<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended December 31, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ______________ to _______________
Commission File Number _________
AFFILIATED NEWSPAPERS INVESTMENTS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 76-0425553
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1560 BROADWAY
DENVER, COLORADO 80202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 837-0886
NOT APPLICABLE
(Former name, former address and former fiscal year, if
changed since last report.)
Indicate by check mark whether a registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock. As of December 31, 1997:
Class B Common Stock: 173,576
Class D Common Stock: 664,450
Class G Common Stock: 1,476,090
Class GSI Common Stock: 1,104,130
Class N Common Stock: 230
<PAGE>
INDEX TO AFFILIATED NEWSPAPERS INVESTMENTS, INC.
REPORT ON FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 1997
<TABLE>
Item No. Page
- -------- ----
<S> <C> <C>
PART I - FINANCIAL INFORMATION
1 Financial Statements 3
2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 3
PART II - OTHER INFORMATION
1 Legal Proceedings 3
2 Changes in Securities 3
3 Defaults Upon Senior Securities 3
4 Submissions of Matters to a Vote of Security Holders 3
5 Other Information 4
6 Exhibits and Reports on Form 8-K 4
</TABLE>
2
<PAGE>
PART I
- --------------------------------------------------------------------------------
ITEM 1. FINANCIAL STATEMENTS
The information required by this item is filed as part of this Form 10-Q. See
Index to Financial Information at page 5 of this Form 10-Q.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this item is filed as part of this Form 10-Q. See
Index to Financial Information at page 5 of this Form 10-Q.
PART II
- --------------------------------------------------------------------------------
ITEM 1. LEGAL PROCEEDINGS
The Company's subsidiaries are involved in litigation arising in the ordinary
course of business, none of which is expected to result in material loss.
ITEM 2. CHANGES IN SECURITIES
There were no changes in the rights of security holders during the quarter for
which this report is filed.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
There were no defaults upon senior securities during the quarter for which this
report is filed.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the quarter
for which this report is filed.
3
<PAGE>
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
- --------
27 - Financial Data Schedule
REPORTS ON FORM 8-K
No reports on form 8-K were filed during the quarter ended December 31, 1997.
SIGNATURES
- --------------------------------------------------------------------------------
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AFFILIATED NEWSPAPERS INVESTMENTS, INC.
Dated: February 13, 1998 By: /s/ Joseph J. Lodovic, IV
------------------- -----------------------------------
Joseph J. Lodovic, IV
Executive Vice President,
Chief Financial Officer,
and Duly Authorized Officer
of Registrant
4
<PAGE>
AFFLIATED NEWSPAPERS INVESTMENTS, INC. AND SUBSIDIARIES
Index to Financial Information
PAGE
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets............................ 6
Unaudited Condensed Consolidated Statements of Operations........ 8
Unaudited Condensed Consolidated Statements of Cash Flows........ 9
Notes to Unaudited Condensed Consolidated Financial Statements... 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................. 15
5
<PAGE>
AFFILIATED NEWSPAPERS INVESTMENTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
(Unaudited)
December 31, June 30,
ASSETS 1997 1997
-------- --------
(In thousands)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents......................................... $ 19,019 $ 8,944
Accounts receivable, less allowance for doubtful accounts
of $5,588 and $4,252 at December 31, 1997 and
June 30, 1997, respectively..................................... 44,703 36,185
Inventories of newsprint and supplies............................. 6,530 6,170
Prepaid expenses and other assets................................. 4,119 3,295
-------- --------
Total Current Assets........................................... 74,371 54,594
PROPERTY, PLANT AND EQUIPMENT
Land.............................................................. 9,207 8,307
Buildings and improvements........................................ 45,276 43,462
Machinery and equipment........................................... 130,504 126,450
-------- --------
Total Property, Plant and Equipment............................ 184,987 178,219
Less accumulated depreciation and amortization.................... 53,589 57,670
-------- --------
Net Property, Plant and Equipment.............................. 131,398 120,549
OTHER ASSETS
Investment in Denver Newspapers, Inc. (Note 2).................... 18,174 14,113
Investment in partnership......................................... 7,178 6,365
Subscriber accounts, less accumulated amortization of
$46,848 and $45,808 at December 31, 1997 and
June 30, 1997, respectively..................................... 84,734 69,960
Excess of cost over fair value of net assets acquired,
less accumulated amortization of $15,174 and $12,718
at December 31, 1997 and June 30, 1997, respectively............ 201,689 154,294
Covenants not to compete and other identifiable intangible
assets, less accumulated amortization of $17,708 and
$15,861 at December 31, 1997 and June 30, 1997,
respectively ................................................... 21,660 6,685
Other............................................................. 5,532 2,000
-------- --------
Total Other Assets............................................. 338,967 253,417
-------- --------
TOTAL ASSETS....................................................... $544,736 $428,560
-------- --------
-------- --------
</TABLE>
SEE NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
6
<PAGE>
AFFILIATED NEWSPAPERS INVESTMENTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
(Unaudited)
December 31, June 30,
LIABILITIES AND SHAREHOLDERS' DEFICIT 1997 1997
-------- ---------
(In thousands except
share data)
<S> <C> <C>
CURRENT LIABILITIES
Trade accounts payable ........................................... $ 4,591 $ 6,286
Other accrued liabilities......................................... 37,260 23,714
Unearned income................................................... 11,094 10,746
Income taxes...................................................... 5,858 1,308
Current portion of long-term debt and capital lease
obligation (Note 4)............................................. 4,857 6,247
-------- ---------
Total Current Liabilities..................................... 63,660 48,301
LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATION ....................................................... 549,577 476,154
OTHER LIABILITIES................................................... 5,199 5,092
DEFERRED INCOME TAXES............................................... 17,709 13,036
SHAREHOLDERS' DEFICIT
Common stock, par value $.01 per share; authorized
5,152,060 shares; 2,314,346 shares issued and
outstanding..................................................... 23 23
Additional paid-in capital........................................ 3,611 3,611
Deficit........................................................... (95,043) (117,657)
-------- ---------
Total Shareholders' Deficit................................... (91,409) (114,023)
-------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT......................... $544,736 $ 428,560
-------- ---------
-------- ---------
</TABLE>
SEE NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
7
<PAGE>
AFFILIATED NEWSPAPERS INVESTMENTS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
Three Months Six Months
Ended December 31, Ended December 31,
-------------------------- --------------------------
1997 1996 1997 1996
-------------------------- --------------------------
(In thousands except share data)
<S> <C> <C> <C> <C>
OPERATING REVENUES
Advertising...............................$ 79,210 $ 63,930 $ 150,845 $ 113,525
Circulation............................... 15,792 12,063 30,883 21,465
Other..................................... 3,826 2,892 7,262 4,975
----------- ----------- ----------- -----------
TOTAL OPERATING REVENUES................ 98,828 78,885 188,990 139,965
COST AND EXPENSES
Cost of sales............................. 33,334 26,722 64,941 50,289
Selling, general, and administrative...... 38,364 31,693 76,754 58,222
Depreciation and amortization............. 8,470 5,829 16,507 10,967
Interest expense.......................... 15,500 12,043 29,187 22,364
Other, (net).............................. 7,111 4,606 7,947 4,804
----------- ----------- ----------- -----------
TOTAL COST AND EXPENSES................. 102,779 80,893 195,336 146,646
GAIN ON SALE OF NEWSPAPER................... 31,829 -- 31,829 --
INCOME IN UNCONSOLIDATED SUBSIDIARY
(Note 2).................................. 2,183 3,482 4,061 3,962
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY LOSS.................... 30,061 1,474 29,544 (2,719)
INCOME TAX EXPENSE.......................... (6,492) (1,318) (6,929) (1,372)
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE EXTRAORDINARY LOSS..... 23,569 156 22,615 (4,091)
EXTRAORDINARY LOSS (NET OF TAXES OF $689)... -- (8,772) -- (8,772)
----------- ----------- ----------- -----------
NET INCOME (LOSS)...........................$ 23,569 $ (8,616) $ 22,615 $ (12,863)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
EARNINGS PER COMMON SHARE:
Income (loss) before extraordinary loss...$ 10.18 $ .07 $ 9.77 $ (1.77)
Extraordinary loss........................ -- (3.79) -- (3.79)
----------- ----------- ----------- -----------
Net income (loss).........................$ 10.18 $ (3.72) $ 9.77 $ (5.56)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average number of shares
outstanding............................... 2,314,346 2,314,346 2,314,346 2,314,346
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
SEE NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
8
<PAGE>
AFFILIATED NEWSPAPERS INVESTMENTS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
Six Months Ended December 31,
------------------------------
1997 1996
-------------- --------------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (Loss)............................................ $ 22,615 $ (12,863)
Adjustments to reconcile net cash povided
by operating activities:
Depreciation and amortization............................... 16,176 10,363
(Gain) on sale of newspaper properties and other assets..... (31,831) --
Provision for losses on accounts receivable................. 1,921 1,559
Amortization of debt discount............................... 10,412 8,895
Debt issuance cost and repurchase premiums.................. 6,616 13,475
Undistributed earnings in equity investments................ (4,874) (4,188)
Deferred income tax benefit................................. (206) (138)
Change in operating assets and liabilities, net of current
assets and liabilities acquired or sold.................... (890) (9,077)
----------- -----------
NET CASH FLOWS FROM OPERATING ACTIVITIES................. 19,939 8,026
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of newspaper property assets........................... 43,000 --
Purchase of newspaper properties............................ (91,740) (131,811)
Purchase of machinery and equipment......................... (3,794) (4,948)
----------- -----------
NET CASH FLOWS FROM INVESTING ACTIVITIES................. (52,534) (136,759)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt.................................. 303,538 243,800
Debt issuance cost and repurchase premiums.................. (6,616) (13,475)
Reduction of long-term debt................................. (253,833) (101,990)
Reduction of non-operating liabilities...................... (419) (1,963)
----------- -----------
NET CASH FLOWS FROM FINANCING ACTIVITIES................. 42,670 126,372
----------- -----------
CHANGE IN CASH AND CASH EQUIVALENTS............................ 10,075 (2,361)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............... 8,944 4,615
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD..................... $ 19,019 $ 2,254
----------- -----------
----------- -----------
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid................................................ $ 19,750 $ 15,870
----------- -----------
----------- -----------
Income taxes paid............................................ $ 2,664 $ 507
----------- -----------
----------- -----------
</TABLE>
SEE NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
9
<PAGE>
AFFILIATED NEWSPAPERS INVESTMENTS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulations S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
consolidated financial statements and should be read in conjunction with the
consolidated financial statements and footnotes thereto included in the
Affiliated Newspapers Investments, Inc. ("ANI") Annual Report on Form 10-K for
the year ended June 30, 1997. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the six-month period
ended December 31, 1997 are not necessarily indicative of the results that may
be expected for the year ended June 30, 1998.
The unaudited condensed consolidated financial statements include the
accounts of Affiliated Newspapers Investments, Inc. and its wholly owned
subsidiary, Garden State Newspapers, Inc. ("Garden State"). All significant
intercompany accounts and transactions have been eliminated upon
consolidation. ANI accounts for its investment in Denver Newspapers, Inc.
("Denver Newspapers") using the equity method of accounting (See Note 2).
RECLASSIFICATION
Certain prior year balances have been reclassified.
INCOME TAXES
The effective income tax rate varies from the federal statutory rate
primarily because of the nondeductibility of certain expenses and the
utilization of net operating losses that were previously subject to valuation
allowances.
SEASONALITY
Newspaper companies tend to follow a distinct and recurring seasonal
pattern, with higher advertising revenues in months containing significant
events or holidays. Accordingly, the fourth calendar quarter, or the Company's
second fiscal quarter, is the Company's strongest revenue quarter of the year.
Due to generally poor weather and a lack of holidays, the first calendar
quarter, or the Company's third fiscal quarter, is the Company's weakest revenue
quarter of the year.
BUSINESS ACQUISITIONS
On December 17, 1997, Garden State 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. The newspaper
has daily and Sunday circulation of approximately 104,000 and 120,000,
respectively.
On July 31, 1997, Garden State acquired substantially all of the assets used
in the publication of THE SUN, an evening newspaper published in Lowell,
Massachusetts. The assets were purchased for $49.0 million in cash plus an
adjustment for working capital and a covenant not to compete with the prior
owners, with a discounted value of approximately $11.8 million. The newspaper
has daily and Sunday circulation of approximately 52,000 and 56,000,
respectively.
10
<PAGE>
AFFILIATED NEWSPAPER INVESTMENTS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2: INVESTMENT IN UNCONSOLIDATED SUBSIDIARY
All the acquisitions discussed above were accounted for as purchases;
accordingly, the results of their operations were included since the date of
acquisition. The assets acquired and the liabilities assumed have been recorded
at their estimated fair market value as of the date of acquisition. These
estimates are based on management's preliminary estimate and are subject to
change upon final allocation of the purchase price. The excess of cost over fair
market value of the net assets acquired and intangible assets related to
subscriber lists are being amortized on a straight line basis over 40 and 15
years, respectively.
BUSINESS DISPOSITION
On December 5, 1997, Garden State sold substantially all the assets used in
the publication of the NORTH JERSEY HERALD & NEWS and sixteen weekly
publications for $43.0 million in cash, plus an adjustment for working capital.
The Company recognized a pre-tax gain on the sale of approximately $31.8
million, net of selling expenses.
NOTE 2: INVESTMENT IN UNCONSOLIDATED SUBSIDIARY
BASIS OF ACCOUNTING
The Company owns 60 percent of the outstanding common stock of Denver
Newspapers. However, because the Denver Newspaper Shareholder Agreement provides
Media General, the owner of the remaining 40 percent interest in Denver
Newspapers, with a 50 percent representation on the board of directors, the
Company accounts for its investment in Denver Newspapers under the equity method
of accounting.
The following are summarized statements of operations of Denver Newspapers
for the three and six-month periods ended December 31, 1997 and 1996 (in
thousands):
SUMMARIZED STATEMENTS OF OPERATIONS
<TABLE>
Three Months Ended Six Months Ended
December 31, December 31,
-------------------- -------------------
1997 1996 1997 1996
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Total Revenues.......................... $ 56,138 $ 53,941 $108,535 $ 98,407
-------- -------- -------- --------
-------- -------- -------- --------
Cost of Sales........................... $ 29,187 $ 26,567 $ 56,616 $ 52,258
-------- -------- -------- --------
-------- -------- -------- --------
Net income.............................. $ 4,313 $ 6,479 $ 8,119 $ 7,954
-------- -------- -------- --------
-------- -------- -------- --------
Net income applicable to common stock... $ 3,638 $ 5,804 $ 6,769 $ 6,604
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
11
<PAGE>
AFFILIATED NEWSPAPERS INVESTMENTS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENT--(CONTINUED)
NOTE 3: COMBINED SUMMARIZED FINANCIAL INFORMATION OF AFFILIATED NEWSPAPERS
INVESTMENTS, INC. AND DENVER NEWSPAPERS, INC.
The combined summarized statements of operations include the accounts of ANI
and Denver Newspapers. The companies have common ownership, management and each
have the same fiscal year end. All significant intercompany balances and
transactions have been eliminated. The summarized combined financial information
has been presented to supplement the presentation contained in the consolidated
financial statements of ANI. ANI has a significant economic interest in Denver
Newspapers and may, in the future, be at least partially dependent upon
dividends from Denver Newspapers to service the debt obligations of ANI.
COMBINED SUMMARIZED STATEMENTS OF OPERATIONS
<TABLE>
Three Months Ended Six Months Ended
December 31, December 31,
-------------------------- --------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Total revenues................... $ 154,967 $ 132,826 $ 297,525 $ 238,372
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Cost of sales.................... $ 62,521 $ 53,289 $ 121,558 $ 110,480
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Minority interest in income
applicable to common stock $ (1,455) $ (2,322) $ (2,708) $ (2,642)
of Denver Newspapers, Inc.....
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Income (Loss).................... $ 24,244 $ (7,806) $ 23,965 $ (11,513)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net income (loss) applicable
to common stock............... $ 23,569 $ (8,616) $ 22,615 $ (12,863)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
NOTE 4: SUBSEQUENT EVENTS
ACQUISITIONS
On January 30, 1998, Garden State acquired substantially all the assets used
in the publication of the DAILY NEWS, a daily newspaper distributed primarily in
the San Fernando Valley of Los Angeles, California, for approximately $130.0
million in cash, which included working capital of approximately $2.0 million.
The newspaper has daily and Sunday circulation of approximately 202,400 and
215,100, respectively.
The acquisition will be accounted for as a purchase; accordingly, the
consolidated financial statements will include the operations of the acquired
newspaper beginning January 31, 1998.
LONG-TERM DEBT
On October 1, 1997, Garden State issued $250.0 million of 8.75% Senior
Subordinated Notes, due in 2009. Garden State used the net proceeds to reduce
bank debt at Garden State and pay off and terminate a bank credit facility of
one of Garden State's subsidiaries.
12
<PAGE>
AFFILIATED NEWSPAPERS INVESTMENTS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENT--(CONTINUED)
NOTE 4: SUBSEQUENT EVENTS--CONTINUED
Effective January 30, 1998, Garden State entered into a subordinated note
purchase agreement, pursuant to which the Garden State issued a $47.6 million,
9.0% Subordinated Promissory Note (the "Promissory Note") due January 31, 2010.
Interest accruing on the Promissory Note is payable quarterly beginning on March
31, 1998, provided that on each interest payment date occurring on or prior to
December 31, 2002, the Company may elect to defer any or all accrued and unpaid
interest otherwise due and payable. However, in calendar years 2000, 2001 and
2002 the Company must pay the lesser of $3.0 million or all accrued and unpaid
interest due in such year. The Promissory Note is subordinated and junior in
right of payment to Garden State's Bank Credit Agreement, Senior Subordinated
Secured Notes and the Senior Subordinated Notes. No scheduled principal payments
are required until January 31, 2010, at which time the outstanding principal
amount is due and payable. ANI has guaranteed the Promissory Note. Proceeds from
the Promissory Note were used to fund a portion of the DAILY NEWS acquisition.
In February, 1998, Garden State issued the remaining $50.0 million of its
8.75% senior subordinated notes available under its indenture dated October 1,
1997, through a private placement. The additional notes were priced to yield
8.375%, including fees, and will result in approximately $51.4 million of net
proceeds to Garden State. Proceeds from the issuance of these notes will be used
to pay down bank debt. Upon registration and the exchange of these notes, Garden
State will have $300.0 million issued and outstanding under its indenture dated
October 1, 1997.
In conjunction with the issuance of the Senior Subordinated Notes, Garden
State also amended its existing Bank Credit Agreement to change Term Loan B into
a revolving credit facility ("RCC"), reduce the Company's borrowing spreads (in
most cases by 0.375%), and change the amortization of the RCA commitment.
Giving effect to the borrowings and paydowns under the Garden State Bank
Credit Agreement discussed above, Garden State had $15.0 million, $16.0 million
and $19.0 million outstanding under Term Loan A, RCA and RCC, respectively. The
following table sets forth the annual commitment reductions for RCA, RCB and
RCC, as well as annual payments under Term A Loan, giving effect to the amended
Garden State Bank Credit Agreement (in thousands).
<TABLE>
RCA RCB RCC TERM A LOAN
--- --- --- ------------
<S> <C> <C> <C> <C>
1998......... $ 10,000 $ -- $ 4,000 $ --
1999......... 31,000 -- 7,500 --
2000......... 31,000 -- 7,500 --
2001......... 31,000 -- 12,000 --
2002......... 31,000 -- 12,000 3,750
Thereafter... 33,000 27,000 33,000 11,250
-------- -------- -------- ------------
$167,000 $ 27,000 $ 76,000 $ 15,000
-------- -------- -------- ------------
-------- -------- -------- ------------
</TABLE>
13
<PAGE>
AFFILIATED NEWSPAPERS INVESTMENTS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENT--(CONTINUED)
NOTE 4: SUBSEQUENT EVENTS--CONTINUED
The following table sets forth, after giving effect to borrowings associated
with the July 31, 1997, acquisition of THE SUN, net bank borrowing associated
with the January 30, 1998 acquisition of the DAILY NEWS (previously discussed),
the $47.6 million Promissory Note, the issuance of $300.0 million of Senior
Subordinated Notes and the paydown of bank debt associated therewith, the
approximate expected scheduled maturities of long-term debt of Garden State for
the fiscal years indicated.
<TABLE>
FISCAL In Thousands
------ ------------
<S> <C>
1998.......................... $ 2,625
1999.......................... 4,673
2000.......................... 4,897
2001.......................... 4,703
2002.......................... 7,987
Thereafter.................... 642,563
-----------
$ 667,448
-----------
-----------
</TABLE>
INTEREST RATE SWAPS
Effective April 1, 1997, Garden State entered into a two-year interest rate
swap agreement with a notional principal amount of $50.0 million and a fixed
annual interest rate of 6.455%, plus the applicable spread. The Company uses
interest rate swaps to manage its floating rate debt to minimize, in part, the
Company's exposure to the uncertainty of floating interest rates. The Company
accounts for the differences paid or received under this agreement as an
adjustment to interest expense. As of December 31, 1997, the interest rate swap
had a market loss of approximately $0.5 million.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OPERATING RESULTS
THREE MONTHS ENDED DECEMBER 30, 1997 AND 1996
REVENUES
Revenues increased $19.9 million or 25.3% in the second quarter of fiscal
year 1998 as compared to the same quarter of fiscal year 1997. The increase in
revenue was primarily attributable to the October 31, 1996, acquisition of the
PASADENA STAR-NEWS, SAN GABRIEL VALLEY TRIBUNE, WHITTIER DAILY NEWS,
TIMES-STANDARD and THE EVENING SUN; the February 28, 1997, acquisition of the
SENTINEL & ENTERPRISE, LEBANON DAILY NEWS and THE DAILY NONPAREIL; and the July
31, 1997, acquisition of THE SUN; and the December 17, 1997, acquisition of the
PRESS-TELEGRAM. Combined, the acquisitions discussed above increased revenues
approximately $22.3 million in the second quarter of fiscal year 1998. These
revenues were partially offset by a $5.3 million decline in revenue resulting
from the sale of the POTOMAC NEWS on February 13, 1997, and the sale of the
NORTH JERSEY HERALD & NEWS on December 5, 1997. Excluding acquisition and
disposition transactions, the Company's remaining newspaper operations combined
posted a $2.9 million increase in operating revenues for the second quarter of
fiscal year 1998. Advertising revenues at these newspapers increased by 7.3%
while circulation revenues were virtually flat.
COST OF SALES
Cost of sales increased $6.6 million or 24.7% in the second quarter of
fiscal year 1998 compared to the same quarter of fiscal year 1997. The
aforementioned acquisitions caused cost of sales to increase approximately $6.9
million for the quarter ended December 31, 1997. However, this increase was
offset in part by a $1.7 million decrease in cost of sales resulting from the
sale of the POTOMAC NEWS and the NORTH JERSEY HERALD & NEWS. Excluding
acquisition and disposition transactions, cost of sales increased approximately
$1.4 million. The majority of the increase is associated with increases in
advertising linage.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative ("SG&A") expenses increased $6.7 million
or 21.1% in the second quarter of fiscal year 1998 as compared to the same
quarter of fiscal year 1997. The aforementioned acquisitions resulted in SG&A
expense increases of approximately $8.8 million; however, this was in part
offset by a $2.2 million reduction in SG&A expense associated with the sale of
the POTOMAC NEWS and the NORTH JERSEY HERALD & NEWS. Excluding the acquisition
and disposition transactions, SG&A expense increased $0.1 million.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased $2.6 million in the second quarter
of fiscal year 1998 as compared to the same quarter of fiscal year 1997. The
aforementioned acquisitions caused the majority of the increase in depreciation
and amortization expense; however, the increase was offset in part by a $0.2
million reduction in depreciation and amortization expense associated with the
sale of the POTOMAC NEWS and the NORTH JERSEY HERALD & NEWS.
INTEREST EXPENSE
Interest expense increased $3.5 million in the second quarter of fiscal year
1998 as compared to the same quarter of fiscal year 1997. Interest expense
increased primarily as a result of a $128.2 million increase in average debt
outstanding, primarily associated with acquisitions. This increase was partially
offset by an eight basis point decrease in the average interest rate.
15
<PAGE>
OTHER EXPENSE
Other expense increased approximately $2.5 million in the second quarter of
fiscal year 1998 as compared to the same quarter of fiscal year 1997. The
increase is primarily attributable to the Company paying $6.6 million of debt
issuance cost and bank fees in fiscal 1997 as compared to approximately $4.4
million of debt issuance cost in fiscal 1997.
EXTRAORDINARY LOSS
On October 31, 1996, the Company 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 were included in the consolidated statement of
operations as an extraordinary loss net of applicable income tax benefits.
DENVER NEWSPAPERS - UNCONSOLIDATED SUBSIDIARY
Net income applicable to common stock of Denver Newspapers decreased $2.2
million in the second quarter of fiscal year 1998 compared to the same quarter
of fiscal year 1997. The current quarter decrease in net income applicable to
common stock at Denver Newspapers was primarily the result of a $5.4 million or
12.5% increase in operating expenses as compared to the same quarter in fiscal
year 1997, which was only partially offset by a $2.2 million or 4.1% growth in
revenue in the second quarter. The increase in operating expenses was primarily
associated with increases in production and newsprint related to increased
advertising volumes and excess costs associated with the start-up of a new press
line in late November 1997. In addition, during the quarter THE DENVER POST
initiated a total market coverage product in the form of a mailed advertising
program which is mailed to non-subscribers. Due to the start-up nature of this
product, expenses significantly exceeded revenues for the quarter.
NET INCOME
ANI recorded an adjusted loss of approximately $1.6 million in the second
quarter of fiscal year 1998 after excluding the effect of the $31.8 million
pre-tax gain on the sale of the NORTH JERSEY HERALD & NEWS and the $6.6 million
of debt issuance cost, compared to adjusted net income of $4.6 million in the
second quarter of fiscal year 1997 after excluding $4.4 million of debt issuance
cost and the $8.8 million extraordinary loss. The change is primarily
attributable to a reduction in adjusted net income at Garden State, where a $4.0
million increase in operating profit was more than offset by a $3.5 million
increase in interest expense, primarily as a result of acquisitions, and a $5.2
million increase in tax expense, the majority of which resulted from the sale of
the NORTH JERSEY HERALD & NEWS. A $1.3 million decrease in the equity pick-up
from Denver Newspapers also contributed to the reduction in the adjusted net
income.
OPERATING RESULTS
SIX MONTHS ENDED DECEMBER 31, 1997 AND 1996
REVENUES
Revenues increased $49.0 million or 35.0% in the first six months of fiscal
year 1998 as compared to the same six-month period of fiscal year 1997. The
increase in revenue was primarily attributable to the October 31, 1996,
acquisition of the PASADENA STAR-NEWS, SAN GABRIEL VALLEY TRIBUNE, WHITTIER
DAILY NEWS, TIMES-STANDARD and THE EVENING SUN; the February 28, 1997,
acquisition of the SENTINEL & ENTERPRISE, LEBANON DAILY NEWS and THE DAILY
NONPAREIL; the July 31, 1997, acquisition of THE SUN; and the December 17, 1997,
acquisition of the PRESS-TELEGRAM. Combined, the acquisitions discussed above
increased revenues approximately $50.8 million in the first six months of fiscal
year 1998. These revenues were partially offset by a $8.3 million decline in
revenue resulting from the sale of the POTOMAC NEWS and the NORTH JERSEY HERALD
& NEWS on February 13, 1997 and December 5, 1997, respectively. Excluding
acquisition and disposition transactions, the Company's remaining newspaper
operations combined posted a $6.5 million increase in operating revenues for the
first six months of fiscal year 1998. Advertising revenues at these newspapers
increased by 8.2%, driven by strong classified revenue. Circulation revenue on a
same newspaper basis was virtually flat.
16
<PAGE>
COST OF SALES
Cost of sales increased $14.6 million or 29.1% in the first six months of
fiscal year 1998 compared to the same six-month period of fiscal year 1997. The
aforementioned acquisitions caused cost of sales to increase approximately $15.9
million for the six-month period ended December 31, 1997. However, this increase
was offset in part by a $2.9 million decrease in cost of sales resulting from
the sale of the POTOMAC NEWS and the NORTH JERSEY HERALD & NEWS. Excluding
acquisition and disposition transactions, cost of sales increased approximately
$1.6 million or 3.8%.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative ("SG&A") expenses increased $18.5
million or 31.8% in the first six months of fiscal year 1998 as compared to the
same six-month period of fiscal year 1997. The aforementioned acquisitions
resulted in SG&A expense increases of approximately $20.6 million; however, this
was in part offset by a $3.4 million reduction in SG&A expense associated with
the sale of the POTOMAC NEWS and the NORTH JERSEY HERALD & NEWS. Excluding the
acquisition and disposition transactions, SG&A expense increased $1.3 million or
3%.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased $5.5 million in the second quarter
of fiscal year 1998 as compared to the same quarter of fiscal year 1997. The
aforementioned acquisitions caused the majority of the increase in depreciation
and amortization expense; however, the increase was offset in part by a $0.7
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 $6.8 million in the second quarter of fiscal year
1998 as compared to the same quarter of fiscal year 1997. Interest expense
increased primarily as a result of a $160.4 million increase in average debt
outstanding associated with acquisitions. This increase was partially offset by
an 87 basis point decrease in the average interest rate, mainly associated with
the refinancing of Garden State's 10.89% senior notes and a reduction of the
borrowing spread on bank debt.
DENVER NEWSPAPERS - UNCONSOLIDATED SUBSIDIARY
Net income applicable to common stock of Denver Newspapers increased $0.2
million in the first six months of fiscal year 1998 compared to the same
six-month period of fiscal year 1997. The increase in net income applicable to
common stock at Denver Newspapers was primarily the result of a $10.1 million or
10.3% increase in operating revenues which was partially offset by a $9.6
million or a 11.2% increase in operating expenses. The increase in operating
expenses was primarily associated with increases in production and newsprint
related to increased advertising volumes and excess cost associated with the
start-up of a new press line in late November 1997. In addition, during the
second quarter THE DENVER POST initiated a total market coverage product in the
form of a mailed advertising program which is mailed to non-subscribers. Due to
the start-up nature of this product, expenses significantly exceeded revenues
for the second quarter.
NET INCOME
ANI recorded an adjusted loss of approximately $2.6 million in the first six
months of fiscal year 1998 after excluding the effect of the $31.8 million
pre-tax gain on the sale of the NORTH JERSEY HERALD & NEWS and $6.6 million of
debt issuance cost compared to adjusted net income of $0.3 million for the same
six-month period of fiscal year 1997 after excluding $4.4 million of debt
issuance cost and the $8.8 million extraordinary loss. The change is primarily
attributable to a reduction in adjusted net income of Garden State, where a
$10.3 million increase in operating profit was more than offset by a $6.8
million increase in interest expense, primarily as a result of acquisitions, and
a $6.2 million increase in tax expense, the majority of which resulted from the
sale of the NORTH JERSEY HERALD & NEWS.
17
<PAGE>
FINANCIAL CONDITION AND LIQUIDITY
Net cash flows from operating activities were approximately $19.9 million
and $8.0 million for the six months ended December 31, 1997 and 1996,
respectively. The $11.9 million increase in cash flow from operating activities
was primarily the result of a $15.8 million increase in operating profit,
excluding depreciation and amortization, for the six months ended December 31,
1997, compared to the same period ended December 31, 1996, combined with a $8.2
million increase in the change in operating assets and liabilities which was
offset by a $5.3 million increase in cash interest expense and a $5.5 million
increase in tax expense.
Net cash flows from investing activities were ($52.5) million and ($136.8)
million for the six months ended December 31, 1997 and 1996, respectively. The
$84.3 million change was primarily the result of Garden State spending a net
$48.7 million on acquisitions in fiscal year 1998 compared to $131.8 million in
fiscal year 1997.
Net cash flows from financing activities were $42.6 million and $126.3
million for the six months ended December 31, 1997 and 1996, respectively. The
change of approximately $83.7 million was primarily attributable to Garden State
borrowing a net $49.3 million in the first six months of fiscal 1998, compared
to net borrowings of $139.8 million in fiscal 1997, the majority of which was in
conjunction with the previously discussed acquisitions in each fiscal year.
LIQUIDITY
Giving effect to the issuance of $300.0 million Senior Subordinated Notes
and the corresponding paydown of bank debt, Garden State and subsidiaries had a
combined $228.2 million available for future borrowings, net of approximately
$4.8 million in outstanding letters of credit at December 31, 1997.
Approximately $151.0 million of the availability under the bank credit facility
is available solely for future business acquisitions.
The purchase of Garden State's Class A common stock and the Series A and C
preferred stock by ANI in May 1994 was financed with debt issued by ANI. The
repayment of ANI's debt, which does not have scheduled interest payments until
January 1, 2000, is in part dependent upon Garden State's and/or Denver
Newspapers' ability to pay dividends to ANI. Garden State's and Denver
Newspapers' debt agreements prohibit the payment of dividends to ANI prior to
June 30, 1999. The ANI Senior Discount Debentures restrict the Company's ability
to incur additional debt and pay dividends.
The Company currently generates sufficient cash flow to meet its capital
expenditure and debt service requirements. Such debt service requirements
increase substantially in fiscal year 2000 as a result of interest on its Senior
Discount Debentures becoming current and payable on a semi-annual basis. While
there can be no assurance, the Company currently expects to have sufficient
internally generated funds to service interest when due; however, a portion of
the face amount may be required to be refinanced at maturity. There can be no
assurance that the Company will be able to refinance its debt when due. However,
based on current and projected cash flows and debt levels, the Company believes
there is minimal refinance risk.
DENVER NEWSPAPERS - UNCONSOLIDATED SUBSIDIARY
Denver Newspapers is well capitalized and currently produces cash flows
significantly in excess of its capital expenditure and debt service
requirements; accordingly, management does not anticipate making any additional
capital contributions to Denver Newspapers. At December 31, 1997, Denver
Newspapers had $15.5 million available under its revolving credit facility and
$1.6 million in letters of credit outstanding. In addition, at December 31,
1997, Denver Newspapers had working capital of approximately $2.3 million.
Denver Newspapers' revolving credit facility and shareholder agreement
prohibit the payment of common stock dividends to ANI until the revolving credit
facility and the 9% preferred stock have been prepaid in full. Denver
Newspapers' revolving credit facility expires June 30, 2000. Denver Newspapers'
preferred stock is mandatorily redeemable on the earlier of (a) June 30, 1999,
(b) the date on which such redemption is permissible under Denver Newspapers'
credit agreement, (c) the date on which Denver Newspapers ceases to own directly
at least 51% of all the outstanding capital stock of the Denver Post Company, or
(d) the date on which Denver Newspapers, directly or indirectly, causes or
permits the Denver Post Company to dispose of substantially all of the assets of
the Denver Post Company. Denver Newspapers declared and paid a preferred stock
dividend of $2.7 million in January, 1998.
18
<PAGE>
NEAR TERM OUTLOOK
Because of an industry wide year-over-year increase in newspaper
consumption, the continued strong worldwide demand for newsprint and the ongoing
strike at Fletcher Challenge (a major West Coast newsprint manufacturer), the
majority of newsprint suppliers have announced a $40 to $50 per ton increase
effective as of April 1, 1998, which would bring average transaction prices to
approximately $635 to $645 per metric ton. If the price increase is successful,
it is not expected to have a significant impact on Garden State's cash flows
from operations as Garden State expects to purchase approximately 60% of its
fiscal 1998 newsprint requirements under fixed price contracts at a weighted
average price of approximately $532 per metric ton. MediaNEWS Group has entered
into fixed price contracts expiring over the next two to two and one-half years,
to purchase 86,000 metric tons per year, the majority of which is currently
being allocated to Garden State. MediaNEWS Group also negotiated a three-year
fixed price contract beginning January 1, 1998, which provides for the purchase
of 42,000 metric tons per year at a fixed price of $602 per metric ton, the
majority of which will be allocated to Denver Newspapers. Based on current
allocations, Denver will have approximately 45% of its newsprint fixed at a
weighted average price of approximately $593 per metric ton.
Based upon current operations, management believes that the Company will
have sufficient cash flows from operations which, combined with the Garden State
Credit Facility and other resources available to the Company, will be more than
adequate to fund scheduled payments of principal and interest and to meet
anticipated capital expenditure and working capital requirements for at least
the next twelve months.
The Company and its subsidiaries may, from time to time, consider strategic
or targeted newspaper acquisitions and dispositions. In the event an acquisition
opportunity is identified, management expects that it would be able to arrange
financing on terms and conditions satisfactory to the Company to the extent
current resources are insufficient.
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DECEMBER 31,
1997 FORM 10Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
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0
0
<COMMON> 23
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