<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from_______to_______
Commission File Number _________
AFFILIATED NEWSPAPERS INVESTMENTS, INC.
(Exact name of registrant as specified in its charter)
Delaware 76-0425553
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1560 Broadway
Denver, Colorado 80202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 837-0886
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether a registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock. As of May 14, 1996:
Class B Common Stock: 173,576
Class D Common Stock: 664,450
Class G Common Stock: 1,476,090
Class N Common Stock: 230
<PAGE> 2
INDEX TO AFFILIATED NEWSPAPERS INVESTMENTS, INC.
REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
Item No. Page
-------- ----
PART I - FINANCIAL INFORMATION
<S> <C> <C>
1 Financial Statements 3
2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 3
PART II - OTHER INFORMATION
1 Legal Proceedings 3
2 Changes in Securities 3
3 Defaults Upon Senior Securities 3
4 Submissions of Matters to a Vote of Security Holders 3
5 Other Information 4
6 Exhibits and Reports on Form 8-K 4
</TABLE>
2
<PAGE> 3
PART I
- --------------------------------------------------------------------------------
ITEM 1. FINANCIAL STATEMENTS
The information required by this item is filed as part of this Form 10-Q. See
Index to Financial Information at page 5 of this Form 10-Q.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this item is filed as part of this Form 10-Q. See
Index to Financial Information at page 5 of this Form 10-Q.
PART II
- --------------------------------------------------------------------------------
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in litigation arising in the ordinary course of
business, none of which is expected to result in material loss.
ITEM 2. CHANGES IN SECURITIES
There were no changes in the rights of security holders during the quarter for
which this report is filed.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
There were no defaults upon senior securities during the quarter for which this
report is filed.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the quarter
for which this report is filed.
3
<PAGE> 4
AFFILIATED NEWSPAPERS INVESTMENTS, INC. AND SUBSIDIARIES
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
- --------
27 Financial Data Schedule
Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended March 31, 1996.
SIGNATURES
- --------------------------------------------------------------------------------
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AFFILIATED NEWSPAPERS INVESTMENTS, INC.
Dated: May 14, 1996 By: /s/ Joseph J. Lodovic, IV
-------------- -------------------------
Joseph J. Lodovic, IV
Executive Vice President,
Chief Financial Officer,
and Duly Authorized Officer of Registrant
4
<PAGE> 5
AFFILIATED NEWSPAPERS INVESTMENTS, INC. AND SUBSIDIARIES
Index to Financial Information
<TABLE>
<CAPTION>
PAGE
----
Item 1. Financial Statements:
<S> <C>
Condensed Consolidated Balance Sheets.................................................... 6
Unaudited Condensed Consolidated Statements of Operations................................ 8
Unaudited Condensed Consolidated Statements of Cash Flows................................ 9
Notes to Unaudited Condensed Consolidated Financial Statements........................... 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................................................... 16
</TABLE>
5
<PAGE> 6
AFFILIATED NEWSPAPERS INVESTMENTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
March 31, June 30,
ASSETS 1996 1995
------------------- --------------------
(In thousands)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents......................................... $ 1,685 $ 17,283
Accounts receivable, less allowance for doubtful accounts
of $2,066 and $1,931 at March 31, 1996 and
June 30, 1995, respectively..................................... 27,067 23,781
Inventories of newsprint and supplies............................. 6,641 5,238
Prepaid expenses and other assets................................. 6,239 3,926
-------------------- --------------------
Total Current Assets........................................... 41,632 50,228
PROPERTY, PLANT AND EQUIPMENT
Land.............................................................. 5,296 4,519
Buildings and improvements........................................ 34,189 25,212
Machinery and equipment........................................... 90,634 74,086
-------------------- --------------------
Total Property, Plant and Equipment............................ 130,119 103,817
Less accumulated depreciation and amortization.................... (52,238) (46,096)
-------------------- --------------------
Net Property, Plant and Equipment.............................. 77,881 57,721
OTHER ASSETS
Investment in Denver Newspapers, Inc. (Note 2).................... 3,898 2,285
Investment in partnership......................................... 6,122 5,759
Subscriber accounts, less accumulated amortization of
$54,790 and $48,990 at March 31, 1996 and
June 30, 1995, respectively..................................... 47,143 43,943
Excess of cost over fair value of net assets acquired,
less accumulated amortization of $21,387 and $19,255
at March 31, 1996 and June 30, 1995, respectively............... 101,613 87,979
Covenants not to compete and other identifiable intangible
assets, less accumulated amortization of $19,011
and $18,553 at March 31, 1996 and June 30, 1995,
respectively ................................................... 4,704 2,488
Other............................................................. 3,244 2,523
-------------------- --------------------
Total Other Assets............................................. 166,724 144,977
-------------------- --------------------
TOTAL ASSETS....................................................... $ 286,237 $ 252,926
==================== ====================
</TABLE>
See notes to unaudited condensed consolidated financial statements.
6
<PAGE> 7
AFFILIATED NEWSPAPERS INVESTMENTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
March 31, June 30,
LIABILITIES AND SHAREHOLDERS' DEFICIT 1996 1995
------------- ---------
(In thousands, except per share data)
<S> <C> <C>
CURRENT LIABILITIES
Trade accounts payable ........................................... $ 6,482 $ 6,882
Accrued liabilities............................................... 13,407 16,672
Unearned income................................................... 7,375 5,863
Income taxes ..................................................... 578 408
Current portion of long-term debt and capital lease
obligations .................................................... 21,266 5,672
-------------------- --------------------
Total Current Liabilities..................................... 49,108 35,497
LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATIONS ...................................................... 350,074 318,770
OTHER LIABILITIES................................................... 8,898 4,596
DEFERRED INCOME TAXES............................................... 14,098 14,648
SHAREHOLDERS' DEFICIT
Common stock, par value $.01 per share; authorized
shares--4,628,692; 2,314,346 shares issued
and outstanding................................................. 23 23
Additional paid-in capital........................................ 3,611 3,611
Deficit........................................................... (139,575) (124,219)
-------------------- --------------------
Total Shareholders' Deficit................................... (135,941) (120,585)
-------------------- --------------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT......................... $ 286,237 $ 252,926
==================== ====================
</TABLE>
See notes to unaudited condensed consolidated financial statements.
7
<PAGE> 8
AFFILIATED NEWSPAPERS INVESTMENTS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Nine Months
Ended March 31, Ended March 31,
-------------------------------- ----------------------------
1996 1995 1996 1995
-------------------------------- ----------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
OPERATING REVENUES.............................................. $ 57,911 $ 51,245 $ 180,937 $ 156,042
COST AND EXPENSES
Cost of sales................................................. 24,494 19,835 73,211 58,040
Selling, general, and administrative.......................... 25,189 22,921 75,292 67,057
Depreciation and amortization................................. 5,226 4,685 15,180 14,202
Interest expense.............................................. 10,696 9,789 31,350 28,829
Other, (net).................................................. 1,065 503 2,869 1,165
-------------- --------------- ------------- -----------
TOTAL COST AND EXPENSES..................................... 66,670 57,733 197,902 169,293
GAIN ON SALE OF NEWSPAPER PROPERTY.............................. -- -- -- 4,153
GAIN ON SALE OF STOCK IN UNCONSOLIDATED
SUBSIDIARY (Note 2)........................................... -- -- -- 996
INCOME IN UNCONSOLIDATED SUBSIDIARY
(Note 2)...................................................... 19 620 1,613 5,391
-------------- -------------- ------------- ------------
LOSS BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF ACCOUNTING
CHANGE OF UNCONSOLIDATED SUBSIDIARY........................... (8,740) (5,868) (15,352) (2,711)
INCOME TAX BENEFIT (EXPENSE).................................... (46) (93) (4) 25
-------------- -------------- ------------- -----------
LOSS BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE OF
UNCONSOLIDATED SUBSIDIARY..................................... (8,786) (5,961) (15,356) (2,686)
CUMULATIVE EFFECT OF ACCOUNTING
CHANGE OF UNCONSOLIDATED SUBSIDIARY........................... -- -- -- (2,856)
-------------- --------------- ------------- -----------
NET LOSS........................................................ $ (8,786) $ (5,961) $ (15,356) $ (5,542)
============== ============== ============= ===========
EARNINGS PER COMMON SHARE:
Net loss before cumulative effect of accounting
change of unconsolidated subsidiary........................... $ (3.80) $ (2.57) $ (6.63) $ (1.16)
Cumulative effect of accounting change of unconsolidated
subsidiary.................................................... -- -- -- (1.23)
-------------- -------------- ------------- -----------
Net loss........................................................ $ (3.80) $ (2.57) $ (6.63) $ (2.39)
============== ============== ============= ===========
Weighted average number of share outstanding.................... 2,314,346 2,314,346 2,314,346 2,314,346
============== ============== ============= ===========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
8
<PAGE> 9
AFFILIATED NEWSPAPERS INVESTMENTS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended March 31,
--------------------------------------------
1996 1995
-------------------- --------------------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss................................................................... $ (15,356) $ (5,542)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization............................................. 14,533 13,684
(Gain) on sale of newspaper property and other assets..................... (69) (4,135)
Provision for losses on accounts receivable............................... 1,882 1,900
Amortization of debt discount............................................. 11,872 10,807
Debt issuance cost........................................................ 1,092 --
Undistributed earnings in equity investments.............................. (1,977) (3,358)
Deferred income tax benefit............................................... (549) (742)
Change in operating assets and liabilities, net of current assets
and liabilities acquired or sold........................................ (12,102) (257)
-------------------- --------------------
NET CASH FLOWS FROM OPERATING ACTIVITIES................................ (674) 12,357
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of newspaper property and other assets............................... 69 14,492
Purchase of newspaper properties.......................................... (33,215) (9,309)
Purchase of machinery and equipment....................................... (4,470) (2,659)
-------------------- --------------------
NET CASH FLOWS FROM INVESTING ACTIVITIES................................ (37,616) 2,524
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt................................................ 36,300 --
Debt issuance cost........................................................ (1,092) --
Reduction of long-term debt............................................... (8,869) (11,657)
Reduction of non-operating liabilities.................................... (3,647) (316)
-------------------- --------------------
NET CASH FLOWS FROM FINANCING ACTIVITIES................................ 22,692 (11,973)
-------------------- --------------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS................................................................ (15,598) 2,908
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD....................................................................... 17,284 8,895
-------------------- --------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................................... $ 1,686 $ 11,803
==================== ====================
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid.............................................................. $ 25,749 $ 18,682
==================== ====================
Income taxes paid.......................................................... $ 383 $ 755
==================== ====================
</TABLE>
See notes to unaudited condensed consolidated financial statements.
9
<PAGE> 10
AFFILIATED NEWSPAPERS INVESTMENTS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulations S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
consolidated financial statements and should be read in conjunction with the
consolidated financial statements and footnotes thereto included in Affiliated
Newspapers Investments, Inc. ("ANI") Annual Report on Form 10-K for the year
ended June 30, 1995. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine-month period ended March 31, 1996
are not necessarily indicative of the results that may be expected for the year
ended June 30, 1996.
The unaudited condensed consolidated financial statements include the
accounts of Affiliated Newspapers Investments, Inc. and its subsidiaries. All
significant intercompany accounts and transactions have been eliminated upon
consolidation. ANI accounts for its investment in Denver Newspapers, Inc.
("Denver Newspapers") using the equity method of accounting (See Note 2).
Sale of Stock by an Unconsolidated Subsidiary
The sale of newly issued shares of common stock by Denver Newspapers, an
unconsolidated subsidiary of the Company, is reflected as a gain in the
consolidated statements of operations as a result of the selling price per share
of common stock being in excess of the Company's carrying value per share of its
investment in the unconsolidated subsidiary, on a fully diluted basis.
Income Taxes
The effective income tax rate varies from the federal statutory rate
primarily because of the nondeductibility of certain expenses.
Seasonality
Newspaper companies tend to follow a distinct and recurring seasonal
pattern, with higher advertising revenues in months containing significant
events or holidays. Accordingly, the fourth calendar quarter, or the Company's
second fiscal quarter, is the Company's strongest revenue quarter of the year.
Due to generally poor weather and a lack of holidays, the first calendar
quarter, or the Company's third fiscal quarter, is the Company's weakest revenue
quarter of the year.
Business Acquisitions
On August 31, 1995, Garden State completed the acquisition of substantially
all the assets used in the publication of the Berkshire Eagle, the Brattleboro
Reformer and the Bennington Banner, daily newspapers published in Pittsfield,
Massachusetts; Brattleboro, Vermont; and Bennington, Vermont, respectively, and
the Manchester Journal, a weekly newspaper published in Manchester, Vermont
(collectively referred to as "New England Newspapers"). The purchase price
consisted of $1.1 million in cash, the assumption of $20.5 million of long-term
debt and approximately $2.7 million for a covenant not to compete payable to the
prior owners. In addition, Garden State assumed a working capital deficit of
approximately $1.5 million and an underfunded pension plan liability and other
obligations, valued at approximately $8.3 million.
10
<PAGE> 11
AFFILIATED NEWSPAPERS INVESTMENTS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--continued
NOTE 1: SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS--CONTINUED
On March 10, 1996, Garden State acquired substantially all the assets used
in the publication of the San Mateo Times, a daily newspaper, and six weekly
newspapers published in San Mateo County, California, for approximately $15.0
million, which includes approximately $4.3 million for covenants not to compete
payable to prior owners and the assumption of the newspaper's subscription
obligations of approximately $0.7 million. San Mateo is located approximately 12
miles from the Company's Alameda Newspaper Group, headquartered in Hayward,
California. In addition, the Company purchased accounts receivable and
inventories for approximately $1.4 million.
The New England Newspapers and the San Mateo acquisitions were accounted for
as purchases; accordingly, the consolidated financial statements include the
operations of the acquired newspapers from September 1, 1995 and March 10, 1996,
respectively. The assets acquired and the liabilities assumed have been recorded
at their estimated fair market values at the date of acquisition. These fair
market values are based on management's estimates and are subject to change upon
the final allocation of purchase price.
NOTE 2: INVESTMENT IN UNCONSOLIDATED SUBSIDIARY
Basis of Accounting
Prior to September 28, 1994, when Media General exercised its warrant to
acquire a 40 percent interest in Denver Newspapers, the Company owned all of
Denver Newspapers' common stock. As was the case prior to the exercise of the
warrant, the Company accounts for its investment in Denver Newspapers using the
equity method due to the Company's inability to control the Denver Newspapers'
board of directors because of a shareholder agreement which gives Media General
50 percent representation on the board of directors.
Prior to the exercise of the Denver Newspapers warrant by Media General, the
Company recorded 100 percent of the net income applicable to common stock of
Denver Newspapers. As a result of Media General exercising its warrant, the
Company reduced its equity pick-up of Denver Newspapers' net income applicable
to common stock from 100 percent to 60 percent effective with the second quarter
of fiscal 1995. In addition, upon Media General exercising its Denver Newspapers
warrant, Denver Newspapers issued 40 new shares of Class A common stock for
$1,000 per share, resulting in a gain of approximately $1.0 million from the
sale of common stock of an unconsolidated subsidiary, which was recorded during
the quarter ended December 31, 1994. The Company has not provided for deferred
taxes on the gain on sale of common stock or on the undistributed earnings of
Denver Newspapers due to the Company's recognition of operating loss
carryforwards for financial reporting purposes as offsets to deferred tax
liabilities. Such operating loss carryforwards are expected to be realized prior
to the expiration of the loss carryforwards.
The Company's investment in Denver Newspapers at March 31, 1996 was less
than the book value of the underlying 60 percent of common equity in Denver
Newspapers as a result of the gain of approximately $1.0 million on the sale of
the 40 percent interest in Denver Newspapers not being sufficient to fully
offset the Denver Newspapers' losses previously recorded at 100 percent prior to
Media General's exercise of its warrant. Medial General also owns 100 percent of
Denver Newspapers' preferred stock, which accretes dividends at the rate of
$675,000 per quarter.
11
<PAGE> 12
AFFILIATED NEWSPAPERS INVESTMENTS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--continued
NOTE 2: INVESTMENT IN UNCONSOLIDATED SUBSIDIARY--CONTINUED
The following are summarized statements of operations of Denver Newspapers
for the three and nine-month periods ended March 31, 1996 and 1995 (in
thousands):
Summarized Statements of Operations
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------- -------------------------
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Total Revenues ....................... $ 42,872 $ 37,715 $ 131,027 $ 117,700
========= ========= ========= =========
Cost of Sales ........................ $ 26,137 $ 20,003 $ 77,177 $ 58,094
========= ========= ========= =========
Net income before cumulative effect of
accounting change .................. $ 707 $ 1,707 $ 4,714 $ 9,630
Cumulative effect of accounting change -- -- -- (2,856)
--------- --------- --------- ---------
Net income ........................... $ 707 $ 1,707 $ 4,714 $ 6,774
========= ========= ========= =========
</TABLE>
Certain 1995 amounts have been reclassified to conform with
current presentation.
NOTE 3: COMBINED SUMMARIZED FINANCIAL INFORMATION OF AFFILIATED NEWSPAPERS
INVESTMENTS, INC. AND DENVER NEWSPAPERS, INC.
The combined summarized statements of operations include the accounts of ANI
and Denver Newspapers. The companies have common ownership, management and each
have the same fiscal year end. All significant intercompany balances and
transactions have been eliminated. The summarized combined financial information
has been presented to supplement the presentation contained in the consolidated
financial statements of ANI. ANI has a significant economic interest in Denver
Newspapers and may in the future be at least partially dependent upon dividends
from Denver Newspapers to service its debt obligations.
12
<PAGE> 13
AFFILIATED NEWSPAPERS INVESTMENTS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--continued
NOTE 3: COMBINED SUMMARIZED FINANCIAL INFORMATION OF AFFILIATED NEWSPAPERS
INVESTMENTS, INC. AND DENVER NEWSPAPERS, INC.--CONTINUED
Summarized Combined Statements of Operations (in thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
-------------------------------- ----------------------------
1996 1995 1996 1995
------------ ------------ ----------- ---------
<S> <C> <C> <C> <C>
Revenues ............................. $ 100,693 $ 88,960 $ 311,964 $ 273,742
============ ============ =========== =========
Cost of Sales ........................ $ 50,631 $ 39,767 $ 150,388 $ 115,902
============ ============ =========== =========
Gain on sale of newspaper property ... $ -- $ -- $ -- $ 4,153
============ ============ =========== =========
Minority Interest .................... $ (13) $ (412) $ (1,076) $ (2,214)
============ ============ =========== =========
Gain on sale of Denver Newspapers
common stock ....................... $ -- $ -- $ -- $ 996
============ ============ =========== =========
Net income before cumulative effect
of accounting change ................ $ (8,111) $ (5,286) $ (13,331) $ (661)
Cumulative effect of accounting change
of Denver Newspapers ................ $ -- $ -- $ -- $ (2,856)
------------ ------------ ----------- ---------
Net income (loss) .................... $ (8,111) $ (5,286) $ (13,331) $ (3,517)
============ ============ =========== =========
Net income (loss) applicable to
common stock ........................ $ (8,786) $ (5,961) $ (15,356) $ (5,542)
============ ============ =========== =========
</TABLE>
Certain 1995 amounts have been reclassified to conform with current
presentation.
13
<PAGE> 14
AFFILIATED NEWSPAPERS INVESTMENTS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--continued
NOTE 4: SUBSEQUENT EVENTS
Acquisitions and Dispositions
On May 1, 1996, Garden State sold the common stock of The Johnstown Tribune
Publishing Company, which publishes The Tribune-Democrat, to American Publishing
(1991), Inc. in exchange for approximately $32.6 million in cash and
substantially all the assets used in the publication of the following daily and
weekly newspapers:
<TABLE>
<CAPTION>
==========================================================================================================================
Newspaper Location Daily Publication Weekly Publication
==========================================================================================================================
<S> <C> <C>
Bridgeton, New Jersey Bridgeton Evening News None
- --------------------------------------------------------------------------------------------------------------------------
Fort Morgan, Colorado Fort Morgan Times Morgan Times Review(a)
- --------------------------------------------------------------------------------------------------------------------------
Sterling, Colorado Journal-Advocate J. A. Shopper(a)
- --------------------------------------------------------------------------------------------------------------------------
Lamar, Colorado Lamar Daily News Tri-State Trader(a)
- --------------------------------------------------------------------------------------------------------------------------
Millville, New Jersey Millville News Millville Shopper News(a)
- --------------------------------------------------------------------------------------------------------------------------
Sidney, Nebraska Sidney Telegraph High Plains Shopping Guide(a)
- --------------------------------------------------------------------------------------------------------------------------
North Adams, Massachusetts The Transcript The Transcript Spotlight(a)
- --------------------------------------------------------------------------------------------------------------------------
Akron, Colorado None Akron News Reporter(b)
- --------------------------------------------------------------------------------------------------------------------------
Brush, Colorado None Brush News-Tribune(b)
- --------------------------------------------------------------------------------------------------------------------------
Julesburg, Colorado None Julesburg Advocate(b)
==========================================================================================================================
</TABLE>
(a) Free Weekly Distribution
(b) Paid Weekly Distribution
In connection with the above newspaper acquisitions, Garden State assumed
non-compete and other long-term obligations with a discounted value of
approximately $1.0 million. In addition, Garden State purchased net working
capital for approximately $1.1 million. As a result of the exchange, Garden
State currently estimates that it will recognize a pre-tax gain of approximately
$8.0 million in its fourth fiscal quarter.
Immediately after the purchase of the above described newspapers, Garden
State contributed all of the newly acquired assets and liabilities of the
Sidney, Nebraska and the Akron, Brush, Fort Morgan, Julesburg, Lamar and
Sterling, Colorado, daily and weekly newspapers to a newly formed corporation,
Eastern Colorado Publishing Company ("Eastern Colorado"). The common stock of
Eastern Colorado was then sold to The Denver Post Corporation, a 60% owned
subsidiary of Affiliated Newspapers Investments, Inc., for approximately $15.6
million, including the assumption of $0.2 million of discounted non-compete
payments and other long-term obligations associated with the newspapers
acquired. No gain or loss was realized on the sale of Eastern Colorado common
stock. The sales price of Eastern Colorado was deemed to be fair based on an
independent appraisal of the transaction.
14
<PAGE> 15
AFFILIATED NEWSPAPERS INVESTMENTS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--continued
NOTE 4: SUBSEQUENT EVENTS--CONTINUED
Combined operating revenues for the nine months ended March 31, 1996 for
the San Mateo Times, Bridgeton Evening News and The Transcript were $17.6
million. The Johnstown Tribune-Democrat had operating revenues of $13.4 million
for the nine months ended March 31, 1996. On a pro forma basis, after giving
effect to the acquisition and disposition transactions and excluding the San
Mateo Times operating revenue already included in the operating results,
operating revenues for the nine months ended March 31, 1996, would have
increased $3.4 million had these transactions all occurred on July 1, 1995.
Proceeds from the sale of The Johnstown Tribune Publishing Company and
Eastern Colorado were used to prepay certain amounts on revolving credit
agreements, a bank term loan, and the Company's Senior Secured Notes.
Prepayments on the revolving credit agreements may be reborrowed subject to
future reductions in the revolving commitments.
15
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
OPERATING RESULTS
Three Months Ended March 31, 1996 and 1995
Revenues
Revenues increased $6.7 million or 13.0% in the third quarter of fiscal year
1996 as compared to the same quarter of fiscal year 1995. The increase in
revenue was primarily attributable to the August 31, 1995 acquisition of the
Berkshire Eagle, the Brattleboro Reformer and the Bennington Banner, daily
newspapers distributed in Pittsfield, Massachusetts; Brattleboro and Bennington,
Vermont, respectively, and the March 10, 1996 acquisition of the San Mateo
Times, a daily newspaper distributed in San Mateo, California, collectively
referred to as the "New England Newspapers" and "San Mateo" acquisitions. These
acquisitions contributed revenues of $6.7 million in the third quarter of fiscal
1996. Excluding the newspaper operations described above, all the Company's
remaining newspapers combined posted flat operating revenues in the third
quarter of fiscal 1996 compared to the same quarter of fiscal year 1995.
Cost of Sales
Cost of sales increased $4.7 million or 23.5% in the third quarter of fiscal
1996 compared to the same quarter of fiscal 1995. Approximately $2.8 million of
the increase was attributable to the New England Newspapers and San Mateo
acquisitions. Excluding acquisition transactions, cost of sales increased
approximately $1.9 million or 9.5%. The increase in cost of sales at existing
newspapers was entirely the result of increased newsprint cost associated with a
40% increase in the average price per ton of newsprint for the third quarter of
fiscal 1996 compared to the same quarter of fiscal 1995. However, the newsprint
price increase was partially offset by a 5,400 ton or 28% decrease in usage at
the Company's existing newspapers, associated with the Company's ongoing efforts
to conserve newsprint. Excluding newsprint, cost of sales at existing newspapers
decreased $0.2 million in the third quarter of fiscal 1996 compared to the same
quarter in fiscal 1995.
Selling, General and Administrative
Selling, general and administrative ("SG&A") expenses increased $2.2 million
or 9.8% in the third quarter of fiscal 1996 compared to the same quarter of
fiscal 1995. The New England Newspapers and San Mateo acquisitions resulted in
SG&A expense increases of approximately $2.6 million. Excluding the acquisition
transactions, SG&A expense decreased $0.4 million. The decrease in SG&A expense
at existing newspapers was primarily the result of the Company's continuing
efforts to control its operating expenses.
Other Expense
Other expense, net, increased $0.6 million, of which $0.3 million was the
result of certain start-up costs incurred in conjunction with the combination
and integration of the San Mateo Times operations with those of the Alameda
Newspaper Group.
Denver Newspapers - unconsolidated subsidiary
Net income applicable to common stock of Denver Newspapers decreased $1.0
million in the third quarter of fiscal 1996 compared to the same period in
fiscal 1995. The decrease in income was primarily the result of a 43.0% increase
in the average cost of newsprint for the third quarter of fiscal 1996 compared
to the same quarter in fiscal 1995, which was only partially offset by the 13.7%
growth in revenue in the third quarter.
16
<PAGE> 17
Net Income
ANI recorded a loss of approximately $8.8 million in the third quarter of
fiscal 1996 compared to a third quarter of fiscal 1995 net loss of $6.0 million.
The increase in the loss was primarily attributable to a $1.0 million decrease
in income from Denver Newspapers, increases in interest and depreciation and
amortization of approximately $1.0 million primarily attributable to the
acquisitions described above, and certain start-up costs associated with
combining the San Mateo Times operations with the Alameda Newspapers Group.
Nine Months Ended March 31, 1996 and 1995
Revenues
Revenues increased $24.9 million or 16.0% in the first nine months of fiscal
year 1996 as compared to the same nine-month period of fiscal year 1995. The
increase in revenue was primarily attributable to the November 18, 1994
acquisition of The Gloucester County Times and Today's Sunbeam, daily newspapers
distributed in Woodbury and Salem, New Jersey, respectively, and the New England
Newspapers and San Mateo acquisitions. Combined, the acquisitions discussed
above accounted for a $20.7 million increase in revenues in the first nine
months of fiscal 1996. These revenue increases were partially offset by a $0.5
million decline in revenue resulting from the sale of the Bristol Press on
August 1, 1994. Excluding the newspaper operations described above, the
Company's remaining newspaper operations posted a combined increase in revenues
of approximately $4.7 million or 3.0%, with revenue growth at the individual
newspapers ranging from 1.0% to 8.8% for the first nine months of fiscal year
1996 compared to the same nine-month period of fiscal year 1995. Adjusting for
the one time impact of a newspaper strike in San Francisco, the Company's
revenue, on a same newspaper basis, would have grown approximately 3.4% for the
first nine months of fiscal 1996. The newspaper strike in San Francisco resulted
in advertising expenditures being decreased in the San Francisco market and
advertising expenditures being increased in certain surrounding markets, which
benefitted revenues of Alameda Newspaper Group in November and December, 1994.
Cost of Sales
Cost of sales increased $15.2 million or 26.1% in the first nine months of
fiscal 1996 compared to the same nine-month period of fiscal 1995. Approximately
$8.0 million of the increase was attributable to the aforementioned
acquisitions. However, this increase was offset in part by a $0.2 million
decrease in cost of sales resulting from the sale of the Bristol Press.
Excluding acquisition and disposition transactions, cost of sales increased
approximately $7.4 million or 12.8%. The increase in cost of sales at existing
newspapers was entirely the result of increased newsprint cost associated with a
46% increase in the average price per ton of newsprint for the first nine months
of fiscal 1996 compared to the same nine-month period of fiscal 1995. However,
the newsprint price increase was partially offset by a 7,500 ton or 15.0%
decrease in usage at the Company's existing newspapers associated with the
Company's efforts to conserve newsprint. Excluding newsprint, cost of sales on a
same newspaper basis decreased $0.3 million in the first nine months of fiscal
1996 compared to the same nine-month period of fiscal 1995.
Selling, General and Administrative
Selling, general and administrative ("SG&A") expenses increased $8.2 million
or 12.2% in the first nine months of fiscal 1996 compared to the same nine-month
period of fiscal 1995. The aforementioned acquisitions resulted in SG&A expense
increases of $8.2 million; however, this was in part offset by a $0.3 million
reduction in SG&A expense associated with the sale of the Bristol Press.
Excluding the acquisition and disposition transactions, SG&A expense increased
$0.3 million. The small increase in SG&A expense at the Company's existing
newspapers was the result of the Company's continuing efforts to control its
operating expenses.
17
<PAGE> 18
Other Expense
Other expense, net, increased $1.7 million as a result of writing off
approximately $1.1 million of fees and other costs associated with the Company's
new term loan and revolving credit facility entered into on August 31, 1995,
which was used to refinance debt assumed in the aforementioned August 31, 1995
acquisitions. Other expense also increased $0.3 million as a result of certain
start-up costs incurred in conjunction with the combination and integration of
the San Mateo Times operations with those of Alameda Newspaper Group.
Denver Newspapers - unconsolidated subsidiary
Net income applicable to common stock of Denver Newspapers, before the
cumulative effect of accounting change, decreased $4.9 million in the first nine
months of fiscal 1996 compared to the same period in fiscal 1995. The decrease
in income was primarily the result of a 50.4% increase in the average cost of
newsprint for the first nine months of fiscal 1996 compared to the same
nine-month period in fiscal 1995, which was only partially offset by the 11.3%
growth in revenue in the most recent nine-month period. The Company's share of
Denver Newspapers' net income applicable to common stock also declined as a
result of Media General exercising their common stock warrant and acquiring a
40% interest in Denver Newspapers effective the second quarter of fiscal 1995.
As a result, for the nine-month period ended March 31, 1996, the Company
recorded 60% of Denver Newspapers' net income applicable to common stock
compared to 100%, 60% and 60% for the first, second and third quarters of fiscal
1995, respectively.
Effective July 1, 1994, Denver Newspapers adopted Statement of Financial
Accounting Standards No. 106 ("SFAS 106"), "Employers Accounting for Post
Retirement Benefits Other Than Pensions." As a result, Denver Newspapers
recorded a cumulative effect of an accounting change of approximately $2.9
million net of taxes in the first quarter of fiscal 1995. Prior to the adoption
of SFAS 106, the cost and expenses of the plan were recognized as paid.
Net Income
ANI recorded a loss of approximately $15.5 million in the first nine months
of fiscal 1996; however, after excluding the write-off of fees and other costs
associated with the newly issued term loan and revolving credit facility and San
Mateo Times start-up costs, ANI would have recorded an adjusted loss of $14.1
million compared to the first nine months of fiscal 1995 adjusted loss of $7.8
million after adjusting the loss to exclude the fiscal 1995 gain on sale of the
Bristol Press of $4.2 million, the cumulative effect of accounting change of
$2.9 million and the gain on sale of common stock by Denver Newspapers. The
increase in the adjusted loss was primarily attributable to a $7.3 million
decrease in the equity pick-up of income of Denver Newspapers before cumulative
effect of the accounting change and increased interest expense and depreciation
and amortization primarily associated with the acquisitions discussed above.
These reductions in income were partially offset by a $1.5 million increase in
operating revenues in excess of increases in cost of sales and SG&A expenses at
Garden State. Net income comparisons to prior year were negatively impacted as a
result of the estimated one time positive impact of $0.3 million in the
Company's second quarter of fiscal 1995 resulting from the San Francisco
newspaper strike previously discussed.
FINANCIAL CONDITION AND LIQUIDITY
Net cash flows from operating activities were approximately $(0.7) million
and $12.3 million for the nine months ended March 31, 1996 and 1995,
respectively. The decrease in cash flow from operating activities was primarily
the result of changes in the operating assets and liabilities of $(12.4)
million, $5.6 million of which related to the timing of interest payments. In
addition, inventories were higher as a result of higher newsprint prices and
tons on hand, which was exacerbated by lower newsprint payables due to tightened
credit terms.
18
<PAGE> 19
Net cash flows from investing activities were $(37.6) million and $2.5
million for the nine months ended March 31, 1996 and 1995, respectively. The
$(40.1) million decrease was a result of the Company receiving a net $5.5
million in proceeds from acquisition and disposition transactions in fiscal 1995
as compared to expenditures of $33.2 million related to the acquisition of the
New England Newspapers and San Mateo acquisitions in fiscal 1996. The Company
also increased capital spending by $1.8 million, primarily associated with the
previously announced Alameda Newspaper Group press project and press
modifications associated with web width reductions.
Net cash flows from financing activities were $22.7 million and $(12.0)
million for the nine months ended March 31, 1996 and 1995, respectively. The
increase of $34.7 million was primarily attributable to the Company borrowing
$36.3 million in fiscal 1996 associated with the previously discussed
acquisitions.
On May 10, 1996, Garden State and its subsidiary, NJN Investments, Inc., had
a combined $43.2 million available for borrowings under revolving credit
facilities, excluding approximately $5.2 million in letters of credit
outstanding. Approximately $21.3 million of the unused NJN Investments, Inc.
revolving credit facility will expire on April 30, 1997, if it is not reborrowed
for acquisition purposes. Commitments under the revolving credit facilities will
also continue to reduce in accordance with the terms previously disclosed in the
June 30, 1995 Form 10-K.
Denver Newspapers - unconsolidated subsidiary
Denver Newspapers is well capitalized and currently produces cash flows
significantly in excess of its capital expenditure and debt service
requirements; accordingly, management does not anticipate making any additional
capital contributions to Denver Newspapers. At May 1, 1996, Denver Newspapers
had $0.9 million available under its revolving credit facility, excluding $1.6
million in outstanding letters of credit. In addition, at March 31, 1996, Denver
Newspapers had working capital of approximately $6.4 million.
Denver Newspapers' revolving credit facility and shareholder agreement
prohibit the payment of common stock dividends to ANI until the revolving credit
facility and the 9% preferred stock have been repaid in full. Denver Newspapers'
revolving credit facility expires July 1, 1999. Denver Newspapers' preferred
stock is mandatorily redeemable on the earlier of (a) June 30, 1999; (b) the
date on which such redemption is permissible under Denver Newspapers' credit
agreement; (c) the date on which Denver Newspapers ceases to own directly at
least 51% of all the outstanding capital stock of The Denver Post Corporation;
or (d) the date on which Denver Newspapers, directly or indirectly, causes or
permits The Denver Post Corporation to dispose of substantially all of the
assets of The Denver Post Corporation.
NEAR TERM OUTLOOK
The steady increase in newsprint prices over the last two years has finally
abated, and the Company is beginning to experience some decline in newsprint
prices. Management believes that newsprint prices will continue to soften;
however, the extent of future price declines is currently unknown. High
newsprint prices will continue to negatively affect the Company's earnings into
the Company's fourth fiscal quarter, as it depletes its higher priced
inventories. The Company expects newsprint price comparisons to remain negative
through the first quarter of fiscal 1997, with probable favorable comparisons
thereafter based on current prices.
19
<PAGE> 20
In conjunction with the Company's efforts to cut costs, it has embarked on,
among other things, a project to reduce web widths to 50 inches at its
newspapers. This project is being accomplished on a methodical,
newspaper-by-newspaper basis after thorough market research. Nine of Garden
State's newspapers have been converted through March 31, 1996. Virtually all of
Garden State's newspapers are expected to be converted by fiscal year-end. Once
all of the Company's newspapers are converted to the 50-inch web width,
newsprint consumption will be permanently reduced 7.5% to 9%. Denver Newspapers
is also currently evaluating a conversion to 50-inch web widths, which would
result in approximately $5.0 million of annual savings based on today's
newsprint prices.
Based upon current operations, management believes that the Company will
have sufficient cash to pay interest when due on outstanding indebtedness and
that cash flow from operations, together with the Garden State credit facility
and other resources available to the Company, will be adequate to fund scheduled
payments of principal and interest and to meet anticipated capital expenditure
and working capital requirements for at least the next twelve months.
The purchase of Garden State's Class A common stock and the Series A and C
preferred stock by ANI in May, 1994, was financed with debt issued by ANI. The
repayment of ANI's debt, which does not have scheduled interest payments until
January 1, 2000, is in part dependent upon Garden State's and/or Denver
Newspapers' ability to pay dividends to ANI. Garden State's and Denver
Newspapers' debt agreements prohibit the payment of dividends to ANI prior to
June 30, 1999.
20
<PAGE> 21
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT DESCRIPTION PAGE
- ------ ------------------- ----
27 FINANCIAL DATA SCHEDULE
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 9 MONTHS
ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH MARCH
31, 1996 10-Q
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1995
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 1,685
<SECURITIES> 0
<RECEIVABLES> 27,067
<ALLOWANCES> 2,066
<INVENTORY> 6,641
<CURRENT-ASSETS> 41,632
<PP&E> 130,119
<DEPRECIATION> 52,238
<TOTAL-ASSETS> 286,237
<CURRENT-LIABILITIES> 49,108
<BONDS> 350,074
0
0
<COMMON> 23
<OTHER-SE> (135,964)
<TOTAL-LIABILITY-AND-EQUITY> 286,237
<SALES> 180,937
<TOTAL-REVENUES> 180,937
<CGS> 73,211
<TOTAL-COSTS> 163,683
<OTHER-EXPENSES> 34,219
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31,350
<INCOME-PRETAX> (15,352)
<INCOME-TAX> 4
<INCOME-CONTINUING> (15,356)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,356)
<EPS-PRIMARY> (6.63)
<EPS-DILUTED> (6.63)
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