<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
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 _______________
GARDEN STATE NEWSPAPERS, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-2675173
(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
--- ---
<PAGE> 2
INDEX TO GARDEN STATE NEWSPAPERS, INC.
REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1996
Item No. Page
-------- ----
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 Submission of Matters to a Vote of Security Holders 3
5 Other Information 4
6 Exhibits and Reports on Form 8-K 4
2
<PAGE> 3
PART I
- --------------------------------------------------------------------------------
ITEM 1. FINANCIAL STATEMENTS
The information required by this item is filed as part of this Form 10-Q. See
Index to Financial Information at page 5 of this Form 10-Q.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this item is filed as part of this Form 10-Q. See
Index to Financial Information at page 5 of this Form 10-Q.
PART II
- --------------------------------------------------------------------------------
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in litigation arising in the ordinary course of
business, none of which is expected to result in material loss.
ITEM 2. CHANGES IN SECURITIES
There were no changes in the rights of security holders during the quarter for
which this report is filed.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
There were no defaults upon senior securities during the quarter for which this
report is filed.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the quarter
for which this report is filed.
3
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ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
27 Financial Data Schedule
Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended March 31, 1996.
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.
GARDEN STATE NEWSPAPERS, INC.
Dated: May 14, 1996 By: /s/ Joseph J. Lodovic, IV
--------------------------------------
Joseph J. Lodovic, IV
Executive Vice President,
Chief Financial Officer, and
Duly Authorized Officer of Registrant
4
<PAGE> 5
GARDEN STATE NEWSPAPERS, INC.
Index to Financial Information
ITEM 1. FINANCIAL STATEMENTS: PAGE
----
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................................ 13
5
<PAGE> 6
GARDEN STATE NEWSPAPERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
March 31, June 30,
ASSETS 1996 1995
------------ ------------
(In thousands)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents ................................. $ 1,485 $ 17,083
Accounts receivable, less allowance for doubtful
accounts of $2,066 and $1,931 at March 31, 1996
and June 30, 1995, respectively ......................... 27,183 23,841
Inventories of newsprint and supplies ..................... 6,641 5,238
Prepaid expenses and other assets ......................... 6,239 3,926
--------- ---------
Total Current Assets .................................. 41,548 50,088
PROPERTY, PLANT AND EQUIPMENT
Land ...................................................... 5,296 4,519
Buildings and improvements ................................ 34,189 25,212
Machinery and equipment ................................... 90,634 74,086
--------- ---------
Total Property, Plant and Equipment ................... 130,119 103,817
Less accumulated depreciation and amortization ............ (52,238) (46,096)
--------- ---------
Net Property, Plant and Equipment ..................... 77,881 57,721
OTHER ASSETS
Investment in partnership ................................. 6,122 5,759
Subscriber accounts, less accumulated amortization of
$54,790 and $48,990 at March 31, 1996 and June 30,
1995, respectively ...................................... 47,143 43,943
Excess of cost over fair value of net assets acquired, less
accumulated amortization of $21,387 and $19,255
at March 31, 1996 and June 30, 1995, respectively ....... 101,613 87,978
Covenants not to compete and other identifiable intangible
assets, less accumulated amortization of $19,011 and
$18,553 at March 31, 1996 and June 30, 1995,
respectively ............................................ 4,703 2,488
Other ..................................................... 3,244 2,523
--------- ---------
Total Other Assets .................................... 162,825 142,691
--------- ---------
TOTAL ASSETS ................................................ $ 282,254 $ 250,500
========= =========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
6
<PAGE> 7
GARDEN STATE NEWSPAPERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
March 31, June 30,
LIABILITIES AND SHAREHOLDER'S DEFICIT 1996 1995
----------- -----------
(In thousands, except per share data)
<S> <C> <C>
CURRENT LIABILITIES
Trade accounts payable ....................... $ 6,483 $ 6,882
Accrued liabilities .......................... 13,407 16,672
Unearned income .............................. 7,375 5,863
Income taxes ................................. 578 408
Current portion of long-term debt and
capital lease obligations .................. 21,266 5,672
--------- ---------
Total Current Liabilities ................ 49,109 35,497
LONG-TERM DEBT AND CAPITAL
LEASE OBLIGATIONS ............................ 238,704 218,175
OTHER LIABILITIES .............................. 8,898 4,596
DEFERRED INCOME TAXES .......................... 13,579 14,284
SHAREHOLDER'S DEFICIT
Common stock, par value $1.00 per share;
authorized 1,000 shares; 1,000 shares issued
and outstanding ............................ 1 1
Additional paid-in capital ................... 78,570 78,570
Deficit ...................................... (106,607) (100,623)
--------- ---------
Total Shareholder's Deficit .............. (28,036) (22,052)
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDER'S DEFICIT .... $ 282,254 $ 250,500
========= =========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
7
<PAGE> 8
GARDEN STATE NEWSPAPERS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Nine Months
Ended March 31, Ended March 31,
----------------------- ------------------------
1996 1995 1996 1995
-------- -------- --------- --------
(In thousands)
<S> <C> <C> <C> <C>
OPERATING REVENUES ................... $ 57,911 $ 51,245 $ 180,937 $156,042
COST AND EXPENSES
Cost of sales ...................... 24,494 19,835 73,211 58,040
Selling, general, and
administrative .................... 25,163 22,920 75,237 67,056
Depreciation and amortization ...... 5,226 4,685 15,180 14,202
Interest expense ................... 6,952 6,488 20,576 19,326
Other, (net) ....................... 1,065 503 2,869 1,165
-------- -------- --------- --------
TOTAL COST AND EXPENSES .......... 62,900 54,431 187,073 159,789
GAIN ON SALE OF NEWSPAPER PROPERTY ... -- -- -- 4,153
-------- -------- --------- --------
INCOME (LOSS) BEFORE INCOME TAXES .... (4,989) (3,186) (6,136) 406
INCOME TAX BENEFIT ................... 4 7 152 225
-------- -------- --------- --------
NET INCOME (LOSS) .................... $ (4,985) $ (3,179) $ (5,984) $ 631
======== ======== ========= ========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
8
<PAGE> 9
GARDEN STATE NEWSPAPERS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended March 31,
---------------------------
1996 1995
------------ ------------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .............................................. $ (5,984) $ 631
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization ................................. 14,533 13,684
Gain on sale of newspaper property and other assets ........... (69) (4,135)
Provision for losses on accounts receivable ................... 1,882 1,900
Amortization of debt discount ................................. 1,098 1,303
Debt issuance cost ............................................ 1,092 --
(Undistributed) distributions in excess of
partnership earnings ....................................... (364) 173
Deferred income tax benefit ................................... (705) (942)
Change in operating assets and liabilities, net of current
assets and liabilities acquired or sold ...................... (12,157) (258)
-------- --------
NET CASH FLOWS FROM OPERATING ACTIVITIES ................. (674) 12,356
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of newspaper property and other assets ................... 69 14,500
Purchase of newspaper properties .............................. (33,215) (9,309)
Purchase of machinery and equipment ........................... (4,470) (2,667)
-------- --------
NET CASH FLOWS FROM INVESTING ACTIVITIES ................. (37,616) 2,524
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt .................................... 36,300 --
Debt issuance cost ............................................ (1,092) --
Reduction of long-term debt ................................... (8,869) (11,657)
Reduction of non-operating liabilities ........................ (3,647) (315)
-------- --------
NET CASH FLOWS FROM FINANCING ACTIVITIES ................. 22,692 (11,972)
-------- --------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS .................................................... (15,598) 2,908
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD ...................................................... 17,083 8,694
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ....................... $ 1,485 $ 11,602
======== ========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid ................................................. $ 25,749 $ 18,682
======== ========
Income taxes paid ............................................. $ 383 $ 755
======== ========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
9
<PAGE> 10
GARDEN STATE NEWSPAPERS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS
Principles of Consolidation
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 Garden State
Newspapers, Inc.'s Annual Report on Form 10-K for the year ended June 30, 1995.
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 three and nine-month periods ended March 31, 1996 are
not necessarily indicative of the results that may be expected for the year
ended June 30, 1996.
The unaudited condensed consolidated financial statements include the
accounts of Garden State Newspapers, Inc. (the "Company" or "Garden State") and
its subsidiaries. All significant intercompany accounts and transactions have
been eliminated upon consolidation. Garden State is a wholly owned subsidiary of
Affiliated Newspapers Investments, Inc.
Income Taxes
The effective income tax rate varies from the federal statutory rate
primarily because of the nondeductibility of certain expenses.
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 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 August 31, 1995, the Company completed the acquisition of substantially
all the assets used in the publication of the Berkshire Eagle, the Brattleboro
Reformer and the Bennington Banner, daily newspapers published in Pittsfield,
Massachusetts; Brattleboro, Vermont; and Bennington, Vermont, respectively, and
the Manchester Journal, a weekly newspaper published in Manchester, Vermont
(collectively referred to as "New England Newspapers"). The purchase price
consisted of $1.1 million in cash, the assumption of $20.5 million of long-term
debt and approximately $2.7 million for a covenant not to compete payable to the
prior owners. In addition, the Company assumed a working capital deficit of
approximately $1.5 million and an underfunded pension plan liability and other
obligations, valued at approximately $8.3 million.
On March 10, 1996, Garden State acquired substantially all the assets used
in the publication of The San Mateo Times, a daily newspaper, and six weekly
newspapers published in San Mateo County, California, for approximately $15.0
million, which includes approximately $4.3 million for covenants not to compete
payable to prior owners and the assumption of the newspaper's subscription
obligations of approximately $0.7 million. San Mateo is located approximately 12
miles from the Company's Alameda Newspaper Group, headquartered in Hayward,
California. In addition, the Company purchased accounts receivable and
inventories for approximately $1.4 million.
10
<PAGE> 11
NOTE 1: SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS--CONTINUED
The New England Newspapers and the San Mateo acquisitions were accounted for
as purchases; accordingly, the consolidated financial statements include the
operations of the acquired newspapers from September 1, 1995 and March 10, 1996,
respectively. The assets acquired and the liabilities assumed have been recorded
at their estimated fair market values as of the date of acquisition. These fair
market values are based on management's estimates and are subject to change upon
the final allocation of purchase price.
NOTE 2: SUBSEQUENT EVENTS
Acquisitions and Dispositions
On May 1, 1996, Garden State sold the common stock of The Johnstown Tribune
Publishing Company, which publishes The Tribune-Democrat, to American Publishing
(1991), Inc. in exchange for $32.6 million in cash and substantially all the
assets used in the publication of the following daily and weekly newspapers:
<TABLE>
<CAPTION>
==========================================================================================================================
Newspaper Location Daily Publication Weekly Publication
==========================================================================================================================
<S> <C> <C>
Bridgeton, New Jersey Bridgeton Evening News None
- --------------------------------------------------------------------------------------------------------------------------
Fort Morgan, Colorado Fort Morgan Times Morgan Times Review(a)
- --------------------------------------------------------------------------------------------------------------------------
Sterling, Colorado Journal-Advocate J. A. Shopper(a)
- --------------------------------------------------------------------------------------------------------------------------
Lamar, Colorado Lamar Daily News Tri-State Trader(a)
- --------------------------------------------------------------------------------------------------------------------------
Millville, New Jersey Millville News Millville Shopper News(a)
- --------------------------------------------------------------------------------------------------------------------------
Sidney, Nebraska Sidney Telegraph High Plains Shopping Guide(a)
- --------------------------------------------------------------------------------------------------------------------------
North Adams, Massachusetts The Transcript The Transcript Spotlight(a)
- --------------------------------------------------------------------------------------------------------------------------
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
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 $1.1 million. As a result of the exchange, Garden
State currently estimates that it will recognize a pre-tax gain of approximately
$8.0 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 Affiliated Newspapers Investments, Inc., for approximately $15.6
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.
11
<PAGE> 12
NOTE 2: SUBSEQUENT EVENTS--CONTINUED
Combined operating revenues for the nine months ended March 31, 1996 for
the San Mateo Times, Bridgeton Evening News and The Transcript were $17.6
million. The Johnstown Tribune-Democrat had operating revenues of $13.4 million
for the nine months ended March 31, 1996. On a pro forma basis, after giving
effect to the acquisition and disposition transactions and excluding the San
Mateo Times operating revenue already included in the operating results,
operating revenues for the nine months ended March 31, 1996, would have
increased $3.4 million had these transactions all occurred on July 1, 1995.
Proceeds from the sale of The Johnstown Tribune Publishing Company and
Eastern Colorado were used to prepay certain amounts on revolving credit
agreements, a bank term loan, and the Company's Senior Secured Notes.
Prepayments on the revolving credit agreements may be reborrowed subject to
future reductions in the revolving commitments.
12
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
OPERATING RESULTS
Three Months Ended March 31, 1996 and 1995
Revenues
Revenues increased $6.7 million or 13.0% in the third quarter of fiscal year
1996 as compared to the same quarter of fiscal year 1995. The increase in
revenue was primarily attributable to the August 31, 1995 acquisition of the
Berkshire Eagle, the Brattleboro Reformer and the Bennington Banner, daily
newspapers distributed in Pittsfield, Massachusetts, and Brattleboro and
Bennington, Vermont, respectively, and the March 10, 1996 acquisition of the San
Mateo Times, a daily newspaper distributed in San Mateo, California,
collectively referred to as the "New England Newspapers" and "San Mateo"
acquisitions. These acquisitions contributed revenues of $6.7 million in the
third quarter of fiscal 1996. Excluding the newspaper operations described
above, all the Company's remaining newspapers combined posted flat operating
revenues in the third quarter of fiscal 1996 compared to the same quarter of
fiscal year 1995.
Cost of Sales
Cost of sales increased $4.7 million or 23.5% in the third quarter of fiscal
1996 compared to the same quarter of fiscal 1995. Approximately $2.8 million of
the increase was attributable to the New England Newspapers and San Mateo
acquisitions. Excluding acquisition transactions, cost of sales increased
approximately $1.9 million or 9.5%. The increase in cost of sales at existing
newspapers was entirely the result of increased newsprint cost associated with a
40% increase in the average price per ton of newsprint for the third quarter of
fiscal 1996 compared to the same quarter of fiscal 1995. However, the newsprint
price increase was partially offset by a 5,400 ton or 28% decrease in usage at
the Company's existing newspapers, associated with the Company's ongoing efforts
to conserve newsprint. Excluding newsprint, cost of sales at existing newspapers
decreased $0.2 million in the third quarter of fiscal 1996 compared to the same
quarter in fiscal 1995.
Selling, General and Administrative
Selling, general and administrative ("SG&A") expenses increased $2.2 million
or 9.8% in the third quarter of fiscal 1996 compared to the same quarter of
fiscal 1995. The New England Newspapers and San Mateo acquisitions resulted in
SG&A expense increases of approximately $2.6 million. Excluding the acquisition
transactions, SG&A expense decreased $0.4 million. The decrease in SG&A expense
at existing newspapers was primarily the result of the Company's continuing
efforts to control its operating expenses.
Other Expense
Other expense, net, increased $0.6 million, of which $0.3 million was the
result of certain start-up costs incurred in conjunction with the combination
and integration of the San Mateo Times operations with those of the Alameda
Newspaper Group.
Net Income
Garden State recorded a net loss of approximately $5.0 million in the third
quarter of fiscal 1996 compared to net loss of $3.2 million in the third quarter
of fiscal 1995. The increase in the loss was primarily attributable to the $1.0
million increase in interest and depreciation and amortization expense
associated with the acquisitions described above and certain start-up costs
associated with combining the San Mateo Times operations with the Alameda
Newspaper Group.
13
<PAGE> 14
Nine Months Ended March 31, 1996 and 1995
Revenues
Revenues increased $24.9 million or 16.0% in the first nine months of fiscal
year 1996 as compared to the same nine-month period of fiscal year 1995. The
increase in revenue was primarily attributable to the November 18, 1994
acquisition of The Gloucester County Times and Today's Sunbeam, daily newspapers
distributed in Woodbury and Salem, New Jersey, respectively, and the New England
Newspapers and San Mateo acquisitions. Combined, the acquisitions discussed
above accounted for a $20.7 million increase in revenues in the first nine
months of fiscal 1996. These revenue increases were partially offset by a $0.5
million decline in revenue resulting from the sale of the Bristol Press on
August 1, 1994. Excluding the newspaper operations described above, the
Company's remaining newspaper operations posted a combined increase in revenues
of approximately $4.7 million or 3.0%, with revenue growth at the individual
newspapers ranging from 1.0% to 8.8% for the first nine months of fiscal year
1996 compared to the same nine-month period of fiscal year 1995. Adjusting for
the one time impact of a newspaper strike in San Francisco, the Company's
revenue, on a same newspaper basis, would have grown approximately 3.4% for the
first nine months of fiscal 1996. The newspaper strike in San Francisco resulted
in advertising expenditures being decreased in the San Francisco market and
advertising expenditures being increased in certain surrounding markets, which
benefitted revenues of Alameda Newspaper Group in November and December, 1994.
Cost of Sales
Cost of sales increased $15.2 million or 26.1% in the first nine months of
fiscal 1996 compared to the same nine-month period of fiscal 1995. Approximately
$8.0 million of the increase was attributable to the aforementioned
acquisitions. However, this increase was offset in part by a $0.2 million
decrease in cost of sales resulting from the sale of the Bristol Press.
Excluding acquisition and disposition transactions, cost of sales increased
approximately $7.4 million or 12.8%. The increase in cost of sales at existing
newspapers was entirely the result of increased newsprint cost associated with a
46% increase in the average price per ton of newsprint for the first nine months
of fiscal 1996 compared to the same nine-month period of fiscal 1995. However,
the newsprint price increase was partially offset by a 7,500 ton or 15.0%
decrease in usage at the Company's existing newspapers associated with the
Company's efforts to conserve newsprint. Excluding newsprint, cost of sales on a
same newspaper basis decreased $0.3 million in the first nine months of fiscal
1996 compared to the same nine-month period of fiscal 1995.
Selling, General and Administrative
Selling, general and administrative ("SG&A") expenses increased $8.2 million
or 12.2% in the first nine months of fiscal 1996 compared to the same nine-month
period of fiscal 1995. The aforementioned acquisitions resulted in SG&A expense
increases of $8.2 million; however, this was in part offset by a $0.3 million
reduction in SG&A expense associated with the sale of the Bristol Press.
Excluding the acquisition and disposition transactions, SG&A expense increased
$0.3 million. The small increase in SG&A expense at the Company's existing
newspapers was the result of the Company's continuing efforts to control its
operating expenses.
Other Expense
Other expense, net, increased $1.7 million as a result of writing off
approximately $1.1 million of fees and other costs associated with the Company's
new term loan and revolving credit facility entered into on August 31, 1995,
which was used to refinance debt assumed in the aforementioned August 31, 1995
acquisitions. Other expense also increased $0.3 million as a result of certain
start-up costs incurred in conjunction with the combination and integration of
the San Mateo Times operations with those of Alameda Newspaper Group.
14
<PAGE> 15
Net Income
Garden State recorded a loss of approximately $6.0 million in the first nine
months of fiscal 1996; however, after excluding the write-off of fees and other
costs associated with the newly issued term loan and revolving credit facility
and San Mateo Times start-up costs, Garden State would have recorded an adjusted
loss of $4.6 million compared to the first nine months of fiscal 1995 adjusted
loss of $3.5 million after excluding the gain on sale of the Bristol Press of
$4.2 million. The increase in the loss was primarily attributable to a $2.2
million increase in interest expense and depreciation and amortization expense
associated with the aforementioned acquisitions, offset by a $1.5 million
increase in operating revenues in excess of increased cost of sales and SG&A
expenses. Net income comparisons to prior year were negatively impacted as a
result of the estimated one time positive impact of $0.3 million in the
Company's second quarter of fiscal 1995, resulting from the San Francisco
newspaper strike previously discussed.
FINANCIAL CONDITION AND LIQUIDITY
Net cash flows from operating activities were approximately $(0.7) million
and $12.3 million for the nine months ended March 31, 1996 and 1995,
respectively. The decrease in cash flow from operating activities was primarily
the result of changes in the operating assets and liabilities of $(12.4)
million, $5.6 million of which related to the timing of interest payments. In
addition, inventories were higher as a result of higher newsprint prices and
tons on hand, which was exacerbated by lower newsprint payables due to tightened
credit terms.
Net cash flows from investing activities were $(37.6) million and $2.5
million for the nine months ended March 31, 1996 and 1995, respectively. The
$(40.1) million decrease was a result of the Company receiving a net $5.5
million in proceeds from acquisition and disposition transactions in fiscal 1995
as compared to expenditures of $33.2 million related to the New England
Newspapers and San Mateo acquisitions in fiscal 1996. The Company also increased
its capital spending by $1.8 million, primarily associated with the previously
announced Alameda Newspaper Group press project and press modifications
associated with web width reductions.
Net cash flows from financing activities were $22.7 million and $(12.0)
million for the nine months ended March 31, 1996 and 1995, respectively. The
increase of $34.7 million was primarily attributable to the Company borrowing
$36.3 million in fiscal 1996 associated with the previously discussed
acquisitions.
On May 10, 1996, Garden State and its subsidiary, NJN Investments, Inc., had
a combined $43.2 million available for borrowings under revolving credit
facilities, excluding approximately $5.2 million in letters of credit
outstanding. Approximately $21.3 million of the unused NJN Investments, Inc.
revolving credit facility will expire on April 30, 1997, if it is not reborrowed
for acquisition purposes. Commitments under the revolving credit facilities will
also continue to reduce in accordance with the terms previously disclosed in the
June 30, 1995 Form 10-K.
NEAR TERM OUTLOOK
The steady increase in newsprint prices over the last two years has finally
abated, and the Company is beginning to experience some decline in newsprint
prices. Management believes that newsprint prices will continue to soften;
however, the extent of future price declines is currently unknown. High
newsprint prices will continue to negatively affect the Company's earnings into
the Company's fourth fiscal quarter, as it depletes its higher priced
inventories. The Company expects newsprint price comparisons to remain negative
through the first quarter of fiscal 1997, with probable favorable comparisons
thereafter based on current prices.
15
<PAGE> 16
In conjunction with the Company's efforts to cut costs, it has embarked on,
among other things, a project to reduce web widths to 50 inches at its
newspapers. This project is being accomplished on a methodical,
newspaper-by-newspaper basis after thorough market research. Nine of Garden
State's newspapers have been converted through March 31, 1996. Virtually all of
Garden State's newspapers are expected to be converted by fiscal year-end. Once
all of the Company's newspapers are converted to the 50-inch web width,
newsprint consumption will be permanently reduced 7.5% to 9%.
Based upon current operations, management believes that the Company will
have sufficient cash to pay interest when due on outstanding indebtedness and
that cash flow from operations, together with the Garden State credit facility
and other resources available to the Company, will be 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.
16
<PAGE> 17
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT DESCRIPTION PAGE
- ------ ------------------- ----
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 9 MONTHS
ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH MARCH
31, 1996 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1995
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 1,485
<SECURITIES> 0
<RECEIVABLES> 27,183
<ALLOWANCES> 2,066
<INVENTORY> 6,641
<CURRENT-ASSETS> 41,548
<PP&E> 130,119
<DEPRECIATION> 52,238
<TOTAL-ASSETS> 282,254
<CURRENT-LIABILITIES> 49,109
<BONDS> 238,704
0
0
<COMMON> 1
<OTHER-SE> (28,037)
<TOTAL-LIABILITY-AND-EQUITY> 282,254
<SALES> 180,937
<TOTAL-REVENUES> 180,937
<CGS> 73,211
<TOTAL-COSTS> 163,628
<OTHER-EXPENSES> 23,445
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,576
<INCOME-PRETAX> (6,136)
<INCOME-TAX> 152
<INCOME-CONTINUING> (5,984)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,984)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
