<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 September 30, 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 September 30, 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 SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Item No. Page
-------- ----
<S> <C> <C>
PART I - FINANCIAL INFORMATION
------------------------------
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
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 September 30, 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: November 11, 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
AFFLIATED NEWSPAPERS INVESTMENTS, INC. AND SUBSIDIARIES
Index to Financial Information
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Item 1. Financial Statements:
-------
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 . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
5
<PAGE> 6
AFFILIATED NEWSPAPERS INVESTMENTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
ASSETS September 30, June 30,
1996 1996
---------------- -----------------
(In thousands)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . $ 2,717 $ 4,615
Accounts receivable, less allowance for doubtful accounts
of $2,290 and $2,426 at September 30, 1996 and
June 30, 1996, respectively . . . . . . . . . . . . . . . 27,489 27,492
Inventories of newsprint and supplies . . . . . . . . . . . 4,347 3,966
Prepaid expenses and other assets . . . . . . . . . . . . . 3,906 2,780
---------------- -----------------
Total Current Assets . . . . . . . . . . . . . . . . . . 38,459 38,853
PROPERTY, PLANT AND EQUIPMENT
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,184 5,168
Buildings and improvements . . . . . . . . . . . . . . . . 32,702 32,687
Machinery and equipment . . . . . . . . . . . . . . . . . . 89,408 87,522
---------------- -----------------
Total Property, Plant and Equipment . . . . . . . . . . 127,294 125,377
Less accumulated depreciation and amortization . . . . . . 52,274 50,027
---------------- -----------------
Net Property, Plant and Equipment . . . . . . . . . . . 75,020 75,350
OTHER ASSETS
Investment in Denver Newspapers, Inc. (Note 2) . . . . . . 5,306 4,826
Investment in partnership . . . . . . . . . . . . . . . . . 6,091 6,369
Subscriber accounts, less accumulated amortization of
$50,248 and $48,594 at September 30, 1996 and
June 30, 1996, respectively . . . . . . . . . . . . . . . 42,565 44,220
Excess of cost over fair value of net assets acquired,
less accumulated amortization of $13,765 and $13,267
at September 30, 1996 and June 30, 1996, respectively . . 65,252 65,715
Covenants not to compete and other identifiable intangible
assets, less accumulated amortization of $20,110 and
$19,673 at September 30, 1996 and June 30, 1996,
respectively . . . . . . . . . . . . . . . . . . . . . . 8,025 8,461
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,896 1,871
---------------- -----------------
Total Other Assets . . . . . . . . . . . . . . . . . . . 129,135 131,462
---------------- -----------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . $ 242,614 $ 245,665
================ =================
</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)
September 30, June 30,
LIABILITIES AND SHAREHOLDERS' DEFICIT 1996 1996
---------------- -----------------
(In thousands, except share data)
<S> <C> <C>
CURRENT LIABILITIES
Trade accounts payable . . . . . . . . . . . . . . . . . . $ 5,183 $ 5,884
Accrued liabilities . . . . . . . . . . . . . . . . . . . . 17,656 18,174
Unearned income . . . . . . . . . . . . . . . . . . . . . . 6,984 7,048
Income taxes . . . . . . . . . . . . . . . . . . . . . . . 488 373
Current portion of long-term debt and capital lease
obligation . . . . . . . . . . . . . . . . . . . . . . . 11,237 11,190
---------------- -----------------
Total Current Liabilities . . . . . . . . . . . . . . . 41,548 42,669
LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATION . . . . . . . . . . . . . . . . . . . . . . . . 318,303 314,510
OTHER LIABILITIES . . . . . . . . . . . . . . . . . . . . . . 6,320 7,728
DEFERRED INCOME TAXES . . . . . . . . . . . . . . . . . . . . 12,206 12,275
SHAREHOLDERS' DEFICIT
Common stock, par value $1.00 per share; authorized
4,628,692 shares; 2,314,346 shares issued
and outstanding . . . . . . . . . . . . . . . . . . . . . 23 23
Additional paid-in capital . . . . . . . . . . . . . . . . 3,611 3,611
Deficit . . . . . . . . . . . . . . . . . . . . . . . . . . (139,397) (135,151)
---------------- -----------------
Total Shareholders' Deficit . . . . . . . . . . . . . . (135,763) (131,517)
---------------- -----------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT . . . . . . . . . $ 242,614 $ 245,665
================ =================
</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 Ended September 30,
-------------------------------------
1996 1995
---------------- -----------------
(In thousands, except share data)
<S> <C> <C>
REVENUES
Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 49,595 $ 46,208
Circulation . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,401 8,699
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,084 1,399
---------------- -----------------
TOTAL OPERATING REVENUES . . . . . . . . . . . . . . . . . . 61,080 56,306
COST AND EXPENSES
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . 23,568 22,874
Selling, general, and administrative . . . . . . . . . . . . . . 26,529 24,343
Depreciation and amortization . . . . . . . . . . . . . . . . . . 5,138 4,841
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . 10,320 10,112
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . 198 1,421
---------------- -----------------
TOTAL COST AND EXPENSES . . . . . . . . . . . . . . . . . . . 65,753 63,591
INCOME IN UNCONSOLIDATED SUBSIDIARY (Note 2) . . . . . . . . . . . 480 205
---------------- -----------------
LOSS BEFORE INCOME TAXES . . . . . . . . . . . . . . . . . . . . . (4,193) (7,080)
INCOME TAX BENEFIT (EXPENSE) . . . . . . . . . . . . . . . . . . . (53) 139
---------------- -----------------
LOSS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (4,246) $ (6,941)
================ =================
LOSS PER COMMON SHARE:
Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1.83) $ (3.00)
================ =================
Weighted average number of shares
outstanding. . . . . . . . . . . . . . . . . . . . . . . . . . . . 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>
Three Months Ended September 30,
--------------------------------------
1996 1995
---------------- ----------------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (4,246) $ (6,941)
Adjustments to reconcile loss to net
cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . 4,836 4,625
Undistributed earnings from equity investments . . . . . . . . . . (202) (758)
Provision for losses on accounts receivable . . . . . . . . . . . . 634 740
Amortization of debt discount . . . . . . . . . . . . . . . . . . . 4,460 3,859
Deferred income tax benefit . . . . . . . . . . . . . . . . . . . . (69) (197)
Debt issuance cost . . . . . . . . . . . . . . . . . . . . . . . . -- 1,092
Change in operating assets and liabilities . . . . . . . . . . . (3,396) (7,460)
---------------- ----------------
NET CASH FLOWS FROM OPERATING ACTIVITIES . . . . . . . . . . . 2,017 (5,040)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of newspaper properties . . . . . . . . . . . . . . . . . -- (21,725)
Purchase of machinery and equipment, (net) . . . . . . . . . . . . (1,918) (1,531)
---------------- ----------------
NET CASH FLOWS FROM INVESTING ACTIVITIES . . . . . . . . . . . (1,918) (23,256)
CASH FLOWS FROM FINANCING ACTIVITIES:
Reduction of long-term debt . . . . . . . . . . . . . . . . . . . . (10,174) (492)
Reduction of non-operating liabilities . . . . . . . . . . . . . . (1,423) (2,571)
Debt issuance cost . . . . . . . . . . . . . . . . . . . . . . . . -- (1,092)
Issuance of long-term debt . . . . . . . . . . . . . . . . . . . . 9,600 21,000
---------------- ----------------
NET CASH FLOWS FROM FINANCING ACTIVITIES . . . . . . . . . . . (1,997) 16,845
---------------- ----------------
DECREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . (1,898) (11,451)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,615 17,283
---------------- ----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . . . . . . . . . . . $ 2,717 $ 5,832
================ ================
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,048 $ 12,088
================ ================
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . $ 143 $ 37
================ ================
</TABLE>
See notes to unaudited condensed consolidated financial statements.
9
<PAGE> 10
AFFILIATED NEWSPAPERS INVESTMENTS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENT
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 the Affiliated Newspapers Investments, Inc. ("ANI") Annual Report
on Form 10-K for the year ended June 30, 1996. 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
three-month period ended September 30, 1996, are not necessarily indicative of
the results that may be expected for the year ended June 30, 1997.
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 using the
equity method of accounting (See Note 2).
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.
NOTE 2: INVESTMENT IN UNCONSOLIDATED SUBSIDIARY
Basis of Accounting
The Company owns 60 percent of the outstanding common stock of Denver
Newspapers. However, because the Denver Newspaper Shareholder Agreement
provides Media General, the owner of the remaining 40 percent interest in
Denver Newspapers, with a 50 percent representation on the board of directors,
the Company accounts for its investment in Denver Newspapers under the equity
method of accounting.
10
<PAGE> 11
AFFILIATED NEWSPAPERS INVESTMENTS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENT--(Continued)
NOTE 2: INVESTMENT IN UNCONSOLIDATED SUBSIDIARY--CONTINUED
The following are summarized statements of operations for the three month
period ended September 30, 1996 and 1995 (in thousands):
Summarized Statements of Operations
<TABLE>
<CAPTION>
Three Months Ended September 30,
-------------------------------------
1996 1995
----------------- ----------------
<S> <C> <C>
Total revenues . . . . . . . . . . . . . . . . . . . $ 44,465 $ 40,810
================= ================
Cost of sales . . . . . . . . . . . . . . . . . . . . $ 25,691 $ 23,903
================= ================
Net income . . . . . . . . . . . . . . . . . . . . . $ 1,475 $ 1,017
================= ================
Net income applicable to common stock . . . . . . . . $ 800 $ 342
================= ================
</TABLE>
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 the debt obligations
of ANI.
Combined Summarized Statements of Operations
<TABLE>
<CAPTION>
Three Months Ended September 30,
-------------------------------------
1996 1995
----------------- ----------------
(In thousands)
<S> <C> <C>
Total revenues . . . . . . . . . . . . . . . . . . . $ 105,545 $ 97,116
================= ================
Cost of sales . . . . . . . . . . . . . . . . . . . . $ 49,259 $ 46,777
================= ================
Minority interest in income applicable to common
stock of Denver Newspapers, Inc. . . . . . . . . . . $ (320) $ (137)
================= ================
Loss . . . . . . . . . . . . . . . . . . . . . . . . $ (3,571) $ (6,266)
================= ================
Loss applicable to common stock . . . . . . . . . . . $ (4,246) $ (6,941)
================= ================
</TABLE>
11
<PAGE> 12
AFFILIATED NEWSPAPERS INVESTMENTS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENT--(Continued)
NOTE 4: SUBSEQUENT EVENTS
Business Acquisitions
On October 31, 1996, Garden State acquired substantially all of the assets
used in the publication of the Star News, San Gabriel Valley Tribune, Whittier
Daily News, Times-Standard and The Evening Sun, daily newspapers distributed
primarily in Pasadena, West Covina, Whittier and Eureka, California, and
Hanover, Pennsylvania, respectively, and seven weekly newspapers distributed in
and around these same cities, for a total of $130.0 million in cash. The daily
newspapers combined had daily and Sunday circulation of approximately 161,000
and 163,000, respectively, at March 31, 1996.
The acquisition will be accounted for as a purchase; accordingly, the
consolidated financial statements will include the operations of the acquired
newspapers from November 1, 1996.
Long-Term Debt
In conjunction with the acquisitions described above, Garden State entered
into a $240.0 million amended and restated bank credit facility (the "Bank
Credit Facility"). The Bank Credit Facility is comprised of the following
components:
I. A $122.0 million Senior Secured Revolving Credit Facility ("Revolver
A") which matures on June 30, 2003. The commitment under Revolver A
is reduced annually, with a $10.0 million reduction on June 30, 1997,
a $20.0 million annual reduction on June 30, 1998 through June 30,
2001, an $18.0 million reduction on June 30, 2002, and a final
maturity of June 30, 2003. Proceeds from Revolver A were used to
purchase the newspaper assets described above.
II. A $27.0 million Senior Secured Revolving Credit Facility ("Revolver
B") with sublimits of $7.0 million available for standby Letters of
Credit and $5.0 million available for same day borrowings under a
Swingline Facility. No principal payments are required under Revolver
B until March 31, 2004, at which time the commitment is terminated and
all then outstanding balances are due and payable. As of the date
hereof, approximately $22.0 million of Revolver B is available for
future borrowings.
III. A $15.0 million Senior Secured Term Loan ("Term Loan A") with a final
maturity of March 31, 2004. Term Loan A requires quarterly
installments beginning June 30, 2002, with total annual payments of
$3.75 million, $7.5 million and $3.75 million in fiscal years ending
June 30, 2002, 2003 and 2004, respectively. Proceeds from Term Loan A
were used in conjunction with Revolver A to fund the aforementioned
acquisitions and to prepay a previously outstanding term loan which
had a balance of $7.5 million.
IV. A $76.0 million Senior Secured Term Loan ("Term Loan B") with a final
maturity of March 31, 2004. Term Loan B requires quarterly principal
payments commencing on September 30, 1997, with annual reductions of
$4.0 million in fiscal year 1998, $7.5 million in fiscal years 1999
and 2000, $12.0 million in fiscal years 2001 and 2002, $14.0 million
in 2003 and $19.0 million in 2004. Proceeds from Term Loan B were
used to prepay Garden State's 10.89% Senior Secured Notes on October
31, 1996, as further described below.
12
<PAGE> 13
AFFILIATED NEWSPAPERS INVESTMENTS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENT--(Continued)
NOTE 4: SUBSEQUENT EVENTS--CONTINUED
Long-Term Debt--continued
All borrowings under the Bank Credit Facility, except loans under the
Swingline Facility, bear interest at rates based upon, at Garden State's
option, Eurodollars or prime, plus a spread based on Garden State's leverage.
Borrowings under the Swingline Facility bear interest at prime plus a spread
based on Garden State's leverage. Interest on prime borrowings under the Bank
Credit Facility is payable quarterly. Interest on Eurodollar borrowings is due
at the end of the applicable interest rate contract or quarterly if the
interest rate contract exceeds three months. In addition, Garden State pays an
annual commitment fee of 0.50% on the unused commitment under Revolvers A and
B. If the ratio of total debt to operating cash flow is less than 4.00 to
1.00, the commitment fee is reduced to 0.375%.
The Garden State Bank Credit Facility contains certain restrictive covenants
which relate to, among other things, the incurrence of additional debt, capital
expenditures and distributions. Additionally, the agreement requires the
maintenance of certain financial ratios based on leverage, debt service
coverage, interest coverage and fixed charges coverage. Borrowings under the
Garden State Bank Credit Facility are secured by substantially all of Garden
State's tangible and intangible assets and stock of Garden State and its
subsidiaries.
In addition to proceeds from Term Loan B, Garden State received a
distribution of $17.4 million from borrowings under an existing bank credit
facility of a subsidiary. These funds were used to prepay in full Garden
State's 10.89% Senior Secured Notes in the amount of $77,577,686, including
interest of $697,686, and $1.8 million was used to reduce the outstanding
balance of Revolver B to zero. The remaining funds were used to pay a
make-whole payment of $9.5 million and bank fees and other transactional
expenses of approximately $4.5 million. The majority of these costs, which
related to the refinancings, will be expensed in the Company's second fiscal
quarter.
Maturities of ANI's long-term debt as of October 31, 1996, for the five
fiscal years ending June 30, 2001, after giving effect to the October 31, 1996,
transactions previously described, are as follows (in thousands):
<TABLE>
<S> <C>
1997. . . . . . . . . . . . . . . . . . . $ 13,269
1998. . . . . . . . . . . . . . . . . . . 26,409
1999. . . . . . . . . . . . . . . . . . . 47,465
2000. . . . . . . . . . . . . . . . . . . 30,055
2001. . . . . . . . . . . . . . . . . . . 34,383
Thereafter . . . . . . . . . . . . . . 318,116
---------
$ 469,697
=========
</TABLE>
13
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OPERATING RESULTS
Three Months Ended September 30, 1996 and 1995
Revenues
Revenues increased $4.8 million or 8.5% in the first quarter of fiscal year
1997 as compared to the same quarter of fiscal year 1996. The increase in
revenue was primarily attributable to the August 31, 1995, acquisition of The
Berkshire Eagle, Brattleboro Reformer and Bennington Banner ("New England
Newspapers"); the March, 1996, acquisition of the San Mateo Times; and the
April 30, 1996, acquisition of The Transcript and The Evening News. Combined,
the acquisitions discussed above increased in revenues approximately $9.2
million in the first quarter of fiscal year 1997. These revenue increases were
partially offset by a $4.4 million decline in revenue resulting from the sale
of the Johnstown Tribune Publishing Company on April 30, 1996. Excluding the
newspaper operations described above, the Company's remaining newspaper
operations combined, posted flat operating revenues for the first quarter of
fiscal year 1997. While operating revenues on a same newspaper basis were
flat, all the Company's newspapers except Alameda Newspaper Group (excluding
San Mateo) and North Jersey Newspaper Company posted an increase in operating
revenue. The increase in operating revenue at these newspapers was
approximately $1.5 million and was primarily attributable to a combined 3.8%
and 2.3% gain in classified and circulation revenue, respectively. Alameda
Newspaper Group and North Jersey Newspaper Company continue to be negatively
affected by a significant number of out-of-business accounts (either from store
mergers or bankruptcies) which have not yet been cycled through. The Company
currently expects that Alameda Newspaper Group and North Jersey Newspaper
Company will begin showing year-over-year quarterly improvements in operating
revenues in the fiscal third quarter.
Cost of Sales
Cost of sales increased $0.7 million or 3.0% in first quarter of fiscal year
1997 compared to the same quarter of fiscal year 1996. The aforementioned
acquisitions caused cost of sales to increase approximately $3.5 million for
the quarter ended September 30, 1996. However, this increase was offset in
part by a $1.5 million decrease in cost of sales resulting from the sale of the
Johnstown Tribune Publishing Company. Excluding acquisition and disposition
transactions, cost of sales decreased approximately $1.3 million or 6.6%. The
decrease in cost of sales at existing newspapers was entirely the result of
declines in the average cost of newsprint of approximately 5.2% combined with a
5.3% decrease in consumption, primarily associated with efforts to conserve
newsprint, including the conversion to the 50-inch web width which began in
October of 1995 and was completed at the majority of newspapers during fiscal
1996. Excluding newsprint, cost of sales on a same newspaper basis decreased
$0.1 million in the first quarter of fiscal 1997.
Selling, General and Administrative
Selling, general and administrative ("SG&A") expenses increased $2.2 million
or 9.0% in the first quarter of fiscal year 1997 as compared to the same
quarter of fiscal year 1996. The aforementioned acquisitions resulted in SG&A
expense increases of $3.4 million; however, this was in part offset by a $1.4
million reduction in SG&A expense associated with the sale of the Johnstown
Tribune Publishing Company. Excluding the acquisition and disposition
transactions, SG&A expense increased $0.2 million or 1.1%. The entire increase
in SG&A is associated with increases in advertising and circulation
expenditures, which were primarily related to ongoing efforts to increase
advertising lineage and circulation. The overall small increase in SG&A
expense on a same newspaper basis was the result of the Company's continuing
efforts to control its general and administrative expenses.
14
<PAGE> 15
Other Expense
Other expense, net, decreased $1.2 million. The majority of the decrease is
attributable to a first quarter fiscal year 1996 charge to write-off
approximately $1.1 million of fees and other costs associated with Garden
State's term loan and revolving credit facility entered into on August 31,
1995. Proceeds from the term loan and revolving credit facility were used to
fund the aforementioned August 31, 1995, acquisition.
Denver Newspapers - Unconsolidated Subsidiary
Net income applicable to common stock of Denver Newspapers increased $0.3
million in the first quarter of fiscal year 1997 compared to the same quarter
of fiscal year 1996. The current quarter increase in net income applicable to
common stock at Denver Newspapers was primarily the result of a 9.0% increase
in operating revenues and a 27.9% increase in operating profit, as compared to
the same quarter of the prior year. The increase in revenue and operating
profit is primarily attributable to 5.0% growth in advertising lineage at The
Denver Post, which is attributable to an increase in the market size as well as
market share growth. A 4.4% decrease in the average cost of newsprint consumed
also contributed to the improvement in Denver Newspapers' operating profit.
Denver Newspapers' acquisition of three daily and three paid weekly newspapers
in Eastern Colorado on May 1, 1996, accounted for approximately 15.0% of the
increase in net income applicable to common stock.
Net Income
ANI recorded a loss of approximately $4.2 million in the first quarter of
fiscal year 1997 compared to an adjusted loss of $5.8 million in the first
quarter of fiscal year 1996, after excluding the write-off of fees and other
costs associated with the term loan and revolving credit facility issued on
August 31, 1995. The decrease in the adjusted net loss is primarily
attributable to Garden State, which had a $1.6 million increase in operating
profit offset by a $0.2 million increase in interest expense and a $0.2 million
increase in tax expense resulting from improved operating results. The $0.3
million increase in the equity pick-up from Denver Newspapers also contributed
to the reduction in the loss.
FINANCIAL CONDITION AND LIQUIDITY
Net cash flows from operating activities were approximately $2.0 million and
$(5.0) million for the three months ended September 30, 1996 and 1995,
respectively. The $7.0 million increase in cash flow from operating activities
was primarily the result of a $1.6 million decrease in the loss for the three
months ended September 30, 1996, compared to the adjusted loss for September
30, 1995, combined with a $4.7 million decrease in the change in the interest
payable associated with the timing of interest payments.
Net cash flows from investing activities were $(1.9) million and $(23.3)
million for the three months ended September 30, 1996 and 1995, respectively.
The $21.4 million change was primarily the result of Garden State spending
$21.7 million related to the acquisition of the Berkshire Eagle, Brattleboro
Reformer and Bennington Banner in the first quarter of fiscal year 1996.
Net cash flows from financing activities were $(2.0) million and $16.8
million for the three months ended September 30, 1996 and 1995, respectively.
The change of approximately $18.8 million was primarily attributable to Garden
State borrowing $21.0 million in the first quarter of fiscal 1996 in
conjunction with the previously discussed August 31, 1995, acquisitions.
Giving effect to the October 31, 1996, Bank Credit Facility, Garden State
and subsidiaries had a combined $29.8 million available for future borrowings,
net of $5.0 million in outstanding letters of credit at October 31, 1996.
15
<PAGE> 16
NEAR TERM OUTLOOK
The steady increase in newsprint prices came to a halt in the fourth quarter
of calendar 1996 and, beginning in May, 1996, newsprint suppliers began
lowering prices. Since May, 1996, the discounts offered by newsprint suppliers
have continued to accelerate, as newsprint supply is outpacing demand.
Management expects newsprint prices will continue to soften throughout calendar
year 1996. As a result of the recent declines in newsprint prices, the Company
has begun to experience year-over-year favorable comparisons in the average
cost of newsprint consumed. Management expects this trend will accelerate and
continue throughout fiscal year 1997.
Additionally, the Company's operating margins should also continue to
improve as the Company begins to realize the full annualized effect of reduced
consumption resulting from the conversion to 50-inch web widths.
Based upon current operations and future reductions in newsprint prices and
consumption, management believes that the Company will have sufficient cash to
pay bank interest when due on outstanding indebtedness and that cash flow from
operations, together with the Garden State Bank 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.
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. 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 prepaid 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 Company, (d) the date on which
Denver Newspapers, directly or indirectly, causes or permits the Denver Post
Company to dispose of substantially all of the assets of the Denver Post
Company. At September 30, 1996, Denver Newspapers had $15.9 million available
under its revolving credit facility, net of $1.6 million in outstanding letters
of credit.
16
<PAGE> 17
EXHIBIT INDEX
Exhibit
Index Description
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SEPTEMBER 30, 1996 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH QUARTERLY REPORT.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,717
<SECURITIES> 0
<RECEIVABLES> 27,489
<ALLOWANCES> (2,290)
<INVENTORY> 4,347
<CURRENT-ASSETS> 38,459
<PP&E> 127,294
<DEPRECIATION> (52,274)
<TOTAL-ASSETS> 242,614
<CURRENT-LIABILITIES> 41,548
<BONDS> 310,783
0
0
<COMMON> 23
<OTHER-SE> (135,763)
<TOTAL-LIABILITY-AND-EQUITY> 242,614
<SALES> 61,080
<TOTAL-REVENUES> 61,080
<CGS> 23,568
<TOTAL-COSTS> 55,235
<OTHER-EXPENSES> 198
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,320
<INCOME-PRETAX> (4,193)
<INCOME-TAX> 53
<INCOME-CONTINUING> (4,256)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,256)
<EPS-PRIMARY> (1.83)
<EPS-DILUTED> 0
</TABLE>
