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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 June 30, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number ______
AFFILIATED NEWSPAPERS INVESTMENTS, INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
Delaware 76-0425553
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1560 Broadway, Denver, Colorado 80202
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (303) 837-0886
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the registrant (1) has filed all reports 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
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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. X
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State the aggregate market value of the voting stock held by
non-affiliates of the registrant. The aggregate market value shall be computed
by reference to the price at which the stock was sold, or the average or the
average bid and asked prices of such stock, as of a specified date within 60
days prior to the date of filing.
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Class of Voting Stock and Number of Shares Market Value Held
Held by Non-affiliates at September 13, 1996 by Non-affiliates
- -------------------------------------------- -----------------
<S> <C> <C>
Class B 173,576 shares Unavailable
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The following shares of Common Stock are outstanding at September 13, 1996
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<CAPTION>
Class Number of Shares
-------------------- ----------------
<S> <C>
Class B Common Stock 173,576
Class D Common Stock 664,450
Class G Common Stock 1,476,090
Class N Common Stock 230
</TABLE>
Documents Incorporated by Reference: NONE
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PART I
ITEM 1. BUSINESS
GENERAL
Affiliated Newspapers Investments, Inc. (the "Company" or "ANI"), is one of
the largest privately controlled newspaper publishing companies in the United
States. The newspapers currently owned by the Company have combined daily and
Sunday paid circulation of approximately 865,000 and 957,000, respectively, at
March 31, 1996. Garden State Newspapers, Inc. ("Garden State"), a wholly owned
subsidiary of ANI, owns all the Company's market dominant suburban newspapers.
Garden State, founded in March 1985 by William Dean Singleton and Richard B.
Scudder, currently owns and operates 18 market dominant daily and 41 weekly
newspapers in eight states (including suburban markets in close proximity to
the San Francisco Bay area, New York City, and Washington, D.C.). In general,
Garden State's newspapers are positioned in markets with limited or no direct
competition for local newspaper advertising, and management believes the
Company's markets, taken as a whole, have above average population and sales
growth potential. Denver Newspapers, Inc. ("Denver Newspapers"), a 60% owned
subsidiary, operates ANI's only major metropolitan newspaper, The Denver Post,
located in Denver, Colorado. Denver Newspapers also currently owns 3 daily and
6 weekly newspapers published in Colorado.
The operating results of ANI are the same as the operating results of
Garden State, except for ANI's income in Denver Newspapers and ANI's separate
administrative and debt expenses, since ANI historically has had no operations
of its own other than its investment in Garden State Newspapers, its only
consolidated subsidiary. ANI accounts for its investment in Denver Newspapers
using the equity method of accounting.
The Company has grown by emphasizing internal growth at each of its
newspapers and by making strategic acquisitions in markets with above average
growth potential and/or which cluster well with existing markets. Historically,
management has been able to achieve revenue and operating profit growth due to
its emphasis on strategic acquisitions, effective marketing programs, operating
efficiencies through investment in new technology and cost controls.
Management believes that the Company's newspapers are positioned to achieve
further internal growth and to benefit from future economic growth in the
markets in which they operate.
Management has periodically and may continue to divest newspaper properties
at times when management believes the value of such newspapers has been
maximized. Management believes it has received premium values from its
dispositions to date. Proceeds from dispositions have been generally used to
acquire additional newspapers and/or to reduce outstanding indebtedness.
Most suburban and small city daily newspapers, such as the newspapers owned
by the Company, have leading or sole positions in the geographic areas they
serve. Few cities in the United States contain more than one primary daily
newspaper, the majority of which are in major metropolitan markets.
Additionally, start-ups of new daily newspapers in suburban markets with a
pre-existing local newspaper are rare. Suburban newspapers address the
specific need of the community by publishing a broad spectrum of local news, as
well as advertiser-specific editions, which television, because of its broader
geographic coverage, is unwilling or unable to provide. Thus, in many
communities the local newspaper provides a combination of social and economic
services in a way in which only it can provide, making it attractive for both
consumers and advertisers.
Sizeable weekly newspapers are generally found in and around metropolitan
areas rather than in smaller towns and cities. Suburban weeklies, such as the
weekly newspapers operated by North Jersey Newspaper Company, a subsidiary of
Garden State, have several advantages over metropolitan dailies, including a
lower cost structure, the ability to publish only on their most profitable days
(i.e., one midweek and one weekend day), the ability to more effectively
exploit zoned advertising and the ability to avoid expensive investments in
wire services and syndicated feature material. Zoned advertising permits small
merchants, individual classified and other advertisers to advertise solely in
their own local areas at a cost lower than that of a full-run metropolitan
daily newspaper. Thus, the typical suburban weekly newspaper has a broader
advertiser base and does not rely to the same degree as a metropolitan daily on
major retailers for advertising revenues.
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INDUSTRY BACKGROUND
Newspaper publishing is the oldest and largest segment of the media
industry. Due to a focus on local news, newspapers remain the dominant medium
for local advertising and in 1995 accounted for more than 40% of all local
media advertising expenditures. In addition, in calendar year 1995 U.S.
newspaper advertising expenditures reached an all time high of approximately
$36.0 billion. Additionally, newspapers continue to be the best medium for
retail advertising which emphasizes the price of goods, in contrast to
television which is generally used for image advertising.
Newspaper advertising revenues are cyclical and are generally affected by
changes in national and regional economic conditions. Classified advertising,
which makes up approximately one-third of newspaper advertising revenues, is
the most sensitive to economic improvements or slowdowns as it is affected by
the demand for employment, real estate transactions and automotive sales.
DENVER NEWSPAPER, INC. WARRANT EXERCISE
Effective the second quarter of fiscal year 1995, Media General exercised
its warrant to acquire a 40% interest in Denver Newspapers for $40,000 and
received 40 shares of newly issued Class A common stock of Denver Newspapers.
As a result of Media General exercising its warrant, ANI reduced its equity
pick-up of Denver Newspapers from 100 percent to 60 percent effective the
second quarter of fiscal 1995.
RECENT ACQUISITIONS AND DISPOSITIONS
ACQUISITIONS:
In conjunction with the sale of the Johnstown Tribune Publishing Company
(discussed below), the Company acquired substantially all the assets used in
the publication of The Transcript and The Evening News, daily newspapers
published in North Adams, Massachusetts, and Bridgeton, New Jersey,
respectively.
On March 10, 1996, Garden State acquired substantially all the assets used
in the publication of the San Mateo Times, a daily newspaper, and five weekly
newspapers published in San Mateo County, California, for approximately $15.0
million, including discounted obligations to the seller of approximately $4.3
million and the assumption of newspaper 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.
On August 31, 1995, the Company acquired, for approximately $34.6 million,
substantially all of 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.
In February, 1995, a subsidiary of the Company purchased substantially all
the assets used in the publication of five weekly newspapers located in
northern New Jersey for approximately $0.5 million.
On November 18, 1994, a subsidiary of the Company acquired from an
affiliate substantially all the assets used in the publication of The
Gloucester County Times and Today's Sunbeam, daily newspapers distributed in
Woodbury and Salem, New Jersey, respectively, for $9.0 million in cash and the
assumption of subordinated debt with the assumption of subordinated debt with a
discounted value of $1.9 million which is due to certain shareholders of ANI.
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On May 31, 1994, NJN Investments, Inc. ("NJNI"), a subsidiary of the
Company, purchased the assets used in the publication of The Express-Times, a
daily newspaper published in Easton, Pennsylvania, and five weekly publications
distributed in the same area, for approximately $16.7 million. The purchase
price included an obligation to pay, over a three year period, a discounted
value of approximately $1.7 million with a covenant not to compete for a period
of five years following the close of the transaction.
DISPOSITIONS:
On May 1, 1996, the Company sold the common stock of the Johnstown Tribune
Publishing Company, which publishes The Tribune-Democrat and two weekly
newspapers distributed in and around Johnstown, Pennsylvania, for $32.6 million
in cash and the assets of 7 daily newspapers and 9 weekly newspapers valued at
$18 million. The sale of the Johnstown Tribune Publishing Company resulted in a
pre-tax gain of approximately $8.3 million. Immediately upon completion of the
transaction, 4 of the daily and 7 of the weekly newspapers acquired were sold
for $15.7 million to The Denver Post Corporation, an affiliate of the Company.
No gain or loss was recognized on the sale to The Denver Post Corporation.
On August 1, 1994, the Company sold substantially all the assets used in
the publication of the Bristol Press and three weekly newspapers located in
Bristol, Connecticut, and a covenant not to compete for $14.5 million in cash.
The sale resulted in a pre-tax gain of approximately $4.2 million.
On June 27, 1994, a subsidiary of the Company ceased publication of the
Ypsilanti Press, a daily newspaper located in Ypsilanti, Michigan, and sold the
newspaper's circulation list to a third party for $9.0 million in cash. The
sale resulted in a fiscal year 1994 pre-tax gain of approximately $6.5 million,
which is net of assets written down to estimated net realizable value and
closing expenses.
OPERATING STRATEGY
The Company's strategy is to increase revenues and cash flows through
geographic clustering; targeted marketing programs; local news leadership; high
quality editorial content and presentation; cost control; and strategic
technological investments, as described below:
GEOGRAPHIC CLUSTERING. Management has assembled a group of newspapers
which, through clustering of operations and joint venture arrangements with
other newspapers in contiguous markets, are able to realize operating
efficiencies and economic synergies. These synergies include, but are not
limited to, the sharing of management, accounting and production functions.
Additionally, clustering enables management to maximize revenues through
the cross-selling of advertising among contiguous newspaper markets. As a
result of this strategy, management believes that the Company's newspapers
are able to obtain higher operating margins than they would otherwise be
able to achieve on a stand alone basis.
TARGETED MARKETING PROGRAMS. Through a strong local presence and active
community relations, the Company is able to develop programs to maximize
its advertising revenues. The Company utilizes research, demographic
studies and zoning (marketing directed to a particular sub-segment of a
local area) to develop its marketing programs and meet the unique needs of
specific advertisers.
LOCAL NEWS LEADERSHIP. The Company's newspapers generally have the largest
local news gathering resources in their markets. Through emphasizing local
news, the Company's newspapers generally are able to generate reader
loyalty and create franchise value. Because the Company's provision of
local news is a unique product in its markets, its newspapers satisfy the
demands of both its readers and advertisers.
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HIGH QUALITY EDITORIAL CONTENT AND PRESENTATION. The Company's newspapers
are committed to editorial excellence, providing the proper mix of local
and national news to effectively serve the needs of their local markets.
In addition, the Company's newspapers are generally produced on modern
offset presses and are designed to attract readers through attractive
layouts and color enhancements.
COST CONTROL. Each of the Company's newspapers emphasizes cost control
with a special focus on managing staffing requirements. At newspapers with
collective bargaining units, management strives to enter into long-term
agreements with moderate annual increases. In addition, the Company
further controls labor costs through investments in state-of-the-art
production equipment. Each of the Company's newspapers benefits from
discounted newsprint costs through its relationship with MediaNews Group,
Inc. ("MNG", see MediaNews Group, Inc.'s Management of Newspaper
Operations) and its buying power. The Company's newspapers buy newsprint
from several suppliers, under arrangements covering MNG affiliates,
resulting in what management believes are some of the most favorable
newsprint prices in the industry. Through MNG, the Company seeks to enter
into newsprint purchasing arrangements with its suppliers which delay the
adverse effect of newsprint price increases and provide the highest
available quantity discounts.
STRATEGIC TECHNOLOGICAL INVESTMENTS. In the past MNG has tested the
electronic delivery of news and advertising to consumers through a site at
The Denver Post, and at the Alameda Newspaper Group. During fiscal 1996 the
Company initiated several new online projects including: 1) a subscriber
based electronic bulletin board (http://www.smctimes.com) at The Alameda
Newspaper Group, consisting of local news and information; 2) participation
(currently under negotiation) with New Jersey Online (http://www.nj.com), a
New Jersey based full service web site containing local news, restaurant
information and other local information, as well as advertising; 3) The
Denver Post is a member of Career Path, a top 25 market online employment
classified system. In addition, The Denver Post has a web site
(http://www.denverpost.com) containing some local news and special interest
information. While not all of the Company's newspapers currently publish
online versions, the majority of the Company's newspapers currently have
the capability to deliver electronic versions of all or portions of the
newspaper to consumers. However, the majority of the consumers in the
Company's markets continue to demand newspapers in print form, and
management does not anticipate any change in such demand in the foreseeable
future. The Company plans to continue exploring the latest technologies
and to make economically viable investments so that it is able to respond
to the demands of its advertisers and subscribers on a timely basis should
their needs change in the future. By being the leading, and in certain
instances the sole, provider of local news in most of its markets,
management believes that its established franchises should enable the
Company to respond to and benefit from any changes in the manner in which
information is delivered in the future.
MEDIANEWS GROUP, INC.'S MANAGEMENT OF NEWSPAPER OPERATIONS
MNG provides certain corporate services to the Company and its subsidiaries
and other newspaper companies controlled by Messrs. Singleton and Scudder,
which provide the Company the economic efficiencies of sharing corporate
overhead with other newspaper companies. Garden State and Denver Newspapers
have engaged MNG to operate and manage their business affairs and newspapers
under the terms of a management agreement. MNG, which is owned entirely by
Messrs. Singleton and Scudder, allocates its expenses as management fees to
each affiliate based upon the amount of time and resources devoted to each
affiliate. Management fees are based upon MNG's actual expenses, and MNG earns
only a nominal profit.
Services provided by MNG to Garden State and Denver Newspapers include
accounting, tax, merger and acquisition, newsprint purchasing, human resource
and labor relations, debt administration, budget and operating plan review,
cash management and some retail advertising billing services. A significant
portion of MNG's time and resources is devoted to the affairs of Garden State
and Denver Newspapers.
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MNG's commitment to editorial quality is an integral part of its overall
management strategy. While MNG does not maintain any centralized editorial
control over the newspapers it manages, MNG does attempt to maintain high
standards for local news coverage by utilizing its extensive contacts, trade
reputation and opportunities for career advancement throughout the Company and
its affiliates to attract and retain talented editorial personnel.
GARDEN STATE NEWSPAPER PROPERTIES
ALAMEDA NEWSPAPER GROUP. The Alameda Newspaper Group is located in Alameda
County, approximately 20 miles east of San Francisco, California, and publishes
six daily newspapers. The Alameda Newspaper Group consists of The Oakland
Tribune, The Daily Review, Tri-Valley Herald, The Argus, Alameda Times-Star and
San Mateo Times. All the newspapers except the San Mateo Times also publish a
Sunday newspaper. These newspapers cover the city of Oakland and the five
affluent suburban markets located immediately south, southeast and southwest of
Oakland in Alameda County and San Mateo County. The Alameda Newspaper Group
also publishes The South San Francisco Enterprise Journal, San Bruno Herald,
Milbrae Record Progress, Daly City Record/Brisbane Bee, Times Weekend and The
Coastside Chronicle on Saturday. The Alameda Newspaper Group had total daily
and Sunday paid circulation of approximately 234,000 and 190,000, respectively,
as of March 31, 1996.
YORK. York Newspaper Company, a partnership owned 57.5% by York Newspaper,
Inc. ("YNI"), a wholly owned subsidiary of Garden State, publishes The York
Dispatch, The York Sunday News and The York Daily Record in York, Pennsylvania,
approximately 30 miles south of Harrisburg, Pennsylvania. These newspapers are
published under the terms of a joint operating agreement ("JOA"). Under the
terms of the JOA, all operations, other than news and editorial, are controlled
by the partnership. YNI maintains its own editorial staff and produces the
editorial content of both The York Dispatch and the York Sunday News.
The York Newspaper Company also publishes the Weekly Record, a
broadsheet-formatted shopper, each Tuesday. The York Newspaper Company had a
daily and Sunday paid circulation of approximately 83,000 and 93,000,
respectively, as of March 31, 1996.
NORTH JERSEY NEWSPAPERS COMPANY. North Jersey Newspapers Company is
located in Passaic, New Jersey, approximately 15 miles west of New York City,
and publishes a morning daily newspaper, The North Jersey Herald & News, seven
days a week, and 18 weekly newspapers. The North Jersey Herald & News had a
daily and Sunday paid circulation of approximately 53,000 and 43,000,
respectively, as of March 31, 1996. The weeklies, most of which are free
distribution publications in Bergen, Warren and Passaic Counties, have a
midweek and weekend distribution of approximately 500,000 and 70,000,
respectively, as of March 31, 1996.
EASTON. The Express-Times is located in Easton, Pennsylvania,
approximately 60 miles south of Philadelphia, Pennsylvania, and publishes a
morning newspaper seven days a week. The Express-Times also publishes four
weekly newspapers, The Bethlehem Star, The Free Press and The Community Forum,
which are distributed in the area surrounding Easton, Pennsylvania. The
Express-Times had total daily and Sunday paid circulation of approximately
50,000 and 48,000, respectively, as of March 31, 1996.
PITTSFIELD. The Berkshire Eagle is located in Pittsfield, Massachusetts,
approximately 30 miles southeast of Albany, New York, and publishes a morning
newspaper seven days a week. The Berkshire Eagle also publishes a weekly
newspaper, The Shopper, a broadsheet shopper circulated free to non-subscribers
in Berkshire County. The Berkshire Eagle had total daily and Sunday paid
circulation of approximately 30,000 and 35,000, respectively, as of March 31,
1996.
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WOODBRIDGE. The Potomac News is located in Woodbridge, Virginia,
approximately 35 miles south of Washington, D.C., and publishes a daily
newspaper. The Potomac News also publishes two weekly newspapers each Thursday
and Friday: the Stafford County Sun and The Market Place. The Potomac News had
total daily and Sunday paid circulation of approximately 30,000 and 31,000,
respectively, as of March 31, 1996.
WOODBURY. The Gloucester County Times is located in Woodbury, New Jersey,
approximately 15 miles south of Philadelphia, Pennsylvania, and publishes a
morning newspaper seven days a week. The Gloucester County Times also publishes
The Advertiser, a weekly shopper. The Gloucester County Times had total daily
and Sunday paid circulation of approximately 29,000 as of March 31, 1996.
LAS CRUCES. The Las Cruces Sun-News is located in Las Cruces, New Mexico,
approximately 45 miles north of El Paso, Texas, and publishes a morning
newspaper seven days a week. The Las Cruces Sun-News also publishes the Vos del
Valle, a weekly Spanish language newspaper, and The Shopping Times, a free
weekly shopper. The Las Cruces Sun-News had total daily and Sunday paid
circulation of approximately 29,000 as of March 31, 1996.
BRATTLEBORO. The Brattleboro Reformer is located in Brattleboro, Vermont,
approximately 65 miles east of Albany, New York, and publishes a morning
newspaper six days a week (Monday through Saturday). The Brattleboro Reformer
had daily circulation of approximately 11,000 as of March 31, 1996.
SALEM. Today's Sunbeam is located in Salem, New Jersey, approximately 35
miles south of Philadelphia, Pennsylvania, and publishes a morning paper seven
days a week. Today's Sunbeam had total daily and Sunday circulation of
approximately 10,000 as of March 31, 1996.
BRIDGETON. The Evening News is located in Bridgeton, New Jersey,
approximately 40 miles south of Philadelphia, Pennsylvania, and publishes an
evening newspaper six days a week. The Evening News had daily circulation of
approximately3 10,000 as of March 31, 1996.
NORTH ADAMS. The Transcript is located in North Adams, Massachusetts,
approximately 30 miles east of Albany, New York, and publishes an evening
newspaper six days a week. The Transcript had daily circulation of 8,400 at
March 31, 1996.
BENNINGTON. The Bennington Banner is located in Bennington, Vermont,
approximately 35 miles east of Albany, New York, and publishes a morning
newspaper six days a week (Monday through Saturday). The Bennington Banner
also publishes the Manchester Journal, a paid weekly newspaper distributed on
Wednesdays in Manchester, Vermont, and The Bennington Shopper, a free weekly
shopper. The Bennington Banner had daily circulation of approximately 7,800 as
of March 31, 1996.
GRAHAM. The Graham Leader is located in Graham, Texas, approximately 90
miles northwest of Fort Worth, Texas. The Graham Leader is a biweekly
newspaper with a total paid circulation of approximately 4,700 as of March 31,
1996. The Graham Leader also publishes the Lake Country Sun and the Lake
Country Shopper each Thursday. In addition, the Jacksboro Gazette-News and The
Jack County Herald are weekly newspapers published each Monday and Thursday,
respectively.
DENVER NEWSPAPERS -- UNCONSOLIDATED SUBSIDIARY
THE DENVER POST. The Denver Post had daily and Sunday paid circulation of
approximately 316,000 and 456,000, respectively, as of March 31, 1996. The
Denver Post is a traditional broadsheet-formatted newspaper. Management
believes that The Denver Post is one of the most respected newspapers in its
region, serving as the preferred choice for printed news. Management also
believes that The Denver Post's editorial quality and content, as well as its
broadsheet format, provide it with a competitive advantage which has
contributed to The Denver Post being more successful than its primary
competitor at attracting newspaper readers moving into the
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Denver metropolitan area. As of March 31, 1996, The Denver Post had daily and
Sunday circulation market share of approximately 49.0% and 51.0%, respectively.
The Denver Post gained the Sunday circulation lead in the third quarter of
fiscal 1995. In addition, The Denver Post's advertising market share averaged
approximately 52.0% in fiscal 1996.
EASTERN COLORADO PUBLISHING COMPANY. Eastern Colorado publishes the Fort
Morgan Times, the Journal-Advocate and the Lamar Daily News, daily newspapers
published in Fort Morgan, Sterling and Lamar, Colorado, with combined daily
circulation of approximately 13,300 as of March 31, 1996. Each of these daily
newspapers also publishes a weekly newspaper which includes the Morgan Times
Review, J. A. Shopper and the Tri-State. These weekly newspapers are
distributed free in and around each of the daily newspaper's geographic
markets. Eastern Colorado also publishes the Akron News Reporter, Brush
News-Tribune and Julesburg Advocate, paid weekly newspapers distributed in
Akron, Brush and Julesburg, Colorado.
ADVERTISING AND CIRCULATION REVENUE
Advertising revenues are the largest component of a newspaper's revenues
followed by circulation revenues. Advertising rates in a given market are based
upon market size, circulation, readership, demographic makeup of the market and
the availability of alternative advertising media in the marketplace. While
Circulation revenue is not as significant as advertising revenue, circulation
trends can impact the decisions of advertisers and advertising rates.
Advertising revenue includes RETAIL (local and national department stores,
specialty shops and other retailers), NATIONAL (national advertising accounts),
and CLASSIFIED advertising (employment, automotive, real estate and personals).
The contributions of Retail, National, Classified and Circulation revenues to
total revenues for fiscal years 1996, 1995 and 1994 were as follows:
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Fiscal years ended June 30,
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1996 1995 1994
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Retail . . . . . . . . . . . . . . . 44% 47% 49%
National . . . . . . . . . . . . . . 3 3 3
Classified . . . . . . . . . . . . . 34 34 33
Circulation . . . . . . . . . . . . . 16 14 14
Other . . . . . . . . . . . . . . . . 3 2 1
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100% 100% 100%
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NEWSPRINT
Newsprint represents one of the largest costs of producing a newspaper.
The Company's newspapers buy newsprint from several suppliers under
arrangements covering MNG affiliates, resulting in what management believes are
some of the most favorable newsprint prices in the industry. In fiscal years
1996, 1995 and 1994, the Company's subsidiaries consumed approximately 62,400,
61,600 and 56,700 tons of newsprint, respectively, and during the same periods
incurred newsprint expense of approximately $42.5 million, $30.5 million and
$24.9 million, respectively. Newsprint expense as a percentage of revenue for
fiscal year 1996, 1995 and 1994 was 18.5%, 14.3% and 13.4%, respectively.
Newsprint expense varied between years because of fluctuations in prices and
consumption. Newsprint expense as a percentage of revenue increased in fiscal
1996 over fiscal 1995, primarily because of an increase of approximately 37.6%
in the average cost per ton of newsprint consumed at all the Company's
newspapers combined. The increase between 1995 and 1994 was due to an increase
of approximately 12.8% in the average cost per ton of newsprint.
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As a result of the tightening newsprint supplies, caused by a world-wide
increase in demand, the Company's average cost of newsprint increased
significantly throughout fiscal 1995 and 1996, peaking in the fourth quarter of
fiscal 1996. High inventories at most newspapers, as well as at newsprint
mills, resulted in price discounts starting with May, 1996, shipments.
Discounts have accelerated over the last few months as inventories have yet to
come down appreciably. Management expects that newsprint prices will continue
to soften and then stabilize in fiscal year 1997. In fact, newsprint
transaction prices in September, 1996, are down approximately 25% off their
peak.
To help offset fiscal 1996 newsprint price increases, the Company initiated
a project to convert its presses to 50" web widths which, based on peak fiscal
1996 newsprint prices, would provide permanent annual savings of approximately
$4.2 million. The conversion to the 50" web widths started in October, 1995, at
North Jersey Newspapers and will be completed at all the Company's newspapers
by the end of calendar year 1996. The annual expense savings result in a
payback of capital invested in an average of less than six months, based on
peak newsprint prices. In markets where the Company has completed its web width
reduction, subscriber and advertiser feedback has been positive.
EMPLOYEE RELATIONS
Garden State and Denver Newspapers combined employ approximately 3,400
full-time and 1,600 part-time employees. Approximately 1,600 full-time and
part-time employees at subsidiaries are covered by collective bargaining
agreements, of which approximately 1,300 of these employees are union employees
at The Denver Post. Currently, The Denver Post has a five-year agreement with
the Guild, which expires December 31, 1997. There are five additional
collective bargaining units at The Denver Post, of which four have contracts
that expired prior to September 1, 1996. These four union contracts are
currently being negotiated and The Denver Post believes they will be able to
negotiate long-term favorable contracts and avoid any strikes or work
slowdowns. Approximately 250 full-time and part-time employees are covered by
collective bargaining agreements at subsidiaries of Garden State. There has
never been a strike or work stoppage against any of the Company's newspapers
during the Company's ownership, and the Company believes that its relations
with its employees are generally good.
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.
COMPETITION
General
Each of the Company's newspapers competes to varying degrees with
magazines, radio, television and cable television, as well as with some weekly
publications and other advertising media, for advertising and circulation
revenue. Competition for newspaper advertising is largely based upon
circulation, price and the content of the newspaper. A newspaper's coverage of
the market, generally determined by household penetration, is of significant
importance to advertisers and directly affects a newspaper's share of total
advertising revenues in the market. Management believes, however, that
advertisers generally regard newspaper advertising as the most effective method
of advertising promotions and pricing as compared to television, which is
generally used to advertise image.
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Garden State
Garden State's suburban and small city daily newspapers are the dominant
news and information source, with strong name recognition in their market and
no direct competition from similar daily newspapers published in their markets.
As with most small daily newspapers, however, some circulation competition
exists from larger daily newspapers which are usually published in nearby
metropolitan areas. Management believes larger daily newspapers with
circulation in Garden State's newspaper markets generally do not compete in any
meaningful way for local advertising revenues, a newspaper's main source of
revenues. Garden State's daily newspapers capture the largest share of local
advertising as a result of their direct coverage of the market. Free weekly
newspapers generally depend solely upon advertising revenue and the
distribution of preprinted advertising circulars.
Denver Newspapers
The Denver Post competes with the Rocky Mountain News, which is owned by
The E. W. Scripps Company. Competition for newspaper advertising in Denver is
largely based upon circulation demographics, price and the content of the
newspaper. The competition experienced by the Eastern Colorado newspapers is
similar to that of Garden State, as previously discussed.
ITEM 2. PROPERTY
Garden State's production facilities are, in most cases, complete newspaper
and office facilities. The principal operating facilities owned by Garden
State are located in Hayward, San Mateo and Union City, California; Passaic,
Butler, Westwood, Paramus, Bridgeton and Woodbury, New Jersey; Easton and York,
Pennsylvania; Pittsfield and North Adams, Massachusetts; Las Cruces, New
Mexico; Woodbridge, Virginia; Bennington and Brattleboro, Vermont; and Graham,
Texas. Facilities located in Oakland and Pleasanton, California, are operated
under long-term leases. The principal operating facilities of Denver
Newspapers are located in Denver, Fort Morgan, Lamar and Sterling, Colorado.
Denver Newspapers also leases certain facilities in Denver, Colorado.
The Company's management believes that all of its properties are generally
well maintained, in good condition and suitable for current operations. All of
the Company's equipment is adequately insured.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in a number of legal proceedings which have arisen
in the ordinary course of business. In the opinion of management, the outcome
of these legal proceedings will not have a material adverse impact on the
Company's financial position or results of operations.
REGULATION AND ENVIRONMENTAL MATTERS
Substantially all of the Company's facilities are subject to federal, state
and local laws concerning, among other things, emissions to the air, water
discharges, handling and disposal of wastes or otherwise relating to protection
of the environment. Compliance with these laws has not had, and management
does not expect it to have, a material effect upon the capital expenditures,
net income or competitive position of the Company. Environmental laws and
regulations and their interpretation, however, have changed rapidly in recent
years and may continue to do so in the future. Environmental Assessment
Reports of the Company's properties have identified historic activities on
certain of these properties, as well as current and historic uses of properties
in surrounding areas, which may affect the Company's properties and require
further study or remedial measures.
9
<PAGE> 11
No material studies or remedial measures are currently anticipated or
planned by the Company or required by regulatory authorities with respect to
the Company's properties. However, no assurance can be given that existing
Environmental Assessment Reports reveal all environmental liabilities, that any
prior owner of the Company's properties did not create a material environmental
condition not known to the Company, or that a material environmental condition
does not otherwise exist as to any such property.
Subsidiaries of the Company which deliver newspapers by second-class mail
are required to obtain permits from, and to file an annual statement of
ownership with, the United States Postal Service.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
The Class B common stock has no established trading market and is not
widely held. As of September 13, 1996, there were 11 holders of record of the
Company's Class B common stock.
The Company's Class D, G and N common stock is not registered; therefore,
no public market exists for these classes of common stock. On September 13,
1996, the Class D, G and N common stock had 4, 6, and 6 holders of record,
respectively.
ANI has never paid cash dividends on its common stock and does not intend
to pay any cash dividends on its common stock in the foreseeable future. The
Company's long-term debt contains covenants which, among other things, restrict
the payment of dividends by ANI to its stockholders. In addition, as a holding
company, ANI's ability to pay cash dividends will be dependent on the receipt
of dividends or other payments from its subsidiaries. Certain debt agreements
of subsidiaries maturing prior to July 1, 1999 prohibit such subsidiaries from
paying dividends to ANI. Other debt agreements of the subsidiaries restrict
the subsidiaries from paying dividends to ANI prior to July 1, 1999, and then
only to the extent the Company achieves certain cash flow levels.
10
<PAGE> 12
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
----------------------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ----------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA(a):
Revenues
Advertising . . . . . . . . . . . . $ 197,954 $ 179,268 $ 159,653 $148,237 $ 138,623
Circulation . . . . . . . . . . . . 39,930 30,517 25,198 25,642 24,843
Other . . . . . . . . . . . . . . 7,546 3,260 1,792 1,931 2,668
--------- --------- --------- -------- ---------
Total Revenues . . . . . . . . . . . . 245,430 213,045 186,643 175,810 166,134
Cost of Sales . . . . . . . . . . . . 98,469 79,098 68,531 63,930 61,966
Selling, General and Administrative. . 100,290 88,889 79,217 76,864 76,284
Management Fees . . . . . . . . . . . 2,008 1,666 1,552 1,402 1,647
Depreciation and Amortization. . . . . 21,841 18,709 19,900 21,094 22,716
Interest Expense . . . . . . . . . . . 41,932 38,611 25,982 24,064 27,033
Income (Loss) in Unconsolidated
Subsidiary . . . . . . . . . . . . . 2,541 5,748 8,646 (15,051) (5,951)
Income (Loss) Before Income Taxes,
Cumulative Effect of Accounting
Change and Extraordinary gain. . . . . (12,789) (5,436) (13,260) (28,845) 2,408
Net Income (Loss). . . . . . . . . . . (10,932) (8,293) (10,749) 32,593 2,620
Earnings Per Share . . . . . . . . . . $ (4.72) $ (3.58) $ (7.54) $ 12.30 $ (1.71)
OTHER FINANCIAL DATA:
Capital Expenditures . . . . . . . . . $ 8,079 $ 4,284 $ 3,380 $ 6,564 $ 1,255
Cash Flow from:
Operating Activities . . . . . . . . 8,658 22,876 7,039 4,971 (10,689)
Investing Activities . . . . . . . . 6,900 1,255 (15,840) (12,734) 61,388
Financing Activities . . . . . . . . (28,226) (15,742) 9,305 7,841 (52,870)
EBITDA(b) . . . . . . . . . . . . . . 44,663 43,392 37,343 33,614 26,237
BALANCE SHEET DATA:
Total Assets . . . . . . . . . . . . . $ 245,665 $ 252,926 $ 251,158 $278,283 $ 228,323
Long-Term Debt (Excluding Current
Portion) . . . . . . . . . . . . . 314,510 318,770 313,573 225,369 210,551
Other Long-Term Liabilities and
Obligations . . . . . . . . . . . . 7,728 4,596 3,534 109,607 103,633
Total Shareholders' Deficit . . . . . (131,517) (120,585) (112,292) (99,637) (125,958)
</TABLE>
- ---------------------------------
(footnotes on the following page)
11
<PAGE> 13
(a) Revenues and operating expenses are affected by the following acquisition
and disposition transactions:
(i) In December, 1991, the Company sold The Herald-Republic, a daily
newspaper published in Yakima, Washington, resulting in a pre-tax
gain of approximately $33.8 million in fiscal 1992. This
newspaper contributed revenues of $7.3 million in fiscal 1992
prior to its disposition.
(ii) In January 1992, the Company closed The Daily Journal, a daily
newspaper published in Elizabeth, New Jersey, resulting in a
pre-tax charge of $3.9 million in fiscal 1992 related to various
closing costs and asset write-downs. This newspaper contributed
revenues of $2.6 million in fiscal 1992 prior to its closure.
(iii) In November, 1992, the Company acquired the circulation list and
the rights to the name of The Oakland Tribune. Concurrently, the
former owner ceased its publication of The Oakland Tribune, and
the Company began publishing its own version of The Oakland
Tribune, using the existing facilities and resources of the
Alameda Newspaper Group. The Oakland Tribune, in its current
form, has substantial editorial and advertising overlap with
other publications of the Alameda Newspaper Group and, thus, is
not run as a stand-alone newspaper. Accordingly, The Oakland
Tribune currently has no separate financial statements, and as it
was not acquired as a going concern, no meaningful financial
results exist for periods prior to the date the Company began its
publication.
(iv) On May 31, 1994 the Company purchased the assets of The
Express-Times, which contributed $1.5 million to fiscal 1994
revenues of the Company.
(v) In June 1994, the Company closed the Ypsilanti Press, a daily
newspaper published in Ypsilanti, Michigan, and sold its
circulation list for $9.0 million. The sale resulted in a
pre-tax gain of approximately $6.5 million. This newspaper
contributed $4.1 million of revenues in fiscal 1994 prior to its
disposition.
(vi) On August 1, 1994, the Company sold substantially all the assets
used in the publication of the Bristol Press and three weekly
newspapers distributed in and around Bristol, Connecticut for
$14.5 million. The sale resulted in a pre-tax gain of
approximately $4.2 million. This newspaper contributed $6.2
million of revenue in fiscal 1994 and $0.5 million of revenue
prior to its sale in fiscal 1995.
(vii) On November 18, 1994 the Company acquired substantially all the
assets used in the publication of The Gloucester County Times and
Today's Sunbeam, daily newspapers located in Woodbury and Salem,
New Jersey, respectively, for $10.9 million. These newspapers
contributed $8.4 million of revenues to the Company in fiscal
1995.
(viii) On August 31, 1995, the Company acquired substantially all the
assets used in the publication of The Berkshire Eagle, Bennington
Banner and Brattleboro Reformer, daily newspapers published in
Pittsfield, Massachusetts; Bennington and Brattleboro, Vermont,
respectively, for approximately $34.6 million. These newspapers
contributed $21.6 million of revenues in fiscal year 1996.
(ix) In March, 1996, the Company acquired substantially all the assets
used in the publication of the San Mateo Times, a daily
newspaper, and five weekly newspapers published in San Mateo
County, California, for approximately $15.0 million. This
newspaper contributed $4.0 million of revenue to the Company in
fiscal 1996.
(x) On May 1, 1996, the Company sold the common stock of the
Johnstown Tribune Publishing Company which publishes The
Tribune-Democrat and two weekly newspapers distributed in and
around Johnstown, Pennsylvania, for $50.6 million. The sale
resulted in a pre-tax gain of approximately $8.3 million. This
newspaper contributed $14.9 million of revenues in fiscal 1996
prior to its sale and $17.4 million in fiscal 1995. In
conjunction with the sale, the Company also acquired the assets
used in the publication of The Transcript and The Evening News,
daily newspapers published in North Adams, Massachusetts, and
Bridgeton, New Jersey, respectively. These newspapers
contributed $1.2 million of revenue in fiscal year 1996.
(b) EBITDA represents total revenues less cost of sales, selling, general and
administrative expense and management fees charged by MNG. Although EBITDA
is not a measure of performance calculated in accordance with GAAP, the
Company believes that EBITDA is an indicator and measurement of its
leverage capacity and debt service ability. EBITDA should not be
considered as a measure of profitability, liquidity or as an alternative to
net income, cash flows generated by operating, investing or financing
activities or other financial statement data presented in the Company's
consolidated financial statements or any other GAAP measure as an indicator
of the Company's performance.
12
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
The following analysis of the financial condition and results of operations
of the Company should be read in conjunction with the Selected Financial Data
and the Company's consolidated financial statements. ANI is a holding company
and has no newspaper operations or sources of income of its own. ANI's
newspapers are operated through Garden State's indirect subsidiaries and its
unconsolidated subsidiary, Denver Newspapers.
OVERVIEW
The Company's Garden State subsidiary is in the business of owning and
operating market dominant daily and weekly suburban newspapers. Denver
Newspapers operates the Company's only major metropolitan newspaper, The Denver
Post. The Company's newspapers derive their revenues primarily from
advertising and circulation. The Company's primary operating expenses (before
depreciation and amortization) are employee salaries, newsprint, marketing and
distribution.
Since its inception in 1985, the Company has made leveraged acquisitions.
A majority of the value of the assets acquired was allocated to intangible
assets, principally subscriber accounts and goodwill, which management believes
are generally the most valuable assets of a newspaper. As a result of the
amortization expense associated with these intangible assets, as well as the
interest expense associated with acquisition indebtedness and preferred stock
dividends, the Company has accumulated a significant deficit since its
inception. Historical losses were compounded by a special charge in fiscal 1991
to write-down the value of certain intangible assets. Management anticipated
losses in its initial years of operation and believes such losses are not
reflective of the Company's financial condition. In addition, while the
Company has operated at a loss in prior years, the Company has a proven ability
to increase the value of its newspaper assets as demonstrated through the
disposition of 13 newspaper properties for an aggregate realized pre-tax gain
of $114.5 million.
Since July 1, 1993, the Company has completed several strategic
transactions that have affected its financial condition and results of
operations, as follows:
Fiscal 1996 Transactions
On May 1, 1996, a subsidiary of the Company sold the common stock of the
Johnstown Tribune Publishing Company which publishes The Tribune Democrat and
two weekly newspapers located in Johnstown, Pennsylvania. The sale resulted in
a pre-tax gain of approximately $8.3 million in fiscal 1996. The Tribune
Democrat and two weekly newspapers contributed combined revenues of $14.9
million and $17.4 million in fiscal years ended June 30, 1996 and 1995,
respectively. In conjunction with the sale, the Company also acquired the
assets used in the publication of The Transcript and The Evening News, daily
newspapers published in North Adams, Massachusetts, and Bridgeton, New Jersey,
respectively. The Transcript and The Evening News contributed approximately
$0.5 million and $0.7 million of revenue in fiscal year 1996, respectively.
In March, 1996, a subsidiary of the Company acquired substantially all the
assets used in the publication of the San Mateo Times, a daily newspaper, and
five weekly newspapers published in San Mateo County, California. These
publications contributed combined revenues of approximately $4.0 million in
fiscal year 1996.
In August, 1995, a subsidiary of the Company purchased substantially all
the assets used in the publication of The Berkshire Eagle, Brattleboro Reformer
and Bennington Banner, daily newspapers published in Pittsfield, Massachusetts;
Brattleboro and Bennington, Vermont, respectively, and the Manchester Journal,
a weekly newspaper published in Manchester, Vermont. These publications
contributed combined revenues of approximately $21.6 million in fiscal year
1996.
13
<PAGE> 15
Fiscal 1995 Transactions
In November, 1994, a subsidiary of the Company purchased substantially all
the assets used in the publication of The Gloucester County Times and Today's
Sunbeam, daily newspapers published in Woodbury and Salem, New Jersey,
respectively. These publications contributed combined revenues of
approximately $8.4 million to fiscal 1995.
In August, 1994, the Company sold substantially all the assets used in the
publication of the Bristol Press, and three weekly newspapers located in
Bristol, Connecticut. The sale resulted in a pre-tax gain of approximately $4.2
million in fiscal 1995. The Bristol Press and the three weekly newspapers
contributed combined revenues of approximately $0.5 million and $6.2 million in
fiscal years ended June 30, 1995 and 1994.
FISCAL 1994 TRANSACTIONS
In June, 1994, the Company sold the circulation list of the Ypsilanti Press
and ceased publication of this daily newspaper previously located in Ypsilanti,
Michigan, resulting in a pre-tax gain of approximately $6.5 million in fiscal
1994. This newspaper contributed revenues of approximately $4.1 million in
fiscal year ended June 30, 1994.
In May, 1994, the Company purchased the assets used in the publication of
The Express-Times, a daily newspaper published in Easton, Pennsylvania, and
five weekly publications distributed in the same geographic area: The Bethlehem
Star, The Free Press, The Community Forum, The Star Gazette and The
Entertainer. These publications contributed approximately $1.5 million to
fiscal 1994 revenues of the Company.
RESULTS OF OPERATIONS
Set forth below is certain summary historical financial data for fiscal
1996, 1995 and 1994, in each case including the percentage change between
fiscal years.
<TABLE>
<CAPTION>
Summary Historical Financial Data
(Dollars in thousands)
Fiscal Years Ended June 30, Fiscal Years Ended June 30,
--------------------------------- ----------------------------
1996 1995 1994 1996 vs.1995 1995 vs.1994
-------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Total Revenues . . . . . . . . . $245,430 $213,045 $186,643 15.2% 14.1%
Cost of Sales . . . . . . . . . 98,469 79,098 68,531 24.5 15.4
Selling, General and
Administrative . . . . . . . . 100,290 88,889 79,217 12.8 12.2
Management Fees . . . . . . . . 2,008 1,666 1,552 20.5 7.3
Depreciation & Amortization . . 21,841 18,709 19,900 16.7 (6.0)
Interest Expense . . . . . . . . 41,932 38,611 25,982 8.6 48.6
Other . . . . . . . . . . . . . 4,511 2,405 19,903 (a) (a)
-------- -------- -------- ----- -----
Total Costs and Expenses. . . 269,051 229,378 215,085 17.3 6.6
Income in Unconsolidated
Subsidiary . . . . . . . . . 2,541 5,748 8,646 (55.8) (33.5)
Loss . . . . . . . . . . . . . . (10,932) (8,293) (10,749) 31.8 (22.8)
</TABLE>
- -------------------------
(a) not meaningful
14
<PAGE> 16
COMPARISON OF FISCAL YEARS ENDED JUNE 30, 1996 AND 1995
REVENUES
Revenues increased $32.4 million or 15.2% in fiscal year 1996 as compared
to 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; 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
accounted for a $31.7 million increase in revenues in fiscal 1996. These
revenue increases were partially offset by a $3.1 million decline in revenue
resulting from the sale of the Bristol Press on August 1, 1994, and the sale of
the Johnstown Tribune Publishing Company on April 30, 1996. Excluding the
newspaper operations described above, the Company's remaining newspaper
operations posted a combined increase in revenues of approximately $3.8 million
or 2.0%. All of the Company's newspapers were impacted by a soft retail market
in the last half of the Company's fiscal year; however, retail advertising at
Alameda Newspaper Group and North Jersey Newspapers Company was particularly
hard hit because of major retailers filing for bankruptcy and/or store closings
in their markets. The Company's newspapers located in the northeastern United
States were also affected by the heavy snow in the winter of 1996. While retail
advertising declined slightly on a same newspaper basis, the Company
experienced 3.9% and 7.5% growth in classified and circulation revenue,
respectively. Overall revenue, growth on a same newspaper basis, ranged from
0.4% to 10.2% for fiscal year 1996 compared to fiscal year 1995.
COST OF SALES
Cost of sales increased $19.4 million or 24.5% in fiscal 1996 compared to
fiscal 1995. Approximately $12.3 million of the increase was attributable to
the aforementioned acquisitions. However, this increase was offset in part by
a $0.8 million decrease in cost of sales resulting from the sale of the Bristol
Press and the Johnstown Tribune Publishing Company. Excluding acquisition and
disposition transactions, cost of sales increased approximately $7.9 million or
11.1%. The increase in cost of sales at existing newspapers was entirely the
result of increased newsprint cost associated with a 43% increase in the
average cost per ton of newsprint for fiscal 1996 compared to fiscal 1995.
However, the newsprint price increase was partially offset by an approximate
3,500 ton or 6.0% decrease in usage at the Company's existing newspapers,
primarily associated with efforts to conserve newsprint and the conversion to
the 50-inch web width at the majority of the Company's newspapers during fiscal
1996. Excluding newsprint, cost of sales on a same newspaper basis decreased
$0.9 million in fiscal 1996.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative ("SG&A") expenses increased $11.4
million or 12.8% in fiscal 1996 compared to fiscal 1995. The aforementioned
acquisitions resulted in SG&A expense increases of $11.7 million; however, this
was in part offset by a $1.3 million reduction in SG&A expense associated with
the sale of the Bristol Press and the Johnstown Tribune Publishing Company.
Excluding the acquisition and disposition transactions, SG&A expense increased
$1.0 million or 1%. 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.
OTHER EXPENSE
Other expense, net, increased $2.1 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, acquisition. 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.
15
<PAGE> 17
DENVER NEWSPAPERS - UNCONSOLIDATED SUBSIDIARY
Net income applicable to common stock of Denver Newspapers, before the
cumulative effect of accounting change, decreased $3.2 million in fiscal 1996
compared to fiscal 1995. The decrease in income was primarily the result of a
43.5% increase in the average cost of newsprint in fiscal 1996, which was only
partially offset by the 12.9% growth in revenue in the most recent fiscal year.
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 fiscal year ended June 30, 1996,
the Company recorded 60% of Denver Newspapers' net income applicable to common
stock compared to 100% for the first quarter and 60% for the second, third and
fourth quarters of fiscal 1995.
NET INCOME
ANI recorded a loss of approximately $10.9 million in fiscal 1996; however,
after excluding the gain on the sale of the Johnstown Tribune Publishing
Company, the write-off of fees and other costs associated with the newly issued
term loan and revolving credit facility and the San Mateo Times start-up costs,
ANI would have recorded an adjusted loss of $17.8 million compared to a fiscal
1995 adjusted loss of $10.6 million after adjusting the loss to exclude the
fiscal 1995 gain on sale of the Bristol Press of $4.2 million and 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 $3.2 million decrease in the equity pick-up of
income in Denver Newspapers, $3.3 million increase in interest expense
associated with amortization of the ANI bond discount and the acquisitions
discussed above and reductions caused by a $1.9 million decrease in operating
revenues in excess of increases in cost of sales, SG&A expenses and
depreciation and amortization at Garden State. These reductions in income were
offset by a $1.9 million increase in tax benefits, the majority of which was
associated with the sale of the Johnstown Tribune Publishing Company.
COMPARISON OF FISCAL YEARS ENDED JUNE 30, 1995 AND 1994
REVENUES
Revenues increased $26.4 million or 14.1% in fiscal year 1995 as compared
to fiscal year 1994. The increase in revenues is primarily attributable to the
May 31, 1994, acquisition of The Express-Times and five weekly newspapers, and
the November 18, 1994 acquisition of The Gloucester County Times and Today's
Sunbeam which, combined, accounted for a $25.7 million increase in revenues.
These revenue increases were partially offset by a $9.7 million decrease in
revenues resulting from the sale of the Ypsilanti Press in June of 1994 and the
sale of the Bristol Press on August 1, 1994. In addition, revenues at the
Company's existing newspapers grew $10.4 million or 5.9%, the majority of which
relates to revenue growth at the Company's Alameda Newspaper Group and North
Jersey Newspapers Company subsidiaries. Revenue at these subsidiaries, as well
as a majority of the Company's subsidiaries, were particularly influenced by
strong classified revenue growth.
COST OF SALES
Cost of sales increased $10.6 million or 15.4% in fiscal 1995 compared to
fiscal 1994. Approximately $8.9 million of the increase was attributable to
The Express-Times, The Gloucester County Times and Today's Sunbeam
acquisitions. However, this increase was offset in part by a $3.7 million
decrease in cost of sales as a result of the Ypsilanti Press and the Bristol
Press dispositions. Excluding the acquisition and disposition transactions,
cost of sales increased approximately $5.4 million or 8.5%. The increase in
cost of sales at existing newspapers is primarily the result of increased
newsprint costs associated with increased use and newsprint price increases.
Combined editorial and production costs also increased in association with
higher lineage and circulation.
16
<PAGE> 18
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative ("SG&A") expenses increased $9.7
million or 12.2% in fiscal 1995 compared to fiscal 1994. The acquisition of
The Express-Times, The Gloucester County Times and Today's Sunbeam caused SG&A
expenses to increase $11.9 million; however, this was in part offset by a
reduction in SG&A expenses of $5.0 million associated with the Ypsilanti Press
and the Bristol Press dispositions. Excluding dispositions, SG&A expenses
increased $2.8 million or 3.8%. The increase is a result of increased
promotion and other operating expenses at the majority of the Company's
subsidiaries, generally associated with the Company's efforts to increase
circulation and thus advertising revenues.
INTEREST EXPENSE
Interest expense increased $12.6 million or 48.6% in fiscal year 1995
compared to fiscal year 1994. The increase is primarily the result of ANI's
Senior Discounted Debentures which were issued in May, 1994 in conjunction with
the Media General buyout as is more fully described in Note 1 to the
Consolidated Financial Statements.
DENVER NEWSPAPERS - UNCONSOLIDATED SUBSIDIARY
Net income applicable to common stock of Denver Newspapers, before the
cumulative effect of accounting change, increased $1.9 million in fiscal 1995
compared to fiscal 1994. The increase in income was the result of continued
improvements in the Denver, Colorado, economy which resulted in a 14.1%
increase in advertising revenues for fiscal 1995 that was in part offset by
increases in operating expenses. However, the Company's share of income in
Denver Newspapers, before cumulative effect of the accounting change, decreased
$2.9 million in fiscal 1995. The decrease in the Company's share of net income
was caused by a reduction in the equity pick-up to 60 percent from 100 percent
beginning in the second quarter of fiscal 1995 as a result of Media General
exercising its Denver Newspapers common stock warrant. Media General's
acquisition of Denver Newspaper 9% preferred stock from ANI on May 20, 1994
also reduced ANI's equity pick-up in fiscal 1995 compared to fiscal 1994. In
addition, as a result of Media General exercising its Denver Newspapers common
stock warrant, the Company recognized a gain of approximately $1.0 million from
the sale of common stock by Denver Newspapers in the quarter ended December 31,
1994, in addition to its equity pick-up discussed above. Denver Newspapers
does not currently have any plans to issue additional shares of common stock in
the future.
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 $2.9 million, after
tax, all of which is reflected in the Company's Consolidated Financial
Statements. Prior to the adoption of SFAS 106, the cost and expenses of the
plan were recognized as paid.
NET INCOME
Excluding the gain on the sale of the Bristol Press of $4.2 million, the
cumulative effective of adopting SFAS 106 of $2.9 million, the $1.0 million
gain on sale of common stock by Denver Newspapers and the $11.4 million
increase in interest expense associated with the ANI Senior Discounted
Debentures discussed above, ANI would have recorded net income of $0.8 million
for fiscal 1995 compared to adjusted loss of $0.3 million for fiscal 1994,
after excluding the $6.5 million gain on the sale of the Ypsilanti Press, $17.7
million of debt issuance and restructuring cost and an extraordinary gain of
$.7 million. The increase in adjusted net income was primarily attributable to
a $7.3 million improvement in operating profit at Garden State Newspapers on
higher revenues and improved operating margins. Garden State's improvement was
attributable to a $3.5 million increase in operating profit at existing
newspapers and $3.4 million was attributable to acquired newspapers. The
disposal of the Ypsilanti Press and the Bristol Press also contributed to the
improved operating profit as these newspapers had a combined $(0.4) million
operating profit for fiscal year 1994. The improvement in operating profit was
in part offset by a decrease in tax benefits of $1.8 million and a $1.3 million
increase in interest and other
17
<PAGE> 19
expenses. Tax benefits declined as a result of the Company generating current
state and federal taxable income in fiscal year 1995; however, the majority of
the federal taxable income was offset by net operating loss carryforwards. The
increase in ANI's adjusted net income was also offset in part by the $2.9
million decrease in income from Denver Newspapers, as discussed above.
LIQUIDITY AND CAPITAL RESOURCES
The principal sources of liquidity for the Company and its subsidiaries are
existing cash and other working capital, cash flow provided from their
operating activities and the borrowing capacity under revolving credit
agreements. The Company's operations, consistent with the newspaper industry,
require little investment in inventory, as less than 30 days of newsprint is
generally maintained on hand. However, inventories at June 30, 1995, were
higher than historical averages because of large purchases at the end of fiscal
1995 used to combat rising newsprint cost. At June 30, 1996, inventory levels
had returned to normal. In general, the Company's receivables have been
collected on a timely basis.
JUNE 30, 1996 COMPARED TO JUNE 30, 1995
Net cash flows from operating activities were approximately $8.7 million
and $22.9 million for fiscal years 1996 and 1995, respectively. The decrease
in cash flow from operating activities was primarily the result of negative
year-over-year change in operating assets and liabilities of $12.4 million and
increased interest and debt expense of $2.7 million. The majority of the change
was associated with an increase in accounts payable and accrued expenses in
1995 largely caused by a one time $6.1 million increase in accrued interest,
combined with an increase in accounts receivable, net of the impact of the
acquisition and disposition transactions. A $1.3 million increase in operating
profit (excluding depreciation and amortization) partially offset the decline
in operating cash flow.
Net cash flows from investing activities were $6.9 million and $1.3 million
for the fiscal years 1996 and 1995, respectively. The $5.6 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 a net of
$13.9 million related to the acquisition of the New England Newspapers and San
Mateo and the sale of the Johnstown Tribune Publishing Company in fiscal 1996.
The Company also increased capital spending in fiscal 1996 by $3.8 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 $(28.2) million and $(15.7)
million for fiscal years 1996 and 1995, respectively. The decrease of $12.5
million was primarily attributable to the Company prepaying $47.0 million of
debt out of proceeds from the sale of the Johnstown Tribune Publishing Company
and paying $17.4 million of debt in accordance with the terms of such
obligations. Paydowns were offset partially by borrowings of $37.3 million,
the majority of which was borrowed in conjunction with the previously discussed
New England Newspapers and San Mateo acquisitions.
JUNE 30, 1995 COMPARED TO JUNE 30, 1994
Cash provided by operating activities was $22.9 million in fiscal year 1995
compared to $7.0 million for 1994, an increase of $15.9 million. The
improvement was primarily attributable to the $11.8 million improvement in the
year-over-year change in operating assets and liabilities combined with a $7.3
million improvement in operating profit.
18
<PAGE> 20
Cash flows from investing activities in fiscal 1995 was $1.3 million
compared to $(15.8) million in 1994. Investing activities for fiscal 1995
include $14.9 million in proceeds from the sale of the Bristol Press and $9.3
million paid to acquire the assets used in the publication of The Gloucester
County Times, Today's Sunbeam and five weekly newspapers located in northern
New Jersey. Investing activities for fiscal 1994 include net proceeds of $8.7
million received from the sale of the Ypsilanti Press and $15.6 million paid
for The Express Times. Capital expenditures for fiscal 1995, net of asset
sales, were approximately $4.3 million, of which approximately $1.2 million
related to the North Jersey Newspapers Company pagination project. Capital
expenditures in 1994 of $3.4 million were primarily related to the completion
of the Alameda Newspaper Group pagination project.
Cash flows from financing activities in fiscal 1995 were $(15.7) million
compared to $9.3 million in 1994. In fiscal year 1995 the Company used proceeds
from the sale of the Bristol Press and other cash to repay $8.0 million under
the Company's revolving lines of credit, repaid sellers notes of approximately
$6.0 million and bought out a capital lease obligation for approximately $1.0
million. In fiscal 1994 the Company received net proceeds of $217.5 million
from the issuance of long-term debt and common stock. Proceeds from the
issuance of long-term debt and existing cash were used to repay $138.8 million
of long-term debt and related prepayment premiums of $6.1 million, repurchase
Garden State's other obligations and its Series A and C preferred stock for
$63.0 million and to purchase the assets of The Express-Times for $15.0
million.
CAPITAL EXPENDITURES
The Company has a capital expenditure plan (not including business
acquisitions) which includes normal maintenance capital expenditures of
approximately $1.2 million for fiscal 1997. In addition, the plan also
anticipates expenditures during fiscal 1997 of $4.2 million associated with
computer system upgrades, web width reductions at three of the Company's
newspapers and press and mailroom upgrades at several of the Company's
newspapers, all of which are expected to improve efficiencies and/or the
quality of the newspaper. Management reviews the capital expenditure plan
periodically and modifies it as required to meet the Company's current business
needs. Capital expenditures related to these projects are expected to be funded
either through available cash, proceeds from the sale of certain operating
assets and/or borrowings under the Company's line of credit.
Management anticipates significantly lower capital expenditures on a same
newspaper basis in future years as web width reduction, pagination, and press
projects will be completed by the end of fiscal 1997, with the possible
exception of a press upgrade in Easton, Pennsylvania, and mailroom expansion at
the Alameda Newspaper Group, which may not be completed in fiscal 1997.
LIQUIDITY
As of June, 1996, Garden State and its subsidiary, NJN Investments, Inc.
("NJNI"), had a combined $47.7 million available for borrowings under revolving
credit facilities, excluding approximately $5.1 million in letters of credit
outstanding. Commitments under the revolving credit facilities will also
continue to reduce in accordance with the terms disclosed in the June 30, 1996,
notes to the consolidated financial statements
The Garden State and NJNI debt instruments contain covenants which, among
other things, limit capital expenditures, require the maintenance of certain
financial ratios and place limitations on the payment of dividends and other
distributions to ANI. The Garden State revolving credit facility and the Senior
Secured Notes are secured by the stock of Garden State and each of its
subsidiaries, as well as substantially all of the assets of the subsidiaries.
The NJNI revolving credit facility is secured by the capital stock of NJNI and
its subsidiaries.
Based upon current operations and after consideration of future newsprint
price reductions, management believes that the Company will have sufficient
cash flows from operations which, combined with the Garden State credit
facility and other resources available to the Company, will be adequate to fund
scheduled payment of principal and interest and to meet anticipated capital
expenditure and working capital requirements for at least the next twelve
months.
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<PAGE> 21
The purchase of Garden State's Class A common stock and the Series A and C
preferred stock by ANI was financed with debt issued by the Company. The
repayment of the Company's debt, which does not have scheduled interest
payments until January 1, 2000, is in part dependent upon Garden State's and
Denver Newspapers' ability to pay dividends to the Company. Garden State's debt
agreements discussed above prohibit the payment of dividends to the Company
prior to June 30, 1999.
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 September 1, 1996, Denver
Newspapers had $15.9 million available under its revolving credit facility,
excluding $1.6 million in outstanding letters of credit. In addition, at June
30, 1996, Denver Newspapers had working capital of approximately $5.3 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 Company and its subsidiaries will from time to time consider the
acquisition of daily and weekly newspapers, as favorable investment
opportunities are identified. In the event an investment opportunity is
identified management expects that it would be able to arrange financing on
terms and conditions satisfactory to the Company to the extent current
resources are insufficient.
The steady increase in newsprint prices over the last two years has finally
abated, and the Company is beginning to experience significant declines in
newsprint prices. Management believes that newsprint prices will continue to
soften and then stabilize during fiscal year 1997; however, the length and
extent of future price declines is currently unknown. High newsprint prices
continued to negatively affect the Company's earnings into the Company's fourth
fiscal quarter, as it began depleting 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 pricing trends.
In conjunction with the Company's efforts to cut costs and improve its
operating margins, 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.
All but three of Garden State's newspapers have been converted through June,
1996. All of Garden State's current newspapers are expected to be converted by
the end of calendar year 1996. Once all of the Company's newspapers are
converted to the 50-inch web width, newsprint consumption will be permanently
reduced at each newspaper by 7.5% to 9%, depending on the web width prior to
the conversion. Denver Newspapers also converted The Denver Post to 50-inch web
width, in August, 1996 which, based on fiscal year 1996 peak newsprint prices,
would result in approximately $5.0 million of annual savings.
20
<PAGE> 22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is filed as a separate part of this report (see
page 29).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
21
<PAGE> 23
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Executive officers and directors of ANI are as follows:
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
Richard B. Scudder . . . . . . . . 83 Chairman of the Board and Director
William Dean Singleton . . . . . . 45 Vice Chairman, President, Chief Executive Officer
and Director
Joseph J. Lodovic, IV. . . . . . . 35 Executive Vice President, Chief Financial Officer
Anthony F. Tierno . . . . . . . . 52 Executive Vice President, Chief Operating Officer
E. Michael Fluker . . . . . . . . 59 Senior Vice President, Administration
Nicholas L. Lebra . . . . . . . . 48 Vice President and Director of Human Resources
Ronald A. Mayo . . . . . . . . . . 35 Vice President of Finance and Controller
James L. McDougald . . . . . . . . 44 Treasurer
Peter M. Miller . . . . . . . . . 46 Director
Patricia Robinson . . . . . . . . 54 Director and Secretary
</TABLE>
Each director is elected annually and serves until the next annual meeting
of shareholders or until his successor is duly elected and qualified. The
directors of ANI are not compensated for their service as directors. They do,
however, receive reimbursement of expenses incurred from the attendance at
Board of Directors meetings. The executive officers of ANI are appointed by
and serve at the pleasure of the Board of Directors.
BUSINESS EXPERIENCE
RICHARD B. SCUDDER was elected Chairman of the Board and a director of ANI
in February, 1994. He has served as Chairman of the Board and a director of
Garden State since 1985.
WILLIAM DEAN SINGLETON was elected Vice Chairman, President, Chief
Executive Officer and a director of ANI in February , 1994. He has served as
Vice Chairman, President, Chief Executive Officer and a director of Garden
State since 1985.
JOSEPH J. LODOVIC, IV was appointed Executive Vice President and Chief
Financial Officer of ANI in February, 1994. He has served as Executive Vice
President and Chief Financial Officer of Garden State since November, 1993.
Prior thereto, he served as Vice President and Treasurer of Garden State from
1989 to 1993.
ANTHONY F. TIERNO was appointed Executive Vice President and Chief
Operating Officer of ANI in February 1994. He has served as Executive Vice
President and Chief Operating Officer of Garden State since November, 1993.
Prior thereto, he served as Vice President of Garden State's eastern United
States operations from 1987 to 1993. Mr. Tierno has been with Garden State
since its inception in 1985.
E. MICHAEL FLUKER was appointed Senior Vice President, Administration, of
ANI in February, 1994. He has served as Senior Vice President, Administration,
for Garden State since November, 1993. Prior thereto, he served as Executive
Vice President and Chief Financial Officer of Garden State from 1989 to 1993.
NICHOLAS L. LEBRA, JR. was appointed Vice President and Director of Human
Resources of ANI in February, 1994. He has served as Vice President and
Director of Human Resources of Garden State since 1985.
RONALD A. MAYO has served as Vice President of Finance and Controller since
September, 1994. From 1984 to 1994, Mr. Mayo was employed by Ernst & Young
LLP, most recently as a Senior Manager.
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<PAGE> 24
JAMES L. MCDOUGALD has served as Treasurer since September, 1994. Prior
thereto, he was Controller for Garden State from 1988 to 1994.
PETER M. MILLER was elected a Director of ANI in February 1994. He has
served as a Director of Garden State since 1985. From 1991 through 1994, Mr.
Miller served as Senior Vice President of Marketing of Environmental
Technologies Corporation, a subsidiary of Envirotech Systems, Inc. Mr. Miller
continues to serve as a director of Environmental Technologies Corporation.
Mr. Miller is a son-in-law of Mr. Scudder.
PATRICIA ROBINSON was elected Secretary of ANI in February, 1994, and a
director of ANI in May, 1994. She has also served as Secretary of Garden State
since 1991 and as Secretary of Denver Newspapers since 1991. Ms. Robinson is
the sister of Mr. Singleton.
ITEM 11. EXECUTIVE COMPENSATION
The business and affairs of the Company are managed by MNG pursuant to the
terms of a Management Agreement. MNG allocates its expenses as management fees
to the Company and each affiliate based on the amount of time and resources
devoted to each affiliate. See "Certain Relationships and Related Transactions
- -- MediaNews Group, Inc." The following table sets forth the cash compensation
paid or payable to Mr. Singleton and any executive officer whose allocated cash
compensation exceeded $100,000 for services rendered to the Company in fiscal
1996.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
NAME AND FISCAL --------------------------
PRINCIPAL POSITION YEAR SALARY BONUS
------------------ ---- ------ -------
<S> <C> <C> <C>
William Dean Singleton . . . . . . . . . . . . . . . 1996 $350,000 $ 80,000
Vice Chairman, President and 1995 350,000 100,000
Chief Executive Officer 1994 350,000 80,000
Joseph L. Lodovic, IV(a) . . . . . . . . . . . . . . . 1996 $188,325 $ --
Executive Vice President and 1995 139,493 29,700
Chief Financial Officer 1994 116,167 267,000
Anthony F. Tierno(a),(b) . . . . . . . . . . . . . . 1996 $192,503 $ 2,500
Executive Vice President 1995 152,816 12,000
and Chief Operating Officer
Nicholas L. Lebra(b) . . . . . . . . . . . . . . . . . 1996 $122,800 $ --
Vice President and Director 1995 94,000 12,000
of Human Resources
</TABLE>
- ------------------
(a) Includes compensation paid by MNG and allocated through
management fees to the Company.
(b) Allocated compensation did not exceed $100,000 in fiscal years
not presented.
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<PAGE> 25
EMPLOYMENT AGREEMENTS
No executive officer of the Company has an employment agreement with the
Company except Mr. Singleton. Under the terms of his employment agreement with
Garden State, which was amended and renewed effective June 30, 1996 (the
"Employment Agreement"), Mr. Singleton is entitled to receive cash
compensation at an annual rate of not less than $550,000 (of which Garden State
is obligated to pay a portion), subject to annual review and adjustment by the
Board of Directors of Garden State. In addition, Mr. Singleton is entitled to
receive a bonus of up to $100,000 for each fiscal year based on a comparison of
actual profits of Garden State to budgeted profits during such fiscal year.
The Employment Agreement expires by its terms on June 30, 2001, but will be
automatically renewed for successive one-year terms unless Garden State or Mr.
Singleton gives notice terminating the Employment Agreement at least 120 days
prior to the expiration of the existing term. The Employment Agreement contains
a five-year non-compete covenant for all counties and geographical areas in
which newspapers are owned or circulated by Garden State or its Subsidiaries
(currently or in the future).
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Decisions regarding annual compensation in excess of $175,000 are made by
the Board of Directors of Garden State, as the officers of ANI are also
officers of Garden State. Garden State's Board of Directors does not have a
Compensation Committee. The Board of Directors of Garden State and Denver
Newspapers are responsible for approving Mr. Singleton's Employment Agreement,
including his compensation. Compensation of executive officers of MNG, who are
also executive officers of the Company, is approved by Mr. Singleton. See
"Certain Relationships and Related Transactions -- MediaNews Group, Inc."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The authorized capital stock of ANI consists of 2,314,346 shares of
unissued Class A common stock, $.01 par value, 173,576 shares of Class B common
stock, $.01 par value, 664,450 shares of Class D common stock, $.01 par value,
1,476,090 shares of Class G common stock, $0.1 par value, and 230 shares of
Class N common stock $.01 par value (collectively the "ANI Common Stock"), all
of which have equal voting rights but differ with respect to dividends and
liquidation. ANI has not declared or paid any cash dividends on its common
stock in the past and does not intend to do so in the foreseeable future. The
Company's long-term debt limits the ability of ANI to pay such dividends.
The following table sets forth the number and percentage of shares of ANI
common stock currently issued and outstanding and beneficially owned by (i)
each person known to ANI to be the beneficial owner of more than 5.0% of any
class of ANI's equity securities; and (ii) all directors and executive officers
of ANI as a group.
<TABLE>
<CAPTION>
Amount and Nature of
Beneficial Ownership(a) Percentage of Class
-------------------------------------- --------------------------------
CLASS D CLASS G CLASS N CLASS D CLASS G CLASS N
COMMON COMMON COMMON COMMON COMMON COMMON
NAME AND ADDRESS STOCK(n) STOCK(n) STOCK(n) STOCK(n) STOCK(n) STOCK(n)
---------------- ------- ----------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
William Dean Singleton(b)(c) . . . . . -- 738,045(k)(l) -- -- 50.00% --
Howell E. Begle, Jr.(b)(d) . . . . . . 332,225(l) 738,045(k)(l) --(l) 50.00% 50.00% 50.00%
Patricia Robinson(b)(e) . . . . . . . 332,225(l) -- --(l) 50.00% -- 50.00%
Jean L. Scudder(f)(j) . . . . . . . . 249,168.75 184,511.25 37.50% 12.50% 12.50%
Charles Scudder(g)(j) . . . . . . . . 83,056.25 184,511.25 12.50% 12.50% 12.50%
Elizabeth A. Difani(g)(h)(j) . . . . . -- 123,007.50 -- 8.33% 8.33%
Carolyn Miller(g)(i)(j) . . . . . . . -- 184,511.25 -- 12.50% 12.50%
All directors and
executives as a group(m) . . . . . . 332,225.00 738,045.00 50.00% 50.00% 50.00%
</TABLE>
- --------------------------
(Footnotes on the following two pages.)
24
<PAGE> 26
(a) Beneficial ownership is determined in accordance with the rules of the
Commission. Except as indicated by footnote, the persons named in the
table above have sole voting and investment power with respect to all
shares of capital stock indicated as beneficially owned by them. None
of such shares is known by ANI to be shares with respect to which the
beneficial owner has the right to acquire such shares.
(b) The address of each such person is: c/o Howell E. Begle, Jr., Trustee,
901 15th Street, N.W., Suite 700, Washington, D.C. 20005. Mr. Beagle is
Of Counsel to the law firm of Verner, Liipfert, Bernhard, McPherson and
Hand, Chartered, which law firm is counsel to the Company.
(c) These shares are held by a revocable trust for the benefit of the
children of Mr. Singleton (the "Singleton Revocable Trust"), for which
trust Mr. Begle and Mr. Singleton are trustees. Mr. Singleton disclaims
any beneficial ownership in the shares held in the Singleton Revocable
Trust.
(d) Includes the following shares, for which Mr. Begle has sole voting power
under the Singleton Family Voting Trust Agreement for ANI (the
"Singleton Family Voting Trust Agreement for ANI") and shared investment
power, as a trustee for an irrevocable trust for the benefit of Mr.
Singleton's children (the "Singleton Irrevocable Trust"), held by the
Singleton Irrevocable Trust: 332,225 shares of Class D common stock and
115 shares of Class N common stock. Also includes 738,045 shares of
Class G common stock held by the Singleton Revocable Trust, for which
Mr. Begle is a trustee.
(e) These shares are held by the Singleton Irrevocable Trust, for which Ms.
Robinson serves as a trustee and as to which she has shared investment
power. Ms. Robinson is Mr. Singleton's sister.
(f) Includes 166,112.5 shares of Class D common stock held by a trust for
the benefit of Ms. Scudder's nephews, for which trust Ms. Scudder serves
as the sole trustee. Does not include the shares held by Charles
Scudder, Elizabeth Difani, as custodian for her minor children, or
Carolyn Miller, as custodian for her minor children, with respect to
which Ms. Scudder has sole voting power pursuant to the Scudder Family
Voting Trust Agreement for ANI (the "Scudder Family Voting Trust
Agreement").
(g) Sole voting power with respect to these shares is held by Ms. Scudder
pursuant to the Scudder Family Voting Trust Agreement. See note (f)
above.
(h) Ms. Difani holds these shares as custodian for her minor children. Sole
voting power with respect to these shares is held by Ms. Scudder
pursuant to the Scudder Family Voting Trust Agreement. See note (f)
above.
(i) Ms. Miller holds those shares as custodian for her minor children. Sole
voting power with respect to these shares is held by Ms. Scudder
pursuant to the Scudder Family Voting Trust Agreement. See note (f)
above.
(j) The address of each person is: c/o Jean L. Scudder, Rural Route 1, Box
75, Readfield, Maine 04355.
(k) Indicates shared voting power.
(l) Indicates shared investment power.
(m) No directors or officers of ANI beneficially own any shares in ANI except
Mr. Singleton. See note (c) above.
(footnotes continued on the following page)
25
<PAGE> 27
(n) Assuming conversion of each of the shares of Class D, Class G and Class
N common stock to shares of Class A common stock, as provided for in the
ANI Certificate of Incorporation, the shares of Class A common stock
will be held as follows: 738,045 shares by the Singleton Revocable
Trust; 322,340 shares by the Singleton Irrevocable Trust; 166,112.5
shares by a trust for the benefit of Ms. Scudder's nephews; 267,596.25
shares by Mr. Scudder; 123,026.66 shares by Ms. Difani, as custodian for
her minor children; and 184,540 shares by Ms. Miller, as custodian for
her minor children.
SCUDDER FAMILY VOTING TRUST AGREEMENT FOR ANI
The children of Richard B. Scudder, Charles A. Scudder, Carolyn S. Miller,
Elizabeth H. Difani and Jean L. Scudder entered into the Scudder Family Voting
Trust Agreement for ANI (the "Scudder Family Voting Trust Agreement for ANI")
in accordance with which Jean L. Scudder (the "Scudder Trustee") exercises all
voting rights (subject to the consent of shareholders holding 50% of the common
stock held by the Scudder Family Voting Trust for ANI on such matters as
election of directors, mergers, dissolution or reorganization of ANI, sale,
exchange or pledge of all or substantially all of the assets of ANI and
acquisition or divestiture by ANI of any newspaper venture) and substantially
all other rights to which such shareholders would otherwise be entitled until
May 20, 2004, subject to extension by written agreement of one or more
beneficiaries of the Scudder Family Voting Trust Agreement for ANI and the
Scudder Trustee.
SINGLETON FAMILY VOTING TRUST AGREEMENT FOR ANI
The Singleton Irrevocable Trust entered into the Singleton Family Voting
Trust Agreement for ANI (the "Singleton Family Voting Trust Agreement for ANI")
in accordance with which (i) the shares of Class D and Class N common stock of
ANI held by the Singleton Irrevocable Trust were transferred to the Singleton
Revocable Trust for ANI and (ii) the shares of Class G common stock of ANI to
be held by the Singleton Revocable Trust will be transferred to the Singleton
Family Voting Trust for ANI upon the death or incapacity of Mr. Singleton. As
a result, Howell E. Begle, as Trustee (the "Singleton Trustee"), is considered
the beneficial owner of 50% of the outstanding Class D common stock and Class N
common stock of ANI. Under the Singleton Family Voting Trust Agreement for
ANI, the Singleton Trustee exercises all voting and substantially all other
rights to which such shareholders would otherwise be entitled until May 20,
2004, subject to extension by written agreement of one or more beneficiaries of
the Singleton Family Voting Trust Agreement for ANI and the Singleton Trustee.
ANI SHAREHOLDERS' AGREEMENT
The Singleton Revocable Trust, the Singleton Family Voting Trust for ANI,
the Scudder Family Voting Trust for ANI, certain of the beneficiaries of such
trusts and ANI entered into a Shareholders' Agreement (the "ANI Shareholders'
Agreement") which provides, among other things, that action by the Board of
Directors with respect to such matters as the declaration of dividends,
redemption of capital stock, certain capital expenditures, mergers or
consolidation, incurring indebtedness or paying compensation to the officers of
ANI in excess of certain amounts will require the unanimous approval of all
Directors then serving on the Board of Directors or approval by the holders of
75% of the shares of common stock entitled to vote on such matters.
The ANI Shareholders' Agreement also provides that until the earlier of (i)
the date on which the shares of Class D common stock, Class G common stock and
Class N common stock of ANI are automatically converted into shares of Class A
common stock of ANI, pursuant to the terms of the Certificate of Incorporation
of ANI, or (ii) when ANI's Leverage Ratio is less than 3:1, no shareholder may
sell, transfer, pledge or otherwise encumber their shares, nor their interest
in their shares, of ANI common stock (other than Class B common stock) to any
third party, except certain permitted transfers to family members and other
shareholders, without the consent of all the shareholders of ANI or unless all
shares of ANI common stock then outstanding are sold in a single transaction or
a series of related transactions. Upon the expiration of such time period, and
in the
26
<PAGE> 28
event of a contemplated sale to a third party, ANI, and thereafter the
remaining shareholders, may exercise a right of first refusal. If any
shareholder desires to sell or transfer his shares to ANI or the other
shareholders without an identified third party buyer, then such shareholder may
offer to sell his shares to ANI at fair market value determined by appraisal,
or if ANI declines to purchase such shares, such shareholder may offer to sell
his shares to the remaining shareholders at fair market value.
DENVER NEWSPAPERS SHAREHOLDERS' AGREEMENT
ANI, Denver Newspapers and Media General, Inc. ("Media General") are
parties to the Second Amended and Restated Stock and Warrant Purchase and
Shareholders' Agreement of Denver Newspapers (the "Denver Newspapers
Shareholders' Agreement") which provides, among other things, that one-half of
the directors of Denver Newspapers shall be elected by ANI and one-half of the
directors shall be elected by Media General. Pursuant to such Agreement,
without the prior unanimous approval of all of the directors of Denver
Newspapers, the common stockholders and the preferred stockholders (pursuant to
the ANI Amended and Restated Certificate of Incorporation), Denver Newspapers
and its subsidiaries are restricted from, among other things, paying certain
dividends, redeeming its capital stock, making capital expenditures in excess
of certain amounts, merging, consolidating or liquidating, paying compensation
in excess of certain amounts, incurring additional debt or amending any
material term of its existing debt. The Agreement also provides that the
directors of Denver Newspapers elected by Media General will not unreasonably
withhold their approval for any dividend on common stock proposed by any member
of the board of directors as long as payment in full of the Denver Newspapers
9% Preferred Stock, including accrued and unpaid dividends, shall have been
made. The Denver Newspapers Shareholders' Agreement contains certain
restrictions on the transfer of shares of Denver Newspapers' capital stock, as
well as certain rights of first refusal and tag-along rights, and Media General
has certain registration rights with respect to the shares of Denver Newspapers
Class A common stock.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MEDIANEWS GROUP, INC.
The Company's subsidiaries have engaged MNG to operate and manage the
business and affairs of its newspapers under the terms of a management
agreement. MNG, which is owned entirely by Messrs. Singleton and Scudder, also
manages other affiliated newspapers. All of the executive officers of MNG are
also executive officers of the Company, and compensation of the executive
officers of the Company, with the exception of Mr. Singleton whose compensation
is paid as described under "Executive Compensation," are paid by MNG. The
Company believes that the salaries paid to its executive officers, through
either Garden State or MNG, are not greater than those which would be paid to
executives of an unaffiliated management company. Pursuant to the management
agreement, MNG allocates its expenses as management fees to each affiliate
based on the amount of time and resources devoted to each affiliate. The
weighted average of the salary allocations is then used to apportion general
overhead of MNG, such as office rent and related expenses. MNG is party to a
consulting agreement, renewable annually, with Mr. Scudder which requires
annual payments of $150,000. Costs related to such agreement are included in
MNG's expenses and, thus, are included in the management fee allocation
discussed above.
The Company reimburses MNG for any expenses directly incurred by MNG on
behalf of the Company that are not included in the management fee. For fiscal
1996, the Company paid approximately $2.0 million to MNG in management fees.
The Company believes that the management fees paid to MNG are not greater than
the costs the Company would expect to bear to obtain these services elsewhere.
MNG does not own, and does not expect to own, any interest in the Company,
nor has MNG made any direct capital investment in the Company. While MNG's
principal business is the management of newspaper operations, the Company does
not believe its success is dependent on MNG. If the Management Agreement
should terminate, management believes the Company could obtain management
services from other sources, including current employees of MNG.
27
<PAGE> 29
TAX SHARING AGREEMENT
ANI and Garden State are part of the same affiliated group filing
consolidated returns for federal income tax purposes. ANI and Garden State
entered into a tax sharing agreement (the "Tax Sharing Agreement") to determine
the manner in which the members of the consolidated group share federal income
tax benefits and costs. Pursuant to the Tax Sharing Agreement, the income tax
liability of Garden State and any of Garden State's consolidated subsidiaries
is computed separately from ANI on a consolidated return basis. If income tax
is due from Garden State and its consolidated subsidiaries, Garden State will
pay the amount of the tax as a tax sharing payment to ANI. In the event that
Garden State's federal income tax is reduced due to a net operating loss or
credit carryback under applicable federal income tax law, it will receive
credit for the amount of such reduction from ANI. This credit amount(s) will
be carried on ANI's financial records as an amount payable to Garden State,
which credit Garden State will be able to utilize to offset future obligations
to make tax sharing payments to ANI. Under the terms of the Tax Sharing
Agreement, Garden State will receive the benefit of loss carryforwards which it
generates. Similar principles apply under the Tax Sharing Agreement for state
and local income tax purposes. Although the payments of dividends by Garden
State are restricted under the terms of its debt instruments, Garden State is
permitted under those agreements to make tax sharing payments.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements
1. The list of financial statements contained in the accompanying Index
to Consolidated Financial Statements and Schedules Covered by Report
of Independent Auditor is filed as a part of this Report (see page
29).
2. Financial Statement Schedules
The list of financial statement schedules contained in the
accompanying Index to Consolidated Financial Statements and Schedules
Covered by Report of Independent Auditor is filed as part of the
Report (see page 29).
3. Exhibits
The exhibits listed in the accompanying index are filed as a part of
this annual report (See page 75).
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of fiscal
1996.
28
<PAGE> 30
AFFILIATED NEWSPAPERS INVESTMENTS, INC.
ITEMS 8, 14(a) (1) AND (2)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
COVERED BY REPORTS OF INDEPENDENT AUDITORS
The following financial statements of the registrant and its subsidiaries
required to be included in Items 8 and 14(a)(1) are listed below:
AFFILIATED NEWSPAPERS INVESTMENTS, INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . 30
Consolidated Balance Sheets as of June 30, 1996 and 1995 . . . . . . . 31
Consolidated Statements of Operations for the
Years Ended June 30, 1996, 1995 and 1994 . . . . . . . . . . . . . . 33
Consolidated Statements of Changes in Shareholders' Deficit
for the Years Ended June 30, 1996, 1995 and 1994 . . . . . . . . . . 34
Consolidated Statements of Cash Flows for the
Years Ended June 30, 1996, 1995 and 1994 . . . . . . . . . . . . . . 35
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . 36
</TABLE>
The following financial statement schedules of the registrant and its
subsidiaries required to be included in Item 14(a)(2) are listed below:
<TABLE>
<S> <C>
Schedule I Condensed Financial Information of Registrant . . . . . . 52
Schedule II Valuation and Qualifying Accounts . . . . . . . . . . . . 55
</TABLE>
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable and therefore have been omitted or
the information is presented in the consolidated financial statements or
related notes.
DENVER NEWSPAPERS, INC.
<TABLE>
<S> <C>
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . 56
Consolidated Balance Sheets as of June 30, 1996 and 1995 . . . . . . . 57
Consolidated Statements of Operations for the
Years Ended June 30, 1996, 1995 and 1994 . . . . . . . . . . . . . . 59
Consolidated Statements of Changes in Shareholders' Equity (Deficit)
for the Years Ended June 30, 1996, 1995 and 1994 . . . . . . . . . . 60
Consolidated Statements of Cash Flows for the
Years Ended June 30, 1996, 1995 and 1994 . . . . . . . . . . . . . . 61
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . 63
Financial Statement Schedule
Schedule II Valuation and Qualifying Accounts and Reserves . . . . . 73
</TABLE>
29
<PAGE> 31
REPORT OF INDEPENDENT AUDITORS
To The Shareholders and Board of Directors
Affiliated Newspapers Investments, Inc.
We have audited the accompanying consolidated balance sheets of Affiliated
Newspapers Investments, Inc. and subsidiaries (the "Company") as of June 30,
1996 and 1995, and the related consolidated statements of operations, changes
in shareholders' deficit, and cash flows for each of the three years in the
period ended June 30, 1996. Our audits also included the financial statement
schedules I and II. These financial statements and schedules are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Affiliated Newspapers Investments, Inc. and subsidiaries at June 30, 1996 and
1995, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended June 30, 1996, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
/s/ ERNST & YOUNG LLP
-------------------------------------
ERNST & YOUNG LLP
Denver, Colorado
September 4, 1996
30
<PAGE> 32
AFFILIATED NEWSPAPERS INVESTMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
------------------------------------
1996 1995
--------- ----------
ASSETS (In thousands)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,615 $ 17,283
Trade accounts receivable, less allowance for doubtful . . . . . . . . . . . .
accounts of $2,426 and $1,931 at June 30, 1996 and 1995,
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,888 21,626
Receivable from affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . 1,403 1,449
Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,201 706
Inventories of newsprint and supplies . . . . . . . . . . . . . . . . . . . . 3,966 5,238
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . . 2,780 3,926
-------- --------
TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . 38,853 50,228
PROPERTY, PLANT AND EQUIPMENT
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,168 4,519
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . 32,687 25,212
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . 87,522 74,086
-------- --------
Total Property, Plant and Equipment . . . . . . . . . . . . . . . . . . . 125,377 103,817
Less accumulated depreciation and amortization . . . . . . . . . . . . . . . . 50,027 46,096
-------- --------
Net Property, Plant and Equipment . . . . . . . . . . . . . . . . . . . . 75,350 57,721
OTHER ASSETS
Investment in Denver Newspapers, Inc. . . . . . . . . . . . . . . . . . . . . 4,826 2,285
Investment in partnership . . . . . . . . . . . . . . . . . . . . . . . . . . 6,369 5,759
Subscriber accounts, less accumulated amortization of
$48,594 and $48,990 at June 30, 1996 and
1995, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,220 43,943
Excess of cost over fair value of net assets acquired, less
accumulated amortization of $13,267 and $19,255 at
June 30, 1996 and 1995, respectively . . . . . . . . . . . . . . . . . . . . 65,715 87,979
Covenants not to compete and other identifiable intangible
assets, less accumulated amortization of $19,673 and
$18,553 at June 30, 1996 and 1995, respectively . . . . . . . . . . . . . 8,461 2,488
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,871 2,523
-------- --------
TOTAL OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131,462 144,977
-------- --------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $245,665 $252,926
======== ========
</TABLE>
See notes to consolidated financial statements.
31
<PAGE> 33
<TABLE>
<CAPTION>
June 30,
----------------------------------
1996 1995
---------- ------------
LIABILITIES AND SHAREHOLDERS' DEFICIT (In thousands, except share data)
<S> <C> <C>
CURRENT LIABILITIES
Trade accounts payable . . . . . . . . . . . . . . . . . $ 5,884 $ 6,882
Accrued employee compensation . . . . . . . . . . . . . . 4,498 4,808
Accrued interest . . . . . . . . . . . . . . . . . . . . 8,114 8,698
Accrued liabilities . . . . . . . . . . . . . . . . . . 5,562 3,166
Unearned income . . . . . . . . . . . . . . . . . . . . 7,048 5,863
Income taxes . . . . . . . . . . . . . . . . . . . . . . 373 408
Current portion of long-term debt and
obligations under capital leases . . . . . . . . . . . 11,190 5,672
--------- ---------
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . . 42,669 35,497
OBLIGATIONS UNDER CAPITAL LEASES . . . . . . . . . . . . . . 7,520 7,391
LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . . . . . 306,990 311,379
OTHER LIABILITIES . . . . . . . . . . . . . . . . . . . . . 7,728 4,596
DEFERRED INCOME TAXES . . . . . . . . . . . . . . . . . . . 12,275 14,648
SHAREHOLDERS' DEFICIT
Common stock, $.01 par value and no par value at June 30,
1996 and 1995, respectively; authorized 4,628,692 shares,
2,314,346 shares issued and outstanding . . . . . . . . 23 23
Additional paid-in capital . . . . . . . . . . . . . . . . 3,611 3,611
Deficit . . . . . . . . . . . . . . . . . . . . . . . . . (135,151) (124,219)
--------- ---------
TOTAL SHAREHOLDERS' DEFICIT . . . . . . . . . . . . . . . (131,517) (120,585)
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT. . . . . . . . $ 245,665 $ 252,926
========= =========
</TABLE>
See notes to consolidated financial statements.
32
<PAGE> 34
AFFILIATED NEWSPAPERS INVESTMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Fiscal Years Ended June 30,
----------------------------------------------------
1996 1995 1994
----------- ----------- -----------
(In thousands, except per share data)
<S> <C> <C> <C>
REVENUES
Advertising . . . . . . . . . . . . . . . . . . . . . . . . . $ 197,954 $ 179,268 $ 159,653
Circulation . . . . . . . . . . . . . . . . . . . . . . . . . 39,930 30,517 25,198
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,546 3,260 1,792
---------- ---------- ----------
TOTAL OPERATING REVENUES . . . . . . . . . . . . . . . . . 245,430 213,045 186,643
COSTS AND EXPENSES
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . 98,469 79,098 68,531
Selling, general and administrative . . . . . . . . . . . . . 100,290 88,889 79,217
Management fees . . . . . . . . . . . . . . . . . . . . . . . 2,008 1,666 1,552
Depreciation and amortization . . . . . . . . . . . . . . . . 21,841 18,709 19,900
Interest expense . . . . . . . . . . . . . . . . . . . . . . . 41,932 38,611 25,982
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,511 2,405 19,903
---------- ---------- ----------
TOTAL COSTS AND EXPENSES . . . . . . . . . . . . . . . . . 269,051 229,378 215,085
Gain on sale of newspaper property . . . . . . . . . . . . . . . 8,291 4,153 6,536
Gain on sale of stock by unconsolidated subsidiary . . . . . . . -- 996 --
Income in unconsolidated subsidiary . . . . . . . . . . . . . . 2,541 5,748 8,646
---------- ---------- ----------
LOSS BEFORE INCOME TAXES,
CUMULATIVE EFFECT OF ACCOUNTING
CHANGE AND EXTRAORDINARY GAIN . . . . . . . . . . . . . . . . (12,789) (5,436) (13,260)
Income tax benefit (expense) . . . . . . . . . . . . . . . . . 1,857 (1) 1,781
---------- ---------- ----------
LOSS BEFORE CUMULATIVE EFFECT
OF ACCOUNTING CHANGE AND
EXTRAORDINARY GAIN . . . . . . . . . . . . . . . . . . . . . . (10,932) (5,437) (11,479)
Cumulative effect of accounting change at
unconsolidated subsidiary . . . . . . . . . . . . . . . . . . -- (2,856) --
Extraordinary gain . . . . . . . . . . . . . . . . . . . . . . . -- -- 730
---------- ---------- ----------
LOSS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,932) (8,293) (10,749)
Accretion of dividends on preferred stock of
subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . -- -- (5,539)
---------- ---------- ----------
LOSS APPLICABLE TO COMMON STOCK . . . . . . . . . . . . . . . . $ (10,932) $ (8,293) $ (16,288)
========== ========== ==========
LOSS PER COMMON SHARE:
Loss before extraordinary gain, and cumulative
effect of accounting change . . . . . . . . . . . . . . . . $ (4.72) $ (2.35) (7.88)
Cumulative effect of accounting change at
unconsolidated subsidiary . . . . . . . . . . . . . . . . -- (1.23) --
Extraordinary gain . . . . . . . . . . . . . . . . . . . . . -- -- .34
---------- ---------- ----------
Loss per common share . . . . . . . . . . . . . . . . . . $ (4.72) $ (3.58) $ (7.54)
========== ========== ==========
Weighted average number of shares outstanding . . . . . . . . . 2,314,346 2,314,346 2,159,792
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
33
<PAGE> 35
AFFILIATED NEWSPAPERS INVESTMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN- SHAREHOLDERS'
STOCK CAPITAL DEFICIT DEFICIT
----- ----------- ------------ ---------------
(In thousands)
<S> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1993 . . . . . . . . . . . . . $ 1 $ -- $ (99,638) $ (99,637)
Loss . . . . . . . . . . . . . . . . . . . . . . -- -- (10,749) (10,749)
Issuance of common stock . . . . . . . . . . . . -- 3,633 -- 3,633
Dividends on preferred stock
of subsidiary . . . . . . . . . . . . . . . . -- -- (5,539) (5,539)
--- ------ --------- ---------
BALANCE AT JUNE 30, 1994 . . . . . . . . . . . . 1 3,633 (115,926) (112,292)
Loss . . . . . . . . . . . . . . . . . . . . . -- -- (8,293) (8,293)
Change in par value of
common stock . . . . . . . . . . . . . . . . 22 (22) -- --
--- ------ --------- ---------
BALANCE AT JUNE 30, 1995 . . . . . . . . . . . . 23 3,611 (124,219) (120,585)
Loss . . . . . . . . . . . . . . . . . . . . . -- -- (10,932) (10,932)
--- ------ --------- ---------
BALANCE AT JUNE 30, 1996 . . . . . . . . . . . . . $23 $3,611 $(135,151) $(131,517)
=== ====== ========= =========
</TABLE>
See notes to consolidated financial statements.
34
<PAGE> 36
AFFILIATED NEWSPAPERS INVESTMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended June 30,
---------------------------------------
1996 1995 1994
--------- --------- --------
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Loss . . . . . . . . . . . . . . . . . . . . . . . . . $(10,932) $ (8,293) $ (10,749)
Adjustments to reconcile loss to net
cash from operating activities:
Depreciation and amortization . . . . . . . . . . . . 21,261 18,020 19,159
Gain on sale of newspaper assets . . . . . . . . . . . (8,622) (4,137) (6,536)
Income from unconsolidated subsidiary, net . . . . . . (2,541) (3,888) (8,646)
Provision for losses on accounts receivable . . . . . . 2,510 2,876 2,006
Amortization of debt discount . . . . . . . . . . . . . 16,214 14,382 2,908
Debt issue cost and repurchase premiums . . . . . . . . 1,092 -- 18,276
Undistributed partnership earnings . . . . . . . . . . (610) (28) 29
Deferred income tax benefit . . . . . . . . . . . . . (2,373) (428) (2,037)
Extraordinary gain . . . . . . . . . . . . . . . . . . -- -- (730)
Change in operating assets and liabilities:
Increase in accounts receivable . . . . . . . . . . (3,403) (2,150) (2,110)
(Increase) decrease in inventories . . . . . . . . 1,799 (2,470) 825
(Increase) decrease in prepaid expenses and
other assets . . . . . . . . . . . . . . . . . . (558) 717 (775)
Increase (decrease) in accounts payable and
accrued liabilities . . . . . . . . . . . . . . . (5,047) 4,880 (4,581)
Increase (decrease) in unearned income . . . . . . 22 1,504 (63)
Decrease in affiliate account balances . . . . . . 363 761 292
Change in other assets and liabilities . . . . . . (517) 1,130 (229)
-------- -------- ---------
NET CASH FLOWS FROM OPERATING ACTIVITIES 8,658 22,876 7,039
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of newspaper property and other assets . . . . . . 50,647 14,864 9,122
Business acquisitions . . . . . . . . . . . . . . . . (35,668) (9,325) (15,582)
Purchase of machinery and equipment . . . . . . . . . . (8,079) (4,284) (3,380)
Investment in unconsolidated subsidiary . . . . . . . . -- -- (6,000)
-------- -------- ---------
NET CASH FLOWS FROM INVESTING ACTIVITIES . . . . . . . . . 6,900 1,255 (15,840)
CASH FLOW FROM FINANCING ACTIVITIES:
Issuance of long-term debt and common stock, net . . . 37,300 -- 217,461
Reduction of long-term debt . . . . . . . . . . . . . . (60,240) (14,007) (138,780)
Reduction of non-operating liabilities . . . . . . . . (4,194) (1,735) (225)
Debt prepayment premiums . . . . . . . . . . . . . . . (1,092) -- (6,116)
Purchase of subsidiary preferred stock and
other obligations . . . . . . . . . . . . . . . . . . -- -- (63,035)
-------- -------- ---------
NET CASH FLOWS FROM FINANCING ACTIVITIES . . . . . . . . . (28,226) (15,742) 9,305
-------- -------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . (12,668) 8,389 504
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR . . . . . . . . . . . . . . . . . . . 17,283 8,894 8,390
-------- -------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR . . . . . . . . . $ 4,615 $ 17,283 $ 8,894
======== ======== =========
</TABLE>
See notes to consolidated financial statements.
35
<PAGE> 37
AFFILIATED NEWSPAPERS INVESTMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS
BASIS OF PRESENTATION
Affiliated Newspapers Investments, Inc. ("ANI") was formed January 25,
1994, pursuant to a restructuring plan whereby ANI became the parent company of
Garden State Newspapers, Inc. ("Garden State") and Denver Newspapers, Inc.
("Denver Newspapers") on May 20, 1994. ANI, Media General, Inc. ("Media
General") and the Class B common stockholders of Garden State and Denver
Newspapers entered into a buyout agreement pursuant to which Garden State's
Class B common stock and Denver Newspapers Class B common stock were
contributed by the current shareholders to ANI in exchange for all of the
common stock of ANI. The Class B common stock in Garden State represented a
60.0% ownership interest in Garden State at the time of such contribution, and
the Class B common stock in Denver Newspapers represented a 60.0% ownership
interest in Denver Newspapers, on a fully diluted basis, at the time of such
contribution (See Note 12). Additionally, pursuant to the buyout agreement,
ANI purchased from Media General all of the outstanding Class A common stock of
Garden State, representing the remaining 40.0% interest in Garden State, and
the Garden State Series A and C preferred stock (as hereinafter defined),
including accrued and unpaid dividends.
These consolidated financial statements include the assets, liabilities
and operations of Garden State, its subsidiaries and ANI, collectively referred
to as "the Company," based on each respective Company's historical cost basis
of accounting, as if Garden State had been a subsidiary of ANI for all periods
presented in the accompanying consolidated financial statements. All
significant intercompany accounts and transactions have been eliminated. ANI
accounts for its investment in Denver Newspapers using the equity method of
accounting (See Note 12).
OPERATING AGENCY
One of the Company's subsidiaries is a participant in a joint operating
agency. The joint operating agency performs the production, sales,
distribution and administrative functions for the subsidiary and another
newspaper publishing company under a joint operating agreement. The Company
includes its prorata portion of the revenues and expenses generated by the
operations of the agency on a line-by-line basis in its statements of
operations (See Note 2).
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
INVENTORIES
Inventories, which largely consist of newsprint, are valued at the lower of
cost or market. Cost is generally determined using the first-in, first-out
method.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are recorded at cost. Buildings and
machinery and equipment are depreciated using the straight-line method over the
expected useful lives of individual assets.
36
<PAGE> 38
AFFILIATED NEWSPAPERS INVESTMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS (CONTINUED)
INTANGIBLE ASSETS
Intangible assets acquired are recorded at their estimated fair values as
of the date of acquisition. The excess of cost over fair value of net assets
acquired is being amortized using the straight-line method over a period of 40
years. Subscriber accounts are amortized using the straight-line method over
periods ranging from 7 to 18 years, with a weighted average remaining life,
based on the dates of acquisitions, of 12 years. Other intangibles recognized
are being amortized using the straight-line method, generally over periods not
exceeding 10 years.
LONG-LIVED ASSETS
The carrying value of long-lived assets is reviewed annually; however, if
at any time the facts or circumstances at any of the Company's individual
newspaper operations indicate impairment of asset values, as a result of
continual declines in performance or as a result of fundamental changes in a
newspaper's market, a determination is made as to whether the carrying value of
the newspaper's long-lived assets exceeds its estimated realizable value. For
purposes of this determination, estimated realizable value is evaluated based
on values placed on comparable newspaper properties, generally based on a
multiple of revenue and operating profit (before depreciation and
amortization).
DEBT DISCOUNT
Debt discount is amortized in a manner which results in a constant rate of
interest over the life of the related debt.
INCOME TAXES
The Company accounts for income taxes utilizing the liability method of
accounting for income taxes. Under the liability method, deferred income taxes
are recognized for the tax consequences of "temporary differences" by applying
enacted statutory tax rates applicable to differences between the financial
statement carrying amount and the tax bases of existing assets and liabilities.
USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles at times requires the use of estimates and
assumptions that affect the reported amount of assets, liabilities, revenues
and expenses. Actual results could differ from these estimates.
37
<PAGE> 39
AFFILIATED NEWSPAPERS INVESTMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2: INVESTMENT IN PARTNERSHIP
Effective March 1990, York Newspapers, Inc. ("YNI"), a subsidiary of the
Company, entered into a general partnership: York Newspaper Company or (the
"Agency") with York Daily Record, Inc. ("YDR"). YNI, YDR and the Agency
entered into a joint operating agreement (the "JOA") under which the Agency is
responsible for all newspaper publishing operations, other than news and
editorial, including production, sales, distribution and administration. The
Agency publishes The York Dispatch, a daily evening paper, The York Daily
Record, a daily morning paper, and the York Sunday News. YNI has a 57.5%
interest in the Agency. YNI's investment in the Agency is recorded in the
accompanying balance sheets under the equity method. The Company's investment
in the Agency, which originally represented the net book value of assets and
liabilities contributed to the Agency, is approximately $6.4 million and $5.8
million at June 30, 1996 and 1995, respectively. The Agency made cash
distributions to YNI in the amount of $4.9 million, $4.8 million and $4.4
million in fiscal years 1996, 1995 and 1994.
The Company is not currently responsible for any liabilities of the Agency,
contingent or otherwise. Management believes that the Agency is well
capitalized and does not anticipate the Agency requiring any capital
contributions from its partners in the near future.
In September, 1996, a subsidiary of the Company signed a call/put agreement
under which YNI can purchase YDR's interest in the agency or YDR can put its
interest in the Agency to YNI. The call and put price is $32.0 million and
$25.0 million, respectively, and is adjusted annually based on changes in the
consumer price index (not to exceed 2-1/2%). The call option may be exercised
on January 1, 2004, and expires on January 1, 2005. The put may be exercised at
any time after the expiration of the call through June 30, 2008.
NOTE 3: ACQUISITIONS AND DISPOSITIONS
ACQUISITIONS
In conjunction with the sale of the Johnstown Tribune Publishing Company
described below, the Company acquired substantially all the assets used in the
publication of The Transcript and The Evening News, daily newspapers published
in North Adams, Massachusetts, and Bridgeton, New Jersey, respectively. In
conjunction with acquiring the assets of The Evening News, the Company also
assumed $0.8 million of payments due on non-competition agreements.
In March, 1996, the Company acquired substantially all the assets used in
the publication of the San Mateo Times, a daily newspaper, and five weekly
newspapers, published in San Mateo County, California, for approximately $15.0
million, including obligations to the seller of approximately $4.3 million and
the assumption of newspaper subscription obligations of approximately $0.7
million. The acquisition was financed with borrowings from the Company's
existing revolving credit facility.
On August 31, 1995, the Company 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, the Company assumed a working capital deficit of
approximately $2.0 million and an underfunded pension plan liability and other
obligations, valued at approximately $8.3 million.
38
<PAGE> 40
AFFILIATED NEWSPAPERS INVESTMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3: ACQUISITIONS AND DISPOSITIONS (CONTINUED)
Assuming the New England Newspapers acquisition had occurred on July 1, 1994,
unaudited pro forma revenues, loss and loss per share for fiscal year 1995
would have been $239.1 million, $7.3 million and $3.17 per share, respectively.
The pro forma financial information is not necessarily indicative of the
operating results that would have occurred had the New England Newspapers
acquisition been consummated as of July 1, 1994, nor are they necessarily
indicative of future operating results.
On November 18, 1994, a subsidiary of the Company purchased substantially
all the assets used in the publication of The Gloucester County Times and
Today's Sunbeam, daily newspapers distributed in Woodbury and Salem, New
Jersey, respectively, from an affiliate of the Company. The assets were
purchased for $9.0 million in cash plus the assumption of a $1.9 million
discounted note payable to certain of ANI's shareholders. The purchase price
was based on the fair market value of the assets acquired, determined by an
independent appraisal of the assets. In addition, in February 1995 another
subsidiary of the Company purchased substantially all the assets used in the
publication of five weekly newspapers located in northern New Jersey for
approximately $0.5 million.
On May 31, 1994, NJN Investments, Inc. ("NJNI"), a subsidiary of the
Company, purchased the assets used in the publication of The Express-Times, a
daily newspaper published in Easton, Pennsylvania, and five weekly publications
distributed in the same area, for $16.7 million. The purchase price includes
an obligation to pay, over a three year period, a discounted value of $1.7
million for a covenant not to compete for a period of five years following the
close of the transaction.
All the acquisitions discussed above were accounted for as purchases.
Accordingly, the results of their operations were included since the date of
acquisition. The assets acquired and liabilities assumed have been recorded at
their estimated fair value at the date of acquisition. These fair values of
the newspapers acquired in fiscal 1996 are based on management's best estimate
and are subject to change in the final allocation of the purchase price. The
excess of cost over fair value of net assets acquired and intangible assets
related to subscriber lists are being amortized on a straight line basis over
40 and 15 years, respectively.
39
<PAGE> 41
AFFILIATED NEWSPAPERS INVESTMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3: ACQUISITIONS AND DISPOSITIONS (CONTINUED)
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 $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),(c)
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
(c) Discontinued after purchase
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 $1.0 million. As a result of the exchange, Garden
State recognized a pre-tax gain of approximately $8.3 million in its fourth
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 ANI, for approximately $15.7 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.
40
<PAGE> 42
AFFILIATED NEWSPAPERS INVESTMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3: ACQUISITIONS AND DISPOSITIONS (CONTINUED)
On August 1, 1994, the Company sold substantially all the assets used in
the publication of the Bristol Press and three weekly newspapers located in
Bristol, Connecticut, and a covenant not to compete in Bristol, Connecticut,
for a total of $14.5 million in cash. The sale resulted in a pre-tax gain of
approximately $4.2 million.
On June 27, 1994, a subsidiary of the Company ceased publication of the
Ypsilanti Press, a daily newspaper located in Ypsilanti, Michigan, and sold the
newspaper's circulation list to a third party for a cash payment of $9.0
million. The sale resulted in a pre-tax gain of approximately $6.5 million,
which is net of write-downs of property, plant and equipment and other assets
to their net realizable value and closure and other expenses associated with
shutting down and selling the assets of the Ypsilanti Press.
NOTE 4: LONG-TERM DEBT
DEBT RESTRUCTURING
In May, 1994, ANI issued 173,576 Units, consisting of 13.25% Senior
Discount Debentures and one share of Class B common stock. The net proceeds of
$84.8 million were used to acquire Garden State's Class A common stock and
Series A and C preferred stock from Media General, in the amount of
approximately $63.0 million, to fund an equity contribution to Garden State in
the amount of $15.5 million and to fund a capital contribution of $6.0 million
to Denver Newspapers.
Concurrently with the ANI debt issuance, the Company's subsidiary, Garden
State, refinanced all of its then outstanding senior secured notes and senior
subordinated notes having a combined principal balance of approximately $176.0
million. The refinancing and related expenses were funded by (i) issuing $100
million of 12% Senior Subordinated Notes, (ii) issuing approximately $81.5
million of Senior Secured Notes, and (iii) borrowings under a bank credit
facility.
As a result of the refinancings and debt prepayments discussed above,
Garden State incurred debt issuance and restructuring costs of approximately
$12.9 million, which includes approximately $6.1 million of debt prepayment
premiums paid to the holders of the senior secured and senior subordinated
notes, who were prepaid in full. The Company has charged all of the debt
issuance cost to other expense in fiscal year 1994.
41
<PAGE> 43
AFFILIATED NEWSPAPERS INVESTMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4: LONG-TERM DEBT (CONTINUED)
LONG-TERM DEBT
Long-term debt consisted of the following at each year-end:
<TABLE>
<CAPTION>
June 30,
-----------------------------
1996 1995
--------- --------
(In thousands)
<S> <C> <C> <C>
Borrowings under bank credit facility . . . . . . . . . . . . . . . . . . . . (I) $ -- $ --
Bank term loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (II) 7,500 --
10.89% Senior Secured Notes, due through
March 31, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (III) 76,880 81,480
NJNI bank credit facility . . . . . . . . . . . . . . . . . . . . . . . . . . (IV) -- 23,000
Various Notes, payable through December, 2002 . . . . . . . . . . . . . . . . (V) 16,361 9,742
12.00% Senior Subordinated Secured Notes, due
July 1, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (VI) 100,000 100,000
Notes payable to certain shareholders of ANI . . . . . . . . . . . . . . . . . (VII) 2,328 2,056
Senior Discounted Debentures, due 2006 . . . . . . . . . . . . . . . . . . . . (VIII) 115,111 100,595
-------- --------
318,180 316,873
Less current portion of long-term debt . . . . . . . . . . . . . . . . . . . . 11,190 5,494
-------- --------
$306,990 $311,379
======== ========
</TABLE>
I. The Garden State bank credit facility, which matures June 30, 1999,
provides for a revolving credit facility of $27.0 million with a $7.0
million sublimit issuance of letters of credit. Borrowings under the
bank credit facility bear interest at rates based upon, at Garden
State's option, LIBOR or prime plus a spread based on Garden State's
leverage. In addition, Garden State pays an annual fee of 1/2 of 1% on
the unused commitment, payable quarterly. The commitment under the
revolver is reduced to $17.0 million on June 30, 1998, with a final
maturity of June 30, 1999.
II. On August 31, 1995, Garden State entered into a $15 million bank term
loan (the "Term Loan") issued to refinance certain debt assumed in the
August 31, 1995, acquisition. The Term Loan bears interest based upon,
at Garden State's option, LIBOR or prime, plus a spread based on Garden
State's leverage. The remaining loan is payable in quarterly
installments of $2.5 million beginning on December 31, 1996, with a
final maturity of June 30, 1997.
III. In May, 1994, Garden State issued 10.89% Senior Secured Notes, due
through March 31, 2004. Interest accruing on the Senior Secured Notes
is payable semi-annually, in arrears, on March 31 and September 30.
Principal payments of $11.6 million are due annually beginning on March
31, 1998 through 2004. Approximately $4.6 million of the proceeds from
the sale of the Johnstown Tribune Publishing Company were used to prepay
a portion of the installment due March 31, 1998.
IV. NJNI entered into a bank credit facility in May, 1994. The bank credit
facility is secured by the stock of NJNI and its subsidiaries and is
non-recourse to the Company. The bank credit agreement, as subsequently
amended, provides for maximum borrowings of $25.9 million, as of June
30, 1996. Borrowings bear interest at rates based upon, at the Company's
option, LIBOR or prime plus a spread based on NJNI's leverage.
42
<PAGE> 44
AFFILIATED NEWSPAPERS INVESTMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4: LONG-TERM DEBT (CONTINUED)
Commitments under the bank credit facility are permanently reduced each
quarter, based on the following annual amounts. Mandatory principal
payments are required to the extent the principal balance is in excess
of the commitment.
<TABLE>
<CAPTION>
Fiscal Year Commitment Reduction
----------- --------------------
<S> <C>
1997 . . . . . . . . . . . . . . . . . . . . . . $ 2,375,000
1998 . . . . . . . . . . . . . . . . . . . . . . 6,000,000
1999 . . . . . . . . . . . . . . . . . . . . . . 17,500,000
</TABLE>
The NJNI bank credit facility contains certain restrictive covenants
which restrict the incurrence of additional debt and capital
expenditures. In addition, the agreement requires NJNI to meet certain
financial ratios based on leverage, debt service coverage, and cash
flow, each as defined in the NJNI bank credit facility.
V. In connection with various acquisitions, Garden State has issued notes
payable to prior owners, including non-compete agreements, and assumed
certain debt obligations. The notes payable and debt obligations bear
interest at rates ranging from zero to 9%. Obligations bearing interest
at below market rates were discounted at rates ranging from 7.8% to
12.0%.
VI. In May, 1994, Garden State issued $100.0 million of 12% Senior
Subordinated Secured Notes due July 1, 2004. Interest accruing on the
Senior Subordinated Secured Notes is payable semi-annually in arrears on
January 1 and July 1. The indebtedness evidenced by the Senior
Subordinated Secured Notes is subordinated and junior in right of
payment to the bank credit facility, holders of the Senior Secured Notes
and notes payable to prior owners. No principal payments are required
until July 1, 2004, at which time the outstanding principal amount is
due and payable. The Senior Subordinated Secured Notes are secured by a
second lien on the stock of GSI, a subsidiary of the Company and holding
company for each of the operating subsidiaries.
VII. In connection with the acquisition of The Gloucester County Times and
Today's Sunbeam, the Company assumed notes payable to certain
shareholders of ANI with a face value of $2.7 million on November 18,
1994. The notes bear interest at prime but have been discounted at
13.5%. The notes are subordinate to all the Company's senior
indebtedness, and the Company is prohibited from paying principal or
interest on the notes until all senior debt has been repaid in full.
VIII. In May, 1994, the Company issued 173,576 units of 13.25% Senior Discount
Debentures Units (the "Debenture Units" or "Debentures"), consisting of
$1,000 principal amount of Senior Discount Debentures and one share of
the Company's Class B common stock. The Debenture Units were issued at a
48.1% discount, resulting in proceeds to the Company of $90.1 million,
excluding the related debt issuance cost. The Debenture Units were
separable 60 days after their issuance and, accordingly, the Class B
common stock was separately valued. The Company allocated $3.6 million
of the Debenture Unit proceeds to the Class B common stock, which has
been included in additional paid-in capital in the accompanying
consolidated balance sheet.
43
<PAGE> 45
AFFILIATED NEWSPAPERS INVESTMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4: LONG-TERM DEBT (CONTINUED)
The Debentures mature on July 1, 2006 and, beginning July 1, 1999, will
begin paying interest currently at a rate of 13.25%, payable
semi-annually in arrears on January 1 and July 1. The original discount
of $87.1 million is being amortized to recognize a yield to maturity of
13.6% per annum. The carrying value represents the principal at maturity
of $173.6 million less the unamortized discount of $58.5 million at June
30, 1996.
Collectively, the Garden State bank credit facility and Senior Secured Notes
contain certain restrictive covenants which relate to the incurrence of
additional debt, capital expenditures and distributions. Additionally, the
agreements require the maintenance of certain financial ratios based on
leverage, debt service coverage, interest coverage and cash flow. Borrowings
under the Garden State bank credit facility and the Senior Secured Notes are
secured by substantially all of Garden State's tangible and intangible assets
and the stock of Garden State and its subsidiaries. The Debentures restrict
ANI's ability to sell certain assets, incur debt and pay dividends.
Maturities of the Company's long-term debt for the five fiscal years ending
June 30, 2001, are as follows (in thousands):
<TABLE>
<S> <C>
1997 . . . . . . . . . $ 11,190
1998 . . . . . . . . . 8,949
1999 . . . . . . . . . 14,105
2000 . . . . . . . . . 14,195
2001 . . . . . . . . . 14,023
Thereafter . . . . . . 255,718
--------
$318,180
========
</TABLE>
Interest paid during the fiscal years ended June 30, 1996, 1995 and 1994 was
approximately $27.2 million, $19.4 million and $26.1 million, respectively.
Letters of credit have been issued in favor of an insurance company providing
workers compensation insurance coverage to the Company totalling approximately
$2.0 million as of June 30, 1996. In addition, the Company issued
approximately $3.1 million of additional letters of credit in support of its
obligations under non-compete agreements entered into in connection with the
August 31, 1995, acquisitions described in Note 3.
The fair market value of the Senior Subordinated Secured Notes and the Senior
Discount Debentures at June 30, 1996, was approximately $103.0 million and
$126.0 million, respectively. The carrying value of the Company's long-term
debt, which has interest rates tied to prime or LIBOR, approximates the fair
value of such financial instruments. Management cannot practicably estimate the
fair value of the remaining long-term debt because of the lack of quoted market
prices for these types of securities and its inability to estimate its fair
value without incurring the excessive costs of obtaining an appraisal. The
carrying amount represents its original issue price net of remaining original
issue discounts, if applicable.
44
<PAGE> 46
AFFILIATED NEWSPAPERS INVESTMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5: LEASES
A subsidiary of the Company leases an operating facility under a capital
lease. Assets under capital leases and related accumulated amortization are
included in property, plant and equipment in the accompanying consolidated
balance sheets as follows:
<TABLE>
<CAPTION>
June 30,
------------------------
1996 1995
------- -------
(In thousands)
<S> <C> <C>
Building . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,934 $ 6,934
Accumulated amortization . . . . . . . . . . . . . . . . . . . . 1,579 1,348
------- -------
Assets under capital leases, net . . . . . . . . . . . . . . $ 5,355 $ 5,586
======= =======
</TABLE>
The Company's subsidiaries also lease certain facilities and equipment under
operating leases, some of which contain renewal and escalation clauses. Rent
expense was approximately $2.1 million, $1.9 million and $2.1 million for the
fiscal years ended June 30, 1996, 1995 and 1994, respectively. Contingent
rentals are not significant. Future minimum payments on capital and operating
leases are as follows:
<TABLE>
<CAPTION>
Capital Operating
FISCAL YEARS ENDING JUNE 30, Leases Leases
---------------------------- ------- -------
(In thousands)
<S> <C> <C>
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 815 $ 2,377
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 821 2,057
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 821 1,731
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 867 1,656
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 931 1,445
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,834 5,556
------- -------
Total minimum lease payments . . . . . . . . . . . . . . . . . 21,089 $14,822
=======
Less amount representing interest . . . . . . . . . . . . . . . . 13,569
-------
Present value of net future lease payments . . . . . . . . . . $ 7,520
=======
</TABLE>
NOTE 6: MANDATORILY REDEEMABLE PREFERRED STOCK AND OTHER OBLIGATIONS
Garden State previously authorized and issued Series A, B and C Cumulative
Preferred Stock. On May 20, 1994, all the issued and outstanding shares of the
Series A and C Preferred Stock, including accrued and unpaid dividends, were
purchased by the Company and immediately cancelled. At the same time the Series
B Preferred Stock was exchanged for the Denver Newspapers 9% Preferred Stock
held by Garden State. After the Preferred Stock purchase and exchange
transaction all shares of the Series A, B and C Preferred Stock were
immediately cancelled. No gain or loss resulted from the transactions.
The Garden State amended and restated shareholder agreement provided the
Class A common stock Shareholder with the right to "put" all, but not less than
all, of its shares any time after August 1, 1994. On May 20, 1994, ANI
purchased the Class A common stock interest of Garden State for approximately
$9.0 million and recognized an extraordinary gain of $0.7 million in the
accompanying consolidated statements of operations.
45
<PAGE> 47
AFFILIATED NEWSPAPERS INVESTMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7: CAPITAL STOCK
ANI has authorized five and issued four classes of common stock
(collectively, the "Common Stock"), each with $.01 par value, as follows:
<TABLE>
<CAPTION>
TITLE OF CLASS AUTHORIZED SHARES ISSUED SHARES
-------------- ----------------- -------------
<S> <C> <C>
Class A Common Stock . . . . . . . . . . . 2,314,346 --
Class B Common Stock . . . . . . . . . . . 173,576 173,576
Class D Common Stock . . . . . . . . . . . 664,450 664,450
Class G Common Stock . . . . . . . . . . . 1,476,090 1,476,090
Class N Common Stock . . . . . . . . . . . 230 230
</TABLE>
On June 27, 1995, the Company changed its Class A, B, D, G and N common stock
from no par value per share to $.01 par value per share. The increase in par
value was recorded as a deduction from additional paid-in capital.
The holders of the common stock will have the right to vote, as a class, for
the election of directors and for all other purposes, and all other rights with
respect to each class of common stock will be identical, except rights with
respect to dividends. Dividends may be declared and paid on (i) the Class B
common stock only to the extent of the assets of the Corporation legally
available; therefore, in an aggregate amount equal to (7.5%) of the sum of: (a)
the amount of the dividends then being declared upon the Class B common stock
and (b) the aggregate amounts simultaneously declared and paid as dividends on
the Class D, G and N common stock; and (ii) the Class D common stock only to
the extent of the earned surplus of ANI attributable to the Available Separate
Consolidated Net Income (as defined in ANI's Amended and Restated Certificate
of Incorporation) of Denver Newspapers; (iii) the Class G common stock to the
extent of the earned surplus of ANI attributable to the Available Separate
Consolidated Net Income of Garden State; and (iv) the Class N common stock to
the extent of the earned surplus of ANI attributable to the Available Separate
Consolidated Net Income of North Jersey Newspapers Investments, Inc. The Board
of Directors may, in its discretion, declare dividends on only one class of
common stock to the exclusion of the other classes except Class B. Under
certain circumstances, on the fifth anniversary but not later than the tenth
anniversary of the May 20, 1994 restructuring, the Class D, G and N common
stock will be automatically converted to Class A common stock, based on the
then appraised values.
NOTE 8: RETIREMENT PLANS
Garden State and a majority of its newspaper properties participate in
retirement/savings plans and, in addition, contribute to several multi-employer
plans on behalf of certain union-represented employee groups. Substantially all
of Garden State's full-time employees are covered by these plans. Total
expense for these plans for the fiscal years ended June 30, 1996, 1995 and
1994, was approximately $1.4 million, $1.6 million, and $1.3 million,
respectively.
Garden State contributes two percent of an employee's salary to the plan for
each employee who works at least 1,000 hours annually and is not covered by a
collective bargaining agreement. Garden State contributes an additional one or
two percent for each participant in the plan who makes a voluntary contribution
of at least two percent of his or her salary. The Company's contribution may
be suspended annually at management's discretion.
46
<PAGE> 48
AFFILIATED NEWSPAPERS INVESTMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8: RETIREMENT PLANS (CONTINUED)
A non-contributory defined benefit pension plan was assumed in connection
with the August 31, 1995, acquisition. On September 23, 1995, Garden State
elected to freeze the plan. Accordingly, all current service cost under the
plan was terminated as of September 23, 1995. As of June 30, 1996, the net
present value of accumulated benefit obligations exceeded the fair market value
of plan assets by $3.9 million.
NOTE 9: INCOME TAXES
The income tax provision (benefit) for each of the three years ended June 30,
1996, 1995 and 1994, consists of the following:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Current:
State . . . . . . . . . . . . . . . . . . . . . . . . . . $ 441 $ 285 $ 256
Federal . . . . . . . . . . . . . . . . . . . . . . . . . 75 144 --
Deferred:
State . . . . . . . . . . . . . . . . . . . . . . . . . . (539) 347 254
Federal . . . . . . . . . . . . . . . . . . . . . . . . . (1,834) (775) (2,291)
------- ----- -------
Net (benefit) provision . . . . . . . . . . . . . . . . . . $(1,857) $ 1 $(1,781)
======= ===== =======
</TABLE>
A reconciliation between the actual income tax expense for financial
statement purposes and income taxes computed by applying the statutory Federal
income tax rate to financial statement earnings before income taxes for the
three years ended June 30, 1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- ------
<S> <C> <C> <C>
Statutory Federal income tax rate . . . . . . . . . . . . . . (35%) (35%) (35%)
Effect of:
Operating losses . . . . . . . . . . . . . . . . . . . 29 39 5
State income tax net of federal benefit . . . . . . . . 3 9 4
Book/tax basis difference associated with . . . . . . .
acquisitions and non-deductible acquisition costs . . (12) (20) (3)
Non-deductible restructuring cost . . . . . . . . . . . -- -- 15
Other, net . . . . . . . . . . . . . . . . . . . . . . -- 7 1
---- ---- ----
Financial statement effective tax rate . . . . . . . . . . . (15%) 0% (13%)
==== ==== ====
</TABLE>
47
<PAGE> 49
AFFILIATED NEWSPAPERS INVESTMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9: INCOME TAXES (CONTINUED)
Components of the long-term deferred tax liabilities as of June 30, 1996 and
1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
(In thousands)
<S> <C> <C>
Deferred tax assets:
Net operating losses and other credits . . . . . . . . . . $ 23,593 $ 26,845
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,421 7,702
-------- --------
31,014 34,547
Valuation allowance . . . . . . . . . . . . . . . . . . . . (20,363) (20,297)
-------- --------
Deferred tax assets . . . . . . . . . . . . . . . . . . . . 10,651 14,250
Deferred tax liabilities:
Fixed assets . . . . . . . . . . . . . . . . . . . . . . . 8,129 10,234
Intangibles . . . . . . . . . . . . . . . . . . . . . . . . 12,990 15,637
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,807 3,027
-------- --------
Deferred tax liabilities . . . . . . . . . . . . . . . . . 22,926 28,898
-------- --------
Net deferred tax liabilities . . . . . . . . . . . . . . . . . $ 12,275 $ 14,648
======== ========
</TABLE>
In fiscal year 1995, the Company generated federal taxable income which was
completely offset by operating loss carryforwards. However, the Company did
incur alternative minimum tax which can be carried forward as a credit to
future taxable income.
At June 30, 1996, the Company has approximately $66.0 million of net
operating loss carryforwards for tax reporting purposes available to offset its
future taxable income which expire in 2001 through 2009.
The Company made state and federal tax payments of approximately $0.6
million, $0.8 million, and $0.1 million during fiscal years 1996, 1995 and
1994, respectively.
NOTE 10: RELATED PARTY TRANSACTIONS
MediaNews Group, Inc., an affiliate of certain of the Company's shareholders,
provides management services to the Company and its subsidiaries. Related
management fees are shown on the accompanying consolidated statements of
operations.
NOTE 11: CONTINGENCIES
The Company's subsidiaries are involved in a number of legal proceedings
which have arisen in the ordinary course of business. In the opinion of
management, the outcome of these legal proceedings will not have a material
adverse impact on the Company's financial position or results of operations.
Effective June 30, 1996, the Company guaranteed up to $5.0 million of The
Denver Post's bank credit facility through the period ended December 1, 1996.
Based on the current financial position of The Denver Post, the Company does
not believe its exposure to loss is likely.
48
<PAGE> 50
AFFILIATED NEWSPAPERS INVESTMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12: 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 in all periods presented. 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 June 30, 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. Media General also owns 100 percent
of Denver Newspapers' preferred stock, which accretes dividends at the rate of
$2.7 million per year.
SUMMARIZED FINANCIAL INFORMATION OF DENVER NEWSPAPERS, INC.
The following is summarized balance sheet information for Denver Newspapers
as of June 30, 1996 and 1995, and summarized statements of operations for the
fiscal years ended June 30, 1996, 1995 and 1994 (in thousands):
SUMMARIZED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
-------------------------------
1996 1995
-------- --------
ASSETS
------
<S> <C> <C>
Current assets. . . . . . . . . . . . . . . . . . . . . . . $ 38,604 $ 35,556
Noncurrent assets . . . . . . . . . . . . . . . . . . . . . 101,305 85,330
-------- --------
Total assets. . . . . . . . . . . . . . . . . . . . . . . $139,909 $120,886
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities . . . . . . . . . . . . . . . . . . . $ 33,270 $ 32,233
Noncurrent liabilities. . . . . . . . . . . . . . . . . . . 41,466 30,416
Mandatorily redeemable preferred stock . . . . . . . . . . 53,175 50,475
Shareholders' equity . . . . . . . . . . . . . . . . . . . 11,998 7,762
-------- --------
Total liabilities and shareholders' equity . . . . . . . $139,909 $120,886
======== ========
</TABLE>
49
<PAGE> 51
AFFILIATED NEWSPAPERS INVESTMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12: INVESTMENT IN UNCONSOLIDATED SUBSIDIARY (CONTINUED)
<TABLE>
<CAPTION>
SUMMARIZED STATEMENTS OF OPERATIONS Years ended June 30
1996 1995 1994
--------------------------------------
<S> <C> <C> <C>
Total Revenues . . . . . . . . . . . . . . . . . . . . . . . . . $ 183,037 $ 162,086 $ 142,067
============ =========== ===========
Cost of Sales . . . . . . . . . . . . . . . . . . . . . . . . . $ 106,368 $ 83,026 $ 68,933
============ =========== ===========
Net income before cumulative effect of
accounting change and extraordinary credit. . . . . . . . . . . $ 6,956 $ 10,990 $ 9,220
============ =========== ===========
Cumulative effect of accounting change . . . . . . . . . . . . . $ -- $ (2,856) $ --
============ =========== ===========
Net income applicable to common stock. . . . . . . . . . . . . . $ 4,236 $ 5,344 $ 6,264
============ =========== ===========
</TABLE>
In December, 1990, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 106 ("SFAS 106"), which requires Denver
Newspapers to recognize, as an expense, the future projected cost of providing
post-retirement health care and life insurance benefits as the employee
provides services instead of when the benefits are paid. Denver Newspapers has
four plans that required the adoption of SFAS 106 on July 1, 1994. Denver
Newspapers' adoption of SFAS 106 in the first quarter of fiscal 1995 resulted
in a $4.4 million (pre-tax) cumulative effect of an accounting change, and a
$2.9 million net of tax charge to fiscal year 1995 earnings. Denver Newspapers
intends to fund this obligation from continuing operations.
NOTE 13: COMBINED SUMMARIZED FINANCIAL INFORMATION OF AFFILIATED NEWSPAPERS
INVESTMENTS, INC. AND DENVER NEWSPAPERS, INC.
The combined summarized financial statements include the accounts of
Affiliated Newspapers Investments, Inc. and Denver Newspapers, Inc. 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 the Company. The Company has a significant economic interest in Denver
Newspapers and may be dependent, in part, upon dividends from Denver Newspapers
to service its debt in the future.
50
<PAGE> 52
AFFILIATED NEWSPAPERS INVESTMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13: COMBINED SUMMARIZED FINANCIAL INFORMATION OF AFFILIATED NEWSPAPERS
INVESTMENTS, INC. AND DENVER NEWSPAPERS, INC. (CONTINUED)
The following is the combined summarized balance sheet information for ANI
and Denver Newspapers as of June 30, 1996 and 1995, and combined summarized
statements of operations for the fiscal years ended June 30, 1996, 1995 and
1994 (in thousands):
SUMMARIZED COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
----------------------------
1996 1995
-------- --------
ASSETS
------
<S> <C> <C>
Current assets . . . . . . . . . . . . . . . . . . . . . . . $ 77,457 $ 85,784
Noncurrent assets . . . . . . . . . . . . . . . . . . . . . 303,291 285,743
--------- ---------
Total assets . . . . . . . . . . . . . . . . . . . . . . . $ 380,748 $ 371,527
========= =========
LIABILITIES AND SHAREHOLDERS' DEFICIT
-------------------------------------
Current liabilities. . . . . . . . . . . . . . . . . . . . . $ 75,939 $ 67,730
Noncurrent liabilities . . . . . . . . . . . . . . . . . . . 375,979 368,430
Minority interest . . . . . . . . . . . . . . . . . . . . . 7,172 5,477
Mandatorily redeemable preferred stock . . . . . . . . . . 53,175 50,475
Shareholders' deficit . . . . . . . . . . . . . . . . . . . (131,517) (120,585)
--------- ---------
Total liabilities and combined shareholders' deficit . . . $ 380,748 $ 371,527
========= =========
</TABLE>
<TABLE>
<CAPTION>
SUMMARIZED COMBINED STATEMENTS OF OPERATIONS Years ended June 30
1996 1995 1994
-----------------------------------
<S> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . $428,467 $375,131 $328,710
======== ======== ========
Cost of Sales . . . . . . . . . . . . . . . . . . . . . . . . . $204,837 $162,124 $137,464
======== ======== ========
Gain on sale of newspaper property . . . . . . . . . . . . . . $ 8,291 $ 4,153 $ 6,536
======== ======== ========
Gain on sale of stock by Denver Newspapers . . . . . . . . . . $ -- $ 996 $ --
======== ======== ========
Minority interest in (income) applicable
to common stock . . . . . . . . . . . . . . . . . . . . . . . $ (1,695) $ (2,458) $ --
======== ======== ========
Loss before cumulative effect of
accounting change. . . . . . . . . . . . . . . . . . . . . . . $(10,932) $ (2,738) $(10,906)
======== ======== ========
Cumulative effect of accounting change . . . . . . . . . . . . $ -- $ (2,856) $ --
======== ======== ========
Loss applicable to common stock . . . . . . . . . . . . . . . . $(10,932) $ (8,293) $(16,288)
======== ======== ========
</TABLE>
NOTE 14: SUBSEQUENT EVENT
Subsequent to June 30, 1996, MediaNEWS Group, Inc. signed a letter of intent
agreeing to acquire the business and assets of five newspapers and the
associated publications, acting directly through the Company or one of its
affiliated companies. The acquisition is subject to normal due diligence and
the negotiation of a definitive purchase agreement. Upon completion of due
diligence and a definitive purchase agreement certain of the acquired
businesses and assets may become assets of the Company.
51
<PAGE> 53
AFFILIATED NEWSPAPERS INVESTMENTS, INC.
Schedule I - Condensed Financial Information of Registrant
(Parent Company Only)
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
---------------------
1996 1995
--------- ---------
(Dollars in thousands,
except share data)
<S> <C> <C>
ASSETS
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 200 $ 200
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1
--------- --------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 201 $ 201
========= =========
LIABILITIES
Accounts payable to affiliate . . . . . . . . . . . . . . . . . . . . $ 120 $ 60
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115,113 100,595
Long-term deferred taxes . . . . . . . . . . . . . . . . . . . . . . . 520 364
Deficit in unconsolidated subsidiaries . . . . . . . . . . . . . . . . 15,965 19,767
--------- ---------
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 131,718 120,786
SHAREHOLDERS' DEFICIT:
Common stock, $.01 and no par value at June 30, 1996 and 1995,
respectively; 4,628,692 shares authorized; 2,314,346 shares issued
and outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . 23 23
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . 3,611 3,611
Deficit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (135,151) (124,219)
--------- ---------
Total shareholders' deficit . . . . . . . . . . . . . . . . . . . . (131,517) (120,585)
--------- ---------
Total Liabilities and Shareholders' deficit . . . . . . . . . . . . . $ 201 $ 201
========= =========
</TABLE>
See notes to consolidated financial statements
52
<PAGE> 54
AFFILIATED NEWSPAPERS INVESTMENTS, INC.
Schedule I - Condensed Financial Information of Registrant
(Parent Company Only)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended June 30,
----------------------------------
1996 1995 1994
--------- ---------- ---------
(In thousands)
<S> <C> <C> <C>
Income (loss) in subsidiaries . . . . . . . . . . . . . . . . $ 3,802 $ 6,796 $ (4,826)
Interest expense. . . . . . . . . . . . . . . . . . . . . . . (14,518) (12,805) (1,359)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . (60) (60) (5,294)
Gain on sale of common stock by unconsolidated subsidiary . . -- 996 --
-------- -------- --------
Loss before income taxes, cumulative effect of
accounting change of unconsolidated subsidiary and
extraordinary credit. . . . . . . . . . . . . . . . . . . . (10,776) (5,073) (11,479)
Income tax expense . . . . . . . . . . . . . . . . . . . . . (156) (364) --
-------- -------- --------
Loss before cumulative effect of accounting change of
unconsolidated subsidiary and extraordinary credit . . . (10,932) (5,437) (11,479)
Cumulative effect of accounting change of unconsolidated
subsidiary . . . . . . . . . . . . . . . . . . . . . . . . -- (2,856) --
Extraordinary credit . . . . . . . . . . . . . . . . . . . . -- -- 730
-------- -------- --------
Loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(10,932) $ (8,293) $(10,749)
======== ======== ========
</TABLE>
See notes to consolidated financial statements
53
<PAGE> 55
AFFILIATED NEWSPAPERS INVESTMENTS, INC.
Schedule I - Condensed Financial Information of Registrant
(Parent Company Only)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended June 30,
----------------------------------
1996 1995 1994
--------- ---------- --------
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(10,932) $(8,293) $(10,749)
(Income) loss from subsidiaries . . . . . . . . . . . . . . (3,802) (4,936) 4,826
Extraordinary gain . . . . . . . . . . . . . . . . . . . . . -- -- (730)
Amortization of debt discount . . . . . . . . . . . . . . 14,518 12,805 1,359
Debt issuance cost . . . . . . . . . . . . . . . . . . . . . -- -- 5,294
Deferred tax expense . . . . . . . . . . . . . . . . . . . . 156 364 --
Change in affiliated account balance . . . . . . . . . . . . 60 60 --
-------- ------- --------
NET CASH FLOWS FROM OPERATING ACTIVITIES . . . . . . . . . -- -- --
CASH FLOW FROM INVESTING ACTIVITIES
Investment in subsidiaries . . . . . . . . . . . . . . . . . -- -- (21,535)
-------- ------- --------
NET CASH FLOW FROM INVESTING ACTIVITIES . . . . . . . . . -- -- (21,535)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of long-term debt and common stock, net . . . . . . -- -- 84,770
Purchase of subsidiary preferred stock and other obligations -- -- (63,035)
-------- ------- --------
NET CASH FLOWS FROM FINANCING ACTIVITIES . . . . . . . . . -- -- 21,735
INCREASE IN CASH . . . . . . . . . . . . . . . . . . . . . . . -- -- 200
CASH AT BEGINNING OF YEAR . . . . . . . . . . . . . . . . . . 200 200 --
-------- ------- --------
CASH AT END OF YEAR . . . . . . . . . . . . . . . . . . . . . $ 200 $ 200 $ 200
======== ======= ========
</TABLE>
See notes to consolidated financial statements
54
<PAGE> 56
AFFILIATED NEWSPAPERS INVESTMENTS, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FISCAL YEARS ENDED JUNE 30, 1996, 1995 AND 1994
(In thousands)
<TABLE>
<CAPTION>
Balance at Additions Balance at
Beginning of charged to Net Acquisitions End of
Period Expense, Net Deductions (Dispositions) Period
------------ ------------ ---------- -------------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1996
Reserves and allowances deducted
from asset accounts:
Allowance for uncollectible
accounts . . . . . . . . . . . . . $1,931 $2,510 $2,474 $459 $2,426
YEAR ENDED JUNE 30, 1995
Reserves and allowances deducted
from asset accounts:
Allowance for uncollectible
accounts . . . . . . . . . . . . . $2,321 $2,876 $3,343 $ 77 $1,931
YEAR ENDED JUNE 30, 1994
Reserves and allowances deducted
from asset accounts:
Allowance for uncollectible
accounts . . . . . . . . . . . . . $1,656 $2,640 $2,530 $555 $2,321
</TABLE>
55
<PAGE> 57
Report of Independent Auditors
The Board of Directors
Denver Newspapers, Inc.
We have audited the accompanying consolidated balance sheets of Denver
Newspapers, Inc. and subsidiaries (the "Company") as of June 30, 1996 and 1995,
and the related consolidated statements of operations, changes in shareholders'
equity (deficit), and cash flows for each of the three years in the period
ended June 30, 1996. Our audits also included the financial statement schedule
II. These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 Denver
Newspapers, Inc. and subsidiaries at June 30, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended June 30, 1996, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
As discussed in Note 7 to the consolidated financial statements, effective July
1, 1994, the Company changed its method of accounting for post-retirement
benefits.
ERNST & YOUNG LLP
Denver, Colorado
August 30, 1996
56
<PAGE> 58
Denver Newspapers, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30,
1996 1995
--------------------------
(In Thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . $ 8,947 $ 7,769
Short-term investments . . . . . . . . . . . . . . . . . . . . . . -- 1,326
Trade accounts receivable, less allowance for doubtful
accounts (1996--$2,055; 1995--$2,239) . . . . . . . . . . . . . . 21,586 16,779
Inventories of newsprint and supplies . . . . . . . . . . . . . . . 4,380 6,194
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . 1,431 1,535
Deferred federal income taxes . . . . . . . . . . . . . . . . . . . 2,260 1,953
-------- --------
TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . . . . . . . 38,604 35,556
PROPERTY, PLANT AND EQUIPMENT
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,935 6,859
Buildings and improvements . . . . . . . . . . . . . . . . . . . . 21,920 16,750
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . 80,745 63,372
Construction-in-progress . . . . . . . . . . . . . . . . . . . . . 135 14,175
-------- --------
109,735 101,156
Accumulated depreciation and amortization . . . . . . . . . . . . . (42,308) (35,110)
-------- --------
Net property, plant and equipment . . . . . . . . . . . . . . . 67,427 66,046
OTHER ASSETS
Subscriber accounts less accumulated amortization
of $19 at June 30, 1996 . . . . . . . . . . . . . . . . . . . . . 1,737 --
Excess of cost over fair value of net assets acquired,
less accumulated amortization of $48 at
June 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . 11,582 --
Net pension asset . . . . . . . . . . . . . . . . . . . . . . . . . 20,096 19,043
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 463 241
-------- --------
TOTAL OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . 33,878 19,284
-------- --------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . $139,909 $120,886
======== ========
</TABLE>
57
<PAGE> 59
<TABLE>
<CAPTION>
June 30,
1996 1995
--------------------------
(In thousands,
except share data)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable . . . . . . . . . . . . . . . . . . . . . . $ 9,728 $ 13,172
Accrued employee compensation . . . . . . . . . . . . . . . . . . 4,166 3,852
Accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . . 6,579 6,109
Due to affiliates. . . . . . . . . . . . . . . . . . . . . . . . . 122 8
Federal income taxes payable . . . . . . . . . . . . . . . . . . . 1,769 611
Unearned income. . . . . . . . . . . . . . . . . . . . . . . . . . 8,401 7,540
Current portion of long-term debt and
capital leases. . . . . . . . . . . . . . . . . . . . . . . . . . 2,505 941
-------- --------
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . . . . . 33,270 32,233
OBLIGATIONS UNDER CAPITAL LEASES . . . . . . . . . . . . . . . . . . 2,993 2,455
LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,000 4,000
OTHER LIABILITIES. . . . . . . . . . . . . . . . . . . . . . . . . . 6,495 6,034
DEFERRED FEDERAL INCOME TAXES. . . . . . . . . . . . . . . . . . . . 17,978 17,927
MANDATORILY REDEEMABLE 9% CUMULATIVE
PREFERRED STOCK, PAR VALUE $25,000 PER
SHARE; 1,200 SHARES AUTHORIZED, ISSUED AND
OUTSTANDING . . . . . . . . . . . . . . . . . . . . . . . . . . . 53,175 50,475
SHAREHOLDERS' EQUITY:
Common stock, par value $1 per share; Class A,
authorized 120 shares; 40 shares issued and
outstanding; Class B, authorized 120 shares;
60 shares issued and outstanding . . . . . . . . . . . . . . . . -- --
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . 7,762 7,762
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . 4,236 --
-------- --------
TOTAL SHAREHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . 11,998 7,762
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY . . . . . . . . . . . . . $139,909 $120,886
======== ========
</TABLE>
See accompanying notes to Consolidated Financial Statements.
58
<PAGE> 60
Denver Newspapers, Inc. and Subsidiaries
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Years ended June 30,
1996 1995 1994
-----------------------------------
(In Thousands)
<S> <C> <C> <C>
REVENUES . . . . . . . . . . . . . . . . . . . . . $183,037 $162,086 $142,067
COSTS AND EXPENSES:
Cost of sales . . . . . . . . . . . . . . . . . . 106,368 83,026 68,933
Selling, general and administrative . . . . . . . 57,190 55,338 50,570
Management fees . . . . . . . . . . . . . . . . . 641 575 501
Depreciation and amortization . . . . . . . . . . 6,577 5,743 5,626
Interest expense. . . . . . . . . . . . . . . . . 805 636 1,406
Other expense (income). . . . . . . . . . . . . . (147) (271) 1,529
-------- -------- --------
TOTAL COSTS AND EXPENSES. . . . . . . . . . . . . . 171,434 145,047 128,565
-------- -------- --------
INCOME BEFORE INCOME TAXES
AND CUMULATIVE EFFECT OF
ACCOUNTING CHANGE. . . . . . . . . . . . . . . . . 11,603 17,039 13,502
INCOME TAX (PROVISION) BENEFIT. . . . . . . . . . . (4,667) (6,139) (4,282)
-------- -------- --------
INCOME BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE . . . . . . . . . . . 6,936 10,900 9,220
CUMULATIVE EFFECTIVE OF
ACCOUNTING CHANGE, NET OF TAXES
OF $1,538. . . . . . . . . . . . . . . . . . . . . -- (2,856) --
-------- -------- --------
NET INCOME. . . . . . . . . . . . . . . . . . . . . 6,936 8,044 9,220
ACCRETION OF DIVIDENDS ON
PREFERRED STOCK. . . . . . . . . . . . . . . . . . (2,700) (2,700) (2,956)
-------- -------- --------
NET INCOME APPLICABLE TO
COMMON STOCK . . . . . . . . . . . . . . . . . . . $ 4,236 $ 5,344 $ 6,264
======== ======== ========
</TABLE>
See accompanying notes to Consolidated Financial Statements.
59
<PAGE> 61
Denver Newspapers, Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders' Equity (Deficit)
<TABLE>
<CAPTION>
Retained Additional Total
Earnings Paid-in Shareholders'
(Deficit) Equity Capital
---------- ---------- -----------
(In Thousands)
<S> <C> <C> <C>
BALANCE AT JUNE 30, 1993 . . . . . . . . . . . . . . . $(13,866) $ - $(13,866)
Net income . . . . . . . . . . . . . . . . . . . . 9,220 -- 9,220
Capital contributions . . . . . . . . . . . . . . . -- 10,000 10,000
Accreted and paid dividends on preferred stock (2,660) (296) (2,956)
-------- ------- --------
BALANCE AT JUNE 30, 1994 . . . . . . . . . . . . . . . (7,306) 9,704 2,398
Net income . . . . . . . . . . . . . . . . . . . . 8,044 -- 8,044
Exercise of common stock warrant . . . . . . . . . . -- 20 20
Accretion of dividends on preferred stock . . . . . (738) (1,962) (2,700)
-------- ------- --------
BALANCE AT JUNE 30, 1995 . . . . . . . . . . . . . . . -- 7,762 7,762
Net income . . . . . . . . . . . . . . . . . . . . 6,936 -- 6,936
Accretion of dividends on preferred stock . . . . . (2,700) -- (2,700)
-------- ------- --------
BALANCE AT JUNE 30, 1996 . . . . . . . . . . . . . . . $ 4,236 $ 7,762 $ 11,998
======== ======= ========
</TABLE>
See accompanying notes to Consolidated Financial Statements.
60
<PAGE> 62
Denver Newspapers, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended June 30,
--------------------------------------
1996 1995 1994
---------- ---------- ---------
(In Thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 6,936 $ 8,044 $ 9,220
Adjustments to reconcile net income to net
cash provided by operating activities:
Cumulative effect of accounting change . . . . . . . . . -- 2,856 --
Depreciation and amortization . . . . . . . . . . . . . 6,577 5,743 5,626
Deferred federal income tax (benefit). . . . . . . . . . (256) (2,489) (263)
Change in operating assets and liabilities:
(Increase) in accounts receivable, net . . . . . . . . (4,220) (2,086) (2,037)
(Increase) decrease in inventories . . . . . . . . . . 2,100 (1,051) (1,017)
(Increase) decrease in income taxes receivable . . . . -- 521 (521)
(Increase) decrease in prepaid expenses and other
current assets . . . . . . . . . . . . . . . . . . . (106) (838) 337
(Increase) in pension assets . . . . . . . . . . . . . (1,053) (916) (1,068)
Increase (decrease) in accounts payable and
current liabilities. . . . . . . . . . . . . . . . . (1,819) 6,361 4,412
Other. . . . . . . . . . . . . . . . . . . . . . . . . 746 1,693 1,444
-------- -------- --------
NET CASH FROM OPERATING ACTIVITIES . . . . . . . . . . . 8,905 17,388 16,133
INVESTING ACTIVITIES:
Purchase of newspaper properties. . . . . . . . . . . . . . (15,716) -- --
Purchases of property, plant and equipment, net
of capital leases . . . . . . . . . . . . . . . . . . (3,745) (14,353) (1,477)
(Increase) decrease in short-term investments . . . . . . . 1,327 -- (1,327)
-------- -------- --------
NET CASH FROM INVESTING ACTIVITIES. . . . . . . . . . . . (18,134) (14,353) (2,804)
FINANCING ACTIVITIES:
Issuance of long-term debt . . . . . . . . . . . . . . . . 17,500 9,000 17,000
Principal payments on long-term debt . . . . . . . . . . . (6,007) (12,000) (27,500)
Principal payments on capital lease obligations . . . . . . (1,086) (729) (4,600)
Repurchase of other obligation and 8% preferred stock . . . -- -- (11,620)
Capital contributions . . . . . . . . . . . . . . . . . . . -- -- 10,000
Net proceeds from exercise of common stock warrant. . . . . -- 20 --
-------- -------- --------
NET CASH FROM FINANCING ACTIVITIES . . . . . . . . . . 10,407 (3,709) (16,720)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . . . 1,178 (674) (3,391)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
YEAR . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,769 8,443 11,834
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR . . . . . . . . . . $ 8,947 $ 7,769 $ 8,443
======== ======== ========
</TABLE>
61
<PAGE> 63
Denver Newspapers, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
Years ended June 30
1996 1995 1994
------------------------------
(In Thousands)
<S> <C> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . $ 830 $ 595 $1,332
====== ====== ======
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . $3,765 $6,174 $4,955
====== ====== ======
</TABLE>
See accompanying notes to Consolidated Financial Statements.
62
<PAGE> 64
DENVER NEWSPAPERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS
Denver Newspapers, Inc. ("Denver Newspapers") and its subsidiaries are in
the business of publishing daily and weekly newspapers.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Denver
Newspapers and its wholly owned subsidiary, The Denver Post Corporation
("DPC"), and DPC's wholly owned subsidiary, Eastern Colorado Publishing Company
("Eastern Colorado") (collectively referred to as "the Company"). Prior to May
20, 1994, the consolidated financial statements also included the accounts of
the Company's wholly owned subsidiary, Denver Media Holdings, Inc. ("DMHI"),
which, prior to the Equity Repurchase transaction described in Note 2, held all
the outstanding common stock of DPC. At June 30, 1996, 60 percent of the
Company's common stock was held by Affiliated Newspapers Investments, Inc. and
40 percent was held by Media General, Inc. All intercompany accounts were
eliminated upon consolidation.
RECLASSIFICATION
Certain prior year amounts have been reclassified in order to conform with
current year presentation.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
SHORT-TERM INVESTMENTS
Short-term investments primarily include U.S. Treasury notes which are
valued at cost, which approximates fair value.
INVENTORIES
Inventories, which largely consist of newsprint, are valued at the lower of
cost or market. Cost for newsprint inventory is determined using the last-in,
first-out ("LIFO") method. If newsprint inventory were valued at first-in,
first-out (FIFO), newsprint inventory at June 30, 1996 and 1995 would have been
$5.2 million and $7.3 million, respectively. The LIFO valuation had the effect
of decreasing cost of sales by $0.2 million for the year ended June 30, 1996
and had the effect of increasing cost of sales by $1.7 million for the year
ended June 30, 1995. Effective July 1, 1996, the Company elected to change its
method of accounting for inventories from LIFO to FIFO.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Buildings and
machinery and equipment are depreciated using the straight-line method over the
expected useful lives of the individual assets.
63
<PAGE> 65
DENVER NEWSPAPERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS (CONTINUED)
INTANGIBLE ASSETS
Intangible assets acquired are recorded at their estimated fair values as
of the date of acquisition. The excess of cost over fair value of net assets
acquired is being amortized using the straight-line method over a period of 40
years. Subscriber accounts are amortized using the straight-line method over 15
years.
IMPAIRMENT OF LONG-LIVED ASSETS
The carrying value of long-lived assets is reviewed annually; however, if
at any time the facts or circumstances at any of the Company's individual
newspaper operations indicate impairment of asset values as a result of
continual declines in performance or as a result of fundamental changes in a
newspaper's market, a determination is made as to whether the carrying value of
the newspaper's long-lived assets exceeds its estimated realizable value. For
purposes of this determination, estimated realizable value is evaluated based
on values placed on comparable newspaper properties, generally based on a
multiple of revenue and operating profit (before depreciation and
amortization).
INCOME TAXES
The Company accounts for income taxes using the asset and liability method
of accounting. Deferred taxes are recognized for the tax consequences of
temporary differences by applying enacted statutory rates to differences
between the financial statement carrying amount and the tax basis of existing
assets and liabilities. The effect on deferred taxes of a change in tax rates
is recognized in income in the period that includes the enactment date.
FINANCIAL INSTRUMENTS
The carrying value of long-term debt at June 30, 1996, approximates the
fair value of such financial instruments. Management cannot practicably
estimate the fair value of its mandatorily redeemable preferred stock because
of the lack of quoted market prices for this type of security and its inability
to estimate its fair value without incurring the excessive costs of obtaining
an appraisal. The carrying amount represents its original issue price plus
accumulated and unpaid dividends.
ADVERTISING COSTS
The Company expenses all advertising cost as incurred. Advertising costs
included in the Consolidated Statements of Operations for the years ended June
30, 1996, 1995 and 1994, were approximately $4.0 million, $4.1 million and $3.4
million, respectively.
USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles at times requires the use of estimates and
assumptions that affect the reported amount of assets, liabilities, revenues
and expenses. Actual results could differ from these estimates.
64
<PAGE> 66
DENVER NEWSPAPERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. EQUITY REPURCHASE
On May 20, 1994, the Company repurchased its 8% Preferred Stock and
warrants to purchase 16.5% of DMHI for a total of $11.6 million. The
repurchase was funded with proceeds from equity contributions from Affiliated
Newspapers Investments, Inc. and Media General, Inc. for a combined total of
$10.0 million and a $1.6 million dividend from DPC. Upon the repurchase, DMHI
was merged into the Company.
3. ACQUISITIONS
On May 1, 1996, DPC purchased from Garden State Newspapers, Inc., an
affiliate of the Company, the common stock of Eastern Colorado, which publishes
the daily and weekly newspapers listed below:
<TABLE>
<CAPTION>
Newspaper Location Daily Publication Weekly Publication
----------------------------- --------------------------- -----------------------------
<S> <C> <C>
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)
Sidney, Nebraska Sidney Telegraph High Plains Shopping Guide(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
The common stock of Eastern Colorado was purchased for approximately $15.7
million, including the assumption of $0.2 million of discounted non-compete
payments and other long-term obligations associated with the newspapers
acquired. The sales price of Eastern Colorado was deemed to be fair based on
an independent appraisal of the transaction.
The acquisition was accounted for as a purchase; accordingly, the
operations of Eastern Colorado have been included since the date of
acquisition. The assets acquired and liabilities assumed have been recorded at
their estimated fair value at the date of acquisition. These fair values are
based on management's best estimate and are subject to change in the final
allocation of the purchase price. The excess of cost over fair value of net
assets acquired and intangible assets related to subscriber lists are being
amortized on a straight line basis over 40 and 15 years, respectively.
65
<PAGE> 67
DENVER NEWSPAPERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT
In April, 1996, the Company restructured its existing revolving bank credit
facility (the "Agreement") to increase the credit commitment to $22.0 million,
which includes a $20.0 million revolving loan commitment and a $2.0 million
letter of credit commitment. At June 30, 1996, approximately $1.6 million of
the letter of credit commitment was used in support of workers' compensation
insurance. The principal borrowings under the Agreement bear interest at a
variable rate based on either the bank's prime rate of interest or a LIBOR
rate. The Company also pays an annual fee of one-fourth of one percent on the
unused commitment, payable quarterly.
The Agreement contains restrictions and limitations with respect to
additional debt, capital expenditures and lease arrangements. In addition, the
Agreement requires the maintenance of certain financial ratios, operating
statistics and cash flow levels. All of DPC's and its subsidiaries' assets and
common stock are pledged as collateral under the Agreement.
Under the terms of the Agreement, the annual commitment under the revolving
loan commitment shall be permanently reduced on each date set forth below by
the corresponding amount shown for such date. Reductions shall be mandatory
and cumulative (in thousands):
<TABLE>
<S> <C>
June 30, 1997 . . . . . . . $6,000
June 30, 1998 . . . . . . . 7,000
June 30, 1999 . . . . . . . 7,000
</TABLE>
On June 30, 1999, all letters of credit drawings (if any) and any
outstanding balance under the revolving loan commitment are due and payable.
5. LEASES
The Company leases certain equipment, vehicles and office space under
various operating and capital leases. Several of these leases contain renewal
and purchase options and escalation clauses. Accumulated amortization on
capital leases is included in accumulated depreciation in the accompanying
consolidated balance sheets.
Property, plant and equipment includes the following amounts for assets
under capital leases:
<TABLE>
<CAPTION>
JUNE 30,
1996 1995
--------------------
(In Thousands)
<S> <C> <C>
Machinery and equipment . . . . . . . . . . . . . . . . $ 6,314 $ 4,938
Accumulated amortization . . . . . . . . . . . . . . . (2,957) (2,000)
------- -------
Machinery and equipment under capital leases, net . . . $ 3,357 $ 2,938
======= =======
</TABLE>
Interest paid under capital leases during the years ended June 30, 1996,
1995 and 1994 was approximately $0.3 million, $0.2 million and $0.6 million,
respectively.
66
<PAGE> 68
DENVER NEWSPAPERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. LEASES (CONTINUED)
Future minimum lease payments, by year and in the aggregate, for
noncancellable operating and capital leases with initial or remaining terms of
one year or more, consisted of the following at June 30, 1996:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------- ----------
(In Thousands)
<S> <C> <C>
1997 . . . . . . . . . . . . . . . . . . . . . . . . $1,220 $ 2,008
1998 . . . . . . . . . . . . . . . . . . . . . . . . 1,121 1,833
1999 . . . . . . . . . . . . . . . . . . . . . . . . 1,244 1,615
2000 . . . . . . . . . . . . . . . . . . . . . . . . 775 2,060
2001 . . . . . . . . . . . . . . . . . . . . . . . . 254 1,918
Thereafter . . . . . . . . . . . . . . . . . . . . . 18 5,392
------ -------
Total minimum obligations . . . . . . . . . . . . . 4,632 $14,826
=======
Less amount representing interest . . . . . . . . . (721)
------
Present value of net minimum obligations . . . . . . 3,911
Less current portion . . . . . . . . . . . . . . . . 918
------
Long-term obligations under capital lease. . . . . . $2,993
======
</TABLE>
Rental expense was approximately $2.6 million, $2.5 million and $2.3
million for the years ended June 30, 1996, 1995, and 1994, respectively.
6. EMPLOYEE PENSION PLANS
The Company sponsors two noncontributory defined benefit pension plans
which cover substantially all employees other than certain union employees
covered by multi-employer pension plans under collective bargaining agreements.
The plan covering salaried and management employees provides benefits based on
employees' years of service and compensation during the years immediately
preceding retirement. The plan covering certain union employees provides
benefits of stated amounts based on length of service. The Company's funding
policy for both plans is to make the minimum annual contributions required by
the Employee Retirement Income Security Act of 1974.
The components of net periodic pension income for the Company's two
qualified defined benefit plans for the years ended June 30, 1996, 1995 and
1994 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Service cost-benefits earned during the period . . . . . . . . . . . $ 1,282 $ 1,004 $ 1,202
Interest cost on projected benefit obligations . . . . . . . . . . . 2,240 2,187 2,075
Actual return on plan assets . . . . . . . . . . . . . . . . . . . . (6,470) (6,697) (667)
Net amortization and deferral . . . . . . . . . . . . . . . . . . . . 1,895 2,590 (3,678)
------- ------- -------
Net pension income . . . . . . . . . . . . . . . . . . . . . . . . . $(1,053) $ (916) $(1,068)
======= ======= =======
</TABLE>
67
<PAGE> 69
DENVER NEWSPAPERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. EMPLOYEE PENSION PLANS (CONTINUED)
The following table sets forth the funding status and amounts recognized in
the Company's consolidated balance sheets at June 30, 1996, 1995 and 1994
related to the Company's defined benefit plans:
<TABLE>
<CAPTION>
1996 1995 1994
-------------------------------------
(In Thousands)
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligations, including
vested benefits of $29,542, $28,060 and
$24,517 for 1996, 1995 and 1994,
respectively . . . . . . . . . . . . . . . . $29,904 $28,403 $25,042
======= ======= =======
Plan assets at fair value comprised of common
stock, bond and U.S. Government obligation
funds . . . . . . . . . . . . . . . . . . . $52,940 $48,393 $43,741
Projected benefit obligations . . . . . . . . . 32,460 30,861 26,779
------- ------- -------
Excess of plan assets over projected benefit
obligations. . . . . . . . . . . . . . . . . . 20,480 17,532 16,962
Unrecognized gain from past experience
different from that assumed . . . . . . . . . (2,134) (404) (879)
Unamortized balance of prior service
liability. . . . . . . . . . . . . . . . . . . 1,750 1,915 2,045
------- ------- -------
Net pension asset recognized in the
consolidated balance sheets . . . . . . . . . $20,096 $19,043 $18,128
======= ======= =======
</TABLE>
The weighted-average discount rate used in determining the actuarial
present value of the projected benefit obligations was 7.5% at June 30, 1996,
8.5% at June 30, 1995, and 7.25% at June 30, 1994. The rate of increase in
future compensation levels used in determining the actuarial present value of
the projected benefit obligations was 6.25% and the expected long-term rate of
return on plan assets was 10.0% for all periods.
Certain union employees are covered under multi-employer defined benefit
plans administered by the unions. The amounts contributed and charged to
pension cost for these plans totaled approximately $0.7 million, $1.2 million
and $0.6 million for the years ended June 30, 1996, 1995 and 1994,
respectively.
7. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Effective July 1, 1994 the Company adopted the provisions of Statement of
Financial Accounting Standards No. 106 ("SFAS 106"), "Employers Accounting for
Postretirement Benefits Other Than Pensions." SFAS 106 requires that the
estimated cost of providing such postretirement benefits be accrued during the
employee's active service period and that prior service cost be recognized
immediately or amortized over a period not to exceed 20 years. The Company has
elected to recognize the accumulated prior service cost for postretirement
benefits immediately.
Upon adoption of SFAS 106, the Company recorded the discounted value of
expected future benefits attributable to employees' service prior to July 1,
1994 as a cumulative effect of an accounting change. The accounting change
resulted in a one-time $2.9 million non-cash charge to earnings which was net
of a $1.5 million deferred tax benefit. Prior to the adoption of SFAS 106, the
Company recognized the cost of these postretirement benefits as paid.
68
<PAGE> 70
DENVER NEWSPAPERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (CONTINUED)
The Company's postretirement health care and life insurance plans (the
"Plans") provide certain of the Company's union employees and their spouses
with varying amounts of subsidized medical coverage upon retirement and, in
some instances, continued life insurance benefits until age 65, if the employee
retires prior to age 65.
The unfunded accumulated postretirement benefits obligation as of June 30,
1996 and July 1, 1995 consisted of the following (in thousands):
<TABLE>
<CAPTION>
June 30, July 1,
1996 1995
-------- -------
<S> <C> <C>
Retirees . . . . . . . . . . . . . . . . $2,412 $2,645
Fully eligible active plan participants 272 243
Other active plan participants . . . . . 2,956 2,553
------ ------
Accumulated postretirement benefit
obligation . . . . . . . . . . . . . . 5,640 5,441
Unrecognized net loss. . . . . . . . . . (746) (886)
------ ------
Accrued postretirement benefit obligation $4,894 $4,555
====== ======
</TABLE>
Net periodic postretirement benefit cost for the years ended June 30, 1996
and 1995, included the following components (in thousands):
<TABLE>
<CAPTION>
June 30, July 1,
1996 1995
-------- -------
<S> <C> <C>
Service Cost . . . . . . . . . . . . . . $123 $ 96
Interest cost on accumulated post-
retirement benefit obligations . . . . 396 370
Net amortization and deferral . . . . . 46 --
---- ----
Net postretirement benefit expense . . . $565 $466
==== ====
</TABLE>
In determining the Accumulated Postretirement Benefit Obligation ("APBO"),
the weighted average discount rate of 7.5% was assumed at July 1, 1996 and
1995. The June 30, 1996 and 1995, assumed health care cost trend rate was 8.0%
declining to 5.0% in fiscal year 2001 and thereafter. A 1.0% increase in the
assumed health care cost trend rate would increase the accumulated
postretirement benefit obligation by approximately $600,000 and the service
cost and interest cost components of the net postretirement benefit expense for
fiscal year 1996 by an immaterial amount. The Company's policy is to fund the
cost of providing postretirement health care and life insurance benefits when
they are entitled to be received.
69
<PAGE> 71
DENVER NEWSPAPERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (CONTINUED)
The Company has also accrued $1.3 million for early retirement incentives
which consist of supplemental retirement benefits for certain employees who
retire between the age of sixty-two and sixty-five. These supplemental
retirement benefits consist of cash payments to supplement the retiree's
pension.
8. INCOME TAXES
The income tax provision (benefit) for each of the three years ended June
30, 1996, 1995 and 1994 consists of the following (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
---------------------------------------
<S> <C> <C> <C>
Current:
Federal . . . . . . . . . . . . . . . . . . . . $4,922 $7,090 $4,544
Deferred:
State . . . . . . . . . . . . . . . . . . . . 488 -- --
Federal . . . . . . . . . . . . . . . . . . . . (743) (951) (262)
------ ------ ------
$4,667 $6,139 $4,282
====== ====== ======
</TABLE>
A reconciliation between the actual income tax expense for financial
statement purposes and income taxes computed by applying the statutory federal
income tax rate to financial statement earnings before taxes is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------------------
<S> <C> <C> <C>
Statutory federal income tax rate . . . . . . . . 35% 35% 35%
Effect of:
State income taxes, net of federal benefit . . . 3 -- --
Operating losses, net of NOLs utilized . . . . .
and credit carryforwards . . . . . . . . . . . . -- -- (6)
Other, net . . . . . . . . . . . . . . . . . . . 2 1 2
------ ------ -----
40% 36% 31%
====== ====== =====
</TABLE>
70
<PAGE> 72
DENVER NEWSPAPERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES (CONTINUED)
Temporary differences which give rise to significant components of the
Company's deferred tax liabilities and assets at June 30, 1996 and 1995, are as
follows:
<TABLE>
<CAPTION>
June 30
1996 1995
-------- --------
(In Thousands)
<S> <C> <C>
Deferred tax assets:
Allowance for bad debt . . . . . . . . . . . . . $ 745 $ 784
Postretirement and other pension . . . . . . 2,384 1,594
Other . . . . . . . . . . . . . . . . . . . . . 2,643 2,134
-------- --------
Total deferred tax assets . . . . . . . . . . . . . 5,772 4,512
Deferred tax liabilities:
Capital lease and fixed assets . . . . . . . . . (13,674) (13,593)
Pension Asset . . . . . . . . . . . . . . . . . (7,687) (6,665)
Other . . . . . . . . . . . . . . . . . . . . . (129) (228)
-------- --------
Deferred tax liabilities, net . . . . . . . . . . (15,718) (15,974)
Current deferred tax assets, net . . . . . . . . . 2,260 1,953
-------- --------
Long-term deferred tax liabilities . . . . . . . . $(17,978) $(17,927)
======== ========
</TABLE>
At June 30, 1996, the Company had remaining state operating loss
carryforwards of approximately $4.0 million for income tax purposes expiring in
2004 through 2007. The Company also has state enterprise zone credits of $1.0
million expiring in 1997 through 2002. The Company has no federal operating
loss carryforwards.
9. MANDATORILY REDEEMABLE PREFERRED STOCK
In conjunction with a debt restructuring in fiscal 1993, the Company
authorized and issued 38,355 shares of 8% cumulative preferred stock with a
stated value of $3.8 million (the "8% Preferred Stock"). On May 20, 1994, the
Company repurchased the 8% Preferred Stock, as described in Note 2, for $4.3
million, which included accumulated and unpaid dividends of approximately $0.5
million.
The Company previously authorized and issued 1,200 shares of 9% non-voting
cumulative preferred stock with a stated value of $30.0 million (the "9%
Preferred Stock"), which is currently held by Media General, Inc. The holder
of the 9% Preferred Stock is entitled to receive yearly dividends at the rate
of 9% or $2,700,000 per year. The carrying value of the 9% Preferred Stock
includes the accretion of accumulated and unpaid dividends as of June 30, 1996,
in the amount of $23.2 million.
71
<PAGE> 73
DENVER NEWSPAPERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. MANDATORILY REDEEMABLE PREFERRED STOCK (CONTINUED)
Under the terms of the Company's bank credit facility, no dividend payments
may be made on the 9% Preferred Stock until January 1, 1997. However,
beginning January 1, 1997, the Company can pay an annual preferred stock
dividend of $2.7 million provided the Company has complied with certain
financial conditions as defined in the Company's bank credit facility. The
Company's 9% Preferred Stock is mandatorily redeemable on the earlier of (a)
June 30, 1999, (b) the date on which such redemption is permissible under DPC's
credit agreement, (c) the date on which the Company ceases to own directly at
least 51% of all the outstanding capital stock of DPC, or (d) the date on which
the Company, directly or indirectly, causes or permits DPC to dispose of
substantially all of its assets.
10. COMMON STOCK
On September 28, 1994, Media General exercised its DNI warrant and
acquired a 40 percent interest in the Company (on a fully diluted basis) for
$0.04 million. As a result, Media General received 40 newly issued shares of
Class A common stock of the Company with a par value of $1.00 per share. Costs
associated with the warrant exercise have been netted against the related
proceeds.
11. RELATED PARTY TRANSACTIONS
MediaNews Group, Inc., an affiliate of the Company, provides management
services to the Company for a fee. The cost of management services provided has
been included as management fees in the Consolidated Statements of Operations.
12. SUBSEQUENT EVENT
On July 31, 1996, Eastern Colorado sold substantially all the assets used
in the publication of the Sidney Telegraph, a daily newspaper located in
Sidney, Nebraska, for approximately $1.9 million, which approximated the value
allocated to the assets of the Sidney Telegraph as of the April 30, 1996,
acquisition previously discussed.
72
<PAGE> 74
Denver Newspapers, Inc.
Schedule II--Valuation and Qualifying Accounts and Reserves
Fiscal Years ended June 30, 1996, 1995 and 1994
(In thousands)
<TABLE>
<CAPTION>
Balance at Additions Balance at
Beginning of charged to Net End of
Period Expense, Net Deductions Acquisitions Period
------------ ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1996
Reserves and allowances deducted
from asset accounts:
Allowance for uncollectible
accounts. . . . . . . . . . . . . $ 2,239 $ 3,029 $ (3,243) $ 30 $ 2,055
======== ======== ======== ======== ========
YEAR ENDED JUNE 30, 1995
Reserves and allowances deducted
from asset accounts:
Allowance for uncollectible
accounts. . . . . . . . . . . . . $ 1,998 $ 2,401 $ (2,160) $ -- $ 2,239
======== ======== ======== ======== ========
YEAR ENDED JUNE 30, 1994
Reserves and allowances deducted
from asset accounts:
Allowance for uncollectible
accounts. . . . . . . . . . . . . $ 1,971 $ 1,864 $ (1,837) $ -- $ 1,998
======== ======== ======== ======== ========
</TABLE>
73
<PAGE> 75
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AFFILIATED NEWSPAPERS INVESTMENTS, INC.
Date: September 18, 1996 By: /S/ Joseph J. Lodovic, IV
------------------------------------
Joseph J. Lodovic, IV
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons on behalf of the registrant in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
------------------------------------ ------------------------------------------- ------------------------
<S> <C> <C>
/S/ William Dean Singleton Vice Chairman, President, September 18, 1996
------------------------------ Chief Executive Officer and Director (Chief
(William Dean Singleton) Executive Officer)
/S/ Joseph J. Lodovic, IV Executive Vice President and Chief Financial September 18, 1996
-------------------------------- Officer (Chief Financial Officer)
(Joseph J. Lodovic, IV)
/S/ Richard B. Scudder Director September 18, 1996
--------------------------------
(Richard B. Scudder)
/S/ Peter M. Miller Director September 18, 1996
----------------------------------
(Peter M. Miller)
/S/Patricia Robinson Director September 18, 1996
---------------------------------
(Patricia Robinson)
/S/Ronald A. Mayo Vice President Finance and September 18, 1996
------------------------------- Controller (Principal Accounting Officer)
(Ronald A. Mayo)
</TABLE>
74
<PAGE> 76
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- -------- -----------
<S> <C>
3.1* -Second Amended and Restated Certificate of Incorporation
3.2* -Form of Fourth Amended and Restated Certificate of Incorporation.
3.3* -Restated Bylaws.
3.4* -Form of Restated Bylaws.
3.5* -Form of Certificate of Incorporation of Garden State Investments, Inc.
4.1* -Form of Indenture.
4.2* -Form of Second Pledge Agreement to be dated as of the Closing Date between Garden State
Investments, Inc., Bank of New York, Wilmington Trust Company and William J. Wade.
10.1* -Form of New Senior Note Agreement between Garden State Newspapers, Inc. and certain of its
subsidiaries, as obligors, and John Hancock Mutual Life Insurance Company, Lender.
10.2* -Form of New Garden State Credit Facility Agreement.
10.3* -Form of New NJNI Credit Facility Agreement.
10.4* -Management Agreement dated July 1, 1988 between MediaNews Group, Inc. and the Registrant.
10.5* -Employment Agreement dated April 26, 1985 between Garden State Newspapers, Inc. and
William Dean Singleton, with April 30, 1986, October 1, 1988, and February 10, 1993 Amendments.
10.6* -Amended and Restated Partnership Agreement of North Jersey Newspapers Company dated
December 31, 1991 between North Jersey Newspapers, Inc., and Affiliated Newspapers Investment
Company.
10.7* -Joint Operating Agreement dated January 13, 1989 among York Daily Record, Inc., York
Newspapers, Inc., and The York Newspapers Company.
10.8* -Form of Tax Sharing Agreement by and between Garden State Newspapers, Inc. and Affiliated
Newspapers Investments, Inc.
10.9* -Form of Used Equipment Trade Agreement between Alameda Newspaper Group and Man Roland,
Inc.
10.10* -Form of Used Equipment Trade Agreement between North Jersey Newspapers Company and Man
Roland, Inc.
10.11* -Form of Agreement between Garden State Newspapers, Inc. and North Jersey Newspapers Company
for an option to purchase three Colormatic Presses.
10.12* -Consulting Agreement dated November 16, 1993 between J. Allan Meath and Garden State
Newspapers, Inc.
10.13* -Letter Agreement between Media General, Garden State Newspapers, Inc. and Affiliated Newspapers
Investment Company, dated as of March 16, 1994.
10.14* -Purchase Agreement dated March 25, 1994 between Thomson Newspapers and Affiliated Newspapers
Investments, Inc.
10.15* -Amendment dated May 3, 1994 to Letter Agreement between Media General, Garden State
Newspapers, Inc. and Affiliated Newspapers Investment Company dated as of March 16, 1994.
10.16* -Form of Amendment and Restatement of Trust Agreement among Garden State Newspapers, Inc.,
Alameda Newspapers, Inc., Graham Newspapers, Inc., The Johnstown Tribune Publishing
Company, Mid-States Newspapers, Inc., and York Newspapers, Inc.; John Hancock Mutual Life
Insurance Company, John Hancock Variable Life Insurance Company and Mellon Bank N.A., as
Trustee of AT&T Master Pension Trust; Bankers Trust Company, a New York banking corporation;
Wilmington Trust Company, a Delaware banking corporation; and William J. Wade.
10.17* -Form of Amended and Restated Pledge Agreement among Garden State Newspapers, Inc., its
subsidiaries, John Hancock Mutual Life Insurance Company, John Hancock Variable Life Insurance
Company and Mellon Bank, N.A., as Trustee of AT&T Master Pension Trust, Bankers Trust
Company, a New York banking corporation, Wilmington Trust Company, a Delaware banking
corporation, and William J. Wade.
</TABLE>
75
<PAGE> 77
INDEX TO EXHIBITS (CONTINUED)
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ---------- -----------
<S> <C>
10.18* -Form of Asset Purchase Agreement dated July 15, 1994 among Mid-State Newspapers, Inc., as Seller;
Garden State Newspapers, Inc., as guarantor; Bristol Acquisition Corp., as Purchaser.
10.19* -Consulting Agreement dated November 16, 1993 between J. Allan Meath and Garden State
Newspapers, Inc.
10.20* -Letter Agreement dated November 9, 1993 by and among The Times Mirror Company, Affiliated
Newspapers Investment Company, Denver Newspapers, Inc., Denver Media Holdings, Inc., NJN
Holdings, L.P., The Singleton Family Irrevocable Trust, The Scudder Family Voting Trust for Denver
Newspapers, Inc.; The Singleton Family Revocable Trust, The Scudder Family Voting Trust for
Affiliated Newspapers Investment Company, Media General, Inc., Garden State Newspapers, Inc.,
North Jersey Newspapers, Inc., and Montclair Newspapers, Inc., as amended February 3, 1994.
10.21* -Management Agreement dated July 1, 1988 between MediaNews Group, Inc. and Garden State
Newspapers, Inc.
10.22* -Management Agreement dated July 1, 1988 between MediaNews Group, Inc. and Denver
Newspapers, Inc.
10.23* -Letter Agreement dated March 17, 1994 between Norwest Bank Colorado, N.A. and the Denver Post
Corporation.
10.24* -Purchase Agreement dated March 25, 1994 between Thomson Newspapers and Affiliated Newspapers
Investments, Inc.
10.25* -Amendment dated May 3, 1994 to Letter Agreement between Media General, Garden State
Newspapers, Inc. and Affiliated Newspapers Investment Company dated March 16, 1994.
10.26* -Amendment dated April 29, 1994 between The Times Mirror Company and Denver Newspapers, Inc.
to Letter Agreement dated November 9, 1993 by and among The Times Mirror Company, Affiliated
Newspapers Investment Company, Denver Newspapers, Inc., Denver Media Holdings, Inc., NJN
Holdings, L.P., The Singleton Family Irrevocable Trust, The Scudder Family Voting Trust for Denver
Newspapers, Inc., The Singleton Family Revocable Trust, The Scudder Family Voting Trust for
Affiliated Newspapers Investment Company, Media General, Inc., Garden State Newspapers, Inc.,
North Jersey Newspapers, Inc., and Montclair Newspapers, Inc., as amended February 3, 1994.
10.27* -Asset purchase agreement and assumed debt agreements related to The Gloucester County Times
and Today's Sunbeam asset acquisition.
10.28* -Denver Newspapers, Inc. warrant exercise subscription notice dated September 27, 1994.
10.29** -Asset Purchase Agreement dated July 31, 1995, by and among EPC Holding, Inc., The Eagle
Publishing Company, Reformer Publishing Corporation, Middletown Press Publishing Corporation,
and Eagle Street Realty Trust, as Sellers, and New England Newspapers, Inc., Brattleboro
Publishing Company, Connecticut Newspapers, Inc. and Pittsfield Publications, Inc., as Purchasers.
10.30** -Asset Purchase Agreement dated July 31, 1995, by and among Banner Publishing Corporation and
Eagle Street Realty Trust, as Sellers, and New England Newspapers, Inc. and North Eastern
Publishing Company, as Purchasers.
10.31** -Asset Purchase Agreement dated August 24, 1995, by and among Connecticut Newspapers, Inc.,
as Seller, and Middletown Acquisition Corp., as Purchaser.
10.32** -$42.0 million Credit Agreement dated August 31, 1995, among Garden State Newspapers, Inc.,
The Bank of New York and Bankers Trust Company, as Agents.
10.33** -Agreement dated April 29, 1996, by and among American Publishing (1991) Inc., Berkshire
Newspapers, Inc., Evening News Company, Sidney Publication Company, Sterling Publishing
Company and Garden State Investments, Inc.
</TABLE>
76
<PAGE> 78
INDEX TO EXHIBITS (CONTINUED)
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ---------- -----------
<S> <C>
10.34** -Agreement dated April 30, 1996, by and among Garden State Investments, Inc. and The Denver
Post Corporation for the sale/purchase of the capital stock of Eastern Colorado Publishing
Company.
12.1* -Computation of Ratio Earnings to Fixed Charges.
27 -Financial Data Schedule
</TABLE>
- -----------------
* Previously filed as exhibits to registration statement of Form S-1
(No. 33-75158), amendments thereto and Garden State Form 8-K.
** Previously filed.
77
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 4,615
<SECURITIES> 0
<RECEIVABLES> 27,492
<ALLOWANCES> (2,426)
<INVENTORY> 3,966
<CURRENT-ASSETS> 38,853
<PP&E> 125,377
<DEPRECIATION> (50,027)
<TOTAL-ASSETS> 245,665
<CURRENT-LIABILITIES> 42,669
<BONDS> 306,990
0
0
<COMMON> 23
<OTHER-SE> (131,540)
<TOTAL-LIABILITY-AND-EQUITY> 245,665
<SALES> 245,430
<TOTAL-REVENUES> 245,430
<CGS> 98,469
<TOTAL-COSTS> 222,608
<OTHER-EXPENSES> 4,511
<LOSS-PROVISION> 2,510
<INTEREST-EXPENSE> 41,932
<INCOME-PRETAX> (12,789)
<INCOME-TAX> (1,857)
<INCOME-CONTINUING> (10,932)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,932)
<EPS-PRIMARY> (4.72)
<EPS-DILUTED> (4.72)
</TABLE>
