<PAGE>
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, 1998
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 11, 1997:
<TABLE>
<CAPTION>
<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>
<PAGE>
INDEX TO AFFILIATED NEWSPAPERS INVESTMENTS, INC.
REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
Item No. Page
------- ----
PART I - FINANCIAL INFORMATION
------------------------------
<S> <C>
1 Financial Statements 3
2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 3
PART II - OTHER INFORMATION
---------------------------
1 Legal Proceedings 3
2 Changes in Securities 3
3 Defaults Upon Senior Securities 3
4 Submissions of Matters to a Vote of Security Holders 3
5 Other Information 4
6 Exhibits and Reports on Form 8-K 4
</TABLE>
2
<PAGE>
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>
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, 1998.
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 11, 1998 By: /s/ Joseph J. Lodovic, IV
-------------- -------------------------
Joseph J. Lodovic, IV
Executive Vice President,
Chief Financial Officer, and
Duly Authorized Officer of
Registrant
4
<PAGE>
AFFILIATED NEWSPAPERS INVESTMENTS, INC. AND SUBSIDIARIES
Index to Financial Information
------------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets............................. 6
Unaudited Condensed Consolidated Statements of Operations......... 8
Unaudited Condensed Consolidated Statements of Cash Flows......... 9
Notes to Unaudited Condensed Consolidated Financial Statements.... 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................... 14
</TABLE>
5
<PAGE>
AFFILIATED NEWSPAPERS INVESTMENTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
March 31, June 30,
ASSETS 1998 1997
------------------- -------------------
(In thousands)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents......................................... $ 3,423 $ 8,944
Accounts receivable, less allowance for doubtful accounts
of $5,783 and $4,252 at March 31, 1998 and
June 30, 1997, respectively..................................... 49,796 36,185
Inventories of newsprint and supplies............................. 9,473 6,170
Income taxes receivable........................................... 1,644 --
Prepaid expenses and other assets................................. 4,570 3,295
-------------------- --------------------
Total Current Assets........................................... 68,906 54,594
PROPERTY, PLANT AND EQUIPMENT
Land.............................................................. 16,880 8,307
Buildings and improvements........................................ 60,505 43,462
Machinery and equipment........................................... 160,124 126,450
-------------------- --------------------
Total Property, Plant and Equipment............................ 237,509 178,219
Less accumulated depreciation and amortization.................... 57,205 57,670
-------------------- --------------------
Net Property, Plant and Equipment.............................. 180,304 120,549
OTHER ASSETS
Investment in Denver Newspapers, Inc. (Note 2).................... 18,568 14,113
Investment in partnership......................................... 6,925 6,365
Subscriber accounts, less accumulated amortization of
$50,129 and $45,808 at March 31, 1998 and
June 30, 1997, respectively..................................... 101,453 69,960
Excess of cost over fair value of net assets acquired,
less accumulated amortization of $16,825 and $12,718
at March 31, 1998 and June 30, 1997, respectively............... 264,695 154,294
Covenants not to compete and other identifiable intangible
assets, less accumulated amortization of $18,730
and $15,861 at March 31, 1998 and June 30, 1997,
respectively ................................................... 15,759 6,685
Other............................................................. 6,372 2,000
-------------------- --------------------
Total Other Assets............................................. 413,772 253,417
-------------------- --------------------
TOTAL ASSETS....................................................... $ 662,982 $ 428,560
-------------------- --------------------
-------------------- --------------------
</TABLE>
See notes to unaudited condensed consolidated financial statements.
6
<PAGE>
AFFILIATED NEWSPAPERS INVESTMENTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
March 31, June 30,
LIABILITIES AND SHAREHOLDERS' DEFICIT 1998 1997
-------------------- --------------------
(In thousands, except share data)
<S> <C> <C>
CURRENT LIABILITIES
Trade accounts payable ........................................... $ 5,944 $ 6,286
Other accrued liabilities......................................... 55,272 23,714
Unearned income................................................... 14,393 10,746
Income taxes ..................................................... -- 1,308
Current portion of long-term debt and capital lease
obligation Note (4)............................................. 5,265 6,247
-------------------- --------------------
Total Current Liabilities..................................... 80,874 48,301
LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATION ....................................................... 653,350 476,154
OTHER LIABILITIES................................................... 6,617 5,092
DEFERRED INCOME TAXES............................................... 17,612 13,036
SHAREHOLDERS' DEFICIT
Common stock, par value $.01 per share; authorized
5,152,602 shares; 2,314,346 shares issued and
outstanding..................................................... 23 23
Additional paid-in capital........................................ 3,611 3,611
Deficit........................................................... (99,105) (117,657)
-------------------- --------------------
Total Shareholders' Deficit................................... (95,471) (114,023)
-------------------- --------------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT......................... $ 662,982 $ 428,560
-------------------- --------------------
-------------------- --------------------
</TABLE>
See notes to unaudited condensed consolidated financial statements.
7
<PAGE>
AFFILIATED NEWSPAPERS INVESTMENTS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Nine Months
Ended March 31, Ended March 31,
-------------------------------- -----------------------------
1998 1997 1998 1997
------------- ---------------- ------------- -------------
(In thousands, except share data)
<S> <C> <C> <C> <C>
OPERATING REVENUES
Advertising................................................... $ 83,488 $ 59,616 $ 234,333 $ 173,141
Circulation................................................... 18,007 13,224 48,889 34,689
Other......................................................... 3,370 3,013 10,632 7,989
-------------- ------------ ------------- ------------
TOTAL OPERATING REVENUES.................................... 104,865 75,853 293,854 215,819
COST AND EXPENSES
Cost of sales................................................. 38,244 27,129 103,185 77,418
Selling, general, and administrative.......................... 44,666 33,596 121,420 91,818
Depreciation and amortization................................. 9,722 6,324 26,229 17,290
Interest expense.............................................. 16,880 13,001 46,066 35,365
Other, (net).................................................. 1,209 1,460 9,156 6,265
-------------- ------------ ------------- ------------
TOTAL COST AND EXPENSES..................................... 110,721 81,510 306,056 228,156
GAIN ON SALE OF NEWSPAPER....................................... -- 30,883 31,829 30,883
INCOME IN UNCONSOLIDATED SUBSIDIARY
(Note 2)...................................................... 394 1,844 4,455 5,807
-------------- ------------ ------------- ------------
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY LOSS........................................ (5,462) 27,070 24,082 24,353
INCOME TAX BENEFIT (EXPENSE).................................... 1,399 1,080 (5,530) (293)
-------------- ------------ ------------- ------------
INCOME (LOSS) BEFORE EXTRAORDINARY LOSS......................... (4,063) 28,150 18,552 24,060
EXTRAORDINARY LOSS (NET OF TAXES OF $689)....................... -- -- -- (8,772)
-------------- ------------ ------------- ------------
NET INCOME (LOSS)............................................... $ (4,063) $ 28,150 $ 18,552 $ 15,288
-------------- ------------ ------------- ------------
-------------- ------------ ------------- ------------
EARNINGS PER COMMON SHARE:
Income (loss) before extraordinary loss....................... $ (1.76) $ 12.16 $ 8.02 $ 10.40
Extraordinary loss............................................ -- -- -- (3.79)
-------------- ------------ ------------- ------------
Net income (loss)............................................. $ (1.76) $ 12.16 $ 8.02 $ 6.61
-------------- ------------ ------------- ------------
-------------- ------------ ------------- ------------
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>
AFFILIATED NEWSPAPERS INVESTMENTS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended March 31,
----------------------------------
1998 1997
--------------- ------------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (Loss).......................................................... $ 18,552 $ 15,288
Adjustments to reconcile net cash provided
by operating activities:
Depreciation and amortization............................................. 25,751 16,385
(Gain) on sale of newspaper properties and other assets................... (31,819) (30,883)
Provision for losses on accounts receivable............................... 3,171 2,431
Amortization of debt discount............................................. 15,897 13,559
Debt issuance cost and repurchase premiums................................ 7,121 13,763
Undistributed earnings in equity investments.............................. (5,016) (5,867)
Deferred income tax benefit............................................... (303) (3,251)
Change in operating assets and liabilities, net of current assets
and liabilities acquired or sold........................................ 3,121 (6,798)
--------------- ----------------
NET CASH FLOWS FROM OPERATING ACTIVITIES................................ 36,475 14,627
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of newspaper business and other assets............................... 43,029 47,699
Purchase of newspaper business............................................ (220,806) (183,176)
Purchase of machinery and equipment....................................... (6,621) (6,541)
--------------- ----------------
NET CASH FLOWS FROM INVESTING ACTIVITIES................................ (184,398) (142,018)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt................................................ 475,287 257,350
Debt issuance cost and repurchase premiums................................ (7,121) (13,763)
Reduction of long-term debt............................................... (324,467) (114,649)
Reduction of non-operating liabilities.................................... (1,297) (2,477)
--------------- ----------------
NET CASH FLOWS FROM FINANCING ACTIVITIES................................ 142,402 126,461
--------------- ----------------
CHANGE IN CASH AND CASH EQUIVALENTS.......................................... (5,521) (930)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............................. 8,944 4,615
--------------- ----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................................... $ 3,423 $ 3,685
--------------- ----------------
--------------- ----------------
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid.............................................................. $ 31,620 $ 26,538
--------------- ----------------
--------------- ----------------
Income taxes paid.......................................................... $ 8,862 $ 1,228
--------------- ----------------
--------------- ----------------
</TABLE>
See notes to unaudited condensed consolidated financial statements.
9
<PAGE>
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, 1997. 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, 1998,
are not necessarily indicative of the results that may be expected for the year
ended June 30, 1998.
The unaudited condensed consolidated financial statements include the
accounts of Affiliated Newspapers Investments, Inc. and its wholly owned
subsidiary, Garden State Newspapers, Inc. ("Garden State"). All significant
intercompany accounts and transactions have been eliminated upon consolidation.
ANI accounts for its investment in Denver Newspapers, Inc. ("Denver Newspapers")
using the equity method of accounting (See Note 2).
Reclassification
Certain prior year balances have been reclassified.
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.
Seasonality
Newspaper companies tend to follow a distinct and recurring seasonal
pattern, with higher advertising revenues in months containing significant
events or holidays. Accordingly, the fourth calendar quarter, or the Company's
second fiscal quarter, is the Company's strongest revenue quarter of the year.
Due to generally poor weather and a lack of holidays, the first calendar
quarter, or the Company's third fiscal quarter, is the Company's weakest revenue
quarter of the year.
Business Acquisitions
On January 29, 1998, Garden State acquired substantially all the assets used
in the publication of the Daily News, a daily newspaper distributed primarily in
the San Fernando Valley of Los Angeles, California, for approximately $130.0
million in cash, which included working capital of approximately $2.0 million.
The newspaper has daily and Sunday circulation of approximately 200,000 and
211,000, respectively.
On December 16, 1997, Garden State acquired substantially all the assets
used in the publication of the PressTelegram, a daily newspaper published in
Long Beach, California, for approximately $38.2 million in cash, plus an
adjustment for working capital. Proceeds from the sale of the North Jersey
Herald & News (discussed below) were used to fund the acquisition. The newspaper
has daily and Sunday circulation of approximately 102,000 and 118,000,
respectively.
10
<PAGE>
AFFILIATED NEWSPAPERS INVESTMENTS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--continued
NOTE 1: Significant Accounting Policies and Other Matters--continued
On July 31, 1997, Garden State acquired substantially all the assets used in
the publication of The Sun, an evening newspaper published in Lowell,
Massachusetts. The assets were purchased for $49.0 million in cash plus an
adjustment for working capital and a covenant not to compete with the prior
owners, with a discounted value of approximately $11.8 million. The newspaper
has daily and Sunday circulation of approximately 52,000 and 56,000,
respectively.
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 the liabilities assumed have been recorded
at their estimated fair market values as of their dates of acquisition. These
fair market values are based on management's preliminary estimate and are
subject to change upon final allocation of the purchase price. The excess of
cost over fair market value of the net assets acquired and intangible assets
related to subscriber lists are being amortized on a straight line basis over 40
and 15 years, respectively.
Business Disposition
On December 5, 1997, Garden State sold substantially all the assets used in
the publication of the North Jersey Herald & News and sixteen weekly
publications for $43.0 million in cash plus an adjustment for working capital.
The Company recognized a pre-tax gain on the sale of approximately $31.8 million
net of selling expenses.
NOTE 2: Investment in Unconsolidated Subsidiary
Basis of Accounting
The Company owns 60 percent of the outstanding common stock of Denver
Newspapers. However, because the Denver Newspaper Shareholder Agreement provides
Media General, the owner of the remaining 40 percent interest in Denver
Newspapers, with a 50 percent representation on the board of directors, the
Company accounts for its investment in Denver Newspapers under the equity method
of accounting.
The following are summarized statements of operations of Denver Newspapers
for the three and nine-month periods ended March 31, 1998 and 1997 (in
thousands):
Summarized Statements of Operations
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------------ ----------------------------
1998 1997 1998 1997
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Total Revenues..................................... $ 52,983 $ 47,865 $161,518 $146,271
--------- --------- -------- --------
--------- --------- -------- --------
Cost of Sales...................................... $ 29,770 $ 24,017 $ 86,236 $ 73,094
--------- --------- -------- --------
--------- --------- -------- --------
Net income......................................... $ 1,331 $ 3,749 $ 9,450 $ 11,703
--------- --------- -------- --------
--------- --------- -------- --------
Net income applicable to common stock.............. $ 656 $ 3,074 $ 7,425 $ 9,678
--------- --------- -------- --------
--------- --------- -------- --------
</TABLE>
11
<PAGE>
AFFILIATED NEWSPAPERS INVESTMENTS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--continued
NOTE 3: Combined Summarized Financial Information of Affiliated Newspapers
Investments, Inc. and Denver Newspapers, Inc.
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
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31 March 31
---------------------------- ------------------------------
1998 1997 1998 1997
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Total Revenues............................... $ 157,848 $ 123,719 $ 455,372 $ 362,090
---------- --------- --------- ---------
---------- --------- --------- ---------
Cost of Sales................................ $ 67,864 $ 51,318 $ 189,421 $ 153,864
---------- --------- --------- ---------
---------- --------- --------- ---------
Minority interest in income applicable to
common stock of Denver Newspapers,
Inc.......................................... $ (263) $ (1,230) $ (2,970) $ (3,871)
---------- --------- --------- ---------
---------- --------- --------- ---------
Income (loss)................................ $ (3,388) $ 28,825 $ 20,577 $ 17,313
---------- --------- --------- ---------
---------- --------- --------- ---------
Net income (loss) applicable to
common stock................................ $ (4,063) $ 28,150 $ 18,552 $ 15,288
---------- --------- --------- ---------
---------- --------- --------- ---------
</TABLE>
NOTE 4: Long-Term Debt
On October 1, 1997, Garden State issued $250.0 million of 8.75% Senior
Subordinated Notes, due in 2009. Garden State used the net proceeds to reduce
bank debt at Garden State and pay off and terminate a bank credit facility of
one of Garden State's subsidiaries.
In the third quarter of fiscal year 1998, Garden State entered into a
subordinated note purchase agreement, pursuant to which Garden State issued a
$47.6 million, 9.0% Subordinated Promissory Note (the "Promissory Note") due
January 31, 2010. Interest accruing on the Promissory Note is payable quarterly
beginning on March 31, 1998, provided that on each interest payment date
occurring on or prior to December 31, 2002, the Company may elect to defer any
or all accrued and unpaid interest otherwise due and payable. However, in
calendar years 2000, 2001 and 2002 the Company must pay the lesser of $3.0
million or all accrued and unpaid interest due in such year. The Promissory Note
is subordinated and junior in right of payment to Garden State's Bank Credit
Agreement, Senior Subordinated Secured Notes and the Senior Subordinated Notes.
No scheduled principal payments are required until January 31, 2010, at which
time the outstanding principal amount is due and payable. ANI has guaranteed the
Promissory Note. Proceeds from the Promissory Note were used for acquisition
funding.
12
<PAGE>
AFFILIATED NEWSPAPERS INVESTMENTS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--continued
NOTE 4: Long-Term Debt--continued
In February 1998, Garden State issued the remaining $50.0 million of its
8.75% Senior Subordinated Notes available under its indenture dated October 1,
1997, through a private placement. The additional notes were priced to yield
8.28% and resulted in approximately $51.4 million of net proceeds to Garden
State. Proceeds from the issuance of these notes were used to pay down bank
debt. Upon registration and the exchange of these notes, Garden State will have
$300.0 million issued and outstanding under its indenture dated October 1, 1997.
In conjunction with the issuance of the Senior Subordinated Notes, Garden
State also amended its existing Bank Credit Agreement to change Term Loan B into
a revolving credit facility ("RCC"), reduce the Company's borrowing spreads (in
most cases by 0.375%), and change the amortization of the RCA commitment.
Giving effect to the borrowings and paydowns under the Garden State Bank
Credit Agreement discussed above, Garden State had $15.0 million, $16.0 million
and $19.0 million outstanding under Term Loan A, RCA and RCC, respectively. The
following table sets forth the annual commitment reductions for RCA, RCB and
RCC, as well as annual payments under Term A Loan, giving effect to the amended
Garden State Bank Credit Agreement (in thousands).
<TABLE>
<CAPTION>
RCA RCB RCC Term A Loan
------------ ----------- ------------ --------------------
<C> <C> <C> <C> <C>
1998................... $ 10,000 $ -- $ 3,000 $ --
1999................... 31,000 -- 7,500 --
2000................... 31,000 -- 7,500 --
2001................... 31,000 -- 12,000 --
2002................... 31,000 -- 12,000 3,750
Thereafter............. 33,000 27,000 33,000 11,250
------------ ----------- ------------ --------------------
$ 167,000 $ 27,000 $ 75,000 $ 15,000
------------ ----------- ------------ --------------------
------------ ----------- ------------ --------------------
</TABLE>
The following table sets forth, after giving effect to borrowings associated
with the July 31, 1997, acquisition of The Sun, net borrowing associated with
the January 29, 1998, acquisition of the Daily News, the $47.6 million
Subordinated Promissory Note, the issuance of $300.0 million of Senior
Subordinated Notes and the paydown of bank debt associated therewith, the
approximate expected scheduled maturities of long-term debt of Garden State for
the fiscal years indicated.
<TABLE>
<CAPTION>
Fiscal In Thousands
- ------ --------------------
<C> <C>
1998................................ $ 2,625
1999................................ 4,673
2000................................ 4,897
2001................................ 4,703
2002................................ 7,987
Thereafter.......................... 627,381
--------------------
$ 652,266
--------------------
--------------------
</TABLE>
Interest Rate Swaps
Effective April 1, 1997, Garden State entered into a two-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. As of March 31, 1998, the interest rate swap had
a market loss of approximately $0.4 million.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Operating Results
Three Months Ended March 31, 1998 and 1997
Revenues
Revenues increased $29.0 million or 38.2% in the third quarter of fiscal
year 1998 as compared to the same quarter of fiscal year 1997. The increase in
revenue was attributable to the February 28, 1997, acquisition of the Sentinel &
Enterprise, Lebanon Daily News and The Daily Nonpareil; the July 31, 1997,
acquisition of The Sun; the December 17, 1997, acquisition of the
Press-Telegram; and the January 29, 1998, acquisition of the Daily News.
Combined, the acquisitions discussed above increased revenues approximately
$35.5 million in the third quarter of fiscal year 1998. These revenue increases
were partially offset by a $9.3 million decline in revenue resulting from the
sale of the Potomac News on February 13, 1997, and the sale of the North Jersey
Herald & News on December 5, 1997. Excluding acquisition and disposition
transactions, the Company's remaining newspaper operations combined posted a
$2.8 million increase in operating revenues for the third quarter of fiscal year
1998. Advertising revenues at these newspapers increased by 6.4% while
circulation and other revenues combined were virtually flat.
Cost of Sales
Cost of sales increased $11.1 million or 41.0% in the third quarter of
fiscal 1998 compared to the same quarter of fiscal year 1997. The aforementioned
acquisitions caused cost of sales to increase approximately $13.1 million for
the quarter ended March 31, 1998. However, this increase was offset in part by a
$3.5 million decrease in cost of sales resulting from the sale of the Potomac
News and the North Jersey Herald & News. Excluding acquisition and disposition
transactions, cost of sales increased approximately $1.5 million. The majority
of the increase is associated with increases in advertising linage.
Selling, General and Administrative
Selling, general and administrative ("SG&A") expenses increased $11.0
million or 32.9% in the third quarter of fiscal year 1998 as compared to the
same quarter of fiscal 1997. The aforementioned acquisitions resulted in SG&A
expense increases of $16.7 million; however, this was offset in part by a $5.9
million reduction in an SG&A expense associated with the sale of the Potomac
News and the North Jersey Herald & News. Excluding the acquisition and
disposition transactions, SG&A expense increased $0.2 million.
Depreciation and Amortization
Depreciation and amortization increased $3.4 million in the third quarter of
fiscal year 1998 as compared to the same quarter of fiscal year 1997. The
aforementioned acquisitions caused the majority of the increase in depreciation
and amortization expense; however, the increase was offset in part by a $0.1
million reduction in depreciation and amortization expense associated with the
sale of the Potomac News and the North Jersey Herald & News.
Interest Expense
Interest expense increased $3.9 million in the third quarter of fiscal year
1998 as compared to the same quarter of fiscal year 1997. Interest expense
increased primarily as a result of $149.1 million increase in average debt
outstanding, primarily associated with acquisitions. The average interest rate
of debt outstanding also increased by 8 basis points.
14
<PAGE>
Denver Newspapers - Unconsolidated Subsidiary
Net income applicable to common stock of Denver Newspapers decreased
approximately $2.4 million in the third quarter of fiscal year 1998 compared to
the same quarter of fiscal year 1997. The current quarter decrease in net income
applicable to common stock at Denver Newspapers was primarily the result of a
$8.9 million or 21.2% increase in operating expenses as compared to the same
quarter of fiscal year 1997, which was only partially offset by a $5.1 million
or 10.7% growth in revenue in the third quarter. The increase in operating
expenses were the result of The Denver Post expanding its State news section and
increasing State news coverage by adding eleven new regional news bureaus in the
third quarter of fiscal year 1998, increased production and newsprint expense
related to increased advertising volumes and costs associated with the start-up
of a new press line in late November 1997, and the start-up in the previous
quarter of a total market coverage ("TMC") product in the form of a mailed
advertising program which is mailed to non-subscribers. Due to the start-up
nature of the TMC, expenses continued to exceed revenues for the quarter.
Net Income
ANI recorded a loss of $4.1 million in the third quarter of fiscal 1998
compared to an adjusted loss of $2.7 million in the third quarter of fiscal
1997, after excluding the $30.9 million gain on the sale of the Potomac News.
The increase in the fiscal 1998 loss was primarily attributable to the $1.5
million decrease in the equity pick-up from Denver Newspapers. Operating profit
and income tax benefits at Garden State increased $3.4 million and $0.3 million,
respectively, in the third quarter of fiscal 1998 as compared to fiscal 1997;
however, these increases were reduced by the $3.9 million increase in interest
expense previously discussed.
Operating Results
Nine Months Ended March 31, 1998 and 1997
Revenues
Revenues increased $78.0 million or 36.2% in the first nine months of fiscal
year 1998 compared to the same nine-month period of fiscal year 1997. The
increase in revenue was primarily attributable to the October 31, 1996,
acquisition of the Pasadena Star-News, San Gabriel Valley Tribune, Whittier
Daily News, Times-Standard and The Evening Sun; the February 28, 1997,
acquisition of the Sentinel & Enterprise, Lebanon Daily News and The Daily
Nonpareil; the July 31, 1997, acquisition of The Sun; the December 16, 1997,
acquisition of the Press-Telegram; and the January 29, 1998, acquisition of the
Daily News. Combined, the acquisitions discussed above increased revenues
approximately $86.9 million in the first nine months of fiscal year 1998. These
revenues were partially offset by a $17.6 million decline in revenue resulting
from the sale of the Potomac News and the North Jersey Herald & News on February
13, 1997 and December 5, 1997, respectively. Excluding acquisition and
disposition transactions, the Company's remaining newspaper operations combined
posted a $8.7 million increase in operating revenues for the first nine months
of fiscal year 1998. Advertising revenues at these newspapers increased by
approximately 8.1%, driven by strong classified and national revenue.
Circulation and other revenue combined on a same newspaper basis decreased by
approximately $0.5 million.
Cost of Sales
Cost of sales increased $25.7 million or 33.3% in the first nine months of
fiscal year 1998 compared to the same nine-month period of fiscal 1997. The
aforementioned acquisitions caused cost of sales to increase approximately $29.2
million for the nine-month period ended March 31, 1998. However, this increase
was offset in part by a $6.4 million decrease in cost of sales resulting from
the sale of the Potomac News and the North Jersey Herald & News. Excluding
acquisition and disposition transactions, cost of sales increased approximately
$2.9 million or 5.0%, primarily associated with increased production cost
associated with advertising linage increases.
15
<PAGE>
Selling, General and Administrative
Selling, general and administrative ("SG&A") expenses increased $29.6
million or 32.2% in the first nine months of fiscal year 1998 as compared to the
same nine-month period of fiscal year 1997. The aforementioned acquisitions
resulted in an SG&A expense increases of $37.4 million; however, this was offset
in part by a $9.3 million reduction in SG&A expense associated with the sale of
the Potomac News and the North Jersey Herald & News. Excluding the acquisition
and disposition transactions, SG&A expense increased $1.5 million or 2.6%.
Depreciation and Amortization
Depreciation and amortization increased $8.9 million for the first nine
months of fiscal year 1998 as compared to the same period of fiscal year 1997.
The aforementioned acquisitions caused the majority of the increase in
depreciation and amortization expense; however, the increase was offset in part
by a $0.8 million reduction in depreciation and amortization expense associated
with the sale of the Potomac News and the North Jersey Herald & News.
Interest Expense
Interest expense increased $10.7 million for the first nine months of fiscal
year 1998 as compared to the same period of fiscal year 1997. Interest expense
increased primarily as a result of a $157.3 million increase in average debt
outstanding primarily associated with acquisitions. This increase was partially
offset by a 62 basis point decrease in the average interest rate, mainly
associated with the refinancing of Garden State's 10.89% senior notes on October
31, 1996, and a reduction of the borrowing spread on bank debt, which was offset
in part by an increase associated with the replacement of $250.0 million of bank
debt with the Senior Subordinated Notes issued on October 1, 1997.
Denver Newspapers - Unconsolidated Subsidiary
Net income applicable to common stock of Denver Newspapers decreased $2.3
million in the first nine months of fiscal year 1998 compared to the same
nine-month period of fiscal year 1997. The decrease in net income applicable to
common stock at Denver Newspapers was primarily the result of a $18.1 million or
14.1% increase in operating expenses that was only partially offset by the $15.2
million or 10.4% increase in revenue during the same period. The increase in
operating expenses were the result of The Denver Post expanding its State news
section and increasing State news coverage by adding eleven new regional news
bureaus in the third quarter of fiscal year 1998, increased production and
newsprint expenses related to increased advertising volumes and cost associated
with the start-up of a new press line in late November 1997, and the start-up in
the second quarter of fiscal year 1998 of a TMC product in the form of a mailed
advertising program which is mailed to non-subscribers. Due to the start-up
nature of the TMC, expenses continued to exceed revenues.
Net Income
ANI recorded an adjusted loss of approximately $6.2 million in the first
nine months of fiscal year 1998 after excluding the effect of the $31.8 million
pre-tax gain on the sale of the North Jersey Herald & News and $7.1 million of
debt issuance cost compared to an adjusted loss of $2.5 million for the same
nine-month period of fiscal year 1997 after excluding $4.4 million of debt
issuance cost, the $8.8 million extraordinary loss and the $30.9 million pre-tax
gain on the sale of the Potomac News. The increase in the adjusted loss is
primarily attributable to a $13.7 million increase in operating profit at Garden
State that was more than offset by a $10.7 million increase in interest expense,
primarily as a result of acquisitions and a $5.2 million increase in tax
expense, the majority of which resulted from the sale of the North Jersey Herald
& News. The $1.4 million decrease in the equity pick-up from Denver Newspapers
also contributed to the increase in the adjusted loss.
16
<PAGE>
Financial Condition and Liquidity
Net cash flows from operating activities were approximately $36.4 million
and $14.6 million for the nine months ended March 31, 1998 and 1997,
respectively. The $21.8 million increase in cash flow from operating activities
was primarily the result of a $22.7 million increase in operating profit,
excluding depreciation and amortization, for the nine months ended March 31,
1998, compared to the same period ended March 31, 1997, combined with a $9.9
million increase in the change in operating assets and liabilities which were
offset by a $8.4 million increase in cash interest expense.
Net cash flows from investing activities were ($184.4) million and ($142.0)
million for the nine months ended March 31, 1998 and 1997, respectively. The
$42.4 million change was primarily the result of Garden State spending a net
$220.1 million on acquisitions in fiscal year 1998 compared to $183.2 million in
fiscal year 1997.
Net cash flows from financing activities were $142.4 million and $126.5
million for the nine months ended March 31, 1998 and 1997, respectively. The
change of approximately $15.9 million was primarily attributable to Garden State
borrowing a net $149.5 million in the first nine months of fiscal 1998, compared
to net borrowings of $140.2 million in fiscal 1997, the majority of which was in
conjunction with the previously discussed acquisitions in each fiscal year. A
$6.6 million reduction in debt issuance cost and repurchase premiums also
contributed to the increase.
Liquidity
Giving effect to the issuance of $300.0 million of Senior Subordinated Notes
and the corresponding paydown of bank debt, Garden State and its subsidiaries
had a combined $246.3 million available for future borrowings, net of
approximately $4.7 million in outstanding letters of credit at March 31, 1998.
Approximately $151.0 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 ANI 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.
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, 1998, Denver Newspapers
had $12.8 million available under its revolving credit facility and $1.6 million
in letters of credit outstanding. In addition, at March 31, 1998, Denver
Newspapers had working capital of approximately $1.8 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 June 30, 2000. Denver Newspapers'
preferred stock is mandatorily
17
<PAGE>
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, 1998.
Near Term Outlook
The previously announced $40 to $50 per metric ton increase in newsprint,
which was to be effective April 1, 1998, did not take hold and published market
prices for 30-pound newsprint remained at $590 and $595 per metric ton for East
Coast and West Coast delivery, respectively. Newsprint suppliers may continue to
push for a $40 per metric ton increase; however, with the long standing Fletcher
Challenge strike being settled, the additional newsprint coming to market may
mute or eliminate an increase in the near term. If a future price increase is
successful, it is not expected to have a significant impact on Garden State's
cash flows from operations as Garden State expects to purchase approximately 70%
of its fiscal 1999 newsprint requirements under fixed price contracts at a
weighted average price of approximately $535 per metric ton, subject to
quarterly adjustment on a portion of the tonnage. MediaNews Group has entered
into fixed price contracts expiring over the next 12 months to two years, to
purchase 164,000 metric tons per year, approximately 94,000 of which is
currently being allocated to Garden State. Based on current allocations, Denver
will have approximately 60% of its newsprint fixed at a weighted average price
of approximately $577 per metric ton.
Based upon current operations, 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 more than
adequate to fund scheduled payments of principal and interest and to meet
anticipated capital expenditure and working capital requirements for at least
the next twelve months.
The Company and its subsidiaries may, from time to time, consider strategic
or targeted newspaper acquisitions and dispositions. In the event an acquisition
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.
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCH
31, 1998 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
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<PERIOD-START> JUL-01-1997
<PERIOD-END> MAR-31-1998
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<CASH> 3,423
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0
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