Document/ExhibitDescriptionPagesSize 1: 10-Q Quarterly Report HTML 326K
2: EX-31.1 Certification Pursuant to Section 302 HTML 12K
3: EX-31.2 Certification Pursuant to Section 302 HTML 12K
4: EX-31.3 Certification Pursuant to Section 302 HTML 12K
5: EX-32.1 Certification Pursuant to Section 906 HTML 9K
6: EX-32.2 Certification Pursuant to Section 906 HTML 9K
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
101 W. Colfax Avenue, Suite 1100
Denver, Colorado
(Address of principal executive offices)
80202
(Zip Code)
Registrant’s telephone number, including area code: (303) 954-6360
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Item (1) Yes [X] No [ ];
Item (2) Yes [ ] No [X]*
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,”“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X] Smaller reporting company [ ]
(Do not check if a smaller
reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
The total number of shares of the registrant’s Class A and Class C Common Stock outstanding as of
February 14, 2008 was 2,278,352 and 100, respectively.
*The registrant’s duty to file reports with the Securities and Exchange Commission has been
suspended in respect of its fiscal year commencing July 1, 2007 pursuant to Section 15(d) of the
Securities Exchange Act of 1934. It is filing this Quarterly Report on Form 10-Q on a voluntary
basis.
INDEX TO MEDIANEWS GROUP, INC. REPORT ON FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 2007
The information required by this item is filed as part of this report on Form 10-Q. See Index
to Financial Information on page 6 of this report on Form 10-Q.
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information required by this item is filed as part of this report on Form 10-Q. See Index
to Financial Information on page 6 of this report on Form 10-Q.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
The information required by this item is filed as part of this report on Form 10-Q. See Index
to Financial Information on page 6 of this report on Form 10-Q.
ITEM 4T: CONTROLS AND PROCEDURES
As of December 31, 2007, we had carried out an evaluation, under the supervision and with the
participation of our management, including our Chief Executive Officer, President and Chief
Financial Officer, of the effectiveness of the design and operation of our disclosure controls and
procedures as defined in Rule 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange
Act”). Based upon that evaluation, the Chief Executive Officer, President and Chief Financial
Officer concluded that our disclosure controls and procedures were sufficiently effective to
provide reasonable assurance that material information regarding us and/or our subsidiaries
required to be disclosed by us in reports filed or submitted under the Exchange Act is recorded,
processed, summarized and reported, as required, within the time periods specified in the
Securities and Exchange Commission rules and forms.
During the period covered by this quarterly report, there have been no changes in our internal
control over financial reporting that materially affected, or are reasonably likely to materially
affect, our internal controls over financial reporting.
The Company’s management, including the Chief Executive Officer, President and Chief Financial
Officer, does not expect that our disclosure controls or our internal controls will prevent all
errors and all fraud. A control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system are met. Further, the
design of a control system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs. Our disclosure controls and
procedures are designed to provide reasonable assurance of achieving their objectives. Because of
the inherent limitations in all control systems, no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any, within the Company have been
detected. These inherent limitations include the realities that judgments in decision-making can be
faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls
can be circumvented by the individual acts of some persons or by collusion of two or more people.
The design of any system of controls also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions; over time, controls may become
inadequate because of changes in conditions, or the degree of compliance with the policies or
procedures may deteriorate. Because of the inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and not be detected.
See factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K
for the year ended June 30, 2007 for risk factors that could materially affect our business,
financial condition or future results. The risks described in our Annual Report on Form 10-K are
not the only risks facing our Company. Risks and uncertainties
identified elsewhere in this Quarterly Report on Form 10-Q, as well as
additional risks and uncertainties not currently known to
us or that we currently deem to be immaterial, also may materially adversely affect our business,
financial condition and/or operating results.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
As of October 1, 2007, the holders of 93.1% of all outstanding shares of our Class A Common
Stock acted by written consent in lieu of an annual meeting to re-elect Richard B. Scudder, William
Dean Singleton, Jean L. Scudder and Howell E. Begle to our Board of Directors. Following the
effectiveness of that action, our Board of Directors consisted of Richard B. Scudder, William Dean
Singleton, Jean L. Scudder and Howell E. Begle.
As of October 19, 2007, the holders of 93.1% of all outstanding shares of our Class A Common
Stock acted by written consent in lieu of a meeting to amend and restate the certificate of
incorporation of the Company to, among other things, create a new class of Class C Common Stock.
ITEM 6: EXHIBITS
See Exhibit Index for list of exhibits filed with this report.
This report on Form 10-Q 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 report 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 report. These forward-looking statements are subject to certain risks and uncertainties that
could cause actual results and events to differ materially from those anticipated and should be
viewed with caution. Potential risks and uncertainties that could adversely affect our ability to
obtain these results, and in most instances are beyond our control, include, without limitation,
those listed under “Risk Factors” in our Annual Report on Form 10-K for the year ended June 30,2007 and the following additional factors: (a) acquisitions of new businesses or dispositions of
existing businesses, (b) costs or difficulties related to the integration of businesses acquired by
us may be greater than expected, (c) increases in interest or financing costs, (d) our ability to
maintain a “leverage ratio” (i.e., the ratio of our debt to operating cash flow) of at least 6.75
or less, which allows us to be in compliance with our bank credit
agreement and continue to incur debt under the indentures governing our senior
subordinated debt (under such indentures, the foregoing limitation does not apply to certain
borrowings, including (i) borrowings under our senior debt facility to the extent not exceeding
$750 million, (ii) the incurrence of up to $50 million of capitalized lease and purchase money
obligations, (iii) certain pre-existing debt of acquired businesses or companies, (iv) other
borrowings of up to $50 million and (v) refinancings of certain debt), (e) we may be required to
record an impairment charge in the future if the cost savings initiatives we are currently implementing are not sufficient to
offset revenue declines we are experiencing at certain of our
newspapers such that we are able to increase or maintain the current cash flows of those newspapers, and (f) 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.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Excess of cost over fair value of net assets acquired
864,220
842,353
Newspaper mastheads
391,099
380,669
Advertiser lists, covenants not to compete and other identifiable
intangible assets, less accumulated amortization of $60,584 at
December 31, 2007 and $52,611 at June 30, 2007
210,747
192,211
Other
50,044
50,424
TOTAL OTHER ASSETS
1,889,569
1,835,806
TOTAL ASSETS
$
2,620,293
$
2,595,309
See notes to condensed consolidated financial statements
Current portion of long-term debt and obligations under capital leases
27,308
17,588
TOTAL CURRENT LIABILITIES
243,654
272,617
LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES
1,074,291
1,107,045
DEFINED BENEFIT AND OTHER POST EMPLOYMENT BENEFIT
PLAN LIABILITIES
28,321
33,342
OTHER LIABILITIES
24,701
25,509
DEFERRED INCOME TAXES, NET
134,711
119,890
MINORITY INTEREST
670,547
606,052
PUTABLE COMMON STOCK
27,081
33,165
ST. PAUL, MONTEREY AND TORRANCE PURCHASE PRICE
(HEARST)
—
306,525
SHAREHOLDERS’ EQUITY
Common stock, Class A, par value $0.001; 3,150,000 shares
authorized: 2,314,346 shares issued and shares
outstanding of 2,278,352 at
December 31, 2007 and 2,298,346 at June 30, 2007
2
2
Common stock, Class C, par value $0.001; 100 shares authorized: 100
shares issued and outstanding at December 31, 2007 and no shares issued or outstanding at June 30, 2007
—
—
Additional paid in capital
313,665
—
Accumulated other comprehensive loss, net of taxes
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization
46,307
36,867
Provision for losses on accounts receivable
8,464
5,870
Amortization of debt discount and deferred debt issuance costs
377
425
Net gain on sale of assets
(18,744
)
(16,264
)
Proportionate share of net income from unconsolidated JOAs
(29,206
)
(23,002
)
Distributions of net income from unconsolidated JOAs (a)
26,848
21,944
Equity investment (income) loss, net
2,119
(506
)
Distributions of net income from equity investments (b)
140
950
Change in defined benefit plan assets, net of cash contributions
(6,204
)
(4,241
)
Deferred income tax expense
10,930
16,227
Change in estimated option repurchase price
—
(6,607
)
Minority interest
25,819
34,966
Distributions of net income paid to minority interest
(25,519
)
(34,335
)
Unrealized loss on hedging activities and amortization of prior service
costs and actuarial losses, reclassified to earnings from accumulated
other comprehensive loss
912
228
Change in operating assets and liabilities
(39,318
)
6,929
NET CASH FLOWS FROM OPERATING ACTIVITIES
19,265
65,727
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisitions and related costs, net of cash acquired
(2,567
)
(401,581
)
Business dispositions
—
14,000
Distributions in excess of net income from JOAs(a)
1,315
10,151
Distributions in excess of net income from equity investments(b)
1,045
1,068
Investments, net
(10,175
)
(171
)
Capital expenditures
(16,729
)
(13,240
)
Proceeds from the sale of assets
18,586
19,913
NET CASH FLOWS FROM INVESTING ACTIVITIES
(8,525
)
(369,860
)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt, net of credit amendment fees
45,775
416,328
Repurchase of common stock
(3,010
)
—
Proceeds from sale of Class A Common Stock
211
—
Proceeds from sale of Class C Common Stock
25,908
—
Dividends paid to Class A Common Stockholders
(25,000
)
—
Reduction of long-term debt and other liabilities
(71,852
)
(88,760
)
Sale of minority interest in The Monterey County Herald
27,350
—
Distributions in excess of net income to minority interests
(12,886
)
(15,865
)
NET CASH FLOWS FROM FINANCING ACTIVITIES
(13,504
)
311,703
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
(2,764
)
7,570
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
9,085
424
CASH AND CASH EQUIVALENTS AT END OF PERIOD
$
6,321
$
7,994
(a)
Total distributions from unconsolidated JOAs were $28.2 million and $32.1 million for
the six months ended December 31, 2007 and
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1: Significant Accounting Policies and Other Matters
Basis of Quarterly Financial Statements
The accompanying unaudited condensed consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial information and with
the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and disclosures required by generally accepted accounting principles for
complete consolidated financial statements and should be read in conjunction with the consolidated
financial statements and notes thereto included in MediaNews Group, Inc.’s (“MediaNews” or the
“Company”) Annual Report on Form 10-K for the year ended June 30, 2007. In the opinion of
management, all adjustments considered necessary for a fair presentation have been included.
Operating results for the three- and six-month periods ended December 31, 2007 are not necessarily
indicative of the results that may be expected for future interim periods or for the year ending
June 30, 2008.
The unaudited condensed consolidated financial statements include the operating results of the
San Jose Mercury News, Contra Costa Times, The Monterey County Herald and the Pioneer Press (St.
Paul) beginning August 2, 2006. Through December 31, 2006, these four entities reported on a 52- or
53-week fiscal year. Beginning January 1, 2007, these four entities began reporting on a calendar
basis consistent with the Company.
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 news at each newspaper party to a joint operating
agreement continue to be separate and outside of a JOA. As of December 31, 2007, the Company,
through its partnerships and subsidiaries, participates in JOAs in Denver, Colorado, Salt Lake
City, Utah, York, Pennsylvania, Detroit, Michigan and Charleston, West Virginia. See Note 3: Joint
Operating Agencies of the Company’s consolidated financial statements included in its June 30, 2007
Annual Report on Form 10-K for a description of the Company’s accounting for its JOAs.
The operating results from the Company’s unconsolidated JOAs (Denver and Salt Lake City) are
reported as a single net amount in the accompanying financial statements in the line item “Income
from Unconsolidated JOAs.” This line item includes:
•
The Company’s proportionate share of net income from JOAs,
•
The amortization of subscriber lists created by the original purchase, as the
subscriber lists are attributable to the Company’s earnings in the JOAs, and
•
Editorial costs, miscellaneous revenue received outside of the JOA, and other charges
incurred by the Company’s consolidated subsidiaries directly attributable to the JOAs in
providing editorial content and news for the Company’s newspapers party to the JOAs,
including gains/losses on certain asset sales.
The Company’s investments in the Denver and Salt Lake City JOAs are included in the condensed
consolidated balance sheets under the line item “Investment in Unconsolidated JOAs.” See Note 3:
Denver and Salt Lake City Joint Operating Agencies for further discussion of our accounting for
these two JOAs.
Because of the structure of the Detroit partnership and the Company’s ownership interest
therein, the Company’s accounting for its investment in the Detroit JOA only includes the preferred
distributions the Company receives from the Detroit JOA. The Company’s investment in The Detroit
News, Inc. is included in other long-term assets.
Under the Charleston JOA, the Company is reimbursed for the cost of providing the news and
editorial content of the Charleston Daily Mail and is paid a management fee. The Company’s limited
partnership interest in the Charleston JOA does not entitle the Company to any share of the profits
or losses of the limited partnership.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The Company owns all of the York JOA and, accordingly, consolidates its results. The York
Dispatch (one of the newspapers in the JOA) is edited by a third party, and the Company reimburses
the third party for all related expenses. These expenses are included in the Company’s
consolidated results.
Income Taxes
At the end of each interim period, the Company makes its best estimate regarding the effective
tax rate expected to be applicable for the full fiscal year. The rate so determined is used in
providing for income taxes on a current year to date basis. Accordingly, the effective tax rate for
the three- and six-month periods presented in this interim report on Form 10-Q may vary
significantly in future periods. The effective income tax rate varies from the federal statutory
rate because of state income taxes and the non-deductibility of certain expenses.
Seasonality
Newspaper companies tend to follow a distinct and recurring seasonal pattern, with higher
advertising revenues in months containing significant events or holidays. Accordingly, the fourth
calendar quarter, or the Company’s second fiscal quarter, is the Company’s strongest revenue
quarter of the year. Due to generally poor weather and lack of holidays, the first calendar
quarter, or the Company’s third fiscal quarter, is the Company’s weakest revenue quarter of the
year.
NOTE 2: Comprehensive Income
The Company’s comprehensive income consisted of the following:
Unrealized gain (loss) on
hedging activities, net of
tax
(474
)
131
(912
)
472
Unrealized loss on newsprint
hedging activities,
reclassified to earnings, net
of tax
114
114
228
228
Amortization of pension prior
service costs and actuarial
losses reclassified to
earnings, net of tax
342
—
684
—
Pension adjustment, net of tax
2,614
1,987
2,614
1,987
Comprehensive income
$
19,946
$
15,190
$
18,954
$
28,963
The Company adopted Statement of Financial Standards No. 158, Employer’s Accounting for
Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88,
106 and 132 (R) (“SFAS No. 158”) effective June 30, 2007. Because the Denver JOA, as well as
another equity investee, operate on a calendar year-end basis, they adopted the requirements of
SFAS No. 158 on December 31, 2007, at which time the Company reflected its share (net of tax) of
the change in accumulated other comprehensive income, or $(1.0) million, related to the Denver JOA
and the equity investee’s adoption of the pronouncement.
NOTE 3: Denver and Salt Lake City Joint Operating Agencies
The following tables present the summarized results of the Company’s unconsolidated JOAs in
Denver and Salt Lake City. The Salt Lake City JOA and Denver JOA information is presented at 100%,
with the other partners’ share of income from the related JOAs subsequently eliminated. The Salt
Lake City JOA column includes its affiliate Salt Lake Newspapers Production Facilities, LLC
(“SLNPF”). The editorial costs, miscellaneous revenue received outside of the JOA, depreciation,
amortization, and other direct costs incurred outside of the JOAs by our subsidiaries associated
with The Salt Lake Tribune and The Denver Post are included in the line “Associated Revenues and
Expenses.” See Note 3: Joint Operating Agencies of the Company’s consolidated financial
statements included in its June 30, 2007 Annual Report on Form 10-K for further discussion of the
accounting for the Denver and Salt Lake City JOAs.
Partners’ share of income from
unconsolidated JOAs
(11,189
)
(12,755
)
—
Income from unconsolidated JOAs
$
16,451
$
12,755
$
(15,486
)
$13,720
(a)
Included in “Associated Revenues and Expenses — Other” for the three and six
months ended December 31, 2007 was a $6.3 million gain related to the sale of land and
a building in Salt Lake City that were previously used in conjunction with the JOA.
Partners’ share of income from
unconsolidated JOAs
(12,339
)
(4,934
)
—
Income (loss) from unconsolidated JOAs
$
18,068
$
4,934
$
(24,543
)
$
(1,541
)
NOTE 4: Contingent Matters and Commitments
As discussed in Note 11: Commitments and Contingencies of the Company’s consolidated financial
statements included in its Annual Report on Form 10-K for the year ended June 30, 2007, the Company
had filed a lawsuit against the former publisher of the St. Paul Pioneer Press and certain other
parties. In September 2007, the Company won on most counts of the lawsuit and was awarded the
recovery of its legal costs and expenses associated with such litigation, which the Company
received and recognized income of $3.8 million in December 2007 (classified with other (income) expense, net in
the consolidated statements of operations). There have been no other material changes in the other
contingent matters discussed in Note 11: Commitments and Contingencies of the Company’s
consolidated financial statements included in its Annual Report on Form 10-K for the year ended
June 30, 2007.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 5: Long-Term Debt
As disclosed in Note 6: Long-Term Debt of the Company’s consolidated financial statements
included in its Annual Report on Form 10-K for the year ended June 30, 2007, on September 17, 2007,
the Company entered into an amendment to its December 30, 2003 bank credit facility (“Credit
Facility”). The amendment addressed several provisions, including an increase in the permitted
consolidated total leverage ratio and the ratio of consolidated senior debt to consolidated
operating cash flow for the remaining life of the Credit Facility (effective June 30, 2007) and a
lowered required ratio of consolidated operating cash flow to consolidated fixed charges for the
quarters ending September 30 and December 31, 2007. The Company also voluntarily reduced the
commitments under the bank revolver to $235.0 million from the previous $350.0 million effective
October 1, 2007. As a result of the amendment, interest margins increased by 50 basis points for
all loan tranches under the Credit Facility effective with the date of the amendment. Certain
other definitional and minor structural changes were also made to the Credit Facility. An
amendment fee of 0.25% was paid to all consenting lenders upon closing of the amendment. In
connection with the amendment, the Company wrote off a small amount of debt issuance costs that
were capitalized in conjunction with the original Credit Facility.
The indentures governing the Company’s senior subordinated debt provide that with certain
exceptions, the Company may incur debt only if, after giving effect to such incurrence, the
Company’s leverage ratio (the ratio of the Company’s debt to operating cash flow) is 6.75 or less.
Such limitation does not apply to certain borrowings, including (i) borrowings under the Company’s
senior debt facility to the extent not exceeding $750 million, (ii) incurrence of up to $50 million
of capitalized lease and purchase money obligations, (iii) certain pre-existing debt of acquired
businesses or companies, (iv) other borrowings of up to $50 million and (v) refinancings of certain
debt. At February 14, 2008, borrowings under the Company’s senior debt facility amounted to
approximately $645.7 million. At December 31, 2007, the Company’s leverage ratio for purposes of
its Indentures was 6.61. Under the Company’s senior credit facility, for the quarter ended December 31, 2007, the Company is required to maintain a leverage ratio of 6.75 or less. At December 31,2007, the Company’s total leverage ratio for purposes of its senior credit facility was 6.53.
The nature of the Company’s other long-term debt and related maturities has not materially
changed since June 30, 2007.
NOTE 6: Employee Benefit Plans
Components of Net Periodic Benefit Cost (Pension and Other Benefits)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In October 2007, the Company negotiated a contract with a union at the St. Paul Pioneer Press
which resulted in the union’s defined benefit pension plan being frozen effective December 31,2007. The contract was signed in December 2007. The Company recognized a curtailment gain of
$1.2 million related to the freeze.
NOTE 7: Treasury Stock
In July 2007, the Company repurchased 21,500 shares of Class A Common Stock from the estate of
a beneficial owner of the stock held under the Scudder Family Voting Trust for $3.0 million. The
$3.0 million repurchase price was based on the Company’s estimate of fair market value of the
shares purchased and was funded with borrowings under the Company’s Credit Facility. The estate
repurchased 1,506 shares of Class A Common Stock held in treasury on October 26, 2007 for
approximately $0.2 million.
NOTE 8: Recently-Issued Accounting Standards
In February 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities
(“SFAS No. 159”). SFAS No. 159 allows entities to voluntarily choose, at specified election dates,
to measure many financial assets and financial liabilities at fair value (the “fair value option”).
The election is made on an instrument-by-instrument basis and is irrevocable. If the fair value
option is elected for an instrument, SFAS No. 159 requires all subsequent changes in fair value for
that instrument be reported in earnings. SFAS No. 159 is effective as of the beginning of an
entity’s first fiscal year that begins after November 15, 2007, or, for the Company, during its
fiscal year 2009. The Company is in the process of evaluating what impact, if any, SFAS No. 159 is
expected to have on the Company’s financial position and results of operations.
In September 2006, the FASB issued Statement of Financial Standards No. 157, Fair Value
Measurements (“SFAS No. 157”). SFAS No. 157 provides enhanced guidance for using fair value to
measure assets and liabilities and applies whenever other standards require (or permit) assets or
liabilities to be measured at fair value. Under the standard, fair value refers to the price that
would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants. SFAS No. 157 is effective for financial statements issued for fiscal
years beginning after November 15, 2007, and interim periods within those fiscal years, or for the
Company beginning July 1, 2008. For certain nonfinancial assets and nonfinancial liabilities, the
effective date of SFAS No. 157 has been deferred for one year. The Company is in the process of
evaluating what impact, if any, SFAS No. 157 is expected to have on the Company’s financial
position and results of operations.
In July 2006, the FASB issued Interpretation No. 48 (“FIN 48”), Accounting for Uncertainty in
Income Taxes, an interpretation of FASB Statement No. 109, effective for fiscal years beginning
after December 15, 2006. FIN 48 created a single model to address uncertainty in tax positions,
prescribed the minimum recognition threshold, and provided guidance on derecognition, measurement,
classification, interest and penalties, accounting in interim periods, disclosure and transition.
FIN 48 also expanded disclosure requirements, which included a tabular rollforward of the beginning
and ending aggregate unrecognized tax benefits, as well as specific detail related to tax
uncertainties for which it is reasonably possible the amount of unrecognized tax benefit will
significantly increase or decrease within twelve months. The adoption of FIN 48 on July 1, 2007
did not have any impact on the Company’s consolidated financial statements and the Company does not
have any unrecognized tax benefits for financial reporting purposes.
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised
2007), Business Combinations (“SFAS No. 141(R)”), which replaces FASB Statement No. 141. SFAS No.
141-R establishes requirements for how an acquirer in a business combination recognizes and
measures the assets acquired, liabilities assumed and any noncontrolling interests. The provisions
of SFAS No. 141(R) are effective for business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after December 15, 2008,
or, for the Company, any business combinations for which the acquisition date is on or after July1, 2009.
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160,
Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51 (“SFAS
No. 160”). SFAS No. 160 will change the accounting and reporting for minority interests, which
will be recharacterized as noncontrolling interests and classified as a component of equity. SFAS
No. 160 is effective for fiscal years beginning on or after December 15, 2008, or, for the Company,
beginning July 1, 2009.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 9: Hearst Stock Purchase Agreement
On August 2, 2006, the Company and The Hearst Corporation (“Hearst”) entered into a Stock
Purchase Agreement (the “MediaNews/Hearst Agreement”) pursuant to which (i) Hearst agreed to make
an equity investment in the Company (such investment did not include any governance or economic
rights or interest in the Company’s publications in the San Francisco Bay area) and (ii) the
Company agreed to purchase from Hearst The Monterey County Herald and the St. Paul Pioneer Press
with a portion of the Hearst equity investment in the Company. The Company subsequently also
agreed to purchase from Hearst the Torrance Daily Breeze with a portion of the proceeds of such
equity investment.
The Hearst transaction discussed above was consummated on October 19, 2007 and the Company
issued to Hearst 100 shares of its newly issued Class C Common Stock. Such shares provide Hearst a
31% equity interest in the Company’s publications outside the San Francisco Bay area. The
effective date for financial reporting purposes was August 2, 2006, the date of the Stock Purchase
Agreement. The purchase price of these shares was approximately $317.6 million, of which
approximately $290.6 million was applied to pay the purchase price of The Monterey County Herald,
the St. Paul Pioneer Press and the Torrance Daily Breeze and related publications and Web sites,
and approximately $27.0 million was paid to the Company in cash at closing (the Company also paid
certain direct and incremental costs related to the investment which were applied against the
proceeds).
In connection with the consummation of the Hearst equity investment, the Company and members
of the Singleton and Scudder families amended and restated their Shareholders’ Agreement to add
Hearst as a party and to afford Hearst certain protective rights in respect of its equity
investment in the Company’s business outside the San Francisco Bay area.
The total purchase price obligation of $311.1 million reflected in the financial statements at
September 30, 2007, included $290.6 million related to the acquisition cost of the St. Paul Pioneer
Press, The Monterey County Herald and Torrance Daily Breeze. This obligation was reclassified into
shareholders’ equity as additional paid-in capital along with Hearst’s $27.0 million cash
investment and the direct and incremental costs related to the investment (approximately
$4.0 million). The remaining $20.5 million related to the accretion of Hearst’s cost of funds was
eliminated as an obligation of the Company with a corresponding increase in retained earnings,
where the accretion was charged prior to the Hearst equity investment. Hearst’s share of retained
earnings related to the Company’s net income attributable to
their holding in the Company’s Class C Common Stock
from August 2, 2006, the date of the Stock Purchase Agreement, through December 31, 2007 was
$11.3 million and is included in consolidated retained earnings.
NOTE 10: Monterey Newspapers Partnership
On October 19, 2007, the Company and S.F. Holding Corp. (“Stephens”) formed the Monterey
Newspapers Partnership to which the Company contributed The Monterey County Herald and Stephens
paid the Company approximately $27.4 million for a 32.64% interest in the new partnership. The
operations of The Monterey County Herald will continue to be consolidated with the operations of
the Company with a minority interest reflected to account for the 32.64% of the new partnership
owned by Stephens. Stephens has a separate right to require the Monterey Newspapers Partnership to
redeem its interest in the partnership at fair market value. Upon notification of the exercise of
this right and obtaining a valuation of the partnership interest, the Monterey Newspapers
Partnership has two years to complete the purchase. The Company is not currently aware of any
intention on the part of Stephens to exercise its put. As a result of the partnership formation,
the Company recognized a pre-tax gain of approximately $0.5 million related to the sale of the
32.64% minority interest in The Monterey County Herald.
NOTE 11: Dividend Declared
On October 19, 2007, the Company declared a dividend of $10.98 per share on its Class A Common
Stock, amounting to approximately $25.0 million in the aggregate. The payment date for such
dividend was October 26, 2007. Such dividend was funded with the proceeds from the cash portion of
the purchase price paid by Hearst for its equity investment in the Company.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 12: Management Agreement (Connecticut)
On November 1, 2007, the Company expanded the management agreement with Hearst with regard to
The News-Times (Danbury, Connecticut) and the Connecticut Post to include The Advocate and
Greenwich Time in Stamford and Greenwich, Connecticut, respectively, which were both purchased by
Hearst on November 1, 2007 for $62.4 million, plus an adjustment to the extent working capital was
greater or less than $1.8 million. Under the amended agreement, the Company continues to control
the management of the Connecticut Post (owned by the Company) and The News-Times (owned by Hearst),
and now controls and manages The Advocate and Greenwich Time (owned by Hearst) and is entitled to
retain 60% of the profits and losses of all newspapers on a combined basis; however, the Company
and Hearst retain ownership of the assets and liabilities of their respective papers. Profits and
losses refer to net income, adjusted so that each partner retains 100% of any gain or loss taken
related to the disposition of its contributed assets. As a result of the revision to the
management agreement, the Company began consolidating the results of The Advocate and Greenwich
Time, and recording minority interest for Hearst’s 40% interest in the combined results beginning
November 1, 2007. Prior to the revision to the management agreement, the Company consolidated the
results of The News-Times and recorded minority interest for Hearst’s 27% interest in the combined
profits and losses of the Connecticut Post and The News-Times. As a result of the expansion of the
management agreement, the Company entered into a nonmonetary exchange of assets for accounting
purposes (pursuant to Statement of Financial Accounting Standards No. 153, Exchanges of
Non-Monetary Assets). The Company accounted for this exchange as two separate, but simultaneous
events: (1) a sale, whereby for accounting purposes, the Company sold to Hearst an additional 13%
interest in the Connecticut Post, as well as a 13% profit interest in The News-Times, resulting in
the Company recording a non-monetary gain of approximately $12.0 million and (2) the acquisition of
a 60% interest in The Advocate and Greenwich Time. As a result of the transaction, the Company has
recorded the following: $58.3 million in intangible assets ($29.3 million – goodwill,
$19.0 million – advertiser lists, $3.0 million – subscriber lists, $7.0 million – masthead) and
$4.3 million in tangible assets, the majority of which is related to fixed assets. The accounting
for the business combination is preliminary and subject to change.
NOTE 13: Investment in Kaango, LLC
On November 14, 2007, the Company and The Hearst Corporation jointly purchased 80% of Kaango,
LLC (“Kaango”), a provider of online classified advertising software, for approximately $20.4
million. The Company and Hearst’s share of its investment in Kaango is held by a newly formed
limited liability company, which is 50% owned by each of Hearst and the Company. The remaining 20%
of Kaango is owned by its founders and is subject to a fixed price call option for $4.0 million and
is expected to be purchased in the future. The Company’s share of this call option is
approximately $2.0 million. The Company is accounting for its interest in Kaango as an equity
investment.
NOTE 14: Goodwill and Other Intangible Assets and Impairment Testing
SFAS
No. 142, Goodwill and Other Intangible Assets and SFAS
No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets, address financial accounting and reporting for the
impairment or disposal of goodwill and other intangible assets and long-lived assets, respectively. In accordance with
those standards, the Company reviews the carrying value of its
goodwill and other intangible and long-lived assets
annually. If at any time the facts or circumstances at any of its
reporting units indicate
the impairment of the goodwill and other intangible and/or long-lived asset values as a result of a significant
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 intangible and/or long-lived assets exceeds
estimated realizable value. For purposes of this determination, estimated realizable value is
evaluated based on values placed on comparable newspapers which have been sold in a recent third
party transaction. The industry cash flow valuation standard is based on a multiple of revenues
less cost of sales and selling, general and administrative expenses, what the Company refers to as
Operating Profit or Adjusted EBITDA.
As was disclosed in the Company’s Annual Report on Form 10-K for the year ended June 30, 2007,
for one recently acquired newspaper, the Company utilized estimated fiscal 2008 budgeted cash flows
(adjusted for expected full year cost savings) for fiscal 2007 impairment testing since cost
savings initiatives have not been fully reflected in the historical operating results and MediaNews
has owned the newspaper less than one year. In addition, for fiscal 2007 impairment testing, the
Company utilized a discounted cash flow model to evaluate one of its equity method investments.
Forecasted future results contemplate the positive impact of certain cost savings initiatives and
such results may not be achieved if the initiatives are not implemented as presently contemplated.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The Company has achieved, and in some instances exceeded, its cost savings initiatives;
however, operating revenues have not performed to expectations this
fiscal year to date. While
the Company did not consider not achieving forecasted revenue as an indicator of impairment, the results
warranted a reevaluation of the conclusions reached during the annual impairment analysis, and ensuring
that the conclusions were still appropriate as of December 31, 2007, particularly at the locations
for which the Company used forecasted results to project the estimated cash flows for its SFAS No.
142 annual analysis.
Using updated forecasts and discounted cash flow modeling, the Company determined that no
impairment exists at December 31, 2007 at any of its reporting units. Because the impairment
testing relies on a combination of historical, budgeted and forecasted results to determine
reporting unit fair value, if the actual results for the remainder of fiscal year 2008 vary
significantly from the historical, budgeted or forecasted results, the Company may be required to
record an impairment charge in the future.
NOTE 15:
Accelerated Depreciation
Due to the closure of a California
Newspapers Partnership production facility in the second quarter 2008, the Company
recognized $6.2 million of accelerated depreciation on the excess machinery and equipment
to bring these assets to their estimated realizable value based on the expected proceeds from
the sale of the assets.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Operating Results
We have provided below certain summary historical financial data for the three and six months
ended December 31, 2007 and 2006, including the percentage change between periods.
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 condensed 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 minority interest in the Adjusted EBITDA generated from the
California Newspapers Partnership, the Texas-New Mexico Newspapers Partnership and the
Monterey Newspapers Partnership (beginning October 20, 2007), our less than 100% owned
consolidated subsidiaries as well as the Connecticut newspapers (beginning March 30, 2007)
(“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
and Salt Lake City (“Combined Adjusted EBITDA of Unconsolidated JOAs”); and (iii)
increasing Adjusted EBITDA by our proportionate share of EBITDA of the Prairie Mountain
Publishing Company (see footnote (b)). See “Reconciliation of GAAP and Non-GAAP Financial
Information — Reconciliation of Cash Flows from Operating Activities (GAAP measure) to
Adjusted EBITDA (Non-GAAP measure)” for a reconciliation of Non-GAAP financial information.
(b)
EBITDA of Prairie Mountain Publishing Company. The Prairie Mountain Publishing Company
agreement requires the partnership to make distributions equal to the earnings of the
partnership before depreciation and amortization (EBITDA). Our 50% share of the EBITDA of
Prairie Mountain Publishing Company has been included in Adjusted EBITDA Available to
Company as it is an integral part of our cash flows from operations as defined by our debt
covenants.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 debt service and capital expenditure requirements. Our JOA agreements in Denver
and Salt Lake City do not restrict cash distributions to the owners and in general the Denver and
Salt Lake City JOAs make monthly distributions. We use pro-rata consolidation to internally
evaluate our performance and present it here because our bank credit agreement and the indentures
governing our senior subordinated notes define cash flows from operations for covenant purposes
using pro-rata consolidation. We also believe financial analysts and investors use 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 in Denver and Salt
Lake City using pro-rata consolidation for all periods presented (the operations of the Detroit and
Charleston JOA have not been included on a pro-rata consolidated basis). See Notes 1 and 3 to the
condensed consolidated financial statements for additional discussion and analysis of the GAAP
accounting for our JOAs.
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
See “Reconciliation of GAAP and Non-GAAP Financial Information — Reconciliation of Income
Statement Data presented on a historical GAAP basis to Non-GAAP Income Statement Data presented on
a pro-rata consolidation basis” and “Reconciliation of Cash Flows from Operating Activities (GAAP
measure) to Adjusted EBITDA presented on a pro-rata consolidation basis (Non-GAAP measure)” for a
reconciliation of Non-GAAP financial information.
(a)
See footnote (a) under “Management’s Discussion and Analysis of Financial Condition and
Results of Operations — Operating Results” for discussion of Adjusted EBITDA, EBITDA of
Prairie Mountain Publishing Company and Adjusted EBITDA Available to Company. The Minority
Interest in Adjusted EBITDA shown above is calculated in the same manner as described in
footnote (a) under “Management’s Discussion and Analysis of Financial Condition and Results
of Operations — Operating Results.”
(b)
See footnote (b) under “Management’s Discussion and Analysis of Financial Condition and
Results of Operations — Operating Results” for discussion of EBITDA of Prairie Mountain
Publishing Company.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF 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 (because the
impairment testing relies on a combination of historical, budgeted and forecasted results to
determine reporting unit fair value, if the actual results for several of our recently acquired
newspapers and an equity method investment vary significantly from the anticipated results we may
be required to record an impairment charge in the future); pension and retiree medical benefits,
which require the use of various estimates concerning the work force, interest rates, plan
investment return, and involve the use of advice from consulting actuaries; and reserves for the
self-insured portion of our workers’ compensation programs, which are based on such factors as
claims growth and also involve advice from consulting actuaries. Our accounting for federal and
state income taxes is sensitive to interpretation of various laws and regulations and the valuation
of deferred tax assets. The notes to our consolidated financial statements included in our Annual
Report on Form 10-K for the year ended June 30, 2007 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, 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 sold and delivered to the customer or sold to a home delivery
independent contractor. Amounts received in advance of an advertising run date or newspaper
delivery are deferred and recorded on the balance sheet as a current liability (“Unearned Income”)
and recognized as revenue when earned.
The operating results of our unconsolidated JOAs (Denver and Salt Lake City) are reported as a
single net amount in the accompanying financial statements in the line item “Income (Loss) from
Unconsolidated JOAs.” This line item includes:
•
Our proportionate share of net income from JOAs,
•
The amortization of subscriber lists created by the original purchase as the subscriber
lists are attributable to our earnings in the JOAs, and
•
Editorial costs, miscellaneous revenue received outside of the JOA, and other charges
incurred by our consolidated subsidiaries directly attributable to providing editorial
content and news for our newspapers party to a JOA, including gains/losses on certain asset
sales.
Seasonality
Newspaper companies tend to follow a distinct and recurring seasonal pattern, with higher
advertising revenues in months containing significant events or holidays. Accordingly, the fourth
calendar quarter, or our second fiscal quarter, is 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 our weakest revenue quarter of the year.
Our results for the three and six months ended December 31, 2007 and 2006 were impacted by the
following transactions completed during fiscal years 2008 and 2007:
Fiscal Year 2008
•
On September 17, 2007, we amended our Credit Facility which, among other things,
increased interest rate margins on borrowings by 50 basis points for all loan tranches
under the Credit Facility effective with the date of the amendment.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
•
On October 19, 2007, we consummated the Stock Purchase Agreement with The Hearst
Corporation (“Hearst”). As a result, we are no longer accreting Hearst’s investment as a
potential obligation of the Company. See fiscal year 2007 below for a description of the
Stock Purchase Agreement.
•
On October 19, 2007, we formed the Monterey Newspapers Partnership. As a result, we
sold a 32.64% interest in The Monterey County Herald and began recording minority interest
for our partner’s share in the results of the partnership beginning October 19, 2007. In
conjunction with the partnership formation, we recognized a $0.5 million pre-tax gain on
the “sale” of 32.64% of our interest in The Monterey County Herald.
•
On November 1, 2007, we expanded our management agreement in Connecticut with Hearst to
include The Advocate (Stamford) and Greenwich Time (both owned by Hearst). Under the
amended agreement, we retain 60% of the profits and losses of the Connecticut Post, The
News-Times, The Advocate and Greenwich Time (the “Connecticut Newspapers”). As a result of
the revision to the management agreement, we began to consolidate The Advocate and
Greenwich Time and record a minority interest for Hearst’s 40% interest in the combined
results of the Connecticut Newspapers beginning November 1, 2007. Prior to the revision to
the management agreement, we consolidated the results of the Connecticut Post and The
News-Times and recorded minority interest for Hearst’s 27% interest in the combined profits
and losses of the Connecticut Post and The News-Times. As a result of the expansion of the
management agreement, we recognized an $12.0 million pre-tax nonmonetary gain on the “sale”
of an additional 13% interest in the Connecticut Post, as well as a 13% profit interest in
The News-Times.
•
On November 14, 2007, we and Hearst jointly purchased 80% of Kaango, LLC (“Kaango”), a
provider of online classified advertising software. Our interest in Kaango is held in a
limited liability company, which is 50% owned by each of Hearst and us. We account for our
interest in Kaango as an equity investment.
•
In December 2007, we recovered the majority of our legal fees (approximately
$3.8 million) associated with our lawsuit against the former publisher of the St. Paul
Pioneer Press.
Fiscal Year 2007
•
On August 2, 2006, the California Newspapers Partnership acquired the San Jose Mercury
News and Contra Costa Times and we began managing The Monterey County Herald and St. Paul
Pioneer Press for Hearst. Under the agreement with Hearst, prior to their investment in
the Company pursuant to a Stock Purchase Agreement (the “Stock Purchase Agreement”), we had
all the economic risks and rewards associated with ownership of The Monterey County Herald
and St. Paul Pioneer Press and retained all of the cash flows generated by them as a
management fee. As a result, we began consolidating the financial statements of The
Monterey County Herald and St. Paul Pioneer Press, along with the San Jose Mercury News and
Contra Costa Times, beginning August 2, 2006.
•
On August 2, 2006, we amended our Credit Facility to authorize a new $350.0 million term
loan “C” facility which was used, along with borrowings under the revolver portion of our
bank credit facility, to finance our share of the California Newspapers Partnership’s
purchase of the San Jose Mercury News and Contra Costa Times.
•
On September 29, 2006, the California Newspapers Partnership sold the Original Apartment
Magazine.
•
On December 15, 2006, we began managing for Hearst the Daily Breeze and three weekly
newspapers, published in Torrance, California. The accounting treatment of the Daily
Breeze is the same as the St. Paul Pioneer Press and The Monterey County Herald for the
reasons previously described. As a result, we began consolidating the financial statements
of the Torrance publications beginning December 15, 2006.
•
On February 2, 2007, the California Newspapers Partnership acquired the Santa Cruz
Sentinel.
•
On March 30, 2007, we entered into an agreement with Hearst to manage The News-Times
(Danbury, Connecticut). Under the agreement, we manage and control both the Connecticut
Post (owned by us) and The News-Times (owned by Hearst) and are entitled to 73% of the
combined profits and losses generated by the two newspapers. As a result, we began
consolidating the operating results of The News-Times and recording minority interest for
Hearst’s 27% interest in the combined operations beginning March 30, 2007. In conjunction
with entering into the management agreement, we recognized a $27.0 million pre-tax
nonmonetary gain on the “sale” of 27% of our interest in the Connecticut Post.
•
In September 2006 and June 2007, we sold office buildings in Long Beach and Woodland
Hills, California, respectively. We recognized a $16.7 and $20.7 million pre-tax gain
related to the Long Beach and Woodland Hills office building sales, respectively.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Revenues
On a same newspaper basis (after adjusting for the aforementioned transactions), the following
changes occurred in our significant revenue categories for the three- and six-month periods ended
December 31, 2007 as compared to the same periods in the prior year.
Advertising Revenues. The aforementioned transactions had the net impact of increasing
advertising revenues by $19.2 million and $38.1 million for the three and six months ended
December 31, 2007 as compared to the same periods in the prior year. Excluding the aforementioned
transactions, advertising revenues decreased 14.0% and 9.7%, respectively, for the three and six
months ended December 31, 2007 as compared to the prior year. Advertising revenue decreases from
the significant categories for the three- and six-month periods were as follows: retail ((16.0%)
and (11.1%)), national ((18.8%) and (11.3%)), classified ((30.3%) and (20.7%)) and preprint
advertisers ((4.0%) and 0.5%). Revenues from our Internet operations
decreased as well ((8.3%) and
(4.9%)) for the three and six months ended December 31, 2007. Within the classified advertising
category, we had decreases across all categories including real estate, automotive and employment,
with the largest percentage decrease being attributable to real estate.
Circulation Revenues. The aforementioned transactions had the net impact of increasing
circulation revenues by $5.2 million and $16.0 million for the three and six months ended
December 31, 2007 as compared to the same periods in the prior year. Excluding the aforementioned
transactions, circulation revenues decreased 6.5% and 4.2% for the three and six months ended
December 31, 2007 as compared to the prior year. The decrease was primarily due to home delivery
pricing pressures at most of our newspapers, which resulted in our offering greater discounts to
acquire new and retain existing subscribers in order to help achieve our home delivery goals in
certain markets. In order to offset some of these discounts, we have increased home delivery
prices at most of our newspapers. However, we continue to honor existing subscription rates
through expiration, so the impact of these price increases will continue to increase circulation
revenue throughout the year as subscriptions renew. We have
also restructured our pricing and/or eliminated certain third
party paid circulation, which has resulted in lower circulation volumes and revenues, but eliminated
unprofitable circulation by reducing newsprint and delivery costs. While total circulation volumes
have decreased, 26 of our newspapers increased daily circulation in the most recent Audit Bureau of
Circulation report for September 30, 2007.
Income from Unconsolidated JOAs
As noted in our discussion of critical accounting policies, income from unconsolidated JOAs
(Denver and Salt Lake City) includes our proportionate share of net income from those JOAs, the
amortization of subscriber lists created by the original purchase, editorial costs, miscellaneous
revenue and other charges directly attributable to providing editorial content and news for
newspapers party to a JOA. The following discussion takes into consideration all of the associated
revenues and expenses just described. The results for the three and six months ended December 31,2007 as compared to the same period in the prior year were positively impacted by a reduction in
the accelerated depreciation taken on certain fixed assets at production facilities in Denver that
were retired earlier than originally expected due to the construction of a new production facility.
The acceleration of depreciation has decreased as the associated assets are fully depreciated.
Excluding depreciation and amortization, which were significantly impacted by the effect of
accelerated depreciation in the prior year, our share of income from the Denver JOA was up
approximately $2.3 million and $3.1 million for the three and six months ended December 31, 2007 as
compared to the same periods in the prior year. While the results of the Denver JOA were
negatively impacted by a soft advertising market, the impact was offset by lower newsprint prices,
reduced newsprint consumption, decreased employee costs and the consolidation of printing
operations. The results of the Salt Lake City JOA were up year over year due to a $6.3 million
gain recognized related to the December 2007 sale of land and a building in Salt Lake City that was
previously used in connection with the JOA. Cost-cutting initiatives did not keep pace with a
softening advertising market in Salt Lake City with results down
slightly year over year, excluding
the gain on sale of assets.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Cost of Sales
The aforementioned transactions had the net impact of increasing cost of sales by $7.6 million
and $14.7 million, respectively, for the three and six months ended December 31, 2007 as compared
to the same periods in prior years. Excluding the aforementioned transactions, cost of sales
decreased 17.8% and 14.2% for the three and six months ended December 31, 2007 as compared to the
prior year. We had decreases in editorial expenses, primarily personnel, and production expenses,
due to the consolidation of production facilities in California, which reduced our total employees
and overall cost of production. We also had significant decreases in newsprint expense caused by
an 14.3% and 9.5% decrease in newsprint prices as compared to the same periods in the prior year.
Our average price of newsprint consumed was $544 and $554 per metric ton for the three and six
months ended December 31, 2007 as compared to $635 and $612 per metric ton for the prior year.
Also contributing to the reduction in newsprint expense was a significant decrease in consumption
of approximately 15.5% and 21.0% for the three and six months ended December 31, 2007. The
decrease in newsprint consumption was due to volume declines in circulation, press web-width
reductions at many of our community newspapers and a decrease in the number of advertising and
editorial pages produced on certain days.
Selling, General and Administrative
The aforementioned transactions had the net impact of increasing SG&A by $11.6 million and
$45.4 million for the three and six months ended December 31, 2007 as compared to the prior year.
Excluding the aforementioned transactions, SG&A decreased 5.6% and 7.8%. The year over year
decrease in SG&A was the result of a combination of cost-cutting initiatives that began in the
second half of fiscal year 2007 and continue into fiscal year 2008, which reduced our total
employees. We also recognized a curtailment gain upon freezing one of
our defined benefit pension plans at the
St. Paul Pioneer Press. The first quarter of fiscal 2007 also had several charges that caused SG&A
to be above the actual run rate for the six months ended December 31, 2007. These charges totaled
$3.2 million and include severance payable to the Company’s former chief operating officer and
bonuses awarded to certain officers and employees in connection with the August 2, 2006
acquisitions and related transactions.
Depreciation
and Amortization
Due to the
closure of a California Newspapers Partnership production facility in the second quarter 2008,
we recognized $6.2 million of accelerated depreciation on the excess machinery and
equipment to bring these assets to their estimated realizable value based on the expected proceeds
from the sale of the assets.
Interest Expense
The decrease in interest expense for the three months ended December 31, 2007 was the result
of a decrease in the average debt outstanding, offset in part by an increase in the weighted
average cost of debt. In conjunction with the September 17, 2007 amendment of our Credit Facility,
interest rate margins increased by 50 basis points for all loan tranches effective with the date of
the amendment. For the three months ended December 31, 2007, our average debt outstanding
decreased $68.5 million, or 5.6%, to $1,155.4 million and our weighted average interest rate
increased 10 basis points as compared to the prior year, including the impact of a decrease in
LIBOR over the prior year (the average daily one month rate of LIBOR decreased 42 basis points for
the three months ended December 31, 2007 as compared to the same period in prior year). The
interest rates under our bank credit facility are based on LIBOR, plus a borrowing margin based on
our leverage ratio.
For the six months ended December 31, 2007, the increase in interest expense was the result of
an increase in the average cost of debt, offset in part by our decrease in the average debt
outstanding. In addition, significant borrowings that impacted the year over year comparison
related to the borrowings on February 2, 2007 for our share of CNP’s purchase of the Santa Cruz
Sentinel, which were more than offset by our paydowns on debt. Our average debt outstanding
decreased $7.4 million or 0.6%, to $1,160.8 million and our weighted average interest rate
increased 9 basis points as compared to the prior year, including the impact of a decrease in LIBOR
over the prior year (the average daily one-month rate of LIBOR decreased 17 basis points for the
six months ended December 31, 2007 as compared to the same period in the prior year.)
Other (Income) Expense, Net
We include expenses and income items that are not related to current operations in other
(income) expense, net.
The other (income) expenses incurred for the three months ended December 31, 2007 included
$(3.8) million of income associated with the recovery of legal fees related to a lawsuit against
the former publisher of the St. Paul Pioneer Press,
$0.2 million expense related to hedging and investing
activities that did not qualify for hedge accounting under SFAS No. 133,
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
$0.5 million
related to restructuring operations, primarily consisting of severance, and $1.6 million
associated with various other items that were not related to ongoing operations.
The other (income) expenses incurred for the six months ended December 31, 2007 included
$(3.1) million of income principally associated with the recovery of legal fees related to a
lawsuit against the former publisher of the St. Paul Pioneer
Press, $0.4 million expense related to hedging
and investing activities that did not qualify for hedge accounting under SFAS No. 133, $0.8 million
related to restructuring operations, primarily consisting of severance, $0.2 million related to the write-off
of debt issuance costs associated with our amended bank credit facility and $1.5 million associated
with various other expenses that were not related to ongoing operations.
Liquidity and Capital Resources
Cash Flow Activity
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 general,
our receivables have been collected on a timely basis.
The
net cash flows related to operating activities decreased $46.5 million for the six-month
period ended December 31, 2007 compared to the comparable prior year period. The majority of the
decrease was attributable to changes in operating assets and liabilities associated with the timing
of payments of accounts payable and accrued liabilities and the timing of cash receipts. The
difference was a net cash outflow of $39.3 million during the six-month period ended December 31,2007 compared to net cash inflow of $6.9 million in the same period last year.
The net cash flows related to investing activities increased by $361.3 million for the
six-month period ended December 31, 2007 as compared to the comparable prior year period, primarily
due to the prior year August 2, 2006 purchase of the San Jose Mercury News and Contra Costa Times,
which was offset in part by prior year cash inflows of $33.9 million associated with the sale of
Original Apartment Magazine and our building in Long Beach, California. Capital expenditures for
the six-month period ended December 31, 2007 were up $3.5 million year over year. We also paid
$10.2 million for our investment in Kaango.
The net cash flows related to financing activities decreased by $325.2 million for the
six-month period ended December 31, 2007 compared to the comparable prior year period. In the
prior year period, borrowings of approximately $406.3 million were used to fund our share of the
August 2, 2006 transactions. Activity for the six-month period ended December 31, 2006 also
included normal borrowings and paydowns on long-term debt. Activity for the six-month period ended
December 31, 2007 generally included normal borrowings and paydowns on long-term debt and the
repurchase of $3.0 million of common stock. Excluding the refinancing costs of the new credit
facility, the net repurchase of Class A Common Stock, dividends paid to Class A common
stockholders, cash proceeds from the sale of Class C Common Stock to Hearst, the Salt Lake City
litigation settlement, the recovery of legal fees related to our lawsuit in St. Paul, Minnesota
against a former publisher and the sale of a minority interest in Monterey, we paid down
approximately $51.6 million of debt in the current quarter.
Liquidity
On September 17, 2007, we amended our December 30, 2003 credit agreement (the “Credit
Facility”). The amendment changed several provisions, including an increase to the permitted
consolidated total leverage ratio and the ratio of consolidated senior debt to consolidated
operating cash flow covenants for the remaining life of the Credit Facility (effective June 30,2007); a decrease to the required ratio of consolidated operating cash flow to consolidated fixed
charges for the quarters ended September 30 and December 31, 2007; and a voluntary reduction to the
commitments under the revolver to $235.0 million from the previous $350.0 million effective October1, 2007. As a result of the amendment, interest rate margins increased by 50 basis points for all
loan tranches under the Credit Facility, effective with the date of the amendment. Certain other
definitional and minor structural changes were also made to the Credit Facility. An amendment fee
of 0.25% was paid to all consenting lenders upon closing of the amendment. The amendment
maintained the revolving credit facility
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(reduced to $235.0 million effective October 1, 2007), the $100.0 million term loan “A,” the
$147.3 million term loan “B” and the $350.0 million term loan “C.” Any payments on the term loans
cannot be reborrowed, regardless of whether such payments are scheduled or voluntary. On
December 31, 2007, the balances outstanding under the revolving credit portion of the Credit
Facility, term loan “A,” term loan “B” and term loan “C” were $41.1 million, $100.0 million, $143.6
million and $344.8 million, respectively. The amount available under the revolving portion of the
Credit Facility, net of letters of credit, was $176.8 million at December 31, 2007. The total
amount we can borrow at any point in time under the revolving credit portion of the bank credit
facility may be reduced by limits imposed by the financial covenants of our various debt
agreements.
S.F. Holding Corporation (“Stephens”), a 26.28% partner in the California Newspapers
Partnership (“CNP”) and a 32.64% partner in the Monterey Newspapers Partnership (“Monterey”), has a
right to require the CNP and Monterey partnerships to redeem their respective interests in CNP and Monterey at their
fair market value (plus interest through closing). If such right is exercised, Stephens’ interest
must be redeemed within two years of the determination of the respective partnership’s fair market
value. We are not currently aware of any intentions on the part of Stephens to exercise its puts.
No amounts are recorded in our financial statements related to potential liability associated with
Stephens’ right to put its interest in each partnership to the
CNP and Monterey partnerships.
In September 2005, the management committee of the Denver JOA authorized the incurrence of up
to $150.0 million of debt by the Denver JOA to finance furniture, fixtures and computers for its
new office building and new presses and related equipment and building costs related to
consolidation of two existing production facilities into one for the Denver JOA. We own a 50%
interest in the Denver JOA. As of December 31, 2007, our share of the debt incurred by the Denver
JOA under the $150.0 million credit facility was approximately $65.3 million. This debt is not
reflected in our consolidated financial statements. The Denver JOA debt is non-recourse to
MediaNews and is an unsecured obligation of the Denver JOA.
As
of December 31, 2007, we were in compliance with all of our financial covenants
under the Company’s bank credit facility (as amended) and subordinated note agreements. In order
to remain in compliance with our bank credit facility covenants in
the future. We need to
increase or maintain our existing “Consolidated Operating Cash
Flow” as defined in our credit
agreements and/or reduce our total debt outstanding. The indentures governing our senior
subordinated debt provide that with certain exceptions, we may incur debt only if, after giving
effect to such incurrence, our leverage ratio (the ratio of our debt to operating cash flow) is
6.75 or less. Such limitation does not apply to certain borrowings, including (i) borrowings under
our senior debt facility to the extent not exceeding $750 million, (ii) incurrence of up to $50
million of capitalized lease and purchase money obligations, (iii) certain pre-existing debt of
acquired businesses or companies, (iv) other borrowings of up to $50 million and (v) refinancings
of certain debt. At February 14, 2008, borrowings under our senior debt facility amounted to
$645.7 million. At December 31, 2007, our leverage ratio
for purposes of our Indentures was 6.61. Under our senior credit facility, for the quarter ended December 31, 2007,
we are required to maintain a leverage ratio of 6.75 or less. At December 31, 2007, our total leverage ratio for purposes of our senior credit facility was 6.53.
Our ability to service our debt and fund planned capital expenditures depends on our ability
to continue to generate operating cash flows in the future. Based on current levels, 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 estimate minimum contributions to our defined benefit pension plans in fiscal year 2008
will be approximately $9.0 million to $10.0 million. We have made contributions of approximately
$4.2 million through December 31, 2007.
Off-Balance Sheet Arrangements and Contractual Obligations
Our various contractual obligations and funding commitments related to our long-term debt have
not materially changed since our Annual Report on Form 10-K for the year ended June 30, 2007.
Near-Term Outlook
Newsprint Prices
North American newsprint prices began increasing in December 2007 and are expected to increase
each month during our fiscal 2008 third quarter. We expect the average price per ton in the March
2008 quarter will be higher compared to the same quarter of the prior year. The January 2008 RISI
(“Resource Information Systems, Inc.”) price index for 30-pound newsprint was $595 per metric ton
compared to $623 per metric ton in January 2007. As a large buyer of newsprint, our cost of
newsprint continues to be well below the RISI price index.
QUANTITATIVE AND QUALITATIVE
DISCLOSURE OF MARKET RISK
Debt
We are exposed to market risk arising from changes in interest rates associated with our bank
debt, which includes the bank term loans and the revolving credit portion of our bank credit
facility. Our bank debt bears interest at rates based upon, at our option, Eurodollar or prime
rates, plus a spread based on our leverage ratio. The nature and position of our bank debt has not
materially changed from the disclosure made in our Annual Report on Form 10-K for the year ended
June 30, 2007 as the disclosure included the September 17, 2007 changes to the interest rate
margins. The estimated fair value of our fixed rate senior subordinated notes has decreased from
$382.9 million at June 30, 2007 to $277.5 million at December 31, 2007.
Newsprint
See Near-Term Outlook for further discussion regarding newsprint prices.
RECONCILIATION OF GAAP AND NON-GAAP FINANCIAL INFORMATION
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 Consolidation Income Statement Data) presented under “Management’s
Discussion and Analysis of Financial Condition and Results of Operations — Operating Results” and
“Management’s Discussion and Analysis of Financial Condition and Results of Operations — Summary
Supplemental Non-GAAP Financial Data” of this report on Form 10-Q 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).
Cash Flows from Operating Activities (GAAP measure)
$
21,034
$
12,542
$
19,265
$
65,727
Net Change in Operating Assets and Liabilities
19,563
25,130
39,318
(6,929
)
Distributions of Net Income Paid to Minority Interest
12,588
20,984
25,519
34,335
Distributions of Net Income from Unconsolidated JOAs
(17,413
)
(12,488
)
(26,848
)
(21,944
)
Distributions of Net Income from Equity Investments
(134
)
(325
)
(140
)
(950
)
Interest Expense
20,524
21,335
41,209
40,584
Bad Debt Expense
(5,162
)
(3,105
)
(8,464
)
(5,870
)
Pension Expense, Net of Cash Contributions
3,882
3,244
6,204
4,241
Direct Costs of the Unconsolidated JOAs, Incurred Outside
of the Unconsolidated JOAs(b)
4,473
12,412
15,486
24,543
Net Cash Related to Other (Income), Expense
3,605
(630
)
3,311
(6,549
)
Adjusted EBITDA
62,960
79,099
114,860
127,188
Minority Interest in Adjusted EBITDA
(21,815
)
(27,066
)
(40,378
)
(45,259
)
Combined Adjusted EBITDA of Unconsolidated JOAs
11,718
9,548
20,036
16,291
EBITDA of Prairie Mountain Publishing Company(c)
611
438
1,205
1,050
Adjusted EBITDA Available to Company
$
53,474
$
62,019
$
95,723
$
99,270
Footnotes for table above.
(a)
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 condensed
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 minority interest in the Adjusted
EBITDA generated from the California Newspapers Partnership, the Texas-New Mexico
Newspapers Partnership and the Monterey Newspapers Partnership (beginning October 20,2007), our less than 100% owned consolidated subsidiaries as well as the Connecticut
newspapers (beginning March 30, 2007) (“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 and Salt Lake City (“Combined Adjusted
EBITDA of Unconsolidated JOAs”); and (iii) increasing Adjusted EBITDA by our
proportionate share of EBITDA of the Prairie Mountain Publishing Company (see footnote
(c)).
(b)
Direct Costs of the Unconsolidated JOAs Incurred Outside of the Unconsolidated
JOA. Includes the editorial costs, revenues received outside of the JOAs,
depreciation, amortization, and other direct costs incurred outside of the JOAs by our
consolidated subsidiaries associated with The Salt Lake Tribune and The Denver Post.
See Note 1: Significant Accounting Policies and Other Matters — Joint Operating
Agencies and Note 3: Denver and Salt Lake City Joint Operating Agencies in the notes to
our condensed consolidated financial statements for further description and analysis of
this adjustment.
(c)
EBITDA of Prairie Mountain Publishing Company. The Prairie Mountain Publishing
Company agreement requires the partnership to make distributions equal to the earnings
of the partnership before depreciation and amortization (EBITDA). Our 50% share of the
EBITDA of the Prairie Mountain Publishing Company has been included in Adjusted EBITDA
Available to Company, as it is an integral part of our cash flows from operations as
defined by our debt covenants.
RECONCILIATION OF GAAP AND NON-GAAP FINANCIAL INFORMATION
Reconciliation of Income Statement Data presented on a historical GAAP basis to Non-GAAP Income
Statement Data presented on a pro-rata consolidation basis. Dollar amounts shown are in thousands.
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 (Denver and Salt Lake City). Our interest in the
earnings of the Salt Lake City JOA is 58%, while our interest in the Denver Newspaper Agency
is 50%. This adjustment also includes the editorial costs, revenues received outside of these
JOAs, depreciation, amortization, and other direct costs incurred outside of the JOAs by our
consolidated subsidiaries associated with The Salt Lake Tribune and The Denver Post. See Note
1: Significant Accounting Policies and Other Matters — Joint Operating Agencies and Note 3:
Denver and Salt Lake City Joint Operating Agencies in the notes to our condensed consolidated
financial statements for further description and analysis of the components of this
adjustment.
(2)
Adjusted EBITDA. Adjusted EBITDA is a non-GAAP measure.
RECONCILIATION OF GAAP AND NON-GAAP FINANCIAL INFORMATION
Reconciliation of Cash Flows from Operating Activities (GAAP measure) to Adjusted EBITDA presented
on a pro-rata consolidation basis (Non-GAAP measure).
Cash Flows from Operating Activities (GAAP measure)
$
21,034
$
12,542
$
19,265
$
65,727
Net Change in Operating Assets and Liabilities
19,563
25,130
39,318
(6,929
)
Distributions of Net Income Paid to Minority Interest
12,588
20,984
25,519
34,335
Distributions of Net Income from Unconsolidated JOAs
(17,413
)
(12,488
)
(26,848
)
(21,944
)
Distributions of Net Income from Equity Investments
(134
)
(325
)
(140
)
(950
)
Interest Expense
20,524
21,335
41,209
40,584
Bad Debt Expense
(5,162
)
(3,105
)
(8,464
)
(5,870
)
Pension Expense, Net of Cash Contributions
3,882
3,244
6,204
4,241
Net Cash Related to Other (Income), Expense
3,605
(630
)
3,311
(6,549
)
Combined Adjusted EBITDA of Unconsolidated JOAs(b)
11,718
9,548
20,036
16,291
Direct Costs of the Unconsolidated JOAs, Incurred Outside of
the Unconsolidated JOAs(c)
4,473
12,412
15,486
24,543
Adjusted EBITDA
74,678
88,647
134,896
143,479
Minority Interest in Adjusted EBITDA
(21,815
)
(27,066
)
(40,378
)
(45,259
)
EBITDA of Prairie Mountain Publishing Company (d)
611
438
1,205
1,050
Adjusted EBITDA Available to Company
$
53,474
$
62,019
$
95,723
$
99,270
Footnotes for table above.
(a)
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 condensed 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 minority interest in the Adjusted EBITDA generated from the
California Newspapers Partnership, the Texas-New Mexico Newspapers Partnership and the
Monterey Newspapers Partnership (beginning October 20, 2007), our less than 100% owned
consolidated subsidiaries as well as the Connecticut newspapers (beginning March 31, 2007)
(“Minority Interest in Adjusted EBITDA”); (ii) increasing Adjusted EBITDA by our
proportionate share of the EBITDA of the Prairie Mountain Publishing Company (see footnote
(d)). Note that pro-rata consolidation already takes into account our proportionate share
of the results from our unconsolidated JOAs (Denver and Salt Lake City).
(b)
Combined Adjusted EBITDA of Unconsolidated JOAs. Calculated by deducting cost of sales
and SG&A expense from total revenues from the Unconsolidated JOAs Pro-Rata Adjustment
column presented 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.”
(c)
Direct Costs of the Unconsolidated JOAs Incurred Outside of the Unconsolidated JOA.
Includes the editorial costs, revenues received outside of the JOA, depreciation,
amortization, and other direct costs incurred outside of the JOAs by our consolidated
subsidiaries associated with The Salt Lake Tribune and The Denver Post. See Note 1:
Significant Accounting Policies and Other Matters — Joint Operating Agencies and Note 3:
Denver and Salt Lake City Joint Operating Agencies in the notes to our condensed
consolidated financial statements for further description and analysis of this adjustment.
(d)
EBITDA of Prairie Mountain Publishing Company. The Prairie Mountain Publishing Company
agreement requires the partnership to make distributions equal to the earnings of the
partnership before depreciation and amortization (EBITDA). Our 50% share of Prairie
Mountain Publishing Company has been included in Adjusted EBITDA Available to Company, as
it is an integral part of our cash flows from operations as defined by our debt covenants.
Form of MediaNews Group, Inc.’s 6 7/8% Senior Subordinated Notes due 2013 (contained in
the Indenture filed as Exhibit 4.4 to the registrant’s Form 8-K filed January 14, 2004)
Form of MediaNews Group, Inc.’s 6 3/8% Senior Subordinated Notes due 2014 (contained in
the Indenture filed as Exhibit 4.4 to the registrant’s Form 10-Q for the period ended
December 31, 2003)
10.1
Seventh Amendment to Credit Agreement dated as of September 17, 2007, by and among
MediaNews Group, Inc., the guarantors party thereto, the lenders named therein and Bank of
America, N.A., as administrative agent (incorporated by reference to
Exhibit 10.1 to the registrant's Form 10-Q for the period ended
September 30, 2007)