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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period _____________ to _____________
Commission File No. 1-6383
MEDIA GENERAL, INC.
(Exact name of registrant as specified in its charter)
Commonwealth of Virginia 54-0850433
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
333 East Franklin Street, Richmond, Virginia 23219
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (804) 649-6000
Securities registered pursuant to Section 12(b) of the Act:
Class A Common Stock New York Stock Exchange
(Title of class) (Name of exchange on
which registered)
Securities registered pursuant to Section 12(g) of the Act: None
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. Yes X No
------------ ------------
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this form 10-K. [ ]
The aggregate market value of voting stock held by nonaffiliates of the
registrant, based upon the closing price of the Company's Class A Common Stock
as reported on the New York Stock Exchange, as of March 3, 2002, was
approximately $1,165,000,000.
The number of shares of Class A Common Stock outstanding on March 3,
2002, was 22,484,019. The number of shares of Class B Common Stock outstanding
on March 3, 2002, was 556,574.
Part I, Part II and Part IV incorporate information by reference from
the Annual Report to Stockholders for the year ended December 30, 2001. Part III
incorporates information by reference from the proxy statement for the Annual
Meeting of Stockholders to be held on May 24, 2002.
INDEX TO MEDIA GENERAL, INC.
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 30, 2001
Item No. Page
Part I
1. Business
General 1
Publishing 2
Broadcast 3
Interactive Media 6
2. Properties 6
3. Legal Proceedings 7
4. Submission of Matters to a Vote of Security Holders 7
Executive Officers of Registrant 8
Part II
5. Market for Registrant's Common Equity and Related Stockholder Matters 9
6. Selected Financial Data 9
7. Management's Discussion and Analysis of Financial Condition and Results
of Operation 9
7A. Quantitative and Qualitative Disclosures About Market Risk 9
8. Financial Statements and Supplementary Data 9
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 9
Part III
10. Directors and Executive Officers of the Registrant 9
11. Executive Compensation 9
12. Security Ownership of Certain Beneficial Owners and Management 10
13. Certain Relationships and Related Transactions 10
Part IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 10
Schedule II 20
Index to Exhibits 40
Signatures 44
PART I
ITEM 1. BUSINESS
GENERAL
Media General, Inc., is an independent, publicly owned communications
company situated primarily in the Southeast with interests in newspapers,
television stations, and interactive media. The Company employs approximately
7,700 people on a full or part-time basis. The Company's businesses are somewhat
seasonal; the second and fourth quarters are typically stronger than the first
and third quarters.
Through a series of strategically targeted acquisitions and
dispositions from 1995 to 2000, the Company has significantly expanded its reach
in the Southeast and intensified its focus on newspapers and television stations
in this region. Major acquisitions and dispositions have included:
Acquisitions Dispositions
Worrell Newspapers (1995) Media General Cable (1999)
Park Communications (1997) Garden State Paper Company (2000)
Spartan Communications (2000)
Selected Thomson Newspapers (2000)
These transactions along with several other smaller ones culminated in the
Company's ownership of 25 daily newspapers and nearly 100 other publications, as
well as 26 (21 southeastern) television stations. The Company also operates more
than 50 online enterprises
The trend in the publishing and broadcast industries during the 1990s
was toward consolidation. Generally, larger companies, like Media General, have
acquired smaller family-owned entities based upon their availability; these
properties have not reappeared on the market unless the larger companies make
strategic decisions to exit a particular market or to exit a segment of their
business. This trend has slowed in more recent years, and due to the severely
depressed advertising environment in 2001, there were very few transactions
consummated in 2001. The Federal Communications Commission (FCC) is in the
process of reviewing its regulations on several fronts but the most significant
of these from Media General's perspective is the FCC's cross-ownership ban
(currently prohibiting the common ownership of a TV station and a newspaper in
most markets). The FCC's duopoly regulations (involving the ownership of more
than one TV station in the same market) also is presently before the courts. If
and when these regulations are repealed or amended, a renewed trend of mergers,
swaps and acquisitions affecting the publishing and broadcast industries is
expected. The Company expects that this will present opportunities to further
its convergence strategy and to grow. The Company believes it is well positioned
to capitalize on these opportunities as they arise in the Southeast.
In December 1999 the Company initiated a program to repurchase up to
$250 million of its Class A common stock. The Company repurchased, in 1999 and
2000, 4.1 million shares at a cost of approximately $204 million.
1
INDUSTRY SEGMENTS
The Company operates in three significant industry segments. For
financial information related to these segments see pages 34 through 36 of the
2001 Annual Report to Stockholders, which are incorporated herein by reference.
These segments are Publishing, Broadcast, and most recently, Interactive Media.
On January 1, 2001, the Company launched the Interactive Media Division, the
operations of which had historically been a part of Publishing and Broadcast.
Additional information related to each of the Company's significant industry
segments is included below.
PUBLISHING BUSINESS
At December 30, 2001, the Company's wholly owned publishing operations
included daily and Sunday newspapers in Virginia, Florida, North Carolina,
Alabama and South Carolina. For a listing of the Company's daily and Sunday
newspapers by location, see the chart on page 7 of the 2001 Annual Report to
Stockholders, which is incorporated herein by reference. Combined paid
circulation for these newspapers in 2001 was as follows:
Newspaper Location Daily Sunday Weekly
- -----------------------------------------------------------------------
Virginia 359,000 410,000 52,000
Florida 234,000 310,000 1,000
North Carolina 167,000 177,000 7,000
Alabama 50,000 52,000 2,000
South Carolina 33,000 35,000 8,000
The Company also holds 20% of the common stock of the Denver Post
Corporation, the parent company of The Denver Post, a daily newspaper in Denver,
Colorado. Effective January 2001, The Denver Post and the Denver Rocky Mountain
News entered into a joint-operating agreement under which the competing
newspapers combined their advertising, circulation and production operations,
while maintaining separate newsrooms.
The newspaper publishing industry in the United States is comprised of
hundreds of public and private companies ranging from large national and
regional companies, publishing multiple newspapers across many states, to small
privately held companies publishing one newspaper in one locality. The Company
is among the top ten publicly held newspaper publishing companies in the United
States based on both daily circulation and revenues. Moreover, the Company has
achieved the number three position in circulation in its chosen southeastern
area of focus, with its publications reaching over one million households across
the Southeast every week.
All of the Company's newspapers compete for circulation and advertising
with other newspapers published nationally and in nearby cities and towns and
for advertising with magazines, radio, broadcast and cable television, the
Internet and other promotional media. All of the newspapers compete for
circulation principally on the basis of content, quality of service and price.
The primary raw material used by the Company in its publishing
operations is newsprint, which is purchased at market prices from various
Canadian and United States sources, including SP Newsprint Company (SPNC), in
which the Company owns a one-third equity interest. SPNC has mills in Dublin,
Georgia, and Newberg, Oregon, with a combined annual capacity of 1 million short
tons. The publishing operations of the Company consumed approximately 133,000
short tons of newsprint in 2001.
2
Management of the Company believes that sources of supply under existing
arrangements will be adequate in 2002.
BROADCAST BUSINESS
The ownership, operation and sale of broadcast television stations,
including those licensed to the Company, are subject to the jurisdiction of the
Federal Communications Commission (FCC), which engages in extensive and changing
regulation of the broadcasting industry under authority granted by the
Communications Act of 1934 (Communications Act) and the rules and regulations of
the FCC. The Communications Act requires broadcasters to serve the public
interest. Among other things, the FCC assigns frequency bands; determines
stations' locations and operating power; issues, renews, revokes and modifies
station licenses; assigns and controls changes in ownership or control of
station licenses; regulates equipment used by stations; adopts and implements
regulations and policies that directly or indirectly affect the ownership,
operation and employment practices of stations; regulates certain program
content and commercial matters in children's programming; has the authority to
impose penalties for violations of its rules or the Communications Act; and
imposes annual fees on stations. Reference should be made to the Communications
Act, the FCC's rules, public notices and rulings for further information
concerning the nature and extent of federal regulation of broadcast television
stations.
The Broadcast Television Division operates twenty-six
network-affiliated television stations in the United States. The following table
sets forth certain information on each of these stations:
Expiration Expiration
National Date of Date of
Station Location Market Station Audience FCC Network
and Affiliation Rank (a) Rank (a) * % Share (a) * License (b) Agreement
- --------------- -------- ---------- ------------- ----------- ----------
WFLA-TV NBC 14 1 12% 2/1/05 12/31/11
Tampa, FL
WSPA-TV CBS 36 1 16% 12/1/04 6/30/05
Greenville, SC
Spartanburg, SC
Satellite:
WNEG-TV,
Toccoa, GA
WASV-TV UPN 36 5 2% 12/1/04 10/31/07
Asheville, NC
WIAT-TV CBS 39 4 9% 4/1/05 12/31/04
Birmingham, AL
WJWB-TV WB 53 5 5% 2/1/05 1/12/04
Jacksonville, FL
WKRG-TV CBS 63 1 15% 4/1/05 4/2/05
Mobile, AL
Pensacola, FL
3
Expiration Expiration
National Date of Date of
Station Location Market Station Audience FCC Network
and Affiliation Rank (a) Rank (a) * % Share (a) * License (b) Agreement
--------------- -------- ---------- ------------- ----------- ----------
KWCH-TV CBS 65 1 17% 6/1/06 6/30/05
Wichita, KS
Satellites in Kansas:
KBSD-TV, Dodge City
KBSH-TV, Hays
KBSL-TV, Goodland
WTVQ-TV ABC 66 3 8% 8/1/05 1/1/06
Lexington, KY
WSLS-TV NBC 67 2 13% 10/1/04 12/31/11
Roanoke, VA
WDEF-TV CBS 86 3 11% 8/1/05 12/31/04
Chattanooga, TN
WJTV-TV CBS 88 2 16% 6/1/05 12/31/04
Jackson, MS
WJHL-TV CBS 93 2 15% 8/1/05 12/31/04
Johnson City, TN
WSAV-TV NBC 99 2 9% 4/1/05 12/31/11
Savannah, GA
WNCT-TV CBS 106 1 17% 12/1/04 12/31/04
Greenville, NC
WCBD-TV NBC 108 2 14% 12/1/04 12/31/11
Charleston, SC
WBTW-TV CBS 109 1 24% 12/1/04 6/30/05
Florence, SC
Myrtle Beach, SC
WJBF-TV ABC 114 1 16% 4/1/05 3/6/05
Augusta, GA
WRBL-TV CBS 126 2 15% 4/1/05 3/31/05
Columbus, GA
KIMT-TV CBS 151 1 16% 2/1/06 6/30/05
Mason City, IA
4
Expiration Expiration
National Date of Date of
Station Location Market Station Audience FCC Network
and Affiliation Rank (a) Rank (a) * % Share (a) * License (b) Agreement
- --------------- -------- ---------- ------------- ----------- ----------
WMBB-TV ABC 159 2 14% 2/1/05 3/6/05
Panama City, FL
WHLT-TV CBS 167 2 8% 6/1/05 8/31/05
Hattiesburg, MS
KALB-TV NBC 179 1 28% 6/1/05 12/31/11
Alexandria, LA
(a) Source: November 2001 Nielsen Rating Books.
(b) Television broadcast licenses are granted for maximum terms of eight
years and are subject to renewal upon application to the FCC.
* Sign-On to Sign-Off.
The primary source of revenues for the Company's television stations is
the sale of time to national and local advertisers. Additional revenue is
derived from the network programming carried by major-network affiliates.
The Company's television stations are in competition for audience and
advertising revenues with other television and radio stations and cable
television systems as well as magazines, newspapers, the Internet and other
promotional media. A number of cable television systems and direct-to-home
satellite companies which operate generally on a subscriber payment basis are in
business in the Company's broadcasting markets and compete for audience by
presenting cable network and other program services. The television stations
compete for audience on the basis of program content and quality of reception,
and for advertising revenues on the basis of price, share of market and
performance.
The television broadcast industry presently is implementing the
transition from analog to digital (DTV) technology in accordance with a mandated
conversion timetable established by the FCC. The Company's Tampa,
Greenville/Spartanburg, and Florence/Myrtle Beach television stations have begun
digital broadcasting; the Company's other television stations must begin DTV
service by May 1, 2002, except to the extent that the FCC extends this deadline
for particular stations.
Congress and the FCC have under consideration, and in the future may
adopt, new laws, regulations and policies regarding a wide variety of matters
that could affect, directly or indirectly, the operation, ownership and
profitability of the Company's broadcast television stations and affect the
ability of the Company to acquire additional stations. In addition to the
matters noted above, these include, for example, spectrum use fees, political
advertising rates, potential restrictions on the advertising of certain products
(such as alcoholic beverages) and ownership rule changes. Other matters that
could potentially affect the Company's broadcast properties include
technological innovations and developments generally affecting competition in
the mass communications industry, such as satellite radio and television
broadcast service, wireless cable systems, low-power television stations, radio
technologies, the advent of telephone company participation in the provision of
video programming services, and Internet delivered video programming services.
5
INTERACTIVE MEDIA BUSINESS
In January 2001 the Company launched its Interactive Media Division,
which operates in conjunction with its Publishing and Broadcast Divisions to
provide online news, information and entertainment to its customers without
geographic restrictions. The Division is comprised of more than 50 interactive
enterprises, as well as a minority investment in PowerOne Media, Inc. (formerly
AdOne, LLP) and several other dot-com companies. The most established component
of the Division is Media General Financial Services, Inc., which compiles and
makes available both current and historical data on publicly traded companies to
a broad spectrum of users, primarily online financial data services, and also
offers other specialized financial products.
Among the online enterprises included in the Interactive Media
Division, each of the Company's daily newspapers and television stations is
affiliated with a website featuring content from its published products or its
television offerings. Online revenues are derived primarily from advertising,
which range from static banner ads to interactive advertising to targeted ad
campaigns. Additional revenues are generated from classified advertisements
placed on the Company's websites. This arrangement has been very successfully
converted to an upsell arrangement in several markets and is being rolled-out to
others. Under the upsell arrangement, customers pay a small additional fee to
have their classified ad placed online, simultaneously.
The Interactive Media Division is acting as the catalyst in the
Company's convergence efforts, which can best be seen at TBO.com, where content
from both The Tampa Tribune and WFLA-TV is leveraged to create the most
comprehensive online news and information service in the Tampa metropolitan
area. While the next several years will reflect the expense of starting and
growing the Interactive Media Division, the Company expects that it will become
profitable in two to three years.
The Company's online enterprises compete for advertising, as well as
for users' discretionary time, against newspapers, magazines, radio, broadcast
and cable television, other websites and other promotional media. These websites
compete for users principally on the basis of depth of content, and for
advertisers primarily on the strength of technology to deliver advertisements
and the quality of that delivery.
ITEM 2. PROPERTIES
The headquarters buildings of Media General, Inc., and the Richmond
Times-Dispatch are adjacent to one another in downtown Richmond, Virginia. The
Company currently leases both of these buildings and has an option to buy them.
The Company owns a third adjacent building which houses the Interactive Media
Division's and Broadcast Division's management. The Richmond newspaper is
printed at a production and distribution facility located on a site
(approximately 90 acres) in Hanover County, Virginia, near Richmond; the acreage
beyond the foreseeable needs of the Company is being actively marketed. The
Company owns eight other daily newspapers in Virginia, all of which are printed
in or around their respective cities at production and distribution facilities
situated on parcels of land ranging from one-half acre to six acres. The Tampa,
Florida, newspaper is located in a single unit production plant and office
building located on a six acre tract in that city. The headquarters of the
Company's Brooksville and Sebring, Florida, daily newspapers are located on
leased property in their respective cities; however, these newspapers are
printed at the Tampa production facility. The Winston-Salem newspaper is
headquartered in one building in downtown Winston-Salem; its newspaper is
printed at a production and distribution facility located on a nearby 12 acre
site. The remaining twelve daily
6
newspapers (seven in North Carolina, three in Alabama, and one each in South
Carolina and Florida) are printed at production and distribution facilities on
sites which range from one-half acre to seven acres, all located in or around
their respective cities. The Company owns substantially all of its newspaper
production equipment, production buildings and the land where these production
facilities reside.
The Company's broadcast television station, WFLA-TV in Tampa, Florida,
occupies its headquarters and studio building, which is leased by the Company
with an option to buy. This building adjoins The Tampa Tribune. This structure
also serves as a multimedia news center where efforts are combined and
information is shared among The Tampa Tribune, WFLA-TV and TBO.com.
The Company's 26 television stations are located in 12 states (ten
southeastern) as follows: four each in Florida, Georgia, South Carolina and
Kansas; two in both Mississippi and Tennessee; and one in Alabama, Kentucky,
Louisiana, North Carolina, Iowa and Virginia. Substantially all of the
television stations are located on land owned by the Company. Twenty station
tower sites are owned by the Company; six are leased.
The Interactive Media Division operates out of and in conjunction with
the Publishing and Broadcast properties.
The Company considers all of its properties, together with the related
machinery and equipment contained therein, to be well maintained, in good
operating condition, and adequate for its present and foreseeable future needs.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEMS 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of 2001.
7
EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Position and Office Year First Took Office*
J. Stewart Bryan III 63 Chairman, Chief Executive Officer 1985
Marshall N. Morton 56 Vice Chairman, Chief Financial Officer 1989
O. Reid Ashe, Jr. 53 President, Chief Operating Officer 2001
H. Graham Woodlief, Jr. 57 Vice President, President of Publishing Division 1989
James A. Zimmerman 55 Vice President, President of Broadcast Division 2001
Neal F. Fondren 43 Vice President, President of Interactive Media
Division 2001
Lou Anne J. Nabhan 47 Vice President, Corporate Communications 2001
Stephen Y. Dickinson 56 Controller 1989
George L. Mahoney 49 General Counsel, Secretary 1993
John A. Schauss 46 Treasurer 2001
- --------------------
* The year indicated is the year in which the officer first assumed an
office with the Company.
Officers of the Company are elected at the Annual Meeting of the Board
of Directors to serve, unless sooner removed, until the next Annual Meeting of
the Board of Directors and/or until their successors are duly elected and
qualified.
8
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Reference is made to page 45 of the 2001 Annual Report to Stockholders,
which is incorporated herein by reference, for information required by this
item.
ITEM 6. SELECTED FINANCIAL DATA
Reference is made to pages 46 and 47 of the 2001 Annual Report to
Stockholders, which are incorporated herein by reference, for information
required by this item.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Reference is made to pages 17 through 23 of the 2001 Annual Report to
Stockholders, which are incorporated herein by reference, for information
required by this item.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Reference is made to pages 21, 22, 33, 34, 42 and 44 of the 2001 Annual
Report to Stockholders, which are incorporated herein by reference, for
information required by this item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated financial statements of the Company as of December 30,
2001, and December 31, 2000, and for each of the three fiscal years in the
period ended December 30, 2001, and the report of independent auditors thereon,
as well as the Company's unaudited quarterly financial data for the fiscal years
ended December 30, 2001, and December 31, 2000, are incorporated herein by
reference from the 2001 Annual Report to Stockholders pages 24 through 45.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated herein by reference from the Company's definitive proxy
statement for the Annual Meeting of Stockholders on May 24, 2002, except as to
certain information regarding executive officers included in Part I.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference from the Company's definitive proxy
statement for the Annual Meeting of Stockholders on May 24, 2002.
9
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference from the Company's definitive proxy
statement for the Annual Meeting of Stockholders on May 24, 2002.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference from the Company's definitive proxy
statement for the Annual Meeting of Stockholders on May 24, 2002.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. and 2. Financial Statement Schedules
The financial statements and schedules listed in the accompanying index
to financial statements and financial schedules are filed as part of
this annual report.
3. Exhibits
The exhibits listed in the accompanying index to exhibits are filed as
part of this annual report.
(b) Reports on Form 8-K
None
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES - ITEM 14(a)
Annual Report to
Form 10-K Stockholders
--------- ------------
Media General, Inc.
(Registrant)
Report of independent auditors 24
Consolidated statements of operations for the fiscal years ended
December 30, 2001, December 31, 2000, and December 26, 1999 25
Consolidated balance sheets at December 30, 2001, and December 31, 2000 26-27
Consolidated statements of stockholders' equity for the fiscal years ended
December 30, 2001, December 31, 2000, and December 26, 1999 28
Consolidated statements of cash flows for the fiscal years ended
December 30, 2001, December 31, 2000, and December 26, 1999 29
Notes 1 through 10 to the consolidated financial statements 30-44
Note 11 to the consolidated financial statements 11-19
Schedule:
II - Valuation and qualifying accounts and reserves for the fiscal
years ended December 30, 2001, December 31, 2000, and
December 26, 1999 20
Schedules other than Schedule II, listed above, are omitted since they are not
required or are not applicable, or the required information is shown in the
financial statements or notes thereto.
10
SP Newsprint Co.
(Unconsolidated Investee)
Report of independent auditors 21
Consolidated balance sheets at December 30, 2001, and December 31, 2000 22-23
Consolidated statements of income for the fiscal years ended
December 30, 2001, December 31, 2000, and December 26, 1999 24
Consolidated statements of partners' capital for the fiscal years ended
December 30, 2001, December 31, 2000, and December 26, 1999 25
Consolidated statements of cash flows for the fiscal years ended
December 30, 2001, December 31, 2000, and December 26, 1999 26
Notes to consolidated financial statements 27-38
Schedule:
II - Valuation and qualifying accounts and reserves for the fiscal
years ended December 30, 2001, December 31, 2000, and
December 26, 1999 39
The consolidated financial statements of Media General, Inc. (except for Note 11
which is provided below), listed in the above index which are included in the
Annual Report to Stockholders of Media General, Inc., for the fiscal year ended
December 30, 2001, are incorporated herein by reference. With the exception of
the pages listed in the above index and the information incorporated by
reference included in Parts I, II and IV, the 2001 Annual Report to Stockholders
is not deemed filed as part of this report.
The following financial statement footnote was not included in the
Annual Report:
NOTE 11: GUARANTOR FINANCIAL INFORMATION
Under the shelf registration filed in August 2001 (See Note 4), the
Company's subsidiaries may be required, from time to time, to guarantee debt
securities issued from that shelf under certain circumstances. These guarantees
would be full and unconditional and on a joint and several basis. For the $200
million in senior notes, which are currently guaranteed by the subsidiaries, the
following financial information presents condensed consolidating balance sheets,
statements of operations, and statements of cash flows for the parent company,
the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries, together with
certain eliminations. The Non-Guarantor Subsidiaries consist of Garden State
Paper, sold in the third quarter of 2000, and the Company's cable operations,
sold in the fourth quarter of 1999, during their respective periods of
ownership.
11
Media General, Inc.
Condensed Consolidating Balance Sheets
As of December 30, 2001
(In thousands)
Media General Guarantor Media General
Corporate Subsidiaries Eliminations Consolidated
--------------------------------------------------------- -------------
ASSETS
Current Assets:
Cash and cash equivalents $ 4,382 $ 4,755 $ --- $ 9,137
Accounts receivable, net --- 112,431 --- 112,431
Inventories 1 4,859 --- 4,860
Other 38,473 58,902 (60,765) 36,610
------------------------------------------------------- ---------------
Total current assets 42,856 180,947 (60,765) 163,038
------------------------------------------------------- ---------------
Investments in unconsolidated affiliates 10,401 104,187 --- 114,588
Investments in and advances to subsidiaries 1,985,287 609,248 (2,594,535) ---
Other assets 36,676 34,632 --- 71,308
Property, plant and equipment, net 19,896 366,020 --- 385,916
Excess of cost over fair value of net identi-
fiable assets of acquired businesses, net --- 933,957 --- 933,957
FCC licenses and other intangibles, net --- 865,252 --- 865,252
------------------------------------------------------- ---------------
Total assets $ 2,095,116 $ 3,094,243 $ (2,655,300) $ 2,534,059
======================================================= ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 8,997 $ 10,912 $ --- $ 19,909
Accrued expenses and other liabilities 61,846 79,513 (60,771) 80,588
------------------------------------------------------- ---------------
Total current liabilities 70,843 90,425 (60,771) 100,497
------------------------------------------------------- ---------------
Long-term debt 776,923 739 --- 777,662
Deferred income taxes (46,561) 397,415 --- 350,854
Other liabilities and deferred credits 129,365 12,013 --- 141,378
Stockholders' equity
Common stock 114,883 4,872 (4,872) 114,883
Additional paid-in capital 10,006 2,024,639 (2,024,639) 10,006
Accumulated other comprehensive
income (loss) (20,135) (878) --- (21,013)
Unearned compensation (6,780) --- --- (6,780)
Retained earnings 1,066,572 565,018 (565,018) 1,066,572
------------------------------------------------------- ---------------
Total stockholders' equity 1,164,546 2,593,651 (2,594,529) 1,163,668
------------------------------------------------------- ---------------
Total liabilities and stockholders'
equity $ 2,095,116 $ 3,094,243 $ (2,655,300) $ 2,534,059
======================================================= ===============
12
Media General, Inc.
Condensed Consolidating Balance Sheets
As of December 31, 2000
(In thousands)
Media General Guarantor Media General
Corporate Subsidiaries Eliminations Consolidated
--------------------------------------------------------- -------------
ASSETS
Current Assets:
Cash and cash equivalents $ 4,091 $ 6,313 $ --- $ 10,404
Accounts receivable, net --- 117,254 --- 117,254
Inventories 6 7,162 --- 7,168
Other 45,753 58,246 (65,945) 38,054
------------------------------------------------------- ---------------
Total current assets 49,850 188,975 (65,945) 172,880
------------------------------------------------------- ---------------
Investments in unconsolidated affiliates 9,113 81,626 --- 90,739
Investments in and advances to subsidiaries 2,021,691 519,783 (2,541,474) ---
Other assets 39,412 20,153 --- 59,565
Property, plant and equipment, net 12,845 367,105 --- 379,950
Excess of cost over fair value of net identi-
fiable assets of acquired businesses, net --- 958,443 --- 958,443
FCC licenses and other intangibles, net --- 899,705 --- 899,705
------------------------------------------------------- ---------------
Total assets $ 2,132,911 $ 3,035,790 $ (2,607,419) $ 2,561,282
======================================================= ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 12,479 $ 14,724 $ --- $ 27,203
Accrued expenses and other liabilities 66,129 87,161 (65,952) 87,338
------------------------------------------------------- ---------------
Total current liabilities 78,608 101,885 (65,952) 114,541
------------------------------------------------------- ---------------
Long-term debt 821,000 1,077 --- 822,077
Deferred income taxes (27,910) 379,401 --- 351,491
Other liabilities and deferred credits 89,291 11,960 --- 101,251
Stockholders' equity
Common stock 113,573 4,872 (4,872) 113,573
Additional paid-in capital --- 2,024,743 (2,024,743) ---
Accumulated other comprehensive
income (loss) (3,481) --- --- (3,481)
Unearned compensation (2,145) --- --- (2,145)
Retained earnings 1,063,975 511,852 (511,852) 1,063,975
------------------------------------------------------- ---------------
Total stockholders' equity 1,171,922 2,541,467 (2,541,467) 1,171,922
------------------------------------------------------- ---------------
Total liabilities and stockholders'
equity $ 2,132,911 $ 3,035,790 $ (2,607,419) $ 2,561,282
======================================================= ===============
13
Media General, Inc.
Condensed Consolidating Statements of Operations
Fiscal Year Ended December 30, 2001
(In thousands)
Media General Guarantor Media General
Corporate Subsidiaries Eliminations Consolidated
--------------------------------------------------------- -------------
Revenues $ 152,314 $ 926,578 $ (271,716) $ 807,176
Operating costs:
Production --- 354,740 --- 354,740
Selling, general and administrative 153,115 384,591 (271,716) 265,990
Depreciation and amortization 4,230 109,502 --- 113,732
------------------------------------------------------- ---------------
Total operating costs 157,345 848,833 (271,716) 734,462
------------------------------------------------------- ---------------
Operating income (loss) (5,031) 77,745 --- 72,714
Operating income (expense):
Interest expense (54,159) (88) --- (54,247)
Investment income - unconsolidated
affiliates 3,094 16,855 --- 19,949
Investment income - consolidated
affiliates 53,166 --- (53,166) ---
Other, net (2,167) (5,303) --- (7,470)
------------------------------------------------------- ---------------
Total other income (expense) (66) 11,464 (53,166) (41,768)
------------------------------------------------------- ---------------
Income (loss) from continuing
operations before income taxes (5,097) 89,209 (53,166) 30,946
Income tax expense (benefit) (23,021) 36,043 --- 13,022
------------------------------------------------------- ---------------
Income (loss) from continuing operations 17,924 53,166 (53,166) 17,924
Gain from discontinued operations (net of tax) 280 --- --- 280
------------------------------------------------------- ---------------
Net income (loss) 18,204 53,166 (53,166) 18,204
Other comprehensive income (loss)
(net of tax) (20,135) 2,603 --- (17,532)
------------------------------------------------------- ---------------
Comprehensive income (loss) $ (1,931) $ 55,769 $ (53,166) $ 672
======================================================= ===============
14
Media General, Inc.
Condensed Consolidating Statements of Operations
Fiscal Year Ended December 31, 2000
(In thousands)
Media Non- Media
General Guarantor Guarantor General
Corporate Subsidiaries Subsidiaries Eliminations Consolidated
--------------------------------------------------------------- ------------
Revenues $ 154,060 $ 944,866 $ --- $ (268,325) $ 830,601
Operating costs:
Production --- 343,949 --- --- 343,949
Selling, general and administrative 151,240 378,357 --- (268,325) 261,272
Depreciation and amortization 4,128 97,419 --- --- 101,547
------------------------------------------------------------------ ------------
Total operating costs 155,368 819,725 --- (268,325) 706,768
------------------------------------------------------------------ ------------
Operating income (loss) (1,308) 125,141 --- --- 123,833
Operating income (expense):
Interest expense (42,434) (124) --- --- (42,558)
Investment income (loss) -
unconsolidated affiliates (2,546) 7,677 --- --- 5,131
Investment income - consolidated
affiliates 79,374 --- --- (79,374) ---
Other, net 13,520 3,000 --- --- 16,520
------------------------------------------------------------------ ------------
Total other income (expense) 47,914 10,553 --- (79,374) (20,907)
------------------------------------------------------------------ ------------
Income (loss) from continuing
operations before income taxes 46,606 135,694 --- (79,374) 102,926
Income tax expense (benefit) (12,601) 51,970 --- --- 39,369
------------------------------------------------------------------ ------------
Income (loss) from continuing operations 59,207 83,724 --- (79,374) 63,557
Discontinued operations:
Loss from discontinued operations
(net of tax) --- --- (4,350) --- (4,350)
Loss on disposition of discontinued
operations (net of tax) (5,488) --- --- --- (5,488)
------------------------------------------------------------------ ------------
Net income (loss) 53,719 83,724 (4,350) (79,374) 53,719
Other comprehensive income (loss)
(net of tax) (10,873) --- --- --- (10,873)
------------------------------------------------------------------ ------------
Comprehensive income (loss) $ 42,846 $ 83,724 $ (4,350) $ (79,374) $ 42,846
================================================================== ============
15
Media General, Inc.
Condensed Consolidating Statements of Operations
Fiscal Year Ended December 26, 1999
(In thousands)
Media Non- Media
General Guarantor Guarantor General
Corporate Subsidiaries Subsidiaries Eliminations Consolidated
--------------------------------------------------------------- ------------
Revenues $ 28,951 $ 692,902 $ --- $ (28,951) $ 692,902
Operating costs:
Production --- 288,677 --- --- 288,677
Selling, general and administrative 30,987 207,173 --- (28,951) 209,209
Depreciation and amortization 3,348 69,092 --- --- 72,440
-------------------------------------------------------------------- --------------
Total operating costs 34,335 564,942 --- (28,951) 570,326
-------------------------------------------------------------------- --------------
Operating income (loss) (5,384) 127,960 --- --- 122,576
Operating income (expense):
Interest expense (44,917) (97) --- --- (45,014)
Investment income - unconsolidated
affiliates 2,500 6,567 --- --- 9,067
Investment income - consolidated
affiliates 83,744 --- --- (83,744) ---
Gain on sale of Denver Newspapers,
Inc. stock 30,983 --- --- --- 30,983
Other, net 11,902 735 --- --- 12,637
-------------------------------------------------------------------- --------------
Total other income (expense) 84,212 7,205 --- (83,744) 7,673
-------------------------------------------------------------------- --------------
Income (loss) from continuing
operations before income taxes and
extraordinary item 78,828 135,165 --- (83,744) 130,249
Income tax expense (benefit) (5,097) 56,528 --- --- 51,431
-------------------------------------------------------------------- --------------
Income from continuing operations
before income taxes and
extraordinary item 83,925 78,637 --- (83,744) 78,818
Discontinued operations:
Income from discontinued operations
(net of tax) --- --- 5,107 --- 5,107
Gain on sale of discontinued
operations (net of tax) 798,719 --- --- --- 798,719
Extraordinary item from early
redemption of debt (net of tax) (1,328) --- --- --- (1,328)
-------------------------------------------------------------------- --------------
Net income 881,316 78,637 5,107 (83,744) 881,316
Other comprehensive income
(net of tax) 7,392 --- --- --- 7,392
-------------------------------------------------------------------- --------------
Comprehensive income (loss) $ 888,708 $ 78,637 $ 5,107 $ (83,744) $ 888,708
==================================================================== ==============
16
Media General, Inc.
Condensed Consolidating Statements of Cash Flows
Fiscal Year Ended December 30, 2001
(In thousands)
Media General Guarantor Media General
Corporate Subsidiaries Consolidated
---------------------------------------- -----------------
Cash flows from operating activities:
Net cash provided by operating activities $ 76,750 $ 47,559 $ 124,309
Cash flows from investing activities:
Capital expenditures (10,062) (44,311) (54,373)
Purchase of businesses (1,766) --- (1,766)
Other, net 4,070 (4,502) (432)
-------------------------------------- ----------------
Net cash used by investing activities (7,758) (48,813) (56,571)
-------------------------------------- ----------------
Cash flows from financing activities:
Increase in debt 1,236,882 --- 1,236,882
Repayment of debt (1,280,998) (304) (1,281,302)
Debt issuance costs (12,211) --- (12,211)
Stock repurchase (2,120) --- (2,120)
Cash dividends paid (15,607) --- (15,607)
Other, net 5,353 --- 5,353
-------------------------------------- ----------------
Net cash used by financing activities (68,701) (304) (69,005)
-------------------------------------- ----------------
Net (decrease) increase in cash and cash equivalents 291 (1,558) (1,267)
Cash and cash equivalents at beginning of year 4,091 6,313 10,404
-------------------------------------- ----------------
Cash and cash equivalents at end of year $ 4,382 $ 4,755 $ 9,137
====================================== ================
17
Media General, Inc.
Condensed Consolidating Statements of Cash Flows
Fiscal Year Ended December 31, 2000
(In thousands)
Media General Guarantor Non-Guarantor Media General
Corporate Subsidiaries Subsidiaries Consolidated
--------------------------------------------------------- -----------------
Cash flows from operating activities:
Net cash (used) provided by operating
activities $ (431,695) $ 33,085 $ 26,004 $ (372,606)
Cash flows from investing activities:
Capital expenditures (5,041) (31,817) (6,015) (42,873)
Purchase of businesses (857,570) --- --- (857,570)
Proceeds from dispositions and sales 90,511 --- --- 90,511
Proceeds from maturity of short-term
investments 390,748 --- --- 390,748
Other, net (12,284) 256 --- (12,028)
------------------------------------------------------- ---------------
Net cash used by investing activities (393,636) (31,561) (6,015) (431,212)
Cash flows from financing activities:
Increase in debt 1,095,000 --- --- 1,095,000
Repayment of debt (313,000) (333) (20,000) (333,333)
Stock repurchase (192,692) --- --- (192,692)
Cash dividends paid (15,299) --- --- (15,299)
Other, net 5,248 --- --- 5,248
------------------------------------------------------- ---------------
Net cash provided (used) by financing
activities 579,257 (333) (20,000) 558,924
------------------------------------------------------- ---------------
Net (decrease) increase in cash and cash
equivalents (246,074) 1,191 (11) (244,894)
Cash and cash equivalents at beginning
of year 250,165 5,122 11 255,298
------------------------------------------------------- ---------------
Cash and cash equivalents at end of
year $ 4,091 $ 6,313 $ --- $ 10,404
======================================================= ===============
18
Media General, Inc.
Condensed Consolidating Statements of Cash Flows
Fiscal Year Ended December 26, 1999
(In thousands)
Media General Guarantor Non-Guarantor Media General
Corporate Subsidiaries Subsidiaries Consolidated
--------------------------------------------------------- -------------
Cash flows from operating activities:
Net cash provided by operating
activities $ 66,791 $ 25,331 $ 30,897 $ 123,019
Cash flows from investing activities:
Capital expenditures (2,968) (26,959) (30,902) (60,829)
Purchase from dispositions and sales 1,412,465 --- --- 1,412,465
Proceeds from Denver Newspapers, Inc.
investment transactions 73,000 --- --- 73,000
Purchases of short-term investments, net (390,748) --- --- (390,748)
Other, net (6,815) 1,201 32 (5,582)
------------------------------------------------------- ---------------
Net cash provided (used) by investing
activities 1,084,934 (25,758) (30,870) 1,028,306
Cash flows from financing activities:
Increase in debt 268,000 --- --- 268,000
Repayment of debt (1,136,000) (369) (140) (1,136,509)
Stock repurchase (22,743) --- --- (22,743)
Cash dividends paid (16,062) --- --- (16,062)
Other, net 3,650 --- --- 3,650
------------------------------------------------------- ---------------
Net cash used by financing activities (903,155) (369) (140) (903,664)
------------------------------------------------------- ---------------
Net increase (decrease) in cash and cash
equivalents 248,570 (796) (113) 247,661
Cash, cash equivalents and short-term
investments:
Cash and cash equivalents at beginning
of year 1,595 5,918 124 7,637
------------------------------------------------------- ---------------
Cash and cash equivalents at end of year 250,165 5,122 11 255,298
Short-term investments at end of year 390,748 --- --- 390,748
------------------------------------------------------- ---------------
Cash, cash equivalents and short-term
investments at end of year $ 640,913 $ 5,122 $ 11 $ 646,046
======================================================= ===============
19
Media General, Inc.
Schedule II - Valuation and Qualifying Accounts and Reserves
Fiscal Years Ended December 30, 2001, December 31, 2000, and December 26, 1999
Balance at Additions
Beginning charged to Deductions
of period expense-net Net
------------------ ------------------ ------------------
2001
Allowance for doubtful accounts $ 7,470,680 $ 7,984,458 $ 7,382,642
Reserve for warranties 2,488,219 --- 856,458
------------------ ------------------ ------------------
Totals $ 9,958,899 $ 7,984,458 $ 8,239,100
================== ================== ==================
2000
Allowance for doubtful accounts $ 7,088,011 $ 4,750,536 $ 5,239,457
Reserve for warranties 2,700,000 --- 211,781
------------------ ------------------ ------------------
Totals $ 9,788,011 $ 4,750,536 $ 5,451,238
================== ================== ==================
1999
Allowance for doubtful accounts $ 8,433,300 $ 5,278,081 $ 5,863,762
Reserve for warranties 3,139,934 --- 439,934
------------------ ------------------ ------------------
Totals $ 11,573,234 $ 5,278,081 $ 6,303,696
================== ================== ===================
Balance
at end
Transfers of period
------------------ ------------------
2001
Allowance for doubtful accounts $ 12,623 (a) $ 8,085,119
Reserve for warranties --- 1,631,761
------------------ ------------------
Totals $ 12,623 $ 9,716,880
================== ==================
2000
Allowance for doubtful accounts $ 871,590 (a) $ 7,470,680
Reserve for warranties --- 2,488,219
------------------ ------------------
Totals $ 871,590 $ 9,958,899
================== ==================
1999
Allowance for doubtful accounts $ (759,608) (a) $ 7,088,011
Reserve for warranties --- 2,700,000
------------------ ------------------
Totals $ (759,608) $ 9,788,011
================== ==================
(a) Amount associated with net acquisitions and dispositions of businesses.
20
REPORT OF INDEPENDENT AUDITORS
The Partners
SP Newsprint Co. and Subsidiaries
We have audited the accompanying consolidated balance sheets of SP Newsprint Co.
(a Georgia Partnership) and subsidiaries as of December 30, 2001 and December
31, 2000, and the related consolidated statements of income, partners' capital,
and cash flows for each of the three years in the period ended December 30,
2001. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of SP Newsprint Co.
and subsidiaries at December 30, 2001 and December 31, 2000, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 30, 2001, in conformity with accounting
principles generally accepted in the United States.
As discussed in Notes 2 and 8 to the Consolidated Financial Statements, in 2001
the Company changed its method of accounting for derivative financial
instruments and hedging activities.
/s/ Ernst & Young LLP
Atlanta, Georgia
January 11, 2002
21
SP Newsprint Co. and Subsidiaries
Consolidated Balance Sheets
December 30, December 31,
2001 2000
-------------------------------------------
(In Thousands)
Assets
Current assets:
Cash and temporary investments $ 200 $ 145
Trade receivables, net of allowance for doubtful accounts
of $499 for 2001 and $591 for 2000 42,377 37,443
Trade receivables from affiliates 15,121 10,658
Other receivables 2,060 3,105
Noninterest-bearing demand notes receivable from partners
20,000 20,000
Inventories (Note 2) 30,196 29,725
Derivative financial instruments 5,457 -
Prepaid expenses 3,962 3,312
-------------------------------------------
Total current assets 119,373 104,388
Property, plant and equipment:
Land 14,625 13,346
Land improvements 14,047 14,023
Buildings and leasehold improvements 51,122 47,292
Machinery, equipment and other 836,918 750,751
Construction work in progress 9,517 16,052
-------------------------------------------
926,229 841,464
Less accumulated depreciation (419,151) (387,415)
-------------------------------------------
507,078 454,049
Unexpended industrial revenue bond proceeds - 26,961
Goodwill, net 10,989 11,586
Other, including deferred charges 7,148 4,970
-------------------------------------------
Total assets $ 644,588 $ 601,954
===========================================
22
December 30, December 31,
2001 2000
-------------------------------------------
(In Thousands)
Liabilities and partners' capital
Current liabilities:
Current portion of long-term debt (Note 4) $ 18,000 $ 25,000
Accounts payable 11,189 12,892
Accrued liabilities:
Compensation and related amounts 15,909 18,885
Interest 2,066 1,106
Other 19,395 16,429
-------------------------------------------
Total current liabilities 66,559 74,312
Other liabilities (Note 6) 21,559 15,175
Long-term debt, less current portion (Note 4) 248,520 269,520
Commitments and contingencies (Note 7) - -
Partners' capital 302,613 243,902
Accumulated other comprehensive income (loss) 5,337 (955)
-------------------------------------------
Total Partners' capital 307,950 242,947
-------------------------------------------
Total liabilities and partners' capital $ 644,588 $ 601,954
===========================================
See accompanying notes.
23
SP Newsprint Co. and Subsidiaries
Consolidated Statements of Income
Year ended Year ended Year ended
December 30, December 31, December 26,
2001 2000 1999
---------------------------------------------------------
(In Thousands)
Net sales
Third parties $373,609 $300,564 $171,747
Affiliates 133,697 112,550 103,290
---------------------------------------------------------
Total net sales 507,306 413,114 275,037
Cost of goods sold 400,760 338,399 229,945
---------------------------------------------------------
Gross margin 106,546 74,715 45,092
Selling, general, and administrative
expenses 30,892 26,521 19,171
Fees paid to affiliates 1,197 717 529
---------------------------------------------------------
Income from operations 74,457 47,477 25,392
Interest expense (16,065) (25,578) (6,185)
Interest income 951 820 443
Other (expense) income (632) (570) 51
---------------------------------------------------------
Net income $ 58,711 $ 22,149 $ 19,701
=========================================================
See accompanying notes.
24
SP Newsprint Co. and Subsidiaries
Consolidated Statements of Partners' Capital
Accumulated Other
Comprehensive
Income (Loss)
Net Cash -----------------------------
Income Distributions Derivatives Total
Invested Since Since Pension Designated as Partners'
Capital Inception Inception Liability Hedges Capital
----------------------------------------------------------------------------------
Balance at December 27, 1998 $60,000 $309,930 $(137,578) $ - $ - $232,352
Net income - 19,701 - - - 19,701
Cash distributions to partners - - (20,100) - - (20,100)
----------------------------------------------------------------------------------
Balance at December 26, 1999 60,000 329,631 (157,678) - - 231,953
Net income - 22,149 - - - 22,149
Minimum pension liability - - - (955) - (955)
-------------
Comprehensive income - - - - - 21,194
Cash distributions to partners - - (10,200) - - (10,200)
----------------------------------------------------------------------------------
Balance at December 31, 2000 60,000 351,780 (167,878) (955) - 242,947
Net income - 58,711 - - - 58,711
Minimum pension liability - - - (32) - (32)
Net unrealized gain on
derivative instruments - - - - 6,324 6,324
-------------
Comprehensive income - - - - - 65,003
----------------------------------------------------------------------------------
Balance at December 30, 2001 $60,000 $410,491 $(167,878) $(987) $6,324 $307,950
==================================================================================
See accompanying notes.
25
SP Newsprint Co. and Subsidiaries
Consolidated Statements of Cash Flows
Year ended Year ended Year ended
December 30, December 31, December 26,
2001 2000 1999
----------------- ----------------- ----------------
(In Thousands)
Operating activities
Net income $ 58,711 $ 22,149 $ 19,701
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 37,840 36,442 29,510
Amortization 1,846 1,745 319
Changes in operating assets and liabilities (excluding
acquisition):
Trade and other receivables (8,352) (4,303) (9,346)
Inventories (471) (2,245) 821
Prepaid expenses (650) (88) 105
Other assets (2,083) (257) (319)
Accounts payable, accrued and other liabilities 5,599 (4,748) 18,571
----------------- ----------------- ----------------
Net cash provided by operating activities 92,440 48,695 59,362
Investing activities
Purchase of Newberg Mill - - (211,562)
Purchase of property, plant, and equipment (90,869) (21,423) (5,824)
Investment of industrial revenue bond proceeds (38,000) (40,520) -
Use of industrial revenue bond proceeds 64,961 13,559 3,903
----------------- ----------------- ----------------
Net cash used in investing activities (63,908) (48,384) (213,483)
Financing activities
Distributions to partners - (10,200) (20,100)
Proceeds from industrial revenue bond financing 38,000 40,520 -
Proceeds from bank loan financing - - 226,000
Repayment of long-term debt (66,000) (30,000) (47,000)
Cost of new financing (477) (702) (4,737)
----------------- ----------------- ----------------
Net cash provided by (used in) financing activities (28,477) (382) 154,163
------------------- ----------------- ----------------
Net increase (decrease) in cash and temporary investments 55 (71) 42
Cash and temporary investments at beginning of year 145 216 174
----------------- ----------------- ----------------
Cash and temporary investments at end of year $ 200 $ 145 $ 216
================= ================= ================
Supplemental disclosure
Interest paid $ 16,369 $ 25,301 $ 5,647
================= ================= ================
See accompanying notes.
26
Sp Newsprint Co. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2001
1. ORGANIZATION AND OPERATION OF PARTNERSHIP
SP Newsprint Co. (the "Company") is a Georgia partnership which operates
newsprint paper mills (one in Dublin, GA. and one in Newberg, OR.) under an
agreement ultimately among Cox Enterprises, Inc., Knight-Ridder Newspapers,
Inc., and Media General, Inc. (the "Partners"). The Company produces recycled
newsprint which is sold to a variety of newspaper publishers mainly in the
southeastern and western United States. Historically, the newsprint industry has
been highly cyclical, and the market for newsprint is subject to rapid changes.
Current forecasts for 2002 reflect significantly lower newsprint prices which
are projected to have a substantial adverse impact on 2002 earnings. Such a
sustained decline in newsprint prices would impact the Company's ability to
execute its capital spending programs and possibly impact compliance with its
debt covenants. The Company's exposure to these changes is partially mitigated
by the Partners' commitment to purchase a portion of the mills' annual output
with a maximum as follows: Cox Enterprises, Inc. - 100,000 tons, Knight-Ridder
Newspapers, Inc. - 100,000 tons, and Media General, Inc. - 40,000 tons. In
certain circumstances, however, the Partners may make a portion of these
commitments available to outside parties or purchase additional tonnage.
Approximately 26%, 27% and 38% of the Company's revenues in 2001, 2000 and 1999,
respectively, were from sales to the Partners. As of December 30, 2001 and
December 31, 2000, the Company had accounts receivable from these Partners of
$15,121,000 and $10,658,000, respectively. In addition, the Partners have signed
noninterest-bearing notes, with amounts outstanding totaling $20,000,000 at
December 30, 2001 and December 31, 2000, which allow the Company to demand
payment at any time.
Under terms of the partnership agreement, the Partners contribute capital and
share in profits and losses equally. The partnership may be dissolved at any
time by mutual agreement of the Partners, but no Partner may cause dissolution
without the consent of the other Partners. Under certain conditions, including a
buyout by the remaining Partners, the business of the partnership can be
continued as a successor partnership without liquidation of its affairs.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries, SP Recycling Corp. ("SPRC") (a Georgia
Corporation), and Southeast Paper Technology, LLC. All significant intercompany
balances and transactions have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts
27
reported in the financial statements and accompanying notes. Actual results
inevitably will differ from those estimates and such differences may be
material to the financial statements.
COLLECTIVE BARGAINING ARRANGEMENTS
At December 30, 2001, the Company had approximately 756 hourly and 166 salaried
employees. Approximately 276 hourly employees at the Company's Newberg, Oregon
mill (Note 5) are represented by the Association of Western Pulp and Paper
Workers (the "Union"). The existing agreement with the Union expires on March
31, 2002. While not currently anticipated, the Company's inability to negotiate
a new collective bargaining agreement could cause significant reductions in
revenues.
CASH AND TEMPORARY INVESTMENTS AND NOTES
For purposes of the statements of cash flows, the Company considers all
temporary investments purchased with a maturity of three months or less to be
cash equivalents. The carrying amounts reported in the balance sheet for cash
and temporary investments and demand notes approximate their fair values.
INVENTORIES
Inventories at year-end consisted of the following (in thousands):
December 30, December 31,
2001 2000
---------------------------------
Old newspapers $ 5,010 $ 4,338
Materials and supplies 23,312 21,129
Finished goods 959 3,200
Other 915 1,058
---------------------------------
$30,196 $29,725
=================================
Old newspapers ("ONP"), materials and supplies, and finished goods are valued at
the lower of moving average cost or net realizable value. Other inventories are
valued at the lower of first-in, first-out cost or net realizable value.
ONP is the primary fiber source utilized by the Company in producing newsprint.
As with newsprint, ONP costs are highly cyclical and subject to significant
change. To help ensure an adequate supply of ONP the Company operates recycling
centers, which procure a material portion of its southeastern United States ONP
requirements. Additionally, the Company has committed to purchase, at market
prices (as defined), minimum annual tons of ONP from a supplier to satisfy a
portion of its Newberg, Oregon Mill's (Note 5) production needs. Based on
December 30, 2001 delivered cost of ONP, this commitment approximates
$15,000,000 in 2002, $11,000,000 in 2003, $8,000,000 in 2004, $7,000,000 in
2005, and $5,000,000 thereafter.
28
DEPRECIATION, MAINTENANCE, AND REPAIRS
Property, plant, and equipment are stated at cost. For financial reporting
purposes, depreciation is determined by the straight-line method using the
following estimated useful lives:
Land improvements 10-20 years
Buildings 30-45 years
Machinery and equipment 3-20 years
For federal income tax purposes, accelerated methods and lives, as allowable
under the Internal Revenue Code, are used.
Expenditures for maintenance and repairs are charged to expense as incurred.
Maintenance and repairs expense totaled $36,972,000, $41,077,000 and $21,695,000
during 2001, 2000 and 1999, respectively. Expenditures for renewals and
betterments are capitalized and depreciated over the related estimated useful
lives indicated above.
CAPITALIZED INTEREST
The Company capitalizes interest on borrowed funds during construction. Such
interest is allocated to property, plant, and equipment accounts and amortized
over the related estimated useful lives indicated above. The amount of interest
capitalized was $1,264,000, $247,000 and $0 during 2001, 2000 and 1999,
respectively.
SHIPPING AND HANDLING COSTS
The Company classified shipping and handling costs of $31,060,000, $31,404,000,
and $16,812,000 as a component of cost of goods sold during 2001, 2000, and
1999, respectively.
INCOME TAXES
The Company is a partnership for income tax purposes. Accordingly, no income
taxes are payable or provided for by the Company. Instead, taxable income,
credits, etc., are allocated to the partners and are included in their income
tax returns. SPRC is subject to income taxes. Tax expense for SPRC has not been
material.
GOODWILL
Costs in excess of the fair value of net assets of businesses acquired are
amortized using the straightline method over a period of 20 years. Accumulated
amortization was $1,320,000 and $682,000 at December 30, 2001 and December 31,
2000, respectively.
The Company reviews the recorded value of its goodwill if events or changes in
circumstances indicate that the carrying amount may exceed fair value.
Recoverability is then determined by comparing the undiscounted net cash flows,
excluding interest, of the assets to which the goodwill applies to the net book
value of those assets, including goodwill.
29
DEFERRED CHARGES
Deferred charges, stated at cost less amortization, include loan procurement
costs that are capitalized and amortized over a five year period. Accumulated
amortization of deferred charges was $2,695,000 and $1,487,000 at December 30,
2001 and December 31, 2000, respectively.
ACCOUNTS RECEIVABLE
The Company's sales to The Tribune Company represents approximately 18%, 25%,
and 4% of net sales in 2001, 2000, and 1999, respectively. Accounts receivable
from The Tribune Company was approximately $11,956,000 and $8,673,000 at
December 30, 2001 and December 31, 2000, respectively.
The Company performs periodic credit evaluations of its customers' financial
condition and does not require collateral. Receivables are generally due within
60 days. Credit losses have not been significant.
REVENUE RECOGNITION
The Company recognizes revenue when title passes to the buyer, which is
generally upon shipment.
SEGMENT REPORTING
As of December 30, 2001, the Company operated two newsprint mills in the United
States as part of a single operating segment. The mills provide similar
products. The facilities also possess similar long-term expected financial
performance characteristics. Revenues from the mills are derived principally
from newsprint sales to a variety of newspaper publishers mainly in the
southeastern and western United States.
NEW ACCOUNTING STANDARDS
In August 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 144 ("SFAS 144"), "Accounting for the
Impairment or Disposal of Long-Lived Assets." This statement addresses financial
accounting and reporting for the impairment or disposal of long-lived assets and
supercedes SFAS 121 on the same topic. SFAS 144 is effective for fiscal years
beginning after December 15, 2001. The Company expects to adopt SFAS 144 as of
January 1, 2002 and is currently assessing the impact of the pronouncement on
the consolidated financial statements. Management does not expect the impact to
be material to the Company's financial position.
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets."
This statement changes the accounting for goodwill from an amortization method
to an impairment-only approach. The Company will adopt this statement in the
first quarter of fiscal 2002 and is currently evaluating the impact of the
pronouncement on the consolidated financial statements.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities," as amended. This statement requires the
fair value of derivatives to be recorded as assets or liabilities. Gains or
losses resulting from changes in the fair values of derivatives are accounted
for currently in
30
earnings or comprehensive income depending on the purpose of
the derivatives and whether they qualify for hedge accounting treatment. SFAS
133 was adopted in the first quarter of fiscal 2001 and the adoption resulted in
no significant impact on net income in the consolidated statement of income, and
a cumulative loss upon adoption of $2,267,000 charged directly to other
comprehensive income. See Note 8 for further discussion.
RECLASSIFICATIONS
Certain reclassifications have been made to prior year amounts to conform with
the current year presentation.
FISCAL YEAR
The Company's financial reporting period consists of a five week period and two
four week periods per quarter. Accordingly, the Company's fiscal year ends on
the last Sunday of December, as defined. The Company's fiscal year consisted of
52 weeks, 53 weeks and 52 weeks for 2001, 2000 and 1999, respectively.
3. UNEXPENDED INDUSTRIAL REVENUE BOND PROCEEDS
In connection with the construction of de-inking process equipment at its
Newberg, Oregon Mill (Note 5), the Company issued a total of $78,520,000 in
Industrial Revenue Bonds (Note 4). The proceeds were held in trust for the sole
benefit of this project. All disbursements from the trust are made by the
trustee upon receipt of a qualified requisition for such disbursements. The
Company had $0 and $26,961,000 in unexpended proceeds available for construction
as of December 30, 2001 and December 31, 2000, respectively. The de-inking
process equipment construction was completed and placed into service during
October 2001.
4. LONG-TERM DEBT
Long-term debt at year-end consisted of the following (in thousands):
December 30, December 31,
2001 2000
---------------------------------
Term loan facility $128,000 $170,000
Revolving credit facility - 24,000
2001 Industrial revenue bonds - due 2026 38,000 -
2000 Industrial revenue bonds - due 2025 40,520 40,520
1997 Industrial revenue bonds - due 2017 35,000 35,000
1993 Industrial revenue bonds - due 2013 25,000 25,000
---------------------------------
266,520 294,520
Less current portion (18,000) (25,000)
---------------------------------
$248,520 $269,520
=================================
31
Scheduled calendar maturities of long-term debt at December 30, 2001 were as
follows (in thousands):
2002 $ 18,000
2003 35,000
2004 35,000
2005 40,000
2006 -
Thereafter 138,520
-------------
$266,520
=============
The Company is party to a Credit Agreement (the "Agreement") with a group of
banks. The Agreement is comprised of a Term Loan Facility in an aggregate amount
of $170,000,000 and a Revolving Credit Facility in an aggregate amount of
$100,000,000. Amounts available under the Revolving Credit Facility are reduced
by certain of the letters of credit issued to secure the industrial revenue
bonds. Remaining availability under the Agreement approximated $17 million at
December 30, 2001. The Agreement expires on December 31, 2005.
Interest on borrowings under the Agreement is based, at the Company's option, on
the Base Rate or Eurodollar Rate plus various percentages, depending upon
leverage, all as defined. The interest rate for borrowings under the Agreement
was 6.58% and 8.64% as of December 30, 2001 and December 31, 2000, respectively.
The Agreement contains various covenants, including a debt to capital ratio, a
minimum interest coverage and a fixed charge coverage ratio with which the
Company is required to remain in compliance. The Agreement also contains
restrictions pertaining to distributions of cash to partners and additional
indebtedness. The Company may make distributions of cash to partners equal to
50% of the Excess Cash Flow, as defined in the Agreement, as long as no events
of default have occurred and the Company maintains a specified consolidated
leverage ratio.
The Company's Industrial Revenue Bonds bear interest at variable rates ranging
from 3.91% to 4.14% at December 30, 2001 and from 5.05% to 6.16% at December 31,
2000. Interest rates on the bonds are reset periodically (daily basis or weekly
basis). At such reset dates, the bondholders may require the Company to redeem
the Bonds. The Bonds are secured by letters of credit provided by banks in
connection with the Agreement which require the banks to purchase any Bonds
presented by the bondholders and provide financing for a period of at least one
year, subject to ongoing compliance with the various covenants mentioned above.
5. ACQUISITION
On November 10, 1999, the Company acquired certain assets and assumed certain
liabilities of a Smurfit Newsprint Corporation newsprint mill in Newberg, Oregon
(the "Newberg Mill"). The Company accounted for the acquisition of the Newberg
Mill under the purchase method of accounting and the results of its operations
are included in the accompanying consolidated financial statements since the
acquisition date.
32
The allocation of the purchase price and acquisition costs to the assets
acquired and liabilities assumed is summarized as follows (in thousands):
Current assets $ 9,927
Property, plant, and equipment 203,560
Goodwill 12,268
Liabilities (14,193)
-------------
Net cash paid $211,562
=============
6. EMPLOYEE BENEFIT PLANS
The Company has non-contributory defined benefit plans that cover substantially
all employees. These plans include a non-bargaining employee plan with benefits
based on years of service and the employee's compensation during his highest
consecutive five years of compensation during the last ten years of employment
and a bargaining employee plan with benefits based upon years of service. The
Company contributes an amount that is not less than the minimum funding nor more
than the maximum deductible amount to these plans.
The Company has a supplemental retirement plan for members of management. The
Company funds the cost of the plan on a pay-as-you-go basis.
Substantially all employees retiring from the Company on or after attaining age
55 who have rendered at least ten years of service, as defined, after age 44 are
entitled to certain postretirement health care and life insurance benefits
("OPEB"). These benefits are subject to deductibles, copayment provisions, and
other limitations. The Company may amend or change the plan periodically.
Effective January 1, 2002, the plan was amended to limit the maximum annual per
capita cost per participant paid by the Company to 150% of the amount the
Company provided as of January 1, 2002. Employees joining the Company on or
after January 1, 2002, are not eligible to participate in the plan. The
actuarially determined expected cost of these benefits is charged to expense
during the years that the employees render service and earn the benefits. The
Company funds these costs on a pay-as-you-go basis.
All bargaining employees retiring from the Company on or after attaining age 55
who have rendered at least ten years of service after November 10, 1999 are
entitled to post-retirement health care up to age 65 and a $5,000 death benefit.
The following table sets forth the funded status and amount recognized for the
Company's defined benefit pension, supplemental retirement, and OPEB plans in
the consolidated balance sheet at year end (in thousands):
33
Pension Benefits OPEB Benefits
2001 2000 2001 2000
------------------------------------------------------------------
Change in benefit obligation
Projected benefit obligation at
beginning of year $41,393 $37,216 $ 9,318 $7,373
Service cost 2,425 2,516 1,007 820
Interest cost 3,216 2,919 806 660
Plan participant contributions - - 8 5
Plan amendments 8 - (1,803) -
Actuarial (gain) loss 1,465 (371) (498) 1,075
Benefits paid (1,012) (887) (322) (615)
------------------------------------------------------------------
Projected benefit obligation at
end of year $47,495 $41,393 $ 8,516 $9,318
==================================================================
Change in plan assets
Fair value of plan assets at
beginning of year $40,157 $ 33,825 $ - $ -
Actual return on plan assets (5,173) 6,871 - -
Employer contributions 3,045 348 313 610
Plan participants' contributions - - 9 5
Benefits paid (1,012) (887) (322) (615)
------------------------------------------------------------------
Fair value of plan assets at end
of year $37,017 $ 40,157 $ - $ -
==================================================================
Funded status $(10,478) $ (1,236) $ (8,516) $(9,318)
Unrecognized actuarial (gain)
loss 1,630 (8,525) (54) 472
Unrecognized prior service
cost (benefit) 284 351 (1,782) -
Unrecognized net transition asset (643) (736) - -
------------------------------------------------------------------
Net amount recognized $ (9,207) $(10,146) $(10,352) $(8,846)
==================================================================
Pension Benefits OPEB Benefits
2001 2000 2001 2000
------------------------------------------------------------------
Amounts recognized in the
consolidated balance sheets
Accrued liability $(10,478) $(11,452) $(10,352) $(8,846)
Intangible asset 284 351 - -
Accumulated other
comprehensive loss 987 955 - -
------------------------------------------------------------------
Net amount recognized $(9,207) $(10,146) $(10,352) $(8,846)
==================================================================
The accumulated benefit obligation and the fair value of plan assets for pension
plans with accumulated benefit obligations in excess of plan assets were
$8,498,000 and $669,000, respectively as of December 30, 2001, and $7,447,000
and $0 as of December 31, 2000.
34
Pension plan assets consist of a combination of short-term investments with
financial institutions, equity investments, and U.S. government treasury bonds.
The following table sets forth the actuarial assumptions used in determining the
actuarial present value of the projected benefit obligations:
Pension Benefits OPEB Benefits
2001 2000 1999 2001 2000 1999
----------------------------------------------------------------------------
Discount rate 7.25% 7.50% 7.50% 7.25% 7.50% 7.50%
Long-term rate of return
on assets 8.00% 8.00% 8.00% - - -
Health care cost trend
rate at year end - - - 6.00% 6.50% 7.00%
Ultimate health care cost
trend rate - - - 5.00% 5.00% 6.00%
Rate of salary
increase 4.00% 4.00% 4.00% 4.00% 4.00% 4.00%
The Company's pension and OPEB costs, contributions and benefits paid for each
year are set forth in the following table (in thousands):
Pension Benefits OPEB Benefits
2001 2000 1999 2001 2000 1999
-------------------------------------------------------------------------
Components of net periodic
pension cost
Service cost $2,425 $ 2,517 $ 2,069 $1,005 $ 820 $ 510
Interest cost 3,216 2,919 2,657 806 659 525
Expected return on
assets (3,149) (3,031) (2,568) - - -
Amortization of prior service
cost (230) (372) 4 7 - -
Acquisition - - 60 - - -
-------------------------------------------------------------------------
Net periodic pension cost $2,262 $ 2,033 $ 2,222 $1,818 $1,479 $1,035
=========================================================================
For the OPEB plan, a one percentage point increase in the assumed health care
cost trend rate would have increased the Accumulated Projected Benefit
Obligation (APBO) by $397,000 at December 30, 2001 and increased the aggregate
service and interest cost components of postretirement benefit expense for 2001
by $265,000. A one percentage point decrease in the assumed health care cost
trend rate would have decreased the APBO by $386,000 at December 30, 2001 and
decreased the aggregate service and interest cost components of postretirement
benefit expense for 2001 by $223,000.
The Company has a deferred compensation plan for members of management. At
December 30, 2001 and December 31, 2000, the accrued liability for the future
benefits under the plan was $1,784,000 and $1,184,000, respectively. Benefits
expense for the plan totaled $976,000, $421,000, and $533,000 in 2001, 2000, and
1999, respectively.
35
The Company has a voluntary thrift plan for non-bargaining employees under which
the Company will match 50% of employee contributions (which are limited for
employer matching purposes to a maximum of 6% of annual salary). The Company's
thrift plan expense totaled $1,174,000, $1,139,000 and $786,000 in 2001, 2000
and 1999, respectively. The Company also has a voluntary savings plan for
bargaining employees under which the Company will match 50% of employee
contributions up to a maximum of $700 in a year.
7. COMMITMENTS AND CONTINGENCIES
The Company leases office and warehouse space and equipment. Total rent expense
was approximately $5,792,000, $5,307,000 and $3,689,000 in 2001, 2000 and 1999,
respectively. Future minimum lease payments under noncancellable operating
leases with initial terms of one year or more consisted of the following at
December 30, 2001 (in thousands):
2002 $ 3,996
2003 3,331
2004 3,073
2005 2,564
2006 1,698
Thereafter 5,833
------------------
Total minimum lease payments $20,495
==================
In connection with the Newberg Mill acquisition (Note 5), the Company assumed an
agreement to purchase a minimum monthly supply of steam. This commitment
approximates $114,000 per month through December 31, 2007, subject to a number
of conditions and provisions which could increase this amount.
As discussed in Notes 1 and 2, the newsprint business is highly cyclical. In
addition, the Company is dependent on energy costs, which can change rapidly and
the Company's western U.S. operations may be impacted by regional energy
matters.
In December 2000, the Company was notified of a claim against it by Smurfit
Newsprint Corporation. The claim alleges that the Company is responsible for
certain severance costs due union employees at its Newberg, Oregon Mill as a
result of Smurfit's termination of its contract with the union in connection
with the Company's November 10, 1999 acquisition (Note 5). No specific assertion
of an amount has been claimed by Smurfit; however, the Company believes it could
exceed $3 million. The Company believes it has no obligation for such costs and
is vigorously defending itself. The Company is currently unable to determine the
ultimate outcome of this matter. Accordingly, no amounts were accrued with
respect to this matter at December 30, 2001.
The Company and its subsidiaries are involved in various other legal
proceedings, which are normal to its business. It is the opinion of management
that the aforementioned actions and claims, if determined adversely to the
Company, will not have a material impact on the financial condition or
operations of the Company taken as a whole.
36
8. FINANCIAL INSTRUMENTS
The carrying value of financial instruments such as cash and temporary
investments, trade and other receivables, trade payables and long-term debt
approximate their fair values. All derivative financial instruments are carried
at fair value. Fair value is determined based on expected future cash flows,
discounted at market interest rates, quotes from financial institutions, and
other appropriate valuation methodologies.
The Company enters into certain derivative transactions designed to hedge risks
associated with specific assets, liabilities or future transactions. The
effectiveness of the derivative as a hedge is based on a high correlation
between changes in its value and changes in the value of the underlying hedged
item. Ineffectiveness related to the Company's derivative transactions is not
material. The Company includes in operating results amounts received or paid
when the underlying transaction settles. Derivatives are carried at fair value
and are included in prepaid expense, other assets and accrued liabilities on the
balance sheet. The Company does not enter into or hold derivatives for trading
or speculative purposes.
During 2001, the Company entered into a natural gas purchase and sales agreement
to fix the price of a portion of its natural gas purchases at $1.89 per thousand
cubic feet ("Mcf"). At December 30, 2001 this agreement had a notional amount of
534,000 Mcf through its expiration in October 2005. The net cash to be paid or
received under the agreement is accrued and recognized as an adjustment to cost
of sales. In the event of early termination of the agreement, any resulting gain
or loss would be deferred and amortized as an adjustment to cost of sales over
the remaining term of the agreement. The agreement is collateralized by certain
natural gas reserves.
During 2000, the Company entered into interest rate swap agreements to reduce
the impact of changes in interest rates on a portion of its floating rate debt.
The interest agreements are contracts to exchange variable rate for fixed rate
interest payments periodically over the life of the agreements based upon the
underlying notional amounts of the contracts. The net cash paid or received on
these agreements is accrued and recognized as an adjustment to interest expense.
In the event of early termination of interest rate swap agreements, any
resulting gain or loss would be deferred and amortized as an adjustment to
interest expense related to the designated debt obligation over the remaining
term of the original interest rate swap agreements. In the event of early
extinguishment of a designated debt obligation, any realized or unrealized gain
or loss from the associated swap would be recognized in income at the time of
extinguishment. As of December 30, 2001, the Company had interest rate swap
agreements with notional amounts aggregating $72,500,000 for which it paid a
fixed interest rate of 7%. The swaps expire on March 31, 2002.
During 2000, the Company entered into a newsprint swap agreement to fix the
market price of a portion of its newsprint sales at $580 per metric ton. At
December 31, 2001 this agreement had a notional amount of 5,000 metric tons of
newsprint per month through its expiration date on March 31, 2003. The net cash
to be paid or received under the agreement is accrued and recognized as an
adjustment to net sales. The swap was terminated on January 2, 2002 for
$6,604,000. The resulting gain will be deferred and amortized as an adjustment
to net sales over the remaining term of the agreement.
The net unrealized gain on derivative instruments recorded in other
comprehensive income amounted to $6,324,000 at December 30, 2001, as follows (in
thousands).
37
Remaining Estimated
Cost Fair Value Gain (Loss)
----------------------------------------------
Natural gas purchase and
sales agreement $1,009 $1,645 $ 636
Interest rate swaps - (916) (916)
Newsprint swap - 6,604 6,604
----------------------------------------------
Total $1,009 $7,333 $6,324
==============================================
9. OTHER TRANSACTIONS WITH PARTNERS
The Company has a license agreement (amended and restated in November 1987 and
expiring in 2002) with Media General, Inc. and Garden State Paper Company, Inc.
(a former wholly owned subsidiary of Media General, Inc.) to utilize a de-inking
process. The Company must pay a license fee, computed quarterly, equal to 2% of
operating profits, as defined, multiplied by the ratio of the tonnage of old
newspapers used to manufacture the product to the total tonnage of old
newspapers and other fibrous material or substitute used during that quarter.
Such fees amounted to $1,197,000, $717,000 and $529,000 in 2001, 2000 and 1999,
respectively.
38
SP NEWSPRINT CO.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FISCAL YEARS ENDED DECEMBER 30, 2001, DECEMBER 31, 2000, AND DECEMBER 26, 1999
(In thousands)
Balance at Additions Balance
beginning charged to Deductions at end
of period expense-net Net Transfers of period
--------------- --------------- ------------- ------------- ------------
2001
Allowance for doubtful accounts $ 591 $ 444 $ 536 $ 0 $ 499
2000
Allowance for doubtful accounts $ 545 $ 40 $ 450 $ 456 $ 591
1999
Allowance for doubtful accounts $ 545 $ 0 $ 0 $ 0 $ 545
39
INDEX TO EXHIBITS
Exhibit
Number Description
2.1 Agreement and Plan of Merger dated July 19, 1996, by and among
Media General, Inc., MG Acquisitions, Inc., and Park
Acquisitions, Inc., incorporated by reference to Exhibit 2.1
of Form 8-K dated January 7, 1997.
2.2 First Amendment to Agreement and Plan of Merger dated as of
January 7, 1997, by and among Media General, Inc., MG
Acquisitions, Inc., and Park Acquisitions, Inc., incorporated
by reference to Exhibit 2.2 of Form 8-K dated January 7, 1997.
2.3 Plan and Agreement of Merger, dated December 8, 1999, by and
among Media General, Inc., Media General Communications, Inc.,
Media General Broadcasting of South Carolina, Inc., Spartan
Communications, Inc., and the Principal Shareholders,
incorporated by reference to Exhibit 2.1 of Form 8-K dated
March 27, 2000.
3 (i) The Amended and Restated Articles of Incorporation of Media
General, Inc., incorporated by reference to Exhibit 3.1 of
Form 10-K for the fiscal year ended December 31, 1989.
3 (ii) Bylaws of Media General, Inc., amended and restated as of
November 7, 2001 incorporated by reference to Exhibit 3 (ii)
of Form 10-Q for the period ended September 30, 2001.
10.1 Form of Option granted under the 1976 Non-Qualified Stock
Option Plan, incorporated by reference to Exhibit 2.2 of
Registration Statement 2-56905.
10.2 Additional Form of Option to be granted under the 1976
Non-Qualified Stock Option Plan, incorporated by reference to
Exhibit 2 to Post-Effective Amendment No. 3 Registration
Statement 2-56905.
10.3 Addendum dated January 1984, to Form of Option granted under
the 1976 Non-Qualified Stock Option Plan, incorporated by
reference to Exhibit 10.13 of Form 10-K for the fiscal year
ended December 31, 1983.
10.4 Addendum dated June 19, 1992, to Form of Option granted under
the 1976 Non-Qualified Stock Option Plan, incorporated by
reference to Exhibit 10.15 of Form 10-K for the fiscal year
ended December 27, 1992.
10.5 The Media General, Inc., Amended and Restated Restricted Stock
Plan, dated January 31, 1996, incorporated by reference to
Exhibit 10.10 of Form 10-K for the fiscal year ended December
31, 1995.
10.6 Addendum dated June 19, 1992, to Form of Option granted under
the 1987 Non-Qualified Stock Option Plan, incorporated by
reference to Exhibit 10.20 of Form 10-K for the fiscal year
ended December 27, 1992.
40
10.7 Media General, Inc., Executive Death Benefit Plan effective
January 1, 1991, incorporated by reference to Exhibit 10.17 of
Form 10-K for the fiscal year ended December 29, 1991.
10.8 Amendment to the Media General, Inc., Executive Death Benefit
Plan dated July 24, 1991, incorporated by reference to Exhibit
10.18 of Form 10-K for the fiscal year ended December 29,
1991.
10.9 Shareholders Agreement, dated May 28, 1987, between Mary
Tennant Bryan, Florence Bryan Wisner, J. Stewart Bryan III,
and as trustees under D. Tennant Bryan Media Trust, and Media
General, Inc., D. Tennant Bryan and J. Stewart Bryan III,
incorporated by reference to Exhibit 10.50 of Form 10-K for
the fiscal year ended December 31, 1987.
10.10 Media General, Inc., Supplemental 401(K) Plan, amended and
restated as of January 1, 2001, incorporated by reference to
Exhibit 10.10 of Form 10-K for the fiscal year ended
December 31, 2000.
10.11 Media General, Inc., Executive Supplemental Retirement Plan,
amended, and restated as of April 23, 1999, incorporated by
reference to Exhibit 10 of Form 10-Q for the period ended June
27, 1999.
10.12 Deferred Income Plan for Selected Key Executives of Media
General, Inc., and form of Deferred Compensation Agreement
thereunder dated as of December 1, 1984, incorporated by
reference to Exhibit 10.29 of Form 10-K for the fiscal year
ended December 31, 1989.
10.13 Media General, Inc., Management Performance Award Program,
adopted November 16, 1990, and effective January 1, 1991,
incorporated by reference to Exhibit 10.35 of Form 10-K for
the fiscal year ended December 29, 1991.
10.14 Media General, Inc., Deferred Compensation Plan, amended and
restated as of January 1, 1999, incorporated by reference to
Exhibit 4.3 of Registration Statement 333-69527.
10.15 Media General, Inc., ERISA Excess Benefits Plan, amended and
restated as of November 17, 1994, incorporated by reference to
Exhibit 10.33 of Form 10-K for the fiscal year ended December
25, 1994.
10.16 Media General, Inc., 1995 Long-Term Incentive Plan, amended
and restated as of May 18, 2001, incorporated by reference to
Appendix B of the Proxy Statement dated April 2, 2001.
10.17 Media General, Inc., 1996 Employee Non-Qualified Stock Option
Plan, adopted as of January 30, 1996, incorporated by
reference to Exhibit 10.20 of Form 10-K for the fiscal year
ended December 29, 1996.
10.18 Media General, Inc., 1997 Employee Restricted Stock Plan,
adopted as of May 16, 1997, incorporated by reference to
Exhibit 10.21 of Form 10-K for the fiscal year ended December
29, 1996.
41
10.19 Media General, Inc., Directors' Deferred Compensation Plan,
adopted as of May 16, 1997, incorporated by reference to
Exhibit 10.22 of Form 10-K for the fiscal year ended December
29, 1996.
10.20 Amended and Restated Partnership Agreement, dated November 1,
1987, by and among Virginia Paper Manufacturing Corp., KR
Newsprint Company, Inc., and CEI Newsprint, Inc., incorporated
by reference to Exhibit 10.31 of Form 10-K for the fiscal year
ended December 31, 1987.
10.21 Amended and Restated License Agreement, dated November 1,
1987, by and among Media General, Inc., Garden State Paper
Company, Inc., and Southeast Paper Manufacturing Co.,
incorporated by reference to Exhibit 10.32 of Form 10-K for
the fiscal year ended December 31, 1987.
10.22 Amended and Restated Umbrella Agreement, dated November 1,
1987, by and among Media General, Inc., Knight - Ridder, Inc.,
and Cox Enterprises, Inc., incorporated by reference to
Exhibit 10.34 of Form 10-K for the fiscal year ended December
31, 1987.
10.23 Amended Newsprint Purchase Contract, dated November 1, 1987,
by and among Southeast Paper Manufacturing Co., Media General,
Inc., Knight-Ridder, Inc., and Cox Enterprises, Inc.,
incorporated by reference to Exhibit 10.35 of Form 10-K for
the fiscal year ended December 31, 1987.
10.24 Television affiliation letter agreement, dated April 16, 2001,
between Media General Broadcast Group and the NBC Television
Network.
10.25 Second Amended and Restated Stock and Warrant Purchase and
Shareholders' Agreement dated May 20, 1994, by and among Media
General, Inc., Affiliated Newspapers Investments, Inc., and
Denver Newspapers, Inc., incorporated by reference to Exhibit
2 of Form 8-K dated September 28, 1994.
10.26 Asset Purchase Agreement dated February 13, 1997, by and among
Media General Newspapers, Inc., and Newspaper Holdings, Inc.,
incorporated by reference to Exhibit 10.36 of Form 10-K dated
March 27, 1997.
10.27 Credit Agreement, dated June 29, 2001, among Media General,
Inc., and various lenders, incorporated by reference to
Exhibit 10.1 of Form 10-Q for the period ended July 1, 2001.
13 Media General, Inc., Annual Report to Stockholders for the
fiscal year ended December 30, 2001.
21 List of subsidiaries of the registrant.
42
23.1 Consent of Ernst & Young LLP, Independent Auditors, Richmond.
23.2 Consent of Ernst & Young LLP, Independent Auditors, Atlanta.
Note: Exhibits 10.1 - 10.19 are management contracts or
compensatory plans, contracts or arrangements.
43
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
MEDIA GENERAL, INC.
Date: March 27, 2002
/s/ Stewart Bryan III
------------------------------------
J. Stewart Bryan III, Chairman and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Marshall N. Morton Vice Chairman, Chief Financial March 27, 2002
- ---------------------------- Officer and Director
Marshall N. Morton
/s/ Stephen Y. Dickinson Controller March 27, 2002
- ----------------------------
Stephen Y. Dickinson
/s/ Charles A. Davis Director March 27, 2002
- ----------------------------
Charles A. Davis
/s/ Robert V. Hatcher, Jr. Director March 27, 2002
- ----------------------------
Robert V. Hatcher, Jr.
/s/ John G. Medlin, Jr. Director March 27, 2002
- ----------------------------
John G. Medlin, Jr.
/s/ Thompson L. Rankin Director March 27, 2002
- ----------------------------
Thompson L. Rankin
/s/ Wyndham Robertson Director March 27, 2002
- ----------------------------
Wyndham Robertson
/s/ Henry L. Valentine, II Director March 27, 2002
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Henry L. Valentine, II
/s/ Walter R. Williams Director March 27, 2002
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Walter E. Williams
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