<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------ ------
Commission File Number
--------
AFFILIATED NEWSPAPERS INVESTMENTS, INC.
(Exact name of registrant as specified in its charter)
Delaware 76-0425553
- ---------------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1560 Broadway
Denver, Colorado 80202
- ---------------------------------------- -------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 837-0886
Not Applicable
-----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether a registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock. As of May 12, 1997:
Class B Common Stock: 173,576
Class D Common Stock: 664,450
Class G Common Stock: 1,476,090
Class N Common Stock: 230
<PAGE> 2
INDEX TO AFFILIATED NEWSPAPERS INVESTMENTS, INC.
REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
Item No. Page
- -------- ----
<S> <C> <C>
PART I - FINANCIAL INFORMATION
------------------------------
1 Financial Statements 3
2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 3
PART II - OTHER INFORMATION
---------------------------
1 Legal Proceedings 3
2 Changes in Securities 3
3 Defaults Upon Senior Securities 3
4 Submissions of Matters to a Vote of Security Holders 3
5 Other Information 4
6 Exhibits and Reports on Form 8-K 4
</TABLE>
2
<PAGE> 3
PART I
- -------------------------------------------------------------------------------
ITEM 1. FINANCIAL STATEMENTS
The information required by this item is filed as part of this Form 10-Q. See
Index to Financial Information at page 5 of this Form 10-Q.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this item is filed as part of this Form 10-Q. See
Index to Financial Information at page 5 of this Form 10-Q.
PART II
- -------------------------------------------------------------------------------
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in litigation arising in the ordinary course of
business, none of which is expected to result in material loss.
ITEM 2. CHANGES IN SECURITIES
There were no changes in the rights of security holders during the quarter for
which this report is filed.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
There were no defaults upon senior securities during the quarter for which this
report is filed.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
quarter for which this report is filed.
3
<PAGE> 4
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
27 - Financial Data Schedule.
Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended March 31, 1997.
SIGNATURES
- -------------------------------------------------------------------------------
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AFFILIATED NEWSPAPERS INVESTMENTS, INC.
Dated: May 12, 1997 By: /s/ Joseph J. Lodovic, IV
-------------- -----------------------------------
Joseph J. Lodovic, IV
Executive Vice President,
Chief Financial Officer,
and Duly Authorized Officer
of Registrant
4
<PAGE> 5
AFFILIATED NEWSPAPERS INVESTMENTS, INC. AND SUBSIDIARIES
Index to Financial Information
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . 6
Unaudited Condensed Consolidated Statements of Operations . . . . . . . . . . . . 8
Unaudited Condensed Consolidated Statements of Cash Flows . . . . . . . . . . . . 9
Notes to Unaudited Condensed Consolidated Financial Statements . . . . . . . . . . 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
5
<PAGE> 6
AFFILIATED NEWSPAPERS INVESTMENTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
March 31, June 30,
ASSETS 1997 1996
------------ ------------
(In thousands)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents ....................................... $ 3,685 $ 4,615
Accounts receivable, less allowance for doubtful accounts
of $3,796 and $2,426 at March 31, 1997 and
June 30, 1996, respectively ................................... 33,804 27,492
Inventories of newsprint and supplies ........................... 7,095 3,966
Prepaid expenses and other assets ............................... 4,107 2,780
------------ ------------
Total Current Assets ......................................... 48,691 38,853
PROPERTY, PLANT AND EQUIPMENT
Land ............................................................ 7,137 5,168
Buildings and improvements ...................................... 40,741 32,687
Machinery and equipment ......................................... 117,896 87,522
------------ ------------
Total Property, Plant and Equipment .......................... 165,774 125,377
Less accumulated depreciation and amortization .................. (54,560) 50,027
------------ ------------
Net Property, Plant and Equipment ............................ 111,214 75,350
OTHER ASSETS
Investment in Denver Newspapers, Inc. (Note 3) .................. 10,633 4,826
Investment in partnership ....................................... 6,448 6,369
Subscriber accounts, less accumulated amortization of
$43,289 and $48,594 at March 31, 1997 and
June 30, 1996, respectively ................................... 67,814 44,220
Excess of cost over fair value of net assets acquired,
less accumulated amortization of $11,815 and $13,267
at March 31, 1997 and June 30, 1996, respectively ............. 167,236 65,715
Covenants not to compete and other identifiable intangible
assets, less accumulated amortization of $15,395
and $19,673 at March 31, 1997 and June 30, 1996,
respectively .................................................. 7,151 8,461
Other ........................................................... 1,929 1,871
------------ ------------
Total Other Assets ........................................... 261,211 131,462
------------ ------------
TOTAL ASSETS ..................................................... $ 421,116 $ 245,665
============ ============
</TABLE>
See notes to unaudited condensed consolidated financial statements.
6
<PAGE> 7
AFFILIATED NEWSPAPERS INVESTMENTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
March 31, June 30,
LIABILITIES AND SHAREHOLDERS' DEFICIT 1997 1996
------------ ------------
(In thousands,
except share data)
<S> <C> <C>
CURRENT LIABILITIES
Trade accounts payable ............................................ $ 4,773 $ 5,884
Accrued liabilities ............................................... 20,311 18,174
Unearned income ................................................... 10,073 7,048
Income taxes ...................................................... 2,082 373
Current portion of long-term debt and capital lease
obligations ..................................................... 5,942 11,190
------------ ------------
Total Current Liabilities ..................................... 43,181 42,669
LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATIONS ....................................................... 475,867 314,510
OTHER LIABILITIES ................................................... 5,286 7,728
DEFERRED INCOME TAXES ............................................... 13,011 12,275
SHAREHOLDERS' DEFICIT
Common stock, par value $.01 per share; authorized
shares--4,628,692; 2,314,346 shares issued
and outstanding ................................................. 23 23
Additional paid-in capital ........................................ 3,611 3,611
Deficit ........................................................... (119,863) (135,151)
------------ ------------
Total Shareholders' Deficit ................................... (116,229) (131,517)
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT ......................... $ 421,116 $ 245,665
============ ============
</TABLE>
See notes to unaudited condensed consolidated financial statements.
7
<PAGE> 8
AFFILIATED NEWSPAPERS INVESTMENTS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Nine Months
Ended March 31, Ended March 31,
--------------------------- ---------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
(In thousands except share data)
<S> <C> <C> <C> <C>
OPERATING REVENUES ......................................... $ 75,854 $ 57,911 $ 215,819 $ 180,937
COST AND EXPENSES
Cost of sales ............................................ 26,971 24,494 77,260 73,211
Selling, general, and administrative ..................... 33,754 25,189 91,976 75,292
Depreciation and amortization ............................ 6,324 5,226 17,290 15,180
Interest expense ......................................... 13,001 10,696 35,365 31,350
Other, (net) ............................................. 1,461 1,065 15,727 2,869
------------ ------------ ------------ ------------
TOTAL COST AND EXPENSES ................................ 81,511 66,670 237,618 197,902
GAIN ON SALE OF NEWSPAPER PROPERTY ......................... 30,883 -- 30,883 --
INCOME IN UNCONSOLIDATED SUBSIDIARY
(Note 3) ................................................. 1,844 19 5,807 1,613
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES .......................... 27,070 (8,740) 14,891 (15,352)
INCOME TAX BENEFIT (EXPENSE) ............................... 1,080 (46) 397 (4)
------------ ------------ ------------ ------------
NET INCOME (LOSS) .......................................... $ 28,150 $ (8,786) $ 15,288 $ (15,356)
============ ============ ============ ============
EARNINGS PER COMMON SHARE:
Net Income (loss) ........................................ $ 12.16 $ (2.57) $ 6.61 $ (6.63)
============ ============ ============ ============
Weighted average number of shares outstanding .............. 2,314,346 2,314,346 2,314,346 2,314,346
============ ============ ============ ============
</TABLE>
See notes to unaudited condensed consolidated financial statements.
8
<PAGE> 9
AFFILIATED NEWSPAPERS INVESTMENTS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended March 31,
----------------------------
1997 1996
------------ ------------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ................................................... $ 15,288 $ (15,356)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization ...................................... 16,385 14,533
(Gain) on sale of newspaper property and other assets .............. (30,883) (69)
Provision for losses on accounts receivable ........................ 2,431 1,882
Amortization of debt discount ...................................... 13,559 11,872
Debt issuance and make-whole cost .................................. 13,763 1,092
Undistributed earnings in equity investments ....................... (5,867) (1,977)
Deferred income tax benefit ........................................ (3,251) (549)
Change in operating assets and liabilities, net of current assets
and liabilities acquired and/or sold ............................. (6,798) (12,102)
------------ ------------
NET CASH FLOWS FROM OPERATING ACTIVITIES ......................... 14,627 (674)
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of newspaper property and other assets ........................ 47,699 69
Purchase of newspaper properties ................................... (183,176) (33,215)
Purchase of machinery and equipment ................................ (6,541) (4,470)
------------ ------------
NET CASH FLOWS FROM INVESTING ACTIVITIES ......................... (142,018) (37,616)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt ......................................... 257,350 36,300
Debt issuance and make-whole cost .................................. (13,763) (1,092)
Reduction of long-term debt ........................................ (114,649) (8,869)
Reduction of non-operating liabilities ............................. (2,477) (3,647)
------------ ------------
NET CASH FLOWS FROM FINANCING ACTIVITIES ......................... 126,461 22,692
------------ ------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ......................................................... (930) (15,598)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ...................... 4,615 17,284
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ............................ $ 3,685 $ 1,686
============ ============
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid ....................................................... $ 26,538 $ 25,749
============ ============
Income taxes paid ................................................... $ 1,228 $ 383
============ ============
</TABLE>
See notes to unaudited condensed consolidated financial statements.
9
<PAGE> 10
AFFILIATED NEWSPAPERS INVESTMENTS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulations S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete consolidated financial statements and should be read in
conjunction with the consolidated financial statements and footnotes thereto
included in Affiliated Newspapers Investments, Inc. ("ANI") Annual Report on
Form 10-K for the year ended June 30, 1996. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the nine-month
period ended March 31, 1997, are not necessarily indicative of the results that
may be expected for the year ended June 30, 1997.
The unaudited condensed consolidated financial statements include the
accounts of Affiliated Newspapers Investments, Inc. and its subsidiaries. All
significant intercompany accounts and transactions have been eliminated upon
consolidation. ANI accounts for its investment in Denver Newspapers, Inc.
("Denver Newspapers") using the equity method of accounting (See Note 3).
Income Taxes
The effective income tax rate varies from the federal statutory rate
primarily because of the nondeductibility of certain expenses and the use of
net operating losses for which no tax benefit was previously recognized.
Business Acquisitions and Dispositions
Acquisitions
On February 28, 1997, the Company acquired substantially all the assets used
in the publication of the Sentinel & Enterprise, The Daily News and The Daily
Nonpareil, daily newspapers located in Fitchburg and Leominster, Massachusetts;
Lebanon, Pennsylvania; and Council Bluffs, Iowa, respectively, and five weekly
newspapers distributed in and around these same cities, for a total of
approximately $51.2 million in cash. The daily newspapers acquired had daily
and Sunday circulation of approximately 58,000 and 60,000, respectively, at
September 30, 1996. Proceeds from the sale of the Potomac News discussed below
and borrowings under the revolving bank credit facility were used to fund the
acquisition.
On October 31, 1996, Garden State acquired substantially all the assets used
in the publication of the Star-News, San Gabriel Valley Tribune, Whittier Daily
News, Times-Standard and The Evening Sun, daily newspapers distributed
primarily in Pasadena, West Covina, Whittier and Eureka, California, and
Hanover, Pennsylvania, respectively, and seven weekly newspapers distributed in
and around these same cities, for a total of $130.0 million in cash. The daily
newspapers combined had daily and Sunday circulation of approximately 156,000
and 161,000, respectively, at September 30, 1996.
10
<PAGE> 11
AFFILIATED NEWSPAPERS INVESTMENTS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
NOTE 1: SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS--CONTINUED
The acquisitions were accounted for as a purchase; accordingly, the
consolidated financial statements include the operations of the February 28,
1997 and October 31, 1996, acquired newspapers from March 1, 1997, and November
1, 1996, respectively. The assets acquired and the liabilities assumed have
been recorded at their estimated fair market values as of the dates of
acquisition. These fair market values are based on management's preliminary
estimates and are subject to change upon the final allocation of the purchase
price.
Business Disposition
Effective February 14, 1997, the Company sold substantially all the assets
used in the publication of the Potomac News and two weekly publications for
$48.0 million in cash plus an adjustment for working capital. The Company
recognized a pre-tax gain on the sale of approximately $31.0 million, net of
selling expenses, in its third fiscal quarter.
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 top generally poor weather and a lack of holidays, the first calendar
quarter, or the Company's third fiscal quarter, is the Company's weakest
revenue quarter of the year.
NOTE 2: LONG-TERM DEBT
In conjunction with the acquisitions described above, Garden State entered
into a $240.0 million amended and restated bank credit facility (the "Bank
Credit Facility") which was subsequently increased to $285.0 million on January
22, 1997. The Bank Credit Facility is comprised of the following components:
I. A $167.0 million Senior Secured Revolving Credit Facility ("Revolver
A") which matures on June 30, 2003. The commitment under Revolver A
is reduced annually, with a $13.0 million reduction on June 30, 1997,
a $26.0 million reduction on June 30, 1998 and 1999, a $27.0 million
reduction on June 30, 2000 and 2001, a $26.0 million reduction on June
30, 2002, and a final maturity of June 30, 2003. A portion of the
proceeds from Revolver A were used to purchase the newspaper assets
described above. As of the date hereof, $47.0 million is available
under Revolver A for business acquisitions.
II. A $27.0 million Senior Secured Revolving Credit Facility ("Revolver
B") with sublimits of $7.0 million available for standby Letters of
Credit and $5.0 million available for same day borrowings under a
Swingline Facility. No principal payments are required under Revolver
B until March 31, 2004, at which time the commitment is terminated and
all then outstanding balances are due and payable. As of the date
hereof, $19.5 million is available under Revolver B.
III. A $15.0 million Senior Secured Term Loan ("Term Loan A") with a final
maturity of March 31, 2004. Term Loan A requires quarterly
installments beginning June 30, 2002, with total annual payments of
$3.75 million, $7.5 million and $3.75 million in fiscal years ending
June 30, 2002, 2003 and 2004, respectively. Proceeds from Term Loan A
were used in conjunction with Revolver A to fund the aforementioned
acquisitions and to prepay a previously outstanding term loan which
had a balance of $7.5 million.
11
<PAGE> 12
AFFILIATED NEWSPAPERS INVESTMENTS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
NOTE 2: LONG-TERM DEBT--CONTINUED
IV. A $76.0 million Senior Secured Term Loan ("Term Loan B") with a final
maturity of March 31, 2004. Term Loan B requires quarterly principal
payments commencing on September 30, 1997, with annual reductions of
$4.0 million in fiscal year 1998, $7.5 million in fiscal years 1999
and 2000, $12.0 million in fiscal years 2001 and 2002, $14.0 million
in 2003 and $19.0 million in 2004. Proceeds from Term Loan B were
used to prepay Garden State's 10.89% Senior Secured Notes on October
31, 1996, as further described below.
All borrowings under the Bank Credit Facility, except loans under the
Swingline Facility, bear interest at rates based upon, at Garden State's
option, Eurodollars or prime, plus a spread based on Garden State's leverage.
Borrowings under the Swingline Facility bear interest at prime plus a spread
based on Garden State's leverage. Interest on prime borrowings under the Bank
Credit Facility is payable quarterly. Interest on Eurodollar borrowings is due
at the end of the applicable interest rate period or quarterly if the interest
rate period exceeds three months. In addition, Garden State pays an annual
commitment fee of 0.50% on the unused commitment under Revolvers A and B. If
the ratio of total debt to operating cash flow is less than 4.00 to 1.00, the
commitment fee is reduced to 0.375%.
The Garden State Bank Credit Facility contains certain restrictive covenants
which relate to, among other things, the incurrence of additional debt, capital
expenditures and distributions. Additionally, the agreement requires the
maintenance of certain financial ratios based on leverage, debt service
coverage, interest coverage and fixed charges coverage. Borrowings under the
Garden State Bank Credit Facility are secured by substantially all of Garden
State's tangible and intangible assets and the stock of Garden State and its
subsidiaries.
In addition to proceeds from Term Loan B, Garden State received a
distribution of $17.4 million from borrowings under an existing bank credit
facility of a subsidiary. These funds were used to prepay in full Garden
State's 10.89% Senior Secured Notes totaling approximately $77.6 million,
including interest of approximately $0.7 million, and $1.8 million was used to
reduce the outstanding balance of Revolver B to zero. The remaining funds were
used to pay a make-whole payment of $9.5 million and bank fees and other
transactional expenses of approximately $4.5 million. The majority of these
costs, which related to the refinancings, were expensed in the quarter ended
December 31, 1996.
Maturities of the Company's long-term debt for the remaining three months of
fiscal year 1997 and for the next four fiscal years ending June 30, 2001, are
as follows (in thousands):
<TABLE>
<S> <C>
1997. . . . . . . . . . . . . . . . . . . $ 987
1998. . . . . . . . . . . . . . . . . . . 6,414
1999. . . . . . . . . . . . . . . . . . . 44,926
2000. . . . . . . . . . . . . . . . . . . 37,022
2001. . . . . . . . . . . . . . . . . . . 41,347
Thereafter. . . . . . . . . . . . . . . . 343,628
---------
$ 474,324
=========
</TABLE>
12
<PAGE> 13
AFFILIATED NEWSPAPERS INVESTMENTS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
NOTE 2: LONG-TERM DEBT--CONTINUED
Interest Rate Swaps
Effective April 1, 1997, the Company entered into a three-year interest rate
swap agreement with a notional principal amount of $50.0 million and a fixed
annual interest rate of 6.455%, plus the applicable spread. The Company uses
interest rate swaps to manage its floating rate debt to minimize, in part, the
Company's exposure to the uncertainty of floating interest rates. The Company
accounts for the differences paid or received under this agreement as an
adjustment to interest expense.
NOTE 3: INVESTMENT IN UNCONSOLIDATED SUBSIDIARY
Basis of Accounting
The Company owns 60 percent of the outstanding common stock of Denver
Newspapers. However, because the Denver Newspaper Shareholder Agreement
provides Media General, the owner of the remaining 40 percent interest in
Denver Newspapers, with a 50 percent representation on the board of directors,
the Company accounts for its investment in Denver Newspapers under the equity
method of accounting.
The following are summarized statements of operations of Denver Newspapers
for the three and nine-month periods ended March 31, 1997 and 1996 (in
thousands):
Summarized Statements of Operations
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
----------------------- -----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Total Revenues .............................. $ 47,865 $ 42,872 $ 146,271 $ 131,027
========== ========== ========== ==========
Cost of Sales ............................... $ 24,017 $ 26,137 $ 73,094 $ 77,177
========== ========== ========== ==========
Net income .................................. $ 3,749 $ 707 $ 11,703 $ 4,714
========== ========== ========== ==========
Net income applicable to common stock ....... $ 3,074 $ 32 $ 9,678 $ 2,689
========== ========== ========== ==========
</TABLE>
13
<PAGE> 14
AFFILIATED NEWSPAPERS INVESTMENTS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
NOTE 4: COMBINED SUMMARIZED FINANCIAL INFORMATION OF AFFILIATED NEWSPAPERS
INVESTMENTS, INC. AND DENVER NEWSPAPERS, INC.
The combined summarized statements of operations include the accounts of ANI
and Denver Newspapers. The companies have common ownership, management and
each have the same fiscal year end. All significant intercompany balances and
transactions have been eliminated. The summarized combined financial
information has been presented to supplement the presentation contained in the
consolidated financial statements of ANI. ANI has a significant economic
interest in Denver Newspapers and may, in the future, be at least partially
dependent upon dividends from Denver Newspapers to service its debt
obligations.
Summarized Combined Statements of Operations (in thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31 March 31
---------------------------- ----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues .............................. $ 123,719 $ 100,693 $ 362,090 $ 311,964
============ ============ ============ ============
Cost of Sales ......................... $ 51,318 $ 50,631 $ 153,864 $ 150,388
============ ============ ============ ============
Minority Interest ..................... $ (1,230) $ 13 $ (3,871) $ (1,076)
============ ============ ============ ============
Net Income (loss) ..................... $ 28,825 $ (8,111) $ 17,313 $ (13,331)
============ ============ ============ ============
Net income (loss) applicable to
common stock ......................... $ 28,150 $ (8,786) $ 15,288 $ (15,356)
============ ============ ============ ============
</TABLE>
14
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OPERATING RESULTS
Three Months Ended March 31, 1997 and 1996
Revenues
Revenues increased $17.9 million or 31.0% in the third quarter of fiscal
year 1997 as compared to the same quarter of fiscal year 1996. The increase in
revenue was attributable to the March, 1996, acquisition of the San Mateo
Times; the April 30, 1996, acquisition of The Transcript and The Evening News;
the October 31, 1996, acquisition of the Star-News, San Gabriel Valley Tribune,
Whittier Daily News, Times-Standard and The Evening Sun; and the February 28,
1997, acquisition of the Sentinel & Enterprise, The Daily News and The Daily
Nonpareil. Combined, the acquisitions discussed above increased revenues
approximately $23.1 million in the third quarter of fiscal year 1997. These
revenue increases were partially offset by a $5.8 million decline in revenue
resulting from the sale of the Johnstown Tribune Publishing Company on April
30, 1996, and the Potomac News on February 13, 1997. Excluding the newspaper
operations described above, the Company's remaining newspaper operations
combined posted a $0.6 million increase in operating revenues for the third
quarter of fiscal year 1997.
Cost of Sales
Cost of sales increased $2.5 million or 10.1% in the third quarter of fiscal
1997 compared to the same quarter of fiscal year 1996. The aforementioned
acquisitions caused cost of sales to increase approximately $8.1 million for
the quarter ended March 31, 1997. However, this increase was offset in part by
a $2.2 million decrease in cost of sales resulting from the sale of the
Johnstown Tribune Publishing Company and the Potomac News. Excluding
acquisition and disposition transactions, cost of sales decreased approximately
$3.4 million or 17.8%. The decrease in cost of sales at existing newspapers was
entirely the result of declines in the average cost of newsprint of
approximately 27.0% combined with a 3.0% decrease in consumption, primarily
associated with efforts to conserve newsprint, including the conversion to the
50-inch web width which began in October of 1995 and was completed at the
majority of newspapers during fiscal year 1996. Excluding newsprint, cost of
sales on a same newspaper basis decreased $0.9 million in the third quarter of
fiscal 1997.
Selling, General and Administrative
Selling, general and administrative ("SG&A") expenses increased $8.6 million
or 34.1% in the third quarter of fiscal 1997 compared to the same quarter of
fiscal 1996. The aforementioned acquisitions resulted in SG&A expense increase
of $8.9 million; however, this was in part offset by a $2.0 million reduction
in SG&A expense associated with the sale of the Johnstown Tribune Publishing
Company and the Potomac News. Excluding the acquisition and disposition
transactions, SG&A expense increased $1.7 million. The increase was caused in
part by increased advertising and circulation spending, primarily associated
with efforts to increase circulation and advertising linage.
15
<PAGE> 16
Denver Newspapers - Unconsolidated Subsidiary
Net income applicable to common stock of Denver Newspapers increased
approximately $3.0 million in the third quarter of fiscal year 1997 compared to
the same quarter of fiscal year 1996. The current quarter increase in net
income applicable to common stock at Denver Newspapers was primarily the result
of a $5.1 million increase in operating profit as compared to the same quarter
of the prior year. The increase in operating profit was primarily attributable
to a $5.0 million or 11.6% increase in operating revenues and a $3.0 million
decrease in newsprint expense, which was partially offset by increased
operating costs primarily associated with higher sales and circulation at The
Denver Post. The majority of the increase in operating revenues was
attributable to a 12.0% growth in advertising linage, which was the result of
an increase in the market size as well as market share at The Denver Post.
Newsprint expense at The Denver Post decreased primarily as a result of a 30.0%
decrease in the average cost of newsprint, which was partially offset by a
14.0% increase in consumption. Denver Newspapers' acquisition of three daily
and three paid weekly newspapers in Eastern Colorado on May 1, 1996, accounted
for approximately 5.6% of the increase in net income applicable to common
stock.
Net Income
ANI recorded an adjusted loss of approximately $2.7 million in the third
quarter of fiscal 1997 after excluding the effect of the $30.9 million pretax
gain on the sale of the Potomac News compared to a third quarter of fiscal 1996
loss of $8.8 million. The decrease in the adjusted loss was primarily
attributable to a $1.8 million increase in income from Denver Newspapers, a
$5.8 million increase in operating profit and a $1.1 million increase in income
tax benefits primarily associated with the sale of the Potomac News at Garden
State, which were offset in part by a $2.3 million increase in interest
expense.
OPERATING RESULTS
Nine Months Ended March 31, 1997 and 1996
Revenues
Revenues increased $34.9 million or 19.3% in the first nine months of fiscal
year 1997 compared to the same nine-month period of fiscal year 1996. The
increase in revenue was attributable to the August 31, 1995, acquisition of The
Berkshire Eagle, Brattleboro Reformer and Bennington Banner; the March, 1996,
acquisition of the San Mateo Times; the April 30, 1996, acquisition of The
Transcript and The Evening News; the October 31, 1996, acquisition of the
Pasadena Star-News, San Gabriel Valley Tribune, Whittier Daily News,
Times-Standard and The Evening Sun; and the February 28, 1997, acquisition of
the Sentinel & Enterprise, The Daily News and The Daily Nonpareil. Combined,
the acquisitions discussed above increased revenues approximately $50.1 million
in the first nine months of fiscal year 1997. These revenue increases were
partially offset by a $14.6 million decline in revenue resulting from the sale
of the Johnstown Tribune Publishing Company on April 30, 1996, and the February
13, 1997, sale of the Potomac News. Excluding the newspaper operations
described above, the Company's remaining newspaper operations combined posted a
$0.6 million decline in operating revenues for the first nine months of fiscal
year 1997. While operating revenues on a same newspaper basis were down, all
the Company's newspapers except Alameda Newspaper Group (excluding San Mateo)
and North Jersey Newspaper Company posted an increase in operating revenue. The
increase in operating revenue at these newspapers was approximately $2.6
million and was primarily attributable to a combined 11.6% and 6.3% gain in
classified and retail revenue, respectively. Alameda Newspaper Group continued
to be negatively affected by declines in circulation revenues caused by
increased use of discounts and a significant number of out-of-business accounts
(either from store mergers or bankruptcies) which have not yet been cycled
through. The Company currently expects that Alameda Newspaper Group will begin
showing year-over-year quarterly improvements in operating revenues in the
fiscal fourth quarter. North Jersey Newspaper Company, which suffered similar
problems to that of the Alameda Newspaper Group, completed its turnaround in
the fiscal third quarter, posting a 1.2% increase in quarterly operating
revenues primarily through growth in classified revenue.
16
<PAGE> 17
Cost of Sales
Cost of sales increased $4.1 million or 5.5% in the first nine months of
fiscal year 1997 compared to the same nine-month period of fiscal 1996. The
aforementioned acquisitions caused cost of sales to increase approximately
$16.8 million for the period ended March 31, 1997. However, this increase was
offset in part by a $5.3 million decrease in cost of sales resulting from the
sale of the Johnstown Tribune Publishing Company and the Potomac News.
Excluding acquisition and disposition transactions, cost of sales decreased
approximately $7.4 million or 12.5%. The decrease in cost of sales at existing
newspapers was entirely the result of declines in the average cost of newsprint
of approximately 22.0% combined with a 4.0% decrease in consumption, primarily
associated with efforts to conserve newsprint, including the conversion to the
50-inch web width which began in October of 1995 and was completed at a
majority of newspapers during fiscal 1996. Excluding newsprint, cost of sales
on a same newspaper basis decreased $0.9 million in the first nine months of
1997.
Selling, General and Administrative
Selling, general and administrative ("SG&A") expenses increased $16.7
million or 22.2% in the first nine months of fiscal year 1997 as compared to
the same nine-month period of fiscal year 1996. The aforementioned acquisitions
resulted in SG&A expense increases of $19.2 million; however, this was in part
offset by a $4.7 million reduction in SG&A expense associated with the sale of
the Johnstown Tribune Publishing Company and the Potomac News. Excluding the
acquisition and disposition transactions, SG&A expense increased $2.2 million
or 3.6%. The increase in SG&A expense is associated with increases in
advertising and circulation expenditures which were primarily related to
ongoing efforts to increase advertising linage and circulation.
Other Expense
Other expense, net, increased $12.9 million. The majority of the increase
is attributable to a second quarter fiscal year 1997 charge to write off
approximately $13.8 million of fees and other costs associated with Garden
State's term loan and revolving credit facility entered into on October 31,
1996, and prepayment premiums associated with the October 31, 1996, prepayment
of Garden State's then outstanding Senior Secured Notes. The increase was
partially offset by $1.1 million of financing costs recorded in the same period
of fiscal year 1996 associated with the August, 1995, acquisition.
Denver Newspapers - unconsolidated subsidiary
Net income applicable to common stock of Denver Newspapers increased $7.0
million in the first nine months of fiscal year 1997 compared to the same
period of fiscal year 1996. The current period increase in net income
applicable to common stock at Denver Newspapers was primarily the result of a
$10.9 million increase in operating profit as compared to the same quarter of
the prior year. The increase in operating profit was primarily attributable to
a $15.2 million or 11.6% increase in operating revenues and a $4.1 million
decrease in newsprint expense, which was partially offset by increased
operating costs primarily associated with higher sales and circulation at The
Denver Post. The majority of the increase in operating revenues was
attributable to a 9.0% growth in advertising linage, which was the result of an
increase in the market size as well as market share at The Denver Post.
Newsprint expense decreased at The Denver Post primarily as a result of a 21.0%
decrease in the average cost of newsprint, which was partially offset by 14.3%
increase in consumption. Denver Newspapers' acquisition of three daily and
three paid weekly newspapers in Eastern Colorado on May 1, 1996, accounted for
approximately 7.5% of the increase in net income applicable to common stock.
Net Income
ANI recorded an adjusted loss of approximately $1.8 million in the first
nine months of fiscal year 1997 after adjusting the loss to exclude the $13.8
million charge for debt issuance cost and prepayment premiums previously
discussed and the $30.9 million pretax gain on the sale of the Potomac News as
compared to an adjusted loss
17
<PAGE> 18
of $14.3 million in the first nine months of fiscal year 1997, after excluding
the write off of fees and other costs associated with the August 31, 1995,
acquisition. The decrease in the adjusted loss is primarily attributable to a
$12.0 million increase in operating profit and a $4.2 million increase in
income from Denver Newspapers which is offset in part by an increase in
interest expense of $4.0 million.
FINANCIAL CONDITION AND LIQUIDITY
Net cash flows from operating activities were approximately $14.6 million
and ($0.7) million for the nine months ended March 31, 1997 and 1996,
respectively. The $15.3 million increase in cash flow from operating
activities was primarily the result of a $14.1 million increase in adjusted
operating profit, after excluding depreciation and amortization expense, for
the nine months ended March 31, 1997, compared to the same period ended March
31, 1996.
Net cash flows from investing activities were ($142.0) million and ($37.6)
million for the nine months ended March 31, 1997 and 1996, respectively. The
change of approximately $104.4 million was primarily the result of funds
totaling approximately $183.2 million used to acquire the Star-News, Whittier
Daily News, San Gabriel Valley Tribune, Times-Standard, The Evening Sun, The
Sentinel & Enterprise, The Daily News and The Daily Non-Pareil in fiscal year
1997 less proceeds received from the sale of the Potomac News of $47.7 million
compared to $33.2 million spent related to the acquisitions of The Berkshire
Eagle, Brattleboro Reformer, Bennington Banner and San Mateo Times in the first
nine months of fiscal year 1996. Capital expenditures increased by
approximately $2.0 million primarily as a result of the previously announced
press upgrade in Easton and new front-end systems in Potomac and Las Cruces.
Net cash flows from financing activities were $126.5 million and $22.7
million for the nine months ended March 31, 1997 and 1996, respectively. The
change of approximately $103.8 million was attributable to the Company
borrowing approximately $133.0 million related to acquisitions as compared to
approximately $31.0 million related to acquisitions in the same period of
fiscal 1996. In addition, the Company borrowed $12.7 million during the first
nine months of fiscal 1997 in excess of that borrowed during the same period of
fiscal 1996 related to bank fees and other financing costs, including
make-whole premiums.
Liquidity
Giving effect to the January 22, 1997, Bank Credit Facility, Garden State
and subsidiaries had a combined $74.3 million available for future borrowings,
net of approximately $5.0 million in outstanding letters of credit at January
31, 1997. Approximately $47.0 million of the availability under the bank credit
facility is available solely for future business acquisitions.
The purchase of Garden State's Class A common stock and the Series A and C
preferred stock by ANI in May, 1994, was financed with debt issued by ANI. The
repayment of ANI's debt, which does not have scheduled interest payments until
January 1, 2000, is in part dependent upon Garden State's and/or Denver
Newspapers' ability to pay dividends to ANI. Garden State's and Denver
Newspapers' debt agreements prohibit the payment of dividends to ANI prior to
June 30, 1999. The Senior Discount Debentures restrict the Company's ability
to incur additional debt and pay dividends.
The Company currently generates sufficient cash flow to meet its capital
expenditure and debt service requirements. Such debt service requirements
increase substantially in fiscal year 2000 as a result of interest on its
Senior Discount Debentures becoming current and payable on a semi-annual basis.
While there can be no assurance, the Company currently expects to have
sufficient internally generated funds to service interest when due; however, a
portion of the face amount may be required to be refinanced at maturity. There
can be no assurance that the Company will be able to refinance its debt when
due. However, based on current and projected cash flows and debt levels, the
Company believes there is minimal refinance risk.
18
<PAGE> 19
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 March 31, 1997, Denver
Newspapers had $13.5 million available under its revolving credit facility, net
of $1.6 million in outstanding letters of credit. In addition, at March 31,
1997, Denver Newspapers had working capital of approximately $1.6 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 prepaid in full. Denver
Newspapers' revolving credit facility expires July 1, 1999. Denver Newspapers'
preferred stock is mandatorily redeemable on the earlier of (a) June 30, 1999,
(b) the date on which such redemption is permissible under Denver Newspapers'
credit agreement, (c) the date on which Denver Newspapers ceases to own
directly at least 51% of all the outstanding capital stock of the Denver Post
Company, or (d) the date on which Denver Newspapers, directly or indirectly,
causes or permits the Denver Post Company to dispose of substantially all of
the assets of the Denver Post Company. Denver Newspapers declared and paid a
preferred stock dividend of $2.7 million in January, 1997.
NEAR TERM OUTLOOK
The steady increase in newsprint prices came to a halt in the second quarter
of calendar 1996 and, beginning in May, 1996, newsprint suppliers began
lowering prices. From May, 1996 to December, 1996, the discounts offered by
newsprint suppliers continued to accelerate as newsprint supply outpaced
demand. Believing that newsprint demand was beginning to strengthen, several
newsprint suppliers announced a $75 per metric ton increase in newsprint,
effective March 1, 1997, which, to date, has been only partially successful as
newsprint suppliers have only been able to obtain a portion of the $75 per ton
increase. While no additional price increases have been announced, suppliers
may attempt to increase prices before the end of calendar year 1997. If prices
increase they are not expected to have a significant impact on the Company's
future cash flows from operations. In addition, to protect itself from rising
prices, the Company has entered into fixed pricing contracts with certain of
its suppliers. These contracts cover almost half of Garden State's annual
newsprint usage.
As a result of the decline in newsprint prices, the Company is experiencing
substantial year-over-year favorable comparisons in the average cost of
newsprint consumed. Additionally, the Company's operating margins should also
continue to improve as the Company begins to realize the full annualized effect
of reduced consumption resulting from its conversion to 50-inch web widths.
19
<PAGE> 20
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCH
31, 1997 AFFILIATED NEWSPAPER INVESTMENTS, INC. FORM 10-Q AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 3,685
<SECURITIES> 0
<RECEIVABLES> 33,804
<ALLOWANCES> 3,796
<INVENTORY> 7,095
<CURRENT-ASSETS> 48,691
<PP&E> 165,774
<DEPRECIATION> 54,560
<TOTAL-ASSETS> 421,116
<CURRENT-LIABILITIES> 43,101
<BONDS> 475,867
0
0
<COMMON> 23
<OTHER-SE> (116,206)
<TOTAL-LIABILITY-AND-EQUITY> 421,116
<SALES> 215,819
<TOTAL-REVENUES> 215,819
<CGS> 77,260
<TOTAL-COSTS> 186,526
<OTHER-EXPENSES> 51,092
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 35,365
<INCOME-PRETAX> 14,891
<INCOME-TAX> (397)
<INCOME-CONTINUING> 15,288
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,288
<EPS-PRIMARY> 6.61
<EPS-DILUTED> 0
</TABLE>
