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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended June 30, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number ______
AFFILIATED NEWSPAPERS INVESTMENTS, INC.
(Exact name of registrant as specified in its charter)
Delaware 76-0425553
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1560 Broadway, Denver, Colorado 80202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 837-0886
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the registrant (1) has filed all reports
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports, and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. X
State the aggregate market value of the voting stock held by
non-affiliates of the registrant. The aggregate market value shall be
computed by reference to the price at which the stock was sold, or the
average or the average bid and asked prices of such stock, as of a specified
date within 60 days prior to the date of filing.
Class of Voting Stock and Number of Shares Market Value Held
Held by Non-affiliates at August 25, 1998 by Non-affiliates
------------------------------------------ -----------------
Class B 173,576 shares Unavailable
The following shares of Common Stock are outstanding at August 25, 1998
Class Number of Shares
---------------------- -----------------
Class B Common Stock 173,576
Class D Common Stock 664,450
Class G Common Stock 371,960
Class GSI Common Stock 1,104,130
Class N Common Stock 230
Documents Incorporated by Reference: NONE
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PART I
ITEM 1. BUSINESS
GENERAL
Affiliated Newspapers Investments, Inc. (the "Company" or "ANI"), is one
of the largest privately controlled newspaper publishing companies in the
United States. The newspapers currently published by the Company have a
combined daily and Sunday paid circulation of approximately 1,510,000 and
1,638,000, respectively, as of March 31, 1998 including the August 22, 1998
acquisition of the CHARLESTON DAILY MAIL, published in Charleston, West
Virginia. Garden State Newspapers, Inc. ("Garden State"), a wholly owned
subsidiary of ANI, founded in March 1985 by William Dean Singleton and
Richard B. Scudder, currently owns and operates 34 market dominant daily and
93 non-daily newspapers in ten states (including suburban markets in close
proximity to the San Francisco Bay area, Los Angeles, Philadelphia, Omaha and
Boston.) The Company's principal sources of revenue are print advertising and
circulation sales. Other sources of revenue include commercial printing and
electronic advertising. Denver Newspapers, Inc. ("Denver Newspapers"), a 60%
owned subsidiary of ANI, operates, THE DENVER POST, located in Denver,
Colorado. Denver Newspapers also currently owns 4 daily and 7 weekly
newspapers published in Colorado.
The operating results of ANI are the same as the operating results of
Garden State, except for ANI's income in Denver Newspapers and ANI's separate
administrative and debt expenses, since ANI historically has had no
operations of its own other than its investment in Garden State, its only
consolidated subsidiary. ANI accounts for its investment in Denver Newspapers
using the equity method of accounting.
The Company has grown significantly through internal growth and by
making strategic acquisitions in markets which the Company believes have
above average growth potential. The Company's primary acquisition focus is on
newspaper markets contiguous to its own, allowing it to realize certain
operating synergies. The Company refers to this acquisition strategy as
clustering. A majority of the Company's newspapers are located in regional
clusters, allowing them to achieve higher operating margins through efficient
use of labor and equipment and by providing opportunities to cross-sell
advertising. Management occasionally divests newspaper properties that no
longer fit a cluster strategy and, in management's opinion, the value of such
newspaper properties has been maximized. This strategy has enabled the
Company to reinvest sale proceeds in newspaper properties that can be
clustered, allowing the Company to achieve greater internal revenue and
EBITDA growth in the future, while reducing its leverage ratio (as defined in
Garden State's Bank Credit Agreement).
The Company's newspapers are geographically diverse and generally
positioned in markets with limited direct competition for local newspaper
advertising. Management believes the Company's newspaper markets, taken as a
whole, have above average population and sales growth potential. Most
suburban and small city daily newspapers, such as the newspapers owned by the
Company, have leading or sole positions in the geographic areas they serve.
Only a few cities in the United States contain more than one primary daily
newspaper, the majority of which are in major metropolitan markets.
Additionally, start-ups of new daily newspapers in suburban markets with a
pre-existing local newspaper are rare. Suburban newspapers address the
specific needs of the community by publishing a broad spectrum of local news,
as well as advertiser-specific editions, which television, because of its
broader geographic coverage, is unwilling or unable to provide. Thus, in many
communities the local newspaper provides a combination of social and economic
services in a way in that only it can provide, making it attractive for both
consumers and advertisers.
Sizeable weekly newspapers are generally found in and around
metropolitan areas in addition to smaller towns and cities. Suburban
weeklies, such as the weekly newspapers operated by North Jersey Newspaper
Company, Alameda Newspaper Group and Los Angeles Newspaper Group, divisions
of Garden State, have several advantages over metropolitan dailies, including
a lower cost structure, the ability to publish only on their most profitable
days (i.e., one midweek and one weekend day), the ability to more effectively
exploit zoned advertising and avoid expensive investments in wire services
and syndicated feature material. Zoned advertising permits small merchants,
individual classified and other advertisers to advertise solely in their own
local areas at a cost lower than that of a full-run metropolitan daily
newspaper. Thus, the typical suburban weekly newspaper has a broader
advertiser base and does not rely to the same degree as a metropolitan daily
on major retailers for advertising revenues.
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INDUSTRY BACKGROUND
Newspaper publishing is the oldest and largest segment of the media
industry. Due to a focus on local news, newspapers remain the dominant medium
for local advertising and, in calendar year 1997, accounted for more than
47.1% of all local media advertising expenditures in the United States. In
addition, in calendar year 1997, U.S. newspaper advertising expenditures
reached an all time high of approximately $41.3 billion, representing a
compounded annual growth rate of 6.2% since 1980. Newspapers continue to be
the best medium for retail advertising which emphasizes the price of goods,
in contrast to television which is generally used for image advertising.
The number of adult readers of daily and Sunday newspapers is reported
to have increased from 106.0 million and 106.7 million in 1980 to 112.2
million and 127.6 million in 1997, respectively, representing compounded
annual growth rates of .33% and 1.06%, respectively. Readers of daily and
Sunday newspapers tend to be more highly educated and have higher incomes
than non-newspaper readers. For instance, 67% of college graduates and 69% of
households with income greater than $75,000 are reported to read a daily
newspaper, compared to 59% of high school graduates and 53% of households
with income less than $40,000. Management believes that newspapers continue
to be the most cost-effective means for advertisers to reach this highly
targeted demographic group.
Total morning daily and Sunday national circulation has increased from
29.4 million and 54.7 million in 1980 to 45.4 million and 60.5 million in
1997, respectively, representing compounded annual growth rates of 2.6% and
0.6%, respectively. Total reported daily circulation, including evening
editions, however, declined nationally from 62.2 million in 1980 to 56.7
million in 1997, or 0.5% annually. This decrease can be directly attributable
to the national decline in circulation of evening newspapers, which is
reported to have decreased from 32.8 million in 1980 to 11.3 million in 1997,
or 6.1% annually, as a result of an inability to compete with existing
morning newspapers in the same city, which in most cases caused the evening
newspaper to shut down, or as a result of evening newspapers converting to
morning. Circulation statistics for suburban daily newspapers are not
published separately from circulation statistics for daily newspapers as a
whole. Reliable circulation statistics for weekly newspapers are not
available.
Newspaper advertising revenues are cyclical and are generally affected
by changes in national and regional economic conditions. Classified
advertising, which makes up approximately one-third of newspaper advertising
revenues, is the most sensitive to economic improvements or slowdowns as it
is primarily affected by the demand for employment, real estate transactions
and automotive sales. Growth in newspaper advertising has exceeded growth in
the Gross National Product ("GDP") in every calendar year since 1993 and, in
calendar year 1997, newspaper advertising spending grew 8.5% while the GDP
grew by only 5.8%.
RECENT ACQUISITIONS AND DISPOSITIONS
Acquisitions:
On August 22, 1998, the Company acquired a 50% interest in Charleston
Newspapers for approximately $47.0 million. Charleston Newspapers is a joint
venture, which publishes the CHARLESTON GAZETTE, (morning) and CHARLESTON
DAILY MAIL, (evening) six days a week and the SUNDAY GAZETTE-MAIL, under the
terms of a Joint Operating Agreement (JOA). The acquisition included rights
to the masthead of the CHARLESTON DAILY MAIL; thus, Company is responsible
for the editorial content of the CHARLESTON DAILY MAIL.
FISCAL 1998
On May 11, 1998 the Company acquired substantially all the assets used
in the publication of THE TRI-CITY WEEKLY, a weekly newspaper published in
Eureka, California for approximately $2.6 million in cash plus a covenant not
to compete with the prior owners with a discounted value of approximately
$0.5 million.
On May 1, 1998, the Company acquired substantially all the assets used
in the publication of the VALLEY NEWS TODAY, a morning newspaper published
five times a week in Shenandoah, Iowa and seven weekly publications
distributed primarily in and around Shenandoah and Dennison, Iowa. These
assets were purchased for approximately $5.1 million in cash plus an
adjustment for working capital and covenant not to compete with the prior
owners, with a discounted value of approximately $0.6 million.
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RECENT ACQUISITIONS AND DISPOSITIONS (CONTINUED)
On January 29, 1998, the Company acquired substantially all the assets
used in the publication of the DAILY NEWS, a daily newspaper published in the
San Fernando Valley of Los Angeles, California, for approximately $130.0
million, which included working capital approximately $2.0 million.
On December 16, 1997, the Company acquired substantially all the assets
used in the publication of the PRESS-TELEGRAM, a daily newspaper published in
Long Beach, California, for approximately $38.2 million in cash, plus an
adjustment for working capital.
On July 31, 1997, the Company 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 a
covenant not to compete with the prior owners with a discounted value of
approximately $11.8 million.
FISCAL 1997
On February 28, 1997, the Company acquired substantially all the assets
used in the publication of the SENTINEL & ENTERPRISE, LEBANON DAILY NEWS and
THE DAILY NONPAREIL, daily newspapers distributed primarily in Fitchburg and
Leominster, Massachusetts; Lebanon, Pennsylvania; and Council Bluffs, Iowa,
respectively, and five weekly newspapers distributed in and around the same
cities, for a total of approximately $51.2 million in cash.
On October 31, 1996, the Company acquired substantially all the assets
used in the publication of the PASADENA 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
approximately $130.0 million in cash.
In conjunction with the sale of the Johnstown Tribune Publishing Company
(discussed below), the Company acquired substantially all the assets used in
the publication of the NORTH ADAMS TRANSCRIPT and the BRIDGETON NEWS, daily
newspapers published in North Adams, Massachusetts, and Bridgeton, New
Jersey, respectively.
FISCAL 1996
On March 10, 1996, a subsidiary of the Company acquired substantially
all the assets used in the publication of the SAN MATEO COUNTY TIMES, a daily
newspaper, and five weekly newspapers published in San Mateo County,
California, for approximately $15.0 million, including discounted obligations
to the seller of approximately $4.3 million and the assumption of newspaper
subscription obligations of approximately $0.7 million.
On August 31, 1995, the Company acquired, for approximately $34.6
million, substantially all of the assets used in the publication of THE
BERKSHIRE EAGLE, the BRATTLEBORO REFORMER and the BENNINGTON BANNER, daily
newspapers published in Pittsfield, Massachusetts; Brattleboro and
Bennington, Vermont, respectively, and THE MANCHESTER JOURNAL, a weekly
newspaper published in Manchester, Vermont.
Dispositions:
FISCAL 1998
On December 5, 1997, the Company 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
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FISCAL 1997
On February 13, 1997, the Company sold substantially all the assets used
in the publication of the POTOMAC NEWS and two weekly publications for $47.7
million in cash plus an adjustment for working capital. The Company
recognized a pre-tax gain on the sale of approximately $30.6 million, net of
selling expenses.
FISCAL 1996
On May 1, 1996, the Company sold the common stock of the Johnstown
Tribune Publishing Company, which publishes THE TRIBUNE-DEMOCRAT and two
weekly newspapers distributed in and around Johnstown, Pennsylvania, for
$32.6 million in cash and the assets of six daily newspapers and eight weekly
newspapers. The sale of the Johnstown Tribune Publishing Company resulted in
a pre-tax gain of approximately $8.3 million. Immediately upon the completion
of the transaction, four of the daily and seven of the weekly newspapers
acquired were sold for $15.7 million to The Denver Post Corporation, an
affiliate of the Company. No gain or loss was recognized on the sale to The
Denver Post Corporation.
OPERATING STRATEGY
The Company's strategy is to increase revenues and cash flows through
geographic clustering; targeted marketing programs; local news leadership;
high quality editorial content and presentation; circulation growth; cost
control; and strategic technological investments, as described below:
GEOGRAPHIC CLUSTERING. The Company has acquired and assembled newspapers,
and may continue to acquire newspapers, in contiguous markets
("clustering"). Clustering enables the Company to realize operating
efficiencies and economic synergies, such as the sharing of management,
accounting and production functions. In addition, the Company seeks to
increase operating cash flows at acquired newspapers through cost
reductions, including labor and web width reductions, as well as overall
improved cost management. Clustering also enables management to maximize
revenues through the cross-selling of advertising among contiguous
newspaper markets. As a result of clustering, management believes that the
Company's newspapers are able to obtain higher operating margins than they
would otherwise be able to achieve on a stand-alone basis.
TARGETED MARKETING PROGRAMS. Through a strong local presence and active
community relations, the Company is able to develop programs to maximize
its advertising revenues. The Company utilizes research, demographic
studies and zoning (marketing directed to a particular sub-segment of a
local area) to develop marketing programs and meet the unique needs of
specific advertisers.
LOCAL NEWS LEADERSHIP. The Company's newspapers generally have the largest
local news gathering resources in their markets. As a result of emphasizing
local news, the Company's newspapers generally are able to generate reader
loyalty and create franchise value. Because the Company's provision of
local news is a unique product in its markets, its newspapers satisfy the
demands of both its readers and advertisers.
HIGH QUALITY EDITORIAL CONTENT AND PRESENTATION. The Company's newspapers
are committed to editorial excellence, providing the proper mix of local
and national news to effectively serve the needs of their local markets.
The Company's newspapers often receive awards for excellence in various
areas in their respective regions and categories. In addition, the
Company's newspapers are generally produced on modern offset presses and
are designed to attract readers through attractive layouts and color
enhancements.
CIRCULATION GROWTH. The Company believes that circulation growth is
essential to the creation of long-term franchise value at its newspapers.
Accordingly, the Company has and will continue to invest in telemarketing
and promotional campaigns to increase circulation and readership. The
Company has also established management incentive programs which reward its
publishers for circulation growth at each of its daily newspapers. As a
result of management's commitment to circulation growth, the Company is one
of the few newspaper groups which has consistently grown in circulation,
year over year, on a combined basis (excluding the effect of acquisitions).
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OPERATING STRATEGY (CONTINUED)
COST CONTROL. Each of the Company's newspapers emphasizes cost control with
a particular focus on managing staffing requirements. At newspapers with
collective bargaining units, management strives to enter into long-term
agreements with moderate annual increases. In addition, the Company further
controls labor costs through investments in state-of-the-art production
equipment that improves production efficiencies. Management is equally
focused on newsprint cost control. Each of the Company's newspapers
benefits from discounted newsprint costs through its relationship with
MediaNews Group, Inc., ("MNG", see MediaNews Group, Inc.'s Management of
Newspaper Operations) the seventh largest newspaper group in the United
States in terms of circulation as of September 30, 1997. The Company's
newspapers buy newsprint from several suppliers, under arrangements
covering MNG affiliates, resulting in what management believes are some of
the most favorable newsprint prices in the industry. Through MNG, the
Company has available to it fixed price newsprint contracts with certain
suppliers, expiring over the next twelve months to two years, as well as
newsprint purchasing arrangements with certain of its other suppliers which
delay the adverse effect of newsprint price increases. Based on expected
newsprint utilization at Garden State, approximately 41% of the Company's
annual newsprint consumption for fiscal 1999 will be covered by fixed price
contracts, at prices which are currently well below market.
In order to further control newsprint costs while improving customer
satisfaction, beginning in October of 1995, the Company began converting
all its newspapers to a 50-inch web width. Prior to such conversions, the
Company's newspapers had either 54 or 55-inch web widths. These conversions
have permanently reduced the Company's newsprint consumption in excess of
8%. At June 30, 1998, all the Company's newspapers, except certain recent
acquisitions, were printed using a 50-inch web width.
STRATEGIC TECHNOLOGICAL INVESTMENTS. To take advantage of the increasing
use of the world wide web and the future advertising growth opportunities,
MNG established MediaNEWS Technologies ("MNT") to develop and maintain
websites for each of the Company's daily newspapers. MNT has developed
websites to provide an online editorial presence and full online classified
services for each of the Company's daily newspapers. In addition, the
Company has established a strategic relationship with AD-ONE, which has
provided greater access to the Company's web site and classified
advertising. Although the Company believes that providing an online product
is important to broadening the presence of its newspapers in their
respective communities and ultimately increasing the Company's revenues
through such value added services, the Company believes almost all of its
customers prefer the newspaper in a printed form. By being the leading, and
in certain instances the sole, provider of local news in most of its
markets, management believes that its newspapers are well positioned to
meet and benefit form its customers need for information, whether in print
or electronic form. The Company's newspaper website can be found at
www.newschoice.com.
Management believes that successful implementation of the operating
strategy described above will position the Company to continue to achieve
internal growth. The Company may, from time to time, seek strategic or
targeted newspaper acquisitions and dispositions such as the acquisitions
previously discussed. The Company continually reviews newspaper acquisition
candidates that it believes are underperforming in terms of operating cash
flows but has an established history of strong readership and advertiser
loyalty and are available at attractive prices. Such acquisitions will only
be made in circumstances in which management believes that such
acquisitions would contribute to the Company's overall growth strategy,
whether through revenue growth and/or cost reduction opportunities, and
represent attractive values based on price.
MEDIANEWS GROUP, INC.'S MANAGEMENT OF NEWSPAPER OPERATIONS
MNG provides certain corporate services to the Company and its
subsidiaries. Garden State and Denver Newspapers have engaged MNG to operate
and manage their business affairs and newspapers under the terms of a
management agreement. MNG, which is owned entirely by Messrs. Singleton and
Scudder, allocates its expenses as management fees to each affiliate based
upon the amount of time and resources devoted to each affiliate. Management
fees are based upon MNG's actual expenses.
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MEDIANEWS GROUP, INC.'S MANAGEMENT OF NEWSPAPER OPERATIONS (CONTINUED)
Services provided by MNG to Garden State and Denver Newspapers include
accounting, tax, merger and acquisition, purchasing, corporate advertising
sales and administration, human resource and labor administration, treasury
functions, and budget and operating plan review. In addition, MNT, a division
of MNG, provides electronic media services, including website development and
maintenance, to each of the Company's daily newspapers.
MNG's commitment to editorial quality is an integral part of its overall
management strategy. While MNG does not maintain any centralized editorial
control over the newspapers it manages, MNG does maintain high standards for
local news coverage by utilizing its extensive contacts, trade reputation and
opportunities for career advancement throughout the Company and its
affiliates to attract and retain talented editorial personnel. MNG is
currently constructing a website to post press releases, annual and quarterly
financial data, as well as additional information on MNG and its affiliates.
This website is located at www.medianewsgroup.com.
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MAP INSERT PAGE
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NEWSPAPER PROPERTIES
GARDEN STATE NEWSPAPER PROPERTIES
The following is a list of newspaper published by the Company as of the
date of this report. The map on the preceding page, reflects the Company's
clustering strategy.
ALAMEDA NEWSPAPER GROUP. The Alameda Newspaper Group is located in
Alameda County, approximately 20 miles east of San Francisco, California, and
publishes six morning newspapers. The Alameda Newspaper Group consists of THE
OAKLAND TRIBUNE, THE DAILY REVIEW, TRI-VALLEY HERALD, THE ARGUS, ALAMEDA
TIMES-STAR and SAN MATEO COUNTY TIMES. All the newspapers except the SAN
MATEO COUNTY TIMES also publish a Sunday newspaper. These newspapers cover
the city of Oaland, California, and affluent suburban markets located
immediately south, southeast and southwest of Oakland in Alameda County and
San Mateo County. The Alameda Newspaper Group also publishes THE ALAMEDA
ACCENT, SAN BRUNO HERALD, DALY CITY RECORD/BRISBANE BEE, TIMES WEEKEND,
MILLBRAE RECORDER-PROGRESS and THE COASTSIDE CHRONICLE on Saturday. The
Alameda Newspaper Group had total daily and Sunday paid circulation of
approximately 214,000 and 171,000 as of March 31, 1998.
LOS ANGELES NEWSPAPER GROUP. The Los Angeles Newspaper Group is located
in Los Angeles County, California, and publishes five morning daily
newspapers. The Los Angeles Newspaper Group consists of the DAILY NEWS, the
PRESS-TELEGRAM, the PASADENA STAR-NEWS, the SAN GABRIEL VALLEY TRIBUNE, and
WHITTIER DAILY NEWS. These newspapers cover the San Fernando Valley, Long
Beach, Pasadena, West Covina and Whittier, California, respectively. The Los
Angeles Newspaper Group also publishes several weekly newspapers the
HIGHLANDER newspapers, CHEERS, CLASS FORCE, PASADENA COMMERCE, THE REAL
ESTATE WEEKLY, STAR WATCH, THE STAR, WHITTIER REVIEW, THE SHOPPER, and EL
ECONOMICO and VECINOS DEL VALLE, (Spanish language newspapers) which are
distributed in and around these same cities. The Los Angeles Newspaper Group
had total daily and Sunday paid circulation of approximately 418,000 and
450,000, respectively, as of March 31, 1998.
YORK. York Newspaper Company, a partnership owned 57.5% by York
Newspaper, Inc. ("YNI"), a wholly owned subsidiary of Garden State
Investments, Inc. ("GSI"), publishes THE YORK DISPATCH, the YORK SUNDAY NEWS
and THE YORK DAILY RECORD in York, Pennsylvania, approximately 30 miles south
of Harrisburg, Pennsylvania. These newspapers are published under the terms
of a joint operating agreement ("JOA"). Under the terms of the JOA, all
operations, other than news and editorial, are controlled by the partnership.
YNI maintains its own editorial staff and produces the editorial content of
both THE YORK DISPATCH and the YORK SUNDAY NEWS. The York Newspaper Company
also publishes the WEEKLY RECORD each Tuesday. The York Newspaper Company had
daily and Sunday paid circulation of approximately 82,000 and 93,000,
respectively, as of March 31, 1998.
LOWELL. THE SUN, acquired July 31, 1997, is located in Lowell,
Massachusetts, approximately 30 miles north of Boston, and publishes an
evening newspaper five days a week and morning editions on Saturday and
Sunday. THE SUN had daily and Sunday paid circulation of approximately 52,000
and 56,000, respectively, as of March 31, 1998.
EASTON. THE EXPRESS-TIMES is located in Easton, Pennsylvania,
approximately 60 miles north of Philadelphia, Pennsylvania, and publishes a
morning newspaper seven days a week. THE EXPRESS-TIMES also publishes five
weekly newspapers: THE BETHLEHEM STAR, TWO RIVERS SHOPPING TIMES, BANGOR
HOMETOWN NEWS, THE NAZARETH U.S. and the HUNTERDON MARKETPLACE, which are
distributed in the area surrounding Easton, Pennsylvania. THE EXPRESS-TIMES
had total daily and Sunday paid circulation of approximately 50,000 and
48,000, respectively, as of March 31, 1998.
PITTSFIELD. THE BERKSHIRE EAGLE is located in Pittsfield, Massachusetts,
approximately 30 miles southeast of Albany, New York, and publishes a morning
newspaper seven days a week. THE BERKSHIRE EAGLE also publishes a weekly
newspaper, THE SHOPPER, a broadsheet shopper circulated free to
non-subscribers in Berkshire County. THE BERKSHIRE EAGLE had total daily and
Sunday paid circulation of approximately 30,000 and 35,500, respectively, as
of March 31, 1998.
WOODBURY. The GLOUCESTER COUNTY TIMES is located in Woodbury, New
Jersey, approximately 15 miles south of Philadelphia, Pennsylvania, and
publishes an evening newspaper five days a week and a Sunday newspaper. The
GLOUCESTER COUNTY TIMES also publishes THE ADVERTISER, a weekly shopper. The
GLOUCESTER COUNTY TIMES had total daily and Sunday paid circulation of
approximately 29,000 and 30,000 respectively as of March 31, 1998.
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NEWSPAPER PROPERTIES (CONTINUED)
LAS CRUCES. The LAS CRUCES SUN-NEWS is located in Las Cruces, New
Mexico, approximately 45 miles north of El Paso, Texas, and publishes a
morning newspaper seven days a week. The LAS CRUCES SUN-NEWS also publishes
the VOZ DEL VALLE, a weekly Spanish language newspaper, and THE SHOPPING
TIMES, a weekly shopper. The LAS CRUCES SUN-NEWS had total daily and Sunday
paid circulation of approximately 23,000 and 24,000, respectively, as of
March 31 1998.
EUREKA. The TIMES-STANDARD is located in Eureka, California,
approximately 250 miles north of San Francisco, and publishes a morning
newspaper seven days a week. The TIMES-STANDARD also publishes three weekly
newspapers, TIMES-STANDARD PLUS, ON THE MARKET and TRI-CITY WEEKLY, which are
distributed in and around the areas surrounding Eureka, California. The
TIMES-STANDARD had daily and Sunday circulation of approximately 22,000 and
23,000, respectively, as of March 31, 1998.
LEBANON. The LEBANON DAILY NEWS is located in Lebanon, Pennsylvania,
approximately 35 miles northeast of York, Pennsylvania, and 30 miles east of
Harrisburg, Pennsylvania. The LEBANON DAILY NEWS publishes an evening
newspaper five days a week, and morning editions on Saturday and Sunday. The
LEBANON DAILY NEWS also publishes the PALM ADVERTISER, a weekly newspaper,
which is distributed around Lebanon, Pennsylvania. Daily and Sunday paid
circulation at the LEBANON DAILY NEWS was approximately 21,000 at March 31,
1998.
HANOVER. THE EVENING SUN is located in Hanover, Pennsylvania,
approximately 20 miles southwest of York, Pennsylvania, and 40 miles south of
Harrisburg, Pennsylvania. THE EVENING SUN publishes an evening newspaper five
days a week and morning editions on Saturday and Sunday. THE EVENING SUN also
publishes a weekly newspaper, THE COMMUNITY SUN. THE EVENING SUN had daily
and Sunday paid circulation of approximately 21,000 at March 31, 1998.
FITCHBURG. The SENTINEL & ENTERPRISE is located in Fitchburg,
Massachusetts, approximately 40 miles northwest of Boston, Massachusetts, and
approximately 30 miles west of Lowell, Massachusetts, and publishes an
evening newspaper five days a week and morning editions on Saturday and
Sunday. The SENTINEL & ENTERPRISE also publishes three weekly newspapers:
NORTH COUNTY LEADER, THE WEEKENDER PLUS and THE INDEPENDENT, which are
distributed in and around areas surrounding Fitchburg, Massachusetts. The
SENTINEL & ENTERPRISE had total daily and Sunday paid circulation of
approximately 20,000 at March 31, 1998.
COUNCIL BLUFFS. THE DAILY NONPAREIL is located in Council Bluffs, Iowa,
which is adjacent to Omaha, Nebraska, on the Missouri River. THE DAILY
NONPAREIL publishes an evening newspaper five days a week and morning
editions on Saturday and Sunday. THE DAILY NONPAREIL also publishes THE
VALLEY NEWS TODAY, a morning paper published five days a week distributed in
and around Shenandoah, Iowa. In addition, THE DAILY NONPAREIL also publishes
nine weekly newspapers: THE MIDLANDS SHOPPER GUIDE, AD-VISOR, ESSEX
INDEPENDENT, DENNISON BULLETIN, DENNISON REVIEW, MEAT EMPIRE SAVINGS GUIDE,
VALLEY NEWS LIFE, WEEKLY TIMES and CLARINDA HERALD-JOURNAL, which are
distributed in the areas surrounding Council Bluffs, Shenandoah, and
Dennison, Iowa. At March 31, 1998, THE DAILY NONPAREIL had daily and Sunday
paid circulation of approximately 17,000 and 18,000, respectively.
BRATTLEBORO. The BRATTLEBORO REFORMER is located in Brattleboro,
Vermont, approximately 65 miles east of Albany, New York, and publishes a
morning newspaper seven days a week. The BRATTLEBORO REFORMER had daily and
weekend circulation of approximately 11,000 and 12,000 at of March 31, 1998,
respectively.
SALEM. TODAY'S SUNBEAM is located in Salem, New Jersey, approximately 35
miles south of Philadelphia, Pennsylvania, and publishes a morning paper six
days a week. TODAY'S SUNBEAM also publishes THE RECORD, a weekly newspaper.
TODAY'S SUNBEAM had total daily and Sunday circulation of approximately
11,000 as of March 31, 1998.
BRIDGETON. The BRIDGETON NEWS is located in Bridgeton, New Jersey,
approximately 40 miles south of Philadelphia, Pennsylvania, and publishes an
evening newspaper six days a week. The BRIDGETON NEWS also publishes the
MILLVILLE SHOPPER NEWS, a weekly newspaper. The BRIDGETON NEWS had daily
circulation of approximately 9,000 as of March 31, 1998.
NORTH ADAMS. The NORTH ADAMS TRANSCRIPT is located in North Adams,
Massachusetts, approximately 30 miles east of Albany, New York, and publishes
an evening newspaper six days a week and a weekly newspaper, THE TRANSCRIPT
SPOTLIGHT. The NORTH ADAMS TRANSCRIPT had daily circulation of 8,000 at
March 31, 1998.
10
<PAGE>
NEWSPAPER PROPERTIES (CONTINUED)
BENNINGTON. The BENNINGTON BANNER is located in Bennington, Vermont,
approximately 35 miles east of Albany, New York, and publishes a morning
newspaper seven days a week. The BENNINGTON BANNER also publishes the
MANCHESTER JOURNAL, a paid weekly newspaper distributed on Wednesdays in
Manchester, Vermont, and THE BENNINGTON SHOPPER, a free weekly shopper. The
BENNINGTON BANNER had daily circulation of approximately 8,000 as of March 31,
1998.
NORTH JERSEY NEWSPAPERS COMPANY. North Jersey Newspapers Company
publishes twenty-nine weekly newspapers which are distributed primarily in
central New Jersey. The weeklies, most of which are free distribution
publications in Warren, Somerset, Morris and Union Counties have a midweek
and weekend distribution of approximately 38,000 as of March 31, 1998.
GRAHAM. THE GRAHAM LEADER is located in Graham, Texas, approximately 90
miles northwest of Fort Worth, Texas. THE GRAHAM LEADER is a biweekly
newspaper with total paid circulation of approximately 4,900 as of March 31,
1998. The Graham Leader also publishes the LAKE COUNTRY SUN, the LAKE COUNTRY
SHOPPER, and THE OLNEY ENTERPRISE each Thursday. In addition, the JACKSBORO
GAZETTE-NEWS and THE JACK COUNTY HERALD are weekly newspapers published each
Monday and Thursday, respectively.
RECENT ACQUISITION
CHARLESTON NEWSPAPERS. On August 22, 1998, Garden State acquired a 50%
interest in CHARLESTON NEWSPAPERS, a joint venture which publishes CHARLESTON
DAILY MAIL, CHARLESTON GAZETTE and THE SUNDAY GAZETTE-MAIL, in Charleston,
West Virginia. These newspapers are published under the terms of a JOA. Under
the terms of the JOA, all operations, other than news and editorial are
controlled by the joint venture. Garden State Newspaper is responsible for
maintaining the editorial staff and producing the editorial content for the
CHARLESTON DAILY MAIL. Charleston Newspapers had daily and Sunday circulation
of approximately 93,000 and 102,000, respectively, as of March 31, 1998.
DENVER NEWSPAPERS -- UNCONSOLIDATED SUBSIDIARY
THE DENVER POST. THE DENVER POST had daily and Sunday paid circulation
of approximately 354,000 and 491,000, respectively, as of March 31, 1998. THE
DENVER POST is a traditional broadsheet-formatted newspaper. Management
believes that THE DENVER POST is one of the most respected newspapers in its
region, serving as the preferred choice for printed news. Management also
believes that THE DENVER POST'S editorial quality and content, as well as its
broadsheet format, provide it with a competitive advantage which has
contributed to THE DENVER POST being more successful than its primary
competitor at attracting newspaper readers moving into the Denver
metropolitan area. As of March 31, 1998, THE DENVER POST had daily and Sunday
circulation market share of approximately 52.1% and 53.0%, respectively.
EASTERN COLORADO PUBLISHING COMPANY. Eastern Colorado publishes the FORT
MORGAN TIMES, the JOURNAL-ADVOCATE and the LAMAR DAILY NEWS, daily newspapers
published in Fort Morgan, Sterling and Lamar, Colorado, with combined daily
circulation of approximately 11,900 as of March 31, 1998. Each of these daily
newspapers also publishes a weekly newspaper which includes the MORGAN TIMES
REVIEW, J. A. SHOPPER and the TRI-STATE. These weekly newspapers are
distributed free in and around each of the daily newspaper's geographic
markets. Eastern Colorado also publishes the AKRON NEWS REPORTER, BRUSH
NEWS-TRIBUNE, JULESBURG ADVOCATE, THE BURLINGTON RECORD, paid weekly
newspapers distributed in Akron, Brush, Julesburg and Burlington, Colorado.
ADVERTISING AND CIRCULATION REVENUE
Advertising revenues are the largest component of a newspaper's revenues
followed by circulation revenues. Advertising rates in a given market are
based upon market size, circulation, readership, demographic makeup of the
market and the availability of alternative advertising media in the
marketplace. While Circulation revenue is not as significant as advertising
revenue, circulation trends can impact the decisions of advertisers and
advertising rates.
11
<PAGE>
Advertising revenue includes RETAIL (local and national department
stores, specialty shops and other retailers), NATIONAL (national advertising
accounts), and CLASSIFIED advertising (employment, automotive, real estate
and personals). The contributions of Retail, National, Classified and
Circulation revenues to total revenues for fiscal years 1998, 1997 and 1996
were as follows:
<TABLE>
<CAPTION>
Fiscal years ended June 30,
--------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Retail........................ 41% 42% 44%
National...................... 4 3 3
Classified.................... 35 35 34
Circulation................... 16 16 16
Other......................... 4 4 3
---- ---- ----
100% 100% 100%
---- ---- ----
---- ---- ----
</TABLE>
Retail revenues as a percentage of total revenues have declined over the
last two years as a result of the strong performance of Classified
advertising associated with a strong economy and low unemployment and strong
National advertising revenue growth in fiscal 1998.
NEWSPRINT
Newsprint represents one of the largest costs of producing a newspaper.
The Company's newspapers buy newsprint from several suppliers under
arrangements covering MNG affiliates, resulting in what management believes
are some of the most favorable newsprint prices in the industry. In fiscal
years 1998, 1997 and 1996, the Company's subsidiaries consumed approximately
99,900, 76,000, and 62,400 tons of newsprint, respectively, and, during the
same periods, incurred newsprint expense of approximately $54.4 million,
$41.1 million, and $42.5 million, respectively. Newsprint expense as a
percentage of revenue for fiscal year 1998, 1997 and 1996 was 13.1%, 13.6%,
and 18.5%, respectively. Newsprint expense varies between years because of
fluctuations in prices and consumption. Newsprint expense as a percentage of
revenue showed no significant change in fiscal 1998 over fiscal 1997.
Newsprint expense as a percentage of revenue decreased in fiscal 1997 over
1996, primarily because of a decrease of approximately 25% in the average
cost per ton of newsprint consumed and a reduction in consumption from the
implementation of the 50 inch web-width. See "Near Term Outlook" on page 26
for additional discussion of newsprint pricing.
EMPLOYEE RELATIONS
Garden State and Denver Newspapers combined employ approximately 5,200
full-time and 2,300 part-time employees. Approximately 2,400 full-time and
part-time employees at subsidiaries are covered by collective bargaining
agreements, of which approximately 1,500 of these employees are union
employees at THE DENVER POST. Currently, THE DENVER POST has seven collective
bargaining units represented by labor unions. The machinist and press
operators have active contracts that expire on December 31, 1999 and
August 2, 2002. Contracts with the remaining five collective bargaining
units have expired and THE DENVER POST is currently involved in ongoing
negotiation with the unions. Approximately 900 full-time and part-time
employees are covered by collective bargaining agreements at subsidiaries
of Garden State.
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.
12
<PAGE>
COMPETITION
GENERAL
Each of the Company's newspapers competes to varying degrees with
magazines, radio, television and cable television, as well as with some
weekly publications and other advertising media, including electronic media,
for advertising and circulation revenue. Competition for newspaper
advertising is largely based upon circulation, price and the content of the
newspaper. A newspaper's coverage of the market, generally determined by
household penetration, is of significant importance to advertisers and
directly affects a newspaper's share of total advertising revenues in the
market. Management believes, however, that advertisers generally regard
newspaper advertising as the most effective method of advertising promotions
and pricing as compared to television, which is generally used to advertise
image. The Company may from time to time, compete with other companies which
have greater financial resources than the Company.
GARDEN STATE
Garden State's suburban and small city daily newspapers are the dominant
local news and information source, with strong name recognition in their
market and no direct competition from similar daily newspapers published in
their markets. However, with most small daily newspapers, some circulation
competition exists from larger daily newspapers which are usually published
in nearby metropolitan areas. Management believes larger daily newspapers
with circulation in Garden State's newspaper markets generally do not compete
in any meaningful way for local advertising revenues, a newspaper's main
source of revenues. Garden State's daily newspapers capture the largest share
of local advertising as a result of their direct coverage of the market. In
addition, management believes advertisers generally regard newspaper
advertising as the most effective method of advertising promotions and
pricing as compared to television, which is generally used to advertise
image. Free weekly newspapers generally depend solely upon advertising
revenue and the distribution of preprinted advertising circulars.
DENVER NEWSPAPERS
THE DENVER POST competes with the ROCKY MOUNTAIN NEWS, which is owned by
The E. W. Scripps Company. Competition for newspaper advertising in Denver is
largely based upon circulation volumes and demographics, price and the
content of the newspaper. The competition experienced by the Eastern Colorado
newspapers is similar to that of Garden State, as previously discussed,
although these markets are more isolated from metropolitan areas than many of
Garden State's markets.
ELECTRONIC MEDIA
Many newspaper companies are now publishing news and other content on
the world wide web. In addition, there are several new start-up companies
which have developed sites on the world wide web which are, by design,
advertising and/or subscription supported. Many of these sites target
specific types of advertising such as employment and automotive classified.
Due to many issues associated with advertising on the world wide web,
such as fragmentation and lack of meaningful research on viewers and
penetration levels, the Company does not view the world wide web as a
competitive threat today. However, as the issues mentioned above are
resolved, advertising on the world wide web is expected to grow to meaningful
levels. Accordingly, the Company has developed a strategy which it believes
will allow it to participate in the advertising growth on the world wide web.
In April 1997, MNG moved the electronic media group of Alameda Newspaper
Group to its Denver headquarters and established MNT, the electronic
publishing division of MNG. MNT is responsible for developing and maintaining
the website for the Company and each of its daily newspapers. In addition,
MNT has and is continuing to develop strategic alliances to enhance content,
functionality and delivery. Such strategic alliances include Microsoft,
Pantheon, Navidec and Ad-One Classified. The Company believes the design,
functionality and content of its websites will attract viewers to continually
return to its website(s) for news and information, a key for advertisers. All
of the Company's newspapers currently on-line can be located at
www.newschoice.com.
13
<PAGE>
ITEM 2. PROPERTY
Garden State's production facilities are, in most cases, complete
newspaper and office facilities. The principal operating facilities owned by
Garden State are located in Hayward, San Mateo, Union City, West Covina, Long
Beach, Woodland Hills, Valencia and Eureka, California; Council Bluffs, Iowa,
Bridgeton and Woodbury, New Jersey; Easton, York, Hanover and Lebanon,
Pennsylvania; Pittsfield, North Adams, Lowell and Fitchburg, Massachusetts;
Las Cruces, New Mexico; Bennington and Brattleboro, Vermont; and Graham,
Texas. Facilities located in Oakland, Pasadena and Pleasanton, California,
are operated under long-term leases. The principal operating facilities of
Denver Newspapers are located in Denver, Fort Morgan, Lamar and Sterling,
Colorado. Denver Newspapers also leases certain facilities in Denver,
Colorado.
The Company's management believes that all of its properties are
generally well maintained, in good condition and suitable for current
operations. All of the Company's equipment is adequately insured.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in a number of legal proceedings which have
arisen in the ordinary course of business. In the opinion of management, the
outcome of these legal proceedings will not have a material adverse impact on
the Company's financial position or results of operations.
REGULATION AND ENVIRONMENTAL MATTERS
Substantially all of the Company's facilities are subject to federal,
state and local laws concerning, among other things, emissions to the air,
water discharges, handling and disposal of wastes or otherwise relating to
protection of the environment. Compliance with these laws has not had, and
management does not expect it to have, a material effect upon the capital
expenditures, net income or competitive position of the Company.
Environmental laws and regulations and their interpretation, however, have
changed rapidly in recent years and may continue to do so in the future.
Environmental Assessment Reports of the Company's properties have identified
historic activities on certain of these properties, as well as current and
historic uses of properties in surrounding areas, which may affect the
Company's properties and require further study or remedial measures. No
material remedial measures are currently anticipated or planned by the
Company or required by regulatory authorities with respect to the Company's
properties. However, no assurance can be given that existing Environmental
Assessment Reports reveal all environmental liabilities, that any prior owner
of the Company's properties did not create a material environmental condition
not known to the Company, or that a material environmental condition does not
otherwise exist as to any such property.
Subsidiaries of the Company which deliver newspapers by second-class
mail are required to obtain permits from, and to file an annual statement of
ownership with, the United States Postal Service.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
14
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
The Class B common stock has no established trading market and is not
widely held. As of August 25, 1998, there were 10 holders of record of the
Company's Class B common stock.
The Company's Class D, GSI and N common stock is not registered;
therefore, no public market exists for these classes of common stock. On
August 25, 1998, the Class D, GSI and N common stock had 7, 11, 10 and 12
holders of record, respectively.
ANI has never paid cash dividends on its common stock and does not
intend to pay any cash dividends on its common stock in the foreseeable
future. The Company's long-term debt contains covenants which, among other
things, restrict the payment of dividends by ANI to its stockholders. In
addition, as a holding company, ANI's ability to pay cash dividends will be
dependent on the receipt of dividends or other payments from its
subsidiaries. Certain debt agreements of subsidiaries maturing prior to
July 1, 1999, prohibit such subsidiaries from paying dividends to ANI.
Other debt agreements of the subsidiaries restrict the subsidiaries from paying
dividends to ANI prior to July 1, 1999, and then only to the extent the
Company achieves certain cash flow levels.
15
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
--------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- --------- ---------- ----------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA(a):
Revenues
Advertising.......................... $ 331,999 $ 242,914 $ 197,954 $ 179,268 $ 159,653
Circulation.......................... 67,924 48,451 39,930 30,517 25,198
Other................................ 14,383 11,537 7,546 3,260 1,792
---------- ---------- --------- ---------- ----------
Total Revenues.......................... 414,306 302,902 245,430 213,045 186,643
Cost of Sales........................... 145,412 106,939 98,469 79,098 68,531
Selling, General and Administrative..... 168,092 125,234 100,290 88,889 79,217
Management Fees......................... 2,757 2,205 2,008 1,666 1,552
Depreciation and Amortization........... 38,857 24,689 21,841 18,709 19,900
Interest Expense ....................... 63,991 48,370 41,932 38,611 25,982
Gain on Sale of Newspaper............... 31,829 30,575 8,291 4,153 6,536
Income (Loss) in Unconsolidated
Subsidiary............................ 5,558 9,287 2,541 5,748 8,646
Income (Loss) Before Income Taxes,
Cumulative Effect of Accounting
Change and Extraordinary gain........ 21,198 27,332 (12,789) (5,436) (13,260)
Net Income (Loss)....................... 16,406 17,494 (10,932) (8,293) (10,749)
Earnings Per Share...................... $ 7.09 $ 7.56 $ (4.72) $ (3.58) $ (7.54)
OTHER FINANCIAL DATA:
Capital Expenditures.................... $ 9,683 $ 8,836 $ 8,079 $ 4,284 $ 3,380
Cash Flow from:
Operating Activities.................. 55,350 31,238 8,658 22,876 7,039
Investing Activities.................. (207,026) (148,657) 6,900 1,255 (15,840)
Financing Activities.................. 143,731 121,748 (28,226) (15,742) 9,305
EBITDA(b)............................... 98,045 68,524 44,663 43,392 37,343
BALANCE SHEET DATA:
Total Assets............................ $ 659,258 $ 428,560 $ 245,665 $ 252,926 $ 251,158
Long-Term Debt and Capital
Leases............................... 667,589 482,401 325,700 324,442 322,937
Other Long-Term Liabilities and
Obligations.......................... 6,963 5,488 8,101 5,042 3,852
Total Shareholders' Deficit............. (97,617) (114,023) (131,517) (120,585) (112,292)
</TABLE>
- ---------------------------------
(FOOTNOTES ON THE FOLLOWING PAGE)
16
<PAGE>
(a) Revenues and operating expenses are affected by the following acquisition
and disposition transactions. The revenue numbers provided below are from
the actual fiscal year results of operations of the respective newspapers
since the date of acquisition or prior to their disposition.
(I) On May 31, 1994, a subsidiary of the Company purchased the assets
of THE EXPRESS-TIMES, which contributed $1.5 million to fiscal
1994 revenues of the Company.
(II) On June 27, 1994, a subsidiary of the Company closed the
YPSILANTI PRESS, a daily newspaper published in Ypsilanti,
Michigan, and sold its circulation list for $9.0 million. The
sale resulted in a pre-tax gain of approximately $6.5 million.
This newspaper contributed approximately $4.3 million in fiscal
1993 and $4.1 million of revenues in fiscal 1994 prior to its
disposition.
(III) On August 1, 1994, a subsidiary of the Company sold substantially
all the assets used in the publication of the BRISTOL PRESS and
three weekly newspapers distributed in and around Bristol,
Connecticut for $14.5 million. The sale resulted in a pre-tax
gain of approximately $4.2 million. This newspaper contributed
$6.2 million of revenue in fiscal 1994 and $0.5 million of
revenue prior to its sale in fiscal 1995.
(IV) On November 18, 1994, a subsidiary of the Company acquired
substantially all the assets used in the publication of the
GLOUCESTER COUNTY TIMES and TODAY'S SUNBEAM, daily newspapers
located in Woodbury and Salem, New Jersey, respectively, for
$10.9 million. These newspapers contributed $8.4 million of
revenues to the Company in fiscal 1995.
(V) On August 31, 1995, the Company acquired substantially all the
assets used in the publication of THE BERKSHIRE EAGLE, BENNINGTON
BANNER and BRATTLEBORO REFORMER, daily newspapers published in
Pittsfield, Massachusetts; Bennington and Brattleboro, Vermont,
respectively, for approximately $34.6 million. These newspapers
contributed approximately $21.6 million of revenues in fiscal
year 1996.
(VI) On March 10, 1996, the Company acquired substantially all the
assets used in the publication of the SAN MATEO COUNTY TIMES, a
daily newspaper, and five weekly newspapers published in San
Mateo County, California, for approximately $15.0 million. These
newspapers contributed approximately $4.0 million of revenue to
the Company in fiscal 1996.
(VII) On May 1, 1996, the Company sold the common stock of the
Johnstown Tribune Publishing Company which publishes THE
TRIBUNE-DEMOCRAT and two weekly newspapers distributed in and
around Johnstown, Pennsylvania, for $50.6 million. The sale
resulted in a pre-tax gain of approximately $8.3 million. These
newspaper contributed approximately $14.9 million of revenues in
fiscal 1996 prior to its sale and approximately $17.4 million in
fiscal 1995. In connection with the sale of the Johnstown Tribune
Publishing Company described above, the Company acquired the
NORTH ADAMS TRANSCRIPT and the BRIDGETON NEWS, daily newspapers
published in North Adams, Massachusetts, and Bridgeton, New
Jersey, respectively. These newspapers contributed revenue of
approximately $1.2 million in fiscal 1996.
(VIII) On October 31, 1996, the Company acquired substantially all the
assets used in the publication of the PASADENA 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
approximately $130.0 million. These newspapers contributed $45.9
million of revenue to the Company in fiscal year 1997.
(IX) On February 13, 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 $30.6 million, net of selling expenses, in
its third fiscal quarter. These newspapers contributed
approximately $7.5 million of revenues in fiscal year 1997 prior
to their sale and approximately $12.0 million in fiscal year 1996.
(X) On February 28, 1997, the Company acquired substantially all the
assets used in the publication of the SENTINEL & ENTERPRISE,
LEBANON 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 the same cities, for
a total of approximately $51.2 million in cash. These newspapers
combined contributed approximately $7.9 million of revenue to the
Company in fiscal year 1997.
(XI) On July 31, 1997, the Company acquired substantially all the
assets used in the publication of THE SUN, an evening newspaper
published in Lowell, Massachusetts. The assets were purchased for
approximately $60.8 million. THE SUN contributed $22.3 million of
revenue in fiscal 1998.
(XII) On December 5, 1997, the Company 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. These newspapers contributed $16.2 million of revenues
prior to the sale and $36.2 million in fiscal year 1997.
(XIII) On December 16, 1997, the Company acquired substantially all the
assets used in the publication of the PRESS-TELEGRAM, a daily
newspaper published in Long Beach, California, for approximately
$38.2 million in cash. Proceeds from the sale of the NORTH JERSEY
HERALD & NEWS were used to fund the acquisition. This newspaper
contributed approximately $22.7 million of revenue in fiscal year
1998.
(XIV) On January 29, 1998, the Company acquired substantially all the
assets used in the publication of the DAILY NEWS, a daily
newspaper published in the San Fernando Valley of Los Angeles,
California, for approximately $130.0 million. This newspaper
contributed approximately $36.9 million of revenue to the Company
in fiscal year 1998.
(FOOTNOTES CONTINUED ON THE FOLLOWING PAGE)
17
<PAGE>
(FOOTNOTES FROM PROCEEDING PAGE)
(XV) On May 1, 1998, the Company acquired substantially all the assets
used in the publication of the VALLEY NEWS TODAY, a morning
newspaper published five times a week in Shenandoah Iowa, and
seven weekly publications distributed primarily in Shenandoah and
Dennison, Iowa. These assets were purchased for approximately
$5.1 million in cash, plus covenants not to compete with a
discounted value of $0.6 million. These newspapers contributed
approximately $0.3 million of revenue to the Company in fiscal
year 1998.
(XVI) On May 11, 1998 the Company acquired substantially all the assets
used in the publication of THE TRI-CITY WEEKLY, a weekly
newspaper published in Eureka, California for approximately $2.6
million in cash, plus a covenant not to compete with a discounted
value of $0.5 million. This newspaper contributed approximately
$0.2 million of revenue to the Company if fiscal year 1998.
(b) EBITDA represents total revenues less cost of sales, selling, general and
administrative expense and management fees charged by MNG. Although
EBITDA is not a measure of performance calculated in accordance with
GAAP, the Company believes that EBITDA is an indicator and measurement of
its leverage capacity and debt service ability. EBITDA should not be
considered as a measure of profitability, liquidity or as an alternative
to net income, cash flows generated by operating, investing or financing
activities or other financial statement data presented in the Company's
Consolidated Financial Statements or any other GAAP measure as an
indicator of the Company's performance.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
The following analysis of the financial condition and results of
operations of the Company should be read in conjunction with the Selected
Financial Data and the Company's Consolidated Financial Statements. ANI is a
holding company and has no newspaper operations or sources of income of its
own. ANI's newspapers are operated through Garden State's indirect
subsidiaries and its unconsolidated subsidiary, Denver Newspapers.
OVERVIEW
The Company's Garden State subsidiary is in the business of owning and
operating market dominant daily and weekly suburban newspapers. Denver
Newspapers operates THE DENVER POST and several smaller daily and weekly
newspapers. The Company's newspapers derive their revenues primarily from
advertising and circulation. The Company's primary operating expenses (before
depreciation and amortization) are employee salaries, newsprint, marketing,
and distribution.
Since its inception in 1985, the Company has made leveraged
acquisitions. A majority of the value of the assets acquired was allocated to
intangible assets, principally subscriber accounts and goodwill, which
management believes are generally the most valuable assets of a newspaper. As
a result of the amortization expense associated with these intangible assets,
as well as the interest expense associated with acquisition indebtedness,
debt fees and make-whole premiums, and historical dividends in connection
with preferred stock that was redeemed, the Company has accumulated a
significant deficit since its inception. However, since fiscal 1996 the
Company has reduced the deficit by approximately $23.0 million.
Since July 1, 1995, the Company has completed several strategic
transactions that have affected its financial condition and results of
operations. The following is a summary of these transactions.
FISCAL 1998 TRANSACTIONS
On May 11, 1998, a subsidiary of the Company acquired substantially all
the assets used in the publication of THE TRI-CITY WEEKLY, a weekly newspaper
published in Eureka, California for approximately $2.6 million in cash plus a
covenant not to compete with the prior owners with a discounted value of
approximately $0.5 million.
On May 1, 1998, a subsidiary of the Company acquired substantially all
the assets used in the publication of the VALLEY NEWS TODAY, a morning
newspaper published five times a week Shenandoah Iowa, and seven weekly
publications distributed primarily in and around Shenandoah and Dennison,
Iowa. These assets were purchased for approximately $5.1 million in cash plus
an adjustment for working capital and covenant not to compete with the prior
owners, with a discounted value of approximately $0.6 million.
18
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
On January 29, 1998, a subsidiary of the Company acquired substantially
all the assets used in the publication of the DAILY NEWS, a daily newspaper
published in the San Fernando Valley of Los Angeles, California, for
approximately $130.0 million, which included working capital of approximately
$2.0 million.
On December 16, 1997, a subsidiary of the Company acquired substantially
all the assets used in the publication of the PRESS-TELEGRAM, 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.
On July 31, 1997, a subsidiary of the Company 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 a covenant not to compete with the prior owners with a discounted value
of approximately $11.8 million.
On December 5, 1997, a subsidiary of the Company 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.
FISCAL 1997 TRANSACTIONS
On February 28, 1997, a subsidiary of the Company acquired substantially
all the assets used in the publication of the SENTINEL & ENTERPRISE, LEBANON
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 the same
cities.
On February 13, 1997, a subsidiary of the Company sold substantially all
the assets used in the publication of the POTOMAC NEWS and two weekly
publications. The Company recognized a pre-tax gain on the sale of
approximately $30.6 million, net of selling expenses, in its third fiscal
quarter.
On October 31, 1996, a subsidiary of the Company acquired substantially
all of the assets used in the publication of the PASADENA 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.
FISCAL 1996 TRANSACTIONS
On May 1, 1996, a subsidiary of the Company sold the common stock of the
Johnstown Tribune Publishing Company which publishes THE TRIBUNE-DEMOCRAT,
and two weekly newspapers located in Johnstown, Pennsylvania. The sale
resulted in a pre-tax gain of approximately $8.3 million in fiscal 1996. In
conjunction with the sale, the Company also acquired the assets used in the
publication of the NORTH ADAMS TRANSCRIPT and the BRIDGETON NEWS, daily
newspapers published in North Adams, Massachusetts, and Bridgeton, New
Jersey, respectively.
On March 10, 1996, a subsidiary of the Company acquired substantially
all the assets used in the publication of the SAN MATEO COUNTY TIMES, a daily
newspaper, and five weekly newspapers published in San Mateo County,
California.
On August 31, 1995, a subsidiary of the Company purchased substantially
all the assets used in the publication of THE BERKSHIRE EAGLE, BRATTLEBORO
REFORMER and BENNINGTON BANNER, daily newspapers published in Pittsfield,
Massachusetts; Brattleboro and Bennington, Vermont, respectively, and the
MANCHESTER JOURNAL, a weekly newspaper published in Manchester, Vermont (the
"New England Newspapers" acquisition).
19
<PAGE>
RESULTS OF OPERATIONS
Set forth below is certain summary historical financial data for fiscal
1998, 1997 and 1996, in each case including the percentage change between
fiscal years.
<TABLE>
<CAPTION>
SUMMARY HISTORICAL FINANCIAL DATA
(DOLLARS IN THOUSANDS)
Fiscal Years Ended June 30, Fiscal Years Ended June 30,
---------------------------------- ------------------------------
1998 1997 1996 1998 vs.1997 1997 vs.1996
-------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Total Revenues..................... $414,306 $302,902 $245,430 36.8% 23.4%
Cost of Sales...................... 145,412 106,939 98,469 36.0 8.6
Selling, General and
Administrative................... 168,092 125,234 100,290 34.2 24.9
Management Fees.................... 2,757 2,205 2,008 25.0 9.8
Depreciation & Amortization........ 38,857 24,689 21,841 57.4 13.0
Interest Expense................... 63,991 48,370 41,932 32.3 15.3
Other.............................. 11,386 7,995 4,511 42.4 77.2
-------- -------- -------- ------------ ------------
Total Costs and Expenses........ 430,495 315,432 269,051 36.5 17.2
Income in Unconsolidated
Subsidiary...................... 5,558 9,287 2,541 (40.2) 265.5
Income (Loss)...................... 16,406 17,494 (10,932) (6.2) (a)
</TABLE>
- -------------------------
(a) not meaningful
COMPARISON OF FISCAL YEARS ENDED JUNE 30, 1998 AND 1997
REVENUES
Revenues increased $111.4 million or 36.8% in fiscal year 1998 as
compared to 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; 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; the
January 29, 1998 acquisition of the DAILY NEWS, and the May 1998 acquisitions
previously discussed. Combined, the acquisitions discussed above increased
revenues approximately $128.2 million in fiscal year 1998. These revenue
increases were partially offset by a $27.6 million decline in revenue
resulting from the sale of the POTOMAC NEWS and the sale of 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 ("same newspaper basis") combined posted a $10.8 million
or 5.3% increase in operating revenues for fiscal year 1998. Advertising
revenues at these newspapers increased by approximately 6.6%, driven by
strong classified and national revenue. Circulation and other revenue
combined on a same newspaper basis decreased by approximately $0.2 million.
COST OF SALES
Cost of sales increased $38.5 million or 36.0% in fiscal year 1998
compared to fiscal 1997. The aforementioned acquisitions caused cost of sales
to increase approximately $44.2 million in fiscal year 1998. However, this
increase was offset in part by a $9.7 million decrease in cost of sales
resulting from the sale of the POTOMAC NEWS and NORTH JERSEY HERALD & NEWS.
On a same newspaper basis, cost of sales increased approximately $4.0 million
or 5.4%, primarily associated with increased production cost, primarily
associated with advertising lineage increases.
20
<PAGE>
COMPARISON OF FISCAL YEARS ENDED JUNE 30, 1998 AND 1997 (CONTINUED)
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative ("SG&A") expenses increased $42.9
million or 34.2% in fiscal year 1998 as compared to fiscal year 1997. The
aforementioned acquisitions resulted in SG&A expense increases of $54.5
million; however, this was in part offset by a $14.6 million reduction in
SG&A expense associated with the sale the POTOMAC NEWS and the NORTH JERSEY
HERALD & NEWS. On a same newspaper basis, SG&A expense increased $3.0 million
or 3.8%. 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 lineage and paid circulation.
OTHER EXPENSE
Other expense increased $3.4 million. The majority of the increase is
attributable to the fiscal year 1998 charge to write off $7.3 million of fees
and other costs associated with Garden State issuing $300.0 million of Senior
Subordinated Notes. The increase was partially offset by $4.4 million of fees
and other cost associated with the Garden State Bank Credit Agreement entered
into in October, 1996.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased $14.2 million in 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 in part offset 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 $15.6 million in fiscal year 1998 as compared
to the same period of fiscal year 1997. Interest expense increased primarily
as a result of a $164.4 million increase in average debt outstanding, all of
which is associated with acquisitions. This increase was partially offset by
a 49 basis point decrease in the average interest rate, mainly associated
with the refinancing of the Company's 10.89% Notes on October 31, 1996, and a
reduction in the borrowing spread on bank debt, which was offset in part by
an increase associated with the replacement of bank debt with the 8.75%
Senior Subordinated Notes issued on October 1, 1997 and February 12, 998.
DENVER NEWSPAPERS - UNCONSOLIDATED SUBSIDIARY
Net income applicable to common stock of Denver Newspapers decreased
$3.7 million in fiscal 1998 compared to fiscal 1997. The decrease in net
income applicable to common stock at Denver Newspapers was primarily the
result of a $22.4 million or 12.9% increase in operating expenses that was
only partially offset by the $13.5 million or 6.6% increase in revenue during
the same period. The increase in operating expenses were the result of The
Denver Post expanding its State news coverage by adding eleven new regional
news bureaus in the third quarter of fiscal year 1998, increased production
cost associated with the start-up of a new press line in late November 1997,
higher newsprint expenses associated with increased consumption due to
circulation and advertising lineage gains and slightly higher average
newsprint prices, and the start-up in the second quarter of fiscal year 1998
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 exceed revenues.
21
<PAGE>
COMPARISON OF FISCAL YEARS ENDED JUNE 30, 1998 AND 1997 (CONTINUED)
NET INCOME
ANI recorded an adjusted loss of approximately $8.1 million in 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 $7.3 million of debt issuance cost
compared to an adjusted net income of $0.1 million in fiscal year 1997, after
excluding $4.4 million of debt issuance cost, the $8.8 million extraordinary
loss and the $30.6 million pre-tax gain on the sale of the POTOMAC NEWS. The
increase in the adjusted loss is primarily attributable to a $15.6 million
increase in interest expense, $3.7 million decrease in the equity pick-up
from Denver Newspapers and the $3.7 million increase in tax expense, the
majority of which is associated with the sale of the NORTH JERSEY HERALD &
NEWS. These increases were offset in part by a $15.4 million increase in
operating profit at Garden State.
COMPARISON OF FISCAL YEARS ENDED JUNE 30, 1997 AND 1996
REVENUES
Revenues increased $57.5 million or 23.4% in fiscal year 1997 as
compared to fiscal year 1996. The increase in revenue was attributable to the
New England Newspapers acquisition; the March 1996 acquisition of the SAN
MATEO COUNTY TIMES ; the April 30, 1996, acquisition of the NORTH ADAMS
TRANSCRIPT and the BRIDGETON 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, LEBANON DAILY NEWS and THE DAILY NONPAREIL.
Combined, the acquisitions discussed above increased revenues approximately
$78.5 million in fiscal year 1997. These revenue increases were partially
offset by a $19.4 million decline in revenue resulting from the sale of the
Johnstown Tribune Publishing Company on May 1, 1996, and the POTOMAC NEWS on
February 13, 1997. On a same newspaper basis the Company posted a $1.6
million decrease in operating revenues for fiscal year 1997. However,
excluding Alameda Newspaper Group (without San Mateo), on a same newspaper
basis the Company posted a $3.6 million or 3.3% increase in operating
revenues. The increase in operating revenue at these newspapers was primarily
attributable to a combined 9.6% and 2.2% gain in classified and retail
revenue, respectively. Without the acquisition of the SAN MATEO COUNTY TIMES,
year-over-year comparisons of the Alameda Newspaper Group continued to be
negatively affected by declines in circulation revenue caused by increased
use of discounts and a significant number of out-of-business accounts (loss
of certain accounts as a result of store mergers or bankruptcies); however,
such comparisons turned positive late in the fourth quarter of fiscal 1997
and showed substantial improvement throughout fiscal 1998.
COST OF SALES
Cost of sales increased $8.0 million or 8.1% in fiscal year 1997
compared to fiscal 1996. The aforementioned acquisitions caused cost of sales
to increase approximately $25.8 million in fiscal year 1997. However, this
increase was offset in part by a $7.0 million decrease in cost of sales
resulting from the sale of the Johnstown Tribune Publishing Company and the
POTOMAC NEWS. On a same newspaper basis, cost of sales decreased
approximately $10.6 million or 13.4%. The decrease in cost of sales on a same
newspaper basis was almost entirely the result of a 25% decrease in the
average cost of newsprint. Excluding newsprint, cost of sales on a same
newspaper basis increased approximately $0.4 million or 1.0% in fiscal year
1997.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative ("SG&A") expenses increased $25.4
million or 25.3% in fiscal year 1997 as compared to fiscal year 1996. The
aforementioned acquisitions resulted in SG&A expense increases of $29.3
million; however, this was in part offset by a $6.1 million reduction in SG&A
expense associated with the sale of the Johnstown Tribune Publishing Company
and the POTOMAC NEWS. On a same newspaper basis, SG&A expense increased $2.2
million or 2.4%. 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 lineage and paid circulation.
22
<PAGE>
COMPARISON OF FISCAL YEARS ENDED JUNE 30, 1997 AND 1996 (CONTINUED)
OTHER EXPENSE
Other expense, net, increased $3.5 million. The majority of the increase
is attributable to a second quarter fiscal year 1997 charge to write off
approximately $4.4 million of fees and other costs associated with the Garden
State Bank Credit Agreement entered into on October 31, 1996. The increase
was partially offset by $1.1 million of financing costs recorded in the same
period of fiscal year 1996 associated with the New England Newspapers
acquisition.
DENVER NEWSPAPERS - UNCONSOLIDATED SUBSIDIARY
Net income applicable to common stock of Denver Newspapers increased
$11.2 million in fiscal 1997 compared to fiscal 1996. The increase in fiscal
1997 was primarily the result of a $17.4 million increase in operating
profit, offset by a $6.9 million increase in tax expense, as compared to the
prior year. The increase in operating profit was primarily attributable to a
$21.4 million or 11.7% increase in revenues and $8.9 million decrease in
newsprint expense, which was offset by increased operating cost, primarily
associated with higher sales and circulation at THE DENVER POST and the
inclusion of a full year's operations of Eastern Colorado (acquired May 1,
1996). The majority of the increase in operating revenues is attributable to
a 11% growth in advertising lineage, which was the result of an increase in
market size as well as market share at THE DENVER POST. Newsprint expense
decreased at THE DENVER POST primarily as a result of a 24% decrease in the
average cost of newsprint consumed, which was partially offset by a 11%
increase in consumption. Denver Newspapers' acquisition of three daily and
three paid weekly newspapers in Eastern Colorado accounted for approximately
3.4% of the increase in net income applicable to common stock.
NET INCOME
ANI recorded net income of approximately $17.5 million in fiscal 1997;
after excluding the pretax gain on the sale of the POTOMAC NEWS of $30.6
million, the effect of the $4.4 million charge described above, and the $8.8
million extraordinary loss from the prepayment of Garden State's Senior
Notes, ANI would have recorded an adjusted net income of $0.1 million, as
compared to an adjusted net loss of $17.8 million in fiscal year 1996, after
excluding the gain on the sale of the Johnstown Tribune Publishing Company,
the write-off of fees and other costs associated with a Garden State credit
facility, and start-up costs associated with the acquisition and integration
of the SAN MATEO COUNTY TIMES. The increase in adjusted net income is
primarily attributable to a $21.0 million increase in operating profit and a
$6.7 million increase in the equity pick-up from Denver Newspapers offset by
a $6.4 million increase in interest expense, primarily associated with
increased debt related to 1997 acquisitions and a $2.9 million reduction in
tax benefits.
LIQUIDITY AND CAPITAL RESOURCES
The principal sources of liquidity for the Company and its subsidiaries
are existing cash and other working capital, cash flow provided from their
operating activities and the borrowing capacity under revolving credit
agreements. The Company's operations, consistent with the newspaper industry,
require little investment in inventory, as less than 30 days of newsprint is
generally maintained on hand. The Company may, from time to time increase its
newsprint inventories in anticipation of price increases. In general, the
Company's receivables have been collected on a timely basis.
JUNE 30, 1998 COMPARED TO JUNE 30, 1997
Net cash flows from operating activities were approximately $55.4
million and $31.2 million for fiscal years ended June 30, 1998 and 1997,
respectively. The $24.2 million increase in cash flow from operating
activities was primarily the result of a $29.5 million increase in operating
profit, excluding depreciation and amortization expense, for the fiscal year
1998, compared to the fiscal year 1997, combined with a $9.2 million increase
in the change in operating assets and liabilities, which were offset by a
$12.5 million increase in cash interest expense.
23
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
JUNE 30, 1998 COMPARED TO JUNE 30, 1997 (CONTINUED)
Net cash flows from investing activities were ($207.0) million and
($148.7) million for fiscal years ended June 30, 1998 and 1997, respectively.
The $58.3 million change was primarily the result of the Company spending a
net $197.3 million on acquisitions in fiscal year 1998 compared to $140.0
million in fiscal year 1997.
Net cash flows from financing activities were $143.7 million and $121.7
million for fiscal years ended June 30, 1998 and 1997, respectively. The
change of approximately $22.0 million was primarily attributable to the
Company borrowing a net $151.0 million in fiscal year 1998, compared to the
net borrowing of $135.7 million in fiscal year 1997, the majority of which
was issued in conjunction with the previously discussed acquisitions in each
fiscal year. A $6.7million reduction in debt issuance and repurchase premium
also contributed to the increase.
JUNE 30, 1997 COMPARED TO JUNE 30, 1996
Net cash flows from operating activities were approximately $31.2
million and $8.7 million for fiscal years ended June 30, 1997 and 1996,
respectively. The $22.5 million increase in cash flow from operating
activities was primarily the result of a $23.9 million increase in operating
profit, before depreciation and amortization expense, for the fiscal year
ended June 30, 1997, compared to the fiscal year 1996, which was partially
offset by a $6.4 million increase in interest expense for the same period.
Net cash flows from investing activities were ($148.7) million and $6.9
million for fiscal years ended June 30, 1997 and 1996, respectively. The
$155.6 million change was primarily the result of funds totaling
approximately $187.6 million used to acquire the PASADENA STAR-NEWS, WHITTIER
DAILY REVIEW, SAN GABRIEL VALLEY TRIBUNE, TIMES-STANDARD, THE EVENING SUN,
THE SENTINEL & ENTERPRISE, LEBANON DAILY NEWS and THE DAILY NONPAREIL and
certain other weekly newspapers, in fiscal year 1997 less proceeds received
from the sale of the POTOMAC NEWS and other assets of $47.8 million, compared
to approximately $15.0 million received in fiscal year 1996 related to net
acquisition and disposition activity. Capital expenditures increased by
approximately $0.8 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 $121.7 million and ($28.2)
million for fiscal years ended June 30, 1997 and 1996, respectively. The
change of approximately $149.9 million was primarily attributable to the
Company borrowing approximately $133.0 million related to net acquisition and
disposition activity in fiscal 1997 as compared to paydowns of approximately
$15.0 million related to net acquisition and disposition activity and $13.0
million of paydowns in the normal course in fiscal 1996. In addition, the
Company paid make-whole premiums and other financing fees and expenses of
approximately $14.0 million in fiscal 1997 associated with acquisitions and
the prepayment of its 10.89% Senior Notes compared to financing fees and
expenses of $1.1 million paid in fiscal 1996.
CAPITAL EXPENDITURES
The Company has a capital expenditure plan (not including business
acquisitions) which includes normal maintenance capital expenditures of
approximately $1.8 million for fiscal 1999. In addition, the plan anticipates
additional expenditures during fiscal 1999 of $5.1 million, primarily
associated with business and front end computer system year 2000 upgrades, a
press and phone room expansion at the Los Angeles Newspaper Group necessary
to take advantage of certain clustering efficiencies, and integration and
consolidation of certain production operations at Alameda Newspaper Group to
improve production efficiencies. Management reviews the capital expenditure
plan periodically and modifies it as required to meet the Company's current
business needs. Capital expenditures related to these projects are expected
to be funded either through available cash or borrowings under the Garden
State Bank Credit Agreement.
24
<PAGE>
JUNE 30, 1997 COMPARED TO JUNE 30, 1996 (CONTINUED)
LIQUIDITY
Giving effect to the issuance of $300.0 million of 8.75% Senior
Subordinated Notes and the corresponding paydown of bank debt, Garden State
and its subsidiaries had a combined $242.3 million available for future
borrowings, net of approximately $4.7 million in outstanding letters of
credit at June 30, 1998. Approximately $141.0 million of the availability
under the Bank Credit Agreement is available solely for future business
acquisitions.
Subsequent to year end Garden State purchased $36.0 million of its 12%
Senior Subordinated Notes. Beginning July 1, 1999, the Company can call its
13.25% Senior Discount Debenture at 106.75% and Garden State can call its
then remaining outstanding 12.0% Senior Subordinated Secured Notes at 107.5%.
The Company and Garden State currently expect to call the 13.25% Senior
Discount Debentures and the 12.0% Senior Subordinated Notes, at the first
call date, as a result of anticipated annual interest savings in excess of
$14.0 million. The Company anticipates that it and/or Garden State will enter
into a new Bank Credit Agreement, proceeds of which would be used to fund the
call price of the bonds.
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 the Company
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. However, as discussed above, the Company expects to call certain bonds
on July 1, 1999, which is expected to reduce annual interest expense in
excess of $14.0 million. 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 June 30, 1998,
Denver Newspapers had $15.0 million available under its revolving credit
facility, excluding $1.6 million in outstanding letters of credit. In
addition, at June 30, 1998, Denver Newspapers had working capital of
approximately $6.0 million.
Denver Newspapers' revolving credit facility and shareholder agreement
prohibit the payment of common stock dividends to ANI until the revolving
credit facility and the 9% preferred stock have been repaid in full. Denver
Newspapers' revolving credit facility expires June 30, 2000. Denver
Newspapers' preferred stock is mandatorily redeemable on the earlier of (a)
July 1, 1999; (b) the date on which such redemption is permissible under
Denver Newspapers' credit agreement; (c) the date on which Denver Newspapers
ceases to own directly at least 51% of all the outstanding capital stock of
The Denver Post Corporation; or (d) the date on which Denver Newspapers,
directly or indirectly, causes or permits The Denver Post 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.
25
<PAGE>
NEAR TERM OUTLOOK
The majority of the large newsprint suppliers have announced a $40 per
metric ton price increase on standard 30 pound newsprint, beginning on
September 1, 1998. If the price increase takes hold, newsprint transaction
prices will increase to approximately $615 per metric ton for large buyers.
Upward pressure in newsprint pricing is being fueled by the Abitibi
Consolidated (the largest newsprint vendor in North America) strike at seven
newsprint mills which began on June 15, 1998. If the September 1, 1998, price
increase is successful, the increase is not expected to have a significant
impact on the Company's cash flows from operations as the Company and Denver
Newspapers expect to purchase approximately 49% of its fiscal 1999 newsprint
requirements under fixed price contracts, entered into by MediaNews Group,
expiring over the next 18 months to 30 months. The weighted average rate for
contracted newsprint which the Company and Denver Newspapers anticipates
receiving in fiscal year 1999 will be approximately $556 per metric ton. In
addition, the Company participates in a contract that allows it to purchase
36,000 metric tons per year at a price equal to the lowest price which
newsprint is sold to large North America newsprint purchases, subject to
quarterly adjustment. While there is no assurance that the Company and Denver
Newspapers will receive newsprint allocation as described above, based on
current operations, management does not anticipate material changes in the
allocation during fiscal year 1999.
Based upon current and expected operations management believes that the
Company will have sufficient cash flows from operations 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. In addition to cash flows from operations, Garden State has
approximately $6.0 million as of the date of this report, available under a
working capital facility, which should be more than sufficient to fund
unanticipated needs.
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.
The purchase of Garden State's Class A common stock and the Series A and
C preferred stock by ANI was financed with debt issued by 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 ability to pay dividends to
ANI. Garden State's debt agreements discussed above prohibit the payment of
dividends to ANI prior to June 30, 1999. The ANI debt can be called beginning
July 1, 1999 at 106.5%. Based on current interest rates ANI expects to call
their debt on July 1, 1999. Cash flows from Garden State will be required to
service ANI's debt.
IMPACT OF YEAR 2000
The year 2000 issue results from computer programs using two digits
rather than four to define the applicable year. The Company's computer
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a system
failure, disruption of operations, and/or a temporary inability to conduct
normal business activities. Based on a recent assessment, the Company
currently believes that with modifications to existing software and
conversions to new software, the year 2000 issue will not pose significant
operational problems. If such modifications and conversions are not made, or
are not completed in a timely way, the year 2000 issue could have a material
impact on operations.
The Company's newspapers have completed the process of identifying
computer systems that require modification or replacement and has begun the
systematic replacement or modification of all its computer systems which are
not year 2000 compliant. In addition, the Company has initiated
communications with its significant suppliers to determine the extent to
which the Company's interface systems are vulnerable to those third parties'
failure to resolve their own year 2000 issues.
The Company estimates that the remaining cost of modifying or replacing
its computer systems, which are not year 2000 compliant, will be
approximately $4.0 million. Through the year ended June 30, 1998, the Company
has spent approximately $2.3 million in conjunction with year 2000
compliance, the majority of which has been capitalized as it involved the
replacement of computer hardware and software. The year 2000 compliance cost
is based on management's best estimate and actual results could differ from
those anticipated.
26
<PAGE>
IMPACT OF YEAR 2000 (CONTINUED)
In addition, if the Company or its vendors are unable to resolve the year
2000 issue in a timely manner, such matters could have a material impact on the
Company's results of operations. The Company believes the necessary
modifications and replacement of computer systems will be completed by the end
of fiscal year 1999 and thus no contingency plan has been developed. The year
2000 issue is not expected to pose significant operational or financial problems
for the Company.
MARKET RISK
Interest Rate Sensitivity
Principal Amount by Expected Maturity
Average Interest Swap Rate
Year Ended June 30,
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 Thereafter Total 1998
---- ---- ---- ---- ---- ---------- ----- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES
LONG-TERM DEBT, INCLUDING CURRENT
PORTION
Fixed Rate -- -- -- -- -- 550,547 550,547 587,038
Average Interest Rate 10.70% 10.70% 10.70% 10.70% 10.70% 10.70%
Variable Rate -- -- -- 3,750 7,500 22,750 34,000 34,000
Average Interest Rate 6.93% 6.93% 6.93% 6.93% 6.93% 6.93%
INTEREST RATE DERIVATIVE FINANCIAL
INSTRUMENT RELATED TO DEBT
INTEREST RATE SWAPS
Pay variable/Receive Fixed 50,000 -- -- -- -- -- 50,000 (0.4)
Average Pay Rate 6.45% -- -- -- -- --
Average Rate Received 5.70% -- -- -- -- --
</TABLE>
27
<PAGE>
FORWARD-LOOKING STATEMENTS
This 10-K includes "Forward-Looking Statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. All
statements other than statements of historical facts included in this 10-K,
including without limitation, certain statements under "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business" and statements located elsewhere herein regarding the Company's
financial position and operating strategy, may constitute forward-looking
statements. Although the Company believes that the expectations reflected in
such forward-looking statements are reasonable, it can give no assurance that
such expectations will prove to have been correct. Important factors that
could cause actual results to differ materially from the Company's
expectations ("Cautionary Statements") include the following: (1) costs or
difficulties related to the integration of businesses acquired by the Company
(including clustering) may be greater than expected; (2) unanticipated
increases may occur in financing and other costs, such as newsprint or labor
costs; (3) general economic or business conditions, either nationally or in
the regions in which the Company conducts business, may be less favorable
than expected; and (4) competition, including from other newspapers, other
traditional forms of advertising and newer forms made possible by the
internet and otherwise. All subsequent written and oral forward-looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by the cautionary statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is filed as a separate part of this report
(see page 34).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
28
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Executive officers and directors of ANI are as follows:
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
Richard B. Scudder................... 85 Chairman of the Board and Director
William Dean Singleton............... 46 Vice Chairman, President, Chief Executive Officer
And Director
Joseph J. Lodovic, IV................ 37 Executive Vice President, Chief Financial Officer
Anthony F. Tierno.................... 53 Executive Vice President, Chief Operating Officer
E. Michael Fluker.................... 61 Senior Vice President, Administration
Ronald A. Mayo....................... 36 Vice President of Finance and Controller
James L. McDougald.................. 44 Treasurer
Jean Scudder......................... 46 Director
Patricia Robinson.................... 56 Director and Secretary
Howell E. Begle, Jr.................. 54 Assistant Secretary and General Counsel
</TABLE>
Each director is elected annually and serves until the next annual
meeting of shareholders or until his successor is duly elected and qualified.
The directors of ANI are not compensated for their service as directors. They
do, however, receive reimbursement of expenses incurred from the attendance
at Board of Directors meetings. The executive officers of ANI are appointed
by and serve at the pleasure of the Board of Directors.
BUSINESS EXPERIENCE
RICHARD B. SCUDDER was elected Chairman of the Board and a director of
ANI in February 1994. He has served as Chairman of the Board and a director
of Garden State since 1985.
WILLIAM DEAN SINGLETON was elected Vice Chairman, President, Chief
Executive Officer and a director of ANI in February 1994. He has served as
Vice Chairman, President, Chief Executive Officer and a director of Garden
State since 1985.
JOSEPH J. LODOVIC, IV was appointed Executive Vice President and Chief
Financial Officer of ANI in February 1994. He has served as Executive Vice
President and Chief Financial Officer of Garden State since November 1993.
Prior thereto, he served as Vice President and Treasurer of Garden State from
1989 to 1993.
ANTHONY F. TIERNO was appointed Executive Vice President and Chief
Operating Officer of ANI in February 1994. He has served as Executive Vice
President and Chief Operating Officer of Garden State since November 1993.
Prior thereto, he served as Vice President of Garden State's eastern United
States operations from 1987 to 1993. Mr. Tierno has been with Garden State
since its inception in 1985.
E. MICHAEL FLUKER was appointed Senior Vice President, Administration,
of ANI in February 1994. He has served as Senior Vice President,
Administration, for Garden State since November 1993. Prior thereto, he
served as Executive Vice President and Chief Financial Officer of Garden
State from 1989 to 1993.
RONALD A. MAYO has served as Vice President of Finance and Controller
since September 1994. From 1984 to 1994, Mr. Mayo was employed by Ernst &
Young LLP, most recently as a Senior Manager.
JAMES L. MCDOUGALD has served as Treasurer since September 1994. Prior
thereto, he was Controller for Garden State from 1988 to 1994.
29
<PAGE>
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CONTINUED)
JEAN SCUDDER was elected a Director of ANI in July 1998. Ms. Scudder is
the daughter of Mr. Richard B. Scudder.
PATRICIA ROBINSON was elected Secretary of ANI in February 1994, and a
director of ANI in May 1994. She has also served as Secretary of Garden State
since 1991 and as Secretary of Denver Newspapers since 1991. Ms. Robinson is
the sister of Mr. Singleton.
HOWELL E. BEGLE, JR. was elected Assistant Secretary and General Counsel
of ANI in February, 1994. Mr. Begle is of Counsel to Verner, Liipfert,
Bernhard, McPherson and Hand, chartered, which law firm is counsel to the
Company.
ITEM 11. EXECUTIVE COMPENSATION
The business and affairs of the Company are managed by MNG pursuant to
the terms of a Management Agreement. MNG allocates its expenses as management
fees to the Company and each affiliate based on the amount of time and
resources devoted to each affiliate. See "Certain Relationships and Related
Transactions -- MediaNews Group, Inc." The following table sets forth the
cash compensation paid or payable to Mr. Singleton and any executive officer
whose allocated cash compensation exceeded $100,000 for services rendered to
the Company in fiscal 1998.
<TABLE>
<CAPTION>
NAME AND FISCAL ANNUAL COMPENSATION ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
- ------------------ ------ --------- -------- ------------
<S> <C> <C> <C> <C>
William Dean Singleton(a) 1998 $660,000 $250,000 $16,430
Vice Chairman, President 1997 550,000 100,000 11,410
and Chief Executive Officer ......... 1996 350,000 80,000 7,800
Joseph J. Lodovic IV(b) 1998 $302,500 $162,000 $ 5,130
Executive Vice President, 1997 242,567 138,415 4,642
Chief Financial Officer ............. 1996 188,325 -- 46,816
Anthony F. Tierno 1998 $225,000 $ 60,000 $10,310
Executive Vice President 1997 200,005 7,500 10,396
and Chief Operating Officer ......... 1996 192,503 2,500 9,620
E. Michael Fluker(c)
Senior Vice President ............... 1998 $156,000 $ 5,000 $ 8,100
Ronald A. Mayo(c)
Vice President Finance, Controller... 1998 $115,500 $ 50,000 $ 3,165
</TABLE>
- ------------------------
(a) Compensation paid by Garden State to Mr. Singleton under his Garden
State Employment Agreement is offset against any compensation paid to him
by any other subsidiaries of ANI, which compensation has been, and may
continue to be, significant. A portion of Mr. Singleton's 1996 compensation
was allocated to other affiliated companies managed by MediaNews Group.
(b) All other compensation in 1996 includes a relocation bonus.
(c) In fiscal year 1996 and 1997, allocated compensation did not exceed
$100,000.
30
<PAGE>
EMPLOYMENT AGREEMENTS
No executive officer of the Company has an employment agreement with the
Company except Mr. Singleton. Under the terms of his employment agreement
with Garden State, which was amended and renewed effective June 30, 1996 (the
"Employment Agreement"), Mr. Singleton is entitled to receive cash
compensation at an annual rate of not less than $660,000 (of which Garden
State is obligated to pay a portion), subject to annual review and adjustment
by the Board of Directors of Garden State. In addition, Mr. Singleton is
entitled to receive a bonus of up to $100,000 for each fiscal year based on a
comparison of actual profits of Garden State to budgeted profits during such
fiscal year. Other discretionary bonuses may be paid which are not part of
the employment agreement. The Employment Agreement expires by its terms on
June 30, 2001, but will be automatically renewed for successive one-year
terms unless Garden State or Mr. Singleton gives notice terminating the
Employment Agreement at least 120 days prior to the expiration of the
existing term. The Employment Agreement contains a five-year non-compete
covenant for all counties and geographical areas in which newspapers are
owned or circulated by Garden State or its Subsidiaries (currently or in the
future).
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Decisions regarding annual compensation in excess of $175,000 are made
by the Board of Directors of Directors of Garden State, as the officers of
ANI are also officers of Garden State. In addition, the Board of Directors of
Garden State and Denver Newspapers is responsible for approving Mr.
Singleton's Employment Agreement, including his compensation. The Board of
Directors of Garden State does not have a Compensation Committee.
Compensation of executive officers of MNG, who are also executive officers of
the Company, is approved by Mr. Singleton. See "Certain Relationships and
Related Transactions -- MediaNews Group, Inc."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The authorized capital stock of ANI consists of 2,314,346 shares of
unissued Class A common stock, $.01 par value, 173,576 shares of Class B
common stock, $.01 par value, 664,450 shares of Class D common stock, $.01
par value, 1,476,090 shares of Class G common stock, $0.1 par value, and 230
shares of Class N common stock $.01 par value (collectively the "ANI Common
Stock"), all of which have equal voting rights but differ with respect to
dividends and liquidation. ANI has not declared or paid any cash dividends on
its common stock in the past and does not intend to do so in the foreseeable
future. The Company's long-term debt limits the ability of ANI to pay such
dividends.
The following table sets forth the number and percentage of shares of
ANI common stock currently issued and outstanding and beneficially owned by
(i) each person known to ANI to be the beneficial owner of more than 5.0% of
any class of ANI's equity securities; and (ii) all directors and executive
officers of ANI as a group.
<TABLE>
<CAPTION>
Amount and Nature of Beneficial Ownership(a)
---------------------------------------------
CLASS D CLASS G CLASS GSI CLASS N
COMMON COMMON COMMON COMMON
NAME STOCK(n) STOCK(n) STOCK(n) STOCK(n)
---- -------- -------- --------- --------
<S> <C> <C> <C> <C>
William Dean Singleton(c).................... -- -- 552,065(k)(l) --
Howell E. Begle, Jr.(b)(d)................... 332,225(l) 185,980(l) 552,065 115(l)
Patricia Robinson(b)(e)...................... 332,225(l) 185,980(l) -- 115(l)
Jean L. Scudder(f)(j)........................ 249,168.75 46,495 138,016.25 28.75
Charles Scudder(g)(j)........................ 83,056.25 46,495 138,016.25 28.75
Elizabeth A. Difani(g)(h)(j)................. -- 46,495 138,016.25 28.75
Carolyn Miller(g)(i)(j)...................... -- 46,495 138,016.25
All directors and executives -- 115
as a group(m).............................. 332,225 185,980 552,065
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
Percentage of Class
--------------------------------------------------
CLASS D CLASS G CLASS GSI CLASS N
COMMON COMMON COMMON COMMON
NAME STOCK(n) STOCK(n) STOCK(n) STOCK(n)
---- -------- -------- --------- --------
<S> <C> <C> <C> <C>
William Dean Singleton(c).................... -- -- 50.00% --
Howell E. Begle, Jr.(b)(d)................... 50.00% 50.00% 50.00% 50.00%
Patricia Robinson(b)(e)...................... 50.00% 50.00% -- 50.00%
Jean L. Scudder(f)(j)........................ 37.50% 12.50% 12.50% 12.50%
Charles Scudder(g)(j)........................ 12.50% 12.50% 12.50% 12.50%
Elizabeth A. Difani(g)(h)(j)................. -- 12.50% 12.50% 12.50%
Carolyn Miller(g)(i)(j)...................... -- 12.50% 12.50% 12.50%
All directors and executives
as a group(m).............................. 100.0% 100.0% 100.0% 100.0%
</TABLE>
- ------------------------------------------
(a) Beneficial ownership is determined in accordance with the rules of the
Commission. Except as indicated by footnote, the persons named in the
tables above have sole voting and investment power with respect to all
shares of capital stock indicated as beneficially owned by them. None of
such shares is known by ANI to be shares with respect to which the
beneficial owner has the right to acquire such shares.
(b) The address of each such person is: c/o Howell E. Begle, Jr., Trustee, 901
15th Street, N.W., Suite 700, Washington, D.C. 20005. Mr. Begle is Of
Counsel to the law firm of Verner, Liipfert, Bernhard, McPherson and Hand,
Chartered, which law firm is counsel to the Company.
(c) These shares are held by a revocable trust for the benefit of the children
of Mr. Singleton (the "Singleton Revocable Trust"), for which trust Mr.
Begle and Mr. Singleton are trustees. Mr. Singleton disclaims any
beneficial ownership in the shares held in the Singleton Revocable Trust.
(d) Includes the following shares, for which Mr. Begle has sole voting power
under the Singleton Family Voting Trust Agreement for ANI (the "Singleton
Family Voting Trust Agreement for ANI") and shared investment power, as a
trustee for an irrevocable trust for the benefit of Mr. Singleton's
children (the "Singleton Irrevocable Trust"), held by the Singleton
Irrevocable Trust: 332,225 shares of Class D common stock, 185,980 Class G
common stock and 115 shares of Class N common stock. Also includes 552,065
shares of Class GSI common stock held by the Singleton Revocable Trust, for
which Mr. Begle is a trustee.
(e) These shares are held by the Singleton Irrevocable Trust, for which Ms.
Robinson serves as a trustee and as to which she has shared investment
power. Ms. Robinson is Mr. Singleton's sister.
(f) Includes 166,112.5 shares of Class D common stock held by a trust for the
benefit of Ms. Scudder's nephews, for which trust Ms. Scudder serves as the
sole trustee. Does not include the shares held by Charles Scudder,
Elizabeth Difani, as custodian for her minor children, or Carolyn Miller,
as custodian for her minor children, with respect to which Ms. Scudder has
sole voting power pursuant to the Scudder Family Voting Trust Agreement for
ANI (the "Scudder Family Voting Trust Agreement").
(g) Sole voting power with respect to these shares is held by Ms. Scudder
pursuant to the Scudder Family Voting Trust Agreement. See note (f) above.
(h) Ms. Difani holds these shares as custodian for her minor children. Sole
voting power with respect to these shares is held by Ms. Scudder pursuant
to the Scudder Family Voting Trust Agreement. See note (f) above.
(i) Ms. Miller holds those shares as custodian for her minor children. Sole
voting power with respect to these shares is held by Ms. Scudder pursuant
to the Scudder Family Voting Trust Agreement. See note (f) above.
(j) The address of each person is: c/o Jean L. Scudder, Rural Route 1, Box 75,
Readfield, Maine 04355.
(k) Indicates shared voting power.
(l) Indicates shared investment power.
(m) No directors or officers of ANI beneficially own any shares in ANI except
Mr. Singleton, Mr. Begle and Ms. Robinson. See note (c) above.
(n) Assuming conversion of each of the shares of Class D, Class G, Class GSI
and Class N common stock to shares of Class A common stock, as provided for
in the ANI Certificate of Incorporation, the shares of Class A common stock
will be held as follows: 552,065 shares by the Singleton Revocable Trust;
518,320 shares by the Singleton Irrevocable Trust; 166,112.5 shares by a
trust for the benefit of Ms. Scudder's nephews; 267,596.25 shares by Mr.
Scudder; 123,026.66 shares by Ms. Difani, as custodian for her minor
children; and 184,540 shares by Ms. Miller, as custodian for her minor
children.
32
<PAGE>
SCUDDER FAMILY VOTING TRUST AGREEMENT FOR ANI
The children of Richard B. Scudder, Charles A. Scudder, Carolyn S.
Miller, Elizabeth H. Difani and Jean L. Scudder entered into the Scudder
Family Voting Trust Agreement for ANI (the "Scudder Family Voting Trust
Agreement for ANI") in accordance with which Jean L. Scudder (the "Scudder
Trustee") exercises all voting rights (subject to the consent of shareholders
holding 50% of the common stock held by the Scudder Family Voting Trust for
ANI on such matters as election of directors, mergers, dissolution or
reorganization of ANI, sale, exchange or pledge of all or substantially all
of the assets of ANI and acquisition or divestiture by ANI of any newspaper
venture) and substantially all other rights to which such shareholders would
otherwise be entitled until May 20, 2004, subject to extension by written
agreement of one or more beneficiaries of the Scudder Family Voting Trust
Agreement for ANI and the Scudder Trustee.
SINGLETON FAMILY VOTING TRUST AGREEMENT FOR ANI
The Singleton Irrevocable Trust entered into the Singleton Family Voting
Trust Agreement for ANI (the "Singleton Family Voting Trust Agreement for
ANI") in accordance with which (i) the shares of Class D and Class N common
stock of ANI held by the Singleton Irrevocable Trust were transferred to the
Singleton Revocable Trust for ANI and (ii) the shares of Class G common stock
of ANI to be held by the Singleton Revocable Trust will be transferred to the
Singleton Family Voting Trust for ANI upon the death or incapacity of Mr.
Singleton. As a result, Howell E. Begle, as Trustee (the "Singleton
Trustee"), is considered the beneficial owner of 50% of the outstanding Class
D common stock and Class N common stock of ANI. Under the Singleton Family
Voting Trust Agreement for ANI, the Singleton Trustee exercises all voting
and substantially all other rights to which such shareholders would otherwise
be entitled until May 20, 2004, subject to extension by written agreement of
one or more beneficiaries of the Singleton Family Voting Trust Agreement for
ANI and the Singleton Trustee.
ANI SHAREHOLDERS' AGREEMENT
The Singleton Revocable Trust, the Singleton Family Voting Trust for
ANI, the Scudder Family Voting Trust for ANI, certain of the beneficiaries of
such trusts and ANI entered into a Shareholders' Agreement (the "ANI
Shareholders' Agreement") which provides, among other things, that action by
the Board of Directors with respect to such matters as the declaration of
dividends, redemption of capital stock, certain capital expenditures, mergers
or consolidation, incurring indebtedness or paying compensation to the
officers of ANI in excess of certain amounts will require the unanimous
approval of all Directors then serving on the Board of Directors or approval
by the holders of 75% of the shares of common stock entitled to vote on such
matters.
The ANI Shareholders' Agreement also provides that until the earlier of
(i) the date on which the shares of Class D common stock, Class G common
stock and Class N common stock of ANI are automatically converted into shares
of Class A common stock of ANI, pursuant to the terms of the Certificate of
Incorporation of ANI, or (ii) when ANI's Leverage Ratio is less than 3:1, no
shareholder may sell, transfer, pledge or otherwise encumber their shares,
nor their interest in their shares, of ANI common stock (other than Class B
common stock) to any third party, except certain permitted transfers to
family members and other shareholders, without the consent of all the
shareholders of ANI or unless all shares of ANI common stock then outstanding
are sold in a single transaction or a series of related transactions. Upon
the expiration of such time period, and in the event of a contemplated sale
to a third party, ANI, and thereafter the remaining shareholders, may
exercise a right of first refusal. If any shareholder desires to sell or
transfer his shares to ANI or the other shareholders without an identified
third party buyer, then such shareholder may offer to sell his shares to ANI
at fair market value determined by appraisal, or if ANI declines to purchase
such shares, such shareholder may offer to sell his shares to the remaining
shareholders at fair market value.
DENVER NEWSPAPERS SHAREHOLDERS' AGREEMENT
ANI, Denver Newspapers and Media General, Inc. ("Media General") are
parties to the Second Amended and Restated Stock and Warrant Purchase and
Shareholders' Agreement of Denver Newspapers (the "Denver Newspapers
Shareholders' Agreement") which provides, among other things, that one-half
of the directors of Denver Newspapers shall be elected by ANI and one-half of
the directors shall be elected by Media General. Pursuant to such Agreement,
without the prior unanimous approval of all of the directors of Denver
Newspapers, the common stockholders and the preferred stockholders (pursuant
to the ANI Amended and Restated Certificate of Incorporation), Denver
Newspapers and its subsidiaries are restricted from, among other things,
paying certain
33
<PAGE>
DENVER NEWSPAPERS SHAREHOLDERS' AGREEMENT (CONTINUED)
dividends, redeeming its capital stock, making capital expenditures in excess
of certain amounts, merging, consolidating or liquidating, paying
compensation in excess of certain amounts, incurring additional debt or
amending any material term of its existing debt. The Agreement also provides
that the directors of Denver Newspapers elected by Media General will not
unreasonably withhold their approval for any dividend on common stock
proposed by any member of the board of directors as long as payment in full
of the Denver Newspapers 9% Preferred Stock, including accrued and unpaid
dividends, shall have been made. The Denver Newspapers Shareholders'
Agreement contains certain restrictions on the transfer of shares of Denver
Newspapers' capital stock, as well as certain rights of first refusal and
tag-along rights, and Media General has certain registration rights with
respect to the shares of Denver Newspapers Class A common stock.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MEDIANEWS GROUP, INC.
The Company's subsidiaries have engaged MNG to operate and manage the
business and affairs of its newspapers under the terms of a management
agreement. MNG, which is owned entirely by Messrs. Singleton and Scudder,
also manages other affiliated newspapers. The majority of the executive
officers of MNG are also executive officers of the Company, and compensation
of the executive officers of the Company, with the exception of Mr. Singleton
whose compensation is paid as described under "Executive Compensation," are
paid by MNG. The Company believes that the salaries paid to its executive
officers, through either Garden State or MNG, are not greater than those
which would be paid to executives of an unaffiliated management company.
Pursuant to the management agreement, MNG allocates its expenses as
management fees to each affiliate based on the amount of time and resources
devoted to each affiliate. The weighted average of the salary allocations is
then used to apportion general overhead of MNG, such as office rent and
related operating expenses. MNG is also party to a consulting agreement,
renewable annually, with Mr. Scudder which requires annual payments of
$150,000. Costs related to such agreement are included in MNG's expenses and,
thus, are included in the management fee allocation discussed above.
MNT, a division of MNG, provides electronic media services including
website development and maintenance, internet access, and online publishing
capabilities for all the newspapers managed by MNG. The cost of providing
these services is allocated based on revenue of the newspapers for which such
services are provided. For fiscal 1998, the Company and Denver Newspapers
paid a total of approximately $1.8 million to MNT. The Company records
electronic media advertising revenues earned by the Company's newspapers, in
its consolidated statement of operations.
The Company reimburses MNG for any expenses directly incurred by MNG on
behalf of the Company that are not included in the management fee. For fiscal
1998, the Company paid approximately $2.7 million to MNG in management fees.
The Company believes that the management fees paid to MNG are not greater
than the costs the Company would expect to bear to obtain these services
elsewhere.
MNG does not own and does not expect to own any interest in the Company,
nor has MNG made any direct capital investment in the Company. While MNG's
principal business is the management of newspaper operations, the Company
does not believe its success is dependent on MNG. If the Management Agreement
should terminate, management believes the Company could obtain management
services from other sources, including current employees of MNG.
TAX SHARING AGREEMENT
ANI and Garden State are part of the same affiliated group and file
consolidated returns for federal income tax purposes. ANI and Garden State
entered into a tax sharing agreement (the "Tax Sharing Agreement") to
determine the manner in which the members of the consolidated group will
share federal income tax benefits and costs. Pursuant to the Tax Sharing
Agreement, the income tax liability of Garden State and any of Garden State's
consolidated subsidiaries is computed separately from ANI on a consolidated
return basis. If income tax is due from Garden State and its consolidated
subsidiaries, Garden State will pay the amount of the tax as a tax sharing
payment to ANI. In the event that Garden State's federal income tax is
reduced due to a net operating loss or credit carryback under applicable
federal income tax law, it will receive credit for the amount of such
reduction from ANI.
34
<PAGE>
TAX SHARING AGREEMENT (CONTINUED)
This credit amount(s) will be carried on ANI's financial records as an amount
payable to Garden State, which credit Garden State will be able to utilize to
offset future obligations to make tax sharing payments to ANI. Under the
terms of the Tax Sharing Agreement, Garden State will receive the benefit of
loss carryforwards which it generates. Similar principles will apply under
the Tax Sharing Agreement for state and local income tax purposes. Although
the payments of dividends by Garden State are restricted under the terms of
its debt instruments, Garden State will be permitted under those agreements
to make tax sharing payments.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements
1. The list of financial statements contained in the accompanying Index
to Consolidated Financial Statements and Schedules Covered by Report
of Independent Auditor is filed as a part of this Report (see
page 34).
2. Financial Statement Schedules
The list of financial statement schedules contained in the
accompanying Index to Consolidated Financial Statements and Schedules
Covered by Report of Independent Auditor is filed as part of the
Report (see page 34).
3. Exhibits
The exhibits listed in the accompanying index are filed as a part of
this annual report (See page 76).
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of fiscal
1998.
35
<PAGE>
AFFILIATED NEWSPAPERS INVESTMENTS, INC.
ITEMS 8, AND 14(a) (1) AND (2)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
COVERED BY REPORTS OF INDEPENDENT AUDITORS
The following financial statements of the registrant and its subsidiaries
required to be included in Items 8 and 14(a)(1) are listed below:
AFFILIATED NEWSPAPERS INVESTMENTS, INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................................. 37
Consolidated Balance Sheets as of June 30, 1998 and 1997.................... 38
Consolidated Statements of Operations for the Fiscal
Years Ended June 30, 1998, 1997 and 1996.................................. 40
Consolidated Statements of Changes in Shareholders' Deficit
for the Fiscal Years Ended June 30, 1998, 1997 and 1996................... 41
Consolidated Statements of Cash Flows for the
Fiscal Years Ended June 30, 1998, 1997 and 1996........................... 42
Notes to Consolidated Financial Statements.................................. 43
</TABLE>
The following financial statement schedules of the registrant and its
subsidiaries required to be included in Item 14(a)(2) are listed below:
<TABLE>
<S> <C>
Schedule I Condensed Financial Information of Registrant........ 59
Schedule II Valuation and Qualifying Accounts.................... 62
</TABLE>
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and therefore
have been omitted or the information is presented in the consolidated
financial statements or related notes.
DENVER NEWSPAPERS, INC.
<TABLE>
<S> <C>
Report of Independent Auditors............................................. 63
Consolidated Balance Sheets as of June 30, 1998 and 1997................... 64
Consolidated Statements of Operations for the Fiscal
Years Ended June 30, 1998, 1997 and 1996................................. 66
Consolidated Statements of Changes in Shareholders' Equity
for the Fiscal Years Ended June 30, 1998, 1997 and 1996.................. 67
Consolidated Statements of Cash Flows for the
Fiscal Years Ended June 30, 1998, 1997 and 1996.......................... 68
Notes to Consolidated Financial Statements................................. 69
Financial Statement Schedule
Schedule II Valuation and Qualifying Accounts and Reserves........... 77
</TABLE>
36
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To The Shareholders and Board of Directors
Affiliated Newspapers Investments, Inc.
We have audited the accompanying consolidated balance sheets of
Affiliated Newspapers Investments, Inc. and subsidiaries (the "Company") as
of June 30, 1998 and 1997, and the related consolidated statements of
operations, changes in shareholders' deficit, and cash flows for each of the
three years in the period ended June 30, 1998. Our audits also included the
financial statement schedules I and II. These financial statements and
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Affiliated Newspapers Investments, Inc. and subsidiaries at June 30, 1998
and 1997, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended June 30, 1998, in
conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedules, when considered in
relation to the basic financial statements taken as a whole, present fairly
in all material respects the information set forth therein.
ERNST & YOUNG LLP
Denver, Colorado
September 4, 1998
37
<PAGE>
AFFILIATED NEWSPAPERS INVESTMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
------------------
1998 1997
---- ----
(In thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents .............................................. $ 999 $ 8,944
Trade accounts receivable, less allowance for doubtful
accounts of $6,239 and $4,252 at June 30, 1998 and 1997,
respectively ......................................................... 48,241 32,849
Receivable from affiliates ............................................. 900 1,983
Other receivables ...................................................... 2,534 1,353
Inventories of newsprint and supplies .................................. 7,286 6,170
Prepaid expenses and other assets ...................................... 3,475 3,295
Income taxes receivable ................................................ 1,687 --
--------- ---------
TOTAL CURRENT ASSETS ................................................ 65,122 54,594
PROPERTY, PLANT AND EQUIPMENT
Land ................................................................... 16,658 8,307
Buildings and improvements ............................................. 61,060 43,462
Machinery and equipment ................................................ 179,670 126,450
--------- ---------
TOTAL PROPERTY, PLANT AND EQUIPMENT ............................... 257,388 178,219
Less accumulated depreciation and amortization ......................... (63,588) (57,670)
--------- ---------
NET PROPERTY, PLANT AND EQUIPMENT ................................. 193,800 120,549
OTHER ASSETS
Investment in Denver Newspapers, Inc. .................................. 19,671 14,113
Investment in partnership .............................................. 7,479 6,365
Subscriber accounts, less accumulated amortization of
$53,446 and $45,808 at June 30, 1998 and
1997, respectively ................................................... 98,712 69,960
Excess of cost over fair value of net assets acquired, less
accumulated amortization of $18,492 and $12,718 at
June 30, 1998 and 1997, respectively ................................. 251,196 154,294
Covenants not to compete and other identifiable intangible
assets, less accumulated amortization of $19,846 and
$15,861 at June 30, 1998 and 1997, respectively ...................... 15,810 6,685
Other .................................................................. 7,468 2,000
--------- ---------
TOTAL OTHER ASSETS .................................................. 400,336 253,417
--------- ---------
TOTAL ASSETS ............................................................. $ 659,258 $ 428,560
--------- ---------
--------- ---------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
38
<PAGE>
<TABLE>
<CAPTION>
June 30,
------------------
1998 1997
---- ----
(In thousands, except share data)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
Trade accounts payable................................................ $ 5,684 $ 6,286
Accrued employee compensation......................................... 13,938 7,208
Accrued interest...................................................... 14,465 7,830
Accrued liabilities................................................... 20,876 8,676
Unearned income....................................................... 14,829 10,746
Income taxes.......................................................... -- 1,308
Current portion of long-term debt and obligations under
capital leases....................................................... 5,644 6,247
---------- ----------
TOTAL CURRENT LIABILITIES........................................... 75,436 48,301
OBLIGATIONS UNDER CAPITAL LEASES........................................ 7,484 7,477
LONG-TERM DEBT.......................................................... 654,461 468,677
OTHER LIABILITIES....................................................... 6,479 5,092
DEFERRED INCOME TAXES................................................... 13,015 13,036
SHAREHOLDERS' DEFICIT
Common stock, $.01 par value at June 30,
1998 and 1997, respectively; authorized 5,152,602 shares,
2,314,346 shares issued and outstanding............................. 23 23
Additional paid-in capital............................................ 3,611 3,611
Deficit............................................................... (101,251) (117,657)
---------- ----------
TOTAL SHAREHOLDERS' DEFICIT........................................... (97,617) (114,023)
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT........................... $ 659,258 $ 428,560
---------- ----------
---------- ----------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
39
<PAGE>
AFFILIATED NEWSPAPERS INVESTMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Fiscal Years Ended June 30,
----------------------------------------------
1998 1997 1996
-------- --------- --------
(In thousands, except per share data)
<S> <C> <C> <C>
REVENUES
Advertising........................................... $ 331,999 $ 242,914 $ 197,954
Circulation........................................... 67,924 48,451 39,930
Other................................................. 14,383 11,537 7,546
---------- ---------- ----------
TOTAL OPERATING REVENUES.......................... 414,306 302,902 245,430
COSTS AND EXPENSES
Cost of sales......................................... 145,412 106,939 98,469
Selling, general and administrative................... 168,092 125,234 100,290
Management fees....................................... 2,757 2,205 2,008
Depreciation and amortization......................... 38,857 24,689 21,841
Interest expense...................................... 63,991 48,370 41,932
Other................................................. 11,386 7,995 4,511
---------- ---------- ----------
TOTAL COSTS AND EXPENSES.......................... 430,495 315,432 269,051
GAIN ON SALE OF NEWSPAPER PROPERTY...................... 31,829 30,575 8,291
INCOME IN UNCONSOLIDATED SUBSIDIARY..................... 5,558 9,287 2,541
---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES,
AND EXTRAORDINARY LOSS................................ 21,198 27,332 (12,789)
INCOME TAX BENEFIT (EXPENSE)............................ (4,792) (1,066) 1,857
---------- ---------- ----------
INCOME (LOSS) BEFORE EXTRAORDINARY LOSS.................... 16,406 26,266 (10,932)
EXTRAORDINARY LOSS (net of taxes of $689)............... -- 8,772 --
---------- ---------- ----------
NET INCOME (LOSS)....................................... $ 16,406 $ 17,494 $ (10,932)
---------- ---------- ----------
---------- ---------- ----------
INCOME (LOSS) PER COMMON SHARE:
Income (Loss) before extraordinary gain.................. $ 7.09 $ 11.35 $ (4.72)
Extraordinary loss.................................... -- (3.79) --
---------- ---------- ----------
Income (Loss) per common share...................... $ 7.09 $ 7.56 $ (4.72)
---------- ---------- ----------
---------- ---------- ----------
Weighted average number of shares outstanding........... 2,314,346 2,314,346 2,314,346
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
40
<PAGE>
AFFILIATED NEWSPAPERS INVESTMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN- SHAREHOLDERS'
STOCK CAPITAL DEFICIT DEFICIT
------ ---------- ------- -------------
(In thousands)
<S> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1995.................... $ 1 $ 3,633 $ (124,219) $ (120,585)
Loss...................................... -- -- (10,932) (10,932)
Change in par value of Common Stock....... 22 (22) -- --
---- ------- ----------- ----------
BALANCE AT JUNE 30, 1996.................... 23 3,611 (135,151) (131,517)
Net income................................ -- 17,494 17,494
---- ------- ----------- ----------
BALANCE AT JUNE 30, 1997.................... 23 3,611 (117,657) (114,023)
Net income................................ -- -- 16,406 16,406
---- ------- ----------- ----------
BALANCE AT JUNE 30, 1998.................... $ 23 $3,611 $ (101,251) $ (97,617)
---- ------- ----------- ----------
---- ------- ----------- ----------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
41
<PAGE>
AFFILIATED NEWSPAPERS INVESTMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Fiscal Years Ended June 30,
---------------------------------------------------
1998 1997 1996
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash from
operating activities:
Depreciation .......................................... $ 16,406 $ 17,494 $ (10,932)
Amortization .......................................... 16,038 10,707 9,762
Gain on sale of newspaper assets ...................... 22,194 12,775 11,499
Income from unconsolidated subsidiary ................. (31,539) (30,579) (8,622)
Provision for losses on accounts receivable ........... (5,558) (9,287) (2,541)
Amortization of debt discount ......................... 4,596 3,092 2,510
Debt issue cost and repurchase premiums ............... 21,617 18,525 16,214
Distributions in excess of (less than) earnings from .. 7,287 13,969 1,092
investments in
partnership ....................................... (1,114) 23 (610)
Deferred income tax (benefit) ......................... (1,520) (3,226) (2,373)
Change in operating assets and liabilities:
Accounts receivable ............................... 1,211 (5,408) (3,403)
Inventories ....................................... 3,538 (1,163) 1,799
Prepaid expense and other assets .................. 1,898 (455) (558)
Accounts payable and accrued liabilities .......... (5,550) 5,139 (5,047)
Unearned income ................................... (541) 747 22
Affiliate account balances ........................ 1,083 (580) 363
Other assets and liabilities ...................... 5,304 (535) (517)
---------- ---------- ----------
NET CASH FLOWS FROM OPERATING ACTIVITIES ...................... 55,350 31,238 8,658
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of newspaper property and other assets ............... 43,030 47,776 50,647
Business acquisitions ..................................... (240,373) (187,597) (35,668)
Purchase of machinery and equipment ....................... (9,683) (8,836) (8,079)
---------- ---------- ----------
NET CASH FLOWS FROM INVESTING ACTIVITIES ...................... (207,026) (148,657) 6,900
CASH FLOW FROM FINANCING ACTIVITIES:
Issuance of long-term debt ................................ 490,988 259,450 37,300
Reduction of long-term debt ............................... (337,779) (120,773) (60,240)
Reduction of non-operating liabilities .................... (2,191) (2,960) (4,194)
Debt issuance cost and repurchase premiums ................ (7,287) (13,969) (1,092)
---------- ---------- ----------
NET CASH FLOWS FROM FINANCING ACTIVITIES ...................... 143,731 121,748 (28,226)
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .......... (7,945) 4,329 (12,668)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ................ 8,944 4,615 17,283
---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR ...................... $ 999 $ 8,944 $ 4,615
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
42
<PAGE>
AFFILIATED NEWSPAPERS INVESTMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS
PRINCIPLES OF CONSOLIDATION
The Consolidated Financial Statements include the accounts of Affiliated
Newspapers Investments, Inc. (the "Company" or "ANI"), Garden State
Newspapers, Inc. ("Garden State") and its subsidiaries. All intercompany
accounts have been eliminated upon consolidation.
OPERATING AGENCY
One of the Company's subsidiaries is a participant in a joint operating
agency. The joint operating agency performs the production, sales,
distribution and administrative functions for the subsidiary and another
newspaper publishing company under a joint operating agreement. The Company
includes its prorata portion of the revenues and expenses generated by the
operations of the agency on a line-by-line basis in its statements of
operations (See Note 2).
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
INVENTORIES
Inventories, which largely consist of newsprint, are valued at the lower
of cost or market. Cost is generally determined using the first-in, first-out
method.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are recorded at cost. Buildings and
machinery and equipment are depreciated using the straight-line method over
the expected useful lives of individual assets.
INTANGIBLE ASSETS
Intangible assets acquired are recorded at their estimated fair values
as of the date of acquisition. The excess of cost over fair value of net
assets acquired is being amortized using the straight-line method over a
period of 40 years. Subscriber accounts are amortized using the straight-line
method over periods ranging from 6 to 15 years, with a weighted average
remaining life, based on the dates of acquisitions, of 9 years. Other
intangibles recognized are being amortized using the straight-line method,
generally over periods not exceeding 10 years.
LONG-LIVED ASSETS
The carrying value of long-lived assets is reviewed annually; however,
if at any time the facts or circumstances at any of the Company's individual
newspaper operations indicate impairment of asset values, as a result of
continual declines in performance or as a result of fundamental changes in a
newspaper's market, a determination is made as to whether the carrying value
of the newspaper's long-lived assets exceeds estimated realizable value. For
purposes of this determination, estimated realizable value is evaluated based
on values placed on comparable newspaper properties, generally based on a
multiple of revenue and operating profit (before depreciation and
amortization).
43
<PAGE>
AFFILIATED NEWSPAPERS INVESTMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS (CONTINUED)
DEBT DISCOUNT
Debt discount is amortized in a manner which results in a constant rate
of interest over the life of the related debt.
INCOME TAXES
The Company accounts for income taxes utilizing the liability method of
accounting for income taxes. Under the liability method, deferred income
taxes are recognized for the tax consequences of "temporary differences" by
applying enacted statutory tax rates applicable to differences between the
financial statement carrying amount and the tax bases of existing assets and
liabilities.
USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles at times requires the use of estimates and
assumptions that affect the reported amount of assets, liabilities, revenues
and expenses. Actual results could differ from these estimates.
NOTE 2: INVESTMENT IN PARTNERSHIP
Effective March 1990, York Newspapers, Inc. ("YNI"), a subsidiary of the
Company, entered into a general partnership; York Newspaper Company (the
"Agency") with York Daily Record, Inc. ("YDR"). YNI, YDR and the Agency
entered into a joint operating agreement (the "JOA") under which the Agency
is responsible for all newspaper publishing operations, other than news and
editorial, including production, sales, distribution and administration. The
Agency publishes THE YORK DISPATCH, a daily evening paper, THE YORK DAILY
RECORD, a daily morning paper, and the YORK SUNDAY NEWS. YNI has a 57.5%
interest in the Agency. YNI's investment in the Agency is recorded in the
accompanying balance sheets under the equity method. The Company's investment
in the Agency, which originally represented the net book value of assets and
liabilities contributed to the Agency, was approximately $7.5 million and
$6.4 million at each of the fiscal years ended June 30, 1998 and 1997,
respectively. The Agency made cash distributions to YNI in the amount of $7.3
million, $7.2 million and $4.9 million in fiscal years 1998, 1997 and 1996.
In September 1996, a subsidiary of the Company signed a call/put
agreement under which YNI can purchase YDR's interest in the agency or YDR
can put its interest in the Agency to YNI. The base call and put price is
$32.0 million and $25.0 million, respectively, and is adjusted annually based
on changes in the consumer price index (not to exceed 2-1/2%). The call
option may be exercised on January 1, 2004, and expires on January 1, 2005.
The put may be exercised at any time after the expiration of the call through
June 30, 2008.
The Company is not currently responsible for any liabilities of the
Agency, contingent or otherwise. Management believes that the Agency is well
capitalized and does not anticipate the Agency requiring any capital
contributions from its partners in the near future.
NOTE 3: ACQUISITIONS AND DISPOSITIONS
ACQUISITIONS
FISCAL 1998
On May 11, 1998 the Company acquired substantially all the assets used
in the publication of THE TRI-CITY WEEKLY, a weekly newspaper published in
Eureka, California for approximately $2.6 million in cash plus a covenant not
to compete with the prior owners with a discounted value of approximately
$0.5 million.
44
<PAGE>
AFFILIATED NEWSPAPERS INVESTMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3: ACQUISITIONS AND DISPOSITIONS (CONTINUED)
On May 1, 1998, the Company acquired substantially all the assets used
in the publication of the VALLEY NEWS TODAY, a morning newspaper published
five times a week in Shenandoah Iowa, and seven weekly publications
distributed primarily in Shenandoah and Dennison, Iowa. These assets were
purchased for approximately $5.1 million in cash plus an adjustment for
working capital and covenant not to compete with the prior owners, with a
discounted value of approximately $0.6 million.
On January 29, 1998, the Company acquired substantially all the assets
used in the publication of the DAILY NEWS, a daily newspaper published in the
San Fernando Valley region of Los Angeles, California, and a weekly newspaper
distributed in the same area, for approximately $130.0 million, which
included working capital approximately $2.0 million.
On December 16, 1997, the Company acquired substantially all the assets
used in the publication of the PRESS-TELEGRAM, a daily newspaper published in
Long Beach, California, and two weekly newspapers distributed in and around
Long Beach, 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.
On July 31, 1997, the Company 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 a
covenant not to compete with the prior owners with a discounted value of
approximately $11.8 million.
FISCAL 1997
On February 28, 1997, the Company acquired substantially all the assets
used in the publication of the SENTINEL & ENTERPRISE, LEBANON DAILY NEWS and
THE DAILY NONPAREIL, daily newspapers distributed primarily in Fitchburg and
Leominster, Massachusetts; Lebanon, Pennsylvania; and Council Bluffs, Iowa,
respectively, and five weekly newspapers distributed in and around the same
cities, for a total of approximately $51.2 million in cash. Proceeds from the
sale of the POTOMAC NEWS (discussed below) and borrowings under the Company's
Bank Credit Agreement were used to fund the acquisition.
On October 31, 1996, the Company acquired substantially all of the
assets used in the publication of the PASADENA 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 combined total
of approximately $130.0 million in cash.
In conjunction with the sale of the Johnstown Tribune Publishing Company
described below, the Company acquired substantially all the assets used in
the publication of the NORTH ADAMS TRANSCRIPT and the BRIDGETON NEWS, daily
newspapers published in North Adams, Massachusetts, and Bridgeton, New
Jersey, respectively. In conjunction with acquiring the assets of the
BRIDGETON NEWS, the Company also assumed $0.8 million of payments due on
non-competition agreements.
FISCAL 1996
On March 10, 1996, the Company acquired substantially all the assets
used in the publication of the SAN MATEO COUNTY TIMES, a daily newspaper, and
five weekly newspapers published in San Mateo County, California, for
approximately $15.0 million, including obligations to the seller with a
discounted value of approximately $4.3 million and the assumption of
newspaper subscription obligations of approximately $0.7 million.
45
<PAGE>
AFFILIATED NEWSPAPERS INVESTMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3: ACQUISITIONS AND DISPOSITIONS (CONTINUED)
On August 31, 1995, the Company completed the acquisition of
substantially all the assets used in the publication of THE BERKSHIRE EAGLE,
the BRATTLEBORO REFORMER and the BENNINGTON BANNER, daily newspapers
published in Pittsfield, Massachusetts; Brattleboro, Vermont; and Bennington,
Vermont, respectively, and the MANCHESTER JOURNAL, a weekly newspaper
published in Manchester, Vermont (collectively referred to as "New England
Newspapers"). The purchase price consisted of $1.1 million in cash, the
assumption of $20.5 million of long-term debt and a covenant not to compete
payable to the prior owners with a discounted value of approximately $2.7
million. In addition, the Company assumed a working capital deficit of
approximately $2.0 million and an underfunded pension plan liability and
other obligations, valued at approximately $8.3 million.
All the acquisitions described above were accounted for as purchases.
Accordingly, the results of their operations were included since the date of
acquisition. The assets acquired and liabilities assumed have been recorded
at their estimated fair market value at the date of acquisition. The fair
values of the newspapers acquired in fiscal 1998 are based on independent
appraisals and management's best estimate and are subject to change in the
final allocation of the purchase price. The excess of cost over fair value of
net assets acquired and intangible assets related to subscriber lists are
being amortized on a straight line basis over 40 and 15 to 6 years,
respectively.
DISPOSITIONS
FISCAL 1998
On December 5, 1997, the Company 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.
FISCAL 1997
On February 13, 1997, the Company sold substantially all the assets used
in the publication of the POTOMAC NEWS and two weekly publications for $47.7
million in cash plus an adjustment for working capital. The Company
recognized a pre-tax gain on the sale of approximately $30.6 million, net of
selling expenses.
FISCAL 1996
On May 1, 1996, Garden State sold the common stock of The Johnstown
Tribune Publishing Company, which publishes THE TRIBUNE-DEMOCRAT, to American
Publishing (1991), Inc. in exchange for $32.6 million in cash and
substantially all the assets used in the publication of the following daily
and weekly newspapers:
<TABLE>
<CAPTION>
Newspaper Location Daily Publication Weekly Publication
- ---------------------------------- --------------------- --------------------------
<S> <C> <C>
Bridgeton, New Jersey BRIDGETON NEWS None
Fort Morgan, Colorado FORT MORGAN TIMES MORGAN TIMES REVIEW(a)
Sterling, Colorado JOURNAL-ADVOCATE J. A. SHOPPER(a)
Lamar, Colorado LAMAR DAILY NEWS TRI-STATE TRADER(a)
Sidney, Nebraska SIDNEY TELEGRAPH HIGH PLAINS SHOPPING GUIDE(a)
North Adams, Massachusetts NORTH ADAMS TRANSCRIPT THE TRANSCRIPT SPOTLIGHT(a)
Akron, Colorado None AKRON NEWS REPORTER(b)
Brush, Colorado None BRUSH NEWS-TRIBUNE(b)
Julesburg, Colorado None JULESBURG ADVOCATE(b)
</TABLE>
- -----------------------------
(a) Free weekly distribution
(b) Paid weekly distribution
46
<PAGE>
AFFILIATED NEWSPAPERS INVESTMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3: ACQUISITIONS AND DISPOSITIONS (CONTINUED)
In connection with the above newspaper acquisitions, Garden State
assumed non-compete and other long-term obligations with a discounted value
of approximately $1.0 million. In addition, Garden State purchased net
working capital for approximately $1.0 million. As a result of the exchange,
Garden State recognized a pre-tax gain of approximately $8.3 million in its
fourth quarter.
Immediately after the purchase of the above described newspapers, Garden
State contributed all of the newly acquired assets and liabilities of the
Sidney, Nebraska, and the Akron, Brush, Fort Morgan, Julesburg, Lamar and
Sterling, Colorado, daily and weekly newspapers to a newly formed
corporation, Eastern Colorado Publishing Company ("Eastern Colorado"). The
common stock of Eastern Colorado was then sold to The Denver Post
Corporation, a 60% owned subsidiary of ANI, for approximately $15.7 million,
including the assumption of $0.2 million of discounted non-compete payments
and other long-term obligations associated with the newspapers acquired. No
gain or loss was realized on the sale of Eastern Colorado common stock. The
sales price of Eastern Colorado was deemed to be fair based on an independent
appraisal of the transaction.
UNAUDITED PRO FORMA OPERATING RESULTS
The following table sets forth the unaudited pro forma operating results
had the July 31, 1997 and the January 29, 1998 acquisitions, discussed above
occurred as of July 1, 1997 and 1996 (In thousands):
<TABLE>
<CAPTION>
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
Revenues.................................... $ 470,593 $ 427,947
------------- -------------
------------- -------------
Net Income Before Extraordinary Items....... $ 14,515 $ 19,782
------------- -------------
------------- -------------
Net Income.................................. $ 14,515 $ 11,010
------------- -------------
------------- -------------
Earnings Per Share.......................... $ 6.27 $ 4.76
------------- -------------
------------- -------------
</TABLE>
NOTE 4: LONG-TERM DEBT
DEBT RESTRUCTURING
On October 1, 1997 and February 12, 1998, Garden State issued $250.0
million and $50.0 million, respectively, of 8.75% Senior Subordinated Notes
due 2009. Proceeds from the sale of these notes of $300.3 million were used
to paydown balances then outstanding under Garden State's Bank Credit
Agreement. In conjunction with the issuance of the 8.75% Senior Subordinated
Notes, Garden State paid approximately $7.3 million of fees and expenses.
Garden State elected to charge the $7.3 million of debt issuance cost to
fiscal year 1998 expense and, accordingly, the cost has been included in
other expense in the accompanying Consolidated Statement of Operations.
As a result of certain refinancing and debt prepayments on October 31,
1996, associated with acquisitions, Garden State incurred debt issuance costs
of approximately $4.4 million and paid approximately $9.5 million of
make-whole premiums to the holders of the Senior Secured Notes, who were
prepaid in full. The make-whole premiums have been included in the
accompanying Consolidated Statements of Operations as an extraordinary loss
net of applicable income tax benefits. Garden State elected to charge the
$4.4 million of the debt issuance cost to fiscal year 1997 expense and,
accordingly, the cost has been included in other expense in the accompanying
Consolidated Statements of Operations.
47
<PAGE>
AFFILIATED NEWSPAPERS INVESTMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4: LONG-TERM DEBT (CONTINUED)
<TABLE>
<CAPTION>
June 30,
--------------------------
LONG-TERM DEBT CONSISTED OF THE FOLLOWING AT EACH YEAR END: 1998 1997
-------- --------
(In thousands)
<S> <C> <C> <C>
Bank Credit Agreement .................................... (I) $ 34,000 $211,000
NJNI bank credit facility ................................ (II) -- 16,750
Various Notes, payable through December, 2002 ............ (III) 24,987 12,966
12.00% Senior Subordinated Secured Notes, due July 1, 2004 (IV) 100,000 100,000
8.75% Senior Subordinated Notes, due 2009 ................ (V) 300,287 --
9.00% Subordinated Promissory Note ....................... (VI) 47,600 --
Notes payable to certain shareholders of ANI ............. (VII) 2,971 2,629
Senior Discounted Debentures, due 2006 ................... (VIII) 150,260 131,579
-------- --------
660,105 474,924
Less current portion of long-term debt ................... 5,644 6,247
-------- --------
$654,461 $468,677
-------- --------
-------- --------
</TABLE>
I. In conjunction with the October 31, 1996, acquisition previously discussed,
Garden State entered into a $285.0 million amended and restated bank credit
facility (the "Bank Credit Agreement") which has been subsequently reduced
to $271.0 million as a result of required annual reductions. The Bank
Credit Agreement is comprised of the following components at June 30, 1998:
a. A $157.0 million Senior Secured Revolving Credit Facility ("RCA") for
acquisition financing which matures on June 30, 2003. The commitment
under RCA is subject to a reduction schedule as follows: $31.0 million
reduction on June 30, 1999; $31.0 million reduction on June 30, 2000
through 2002, and a final maturity on June 30, 2003. As of June 30,
1998, $141.0 million was available under RCA for business
acquisitions. Borrowings under RCA are secured by the assets acquired
with the proceeds of the borrowings under RCA.
b. A $27.0 million Senior Secured Revolving Credit Facility ("RCB") 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 RCB until March 31,
2004, at which time the commitment is terminated and all then
outstanding balances are due and payable. As of June 30, 1998,
approximately $22.0 million was available under RCB. RCB is secured by
a first priority lien on the common stock of GSI and substantially all
of the assets of GSI.
c. A $15.0 million Senior Secured Term Loan ("Term A Loan") with a final
maturity of March 31, 2004. Term A Loan 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 A Loan
were used to refinance debt assumed in the August 1995 New England
Newspapers acquisition. Term A Loan is secured by a first priority
lien on substantially all of the assets of New England Newspapers,
Inc.
d. A $72.0 million Senior Secured Revolving Credit Facility ("RCC") with
a final maturity of March 31, 2004. The commitment under RCC requires
quarterly principal payments beginning on September 30, 1997, with
total annual payments of $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 RCC Loan were used to prepay
Garden State's 10.89% Senior Secured Notes on October 31, 1996, as
previously discussed. RCC Loan is secured by a first priority lien on
the common stock of GSI and substantially all of the assets of GSI.
48
<PAGE>
AFFILIATED NEWSPAPERS INVESTMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4: LONG-TERM DEBT (CONTINUED)
All borrowings under the Bank Credit Agreement, except loans under the
swingline facility, bear interest at rates based upon, at Garden
State's option, Eurodollar or prime, plus a spread based on Garden
State 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 RCA and RCB. 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%.
II. In fiscal year 1998, Garden State paid off and terminated the NJNI bank
credit facility, in conjunction with the previously discussed sale of the
NORTH JERSEY HERALD & NEWS.
III. In connection with various acquisitions, Garden State has issued notes
payable to prior owners, including non-compete agreements, and assumed
certain debt obligations. The notes payable and debt obligations bear
interest at rates ranging from zero to 9%. Obligations bearing interest at
below market rates were discounted at rates ranging from 7.8% to 12.0%.
IV. In May 1994, Garden State issued $100.0 million of 12.0% Senior
Subordinated Secured Notes due July 1, 2004. Interest accruing on the 12.0%
Senior Subordinated Secured Notes is payable semi-annually in arrears on
January 1 and July 1. The indebtedness evidenced by the 12.0% Senior
Subordinated Secured Notes is subordinated and junior in right of payment
under the Bank Credit Agreement and notes payable to prior owners. No
principal payments are required until July 1, 2004, at which time the
outstanding principal amount is due and payable. The 12.0% Senior
Subordinated Secured Notes are secured by a second lien on the stock of
GSI, a subsidiary of Garden State and holding company for certain
newspapers of Garden State.
V. On October 1, 1997, and February 12, 1998, Garden State issued $250.0
million and 50.0 million, respectively of 8.75% Senior Subordinated Notes
due 2009. The 8.75% Senior Subordinated Notes were issued at a slight
premium, resulting in net proceeds to Garden State of $300.3 million,
excluding related debt issuance cost. Interest accruing on the 8.75% Senior
Subordinated Notes is payable semi-annually in arrears on October 1, and
April 1. No principal payments are required until October 1, 2009, at which
time the outstanding principal amount is due and payable. The 8.75% Senior
Subordinated Notes are general unsecured obligations of Garden State
ranking PARI PASSU in right of payment with the existing 12.0% Senior
Subordinated Secured Notes and all other future senior subordinated
indebtedness of Garden State and senior in right of payment to all existing
and future subordinated indebtedness of Garden State which is made
expressly junior thereto; however, Garden State's Senior 12.0% Subordinated
Secured Notes are secured by a second priority lien only on all of the
capital stock of GSI. Secured PARI PASSU debt will, to the extent such
security is then available, have a claim prior to the holders of the 8.75%
Senior Subordinated Notes with respect to the value of the GSI Stock.
Garden State used the net proceeds to reduce bank debt at Garden State.
VI. 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 2002, Garden State may elect to defer
payment of any or all accrued and unpaid interest. However, in calendar
years 2000, 2001 and 2002 Garden State 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, 12.0% Senior Subordinated Secured Notes and the 8.75% 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 this
Promissory Note were used for acquisition funding.
49
<PAGE>
AFFILIATED NEWSPAPERS INVESTMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4: LONG-TERM DEBT (CONTINUED)
VII. In connection with the acquisition of the GLOUCESTER COUNTY TIMES and
TODAY'S SUNBEAM, Garden State assumed notes payable to certain shareholders
of ANI with a face value of $2.7 million on November 18, 1994. The notes
bear interest at prime but have been discounted at 13.5%. The notes are
subordinate to all Garden State's senior indebtedness, and Garden State is
prohibited from paying principal or interest on the notes until all senior
debt has been repaid in full.
VIII. In May 1994, the Company issued 173,576 units of 13.25% Senior Discount
Debentures Units (the "Debenture Units" or "Debentures"), consisting of
$1,000 principal amount of Senior Discount Debentures and one share of the
Company's Class B common stock. The Debenture Units were issued at a 48.1%
discount, resulting in proceeds to the Company of $90.1 million, excluding
the related debt issuance cost. The Debenture Units were separable 60 days
after their issuance and, accordingly, the Class B common stock was
separately valued. The Company allocated $3.6 million of the Debenture Unit
proceeds to the Class B common stock, which has been included in additional
paid-in capital in the accompanying consolidated balance sheet.
The Debentures mature on July 1, 2006 and, beginning July 1, 1999, will
begin paying interest currently at a rate of 13.25%, payable semi-annually
in arrears on January 1 and July 1. The original discount of $87.1 million
is being amortized to recognize a yield to maturity of 13.6% per annum. The
carrying value represents the principal at maturity of $173.6 million less
the unamortized discount of $23.3 million at June 30, 1998.
The Garden State Bank Credit Agreement contains certain restrictive
covenants which relate to the incurrence of additional debt, capital
expenditures and distributions. Additionally, the agreements require the
maintenance of certain financial ratios based on leverage, debt service
coverage, interest coverage and cash flow. The 12.0% Senior Subordinated Secured
Notes, 8.75% Senior Subordinated Notes and the Debentures restrict ANI's ability
to sell certain assets, incur debt and pay dividends.
Maturities of the Company's long-term debt as of June 30, 1998, for the
five fiscal years ending June 30, 2003 and thereafter are as follows (in
thousands):
<TABLE>
<S> <C>
1999...................... $ 5,644
2000...................... 4,856
2001...................... 4,787
2002...................... 8,106
2003...................... 27,925
Thereafter................ 608,787
--------
$660,105
--------
--------
</TABLE>
Interest paid during the fiscal years ended June 30, 1998, 1997 and 1996
was approximately $36.9 million, $30.8 million and $27.2 million,
respectively.
Letters of credit have been issued in favor of an insurance company
providing workers compensation insurance coverage to Garden State totaling
approximately $2.1 million as of June 30, 1998. In addition, Garden State
issued approximately $2.5 million of additional letters of credit in support
of its obligations under non-compete agreements entered into in connection
with the August 31, 1995, acquisition described in Note 3.
The fair market value of the 12.0% Senior Subordinated Secured Notes,
the 8.75% Senior Subordinated Notes, and the Debentures, was approximately
$112.0 million, $304.5 million, and $170.5 million, respectively, at June 30,
1998. The carrying value of the Company's long-term debt, which has interest
rates tied to prime or LIBOR, approximates the fair value of such financial
instruments. Management cannot practicably estimate the fair value of the
remaining long-term debt because of the lack of quoted market prices for
these types of securities and its inability to estimate its fair value
without incurring the excessive costs of obtaining an appraisal. The carrying
amount represents the original issue price net of remaining original issue
discounts, if applicable.
50
<PAGE>
AFFILIATED NEWSPAPERS INVESTMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4: LONG-TERM DEBT (CONTINUED)
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. Garden
State 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. Garden State accounts for the differences paid or received under this
agreement as an adjustment to interest expense. As of June 30, 1998, the
interest rate swap had a market loss of $0.4 million. Upon termination of the
hedge or sale of the interest rate swap agreement, any gain or loss
associated with the termination or sale will be immediately recognized.
Garden State is exposed to credit loss related to the interest rate swap to
the extent such interest rate swap has a market gain and the counterparty to
the agreement fails to perform under the agreement. Garden State does not
anticipate that the counterparty will fail to meet its obligation because of
its high credit rating.
NOTE 5: LEASES
A subsidiary of Garden State leases an operating facility under a
capital lease. Assets under capital leases and related accumulated
amortization are included in property, plant and equipment in the
accompanying consolidated balance sheets as follows:
<TABLE>
<CAPTION>
June 30,
------------------------
1998 1997
------- -------
(In thousands)
<S> <C> <C>
Building .................................... $ 6,934 $ 6,934
Accumulated amortization .................... 2,042 1,811
------- -------
Assets under capital leases, net ......... $ 4,892 $ 5,123
------- -------
------- -------
</TABLE>
Garden State subsidiaries also lease certain facilities and equipment
under operating leases, some of which contain renewal and escalation clauses.
Rent expense was approximately $2.3 million, $2.0 million and $2.1 million
for the fiscal years ended June 30, 1998, 1997 and 1996, respectively.
Contingent rentals are not significant. Future minimum payments on capital
and operating leases are as follows:
<TABLE>
<CAPTION>
Capital Operating
FISCAL YEARS ENDING JUNE 30, Leases Leases
- ---------------------------- ------- ---------
(In thousands)
<S> <C> <C>
1999 ........................................ $ 821 $ 1,968
2000 ........................................ 867 1,973
2001 ........................................ 931 1,652
2002 ........................................ 931 1,043
2003 ........................................ 931 485
Thereafter .................................. 14,972 210
------- -------
Total minimum lease payments ............. 19,453 $ 7,331
Less amount representing interest ........ 11,990 -------
------- -------
Present value of net future lease payments $ 7,463
-------
-------
</TABLE>
51
<PAGE>
AFFILIATED NEWSPAPERS INVESTMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6: CAPITAL STOCK
ANI has authorized six and issued five classes of common stock
(collectively, the "Common Stock"), each with $.01 par value, as follows:
<TABLE>
<CAPTION>
TITLE OF CLASS AUTHORIZED SHARES ISSUED SHARES
-------------- ----------------- -------------
<S> <C> <C>
Class A Common Stock ........................ 2,314,346 --
Class B Common Stock ........................ 173,576 173,576
Class D Common Stock ........................ 664,450 664,450
Class G Common Stock ........................ 500,000 371,960
Class GSI Common Stock ...................... 1,500,000 1,104,130
Class N Common Stock ........................ 230 230
</TABLE>
The holders of the common stock have the right to vote, as a class, for
the election of directors and for all other purposes, and all other rights
with respect to each class of common stock are identical, except rights with
respect to dividends. Dividends may be declared and paid on (i) the Class B
common stock only to the extent of the assets of the Company legally
available; therefore, in an aggregate amount equal to (7.5%) of the sum of:
(a) the amount of the dividends then being declared upon the Class B common
stock and (b) the aggregate amounts simultaneously declared and paid as
dividends on the Class D, G, GSI and N common stock; and (ii) the Class D
common stock only to the extent of the earned surplus of ANI attributable to
the Available Separate Consolidated Net Income (as defined in ANI's Amended
and Restated Certificate of Incorporation) of Denver Newspapers, Inc.; (iii)
the Class G common stock to the extent of the earned surplus of ANI
attributable to the Available Separate Consolidated Net Income of Garden
State; (iv) the Class GSI common stock to the extent of the earned surplus of
ANI attributable to the Available Separate Consolidated Net Income of Garden
State Investments, Inc.; and (v) the Class N common stock to the extent of
the earned surplus of ANI attributable to the Available Separate Consolidated
Net Income of North Jersey Newspapers Investments, Inc.
The Board of Directors may, in its discretion, declare dividends on only
one class of common stock to the exclusion of the other classes except Class
B. Under certain circumstances, on the fifth anniversary but not later than
the tenth anniversary of the May 20, 1994 restructuring, the Class D, G, GSI
and N common stock will be automatically converted to Class A common stock,
based on the then appraised values.
NOTE 7: EMPLOYEE BENEFIT PLANS
PENSION PLANS
In conjunction with the July 31, 1997 and the January 29, 1998
acquisitions, Garden State assumed overfunded non-contributory defined
benefit pension plans, which covered substantially all the employees at the
acquired newspapers. Shortly after the January 29, 1998 acquisition, Garden
State elected to freeze the plan assumed in conjunction with that
acquisition. Accordingly all current service cost under that plan has been
terminated. Participants in the plan assumed in conjunction with the July 31,
1997 acquisition continue to accrue benefits associated with current
services, based on years of service, and estimated compensation prior to
retirement.
Prior to fiscal year 1998, Garden State had assumed a defined benefit
pension plan in conjunction with its August 31, 1995 acquisition. The plan
was frozen in September, 1995, accordingly, all current service costs under
the plan were terminated. As of June 30, 1997, the net present value of
accumulated benefits obligations exceeded the fair market value of plan
assets by approximately $2.0 million. Due to the immateriality of the plan
assets and liabilities in years prior to fiscal year 1998, and the fact that
current benefits were frozen, only current year pension plan disclosures have
been included. Garden State's funding policy for all plans is to make the
minimum annual contributions required by the Employee Retirement Income
Security Act of 1974.
52
<PAGE>
AFFILIATED NEWSPAPERS INVESTMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7: EMPLOYEE BENEFIT PLANS (CONTINUED)
The components of net periodic pension for Garden State's defined benefit
plans for the year ended June 30, 1998, are as follows:
<TABLE>
<CAPTION>
1998
--------------
(IN THOUSANDS)
<S> <C>
Service cost-benefits earned during the period.................... $ 270
Interest cost on projected benefit obligations.................... 2,358
Return on plan assets............................................. (4,527)
Net amortization and deferral..................................... 1,923
--------
Net pension expense............................................... $ 24
--------
--------
</TABLE>
The following table sets forth the funding status and amounts recognized in
the Company's consolidated balance sheets at June 30, 1998 related to Garden
State's defined benefit plans:
<TABLE>
<CAPTION>
1998
-------------
(IN THOUSANDS)
<S> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligations, including vested benefits of
$43,913, for 1998 ............................................. $ 44,507
--------
--------
Plan assets at fair value comprised of common stocks, bonds and
U.S. Government obligation funds .............................. 48,434
Projected benefit obligations .................................... 45,027
--------
Excess of plan assets over projected benefit obligations ......... 3,407
Unrecognized gain from past experience different from that assumed 860
--------
Net pension asset recognized in the consolidated balance sheets .. $ 4,267
--------
--------
</TABLE>
The weighted-average discount rate used in determining the actuarial
present value of the projected benefit obligations was 7.25% at June 30,
1998. The rate of increase in future compensation levels used in determining
the actuarial present value of the projected benefit obligations was 4.0% and
the expected long-term rate of return on plan assets was 8.0% to 8.5%.
OTHER RETIREMENT PLANS
Garden State and a majority of its newspaper properties participate in
retirement/savings plans and, in addition, contribute to several
multi-employer plans on behalf of certain union-represented employee groups.
Substantially all of Garden State's full-time employees are covered by one of
these plans. Total expense for these plans for the fiscal years ended June
30, 1998, 1997 and 1996, was approximately $2.1 million, $2.1 million, and
$1.4 million, respectively.
In general, Garden State contributes one or two percent of an employee's
salary to the plan for each employee who works at least 1,000 hours annually
and is not covered by a collective bargaining agreement. Garden State, at its
discretion, may contribute an additional one or two percent for each
participant in the plan who makes a voluntary contribution of at least two
percent of his or her salary. Garden State's contribution may be suspended
annually at management's discretion.
53
<PAGE>
AFFILIATED NEWSPAPERS INVESTMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8: INCOME TAXES
The income tax provision (benefit) for each of the three years ended June
30, 1998, 1997 and 1996, consists of the following:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
State ................................................. $ 2,592 $ 3,429 $ 441
Federal ............................................... 3,720 863 75
Deferred:
State ................................................. 1,062 (213) (539)
Federal ............................................... (2,582) (3,013) (1,834)
------ ------- ------
Net (benefit) provision ................................. $ 4,792 $ 1,066 $(1,857)
------ ------- ------
------ ------- ------
</TABLE>
A reconciliation between the actual income tax expense for financial
statement purposes and income taxes computed by applying the statutory
Federal income tax rate to financial statement earnings before income taxes
for the three years ended June 30, 1998, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Statutory Federal income tax rate ....................... 35% 35% (35%)
Effect of:
Operating losses ................................... (16) (21) 29
State income tax net of federal benefit ............ 11 10 3
Book/tax basis difference associated with
acquisitions and non-deductible acquisition costs 3 3 (12)
Sale of assets ..................................... (10) (25) --
Extraordinary loss ................................. -- 4 --
Other, net ......................................... -- - --
------ ------- ------
Financial statement effective tax rate .................. 23% 6% (15)%
------ ------- ------
------ ------- ------
</TABLE>
In fiscal years 1998 and 1997, the Company generated federal taxable
income, which was offset by operating loss carryforwards. However, since the
federal tax laws do not allow the Company to completely offset taxable income
with loss carry forwards, the Company did incur alternative minimum tax which
can be carried forward as a credit to future taxes payable. Other deferred
tax assets are the result of timing differences associated with bad debt
allowances, capital leases, deferred compensation and debt issuance cost.
At June 30, 1998, the Company has approximately $27.9 million of net
operating loss carryforwards for tax reporting purposes available to offset
its future taxable income which expire in 2006 through 2011 and $5.1 million
of alternative minimum tax credit carryforwards.
The Company made state and federal tax payments of approximately $9.0
million, $3.0 million, and $0.6 million during fiscal years 1998, 1997 and
1996, respectively.
54
<PAGE>
AFFILIATED NEWSPAPERS INVESTMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8: INCOME TAXES (CONTINUED)
Components of the long-term deferred tax liabilities as of June 30, 1998 and
1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
------ -------
(In thousands)
<S> <C> <C>
Deferred tax assets:
Net operating losses and other credits $ 14,826 $ 14,566
Deferred interest .................... 21,272 15,046
Other ................................ 13,665 8,604
-------- --------
49,763 38,216
Valuation allowance .................. (30,545) (29,950)
-------- --------
Deferred tax assets .................. 19,218 8,266
Deferred tax liabilities:
Fixed assets ......................... 16,624 8,679
Intangibles .......................... 14,254 8,391
Other ................................ 1,355 4,232
-------- --------
Deferred tax liabilities ............. 32,233 21,302
-------- --------
Net deferred tax liabilities ............ $ 13,015 $ 13,036
-------- --------
-------- --------
</TABLE>
NOTE 9: RELATED PARTY TRANSACTIONS
MediaNEWS Group, Inc., an affiliate of certain of the Company's
shareholders, provides management services to the Company and its
subsidiaries. Related management fees are shown on the accompanying
Consolidated Statements of Operations.
NOTE 10: COMMITMENTS AND CONTINGENCIES
The Company's subsidiaries are involved in a number of legal
proceedings, which have arisen in the ordinary course of business. In the
opinion of management, the outcome of these legal proceedings will not have a
material adverse impact on the Company's financial position or results of
operations.
Under the terms of a newsprint contract, Garden State, through MNG, has
agreed to purchase approximately 4,300 tons per month of newsprint at a fixed
price under contracts expiring December 31, 1999 and August 31, 2000.
Management does not expect that it will purchase less than the required
amount; however, if it should default on the purchase obligation, MNG and/or
Garden State would be responsible for damages, if any, incurred by the
seller. Based on the above monthly purchases of newsprint, Garden State is
expected to purchase $27.3 million and $17.1 million of newsprint during
fiscal years 1999 and 2000, respectively, under these agreements.
The Company has guaranteed up to $5.0 million of the Denver Post
Corporation's bank credit facility through the period ended December 1, 1998.
Based on the current financial position of the Denver Post Corporation, the
Company does not believe it has any loss exposure.
In fiscal year 1998, in exchange for $2.4 million, Garden State granted
an option to a third party to purchase substantially all the assets used in
the publication of a certain newspaper beginning in 2003 and expiring in 2010
at the newspapers fair market value. The holder of the option can also
require Garden State to repurchase the option anytime beginning in 2003
through 2010, based on a fixed formula. If the option holder has not
exercised the option by the twelfth anniversary of the option grant Garden
State must repurchase the option based on the same fixed formula.
55
<PAGE>
AFFILIATED NEWSPAPERS INVESTMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11: INVESTMENT IN UNCONSOLIDATED SUBSIDIARY
BASIS OF ACCOUNTING
Prior to September 28, 1994, when Media General, Inc. ("Media General")
exercised its warrant to acquire a 40 percent interest in Denver Newspapers,
Inc. ("Denver Newspapers"), the Company owned 100 percent of Denver
Newspapers' common stock. As was the case prior to the exercise of the
warrant, the Company accounts for its investment in Denver Newspapers using
the equity method because the Denver Newspapers shareholder agreement
provides Media General with a 50 percent representation on the board of
directors.
The Company has not provided for deferred taxes on the gain on sale of
common stock or on the undistributed earnings of Denver Newspapers due to the
Company's recognition of operating loss carryforwards for financial reporting
purposes as offsets to deferred tax liabilities. Such operating loss
carryforwards are expected to be realized prior to the expiration of the loss
carryforwards.
The Company's investment in Denver Newspapers at June 30, 1998, was less
than the book value of the underlying 60 percent of common equity in Denver
Newspapers as a result of the gain of approximately $1.0 million on the sale
of the 40 percent interest in Denver Newspapers not being sufficient to fully
offset the Denver Newspapers' losses previously recorded at 100 percent prior
to Media General's exercise of its warrant. Media General also owns 100
percent of Denver Newspapers' 9.0% preferred stock. Annual preferred stock
dividends of $2.7 million were paid in fiscal years 1998 and 1997. Denver
Newspapers has never paid a common stock dividend.
SUMMARIZED FINANCIAL INFORMATION OF DENVER NEWSPAPERS, INC.
The following is summarized balance sheet information for Denver
Newspapers as of June 30, 1998 and 1997, and summarized statements of
operations for the fiscal years ended June 30, 1998, 1997 and 1996 (in
thousands):
SUMMARIZED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
-------------------
1998 1997
---- ----
<S> <C> <C>
ASSETS
Current assets................................................. $ 44,991 $ 43,807
Noncurrent assets.............................................. 130,031 116,292
--------- ---------
Total assets................................................. $ 175,022 $ 160,099
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities............................................ $ 38,947 $ 40,243
Mandatorily redeemable preferred stock......................... 53,175 53,175
Noncurrent liabilities......................................... 46,161 39,206
Shareholders' equity........................................... 36,739 27,475
--------- ---------
Total liabilities and shareholders' equity................... $ 175,022 $ 160,099
--------- ---------
--------- ---------
</TABLE>
SUMMARIZED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Fiscal Years ended June 30,
------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Total revenues................................. $ 217,996 $ 204,453 $ 183,037
--------- --------- ---------
--------- --------- ---------
Cost of sales.................................. $ 115,231 $ 102,042 $ 106,368
--------- --------- ---------
--------- --------- ---------
Net income..................................... $ 11,964 $ 18,177 $ 6,936
--------- --------- ---------
--------- --------- ---------
Net income applicable to common stock.......... $ 9,264 $ 15,477 $ 4,236
--------- --------- ---------
--------- --------- ---------
</TABLE>
56
<PAGE>
AFFILIATED NEWSPAPERS INVESTMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12: COMBINED SUMMARIZED FINANCIAL INFORMATION OF AFFILIATED NEWSPAPERS
INVESTMENTS, INC. AND DENVER NEWSPAPERS, INC.
The combined summarized financial statements 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 the Company. The Company has a
significant economic interest in Denver Newspapers and may be dependent, in
part, upon dividends from Denver Newspapers to service its debt in the future.
The following is the combined summarized balance sheet information for
ANI and Denver Newspapers as of June 30, 1998 and 1997 (in thousands):
SUMMARIZED COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
-------------------
1998 1997
---- ----
<S> <C> <C>
ASSETS
Current assets................................................. $ 110,113 $ 98,401
Noncurrent assets.............................................. 704,496 476,146
---------- ---------
Total assets................................................. $ 814,609 $ 574,547
---------- ---------
---------- ---------
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities............................................ $ 114,383 $ 88,544
Mandatorily redeemable preferred stock......................... 53,175 53,175
Noncurrent liabilities......................................... 727,600 533,488
Minority interest.............................................. 17,068 13,363
Shareholders' deficit.......................................... (97,617) (114,023)
---------- ---------
Total liabilities and combined shareholders' deficit......... $ 814,609 $ 574,547
---------- ---------
---------- ---------
</TABLE>
The following is the combined summarized statements of operations for ANI
and Denver Newspapers for the fiscal years ended June 30, 1998, 1997 and 1996
(in thousands):
SUMMARIZED COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Fiscal Years ended June 30,
----------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Revenues........................................................... $ 632,302 $ 507,355 $ 428,467
--------- --------- ---------
--------- --------- ---------
Cost of sales...................................................... $ 260,643 $ 208,518 $ 204,837
--------- --------- ---------
--------- --------- ---------
Gain on sale of newspaper property................................. $ 31,829 $ 30,575 $ 8,291
--------- --------- ---------
--------- --------- ---------
Minority interest in (income) applicable to common stock........... $ (3,705) $ (6,191) $ (1,695)
--------- --------- ---------
--------- --------- ---------
Income (loss) before extraordinary loss............................ $ 16,406 $ 26,266 $ (10,932)
--------- --------- ---------
--------- --------- ---------
Extraordinary loss................................................. $ -- $ 8,772 $ --
--------- --------- ---------
--------- --------- ---------
Net income (loss) applicable to common stock....................... $ 16,406 $ 17,494 $ (10,932)
--------- --------- ---------
--------- --------- ---------
</TABLE>
57
<PAGE>
AFFILIATED NEWSPAPERS INVESTMENTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13: SUBSEQUENT EVENTS
ACQUISITION
On August 21, 1998, Garden State acquired a 50% interest in Charleston
Newspapers, a joint venture, which publishes the CHARLESTON GAZETTE,
(morning) and CHARLESTON DAILY MAIL (evening) newspapers six days a week and
the SUNDAY GAZETTE-MAIL, under the terms of a JOA. The acquisition included
rights to the masthead of the CHARLESTON DAILY MAIL; thus, Garden State is
responsible for the editorial content of the CHARLESTON DAILY MAIL.
Charleston Newspapers had daily and Sunday circulation of approximately
93,000 and 102,000, respectively, at March 31, 1998. The acquisition price of
approximately $47.0 million was funded with borrowings under the RCC of the
Garden State's Bank Credit Agreement.
Garden State has agreed to acquire substantially all the assets used in
publication of a morning newspaper in New Mexico. The assets will be
purchased for $5.0 million in cash, a note with discounted value of $7.7
million, plus a covenant not to compete with the prior owners with a
discounted value of approximately $3.2 million. The cash portion of the
acquisition will be funded with borrowings under the Garden State Bank Credit
Agreement. The newspaper has daily and Sunday circulation of approximately
17,000 and 18,000, respectively, as of March 31, 1998. Closing is expected to
occur on September 30, 1998.
The acquisitions above will be accounted for as purchases; accordingly,
the consolidated financial statements will include the operations of the
acquired newspapers from the date of acquisition.
LONG-TERM DEBT
In the first quarter of fiscal 1999, Garden State repurchased $36.0
million of its 12.0% Senior Subordinated Secured Notes at a premium of
approximately $3.6 million. The premium will be recognized as an
extraordinary loss in the first quarter of fiscal year 1999. Proceeds from
borrowings under RCC and RCB of Garden State's Bank Credit Agreement were
used to repurchase the 12.0% Senior Subordinated Secured Notes.
58
<PAGE>
AFFILIATED NEWSPAPERS INVESTMENTS, INC.
Schedule I - Condensed Financial Information of Registrant
(Parent Company Only)
BALANCE SHEETS
<TABLE>
June 30,
----------------------
1998 1997
--------- ----------
(Dollars in thousands,
except share data)
<S> <C> <C>
ASSETS
Other assets............................................................... $ 1 $ 1
Investment in subsidiaries................................................. 53,218 18,059
--------- ----------
Total Assets............................................................. $ 53,219 $ 18,060
--------- ----------
--------- ----------
LIABILITIES
Due to (from) affiliate.................................................... $ 56 $ (15)
Long-term debt............................................................. 150,260 131,578
Long-term deferred taxes................................................... 520 520
--------- ----------
Total Liabilities.......................................................... 150,836 132,083
SHAREHOLDERS' DEFICIT:
Common stock, $.01 par value; 5,152,602 shares authorized
at June 30, 1998 and 1997, respectively; 2,314,346 shares
issued and outstanding................................................... 23 23
Additional paid-in capital................................................. 3,611 3,611
Deficit.................................................................... (101,251) (117,657)
--------- ----------
Total shareholders' deficit.............................................. (97,617) (114,023)
--------- ----------
Total Liabilities and Shareholders' Deficit................................ $ 53,219 $ 18,060
--------- ----------
--------- ----------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
59
<PAGE>
AFFILIATED NEWSPAPERS INVESTMENTS, INC.
Schedule I - Condensed Financial Information of Registrant
(Parent Company Only)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Fiscal Years Ended June 30,
----------------------------------
1998 1997 1996
--------- ---------- ---------
(In thousands)
<S> <C> <C> <C>
Income in subsidiaries............................................ $ 35,158 $ 42,797 $ 3,802
Interest expense.................................................. (18,682) (16,466) (14,518)
Other............................................................. (70) (65) (60)
--------- ---------- ---------
Income (loss) before income taxes and extraordinary credit....... 16,406 26,266 (10,776)
Income tax expense............................................... -- -- (156)
--------- ---------- ---------
Income (loss) before extraordinary loss.......................... 16,406 26,266 (10,932)
Extraordinary loss from subsidiary............................... -- 8,772 --
--------- ---------- ---------
Net Income (loss)................................................. $ 16,406 $ 17,494 $(10,932)
--------- ---------- ---------
--------- ---------- ---------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
60
<PAGE>
AFFILIATED NEWSPAPERS INVESTMENTS, INC.
Schedule I - Condensed Financial Information of Registrant
(Parent Company Only)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended June 30,
--------------------------------
1998 1997 1996
--------- --------- ---------
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)............................................. $ 16,406 $ 17,494 $(10,932)
Net income from subsidiaries.................................. (35,158) (34,025) (3,802)
Amortization of debt discount................................. 18,682 16,466 14,518
Deferred tax expense.......................................... -- -- 156
Change in affiliated account balance.......................... 70 (135) 60
--------- --------- ---------
NET CASH FLOWS FROM OPERATING ACTIVITIES.................... -- (200) --
CASH AT BEGINNING OF YEAR...................................... -- 200 200
--------- --------- ---------
CASH AT END OF YEAR............................................ $ -- $ -- $ 200
--------- --------- ---------
--------- --------- ---------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
61
<PAGE>
AFFILIATED NEWSPAPERS INVESTMENTS, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FISCAL YEARS ENDED JUNE 30, 1998, 1997 AND 1996
(In thousands)
<TABLE>
<CAPTION>
Balance at Additions Balance at
Beginning of charged to Net Acquisitions End of
Period Expense, Net Deductions (Dispositions) Period
------------ ------------ ---------- -------------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1998
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful
accounts..................... $4,252 $4,596 $3,636 $1,027 $6,239
YEAR ENDED JUNE 30, 1997
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful
accounts..................... $2,426 $3,567 $3,595 $1,854 $4,252
YEAR ENDED JUNE 30, 1996
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful
accounts..................... $1,931 $2,510 $2,474 $ 459 $2,426
</TABLE>
62
<PAGE>
Report of Independent Auditors
The Board of Directors
Denver Newspapers, Inc.
We have audited the accompanying consolidated balance sheets of Denver
Newspapers, Inc. and subsidiaries (the "Company") as of June 30, 1998 and
1997, and the related consolidated statements of operations, changes in
shareholders' equity, and cash flows for each of the three years in the
period ended June 30, 1998. Our audits also included the financial statement
schedule II. These financial statements and schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Denver
Newspapers, Inc. and subsidiaries at June 30, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended June 30, 1998, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
ERNST & YOUNG LLP
Denver, Colorado
August 28, 1998
63
<PAGE>
DENVER NEWSPAPERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
------------------------
1998 1997
--------- --------
(In thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents.............................................. $ 1,079 $ 3,974
Trade accounts receivable, less allowance for doubtful
accounts (1998--$3,170; 1997--$2,917)................................ 23,989 25,742
Inventories of newsprint and supplies.................................. 11,662 10,158
Prepaid expenses and other assets...................................... 1,717 1,501
Due from affiliates.................................................... 195 --
Current income tax receivable.......................................... 4,554 --
Deferred income taxes.................................................. 1,795 2,432
--------- --------
TOTAL CURRENT ASSETS................................................ 44,991 43,807
PROPERTY, PLANT AND EQUIPMENT
Land................................................................... 6,953 6,925
Buildings and improvements............................................. 32,901 21,924
Machinery and equipment................................................ 106,275 84,846
Construction-in-progress............................................... 340 16,164
--------- --------
146,469 129,859
Accumulated depreciation and amortization.............................. (53,654) (47,354)
--------- --------
Net property, plant and equipment................................... 92,815 82,505
OTHER ASSETS
Subscriber accounts less accumulated amortization of
$216 and $114 at June 30, 1998 and 1997, respectively................ 1,316 1,383
Excess of cost over fair value of net assets acquired,
less accumulated amortization of $559 and $301
at June 30, 1998 and 1997, respectively.............................. 11,003 10,368
Net pension asset ..................................................... 22,740 21,147
Other.................................................................. 2,157 889
--------- --------
TOTAL OTHER ASSETS.................................................. 37,216 33,787
--------- --------
TOTAL ASSETS............................................................. $ 175,022 $160,099
--------- --------
--------- --------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
64
<PAGE>
<TABLE>
<CAPTION>
June 30,
------------------------
1998 1997
--------- --------
(IN THOUSANDS EXCEPT
SHARE DATE)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable................................................. $ 20,495 $ 15,157
Accrued employee compensation.......................................... 4,764 4,603
Accrued liabilities.................................................... 3,231 6,882
Due to affiliates...................................................... -- 38
Income taxes payable................................................... -- 3,738
Unearned income........................................................ 9,041 8,960
Current portion of long-term debt and capital leases................... 1,416 865
--------- --------
TOTAL CURRENT LIABILITIES........................................... 38,947 40,243
OBLIGATIONS UNDER CAPITAL LEASES......................................... 3,269 2,238
LONG-TERM DEBT........................................................... 11,015 9,500
OTHER LIABILITIES........................................................ 8,034 7,778
DEFERRED INCOME TAXES.................................................... 23,843 19,690
MANDATORILY REDEEMABLE 9% CUMULATIVE
PREFERRED STOCK, PAR VALUE $25,000 PER
SHARE; 1,200 SHARES AUTHORIZED, ISSUED AND
OUTSTANDING............................................................ 53,175 53,175
SHAREHOLDERS' EQUITY:
Common stock, par value $1 per share; Class A, authorized 120 shares; 40
shares issued and outstanding; Class B, authorized 120 shares;
60 shares issued and outstanding..................................... -- --
Additional paid-in capital............................................. 7,762 7,762
Retained earnings...................................................... 28,977 19,713
--------- --------
TOTAL SHAREHOLDERS' EQUITY.......................................... 36,739 27,475
--------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............................... $ 175,022 $ 160,099
--------- --------
--------- --------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
65
<PAGE>
DENVER NEWSPAPERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Fiscal Years ended June 30,
-----------------------------------
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
REVENUES $ 217,996 $ 204,453 $ 183,037
COSTS AND EXPENSES:
Cost of sales...................................... 115,231 102,042 106,368
Selling, general and administrative................ 72,817 65,495 57,190
Management fees.................................... 1,032 740 641
Depreciation and amortization...................... 7,468 5,860 6,577
Interest expense................................... 1,528 741 805
Other expense (income)............................. 306 (122) (147)
--------- --------- ---------
TOTAL COSTS AND EXPENSES............................. 198,382 174,756 171,434
INCOME BEFORE INCOME TAXES........................... 19,614 29,697 11,603
INCOME TAX EXPENSE................................... (7,650) (11,520) (4,667)
--------- --------- ---------
NET INCOME........................................... 11,964 18,177 6,936
ACCRETION OF DIVIDENDS ON
PREFERRED STOCK..................................... (2,700) (2,700) (2,700)
--------- --------- ---------
NET INCOME APPLICABLE TO
COMMON STOCK........................................ $ 9,264 $ 15,477 $ 4,236
--------- --------- ---------
--------- --------- ---------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
66
<PAGE>
DENVER NEWSPAPERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional Total
Retained Paid-in Shareholders'
Earnings Capital Equity
---------- ---------- -------------
<S> <C> <C> <C>
BALANCE AT JUNE 30, 1995.................................. $ -- $ 7,762 $ 7,762
Net income.............................................. 6,936 -- 6,936
Accretion of dividends on preferred stock............... (2,700) -- (2,700)
-------- ------- ---------
BALANCE AT JUNE 30, 1996.................................. 4,236 7,762 11,998
Net income.............................................. 18,177 -- 18,177
Accreted and paid dividends on preferred stock.......... (2,700) -- (2,700)
-------- ------- ---------
BALANCE AT JUNE 30, 1997.................................. 19,713 7,762 27,475
Net income.............................................. 11,964 -- 11,964
Accreted and paid dividends on preferred stock.......... (2,700) -- (2,700)
-------- ------- ---------
BALANCE AT JUNE 30, 1998.................................. $28,977 $ 7,762 $ 36,739
-------- ------- ---------
-------- ------- ---------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
67
<PAGE>
DENVER NEWSPAPERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Fiscal Years ended June 30,
------------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
(In Thousands)
OPERATING ACTIVITIES:
Net income ........................................ $ 11,964 $ 18,177 $ 6,936
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation ................................... 7,089 5,500 6,510
Amortization ................................... 379 360 67
Deferred income tax (benefit) expense .......... 4,790 1,540 (256)
Change in operating assets and liabilities:
Accounts receivable, net ..................... 1,849 (4,302) (4,220)
Inventories .................................. (1,475) (4,888) 2,100
Income taxes receivable ...................... (4,554) -- --
Prepaid expenses and other current assets .... (1,480) (496) (106)
Pension assets ............................... (1,602) (1,051) (1,053)
Accounts payable and current liabilities ..... (1,938) 8,699 (1,819)
Other ........................................ (60) 370 746
-------- -------- --------
NET CASH FROM OPERATING ACTIVITIES .............. 14,962 23,909 8,905
INVESTING ACTIVITIES:
Purchase of newspaper properties .................. (583) -- (15,716)
Sale of newspaper property ........................ -- 1,987 --
Purchases of property, plant and equipment, net
of capital leases ............................ (13,334) (18,907) (3,745)
Short-term investments ............................ -- -- 1,327
-------- -------- --------
NET CASH FROM INVESTING ACTIVITIES .............. (13,917) (16,920) (18,134)
FINANCING ACTIVITIES:
Issuance of long-term debt ........................ 16,800 9,000 17,500
Principal payments on long-term debt .............. (16,566) (15,099) (6,007)
Principal payments on capital lease obligations ... (1,474) (3,163) (1,086)
Preferred stock dividend .......................... (2,700) (2,700) --
-------- -------- --------
NET CASH FROM FINANCING ACTIVITIES .............. (3,940) (11,962) 10,407
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,895) (4,973) 1,178
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ..... 3,974 8,947 7,769
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR ........... $ 1,079 $ 3,974 $ 8,947
-------- -------- --------
-------- -------- --------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
68
<PAGE>
DENVER NEWSPAPERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS
Denver Newspapers, Inc. ("Denver Newspapers") and its subsidiaries are
in the business of publishing daily and weekly newspapers.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Denver
Newspapers and its wholly owned subsidiary, The Denver Post Corporation
("DPC"), and DPC's wholly owned subsidiary, Eastern Colorado Publishing
Company ("Eastern Colorado"), collectively referred to as "the Company". At
June 30, 1998, 60 percent of the Company's common stock was held by
Affiliated Newspapers Investments, Inc. and 40 percent was held by Media
General, Inc. All intercompany accounts were eliminated upon consolidation.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
INVENTORIES
Inventories, which largely consist of newsprint, are valued at the lower
of cost or market. Effective July 1, 1996, the Company elected to change its
method of determining the cost of inventories from last in, first out to
first in, first out. The effect of the accounting change was not material.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Buildings and
machinery and equipment are depreciated using the straight-line method over
the expected useful lives of the individual assets.
INTANGIBLE ASSETS
Intangible assets acquired are recorded at their estimated fair values
as of the date of acquisition. The excess of cost over fair value of net
assets acquired is being amortized using the straight-line method over a
period of 40 years. Subscriber accounts are amortized using the straight-line
method over 15 years.
IMPAIRMENT OF LONG-LIVED ASSETS
The carrying value of long-lived assets is reviewed annually; however,
if at any time the facts or circumstances at any of the Company's individual
newspaper operations indicate impairment of asset values as a result of
continual declines in performance or as a result of fundamental changes in a
newspaper's market, a determination is made as to whether the carrying value
of the newspaper's long-lived assets exceeds its estimated realizable value.
For purposes of this determination, estimated realizable value is evaluated
based on values placed on comparable newspaper properties, generally based on
a multiple of revenue and operating profit (before depreciation and
amortization).
INCOME TAXES
The Company accounts for income taxes using the asset and liability
method of accounting. Deferred taxes are recognized for the tax consequences
of temporary differences by applying enacted statutory rates to differences
between the financial statement carrying amount and the tax basis of existing
assets and liabilities. The effect on deferred taxes of a change in tax rates
is recognized in income in the period that includes the enactment date.
69
<PAGE>
DENVER NEWSPAPERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS (CONTINUED)
FINANCIAL INSTRUMENTS
The carrying value of long-term debt at June 30, 1998 approximates the
fair value of such financial instruments. Management cannot practicably
estimate the fair value of its mandatory redeemable preferred stock because
of the lack of quoted market prices for this type of security and its
inability to estimate its fair value without incurring the excessive costs of
obtaining an appraisal. The carrying amount represents its original issue
price plus accumulated and unpaid dividends.
ADVERTISING COSTS
The Company expenses all advertising cost as incurred. Advertising costs
included in the Consolidated Statements of Operations for the years ended
June 30, 1998, 1997 and 1996, were approximately $6.4 million, $5.3 million
and $4.0 million, respectively.
USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles at times requires the use of estimates and
assumptions that affect the reported amount of assets, liabilities, revenues
and expenses. Actual results could differ from these estimates.
2. ACQUISITIONS AND DISPOSITION
ACQUISITIONS
On July 1, 1997, Eastern Colorado purchased substantially all the assets
used in the publication of THE BURLINGTON RECORD and THE PLAINS DEALER,
weekly newspapers located in Burlington, Colorado, for $0.4 million in cash
and seller notes with a discounted value of approximately $1.2 million.
On May 1, 1996, DPC purchased from Garden State Newspapers, Inc., an
affiliate of the Company, the common stock of Eastern Colorado, and the daily
and weekly newspapers listed below:
<TABLE>
<CAPTION>
Newspaper Location Daily Publication Weekly Publication
- ------------------ ----------------- ------------------
<S> <C> <C>
Fort Morgan, Colorado Fort Morgan Times Morgan Times Review(a)
Sterling, Colorado Journal-Advocate J. A. Shopper(a)
Lamar, Colorado Lamar Daily News Tri-State Trader(a)
Sidney, Nebraska Sidney Telegraph High Plains Shopping Guide(a)
Akron, Colorado None Akron News Reporter(b)
Brush, Colorado None Brush News-Tribune(b)
Julesburg, Colorado None Julesburg Advocate(b)
</TABLE>
- -----------------------------
(a) Free weekly distribution
(b) Paid weekly distribution
70
<PAGE>
DENVER NEWSPAPERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. ACQUISITIONS AND DISPOSITION (CONTINUED)
The common stock of Eastern Colorado was purchased for approximately
$15.7 million, including the assumption of $0.2 million of discounted
non-compete payments and other long-term obligations associated with the
newspapers acquired. The sales price of Eastern Colorado was deemed to be
fair, based on an independent appraisal of the transaction.
The acquisitions referred to above were accounted for as purchases;
accordingly, the operations have been included since the date of acquisition.
The assets acquired and liabilities assumed have been recorded at their
estimated fair value at the date of acquisition. These fair values are based
on management's best estimate. The excess of cost over fair value of net
assets acquired and intangible assets related to subscriber lists are being
amortized on a straight line basis over 40 and 15 years, respectively.
DISPOSITION
On July 31, 1996, DPC sold substantially all the assets used in the
publication of the SIDNEY TELEGRAPH and the HIGH PLAINS SHOPPING GUIDE for
approximately $2.0 million in cash. The sales price approximated the value
allocated to the assets as of May 1, 1996, in the acquisitions discussed
above.
3. LONG-TERM DEBT
On June 30, 1996, the Company restructured its existing revolving bank
credit facility (the "Agreement") to increase the credit commitment to $27.0
million, which includes a $25.0 million revolving loan commitment and a $2.0
million letter of credit commitment. At June 30, 1998, $10.0 million was
outstanding under the revolving loan commitment and $1.6 million of the
letter of credit commitment was used in support of workers' compensation
insurance. The principal borrowings under the Agreement bear interest at a
variable rate based on either the bank's prime rate of interest or a LIBOR
rate. The Company also pays an annual fee of one-fourth of one percent on the
unused commitment, payable quarterly. On June 30, 2000, all letters of credit
drawings (if any) and any outstanding balance under the revolving loan
commitment are due and payable. The Agreement contains restrictions and
limitations with respect to additional debt, capital expenditures and lease
arrangements. In addition, the Agreement requires the maintenance of certain
financial ratios, operating statistics and cash flow levels. All of DPC and
its subsidiaries' assets and common stock are pledged as collateral under the
Agreement.
In conjunction with the acquisition of THE BURLINGTON RECORD and THE
PLAINS DEALER, discussed above, Eastern Colorado issued promissory notes with
a discounted value of $1.2 million, The notes do not bear interest and were
discounted at 8.5%. The notes are payable in 10 annual installments of
$180,000, beginning July 1, 1998.
Maturities of the Company's long-term debt as of June 30, 1998, for the
five fiscal years ending June 30, 2003 and thereafter, are shown below.
<TABLE>
<S> <C>
1999...................... $ 135
2000...................... 10,086
2001...................... 94
2002...................... 102
2003...................... 110
Thereafter................ 623
--------
$ 11,150
--------
--------
</TABLE>
Interest paid during the fiscal year ended June 30, 1998, 1997 and 1996
was approximately $1.0 million, $0.7 million and $0.8 million, respectively.
In fiscal year 1998, the Company capitalized $0.5 million of interest.
71
<PAGE>
DENVER NEWSPAPERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. LEASES
The Company leases certain equipment, vehicles and office space under
various operating and capital leases. Several of these leases contain renewal
and purchase options and escalation clauses. Accumulated amortization on
capital leases is included in accumulated depreciation in the accompanying
consolidated balance sheets.
Property, plant and equipment includes the following amounts for assets
under capital leases:
<TABLE>
<CAPTION>
June 30,
-------------------
1998 1997
------- -------
(In Thousands)
<S> <C> <C>
Machinery and equipment..................................... $ 9,620 $ 7,391
Accumulated amortization.................................... (3,589) (2,896)
------- -------
Machinery and equipment under capital leases, net........... $ 6,031 $ 4,495
------- -------
------- -------
</TABLE>
Future minimum lease payments, by year and in the aggregate, for
non-cancelable operating and capital leases with initial or remaining terms
of one year or more, consisted of the following at June 30, 1998:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------- --------
(In thousands)
<S> <C> <C>
1999.................................................. $ 1,611 $ 2,578
2000.................................................. 1,242 2,879
2001.................................................. 1,061 2,566
2002.................................................. 710 2,289
2003.................................................. 464 2,096
Thereafter............................................ 310 1,835
------- --------
Total minimum obligations............................. 5,389 $ 14,243
--------
Less amount representing interest..................... 848 --------
-------
Present value of net minimum obligations.............. 4,550
Less current portion.................................. 1,281
-------
Long-term obligations under capital lease............. $ 3,269
-------
-------
</TABLE>
Rental expense was approximately $2.4 million, $2.9 million and $2.6
million for the years ended June 30, 1998, 1997, and 1996, respectively.
5. EMPLOYEE PENSION PLANS
The Company sponsors two noncontributory defined benefit pension plans
which cover substantially all employees other than certain union employees
covered by multi-employer pension plans under collective bargaining
agreements. The plan covering salaried and management employees provides
benefits based on employees' years of service and compensation during the
years immediately preceding retirement. The plan covering certain union
employees provides benefits of stated amounts based on length of service. The
Company's funding policy for both plans is to make the minimum annual
contributions required by the Employee Retirement Income Security Act of 1974.
72
<PAGE>
DENVER NEWSPAPERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. EMPLOYEE PENSION PLANS (CONTINUED)
The components of net periodic pension income for the Company's two
qualified defined benefit plans for the years ended June 30 1998, 1997 and 1996
are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- ------- --------
(In thousands)
<S> <C> <C> <C>
Service cost-benefits earned during the period.... $ 1,477 $ 1,498 $ 1,282
Interest cost on projected benefit obligations.... 2,668 2,484 2,240
Return on plan assets............................. (10,410) (9,094) (6,470)
Net amortization and deferral..................... 4,672 4,061 1,895
-------- -------- --------
Net pension income................................ $ (1,593) $ (1,051) $ (1,053)
-------- -------- --------
-------- -------- --------
</TABLE>
The following table sets forth the funding status and amounts recognized in
the Company's consolidated balance sheets at June 30, 1998, 1997 and 1996
related to the Company's defined benefits plans:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligations, including vested
benefits of $31,893, $31,005 and $29,542 for 1998,
1997 and 1996, respectively.............................. $ 33,377 $ 32,279 $ 29,904
-------- -------- --------
-------- -------- --------
Plan Assets at fair value comprised of common stocks,
bonds and U.S. Government obligation funds.............. $ 68,241 $ 59,817 $ 52,940
Projected benefit obligations............................... 37,944 36,540 32,460
-------- -------- --------
Excess of plan assets over projected benefit
obligations.............................................. 30,297 23,277 20,480
Unrecognized gain from past experience
different from that assumed.............................. (8,978) (3,716) (2,134)
Unamortized balance of prior service liability.............. 1,421 1,586 1,750
-------- -------- --------
Net pension asset recognized in the
consolidated balance sheets............................ $ 22,740 $ 21,147 $ 20,096
-------- -------- --------
-------- -------- --------
</TABLE>
The weighted-average discount rate used in determining the actuarial
present value of the projected benefit obligations was 7.5%, 7.5%, and 8.5%
at June 30, 1998, 1997, and 1996, respectively. The rate of increase in
future compensation levels used in determining the actuarial present value of
the projected benefit obligations was 6.25% and the expected long-term rate
of return on plan assets was 10.0% for all periods.
Certain union employees are covered under multi-employer defined benefit
plans administered by the unions. The amounts contributed and charged to
pension cost for these plans totaled approximately $1.0 million, $1.2 million
and $0.7 million for the years ended June 30, 1998, 1997 and 1996,
respectively.
6. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company's post-retirement health care and life insurance plans (the
"Plans") provide certain of the Company's union employees and their spouses
with varying amounts of subsidized medical coverage upon retirement and, in
some instances, continued life insurance benefits until age 65, if the
employee retires prior to age 65.
73
<PAGE>
DENVER NEWSPAPERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (CONTINUED)
The unfunded accumulated postretirement benefits obligation as of July 1,
1998 and July 1, 1997 consisted of the following (in thousands):
<TABLE>
<CAPTION>
July 1, July 1,
1998 1997
------- -------
<S> <C> <C>
Retirees..................................... $ 2,124 $ 2,652
Fully eligible active plan participants...... 134 499
Other active plan participants............... 1,265 1,898
------- -------
Accumulated postretirement benefit
obligation................................ 3,523 5,049
Unrecognized net gain (loss)................. 1,392 (56)
Unrecognized prior service cost.............. 21 --
------- -------
Accrued postretirement benefit obligation.... $ 4,936 $ 4,993
------- -------
------- -------
</TABLE>
Net periodic postretirement benefit cost for the years ended July 1,
1998, 1997, and 1996, included the following components (in thousands):
<TABLE>
<CAPTION>
July 1, July 1, July 1,
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Service Cost................................. $ 44 $ 96 $ 123
Interest cost on accumulated post-
retirement benefit obligations............ 241 352 396
Net amortization and deferral................ (207) -- 46
----- ------ ------
Net postretirement benefit expense........... $ 78 $ 448 $ 565
----- ------ ------
----- ------ ------
</TABLE>
In determining the Accumulated Postretirement Benefit Obligation ("APBO"),
the weighted average discount rate of 7.5% was assumed at July 1, 1998 and 1997.
The July 1, 1998 and 1997, assumed health care cost trend rate was 7.0%
declining to 5.0% in fiscal year 2001 and thereafter. A 1.0% increase in the
assumed health care cost trend rate would increase the accumulated
postretirement benefit obligation by approximately $0.3 million and the service
cost and interest cost components of the net postretirement benefit expense for
fiscal year 1998 by an immaterial amount. The Company's policy is to fund the
cost of providing postretirement health care and life insurance benefits when
they are entitled to be received.
The Company has also accrued $1.0 million for early retirement incentives
which consist of supplemental retirement benefits for certain employees who
retire between the age of sixty-two and sixty-five. These supplemental
retirement benefits consist of cash payments to supplement the retiree's
pension.
7. INCOME TAXES
The income tax provision (benefit) for each of the three years ended June
30, 1998, 1997 and 1996 consists of the following (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- --------
<S> <C> <C> <C>
Current:
Federal...................................... $2,826 $ 9,363 $4,922
State........................................ 34 617 --
Deferred:
State........................................ 821 691 488
Federal...................................... 3,969 849 (743)
------ ------- ------
$7,650 $11,520 $4,667
------ ------- ------
------ ------- ------
</TABLE>
74
<PAGE>
DENVER NEWSPAPERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. INCOME TAXES (CONTINUED)
A reconciliation between the actual income tax expense for financial
statement purposes and income taxes computed by applying the statutory federal
income tax rate to financial statement earnings before taxes is as follows:
<TABLE>
<CAPTION>
Fiscal Years Ended June 30
-----------------------------
1998 1997 1996
-------- -------- -------
<S> <C> <C> <C>
Statutory federal income tax rate 35% 35% 35%
Effect of:
State income taxes, net of federal benefit....... 3 3 3
Other, net....................................... 1 1 2
--- --- ---
39% 39% 40%
--- --- ---
--- --- ---
</TABLE>
Temporary differences which give rise to significant components of the
Company's deferred tax liabilities and assets at June 30, 1998 and 1997, are as
follows:
<TABLE>
<CAPTION>
June 30,
------------------------------
1998 1997
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Allowance for bad debt ......................................... $ 1,077 $ 967
Postretirement and other pension ............................... 2,207 2,312
Other .......................................................... 1,449 3,020
-------- --------
Total deferred tax assets ......................................... 4,733 6,299
Deferred tax liabilities:
Capital lease and fixed assets ................................. (17,412) (14,421)
Pension asset .................................................. (9,319) (7,769)
Other .......................................................... (50) (1,367)
-------- --------
Deferred tax liabilities, net ..................................... (22,048) (17,258)
Current deferred tax assets, net .................................. 1,795 2,432
-------- --------
Long-term deferred tax liabilities ................................ $(23,843) $(19,690)
-------- --------
-------- --------
</TABLE>
The Company made federal and state income tax payments of $11.0 million,
$8.6 million and $3.8 million during the fiscal years ended June 30, 1998, 1997
and 1996, respectively. The Company has state enterprise zone credits of $1.3
million expiring in 2000 through 2005. The Company has no federal or state
operating loss carryforwards.
8. MANDATORILY REDEEMABLE PREFERRED STOCK
The Company previously authorized and issued 1,200 shares of 9% non-voting
cumulative preferred stock with a stated value of $30.0 million (the "9%
Preferred Stock"), which is currently held by Media General, Inc. The holder of
the 9% Preferred Stock is entitled to receive yearly dividends at the rate of 9%
or $2.7 million per year. The carrying value of the 9% Preferred Stock includes
the accretion of accumulated and unpaid dividends as of June 30, 1998, in the
amount of $23.2 million.
75
<PAGE>
DENVER NEWSPAPERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. MANDATORILY REDEEMABLE PREFERRED STOCK (CONTINUED)
Since January 1, 1997, the Company has paid an annual preferred stock
dividend of $2.7 million and will continue to pay annual preferred stock
dividends. The Company's 9% Preferred Stock is mandatorily redeemable on the
earlier of (a) July 1, 1999, (b) the date on which such redemption is
permissible under DPC's credit agreement, (c) the date on which the Company
ceases to own directly at least 51% of all the outstanding capital stock of DPC,
or (d) the date on which the Company, directly or indirectly, causes or permits
DPC to dispose of substantially all of its assets.
9. RELATED PARTY TRANSACTIONS
MediaNews Group, Inc., ("MNG") an affiliate of the Company, provides
management services to the Company for a fee. The cost of management services
provided has been included as management fees in the Consolidated Statements of
Operations.
10. COMMITMENTS AND CONTINGENCIES
CONTINGENCIES
The Company is involved in a number of legal proceedings which have arisen
in the ordinary course of business. In the opinion of management, the outcome of
these legal proceedings will not have a material adverse impact on the Company's
financial position or results of operations.
COMMITMENTS
Under the terms of a newsprint contract, the Company, through MNG, has
agreed to purchase 5,500 tons per month of newsprint at a fixed price under
contracts expiring on August 31, 2000 and December 31, 2000. Management does not
expect that it will purchase less than the required amount; however, if it
should default on the purchase obligation, MNG and/or the Company would be
responsible for damages, if any, incurred by the seller.
11. IMPACT OF THE YEAR 2000 (UNAUDITED)
The Company has conducted an assessment and review of its computer systems
to identify those areas that could be affected by the "Year 2000" issue and is
in the process of modifying existing software and converting to new software
which is expected to be completed by June 30, 1999. The Company believes that
the year 2000 problem will not pose significant operational problems and the
total costs of such modifications and conversion will not be material to its
financial position.
The Company has initiated formal communications with the companies with
which it conducts business. The Company is currently unable to determine the
impact on its operations if systems of other companies are not timely converted
to the year 2000.
76
<PAGE>
Denver Newspapers, Inc.
Schedule II--Valuation and Qualifying Accounts and Reserves
Fiscal Years ended June 30, 1998, 1997 and 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
Balance at Additions Balance at
Beginning of charged to Net End of
Period Expense, Net Deductions Acquisitions Period
------------ ------------ ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1998
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful
accounts.................... $ 2,917 $ 3,124 $ (2,871) $ -- $3,170
-------- -------- --------- ----- ------
-------- -------- --------- ----- ------
YEAR ENDED JUNE 30, 1997
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful
accounts.................... $ 2,055 $ 3,079 $ (2,217) $ -- $ 2,917
-------- -------- --------- ----- ------
-------- -------- --------- ----- ------
YEAR ENDED JUNE 30, 1996
Reserves and allowances deducted
From asset accounts:
Allowance for doubtful
accounts.................... $ 2,239 $ 3,029 $ (3,243) $ 30 $ 2,055
-------- -------- --------- ----- ------
-------- -------- --------- ----- ------
</TABLE>
77
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
3.1* -Second Amended and Restated Certificate of Incorporation
3.2* -Form of Fourth Amended and Restated Certificate of Incorporation.
3.3* -Restated Bylaws.
3.4* -Form of Restated Bylaws.
3.5* -Form of Certificate of Incorporation of Garden State Investments,
Inc.
4.1* -Form of Indenture.
4.2* -Form of Second Pledge Agreement to be dated as of the Closing Date
between Garden State Investments, Inc., Bank of New York, Wilmington
Trust Company and William J. Wade.
10.1* -Form of New Senior Note Agreement between Garden State Newspapers,
Inc. and certain of its subsidiaries, as obligors, and John Hancock
Mutual Life Insurance Company, Lender.
10.2* -Form of New Garden State Credit Facility Agreement.
10.3* -Form of New NJNI Credit Facility Agreement.
10.4* -Management Agreement dated July 1, 1988 between MediaNews Group, Inc.
and the Registrant.
10.5* -Employment Agreement dated April 26, 1985 between Garden State
Newspapers, Inc. and William Dean Singleton, with April 30, 1986,
October 1, 1988, and February 10, 1993 Amendments.
10.6* -Amended and Restated Partnership Agreement of North Jersey Newspapers
Company dated December 31, 1991 between North Jersey Newspapers, Inc.,
and Affiliated Newspapers Investment Company.
10.7* -Joint Operating Agreement dated January 13, 1989 among York Daily
Record, Inc., York Newspapers, Inc., and The York Newspapers Company.
10.8* -Form of Tax Sharing Agreement by and between Garden State Newspapers,
Inc. and Affiliated Newspapers Investments, Inc.
10.9* -Form of Used Equipment Trade Agreement between Alameda Newspaper
Group and Man Roland, Inc.
10.10* -Form of Used Equipment Trade Agreement between North Jersey
Newspapers Company and Man Roland, Inc.
10.11* -Form of Agreement between Garden State Newspapers, Inc. and North
Jersey Newspapers Company for an option to purchase three Colormatic
Presses.
10.12* -Consulting Agreement dated November 16, 1993 between J. Allan Meath
and Garden State Newspapers, Inc.
10.13* -Letter Agreement between Media General, Garden State Newspapers, Inc.
and Affiliated Newspapers Investment Company, dated as of March 16,
1994.
10.14* -Purchase Agreement dated March 25, 1994 between Thomson Newspapers
and Affiliated Newspapers Investments, Inc.
10.15* -Amendment dated May 3, 1994 to Letter Agreement between Media
General, Garden State Newspapers, Inc. and Affiliated Newspapers
Investment Company dated as of March 16, 1994.
10.16* -Form of Amendment and Restatement of Trust Agreement among Garden
State Newspapers, Inc., Alameda Newspapers, Inc., Graham Newspapers,
Inc., The Johnstown Tribune Publishing Company, Mid-States Newspapers,
Inc., and York Newspapers, Inc.; John Hancock Mutual Life Insurance
Company, John Hancock Variable Life Insurance Company and Mellon Bank
N.A., as Trustee of AT&T Master Pension Trust; Bankers Trust Company,
a New York banking corporation; Wilmington Trust Company, a Delaware
banking corporation; and William J. Wade.
10.17* -Form of Amended and Restated Pledge Agreement among Garden State
Newspapers, Inc., its subsidiaries, John Hancock Mutual Life Insurance
Company, John Hancock Variable Life Insurance Company and Mellon Bank,
N.A., as Trustee of AT&T Master Pension Trust, Bankers Trust Company,
a New York banking corporation, Wilmington Trust Company, a Delaware
banking corporation, and William J. Wade.
10.18* -Form of Asset Purchase Agreement dated July 15, 1994 among Mid-State
Newspapers, Inc., as Seller; Garden State Newspapers, Inc., as
guarantor; Bristol Acquisition Corp., as Purchaser.
</TABLE>
78
<PAGE>
INDEX TO EXHIBITS (CONTINUED)
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
10.19* -Consulting Agreement dated November 16, 1993 between J. Allan Meath
and Garden State Newspapers, Inc.
10.20* -Letter Agreement dated November 9, 1993 by and among The Times Mirror
Company, Affiliated Newspapers Investment Company, Denver Newspapers,
Inc., Denver Media Holdings, Inc., NJN Holdings, L.P., The Singleton
Family Irrevocable Trust, The Scudder Family Voting Trust for Denver
Newspapers, Inc.; The Singleton Family Revocable Trust, The Scudder
Family Voting Trust for Affiliated Newspapers Investment Company,
Media General, Inc., Garden State Newspapers, Inc., North Jersey
Newspapers, Inc., and Montclair Newspapers, Inc., as amended February
3, 1994.
10.21* -Management Agreement dated July 1, 1988 between MediaNews Group, Inc.
and Garden State Newspapers,Inc.
10.22* -Management Agreement dated July 1, 1988 between MediaNews Group, Inc.
and Denver Newspapers, Inc.
10.23* -Letter Agreement dated March 17, 1994 between Norwest Bank Colorado,
N.A. and the Denver Post Corporation.
10.24* -Purchase Agreement dated March 25, 1994 between Thomson Newspapers
and Affiliated Newspapers Investments, Inc.
10.25* -Amendment dated May 3, 1994 to Letter Agreement between Media
General, Garden State Newspapers, Inc. and Affiliated Newspapers
Investment Company dated March 16, 1994.
10.26* -Amendment dated April 29, 1994 between The Times Mirror Company and
Denver Newspapers, Inc. to Letter Agreement dated November 9, 1993 by
and among The Times Mirror Company, Affiliated Newspapers Investment
Company, Denver Newspapers, Inc., Denver Media Holdings, Inc., NJN
Holdings, L.P., TheSingleton Family Irrevocable Trust, The Scudder
Family Voting Trust for Denver Newspapers, Inc., The Singleton Family
Revocable Trust, The Scudder Family Voting Trust for Affiliated
Newspapers Investment Company, Media General, Inc., Garden State
Newspapers, Inc., North Jersey Newspapers, Inc., and Montclair
Newspapers, Inc., as amended February 3, 1994.
10.27* -Asset purchase agreement and assumed debt agreements related to THE
GLOUCESTER COUNTY TIMES and TODAY'S SUNBEAM asset acquisition.
10.28* -Denver Newspapers, Inc. warrant exercise subscription notice dated
September 27, 1994.
10.29** -Asset Purchase Agreement dated July 31, 1995, by and among EPC
Holding, Inc., The Eagle Publishing Company, Reformer Publishing
Corporation, Middletown Press Publishing Corporation, and Eagle Street
Realty Trust, as Sellers, and New England Newspapers, Inc.,
Brattleboro Publishing Company, Connecticut Newspapers, Inc. and
Pittsfield Publications, Inc., as Purchasers.
10.30** -Asset Purchase Agreement dated July 31, 1995, by and among Banner
Publishing Corporation and Eagle Street Realty Trust, as Sellers, and
New England Newspapers, Inc. and North Eastern Publishing Company, as
Purchasers.
10.31** -Asset Purchase Agreement dated August 24, 1995, by and among
Connecticut Newspapers, Inc., as Seller, and Middletown Acquisition
Corp., as Purchaser.
10.32** -$42.0 million Credit Agreement dated August 31, 1995, among Garden
State Newspapers, Inc., The Bank of New York and Bankers Trust
Company, as Agents.
10.33** -Agreement dated April 29, 1996, by and among American Publishing
(1991) Inc., Berkshire Newspapers, Inc., Evening News Company, Sidney
Publication Company, Sterling Publishing Company and Garden State
Investments, Inc.
10.34** -Agreement dated April 30, 1996, by and among Garden State
Investments, Inc. and The Denver Post Corporation for the
sale/purchase of the capital stock of Eastern Colorado Publishing
Company.
12.1* -Computation of Ratio Earnings to Fixed Charges.
27 -Financial Data Schedule
</TABLE>
- -----------------
* Previously filed as exhibits to registration statement of
Form S-1 (No. 33-75158), amendments thereto and Garden State
Form 8-K.
** Previously filed.
79
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
AFFILIATED NEWSPAPERS INVESTMENTS, INC.
Date: September 18, 1998 By: /S/ Joseph J. Lodovic, IV
-----------------------------
Joseph J. Lodovic, IV
Executive Vice
President and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons on behalf of the registrant in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- -------------- ------ ----
<S> <C> <C>
/s/ William Dean Singleton Vice Chairman, President, September 18, 1998
- ------------------------------------------ Chief Executive Officer and Director
(William Dean Singleton) (Chief Executive Officer)
/s/ Joseph J. Lodovic, IV Executive Vice President and Chief September 18, 1998
- ------------------------------------------ Financial Officer (Chief Financial
(Joseph J. Lodovic, IV) Officer)
/s/ Richard B. Scudder Director September 18, 1998
- ------------------------------------------
(Richard B. Scudder)
/s/ Jean L. Scudder Director September 18, 1998
- ------------------------------------------
(Jean L. Scudder)
/s/Patricia Robinson Director September 18, 1998
- ------------------------------------------
(Patricia Robinson)
/s/Ronald A. Mayo Vice President Finance and September 18, 1998
- ------------------------------------------ Controller (Principal Accounting
(Ronald A. Mayo) Officer)
</TABLE>
80
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JUNE 30,
1998 FORM 10K
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 999
<SECURITIES> 0
<RECEIVABLES> 51,675
<ALLOWANCES> 6,239
<INVENTORY> 7,286
<CURRENT-ASSETS> 65,122
<PP&E> 257,388
<DEPRECIATION> 63,588
<TOTAL-ASSETS> 659,258
<CURRENT-LIABILITIES> 75,436
<BONDS> 654,461
0
0
<COMMON> 23
<OTHER-SE> (97,617)
<TOTAL-LIABILITY-AND-EQUITY> 659,258
<SALES> 414,306
<TOTAL-REVENUES> 414,306
<CGS> 145,412
<TOTAL-COSTS> 355,118
<OTHER-EXPENSES> 75,377
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 63,991
<INCOME-PRETAX> 21,198
<INCOME-TAX> 4,792
<INCOME-CONTINUING> 16,406
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,406
<EPS-PRIMARY> 7.09
<EPS-DILUTED> 0
</TABLE>
