FACTORS, MANY OF WHICH ARE BEYOND OUR CONTROL.
The primary source of our revenue is advertising. Our advertising revenues
are affected by:
o the health of the economy in the areas where our newspapers are
distributed and in the nation as a whole,
o the circulation figures for each of our newspapers,
o our editorial content,
o the demographic makeup of the population where our newspapers are
distributed,
o fluctuations in the price of advertising, and
o the activities of our competitors, including increased competition
from other forms of advertising-based mediums, including network,
cable and satellite television, the Internet and radio.
NEWSPRINT COSTS -- INCREASES IN NEWSPRINT COSTS COULD ADVERSELY AFFECT OUR
FINANCIAL RESULTS.
We consumed approximately 154,000 metric tons of newsprint in our fiscal
year ended June 30, 2003, excluding our portion of newsprint consumed at our
unconsolidated JOAs and other unconsolidated operating entities. Newsprint is a
basic commodity and its price is sensitive to the worldwide balance of supply
and demand. Because of the capital commitment to construct and operate a
newsprint mill, the supply of newsprint is relatively stable, except for
temporary disruptions. However, the demand for newsprint can change quickly,
resulting in wide swings in its price. Increases in newsprint prices can
adversely impact our financial results to the extent such increases are not
offset by increased advertising revenues.
During the last eighteen months, newsprint suppliers have announced four
price increases totaling $200 per metric ton, including an increase of $50 per
metric ton announced in January to be effective February 1, 2004. However, only
$85 of the announced increases have been implemented to date. Whether any or all
of the February price increase will be implemented in the future is uncertain.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Near Term Outlook -- Newsprint Prices."
COMPETITION -- COMPETITION COULD HAVE A MATERIAL ADVERSE EFFECT ON US.
Our revenue generation depends primarily upon the sale of advertising and,
to a lesser degree, paid circulation. Our competitors for advertising and
circulation include local and regional newspapers, magazines, yellow pages,
radio and television broadcast, cable television, direct mail, electronic media
(including the Internet) and other communications and advertising media which
operate in our markets. Some of our competitors are larger and have greater
financial resources than we do. The extent and nature of our competition in any
particular newspaper market is in large part determined by the location and
demographics of the market and the number of media alternatives in that market.
Competition for newspaper advertising is largely based upon circulation, price,
and the content of the newspaper.
11
Our newspapers generally do not compete directly with other daily
newspapers covering local news in the core of any of our markets. Some
circulation competition does exist from larger daily newspapers published in
nearby metropolitan areas. Although there can be no assurance that a competitor
will not enter one or more of our markets and become successful, we believe that
entry by direct competitors covering local news in our daily newspaper markets
is unlikely to have a material adverse effect on us for the foreseeable future.
FULL IMPLEMENTATION OF OPERATING STRATEGY -- FAILURE TO IMPLEMENT OUR OPERATING
STRATEGY COULD HAVE A MATERIAL ADVERSE EFFECT ON US.
Our future financial performance and success are dependent in large part
upon our ability to successfully implement our business strategy. We cannot
assure you that we will be able to successfully implement our business strategy
or be able to improve our operating results. In particular, we cannot assure you
that we will be able to maintain circulation of our publications, obtain new
sources of advertising revenues, generate additional revenues by building on the
brand names of our publications or raise the cover or subscription prices of our
publications without causing a decline in circulation.
WE ARE EFFECTIVELY CONTROLLED BY TWO SHAREHOLDER GROUPS.
William Dean Singleton, the Scudder family, and their respective family
trusts, have the power to vote approximately 93% of our outstanding common
stock. These shareholder groups are entitled to elect all of the members of our
Board of Directors, and to otherwise control us, including with respect to
mergers, liquidations and asset acquisitions and dispositions. There are no
independent directors on our Board and we are not under any obligation, and do
not plan, to name one or more independent directors at this time.
WE ARE NOT REQUIRED TO AND DO NOT INTEND TO COMPLY WITH CERTAIN BOARD OF
DIRECTORS AND AUDIT COMMITTEE REQUIREMENTS OF THE SARBANES-OXLEY ACT OF 2002.
Our Board of Directors currently consists of four members: two members of
the Scudder family, William Dean Singleton, our Chief Executive Officer, and
Howell E. Begle, Jr., Of Counsel to Hughes Hubbard & Reed LLP, which law firm is
our counsel. The Board does not have a separate audit committee. We have been
advised that neither the Scudder family nor Mr. Singleton plans at this time to
appoint any non-family directors or any "independent" directors. No member of
the Board has been elected, or is anticipated to be elected, to represent the
interests of the holders of the exchange notes.
THE SALT LAKE TRIBUNE -- WE ARE INVOLVED IN LITIGATION WHICH, IF ADVERSELY
DETERMINED, MAY REQUIRE US TO SELL THE SALT LAKE TRIBUNE.
We are involved in litigation concerning the ownership of THE SALT LAKE
TRIBUNE. We are not in a position at this time to predict the likely outcome of
this litigation. The costs of defending these lawsuits have been and may
continue to be substantial. If this litigation is determined adversely to us, we
may be required to sell THE SALT LAKE TRIBUNE for its appraised fair market
value and/or damages may be assessed against us. See "Business -- Legal
Proceedings" and Note 11 of the consolidated financial statements.
THE NEW FTC DO NOT CALL RULE MAY ADVERSELY AFFECT OUR ABILITY TO SELL NEWSPAPER
SUBSCRIPTIONS BY TELEPHONE MARKETING.
We utilize telephone direct marketing efforts to maintain and increase our
newspaper circulation. Pursuant to the Telemarketing and Consumer Fraud and
Abuse Prevention Act, the Federal Trade Commission, or FTC, has issued the
Telemarketing Sales Rule prohibiting a telemarketer from calling persons who
have registered on the recently-created National Do Not Call Registry, subject
to certain exceptions, including for pre-existing relationships during the prior
18 months. Since October 1, 2003 the FTC, the Federal Communications Commission
and state law enforcement officials have been able to enforce violations. Once
consumers register online or by telephone with the registry, most telemarketers,
generally other than those calling to solicit political or charitable
contributions, will be required to remove telephone numbers on the registry from
their call lists, subject to the noted exceptions. Persons who registered by
August 31, 2003 must have been removed from telemarketer lists by October 1,
2003 and covered telemarketers may not call persons who register after September
1, 2003 within three months of the date of registration. Thus, the issuance of
the Telemarketing Sales Rule may limit our ability to engage in telephone
marketing efforts.
12
OUR BUSINESS COULD SUFFER IF WE ARE UNSUCCESSFUL IN NEGOTIATING NEW COLLECTIVE
BARGAINING AGREEMENTS.
Portions of our workforce (and portions of the workforces at our JOAs) are
represented by labor unions. The collective bargaining agreements covering these
employees expire periodically. While we and our partners in our JOAs have in the
past been successful in negotiating collective bargaining agreements on terms
acceptable to us, and we believe that we and our partners currently have
satisfactory relationships with labor unions and our employees who are
represented by labor unions, no assurance can be given that we or our partners
will be successful in any future negotiations with these unions. Currently,
several of the collective bargaining agreements covering our employees and
employees of our JOAs have expired. We or our JOAs, as applicable, and the
employees that were covered by these agreements are currently continuing to
operate under the terms of the expired agreements.
RISKS RELATING TO THE EXCHANGE NOTES AND THE EXCHANGE OFFER
HOLDING COMPANY STRUCTURE -- OUR ABILITY TO MAKE PAYMENTS ON THE EXCHANGE NOTES
DEPENDS ON OUR ABILITY TO RECEIVE DISTRIBUTIONS FROM OUR SUBSIDIARIES, JOINT
OPERATING AGENCIES AND OTHER PARTNERSHIPS.
Our operations are conducted through direct and indirect subsidiaries, as
well as joint operating agencies ("JOAs") and consolidated and unconsolidated
partnerships. Certain of our subsidiaries have minority shareholders. As a
holding company, we own no significant assets other than equity in our
subsidiaries, JOAs and other partnerships (such as our interest in Texas-New
Mexico Newspapers Partnership), which we refer to as our operating entities. Our
operating entities that are operated under a JOA agreement, and which we do not
control, are reported as a single net amount in our consolidated financial
statements in the line item "Income from Unconsolidated JOAs," which includes:
o Our proportionate share of net income from JOAs,
o The amortization of subscriber lists and, up until our July 1, 2001
adoption of SFAS No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS, the
amortization of goodwill created by the original purchases by us of
the JOAs' interests as the subscriber lists and goodwill are
attributable to our earnings in the JOAs, and
o Editorial costs, miscellaneous publishing revenue and other charges
incurred by our consolidated subsidiaries directly attributable to
providing editorial content and news for our newspapers party to a
JOA.
In the event of bankruptcy proceedings affecting one of our operating
entities, to the extent we are recognized as a creditor of that operating
entity, our claim could still be subordinate to any security interest in or
other lien on any assets of that entity and to any of its debt and other
obligations.
Our ability to meet our obligations, including with respect to the exchange
notes, will be dependent on dividends and other distributions or payments from
our operating entities. The ability of our operating entities to pay, dividend,
make or distribute other payments to us depends upon the declaration of such
dividends or distributions by the boards of directors or comparable authorities
of such entities and the availability of cash flow from operations and/or
proceeds from their sale of assets and/or borrowings, and in the case of
non-wholly-owned subsidiaries, JOAs and partnerships, our contractual
arrangements with other equity holders. Other than working capital and capital
expenditures, virtually all cash flow from operations of our operating entities
is available for distribution. As of December 31, 2003, our share of long-term
debt in operating entities that are not consolidated in our financial statements
was approximately $5.0 million. Each JOA agreement and partnership agreement to
which we are a party, including with respect to those entities that we do not
control, includes a provision requiring that distributions be made to the equity
holders on a regular basis equal to their available earnings and other available
funds less amounts to be retained for working capital and capital expenditures.
We cannot be certain of the future availability of such distributions. The
absence of any such distributions may adversely affect our ability to pay
interest and principal on the exchange notes or meet our other obligations.
13
SUBORDINATION OF THE EXCHANGE NOTES -- YOUR RIGHT TO RECEIVE PAYMENTS ON THE
EXCHANGE NOTES IS JUNIOR, IN RIGHT OF PAYMENT, TO OUR BANK AND OTHER
UNSUBORDINATED INDEBTEDNESS AND POSSIBLY ALL OF OUR FUTURE BORROWINGS AND JUNIOR
TO OBLIGATIONS OF OUR SUBSIDIARIES, INCLUDING THEIR GUARANTEE OF OUR EXISTING
AND FUTURE BANK OR OTHER INDEBTEDNESS.
Payments on the exchange notes are subordinated to all of our existing and
future senior indebtedness, including amounts under our bank credit facility,
other than trade payables and future indebtedness that expressly provides that
it is equal to or subordinated in right of payment to the exchange notes. As a
result, upon any distribution to our creditors in a bankruptcy, liquidation or
reorganization or similar proceeding relating to us or our operating entities,
the holders of our senior debt will be entitled to be paid in full before any
payment may be made with respect to the exchange notes.
Additionally, because the exchange notes will not be guaranteed by any of
our subsidiaries, the exchange notes will effectively rank junior to all debt
and other liabilities of our subsidiaries, including any guarantee by our
subsidiaries of any of our indebtedness. Our bank credit facility is guaranteed
by our subsidiaries (with certain exceptions).
In the event of a bankruptcy, liquidation or reorganization or similar
proceeding relating to us, holders of the exchange notes will participate on a
pari passu (or equal) basis with trade creditors and all other holders of our
senior subordinated indebtedness. However, because the indenture requires that
amounts otherwise payable to holders of the exchange notes in a bankruptcy or
similar proceedings be paid instead to holders of senior debt until they are
paid in full, holders of the exchange notes may receive less, on a ratable
basis, than holders of trade payables and other senior subordinated debt in any
such proceeding. In addition, any acceleration of the indebtedness under our
bank credit facility will, and acceleration of our other indebtedness may,
constitute an event of default under the indenture. If an event of default
exists under our bank credit facility or certain other senior indebtedness, the
indenture may restrict payments on the exchange notes until holders of such
other indebtedness are paid in full or such default is cured or waived or has
otherwise ceased to exist. In any of these cases, we may not have sufficient
funds to pay all of our creditors and holders of the exchange notes may receive
less, on a ratable basis, than the holders of trade payables and other senior
subordinated debt.
SUBSTANTIAL LEVERAGE -- OUR SUBSTANTIAL INDEBTEDNESS COULD HAVE A MATERIAL
ADVERSE EFFECT ON OUR FINANCIAL HEALTH AND PREVENT US FROM FULFILLING OUR
OBLIGATIONS UNDER THE EXCHANGE NOTES.
We have, and after this exchange offer will continue to have, a significant
amount of indebtedness. Subject to the restrictions contained in our
indebtedness agreements, we may incur additional indebtedness from time to time
to finance acquisitions, to make capital expenditures, to fund working capital
and for general business purposes. Further, we have other contingent obligations
that are not reflected on our balance sheet. See "Description of Other
Obligations -- Other Obligations."
Our substantial indebtedness could have important consequences to you. For
example, it could:
o make it more difficult for us to satisfy or refinance our obligations
with respect to the exchange notes and our other indebtedness,
o require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, thereby reducing the
availability of our cash flow to fund working capital, capital
expenditures or other general corporate purposes,
o impair our ability to obtain additional financing for, among other
things, working capital, capital expenditures, acquisitions or other
general corporate purposes, or prevent us from obtaining financing to
repurchase the exchange notes from you upon a change of control, or
o limit our flexibility to adjust to changing business and market
conditions, and make us more vulnerable to a downturn in general
economic conditions as compared to our competitors that have any less
debt.
In addition, our failure to comply with the financial and other restrictive
covenants contained in our indebtedness agreements could result in an event of
default under such indebtedness, which, if not cured or waived, could have a
material adverse effect on us. If we cannot meet or refinance our obligations
when they are due, we may have to sell assets, reduce capital expenditures or
take other actions, which could have a material adverse effect on us.
14
We cannot assure you that our business will generate sufficient cash flow
from operations or that future borrowings will be available to us under our bank
credit facility or otherwise in an amount sufficient to enable us to pay our
indebtedness, including the exchange notes, or to fund our other liquidity
needs. In addition, we may need to refinance all or a portion of our
indebtedness, including the exchange notes, on or before maturity. We cannot
assure you that we will be able to refinance any of our indebtedness, including
our bank credit facility and the exchange notes, on commercially reasonable
terms or at all. See "Description of Exchange Notes -- Certain Covenants --
Change of Control."
CHANGE OF CONTROL OFFER -- WE MAY NOT BE PERMITTED TO PURCHASE THE EXCHANGE
NOTES UPON A CHANGE OF CONTROL AS REQUIRED BY THE INDENTURE.
Upon the occurrence of certain specific change of control events we will be
required to offer to purchase (if still outstanding) all of the unregistered
notes, the exchange notes, our $200 million aggregate principal amount 8 5/8%
Senior Subordinated Notes due 2011, our $300 million aggregate principal amount
6 7/8% Senior Subordinated Notes due 2013 and any notes issued in exchange for
our 6 7/8% Senior Subordinated Notes due 2013. However, a change of control may
also constitute an event of default under our bank credit facility that would
permit the lenders to accelerate the debt thereunder. In addition, our bank
credit facility restricts our purchase of the exchange notes upon a change of
control. Therefore, prior to purchasing the exchange notes upon a change of
control, we must either repay the indebtedness under our bank credit facility or
obtain the consent of the lenders thereunder. If we do not repay our bank credit
facility or obtain such consent, we will be prohibited from offering to purchase
the exchange notes.
The source of funds for any purchase of the exchange notes would be our
available cash or cash generated from other sources, including borrowings, sales
of assets, sales of equity or funds provided by an existing or new controlling
person. We cannot assure you that any of these sources will be available. Upon
the occurrence of a change of control event, we may seek to refinance the
indebtedness outstanding under our bank credit facility and the exchange notes.
However, it is possible that we will not be able to complete such refinancing on
commercially reasonable terms or at all. In such event, we may not have the
funds necessary to finance the required change of control offer. See
"Description of Exchange Notes -- Certain Covenants -- Change of Control."
ABSENCE OF PUBLIC MARKET FOR THE EXCHANGE NOTES -- AN ACTIVE TRADING MARKET MAY
NOT DEVELOP FOR THE EXCHANGE NOTES
The exchange notes constitute a new class of securities for which there is
no established trading market. We do not intend to list the exchange notes on
any national securities exchange or to seek their quotation on any automated
dealer quotation system. Accordingly, we can not assure you as to the
development or liquidity of any market for the exchange notes.
If an active trading market does not develop or is not maintained, it could
have a material adverse effect on the market price and liquidity of the exchange
notes and your ability to resell your exchange notes for an extended period of
time, if at all. If the exchange notes are traded, they may trade at a discount
from the offering price of the unregistered notes, depending on prevailing
interest rates, the market for similar securities, our performance and certain
other factors. Declines in the liquidity and market price of the exchange notes
may occur independently of our financial performance or prospects.
EXCHANGE OFFER PROCEDURES -- IF YOU WISH TO EXCHANGE YOUR UNREGISTERED NOTES FOR
EXCHANGE NOTES, YOU MUST COMPLY WITH THE EXCHANGE OFFER PROCEDURES.
The exchange notes will be issued in exchange for unregistered notes only
after timely receipt by the Exchange Agent of such unregistered notes, a
properly completed and duly executed Letter of Transmittal and all other
required documents. Therefore, holders of unregistered notes desiring to tender
such unregistered notes in exchange for exchange notes should allow sufficient
time to ensure timely delivery. Neither we nor the Exchange Agent is under any
duty to give notification of defects or irregularities with respect to tenders
of unregistered notes for exchange.
If you tender your unregistered notes in the exchange offer for the purpose
of participating in a distribution of the exchange notes you may be deemed to
have received restricted securities and, if so, will be required to comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. A broker-dealer that received exchange
notes for its own account in exchange for unregistered notes, where such
15
unregistered notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such exchange notes.
We refer you to "Plan of Distribution."
CONSEQUENCES OF FAILURE TO EXCHANGE UNREGISTERED NOTES
Unregistered notes that are not tendered or are tendered but not accepted
will, following consummation of the exchange offer, continue to be subject to
the existing restrictions upon transfer thereof. If you do not exchange your
unregistered notes for exchange notes pursuant to the exchange offer or your
tender for exchange is not accepted, you will continue to be subject to the
restrictions on transfer of your unregistered notes as set forth in the legend
on the unregistered notes. Because the unregistered notes were issued pursuant
to exemptions from the registration requirements of the Securities Act and
applicable state securities laws, the unregistered notes may not be offered or
sold unless registered under the Securities Act and applicable state securities
laws, or pursuant to an exemption therefrom, or in a transaction not subject
thereto. We do not intend to register the unregistered notes under the
Securities Act and, after consummation of the exchange offer, will not be
obligated to do so except under limited circumstances. We refer you to "The
Exchange Offer--Purpose of the Exchange Offer."
TRADING MARKET FOR UNREGISTERED NOTES -- THE ISSUANCE OF THE EXCHANGE NOTES MAY
ADVERSELY AFFECT THE MARKET FOR THE UNREGISTERED NOTES
The amount of the unregistered notes tendered and accepted in the exchange
offer will affect the market for the unregistered notes and the exchange notes.
To the extent that a significant amount of the unregistered notes are tendered
and accepted in the exchange offer, the trading market for untendered and
tendered but unaccepted unregistered notes could be adversely affected. For the
same reason, to the extent that a large amount of unregistered notes is not
tendered or is tendered and not accepted in the exchange offer, the trading
market for the exchange notes could be adversely affected. We refer you to "The
Exchange Offer."
16
USE OF PROCEEDS
There will be no proceeds to MediaNews from the exchange of the
unregistered notes pursuant to the exchange offer. We intend to use the net
proceeds from the offering of the unregistered notes, together with cash on hand
and borrowings under our bank credit facility, to repurchase (by tender offer,
in the open market, or otherwise) or redeem, no later than August 1, 2004 all of
our $200 million aggregate principal amount 8 5/8% Senior Subordinated Notes due
2011. Pending such use, we used the net proceeds from that offering to reduce
borrowings under the revolving credit portion of our bank credit facility to
zero.
In consideration for the issuance of the exchange notes, we will receive
unregistered notes from you in like principal amount, the form and terms of
which are substantially the same as the form and terms of the exchange notes.
The unregistered notes surrendered in exchange for the exchange notes will be
retired and canceled and cannot be reissued. Accordingly, the issuance of the
exchange notes will not result in any change in our indebtedness. We have agreed
to bear the expenses of the exchange offer. No underwriter is being used in
connection with the exchange offer.
17
CAPITALIZATION
The following table sets forth our cash and cash equivalents and
capitalization as of December 31, 2003, on an actual basis and as adjusted to
give effect to the January 2004 sale of our $150 million aggregate principal
amount 6 3/8% Senior Subordinated Notes due 2014, or our unregistered notes,
reduced by the original issue discount and the estimated fees and expenses of
that offering. The "Actual" column in the table below reflects the following
items: (i) the sale of our $300 million aggregate principal amount 6 7/8% Senior
Subordinated Notes due 2013, reduced by the original issue discount and the fees
and expenses of that offering, (ii) the repurchase or redemption of all of our
$300 million aggregate principal amount 8 3/4% Senior Subordinated Notes due
2009, including the fees, expenses and premiums paid in connection with the
repurchase, (iii) elimination of the remaining unamortized original issue
premium associated with our 8 3/4% Senior Subordinated Notes due 2009, and (iv)
the refinancing on December 30, 2003 of our former bank credit facility with our
new bank credit facility providing for borrowing of up to $600 million. This
table should be read in conjunction with the consolidated financial statements
and the notes thereto included in this prospectus. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources - Liquidity at December 31, 2003" and Note 6: Long-Term Debt,
of the notes to our consolidated financial statements.
AS OF DECEMBER 31, 2003
ACTUAL AS ADJUSTED
(DOLLARS IN THOUSANDS)
Cash and Cash Equivalents......................... $ 2,655 $ 26,643
========== ============
Total Debt:(a)
Bank Credit Facility............................ $ 373,200 $ 250,000
6 3/8% Senior Subordinated Notes due 2014....... -- 148,638
6 7/8% Senior Subordinated Notes due 2013....... 297,418 297,418
8 5/8% Senior Subordinated Notes due 2011(b).... 199,357 199,357
Obligations Under Capital Leases................ 6,925 6,925
Other........................................... 34,491 34,491
---------- ------------
Total Debt...................................... 911,391 936,829
Total Shareholders' Equity........................ 75,427 75,427
---------- ------------
Total Capitalization.............................. $ 986,818 $ 1,012,256
========== ============
----------
(a) All amounts include current portion. For a description of certain terms of
these obligations, see Note 6 to the accompanying consolidated financial
statements of MediaNews and "Description of Other Obligations." Also, see
"Management's Discussion and Analysis -- Liquidity and Capital Resources."
The capitalization table above excludes $16.0 million of other long term
liabilities related to the amount accrued to repurchase an option held by a
third party to purchase the assets used in the publication of one of our
newspapers.
(b) We intend to purchase (by tender offer, in the open market or otherwise) or
call for redemption, no later than August 1, 2004, all of our $200 million
aggregate principal amount 8 5/8% Senior Subordinated Notes due 2011, which
purchase or call for redemption is not reflected in the above
capitalization table.
18
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth the selected historical consolidated
financial data for fiscal years 2000 through 2003, which is derived from the
consolidated financial statements of MediaNews. For the fiscal year 1999, the
data is derived from the consolidated financial statements of Garden State
Newspapers, Inc., the predecessor issuer to MediaNews. They should be read in
conjunction with such financial statements and the related notes included
elsewhere in this prospectus. The historical consolidated financial data for the
six months ended December 31, 2002 and 2003 are derived from the unaudited
condensed consolidated financial statements of MediaNews and, in the opinion of
management, include all adjustments (all of which are of a normal, recurring
nature) necessary for a fair presentation of such data. The results of
operations for the six months ended December 31, 2003 are not necessarily
indicative of the results that may be expected for any other interim period or
for the entire fiscal year 2004. The selected historical consolidated financial
data of MediaNews is qualified by reference to, and should be read together
with, the consolidated financial statements of MediaNews and related notes
thereto included elsewhere in this prospectus and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
[Enlarge/Download Table]
MEDIANEWS GROUP, INC. & SUBSIDIARIES
------------------------------------------------------------------------------
GARDEN STATE
NEWSPAPERS INC. & SIX MONTHS ENDED
SUBSIDIARIES<F3> FISCAL YEARS ENDED JUNE 30, DECEMBER 31,
-------------------- ----------------------------------------------- -------------------------
1999<F2> 2000<F2> 2001<F2> 2002<F2> 2003<F2> 2002<F2> 2003<F2>
------------------- ---------- ---------- ------------ ----------- ----------- ------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
INCOME STATEMENT DATA<F1>:
Revenues
Advertising.........................$ 440,734 $ 769,976 $ 673,737 $ 535,687 $ 556,016 $ 285,113 $ 285,921
Circulation......................... 113,515 148,194 144,292 139,495 137,445 69,832 66,793
Other............................... 15,936 28,936 34,151 35,948 45,137 19,396 28,002
------------- ---------- ---------- ---------- ---------- ---------- ----------
Total Revenues...................... 570,185 947,106 852,180 711,130 738,598 374,341 380,716
Income (Loss) from Unconsolidated
JOAs................................ 1,511 2,142 (3,202) 8,770 25,227 15,139 15,743
Cost of Sales......................... 182,544 339,660 297,825 220,082 221,888 109,567 117,202
Selling, General and Administrative... 253,371 421,825 385,764 324,364 346,763 172,006 178,415
Depreciation and Amortization......... 43,636 62,152 62,593 47,545 40,553 21,276 20,050
Interest Expense...................... 56,765 75,758 82,241 75,302 64,252 33,470 28,088
Gain on Sale of Newspaper
Properties.......................... -- 117,621 74,255 -- 27,399 -- --
Minority Interest..................... (12,295) (34,092) (40,927) (32,218) (34,088) (20,277) (19,888)
Income Before Income Taxes and
Extraordinary Items................. 10,030 124,976 39,271 9,883 67,855 31,971 23,965
Net Income (Loss)..................... (822) 130,383 25,227 12,365 40,828 19,302 14,294
CASH FLOW DATA:
Capital Expenditures..................$ 13,005 $ 25,505 $ 19,611 $ 11,323 $ 20,669 $ 8,643 $ 24,541
Cash Flows from:
Operating Activities................ 61,891 96,404 43,678 57,592 57,838 18,182 11,721
Investing Activities (including
Capital Expenditures)............... (70,670) 117,921 (307,534) 34,441 38,206 10,815 17,854
Financing Activities................ 10,332 (74,438) 126,373 (97,153) (94,730) (25,688) (30,263)
BALANCE SHEET DATA:
Total Assets..........................$ 846,454 $1,138,892 $1,386,884 $1,323,184 $1,384,085 $1,354,963 $1,365,930
Long-Term Debt and Capital Leases,
Net of Cash and Minority
Interest in Long-Term Debt.......... 758,937 683,932 991,373 941,272 893,797 933,456 901,242
Other Long-Term Liabilities and
Obligations......................... 7,543 17,633 23,906 30,462 33,947 29,836 32,257
Total Shareholders' Equity
(Deficit)........................... (150,901) 939 22,737 24,501 60,008 42,850 75,427
NON-GAAP FINANCIAL DATA<F4>:
Adjusted EBITDA.......................$ 134,270 $ 185,621 $ 168,591 $ 166,684 $ 169,947 $ 92,768 $ 85,099
Minority Interest in Adjusted
EBITDA.............................. (14,939) (44,298) (45,647) (45,946) (49,089) (26,237) (26,626)
Combined Adjusted EBITDA of
Unconsolidated JOAs................. 3,144 4,725 14,205 36,006 40,371 22,268 24,363
Distributions from Texas-New
Mexico Newspapers Partnership<F5>.. -- -- -- -- 2,896 -- 4,696
------------- ---------- ---------- ---------- ---------- ---------- ----------
Adjusted EBITDA Available to
Company............................$ 122,475 $ 146,048 $ 137,149 $ 156,744 $ 164,125 $ 88,799 $ 87,532
============= ========== ========== ========== ========== ========== ==========
Ratio of earnings to fixed charges.... 1.3x 3.0x 2.0x 1.5x 2.5x 2.5x 2.5x
============= ========== ========== ========== ========== ========== ==========
----------
Footnotes on following two pages.
19
Footnotes from previous page.
----------
<FN>
<F1> SIGNIFICANT TRANSACTIONS. The income statement data is impacted by the
following significant transactions. There were no significant transactions
for the six months ended December 31, 2003.
</FN>
[Enlarge/Download Table]
ACQUISITIONS FISCAL YEARS 1999-2003
-----------------------------------------------------------------------------------------------------------------------------
YEAR DATE PUBLICATION LOCATION DESCRIPTION PURCHASE PRICE
------ ---------- ----------------------- --------------------- ----------------------------------- ---------------
2003 01/31/03 PARADISE POST Paradise, California Three times weekly newspaper, plus $13.0 million
commercial printing
10/01/02 THE REPORTER Vacaville, California Daily morning newspaper $30.9 million
10/01/02 ORIGINAL APARTMENT Los Angeles, Free distribution apartment rental $10.0 million
MAGAZINE California magazine
2002 No significant acquisitions
2001 05/31/01 RUIDOSO NEWS Ruidoso, New Mexico Bi-weekly newspaper $3.8 million
03/31/01 ALAMOGORDO DAILY NEWS Alamogordo, New Mexico Daily evening newspaper $9.5 million
02/01/01 LAKE COUNTY RECORD-BEE Lakeport, California Daily morning newspaper $7.3 million
01/02/01 THE SALT LAKE TRIBUNE Salt Lake City, Utah Daily morning newspaper JOA $200.0 million
10/31/00 CARLSBAD CURRENT-ARGUS Carlsbad, New Mexico Daily morning newspaper $7.0 million
10/01/00 CONNECTICUT POST Bridgeport, Daily morning newspaper $194.0 million
Connecticut
2000 05/06/00 KTVA Anchorage, Alaska Television station; CBS affiliate $7.0 million
03/01/00 Nashoba Publishing Ayers, Massachusetts Six weekly newspapers and three $4.2 million
monthly publications
01/01/00 HOMETOWN SHOPPER Ukiah, California Shopper (1)
10/31/99 THE DEMING HEADLIGHT Deming, New Mexico Daily morning newspaper $2.0 million
10/01/99 MILPITAS POST Milpitas, California Weekly newspaper (1)
1999 10/01/98 THE DAILY TIMES Farmington, New Mexico Daily morning newspaper $14.9 million
08/22/98 Charleston Newspapers Charleston, West Daily evening newspaper JOA $47.0 million
Virginia
----------
(1) Combined $2.7 million purchase.
[Enlarge/Download Table]
DISPOSITIONS FISCAL YEARS 1999-2003
-----------------------------------------------------------------------------------------------------------------------------
YEAR DATE PUBLICATION LOCATION DESCRIPTION PURCHASE PRICE
------ ---------- ----------------------- --------------------- ----------------------------------- ---------------
2003 No dispositions
2002 No dispositions
2001 01/31/01 THE LOMPOC RECORD Lompoc, California Daily evening newspaper $8.0 million,
pre-tax gain
of $4.6 million
10/31/00 DAILY NONPAREIL Council Bluffs, Iowa Daily evening newspaper $39.0 million,
pre-tax gain
of $23.6 million
2000 06/30/00 THE EXPRESS TIMES Easton, Pennsylvania Daily morning newspaper $145.0 million,
GLOUCESTER COUNTY TIMES Woodbury, New Jersey Daily evening newspaper pre-tax gain
TODAY'S SUNBEAM Salem, New Jersey Daily morning newspaper of $114.3 million
BRIDGETON NEWS Bridgeton, New Jersey Daily evening newspaper
North Jersey weeklies North Jersey, New Jersey Weekly newspaper
07/31/99 THE HEMET NEWS and Hemet and Moreno Valley, Daily and weekly newspaper $8.0 million,
MORENO VALLEY TIMES California pre-tax gain
of $3.3 million
1999 No dispositions
[Enlarge/Download Table]
OTHER SIGNIFICANT TRANSACTIONS FISCAL YEARS 1999-2003
-----------------------------------------------------------------------------------------------------------------------------
YEAR DESCRIPTION
---- -----------
2003 Effective March 3, 2003, we formed the Texas-New Mexico Newspapers Partnership with Gannett. Upon formation, we
recognized a non-monetary pre-tax gain of $27.4 million.
2002 None.
2001 Effective January 23, 2001, we formed the Denver Newspaper Agency ("DNA" or "Denver JOA") with E.W. Scripps
("Scripps"), owner of the ROCKY MOUNTAIN NEWS. Upon formation of DNA, MediaNews and Scripps each contributed to DNA
substantially all of their operating assets used in the publication of THE DENVER POST and the ROCKY MOUNTAIN NEWS.
In addition to the assets contributed to DNA, Scripps paid us $60.0 million to obtain its 50% interest in DNA. We
recognized a pre-tax gain of approximately $46.7 million related to this transaction.
2001 Effective October 1, 2000, Gannett contributed the MARIN INDEPENDENT JOURNAL to the California Newspapers
Partnership. Effective with the contribution, the partners', MediaNews, Stephens Media Group and Gannett, interests
in the California Newspapers Partnership were adjusted to 54.23%, 26.28% and 19.49%, respectively. Prior to the
contribution, MediaNews held a 58.8% interest in the partnership.
2000 In fiscal year 2000, MediaNews and Garden State Newspapers, Inc. merged, with MediaNews as the surviving entity and
the successor issuer to Garden State Newspapers, Inc.
1999 On March 31, 1999 we formed the California Newspapers Partnership.
20
<FN>
<F2> CHANGE IN ACCOUNTING PRINCIPLE AND PRIOR YEAR RECLASSIFICATIONS. Effective
June 15, 2000, the Financial Accounting Standards Board issued EITF Issue
00-1, which required us to change our method of accounting for JOAs from
pro-rata consolidation to consolidation for the JOAs we control, and for
the JOAs we do not control, we include our share of the JOAs' net results
as a component of the line item "Income from Unconsolidated JOAs."
Accordingly, all financial statements presented reflect this change in
accounting. In addition to the change in accounting principle, for
comparability certain prior year balances have been reclassified to conform
to current reporting classifications.
<F3> CORPORATE REORGANIZATION. During fiscal years 1999 and 2000 we underwent a
corporate reorganization, whereby, MediaNews Group, Inc. (MediaNews) became
the successor issuer to Garden State Newspapers, Inc. The reorganization
included our June 30, 1999 purchase of an additional 20% interest in The
Denver Post Corporation, bringing our total ownership interest in The
Denver Post Corporation to 80%. In addition, The Denver Post Shareholder
Agreement was modified, giving us control of The Denver Post Corporation
board of directors. Accordingly, effective June 30, 1999, The Denver Post
Corporation became a consolidated subsidiary. Additionally, on September 1,
1999, Garden State Newspapers, Inc. was merged into MediaNews, with
MediaNews as the surviving corporation. As a result of this reorganization,
the consolidated financial statement data for each fiscal year after 1999
includes the consolidated results of MediaNews and its subsidiaries
(including The Denver Post Corporation, parent company for THE DENVER POST
and Eastern Colorado Publishing Company). The consolidated financial
statement data for fiscal year 1999 includes Garden State Newspapers, Inc.
information only.
<F4> NON-GAAP FINANCIAL DATA. The Non-GAAP Financial Data presented, including
Adjusted EBITDA and Adjusted EBITDA Available to Company, are not measures
of performance recognized under GAAP. However, we believe that they are
indicators and measurements of our leverage capacity and debt service
ability. Adjusted EBITDA and Adjusted EBITDA Available to Company should
not be considered as an alternative to measure profitability, liquidity, or
performance, nor should they be considered an alternative to net income,
cash flows generated by operating, investing or financing activities, or
other financial statement data presented in our consolidated financial
statements. Adjusted EBITDA is calculated by deducting cost of sales and
SG&A expense from total revenues. Adjusted EBITDA Available to Company is
calculated by: (i) reducing Adjusted EBITDA by the minorities' interest in
the Adjusted EBITDA generated from the California Newspapers Partnership,
York Newspaper Company and The Denver Post Corporation, our less than 100%
owned subsidiaries ("Minority Interest in Adjusted EBITDA"); (ii)
increasing Adjusted EBITDA by our combined proportionate share of the
Adjusted EBITDA generated by our unconsolidated JOAs in Denver, Salt Lake
City and Charleston ("Combined Adjusted EBITDA of Unconsolidated JOAs");
and (iii) increasing Adjusted EBITDA by Distributions from the Texas-New
Mexico Newspapers Partnership (see footnote e). See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Reconciliation of GAAP and Non-GAAP Financial Information."
<F5> TEXAS-NEW MEXICO NEWSPAPERS PARTNERSHIP. The Texas-New Mexico Newspapers
Partnership agreement, effective March 3, 2003, requires the partnership to
make monthly distributions equal to the earnings of the partnership before
depreciation and amortization (EBITDA). These distributions have been
included in Adjusted EBITDA Available to Company as they are an integral
part of our cash flows from operations.
</FN>
21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTION
The following analysis of the financial condition and results of operations
should be read in conjunction with the Selected Financial Data and the
consolidated financial statements of MediaNews Group, Inc. and the notes thereto
appearing elsewhere herein.
OVERVIEW
We are in the business of owning and operating daily and weekly newspapers
and Internet Web sites related thereto. Our newspapers derive their revenues
primarily from advertising and circulation. Our primary operating expenses
(before interest, depreciation and amortization) are employee salaries,
newsprint, marketing and distribution. In addition to our newspaper operations,
we own radio stations in Graham and Breckenridge, Texas and a CBS affiliate
television station in Anchorage, Alaska. However, for the fiscal year ended June
30, 2003, the combined revenues of these non-newspaper operations comprised less
than 0.5% of our consolidated revenue and were not significant to our
operations.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in accordance with generally
accepted accounting principles at times requires the use of estimates and
assumptions. We make our estimates, based on historical experience, actuarial
studies and other assumptions, as appropriate, to assess the carrying values of
assets and liabilities and disclosure of contingent matters. We re-evaluate our
estimates on an ongoing basis. Actual results could differ from these estimates.
Critical accounting policies for us include revenue recognition; accounts
receivable allowances; recoverability of our long-lived assets, including
goodwill and other intangible assets, which are based on such factors as
estimated future cash flows and current fair value estimates; pension and
retiree medical benefits, which require the use of various estimates concerning
the work force, interest rates, plan investment return, and involves the use of
advice from consulting actuaries. Our accounting for federal and state income
taxes is sensitive to interpretation of various laws and regulations and the
valuations of deferred tax assets. The notes to our consolidated financial
statements included later in this prospectus contain a more complete discussion
of our significant accounting policies.
Advertising revenue is earned and recognized when advertisements are
published, inserted, aired or displayed and are net of provisions for estimated
rebates, credit and rate adjustments and discounts. Circulation revenue includes
home delivery subscription revenue, single copy and third party sales. Single
copy revenue is earned and recognized based on the date the publication is
delivered to the single copy outlet, net of provisions for returns. Home
delivery subscription revenue is earned and recognized when the newspaper is
delivered to the customer or sold to a third party. Amounts received in advance
of an advertisement or newspaper delivery are deferred and recorded on the
balance sheet as a current liability to be recognized into income when the
revenue has been earned.
During 2000, the Emerging Issues Task Force ("EITF") reached a consensus on
Issue 00-1, Balance Sheet and Income Statement Display under the Equity Method
of Investments in Certain Partnerships and Other Unincorporated Joint Ventures
("EITF 00-1"), effective for periods ending after June 15, 2000, which prohibits
the use of pro-rata consolidation except in the extractive and construction
industries. Prior to our adoption of EITF 00-1, we accounted for all of our JOA
operations using the pro-rata consolidation method. Upon adoption of EITF 00-1,
effective June 30, 2000, we discontinued pro-rata consolidation. All previously
reported financial statements were reclassified to conform to the current
presentation. Our investments in unconsolidated JOAs are included in the
consolidated balance sheet under the line item "Investment in Unconsolidated
JOAs," for the JOAs we do not control.
The operating results of our unconsolidated JOAs are reported as a single
net amount, in the accompanying financial statements in the line item "Income
from Unconsolidated JOAs." This line item includes:
o Our proportionate share of net income from JOAs,
22
o The amortization of subscriber lists and, up until our July 1, 2001
adoption of SFAS No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS, the
amortization of goodwill created by the original purchase by us of the
JOAs' interests as the subscriber lists and goodwill are attributable
to our earnings in the JOAs, and
o Editorial costs, miscellaneous publishing revenue, and other charges
incurred by our wholly-owned subsidiaries directly attributable to
providing editorial content and news for our newspapers party to a
JOA.
23
OPERATING RESULTS
We have provided below certain summary historical consolidated financial
data for fiscal years 2001, 2002 and 2003, and the six months ended December 31,
2002 and 2003, in each case including the percentage change between periods. For
comparability, certain prior year balances have been reclassified to conform to
current reporting classifications.
[Enlarge/Download Table]
SUMMARY HISTORICAL FINANCIAL DATA
----------------------------------------------------------------------------------------
FISCAL YEARS ENDED JUNE 30, SIX MONTHS ENDED DECEMBER 31,
------------------------------------------------- ----------------------------------
2002 vs. 2003 vs. 2003 vs.
2001 2002 2003 2001 2002 2002 2003 2002
------------ ---------- --------- -------- --------- ---------- --------- --------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
INCOME STATEMENT DATA
Total Revenues.................. $852,180 $711,130 $738,598 (16.6)% 3.9% $374,341 $380,716 1.7%
Income from Unconsolidated JOAs. (3,202) 8,770 25,227 <F3> <F3> 15,139 15,743 4.0
Cost of Sales................... 297,825 220,082 221,888 (26.1) 0.8 109,567 117,202 7.0
Selling, General and
Administrative................ 385,764 324,364 346,763 (15.9) 6.9 172,006 178,415 3.7
Depreciation and Amortization... 62,593 47,545 40,553 (24.0) (14.7) 21,276 20,050 (5.8)
Interest Expense................ 82,241 75,302 64,252 (8.4) (14.7) 33,470 28,088 (16.1)
Other (Income) Expense, Net..... 13,200 10,941 19,534 (17.1) (78.5) 1,681 14,228 <F3>
-------- -------- -------- ------ ------ -------- -------- -----
Total Costs and Expenses...... 841,623 678,234 692,990 (19.4) 2.2 338,000 357,983 5.9
Equity Investment Income (Loss),
Net........................... (1,412) 435 3,709 <F3> <F3> 768 5,377 <F3>
Gain on Sale of Newspaper
Properties.................... 74,255 -- 27,399 <F3> <F3> -- -- --
Minority Interest............... (40,927) (32,218) (34,088) (21.3) 5.8 (20,277) (19,888) (1.9)
Net Income...................... 25,227 12,365 40,828 (51.0) <F3> 19,302 14,294 (25.9)
CASH FLOW DATA
Cash Flows from:
Operating Activities.......... $ 43,678 $ 57,592 $ 57,838 $ 18,182 $ 11,721
Investing Activities.......... (307,534) 34,441 38,206 10,815 17,854
Financing Activities.......... 126,373 (97,153) (94,730) (25,688) (30,263)
NON-GAAP FINANCIAL DATA<F1>
Adjusted EBITDA................. $168,591 $166,684 $169,947 (1.1)% 2.0% $ 92,768 $ 85,099 (8.3)%
Minority Interest in Adjusted
EBITDA........................ (45,647) (45,946) (49,089) 0.7 6.8 (26,237) (26,626) 1.5
Combined Adjusted EBITDA of
Unconsolidated JOAs........... 14,205 36,006 40,371 <F3> 12.1 22,268 24,363 9.4
Distributions from Texas-New
Mexico Newspapers Partnership<F2> -- -- 2,896 -- <F3> -- 4,696 <F3>
-------- -------- -------- ---- ---- -------- -------- ----
Adjusted EBITDA Available to
Company....................... $137,149 $156,744 $164,125 14.3% 4.7% $ 88,799 $ 87,532 (1.4)%
======== ======== ======== ====== ====== ======== ======== ======
----------
<FN>
<F1> NON-GAAP FINANCIAL DATA. Adjusted EBITDA and Adjusted EBITDA Available to
Company are not measures of performance recognized under GAAP. However, we
believe that they are indicators and measurements of our leverage capacity
and debt service ability. Adjusted EBITDA and Adjusted EBITDA Available to
Company should not be considered as an alternative to measure
profitability, liquidity, or performance, nor should they be considered an
alternative to net income, cash flows generated by operating, investing or
financing activities, or other financial statement data presented in our
consolidated financial statements. Adjusted EBITDA is calculated by
deducting cost of sales and SG&A expense from total revenues. Adjusted
EBITDA Available to Company is calculated by: (i) reducing Adjusted EBITDA
by the minorities' interest in the Adjusted EBITDA generated from the
California Newspapers Partnership, York Newspaper Company and The Denver
Post Corporation, our less than 100% owned consolidated subsidiaries
("Minority Interest in Adjusted EBITDA"); (ii) increasing Adjusted EBITDA
by our combined proportionate share of the Adjusted EBITDA generated by our
unconsolidated JOAs in Denver, Salt Lake City and Charleston ("Combined
Adjusted EBITDA of Unconsolidated JOAs"); and (iii) increasing Adjusted
EBITDA by Distributions from the Texas-New Mexico Newspapers Partnership
(see footnote b). See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Reconciliation of GAAP and Non-GAAP
Financial Information."
24
<F2> THE TEXAS-NEW MEXICO NEWSPAPERS PARTNERSHIP AGREEMENT. The Texas-New Mexico
Newspapers Partnership agreement, effective March 3, 2003, requires the
partnership to make monthly distributions equal to the earnings of the
partnership before depreciation and amortization (EBITDA). These
distributions have been included in Adjusted EBITDA Available to Company,
as they are an integral part of our cash flows from operations.
<F3> Not meaningful.
</FN>
25
SUMMARY SUPPLEMENTAL NON-GAAP FINANCIAL DATA
JOINT OPERATING AGENCIES, OR JOAS, REPRESENT AN OPERATING STRUCTURE THAT IS
UNIQUE TO THE NEWSPAPER INDUSTRY. PRIOR TO EITF 00-1, WHICH ELIMINATED THE USE
OF PRO-RATA CONSOLIDATION EXCEPT IN THE EXTRACTIVE AND CONSTRUCTION INDUSTRIES,
WE REPORTED THE RESULTS OF OUR JOA INTERESTS ON A PRO-RATA CONSOLIDATED BASIS.
UNDER THIS METHOD, WE CONSOLIDATED, ON A LINE-ITEM BASIS, OUR PROPORTIONATE
SHARE OF THE JOAS' OPERATIONS. ALTHOUGH PRO-RATA CONSOLIDATION IS NO LONGER
CONSIDERED AN ACCEPTABLE METHOD FOR OUR FINANCIAL REPORTING UNDER GAAP, WE
BELIEVE IT PROVIDES A MEANINGFUL PRESENTATION OF THE RESULTS OF OUR OPERATIONS
AND THE AMOUNT OF OPERATING CASH FLOW AVAILABLE TO MEET OUR DEBT SERVICE AND
CAPITAL EXPENDITURE REQUIREMENTS. OUR JOA AGREEMENTS DO NOT RESTRICT CASH
DISTRIBUTIONS TO THE OWNERS AND IN GENERAL OUR JOAS MAKE MONTHLY OR QUARTERLY
DISTRIBUTIONS. WE USE PRO-RATA CONSOLIDATION TO INTERNALLY EVALUATE OUR
PERFORMANCE AND PRESENT IT HERE BECAUSE OUR BANK CREDIT AGREEMENT AND OUR
PUBLICLY TRADED NOTES DEFINE CASH FLOWS (ADJUSTED EBITDA AND ADJUSTED EBITDA
AVAILABLE TO COMPANY) FROM OPERATIONS FOR COVENANT PURPOSES USING PRO-RATA
CONSOLIDATION. WE ALSO BELIEVE FINANCIAL ANALYSTS AND INVESTORS USE THE PRO-RATA
CONSOLIDATION AND THE RESULTING ADJUSTED EBITDA, COMBINED WITH CAPITAL SPENDING
REQUIREMENTS, AND LEVERAGE ANALYSIS TO EVALUATE OUR PERFORMANCE. THIS
INFORMATION SHOULD BE USED IN CONJUNCTION WITH GAAP PERFORMANCE MEASURES IN
ORDER TO EVALUATE OUR OVERALL PROSPECTS AND PERFORMANCE. NET INCOME DETERMINED
USING PRO-RATA CONSOLIDATION IS IDENTICAL TO NET INCOME DETERMINED UNDER GAAP.
IN THE TABLE BELOW, WE HAVE PRESENTED THE RESULTS OF OPERATIONS OF OUR JOAS
USING PRO-RATA CONSOLIDATION, INCLUDING THE PERCENTAGE CHANGE BETWEEN PERIODS.
OUR JOAS INCLUDE YORK NEWSPAPER COMPANY AND CHARLESTON NEWSPAPERS FOR ALL
PERIODS PRESENTED, DENVER NEWSPAPER AGENCY SINCE FORMATION ON JANUARY 23, 2001,
AND OUR JOA IN SALT LAKE CITY (THE "SALT LAKE CITY JOA") SINCE ACQUISITION ON
JANUARY 2, 2001. SEE NOTES 2 AND 3 TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR
ADDITIONAL DISCUSSION OF THE GAAP ACCOUNTING FOR OUR JOAS. FOR COMPARABILITY,
CERTAIN PRIOR YEAR BALANCES HAVE BEEN RECLASSIFIED TO CONFORM TO CURRENT
REPORTING CLASSIFICATIONS.
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 FOR PRO FORMA FINANCIAL DATA
[Enlarge/Download Table]
SUMMARY SELECTED NON-GAAP FINANCIAL DATA
SIX MONTHS ENDED
FISCAL YEARS ENDED JUNE 30, DECEMBER 31,
--------------------------------------------------- ------------------------------
2002 vs. 2003 vs. 2003 vs.
2001 2002 2003 2001 2002 2002 2003 2002
--------- --------- --------- -------- ------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
PRO-RATA CONSOLIDATED INCOME
STATEMENT DATA
Total Revenues..............................$ 978,929 $ 992,780 $1,025,471 1.4% 3.3% $ 520,734 $ 530,041 1.8%
Cost of Sales............................... 366,509 350,281 343,012 (4.4) (2.1) 170,735 178,552 4.6
Selling, General and Administrative......... 437,500 447,541 480,185 2.3 7.3 239,108 246,347 3.0
Depreciation and Amortization............... 72,890 64,720 55,841 (11.2) (13.7) 29,077 27,521 (5.4)
Interest Expense............................ 82,161 75,517 64,491 (8.1) (14.6) 33,588 28,190 (16.1)
Other (Income) Expense, Net................. 19,614 19,996 18,312 1.9 (8.4) 525 14,970 <F2>
--------- --------- --------- ------ ------- --------- --------- ------
Total Costs and Expenses.................. 978,674 958,055 961,841 (2.1) 0.4 473,033 495,580 4.8
Gain on Sale of Newspaper Properties........ 74,255 -- 27,399 <F2> <F2> -- -- --
Minority Interest........................... (33,827) (25,278) (26,884) (25.3) 6.4 (16,498) (15,873) (3.8)
Net Income.................................. 25,227 12,365 40,828 (51.0) <F2> 19,302 14,294 (25.9)
CASH FLOW DATA (GAAP BASIS)
Cash Flows from:
Operating Activities.......................$ 43,678 $ 57,592 $ 57,838 $ 18,182 $ 11,721
Investing Activities....................... (307,534) 34,441 38,206 10,815 17,854
Financial Activities....................... 126,373 (97,153) (94,730) (25,688) (30,263)
PRO-RATA OTHER DATA<F1>
Adjusted EBITDA.............................$ 174,920 $ 194,958 $ 202,274 11.5% 3.8% $ 110,891 $ 105,142 (5.2)%
Minority Interest Adjusted EBITDA........... (37,771) (38,214) (41,045) 1.2 7.4 (22,092) (22,306) 1.0
Distributions from Texas-New Mexico
Newspapers Partnership.................... -- -- 2,896 -- <F2> -- 4,696 <F2>
--------- --------- --------- ----- ----- --------- --------- ------
Adjusted EBITDA Available to Company........$ 137,149 $ 156,744 $ 164,125 14.3% 4.7% $ 88,799 $ 87,532 (1.4)%
========= ========= ========= ===== ===== ========= ========= =======
--------------
<FN>
<F1> See footnote (a) under "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Operating Results" for discussion of Adjusted EBITDA, Distributions from Texas-New Mexico
Newspapers Partnership and Adjusted EBITDA Available to Company. The Minority Interest in Adjusted EBITDA
shown is calculated the same as described in footnote (a) under "Management's Discussion and Analysis of
26
Financial Condition and Results of Operations -- Operating Results" except that Minority Interest in
Adjusted EBITDA on a pro-rata basis includes only the minority interest in Adjusted EBITDA of the
California Newspapers Partnership and The Denver Post Corporation, as pro-rata consolidation factors out
of the minority interest associated with York Newspaper Company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Reconciliation of GAAP and Non-GAAP
Financial Information."
<F2> Not meaningful.
</FN>
GENERAL
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 our second
fiscal quarter, is generally our strongest revenue quarter of the year. Due to
generally poor weather and lack of holidays, the first calendar quarter, or our
third fiscal quarter, is generally our weakest revenue quarter of the year.
Our advertising revenues, as well as those of the newspaper industry in
general, are cyclical and dependent upon general economic conditions.
Historically, advertising revenues have increased in periods of economic growth
and declined with general national, regional and local economic downturns and
recessionary economic conditions.
COMPARISON OF THE SIX MONTHS ENDED DECEMBER 31, 2003 AND 2002
Certain transactions in fiscal year 2003 had an impact on the comparisons
of our results for the six months ended December 31, 2003 and 2002. Acquisition
transactions that affect comparisons include the purchases by California
Newspapers Partnership ("CNP") on October 1, 2002 of THE REPORTER in Vacaville,
California and the ORIGINAL APARTMENT MAGAZINE in southern California and the
January 31, 2003 purchase of the PARADISE POST in Paradise, California. In
addition to these acquisition transactions, comparisons between the periods
ended December 31, 2003 and 2002 are also affected by the formation of the
Texas-New Mexico Newspapers Partnership effective March 3, 2003, after which we
no longer consolidate the results of the New Mexico newspaper properties that we
contributed to the partnership. Our investment in the Texas-New Mexico
Newspapers Partnership is accounted for under the equity method of accounting
and the partnership's results are included in "Equity Investment Income, Net."
REVENUES
Revenues for the six month period ended December 31, 2003 were $380.7
million, as compared to $374.3 million for the same period in the prior fiscal
year. The change represents an increase of $6.4 million, or 1.7%, for the six
month period ended December 31, 2003 as compared to the same period in the prior
fiscal year. On a same newspaper basis (after adjusting for the aforementioned
fiscal year 2003 transactions), the following changes occurred in our
significant revenue categories between the six month periods ended December 31,
2003 and 2002.
ADVERTISING REVENUES. Advertising revenues increased by approximately 0.8%
for the six month period ended December 31, 2003, as compared to the same period
in prior fiscal year. The increase in advertising revenue was due principally to
increases in national and preprint advertising, offset in part by a decrease in
classified advertising. Classified employment advertising continues to
experience declines at the majority of our newspapers, due to the economic
slowdown that has been experienced throughout the United States. Our newspapers
in the San Francisco Bay Area market have been particularly hard hit by losses
in employment advertising. We also experienced small declines in classified
automotive advertising.
CIRCULATION REVENUES. Circulation revenues decreased by 2.0% for the six
month period ended December 31, 2003, as compared to the same period in prior
fiscal year as we have continued to grow circulation in a slow economy by
offering discounts to acquire new subscribers with long-term orders. The loss in
revenue from discounting long-term orders is generally offset with cost savings
from writing fewer new circulation orders as a result of this strategy.
OTHER REVENUES. Other revenues increased 19.4% for the six month period
ended December 31, 2003, as compared to the same period in prior fiscal year in
part due to our obtaining new commercial printing contracts in northern
California. Also contributing to the increase were revenues from our Internet
operations, which increased 34.2%, or $2.2 million for the six month period
ended December 31, 2003 as compared to the same period in prior fiscal year as a
result of the continued strong market acceptance of the combined print and
online packages that we offer to our advertisers and increases in our online
employment revenue.
27
INCOME FROM UNCONSOLIDATED JOAS
Income from unconsolidated JOAs represents (1) our share of the net income
from our unconsolidated JOA operations, which includes Charleston Newspapers,
the Denver Newspaper Agency ("DNA"), and the Salt Lake City JOA; (2) the
amortization of subscriber lists created by the original purchase by us; and (3)
editorial costs, miscellaneous publishing revenue and other charges incurred by
our subsidiaries that are directly attributable to providing editorial content
and news for our newspapers published by the JOAs. Income from unconsolidated
JOAs for the six month period ended December 31, 2003 was $15.7 million, as
compared to $15.1 million for the same period in prior fiscal year. The increase
was due primarily to the improved operating results at the DNA and the Salt Lake
City JOA during the six month period ended December 31, 2003, as compared to the
same period of the prior fiscal year. The DNA prior year results included a
one-time non-operating gain of approximately $3.8 million related to the sale of
its office building. The improved operating results at the DNA and the Salt Lake
City JOA were partially offset by a small decline in results at Charleston
Newspapers.
COST OF SALES
Cost of sales for the six month period ended December 31, 2003 was $117.2
million, as compared to $109.6 million for the same period in prior fiscal year.
The change represents an increase of $7.6 million, or 7.0%. The aforementioned
transactions in fiscal year 2003 had the net impact of increasing cost of sales
by $2.1 million for the six month period ended December 31, 2003, as compared to
the same period in prior fiscal year. Excluding the aforementioned transactions,
cost of sales increased 5.3%. The current year increase in cost of sales was due
in part to a small increase in newsprint consumption of 2.8% for the six month
period ended December 31, 2003, as compared to the same period in prior fiscal
year. Also contributing to the increase was an 11.8% increase for the six month
period ended December 31, 2003, in our average price per metric ton of newsprint
consumed as compared to the same period in prior fiscal year. Our average price
was approximately $475 per metric ton for the six months ended fiscal year 2004,
as compared to $425 for the same period in fiscal year 2003.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative ("SG&A") expense for the six month
period ended December 31, 2003 was $178.4 million, as compared to $172.0 million
for the same period in prior fiscal year. The change represents an increase of
$6.4 million or 3.7%. The aforementioned transactions in fiscal year 2003 had
the net effect of impacting SG&A by $2.1 million for the six month period ended
December 31, 2003, as compared to the same period in prior fiscal year.
Excluding the aforementioned transactions, SG&A increased 2.6%. The current year
increase is primarily the result of large increases in health care costs and
retirement benefits which were offset in part by cost savings in other areas.
INTEREST EXPENSE
Interest expense for the six month period ended December 31, 2003 was $28.1
million, as compared to $33.5 million, for the same period in prior fiscal year.
The change represents a decrease of $5.4 million, or 16.1%. The decrease in
interest expense was the result of a decrease in average debt outstanding due to
debt paydowns, net of acquisitions, in fiscal year 2003, and continued paydowns
in fiscal year 2004, as well as a reduction in the weighted average cost of debt
in fiscal year 2004 compared to fiscal year 2003. The lower weighted average
cost of debt was a result of lower short-term interest rates, the June 2003
refinancing of our 9.0% Subordinated Promissory Note with a bank term loan, and
to a lesser extent the November 2003 refinancing of our 8 3/4% Senior
Subordinated Notes due 2009 with our 6 7/8 % Senior Subordinated Notes due 2013.
For the six month period ended December 31, 2003, our average debt outstanding
decreased $62.7 million, or 6.5% and our weighted average interest rate
decreased 74 basis points as compared to the same period in prior year. Interest
expense was also impacted by net settlements related to our interest rate swap
agreements. The net settlements of our interest rate swap agreements had the
effect of decreasing interest expense by $1.8 million for the six month period
ended December 31, 2003, as compared to the same period in the prior year when
our interest rate swaps decreased interest expense by $1.0 million.
OTHER (INCOME) EXPENSE, NET
Other (income) expense, net for the six month period ended December 31,
2003 was $14.2 million, as compared to $1.7 million for the same period in prior
fiscal year. We include in other (income) expense, net costs which are not
related to ongoing operations. The charges incurred for the six month period
ended December 31, 2003, relate to a charge of $9.2 million for the repurchase
premiums, net of unamortized original issue premiums, associated with the early
28
redemption of our 8 3/4% Senior Subordinated Notes due 2009, litigation expense
of $1.7 million associated with the acquisition of Kearns-Tribune, LLC (Salt
Lake City), $0.8 million related to the ongoing accretion of the cost to
repurchase an option held by a third party to acquire one of our newspapers,
$1.0 million in costs associated with our unsuccessful bid for Freedom
Communications, Inc., $0.8 million related to hedging activities, which did not
qualify for hedge accounting under SFAS No. 133, and a net $0.7 million for
various other costs not related to ongoing operations.
NET INCOME
We reported net income for the six month period ended December 31, 2003 of
$14.3 million, as compared to net income of $19.3 million for the same period in
prior fiscal year. In addition to the changes described above, net income was
impacted by a $0.4 million decrease in minority interest expense for the six
month period ended December 31, 2003 as compared to the same period in the prior
fiscal year. Also impacting net income was a $3.0 million decrease in income tax
expense, for the six month period ended December 31, 2003 as compared to the
same period in the prior fiscal year as a result of a decrease in income before
taxes. Our effective tax rate was 40.4%, for the six months ended December 31,
2003, as compared to 39.6% for the same period in the prior fiscal year.
COMPARISON OF FISCAL YEARS ENDED JUNE 30, 2003 AND 2002
Certain transactions in fiscal year 2003 had an impact on the comparisons
of our results for the years ended June 30, 2003 and 2002. Acquisition
transactions that affect comparisons between the years ended June 30, 2003 and
2002 include CNP's October 1, 2002 purchases of THE REPORTER in Vacaville,
California and the ORIGINAL APARTMENT MAGAZINE in southern California and the
January 31, 2003 purchase of the PARADISE POST in Paradise, California. In
addition to the acquisition transactions described, comparisons between the
years ended June 30, 2003 and 2002 are also affected by the formation of the
Texas-New Mexico Newspapers Partnership effective March 3, 2003, after which we
no longer consolidate the results of the New Mexico newspaper properties that we
contributed to the partnership. Our investment in the Texas-New Mexico
Newspapers Partnership is accounted for under the equity method of accounting
and the partnership's results are included in "Equity Investment Income (Loss),
Net."
REVENUES
Revenues for the years ended June 30, 2003 and 2002 were $738.6 million and
$711.1 million, respectively. The change represents an increase of $27.5
million, or 3.9%. The aforementioned transactions in fiscal year 2003 had the
net impact of increasing reported revenues by $12.6 million for the year ended
June 30, 2003 as compared to the prior year. On a same newspaper basis
(adjusting for the aforementioned fiscal 2003 transactions), the following
changes occurred between fiscal years 2003 and 2002.
ADVERTISING REVENUES. Advertising revenues increased 2.5% for the year
ended June 30, 2003, as compared to the prior year. The advertising revenue
increases during fiscal year 2003 were primarily the result of increases in
national and preprint advertising, offset in part by small declines in total
classified and retail advertising. Total classified revenue was only down
slightly overall. However, of the components of classified revenue, classified
employment represented most of the decline, which was due to the continued
economic slowdown that has been experienced in the majority of our newspaper
markets and throughout the United States. We also experienced small declines in
classified automotive advertising, which were more than offset by improvements
in real estate advertising.
CIRCULATION REVENUES. Circulation revenues remained flat compared to last
year. Circulation volumes at our consolidated subsidiaries also did not change
materially between periods.
OTHER REVENUES. Other revenues increased 10.7% due principally to the $4.3
million increase in revenues from our Internet operations for the year ended
June 30, 2003 as compared to the prior year. The increase was the result of the
continued strong market acceptance of the combined print and online packages
that we offer to our advertisers, particularly in our online retail, automotive
and employment categories, and the introduction of new products related to
automotive and obituaries.
29
INCOME FROM UNCONSOLIDATED JOAS
Income from unconsolidated JOAs represents (1) our share of the net income
from our unconsolidated JOA operations, which as of June 30, 2003 and 2002
includes Charleston Newspapers, DNA, and the Salt Lake City JOA; (2) the
amortization of subscriber lists created by the original purchase by us of the
JOAs' interests; and (3) editorial costs, miscellaneous publishing revenue and
other charges incurred by our consolidated subsidiaries that are directly
attributable to providing editorial content and news for our newspapers party to
a JOA. Income from unconsolidated JOAs for the years ended June 30, 2003 and
2002 was $25.2 million and $8.8 million, respectively. The improvement of $16.4
million for the year ended June 30, 2003, is primarily the result of improved
revenues combined with lower operating expenses at DNA. Expenses were lower as a
result of lower newsprint costs and a reduction in the number of employees. The
results of the Salt Lake City JOA and Charleston Newspapers did not change
materially between periods.
COST OF SALES
Cost of sales for the years ended June 30, 2003 and 2002 was $221.9 million
and $220.1 million, respectively. The change represents an increase of $1.8
million, or 0.8%. The aforementioned transactions in fiscal year 2003 had the
net impact of increasing cost of sales by $5.4 million for the year ended June
30, 2003 as compared to the prior year. Excluding the aforementioned
transactions, cost of sales decreased 1.6% on a year over year basis. Cost of
sales was impacted by increased production costs associated with us printing
certain new third party publications in northern California; however, our
overall newsprint costs declined by $7.5 million or 10.4%, which more than
offset the increase in editorial and production costs. The overall decline in
newsprint costs is comprised of a 3.1% increase in consumption, offset by a
13.1% decrease in the cost per metric ton consumed, on a year over year basis.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative ("SG&A") expense for the years ended
June 30, 2003 and 2002 was $346.8 million and $324.4 million, respectively. The
change represents an increase of $22.4 million, or 6.9%, for the year ended June
30, 2003, as compared to the prior year. The aforementioned transactions in
fiscal year 2003 had the net impact of increasing SG&A by $6.3 million for the
year ended June 30, 2003, as compared to the prior year.
Excluding the impact of the transactions described above, SG&A expense
increased 4.9%, for the year ended June 30, 2003, as compared to the prior year.
The increase in SG&A expense was due in part to a $5.4 million increase in
marketing and advertising expenses for the year ended June 30, 2003, as compared
to the prior year. Marketing and advertising expense increased as a result of
the growth in national advertising revenue and new sales initiatives that were
implemented as we sought to grow revenue from non-traditional newspaper
advertisers. Circulation expense also increased as a result of circulation
growth strategies implemented in certain highly competitive southern California
markets as well as our strategies to maintain circulation volumes in the highly
competitive market around ANG Newspapers in the San Francisco Bay area. Also
contributing to the increase in SG&A expense were increases in health insurance
and other benefits, property and casualty insurance costs, the reinstatement of
401(k) matching benefits, the lifting of salary freezes for certain groups of
employees, and increased costs associated with the growth experienced in our
Internet operations.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense for the years ended June 30, 2003 and
2002 was $40.6 million and $47.5 million, respectively. The change represents a
decrease of $6.9 million, or 14.7% for the year ended June 30, 2003, as compared
to the prior year. The fiscal year 2003 decreases were primarily due to certain
assets becoming fully depreciated during fiscal year 2002, offset in part by
increased depreciation and amortization associated with our fiscal year 2003
acquisitions.
INTEREST EXPENSE
Interest expense for the years ended June 30, 2003 and 2002 was $64.3
million and $75.3 million, respectively. The change represents a decrease of
$11.0 million, or 14.7%, for the year ended June 30, 2003, as compared to the
prior year. The decrease in interest expense was due to a decrease in our
average debt outstanding, as well as a reduction in the weighted average cost of
debt. Our average debt outstanding decreased $50.4 million, or 5.1%, and our
weighted average interest rate decreased 76 basis points for the year ended June
30, 2003, as compared to the prior year.
30
Interest expense was also impacted by net settlements related to our
interest rate swap agreements. The net settlements of our interest rate swap
agreements had the effect of decreasing interest expense by $2.6 million for the
year ended June 30, 2003.
OTHER (INCOME) EXPENSE, NET
Included in other (income) expense, net are those costs or income items
that are not related to ongoing operations. Other (income) expense, net for the
year ended June 30, 2003 was $19.5 million. The charges incurred for the year
ended June 30, 2003 include $3.7 million in litigation expense related to the
acquisition of Kearns-Tribune, LLC (Salt Lake City), $5.5 million accretion of
the estimated cost to repurchase an option held by a third party to acquire one
of our newspapers, $1.0 million of costs for severance and restructuring, $2.7
million loss related to the jury verdict rendered against us in the case brought
by a former newsprint vendor, $1.8 million loss related to the impairment of
goodwill associated with Alaska Broadcasting Company, $3.9 million loss related
to the impairment of fixed assets (land and building) at one of CNP's
properties, $(1.2) million related to hedging activities which did not qualify
for hedge accounting under SFAS No. 133, and a net $2.1 million for various
other costs not related to ongoing operations.
EQUITY INVESTMENT INCOME (LOSS), NET
Included in equity investment income (loss), net is our share of the net
income (or loss) of our non-JOA equity investees, as further described in Note 2
of the notes to consolidated financial statements. The $3.3 million increase in
equity investment income (loss), net was primarily related to the equity income
from the Texas-New Mexico Newspapers Partnership, the formation of which was
described earlier.
NET INCOME
We reported net income for the years ended June 30, 2003 and 2002 of $40.8
million and $12.4 million, respectively.
Net income for fiscal year 2003 was impacted by a $27.4 million
non-monetary gain recognized in conjunction with the formation of the Texas-New
Mexico Newspapers Partnership. Excluding the $27.4 million non-monetary gain,
pretax net income was $40.5 million for the year ended June 30, 2003 as compared
to $9.9 million for the prior year. In addition to the activity described in the
preceding paragraphs, net income was impacted by a $1.9 million increase in
minority interest expense and a $29.5 million increase in income tax expense
(primarily associated with the Texas-New Mexico Newspapers Partnership gain
described earlier), of which approximately $24.2 million is related to deferred
income taxes. Our effective tax rate for fiscal year 2003 was 39.8%, as compared
to (25.1%) in fiscal year 2002. The tax benefit in fiscal year 2002 was the
result of the recognition of previously disallowed net operating loss carryovers
due to a change in federal tax regulations.
COMPARISON OF FISCAL YEARS ENDED JUNE 30, 2002 AND 2001
Certain transactions in fiscal year 2001 had a significant impact on the
comparison of results between the years ended June 30, 2002 and 2001.
Significant transactions that affect comparisons between the years ended
June 30, 2002 and 2001 include the October 1, 2000 acquisition of the
CONNECTICUT POST, the October 1, 2000 contribution of the MARIN INDEPENDENT
JOURNAL to CNP, and the October 31, 2000 purchase of the CARLSBAD CURRENT-ARGUS.
Additionally, on January 2, 2001, we purchased Kearns-Tribune, LLC, which
publishes THE SALT LAKE TRIBUNE and owns a 58% profit interest in the Salt Lake
City JOA. We include the editorial expenses of THE SALT LAKE Tribune, along with
our proportionate share of the results in the Salt Lake City JOA, in the line
item "Income from Unconsolidated JOAs." Comparisons were also affected to a
lesser degree by our acquisitions in Lakeport, California and Alamogordo and
Ruidoso, New Mexico that were completed in the third and fourth quarters of
fiscal year 2001.
The impact of these transactions was offset in part by the October 31, 2000
sale of our Southwestern Iowa newspaper cluster, the January 23, 2001 formation
of the DNA, after which we no longer consolidate the results of THE DENVER POST
(the results are now included in the line item, "Income from Unconsolidated
JOAs"), and the sale of a small newspaper in Lompoc, California.
31
REVENUES
Revenues for the years ended June 30, 2002 and 2001 were $711.1 million and
$852.2 million, respectively. This represents a $141.1 million, or 16.6%
decrease. The aforementioned transactions in fiscal year 2001 had the net impact
of decreasing reported revenues by $120.3 million for the year ended June 30,
2002 as compared to the prior year, primarily associated with deconsolidation of
the revenues of THE DENVER POST because of the formation of the DNA. On a same
newspaper basis (adjusting for the aforementioned 2001 transactions), the
following changes occurred between fiscal years 2002 and 2001.
ADVERTISING REVENUES. Advertising revenues decreased by 5.0% during fiscal
year 2002 as compared to the prior year. The decrease in advertising revenues
was felt across all major advertising categories; however, national advertising
and classified advertising experienced the largest percentage declines. In
classified advertising, auto and real estate had increases compared to the prior
year, but these increases were offset by the decline in employment classified.
Employment and national advertising in particular were hit hard by the economic
slowdown that was experienced throughout the United States. The events of
September 11, 2001, also had a negative impact on an already soft advertising
market, further compounding revenue declines in most advertising categories.
These revenue decreases were somewhat mitigated by increases associated with new
sales initiatives which focused on creating new revenue streams by attracting
new regional and local advertisers by providing niche products and other
programs specifically targeted to their needs.
CIRCULATION REVENUES. Circulation revenues remained flat between years
despite small decreases in circulation volumes due in part to our efforts to
improve circulation profitability in certain of our markets by increasing single
copy and home delivery prices.
OTHER REVENUES. Other revenues increased by 15.5% due principally to the
$5.1 million increase in revenues from our Internet operations for the year
ended June 30, 2002 compared to the prior year. The increase was the result of
new revenue initiatives and acceleration in the market acceptance of the value
of combined print and online advertising packages that we offered to our
advertisers, particularly in the online employment and classified categories.
INCOME (LOSS) FROM UNCONSOLIDATED JOAS
Income (Loss) from Unconsolidated JOAs includes (1) our share of the net
income (or loss) from our unconsolidated JOA operations, which as of June 30,
2002 included Charleston Newspapers, the Denver Newspaper Agency, and the Salt
Lake City JOA (2) the amortization of subscriber lists created by the original
purchase by us of the JOAs' interests; and (3) editorial costs, miscellaneous
publishing revenue and other charges incurred by our consolidated subsidiaries
that are directly attributable to providing editorial content and news for our
newspapers party to a JOA. Income (Loss) from Unconsolidated JOAs for years
ended June 30, 2002 and 2001 was $8.8 million and $(3.2) million, respectively.
The $12.0 million increase for the year ended June 30, 2002 compared to the
prior year was the direct result of the January 23, 2001 formation of DNA and
the January 2, 2001 acquisition of our interest in the Salt Lake City JOA,
combined with significantly improved year over year operating results at DNA as
the Denver JOA began seeing the benefits of the advertising revenue and cost
synergies. The results at Charleston Newspapers also improved.
COST OF SALES
Cost of sales for the years ended June 30, 2002 and 2001 was $220.1 million
and $297.8 million, respectively. This represents a $77.7 million, or 26.1%,
decrease. The aforementioned transactions in fiscal year 2002 had the net impact
of decreasing cost of sales by $66.1 million for the year ended June 30, 2002 as
compared to the prior year, again primarily associated with the deconsolidation
of THE DENVER POST operating results.
Excluding the impact of the fiscal year 2001 transactions described above,
our cost of sales in fiscal year 2002 decreased 6.0%, as compared to the prior
year. The majority of the decrease for the year ended June 30, 2002 was due to
substantially lower newsprint prices experienced during fiscal year 2002, as
well as lower page counts resulting from the decline in advertising volumes we
experienced during the year. The lower page counts resulted in a 4.7% decrease
in newsprint consumption, and related production supplies for the fiscal year
ended 2002, as compared to prior year. Lower newsprint prices also reduced
expenses in fiscal year 2002 as compared to fiscal year 2001 as our average
32
price per metric ton of newsprint consumed decreased 10.0% during year 2002. Our
editorial expenses remained relatively flat for the year ended June 30, 2002, as
compared to the prior year.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative ("SG&A") expense for the years ended
June 30, 2002 and 2001 was $324.4 million and $385.8 million, respectively. This
represents a $61.4 million, or 15.9% decrease, for the year ended June 30, 2002
as compared to the prior year. The aforementioned transactions in fiscal year
2001 had the net impact of decreasing SG&A expense by $60.4 million for the
fiscal year ended June 30, 2002 as compared to the prior year, primarily
associated with the deconsolidation of THE DENVER POST operating results.
Excluding the impact of the fiscal year 2001 transactions described above,
SG&A expense decreased 0.3%, for the fiscal year 2002, as compared to the prior
year. The decrease in SG&A expense was in part the result of a decrease in order
solicitation expenses associated with our strategy to improve circulation
profitability by reducing churn and a reduction in delivery costs as a result of
small declines in circulation volume at some newspapers. This strategy was
implemented in the third quarter of our fiscal year 2001. Marketing and
advertising expenses were down $0.8 million for the fiscal year ended June 30,
2002, as compared to the prior year. This decrease was primarily the result of
declines in advertising revenues; however, in fiscal year 2002, we implemented
new sales initiatives and the associated start up costs partially offset the
fiscal year 2002 marketing expense reductions. These initiatives and the related
start up costs continued into fiscal year 2003. In addition, SG&A expense
decreased as a result of cost-cutting measures that began during the second half
of fiscal year 2001 with additional cuts being made in the first half of fiscal
year 2002. These decreases were offset in small part by increased costs
associated with the revenue growth experienced in our Internet operations.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense for the years ended June 30, 2002 and
2001 was $47.5 million and $62.6 million, respectively. This represents a
decrease of $15.1 million, or 24.0%, for the year ended June 30, 2002, as
compared to the prior year.
The decrease was primarily the result of a decrease in amortization expense
associated with our adoption of the Financial Accounting Standards Board
Statement No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS ("SFAS No. 142") on July
1, 2001. Under the new standard, goodwill and other indefinite life intangibles
are no longer amortized, but instead are periodically reviewed for impairment.
All other intangibles with a finite useful life continue to be amortized over
their remaining useful life. Had SFAS No. 142 been in effect during the year
ended June 30, 2001, amortization expense would have been $14.8 million less.
INTEREST EXPENSE
Interest expense for the years ended June 30, 2002 and 2001 was $75.3
million and $82.2 million, respectively. This represents a $6.9 million, or
8.4%, decrease for the year ended June 30, 2002, as compared to the prior year.
For the year ended June 30, 2002, despite debt paydowns of $53.7 million
throughout the year, our average debt increased by approximately $48.6 million,
or 5.1%, as compared to the prior year as a direct result of our 2001
acquisition transactions in which we borrowed $180.1 million, net of proceeds
from newspaper sales and cash acquired. However, our weighted average cost of
debt decreased 117 basis points during this same period, more than offsetting
the increase in our average debt. As a result, interest expense decreased 8.4%
for the year ended June 30, 2002 as compared to the prior year. The decrease in
the weighted average cost of debt would have been greater except for the
negative impact of unfavorable interest rate hedges, which did not expire until
October 2001. Interest rate swap agreements had the effect of increasing
interest rate expense for the years ended June 30, 2002 and 2001 by $2.4 million
and $0.6 million, respectively.
OTHER (INCOME) EXPENSE, NET
Included in other (income) expense, net are those costs or income items
that are not related to ongoing operations. Other (income) expense, net for the
years ended June 30, 2002 and 2001 were $10.9 million and $13.2 million,
respectively. The decrease was primarily a result of one-time charges for
transition team payroll and consulting fees related to the integration planning
33
for the formation of DNA of $7.7 million, which were included in our results for
fiscal year 2001 (an additional $3.0 million was charged in fiscal year 2002
related to the JOA transition). The decrease associated with DNA integration
planning was partially offset by an increase of $2.8 million in litigation
expense associated with the acquisition of Kearns-Tribune, LLC (Salt Lake City),
$0.7 million in bank fees paid to amend our bank credit facility and a severance
charge associated with employee reductions at certain of our newspapers and at
corporate. The impact of $3.0 million related to marking to market our fixed to
floating interest rate derivative instruments entered into during the third
quarter 2002, which did not qualify for hedge accounting is also reflected here.
An additional component of other expense is the ongoing accretion of the cost to
repurchase an option held by a third party to acquire one of our newspapers. The
holder of the option can exercise the option beginning in January 2003 and may
hold the option until 2010.
NET INCOME
We reported net income for the years ended June 30, 2002 and 2001 of $12.4
million and $25.2 million, respectively.
In addition to the year over year changes described above, net income was
impacted by a $16.5 million change in income taxes (from an expense in fiscal
year 2001 to a benefit in fiscal year 2002), and a $74.3 million gain on sale of
newspaper properties that was recognized in fiscal year 2001. The change in
income tax expense was primarily associated with the $74.3 million gain on sale
of newspaper properties for the year ended June 30, 2001, as well as a change in
tax regulation in fiscal year 2002, which allowed us to recognize deferred tax
assets related to a loss carryforward that had been previously disallowed.
Excluding the $74.3 million gain in fiscal year 2001, income before taxes
improved $44.9 million in fiscal year 2002 compared to fiscal year 2001.
LIQUIDITY AND CAPITAL RESOURCES
Our sources of liquidity are existing cash and other working capital, cash
flows provided from operating activities, distributions from JOAs and
partnerships and the borrowing capacity under our bank credit facility. Our
operations, consistent with the newspaper industry, require little investment in
inventory, as less than 30 days of newsprint is generally maintained on hand.
From time to time, we increase our newsprint inventories in anticipation of
price increases. In the fourth quarter of our fiscal year 2003 and continuing
into the first quarter of fiscal year 2004, we built newsprint inventories to
delay the impact to us of an announced price increase. In general, our
receivables have been collected on a timely basis.
SIX MONTHS ENDED DECEMBER 31, 2003 COMPARED TO DECEMBER 31, 2002
Net cash flows from operating activities were approximately $11.7 million
and $18.2 million, respectively, for the six months ended December 31, 2003 and
December 31, 2002, respectively. The decrease was primarily the result of the
impact of the formation of the Texas-New Mexico Newspapers Partnership, whereby
we discontinued consolidating our New Mexico operations (described earlier).
Also, contributing to the change was a decrease in working capital, due to the
changes described above in revenue, cost of sales and SG&A. These decreases were
offset in part by the aforementioned fiscal year 2003 acquisitions.
Net cash flows from investing activities were $17.9 million and $10.8
million, respectively, for the six months ended December 31, 2003 and 2002. The
following items caused the majority of the change; a $5.2 million increase in
distributions from equity investments, primarily related to distributions from
the Texas-New Mexico Newspaper Partnership formed in March 2003; net cash used
for business acquisitions for the six months ended December 31, 2003 was $19.4
million less than that of the corresponding period of the prior year; a $15.9
million increase in capital expenditures ($14.4 million of which was for the
purchase of an airplane); and a $3.0 million decrease in distributions from
unconsolidated JOAs due to prior year's distribution from the Denver JOA
including a distribution related to the sale of its office building.
Net cash flows from financing activities were $(30.3) million and $(25.7)
million for the six months ended December 31, 2003 and 2002, respectively. The
activity for the six months ended December 31, 2003 includes $291.9 million of
net proceeds from the issuance of $300.0 million of our 6 7/8% Senior
Subordinated Notes due 2013, which were used along with available borrowings to
repurchase all of our outstanding $300.0 million 8 3/4% Senior Subordinated
Notes due 2009, for $309.4 million (including $9.4 million of repurchase
premiums) and the refinancing of our bank credit facility. Prior year's net
paydown consisted primarily of normal borrowings and paydowns on long-term debt,
as well as net borrowings to finance our second quarter fiscal year 2003
acquisitions in California. See "LIQUIDITY AT DECEMBER 31, 2003" for further
34
discussion of the issuance of the $300.0 million 6 7/8% Senior Subordinated
Notes due 2013 and repurchase of our $300.0 million 8 3/4% Senior Subordinated
Notes due 2009.
FISCAL YEAR ENDED JUNE 30, 2003 COMPARED TO JUNE 30, 2002
Net cash flows from operating activities were $57.8 million and $57.6
million for the years ended June 30, 2003 and 2002, respectively. The $0.2
million increase was due to an $8.4 million year over year improvement in net
income, adjusted for minority interest and non-cash items, offset by a $8.2
million decrease in cash flows associated with operating assets and liabilities.
The increase in net income was primarily the result of a $3.3 million increase
in Adjusted EBITDA, and an $11.0 million reduction in interest expense, offset
by a $4.0 million increase in cash related other (income) expense items. The
change in cash outflows associated with operating assets and liabilities were
the result of our build up of our newsprint inventory levels at June 30, 2003 as
compared to the prior year, and timing on receipts of accounts receivables.
Net cash flows from investing activities were $38.2 million and $34.4
million for the years ended June 30, 2003 and 2002, respectively. The $3.8
million increase was primarily the result of a net $37.6 million increase in
cash flows from unconsolidated JOAs, partially offset by a $25.6 million
increase in cash used for acquisitions (net of cash contributed by minority
partners), and a net $11.9 million associated with fixed asset additions and
disposals.
Net cash flows from financing activities were $(94.7) million and $(97.2)
million for the years ended June 30, 2003 and 2002, respectively. The change of
$2.5 million was primarily the result of a $4.6 million decrease in
distributions to minority interest during fiscal year 2003 as compared to the
prior year. Although operating results of CNP have improved over the prior year,
distributions to our minority partners decreased from the prior year due to
timing. Partially offsetting the decrease in minority interest distributions was
a $2.2 million increase in our net paydowns of long-term debt during fiscal year
2003 as compared to the prior year. Net debt paydowns, excluding acquisition
borrowings in fiscal year 2003, were $84.6 million.
CAPITAL EXPENDITURES
Capital expenditures, net of our partners' share, for fiscal year 2004 have
been budgeted at approximately $22.7 million as compared to $22.5 million in
fiscal year 2003. Our capital expenditures during fiscal year 2004, through
December 31, 2003, net of our partners' share were $25.3 million.
Non-maintenance expenditures planned for fiscal 2004 include installation
of a front-end system for the Los Angeles Newspapers Group and new advertising
and circulation systems Company-wide. Carryover expenditures from the prior year
of $4.5 million are primarily for inserters at Alameda Newspapers Group and York
Newspaper Company, and the completion of a new printing plant in Devens,
Massachusetts which will print publications for our newspapers in Lowell and
Fitchburg, Massachusetts. Management will review the capital expenditure plan
throughout the year and will modify it as required to meet our current business
needs. Capital expenditures related to these projects are expected to be funded
either through available cash or borrowings under our bank credit facility.
LIQUIDITY AT DECEMBER 31, 2003
On December 30, 2003, we refinanced our former bank credit facility, which
at the time of its replacement had provided for borrowings of up to $485.0
million. Our new bank credit facility provides for borrowings of up to $600.0
million, consisting of a $350.0 million revolving credit facility and a $250.0
million "term loan B" facility. Availability under the revolving credit facility
is permanently reduced by $100.0 million in December 2008. The final maturity of
the revolving facility is December 30, 2009, and the final maturity of the term
loan B facility is December 30, 2010. The new bank credit facility is guaranteed
by the Company's subsidiaries (with certain exceptions). Cash flows from
operations for the next twelve months will be impacted by scheduled quarterly
principal payments of $0.625 million under term loan "B" of our new bank credit
facility, which we intend to pay from operating cash flows. At December 31,
2003, the balance outstanding under the revolving credit portion of our credit
agreement and term loan "B" was $123.2 million and $250.0 million, respectively.
As of December 31, 2003, we had $221.1 million available for future borrowings
under the revolver portion of our new bank credit facility, net of $5.7 million
in outstanding letters of credit. See the discussion of our sale of unregistered
notes below.
35
On January 26, 2004, we completed the sale of our unregistered notes in a
private placement. We intend to use the net proceeds of the offering together
with cash on hand and borrowings under the new bank credit facility to
repurchase (by tender offer, in the open market or otherwise) or redeem, no
later than August 1, 2004, all of our outstanding $200.0 million aggregate
principal amount 8 5/8% Senior Subordinated Notes due 2011 ("8 5/8% Notes").
Pending such repurchase or redemption, we used the net proceeds of that offering
to reduce our borrowings under the revolving credit portion of our new bank
credit facility to zero. As a result, we are currently accumulating cash. We
expect to use the accumulated cash in the future to fund the repurchase of our 8
5/8% Notes, and for other general corporate purposes.
In January 1998, we entered into an option agreement in association with
the acquisition financing related to the LOS ANGELES DAILY NEWS. The option
entitles the holder to purchase the assets used in the publication of the LOS
ANGELES DAILY NEWS, which the option holder can exercise or put to us based on a
predetermined formula anytime after January 31, 2003. The option repurchase
price is currently valued at approximately $16.0 million, and is recorded as a
component of other long-term liabilities. If the option were put to us, we
expect to fund the payment with available borrowings from our bank credit
facility. As a result, in accordance with SFAS No. 6, CLASSIFICATION OF
SHORT-TERM OBLIGATIONS EXPECTED TO BE REFINANCED, the option repurchase price
remains classified in our balance sheet as long-term.
We have been considering various strategic alternatives for our investment
in Charleston Newspapers, including the sale of our ownership interest or other
transactions that would increase or decrease our ownership interest. We
currently anticipate entering into a transaction in the fourth quarter of our
2004 fiscal year that would reduce our ownership interest in this JOA.
We have a call/put agreement under which our wholly-owned subsidiary York
Newspapers, Inc. ("YNI") can purchase our minority partner's, York Daily Record
Inc. ("YDR"), 42.5% interest in York Newspaper Company ("YNC"), or YDR can put
its interest in YNC to YNI. The base call and put price is $32.0 million and
$25.0 million, respectively, and is adjusted annually based on changes in the
consumer price index (not to exceed 2.5%). The call option became exercisable on
January 1, 2004 and expires on January 1, 2005. The put may be exercised at any
time after the expiration of the call through June 30, 2008. We currently
anticipate exercising our option to call YDR's interest in YNC in the fourth
quarter of our 2004 fiscal year. We intend to finance the purchase price with
cash on hand. We expect that such exercise will not result in an increase in our
leverage ratio. No amounts are recorded in our financial statements related to
this call/put agreement.
The Denver Post Shareholder Agreement provides Media General and us with a
put and a call option, respectively, on Media General's 20% interest in The
Denver Post Corporation. Media General's put is currently exercisable and
expires June 30, 2004. Our call option can be exercised beginning July 1, 2004
and expires June 30, 2005. The price of the put and call, if or when they are
exercised, is based on the appraised fair market value of the Denver Post
Corporation, less Permitted Debt of The Denver Post Corporation as defined in
the Denver Post Shareholder Agreement. We have one year to close on the purchase
from the date of any put notice. No amounts are recorded in our financial
statements related to the put or call option. Media General has not exercised
its put, and we are currently evaluating our option to call Media General's 20%
interest in The Denver Post Corporation once it becomes exercisable on July 1,
2004.
Our ability to service our debt, fund planned capital expenditures, and
repurchase or refinance our indebtedness will depend on our ability to generate
operating cash flows in the future. Based on our current level of operations, we
believe our cash flow from operations, available cash and available borrowings
under our bank credit facility will be adequate to meet our future liquidity
needs for at least the next twelve months.
We do not expect that our defined benefit pension plans will require any
significant cash contributions in fiscal year 2004, despite the decrease related
to pension assets experienced in fiscal year 2003. We estimate contributions to
be made in fiscal year 2004 will be $0.3 million.
We may, from time to time, consider strategic or targeted newspaper
acquisitions and dispositions, which individually or in the aggregate may be
material. In the event an acquisition opportunity is identified, we expect we
would be able to arrange financing on terms and conditions satisfactory to us to
the extent current resources are insufficient.
36
DISTRIBUTIONS FROM PARTNERSHIPS
Set forth below is a description of the ownership structure and
earnings-distribution mechanism of each of our JOAs, as well as the CNP and the
Texas-New Mexico Newspapers Partnership:
o Through our wholly-owned subsidiary, Kearns-Tribune, LLC, we own a 50%
interest in the Salt Lake City JOA. Under the agreement, 58% of the
Salt Lake City JOA's net income, less working capital required and
subject to minor adjustments, is apportioned to Kearns-Tribune, LLC on
a monthly basis and is distributed (generally) weekly.
o Through our wholly-owned subsidiary, York Newspapers, Inc., we own a
57.5% partnership interest in the York Newspaper Company, which
operates in York, Pennsylvania pursuant to a JOA agreement. Under the
agreement, the York Newspaper Company is required to distribute, at
least monthly, 57.5% of its net cash from operations to York
Newspapers, Inc.
o Through our wholly-owned subsidiary, Charleston Publishing Company, we
are party to a JOA with the Daily Gazette Company to publish two daily
newspapers and one Sunday newspaper in Charleston, West Virginia.
Pursuant to the JOA agreement, 50% of all funds received by the JOA in
excess of its expenses must be distributed to Charleston Publishing
Company on a quarterly basis. We have been considering various
strategic alternatives for our investment in this JOA, including the
sale of our ownership interest or other transactions that would
increase or decrease our ownership interest. We currently anticipate
entering into a transaction in the fourth quarter of our 2004 fiscal
year that would reduce our ownership interest in this JOA.
o Our 80% owned subsidiary, The Denver Post Corporation, owns 50% of The
Denver Newspaper Agency, LLP. Under the Denver Newspaper Agency JOA
agreement, the partnership is required to distribute 50% of its
monthly earnings (and other funds available for distribution), less
working capital required by the partnership, to The Denver Post
Corporation.
o Through our wholly-owned subsidiary, West Coast MediaNews LLC, we own
a 54.23% interest in the California Newspapers Partnership. Under the
terms of the partnership agreement, we are entitled to monthly
distributions of the partnership's excess earnings less working
capital required in proportion to our partnership interest.
o Through our wholly-owned subsidiary, New Mexico-Texas MediaNews LLC,
we own a 33.8% interest in the Texas-New Mexico Newspapers
Partnership. Pursuant to the partnership agreement, the partnership
management committee of the partnership is required to determine the
amount of earnings (before depreciation and amortization) or other
partnership funds available for distribution for each accounting
period and distribute (generally monthly) 33.8% of such funds to New
Mexico-Texas MediaNews LLC.
OFF-BALANCE SHEET ARRANGEMENTS
Our share of long-term debt in unconsolidated JOAs was approximately $4.2
million and $5.0 million at June 30, 2003 and December 31, 2003, respectively.
Through our wholly-owned subsidiary, Kearns-Tribune, LLC, we own a 6.0%
interest in Ponderay Newsprint Company ("Ponderay") and are also guarantors on a
several basis of 6.0% of up to $125.0 million Ponderay's credit facility, which
is due April 12, 2006. The guarantee could be triggered by Ponderay's failure to
meet any or all of its bank covenants at which time we could be liable for our
portion or 6.0% of the guarantee. Our share of the guarantee was approximately
$6.8 million and $5.9 million at June 30, 2003 and December 31, 2003,
respectively, which is not recorded in our financial statements.
37
CONTRACTUAL OBLIGATIONS
The following table represents our contractual obligations as of June 30,
2003:
[Enlarge/Download Table]
LESS THAN MORE THAN
TOTAL 1 YEAR 1-3 YEARS 3-5 YEARS 5 YEARS
---------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
Long-Term Debt......................... $ 897,540 $ 2,990 $ 263,927 $ 122,623 $ 508,000
Capital Lease Obligations, Net of
Imputed Interest..................... 7,014 181 409 499 5,925
Operating Leases....................... 21,452 4,968 8,120 5,832 2,532
Purchase Obligations<F1>............... 167,319 37,368 56,691 49,510 23,750
Other Long-Term Liabilities Reflected
on the Balance Sheet under GAAP<F2>.. 34,605 658 11,452 2,060 20,435
--------- --------- --------- --------- ---------
Total.................................. $1,127,930 $ 46,165 $ 340,599 $ 180,524 $ 560,642
========== ========= ========= ========= =========
The above table and related discussion below do not reflect any financing
transactions that occurred subsequent to June 30, 2003, including those
described under "Liquidity and Capital Resources -- Liquidity at December 31,
2003" and Note 6: Long-Term Debt and Note 14: Subsequent Events of the notes to
our consolidated financial statements.
In addition, on December 31, 2003, we entered into an agreement to purchase
60,000 metric tons of newsprint over the next three years (a minimum of 20,000
metric tons per year) at an agreed upon adjusted index price in conjunction with
the settlement of a lawsuit with one of our newsprint vendors (as more fully
described in Note 11: Contingent Matters, of the notes to our consolidated
financial statements). The table above does not reflect this agreement.
----------
<FN>
<F1> Purchase obligations primarily include commitments to purchase newsprint.
One of our newsprint contracts requires us to purchase newsprint at a
floating price based on RISI (Resource Information Systems, Inc.). For
purposes of this disclosure we used the RISI price as of August 2003. It is
difficult to predict the price of newsprint over the term of the contract.
<F2> Reflected on the balance sheet in Other Long-Term Liabilities at June 30,
2003 is $14.9 million related to the amount accrued to repurchase an option
held by a third party to purchase the assets used in the publication of one
of our newspaper properties. At December 31, 2003, the amount accrued was
approximately $16.0 million. The option is exercisable beginning in January
2003; however it is included in Other Long-Term Liabilities because if the
option is put to us, we expect to fund the payment with available
borrowings from our bank credit facility.
</FN>
Our contractual obligations did not materially change from June 30, 2003 to
December 31, 2003, except for the long-term debt transactions described under
"Liquidity and Capital Resources -- Liquidity" and Note 6: Long-Term Debt, of
the notes to our consolidated financial statements and a newsprint agreement
entered into in conjunction with the settlement of a lawsuit with one of our
newsprint vendors, described in Note 11: Contingent Matters, of the notes to our
consolidated financial statements.
NEAR TERM OUTLOOK
NEWSPRINT PRICES
During the last eighteen months, newsprint suppliers have announced four
price increases totaling $200 per metric ton, including an increase of $50 per
metric ton announced in January to be effective February 1, 2004. However, only
$85 of the announced increases have been implemented to date. Whether any or all
or a portion of the January 2004 increase will be implemented is uncertain;
however, we are not currently paying any of the increase. North American
newsprint suppliers continue to take downtime and close newsprint mills in an
attempt to more closely match supply with the demand. The January 2004 RISI
(Resource Information Systems, Inc.) price index for 30 pound newsprint was $515
per metric ton compared to $465 in January 2003.
38
RECENTLY ISSUED ACCOUNTING STANDARDS
See Note 2: Significant Accounting Policies and Other Matters -- Recently
Issued Accounting Standards, of the notes to our consolidated financial
statements.
QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
DEBT AND RELATED INTEREST RATE SWAPS
We are exposed to market risk arising from changes in interest rates
associated with our bank debt, which at December 31, 2003 included our bank term
loan and bank credit facility.
The following table provides information about our derivative financial
instruments and other financial instruments that are sensitive to changes in
interest rates. For debt obligations, the table presents principal cash flows
and related weighted-average interest rates by expected maturity dates.
Weighted-average variable rates are based on implied forward rates as derived
from appropriate annual spot rate observations as of the reporting date. For
interest rate swaps, the table presents notional amounts and weighted-average
interest rates by contractual maturity dates. Notional amounts are used to
calculate the contractual cash flows to be exchanged under the contract.
We entered into these swaps in order to mitigate the effects of a
protracted and slow economic recovery and to take advantage of the current low
interest rates available under a variable rate instrument. The amounts reflected
in the following table represent the interest rate swaps that we are committed
to as of December 31, 2003, all of which expire either in January or July 2004.
[Enlarge/Download Table]
INTEREST RATE SENSITIVITY
PRINCIPAL OR NOTIONAL AMOUNT BY EXPECTED MATURITY
AVERAGE INTEREST OR SWAP RATE
FAIR VALUE
YEARS ENDED JUNE 30, 2003
------------------------------------------------------- (LIABILITY)
2004<F2> 2005 2006 2007 2008 THEREAFTER TOTAL ASSET
---------- --------- -------- --------- ------- ------------ -------- -------------
(DOLLARS IN THOUSANDS)
Long-Term Debt
including Current
Portion
Fixed Rate................. $ -- $ -- $ -- $ -- $ -- $ 496,775 $496,775 $(522,400)
Average Interest Rate...... 5.29% 5.29% 5.29% 5.29% 5.29% 5.29%
Variable Rate.............. $ 1,250 $ 2,500 $ 2,500 $ 2,500 $ 2,500 $ 361,950 $373,200 $(373,200)
Average Interest Rate...... 3.08% 3.08% 3.08% 3.08% 3.08% 3.08%
-----------
Total...................... $869,975<F1>
INTEREST RATE
DERIVATIVE FINANCIAL
INSTRUMENTS RELATED
TO DEBT
Interest Rate Swaps on
Fixed Rate Debt
Notional Amount.......... $150,000 $ -- $ -- $ -- $ -- $ -- $150,000 $ 1,199
Average Pay Rate........... 1.17%
Average Receive Rate....... 3.55%
The table above and related discussion below do not reflect the financing
transaction that occurred subsequent to December 31, 2003 described under
"Liquidity and Capital Resources - Liquidity at December 31, 2003" and Note 14:
Subsequent Events, of the notes to our consolidated financial statements.
----------
<FN>
<F1> The long-term debt (including current portion) of $870.0 million from the
Market Risk table above differs from total long-term debt of $904.5 million
reported in Note 6: Long-Term Debt of the notes to the consolidated
financial statements due to $29.8 million related to various notes payable
due through 2013 and York Newspaper Company debt of $4.7 million. The
Market Risk table above excludes these long-term obligations as we could
not practicably estimate fair value due to the lack of quoted market prices
for these types of instruments and our inability to estimate the fair value
without incurring the excessive costs of obtaining an appraisal.
<F2> The June 30, 2004 amount represents only the amount due for the six months
then ended.
</FN>
39
RECONCILIATION OF GAAP AND NON-GAAP FINANCIAL INFORMATION
The following tables have been provided to reconcile the Non-GAAP financial
information (Adjusted EBITDA and Pro-Rata Consolidated Income Statement Data)
presented in the "Prospectus Summary," "Selected Consolidated Financial Data,"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" sections of this prospectus to their most directly comparable GAAP
measures (Cash Flows from Operating Activities and GAAP Income Statement Data).
RECONCILIATION OF CASH FLOWS FROM OPERATING ACTIVITIES (GAAP MEASURE) TO
ADJUSTED EBITDA (NON-GAAP MEASURE).
[Enlarge/Download Table]
SIX MONTHS ENDED
YEARS ENDED JUNE 30, DECEMBER 31,
--------------------------------------------------------- ---------------------
1999 2000 2001 2002 2003 2002 2003
--------- --------- --------- --------- --------- --------- ----------
(DOLLARS IN THOUSANDS)
NON-GAAP FINANCIAL DATA<F1>
Cash Flows from Operating Activities (GAAP
measure).................................. $ 61,891 $ 96,404 $ 43,678 $ 57,592 $ 57,838 $ 18,182 $ 11,721
Net Change in Operating Assets and
Liabilities............................... 26,084 13,532 25,504 459 8,619 24,180 26,470
Interest Expense............................ 56,765 75,758 82,241 75,302 64,252 33,470 28,088
Bad Debt Expense............................ (7,559) (10,859) (10,916) (10,213) (9,632) (4,765) (4,154)
Pension Income (Expense), Net of Cash
Contributions............................. 606 2,802 5,948 (1,172) (31) (73) (549)
Direct Costs of the Unconsolidated JOAs,
Incurred Outside of the Unconsolidated
JOAs<F2>.................................. 383 514 16,403 43,211 43,411 21,624 23,195
Net Cash Related to Other (Income), Expense. (3,900) 7,470 5,733 1,505 5,490 150 328
---------- --------- --------- --------- --------- --------- ---------
Adjusted EBITDA............................. 134,270 185,621 168,591 166,684 169,947 92,768 85,099
Minority Interest in Adjusted EBITDA........ (14,939) (44,298) (45,647) (45,946) (49,089) (26,237) (26,626)
Combined Adjusted EBITDA of Unconsolidated
JOAs...................................... 3,144 4,725 14,205 36,006 40,371 22,268 24,363
Distributions from Texas-New Mexico
Newspapers Partnership<F3>................ -- -- -- -- 2,896 -- 4,696
--------- --------- --------- --------- --------- --------- ---------
Adjusted EBITDA Available to Company........ $ 122,475 $ 146,048 $ 137,149 $ 156,744 $ 164,125 $ 88,799 $ 87,532
========= ========= ========= ========= ========= ========= =========
----------
<FN>
<F1> NON-GAAP FINANCIAL DATA. Adjusted EBITDA and Adjusted EBITDA Available to
Company are not measures of performance recognized under GAAP. However, we
believe that they are indicators and measurements of our leverage capacity
and debt service ability. Adjusted EBITDA and Adjusted EBITDA Available to
Company should not be considered as an alternative to measure
profitability, liquidity, or performance, nor should they be considered an
alternative to net income, cash flows generated by operating, investing or
financing activities, or other financial statement data presented in our
consolidated financial statements. Adjusted EBITDA is calculated by
deducting cost of sales and SG&A expense from total revenues. Adjusted
EBITDA Available to Company is calculated by: (i) reducing Adjusted EBITDA
by the minorities' interest in the Adjusted EBITDA generated from the
California Newspapers Partnership, York Newspaper Company and The Denver
Post Corporation, our less than 100% owned consolidated subsidiaries
("Minority Interest in Adjusted EBITDA"); (ii) increasing Adjusted EBITDA
by our combined proportionate share of the Adjusted EBITDA generated by our
unconsolidated JOAs in Denver, Salt Lake City and Charleston ("Combined
Adjusted EBITDA of Unconsolidated JOAs"); and (iii) increasing Adjusted
EBITDA by Distributions from the Texas-New Mexico Newspapers Partnership
(see footnote (c)).
<F2> DIRECT COSTS OF UNCONSOLIDATED JOAS. Direct Costs of the Unconsolidated
JOAs, Incurred Outside of the Unconsolidated JOAs includes the editorial
costs, publishing related revenues, depreciation, amortization, and other
direct costs incurred outside of the JOAs by our consolidated subsidiaries
associated with THE SALT LAKE TRIBUNE, THE DENVER POST, and the CHARLESTON
DAILY MAIL. See Note 3: Joint Operating Agencies in the footnotes to our
consolidated financial statements for further description and analysis of
this adjustment.
<F3> THE TEXAS-NEW MEXICO NEWSPAPERS PARTNERSHIP. The Texas-New Mexico
Newspapers Partnership agreement, effective March 3, 2003, requires the
partnership to make monthly distributions equal to the earnings of the
partnership before depreciation and amortization (EBITDA). These
distributions have been included in Adjusted EBITDA Available to Company,
as they are an integral part of our cash flows from operations.
</FN>
40
RECONCILIATION OF CASH FLOWS FROM OPERATING ACTIVITIES (GAAP MEASURE) TO
ADJUSTED EBITDA PRESENTED ON A PRO-RATA CONSOLIDATED BASIS (NON-GAAP MEASURE).
[Enlarge/Download Table]
SIX MONTHS ENDED
YEARS ENDED JUNE 30, DECEMBER 31,
--------------------------------- ---------------------
2001 2002 2003 2002 2003
--------- -------- -------- -------- ---------
(DOLLARS IN THOUSANDS)
NON-GAAP FINANCIAL DATA<F1>
Cash Flows from Operating Activities
(GAAP measure).......................... $ 43,678 $ 57,592 $ 57,838 $ 18,182 $ 11,721
Net Change in Operating Assets and
Liabilities.............................. 25,504 459 8,619 24,180 26,470
Interest Expense........................... 82,241 75,302 64,252 33,470 28,088
Bad Debt Expense........................... (10,916) (10,213) (9,632) (4,765) (4,154)
Pension Income (Expense), Net of Cash
Contributions............................ 5,948 (1,172) (31) (73) (549)
Net Cash Related to Other (Income), Expense 5,733 1,505 5,490 150 328
Combined Adjusted EBITDA of Unconsolidated
JOAs<F2>................................. 14,205 36,006 40,371 22,268 24,363
Direct Costs of the Unconsolidated JOAs,
Incurred Outside of the JOAs<F3>......... 16,403 43,211 43,411 21,624 23,195
Minority Interest in Adjusted EBITDA of
York Newspaper Company<F4>............... (7,876) (7,732) (8,044) (4,145) (4,320)
-------- -------- -------- -------- --------
Adjusted EBITDA............................ 174,920 194,958 202,274 110,891 105,142
Minority Interest in Adjusted EBITDA....... (37,771) (38,214) (41,045) (22,092) (22,306)
Distributions from Texas-New Mexico
Newspapers Partnership................... -- -- 2,896 -- 4,696
-------- -------- -------- -------- --------
Adjusted EBITDA Available to Company....... $137,149 $156,744 $164,125 $ 88,799 $ 87,532
======== ======== ======== ======== ========
----------
<FN>
<F1> NON-GAAP FINANCIAL DATA. Adjusted EBITDA and Adjusted EBITDA Available to
Company are not measures of performance recognized under GAAP. However, we
believe that they are indicators and measurements of our leverage capacity
and debt service ability. Adjusted EBITDA and Adjusted EBITDA Available to
Company should not be considered as an alternative to measure
profitability, liquidity, or performance, nor should they be considered an
alternative to net income, cash flows generated by operating, investing or
financing activities, or other financial statement data presented in our
consolidated financial statements. Adjusted EBITDA is calculated by
deducting cost of sales and SG&A expense from total revenues. Adjusted
EBITDA Available to Company is calculated by: (i) reducing Adjusted EBITDA
by the minorities' interest in the Adjusted EBITDA generated from the
California Newspapers Partnership and The Denver Post Corporation, our less
than 100% owned consolidated subsidiaries ("Minority Interest in Adjusted
EBITDA") and (ii) increasing Adjusted EBITDA by Distributions from the
Texas-New Mexico Newspapers Partnership. Note that pro-rata consolidation
already takes into account our share of the results from our unconsolidated
JOAs and factors out the minority interest associated with York Newspaper
Company.
<F2> COMBINED ADJUSTED EBITDA OF UNCONSOLIDATED JOAS. Combined Adjusted EBITDA
of Unconsolidated JOAs is calculated as total revenues, less cost of sales
and SG&A expense from the Unconsolidated JOAs Pro-Rata Adjustment column
presented that follows under "-- Reconciliation of Income Statement Data
presented on a historical GAAP basis to Non-GAAP Income Statement Data
presented on a pro-rata consolidation basis."
<F3> DIRECT COSTS OF UNCONSOLIDATED JOAS. Direct Costs of the Unconsolidated
JOAs, Incurred Outside of the Unconsolidated JOAs includes the editorial
costs, publishing related revenues, depreciation, amortization, and other
direct costs incurred outside of the JOAs by our consolidated subsidiaries
associated with The Salt Lake Tribune, The Denver Post, and the Charleston
Daily Mail. See Note 3: Joint Operating Agencies in the footnotes to our
consolidated financial statements for further description and analysis of
this adjustment.
<F4> MINORITY INTEREST IN ADJUSTED EBITDA OF YORK NEWSPAPER COMPANY. Minority
Interest in Adjusted EBITDA of York Newspaper Company is calculated as
total revenues, less cost of sales and SG&A expense from the Adjustment to
Eliminate 42.5% Minority Interest in York JOA column presented that follows
under "-- Reconciliation of Income Statement Data presented on a historical
GAAP basis to Non-GAAP Income Statement Data presented on a pro-rata
consolidation basis."
</FN>
41
RECONCILIATION OF INCOME STATEMENT DATA PRESENTED ON A HISTORICAL GAAP BASIS TO
NON-GAAP INCOME STATEMENT DATA PRESENTED ON A PRO-RATA CONSOLIDATION BASIS.
See footnotes (1) and (2) at the end of these reconciliations for a
description of the adjustments made. See footnote (a) on the preceding page for
a description of our method of calculating Adjusted EBITDA. All amounts shown in
the following reconciliations are in thousands.
[Enlarge/Download Table]
YEAR ENDED JUNE 30, 2003
--------------------------------------------------------------
ADJUSTMENT TO
ELIMINATE 42.5%
AS MINORITY UNCONSOLIDATED AS PRESENTED
PRESENTED INTEREST IN JOAS PRO-RATA ON A PRO-RATA
UNDER GAAP YORK JOA<F1> ADJUSTMENT<F2> BASIS
----------- --------------- -------------- -------------
Total Revenues............................ $ 738,598 $ (17,584) $ 304,457 $ 1,025,471
Income from Unconsolidated JOAs........... 25,227 -- (25,227) --
Cost of Sales............................. 221,888 (3,542) 124,666 343,012
Selling, General and Administrative....... 346,763 (5,998) 139,420 480,185
Depreciation and Amortization............. 40,553 (526) 15,814 55,841
Interest Expense.......................... 64,252 (106) 345 64,491
Other (Income) Expense, Net............... 19,534 (207) (1,015) 18,312
----------- ------------ ------------ -------------
Total Costs and Expenses................ 692,990 (10,379) 279,230 961,841
Gain on Sale of Newspaper Properties...... 27,399 -- -- 27,399
Minority Interest......................... (34,088) 7,204 -- (26,884)
Net Income................................ 40,828 -- -- 40,828
Adjusted EBITDA........................... $ 169,947 $ (8,044) $ 40,371 $ 202,274
[Enlarge/Download Table]
YEAR ENDED JUNE 30, 2002
--------------------------------------------------------------
ADJUSTMENT TO
ELIMINATE
42.5% MINORITY UNCONSOLIDATED AS PRESENTED
AS PRESENTED INTEREST IN JOAS PRO-RATA ON A PRO-RATA
UNDER GAAP YORK JOA<F1> ADJUSTMENT<F2> BASIS
------------ --------------- -------------- --------------
Total Revenues........................... $ 711,130 $ (17,252) $ 298,902 $ 992,780
Income from Unconsolidated JOAs.......... 8,770 -- (8,770) --
Cost of Sales............................ 220,082 (3,730) 133,929 350,281
Selling, General and Administrative...... 324,364 (5,790) 128,967 447,541
Depreciation and Amortization............ 47,545 (575) 17,750 64,720
Interest Expense......................... 75,302 (149) 364 75,517
Other (Income) Expense, Net.............. 10,941 (69) 9,124 19,996
---------- ------------ ----------- -------------
Total Costs and Expenses............... 678,234 (10,313) 290,134 958,055
Minority Interest........................ (32,218) 6,940 -- (25,278)
Net Income............................... 12,365 -- -- 12,365
Adjusted EBITDA.......................... $ 166,684 $ (7,732) $ 36,006 $ 194,958
42
[Enlarge/Download Table]
YEAR ENDED JUNE 30, 2001
----------------------------------------------------------------
ADJUSTMENT TO
ELIMINATE 42.5%
MINORITY UNCONSOLIDATED AS PRESENTED
AS PRESENTED INTEREST IN JOAS PRO-RATA ON A PRO-RATA
UNDER GAAP YORK JOA<F1> ADJUSTMENT<F2> BASIS
------------ --------------- -------------- -------------
Total Revenues............................ $ 852,180 $ (18,654) $ 145,403 $ 978,929
Income from Unconsolidated JOAs........... (3,202) -- 3,202 --
Cost of Sales............................. 297,825 (4,039) 72,723 366,509
Selling, General and Administrative....... 385,764 (6,739) 58,475 437,500
Depreciation and Amortization............. 62,593 (491) 10,788 72,890
Interest Expense.......................... 82,241 (244) 164 82,161
Other (Income) Expense, Net............... 13,200 (41) 6,455 19,614
----------- ------------- ------------ ------------
Total Costs and Expenses................ 841,623 (11,554) 148,605 978,674
Gain on Sale of Newspaper Properties...... 74,255 -- -- 74,255
Minority Interest......................... (40,927) 7,100 -- (33,827)
Net Income................................ 25,227 -- -- 25,227
Adjusted EBITDA........................... $ 168,591 $ (7,876) $ 14,205 $ 174,920
[Enlarge/Download Table]
SIX MONTHS ENDED DECEMBER 31, 2003
-----------------------------------------------------------------
ADJUSTMENT TO
ELIMINATE 42.5%
MINORITY UNCONSOLIDATED AS PRESENTED
AS PRESENTED INTEREST IN JOAS PRO-RATA ON A PRO-RATA
UNDER GAAP YORK JOA<F1> ADJUSTMENT<F2> BASIS
------------ --------------- -------------- --------------
Total Revenues......................... $ 380,716 $ (9,479) $ 158,804 $ 530,041
Income from Unconsolidated JOAs........ 15,743 -- (15,743) --
Cost of Sales.......................... 117,202 (1,970) 63,320 178,552
Selling, General and Administrative.... 178,415 (3,189) 71,121 246,347
Depreciation and Amortization.......... 20,050 (208) 7,679 27,521
Interest Expense....................... 28,088 (48) 150 28,190
Other (Income) Expense, Net............ 14,228 (49) 791 14,970
----------- ------------- ------------ -------------
Total Costs and Expenses............. 357,983 (5,464) 143,061 495,580
Minority Interest...................... (19,888) 4,015 -- (15,873)
Net Income............................. 14,294 -- -- 14,294
Adjusted EBITDA........................ $ 85,099 $ (4,320) $ 24,363 $ 105,142
43
[Enlarge/Download Table]
SIX MONTHS ENDED DECEMBER 31, 2002
-----------------------------------------------------------------
ADJUSTMENT TO
ELIMINATE 42.5%
MINORITY UNCONSOLIDATED AS PRESENTED
AS PRESENTED INTEREST IN JOAS PRO-RATA ON A PRO-RATA
UNDER GAAP YORK JOA<F1> ADJUSTMENT<F2> BASIS
------------ --------------- -------------- --------------
Total Revenues......................... $ 374,341 $ (8,889) $ 155,282 $ 520,734
Income from Unconsolidated JOAs........ 15,139 -- (15,139) --
Cost of Sales.......................... 109,567 (1,772) 62,940 170,735
Selling, General and Administrative.... 172,006 (2,972) 70,074 239,108
Depreciation and Amortization.......... 21,276 (273) 8,074 29,077
Interest Expense....................... 33,470 (54) 172 33,588
Other (Income) Expense, Net............ 1,681 (39) (1,117) 525
---------- ------------ ------------ -------------
Total Costs and Expenses............. 338,000 (5,110) 140,143 473,033
Minority Interest...................... (20,277) 3,779 -- (16,498)
Net Income............................. 19,302 -- -- 19,302
Adjusted EBITDA........................ $ 92,768 $ (4,145) $ 22,268 $ 110,891
----------
<FN>
<F1> ADJUSTMENT TO ELIMINATE 42.5% MINORITY INTEREST IN YORK JOA. Eliminates the
York Newspaper Company JOA minority partner's 42.5% share from the
individual line items with a corresponding adjustment to GAAP minority
interest. The difference between the minority interest adjustment provided
in the reconciliation of Cash Flows from Operating Activities (GAAP
measure) to Adjusted EBITDA presented on a pro-rata consolidated basis
(non-GAAP measure) and the pro-rata minority interest adjustment above is
that certain items (Depreciation and Amortization, Interest Expense and
Other (Income) Expense, Net) are excluded from Minority Interest in
Adjusted EBITDA.
<F2> UNCONSOLIDATED JOAS PRO-RATA ADJUSTMENT. The adjustment to pro-rata
consolidate our unconsolidated JOAs includes our proportionate share, on a
line item basis of the income statements of our unconsolidated JOAs. Our
interest in the earnings of the Salt Lake City JOA is 58%, while our
interests in Denver Newspaper Agency and Charleston Newspapers are 50%.
This adjustment also includes the editorial costs, publishing related
revenues, depreciation, amortization, and other direct costs incurred
outside of the JOAs by our consolidated subsidiaries associated with THE
SALT LAKE TRIBUNE, THE DENVER POST, and the CHARLESTON DAILY MAIL. See Note
3: Joint Operating Agencies in the footnotes to our consolidated financial
statements for further description and analysis of the components of this
adjustment.
</FN>
44
BUSINESS
GENERAL
MediaNews Group, Inc. ("MediaNews" or "the Company") is the successor
issuer to Garden State Newspapers, Inc., which was founded in March 1985. We are
one of the largest private newspaper companies in the United States in terms of
daily paid circulation. We control 40 market dominant daily, and approximately
65 non-daily, newspapers in nine states, including suburban markets in close
proximity to the San Francisco Bay area, Los Angeles, New York, Baltimore and
Boston. We also own metropolitan daily newspapers, in Denver and Salt Lake City,
that operate under joint operating agency ("JOA") agreements. The newspapers we
control had combined daily and Sunday paid circulation of approximately 1.7
million and 2.3 million, respectively, as of September 30, 2003. In addition, we
have a 33.8% interest in a partnership controlled by Gannett, the largest
newspaper company in the United States. This partnership operates six daily
newspapers in Texas and New Mexico with a combined daily circulation of
approximately 130,000.
We have grown primarily through strategic acquisitions, partnerships and,
to a lesser extent, internal growth. One of our key strategies is geographic
clustering. This strategy involves acquiring newspapers or partnering with
newspapers in markets contiguous to those in which we already operate.
Clustering has allowed us to realize substantial revenue synergies and cost
efficiencies, resulting in higher operating cash flow growth at those newspapers
than they would have achieved on a stand-alone basis. From fiscal year 1999
through fiscal year 2003, we acquired, or obtained through partnerships, 22
daily newspapers.
Our newspapers are generally positioned in markets with limited direct
competition for local newspaper advertising. Start-ups of new daily newspapers
in suburban markets with pre-existing local newspapers are rare. We believe that
our newspaper markets, taken as a whole, have above average population and sales
growth potential. Most suburban and small city daily newspapers, such as a
majority of the newspapers we own, have the leading or sole distribution in the
markets they serve. Suburban newspapers address the specific needs of the
community by publishing a broad spectrum of local news as well as advertiser
specific editions which television, because of its broader geographic coverage,
is unwilling or unable to provide. Thus, in many communities, the local
newspaper provides a combination of social and economic services in a way that
only it can, making it attractive for both consumers and advertisers. Our
metropolitan newspapers generate much of their revenues from high margin
national and employment advertising, which is strongly influenced by national
and local economic trends. On the other hand, our suburban newspapers generate
the majority of their revenues from local retail, classified and circulation
sales, which we believe are less affected by national economic trends and
therefore tend to provide a more stable base of operating cash flow.
We also operate, in conjunction with our suburban newspapers, sizeable
weekly newspaper groups that target the diverse communities and advertising
opportunities that exist in and around large cities. In addition to relying on
small local retailers, local classifieds and restaurants for advertising, which
provides a more stable base of operating cash flow, suburban weekly newspapers
allow us to attract a different base of advertisers, improve competitive
positioning, reduce the threat of competition from direct mail and shoppers
(free circulars) and achieve greater household penetration in our newspaper
markets. Our largest suburban weekly newspaper groups operate in conjunction
with our San Francisco Bay area newspapers, Los Angeles Newspapers Group and
CONNECTICUT POST.
INDUSTRY BACKGROUND
Newspaper publishing is the oldest and largest segment of the media
industry. Newspapers address the specific needs of the communities they serve by
publishing a broad spectrum of local news as well as special editions that are
targeted to specific advertisers and readers. In most communities, the local
newspaper provides the primary voice for local news and information, including
business, sports, government and social as well as political commentary, making
a newspaper's content attractive to both readers and advertisers. We believe
that local newspaper's close relationship with its readers and local community
is one of the primary reasons why newspapers remain a dominant medium for local
advertising, accounting for approximately 41% of all local media advertising
expenditures in the United States in calendar 2002.(1)
----------
(1) Source: NAA.org Newspaper Association of America 2003 Facts About
Newspapers
45
We believe that newspapers are the last mass medium available for
advertisers to reach a broad spectrum of consumers. In addition, newspapers are
one of the few forms of mass media used by readers for both editorial and
advertising content. Independent studies have shown that 43% of Sunday newspaper
readers value advertising as much as news and editorial content.(2) Readers of
newspapers also tend to be more highly educated and have higher incomes than
non-newspaper readers, with a recent survey showing over 61% of college
graduates and 64% of households with incomes greater than $75,000 reading a
daily newspaper.(1) Because of the desirable demographic and market reach of
daily newspapers, we believe that they represent the most cost-effective means
for advertisers to reach a broad and affluent spectrum of consumers.
With the exception of a few of the largest, most cities in the United
States do not have more than one daily newspaper. In addition, start-ups of
daily newspapers that compete in a meaningful way with existing daily newspapers
are rare.
OPERATING STRENGTHS AND STRATEGIES
Our long-term operating strategy is to increase revenues and operating cash
flows through geographic clustering, partnerships and internal growth. Our
internal growth strategy is built on our key strengths, which include new
revenue streams, local news leadership, circulation growth and prudent cost
controls. We also continue to pursue strategic acquisition opportunities and
drive revenue growth in our Internet operations by leveraging our local content
across a diverse array of advertising categories, including employment,
automotive and other classified verticals.
GEOGRAPHIC CLUSTERS AND PARTNERSHIPS. One of our key acquisition strategies
is to acquire newspapers in markets contiguous to our own, allowing us to
realize operating synergies. We refer to this strategy, which we pioneered, as
"clustering." Clustering enables us to realize operating efficiencies and
economic synergies, such as the sharing of management, accounting,
newsgathering, advertising and production facilities. In addition, we seek to
increase operating cash flows at acquired newspapers by reducing labor costs,
and implementing overall improvements in cost management. Clustering also
enables us to maximize revenues by selling advertising into newspapers owned by
us in contiguous markets. We believe that this strategy allows us to achieve
higher operating margins at our clustered newspapers than we would realize from
those newspapers on a stand-alone basis. CNP, the Denver JOA and the Texas-New
Mexico Newspapers Partnership are extensions of this strategy.
NEW REVENUE STREAMS. We focus on developing and implementing new revenue
initiatives and exporting these initiatives across all of our newspapers. We
continue to launch niche publications and implement other revenue growth
initiatives, such as a monthly contest for the "best new revenue initiative,"
revenue Think Tanks with our top sales executives, TOMA ("Top of Mind
Awareness") which introduces small local advertisers to the power of newspaper
advertising and SWAT programs which utilize the skills of our best sales
representatives in a sales blitz at a sister newspaper. We have also formed
strategic alliances, such as a relationship with a direct mail provider designed
to increase our share of the mid-week preprint and print and delivery business
in four of our markets, including most recently Los Angeles and the San
Francisco Bay area. In addition, we utilize market research, demographic
studies, zoning, strong local market penetration and active community
involvement to develop and implement marketing programs that allow our
newspapers to maximize their share of the available advertising dollars in the
market.
LOCAL NEWS LEADERSHIP. We believe that we have assembled the largest local
news gathering resources in our markets and are committed to being the leading
provider of high quality local news in those markets. Our focus on in-depth
local news coverage sets us apart from other news sources in our markets,
contributing to reader loyalty and increasing franchise value. With the
timeliness and availability of national and world news 24 hours a day on
television and the Internet, we believe that providing in-depth local news
coverage is invaluable and sets us apart from other news sources, generating
reader loyalty and increasing franchise value. Additionally, our ongoing
involvement in the communities in which we operate not only strengthens our
relationships with these communities but also provides our advertisers a
superior vehicle for promoting their goods and services. Although our focus is
primarily on local news, we are committed to providing quality national and
----------
(1) Source: NAA.org Newspaper Association of America 2003 Facts About
Newspapers
(2) Source: Scarborough research
46
international news coverage when it is of particular interest to the local
community, such as sending embedded reporters and photographers from our
metropolitan daily newspapers to cover the recent war in Iraq.
The majority of our newspapers receive awards annually for excellence in
various editorial categories in their respective regions and circulation size.
Recently, THE DENVER POST achieved the highest award for editorial excellence,
winning a Pulitzer Prize in 2000 for its coverage of the Columbine High School
tragedy. Our other newspapers have also received numerous awards from state
press associations as well as other peer organizations for their editorial
content, local news and sports coverage, and photography. In addition, our
newspapers are designed to visually attract readers through attractive layouts
and color enhancements, and in an ongoing effort to improve quality, we have
made investments in digital photography.
CIRCULATION GROWTH. Circulation growth is essential to maintaining and
growing the long-term franchise value at our newspapers. Accordingly, we have
and will continue to make significant investments in circulation promotion,
telemarketing and other circulation growth campaigns to increase circulation and
readership. Our management incentive programs are designed to reward our
publishers for circulation growth at their daily newspapers. We continue to
balance our commitment to circulation growth with circulation profit by
instituting programs that target the replacement of higher churn short-term
circulation orders with longer term, more profitable circulation, thereby
delivering a stable subscriber base for our advertising customers and
controlling subscriber acquisition costs. This strategy has improved circulation
profits, but may at times decrease circulation volumes in the short-term. We are
also making substantial investments in technology to enhance demographic
targeting of potential subscribers aimed at selling to and retaining high
quality subscribers.
COST CONTROLS. We focus on cost control with a particular focus on managing
staffing requirements. At newspapers with collective bargaining unions,
management strives to enter into long-term agreements with minimal annual
increases. In addition, we further control labor costs through investments in
state-of-the-art production equipment that improve production quality and
increase efficiency. We are equally focused on newsprint cost control. Each of
our newspapers benefits from the discounted newsprint pricing we obtain as one
of the largest newspaper groups in the United States. We purchase newsprint from
several suppliers under arrangements resulting in what we believe are some of
the most favorable newsprint prices in the industry.
We were the first newspaper company in the United States to convert all of
our newspapers to a 50-inch web width, which reduced the width of a single
newspaper page to 12.5 inches from either 13.5 inch or 13.75 inch page widths.
These conversions have permanently reduced our newsprint consumption by
approximately 8% below levels prior to conversion. While converting to the
50-inch web-width cut our newsprint costs, it also had the added benefit of
improving customer satisfaction through ease of use.
INTERNET. MediaNews Group Interactive ("MNGI"), our Internet subsidiary,
provides our newspapers with the tools, technologies and services that our
newspapers need to maintain their presence as the leading local news and
information Web site(s) in each of the communities that they serve. Those
services include: hosting, online publishing/site delivery, maintenance,
ongoing-development, training, advertisement delivery, site analytics and
business development support. MNGI is zealously focused on leveraging our
extensive news gathering resources and our existing sales infrastructure in both
print and electronic media to increase the reach and the profitability of our
local media franchises. Our newspapers' Internet operations have seen their
reach grow significantly with unique visitor growth of 50% year over year.
Recently, we have begun to implement next generation classified capabilities
which we believe will result in more revenue per order, new revenue streams,
significant cost savings, and the development of better products that will allow
us to better compete with new entrants into on-line advertising and enhance
advertiser satisfaction.
In addition, we will soon be introducing site registration and
personalization across each of our sites, giving us the ability to integrate our
online/offline databases to allow for a very high degree of online targeted
marketing including print subscription acquisitions, email marketing and the
ability to target advertising based on the captured demographic and
psychographic data.
We have also made strategic Internet investments to expand and enrich our
online content and advertising services as is more fully described below. By
being the leading, and in certain instances the sole provider of local news in
most of our markets, and leveraging the Internet, electronic media, emerging
wireless and broadband technologies, we believe that our newspapers are well
positioned to respond to and benefit from changes in the way in which
advertising, news and information are delivered to customers in the future. Our
online newspapers can be found at www.newschoice.com.
47
Our strategic Internet investments include:
o POWERONE MEDIA (www.poweronemedia.com), provides interactive vertical
classified advertising solutions, primarily for the newspaper
industry. PowerOne Media solutions include CarCast, Zwire!, Classified
Hosting, Employment, Display Ads, Franchise Solutions, Online Dating,
and Real Estate.
o CAREERSITE (www.careersite.com) develops and sells Internet based
application tools that allow job seekers and employers to search job
opportunities and resumes for the best match. Employment advertising
is an important revenue stream at our newspapers. With our investment
in CareerSite, we are able to integrate and provide the best of
newspaper and Internet functionality for users and advertisers. In
September 2003, CareerSite merged with PowerOne. After the merger, we
owned approximately 15.0% of PowerOne.
o SEEITBUYIT (www.seeitbuyit.com), incorporated as Mortgage Rate Watch,
is a marketing and promotional services company focused on providing
the real estate industry powerful listing and selling tools to
participating realtors and newspaper affiliates under a program
designed to provide a one stop shopping marketing solution for our
real estate advertising customers. "SeeitBuyit" provides realtors with
video photography of real estate for sale, the conversion of photo
shoots into online home tours with full video streaming and production
of brochures, street signs, direct mail pieces, and other items used
by realtors in selling new and existing homes. SeeitBuyit is a
wholly-owned subsidiary of MediaNews.
SUPERIOR MANAGEMENT. Our management team has a proven track record of
successfully acquiring, including through partnerships, approximately 70
newspapers that have been successfully integrated into our operations. Our
senior executives have spent the majority of their careers in the newspaper
industry operating, acquiring and integrating newspapers.
STRATEGIC ACQUISITIONS. In the past we have sought to acquire newspapers
that are contiguous to our existing newspapers and that represent compelling
values based on expected operating cash flow growth from clustering synergies,
efficiencies or otherwise. We may from time to time continue to evaluate and
pursue strategic or targeted acquisitions that meet our strict criteria,
including our goal of not increasing our leverage ratio over the long-term.
CONVERGENCE. We have made strategic investments in other media outlets,
including radio stations in and around Graham, Texas, which are operated in
conjunction with our weekly newspapers published in and around Graham. We also
own the CBS television affiliate in Anchorage, Alaska, which is now operated in
conjunction with the Fox affiliate in Anchorage under the terms of a Joint Sales
Agreement and a Shared Services Agreement. In addition, many of our newspapers
have a television partner, which provides promotional value, and sharing of news
gathering resources and advertising cross-selling opportunities.
As the digital age continues to evolve, we will explore new and innovative
ways to leverage our content across multiple platforms with a clear focus toward
developing profitable new revenue streams. Currently, there is some uncertainty
as to what the final Federal Communications Commission rules and regulations
will be with respect to newspaper cross-ownership. However, even if final
newspaper cross-ownership rules and regulations are upheld, we do not anticipate
making significant television or radio acquisitions in the aggregate or making
changes to our current business strategy. We will continue to develop strategic
partners to assist in the development of our strategy in a cost efficient
manner.
48
PAID CIRCULATION
The following table sets forth paid circulation of each of our daily
newspapers. The JOA data for daily circulation reflects only our newspapers'
share of the combined circulation; however Sunday circulation for Denver, York
and Charleston reflect the combined JOA circulation as only one newspaper
published on Sunday for these JOAs:
[Enlarge/Download Table]
PAID CIRCULATION AT SEPTEMBER 30, 2003
--------------------------------------
MORNING(M)
EVENING(E) DAILY SUNDAY
---------- --------- --------
MediaNews:
THE DENVER POST, Denver, CO (JOA)................................ M 288,937 785,671
DAILY NEWS, Los Angeles, CA...................................... M<F1> 178,360 201,020
THE SALT LAKE TRIBUNE, Salt Lake City, UT (JOA).................. M 134,985 152,444
PRESS-TELEGRAM, Long Beach, CA................................... M<F1> 97,172 110,153
CONNECTICUT POST, Bridgeport, CT................................. M 76,197 88,316
THE SUN, Lowell, MA.............................................. E 48,571 50,642
THE YORK DISPATCH & YORK SUNDAY NEWS, York, PA (JOA)............. E 39,900 92,500
CHARLESTON DAILY MAIL & SUNDAY GAZETTE-MAIL,
Charleston, WV (JOA)........................................... E 35,126 89,872
THE BERKSHIRE EAGLE, Pittsfield, MA.............................. M 31,303 35,281
LEBANON DAILY NEWS, Lebanon, PA.................................. E 19,769 20,386
THE EVENING SUN, Hanover, PA..................................... E 19,464 20,883
SENTINEL & ENTERPRISE, Fitchburg, MA............................. E 16,767 17,468
Eastern Colorado Publishing Company, CO.......................... E<F2> 12,576 <F5>
BRATTLEBORO REFORMER, Brattleboro, VT............................ M 10,472 <F5>
BENNINGTON BANNER, Bennington, VT................................ M 7,755 <F5>
NORTH ADAMS TRANSCRIPT, North Adams, MA.......................... E 6,895 <F5>
----------- ----------
Subtotal....................................................... 1,024,249 1,664,636
California Newspapers Partnership (consolidated, 54.23%
owned):
ANG Newspapers, San Francisco Bay Area, CA....................... <F3> 218,534 180,404
San Gabriel Valley Newspaper Group, CA........................... M<F1>,<F4> 101,031 106,860
THE SUN, San Bernardino, CA...................................... M<F1> 73,021 81,607
INLAND VALLEY DAILY BULLETIN, Ontario, CA........................ M<F1> 65,591 75,109
MARIN INDEPENDENT JOURNAL, Marin CA.............................. E 40,221 40,250
ENTERPRISE-RECORD/OROVILLE MERCURY-REGISTER, Chico &
Oroville, CA................................................... M 33,527 33,384
TIMES-HERALD, Vallejo, CA........................................ M 20,918 22,449
TIMES-STANDARD, Eureka, CA....................................... M 19,534 21,218
THE REPORTER, Vacaville, CA...................................... M 17,603 19,210
DAILY DEMOCRAT, Woodland, CA..................................... E 10,070 10,329
THE UKIAH DAILY JOURNAL, Ukiah, CA............................... E 7,655 7,853
LAKE COUNTY RECORD-BEE, Lakeport, CA............................. M 7,328 <F5>
RED BLUFF DAILY NEWS, Red Bluff, CA.............................. E 7,140 <F5>
REDLANDS DAILY FACTS, Redlands, CA............................... E<F1> 7,120 7,161
----------- ----------
Subtotal....................................................... 629,293 605,834
----------- ----------
Total.......................................................... 1,653,542 2,270,470
=========== ==========
Texas-New Mexico Newspapers Partnership (unconsolidated, 33.8% owned):
EL PASO TIMES, El Paso, TX....................................... M 72,443 89,792
LAS CRUCES SUN-NEWS, Las Cruces, NM.............................. M 21,512 24,482
THE DAILY TIMES, Farmington, NM.................................. M 17,748 19,353
CARLSBAD CURRENT-ARGUS, Carlsbad, NM............................. M 8,201 8,351
ALAMOGORDO DAILY NEWS, Alamogordo, NM............................ E 6,801 8,122
THE DEMING HEADLIGHT, Deming, NM................................. M 3,038 <F5>
----------- ----------
Total.......................................................... 129,743 150,100
=========== ==========
CIRCULATION FIGURES ARE BASED ON THE AUDIT BUREAU OF CIRCULATION (ABC)
FAS-FAX STATEMENTS FOR THE SIX-MONTH PERIOD ENDED SEPTEMBER 30, 2003, EXCEPT FOR
THE DEMING HEADLIGHT, WHICH DOES NOT REPORT TO ABC.
----------
<FN>
<F1> Part of Los Angeles Newspapers Group ("LANG"), located in Los Angeles County, California. Combined LANG daily and
Sunday circulation is 522,295 and 581,910, respectively.
<F2> Eastern Colorado Publishing Company publishes THE FORT MORGAN TIMES, the JOURNAL-ADVOCATE and the LAMAR DAILY NEWS,
published in Fort Morgan, Sterling and Lamar, Colorado, respectively. All three are evening newspapers.
<F3> Alameda Newspapers Group is headquartered in Oakland, California and publishes six daily newspapers: OAKLAND
TRIBUNE, THE DAILY REVIEW (Hayward), TRI-VALLEY HERALD (Pleasanton), THE ARGUS (Fremont), ALAMEDA TIMES-STAR, and
SAN MATEO COUNTY TIMES. All the newspapers except for the SAN MATEO COUNTY TIMES are morning newspapers. San Mateo
does not publish a Sunday newspaper.
<F4> San Gabriel Valley Newspapers Group is located in West Covina, California, approximately 10 miles east of Los
Angeles and publishes three morning daily newspapers: PASADENA STAR-NEWS, SAN GABRIEL VALLEY TRIBUNE AND WHITTIER
DAILY NEWS.
<F5> This newspaper does not publish a Sunday edition.
</FN>
49
ADVERTISING AND CIRCULATION REVENUES
Advertising is the largest component of a newspaper's revenues, followed by
circulation revenue. Advertising rates at each newspaper are established based
upon market size, circulation, readership, demographic makeup of the market and
the availability of alternative advertising media in the marketplace. While
circulation revenue is not as significant as advertising revenue, circulation
trends can impact the decisions of advertisers and advertising rates.
Advertising revenue includes RETAIL (local and national department stores,
specialty shops, preprinted advertising circulars and other local retailers),
NATIONAL (national advertising accounts) and CLASSIFIED advertising (employment,
automotive, real estate, private party and personals). Retail revenue increased
overall due to increases in preprints and national revenue also improved in
2003. Classified revenue has been impacted by the significant decline in
classified employment advertising due to the continued economic slowdown that
has been experienced in our newspaper markets and throughout the United States.
The contributions of Retail, National, Classified and Circulation revenue to
total revenues for fiscal years 2001, 2002, 2003 and the six months ended
December 31, 2002 and 2003 are shown in the table below.
FISCAL YEARS ENDED SIX MONTHS ENDED
JUNE 30,(1) DECEMBER 31,(1)
---------------------- ------------------
2001 2002 2003 2002 2003
---- ---- ---- -------- --------
(UNAUDITED)
Retail............... 39% 41% 42% 43% 43%
National............. 6 4 6 6 7
Classified........... 34 30 28 27 26
Circulation.......... 17 20 19 19 17
Other................ 4 5 5 5 7
--- --- --- --- ---
100% 100% 100% 100% 100%
=== === === === ===
----------
(1) Generally accepted accounting principles do not allow us to consolidate the
revenues for our JOA investments we do not control; accordingly, we record
our share of the JOAs' net results in one line item, "Income from
Unconsolidated JOAs." Therefore, revenue data for the JOAs we do not
control (Charleston and Salt Lake City, and Denver upon the Denver JOA's
January 23, 2001 formation) are excluded from this summary (see further
discussion under Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Critical Accounting Policies).
NEWSPRINT
Newsprint is one of the largest costs of producing a newspaper. We buy
newsprint from several suppliers under arrangements that we believe provide us
with some of the most favorable long-term newsprint prices in the industry. We
also own, through Kearns-Tribune, LLC, a 6% interest in Ponderay Newsprint
Company. During fiscal years 2001, 2002, and 2003, and for the six months ended
December 31, 2002 and 2003, excluding our unconsolidated JOA operations, we
consumed approximately 226,000, 148,000, 154,000, and 78,000 (for both the six
months ended December 31, 2002 and 2003) metric tons of newsprint, respectively,
and, during the same periods, incurred newsprint expense of $126.0 million,
$74.8 million, $67.3 million, $33.0 million and $37.1 million, respectively.
Newsprint expense as a percentage of revenue from our newspaper operations
(excluding unconsolidated JOAs) for fiscal years 2001, 2002, 2003, and for the
six months ended December 31, 2002 and 2003 was 14.9%, 10.6%, 9.2%, 12.8% and
14.4%, respectively. Newsprint expense decreased from fiscal year 2001 through
fiscal year 2003, primarily due to the formation of the Denver JOA on January
23, 2001, and a decrease in the average price per metric ton of 10% and 13% in
2002 and 2003, respectively. The January 2001 formation of the Denver JOA
impacted newsprint expense because, prior to the JOA, THE DENVER POST's
newsprint expense was consolidated in our results and now the operations of the
Denver JOA are included as a component of "Income from Unconsolidated JOAs." In
addition, because THE DENVER POST, prior to the JOA, had lower circulation rates
and lower advertising costs per thousand of distribution than other metro
markets of similar size, including our market dominant suburban newspapers, our
newsprint expense as a percentage of revenue was greater in fiscal year 2001.
Also, as mentioned above, the decrease in the average price per metric ton,
which began in fiscal year 2002 and continued into 2003, also impacted our
newsprint expense. For the year ended June 30, 2003 and the six months ended
December 31, 2003, our average price per metric ton was $438 and $475,
respectively, whereas for the year ended June 30, 2002 and the six months ended
50
December 31, 2002, our average price per metric ton was $504 and $425,
respectively. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Near Term Outlook -- Newsprint Prices" for a
discussion regarding current newsprint pricing trends.
EMPLOYEE RELATIONS
As of December 31, 2003, we employed at our consolidated entities and
unconsolidated JOAs approximately 8,500 full-time and 2,000 part-time employees,
of which approximately 3,000 are unionized. There has never been a strike or
work stoppage at any of our newspapers during our ownership, and we believe that
our relations with our employees are generally good.
SEASONALITY AND CYCLICALITY
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 our second
fiscal quarter, is generally our strongest revenue quarter of the year. Due to
generally poor weather and a lack of holidays, the first calendar quarter, or
our third fiscal quarter, is generally our weakest revenue quarter of the year.
Our advertising revenues, as well as those of the newspaper industry in
general, are cyclical and dependent upon general economic conditions.
Historically, advertising revenues have increased in periods of economic growth
and declined with general national, regional and local economic downturns and
recessionary economic conditions.
COMPETITION
Each of our newspapers competes for advertising revenue to varying degrees
with magazines, yellow pages, radio, television and cable television, as well as
with some weekly publications, direct mail and other advertising media,
including electronic media (Internet). Competition for newspaper advertising is
largely based upon circulation, price and the content of the newspaper. Our
suburban and small city daily newspapers are the dominant local news and
information source, with strong brand name recognition and no direct competition
from similar daily newspapers published in their markets. However, as with most
suburban small city daily newspapers, some circulation competition exists from
larger daily newspapers, which are usually published in nearby metropolitan
areas.
We believe larger metropolitan daily newspapers with circulation in our
newspaper markets generally do not compete in any meaningful way for local
advertising revenues, a newspaper's main source of revenues. Our daily
newspapers capture the largest share of local advertising as a result of their
direct coverage of the suburban market by providing our reader with local
stories and information that major metropolitan newspapers are unable or
unwilling to provide. In addition, we believe advertisers generally regard
newspaper advertising as a more effective method of advertising promotions and
pricing as compared to television, which is generally used to advertise image.
Many newspaper companies are now publishing news and other content on the
Internet. In addition, there are many sites on the Internet, which are, by
design, advertising and/or subscription supported. Many of these sites target
specific types of advertising such as employment, real estate and automotive
classified. Due to many issues associated with advertising on the Internet, such
as fragmentation and lack of agreement and/or meaningful research on how to
effectively measure viewers and penetration levels, we have not seen advertisers
making a significant commitment to advertise on the Internet. After the issues
mentioned above are resolved, we expect advertising on the Internet to grow to
meaningful levels. Accordingly, we have invested and will continue to invest in
our online strategy, which we believe allows us to capture our share of the
advertising dollars being spent on the Internet advertising now and in the
future.
LEGAL PROCEEDINGS
MediaNews and Salt Lake City Tribune Publishing Company ("SLTPC") continue
to be involved in litigation over SLTPC's option to acquire the assets used in
connection with the operation and publication of THE SALT LAKE TRIBUNE. See Note
11: Commitments and Contingencies, of the notes to our consolidated financial
statements for a description of the background of this litigation. Recent
developments in this litigation are as follows:
51
o On October 2, 2003, the District Court denied SLTPC's motion to set
aside the appraisal process and the resulting option exercise price,
and vacated a stay issued on the closing period in July 2003. The
District Court set a closing date of October 10, 2003 for SLTPC to
exercise its option.
o On October 9, 2003 counsel for SLTPC sent a letter to our counsel
notifying us that SLTPC would not pay the $355.5 million option
exercise price, and raised additional objections to the proposed
closing documentation. Accordingly no closing occurred on October 10,
2003. We subsequently filed a summary judgment motion (which has not
been fully briefed and has not been decided) on the grounds that the
option expired, without being exercised.
o In a stipulation filed on October 17, 2003, which remains subject to
the approval of the District Court, MediaNews, Deseret News Publishing
Company and SLTPC agreed to a stay and administrative closure of the
main action pending resolution of SLTPC's appeals (discussed below) of
various issues related to the appraisal process and the option
exercise price. Prior to the filing of this stipulation, on October
14, 2003, the District Court had vacated the November 3, 2003 trial
date in the main litigation in light of SLTPC's plans to appeal the
appraisal and price related issues. All parties' claims may be
reinstated subsequent to SLTPC's appeal if the parties choose. At this
point, a stay of the main litigation would not include our declaratory
judgment action pending before the District Court, which seeks a
ruling that the individuals who control SLTPC do not have any rights
as individuals (separate from their corporate entity, SLTPC) to
purchase or otherwise acquire the Tribune Assets. In that case, the
parties await the decision of the District Court as to motions to
dismiss filed by the defendants. The defendants have also filed a
motion for partial summary judgment seeking to preclude us from making
certain arguments in support of our declaratory judgment action. We
are opposing the motion for partial summary judgment, which has not
yet been fully briefed. In this same pending declaratory judgment
action, the defendants filed a motion asking the District Judge to
make disclosures relating to his possible recusal. This motion
followed similar motions in the underlying litigation, in which the
District Judge made certain disclosures and declined to recuse
himself. On November 5, 2003, the defendants filed a petition for a
writ of mandamus in the Tenth Circuit Court of Appeals, directing the
District Judge to make additional disclosures. The court ordered
MediaNews and Kearns-Tribune, LLC (a wholly-owned subsidiary of
MediaNews that holds certain assets used in connection with the
operation and publication of THE SALT LAKE TRIBUNE) to file a
response, which has been filed. The petition awaits decision.
o SLTPC has filed two appeals with the United States Court of Appeals
for the Tenth Circuit, which have been consolidated, seeking to
overturn the District Court's decisions that the appraisal process
constituted an arbitration under the FAA, that any challenge of the
$355.5 million option exercise price must be made under the procedures
set forth in the FAA, and that SLTPC had not stated sufficient grounds
under the FAA to overturn the $355.5 million option exercise price.
The appeals are fully briefed; no date for oral argument has been set
by the Tenth Circuit.
We are not in a position at this time to predict the likely outcome of this
litigation. However, we do not believe that the litigation will have a
materially adverse impact on our financial condition, results of operations, or
liquidity. Approximately $3.7 million and $1.7 million was recorded in other
(income) expense, net for the year ended June 30, 2003 and the six months ended
December, 2003, respectively related to the cost of defending these lawsuits.
The costs of defending these lawsuits have been and may continue to be
substantial; however, based on the current status of this litigation, we believe
that our future legal fees relating to this litigation will be substantially
lower than our historical costs.
OTHER
We are also involved in other legal proceedings. In December 2003, we
settled our lawsuit with Enron North America regarding a newsprint swap. We are
currently defending against a lawsuit brought by Mirant Americas Energy
Marketing, LP regarding a newsprint swap agreement. Kmart Corporation ("Kmart")
has commenced an adversary proceeding against us and certain of our subsidiaries
and joint operating agencies in bankruptcy court seeking the return of certain
payments received from Kmart under a "critical vendor" program with respect to
pre-bankruptcy balances due from Kmart. On February 24, 2004, the United States
Court of Appeals for the Seventh Circuit upheld a ruling that payments to
"critical vendors" by Kmart related to pre-bankruptcy balances due these vendors
were improper. We are currently evaluating our legal options with respect to
Kmart's claims for return of payments received. If we, our subsidiaries, joint
operating agencies and equity method investees are required to return all the
critical vendor payments received from Kmart, such payment would impact our
pre-tax income by approximately $3.0 million, assuming we have limited
recoveries as a general unsecured creditor of Kmart. See Note 11: Commitments
and Contingencies, of the notes to our consolidated financial statements for a
more complete description of these lawsuits. On December 31, 2003, we settled
our lawsuit with a newsprint vendor described in Note 11 to our consolidated
financial statements.
52
REGULATION AND ENVIRONMENTAL MATTERS
Substantially all of our facilities are subject to federal, state and local
laws concerning, among other things, emissions to the air, water discharges,
handling and disposal of waste and remediation of contaminated sites. Compliance
with these laws has not had, nor do we expect it to have, a material effect upon
our capital expenditures, net income or competitive position. Although we
believe we are in material compliance with these requirements, we may not have
been and will not at all times be in complete compliance with all applicable
requirements, and there can be no guarantee we will not incur material costs
including fines or damages, resulting from non-compliance.
Environmental laws and regulations and their interpretation, however, have
changed rapidly in recent years and may continue to do so in the future. These
may include obligations to investigate and clean-up environmental contamination
on or from properties we currently or formerly owned or operated, or at off-site
locations where we are identified as a responsible party. Certain laws impose
strict and, under certain circumstances, joint and several liability for
investigation and clean-up costs. Environmental Assessment Reports of our
properties have identified historic activities and conditions on certain of
these properties, as well as current and historic uses of properties in
surrounding areas, which may require further study or remedial measures. No
material remedial measures are currently anticipated or planned by us with
respect to our properties. However, no assurance can be given that existing
Environmental Assessment Reports reveal all environmental liabilities, that any
prior owner of our properties did not create an environmental condition not
known to us, or that an environmental condition does not otherwise exist at any
such property which could result in incurrence of material cost.
Because we deliver certain newspapers by second-class mail, we are required
to obtain permits from, and to file an annual statement of ownership with, the
United States Postal Service.
53
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names, ages and titles and a brief account of the
business experience of each person who is a director, executive officer or other
significant employee of ours.
[Enlarge/Download Table]
NAME AGE TITLE
---- --- -----
Richard B. Scudder............. 90 Chairman of the Board and Director
William Dean Singleton......... 52 Vice Chairman and Chief Executive Officer and Director
Joseph J. Lodovic, IV.......... 43 President
Gerald E. Grilly............... 56 Executive Vice President and Chief Operating Officer
Anthony F. Tierno.............. 59 Senior Vice President of Operations
Ronald A. Mayo................. 42 Vice President and Chief Financial Officer
James L. McDougald............. 51 Treasurer
Michael J. Koren............... 37 Vice President and Controller
Eric J. Grilly................. 32 President, MediaNews Group Interactive
Patricia Robinson.............. 62 Secretary
Jean L. Scudder................ 50 Director
Howell E. Begle, Jr............ 60 Director
Each director is elected annually and serves until the next annual meeting
of shareholders or until his/her successor is duly elected and qualified. Our
directors are not compensated for their service as directors. They do, however,
receive reimbursement of expenses incurred from the attendance at Board of
Directors meetings. Our executive officers are appointed by and serve at the
pleasure of the Board of Directors.
BUSINESS EXPERIENCE
RICHARD B. SCUDDER has served as Chairman of the Board and a Director of
MediaNews since 1985.
WILLIAM DEAN SINGLETON has served as Vice Chairman and Chief Executive
Officer and a Director of MediaNews since 1985. He is also the Publisher of THE
DENVER POST effective February 2001 and the Publisher of THE SALT LAKE TRIBUNE
effective August 2002.
JOSEPH J. LODOVIC, IV, has served as President of MediaNews since February
2001. Prior thereto, he served as Executive Vice President and Chief Financial
Officer from 1993 to February 2001. Mr. Lodovic has been with MediaNews since
1987.
GERALD E. GRILLY has served as Executive Vice President and Chief Operating
Officer of MediaNews since February 2001. Prior thereto he served as President,
Publisher and Chief Executive Officer of The Denver Post Corporation from
November 1998 to February 2001. Mr. Gerald Grilly was employed by McClatchy
Company from 1979 to October 1998, most recently as President of McClatchy
Company's The Newspaper Network from 1993 to October 1998.
ANTHONY F. TIERNO has served as Senior Vice President of Operations since
February 2001. Prior thereto, he served as Executive Vice President and Chief
Operating Officer of MediaNews from 1993 to February 2001. Mr. Tierno has been
with MediaNews since its inception in 1985.
RONALD A. MAYO has served as Vice President and Chief Financial Officer
since February 2001. Prior thereto, he served as Vice President Finance and
Controller from September 1994 to February 2001.
JAMES L. MCDOUGALD has served as Treasurer since September 1994. Prior
thereto, he was Controller for MediaNews from 1988 to 1994.
MICHAEL J. KOREN has served as Vice President and Controller since July
2001. From 1991 to 2001, Mr. Koren was employed by Ernst & Young LLP, most
recently as a Senior Manager.
54
ERIC J. GRILLY has served as President of MediaNews Group Interactive since
October 2002. Prior thereto, he served as Vice President of MediaNews Group
Interactive from October 2000 to October 2002. From May 1999 to October 2000,
Mr. Eric Grilly was Vice President of Interactive Media of The Denver Post
Corporation and from June 1998 to May 1999, Mr. Eric Grilly was the Vice
President of Sales at Nando Media, the Interactive Media division of McClatchy
Newspapers. Mr. Eric Grilly is the son of Mr. Gerald E. Grilly.
PATRICIA ROBINSON has served as Secretary of MediaNews since 1986. Ms.
Robinson is the sister of Mr. William Dean Singleton.
JEAN SCUDDER has served as a Director of MediaNews since July 1998. Ms.
Scudder is the daughter of Richard B. Scudder.
HOWELL E. BEGLE, JR. has served as a Director of MediaNews since November
1996. Mr. Begle is Of Counsel to Hughes Hubbard and Reed LLP, which law firm is
counsel of MediaNews and its affiliates.
EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid or payable to Mr.
Singleton and each of the other four most highly compensated executive officers
whose direct or allocated cash compensation exceeded $100,000 for services
rendered to MediaNews Group in fiscal year 2003. We do not have long-term
compensation or stock option plans for our executives or employees. However,
during 2003, we adopted the non-qualified MediaNews Group Supplemental Executive
Retirement Plan, or the "2003 Plan," which does not qualify as a long-term
incentive plan as defined in Instruction 7(iii) to Item 402(a)(3) of Regulation
S-K. This plan has been offered to certain of our eligible corporate executives.
The 2003 Plan allows participants to defer a portion of their compensation,
including bonuses, if any, on a pre-tax basis. There is no company match on
these deferrals; however, the deferrals earn a return based on notional
investment elections made by the individual participants. In addition, we may at
our discretion, elect to make contributions to the participants' accounts based
on a comparison of our actual profits to budgeted profits during each fiscal
year. Any such contribution is subject to vesting, which is generally ten years
from the date of participation in the plan.
[Enlarge/Download Table]
ANNUAL COMPENSATION
----------------------------
ALL OTHER
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY BONUS COMPENSATION<F4>
--------------------------------------------- ------------- ------------- ------------ ----------------
William Dean Singleton<F1>.................... 2003 $ 830,250 $ 200,000 $ 118,168
Vice Chairman, Chief Executive Officer 2002 810,000 150,000 41,302
2001 790,500 200,000 38,822
Joseph J. Lodovic IV<F1>,..................... 2003 $ 547,350 $ 200,000 $ 64,228
President 2002 534,000 150,000 4,900
2001 519,300 200,000 9,152
Gerald E. Grilly<F2>.......................... 2003 $ 512,500 $ 175,000 $ 53,119
Executive Vice President & 2002 500,000 132,500 1,497
Chief Operating Officer 2001 470,937 631,250 18,766
Anthony F. Tierno............................. 2003 $ 307,500 $ 42,500 $ 29,517
Senior Vice President of Operations 2002 300,000 20,000 29,971
2001 375,000 50,000 63,101
Eric J. Grilly<F3>............................ 2003 $ 187,500 $ 75,000 $ 17,842
President, MediaNews Group Interactive 2002 175,000 27,500 388
2001 163,055 146,000 4,554
----------
<FN>
<F1> In fiscal year 2001, these officers also received significant compensation
that was charged to other affiliates that does not appear here as
compensation.
55
<F2> Prior to February 2001, Mr. Gerald E. Grilly was not an officer of
MediaNews. Mr. Gerald E. Grilly's compensation in fiscal year 2001 includes
compensation earned as MediaNews' Executive Vice President and Chief
Operating Officer and prior to that appointment, the compensation he earned
as President, Publisher, and Chief Executive Officer of The Denver Post
Corporation, including a one-time bonus associated with the formation of
the Denver JOA in the amount of $450,000.
<F3> Prior to October 2000, Mr. Eric J. Grilly was not an officer of MediaNews.
Mr. Eric J. Grilly's compensation in fiscal year 2001 includes compensation
earned as MediaNews' Vice President of MediaNews Group Interactive and
prior to that appointment, the compensation he earned as Vice President of
Interactive Media of The Denver Post Corporation, including a one-time
bonus associated with the formation of the Denver JOA in the amount of
$130,000.
<F4> Included in "All Other Compensation" are amounts earned under the deferred
compensation plans described above.
</FN>
None of our executive officers have an employment agreement with us except
Messrs. Singleton and Lodovic.
EMPLOYMENT AND OTHER AGREEMENTS
Under the terms of Mr. Singleton's Employment Agreement, which was amended
and renewed effective March 15, 2000 ("Mr. Singleton's Employment Agreement"),
Mr. Singleton is currently entitled to receive cash compensation at an annual
rate of not less than $850,500 at June 30, 2003, subject to annual adjustment of
not less than 5% by the Board of Directors. In addition, Mr. Singleton is
entitled to receive a bonus of up to $200,000 for each fiscal year based on a
comparison of our actual profits to budgeted profits during such fiscal year.
Other discretionary bonuses may be paid which are not part of his Employment
Agreement, if approved by the Board of Directors. Mr. Singleton's employment
agreement expires on December 31, 2009, but will be automatically renewed for
successive one-year terms unless Mr. Singleton gives notice terminating the
Employment Agreement at least 120 days prior to the expiration of the existing
term. Mr. Singleton's Employment Agreement contains a five-year non-compete
covenant for all counties and geographical areas in which newspapers are owned
or circulated by us or our subsidiaries (currently or in the future). From 1996
through 2002, MediaNews Group advanced a total of $1.5 million to the Singleton
Irrevocable Trust (see "-- Security Ownership of Certain Beneficial Owners and
Management") to fund premiums on cash surrender life insurance policies covering
Mr. Singleton and his wife. The advances are recorded in our consolidated
balance sheet as a component of other long-term assets. Advances will be repaid
when the policy is surrendered or earlier at Mr. Singleton's option. No interest
is charged to Mr. Singleton on these advances. No funding by MediaNews Group of
this insurance coverage has occurred subsequent to July 2002. The cash surrender
value life insurance policies were originally purchased in order to mitigate the
impact of estate taxes that may be due on MediaNews Group stock held in the
Singleton Revocable Trust as a result of the death of Mr. Singleton and his wife
and the resulting need for us to repurchase such shares to provide liquidity in
the Singleton Revocable Trust. Mr. Singleton and MediaNews Group will continue
to evaluate the need for this insurance coverage as a result of recent changes
in estate tax laws.
Mr. Lodovic's Employment Agreement with us was entered into effective March
15, 2000. At June 30, 2003, Mr. Lodovic was entitled to receive cash
compensation at an annual rate of not less than $560,700, subject to annual
adjustment of not less than 5% by the Board of Directors. In addition, Mr.
Lodovic is also entitled to receive a bonus of up to $200,000 for each fiscal
year based on a comparison of our actual profits to budgeted profits during such
year. Other discretionary bonuses may also be paid which are not part of his
employment agreement, if approved by the Board of Directors. Mr. Lodovic's
employment agreement expires by its terms on December 31, 2009. Mr. Lodovic's
Employment Agreement entitles him to participate in any stock options, stock
ownership or similar plan, which we may adopt in the future relative to any of
our executives. It also entitles Mr. Lodovic, upon termination of his employment
under certain circumstances, to put to us at a price not to exceed 100% of the
then fair market value all shares of any class of equity securities, which he
owns. The price payable under Mr. Lodovic's put is equal to a percentage of fair
market value, which increases up to 100% on December 31, 2009 (at June 30, 2003,
Mr. Lodovic is entitled to 65% of the fair market value). We also have a call
under Mr. Lodovic's Employment Agreement to acquire such shares, upon
termination of his employment under certain circumstances, at a price not to
exceed 100% of their then fair market value. Neither the put nor the call can be
exercised if it causes a default under any credit agreement existing at that
time. Nor can any stock be put until our leverage ratio, as defined, is below
3:1.
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Decisions regarding annual compensation of executives other than Messrs.
Singleton and Lodovic are made by Mr. Singleton and Mr. Lodovic. In addition,
our Board of Directors is responsible for approving Mr. Singleton's and Mr.
Lodovic's Employment Agreements, including their compensation. The Board of
Directors of MediaNews does not have a compensation committee.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The authorized capital stock of MediaNews consists of 3,000,000 shares of
Class A common stock, $0.001 par value, 2,314,346 shares of which are issued of
which 2,298,346 are outstanding and 16,000 are held in treasury; we have not
declared or paid any cash dividends on our common stock in the past and we do
not currently have plans to pay common stock dividends. Our current long-term
debt agreements limit our ability to pay such dividends.
The following table sets forth the number and percentage of shares of our
common stock currently issued and outstanding and beneficially owned by (i) each
person known to us to be the beneficial owner of more than 5.0% of any class of
our equity securities; (ii) each executive officer as defined in Item 402(a)(3)
of Regulation S-K; and (iii) all directors and executive officers of MediaNews
as a group.
AMOUNT AND NATURE
OF BENEFICIAL PERCENTAGE OF
OWNERSHIP (a) OWNERSHIP OF
CLASS A CLASS A
COMMON STOCK COMMON STOCK
----------------- -------------
William Dean Singleton(b),(c),(l),(m)........ 254,858.9900 11.09%
Howell E. Begle, Jr.(b),(d),(l),(m).......... 786,426.5100 34.22%
Patricia Robinson(b),(e),(l),(m)............. 786,426.5100 34.22%
Joseph J. Lodovic, IV(b),(f)................. 58,199.0000 2.53%
Jean L. Scudder(g),(k)....................... 384,065.1200 16.71%
Charles Scudder(h),(k)....................... 260,321.3750 11.32%
Elizabeth A. Difani(h),(i),(k)............... 219,073.4575 9.53%
Carolyn Miller(h),(j),(k).................... 177,825.5475 7.74%
All directors and executives as a group(n)... 2,140,770.0000 93.14%
----------
(a) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. Except as indicated by footnote, the
persons named in the tables above have sole voting and investment power
with respect to all shares of capital stock indicated as beneficially owned
by them.
(b) The address of each such person is: c/o Mr. Howell E. Begle, Jr., Trustee,
1775 I Street N.W., Suite 600, Washington, D.C. 20006. Mr. Begle is Of
Counsel to Hughes Hubbard & Reed LLP, which law firm is counsel to us.
(c) These shares are held by a revocable trust for the benefit of the children
of Mr. Singleton (the "Singleton Family Revocable Trust"), for which trust
Mr. Begle and Mr. Singleton are trustees.
(d) Includes all shares for which Mr. Begle has sole voting power under the
Singleton Family Voting Trust Agreement for MediaNews (the "Singleton
Family Voting Trust Agreement for MediaNews") and shared investment power,
as a trustee for an irrevocable trust for the benefit of Mr. Singleton's
children (the "Singleton Irrevocable Trust"). Also includes all shares of
common stock held by the Singleton Family Revocable Trust for which Mr.
Begle is a trustee.
(e) These shares are held by the Singleton Irrevocable Trust for which Ms.
Robinson serves as a trustee and as to which she has shared investment
power. Ms. Robinson is Mr. Singleton's sister.
(f) Legal ownership of 50% of such shares is held by the Singleton Family
Voting Trust. Legal ownership of the remaining 50% of such shares is held
by the Scudder Family Voting Trust.
(g) Includes 123,743.75 shares of common stock held by a trust for the benefit
of two of Ms. Scudder's nephews, for which trust Ms. Scudder serves as the
sole trustee. Also includes 74,504 shares of common stock held for the
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benefit of Ms. Scudder's son, Benjamin Fulmer, and daughter, Nina Fulmer,
for which Ms. Scudder also serves as the sole trustee. Does not include the
shares held by Charles Scudder, Elizabeth Difani, as trustee and/or
custodian for certain of her minor children, or Carolyn Miller, as trustee
and/or custodian for certain of her minor children, with respect to which
Ms. Scudder has sole voting power pursuant to the Scudder Family Voting
Trust Agreement for MediaNews (the "Scudder Family Voting Trust
Agreement"). Charles Scudder, Elizabeth Difani and Carolyn Miller are
siblings of Ms. Scudder; all four are the children of Mr. Richard B.
Scudder.
(h) Sole voting power with respect to these shares is held by Ms. Scudder
pursuant to the Scudder Family Voting Trust Agreement. See note (g) above.
(i) Ms. Difani holds 132,299.6658 shares as trustee and/or custodian for
certain of her minor children. Sole voting power with respect to all
219,073.4575 shares is held by Ms. Scudder pursuant to the Scudder Family
Voting Trust Agreement. See note (g) above.
(j) Ms. Miller holds 118,550.365 shares as trustee and/or custodian for certain
of her minor children. Sole voting power with respect to all 177,825.5475
shares is held by Ms. Scudder pursuant to the Scudder Family Voting Trust
Agreement. See note (g) above.
(k) The address of each person is: c/o Jean L. Scudder, 193 Old Kents Hill
Road, Readfield, Maine 04355.
(l) Indicates shared voting power.
(m) Indicates shared investment power.
(n) No directors or officers of MediaNews beneficially own any shares in
MediaNews except Mr. Singleton, Ms. Scudder, Mr. Begle, Ms. Robinson and
Mr. Lodovic.
SCUDDER FAMILY VOTING TRUST AGREEMENT FOR MEDIANEWS
The children of Richard B. Scudder, which includes Charles A. Scudder,
Carolyn S. Miller, Elizabeth H. Difani and Jean L. Scudder, respectively, and
Joseph J. Lodovic, IV have entered into the Scudder Family Voting Trust
Agreement for MediaNews (the "Scudder Family Voting Trust") in accordance with
which all shares of our common stock held by Charles Scudder, Carolyn Miller,
Elizabeth A. Difani, Jean L. Scudder and 50% of those shares held by Joseph J.
Lodovic, IV, were transferred to the Scudder Family Voting Trust for MediaNews.
Under the Scudder Family Voting Trust for MediaNews, Jean L. Scudder (the
"Scudder Trustee") exercises all voting rights (subject to the consent of
shareholders holding 50% of the common stock held by the Scudder Family Voting
Trust for MediaNews on such matters as election of directors, mergers,
dissolution or reorganization of MediaNews, sale, exchange or pledge of all or
substantially all of the assets of MediaNews and acquisition or divestiture by
MediaNews of any newspaper venture) and substantially all other rights to which
such shareholders would otherwise be entitled until January 31, 2010, subject to
extension by written agreement of one or more beneficiaries of the Scudder
Family Voting Trust Agreement for MediaNews and the Scudder Trustee.
SINGLETON FAMILY VOTING TRUST AGREEMENT FOR MEDIANEWS
The Singleton Irrevocable Trust, the Singleton Family Revocable Trust and
Joseph J. Lodovic, IV have entered into the Singleton Family Voting Trust
Agreement for MediaNews (the "Singleton Family Voting Trust Agreement for
MediaNews") in accordance with which all shares of our common stock held by the
Singleton Irrevocable Trust and the remaining 50% of those shares held by Joseph
J. Lodovic, IV were transferred to the Singleton Family Voting Trust for
MediaNews and the shares of our common stock held by the Singleton Family
Revocable Trust will be transferred to the Singleton Family Voting Trust for
MediaNews upon the death or incapacity of Mr. Singleton. Under the Singleton
Family Voting Trust Agreement for MediaNews, the Singleton Trustees exercise all
voting and substantially all other rights to which such shareholders would
otherwise be entitled until January 31, 2010, subject to extension by written
agreement of one or more beneficiaries of the Singleton Family Voting Trust
Agreement for MediaNews.
58
MEDIANEWS SHAREHOLDERS' AGREEMENT
The Singleton Family Revocable Trust, the Singleton Family Voting Trust for
MediaNews, the Scudder Family Voting Trust for MediaNews, certain of the
beneficiaries of such trusts, Joseph J. Lodovic, IV and MediaNews entered into a
Shareholders' Agreement (the "MediaNews Shareholders' Agreement") which
provides, among other things, that action by the Board of Directors with respect
to such matters as the declaration of dividends, redemption of capital stock,
certain capital expenditures, mergers or consolidation, and incurring
indebtedness requires the unanimous approval of all Directors then serving on
the Board of Directors or approval by the holders of 75% of the shares of common
stock entitled to vote on such matters.
The MediaNews Shareholders' Agreement also provides that until the earlier
of (i) the date on which none of our 8 3/4% Senior Subordinated Notes due
October 1, 2009 (which are no longer outstanding), or our 8 5/8% Senior
Subordinated Notes due July 1, 2011 (which we intend to purchase or redeem, no
later than August 1, 2004) are outstanding, or (ii) when MediaNews' Leverage
Ratio (as defined in the indenture relating to our 8 3/4% Senior Subordinated
Notes, which are no longer outstanding) is less than 3:1, no shareholder may
sell, transfer, pledge or otherwise encumber their shares or their interest in
their shares, of our common stock to any third party (except certain permitted
transfers to family members and other shareholders), without the consent of all
our shareholders or unless all shares of common stock then outstanding are sold
in a single transaction or a contemplated sale to a third party. If any
shareholder desires to sell or transfer his shares to us or the other
shareholders without an identified third party buyer, then such shareholder may
offer to sell his shares to us at fair market value determined by appraisal, or
if we decline to purchase such shares, such shareholder may offer to sell his
shares to the remaining shareholders at fair market value.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MANAGEMENT SERVICES
We are a party to a consulting agreement, renewable annually, with Mr.
Scudder, which agreement requires us to make annual payments of $250,000.
We are a party to a management agreement with CNP, which agreement provides
us with a management fee of 1.25% of CNP's revenues and thereby reducing our
total corporate overhead, the effect of which is a reduction of the impact
minority interest expense has on our consolidated statement of operations.
MediaNews Services, Inc., which is wholly owned by Mr. Singleton, Jean L.
Scudder, Charles Scudder, Elizabeth A. Difani and Carolyn Miller, provided
certain personnel and related services to us at cost through December 31, 2003.
Effective July 1, 2003, MediaNews began consolidating MediaNews Services,
an affiliate of MediaNews, for financial reporting purposes. In December 2003,
MediaNews Services purchased a new airplane (to replace its existing airplane)
for $14.4 million and financed the purchase with a loan secured by the new
airplane. The new airplane and related loan was recorded on the financial
statements of MediaNews as of December 31, 2003. We have guaranteed 50% of this
loan. The airplanes owned by MediaNews Services are used by us and we reimburse
MediaNews Services for the cost of maintaining and operating the airplanes.
59
DESCRIPTION OF OTHER OBLIGATIONS
NEW BANK CREDIT FACILITY
On December 30, 2003, we replaced our former bank credit facility, which at
the time of its replacement provided for borrowings of up to $485 million. Our
new bank credit facility provides for borrowings of up to $600 million and
consists of a $350 million revolving credit facility (with portions available
for letters of credit and swingline loans) and a $250 million "term loan B"
facility. Bank of America, N.A. serves as both a lender and the administrative
agent under the new bank credit facility.
Our new bank credit facility is guaranteed by our subsidiaries (with
certain exceptions) and secured by first priority liens and security interests
in all of the capital stock (or other ownership interests) of each of our and
the guarantors' subsidiaries (with certain exceptions) and the Texas-New Mexico
Partnership. We have agreed to pledge our interest in our Denver JOA to secure
our bank credit facility (subject to certain limitations). Prior to the maturity
date of the revolving facility, borrowings under the revolving facility will be
permitted to be borrowed, repaid and reborrowed without premium or penalty
(other than customary breakage costs). Amounts repaid under the term loan B
facility will not be available for reborrowing.
Borrowings under our new bank credit facility accrue interest at a floating
rate based on, at our option, either the base rate (the higher of (a) the
Federal Funds Rate plus 1/2 of 1% and (b) Bank of America's prime rate) or
Eurodollar rate, plus a margin that may vary depending on our leverage ratio.
Additionally, a commitment fee, which may also vary depending on our leverage
ratio, will be payable on unused commitments under the revolving facility.
The final maturity of the revolving facility, subject to permitted
extensions, is December 30, 2009 and the final maturity of the term loan B
facility is December 30, 2010. Quarterly amortization payments of $0.625 million
of principal under the term loan B facility are required to be made each quarter
beginning March 31, 2004 to December, 2009, and the remaining principal amount
of loans outstanding under the term loan B facility will be payable in equal
quarterly installments of $58.750 million of principal during the final year
prior to maturity.
Loans under our new bank credit facility are required to be prepaid in an
amount equal to 100% of the proceeds of asset sales to the extent not reinvested
in permitted assets within specified time periods. Asset sale prepayments will
first be applied to the prepayment of loans under the term loan B facility until
such loans are paid in full, and then to the permanent reduction of the
commitments under the revolving facility. The occurrence of a change of control
as defined in any indenture evidencing or governing any of our subordinated debt
would be an event of default under our new bank credit facility.
Our new bank credit facility requires us to meet certain financial ratios,
including without limitation, a maximum consolidated debt to consolidated
operating cash flow ratio, a maximum consolidated senior debt to consolidated
operating cash flow ratio and a minimum consolidated operating cash flow to
consolidated fixed charges ratio. Our new bank credit facility contains
customary events of default.
As conditions precedent to each future extension of credit under the new
bank credit facility, the following will have to be true and represented by us:
o The representations and warranties made by us and others, including
our representation as to the non-existence of any material adverse
effect since June 30, 2003, must be true and correct in all material
respects on and as of the date of the credit extension;
o No default may exist or would result from the proposed credit
extension;
o No involuntary case under any applicable debtor relief law may have
been commenced and remain undismissed against us or certain of our
subsidiaries and no case, proceeding or other action for the
appointment of a receiver, liquidator, assignee, custodian, trustee or
similar person for any substantial portion of our property or for the
winding up of our affairs may have been commenced and remain
undismissed; and
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o The administrative agent under the new bank credit facility and any
applicable letter of credit issuer or swingline lender must have
received a formal request for each credit extension in accordance with
the terms of the new bank credit facility, which request shall be
deemed a representation and warranty that the other conditions
described above have been satisfied as required.
EXISTING NOTES UNDER EXISTING INDENTURES
6 3/8% SENIOR SUBORDINATED NOTES DUE 2014 (THE UNREGISTERED NOTES)
We have issued and outstanding $150.0 million aggregate principal amount 6
3/8% Senior Subordinated Notes due 2014, or our unregistered notes. Interest
accruing on our unregistered notes is payable semi-annually, in arrears, on
January 1 and July 1. Our unregistered notes are subordinated and junior in
right of payment to obligations under our bank credit facility. No principal
payments are required until April 1, 2014, at which time all outstanding
principal and interest is due and payable. Our unregistered notes are general
unsecured obligations of the Company ranking equal in right of payment with our
6 7/8% Senior Subordinated Notes due 2013, our 8 5/8% Senior Subordinated Notes
due 2011 and all other future senior subordinated indebtedness of the Company
and senior in right of payment to all existing and future subordinated
indebtedness of the Company, which is made expressly junior thereto.
6 7/8% SENIOR SUBORDINATED NOTES DUE 2013
We have issued and outstanding $300.0 million aggregate principal amount 6
7/8% Senior Subordinated Notes due 2013. Interest accruing on our 6 7/8% Senior
Subordinated Notes is payable semi-annually, in arrears, on April 1 and October
1. Our 6 7/8% Senior Subordinated Notes are subordinated and junior in right of
payment to obligations under our bank credit facility. No principal payments are
required until October 1, 2013, at which time all outstanding principal and
interest is due and payable. Our 6 7/8% Senior Subordinated Notes are general
unsecured obligations of the Company ranking equal in right of payment with our
6 3/8% Senior Subordinated Notes due 2014, our 8 5/8% Senior Subordinated Notes
due 2011 and all other future senior subordinated indebtedness of the Company
and senior in right of payment to all existing and future subordinated
indebtedness of the Company, which is made expressly junior thereto. On February
23, 2004, we filed a registration statement with the Commission in order to
register the exchange of our outstanding 6 7/8% Senior Subordinated Notes for
new notes that are otherwise substantially identical to the outstanding 6 7/8%
Senior Subordinated Notes, except that the transfer restrictions, registration
rights and provisions for additional interest relating to the outstanding 6 7/8%
Senior Subordinated Notes would not apply to the new notes. The term
"unregistered notes" as used in this prospectus does not include our 6 7/8%
Senior Subordinated Notes.
8 5/8% SENIOR SUBORDINATED NOTES DUE 2011
We have issued and outstanding $200.0 million aggregate principal amount of
8 5/8% Senior Subordinated Notes due 2011. Interest accruing on the 8 5/8%
Senior Subordinated Notes is payable semi-annually, in arrears on January 1 and
July 1. The 8 5/8% Senior Subordinated Notes are subordinated and junior in
right of payment to obligations under the bank credit facility and term loans.
No principal payments are required until July 1, 2011, at which time all
outstanding principal and interest is due and payable. The 8 5/8% Senior
Subordinated Notes are general unsecured obligations of the Company ranking
equal in right of payment with our unregistered notes, our exchange notes, our 6
7/8% Senior Subordinated Notes and all other future senior subordinated
indebtedness of the Company and senior in right of payment to all existing and
future indebtedness of the Company, which is made expressly junior thereto. We
intend to use the net proceeds of our offering of our unregistered notes,
together with cash on hand and borrowings under our bank credit facility to
repurchase (by tender offer, in the open market or otherwise) or redeem, no
later than August 1, 2004, all of the 8 5/8% Senior Subordinated Notes.
OTHER OBLIGATIONS
PUT OPTION -- NEWSPAPER PROPERTIES
The holder of an option to purchase the assets used in the publication of
one of our newspaper properties may put such option to us based on a
predetermined formula. The option repurchase price, which as of December 31,
2003 is valued at $16.0 million and is recorded as a component of other
long-term liabilities. If the option is put to us, we expect to fund the payment
61
with available borrowings from our bank credit facility. See additional
discussion of this option agreement in Note 11: Commitments and Contingencies,
of the notes to our consolidated financial statements.
THE CALIFORNIA NEWSPAPERS PARTNERSHIP PUT OPTION
On March 31, 1999, through our wholly-owned subsidiary, West Coast
MediaNews LLC, we formed CNP with Stephens Media Group ("SMG"), previously known
as Donrey Newspapers LLC, and Gannett. MediaNews, SMG and Gannett's interests in
CNP are 54.23%, 26.28% and 19.49%, respectively. We are the controlling partner
and therefore the operations of CNP are consolidated with our operations, with
minority interests reflected for SMG's and Gannett's interest in CNP.
At the formation of CNP, we also contributed debt of $6.6 million to the
partnership. However, in accordance with the partnership agreement, we remain
liable for the contributed debt. All principal and interest payments associated
with this debt are charged to the MediaNews capital account at CNP as a
distribution. Approximately $2.7 million, $2.3 million and $2.1 million of
principal and interest payments were made in fiscal years 2001, 2002 and 2003,
respectively, by CNP on our behalf.
SMG has a separate right to "put" its interest in the partnership to CNP at
fair market value anytime after January 1, 2005. Upon notification of the put
and obtaining a valuation of the partnership interest, we and Gannett would have
two years to complete the purchase. We may be required to make an additional
capital contribution to CNP in an amount equal to our pro rata share of any
additional cash required by CNP to fund such purchase. We cannot be sure that we
will have sufficient cash on hand to fund any such capital contribution or that
third party financing would be available or available on acceptable terms. No
amounts are recorded in our financial statements related to this put option.
THE DENVER POST CORPORATION PUT OPTION
We own 80% and Media General Inc. owns 20% of The Denver Post Corporation.
The Denver Post Shareholder Agreement provides Media General with a put option
on its 20% interest in The Denver Post Corporation. The put is currently
exercisable and expires June 30, 2004. The price of the put, if or when
exercised, is based on the appraised fair market value of The Denver Post
Corporation, less Permitted Debt of The Denver Post Corporation as defined in
The Denver Post Shareholder Agreement. We have one year to close on the purchase
from the date of any put notice. If we were to defer the purchase, we would be
required to pay interest on the purchase price at an initial rate of 7%,
increasing to 13% over the period of the deferral. We cannot be sure that we
will have sufficient cash on hand to fund any such purchase or that third party
financing would be available or available on acceptable terms. No amounts are
recorded in our financial statements related to this put option.
YORK NEWSPAPER COMPANY CALL/PUT AGREEMENT
Effective March 1990, our subsidiary, York Newspapers, Inc. ("YNI"),
entered into a JOA, York Newspaper Company ("YNC"), with York Daily Record, Inc.
("YDR"), under which YNC is responsible for all newspaper publishing operations,
other than news and editorial, including production, sales, distribution and
administration. YNC publishes THE YORK DISPATCH, a daily evening newspaper, the
YORK DAILY RECORD, a daily morning newspaper, and the YORK SUNDAY NEWS. YNI has
a 57.5% interest in YNC and is the controlling partner. The operations of YNC
are consolidated with our operations, with a minority interest reflected for
YDR's interest in YNC. The operating results of YNC do not include the editorial
costs associated with the publication of the YORK DAILY RECORD, which is not
owned by us and the costs of which are incurred outside of the JOA.
In September 1996, we signed a call/put agreement under which YNI can
purchase YDR's interest in YNC or YDR can put its interest in YNC to YNI. The
base call and put price is $32.0 million and $25.0 million, respectively, and is
adjusted annually based on changes in the consumer price index (not to exceed
2.5%). The call option became exercisable on January 1, 2004 and expires on
January 1, 2005. The put may be exercised at any time after the expiration of
the call through June 30, 2008. We currently anticipate exercising our option to
call YDR's interest in YNC in the fourth quarter of our 2004 fiscal year. We
intend to finance the purchase price with cash on hand. We expect that such
exercise will not result in an increase in our leverage ratio. No amounts are
recorded in our financial statements related to this call/put agreement.
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YORK NEWSPAPER COMPANY INDEBTEDNESS
As of June 30, 2003 and December 31, 2003, YNC had a revolving credit note
and a term bank loan totaling $3.8 million and $3.1 million, respectively, which
require monthly payments through October 2005. As of these same dates, YNC also
had a promissory note, with a balance of $1.6 million, which requires monthly
payments through October 2025. The obligations are secured by the assets of YNC
and are non-recourse to MediaNews. We own 57.5% of YNC. Amounts related to YNC's
debt are consolidated with our results and are included as a component of
long-term debt.
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THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
We sold the unregistered notes on January 26, 2004, to certain initial
purchasers pursuant to a purchase agreement dated as of January 14, 2004, by and
among us and the initial purchasers. The initial purchasers subsequently sold
the unregistered notes to qualified institutional buyers, as defined in Rule
144A under the Securities Act, in reliance on Rule 144A. As a condition to the
initial sale of the unregistered notes, we and the initial purchasers entered
into the Registration Rights Agreement on January 26, 2004. Pursuant to the
Registration Rights Agreement, we agreed to (i) within 90 days after the issue
date of the unregistered notes file a registration statement on an appropriate
registration form with respect to a registered offer to exchange the
unregistered notes for the exchange notes and (ii) subject to certain blackout
periods (see "-Blackout Periods" below), use our reasonable best efforts to
cause the registration statement for the exchange offer to be declared effective
under the Securities Act within 180 days after the issue date of the
unregistered notes. When the registration statement is declared effective, we
will offer the exchange notes in exchange for surrender of the unregistered
notes. Subject to certain blackout periods, we will keep the exchange offer open
for not less than 30 days (or longer if required by applicable law) after the
date notice of the exchange offer is mailed to the holders of the unregistered
notes. For each of the unregistered notes surrendered to us pursuant to the
exchange offer, the holder of an unregistered note will receive an exchange note
having a principal amount equal to that of the surrendered unregistered note. We
agreed to issue and exchange the exchange notes for all unregistered notes
validly tendered and not withdrawn before the expiration of the exchange offer.
The descriptions of provisions of the Registration Rights Agreement
contained in this section are qualified in their entirety by reference to the
Registration Rights Agreement. We urge you to read the Registration Rights
Agreement for additional detail and further information because it, and not the
following, defines your rights. The Registration Rights Agreement has been filed
as an exhibit to the registration statement of which this prospectus is a part.
RESALE OF THE EXCHANGE NOTES
With respect to the exchange notes, based upon interpretations by the staff
of the Commission set forth in certain no-action letters issued to third
parties, we believe that the exchange notes issued pursuant to the exchange
offer in exchange for unregistered notes may be offered for resale, resold or
otherwise transferred by holders thereof (other than (i) a broker-dealer who
acquires such exchange notes directly from us for resale pursuant to Rule 144A
or any other available exemption under the Securities Act, or (ii) any such
holder that is an "affiliate" of us within the meaning of Rule 405 under the
Securities Act), without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such exchange notes are
acquired in the ordinary course of such holders' business and such holders are
not engaged in, and do not intend to engage in, a distribution of such Exchange
Notes and have no arrangement with any person to participate in the distribution
of such Exchange Notes. If a holder of unregistered notes is engaged in or
intends to engage in a distribution of the exchange notes or has any arrangement
or understanding with respect to the distribution of the exchange notes to be
acquired pursuant to the exchange offer, such holder may not rely on the
applicable interpretations of the staff of the Commission and must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any secondary resale transaction. Further, the Commission has
not considered the exchange offer in the context of a no-action letter and there
can be no assurance that the staff of the Commission would make a similar
determination with respect to the exchange offer. Each broker-dealer that
receives exchange notes for its own account in exchange for unregistered notes,
where such unregistered notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such exchange notes.
The Letter of Transmittal states that by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of exchange notes received in exchange for unregistered notes if
the unregistered notes were acquired by the broker-dealer as a result of
market-making or other trading activities.
Pursuant to the Registration Rights Agreement, we have agreed to make this
prospectus, as it may be amended or supplemented from time to time, available to
any broker-dealer that acquired its unregistered notes to be exchanged for
exchange notes in the exchange offer as a result of market making or other
trading activities for use in connection with any resale of such exchange notes
for a period of up to 180 days (subject to certain blackout periods) after the
expiration date of the exchange offer. We refer you to "Plan of Distribution."
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TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions in this prospectus and in the
Letter of Transmittal, we will accept for exchange any and all unregistered
notes validly tendered and not withdrawn prior to the expiration date of the
exchange offer. We will issue $1,000 principal amount of exchange notes in
exchange for each $1,000 principal amount of outstanding unregistered notes
surrendered pursuant to the exchange offer. Unregistered notes may be tendered
only in integral multiples of $1,000. As of the date of this prospectus,
$150,000,000 aggregate principal amount of the unregistered notes are
outstanding.
The form and terms of the exchange notes are the same as the form and terms
of the unregistered notes except that (1) the exchange will be registered under
the Securities Act and hence the exchange notes will not bear legends
restricting their transfer and (2) as a holder of the exchange notes you will
not be entitled to the certain rights of holders of unregistered notes under the
Registration Rights Agreement (including the rights to Additional Interest, as
described below under " -Liquidated Damages"), which rights will terminate upon
the consummation of the exchange offer. The exchange notes will evidence the
same debt as the unregistered notes (which they replace) and will be issued
under, and be entitled to the benefits of, the Indenture, which also authorized
the issuance of the unregistered notes, such that all outstanding unregistered
notes and exchange notes will be treated as a single class of debt securities
under the Indenture.
As a holder of the unregistered notes you do not have any appraisal or
dissenter's rights under the Indenture in connection with the exchange offer. We
intend to conduct the exchange offer in accordance with the provisions of the
Registration Rights Agreement and the applicable requirements of the Securities
Act, the Exchange Act and the rules and regulations of the Commission
thereunder.
We will be deemed to have accepted validly tendered unregistered notes
when, as and if we give oral or written notice thereof to the Bank of New York,
the exchange agent. The exchange agent will act as agent for the tendering
holders of unregistered notes for the purposes of receiving the exchange notes
from us.
If you tender unregistered notes in the exchange offer you will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the Letter of Transmittal, transfer taxes with respect to the exchange of
exchange notes for unregistered notes pursuant to the exchange offer. We will
pay all charges and expenses, other than certain applicable taxes described
below, in connection with the exchange offer. We refer you to "--Fees and
Expenses."
Neither we nor our board of directors makes any recommendation to you as to
whether to tender or refrain from tendering all or any portion of your
unregistered notes in this exchange offer. In addition, no one has been
authorized to make any recommendation as to whether you should tender notes in
this exchange offer. You must make your own decision whether to tender
unregistered notes in the exchange offer and, if so, the aggregate amount of
unregistered notes to tender based on your own financial positions and
requirements.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "expiration date" means 5:00 p.m., New York City time, on
_________ __, ____, unless we, in our sole discretion, extend the exchange
offer, in which case the term "expiration date" shall mean the latest date and
time to which the exchange offer is extended.
If we elect to extend the exchange offer, we will notify the exchange agent
of any extension by oral or written notice and will mail to the registered
holders of unregistered notes an announcement thereof, each prior to 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
expiration date. Without limiting the manner in which we choose to make a public
announcement of any delay, extension, amendment or termination of the exchange
offer, we will have no obligation to publish, advertise or otherwise communicate
any such public announcement, other than by making a timely release to an
appropriate news agency.
We reserve the right, in our sole discretion, (1) to delay accepting any
unregistered notes, (2) to extend the exchange offer, or (3) if any conditions
set forth below under "--Certain Conditions to the Exchange Offer" have not been
satisfied, to terminate the exchange offer by giving oral or written notice of
such delay, extension or termination to the exchange agent. Any such delay in
acceptance, extension, termination or amendment will be followed as promptly as
practicable by oral or written notice thereof to the registered holders. If the
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exchange offer is amended in a manner determined by us, which constitutes a
material change, we will promptly disclose such amendment by means of a
prospectus supplement that will be distributed to the registered holders of
unregistered notes. Depending upon the significance of the amendment and the
manner of disclosure to the registered holders, we will extend the exchange
offer if the exchange offer would otherwise expire during such period.
INTEREST ON THE EXCHANGE NOTES
The exchange notes bear interest at a rate equal to 6 3/8% per annum.
Interest on the exchange notes is payable semiannually on each January 1 and
July 1, commencing on the first such date following their date of issuance.
Interest on each exchange note will accrue (A) from the later of (i) the last
interest payment date on which interest was paid on the unregistered note
surrendered in exchange therefor, or (ii) if the unregistered note is
surrendered for exchange on a date in a period which includes the record date
for an interest payment date to occur on or after the date of such exchange and
as to which interest will be paid, the date of such interest payment date or (B)
if no interest has been paid on such unregistered note, from January 26, 2004.
Holders of unregistered notes that are accepted for exchange will be deemed to
have waived the right to receive any payment in respect of interest accrued from
the date of the last interest payment date that was made in respect of the
unregistered notes until the date of the issuance of the exchange notes.
Consequently, holders of exchange notes will receive the same interest payments
that they would have received had they not accepted the exchange offer.
PROCEDURES FOR TENDERING
To tender in the exchange offer, the holder must complete, sign and date
the Letter of Transmittal or facsimile thereof (or, if the unregistered notes
are tendered in accordance with the procedure for book-entry transfer described
below, an Agent's Message in lieu of the Letter of Transmittal), have the
signatures thereon guaranteed if required by the Letter of Transmittal, and mail
or otherwise deliver such Letter of Transmittal or such facsimile to the
exchange agent at the address set forth below under "--Exchange Agent" for
receipt prior to the expiration date. In addition, either (1) certificates for
such unregistered notes must be received by the exchange agent along with the
Letter of Transmittal, or (2) a timely confirmation of a book-entry transfer,
referred to as a "Book-Entry Confirmation," of such unregistered notes, if such
procedure is available, into the exchange agent's account at DTC pursuant to the
procedures for book-entry transfer described below, must be received by the
exchange agent prior to the expiration date, or (3) the holder must comply with
the guaranteed delivery procedures described below.
If you do not withdraw your tender of the unregistered notes prior to the
expiration date it will constitute an agreement between you and us in accordance
with the terms and subject to the conditions set forth herein and in the Letter
of Transmittal.
THE METHOD OF DELIVERY OF UNREGISTERED NOTES AND THE LETTER OF TRANSMITTAL
AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT YOUR ELECTION AND
RISK. IF YOU ARE DELIVERING CERTIFICATES, IT IS RECOMMENDED THAT YOU USE AN
OVERNIGHT OR HAND DELIVERY SERVICE, PROPERLY INSURED INSTEAD OF DELIVERY BY
MAIL. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE
EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR
UNREGISTERED NOTES SHOULD BE SENT TO US. YOU MAY REQUEST YOUR RESPECTIVE
BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE
ABOVE TRANSACTIONS FOR YOU.
Only a registered holder of unregistered notes may tender such unregistered
notes in the exchange offer. The term "holder" with respect to the exchange
offer means any person in whose name unregistered notes are registered on our
books or any other person who has obtained a properly completed bond power from
the registered holder.
Any beneficial owner whose unregistered notes are registered in the name of
a broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender such unregistered notes in the exchange offer, should contact such
registered holder promptly and instruct such registered holder to tender the
unregistered notes on such owner's behalf. If such beneficial owner wishes to
tender on such owner's behalf, such beneficial owner must, prior to completing
and executing the Letter of Transmittal and delivering such owner's unregistered
notes, either make appropriate arrangements to register ownership of the
unregistered notes in such owner's name or obtain a properly completed bond
66
power from the registered holder. The transfer of record ownership may take
considerable time and may not be able to be completed prior to the expiration
date of the exchange offer.
Signatures on a Letter of Transmittal or a notice of withdrawal, as
described below under "--Withdrawal of Tenders," as the case may be, must be
guaranteed by an Eligible Institution (as defined below) unless the unregistered
notes tendered pursuant thereto are tendered (1) by a registered holder who has
not completed the section entitled "Special Issuance Instructions" or "Special
Delivery Instructions" on the Letter of Transmittal or (2) for the account of an
Eligible Institution. In the event that signatures on a Letter of Transmittal or
a notice of withdrawal, as the case may be, are required to be guaranteed, such
guarantee must be made by any member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the United
States, or an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Exchange Act (each an "Eligible Institution.")
If the Letter of Transmittal is signed by a person other than the
registered holder of any unregistered notes listed in the Letter of Transmittal,
such certificates must be endorsed or accompanied by appropriate bond powers, in
either case exactly as the name of the registered holder appears on the
unregistered notes.
If the Letter of Transmittal or any certificates or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by us, evidence
satisfactory to us of their authority to so act must be submitted with the
Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered unregistered notes will be
determined by us in our sole discretion, which determination will be final and
binding. We reserve the absolute right to reject any and all unregistered notes
not properly tendered or any unregistered notes our acceptance of which would,
in the opinion of our counsel, be unlawful. We also reserve the right to waive
any defects, irregularities or conditions of tender as to particular
unregistered notes. Our interpretation of the terms and conditions of the
exchange offer, including the instructions in the Letter of Transmittal, will be
final and binding on all parties. Unless waived, any defects or irregularities
in connection with tenders of unregistered notes must be cured within such time
as we shall determine. Although we intend to notify holders of defects or
irregularities with respect to tenders of unregistered notes, neither we, the
exchange agent nor any other person shall incur any liability for failure to
give such notification. Tenders of unregistered notes will not be deemed to have
been made until such defects or irregularities have been cured or waived.
While we have no present plan to acquire any unregistered notes which are
not tendered in the exchange offer or to file a registration statement to permit
resales of any unregistered notes which are not tendered pursuant to the
exchange offer, we reserve the right in our sole discretion to purchase or make
offers for any unregistered notes that remain outstanding subsequent to the
expiration date or, as set forth below under "--Certain Conditions to the
Exchange Offer," to terminate the exchange offer and, to the extent permitted by
applicable law, purchase unregistered notes in the open market, in privately
negotiated transactions or otherwise. The terms of any such purchases or offers
could differ from the terms of the exchange offer.
By tendering, each holder will represent to us that, among other things,
(1) any exchange notes received by it will be acquired in the ordinary course of
its business; (2) it has and will have no arrangement or understanding with any
person to participate in the distribution (within the meaning of the Securities
Act) of the exchange notes in violation of the Securities Act; (3) it is not an
"affiliate" (as defined in Rule 405 promulgated under the Securities Act) of us;
(4) if such holder is not a broker-dealer, that it is not engaged in and does
not intend to engage in, the distribution of exchange notes; (5) if such holder
is a broker-dealer that will receive exchange notes for its own account in
exchange for unregistered notes that were acquired as a result of market-making
or other trading activities (a "Participating Broker-Dealer"), that it will
deliver a prospectus in connection with any resale of such exchange notes; and
(6) that it is not acting on behalf of any persons or entities who could not
truthfully make the foregoing representations. Further, a Participating
Broker-Dealer who intends to use this prospectus in connection with the resale
of exchange notes received in exchange for unregistered notes pursuant to this
exchange offer, must indicate in its Letter of Transmittal or otherwise notify
us in writing prior to the expiration of the exchange offer, that it is such a
broker-dealer.
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RETURN OF NOTES
If any tendered unregistered notes are not accepted for any reason set
forth in the terms and conditions of the exchange offer or if unregistered notes
are withdrawn or are submitted for a greater principal amount than you desire to
exchange, such unaccepted, withdrawn or non-exchanged unregistered notes will be
returned to you without any expense to you as promptly as practicable. Under
these circumstances, in the case of unregistered notes tendered by book-entry
transfer into the exchange agent's account at DTC pursuant to the book-entry
transfer procedures described below, such unregistered notes will be credited to
an account maintained with DTC.
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account with respect
to the unregistered notes at DTC for purposes of the exchange offer within two
business days after the date of this Prospectus. The exchange agent has
confirmed that any financial institution that is a participant in DTC's systems
(a "DTC Participant") may use DTC's Automated Tender Offer program ("ATOP")
procedures to tender unregistered notes in the exchange offer. Any DTC
Participant may make book-entry delivery of unregistered notes by causing DTC to
transfer such unregistered notes into the exchange agent's account at DTC in
accordance with DTC's ATOP procedures for transfer. However, although delivery
of unregistered notes may be effected through book-entry transfer into the
exchange agent's account at DTC, the Letter of Transmittal (or facsimile
thereof) with any required signature guarantees, or an Agent's Message in lieu
of the Letter of Transmittal, and any other required documents must, in any
case, be transmitted to and received by the exchange agent at one of the
addresses set forth below under "--Exchange Agent" on or prior to 5:00 p.m., New
York City time, on the Expiration Date or the guaranteed delivery procedures
described below must be complied with. The term "Agent's Message" means a
message, transmitted by DTC and received by the exchange agent and forming part
of a Book-Entry Confirmation, that states that DTC has received an express
acknowledgment from a DTC Participant tendering unregistered notes that are the
subject of such Book-Entry Confirmation that such DTC Participant has received
and agrees to be bound by the terms of the Letter of Transmittal, and that we
may enforce the Letter of Transmittal against such DTC Participant.
GUARANTEED DELIVERY PROCEDURES
If you wish to tender your unregistered notes and (1) your unregistered
notes are not immediately available, (2) you cannot deliver your unregistered
notes, the Letter of Transmittal or any other required documents to the exchange
agent prior to the expiration date, or (3) the procedures for book-entry
transfer cannot be completed on a timely basis, you may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the expiration date, the exchange agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (or Agent's Message in lieu thereof) substantially in
the form provided by us, by facsimile transmission, mail or hand delivery,
setting forth the name and address of the holder, the certificate number(s)
of such unregistered notes and the principal amount of unregistered notes
tendered, stating that the tender is being made thereby and guaranteeing
that, within three New York Stock Exchange trading days after the
expiration date, the Letter of Transmittal, or a facsimile thereof,
together with the certificate(s) representing the unregistered notes in
proper form for transfer or a Book-Entry Confirmation, as the case may be,
and any other documents required by the Letter of Transmittal will be
deposited by the Eligible Institution with the exchange agent; and
(c) such properly executed Letter of Transmittal, or facsimile
thereof (or Agent's Message in lieu thereof), as well as the certificate(s)
representing all tendered unregistered notes in proper form for transfer
and all other documents required by the Letter of Transmittal are received
by the exchange agent within three New York Stock Exchange trading days
after the expiration date.
Upon request to the exchange agent, a Notice of Guaranteed Delivery will be
sent to you in order for you to tender your unregistered notes according to the
guaranteed delivery procedures set forth above.
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WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of unregistered notes may be
withdrawn at any time prior to the expiration date.
To withdraw a tender of unregistered notes in the exchange offer, a written
or facsimile transmission notice of withdrawal must be received by the exchange
agent at its address set forth herein prior to the expiration date. Any such
notice of withdrawal must (1) specify the name of the person having deposited
the unregistered notes to be withdrawn, known as the "Depositor," (2) identify
the unregistered notes to be withdrawn, including the certificate number or
numbers and principal amount of such unregistered notes, and (3) be signed by
the holder in the same manner as the original signature on the Letter of
Transmittal by which such unregistered notes were tendered, including any
required signature guarantees. If unregistered notes have been tendered pursuant
to the procedure for book-entry transfer described above, any notice of
withdrawal must specify the name and number of the account at DTC to be credited
with the withdrawn unregistered notes and otherwise comply with the procedures
of such facility. All questions as to the validity, form and eligibility,
including time of receipt of such notices will be determined by us in our sole
discretion, and our determination shall be final and binding on all parties. Any
unregistered notes so withdrawn will be deemed not to have been validly tendered
for purposes of the exchange offer and no exchange notes will be issued with
respect thereto unless the unregistered notes so withdrawn are validly
retendered. Properly withdrawn unregistered notes may be retendered by following
one of the procedures described above under "--Procedures for Tendering" at any
time prior to the expiration date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other term of the exchange offer, we will not be
required to accept for exchange, or exchange the exchange notes for, any
unregistered notes not theretofore accepted for exchange, and may terminate or
amend the exchange offer as provided herein before the acceptance of such
unregistered notes, if any of the following conditions exist: (a) the exchange
offer violates applicable law or any applicable interpretation of the staff of
the SEC, (b) an action or proceeding shall have been instituted or threatened in
any court or by any governmental agency which might materially impair our
ability to proceed with the exchange offer and any material adverse development
shall have occurred in any existing action or proceeding with respect to us, and
(c) all governmental approvals, which we deem necessary for the consummation of
the exchange offer have not been obtained.
If we determine in our sole discretion that any of these conditions are not
satisfied, we may (1) refuse to accept any unregistered notes and return all
tendered unregistered notes to the tendering holders, (2) extend the exchange
offer and retain all unregistered notes tendered prior to the expiration of the
exchange offer, subject, however, to the rights of holders to withdraw such
unregistered notes as provided above under "--Withdrawal of Tenders," or (3)
waive such unsatisfied conditions with respect to the exchange offer and accept
all properly tendered unregistered notes which have not been withdrawn.
The foregoing conditions are for our benefit only and we may assert them
regardless of the circumstances giving rise to such condition or we may waive
them in whole or in part at any time and from time to time in at our sole
discretion. Our failure at any time to exercise the foregoing rights shall not
be deemed a waiver of any such right and each such right shall be deemed an
ongoing right, which may be asserted at any time and from time to time.
SHELF REGISTRATION
If (i) because of any change in law or in currently prevailing
interpretations of the staff of the Commission, we are not permitted to effect
an exchange offer, (ii) the exchange offer is not consummated on or prior to
September 7, 2004 or (iii) in certain circumstances, certain holders of
unregistered exchange notes so request, or (iv) in the case of any holder of an
unregistered note that participates in the exchange offer, such holder does not
receive exchange notes on the date of the exchange that may be sold without
restriction under state and federal securities laws (other than due solely to
the status of such holder as an affiliate of us or within the meaning of the
Securities Act), then in each case, we will (x) promptly deliver to the holders
and the Trustee written notice thereof and (y) at our sole expense, (a) as
promptly as practicable, file a shelf registration statement covering resales of
the unregistered notes (the "Shelf Registration Statement"), (b) subject to
certain blackout periods, use our reasonable best efforts to keep effective the
Shelf Registration Statement until the earlier of January 26, 2006 or such time
as all of the applicable unregistered notes have been sold thereunder or are
otherwise transferable without further registration under the Securities Act. We
will, in the event that a Shelf Registration Statement is filed, provide to each
69
holder of an unregistered note copies of the prospectus that is a part of the
Shelf Registration Statement, notify each such holder when the Shelf
Registration Statement for the unregistered notes has become effective and take
certain other actions as are required to permit unrestricted resales of the
unregistered notes. A holder of an unregistered note that sells unregistered
notes pursuant to the Shelf Registration Statement will be required to be named
as a selling security holder in the related prospectus and to deliver a
prospectus to purchasers, will be subject to certain of the civil liability
provisions under Securities Act in connection with such sales and will be bound
by the provisions of the Registration Rights Agreement that are applicable to
such a holder (including certain indemnification rights and obligations).
LIQUIDATED DAMAGES
We have agreed to pay, as liquidated damages, additional interest on
unregistered notes ("Additional Interest") under the circumstances and to the
extent set forth below (each of which is given independent effect):
(1) if (A) neither the registration statement of which this
Prospectus is a part nor Shelf Registration Statement, is filed with the
Commission on or prior to April 25, 2004 or (B) notwithstanding that we
have consummated or will consummate an exchange offer, we are required to
file a Shelf Registration Statement and such Shelf Registration Statement
is not filed on or prior to the date required by the Registration Rights
Agreement, then, commencing on the day after either such required filing
date, Additional Interest shall accrue on the principal amount of the
unregistered notes at a rate of 0.25% per annum for the first 90 days
immediately following each such filing date, such Additional Interest rate
increasing by an additional 0.25% per annum at the beginning of each
subsequent 90-day period; or
(2) if (A) neither the Exchange Offer Registration Statement nor a
Shelf Registration Statement is declared effective by the Commission on or
prior to July 24, 2004 or (B) notwithstanding that we have consummated or
will consummate an exchange offer, we are required to file a Shelf
Registration Statement and such Shelf Registration Statement is not
declared effective by the Commission on or prior to the date required by
the Registration Rights Agreement, then, commencing on the day after either
such required effective date, Additional Interest shall accrue on the
principal amount of the unregistered notes at a rate of 0.25% per annum for
the first 90 days immediately following such date, such Additional Interest
rate increasing by an additional 0.25% per annum at the beginning of each
subsequent 90-day period; or
(3) if (A) we have not exchanged exchange notes for all unregistered
notes validly tendered in accordance with the terms of the exchange offer
on or prior to the 45th day after the date on which the registration
statement of which this prospectus is a part was declared effective or (B)
if applicable, the Shelf Registration Statement has been declared effective
and such Shelf Registration Statement ceases to be effective at any time
prior to January 26, 2006 (other than after such time as all unregistered
notes have been disposed of thereunder), then Additional Interest shall
accrue on the principal amount of the unregistered notes at a rate of 0.25%
per annum for the first 90 days commencing on (x) the 46th day after such
effective date, in the case of (A) above, or (y) the day such Shelf
Registration Statement ceases to be effective, in the case of (B) above,
such Additional Interest rate increasing by an additional 0.25% per annum
at the beginning of each subsequent 90-day period;
PROVIDED, HOWEVER, that the Additional Interest rate on the unregistered notes
may not accrue under more than one of the foregoing clauses (1)-(3) at any one
time and at no time shall the aggregate amount of Additional Interest accruing
exceed in the aggregate 1.0% per annum; PROVIDED, FURTHER, HOWEVER, that (a)
upon the filing of the registration statement of which this prospectus is a part
or a Shelf Registration Statement (in the case of clause (1) above), (b) upon
the effectiveness of the registration statement of which this prospectus is a
part or a Shelf Registration Statement (in the case of clause (2) above), or (c)
upon the exchange of exchange notes for all unregistered notes tendered (in the
case of clause (3) (A) above), or upon the effectiveness of the Shelf
Registration Statement which had ceased to remain effective (in the case of
clause (3) (B) above), Additional Interest on the unregistered notes as a result
of such clause (or the relevant subclause thereof), as the case may be, shall
cease to accrue.
Any amounts of Additional Interest due pursuant to clause (1), (2) or (3)
above will be payable in cash on the same original interest payment dates as the
unregistered notes.
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BLACKOUT PERIODS
We may suspend the use of a prospectus included in the registration
statement with respect to the exchange offer or Shelf Registration Statement for
periods not to exceed 45 days in any twelve-month period if we reasonably
determine (1) that the disclosure of an event could reasonably be expected to
have a material adverse effect on our business, operations or prospects and our
subsidiaries or (2) to avoid premature disclosure of a potential business
transaction that has not been disclosed (a "blackout period"). After receipt of
notice from us of the commencement of a blackout period, holders of unregistered
notes and certain exchange notes and Participating Broker-Dealers (as below in
"Plan of Distribution") must discontinue disposition of such unregistered notes
and exchange notes covered by such registration statement (or prospectus
contained therein) or exchange notes to be sold by such holder or Participating
Broker-Dealer until the earlier of (A) the 46th day in which any blackout period
is instituted in any twelve month period and (B) receipt of notice from us that
such blackout period has ended.
EXCHANGE AGENT
The Bank of New York has been appointed as exchange agent of the exchange
offer. Questions and requests for assistance, requests for additional copies of
this prospectus or of the Letter of Transmittal and requests for Notice of
Guaranteed Delivery should be directed to the Exchange Agent addressed as
follows:
BY REGISTERED OR CERTIFIED MAIL BY HAND OR OVERNIGHT DELIVERY
------------------------------- -----------------------------
The Bank of New York The Bank of New York
Reorganization Unit - 7E Reorganization Unit - 7E
101 Barclay Street - 7 East 101 Barclay Street - 7 East
New York, New York 10286 New York, New York 10286
Attn: Enrique Lopez Attn: Enrique Lopez
Facsimile Transmission: 212-298-1915
(Eligible Institutions Only)
Confirm by Telephone: 212-815-2742
(Eligible Institutions Only)
FEES AND EXPENSES
All fees and expenses incident to compliance with the Registration Rights
Agreement regarding this exchange offer shall be paid by us whether or not the
exchange offer or a shelf registration becomes effective. Such expenses include
registration fees, fees and expenses of the exchange agent and Trustee,
accounting and legal fees and printing costs, among others.
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to brokers, dealers or others soliciting
acceptances of the exchange offer. We will, however, pay the exchange agent
reasonable and customary fees for its services and will reimburse it for its
reasonable out-of-pocket expenses in connection therewith.
We will pay all transfer taxes, if any, applicable to the exchange of
unregistered notes pursuant to the exchange offer. If, however, a transfer tax
is imposed for any reason other than the exchange of the unregistered notes
pursuant to the exchange offer, then the amount of any such transfer taxes,
whether imposed on the registered holder or any other persons, will be payable
by the tendering holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted with the Letter of Transmittal, the amount
of such transfer taxes will be billed directly to such tendering holder.
CONSEQUENCES OF FAILURE TO EXCHANGE
Participation in the exchange offer is voluntary. You are urged to consult
their financial and tax advisors in making your decision on what action to take.
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The unregistered notes which are not exchanged for the exchange notes
pursuant to the exchange offer will remain restricted securities. Accordingly,
such unregistered notes may be resold only in accordance with the Indenture
governing the unregistered notes (1) to a person whom the seller reasonably
believes is a qualified institutional buyer in a transaction meeting the
requirements of Rule 144A, (2) in a transaction meeting the requirements of Rule
144 under the Securities Act, (3) outside the United States to a non-United
States person in a transaction meeting the requirements of Rule 904 under the
Securities Act, (4) in accordance with another exemption from the registration
requirements of the Securities Act, and subject to an opinion of counsel
satisfactory to us if we so request, (5) to us, or (6) pursuant to an effective
registration statement and, in each case, in accordance with any applicable
securities laws of any state of the United States or any other applicable
jurisdiction.
ACCOUNTING TREATMENT
For accounting purposes, we will recognize no gain or loss as a result of
the exchange offer.
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DESCRIPTION OF EXCHANGE NOTES
The unregistered notes have been, and the exchange notes are being issued
under an Indenture dated as of January 26, 2004 (the "Indenture") between the
Company and The Bank of New York, as trustee (the "Trustee"), a copy of which
was filed with the Commission as an exhibit to our Form 10-Q filed on February
17, 2004. The following is a summary of certain provisions of the Indenture and
is subject to all of the provisions of the Indenture, including the definitions
of certain terms therein and those terms made a part of the Indenture by the
Trust Indenture Act of 1939, as amended. Wherever particular sections or defined
terms of the Indenture are referred to, such sections or defined terms are
incorporated herein by reference. For purposes of this "Description of Exchange
Notes," references to the Company are only to MediaNews Group, Inc. and not to
any of its subsidiaries. Whenever we refer in this prospectus to the 6 3/8%
Senior Subordinated Notes due 2014 issued on January 26, 2004, we will refer to
them as the "unregistered notes." Whenever we refer in this prospectus to the 6
3/8% Senior Subordinated Notes due 2014 that have been registered under the
Securities Act of 1933, we will refer to them as the "exchange notes." For
purposes of this "Description of Exchange Notes," we refer to the unregistered
notes and the exchange notes collectively as the "Notes." The definitions of
certain other capitalized terms used in the following summary are set forth
under "Definitions."
GENERAL
The exchange notes will mature on April 1, 2014. An aggregate principal
amount of exchange notes equal to $150.0 million is being issued in this
exchange offer. The Company may issue additional Notes in an unlimited amount
having identical terms and conditions to the exchange notes being issued in this
exchange offer (the "Additional Notes"), subject to compliance with the covenant
described under "-- Certain Covenants -- Limitation on Additional Debt." Any
Additional Notes will be part of the same issue as the Notes being issued in
this exchange offer and will vote on all matters as one class with the Notes.
For purposes of this "Description of Exchange Notes," except for the covenant
described under "-- Certain Covenants -- Limitation on Additional Debt,"
references to the Notes include Additional Notes, if any.
The form and terms of the exchange notes will be identical in all material
respects to the form and terms of the unregistered notes, except that the
exchange notes will have been registered under the Securities Act and,
therefore, will not bear legends restricting transfer thereof. The exchange
notes and the unregistered notes are deemed the same class of notes under the
Indenture and are both entitled to the benefits thereof.
The Notes will be payable both as to principal and interest at the office
or agency of the Company maintained for such purpose within the City and State
of New York, or, at the option of the Company, payment of interest may be made
by check mailed to the holders of the Notes at their respective addresses set
forth in the Note holder register. Unless otherwise designated by the Company,
the Company's office or agency in New York will be the office of the Trustee,
maintained for such purpose. Interest on the Notes will be computed on the basis
of a 360-day year of twelve 30-day months. Notes will be transferable and
exchangeable at the offices of the Trustee. The exchange notes will be issued in
fully registered form, without coupons, in principal amounts of $1,000 and any
integral multiple thereof.
Interest on the exchange notes will accrue at a rate of 6 3/8% per annum,
and will be payable semiannually in arrears on January 1 and July 1 of each
year, commencing on the date following their date of issuance, to the persons
who are registered holders thereof at the close of business on December 15 or
June 15 preceding the applicable interest payment date. Interest on each
exchange note will accrue (A) from the later of (i) the last interest payment
date on which interest was paid on the unregistered note surrendered in exchange
therefor, or (ii) if the unregistered note is surrendered for exchange on a date
in a period which includes the record date for an interest payment date to occur
on or after the date of such exchange and as to which interest will be paid, the
date of such interest payment date or (B) if no interest has been paid on such
unregistered note, from January 26, 2004.
SUBORDINATION
The payment of all Obligations on the Notes will be subordinated and junior
in right of payment, to the extent set forth in the Indenture, to the prior
payment in full in cash of all Obligations in respect of the existing and future
Senior Debt of the Company, including the Credit Facility. The Notes will be
unsecured obligations of the Company ranking PARI PASSU in right of payment with
all existing and future senior subordinated indebtedness of the Company and
senior in right of payment to all existing and future subordinated indebtedness
of the Company which is made expressly junior thereto.
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Upon any payment or distribution of assets to creditors of the Company upon
any dissolution or winding up or total or partial liquidation or reorganization
of the Company, whether voluntary or involuntary, or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to the
Company or its property, in an assignment for the benefit of creditors or any
marshalling of the Company's assets and liabilities, the holders of Senior Debt
of the Company will first be entitled to receive payment in full in cash of all
Obligations due in respect of such Senior Debt (including interest accruing
after, or which would accrue but for the occurrence of the commencement of, any
such proceeding, at the rate specified in the applicable Senior Debt whether or
not such interest is an allowable claim in any such proceeding) before any
payment or distribution is made on account of any Obligations on the Notes, or
for the acquisition of any of the Notes for cash or property or otherwise and,
until all Obligations with respect to Senior Debt of the Company have been paid
in full in cash, any payment or distribution to which the holders of the Notes
otherwise would be entitled shall be made to the holders of Senior Debt (except
that holders of the Notes may receive securities that are subordinated at least
to the same extent as the Notes to Senior Debt and to any securities issued in
exchange for Senior Debt). See "Risk Factors -- Risks Relating to the Exchange
Notes and the Exchange Offer -- Subordination of the Exchange Notes -- Your
right to receive payments on the Notes is junior, in right of payment, to our
bank and other unsubordinated indebtedness and possibly all of our future
borrowings and junior to obligations of our subsidiaries, including their
guarantee of our existing and future bank or other indebtedness."
The Company also may not make any payment upon or distribution in respect
of the Notes or acquire any of the Notes for cash or property or otherwise
(except in or for such subordinated securities) if (i) a default in the payment
of the principal of, premium, if any, interest or any other Obligation with
respect to Senior Debt occurs and is continuing beyond any applicable period of
grace (whether upon maturity, at a date fixed for prepayment, as a result of
acceleration or otherwise) (a "payment default") or (ii) any other default
occurs and is continuing (or if such an event of default would occur upon any
payment with respect to the Notes or would arise upon the passage of time as a
result of such payment) with respect to any Designated Senior Debt as to which
the holders of such Designated Senior Debt would have the right to accelerate
its maturity (a "nonpayment default"), as a result of such default, and, in
either case, the Trustee receives a notice of such default (a "payment blockage
notice") from the holders, or from the trustee, agent or other representative of
the holders, of any such Designated Senior Debt. Payment on the Notes may and
shall be resumed (i) in the case of a payment default, upon the date on which
such default is cured or waived and (ii) in case of a nonpayment default, upon
the earlier of the date on which such nonpayment default is cured or waived or
179 days after the date on which the applicable payment blockage notice is
received, unless the maturity of any Designated Senior Debt has been
accelerated. No new period of payment blockage in respect of any nonpayment
default may be commenced within 360 days after receipt by the Trustee of any
prior payment blockage notice. No nonpayment default that existed or was
continuing on the date of delivery of any payment blockage notice to the Trustee
shall be made the basis for a subsequent payment blockage notice unless such
default shall have been cured or waived for a period of not less than 180 days
and all scheduled payments of principal, premium, if any and interest then due
and payable of the Notes shall have been made. The Indenture further requires
that the Company promptly notify holders of Senior Debt if payment of the Notes
is accelerated because of an Event of Default.
MANDATORY REDEMPTION
Except as set forth under "-- Certain Covenants -- Change of Control," and
"-- Certain Covenants -- Limitation on Sales of Assets," the Company will not be
required to make mandatory redemption or sinking fund payments with respect to
the Notes.
OPTIONAL REDEMPTION
The Notes will not be redeemable at the Company's option prior to October
1, 2008. On and after such date, the Notes will be subject to redemption at the
Company's option, in whole or in part, in amounts of $1,000 or integral
multiples thereof, upon not less than 30 nor more than 60 days' notice, at the
redemption prices (expressed as percentages of principal amount) set forth
below, plus accrued and unpaid interest, if any, to the applicable redemption
date, if redeemed during the twelve month period commencing on October 1 of the
years indicated below:
YEAR PERCENTAGE
---- -----------
2008........................... 103.188%
2009........................... 102.125%
2010........................... 101.063%
2011 and thereafter............ 100.000%
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In addition, at any time, or from time to time, on or prior to October 1,
2006, the Company may, at its option, use the net cash proceeds of one or more
Equity Offerings (as defined below) to redeem up to 35% of the principal amount
of Notes originally issued at a redemption price equal to 106.375% of the
principal amount thereof plus accrued and unpaid interest thereon, if any, to
the date of such redemption, PROVIDED that an amount of notes equal to at least
65% aggregate principal amount of unregistered notes originally issued remains
outstanding immediately after any such redemption. In order to effect the
foregoing redemption with the proceeds of any Equity Offering, the Company shall
make such redemption not more than 120 days after the consummation of any such
Equity Offering.
As used herein, "Equity Offering" means the issuance and public or private
sale of Qualified Capital Stock of the Company resulting in gross proceeds to
the Company of at least $10.0 million.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
LIMITATION ON ADDITIONAL DEBT. The Indenture provides that the Company and
its Restricted Subsidiaries may not, directly or indirectly, Issue any Debt,
except that the Company and/or its Restricted Subsidiaries may Issue Debt if (i)
no Default or Event of Default shall have occurred and be continuing at such
time or shall occur as a result of such issuance and (ii) at the time such Debt
is so Issued and after giving effect thereto and to the application of the net
proceeds therefrom, the Leverage Ratio of the Company shall not be greater than
6.75 to 1.
The limitations set forth in the immediately preceding paragraph will not
apply to: (i) the Notes; (ii) Existing Debt; (iii) Debt under the Credit
Facility, to the extent that the aggregate amount of such Debt does not, at any
time, exceed $750.0 million, less the aggregate amount of Net Cash Proceeds of
Asset Sales that have been applied by the Company since the Issue Date to the
repayment of any term loans thereunder; (iv) Debt owing from or to the Company
and its Restricted Subsidiaries, PROVIDED that any Debt owing from the Company
to its Restricted Subsidiaries is subordinated to the Notes; (v) other Debt
issued hereafter not to exceed in the aggregate $50.0 million at any one time
outstanding; (vi) Debt in respect of Capitalized Lease Obligations and Purchase
Money Obligations not to exceed in the aggregate $50.0 million at any one time
outstanding; (vii) Acquired Debt; (viii) Debt incurred to renew, refinance or
extend any Debt described in clauses (i) and (ii) above (other than our 8 5/8%
Senior Subordinated Notes due 2011 to the extent purchased or redeemed with the
proceeds of our unregistered notes), incurred in accordance with the immediately
preceding paragraph or represented by any notes otherwise issued in compliance
with the Indenture, PROVIDED that (a) in the case of Debt incurred to renew,
refinance or extend any such Debt (other than Debt incurred in accordance with
the immediately preceding paragraph), the aggregate principal amount of Debt so
issued (or, if such Debt is issued at a price less than the principal amount
thereof, the original issue price) shall not exceed the aggregate principal
amount of the Debt being extended, renewed or refinanced plus any premium,
"make-whole" amounts and penalties actually paid on the Debt being extended,
renewed or refinanced and all reasonable fees and expenses payable in connection
with such renewal, refinancing or extension and (b) any Debt so issued shall not
mature prior to the earlier of (x) the stated maturity of the Debt being
extended, renewed or replaced and (y) 91 days following the stated maturity of
the Notes and (ix) Debt under Hedging Obligations; PROVIDED that (a) such
Hedging Obligations are designed to protect against fluctuations in interest or
currency rates or commodity prices and (b) in the case of any Hedging
Obligations under clause (1) of the definition thereof, (I) such Hedging
Obligations relate to payment obligations on Debt otherwise permitted to be
incurred by this covenant, and (II) the notional principal amount of such
Hedging Obligations at the time incurred does not exceed the amount of the Debt
to which such Hedging Obligations relate.
For purposes of this covenant, the accretion of original issue discount,
the payment in kind of interest and dividends and the accrual of interest and
dividends shall not be deemed to be Issuances of such Debt (but the accrual of
any such amounts that constitute Debt shall be included for purposes of
determining the Leverage Ratio).
If an item of Debt meets the criteria of more than one of the categories
described in clauses (i) through (ix) above or is permitted to be incurred
pursuant to the first paragraph of this covenant and also meets the criteria of
one or more of the categories described in clauses (i) through (ix) above, the
Company may, in its sole discretion, classify such item of Debt in any manner
that complies with this covenant and may from time to time reclassify such item
of Debt in any manner in which such item could be incurred at the time of such
reclassification; PROVIDED that Debt outstanding on the Issue Date under the
Credit Facility (and any refinancings thereof) shall first be deemed to be
incurred under clause (iii) and may not be reclassified.
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LIMITATION ON SENIOR SUBORDINATED DEBT. The Indenture provides that the
Company will not, directly or indirectly, become liable, contingently or
otherwise, with respect to any Debt that is subordinated or junior in right of
payment to any Senior Debt of the Company and senior in right of payment to the
Notes.
LIMITATION ON LIENS SECURING CERTAIN DEBTS. The Indenture provides that the
Company will not, and will not permit any of its Restricted Subsidiaries to,
create, incur, assume or suffer to exist any Liens that secure any Debt of the
Company which is PARI PASSU with or subordinate in right of payment to the Notes
unless the Notes are secured equally and ratably with such Debt (but on a senior
basis if such other Debt is subordinate to the Notes) as long as such Debt is so
secured. Notwithstanding the foregoing, any amounts deposited with any trustee
or Person performing similar functions with respect to any outstanding Debt in
connection with the discharge or defeasance of such Debt in a transaction that
otherwise complies with the Indenture, which deposited amounts are subject to
the Lien of the Person with whom such amounts have been deposited or the holders
of the obligations thereunder, shall not be deemed to be subject to a Lien
prohibited by the Indenture as a result thereof.
LIMITATION ON RESTRICTED PAYMENTS. The Indenture provides that the Company
will not, and will not permit any of its Restricted Subsidiaries to, make,
directly or indirectly, any Restricted Payment; PROVIDED, HOWEVER, that the
Company and its Restricted Subsidiaries may make Restricted Payments so long as
at the time of the making of such Restricted Payment and after giving effect
thereto:
(a) no Default or Event of Default shall have occurred or be
continuing as a consequence thereof;
(b) immediately after giving effect to such Restricted Payment, the
Company would have been permitted to incur $1.00 of additional Debt
pursuant to the terms of the first paragraph under the "-- Limitation on
Additional Debt" covenant; and
(c) the aggregate amount expended by the Company and its Restricted
Subsidiaries in connection with all Restricted Payments made subsequent to
the Issue Date shall not exceed the sum of, without duplication, (i) the
Company's Cumulative Credit (or, in the event such aggregate Cumulative
Credit shall be a deficit, minus 100% of such deficit); (ii) 100% of the
Net Cash Proceeds received by the Company from any Person (other than a
Subsidiary of the Company) from the issuance and sale subsequent to January
1, 2004 of Qualified Capital Stock of the Company (excluding (A) Qualified
Capital Stock made as a distribution on any Capital Stock or as interest on
any Debt; (B) any such Net Cash Proceeds from issuances and sales of
Qualified Capital Stock, where the purchase is financed directly or
indirectly using funds borrowed from the Company or any Subsidiary of the
Company and (C) any such Net Cash Proceeds from issuances and sales of
Qualified Capital Stock to the extent such Net Cash Proceeds were used to
redeem Notes pursuant to the second paragraph under "-- Optional
Redemption"); (iii) 100% of the Net Cash Proceeds received by the Company
from the exercise of options or warrants on Qualified Capital Stock of the
Company since January 1, 2004 (other than from a Subsidiary of the
Company); (iv) 100% of the Net Cash Proceeds received by the Company from
the conversion into Qualified Capital Stock of convertible Debt or
convertible Preferred Stock issued and sold since January 1, 2004 (other
than from a Subsidiary of the Company); (v) 100% of the aggregate net
proceeds of any (a) sale or other disposition of Restricted Investments
(which Investment was made after January 1, 2004) made by the Company or a
Restricted Subsidiary of the Company, (b) dividends, whether liquidating or
otherwise, from, or the sale of capital stock of, an Unrestricted
Subsidiary, or (c) dividends, whether liquidating or otherwise, from
Restricted Investments; and (vi) $75.0 million.
Notwithstanding the foregoing, this restriction will not prevent (A) the
payment of any dividend within 60 days after the date of declaration if the
dividend would have been permitted on the date of declaration; (B) so long as no
Default or Event of Default shall have occurred or be continuing or shall occur
as a consequence thereof, the acquisition of Capital Stock of the Company which
is funded either by the exchange of shares of Qualified Capital Stock of the
Company or from the Net Cash Proceeds of the substantially concurrent sale for
cash of shares of Qualified Capital Stock of the Company (other than to a
Subsidiary of the Company) which amount shall not then be included in (c)(ii) of
the immediately preceding paragraph; (C) so long as no Default or Event of
Default shall have occurred or be continuing or shall occur as a consequence
thereof, the purchase for value of shares of Capital Stock or warrants, options
or other rights to acquire Capital Stock held by directors, officers or
employees of the Company upon death, disability, retirement or termination of
employment in an aggregate amount not to exceed $3.0 million in any twelve-month
period; (D) so long as no Default or Event of Default shall have occurred or be
continuing or shall occur as a consequence thereof, and immediately after giving
effect to such Restricted Payment, the Company would have been permitted to
incur at least $1.00 of additional Debt pursuant to the terms of the first
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paragraph under "Limitation on Additional Debt," the commitment to purchase or
purchase from the Permitted Holders, of Capital Stock of the Company owned by
any of them for an aggregate purchase price of up to $75.0 million provided that
(i) no more than $25.0 million may be committed to be purchased, or purchased,
prior to December 31, 2005 and (ii) no more than $25.0 million may be used to
purchase Capital Stock of Permitted Holders that are not Scudder Permitted
Holders; PROVIDED, HOWEVER, that, notwithstanding the foregoing, the Company and
its Restricted Subsidiaries may, at any time commit to purchase Capital Stock
from the Permitted Holders so long as the agreement evidencing such commitment
provides that the purchase will occur at a time permitted by this clause (D) and
only to the extent such purchase is permitted by this clause (D) as of the
proposed purchase date and (E) purchases (and commitments to so purchase) from
the Permitted Holders of Capital Stock with (and only to the extent of) the net
cash proceeds received from life insurance on Permitted Holders, provided that
the premiums for such insurance to the extent paid by the Company or any
Restricted Subsidiary (but not the proceeds thereof) shall be deemed to be
Restricted Payments.
LIMITATION ON SALES OF ASSETS. The Indenture provides that the Company and
its Restricted Subsidiaries may not, directly or indirectly, consummate any
Asset Sale unless: (a) at least 75% of the consideration therefor received by
the Company or such Restricted Subsidiary shall be in the form of cash or Cash
Equivalents, PROVIDED, that the amount of (i) any liabilities (as shown on the
Company's or such Restricted Subsidiary's most recent balance sheet or in the
notes thereto) of the Company or any Restricted Subsidiary (other than
liabilities that are by their terms subordinated to the Notes or any guarantee
thereof) that are assumed by the transferee of any such assets shall be excluded
from such calculation and (ii) any notes or other obligations received by the
Company or any such Restricted Subsidiary from such transferee that are
converted by the Company or such Restricted Subsidiary within 30 days of receipt
thereof into cash (to the extent of the cash received) shall be deemed, to the
extent of cash so received, to be cash for purposes of this provision; (b) the
Company or such Restricted Subsidiary shall have received consideration in such
Asset Sale at least equal to the fair market value of the assets sold in such
Asset Sale (as determined in good faith by the Board of Directors of the
Company); and (c) such Asset Sale is approved in writing by the Board of
Directors of the Company; PROVIDED, however, that clause (a) above and the next
paragraph shall not apply to the extent an Asset Sale consists of the exchange
of one or more newspapers, Permitted Investments or assets or proper ties
utilized in a Permitted Business for one or more newspapers, Permitted
Investments or assets or properties utilized in a Permitted Business.
The Company will, and will cause each such Restricted Subsidiary to, apply
such Net Cash Proceeds within 360 days of receipt thereof to (i) reinvestment by
the Company or such Restricted Subsidiary in a Permitted Investment or property
or assets to be employed in a Permitted Business, (ii) the permanent repayment
of Debt (including premium) of the Company or its Restricted Subsidiaries that
is held by a person other than a Restricted Subsidiary or Affiliate of the
Company, or (iii) the repurchase of Notes tendered as described in the
immediately succeeding paragraph. Any Net Cash Proceeds from Asset Sales that
are not applied as provided in clause (i) or (ii) of the preceding sentence
shall constitute excess proceeds ("Excess Proceeds").
In the event the Company or any Restricted Subsidiary shall have received
any Excess Proceeds, the Company will make an offer to all holders of the Notes
to purchase the maximum principal amount of Notes that may be purchased out of
such Excess Proceeds, at an offer price, in cash in an amount equal to 100% of
the outstanding principal amount thereof, plus the accrued and unpaid interest
thereon, if any, to the date fixed for the closing of such offer, in accordance
with the procedures set forth in the Indenture. To the extent that the aggregate
principal amount of Notes tendered pursuant to an offer to purchase is less than
the Excess Proceeds, the Company may use such excess for any purpose not
prohibited by the Indenture. If the aggregate principal amount of Notes
surrendered by holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Notes to be purchased on a pro rata basis.
Notwithstanding the foregoing, if after applying any Net Cash Proceeds received
from Asset Sales in accordance with clauses (i) and (ii) of the immediately
preceding paragraph, Excess Proceeds are less than $10.0 million, the
application of such Excess Proceeds to repurchase the Notes may be deferred
until such time as such Excess Proceeds are at least equal to $10.0 million, at
which time the Company or such Restricted Subsidiary shall, within 30 days,
apply all such Excess Proceeds to an offer to repurchase the Notes.
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to the covenant described
hereunder. To the extent that the provisions of any securities laws or
regulations conflict with provisions of the covenant described hereunder, the
Company will comply with the applicable securities laws and regulations and will
be deemed not to have breached its obligations under the covenant described
hereunder by virtue thereof.
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LIMITATION ON TRANSACTIONS WITH AFFILIATES. The Indenture provides that the
Company will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, enter into or permit to exist any transaction (or series
of related transactions) (each a "Transaction") with any Affiliate of the
Company or any Unrestricted Subsidiary of the Company, including, without
limitation, any sale, purchase, lease or loan or any other direct or indirect
payment, transfer or other disposition of assets, property or services, unless
(a) such Transaction is on terms no less favorable to the Company or such
Restricted Subsidiary, as the case may be, than those that could be obtained in
a comparable arm's-length transaction with an independent third party (the
"Fairness Condition") and (b) prior to effecting such Transaction, the Company
shall deliver to the Trustee (i) with respect to any Transaction involving
aggregate consideration in excess of $5.0 million, an officers' certificate
certifying that a majority of the disinterested members of the Board of
Directors of the Company has approved such Transaction and has determined that
the terms of such Transaction satisfy the Fairness Condition and (ii) in
addition, with respect to any Transaction involving (x) aggregate consideration
in excess of $5.0 million in which there are no disinterested directors or (y)
aggregate consideration in excess of $10.0 million, a written opinion from a
nationally recognized investment banking firm stating that the terms of such
Transaction are fair to the Company or such Restricted Subsidiary from a
financial point of view. Clause (b)(ii)(y) shall not apply to purchases of
newsprint in the ordinary course of business by the Company and its Restricted
Subsidiaries from Affiliates of the Company or of its Restricted Subsidiaries.
Notwithstanding the foregoing, this provision will not apply to (A) any
Transaction between (x) the Company and a Restricted Subsidiary of the Company,
(y) Restricted Subsidiaries of the Company (PROVIDED that in the case of any
Restricted Subsidiary that is not a Wholly Owned Subsidiary, no affiliate of the
Company is a direct or indirect investor in such Subsidiary other than through
the Company), or (z) the Company and its Restricted Subsidiaries, on the one
hand, and a Permitted Partnership, on the other hand in the ordinary course of
business, (B) the making of Permitted Investments, (C) the making of Restricted
Payments in accordance with the "-- Limitation on Restricted Payments" covenant,
(D) payments to MediaNews Services for payroll and benefits and for up to $3.5
million per year in reimbursement of other actual cash expenses paid by
MediaNews Services relating to the operation of the Company and its Restricted
Subsidiaries (or incurred on behalf of the Company and its Restricted
Subsidiaries), (E) employee benefits, insurance (including directors and
officers insurance) and compensation, including, without limitation, bonuses,
retirement plans, equity plans, directors fees and stock options, paid to or
established for directors and officers of the Company or any Restricted
Subsidiary in the ordinary course of business and approved by the Board of
Directors (or any committee thereof) of the Company, (F) any Transaction with an
Affiliate to the extent that the only consideration paid by the Company or any
Restricted Subsidiary in such Transaction is shares of the Company's common
stock, and (G) Transactions pursuant to any contract or agreement in effect on
the Issue Date, as the same may be amended, modified or replaced from time to
time, so long as any such contract or agreement as so amended, modified or
replaced is, taken as a whole, no less favorable in any material respect to the
Company and its Restricted Subsidiaries or to the holders of Notes than the
contract or agreement as in effect on the Issue Date. In connection with this
covenant, other than with respect to directors and officers insurance, any
determination regarding whether a director is "disinterested" will be made on
the basis of whether such director has, among other things, a personal stake in
the business or transactions requiring any such determination to be made.
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES. The Indenture provides that the Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, create or
otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction on the ability of any Restricted Subsidiary of the
Company to (i) pay dividends or make any other distributions on its Capital
Stock or pay any Debt owed to the Company or a Restricted Subsidiary of the
Company, (ii) make loans or advances to the Company or a Restricted Subsidiary
of the Company or (iii) transfer any of its properties or assets to the Company,
except for encumbrances or restrictions existing under or by reason of (A)
applicable law, (B) the Indenture, (C) agreements existing on the Issue Date,
(D) the Credit Facility or the Notes, (E) customary non-assignment provisions of
any lease or contract governing a leasehold interest of the Company or a
Restricted Subsidiary of the Company, (F) any instrument governing or evidencing
Acquired Debt of a Person at the time of such acquisition, which encumbrance or
restriction is not applicable to any Person, or the properties or assets of any
Person, other than the Person, or such Person's property or assets, so acquired,
PROVIDED that such Debt, and such encumbrance or restriction, is not incurred in
connection with, or in contemplation of, such acquisition, (G) any encumbrances
or restrictions contained in any Debt governing any refinancings of the Debt or
renewals of other agreements described in clause (C) or (F), PROVIDED that the
encumbrances and restrictions contained in any such refinancing agreement or
amendment, supplement, renewal or other modification are not materially less
favorable to holders than encumbrances and restrictions contained in such
agreements, (H) customary restrictions on such dividends, distributions, loans,
advances or transfers contained in agreements governing joint operating
agreements and joint ventures and shareholders agreements with minority
shareholders, (I) restrictions with respect to a Person that exist at the time
such Person is acquired by the Company or any Restricted Subsidiary (except to
the extent put in place in connection with or contemplation of such
acquisition), which restrictions are not applicable to any Person, or the
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properties or assets of any Person, other than the Person or the property or
assets of the Person so acquired, (J) restrictions in agreements governing Debt
incurred after the Issue Date that are, taken as a whole, no less favorable in
any material respect to the holders of Notes than restrictions contained in
agreements governing Debt in effect on the Issue Date, (K) customary
restrictions on transfer of assets subject to a sale agreement entered into in
compliance with the Indenture and (L) restrictions on assignment of assets
arising from Liens on such assets that are permitted under the Indenture.
INVESTMENT COMPANY ACT. The Indenture provides that the Company will not
take any action that would require it or any of its Restricted Subsidiaries to
register as an investment company under the Investment Company Act of 1940.
REPORTS TO THE SECURITIES AND EXCHANGE COMMISSION. The Indenture provides
that the Company shall file with the Trustee and, if such filings are not made
available by the Commission free of charge over the Internet, mail to each
holder of Notes, within 15 days after filing with the Commission, copies of the
annual, quarterly and current reports (or copies of such portions of any of the
foregoing as the Commission may by rules and regulations prescribe) which it is
required to file with the Commission pursuant to Section 13 or 15(d) of the
Exchange Act. Notwithstanding that the Company is not required by law to remain
subject to the periodic reporting requirements of the Exchange Act, it will
nonetheless continue to file with the Commission and deliver to the Trustee,
and, if such filings are not made available by the Commission free of charge
over the Internet, to each holder of Notes such annual, quarterly and current
reports which are specified in Section 13 or 15(d) of the Exchange Act. In
addition, the Company shall, at its cost, deliver to each holder of the Notes
quarterly and annual reports substantially equivalent to those which would be
required under the Exchange Act.
The Company will, for so long as any Notes remain outstanding, furnish to
the holders of the Notes and to securities analysts and prospective investors,
upon their request, the information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act.
LIMITATION ON BUSINESS. The Indenture provides that the Company will not,
and will not permit any of its Restricted Subsidiaries to, engage in any
business other than Permitted Business (other than maintaining any Restricted
Investment made in accordance with the Indenture), PROVIDED, HOWEVER, that the
Company and its Restricted Subsidiaries may continue the business of any
Restricted Subsidiary acquired in accordance with the terms of the Indenture.
LIMITATION ON RESTRICTED AND UNRESTRICTED SUBSIDIARIES. The Indenture
provides that the Board of Directors of the Company may, if no Default or Event
of Default shall have occurred and be continuing or would result therefrom,
designate any Restricted Subsidiary to be an Unrestricted Subsidiary if such
designation is at that time permitted under "-- Limitation on Restricted
Payments" above. The Indenture also provides that the Board of Directors of the
Company may, if no Default or Event of Default shall have occurred and be
continuing or would result therefrom, designate an Unrestricted Subsidiary to be
a Restricted Subsidiary; PROVIDED, HOWEVER, that (i) any such redesignation
shall be deemed to be an incurrence as of the date of such redesignation by the
Company and the Restricted Subsidiaries of Debt, if any, of such redesignated
Subsidiary for purposes of "-- Limitation on Additional Debt" above; and (ii)
unless such redesignated Restricted Subsidiary shall not have any Debt
outstanding (other than Debt which would be permitted under "-- Limitation on
Additional Debt" above), no such designation shall be permitted if immediately
after giving effect to such redesignation and the Incurrence of any such Debt,
the Company could not incur $1.00 of additional Debt pursuant to the first
paragraph described under "-- Limitation on Additional Debt" above. Any such
designation or redesignation by the Board of Directors of the Company shall be
evidenced to the Trustee by the filing with the Trustee of a certified copy of
the Board Resolution of the Company's Board of Directors giving effect to such
designation or redesignation and an Officers' Certificate certifying that such
designation or redesignation complied with the foregoing conditions and setting
forth in reasonable detail the underlying calculations.
The Indenture provides that Subsidiaries that are not designated by the
Board of Directors as Restricted or Unrestricted Subsidiaries will be deemed to
be Restricted Subsidiaries. The designation of a Restricted Subsidiary as an
Unrestricted Subsidiary shall be deemed to include a designation of all of the
subsidiaries of such Unrestricted Subsidiary as Unrestricted Subsidiaries. As of
the Issue Date, there were no Unrestricted Subsidiaries.
CHANGE OF CONTROL. The Indenture provides that upon the occurrence of a
Change of Control, each holder of Notes will have the right to require the
Company to repurchase all or a portion of such holder's Notes pursuant to the
offer described below (the "Change of Control Offer"), at a purchase price equal
to 101% of the principal amount thereof plus accrued and unpaid interest
thereon, if any, to the date of repurchase.
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Within twenty (20) Business Days following the date upon which the Change
of Control occurred, the Company will send, by first class mail, a notice to
each holder of the Notes, with a copy to the Trustee, which notice shall govern
the terms of the Change of Control Offer. Such notice shall state, among other
things, the purchase date, which must be no earlier than 30 days nor later than
45 days from the date such notice is mailed, other than as may be required by
law (the "Change of Control Payment Date"). Holders electing to have a Note
purchased pursuant to a Change of Control Offer will be required to surrender
the Note with the form entitled "Option of Holder to Elect Purchase" on the
reverse of the Note completed, to the Paying Agent at the address specified in
the notice prior to the close of business on the business day immediately prior
to the Change of Control Payment Date.
If a Change of Control were to occur, there can be no assurance that the
Company would have sufficient funds to purchase all of the Notes that it is
required to repurchase. In the event that the Company were required to purchase
outstanding Notes pursuant to a Change of Control Offer, the Company expects
that it would need to seek third party financing to the extent it does not have
available funds to meet its purchase obligations. However, there can be no
assurance that the Company would be able to obtain such financing. Accordingly,
the obligation of the Company to offer to repurchase the Notes may be of limited
value if the Company cannot obtain sufficient funding to repay all Debt then
becoming due. A Change of Control may constitute an Event of Default under the
Credit Facility, and permit the holders of the Debt thereunder to declare all
amounts outstanding thereunder to be immediately due and payable.
Restrictions in the Indenture described herein on the ability of the
Company and its Restricted Subsidiaries to incur additional Debt, to grant Liens
on its property, to make Restricted Payments and to make Asset Sales may also
make more difficult or discourage a takeover of the Company, whether favored or
opposed by current management of the Company. Such restrictions and the
restrictions on transactions with Affiliates may, in certain circumstances, make
more difficult or discourage a leveraged buyout of the Company. While such
restrictions cover a wide variety of arrangements which have traditionally been
used to effect highly leveraged transactions, the Indenture may not afford the
holders protection in all circumstances from the adverse aspect of a highly
leveraged transaction, reorganization, restructuring, merger or similar
transaction. For example, the Company could in the future enter into certain
transactions including acquisitions, refinancings or other recapitalizations
that would not constitute a Change of Control under the Indenture, but that
could increase the amount of indebtedness outstanding at such time or otherwise
affect the Company's capital structure or credit ratings.
The Company will comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to the covenant described
hereunder. To the extent that the provisions of any securities laws or
regulations conflict with provisions of the covenant described hereunder, the
Company will comply with the applicable securities laws and regulations and will
be deemed not to have breached its obligations under the covenant described
hereunder by virtue thereof.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer at the same
or a higher purchase price, at the same times and otherwise in substantial
compliance with the requirements applicable to a Change of Control Offer
otherwise required to be made by the Company and purchases all Notes validly
tendered and not withdrawn upon such Change of Control Offer.
A Change of Control Offer may be made in advance of a Change of Control,
and conditioned upon such Change of Control, if a definitive agreement is in
place for the Change of Control at the time of making of the Change of Control
Offer. Notes repurchased by the Company pursuant to a Change of Control Offer
will have the status of Notes issued but not outstanding or will be retired and
canceled, at the option of the Company. Notes purchased by a third party
pursuant to the preceding paragraph will have the status of Notes issued and
outstanding.
MERGER OR CONSOLIDATION. The Indenture provides that the Company will not,
in a single transaction or a series of related transactions, consolidate with or
merge with or into another Person or adopt any plan of liquidation or sell all
or substantially all of its assets, unless (i) either (x) the Company shall be
the surviving corporation or (y) the surviving Person (the "Survivor"), if other
than the Company, shall be a corporation, partnership, limited liability company
or trust, organized and existing under the laws of the United States of America,
one of the states thereof or the District of Columbia, (ii) the Survivor assumes
by supplemental indenture all of the obligations of the Company under the
Indenture and the Notes, (iii) immediately after giving effect to such
transaction (including any Debt incurred or anticipated to be incurred in
connection with such transaction), (x) no Default or Event of Default shall have
occurred and be continuing, and (y) on a pro forma basis as if such transaction
and the incurrence of any such Debt had occurred at the beginning of the
four-quarter period immediately preceding such transaction, the Survivor or the
Company, as the case may be, would have been permitted to incur $1.00 of
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additional Debt under the first paragraph of the "-- Limitation on Additional
Debt" covenant and (iv) the Company shall have delivered to the Trustee certain
officers' certificates and opinions of counsel demonstrating compliance with
each of the foregoing.
EVENTS OF DEFAULT
An Event of Default is defined in the Indenture to mean, among other
things, (i) the failure by the Company to pay interest on any Note when the same
becomes due and payable and the continuance of any such failure for 30 days;
(ii) the failure by the Company to pay the principal of, or premium, if any, on
any Note when and as the same shall become due and payable, at maturity, upon
acceleration, redemption or otherwise, including as a result of a Change of
Control Offer or an Asset Sale; (iii) the failure by the Company to comply with
any of its agreements or covenants described under the heading "-- Merger or
Consolidation" above; (iv) the failure by the Company to comply (A) with any of
its agreements or covenants described under the "-- Limitation on Restricted
Payments" covenant, the "-- Limitation on Additional Debt" covenant, the "
--Limitation on Senior Subordinated Debt" covenant, the "-- Limitation on Liens
Securing Certain Debts" covenant, the "-- Limitation on Restricted and
Unrestricted Subsidiaries" covenant or the "-- Limitation on Sales of Assets"
covenant described above, and the continuance of such failure for 30 days after
written notice is given to the Company by the Trustee or to the Company and the
Trustee by the holders of 25% in aggregate principal amount of the Notes then
outstanding or (B) with any other agreements or covenants in the Notes or the
Indenture and the continuance of such failure for 45 days after written notice
is given to the Company by the Trustee or to the Company and the Trustee by the
holders of 25% in aggregate principal amount of the Notes then outstanding; (v)
failure to pay at final maturity (after any stated grace period) the principal
of and interest on one or more classes of Debt of the Company or any of its
Restricted Subsidiaries, whether such Debt is outstanding on the Issue Date or
thereafter incurred having, individually or in the aggregate, an outstanding
principal amount exceeding $20.0 million or more or any Debt having,
individually or in the aggregate, an outstanding principal amount exceeding
$20.0 million is declared due and payable prior to the stated maturity; (vi)
certain judgments for the payment of money in excess of $20.0 million are
entered against the Company or any of its Significant Subsidiaries and such
judgments remain undischarged and unstayed for a period of 60 days after such
judgment or judgments become final and nonappealable and after the notice
specified below; and (vii) certain events of bankruptcy, insolvency, foreclosure
or reorganization of the Company or any Significant Subsidiary. The Indenture
provides that the Trustee must, within 90 days after the occurrence of a
Default, give to the holders of the Notes notice of all uncured Events of
Default known to it; PROVIDED that, except in the case of a Default relating to
the payment of principal or interest in respect of such Notes, the Trustee will
be protected in withholding such notice if a committee of its Trust Officers in
good faith determines that the withholding of such notice is in the interest of
the holders of the Notes. The Indenture provides that the Company is required to
furnish annually to the Trustee a certificate as to its compliance with the
terms of the Indenture.
RIGHTS UPON DEFAULT
Upon the happening of any Event of Default specified in the Indenture, the
Trustee may, and the Trustee upon the request of 25% in principal amount of the
then outstanding Notes shall or the holders of at least 25% in aggregate
principal amount of the then outstanding Notes may declare the principal of and
accrued but unpaid interest, if any, on all the Notes to be due and payable by
notice in writing to the Company and, if by the holders, the Trustee specifying
the respective Event of Default and that it is a "notice of acceleration," and
the same (i) shall become immediately due and payable (other than an Event of
Default resulting from the bankruptcy, insolvency or reorganization of the
Company, which shall result in automatic acceleration without the giving of any
such notice) or (ii) if there are any amounts outstanding under Designated
Senior Debt will become due and payable upon the first to occur of either (x) an
acceleration, or a failure to pay at final maturity, under Designated Senior
Debt, or (y) five Business Days after the notice of acceleration has been sent
to the Company and each of the representatives under Designated Senior Debt (if
any) unless no Events of Default shall be then continuing.
Subject to certain conditions, the holders of a majority in aggregate
principal amount of Notes outstanding are authorized to rescind any declaration
if all Events of Default then continuing (other than any Events of Default with
respect to the nonpayment of principal of, or interest on, any Note which has
become due solely as a result of such declaration) have been cured or waived,
and to waive any default other than a default with respect to a covenant or
provision that cannot be modified or amended without the consent of the holder
of each outstanding Note affected. Subject to the provisions of the Indenture
relating to the duties of the Trustee, the Trustee is under no obligation to
exercise any of its rights or powers under the Indenture at the request, order
or direction of any of the holders of the Notes issued thereunder, unless the
holders of such Notes have offered to the Trustee indemnity satisfactory to it.
Subject to all provisions of the Indenture and applicable law, the holders of a
majority in aggregate principal amount of the Notes then outstanding have the
right to direct the time, method and place of conducting any proceeding for any
81
remedy available to the Trustee, or exercising any trust or power conferred on
the Trustee.
TRANSFER AND EXCHANGE
Upon any transfer of a Note, the Registrar may require a holder, among
other things, to furnish appropriate endorsements and transfer documents, and to
pay any taxes and fees required by law or permitted by the Indenture. The
Registrar is not required to transfer or exchange any Notes selected for
redemption nor is the Registrar required to transfer or exchange any Notes for a
period of 15 days before a selection of Notes to be redeemed. The registered
holder of a Note will be treated as the owner of it for all purposes.
THE TRUSTEE
The Bank of New York is the Trustee under the Indenture and is initially
serving as Registrar and Paying Agent with respect to the Notes.
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest (as defined in
the Trust Indenture Act), it must eliminate such conflict or resign.
The Indenture provides that in case an Event of Default shall occur (which
shall not be cured), the Trustee will be required, in the exercise of its power,
to use the degree of care of a prudent man in the conduct of his own affairs.
Subject to such provisions, the Trustee will be under no obligation to exercise
any of its rights or powers under the Indenture at the request of any of the
holders of the Notes issued thereunder, unless they shall have offered to the
Trustee security and indemnity satisfactory to it.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company
will have any liability for any obligations of the Company under the Notes or
the indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each holder of a Note by accepting a Note waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes. The waiver may not be effective to
waive liabilities under the federal securities laws. It is the view of the
Commission that this type of waiver is against public policy.
MODIFICATIONS AND AMENDMENTS
Modifications and amendments of the Indenture may be made by the Company
and the Trustee with the consent of the holders of a majority of the aggregate
principal amount of the outstanding Notes, PROVIDED that no such modification,
amendment or instruction may, without the consent of the holder of each
outstanding Note affected thereby:
(a) amend, modify or change the obligation of the Company to make or
consummate a Change of Control Offer or to offer to purchase Notes using
Excess Proceeds or waive any default in the performance thereof or modify
any of the provisions or definitions in respect thereof, in each case after
the relevant Change of Control or Asset Sale occurs;
(b) change the maturity of any Note;
(c) reduce the amount, extend the due date or otherwise affect the
terms of any scheduled payment of interest on or principal of the Notes;
(d) reduce any premium payable upon optional redemption of the Notes,
change the date on which any Notes are subject to redemption or otherwise
alter the provisions with respect to the redemption of the Notes;
(e) make any Note payable in money or currency other than that stated
in the Notes;
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(f) modify or change any provision of the Indenture or the related
definitions to affect the ranking of the Notes in a manner that adversely
affects the holders;
(g) reduce the percentage of holders necessary to consent to an
amendment or waiver to the Indenture or the Notes;
(h) impair the rights of holders to institute suit for enforcement of
any payment of principal or interest on the Notes after the stated maturity
thereof (or, in the case of redemption, on or after the redemption date);
or
(i) make any change in these amendment and waiver provisions.
Notwithstanding the foregoing, the Company and the Trustee may amend the
Indenture or the Notes without the consent of any holder, to cure any ambiguity,
omission, defect or inconsistency, to provide for uncertificated Notes in
addition to certificated Notes, to amend the transfer and exchange provisions in
any manner that does not adversely affect the rights of the holders in any
material respect, to provide for the assumption of the Company's obligations to
the holders in the case of a merger or acquisition, to add guarantors or
security for the Notes, to make any change that does not adversely affect the
rights of any holder, to comply with the requirements of the Commission or to
maintain the qualification of the Indenture under the Trust Indenture Act.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to rights of registration of transfer or exchange of Notes, which
shall survive until all Notes have been canceled) as to all outstanding Notes
when the Company has paid all sums payable by it under the Indenture and either
(1) all the Notes that have been authenticated and delivered (except
lost, stolen or destroyed Notes which have been replaced or paid and Notes
for whose payment money has been deposited in trust or segregated and held
in trust by the Company and thereafter repaid to the Company or discharged
from this trust) have been delivered to the Trustee for cancellation, or
(2) (a) all Notes not delivered to the Trustee for cancellation
otherwise have become due and payable or have been called for redemption
pursuant to the provisions described under "-- Optional Redemption," and
the Company has irrevocably deposited or caused to be deposited with the
Trustee trust funds in trust in an amount of money sufficient to pay and
discharge the entire Indebtedness (including all principal and accrued
interest) on the Notes not theretofore delivered to the Trustee for
cancellation, and
(b) the Company has delivered irrevocable instructions to the Trustee
to apply the deposited money toward the payment of the Notes at maturity or
on the date of redemption, as the case may be.
In addition, the Company must deliver an officers' certificate and an
opinion of counsel stating that all conditions precedent to satisfaction and
discharge have been complied with.
DEFEASANCE AND DISCHARGE OF THE INDENTURE AND THE NOTES
The Indenture provides that the Company at any time may terminate all of
its obligations under the Notes and the Indenture ("legal defeasance"), except
for certain obligations, including those with respect to the transfer or
exchange of the Notes, to replace mutilated, destroyed, lost or stolen Notes and
to maintain a registrar and paying agent in respect of the Notes. If the Company
exercises its legal defeasance option, payment of the Notes may not be
accelerated despite an Event of Default with respect thereto. Subject to the
conditions described below, the Company at any time may terminate its
obligations under most of the restrictive covenants in the Indenture ("covenant
defeasance"). The Company may exercise its legal defeasance option
notwithstanding its prior exercise of its covenant defeasance option.
In order to exercise either defeasance option (i) the Company must have
irrevocably deposited in trust (the "defeasance trust") with the Trustee, money,
U.S. Government Obligations, or any combination thereof, sufficient to pay the
principal of, premium, if any, and interest on the Notes to maturity or
redemption, as the case may be; (ii) the Company shall have delivered to the
Trustee a certificate from a nationally recognized firm of independent
accountants expressing the opinion that the payment of principal and interest
83
when due on the deposited U.S. Government Obligations plus any deposited money
will provide cash at such times and in such amounts as will be sufficient to pay
principal and interest when due on all the Notes to maturity or redemption, as
the case may be; (iii) the Company shall have delivered to the Trustee an
opinion of counsel to the effect that the trust funds will not be subject to any
applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally; (iv) no Default or Event of Default shall have
occurred and be continuing on the date of such deposit or insofar as Events of
Default from bankruptcy or insolvency events are concerned, at any time in the
period ending on the 91st day after the date of deposit; (v) the Company shall
have delivered an officer's certificate and an opinion of counsel, each to the
effect that such defeasance or covenant defeasance shall not result in a breach
or violation of or constitute a default under the Indenture, or any other
material agreement or instrument to which the Company is a party or by which the
Company is bound; (vi) the Company shall have delivered to the Trustee an
opinion of counsel to the effect that the trust resulting from the deposit is
not required to register as an investment company under the Investment Company
Act of 1940, as amended; (vii) the Company shall have delivered to the Trustee
an opinion of counsel to the effect that the holder of Notes shall have a
perfected security interest under applicable law in the U.S. Government
Obligations so deposited; (viii) in the case of legal defeasance, the Company
shall have delivered to the Trustee an opinion of counsel confirming that (a)
the Company has received from, or there has been published by, the Internal
Revenue Service a ruling or (b) since the date of the Indenture, there has been
a change in the applicable federal income tax law, in either case to the effect
that, and based thereon such opinion of counsel shall confirm that, the holder
of the Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such legal defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such legal defeasance had not occurred; (ix) in the
case of covenant defeasance, the Company shall have delivered to the Trustee an
opinion of counsel confirming that the holders of the Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
covenant defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such covenant defeasance had not occurred; and (x) the Company shall have
delivered to the Trustee an officers' certificate and an opinion of counsel,
each stating that all conditions precedent provided for relating to either the
legal defeasance or the covenant defeasance, as the case may be, have been
complied with.
GOVERNING LAW
The Indenture and the unregistered notes are, and the exchange notes will
be, governed by and construed in accordance with, the laws of the State of New
York.
DEFINITIONS
"ACQUIRED DEBT" with respect to any Person, means (i) Debt of an entity,
which entity is acquired by the Company or any of its Subsidiaries (through the
acquisition of Capital Stock or assets) after the date of the Indenture, (ii)
Debt assumed which is secured by assets acquired by the Company or any of its
Subsidiaries, PROVIDED that the Debt in clauses (i) and (ii) is outstanding at
the time of the acquisition of such entity or such assets, is not created in
contemplation of such acquisition and, in the case of the acquisition of an
entity, is not, directly or indirectly, recourse (including by way of set-off)
to the Company or its Restricted Subsidiaries or any of their respective assets,
other than to the entity and its Subsidiaries so acquired and the assets of the
entity and its Subsidiaries so acquired, or (iii) Refinancings of Debt described
in clauses (i) and (ii), PROVIDED that (a) in the case of Debt incurred to
renew, refinance or extend Debt described in either such clause, the aggregate
principal amount of Debt so issued (or, if such Debt is issued at a price less
than the principal amount thereof, the original issue price) shall not exceed
the aggregate principal amount of the Debt being extended, renewed or refinanced
plus any premium, "make-whole" amounts and penalties actually paid on the Debt
being extended, renewed or refinanced and all reasonable fees and expenses
payable in connection with such renewal, refinancing or extension and (b) in the
case of Debt described in clause (i), the recourse with respect to such
Refinancing Debt is limited to the same extent as the Debt so Refinanced.
"ADJUSTED CONSOLIDATED OPERATING CASH FLOW" of a Person means the
Consolidated Operating Cash Flow of such Person as determined on a consolidated
basis in accordance with GAAP, consistently applied, after giving effect to the
following: (i) if, since the first day of the period in which Consolidated
Operating Cash Flow is being calculated, such Person or any of its Subsidiaries
completed an Asset Sale, Consolidated Operating Cash Flow for such period shall
be reduced by an amount equal to the pro forma Consolidated Operating Cash Flow
(if positive) directly attributable to the assets which are the subject of such
Asset Sale for the period or increased by an amount equal to the pro forma
Consolidated Operating Cash Flow (if negative) directly attributable thereto for
such period; and (ii) if, since the first day of such period in which
Consolidated Operating Cash Flow is being calculated, such Person or any of its
Subsidiaries completes an acquisition of any Person or business which
84
immediately after such acquisition is a Subsidiary of such Person or whose
assets are held directly by such Person or a Subsidiary of such Person, or makes
a material Investment in any Person other than a Subsidiary that is permitted by
the Indenture, pro forma Consolidated Operating Cash Flow shall be computed so
as to give pro forma effect to the acquisition of such Person or business or the
making of such Investment as if such acquisition or Investment had occurred on
the first day of such period. Any such pro forma calculation may include (a) any
adjustments that would, in the reasonable determination of the Company, set
forth in an Officers' Certificate, satisfy the requirements of Rule 11-02(a) of
Regulation S-X as if included in a registration statement filed with the
Commission, and (b) any other operating expense reductions reasonably expected
to result from any acquisition, if such expected reductions are (i) set forth in
reasonable detail in an operating plan, and (ii) limited to operating expenses
specified in such plan (and, if any such reductions are set forth as a range,
the lowest amount of such range) that would otherwise have resulted in the
payment of cash within twelve months after the date of consummation of such
transaction, net of any operating expenses (other than extraordinary items,
non-recurring or temporary charges and other similar one-time expenses)
reasonably expected to be incurred to implement such plan or to obtain goods or
services (including, without limitation, personnel, occupancy and newsprint
expenses) in replacement of goods and services that are being curtailed or
eliminated to result in such expected reductions, and that are to be paid in
cash during such twelve-month period, and such Officers' Certificate so states.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" having meanings correlative to the foregoing. A
lender to such Person or any of its Subsidiaries shall not, as a result of such
loan and any credit or similar agreement entered into in connection therewith,
be deemed an Affiliate of such Person.
"ASSET SALE" means the sale, transfer, lease, assignment, conveyance or
other disposition (other than in the ordinary course of business) by the Company
or its Restricted Subsidiaries of any assets of the Company or its Restricted
Subsidiaries to any Person other than the Company or any of its Restricted
Subsidiaries (other than Capital Stock of an Unrestricted Subsidiary or Cash or
Cash Equivalents), whether owned or outstanding on the date of the Indenture or
acquired thereafter, in one or more related transactions, in each case having an
aggregate fair market value in excess of $5.0 million. Asset Sale shall include
the disposition of (i) any capital stock of any Restricted Subsidiary of the
Company or (ii) all or substantially all of the properties or assets relating to
any newspaper or groups of newspapers owned by the Company or any of its
Restricted Subsidiaries, in either case having an aggregate fair market value in
excess of $5.0 million. Any Restricted Payment permitted by the covenant
described under "-- Certain Covenants -- Limitation on Restricted Payments"
shall not be deemed to be an Asset Sale and any sale of all or substantially all
of the assets of the Company that is subject to "-- Certain Covenants -- Merger
or Consolidation" shall not be deemed to be on Asset Sale.
"BOARD RESOLUTION" means, with respect to any Person, a duly adopted
resolution of the Board of Directors or other equivalent governing body of such
Person.
"CAPITAL STOCK" of any Person means any and all shares, interests
(including partnership interests), warrants, rights, options or other interests,
participations or other equivalents of or interests in (however designated) the
equity of such Person, including common stock or preferred stock, whether now
outstanding or issued after the date of the Indenture, but excluding any debt
securities convertible into or exchangeable for such equity.
"CAPITALIZED LEASE OBLIGATION" means any rental obligation that, in
accordance with GAAP, is required to be classified and accounted for as a
capitalized lease and the amount of Debt represented by such obligation shall be
the capitalized amount of such obligation determined in accordance with GAAP;
and the stated maturity thereof shall be the date of the last payment of rent or
any other amount due in respect of such obligation.
"CASH EQUIVALENTS" means (i) readily marketable obligations of or
obligations guaranteed by the United States of America or issued by any agency
thereof and backed by the full faith and credit of the United States of America,
(ii) readily marketable direct obligations issued by any state of the United
States of America or any political subdivision having a rating in one of the two
highest rating categories obtainable from either Moody's Investors Service, Inc.
or Standard & Poor's Corporation, (iii) commercial paper having a rating in one
of the two highest rating categories of Moody's Investors Service, Inc., or
Standard & Poor's Corporation, (iv) certificates of deposit issued by, bankers'
acceptances and deposit accounts of, and time deposits with, commercial banks of
recognized standing chartered in the United States of America with capital,
surplus and undivided profits aggregating in excess of $500.0 million, (v)
agreements to sell or repurchase securities of the kind described in clauses (i)
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and (ii) above, and (vi) shares of money market funds that invest solely in
Permitted Investments of the kind described in clauses (i) through (v) above.
"CHANGE OF CONTROL" means the date on which any Person other than the
Permitted Holders, individually or as a group, becomes the "beneficial owner"
(as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or
indirectly, in the aggregate, of a majority of the outstanding shares of Common
Stock or Voting Stock of the Company, on a fully diluted basis.
"COMMISSION" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act, or if at any time after the
execution of the Indenture such Commission is not existing and performing the
duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.
"COMMON STOCK" of any Person means any and all shares, interests,
participations, or other equivalents (however designated) of such Person's
common stock whether now outstanding or issued after the date of the Indenture.
"CONSOLIDATED INTEREST EXPENSE" means, with respect to any Person for any
period, the aggregate of all cash and non-cash interest expense (including
amortization of any original issue discount attributable to the issuance of any
debt security as part of or with any other security) with respect to all
outstanding Debt of such Person and its Subsidiaries for such period determined
on a consolidated basis in accordance with GAAP, the interest component of
Capitalized Lease Obligations, all capitalized interest, and the interest
portion of any deferred payment obligations for such period; PROVIDED that if
any such Subsidiary is not a Wholly Owned Subsidiary of such Person, interest
expense of such Subsidiary and its Subsidiaries shall be included only to the
extent of such Person's consolidated common equity ownership on a fully diluted
basis therein.
"CONSOLIDATED OPERATING CASH FLOW" with respect to the Company for any
period means (A) Operating Cash Flow of the Company and its Restricted
Subsidiaries, for such period, determined on a consolidated basis and in
accordance with GAAP PLUS (B) with respect to an Investment in a Permitted
Business that does not qualify as a Subsidiary or a Permitted Partnership the
lesser of (a) dividends and other distributions received from such Investment
for such period and (b) the Company's and its Restricted Subsidiaries'
percentage interest in the Operating Cash Flow of such Permitted Business, PLUS
(C) for any Investment in a Permitted Partnership, the Company's and its
Restricted Subsidiaries' interest in the Operating Cash Flow of such Permitted
Partnership (it being understood that if any such Investment is held by a
Restricted Subsidiary that is not a Wholly-Owned Restricted Subsidiary, the
Company's and the Restricted Subsidiaries' proportionate interest will be
reduced by the percentage of the Capital Stock of such Restricted Subsidiary
that is not owned directly or indirectly by the Company) less the Company's or
such Restricted Subsidiary's pro rata share (based upon their percentage
ownership interest) of payments of principal and interest on Debt of such
Permitted Partnership for such period PROVIDED that, (x) in the case of clause
(A) if any such Person is not a Wholly Owned Subsidiary of the Company,
Operating Cash Flow of such Person and its Subsidiaries shall be included only
to the extent of the Company's common equity ownership on a fully diluted basis
therein, (y) Operating Cash Flow of any Person shall be excluded if and to the
extent that, the declaration of dividends or distribution by that Person of such
Operating Cash Flow is not, at the time, permitted directly or indirectly, by
the terms of its charter, or any agreement, instrument, judgment, decree, order,
statute, rule or government regulation applicable to that Person and (z) if such
calculation is being made for the purposes of the covenant described under "--
Certain Covenants -- Limitation on Restricted Payments", the amount included,
for any period, under clause (C) shall never exceed dividends or distributions
actually received from that Investment in that period.
"CREDIT FACILITY" means the Credit Agreement among the Company, the
financial institutions named therein and Bank of America, N.A., as agent
thereunder, as amended, substituted, refinanced (including successive
refinancings and whether through a refinancing, or successive refinancings,
under one or more commercial loan agreements or receivables facilities or
issuances of debt securities), renewed or replaced from time to time without
regard to the amount of credit extended thereunder or the identity of the
lenders or agents with respect thereto.
"CUMULATIVE CREDIT" means (x) Consolidated Operating Cash Flow of the
Company from and after January 1, 2004 to the end of the fiscal quarter
immediately preceding the date of the proposed Restricted Payment, or, if such
Consolidated Operating Cash Flow for such period is negative, minus the amount
by which such Consolidated Operating Cash Flow is negative less (y) 150% of the
cumulative Consolidated Interest Expense of the Company for such period.
"DEBT" of any Person means, without duplication, (i) the principal in
respect of (A) indebtedness of such Person for money borrowed (whether or not
the recourse of the lender is to the whole of the assets of such Person or only
86
to a portion thereof) and (B) indebtedness evidenced by notes, debentures, bonds
or other similar instruments for the payment of which such Person is responsible
or liable (other than those payable to government agencies to defer the payment
of workers' compensation liabilities, taxes, assessments or other obligations,
and provided in the ordinary course of business of such Person); (ii) all
Capitalized Lease Obligations of such Person; (iii) all obligations of such
Person issued or assumed as the deferred purchase price of property (but
excluding customary earn-out provisions contained in acquisition agreements
entered into in compliance with the Indenture), all conditional sale obligations
of such Person and all obligations of such Person under any title retention
agreement (but excluding trade accounts payable and other accrued current
liabilities arising in the ordinary course of business); (iv) all obligations of
such Person for the reimbursement of any obligor on any letter of credit,
banker's acceptance or similar credit transaction, other than letters of credit
entered into in the ordinary course of business that either are not drawn upon
or, if and to the extent drawn upon, such drawing is reimbursed no later than
the third Business Day following receipt by such Person of a demand for
reimbursement following payment on the letter of credit) and all net obligations
(determined in accordance with GAAP) of such Person under Hedging Obligations;
(v) the amount of all Disqualified Stock of such Person (but excluding any
accrued dividends thereon); (vi) all obligations of the type referred to in
clauses (i) through (v) of other Persons and all dividends of other Persons for
the payment of which, in either case, such Person is responsible or liable,
directly or indirectly, as obligor, guarantor or otherwise, including guarantees
of such obligations and dividends; and (vii) all obligations of the type
referred to in clauses (i) through (vi) of other Persons secured by any Lien on
any property, asset or Capital Stock held by such Person (whether or not such
obligation is assumed by such Person), the amount of such obligation being
deemed to be the lesser of the value of such property or assets or the amount of
the obligation so secured, PROVIDED, that any obligations of the Company and its
Restricted Subsidiaries (x) deferred pursuant to Section 4.07(a) of the Third
Amended and Restated Shareholders' Agreement dated June 30, 1999, between Media
General, Inc., MediaNews Group, Inc. and The Denver Post Corporation (formerly
known as Denver Newspapers, Inc.), as amended and (y) under Section 9.9 of the
Partnership Agreement, by and among West Coast MediaNews LLC, Donrey Newspapers
LLC, The Sun Company of San Bernardino, California, and MediaWest -SBC, Inc.,
dated March 31, 1999, as amended, to the extent otherwise constituting Debt,
shall not constitute Debt prior to the scheduled closing of the transactions
contemplated thereby.
"DEFAULT" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"DESIGNATED SENIOR DEBT" means all obligations of the Company under the
Credit Facility (to the extent constituting Senior Debt) and any other Senior
Debt permitted under the Indenture the principal amount of which is $25.0
million or more that has been designated by the Company as Designated Senior
Debt.
"DISQUALIFIED STOCK" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable) or upon the happening of any event (i) matures
or is mandatorily redeemable, pursuant to a sinking fund obligation or
otherwise, (ii) is subject to a mandatory offer to purchase, (iii) is
convertible or exchangeable for Debt or Disqualified Stock or (iv) is redeemable
at the option of the holder thereof, in whole or in part; in each case on or
prior to the 91st day following the stated maturity of the Notes; PROVIDED,
HOWEVER, that any class of Capital Stock of such Person that, by its terms,
authorizes such Person to satisfy in full its obligations upon maturity,
redemption (pursuant to a sinking fund or otherwise) or repurchase thereof or
otherwise by the delivery of Capital Stock (other than Disqualified Capital
Stock), and that is not convertible, puttable or exchangeable for Disqualified
Capital Stock or Debt, will not be deemed to be Disqualified Capital Stock so
long as such Person satisfies its obligations with respect thereto solely by the
delivery of Capital Stock (other than Disqualified Capital Stock); PROVIDED,
FURTHER, HOWEVER, that any Capital Stock that would not constitute Disqualified
Capital Stock but for provisions thereof giving holders thereof (or the holders
of any security into or for which such Capital Stock is convertible,
exchangeable or exercisable) the right to require the Company to redeem such
Capital Stock upon the occurrence of a change in control occurring prior to the
91st day following the final maturity date of the Notes shall not constitute
Disqualified Capital Stock if the change in control provisions applicable to
such Capital Stock are no more favorable to such holders than the provisions
described under "--Certain Covenants -- Change of Control" and such Capital
Stock specifically provides that the Company will not redeem any such Capital
Stock pursuant to such provisions prior to the fulfillment of the Company's
obligations described under "-- Certain Covenants -- Change of Control."
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission promulgated thereunder.
"EXISTING DEBT" means Debt of the Company and its Restricted Subsidiaries
(other than the Credit Facility) outstanding on the date of the Indenture.
87
"GENERALLY ACCEPTED ACCOUNTING PRINCIPLES" or "GAAP" means generally
accepted accounting principles set forth in the opinions and pronouncements of
the Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board as they are in effect on the date of the Indenture.
"GUARANTEE" by any Person means any obligation, contingent or otherwise, of
such Person directly or indirectly guaranteeing any Debt or other obligation,
contingent or otherwise, of any other Person and, without limiting the
generality of the foregoing, any obligation, direct or indirect, contingent or
otherwise, of such Person (i) to purchase or pay (or advance or supply funds for
the purchase or payment of) such Debt or other obligation of such other Person
(whether arising by virtue of participation arrangements, by agreement to keep
well, to purchase assets, goods, securities or services, to take-or-pay, or to
maintain financial statement conditions or otherwise) or (ii) entered into for
the purpose of assuring the obligee of such Debt or other obligation in any
other manner of the payment thereof or to protect such obligee against loss in
respect thereof (in whole or in part), PROVIDED that the term "guarantee" shall
not include endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" used as a verb has a corresponding meaning.
"HEDGING OBLIGATIONS" of any Person means the obligations of such Person
pursuant to (1) any interest rate swap agreement, interest rate collar agreement
or other similar agreement or arrangement, (2) foreign exchange contracts,
currency swap agreements or other similar agreement or arrangement, or (3) any
forward contract, commodity swap agreement, commodity option agreement or other
similar agreement or arrangement.
"INTEREST PAYMENT DATE" means the Stated Maturity of an installment of
interest on the Notes.
"INVESTMENT" means any direct or indirect advance, loan (other than
advances or loans to customers in the ordinary course of business, which are
recorded at the time made as accounts receivable on the balance sheet of the
Person making such advance or loan), guarantee or other extension of credit or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, bonds, Notes,
debentures or other securities issued by any other Person.
"ISSUE" means issue, assume, Guarantee, incur or otherwise become liable
for; PROVIDED, HOWEVER, that any Debt or Capital Stock of a Person existing at
the time such Person becomes a Subsidiary of another Person (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be issued by such
Subsidiary at the time it becomes a Subsidiary of such other Person.
"ISSUE DATE" means January 26, 2004, the date of original issuance of the
unregistered notes.
"LEVERAGE RATIO" means, as of any date, the ratio of (A) total Debt of the
Company and its Restricted Subsidiaries on a consolidated basis as of such date;
PROVIDED, HOWEVER, that for purposes of this clause, such total Debt shall not
include up to $20.0 million of Debt that would only be treated as Debt of the
Company because it is Guaranteed by the Company or its Restricted Subsidiaries,
provided (and only to the extent) that (i) there has been no default or event of
default in existence with respect to the Debt so Guaranteed and no Person has
sought (or indicated would seek) payment under (or with respect to) such
Guarantee; (ii) such Guarantee was incurred in furtherance of a Permitted
Business and (iii) no liability, charge, accrual, expense, payment or other
amount with respect to such Debt has at any time been required in accordance
with GAAP to be reflected on the consolidated balance sheet, statement of income
or cash flow statement of the Company, to (B) Trailing Adjusted Consolidated
Operating Cash Flow of the Company as of such date; PROVIDED, HOWEVER, that the
Debt of any Restricted Subsidiary (and its Restricted Subsidiaries) that is not
a Wholly Owned Subsidiary, on a fully diluted basis, of the Company shall be
included pro rata only to the extent of the Company's common equity ownership
interest therein, on a fully diluted basis.
"LIEN" means any lien, mortgage, charge, pledge, security interest, or
other encumbrance of any kind (including any conditional sale or other title
retention agreement and any lease in the nature thereof), whether or not filed,
recorded or otherwise perfected under applicable law (including any conditional
sale or other title retention agreement, any lease in the nature thereof, any
option or other agreement to sell or give a security interest in and any filing
of or agreement to give any financing statement under the Uniform Commercial
Code (or equivalent statute) of any jurisdiction.)
88
"NET CASH PROCEEDS" from an Asset Sale or issuance of Capital Stock means
cash payments received from, or by way of conversion into cash or Cash
Equivalents of any note or other obligation received in connection with, such
Asset Sale or issuance or by way of deferred payment of principal pursuant to,
or liquidation of, any note or installment receivable or otherwise (but only as
and when received therefrom), in each case net of all legal, title and recording
tax expenses, commissions and other fees and expenses incurred, and all income
taxes required to be accrued as a liability under GAAP, as a consequence of such
Asset Sale or issuance of Capital Stock.
"OBLIGATIONS" means all obligations for principal, premium, interest
(including post-petition interest), penalties, fees, indemnification,
reimbursements, damages and other liabilities payable under the documentation
governing any Debt.
"OFFICERS' CERTIFICATE" means, with respect to any Person, a certificate
signed by the Chief Executive Officer, the President or any Vice President and
the Chief Financial Officer or any Treasurer of such Person that shall comply
with applicable provisions of the Indenture.
"OPERATING CASH FLOW" means, with respect to any Person (A) revenues less
(B) the sum of (i) cost of sales, (ii) management fees and (iii) selling,
general and administrative expenses (other than non-cash expenses accrued under
employee compensation and stock ownership plans, but including any cash payments
made or required to be made under such plans; PROVIDED that cash payments under
such plans subject to vesting or other conditions will be included only when and
to the extent such vesting has occurred or such other conditions have been
fulfilled).
"PERMITTED BUSINESS" means the (i) ownership and operation of regional,
local and other newspapers and other businesses directly related to newspaper
operations, and (ii) broadcast, electronic media, and other businesses deriving
a majority of its revenue from advertising and circulation.
"PERMITTED HOLDERS" means (i) each of William Dean Singleton, Richard B.
Scudder, Joseph J. Lodovic, IV and their respective spouses, ancestors,
siblings, descendants (including children or grandchildren by adoption) and the
descendants of any of their siblings; (ii) in the event of the incompetence or
death of any of the Persons described in clause (i), such Person's estate,
executor, administrator, committee or other personal representative, in each
case who at any particular date shall beneficially own or have the right to
acquire, directly or indirectly, Capital Stock of the Company; (iii) any trust
created for the benefit of the Persons described in clause (i) or (ii) or any
trust for the benefit of any such trust; or (iv) any Person controlled by any of
the Persons de scribed in clause (i), (ii) or (iii). For purposes of this
definition, "control," as used with respect to any Person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through
ownership of voting securities or by contract or otherwise.
"PERMITTED INVESTMENTS" means (i) Investments by a Restricted Subsidiary of
the Company in the Company or Investments by the Company or a Restricted
Subsidiary of the Company in a Person that is, or as a result of such Investment
becomes, a Restricted Subsidiary of the Company, (ii) Investments in cash or
Cash Equivalents, (iii) Investments by the Company or by any of its Restricted
Subsidiaries in a Permitted Business, including, but not limited to, joint
ventures or other business alliances in the ordinary course of business,
PROVIDED that the other investors in such joint venture or business alliance are
not Affiliates of the Company, (iv) Investments of the Company and its
Restricted Subsidiaries arising as a result of any Asset Sale otherwise
complying with the terms of the Indenture, (v) Investments existing on the Issue
Date, and any extension, modification or renewal of any such Investments, but
only to the extent not involving additional advances, contributions or other
Investments of cash or other assets or other increases thereof, (vi) stock,
obligations or securities received in settlement of debts created in the
ordinary course of business and owing to the Company or any Restricted
Subsidiary or in satisfaction of judgments including under a plan of
reorganization or other bankruptcy proceeding, (vii) loans and advances to
directors, employees and officers of the Company and its Restricted Subsidiaries
for bona fide business purposes not in excess of $10.0 million at any one time
outstanding, (viii) Investments of a Person owned by such Person at the time
such Person becomes a Restricted Subsidiary of the Company in a transaction that
complies with the Indenture to the extent (x) such Investments were not made in
anticipation of the acquisition of such Person by the Company or any Restricted
Subsidiary and (y) such Person was primarily engaged in a Permitted Business at
the time of such acquisition, (ix) Investments from Hedging Obligations
permitted by clause (ix) of the covenant described under "Certain Covenants --
Limitation on Additional Debt" and (x) other Investments (other than Investments
specified in clauses (i) through (ix) above) in an aggregate amount, as valued
at the time each such Investment is made, not exceeding $25.0 million.
"PERMITTED PARTNERSHIP" means at the relevant time of determination, any
Person that, at such time, (i) is not a Subsidiary of the Company and in which
the Company and its Restricted Subsidiaries collectively hold equity Investments
89
of at least 25% of the total equity and voting stock in such Person; (ii) is
engaged primarily in a Permitted Business of the type described in clause (i) of
the definition of "Permitted Business"; (iii) the Company's and its Restricted
Subsidiaries' proportionate ownership interest in the cash flows of which is
included in the Company's filings under the Exchange Act in "Adjusted EBITDA
Available to the Company" or if the Company no longer includes such information
in its Exchange Act filings, in the good faith judgment of the Company, would
have been included in "Adjusted EBITDA Available to the Company", if so then
calculated on a basis consistent with that set forth in the offering memorandum
for the unregistered notes; and (iv) which the Company has the ability, through
its ownership of Voting Stock or under contract, to cause to distribute
substantially all of the Company's and the Restricted Subsidiaries'
proportionate ownership interests in the free cash flow of such Person.
"PERSON" means any individual, corporation, limited liability company,
partnership, joint venture, incorporated or unincorporated association,
joint-stock company, trust, unincorporated organization or government or other
agency or political subdivision thereof or other entity of any kind.
"PREFERRED STOCK" as applied to the Capital Stock of any corporation, means
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation. Preferred Stock
of any Person shall include Disqualified Stock of such Person.
"PURCHASE MONEY OBLIGATIONS" means (i) any Debt of the Company or any
Restricted Subsidiary incurred to finance the purchase of any assets (including
the purchase of Capital Stock of Persons that are not Affiliates of the Company)
but only if the amount of Debt thereunder does not exceed 100% of the purchase
cost of such assets (and associated expenses); or (ii) Debt of the Company or
such Restricted Subsidiary which refinances Debt referred to in clause (i) of
this definition.
"QUALIFIED CAPITAL STOCK" shall mean any Capital Stock which is not
Disqualified Stock.
"REFINANCE" means, in respect of any Debt, to refinance, extend, renew,
refund, repay, prepay, redeem, defease or retire, or to issue Debt in exchange
or replacement for, such Debt. "Refinanced" and "Refinancing" shall have
correlative meanings.
"RESTRICTED INVESTMENT" means any Investment other than a Permitted
Investment.
"RESTRICTED PAYMENT" means (i) any dividend or distribution on or in
respect of any shares of Capital Stock of the Company to the direct or indirect
holders (in their capacities as such) of Capital Stock of the Company (other
than dividends or distributions payable in common stock of the Company), (ii)
the redemption, repurchase, retirement or other acquisition for value of any
Capital Stock of the Company, (iii) any designation of a Restricted Subsidiary
as an Unrestricted Subsidiary on the basis of the Investment by the Company
therein, (iv) any Restricted Investment by the Company or any Restricted
Subsidiary of the Company, PROVIDED that Restricted Payments shall not include
the redemption, purchase, retirement or other acquisition for value by the
Company or any of its Restricted Subsidiaries of any Capital Stock of the
Company held by the Company or its Restricted Subsidiaries. For purposes of
determining the amount expended for Restricted Payments, cash distributed or
invested shall be valued at the face amount thereof and property other than cash
shall be valued at its fair market value.
"RESTRICTED SUBSIDIARY" means a Subsidiary of the Company other than an
Unrestricted Subsidiary and includes all of the Subsidiaries of the Company
existing as of the Issue Date.
"SCUDDER PERMITTED HOLDERS" means (i) any of Richard B. Scudder, Jean L.
Scudder, Charles Scudder, Elizabeth A. Difani, Carolyn Miller, their respective
spouses, ancestors, siblings, descendants (including children or grandchildren
by adoption) and the descendants of any of their siblings; (ii) in the event of
the incompetence or death of any of the Persons described in clause (i), such
Person's estate, executor, administrator, committee or other personal
representative, in each case who at any particular date shall beneficially own
or have the right to acquire, directly or indirectly, Capital Stock of the
Company; (iii) any trust created for the benefit of the Persons described in
clause (i) or (ii) or any trust for the benefit of any such trust; or (iv) any
Person controlled by any of the Persons described in clause (i), (ii) or (iii).
For purposes of this definition, "control," as used with respect to any Person,
shall mean the possession, directly or indirectly, of the power to direct or
90
cause the direction of the management and policies of such Person, whether
through ownership of voting securities or by contract or otherwise.
"SENIOR DEBT" means all Obligations of the Company with respect to any
Debt, whether outstanding on the date of the Indenture or thereafter created,
incurred or assumed, unless, in the case of any particular Debt, the instrument
creating or evidencing the same or pursuant to which the same is outstanding
expressly provides that such Debt shall not be senior in right of payment to the
Notes. Notwithstanding the foregoing, Senior Debt shall not include: (i) any
Debt of the Company to any Subsidiary of the Company; (ii) any Debt to, or
guaranteed on behalf of, any Affiliate (other than any Restricted Subsidiary),
director, officer or employee of the Company or of any Restricted Subsidiary
(including, without limitation, amounts owed for compensation); (iii) Debt and
other amounts incurred in connection with obtaining goods, materials or services
owing to trade creditors (other than Hedging Obligations); (iv) Disqualified
Stock: (v) any liability for federal, state, local or other taxes owed or owing
by the Company; (vi) Debt incurred in violation of the Indenture provisions set
forth under "-- Certain Covenants -- Limitation on Additional Debt"; and (vii)
Debt which is, by its express terms, junior in right of payment to the Notes.
"SIGNIFICANT SUBSIDIARY" means any Restricted Subsidiary of the Company
which at the time of determination either (A) had assets which, as of the date
of the Company's most recent quarterly consolidated balance sheet, constituted
at least 5% of the Company's total assets on a consolidated basis as of such
date, in each case determined in accordance with GAAP, or (B) had revenues for
the twelve-month period ending on the date of the Company's most recent
quarterly consolidated statement of income which constituted at least 5% of the
Company's total revenues on a consolidated basis for such period.
"STATED MATURITY" When used with respect to any Note or any installment of
interest thereon, means the date specified in such Note as the fixed date on
which the principal of such Note or such installment of interest is due and
payable, and, when used with respect to any other Debt, means the date specified
in the instrument governing such Debt as the fixed date on which the principal
of such Debt or any installment of interest is due and payable.
"SUBSIDIARY" means, with respect to any Person, (i) a corporation the
majority of whose Voting Stock is at the time, directly or indirectly, owned by
such Person, by one or more Subsidiaries of such Person or by such Person and
one or more Subsidiaries thereof, (ii) a partnership, joint venture or limited
liability company, with respect to which such Person under the applicable
partnership agreement, joint venture agreement or limited liability company
operating agreement owns a majority of the equity interests therein and either
has the power to appoint a majority of the board of managers thereof, or
otherwise has the power to direct the policies, management and affairs thereof
through a management agreement or otherwise or (iii) any Person (other than a
corporation, partnership, joint venture or limited liability company) in which
such Person, one or more Subsidiaries thereof, or such Person and one or more
Subsidiaries thereof, directly or indirectly, at the date of determination
thereof has at least a majority ownership interest and the power to direct the
policies, management and affairs thereof. For purposes of this definition, any
director's qualifying shares or investments by foreign nationals mandated by
applicable law shall be disregarded in determining the ownership of a
Subsidiary.
"TRAILING" means, at or in respect of any date, the twelve-month period
ending on the last day of the month immediately preceding such date for which
financial statements are available.
"TRUST INDENTURE ACT" means the Trust Indenture Act of 1939, as amended.
"UNRESTRICTED SUBSIDIARY" means any Subsidiary (including its Subsidiaries)
so designated by a Board Resolution adopted by the Board of Directors of the
Company in accordance with "-- Certain Covenants -- Limitation on Restricted and
Unrestricted Subsidiaries" above. Notwithstanding the foregoing, an Unrestricted
Subsidiary shall be deemed to be redesignated a Restricted Subsidiary at any
time if (a) the Company or any Restricted Subsidiary (i) provides credit support
for, or a guarantee of, any outstanding Debt of such Unrestricted Subsidiary or
any of its Subsidiaries (including any undertaking, agreement or instrument
evidencing such Debt) or (ii) is directly or indirectly liable for any Debt of
such Unrestricted Subsidiary or any of its Subsidiaries, (b) in the case of any
such Subsidiary that has Debt outstanding, a default with respect to such Debt
of such Unrestricted Subsidiary or any of its Subsidiaries (including any right
which the holders thereof may have to take enforcement action against any of
them) would permit (upon notice, lapse of time or both) any holder of any other
Debt of the Company or any Restricted Subsidiary to declare a default on such
other Debt or cause the payment thereof to be accelerated or payable prior to
its final scheduled maturity or (c) such Unrestricted Subsidiary or any of its
Subsidiaries incurs Debt pursuant to which the lender has recourse to any of the
assets of the Company or any of its Restricted Subsidiaries.
91
"U.S. GOVERNMENT OBLIGATIONS" means money or direct non-callable
obligations of, and obligations guaranteed by, the United States of America for
the payment of which the full faith and credit of the United States is pledged.
"VOTING STOCK" of a corporation means all classes of Capital Stock of such
corporation then outstanding and normally entitled to vote in the election of
directors.
"WHOLLY-OWNED SUBSIDIARY" means any Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares) is owned by the
applicable corporation or another Wholly-Owned Subsidiary of the applicable
corporation.
92
BOOK-ENTRY; DELIVERY AND FORM
The certificates representing the exchange notes will be issued in fully
registered form without interest coupons.
Exchange notes will initially be represented by permanent global Notes in
fully registered form without interest coupons (each a "Global Note") and will
be deposited with the Trustee as a custodian for The Depositary Trust Company
("DTC") and registered in the name of a nominee of such depositary.
THE GLOBAL NOTES
We expect that pursuant to procedures established by DTC (i) upon the
issuance of the Global Notes, DTC or its custodian will credit, on its internal
system, the principal amount at maturity of the individual beneficial interests
represented by such Global Notes to the respective accounts of persons who have
accounts with such depositary and (ii) ownership of beneficial interests in the
Global Notes will be shown on, and the transfer of such ownership will be
effected only through, records maintained by DTC or its nominee (with respect to
interests of participants) and the records of participants (with respect to
interests of persons other than participants). Such accounts initially will be
designated by or on behalf of the tendering unregistered notes in the exchange
offer and ownership of beneficial interests in the Global Notes will be limited
to persons who have accounts with DTC ("participants") or persons who hold
interests through participants. Holders may hold their interests in the Global
Notes directly through DTC if they are participants in such system, or
indirectly through organizations which are participants in such system.
So long as DTC, or its nominee, is the registered owner or holder of the
exchange notes, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the exchange notes represented by such Global Notes for
all purposes under the Indenture. No beneficial owner of an interest in the
Global Notes will be able to transfer that interest except in accordance with
DTC's procedures, in addition to those provided for under the Indenture with
respect to the exchange notes.
Payments of the principal of, premium (if any), and interest (including
Additional Interest) on, the Global Notes will be made to DTC or its nominee, as
the case may be, as the registered owner thereof. None of us, the Trustee or any
Paying Agent will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in the Global Notes or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interest.
We expect that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, or interest (including Additional Interest) on the
Global Notes, will credit participants' accounts with payments in amounts
proportionate to their respective beneficial interests in the principal amount
of the Global Notes as shown on the records of DTC or its nominee. We also
expect that payments by participants to owners of beneficial interests in the
Global Notes held through such participants will be governed by standing
instructions and customary practice, as is now the case with securities held for
the accounts of customers registered in the names of nominees for such
customers. Such payments will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
through DTC's same-day funds system in accordance with DTC rules and will be
settled in same day funds. If a holder requires physical delivery of a
certificated security for any reason, including to sell exchange notes to
persons in states which require physical delivery of the exchange notes, or to
pledge such securities, such holder must transfer its interest in a Global Note,
in accordance with the normal procedures of DTC and with the procedures set
forth in the Indenture.
DTC has advised us that it will take any action permitted to be taken by a
holder of exchange notes (including the presentation of exchange notes for
exchange as described below) only at the direction of one or more participants
to whose account the DTC interests in the Global Notes are credited and only in
respect of such portion of the aggregate principal amount of exchange notes as
to which such participant or participants has or have given such direction.
However, if there is an Event of Default under the Indenture, DTC will exchange
the Global Notes for certificated securities, which it will distribute to its
participants.
93
DTC has also advised us as follows: DTC is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the Uniform
Commercial Code and a "Clearing Agency" registered pursuant to the provisions of
Section 17A of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). DTC was created to hold securities for its participants and facilitate
the clearance and settlement of securities transactions between participants
through electronic book-entry changes in accounts of its participants, thereby
eliminating the need for physical movement of certificates. Participants include
securities brokers and dealers, banks, trust companies and clearing corporations
and certain other organizations. Indirect access to the DTC system is available
to others such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a participant, either directly or
indirectly ("indirect participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Notes among participants of DTC, it is
under no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither we nor the Trustee will have any
responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
CERTIFICATED SECURITIES
Certificated securities shall be issued in exchange for beneficial
interests in the Global Notes (i) if requested by a holder of such interests or
(ii) if DTC is at any time unwilling or unable to continue as a depositary for
the Global Notes and a successor depositary is not appointed by us within 90
days.
94
PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange notes for its own account
pursuant to the exchange offer must acknowledge that it acquired the
unregistered notes for its own account as a result of market-making activities
or other trading activities and that it will deliver a prospectus in connection
with any resale of such exchange notes. This prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of exchange notes received in exchange for unregistered notes where
such unregistered notes were acquired as a result of market-making activities or
other trading activities. However, a broker-dealer who intends to use this
prospectus in connection with the resale of exchange notes received in exchange
for unregistered notes pursuant to this exchange offer, must indicate in its
Letter of Transmittal (or otherwise notify us in writing prior to the expiration
of the exchange offer) that it is a broker-dealer that acquired its unregistered
notes to be exchanged for exchange notes in the exchange offer as a result of
market-making or other trading activities (a "Participating Broker-Dealer").
Further, each such Participating Broker-Dealer that receives such exchange notes
pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of such exchange notes. We have agreed
that for a period of up to 180 days after the consummation of the exchange
offer, subject to extension in certain events, we will make this prospectus, as
amended or supplemented, available to Participating Broker-Dealers for use in
connection with any such resale. Use of such prospectus by Participating
Broker-Dealers may be suspended for a period, not to exceed 45 days in any
twelve-month period (to be offset by a commensurate extension), if we reasonably
determine (1) that the disclosure of an event could reasonably be expected to
have a material adverse effect on our business, operations or prospects and our
subsidiaries or (2) to avoid premature disclosure of a potential business
transaction that has not been disclosed (a "blackout period"). After receipt of
notice from us of the commencement of a blackout period, holders of unregistered
notes and certain exchange notes and Participating Broker-Dealers must
discontinue disposition of such unregistered notes and exchange notes covered by
such registration statement (or prospectus contained therein) or exchange notes
to be sold by such holder or Participating Broker-Dealer until the earlier of
(A) the 46th day in which any blackout period is instituted in any twelve month
period and (B) receipt of notice from us that such blackout period has ended.
For a period of up to 180 days after the consummation of the exchange offer
(subject to extensions in certain circumstances), we will promptly send
additional copies of this prospectus and any amendment or supplement to this
prospectus to Participating Broker-Dealers subject to the prospectus delivery
requirements of the Securities Act that requests such documents in the Letter of
Transmittal.
We will not receive any proceeds from any sales of the exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the exchange notes or a combination of such methods at
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to the purchaser or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such exchange notes. Any
broker-dealer that resells the exchange notes that were received by it for its
own account pursuant to the exchange offer and any broker or dealer that
participates in a distribution of such exchange notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of exchange notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that by acknowledging that it will deliver
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act. We have agreed
to pay all expenses incident to the exchange offer (including fees and
disbursements of not more than one counsel (in addition to appropriate local
counsel)), other than commissions or concessions of any brokers or dealers and
certain transfer taxes, and will indemnify the holders of exchange notes
(including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
One or more of the initial purchasers that purchased unregistered notes
from us (and their respective affiliates) perform various commercial banking and
investment banking services for us on a regular basis.
95
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following describes the material United States federal income tax
consequences of the exchange of unregistered notes for exchange notes. This
description is based on the Internal Revenue Code of 1986, as amended to the
date hereof (the "Code"), administrative pronouncements, judicial decisions and
existing and proposed Treasury Regulations, and interpretations of the
foregoing, changes to any of which subsequent to the date of this prospectus may
affect the tax consequences described herein.
An exchange of unregistered notes for exchange notes as described in this
prospectus will be treated as a continuation of the holder's investment in the
unregistered notes and will not be a taxable event. As a result, a holder will
not recognize gain or loss pursuant to such exchange, the holder's holding
period in the exchange notes will include the holding period in the unregistered
notes exchanged therefor, and the adjusted tax basis of the exchange notes will
equal the adjusted tax basis of the unregistered notes exchanged therefor.
Similarly, there would be no federal income tax consequences to a holder of
unregistered notes that does not participate in the exchange offer.
ALL HOLDERS OF UNREGISTERED NOTES SHOULD CONSULT THEIR TAX ADVISERS
CONCERNING THE APPLICATION OF UNITED STATES FEDERAL INCOME TAX LAWS, AS WELL AS
THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTIONS, TO THE EXCHANGE OF
UNREGISTERED NOTES FOR EXCHANGE NOTES AND THE OWNERSHIP AND DISPOSITION OF
EXCHANGE NOTES IN LIGHT OF THEIR PARTICULAR SITUATIONS.
96
LEGAL MATTERS
Certain legal matters with respect to the exchange notes are being passed
upon on our behalf by Hughes Hubbard & Reed LLP, New York, New York. Howell E.
Begle, Jr., a director of and general counsel to MediaNews, and trustee with
respect to various trusts holding MediaNews common stock, is of counsel to such
firm.
97
EXPERTS
The consolidated financial statements and the related financial statement
schedule of MediaNews Group, Inc. at June 30, 2003 and 2002, and for each of the
three years in the period ended June 30, 2003, appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein, and
are included in reliance upon such report given on the authority of such firm as
experts in accounting and auditing.
F-1
MEDIANEWS GROUP, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
COVERED BY REPORT OF INDEPENDENT AUDITORS
(EXCEPT FOR DECEMBER 31, 2002 AND 2003)
PAGE
-----
Report of Independent Auditors...................................... F-2
Consolidated Balance Sheets as of June 30, 2002 and 2003
and December 31, 2003.............................................. F-3
Consolidated Statements of Operations for the Fiscal
Years Ended June 30, 2001, 2002 and 2003 and
the six months ended December 31, 2002 and 2003.................... F-5
Consolidated Statements of Changes in Shareholders' Equity
for the Fiscal Years Ended June 30, 2001, 2002 and 2003
and the six months ended December 31, 2003......................... F-6
Consolidated Statements of Cash Flows for the Fiscal Years
Ended June 30, 2001, 2002 and 2003 and the six months
ended December 31, 2002 and 2003.................................. F-7
Notes to Consolidated Financial Statements.......................... F-8
Schedule II Valuation and Qualifying Accounts....................... F-36
F-2
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
MediaNews Group, Inc.
We have audited the accompanying consolidated balance sheets of MediaNews
Group, Inc. and subsidiaries as of June 30, 2002 and 2003, and the related
consolidated statements of operations, statements of changes in shareholders'
equity and cash flows for each of the three years in the period ended June 30,
2003. Our audits also included the financial statement schedule II. These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
MediaNews Group, Inc. and subsidiaries at June 30, 2002 and 2003, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended June 30, 2003, in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
/s/ ERNST & YOUNG LLP
---------------------------
Ernst & Young LLP
September 12, 2003
Denver, Colorado
F-3
MEDIANEWS GROUP, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(INFORMATION RELATED TO DECEMBER 31, 2003 IS UNAUDITED)
[Enlarge/Download Table]
JUNE 30, DECEMBER 31,
--------------------------------- ------------
2002 2003 2003
--------------- ---------------- ------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
CURRENT ASSETS
Cash and cash equivalents.................................... $ 2,029 $ 3,343 $ 2,655
Trade accounts receivable, less allowance for doubtful 74,013 74,106 78,074
accounts of $10,669, $9,393, and $9,188 at June 30,
2002 and 2003, and December 31, 2003, respectively.........
Other receivables............................................ 4,995 6,101 5,472
Inventories of newsprint and supplies........................ 10,205 14,314 19,592
Prepaid expenses and other assets............................ 7,760 8,654 8,169
Income taxes receivable...................................... 6,137 468 -
------------ ------------ ------------
TOTAL CURRENT ASSETS..................................... 105,139 106,986 113,962
PROPERTY, PLANT AND EQUIPMENT
Land......................................................... 37,225 39,954 38,251
Buildings and improvements................................... 103,962 111,180 111,678
Machinery and equipment...................................... 301,045 312,817 332,003
Construction in progress..................................... 5,538 2,940 8,213
------------ ------------ ------------
TOTAL PROPERTY, PLANT AND EQUIPMENT...................... 447,770 466,891 490,145
Less accumulated depreciation and amortization............... (144,418) (165,754) (177,382)
------------ ------------ ------------
NET PROPERTY, PLANT AND EQUIPMENT........................ 303,352 301,137 312,763
OTHER ASSETS
Investment in unconsolidated JOAs............................ 244,549 221,640 220,601
Equity investments........................................... 13,757 93,343 93,070
Subscriber accounts, less accumulated amortization of
$112,595, $118,572 and $126,836 at June 30, 2002 and 2003,
and December 31, 2003, respectively........................ 98,303 79,320 71,056
Excess of cost over fair value of net assets acquired........ 381,945 381,199 383,668
Newspaper mastheads.......................................... 145,282 145,781 145,781
Covenants not to compete and other identifiable
intangible assets, less accumulated amortization of
$33,581, $29,622 and $30,264 at June 30, 2002 and 2003, and
December 31, 2003, respectively............................ 5,415 4,547 3,905
Net pension assets........................................... 12,864 3,620 3,070
Other........................................................ 12,578 10,512 18,054
------------ ------------ ------------
TOTAL OTHER ASSETS....................................... 914,693 939,962 939,205
------------ ------------ ------------
TOTAL ASSETS............................................. $ 1,323,184 $ 1,348,085 $ 1,365,930
============ ============ ============
F-4
MEDIANEWS GROUP, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(INFORMATION RELATED TO DECEMBER 31, 2003 IS UNAUDITED)
[Enlarge/Download Table]
JUNE 30, DECEMBER 31,
------------------------------- -------------
2002 2003 2003
------------- -------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable.................................................... $ 12,417 $ 9,894 $ 8,371
Accrued employee compensation............................................. 24,174 28,232 25,498
Accrued interest.......................................................... 17,110 14,762 9,054
Other accrued liabilities................................................. 24,048 23,823 19,172
Unearned income........................................................... 21,085 20,032 20,373
Current portion of long-term debt and obligations under capital leases.... 7,707 3,171 5,635
------------ ------------ ------------
TOTAL CURRENT LIABILITIES............................................. 106,541 99,914 88,103
OBLIGATIONS UNDER CAPITAL LEASES.......................................... 7,001 6,833 6,738
LONG-TERM DEBT............................................................ 942,382 894,550 899,018
OTHER LIABILITIES......................................................... 30,462 33,947 32,257
DEFERRED INCOME TAXES, NET................................................ 56,290 77,845 86,640
MINORITY INTEREST......................................................... 156,007 174,988 177,747
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 2
Additional paid-in capital................................................ 3,631 3,631 3,631
Accumulated other comprehensive loss, net of taxes:
Unrealized loss on hedging.............................................. (6,481) (4,264) (2,760)
Minimum pension liability............................................... (7,549) (15,087) (15,466)
Retained earnings......................................................... 36,898 77,726 92,020
Common stock in treasury, at cost, 16,000 shares.......................... (2,000) (2,000) (2,000)
------------ ------------ ------------
TOTAL SHAREHOLDERS' EQUITY............................................ 24,501 60,008 75,427
------------ ------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............................ $ 1,323,184 $ 1,348,085 $ 1,365,930
============ ============ ============
See notes to consolidated financial statements
F-5
MEDIANEWS GROUP, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(INFORMATION RELATED TO DECEMBER 31, 2002 AND 2003 IS UNAUDITED)
[Enlarge/Download Table]
SIX MONTHS ENDED
YEARS ENDED JUNE 30, DECEMBER 31,
------------------------------------- ------------------------
2001 2002 2003 2002 2003
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
REVENUES
Advertising............................... $ 673,737 $ 535,687 $ 556,016 $ 285,113 $ 285,921
Circulation............................... 144,292 139,495 137,445 69,832 66,793
Other..................................... 34,151 35,948 45,137 19,396 28,002
---------- ---------- ---------- ---------- ----------
TOTAL REVENUES........................... 852,180 711,130 738,598 374,341 380,716
INCOME (LOSS) FROM UNCONSOLIDATED
JOAS...................................... (3,202) 8,770 25,227 15,139 15,743
COSTS AND EXPENSES
Cost of sales............................. 297,825 220,082 221,888 109,567 117,202
Selling, general and administrative....... 385,764 324,364 346,763 172,006 178,415
Depreciation and amortization............. 62,593 47,545 40,553 21,276 20,050
Interest expense.......................... 82,241 75,302 64,252 33,470 28,088
Other (income) expense, net............... 13,200 10,941 19,534 1,681 14,228
---------- ---------- ---------- ---------- ----------
TOTAL COSTS AND EXPENSES................. 841,623 678,234 692,990 338,000 357,983
EQUITY INVESTMENT INCOME (LOSS), NET........ (1,412) 435 3,709 768 5,377
GAIN ON SALE OF NEWSPAPER PROPERTIES........ 74,255 -- 27,399 -- --
MINORITY INTEREST........................... (40,927) (32,218) (34,088) (20,277) (19,888)
---------- ---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES.................. 39,271 9,883 67,855 31,971 23,965
INCOME TAX BENEFIT (EXPENSE)................ (14,044) 2,482 (27,027) (12,669) (9,671)
---------- ---------- ---------- ---------- ----------
NET INCOME.................................. $ 25,227 $ 12,365 $ 40,828 $ 19,302 $ 14,294
========== ========== ========== ========== ==========
NET INCOME PER COMMON SHARE:
Net income per common share............... $ 10.98 $ 5.38 $ 17.76 $ 8.40 $ 6.22
=========== =========== =========== =========== ==========
Weighted average number of shares outstanding 2,298,346 2,298,346 2,298,346 2,298,346 2,298,346
========== ========== ========== ========== ==========
See notes to consolidated financial statements
F-6
MEDIANEWS GROUP, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(INFORMATION RELATED TO DECEMBER 31, 2003 IS UNAUDITED)
[Enlarge/Download Table]
ACCUMULATED
ADDITIONAL OTHER RETAINED COMMON TOTAL
COMMON PAID-IN COMPREHENSIVE EARNINGS STOCK IN SHAREHOLDERS'
STOCK CAPITAL LOSS (DEFICIT) TREASURY EQUITY
------- ---------- ------------- ---------- ---------- -------------
(DOLLARS IN THOUSANDS)
BALANCE AT JUNE 30, 2000.................. $ 2 $ 3,631 $ -- $ (694) $ (2,000) $ 939
Comprehensive income:
Cumulative effect of change in
accounting principle, net of tax
benefit of $445....................... -- -- (655) -- -- (655)
Unrealized loss on hedging
activities, net of tax benefit of
$1,889................................ -- -- (2,774) -- -- (2,774)
Net income............................. -- -- -- 25,227 -- 25,227
----------
Comprehensive income.................... 21,798
------- ------- ----------- ---------- ---------- ----------
BALANCE AT JUNE 30, 2001.................. 2 3,631 (3,429) 24,533 (2,000) 22,737
Comprehensive income:
Unrealized loss on hedging
activities, net of tax benefit of
$2,695................................ -- -- (3,280) -- -- (3,280)
Unrealized loss on hedging
activities, reclassified to
earnings, net of tax expense of $174.. -- -- 228 -- -- 228
Minimum pension liability adjustment,
net of tax benefit of $5,466.......... -- -- (7,549) -- -- (7,549)
Net income............................. -- -- -- 12,365 -- 12,365
----------
Comprehensive income.................... 1,764
------- ------- ----------- ---------- ---------- ----------
BALANCE AT JUNE 30, 2002.................. 2 3,631 (14,030) 36,898 (2,000) 24,501
Comprehensive income:
Unrealized gain on hedging
activities, net of tax expense of
$1,075................................ -- -- 1,548 -- -- 1,548
Unrealized loss on hedging
activities, reclassified to
earnings, net of tax expense of $348.. -- -- 669 -- -- 669
Minimum pension liability adjustment,
net of tax benefit of $5,600.......... -- -- (7,538) -- -- (7,538)
Net income............................. -- -- -- 40,828 -- 40,828
----------
Comprehensive income.................... 35,507
------- ------- ----------- ---------- ---------- ----------
BALANCE AT JUNE 30, 2003.................. 2 3,631 (19,351) 77,726 (2,000) 60,008
Comprehensive income:
Unrealized gain on hedging
activities, net of tax expense of
$194.................................. -- -- 291 -- -- 291
Unrealized loss on hedging
activities, reclassified to
earnings, net of tax expense of $831.. -- -- 1,213 -- -- 1,213
Minimum pension liability
adjustment, net of tax benefit of
$252.................................. (379) (379)
Net income............................. -- -- -- 14,294 -- 14,294
----------
Comprehensive income.................... 15,419
------- ------- ----------- ---------- ---------- ----------
BALANCE AT DECEMBER 31, 2003.............. $ 2 $ 3,631 $ (18,226) $ 92,020 $ (2,000) $ 75,427
======= ======= =========== ========== ========== ==========
See notes to consolidated financial statements
F-7
MEDIANEWS GROUP, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(INFORMATION RELATED TO DECEMBER 31, 2002 AND 2003 IS UNAUDITED)
[Enlarge/Download Table]
SIX MONTHS ENDED
YEARS ENDED JUNE 30, DECEMBER 31,
---------------------------------- --------------------
2001 2002 2003 2002 2003
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................................. $ 25,227 $ 12,365 $ 40,828 $ 19,302 $ 14,294
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation.......................................... 31,365 26,352 23,771 12,416 12,349
Amortization.......................................... 35,973 25,446 20,914 10,893 9,903
Loss on early extinguishment of debt.................. -- -- -- -- 9,200
Net (gain) loss on sale of newspaper assets........... (74,125) (398) (28,620) (1,284) 224
Impairment loss....................................... -- -- 5,715 -- --
Provision for losses on accounts receivable........... 10,916 10,213 9,632 4,765 4,154
Amortization of debt discount......................... 2,755 2,145 1,231 806 336
Minority interest..................................... 40,927 32,218 34,088 20,277 19,888
Proportionate share of net income from unconsolidated
JOAs................................................. (13,201) (51,981) (68,638) (36,763) (38,938)
Equity investment (income) loss, net.................. 1,412 (435) (3,709) (768) (5,377)
Deferred income tax expense........................... 12,467 1,178 25,362 11,531 8,024
Change in defined benefit plan assets, net of cash
contributions........................................ (5,948) 1,172 31 73 549
Increase in estimated option repurchase price......... 1,414 2,325 5,993 2,537 1,065
Unrealized loss on hedging activities, reclassified to
earnings from accumulated other comprehensive loss... -- 402 1,017 441 1,213
Unrealized (gain) loss on swaps....................... -- (2,951) (1,158) (1,864) 1,307
Change in operating assets and liabilities:
Accounts receivable................................... (5,497) (4,161) (7,583) (11,745) (8,755)
Inventories........................................... (4,876) 4,349 (3,665) (2,474) (5,277)
Prepaid expenses and other assets..................... 1,393 (433) 2,910 1,330 1,551
Accounts payable and accrued liabilities.............. (21,956) (873) 1,339 (10,961) (8,159)
Unearned income....................................... (4,714) 587 (401) (197) 569
Change in other assets and liabilities, net........... 10,146 72 (1,219) (133) (6,399)
--------- --------- ---------- ---------- ----------
NET CASH FLOWS FROM OPERATING ACTIVITIES................ 43,678 57,592 57,838 18,182 11,721
CASH FLOWS FROM INVESTING ACTIVITIES:
Distributions from unconsolidated JOAs................ 38,070 58,449 83,621 40,752 37,791
Investment in unconsolidated JOAs..................... -- (12,416) -- -- --
Distributions from equity investments................. -- 1,448 4,360 441 5,614
Investments in equity investments..................... (914) (2,280) (1,592) (1,000) (50)
Proceeds from the sale of newspapers and other assets. 100,266 3,840 1,314 1,232 1,559
Business acquisitions, net of cash acquired........... (425,345) (3,277) (53,006) (40,424) (2,519)
Cash contributed by partners for business acquisitions -- -- 24,178 18,457 --
Capital expenditures.................................. (19,611) (11,323) (20,669) (8,643) (24,541)
---------- ---------- ---------- ---------- ----------
NET CASH FLOWS FROM INVESTING ACTIVITIES................ (307,534) 34,441 38,206 10,815 17,854
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt, net of issuance costs..... 363,851 66,994 113,143 48,015 375,998
Reduction of long-term debt and other liabilities..... (197,731) (120,741) (169,108) (57,935) (379,762)
Repurchase premiums associated with long-term debt.... - - - - (9,370)
Distributions paid to minority interest............... (39,747) (43,406) (38,765) (15,768) (17,129)
---------- ---------- ---------- ---------- ----------
NET CASH FLOWS FROM FINANCING ACTIVITIES................ 126,373 (97,153) (94,730) (25,688) (30,263)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.......... (137,483) (5,120) 1,314 3,309 (688)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR............ 144,632 7,149 2,029 2,029 3,343
--------- --------- --------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................. $ 7,149 $ 2,029 $ 3,343 $ 5,338 $ 2,655
========= ========= ========= ========= =========
See notes to consolidated financial statements
F-8
MEDIANEWS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION RELATED TO THE SIX-MONTHS ENDED
DECEMBER 31, 2002 AND 2003 IS UNAUDITED)
NOTE 1: BASIS OF PRESENTATION
On September 1, 1999, Garden State Newspapers, Inc. ("Garden State") was
merged into MediaNews, with MediaNews as the surviving corporation. As a result
of the corporate reorganization, MediaNews Group, Inc. (the "Company" or
"MediaNews"), formerly known as Affiliated Newspapers Investments, Inc., became
the successor issuer to Garden State Newspapers, Inc., pursuant to Rule 15d-5,
under the Securities Act of 1933.
MediaNews (through its subsidiaries) publishes daily and non-daily
newspapers serving markets in nine states. The Company also owns four radio
stations and one television station, the combined revenues of these
non-newspaper operations comprise less than 0.5% of the Company's consolidated
revenue and are not considered significant to the Company's operations.
NOTE 2: SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS
Significant accounting policies for the Company involve its assessment of
the recoverability of its long-lived assets, including goodwill and other
intangible assets, which are based on such factors as estimated future cash
flows and current fair value estimates. The Company's accounting for pension and
retiree medical benefits requires the use of estimates concerning the work
force, interest rates, plan investment return, and involves the use of advice
from consulting actuaries. The Company's accounting for federal and state income
taxes is sensitive to interpretation of various laws and regulations and
assumptions on the realization of deferred tax assets.
UNAUDITED INFORMATION
The 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 Regulation
S-X. 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 six-month period ended December 31, 2003 are
not necessarily indicative of the results that may be expected for future
interim periods or for the year ended June 30, 2004.
USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles at times requires the use of estimates and
assumptions. The Company uses estimates, based on historical experience,
actuarial studies and other assumptions, as appropriate, to assess the carrying
values of its assets and liabilities and disclosure of contingent matters. The
Company re-evaluates its estimates on an ongoing basis. Actual results could
differ from these estimates.
PRINCIPLES OF CONSOLIDATION
All intercompany accounts have been eliminated.
RECLASSIFICATIONS
For comparability, certain prior year balances have been reclassified to
conform to current reporting classifications.
JOINT OPERATING AGENCIES
A joint operating agency ("JOA") 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. Editorial control and
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news at each of the individual newspapers, which are a party to a joint
operating agreement, continue to be separate and outside of a JOA. The Company,
through its subsidiaries, York Newspapers, Inc., Charleston Publishing Company,
Kearns-Tribune, LLC, and beginning January 23, 2001, The Denver Post
Corporation, participates in JOAs in York, Pennsylvania, Charleston, West
Virginia, Salt Lake City, Utah, and Denver, Colorado, respectively. The
editorial and related expenses of THE DENVER POST, THE SALT LAKE TRIBUNE and
YORK DISPATCH are incurred by the Company outside the related JOA. The
Charleston JOA, on the other hand, accounts for and pays the editorial expenses
for both newspapers within the JOA. The Company controls the York JOA and
accordingly consolidates its results. The editorial costs associated with the
YORK DAILY RECORD, the other newspaper in the York JOA and the minority partner,
are not included in the Company's results, since this newspaper is not owned by
MediaNews.
In July 2000, the Emerging Issues Task Force ("EITF") reached a consensus
on Issue 00-1, BALANCE SHEET AND INCOME STATEMENT DISPLAY UNDER THE EQUITY
METHOD OF INVESTMENTS IN CERTAIN PARTNERSHIPS AND OTHER UNINCORPORATED JOINT
VENTURES ("EITF 00-1"), effective for periods ending after June 15, 2000, which
prohibits the use of pro-rata consolidation except in the extractive and
construction industries. Prior to adoption of EITF 00-1, the Company accounted
for all of its JOA operations using the pro-rata consolidation method. The
Company discontinued pro-rata consolidation upon adoption of EITF 00-1,
effective June 30, 2000. All periods conform to the current presentation.
Currently, the operating results from the Company's unconsolidated JOAs are
reported as a single net amount in the accompanying financial statements in the
line item "Income from Unconsolidated JOAs." This line item includes:
o The Company's proportionate share of net income from JOAs;
o The amortization of subscriber lists and, up until the Company's July
1, 2001 adoption of SFAS No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS
(see Goodwill and Other Intangible Assets), the amortization of
goodwill created by the original purchase by the Company of the JOAs'
interests as the subscriber lists and goodwill are attributable to the
Company's earnings in the JOAs, and
o Editorial costs, miscellaneous publishing revenue, and other charges
incurred by the Company's consolidated subsidiaries directly
attributable to the JOAs providing editorial content and news for the
Company's newspapers party to the JOAs.
Investments in unconsolidated JOAs are included in the consolidated balance
sheet under the line item "Investment in Unconsolidated JOAs," for the JOAs the
Company does not control. (See Note 3: Joint Operating Agencies for further
discussion.)
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
INVENTORIES
Inventories, which largely consist of newsprint, are valued at the lower of
cost or market. Cost is generally determined using the first-in, first-out
method.
INVESTMENTS
The Company has made the following strategic investments, which are
accounted for under the equity method (for those investments in which the
Company has less than 20% ownership, the Company accounts for these under the
equity method as the Company has seats on the board and therefore has influence
and ties to the entity beyond the Company's invested capital):
o PowerOne Media, LLC, a company that provides software tools and hosts
classified advertising for daily and weekly newspapers throughout the
United States (which merged with CareerSite; see further discussion
below),
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o Employment Specialists, LLC, (operating as CareerSite) an Internet
based employment classified advertising application. CareerSite merged
with PowerOne in September 2003. After the merger, the Company's
ownership in the combined entity was 15.0%,
o CIPS Marketing Group, Inc., a total market coverage delivery service
in Los Angeles (50% ownership interest),
o Gallup Independent Company, publisher of the GALLUP INDEPENDENT in
Gallup, New Mexico (approximately 38% ownership interest),
o Ponderay Newsprint Company, a minority investment in a newsprint mill
held by Kearns-Tribune, LLC. In addition to its investment, the
Company is guarantor for 6.0% of up to $125.0 million in long-term
debt owed by Ponderay and due on April 12, 2006 (6.0% ownership
interest and one seat on board). See RECENTLY ISSUED ACCOUNTING
STANDARDS, for further discussion regarding the Company's guarantee,
and
o Texas--New Mexico Newspapers Partnership, a minority investment in
this partnership, which was formed on March 3, 2003 (33.8% ownership
interest). See Note 5: Acquisitions, Dispositions and Partnership
Formations for further discussion.
These investments are included in the consolidated balance sheet as a
component of long-term assets under the caption "Equity Investments."
PROPERTY, PLANT AND EQUIPMENT
Property, plant, and equipment are recorded at cost. Buildings and
machinery and equipment are depreciated using the straight-line method over the
expected useful lives of individual assets. Buildings and improvements are
depreciated over the lesser of 40 years or the term of the lease and machinery
and equipment is depreciated over 3 to 20 years.
GOODWILL AND OTHER INTANGIBLE ASSETS
In June 2001, the Financial Accounting Standards Board issued SFAS No. 142,
GOODWILL AND OTHER INTANGIBLE ASSETS ("SFAS No. 142"), which the Company adopted
effective July 1, 2001. Under the new standard, excess of cost over fair value
of net assets acquired (goodwill) and other indefinite life intangibles are no
longer amortized, but instead are periodically reviewed for impairment. All
other intangibles with a finite useful life continue to be amortized over their
estimated useful lives. Subscriber accounts are amortized using the
straight-line method over periods ranging from 8 to 15 years. Other finite
identified intangibles are being amortized over periods not exceeding 10 years.
Results for the years ended June 30, 2002 and 2003 and the six months ended
December 31, 2002 and 2003 are presented under SFAS No. 142; however, in
accordance with this standard, the results for the year ended June 30, 2001 have
not been restated. Had SFAS No. 142 been in effect for the Company's fiscal year
ended June 30, 2001, the Company's reported net income would have been $40.0
million and net income per share would have been $17.41.
As a result of an indicator of impairment identified at the Company's
subsidiary, Alaska Broadcasting Company, during the quarter ended March 31,
2003, the Company tested the related carrying value of goodwill for impairment
under SFAS No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS. Based on the Company's
evaluation, all of the recorded goodwill was determined to be impaired. As a
result, a write down of $1.8 million was recorded in other (income) expense, net
during the quarter ended March 31, 2003. In addition, as required by SFAS No.
142, the Company performed an annual impairment test as of July 1, 2003. There
was no impairment of intangible assets noted as a result of this test. Another
impairment test will be performed July 1, 2004, unless unexpected events or
circumstances arise that require the Company to test for impairment sooner.
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Estimated amortization expense for the next five years is as follows at
June 30, 2003 (in thousands):
2004............ $ 18,307
2005............ 13,024
2006............ 12,684
2007............ 11,884
2008............ 8,864
LONG-LIVED ASSETS
Effective July 1, 2002, the Financial Accounting Standards Board issued
SFAS No. 144, ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED
ASSETS ("SFAS No. 144"), which addresses financial accounting and reporting for
the impairment or disposal of long-lived assets and supersedes SFAS No. 121,
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO
BE DISPOSED OF, and the accounting and reporting provisions of APB Opinion No.
30, REPORTING THE RESULTS OF OPERATIONS for a disposal of a segment of a
business. The adoption of this standard on July 1, 2002 had no impact on the
Company's financial position or results of operations. The carrying value of
long-lived assets is reviewed annually. If at any time the facts or
circumstances at any of the Company's individual newspaper or other operations
indicate the impairment of long-lived asset values as a result of a continual
decline in performance or as a result of fundamental changes in a market, a
determination is made as to whether the carrying value of the long-lived assets
exceeds estimated realizable value. For purposes of this determination,
estimated realizable value is evaluated based on values placed on comparable
assets, generally based on a multiple of revenue and/or operating profit
(revenues less cost of sales and selling, general and administrative expenses);
however, other valuation methods may be used. Subsequent to June 30, 2003, an
indicator of impairment was identified at one of the properties of the
California Newspapers Partnership. As a result, the Company determined that the
carrying value of an operating facility exceeds estimated realizable value based
on the expected proceeds from the impending sale of the related assets.
Accordingly, an impairment loss of $3.9 million was recorded in other (income)
expense, net for the year ended June 30, 2003 to adjust the long-lived assets to
the estimated realizable value of $2.0 million.
DEBT DISCOUNT
Debt discount is amortized in a manner that results in a constant rate of
interest over the life of the related debt and is included as a component of
interest expense.
INCOME TAXES
The Company accounts for income taxes utilizing the liability method of
accounting for income taxes. Under the liability method, deferred income taxes
are recognized for the tax consequences of "temporary differences" by applying
enacted statutory tax rates applicable to differences between the financial
statement carrying amount and the tax basis of existing assets and liabilities.
ADVERTISING COSTS
The Company expenses all advertising costs as incurred. Advertising costs
included in the consolidated statement of operations for the fiscal years ended
June 30, 2001, 2002 and 2003, were approximately $3.1 million, $0.8 million and
$0.5 million, respectively.
REVENUE RECOGNITION
Advertising revenue is earned and recognized when advertisements are
published, inserted, aired or displayed and are net of provisions for estimated
rebates, credit and rate adjustments and discounts. Circulation revenue includes
single copy and home delivery subscription revenue. Single copy revenue is
earned and recognized based on the date the publication is delivered to the
single copy outlet, net of provisions for returns. Home delivery subscription
revenue is earned and recognized when the newspaper is delivered to the customer
or sold to a third party. Amounts received in advance of an advertisement or
newspaper delivery are deferred and recorded on the balance sheet as a current
liability to be recognized into income when the revenue has been earned.
F-12
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
The Company conducts business in one reporting segment and determined its
reporting segment based on the individual operations that the chief operating
decision maker reviews for purposes of assessing performance and making
operating decisions. The individual operations have been aggregated into one
segment because management believes they have similar economic characteristics
and similar products, services, customers, production processes and distribution
methods. The Company believes that aggregating the operations into one segment
helps users understand the Company's performance and assess its prospects.
COMPREHENSIVE INCOME
As of July 1, 1998, the Company adopted SFAS No. 130, REPORTING
COMPREHENSIVE INCOME. SFAS No. 130 requires the disclosure of comprehensive
income, which includes, in addition to net income, other gains and losses, which
affect shareholders' equity, but under generally accepted accounting principles
are excluded from net income. 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 ("SFAS No.
133"), on July 1, 2000. Under SFAS No. 133, the Company's newsprint and interest
rate swap agreements on its variable rate debt were recorded at fair value and
changes in the value of such contracts, net of income taxes, were reported in
comprehensive income. During fiscal year 2003, the interest rate swap agreement
on the Company's variable rate debt expired, and effective September 5, 2003,
the Company terminated its newsprint swap agreement. See Note 10: Hedging
Activities for further discussion. Comprehensive income for the Company also
includes a minimum pension liability adjustment related to two of the Company's
pension plans and a pension plan at one of the Company's unconsolidated JOAs.
For purposes of calculating income taxes related to comprehensive income, the
Company uses its combined statutory rate for federal and state income taxes.
DIVIDENDS
The Company has not paid a dividend on its common stock and does not
currently plan to pay cash dividends on its common stock.
EMPLOYEES
Certain employees of the Company's newspapers are employed under collective
bargaining agreements.
HEDGING ACTIVITIES
Under SFAS No. 133, the Company's newsprint and variable to fixed interest
rate swap agreement had been designated as cash flow hedges and recorded at fair
value, and changes in the value of such contracts, net of income taxes, are
reported in comprehensive income. At June 30, 2003, the Company had no variable
to fixed interest rate swap agreements, and subsequent to June 30, 2003, the
Company terminated its newsprint swap agreement. The Company also has fixed to
variable interest rate swap agreements, which do not qualify for hedge
accounting, and therefore, changes in the fair value of these swap agreements
are recognized in other (income) expense, net. The net settlements made under
all of the Company's interest rate swap agreements are reflected in operations
as an adjustment to interest expense over the term of the related swap. Prior to
the termination of the newsprint swap agreement, the periodic net settlements
made were reflected in operations in the period the newsprint was consumed. See
Note 10: Hedging Activities for further discussion.
RECENTLY ISSUED ACCOUNTING STANDARDS
In July 2002, the FASB issued Statement No. 146, ACCOUNTING FOR COSTS
ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES ("SFAS No. 146"). SFAS No. 146
requires companies to recognize costs associated with exit or disposal
activities when they are incurred rather than at the date of a commitment to an
exit or disposal plan. SFAS No. 146 is to be applied prospectively to exit or
disposal activities initiated after December 31, 2002. The Company has incurred
no such costs since the January 1, 2003 adoption of SFAS No. 146.
In November 2002, the FASB issued Interpretation No. 45, GUARANTOR'S
ACCOUNTING AND DISCLOSURE REQUIREMENTS FOR GUARANTEES, INCLUDING INDIRECT
GUARANTEES OF INDEBTEDNESS OF OTHERS ("FIN No. 45"), which addresses the
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accounting for and disclosure of guarantees and requires certain guarantees to
be recorded at fair value. The initial recognition and initial measurement
provisions of FIN No. 45 are applicable on a prospective basis to guarantees
issued or modified after December 31, 2002; any previously issued guarantees
prior to the date of FIN No. 45's initial application should not be revised or
restated. FIN No. 45's disclosure requirements are effective for financial
statements of interim or annual periods ending after December 15, 2002 and are
applicable to all guarantees issued by the guarantor subject to FIN No. 45's
scope, including guarantees issued prior to the issuance of FIN No. 45. Through
its wholly-owned subsidiary Kearns-Tribune, LLC, the Company owns a 6.0%
interest in Ponderay Newsprint Company ("Ponderay") and is also a guarantor, on
a several basis, on 6.0% of up to $125.0 million of Ponderay's credit facility,
which is due April 12, 2006. Based on the Company's evaluation, this guarantee
falls under the disclosure provisions of FIN No. 45. The Company has no amounts
related to the guarantee recorded in its financial statements because the
guarantee existed prior to and has not been modified since December 31, 2002.
The guarantee arose from Ponderay's April 12, 2000 amended and restated credit
agreement that replaced a previous credit facility which had been used to
finance the construction of its newsprint mill. The guarantee could be triggered
by Ponderay's failure to meet any or all of its bank covenants, at which time
the Company could be liable for its portion of the guarantee. At December 31,
2003, the Company's share of the guarantee is $5.9 million. The debt is
collateralized by a deed of trust on Ponderay's real property and a mortgage on
all of Ponderay's other assets.
In January 2003, the FASB issued Interpretation No. 46 CONSOLIDATION OF
VARIABLE INTEREST ENTITIES ("FIN No. 46"). FIN No. 46 clarifies the application
of Accounting Research Bulletin No. 51, CONSOLIDATED FINANCIAL STATEMENTS, to
only certain entities in which equity investors do not have the characteristics
of a controlling financial interest or do not have sufficient equity at risk for
the entity to finance its activities without additional subordinated financial
support from other parties. In December 2003, the FASB issued a revised FIN No.
46. Under the revision, for variable interest entities that existed prior to
December 31, 2003, the effective date for non-public entities is the beginning
of the first annual reporting period beginning after December 15, 2004, which
for the Company is July 1, 2005. The Company's preliminary assessment indicates
that the revised FIN No. 46 will not have a material impact on its financial
position or results of operations; however, the Company is still in the process
of evaluating the revised rules under FIN No. 46.
In April 2003, FASB issued Statement No. 149, AMENDMENTS OF STATEMENT 133
ON DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES ("SFAS No. 149") which is
primarily effective for contracts entered into or modified after June 30, 2003.
The statement amends Statement No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS
AND HEDGING ACTIVITIES ("SFAS No. 133") for certain decisions made by the FASB
as part of the Derivatives Implementation Group process and incorporates
clarifications of the definition of a derivative. Adoption of SFAS No. 149 did
not impact the Company's financial position and results of operations.
In May 2003, the FASB issued Statement No. 150, ACCOUNTING FOR CERTAIN
FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY ("SFAS
No. 150"), which addresses how to classify and measure certain financial
instruments with characteristics of both liabilities (or assets in some
circumstances) and equity. SFAS No. 150's requirements apply to issuers'
classification and measurement of freestanding financial instruments, including
those that comprise more than one option or forward contract. SFAS No. 150 is
effective for financial instruments entered into or modified after May 31, 2003,
and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. SFAS No. 150 as it relates to non-controlling
interests in limited-life subsidiaries, has been deferred by FASB for an
indefinite period. The Company will evaluate the impact of the provisions
related to non-controlling interests in limited-life subsidiaries if and when
the provisions are finalized. Adoption of the applicable provisions SFAS No. 150
on July 1, 2003 did not impact the Company's financial position and results of
operations.
Effective July 1, 2003, the Company adopted FASB Statement No. 150,
ACCOUNTING FOR CERTAIN FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH
LIABILITIES AND EQUITY ("SFAS No. 150"), except for the provisions regarding
non-controlling interests in limited-life subsidiaries. The provisions of SFAS
No. 150 related to non-controlling interests in limited-life subsidiaries have
been deferred by FASB for an indefinite period. The Company will evaluate the
impact of the provisions related to non-controlling interests in limited-life
subsidiaries when the provisions are finalized. Adoption of the other provisions
of SFAS No. 150 on July 1, 2003 did not materially impact the Company's
financial position or results of operations.
In December 2003, the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (the "Act") was signed into law. The Act introduces a
prescription drug benefit under Medicare (Medicare Part D) as well as a federal
subsidy to sponsors of retiree health care benefit plans that provide a benefit
that is at least actuarially equivalent to Medicare Part D. Two of the Company's
subsidiaries have postretirement benefit plans which offer a prescription drug
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benefit and therefore under the Financial Accounting Standards Board Statement
No. 106, EMPLOYERS' ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
("SFAS No. 106"), the plans' accumulated postretirement benefit obligations
would be required to be remeasured as a result of the Act. However, on January
12, 2004, the Financial Accounting Standards Board ("FASB") issued FASB Staff
Position on SFAS No. 106 ("FSP-SFAS No. 106") which permits sponsors to make a
one-time election to defer accounting for the effects of the Act and the
disclosures related to the plans required by FASB Statement No. 132 (revised
2003), EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS
(see further discussion which follows), until authoritative guidance on the
accounting for the federal subsidy is issued or until certain other events that
would require remeasurement occur (for example, a plan amendment, settlement or
curtailment, if such event occurs subsequent to January 31, 2004, but prior to
the issuance of additional authoritative guidance) at which time accounting for
the Act's effects on the plans would be required. The Company has elected to
defer accounting for the effects of the Act under FSP-SFAS No. 106, and
therefore the accompanying financial statements do not reflect the effects of
the Act on the plans' accumulated postretirement benefit obligations. As
previously discussed, authoritative guidance on the accounting for the federal
subsidy is pending, and guidance, when issued, could require the Company to
change previously reported information. The Company is in the process of
evaluating the economic consequences of the Act, including determining whether
plans would need to be amended, but does not expect that the effects will be
material to the Company's financial position or results of operations.
In December 2003, the FASB issued revised Statement No. 132, EMPLOYERS'
DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS ("SFAS No. 132").
The revised SFAS No. 132 requires additional disclosures to those in the
original Statement No. 132 about the assets, obligations, cash flows and net
periodic benefit cost of defined benefit pension plans and other defined benefit
postretirement plans. Interim disclosures are required by the revised
pronouncement for interim periods beginning after December 15, 2003 and annual
disclosures are required for fiscal years ending after December 15, 2003, which
for the Company is March 31, 2004 and June 30, 2004, respectively. Adoption of
the provisions of revised SFAS No. 132 impacts disclosures only and will not
impact the Company's financial position or results of operations.
NOTE 3: JOINT OPERATING AGENCIES
Prior to January 23, 2001, the Company consolidated the results of
operations of THE DENVER POST. On January 23, 2001, MediaNews Group and E.W.
Scripps Company ("Scripps"), owner of the ROCKY MOUNTAIN NEWS, completed the
formation of the Denver Newspaper Agency, a partnership ("DNA" or the "Denver
JOA"), under the terms of a joint operating agreement. Upon formation of DNA,
MediaNews and Scripps each contributed substantially all of their operating
assets used in the publication of THE DENVER POST and the ROCKY MOUNTAIN NEWS to
DNA, while each maintained editorial control and responsibility for news and
editorial costs for each of their respective newspapers. In addition to the
assets contributed to DNA, Scripps also paid MediaNews $60.0 million to obtain
its 50% interest in DNA. The Company recognized a pre-tax gain on the payment
from Scripps of approximately $46.7 million, net of expenses. As a result of the
formation of the Denver JOA, the Company no longer consolidates the results of
THE DENVER POST after January 23, 2001. In addition to the Company's
proportionate share of income from DNA, the editorial costs, publishing related
revenues, depreciation of editorial assets owned outside of the JOA, and other
direct costs of THE DENVER POST are included in the line item "Income from
Unconsolidated JOAs." The Company continues to consolidate The Denver Post
Corporation's subsidiary, Eastern Colorado Publishing Company ("ECPC"),
comprised of several small daily and weekly newspapers as ECPC was not
contributed to DNA.
On January 2, 2001, MediaNews purchased the stock of Kearns-Tribune, LLC
for $200.0 million in cash. Kearns-Tribune, LLC owns the masthead of THE SALT
LAKE TRIBUNE and a 50% ownership interest in the Newspaper Agency Corporation
(the "Salt Lake City JOA"). The Salt Lake City JOA is the managing entity of the
JOA agreement between Kearns-Tribune, LLC and the Deseret News Publishing
Company. Under the terms of this JOA, the Salt Lake City JOA is responsible for
performing all the business functions of THE SALT LAKE TRIBUNE and the DESERET
MORNING NEWS, including advertising and circulation sales, production and
distribution; however, the Salt Lake City JOA does not own any of the fixed
assets used in its operations. Instead, each partner owns the fixed assets used
in the operations of the Salt Lake City JOA as tenants in common, outside of the
JOA. Therefore, the related depreciation expense is also recorded outside of the
JOA. News and editorial costs related to THE SALT LAKE TRIBUNE are incurred
outside of the Salt Lake City JOA and are the sole responsibility of
Kearns-Tribune, LLC. While Kearns-Tribune, LLC owns 50% of the Salt Lake City
JOA, net income of the Salt Lake City JOA is distributed 58% to Kearns-Tribune,
LLC and 42% to the Deseret News Publishing Company principally because THE SALT
LAKE TRIBUNE has greater circulation than THE DESERET MORNING NEWS and therefore
is responsible for a greater portion of the operating cash flows generated by
the Salt Lake City JOA. The Company records its proportionate share of the
results of the Salt Lake City JOA along with the operations of Kearns-Tribune,
F-15
LLC, consisting principally of editorial costs, publishing related revenues,
amortization of intangibles, depreciation of fixed assets, and other direct
costs of THE SALT LAKE TRIBUNE, in the line item "Income from Unconsolidated
JOAs."
On August 22, 1998, Charleston Publishing Company, a wholly-owned
subsidiary of MediaNews, acquired a 50% interest in Charleston Newspapers, which
publishes the CHARLESTON GAZETTE (morning) and CHARLESTON DAILY MAIL (evening)
six days a week and the SUNDAY GAZETTE-MAIL, under the terms of a JOA. The
acquisition also included rights to the masthead of the CHARLESTON DAILY MAIL.
The managerial responsibility for the news and editorial functions are
completely separate from the JOA; accordingly, the Company is responsible for
the news and editorial content of the CHARLESTON DAILY MAIL. However, related
editorial expenses are incurred and paid within the Charleston JOA. As a result,
all editorial expenses of the three Charleston JOA publications are included in
the Company's proportionate share of income from Charleston Newspapers, which is
included in Income from Unconsolidated JOAs. Amortization of intangibles and
other direct costs associated with the JOA incurred by Charleston Publishing
Company are also included in Income from Unconsolidated JOAs.
Effective March 1990, York Newspapers, Inc. ("YNI") entered into a JOA
agreement, forming York Newspaper Company ("YNC"), with York Daily Record, Inc.
("YDR"), under which YNC is responsible for all newspaper publishing operations,
other than news and editorial, including production, sales, distribution and
administration. YNC publishes THE YORK DISPATCH, a daily evening paper, the YORK
DAILY RECORD, a daily morning paper, and the YORK SUNDAY NEWS. YNI has a 57.5%
interest in YNC and is the controlling partner. The operations of YNC are
consolidated with those of the Company, with a minority interest reflected for
YDR's interest in YNC. The operating results of YNC do not include the editorial
costs associated with the publication of the YORK DAILY RECORD, which is not
owned by the Company and the costs of which are incurred outside of the JOA. YNC
made cash distributions to the Company in the amount of $9.4 million, $8.5
million and $9.7 million in fiscal years 2001, 2002 and 2003, respectively.
The following tables present the summarized results for the fiscal years
ended June 30, 2001, 2002 and 2003 and for the six months ended December 31,
2002 and 2003 of the Company's unconsolidated JOAs, along with related balance
sheet data at June 30, 2002 and 2003, on a combined basis. The Salt Lake City
JOA data has been presented separately, because as of June 30, 2003, it is a
significant investee of the Company determined in accordance with Rule 3-09 of
Regulation S-X. The Salt Lake City JOA and Other Unconsolidated JOA information
is presented at 100%, with the other partners' share of income from the related
JOAs subsequently eliminated. The editorial costs, publishing related revenues,
depreciation, amortization, and other direct costs incurred outside of the JOAs
by our consolidated subsidiaries associated with THE SALT LAKE TRIBUNE, THE
DENVER POST, and the CHARLESTON DAILY MAIL are included in the line "Associated
Revenues and Expenses." The minority interest associated with THE DENVER POST
has not been reflected in the following tables.
[Enlarge/Download Table]
YEAR ENDED JUNE 30, 2003
-------------------------------------------------------------
TOTAL INCOME
OTHER ASSOCIATED FROM
SALT LAKE UNCONSOLIDATED REVENUES AND UNCONSOLIDATED
CITY JOA JOAS EXPENSES JOAS
----------- -------------- ------------ --------------
(DOLLARS IN THOUSANDS)
INCOME STATEMENT DATA:
Total revenues........................ $ 128,636 $ 458,068 $ 690
Cost of sales......................... 29,620 151,926 31,523
Selling, general and administrative... 46,672 207,914 8,393
Depreciation and amortization......... -- 23,361 4,132
Other................................. 65 196 53
Gain on sale of assets................ -- (1,715) --
----------- -------------- ------------
Total costs and expenses............ 76,357 381,682 44,101
----------- -------------- ------------
Net income (loss)..................... 52,279 76,386 (43,411)
Partners' share of income from
unconsolidated JOAs................. (21,834) (38,193) --
----------- -------------- ------------
Income from unconsolidated JOAs....... $ 30,445 $ 38,193 $ (43,411) $ 25,227
=========== ============== ============ ==============
F-16
[Enlarge/Download Table]
YEAR ENDED JUNE 30, 2002
-------------------------------------------------------------
TOTAL INCOME
OTHER ASSOCIATED FROM
SALT LAKE UNCONSOLIDATED REVENUES AND UNCONSOLIDATED
CITY JOA JOAS EXPENSES JOAS
----------- -------------- ------------ --------------
(DOLLARS IN THOUSANDS)
INCOME STATEMENT DATA:
Total revenues........................ $ 127,743 $ 447,358 $ 974
Cost of sales......................... 32,055 169,144 30,765
Selling, general and administrative... 43,317 196,536 5,576
Depreciation and amortization......... -- 26,994 4,253
Other................................. -- 11,790 3,591
----------- -------------- ------------
Total costs and expenses............ 75,372 404,464 44,185
----------- -------------- ------------
Net income (loss)..................... 52,371 42,894 (43,211)
Partners' share of income from
unconsolidated JOAs................. (21,837) (21,447) --
----------- -------------- ------------
Income from unconsolidated JOAs....... $ 30,534 $ 21,447 $ (43,211) $ 8,770
=========== ============== ============ ==============
[Enlarge/Download Table]
YEAR ENDED JUNE 30, 2001
-------------------------------------------------------------
TOTAL INCOME
OTHER ASSOCIATED FROM
SALT LAKE UNCONSOLIDATED REVENUES AND UNCONSOLIDATED
CITY JOA JOAS EXPENSES JOAS
----------- -------------- ------------ --------------
(DOLLARS IN THOUSANDS)
INCOME STATEMENT DATA:
Total revenues........................ $ 62,568 $ 216,438 $ 820
Cost of sales......................... 17,066 93,348 14,659
Selling, general and administrative... 21,460 99,986 (2,476)
Depreciation and amortization......... -- 12,086 4,745
Other................................. 43 12,600 295
----------- -------------- ------------
Total costs and expenses............ 38,569 218,020 17,223
----------- -------------- ------------
Net income (loss)..................... 23,999 (1,582) (16,403)
Partners' share of income from
unconsolidated JOAs................. (10,007) 791 --
----------- -------------- ------------
Income from unconsolidated JOAs....... $ 13,992 $ (791) $ (16,403) $ (3,202)
=========== ============== ============ ==============
[Enlarge/Download Table]
JUNE 30, 2003 JUNE 30, 2002
--------------------------- -----------------------------
OTHER OTHER
SALT LAKE UNCONSOLIDATED SALT LAKE UNCONSOLIDATED
CITY JOA JOAS CITY JOA JOAS
--------- -------------- --------- --------------
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA:
Current assets........................ $ 15,060 $ 85,047 $ 15,443 $ 92,216
Non-current assets.................... 18,970 194,489 15,935 223,483
Current liabilities................... 20,697 47,900 18,926 47,841
Non-current liabilities............... 3,638 22,950 3,860 21,665
F-17
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SIX MONTHS ENDED DECEMBER 31, 2003
-------------------------------------------------------------
TOTAL INCOME
OTHER ASSOCIATED FROM
SALT LAKE UNCONSOLIDATED REVENUES AND UNCONSOLIDATED
CITY JOA JOAS EXPENSES JOAS
----------- -------------- ------------ --------------
(DOLLARS IN THOUSANDS)
INCOME STATEMENT DATA:
Total revenues........................ $ 69,536 $ 236,255 $ 254
Cost of sales......................... 15,805 75,720 16,293
Selling, general and administrative... 25,082 104,117 4,514
Depreciation and amortization......... -- 10,955 2,202
Other................................. 2 997 440
----------- ------------- -----------
Total costs and expenses............ 40,889 191,789 23,449
----------- ------------- -----------
Net income (loss)..................... 28,647 44,466 (23,195)
Partners' share of income from
unconsolidated JOAs................. (11,942) (22,233) --
----------- ------------- -----------
Income from unconsolidated JOAs....... $ 16,705 $ 22,333 $ (23,195) $ 15,743
=========== ============= =========== ==============
[Enlarge/Download Table]
SIX MONTHS ENDED DECEMBER 31, 2002
-------------------------------------------------------------
TOTAL INCOME
OTHER ASSOCIATED FROM
SALT LAKE UNCONSOLIDATED REVENUES AND UNCONSOLIDATED
CITY JOA JOAS EXPENSES JOAS
----------- -------------- ------------ --------------
(DOLLARS IN THOUSANDS)
INCOME STATEMENT DATA:
Total revenues........................ $ 64,672 $ 234,655 $ 387
Cost of sales......................... 14,860 77,706 15,469
Selling, general and administrative... 22,734 104,941 4,418
Depreciation and amortization......... -- 12,081 2,033
Other................................. 64 (2,147) 91
----------- -------------- ------------
Total costs and expenses............ 37,658 192,581 22,011
----------- -------------- ------------
Net income (loss)..................... 27,014 42,074 (21,624)
Partners' share of income from
unconsolidated JOAs................. (11,288) (21,037) --
----------- -------------- ------------
Income from unconsolidated JOAs....... $ 15,726 $ 21,037 $ (21,624) $ 15,139
=========== ============== ============ ==============
NOTE 4: INVESTMENT IN CALIFORNIA NEWSPAPERS PARTNERSHIP
On March 31, 1999, through its wholly-owned subsidiary, West Coast
MediaNews LLC, the Company formed the California Newspapers Partnership ("CNP")
with Stephens Media Group ("SMG"), previously known as Donrey Newspapers LLC,
and The Sun Company of San Bernardino California ("Gannett"). MediaNews, SMG and
Gannett's interests in the California Newspapers Partnership are 54.23%, 26.28%
and 19.49%, respectively. The Company is the controlling partner and therefore
the operations of the partnership are consolidated with those of the Company
with minority interest reflected for SMG's and Gannett's interest in the
partnership.
At the formation of the California Newspapers Partnership, the Company also
contributed debt of $6.6 million to the partnership. However, in accordance with
the partnership agreement, the Company remains liable for the contributed debt.
All principal and interest payments associated with this debt are charged to the
MediaNews capital account at CNP as a distribution. Approximately $2.7 million,
$2.3 million and $2.1 million of principal and interest payments were made in
fiscal years 2001, 2002 and 2003, respectively, by the partnership on behalf of
the Company.
The California Newspapers Partnership is governed by a management
committee. The management committee consists of seven members. MediaNews is
entitled to appoint four of the members on the management committee, SMG is
entitled to appoint two, and Gannett is entitled to appoint one. Decisions of
the management committee are by majority vote, except that unanimous votes are
required for certain extraordinary actions, including asset transfers or sales,
asset acquisitions, incurrence of debt and certain material changes in the
partnership business.
F-18
The California Newspapers Partnership agreement also contains transfer of
interests restrictions. None of the partners are able to transfer their
interests before January 1, 2004, and after that date, transfers may be made
only subject to the "right of first offer" of the remaining partners to effect
the purchase of the transferring partner's interest. In addition, where no
partner exercises its right of first offer, any sale of a partner's interest
must include the right for the remaining partners to "tag-along" and sell their
interests to the third-party buyer at the same price. After January 1, 2005,
MediaNews has the right to require the other partners to sell their interests to
any third party to which MediaNews sells its interest.
SMG has a separate right to "put" its interest in the partnership to the
other two partners at fair market value anytime after January 1, 2005. Upon
notification of the put and obtaining a valuation of the partnership interest,
the remaining partners have two years to complete the purchase. Gannett also had
a separate put right similar to SMG's; however, in connection with the formation
of the Texas-New Mexico Newspapers Partnership, Gannett's put right in CNP was
eliminated.
The minority interest liability reflects the fair market value of the net
assets at the time they were contributed to the California Newspapers
Partnership by SMG and Gannett, plus the minority partners' share of earnings,
net of distributions since inception. CNP made cash distributions to the Company
in the amount of $37.4 million, $41.7 million and $35.3 million in fiscal years
2001, 2002 and 2003, respectively.
NOTE 5: ACQUISITIONS, DISPOSITIONS AND PARTNERSHIP FORMATIONS
There were no significant transactions for the six months ended December
31, 2003.
ACQUISITIONS
FISCAL 2003
Effective January 31, 2003, CNP acquired substantially all of the operating
assets used in the publication of the PARADISE POST, a newspaper published three
times weekly in Paradise, California, plus related publications and a large
commercial printing business. The purchase price of approximately $13.0 million
consisted of $11.75 million of cash and estimated transaction costs, net of
working capital, plus future payments under covenants not to compete with a
discounted value of approximately $1.2 million. Contributions from the partners
in CNP were used to fund the acquisition. The Company's cash portion of the
acquisition was approximately $6.4 million and was funded with borrowings under
the Company's bank credit facility. Approximately $7.2 million of the purchase
price was attributable to tangible assets (primarily fixed assets), $1.3 million
was attributable to identifiable intangible assets ($0.1 million, subscriber
lists; $1.2 million, covenants not to compete) and $4.5 million was recorded as
goodwill. Paradise is in close proximity to the Company's newspaper operations
in Chico, California.
Effective October 1, 2002, CNP acquired substantially all of the operating
assets used in the publication of the ORIGINAL APARTMENT MAGAZINE, a free
distribution apartment rental magazine. The ORIGINAL APARTMENT MAGAZINE is
published every two weeks in three different zones: Los Angeles/San Fernando,
Orange County, and the Inland Empire and had monthly distribution of
approximately 296,000 at the date of acquisition. The purchase price was $10.0
million, plus an additional earnout of up to $6.0 million dependent on future
operating performance. Contributions from the partners in CNP were used to fund
the acquisition. The Company's cash portion of the acquisition was $5.4 million
and was funded with borrowings under the Company's bank credit facility.
Approximately $0.3 million of the purchase price was attributable to tangible
assets (primarily fixed assets), $3.5 million was attributable to identifiable
intangible assets ($1.0 million, mastheads; $2.3 million, subscriber lists; $0.2
million, covenants not to compete) and $6.2 million was recorded as goodwill.
ORIGINAL APARTMENT MAGAZINE is operated in conjunction with the Los Angeles
Newspaper Group. Effective September 30, 2003, the seller earned $2.3 million of
the earnout which was paid in November 2003. The $2.3 million earnout payment
has been recorded as an adjustment to goodwill.
Effective October 1, 2002, CNP acquired substantially all of the operating
assets used in the publication of THE REPORTER, a morning daily newspaper and
VALU-PACK, a total market coverage product, both published in Vacaville,
California. At the date of purchase, the newspaper had daily and Sunday paid
circulation of approximately 18,000 and 20,000, respectively. The purchase price
of $30.9 million included $30.0 million of cash and estimated transaction costs,
net of working capital, plus future payments under a covenant not to compete
with a discounted value of $0.9 million. Contributions from the partners in CNP
were used to fund the acquisition. The Company's cash portion of the acquisition
F-19
was $16.3 million and was funded with borrowings under the Company's bank credit
facility. Approximately $3.5 million of the purchase price was attributable to
tangible assets (primarily fixed assets), $6.8 million was attributable to
identifiable intangible assets ($0.8 million, mastheads; $5.1 million,
subscriber lists; $0.9 million, covenants not to compete) and $20.6 million was
recorded as goodwill. Vacaville is in close proximity to the Company's newspaper
operations in Vallejo and the Alameda Newspapers Group, in California.
FISCAL 2002
There were no significant acquisitions in fiscal year 2002.
FISCAL 2001
Effective May 31, 2001, the Company acquired substantially all of the
assets used in the publication of THE RUIDOSO NEWS, a bi-weekly newspaper
published in Ruidoso, New Mexico for approximately $3.8 million in cash, net of
working capital.
Effective March 31, 2001, the Company purchased substantially all of the
assets used in the publication of ALAMOGORDO DAILY NEWS, a daily newspaper
published in Alamogordo, New Mexico, for $9.5 million in cash, net of working
capital.
Effective February 1, 2001, the California Newspapers Partnership purchased
substantially all of the assets used in the publications of the LAKE COUNTY
RECORD-BEE, a daily newspaper and several weeklies including the CLEARLAKE
OBSERVER-AMERICAN, WILLITS NEWS, PENNY SLAVER, and BEE-SMART SHOPPER, located in
and around Lakeport, California, for approximately $7.3 million in cash, net of
working capital.
Effective January 2, 2001, MediaNews purchased the stock of Kearns-Tribune,
LLC for $192.0 million, net of cash on hand at the Salt Lake City JOA.
Kearns-Tribune, LLC owns the masthead of THE SALT LAKE TRIBUNE and a 50%
ownership interest in the Salt Lake City JOA. The Salt Lake City JOA is operated
under the terms of a JOA agreement between Kearns-Tribune, LLC and the Deseret
News Publishing Company (See Note 3). This acquisition was funded with proceeds
from the sale of Council Bluffs discussed in Dispositions, the Scripps' payment
to acquire a 50% interest in the Denver JOA (See Note 3) and bank borrowings.
Effective October 31, 2001, the Company received substantially all the
assets of the CARLSBAD CURRENT-ARGUS, a daily newspaper in Carlsbad, New Mexico
valued at approximately $7.0 million, plus adjustments for working capital, as a
part of the proceeds from the sale of the DAILY NONPAREIL, in Council Bluffs,
Iowa and the related daily and weekly newspapers located in the Southwestern
Iowa cluster.
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 $194.0 million in cash,
net of working capital of approximately $5.0 million and post closing
adjustments. The acquisition was funded with proceeds of approximately $145.0
million from the sale of newspapers on June 30, 2000 and borrowings under the
Company's bank credit facility.
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.
Effective October 1, 2000, Gannett contributed the MARIN INDEPENDENT
JOURNAL, published in Marin, California, to the California Newspapers
Partnership. The MARIN INDEPENDENT JOURNAL is operated in conjunction with the
ANG Newspapers. As a result of the Marin contribution, the partners' interests
were adjusted to their current values (See Note 4: Investment in California
Newspapers Partnership).
DISPOSITIONS
There were no dispositions in fiscal years 2003 and 2002.
F-20
FISCAL 2001
Effective January 31, 2001, the California Newspapers Partnership sold
substantially all of the assets used in the publication of THE LOMPOC RECORD in
Lompoc, California for approximately $8.0 million in cash, net of working
capital. The sale resulted in a pre-tax gain of approximately $4.6 million.
Proceeds from this sale were used to purchase the assets in Lakeport,
California.
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
CARLSBAD CURRENT-ARGUS, a daily newspaper located in Carlsbad, New Mexico (as
previously discussed). The sale resulted in a pre-tax gain of approximately
$23.6 million.
PARTNERSHIP FORMATIONS
FISCAL 2003
Effective March 3, 2003, MediaNews and Gannett Co., Inc. ("Gannett") formed
the Texas-New Mexico Newspapers Partnership. MediaNews contributed substantially
all the assets and operating liabilities of the LAS CRUCES SUN-NEWS, THE DAILY
TIMES (Farmington), CARLSBAD CURRENT-ARGUS, ALAMOGORDO DAILY NEWS, and THE
DEMING HIGHLIGHT, as well as all the weekly and other publications published by
these daily newspapers, in exchange for a 33.8% interest in the Texas-New Mexico
Newspapers Partnership. Gannett contributed the EL PASO TIMES, located in El
Paso, Texas, in exchange for its 66.2% controlling partnership interest. As a
result, effective March 3, 2003, MediaNews no longer consolidates the operations
of the entities it contributed to the partnership and began accounting for its
share of the operations of the Texas-New Mexico Newspapers Partnership under the
equity method of accounting. The formation of the partnership was a non-monetary
transaction. The Company's contribution to the Texas-New Mexico Newspapers
Partnership was treated as two separate, but simultaneous events: (1) a sale,
whereby for accounting purposes, the Company sold to Gannett a 66.2% interest in
its New Mexico properties, resulting in a non-monetary gain of approximately
$27.4 million (pursuant to EITF 01-2, INTERPRETATIONS OF APB OPINION NO. 29),
and (2) the acquisition of a 33.8% interest in the partnership. Except for the
non-monetary recognized gain, the formation of the Texas-New Mexico Newspapers
Partnership did not have a significant impact on the Company's results.
FISCAL 2002
There were no partnership formations in fiscal year 2002.
FISCAL 2001
Effective January 23, 2001, MediaNews and Scripps completed the formation
of the Denver Newspaper Agency as discussed in Note 3: Joint Operating Agencies.
F-21
NOTE 6: LONG-TERM DEBT
Long-term debt consisted of the following:
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JUNE 30, DECEMBER 31,
-------------------------- ------------
2002 2003 2003
----------- ----------- ------------
(DOLLARS IN THOUSANDS)
Bank Credit Facility (Revolving Portion)... (I) $ - $ - $ 123,200
Bank Term Loan B........................... (I) - - 250,000
Bank Term Loan (A and B)................... (II) 150,000 247,000 -
Bank Credit Facility (Revolving Portion)... (III) 210,400 129,900 -
Various Notes, payable through 2013........ (IV) 20,805 15,678 29,789
8.75% Senior Subordinated Notes, due 2009.. (V) 300,164 300,180 -
8.625% Senior Subordinated Notes, due 2011. (VI) 199,270 199,327 199,357
6.875% Senior Subordinated Notes, due 2013. (VII) - - 297,418
York Newspaper Company's Debt.............. (VIII) 6,321 5,455 4,702
9.0% Subordinated Promissory Note.......... (IX) 62,970 -- --
----------- ----------- -----------
949,930 897,540 904,466
Less current portion of long-term debt..... (X) 7,548 2,990 5,448
----------- ----------- -----------
$ 942,382 $ 894,550 $ 899,018
=========== =========== ===========
----------
I. On December 30, 2003, the Company refinanced its former bank credit
facility, which at the time of its replacement had provided for borrowings
of up to $485.0 million. The new bank credit facility provides for
borrowings of up to $600.0 million, consisting of a $350.0 million
revolving credit facility and a $250.0 million "term loan B" facility. Term
loan B requires quarterly principal payments as follows: $0.6 million
beginning in March 2004 through December 2009 and increases to $58.8
million beginning in March 2010 through December 2010. Availability under
the revolving credit facility is permanently reduced by $100.0 million in
December 2008. The final maturity of the revolving credit facility is
December 30, 2009, and the final maturity of the term loan B facility is
December 30, 2010. The new bank credit facility is guaranteed by the
Company's subsidiaries (with certain exceptions) and secured by first
priority liens and security interests in all of the capital stock (or other
ownership interests) of each of the Company's and the guarantors'
susidiaries (with certain exceptions) and the Texas-New Mexico Partnership.
The Company has agreed to pledge its interest in the Denver JOA to secure
the new bank credit facility (subject to certain limitations). Prior to the
maturity date of the revolving facility, borrowings under the revolving
facility will be permitted to be borrowed, repaid and reborrowed without
premium or penalty (other than customary breakage costs). Amounts repaid
under the term loan B facility will not be available for reborrowing. The
new bank credit facility contains a number of covenants that, among other
things, restrict the Company's ability and its subsidiaries' ability to
dispose of assets, incur additional indebtedness, pay dividends or make
capital contributions, create liens on assets, make investments, make
acquisitions and engage in mergers or consolidations. In addition, the new
bank credit facility requires compliance with certain financial ratios,
including a maximum consolidated debt to consolidated operating cash flow
ratio, a maximum consolidated senior debt to consolidated operating cash
flow ratio and a minimum consolidated operating cash flow to consolidated
fixed charges ratio. Borrowings under the new bank credit facility bear
interest at rates based upon, at the Company's option, either the base rate
(the higher of (a) the Federal Funds Rate plus 1/2 of 1% and (b) Bank of
America's prime rate) or Eurodollar rate plus a spread based on the
Company's leverage ratio. On the revolver portion of the new bank credit
facility, Eurodollar borrowing margins vary from 1.125% to 2.00% and base
rate borrowing margins vary from 0.125% to 1.00%. On the term loan B
facility, Eurodollar borrowing margins vary from 1.75% to 2.00% and base
rate borrowing margins vary from 0.75% to 1.00%. At December 31, 2003,
borrowing margins on the revolver portion of the new bank credit facility
were set at 1.75% and 0.75% for the Eurodollar and base rate borrowings,
respectively; borrowing margins on the term loan B facility were set at
2.00% and 1.00%, respectively, for the Eurodollar and base rate borrowings.
In addition to interest, the Company pays an annual commitment fee of 0.25%
to 0.375% on the unused portion of the commitment based on the Company's
leverage ratio. The annual commitment fee is currently set at 0.375%.
F-22
The Company incurred debt issuance costs of $3.8 million related to the
$600.0 million new bank credit facility. These debt issuance costs have
been capitalized as a deferred charge, and are being amortized on a
straight-line basis over the term of the new bank credit facility as a
component of amortization expense.
II. On December 30, 2003, the Company refinanced its former bank Term Loans A
and B with its new bank credit facility described in I. above. The
following describes the significant terms and conditions of Term Loans A
and B prior to the refinancing.
The Company's previous credit agreement (as amended) provided for a $150.0
million Term Loan A, in addition to its $350.0 million bank credit facility
(discussed in Item III below). On May 14, 2003, the Company again amended
the credit agreement to add a $97.0 million Term Loan B, which funded in
June 2003 and reduced the amount available under the bank credit facility
to $253.0 million. Proceeds from Term Loan B were used to redeem the 9.0%
Promissory Note (discussed in Item IX below); the remaining proceeds were
used to pay down amounts outstanding under the bank credit facility.
Interest on borrowings under the Term Loan A were based upon, at the
Company's option, Eurodollar or prime rates plus a spread, based on the
Company's leverage ratio. Term Loan A borrowing margins for Eurodollar and
prime could vary from 2.375% to 1.5% and 1.125% to 0.25%, respectively. As
of June 30, 2003, the Term Loan A's Eurodollar and prime borrowing margins
were set at 2.125% and 0.875%, respectively. Term Loan B borrowing margins
for Eurodollar and prime could vary from 2.5% to 2.75% and 1.25% to 1.5%,
respectively. As of June 30, 2003, Term Loan B's Eurodollar and prime
borrowing margins were set at 2.75% and 1.5%.
III. On December 30, 2003, the Company refinanced its former bank credit
facility with its new bank credit facility described in I. above. The
following describes the significant terms and conditions of the revolving
portion of the former bank credit facility prior to the refinancing.
The Company's previous seven year bank credit facility provided for
borrowings up to $350.0 million (reduced to $253.0 million with the funding
of the May 14, 2003 amendment discussed in Item II above and further
below), including $15.0 million that could be used for standby letters of
credit. Interest on borrowings under the bank credit facility was based
upon, at the Company's option, Eurodollar or prime rates plus a spread
based on the Company's leverage ratio. Prime borrowing margins varied from
1.125% to 0.25% and Eurodollar borrowing margins varied from 2.375% to
1.125%. Borrowing margins at June 30, 2003 were set at 1.75% and 0.5% for
the Eurodollar and prime borrowings, respectively. Interest on prime
borrowings was payable quarterly in arrears. Interest on Eurodollar
borrowings was due at the end of each interest rate contract or if the
interest rate contract exceeded three months quarterly. In addition to
interest, the Company paid an annual commitment fee of 0.5% to 0.25% on the
unused portion of the commitment based on the Company's leverage ratio. The
bank credit facility was secured by a pledge of capital stock of the
Company and its subsidiaries.
IV. In connection with various acquisitions, the Company's subsidiaries have
issued notes payable to prior owners and assumed certain debt obligations.
The notes payable and other debt obligations bear interest at rates ranging
from 0.0% to 7.0%. The notes bearing interest at below market rates have
been discounted at rates ranging from 7.0% to 12.0%, which reflects the
prevailing rate at the date of acquisition. The majority of these notes and
other debt obligations are unsecured obligations of the Company.
V. In the second quarter of fiscal year 2004, the Company repurchased and
redeemed all of its outstanding $300.0 million 8.75% Senior Subordinated
Notes due 2009 (or "8.75% Notes") with the net proceeds from the sale of
the $300.0 million, 6.875% Senior Subordinated Notes due 2013 and other
available funds. The Company paid $9.4 million in premiums and related
costs associated with the repurchase and redemption. These premiums, net of
unamortized original issue premiums, are included in "other (income)
expense, net." The following describes the significant terms and conditions
of the 8.75% Notes prior to the refinancing.
In October 1997 and February 1998, Garden State, the predecessor issuer of
MediaNews Group, Inc., issued in the aggregate $300.0 million of Senior
Subordinated Notes due 2009. These notes bore interest at 8.75% payable
semi-annually, in arrears, on April 1 and October 1. The 8.75% Notes were
issued at a small premium.
VI. In March 1999, Garden State, the predecessor issuer of MediaNews Group,
Inc., issued $200.0 million of 8.625% Senior Subordinated Notes due 2011,
or "8.625% Notes". Interest accruing on the 8.625% Notes is payable
semi-annually, in arrears on January 1 and July 1. The indebtedness
evidenced by the 8.625% Notes are subordinated and junior in right of
F-23
payment to obligations under the bank credit facility and term loans. No
principal payments are required until July 1, 2011, at which time all
outstanding principal and interest is due and payable. The 8.625% Notes are
general unsecured obligations of the Company ranking equal in right of
payment with the existing 6.875% Notes described below.
VII. On November 25, 2003, the Company completed the sale of $300.0 million of
6.875% Senior Subordinated Notes due 2013 (or "6.875% Notes") in a private
placement. The Company applied the net proceeds of $291.9 million from the
sale of the 6.875% Notes and other available funds to repurchase all of its
outstanding $300.0 million 8.75% Notes described in V. above. Proceeds from
the sale of the 6.875% Notes were reduced by an original issue discount of
$2.6 million and debt issuance costs of $5.5 million. The Company has
reduced the principal amount of the 6.875% Notes by the amount of the
original issue discount and is amortizing the discount as a component of
interest expense using the effective interest method. The debt issuance
costs have been capitalized as a deferred charge, and are being amortized
on a straight-line basis over the term of the 6.875% Notes as a component
of amortization expense. The indebtedness evidenced by the 6.875% Notes is
subordinated and junior in right of payment to obligations under the new
bank credit facility and term loan B. No principal payments are required
until October 1, 2013, at which time all outstanding principal and interest
is due and payable. The 6.875% Notes are general unsecured obligations of
the Company ranking equal in right of payment with the existing 8.625%
Notes and the 6.375% Notes described in Note 14: Subsequent Events.
VIII.At June 30, 2003, York Newspaper Company has a revolving credit note and a
term bank loan totaling $3.8 million, which require monthly payments
through October 2005. York Newspaper Company also has a promissory note,
with a balance of $1.6 million at June 30, 2003, which requires monthly
payments through October 2025. The obligations are secured by the assets of
York Newspaper Company and are non-recourse to MediaNews. The Company owns
57.5% of York Newspaper Company.
IX. In January 1998, the Company entered into a subordinated note purchase
agreement pursuant to which it issued a $47.6 million, 9.0% Subordinated
Promissory Note (the "Promissory Note") due January 31, 2010. In June 2003,
the Company paid $64.8 million to settle in full the Promissory Note,
including all the related accrued interest. The repayment of the Promissory
Note was made with proceeds from Term Loan B as previously discussed. While
the Promissory Note was paid off, a related option remains outstanding. The
option entitles the holder to purchase the assets used in the publication
of one of the Company's newspaper properties, which the option holder can
exercise or put to the Company based on a predetermined formula anytime
after January 31, 2003. The option repurchase price was valued at $14.9
million and $16.0 million, at June 30, 2003 and December 31, 2003,
respectively, and is recorded as a component of other long-term
liabilities. If the option were put to the Company, the Company expects to
fund the payment with available borrowings from its bank credit facility.
As a result, in accordance with SFAS No. 6, CLASSIFICATION OF SHORT-TERM
OBLIGATIONS EXPECTED TO BE REFINANCED, the option repurchase price remains
classified in the Company's balance sheet as long-term. See additional
discussion of this option agreement in Note 11: COMMITMENTS AND
CONTINGENCIES.
X. At June 30, 2003, the $48.75 million due in fiscal year 2004 on Term Loan A
was not included in the current portion of the long-term debt because the
Company planned to fund the payments with available borrowings from its
bank credit facility. As a result, in accordance with SFAS No. 6,
CLASSIFICATION OF SHORT-TERM OBLIGATIONS EXPECTED TO BE REFINANCED, these
amounts were classified in the Company's balance sheet as long-term debt.
The Term Loan A was refinanced with the new bank credit facility discussed
in I above.
F-24
Maturities of long-term debt for the next five fiscal years and thereafter
beginning with the fiscal year ended June 30, 2004 are shown below (in
thousands). At December 31, 2003, the June 30, 2004 amount is only for the six
months ended.
AS OF
AS OF DECEMBER 31,
JUNE 30, 2003 2003
------------ ------------
2004................. $ 2,990 $ 2,442
2005................. 118,812 6,353
2006................. 145,115 7,007
2007................. 121,179 4,857
2008................. 1,444 4,660
Thereafter........... 508,000 879,147
------------ ------------
$ 897,540 $ 904,466
============ ============
Interest paid during the fiscal years ended June 30, 2001, 2002, and 2003
and the six months ended December 31, 2002 and 2003 was approximately $76.8
million, $75.6 million, $64.8 million, $32.8 million and $33.6 million,
respectively. An immaterial amount of interest was capitalized during the fiscal
year 2003, and no interest was capitalized during fiscal years 2001, 2002, or
through December 31, 2003.
Letters of credit have been issued in favor of an insurance company
providing workers compensation insurance coverage to the Company and its
subsidiaries totaling approximately $5.7 million as of June 30, 2003 and
December 31, 2003.
The fair market value of the 8.625% Notes and the 8.75% Notes at June 30,
2003 was approximately $206.0 million and $309.0 million, respectively. The
carrying value of the Company's bank debt, which has interest rates tied to
prime or the Eurodollar, approximates the fair value of such financial
instruments. Management cannot practicably estimate the fair value of the
remaining long-term debt because of the lack of quoted market prices for these
types of securities and its inability to estimate the fair value without
incurring the excessive costs of obtaining an appraisal. The carrying amount
represents its original issue price net of remaining original issue discounts,
if applicable. At December 31, 2003, the 8.75% Notes were no longer outstanding.
The fair market value of the 8.625% and 6.875% Notes at December 31, 2003, were
$203.5 million and $318.9 million, respectively.
At times the Company has entered into interest rate swap agreements to
reduce its exposure to the uncertainty of short-term interest rate fluctuations
associated with its outstanding bank debt. At June 30, and December 31, 2003,
the Company had no interest rate swap agreements on its variable rate debt. On
February 28, 2002, the Company entered into several interest rate swap
agreements which expire in January and July 2004, and had a total notional
amount of $250.0 million. The agreements swap fixed-rate interest payments for
variable interest rate payments based on current pricing. The Company entered
into these swaps to mitigate the effects of a protracted and slow economic
recovery and to take advantage of the current low interest rates available under
a variable rate instrument. Net settlements of the interest rate swap agreements
occur semi-annually beginning July 1, 2002 and are recorded as an adjustment to
interest expense. The related amount payable to, or receivable from,
counterparties is included in other current assets or liabilities. These fixed
to variable interest rate swaps do not qualify for hedge accounting, and
therefore, changes in their fair value are recognized in other (income) expense,
net in the period of change. As a result of marking these derivative instruments
to market, a gain of approximately $3.0 million and $1.2 million was recognized
in other (income) expense, net for the years ended June 30, 2002 and 2003,
respectively and a $1.9 million gain and a $1.8 million loss for the six months
ended December 31, 2002 and 2003, respectively. The net cash settlements of
these interest rate swap agreements had the effect of decreasing interest
expense by $2.6 million for the year ended June 30, 2003, as compared to the
prior year when the Company's interest rate swap agreements had the effect of
increasing interest expense by $2.4 million. In August 2002, the Company
terminated two of these interest rate swap agreements, reducing the total
notional amount to $150.0 million. As a result of monetizing these two interest
rate swaps in fiscal year 2003, the Company realized a gain of $0.9 million.
NOTE 7: LEASES
The California Newspapers Partnership leases assets under capital leases.
Assets under capital leases and related accumulated amortization are included in
property, plant and equipment in the accompanying consolidated balance sheets at
June 30, as follows:
F-25
2002 2003
---------- ----------
(DOLLARS IN THOUSANDS)
Building and equipment.................. $ 6,934 $ 6,950
Accumulated amortization................ (3,005) (3,237)
---------- ----------
Assets under capital leases, net........ $ 3,929 $ 3,713
========== ==========
The Company and its subsidiaries also lease certain facilities and
equipment under operating leases, some of which contain renewal or escalation
clauses. Rent expense was approximately $6.2 million, $4.5 million and $5.2
million for the fiscal years ended June 30, 2001, 2002, and 2003, respectively.
Contingent rentals are not significant. Future minimum payments on capital and
operating leases are as follows at June 30, 2003:
CAPITAL OPERATING
LEASES LEASES
--------- --------
(DOLLARS IN THOUSANDS)
2004.......................................... $ 937 $ 4,968
2005.......................................... 937 4,471
2006.......................................... 933 3,649
2007.......................................... 931 3,072
2008.......................................... 931 2,760
Thereafter.................................... 10,240 2,532
--------- --------
Total minimum lease payments.................. 14,909 $ 21,452
========
Less amount representing interest............. (7,895)
---------
Present value of net future lease payments.... $ 7,014
=========
The nature of the Company's capital and operating leases has not
significantly changed since June 30, 2003.
NOTE 8: EMPLOYEE BENEFIT PLANS
PENSION PLANS
In conjunction with the fiscal year 1998 acquisitions of THE SUN in Lowell,
Massachusetts and the DAILY NEWS in Los Angeles, California, the Company assumed
overfunded non-contributory defined benefit pension plans, which covered
substantially all the employees at the acquired newspapers. Shortly after the
acquisition of DAILY NEWS, the Company elected to freeze the plan assumed in
conjunction with that acquisition. Accordingly, all current service cost under
that plan has been terminated. Participants in the plan assumed in conjunction
with the acquisition of THE SUN continue to accrue benefits associated with
current services, based on years of service and estimated compensation prior to
retirement. In December 1997, the Company combined THE SUN'S pension plan with
the frozen pension plan of its subsidiary, New England Newspapers, Inc.
THE DENVER POST sponsors two non-contributory defined benefit pension
plans, which cover substantially all its current employees. The plan covering
salaried and management employees provides benefits based on employees' years of
service and compensation during the years immediately preceding retirement. The
plan covering certain union employees provides benefits of stated amounts based
on length of service. THE DENVER POST also sponsors post-retirement health care
and life insurance plans that provide certain union employees and their spouses
with varying amounts of subsidized medical coverage upon retirement and, in some
instances, continued life insurance benefits until age 65, if the employee
retires prior to age 65.
Due to the formation of DNA on January 23, 2001, obligations related to the
employees of THE DENVER POST who became employees of DNA were transferred to
DNA's pension plans along with an amount of net pension asset actuarially
determined to fund the obligation. THE DENVER POST editorial employees,
terminated vested employees and retired employees will continue to be covered by
the two non-contributory plans sponsored by THE DENVER POST as discussed above.
The transfer of obligations and related assets occurred during fiscal years 2002
and 2001.
The Company's funding policy for all plans is to make the minimum annual
contributions required by the Employee Retirement Income Security Act of 1974.
F-26
OTHER RETIREMENT PLANS
The Company and several of its newspaper properties participate in
retirement/savings plans, and in addition, contribute to several multi-employer
plans on behalf of certain union-represented employee groups. The majority of
the Company's full-time employees are covered by one of these plans. Total
expense for these plans in the fiscal years ended June 30, 2001, 2002, and 2003,
was approximately $3.6 million, $2.4 million, and $3.6 million, respectively.
In March 2003, the Company assumed obligations associated with a
post-retirement health care plan that provides certain former Kearns-Tribune,
LLC employees with subsidized medical coverage upon retirement in return for a
$1.6 million payment from the former owner of Kearns-Tribune, LLC.
DEFERRED COMPENSATION PLAN
During fiscal year 2003, the Company adopted the non-qualified MediaNews
Group Supplemental Executive Retirement Plan, or the "2003 Plan." This plan has
been offered to certain of the Company's eligible corporate executives. The 2003
Plan allows participants to defer a portion of their compensation, including
bonuses if any on a pre-tax basis. There is no Company match on these deferrals;
however, the deferrals earn a return based on notional investment elections made
by the individual participants. In addition, the Company may at its discretion,
elect to make contributions to the participants' accounts based on a comparison
of the Company's actual profits to budgeted profits during each fiscal year. Any
such contribution is subject to vesting, over a period of ten years from the
date of participation in the plan. No vesting occurs until the participant has
completed three full years in the plan, after which time the participant is 30%
vested; the remaining vesting occurs over a period of seven years at 10% per
year.
In addition to the 2003 Plan, the Company sponsors another non-qualified
plan, the "Publisher Plan." Under the Publisher Plan, certain eligible
executives of the Company (principally newspaper publishers) may elect to defer
a portion of their compensation, including any bonuses, on a pre-tax basis. The
Company matches up to 100% of the deferred bonuses if certain performance
criteria are achieved. The Company match is subject to vesting, over a period of
ten years from the date of participation in the plan, and is subject to early
withdrawal penalties. No vesting occurs until the participant has completed five
full years in the plan, after which time the participant is 50% vested; the
remaining vesting occurs over a period of five years at 10% per year. The
deferrals earn a return based on notional investment elections made by the
individual participants.
These deferred compensation obligations are recorded in the Company's
consolidated balance sheets as a component of the financial statement line item
"Other Liabilities" at the vested value of the deferred compensation plus the
applicable return on investment, and amounted to $2.7 million and $1.2 million
as of June 30, 2002 and 2003, respectively. The Company in some cases has
invested a portion of employee contributions in cash surrender value life
insurance policies. The Company's investments in cash surrender value life
insurance policies are recorded in the Company's consolidated balance sheets as
a component of the financial statement line item "Other Assets" and amounted to
$1.5 million and $0.4 million as of June 30, 2002 and 2003, respectively. The
obligations and related assets decreased in 2003 from 2002 primarily due to
certain former publishers cashing out of the Publisher Plan.
The following tables provide a reconciliation of benefit obligations, plan
assets and funded status of the Company's pension and other defined benefit
plans, as of June 30, 2002 and 2003. The tables also provide the components of
net periodic pension cost associated with those plans for fiscal years ended
2002 and 2003.
F-27
[Enlarge/Download Table]
PENSION PLANS OTHER BENEFITS
------------------------------ ----------------------------
2002 2003 2002 2003
------------ ---------- ------------ ------------
(DOLLARS IN THOUSANDS)
CHANGE IN BENEFIT OBLIGATION
Benefit Obligation at Beginning of Year............... $ 82,111 $ 83,429 $ 3,524 $ 2,951
Service Cost.......................................... 916 947 -- --
Interest Cost......................................... 5,958 5,912 166 211
Amendments............................................ 1,271 -- -- --
Actuarial Loss (Gain)................................. (853) 9,169 703 1,333
Transfer to Denver Newspaper Agency................... -- -- (1,167) --
Assumption of Kearns-Tribune Post-Retirement Health Plan -- -- -- 1,526
Benefits Paid......................................... (5,974) (5,625) (275) (460)
------------ ---------- ------------ ------------
Benefit Obligation at End of Year..................... $ 83,429 $ 93,832 $ 2,951 $ 5,561
============ ========== ============ ============
CHANGE IN PLAN ASSETS
Fair Value of Plan Assets at Beginning of Year........ $ 110,778 $ 81,755 $ -- $ --
Actual Return on Plan Assets.......................... (6,358) 1,754 -- --
Company Contributions................................. -- 60 275 460
Transfer to Denver Newspaper Agency................... (16,691) -- -- --
Benefits Paid......................................... (5,974) (5,625) (275) (460)
------------ ---------- ------------ ------------
Fair Value of Plan Assets at End of Year.............. $ 81,755 $ 77,944 $ -- $ --
============ ========== ============ ============
[Enlarge/Download Table]
PENSION PLANS OTHER BENEFITS
------------------------------ ----------------------------
2002 2003 2002 2003
------------ ---------- ------------ ------------
(DOLLARS IN THOUSANDS)
RECONCILIATION OF FUNDED STATUS
Funded Status......................................... $ (1,674) $ (15,888) $ (2,951) $ (5,561)
Unrecognized Net Actuarial Loss....................... 22,802 37,442 94 1,426
Unrecognized Prior Service Cost....................... 5,232 4,774 (5) (2)
------------ ---------- ------------ ------------
Net Prepaid (Accrued) Cost............................ $ 26,360 $ 26,328 $ (2,862) $ (4,137)
============ ========== ============ ============
ASSUMPTIONS AS OF JUNE 30
Discount Rate......................................... 7.5% 6.25% 7.5% 6.25%
Expected Return on Plan Assets........................ 9.0%-9.5% 9.0% -- --
Rate of Compensation Increase......................... 3.0% 3.0% -- --
COMPONENTS OF NET PERIODIC COST
Service Cost.......................................... $ 916 $ 947 $ -- $ --
Interest Cost......................................... 5,958 5,912 166 211
Expected Return on Plan Assets........................ (10,881) (7,734) -- --
Amortization of Deferral.............................. 424 458 (34) (2)
Recognized Net Actuarial Gain......................... -- 508 -- --
Settlement and Other Loss............................. 3,850 -- -- --
------------ ---------- ------------ ------------
Net Periodic Cost..................................... $ 267 $ 91 $ 132 $ 209
============ ========== ============ ============
AMOUNTS OF RECOGNIZED IN THE CONSOLIDATED BALANCE SHEETS
CONSIST OF:
Prepaid Benefit Cost................................ $ 27,625 $ 24,890 $ -- $ --
Accrued Benefit Cost................................ (14,761) (21,270) (2,862) (4,137)
Intangible Asset.................................... 481 442 -- --
Accumulated Other Comprehensive Loss................ 13,015 22,266<F1> -- --
------------ ------------- ------------ ------------
Net Prepaid (Accrued) Cost.......................... $ 26,360 $ 26,328 $ (2,862) $ (4,137)
============ ========== ============= ============
SEPARATE DISCLOSURE FOR PENSION PLANS WITH ACCUMULATED
BENEFIT OBLIGATION AND PROJECTED BENEFIT OBLIGATION IN
EXCESS OF PLAN ASSETS
Projected Benefit Obligation........................ $ 47,866 $ 55,002 N/A N/A
Accumulated Benefit Obligation...................... $ 47,633 $ 54,652 N/A N/A
Fair Value of Plan Assets........................... $ 40,583 $ 38,302 N/A N/A
----------
<FN>
<F1> The Company's share of minimum pension liability at one of the Company's
unconsolidated JOAs is included as a component of accumulated other
comprehensive loss in the Company's consolidated balance sheet; however,
because the Company does not consolidate the related pension plan, the
obligation has been excluded from the table.
</FN>
F-28
The assumptions used in determining the Company's pension and
postretirement benefit obligation can differ from the actual results. As a
result of these differences, as well as other external economic factors, the
assumptions used are periodically revised and updated. The differences between
actual and assumed experience, and the related changes in assumptions, give rise
to actuarial gains and losses in the preceding table, which are recognized over
the expected service period of active participants. The majority of the current
year differences are related to the expected versus actual return on plan assets
and a decrease in the assumed discount rate, which creates a minimum pension
liability that is reflected in other comprehensive income.
Assumed health care cost trend rates can have a significant effect on the
amounts reported for the health care plans. A one-percentage-point change in
assumed health care cost trend rates would have the following effect:
1-PERCENTAGE
POINT 1-PERCENTAGE
INCREASE POINT DECREASE
------------ --------------
Effect on total of service and
interest cost components............... $18,000 $17,000
Effect on postretirement benefit
obligation............................. $468,079 $407,830
The July 1, 2003 assumed trend rate for the increases in health care costs
for its two post-retirement plans was 11% trending down over five years to an
ultimate rate of 5%. The Company's policy is to fund the cost of providing
postretirement health care and life insurance benefits when they are entitled to
be received.
NOTE 9: INCOME TAXES
The income tax provision (benefit) for each of the three years ended June
30, 2001, 2002 and 2003, consists of the following:
YEARS ENDED JUNE 30,
------------------------------------
2001 2002 2003
--------- ---------- ---------
(DOLLARS IN THOUSANDS)
Current:
State.......................... $ 1,370 $ 1,295 $ 553
Federal........................ 207 (4,955) 1,112
Deferred:
State.......................... 1,682 (5,726) 7,854
Federal........................ 10,785 6,904 17,508
--------- ---------- ---------
Net provision (benefit).......... $ 14,044 $ (2,482) $ 27,027
========= ========== =========
A reconciliation between the actual income tax expense (benefit) for
financial statement purposes and income taxes computed by applying the statutory
Federal income tax rate to financial statement income before income taxes is as
follows:
[Enlarge/Download Table]
YEARS ENDED JUNE 30,
----------------------------
2001 2002 2003
-------- -------- --------
Statutory federal income tax rate...................... 35% 35% 35%
Effect of:
State income tax net of federal benefit............ 5 (11) 8
Utilization of net operating losses................ -- (55) --
Book/tax basis difference associated with
acquisitions and non-deductible acquisition costs.. 6 7 1
1031 exchange...................................... (7) -- --
Minority interests................................. 3 (4) 1
Change in valuation allowance...................... -- -- (7)
Dividends received deduction....................... (5) -- (1)
Other, net......................................... (1) 3 2
------- ------- -------
Financial statement effective tax rate................. 36% (25)% 39%
======= ======= =======
F-29
Components of the long-term deferred tax assets and liabilities are as
follows:
[Download Table]
JUNE 30,
------------------------
2002 2003
----------- -----------
(DOLLARS IN THOUSANDS)
Deferred tax assets:
Net operating losses and other credits............... $ 45,623 $ 34,676
Deferred employee compensation....................... 3,636 4,659
Notes payable........................................ 6,393 7,227
Hedging activities................................... 3,319 2,340
Option accrual....................................... 2,322 4,789
Other................................................ 5,628 5,487
---------- ----------
66,921 59,178
Valuation allowance.................................. (13,325) (8,684)
---------- ----------
Deferred tax assets.................................. 53,596 50,494
Deferred tax liabilities:
Fixed assets......................................... 14,197 16,954
Intangibles.......................................... 22,560 27,939
Partnership interests and equity investments......... 68,037 81,797
Pension assets....................................... 5,092 1,649
---------- ----------
Deferred tax liabilities............................. 109,886 128,339
---------- ----------
Net deferred tax liabilities........................... $ 56,290 $ 77,845
========== ==========
At June 30, 2003, the Company has approximately $69.3 million of net
operating loss carryforwards (NOLs) for federal tax reporting purposes available
to offset its future taxable income, which expire in 2019 through 2022 and $0.6
million of alternative minimum tax credit carryforwards. The Company also has
approximately $123.4 million of state NOLs and approximately $4.1 million of
state tax credits available to offset future state taxable income. The state
NOLs expire in 2004 through 2019; the state tax credits expire beginning in
2007.
The Company projects it will generate taxable income sufficient to utilize
substantially all of the net operating loss carryovers before they expire;
however, because of several uncertainties surrounding its projections, and the
resulting uncertainty as to whether all of the net operating loss carryovers
will be used before they expire, the Company has established a valuation
allowance at each period end based upon its estimate of net operating loss and
state tax credit carryovers that are more likely than not to expire unused.
The Company made net state and federal income tax payments of approximately
$11.6 million, $0.7 million, $0.6 million, $0.1 million and $0.2 million during
fiscal years 2001, 2002, and 2003, and the six months ended December 31, 2002
and 2003, respectively.
NOTE 10: HEDGING ACTIVITIES
Under SFAS No. 133, the Company's newsprint and its variable to fixed
interest rate swap agreements were designated at contract inception as cash flow
hedges and recorded at fair value with changes in the value of such contracts,
net of income taxes, reported in comprehensive income. The periodic net
settlements made under the newsprint swap agreements are reflected in operations
in the period the newsprint is consumed. The net settlements made under the
variable to fixed interest rate swap agreements are reflected in operations as
an adjustment to interest expense over the term of the related swap.
During the second quarter of fiscal year 2002, the creditworthiness of the
counterparty to one of the Company's newsprint swap agreements, Enron North
America Corp. ("Enron") was downgraded below investment grade; subsequently,
Enron filed for bankruptcy and failed to make required payments to the Company
under the swap agreement, creating an event of default under the swap agreement.
These events caused the Company to notify Enron on February 5, 2002, of its
termination of the swap agreement under the early termination provisions of the
swap agreement and that the Company believes it has no financial obligations to
Enron, based on its calculations pursuant to the terms of the agreement. Enron
has acknowledged the termination of the swap agreement and has notified the
Company that it disagrees with the Company's calculation of the amount owing in
connection with the termination. In May 2003, Enron filed a lawsuit against the
Company in U.S. Bankruptcy Court in the Southern District of New York seeking
damages of $16.2 million and declaratory relief related to the termination of
F-30
the swap. The Company has reached a settlement with Enron related to this
matter. (See Note 11: Commitments and Contingencies for further discussion). The
Company accounted for the early termination of the swap in accordance with SFAS
No. 133, which required the Company to record a liability and a charge to
comprehensive income to reflect the fair value of the derivative instrument as
of the date prior to that which the hedge was deemed ineffective. Since a liquid
market for a swap similar to the terminated swap did not exist, the valuation of
the swap was based on a discounted cash flow model and projected future
newsprint prices. The valuation required significant judgment and was subject to
assumptions, most notably estimates of future newsprint prices. The Company
terminated the newsprint hedge during the third quarter of fiscal year 2002;
however, the Company considers the date at which the hedging instrument became
ineffective to be the date Enron filed bankruptcy. The Company discontinued cash
flow hedge accounting on the date the hedge instrument was deemed ineffective.
As a result of discontinuing hedge accounting, the Company recorded an
unrealized loss of $5.7 million (as required by SFAS No. 133) at the date before
the hedge became ineffective, which was recorded in other liabilities and other
comprehensive income. The unrealized loss is not related to any financial
obligation to Enron. The amount in accumulated other comprehensive loss related
to this ineffective hedge is being amortized on a straight-line basis and
charged to other (income) expense, net over the original term of the swap
agreement. Approximately $0.4 million and $0.8 million was reclassified from
accumulated other comprehensive loss to earnings for the years ended June 30,
2002 and 2003 related to this terminated swap. The Company expects to reclassify
$0.8 million from accumulated other comprehensive loss to other (income)
expense, net during fiscal year 2004, related to this ineffective newsprint
swap.
On July 14, 2003, Mirant, the counterparty to the Company's only other
newsprint hedge, declared bankruptcy. As a result, the Company no longer
considers the hedge effective due to an invalid counterparty and terminated the
swap effective September 5, 2003. The Company considers the date at which the
hedging instrument became ineffective to be the date Mirant filed bankruptcy and
discontinued hedge accounting at that time. The unrealized loss as of the last
date the hedge was determined to be effective was recorded in accumulated other
comprehensive loss and is being amortized ratably based on the difference
between the floating price (based on the Resource Information Systems, Inc.
"RISI" price index) and the fixed price of $615.50 per metric ton using nominal
metric tons of 6,250 per quarter, charged to other (income) expense, net
beginning in fiscal year 2004 and continuing over the original term of the swap
agreement. MediaNews has not recorded any liability associated with the
termination of the swap, except as required by SFAS, No. 133. See Note 11:
Commitments and Contingencies for further discussion regarding a lawsuit filed
by Mirant.
See Note 6: Long-Term Debt for further discussion regarding the Company's
interest rate swaps.
NOTE 11: COMMITMENTS AND CONTINGENCIES
COMMITMENTS
Newsprint fixed price contracts are used by the Company from time to time
to reduce its exposure to the uncertainty of future newsprint price
fluctuations. The Company participates in one fixed price contract, which
expires in June 2004. The Company currently has 10,800 metric tons, at an
average price of $602 per metric ton, covered by the fixed price contract. The
newsprint under the fixed price agreement is all used in the Company's JOA
operations. The Company currently has a contract to purchase 48,000 metric tons
a year, at a variable price based on the RISI price index for 30 pound
newsprint. This contract expires in December 2009.
The Denver Post Shareholder Agreement provides Media General and MediaNews
with a put and a call option, respectively, on Media General's 20% interest in
The Denver Post Corporation. The put is currently exercisable and expires June
30, 2004. The call option can be exercised by MediaNews beginning July 1, 2004
and expires June 30, 2005. The price of the put and call, if or when they are
exercised, is based on the appraised fair market value of The Denver Post
Corporation, less Permitted Debt of The Denver Post Corporation as defined in
The Denver Post Shareholder Agreement. MediaNews has one year to close on the
purchase from the date of any put notice.
In September 1996, the Company signed a call/put agreement under which YNI
can purchase YDR's interest in YNC or YDR can put its interest in YNC to YNI.
The base call and put price is $32.0 million and $25.0 million, respectively,
and is adjusted annually based on changes in the consumer price index (not to
exceed 2.5%). The call option may be exercised on January 1, 2004 and expires on
January 1, 2005. The put may be exercised at any time after the expiration of
the call through June 30, 2008. The Company is currently evaluating its option
to call YDR's interest in YNC.
F-31
In fiscal year 1998, in exchange of $2.4 million, the Company granted an
option to a third party to purchase substantially all the assets used in the
publication of one of the Company's newspaper properties, which the third party
can exercise or put to the Company based on a predetermined formula. At June 30,
2003 and December 31, 2003, the option repurchase price was valued at $14.9
million and $16.0 million, respectively and is recorded as a component of other
long-term liabilities. Changes in the estimated option repurchase price are
recorded as a component of other (income) expense, net. If the purchase option
is put to the Company (the put became exercisable on January 31, 2003 and
expires in 2010), the option repurchase price is due and payable in full.
As part of the employment agreement, one of the Company's employees has the
right, upon termination of his employment under certain circumstances, to put
all shares of any class of equity securities he owns to the Company, if the
shares have not been registered on a national or international securities
exchange. The Company also has the right to call all shares of any class of
equity securities this employee owns in the Company, if the employee is
terminated under certain circumstances. The price of the put and the call is
based on the fair market value of the common stock of MediaNews, excluding any
adjustment for minority interest at the time the put or call is exercised. The
price payable under the put is equal to a percentage of fair market value, which
increases up to 100% on December 31, 2009 (at June 30, 2003, the employee is
entitled to 65% of the fair market value). Neither the put nor the call can be
exercised if it causes a default under any credit agreement existing at that
time. Nor can any stock be put until the Company's leverage ratio, as defined,
is below 3:1. As of June 30, 2003, the employee owns 58,199 shares of MediaNews
Class A Common Stock.
CONTINGENCIES
Prior to and since the acquisition of Kearns-Tribune, LLC ("Kearns
Tribune") and THE SALT LAKE TRIBUNE in January 2001, the Company has been
involved in various legal actions with Salt Lake Tribune Publishing Company
("SLTPC"), the holder of an option (the "Option Agreement") to acquire the
Tribune Assets (defined as all of the assets used, held for use or usable in
connection with the operation and publication of THE SALT LAKE TRIBUNE). As of
the date of this report, the Company continues to be involved in litigation with
SLTPC, primarily concerning the option to purchase the Tribune Assets, the
option exercise price, and any damages related to the option exercise. The
following is a summary of the ongoing Kearns Tribune litigation as of December
31, 2003:
On May 31, 2002, the United States District Court for the District of Utah
("District Court"), issued an Order for Summary Judgment ruling that SLTPC held
a valid and enforceable option to purchase the Tribune Assets owned by Kearns
Tribune. However, the District Court also ruled that one of the key components
of the Tribune Assets, stock in the Salt Lake City JOA, was subject to an
anti-alienation provision contained in a Joint Operating Agreement ("JOA")
between Kearns Tribune and Deseret News Publishing Company ("Deseret
Publishing"). The anti-alienation provision precludes the sale, assignment or
transfer of the Salt Lake City JOA stock by either party to the JOA absent a
waiver or modification of the provision. Subsequent to the court ruling, Deseret
Publishing notified SLTPC that it would not waive or modify the anti-alienation
provision or consent to the sale or transfer of the Salt Lake City JOA stock to
SLTPC. The District Court certified for immediate appeal to the United States
Court of Appeals for the Tenth Circuit the question of whether the
anti-alienation provision contained in the Joint Operating Agreement is
enforceable, as the District Court held in its Summary Judgment Order, or is
instead void as against public policy. The United States Court of Appeals for
the Tenth Circuit affirmed the District Court ruling that the stock of the Salt
Lake City JOA could not be transferred without the consent of Deseret
Publishing. However, the Tenth Circuit remanded to the District Court for
further proceedings on the issue of whether the Tribune Assets other than the
stock of the Salt Lake City JOA could be sold and transferred to SLTPC and
remedies could be fashioned that addressed an exclusion of the Salt Lake City
JOA stock from the transfer of the Tribune Assets. Potential remedies identified
by the Tenth Circuit included: 1) an order of specific performance transferring
all the Tribune Assets that can be transferred without triggering the share
transfer restriction; 2) damages to compensate SLTPC for the Salt Lake City JOA
stock not being transferred; or 3) equitable relief if a damage award would be
insufficient to remedy the failure to transfer the Salt Lake City JOA stock. In
its opinion, the Tenth Circuit also stated that the District Court could avoid
equitable relief altogether and simply award damages to SLTPC if it is found
that Kearns Tribune is liable for failing to perform under the Option Agreement.
Subsequent to the Tenth Circuit's ruling, SLTPC filed a motion for partial
summary judgment seeking a ruling that, at the Closing specified in the Option
Agreement, the Company is obligated under the Option Agreement to transfer all
Tribune Assets except for the Salt Lake City JOA stock. On June 25, 2003, the
District Court granted this motion. Based upon this ruling, the District Court
also reinstated claims by SLTPC against the Company and Deseret Publishing that
a 2001 amendment of the JOA interfered with SLTPC's rights under the Option
Agreement. Regarding SLTPC's exercise of the option, still reserved for trial is
F-32
the question of whether, in an event those Tribune Assets (excluding the Salt
Lake City JOA stock) are not transferred, SLTPC is entitled to an order that the
Company specifically perform under the Option Agreement and transfer those
Tribune Assets, or limited to a damages remedy. Also remaining for decision at
trial is the issue of what additional remedies SLTPC might be entitled to if all
Tribune Assets except for the Salt Lake City JOA stock are transferred. The
District Court has indicated its intent that the Closing under the Option
Agreement be held prior to a previously scheduled November 3, 2003 trial date.
On October 2, 2003, the District Court vacated a stay issued on the closing
period in July 2003 and set a closing date of October 10, 2003 for SLTPC to
exercise its option.
Another issue in dispute is the exercise price should SLTPC acquire the
Tribune Assets. The terms of the Option Agreement specify an appraisal process
for determination of the fair market value of the Tribune Assets. In this
appraisal process, each party engaged an appraisal firm to value the Tribune
Assets at their fair market value. The Company's appraisal valued the Tribune
Assets at $380.0 million, whereas SLTPC's appraisal valued the Tribune Assets at
$218.0 million. Because the Company's and SLTPC's appraisals were more than 10%
apart, the appraisers appointed by the Company and SLTPC were required to
jointly select a third appraiser. Under the terms of the Option Agreement, the
final option purchase price is based on the average of the third appraisal
valuation with the closer of the first two appraisals. On June 11, 2003, the
third appraiser issued its final report valuing the Tribune Assets at $331.0
million. Since the third appraiser's valuation is closer to the Company's
appraisal, under the Option Agreement those two appraisals were averaged
together for an exercise price of $355.5 million for the Tribune Assets. After
the third appraiser's final report was issued, SLTPC filed a lawsuit in the
District Court challenging the valuation performed by the third appraiser and
seeking to set aside the third appraisal and the $355.5 exercise price. On
August 28, 2003, the District Court dismissed this lawsuit, on the grounds that
the appraisal process constituted an arbitration under the Federal Arbitration
Act ("FAA") and that any challenge must therefore be made under the procedures
set forth in the FAA. The available grounds for challenging an arbitration under
the FAA include fraud, corruption, or bias on the part of the arbitrator, the
arbitrator exceeding his powers, or a result that was reached in "manifest
disregard" of controlling law. SLTPC has filed a motion seeking under these FAA
procedures to set aside the appraisal process and the $355.5 million exercise
price; a hearing on the motion was scheduled for September 29, 2003. On October
2, 2003, the District Court denied SLTPC's motion to set aside the appraisal
process and the resulting option exercise price. On October 9, 2003, counsel for
SLTPC sent a letter to counsel for MediaNews notifying the Company that SLTPC
would not pay the $355.5 million option exercise price, and raised additional
objections to the proposed closing documentation. Accordingly, no closing
occurred on October 10, 2003. MediaNews subsequently filed a summary judgment
motion (which has not been fully briefed and has not been decided) on the
grounds that the option expired, without being exercised.
With respect to the previously scheduled November 3, 2003 trial, in
addition to the issues regarding the exercise of the option as discussed above,
SLTPC's pending claims against the Company and Kearns Tribune included claims
for damages for breach of contract and breach of contractual duties (in the
event some or all of the Tribune Assets are not transferred to SLTPC) and for
interference with contract (arising out of the amendment of the JOA in 2001).
The Company and Kearns Tribune had pending counterclaims against SLTPC, which
included claims for damages for breaches of contract and interference with
contract. Additionally, the Company and Kearns Tribune had pending counter
claims for declaratory judgment, but no damage claims against Deseret
Publishing. Deseret Publishing had claims against SLTPC for damages, and claims
that did not seek damages against the Company and Kearns Tribune as to the
meaning and enforceability of the Option, Management and Joint Operating
Agreements. As noted above, it is anticipated that if there are any claims, for
damages or otherwise, arising out of a Closing prior to trial, those were to be
included in the November 3 trial. In a stipulation filed on October 17, 2003,
which remains subject to the approval of the District Court, MediaNews, Deseret
Publishing and SLTPC agreed to a stay and administrative closure of the main
action pending resolution of SLTPC's appeals (discussed below) of various issues
related to the appraisal process and the option exercise price. Prior to the
filing of this stipulation, on October 14, 2003, the District Court had vacated
the November 3, 2003 trial date in the main litigation in light of SLTPC's plans
to appeal the appraisal and price related issues. All parties' claims may be
reinstated subsequent to SLTPC's appeal if the parties choose. At this point, a
stay of the main litigation would not include the Company's declaratory judgment
action pending before the District Court, which seeks a ruling that the
individuals who control SLTPC do not have any rights as individuals (separate
from their corporate entity, SLTPC) to purchase or otherwise acquire the Tribune
Assets. In that case, the parties await the decision of the District Court as to
motions to dismiss filed by the defendants. The defendants have also filed a
motion for partial summary judgment seeking to preclude the Company from making
certain arguments in support of its declaratory judgment action. The Company is
opposing the motion for partial summary judgment, which has not yet been fully
briefed. In this same pending declaratory judgment action, the defendants filed
a motion asking the District Judge to make disclosures relating to his possible
recusal. This motion followed similar motions in the underlying litigation, in
which the District Judge made certain disclosures and declined to recuse
F-33
himself. On November 5, 2003, the defendants filed a petition for a writ of
mandamus in the Tenth Circuit Court of Appeals, directing the District Judge to
make additional disclosures. The court ordered MediaNews and Kearns Tribune (a
wholly-owned subsidiary of MediaNews that holds certain assets used in
connection with the operation and publication of THE SALT LAKE TRIBUNE) to file
a response, which has been filed. The petition awaits decision.
SLTPC has filed two appeals with the United States Court of Appeals for the
Tenth Circuit, which have been consolidated, seeking to overturn the District
Court's decisions that the appraisal process constituted an arbitration under
the FAA, that any challenge of the $355.5 million option exercise price must be
made under the procedures set forth in the FAA, and that SLTPC had not stated
sufficient grounds under the FAA to overturn the $355.5 million option exercise
price. The appeals are fully briefed; no date for oral argument has been set by
the Tenth Circuit.
In January 2002, certain controlling members of SLTPC filed a separate
lawsuit in Colorado State Court in Denver in their individual capacities. The
lawsuit names all the same defendants, arises from same underlying facts, and
seeks overlapping equitable relief and compensatory and punitive damages as the
original federal case filed in Utah in the District Court. The Company and the
other defendants filed motions seeking to have this lawsuit dismissed or, in the
alternative, stayed pending resolution of the federal action. On February 21,
2002, the Colorado court granted the defendants' motion to stay the Colorado
action until the Utah federal court action has been resolved. In January 2003,
the Colorado plaintiffs filed a motion to have the stay lifted, which was denied
by the Colorado court. Thus, the Colorado action remains stayed until completion
of the Utah case.
The Company is not in a position at this time to predict the likely outcome
of this litigation. However, the Company does not believe that the litigation
will have a materially adverse impact on its financial condition, results of
operations, or liquidity. Approximately $0.6 million, $3.4 million and $3.7
million, respectively, was recorded in other (income) expense, net for the
fiscal years ended June 30, 2001, 2002 and 2003, and $1.7 million for both the
six months ended December 31, 2002 and 2003, related to the cost of defending
these lawsuits. The cost of defending these lawsuits has been and may continue
to be substantial; however based on the current status of this litigation, the
Company believes that its future legal fees relating to this litigation will be
substantially lower than historical costs.
OTHER
In November 2001, one of the Company's former newsprint vendors brought a
lawsuit against the Company seeking damages relating to the Company's alleged
breach of a newsprint agreement between the vendor and the Company. In April
2003, a jury verdict was rendered against the Company for $2.7 million. An
accrual for the judgment is included in accrued liabilities and other (income)
expense, net. On December 31, 2003, the Company agreed to settle this lawsuit
for $1.4 million and entered into a three year newsprint purchase agreement to
purchase 60,000 metric tons of newsprint from this vendor (a minimum of 20,000
metric tons per year) at an agreed upon adjusted index price, as a part of the
settlement. The $1.4 million settlement paid in January 2004 was charged against
the $2.7 million accrual established for the initial jury verdict. The
difference between the damages awarded by the initial jury verdict of $2.7
million and the $1.4 million settlement will be relieved proportionate (on a per
metric ton basis) to the Company's newsprint purchases under the new newsprint
purchase agreement, as the Company is only relieved from its remaining
obligation, in respect of the settlement over time, as it purchases newsprint
from the vendor under the purchase agreement.
MediaNews terminated a newsprint swap with Enron North America Corp.
("Enron") effective February 6, 2002. Enron has informed MediaNews that it
disagrees with MediaNews' method of determining the amount due with respect to
the early termination of the swap. Enron has asserted that by its calculations
MediaNews owes Enron approximately $16.2 million as a result of the termination
of the swap. In May 2003, Enron filed a lawsuit in U.S. Bankruptcy Court for the
Southern District of New York against the Company seeking damages of $16.2
million and declaratory relief. MediaNews does not agree with Enron's claims and
intends to vigorously defend itself in this matter. MediaNews has not recorded
any liability associated with the termination of this swap, except as required
by SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES,
at the time the swap was deemed to be an ineffective hedge. In December 2003,
the Company agreed to settle its lawsuit with Enron. Settlement under the
agreement did not have a material impact on the financial condition or results
of operations of the Company.
MediaNews sent a notice terminating its newsprint swap agreement with
Mirant Americas Energy Marketing, LP ("Mirant Corporation" or "Mirant")
effective September 5, 2003. In October 2003, Mirant filed a lawsuit in U.S.
Bankruptcy Court for the Northern District of Texas against the Company seeking
F-34
enforcement of the automatic stay provision of the bankruptcy code, seeking to
assess sanctions, and seeking declaratory relief. MediaNews does not agree with
Mirant's claims and intends to vigorously defend itself in this matter.
MediaNews has not recorded any liability associated with the termination of this
swap, except as required by SFAS No. 133, at the time the swap was deemed to be
an ineffective hedge.
Kmart Corporation ("Kmart") has commenced an adversary proceeding against
the Company and certain of its subsidiaries and joint operating agencies in
bankruptcy court seeking the return of certain payments received from Kmart
under a "critical vendor" program with respect to pre-bankruptcy balances due
from Kmart. On February 24, 2004, the United States Court of Appeals for the
Seventh Circuit upheld a ruling that payments to "critical vendors" by Kmart
related to pre-bankruptcy balances due these vendors were improper. The Company
is currently evaluating its legal options with respect to Kmart's claims for
return of payments received. If the Company, its subsidiaries, joint operating
agencies and equity method investees are required to return all the critical
vendor payments they received from Kmart, such payment would impact pre-tax
income of the Company by approximately $3.0 million, assuming the Company has
limited recoveries as a general unsecured creditor of Kmart.
The Company is involved in other litigation arising in the ordinary course
of business. In management's opinion, the outcome of these legal proceedings
will not have a material adverse impact on its financial condition, results of
operations, or liquidity.
NOTE 12: RELATED PARTY TRANSACTIONS
MediaNews is party to a consulting agreement, renewable annually, with Mr.
Richard B. Scudder, the Chairman of the Board of MediaNews, which requires
annual payments of $250,000.
Since 1996, the Company has advanced to the Singleton Irrevocable Trust
funds to pay the premiums on cash surrender value life insurance policies
covering Mr. William Dean Singleton, the Vice Chairman of the Board and Chief
Executive Officer of MediaNews, and his wife. The Singleton Revocable Trust
benefits Mr. Singleton's children. The amount advanced as of June 30, 2002 and
2003 was $1.4 million and $1.5 million, respectively. No further advances were
made subsequent to July 2002. Advances will be repaid when the policy is
surrendered or earlier at Mr. Singleton's option. No interest is charged on
these advances.
MediaNews uses Hughes Hubbard & Reed LLP as one of its legal counsel. Mr.
Howell Begle, a board member of MediaNews, is of Counsel to Hughes Hubbard &
Reed LLP.
The Company entered into a management agreement with the California
Newspapers Partnership, which provides MediaNews with a management fee of 1.25%
of revenues and thereby reduces the Company's total corporate overhead, the
effect of which is a reduction of the impact minority interest expense has on
its consolidated statement of operations.
NOTE 13: OTHER (INCOME) EXPENSE, NET
Included in other (income) expense, net are the following items:
[Enlarge/Download Table]
YEARS ENDED JUNE 30,
-----------------------------------
2001 2002 2003
--------- --------- ---------
(IN MILLIONS)
Estimated option repurchase price................ $ 0.9 $ 1.8 $ 5.5
Severance and restructuring...................... 0.5 1.4 1.0
Lawsuit settlement-newsprint vendor.............. -- -- 2.7
Impairment loss.................................. -- -- 5.7
Hedging, net..................................... -- (2.5) (1.2)
Bank fees........................................ 1.3 0.7 0.5
Salt Lake ownership litigation................... 0.6 3.4 3.7
Denver JOA formation and transition costs........ 7.7 3.0 --
Other............................................ 2.2 3.1 1.6
--------- --------- ---------
$ 13.2 $ 10.9 $ 19.5
========= ========= =========
F-35
NOTE 14: SUBSEQUENT EVENTS
In January 2004, the Company, through its subsidiary, West Coast MediaNews,
LLC, purchased two weekly newspapers; the GRUNION GAZETTE and DOWNTOWN GAZETTE,
both published in Long Beach, California. The Company also owns and operates the
PRESS-TELEGRAM a daily newspaper published in Long Beach. The purchase was not
material to the Company's financial position or results of operations.
On January 26, 2004, the Company completed the sale of $150.0 million of
6.375% Senior Subordinated Notes due 2014, (the "6.375% Notes") in a private
placement. The Company intends to use the net proceeds of the offering, together
with cash on hand and borrowings under the bank credit facility to repurchase
(by tender offer, in the open market or otherwise) or redeem, no later than
August 1, 2004, all of its outstanding $200.0 million aggregate principal amount
8.625% Senior Subordinated Notes due 2011. Pending such use, the Company used
the net proceeds of the offering to reduce borrowings under the revolving credit
portion of its bank credit facility to zero. (See Note 6 for further discussion
of the Company's bank credit facility).
F-36
MEDIANEWS GROUP, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FISCAL YEARS ENDED JUNE 30, 2003, 2002 AND 2001
[Enlarge/Download Table]
ADDITIONS
BALANCE AT CHARGED TO ACQUISITIONS BALANCE
BEGINNING EXPENSE, NET (DISPOSITIONS), AT END OF
OF PERIOD NET DEDUCTIONS NET OF PERIOD
---------- ---------- ---------- -------------- ---------
(IN THOUSANDS)
YEAR ENDED JUNE 30, 2003
Reserves and allowances deducted from asset accounts:
Allowance for doubtful accounts $ 10,669 $ 9,632 $(10,694) $ (214) $ 9,393
YEAR ENDED JUNE 30, 2002
Reserves and allowances deducted from asset accounts:
Allowance for doubtful accounts $ 10,923 $ 10,213 $(10,467) $ -- $ 10,669
YEAR ENDED JUNE 30, 2001
Reserves and allowances deducted from asset accounts:
Allowance for doubtful accounts $ 9,910 $ 10,916 $(11,815) $ 1,912 $ 10,923
See notes to consolidated financial statements.
(Media News Group Logo)
================================================================================
UNTIL , 2004, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS EXCHANGE OFFER, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
THE INFORMATION IN THIS PROSPECTUS IS CURRENT ONLY AS OF THE DATE ON ITS
COVER, AND MAY CHANGE AFTER THAT DATE. FOR ANY TIME AFTER THE COVER DATE OF THIS
PROSPECTUS, WE DO NOT REPRESENT THAT OUR AFFAIRS ARE THE SAME AS DESCRIBED OR
THAT THE INFORMATION IN THIS PROSPECTUS IS CORRECT--NOR DO WE IMPLY THOSE THINGS
BY DELIVERING THIS PROSPECTUS OR SELLING SECURITIES TO YOU.
---------------
================================================================================
================================================================================
---------------------------
PROSPECTUS
----------------------------
$150,000,000
(MEDIA NEWS LOGO)
6 3/8% SENIOR SUBORDINATED
NOTES DUE 2014
================================================================================
II-1
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS/INFORMATION STATEMENT
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law ("DGCL") provides that
a corporation formed under the laws of the State of Delaware may indemnify any
director, officer, employee or agent of the corporation who was or is a party or
is threatened to be made a party to (1) any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) or
(2) any threatened, pending or completed action or suit in, by or in the right
of the corporation to procure a judgment in its favor by reason of the fact that
the person is or was a director, officer, employee or agent of the corporation,
or is or was serving as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or enterprise at the request of
the corporation. Indemnification in the case of actions, suits and proceedings
under (1) above shall be against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding and in the case of
actions and suits listed under (2) above shall be against expenses (including
attorneys' fees) actually and reasonably incurred by the person in connection
with the defense or settlement of such action or suits. The indemnified person
shall have acted in good faith and in a manner the person reasonably believed to
be in or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe the
person's conduct was unlawful. Any indemnification provided under Section 145 of
the DGCL is permitted to be made by the corporation only as authorized in the
specific case upon a determination that indemnification of the present or former
director, officer, employee or agent is proper in the circumstances because the
person has met the applicable standard of conduct set forth in Section 145. Such
determination shall be made, with respect to a person who is a director or
officer at the time of such determination, (a) by a majority vote of the
directors who are not parties to such action, suit or proceeding, even though
less than a quorum, or (b) by a committee of such directors designated by
majority vote of such directors, even though less than a quorum, or (c) if there
are no such directors, or if such directors so direct, by independent legal
counsel in a written opinion, or (d) by the stockholders. Article VII of
MediaNews's Certificate of Incorporation provides for indemnification of the
aforementioned parties to the fullest extent permitted under the DGCL. Section
102(b)(7) of the DGCL permits a corporation to provide in its certificate of
incorporation that a director of the corporation shall not be personally liable
to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (1) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (2) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (3) under Section 174 of the DGCL, or (4) for any
transaction from which the director derived an improper personal benefit. As
permitted by Section 102(b)(7) of the DGCL, Article VII of the MediaNews's
Certificate of Incorporation, as amended and restated, includes a provision that
limits a director's personal liability to MediaNews or its stockholders for
monetary damages for breaches of his or her fiduciary duty as a director in
accordance with the provisions of Section 102(b)(7).
MediaNews maintains insurance policies under which its directors and
officers are insured, within the limits and subject to the limitations of the
policies, against expenses in connection with the defense of actions, suits or
proceedings, and certain liabilities that might be imposed as a result of such
actions, suits or proceedings, to which they are parties by reason of being or
having been directors or officers of MediaNews.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) See Index to Exhibits.
(b) See Schedule II - "Valuation and Qualifying Accounts" contained on page
F-36.
ITEM 22. UNDERTAKINGS
The undersigned hereby undertakes:
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(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement: (i) to include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) to
reflect in the prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) under the Securities Act of 1933 if, in the
aggregate, the changes in volume and price represent no more than a 20% change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and (iii) to
include any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change to
such information in the registration statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof;
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering;
(4) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions described under Item 20
above, or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue; and
(5) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement when it became
effective.
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SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Denver, State of
Colorado, on March 5, 2004.
MEDIANEWS GROUP, INC.
By:/s/ Ronald A. Mayo
---------------------------------
Ronald A. Mayo
Vice President and Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Joseph J. Lodovic IV and Ronald A.
Mayo and each and either of them, his or her true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for him or her
and in his or her name, place and stead, in any and all capacities, to sign any
and all amendments (including, without limitation, post-effective amendments) to
this registration statement and to file the same with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents or any of them, or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons on behalf
of the registrant in the capacities and on the dates indicated:
[Download Table]
SIGNATURE TITLE DATE
/s/ WILLIAM DEAN SINGLETON March 5, 2004
----------------------------
William Dean Singleton Vice Chairman of the Board of
Directors and Chief Executive Officer
/s/ JOSEPH J. LODOVIC, IV March 5, 2004
---------------------------
Joseph J. Lodovic, IV President
/s/ RICHARD B. SCUDDER March 5, 2004
---------------------------
Richard B. Scudder Chairman of the Board of Directors
/s/ JEAN L. SCUDDER March 5, 2004
---------------------------
Jean L. Scudder Director
/s/ HOWELL E. BEGLE, JR. March 5, 2004
---------------------------
Howell E. Begle, Jr. Director
/s/ RONALD A. MAYO March 5, 2004
---------------------------
Ronald A. Mayo Vice President and Chief Financial
Officer
/s/ MICHAEL J. KOREN March 5, 2004
---------------------------
Michael J. Koren Vice President and Controller
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INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION
3.1 Second Restated and Amended Certificate of Incorporation (incorporated
by reference to Exhibit 3.1 to the registrant's Form 8-K filed January 14, 2004)
3.2 Amended and Restated Bylaws of MediaNews Group, Inc. (incorporated by
reference to Exhibit 3.2 to the registrant's Form 8-K filed January 14, 2004)
4.1 Form of Indenture dated as of March 16, 1999 between MediaNews Group,
Inc., as Issuer, and The Bank of New York, as Trustee (incorporated by reference
to Exhibit 4.1 to the registrant's Form S-4 filed May 28, 1999)
4.2 Form of MediaNews Group, Inc. 8 5/8% Senior Subordinated Notes due 2011,
Series B (contained in the Indenture filed as Exhibit 4.1)
4.3 Indenture dated as of November 25, 2003 between MediaNews Group, Inc.,
as Issuer, and The Bank of New York, as Trustee (incorporated by reference to
Exhibit 4.4 to the registrant's Form 8-K filed January 14, 2004)
4.4 Registration Rights Agreement dated as of November 25, 2003 between
MediaNews Group, Inc. as Issuer and Deutsche Bank Securities Inc., Banc of
America Securities LLC, Wachovia Capital Markets, LLC, BNY Capital Markets,
Inc., Fleet Securities, Inc. and McDonald Investments Inc. (incorporated by
reference to Exhibit 4.2 to the registrant's Form 10-Q for the period ended
December 31, 2003)
4.5 Form of MediaNews Group, Inc.'s unregistered 6 7/8% Senior Subordinated
Notes due 2013 (contained in the Indenture filed as Exhibit 4.3)
4.6 Form of MediaNews Group, Inc.'s registered 6 7/8% Senior Subordinated
Notes due 2013 (contained in the Indenture filed as Exhibit 4.3)
4.7 Indenture dated as of January 26, 2004 between MediaNews Group, Inc., as
Issuer, and The Bank of New York, as Trustee (incorporated by reference to
Exhibit 4.4 to the registrant's Form 10-Q for the period ended December 31,
2003)
4.8 Registration Rights Agreement dated as of January 26, 2004 between
MediaNews Group, Inc. as Issuer and Deutsche Bank Securities Inc., Banc of
America Securities LLC, Wachovia Capital Markets, LLC, Credit Lyonnais
Securities (USA) Inc., and Stephens Inc. (incorporated by reference to Exhibit
4.5 to the registrant's Form 10-Q for the period ended December 31, 2003)
4.9 Form of MediaNews Group, Inc.'s unregistered 6 3/8% Senior Subordinated
Notes due 2014 (contained in the Indenture filed as Exhibit 4.7)
4.10 Form of MediaNews Group Inc.'s registered 6 3/8% Senior Subordinated
Notes due 2014 (contained in the Indenture filed as Exhibit 4.7)
5.1 Opinion of Hughes Hubbard & Reed LLP
10.1 Credit Agreement dated as of December 30, 2003 by and among MediaNews
Group, Inc., the guarantors named therein, the lenders named therein, and Bank
of America, N.A., as administrative agent (the "Credit Agreement") (incorporated
by reference to Exhibit 10.1 to the registrant's Form 8-K filed January 14,
2004)
10.2 Employment Agreement dated March 15, 2000 between MediaNews Services and
William Dean Singleton (incorporated by reference to Exhibit 10.4 to the
registrant's Form 10-Q for the period ended March 31, 2000)
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10.3 Employment Agreement dated as of March 15, 2000 between MediaNews
Services and Joseph J. Lodovic IV (incorporated by reference to Exhibit 10.19 to
the registrant's Form 10-Q for the period ended March 31, 2000)
10.4 Joint Operating Agreement dated January 13, 1989, among York Daily
Record, Inc., York Newspapers, Inc., and The York Newspapers Company
(incorporated by reference to Exhibit 10.7 to the registrant's Form S-1 filed on
February 10, 1994) (File No. 033-75156)
10.5 Third Amended and Restated Shareholders' Agreement dated as of June 30,
1999 among the shareholders of Denver Newspapers, Inc. (incorporated by
reference to Exhibit 10.18 to the registrant's Form S-4/A filed July 12, 1999)
10.6 Tax Agreement among MediaNews Group, Inc., Denver Newspapers, Inc. and
Media General, Inc., dated as of June 30, 1999 (incorporated by reference to
Exhibit 10.19 to the registrant's Form S-4/A filed July 12, 1999)
10.7 Shareholders Agreement of MediaNews Group, Inc. by and among MediaNews
Group, Inc. and the shareholders named therein, dated as of January 31, 2000
(incorporated by reference to Exhibit 10.20 to the registrant's Form 10-Q for
the period ended March 31, 2000)
10.8 Singleton Family Voting Trust Agreement for MediaNews Group, Inc. dated
January 31, 2000 (incorporated by reference to Exhibit 10.21 to the registrant's
Form 10-Q for the period ended March 31, 2000)
10.9 Scudder Family Voting Trust Agreement for MediaNews Group, Inc. dated
January 31, 2000 (incorporated by reference to Exhibit 10.22 to the registrant's
Form 10-Q for the period ended March 31, 2000)
10.10 Amendment and Restatement of Agreement, by and between Kearns-Tribune,
LLC and Deseret News Publishing Company, dated as of January 2, 2001
(incorporated by reference to Exhibit 10.10 to the registrant's Form S-4 filed
February 23, 2004)
10.11 First Amendment to Credit Agreement, dated as of January 20, 2004, by
and among MediaNews Group, Inc., the guarantors named therein, the lenders named
therein and Bank of America, N.A., as administrative agent (incorporated by
reference to Exhibit 10.12 to the registrant's Form S-4 filed February 23, 2004)
10.12 Option Purchase Agreement between Garden State Newspapers, Inc. and
Greenco, Inc., dated as of January 30, 1998 (incorporated by reference to
Exhibit 10.13 to the registrant's Form S-4 filed February 23, 2004)
10.13 Joint Operating Agreement by and between The Denver Post Corporation,
Eastern Colorado Production Facilities, Inc., The Denver Newspaper Agency LLP
and The Denver Publishing Company, dated as of May 11, 2000 (incorporated by
reference to Exhibit 10.14 to the registrant's Form S-4 filed February 23, 2004)
10.14 First Amendment to the Joint Operating Agreement by and among The Denver
Post Corporation, Eastern Colorado Production Facilities, Inc., The Denver
Newspaper Agency LLP and The Denver Publishing Company, dated January 22, 2001
(incorporated by reference to Exhibit 10.15 to the registrant's Form S-4 filed
February 23, 2004)
10.15 Limited Liability Partnership Agreement of The Denver Newspaper Agency
LLP dated as of January 22, 2001 (incorporated by reference to Exhibit 10.16 to
the registrant's Form S-4 filed February 23, 2004)
10.16 Amended and Restated Partnership Agreement for Texas-New Mexico
Newspapers Partnership, by and among Gannett Texas L.P. and New Mexico-Texas
MediaNews LLC, dated March 21, 2003 (incorporated by reference to Exhibit 10.17
to the registrant's Form S-4 filed February 23, 2004)
10.17 Second Amended and Restated Partnership Agreement for California
Newspapers Partnership, a Delaware General Partnership, by and among West Coast
MediaNews LLC; Donrey Newspapers LLC; The Sun Company of San Bernardino,
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California; California Newspapers, Inc.; Media West--SBC, Inc. and Media
West--CNI, Inc., dated as of May 30, 2003 (incorporated by reference to Exhibit
10.18 to the registrant's Form S-4 filed February 23, 2004)
10.18 The York Newspaper Company Partnership Agreement dated as of January 13,
1989 (incorporated by reference to Exhibit 10.19 to the registrant's Form S-4
filed February 23, 2004)
12.1 Computation of Ratio of Earnings to Fixed Charges (incorporated by
reference to Exhibit 12.1 to the registrant's Form S-4 filed February 23, 2004)
21.1 Subsidiaries of MediaNews Group, Inc. (incorporated by reference to
Exhibit 21.1 to the registrant's Form S-4 filed February 23, 2004)
23.1 Consent of Independent Auditors of MediaNews Group, Inc.
23.2 Consent of Hughes Hubbard & Reed LLP (contained in their opinion filed
as Exhibit 5.1)
24.1 Power of Attorney (included on signature page to this registration
statement)
25.1 Form T-1 Statement of Eligibility Under the Trust Indenture Act of 1939
of The Bank of New York
99.1 Form of Letter of Transmittal
99.2 Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies
and other Nominees
99.3 Form of Letter to Clients
99.4 Form of Notice of Guaranteed Delivery
Dates Referenced Herein and Documents Incorporated by Reference
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