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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, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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 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, 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. N/A
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 market
value shall be computed by reference to the price at which the stock was sold,
or the average bid and asked prices of such stock, as of a specified date
within 60 days prior to the date of filing. NONE
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the close of the latest practicable date. N/A
Documents Incorporated by Reference: NONE
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PART I
ITEM 1. BUSINESS
GENERAL
Garden State Newspapers, Inc. ("the Company" or "Garden State"), a
wholly owned subsidiary of Affiliated Newspapers Investments, Inc. ("ANI"), is
one of the largest privately held suburban newspaper publishing companies in
the United States. Garden State, founded in March 1985 by William Dean
Singleton and Richard B. Scudder, currently owns and operates 18 market
dominant daily and 41 weekly newspapers in 8 states (including suburban markets
in close proximity to the San Francisco Bay area, New York City, Philadelphia,
and Washington, D.C.). In general, Garden State's newspapers are positioned in
markets with limited or no direct competition for local newspaper advertising,
and management believes the Company's markets, taken as a whole, have both
population and sales growth potential. The Company's newspapers had a combined
daily and Sunday paid circulation of approximately 536,000 and 501,000,
respectively, as of March 31, 1996.
Garden State has grown by emphasizing internal growth at each of its
newspapers and by making strategic acquisitions in markets which it believes
have above average growth potential and/or which cluster well with existing
markets. Historically, management has been able to achieve revenue and
operating profit growth as a result of its emphasis on strategic acquisitions,
effective marketing programs, operating efficiencies through investments in new
technology, and cost control. Management believes that the Company's
newspapers are positioned to achieve further internal growth and benefit from
future economic growth in the markets in which they operate.
Management has periodically and may continue to divest newspaper
properties at times when management believes the value of such newspapers has
been maximized. Management believes it has received premium values from its
dispositions to date. Proceeds from dispositions have been generally used to
acquire additional newspapers and/or reduce outstanding indebtedness.
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 pre-existing local newspapers 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 which only it can provide, making it attractive for both
consumers and advertisers.
Sizeable weekly newspapers are generally found in and around
metropolitan areas rather than in smaller towns and cities. Suburban weeklies,
such as the weekly newspapers operated by the Company's subsidiary, North
Jersey Newspaper Company, 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 1995 accounted for more than 40% of
all local media advertising expenditures. In addition, in calendar year 1995 U.
S. newspaper advertising expenditures reached an all time high of approximately
$36.0 billion. 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.
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.
RECENT ACQUISITIONS & DISPOSITIONS
ACQUISITIONS:
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 Transcript and The Evening News, daily
newspapers published in North Adams, Massachusetts, and Bridgeton, New Jersey,
respectively.
In March, 1996, a subsidiary of the Company acquired substantially all
the assets used in the publication of the San Mateo 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. San Mateo is located approximately
12 miles from the Company's Alameda Newspaper Group, headquartered in Hayward,
California.
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.
In February, 1995, a subsidiary of the Company purchased substantially
all of the assets used in the publication of five weekly newspapers located in
northern New Jersey for approximately $0.5 million.
On November 18, 1994, a subsidiary of the Company acquired from an
affiliate substantially all the assets used in the publication of The
Gloucester County Times and Today's Sunbeam, daily newspapers distributed in
Woodbury and Salem, New Jersey, respectively, for $9.0 million in cash and the
assumption of subordinated debt with a discounted value of $1.9 million which
is due to certain shareholders of ANI.
On May 31, 1994, NJN Investments, Inc. ("NJNI"), a subsidiary of the
Company, purchased the assets used in the publication of The Express-Times, a
daily newspaper published in Easton, Pennsylvania, and several weekly
publications distributed in the same area, for approximately $16.7 million.
The purchase price included an obligation to pay, over a three year period, a
discounted value of approximately $1.7 million for a covenant not to compete
for a period of five years following the close of the transaction.
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DISPOSITIONS:
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 7 daily newspapers and 9 weekly newspapers valued at
$18.0 million. 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, 4 of the daily and 7 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.
On August 1, 1994, the Company sold substantially all the assets used
in the publication of the Bristol Press and three weekly newspapers located in
Bristol, Connecticut, and a covenant not to compete for $14.5 million in cash.
The sale resulted in a fiscal year 1995 pre-tax gain of approximately $4.2
million.
On June 27, 1994, a subsidiary of the Company ceased publication of
the Ypsilanti Press, a daily newspaper located in Ypsilanti, Michigan, and sold
the newspaper's circulation list to a third party for $9.0 million in cash.
The sale resulted in a fiscal year 1994 pre-tax gain of approximately $6.5
million, which is net of assets written down to estimated net realizable value
and closing expenses.
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; cost control; and strategic
technological investments, as described below:
GEOGRAPHIC CLUSTERING. Management has assembled a group of newspapers
which, through clustering of operations and joint venture arrangements
with other newspapers in contiguous markets, are able to realize
operating efficiencies and economic synergies. These synergies
include, but are not limited to, the sharing of management, accounting
and production functions. Additionally, clustering enables management
to maximize revenues through the cross-selling of advertising among
contiguous newspaper markets. As a result of this strategy,
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. Through
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. 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.
COST CONTROL. Each of the Company's newspapers emphasizes cost
control with a special focus on managing staffing requirements. At
newspapers with collective bargaining units, management strives to
enter into long-term agreements with minimal annual increases. In
addition, the Company further controls labor costs through investments
in state-of-the-art production equipment. Equally important to cost
control is newsprint
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costs. 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) and its buying power. 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
seeks to enter into newsprint purchasing arrangements with its
suppliers which delay the adverse affect of newsprint price increases
and provide the highest available quantity discounts.
STRATEGIC TECHNOLOGICAL INVESTMENTS. In the past, MNG has tested the
electronic delivery of news and advertising to consumers through a
site at The Denver Post, an affiliate of the Company managed by MNG,
and at the Alameda Newspaper Group. During fiscal 1996 the Company
initiated several new online projects, including: 1) a subscriber
based electronic bulletin board (http://www.smctimes.com) at the
Alameda Newspaper Group, consisting of local news and information; 2)
participation (currently under negotiation) with New Jersey Online
(http://www.nj.com), a New Jersey based full service web site
containing local news, restaurant information and other local
information, as well as advertising; 3) The Denver Post is a member of
Career Path, a top 25 market online employment classified system. In
addition, The Denver Post has a web site (http://www.denverpost.com)
containing some local news and special interest information. While not
all of the Company's newspapers currently publish online versions, the
majority of the Company's newspapers currently have the capability to
deliver electronic versions of all or portions of the newspaper to
consumers. However, the majority of the consumers in the Company's
markets continue to demand newspapers in the printed form, and
management does not anticipate any change in such demand in the
foreseeable future. The Company plans to continue exploring the
latest technologies and to make economically viable investments so
that it is able to respond to the demands of its advertisers and
subscribers on a timely basis should their needs change in the future.
By being the leading, and in certain instances the sole, provider of
local news in most of its markets, management believes that its
established franchises should enable the Company to respond to and
benefit from any changes in the manner in which information is
delivered in the future.
MEDIANEWS GROUP, INC.'S, MANAGEMENT OF NEWSPAPER OPERATIONS
MNG provides certain corporate services to Garden State and other
newspaper companies controlled by Messrs. Singleton and Scudder, which provide
the Company the economic efficiencies of sharing corporate overhead with other
newspaper companies. Garden State has engaged MNG to operate and manage its
business affairs and its 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, and MNG earns only a nominal profit.
Services provided by MNG to the Company include accounting, tax,
merger and acquisition, newsprint purchasing, human resource and labor
relations, debt administration, budget and operating plan review, cash
management and some retail advertising billing services. A significant portion
of MNG's time and resources are devoted to the Company's affairs.
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 attempt to 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.
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NEWSPAPER PROPERTIES
ALAMEDA NEWSPAPER GROUP. The Alameda Newspaper Group is located in Alameda
County, approximately 20 miles east of San Francisco, California, and publishes
six daily newspapers. The Alameda Newspaper Group consists of The Oakland
Tribune, The Daily Review, Tri-Valley Herald, The Argus, Alameda Times-Star and
San Mateo Times. All the newspapers except the San Mateo Times also publish a
Sunday newspaper. These newspapers cover the city of Oakland, California, and
five 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 South San Francisco Enterprise Journal, San
Bruno Herald, Milbrae Record Progress, Daly City Record/Brisbane Bee, Times
Weekend and The Coastside Chronicle on Saturday. The Alameda Newspaper Group had
total daily and Sunday paid circulation of approximately 234,000 and 190,000 as
of March 31, 1996.
YORK. York Newspaper Company, a partnership owned 57.5% by York
Newspaper, Inc. ("YNI"), a wholly owned subsidiary of Garden State, 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, a
broadsheet-formatted shopper, each Tuesday. The York Newspaper Company had a
daily and Sunday paid circulation of approximately 83,000 and 93,000,
respectively, as of March 31, 1996.
NORTH JERSEY NEWSPAPERS COMPANY. North Jersey Newspapers Company is
located in Passaic, New Jersey, approximately 15 miles west of New York City,
and publishes a morning daily newspaper, The North Jersey Herald & News, seven
days a week, and 18 weekly newspapers. The North Jersey Herald & News had a
daily and Sunday paid circulation of approximately 53,000 and 43,000,
respectively, as of March 31, 1996. The weeklies, most of which are free
distribution publications in Bergen, Warren and Passaic Counties, have a
midweek and weekend distribution of approximately 500,000 and 70,000,
respectively, as of March 31, 1996.
EASTON. The Express-Times is located in Easton, Pennsylvania,
approximately 60 miles south of Philadelphia, Pennsylvania, and publishes a
morning newspaper seven days a week. The Express-Times also publishes four
weekly newspapers: The Bethlehem Star, The Free Press and The Community Forum,
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, 1996.
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 35,000, respectively,
as of March 31, 1996.
WOODBRIDGE. The Potomac News is located in Woodbridge, Virginia,
approximately 35 miles south of Washington, D.C., and publishes a daily and
Sunday newspaper. The Potomac News also publishes two weekly newspapers each
Thursday and Friday: the Stafford County Sun and The Market Place. The Potomac
News had total daily and Sunday paid circulation of approximately 30,000 and
31,000, respectively, as of March 31, 1996.
WOODBURY. The Gloucester County Times is located in Woodbury, New
Jersey, approximately 15 miles south of Philadelphia, Pennsylvania, and
publishes a morning newspaper seven days a week. 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 as of March
31, 1996.
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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 Vos 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 29,000 as of March 31 1996.
BRATTLEBORO. The Brattleboro Reformer is located in Brattleboro,
Vermont, approximately 65 miles east of Albany, New York, and publishes a
morning newspaper six days a week (Monday through Saturday). The Brattleboro
Reformer had daily circulation of approximately 11,000 as of March 31, 1996.
SALEM. Today's Sunbeam is located in Salem, New Jersey, approximately
35 miles south of Philadelphia, Pennsylvania, and publishes a morning paper
seven days a week. Today's Sunbeam had total daily and Sunday circulation of
approximately 10,000 as of March 31, 1996.
BRIDGETON. The Evening News is located in Bridgeton, New Jersey,
approximately 40 miles south of Philadelphia, Pennsylvania, and publishes an
evening newspaper six days a week. The Evening News had daily circulation of
approximately 10,000 as of March 31, 1996.
NORTH ADAMS. The Transcript is located in North Adams, Massachusetts,
approximately 30 miles east of Albany, New York, and publishes a morning
newspaper seven days a week. The Transcript had daily circulation of 8,400 at
March 31, 1996.
BENNINGTON. The Bennington Banner is located in Bennington, Vermont,
approximately 35 miles east of Albany, New York, and publishes a morning
newspaper six days a week (Monday through Saturday). 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 7,800 as
of March 31, 1996.
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 4,700 as of March 31,
1996. The Graham Leader also publishes the Lake Country Sun and the Lake
Country Shopper each Thursday. In addition, the Jacksboro Gazette-News and The
Jack County Herald are weekly newspapers published each Monday and Thursday,
respectively.
ADVERTISING AND CIRCULATION REVENUES
Advertising revenues are the largest component of a newspaper's
revenues followed by circulation revenues. Advertising rates at each newspaper
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.
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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
revenue to total revenues for fiscal years 1996, 1995, and 1994 were as
follows:
<TABLE>
<CAPTION>
Fiscal year ended June 30,
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1996 1995 1994
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<S> <C> <C> <C>
Retail 44% 47% 49%
National 3 3 3
Classified 34 34 33
Circulation 16 14 14
Other 3 2 1
--- --- ---
100% 100% 100%
=== === ===
</TABLE>
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
1996, 1995 and 1994, the Company consumed approximately 62,400, 61,600 and
56,700 tons of newsprint, respectively, and during the same periods incurred
newsprint expense of approximately $42.5 million, $30.5 million and $24.9
million, respectively. Newsprint expense as a percentage of revenue for fiscal
year 1996, 1995 and 1994 was 18.5%, 14.3% and 13.4%, respectively. Newsprint
expense varied between years because of fluctuations in prices and consumption.
Newsprint expense as a percentage of revenue increased in fiscal 1996 over
fiscal 1995, primarily because of an increase of approximately 37.6% in the
average cost per ton of newsprint consumed at all the Company's newspapers
combined. The increase between 1995 and 1994 was also due to an increase of
approximately 12.8% in the average cost per ton of newsprint.
As a result of the tightening newsprint supplies, caused by a
world-wide increase in demand, the Company's average cost of newsprint
increased significantly throughout fiscal 1995 and 1996, peaking in the fourth
quarter of fiscal 1996. High inventories at most newspapers, as well as at
newsprint mills, resulted in price discounts starting with May, 1996,
shipments. Discounts have accelerated over the last few months as inventories
have yet to come down appreciably. Management expects that newsprint prices
will continue to soften and then stabilize in fiscal year 1997. In fact,
newsprint transaction prices in September, 1996, are down approximately 25% off
their peak.
To help offset fiscal 1996 newsprint price increases, the Company
initiated a project to convert its presses to 50" web widths which, based on
peak fiscal 1996 newsprint prices, would provide permanent annual savings of
approximately $4.2 million. The conversion to the 50" web widths started in
October, 1995, at North Jersey Newspapers and will be complete at all the
Company's newspapers by the end of calendar year 1996. The annual expense
savings result in a payback of capital invested in an average of less than six
months, based on peak newsprint prices. In markets where the Company has
completed its web width reduction, the subscriber and advertiser feedback has
been positive.
EMPLOYEE RELATIONS
The Company employs approximately 2,200 full-time and 1,000 part-time
employees. Approximately 200 full-time and 50 part-time employees at
subsidiaries are covered by collective bargaining agreements. There has never
been a strike or work stoppage against any of the Company's newspapers during
the Company's ownership, and the Company believes that its relations with its
employees are generally good.
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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.
COMPETITION
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 for advertising and circulation
revenue. Competition for newspaper advertising is largely based upon
circulation, price and the content of the newspaper. Garden State's suburban
and small city daily newspapers are the dominant news and information source,
with strong name recognition in their market and no direct competition from
similar daily newspapers published in their markets. As with most small daily
newspapers, however, 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.
ITEM 2. PROPERTY
The Company's production facilities are, in most cases, complete newspaper
and office facilities. The principal operating facilities owned by the Company
are located in Hayward, San Mateo and Union City, California; Passaic, Butler,
Westwood, Paramus, Bridgeton and Woodbury, New Jersey; Easton and York,
Pennsylvania; Pittsfield and North Adams, Massachusetts; Las Cruces, New
Mexico; Woodbridge, Virginia; Bennington and Brattleboro, Vermont; and Graham,
Texas. Facilities located in Oakland and Pleasanton, California, are operated
under long-term leases.
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
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surrounding areas, which may affect the Company's properties and require
further study or remedial measures. No material studies or 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.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
None.
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ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JUNE 30,
-----------------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA(a):
Revenues
Advertising . . . . . . . . . . $197,954 $179,268 $159,653 $148,237 $138,623
Circulation . . . . . . . . . . 39,930 30,517 25,198 25,642 24,843
Other . . . . . . . . . . . . . 7,546 3,260 1,792 1,931 2,668
-------- -------- -------- -------- --------
Total Revenues . . . . . . . . . . 245,430 213,045 186,643 175,810 166,134
Cost of Sales . . . . . . . . . . . 98,469 79,098 68,531 63,930 61,966
Selling, General and Administrative 100,230 88,847 79,217 76,864 76,284
Management Fees . . . . . . . . . . 2,008 1,666 1,552 1,402 1,647
Depreciation and Amortization . . . 21,841 18,710 19,900 21,094 22,716
Interest Expense . . . . . . . . . 27,414 25,806 24,623 24,064 27,033
Income (Loss) Before Income
Taxes, Cumulative Effect of
Accounting Change and
Extraordinary gain . . . . . . . (752) 684 (15,253) (13,794) 8,359
Net Income (Loss) . . . . . . . . . 1,260 1,048 18,716 (10,992) 8,571
OTHER FINANCIAL DATA:
Capital Expenditures . . . . . . . $ 8,079 $ 4,284 $ 3,380 $ 6,564 $ 1,255
Cash Flow from:
Operating Activities . . . . . . 8,658 22,876 7,039 4,971 (10,689)
Investing Activities . . . . . . 6,900 1,255 (9,840) (12,734) 61,388
Financing Activities . . . . . . (28,226) (15,742) 3,105 7,841 (52,870)
EBITDA(b) . . . . . . . . . . . . . 44,723 43,434 37,343 33,614 26,237
BALANCE SHEET DATA:
Total Assets . . . . . . . . . . . $240,759 $250,500 $252,561 $263,073 $256,698
Long-Term Debt (Excluding
Current Portion) . . . . . . . . 199,399 218,175 225,783 225,369 210,551
Other Long-Term Liabilities and
Obligations . . . . . . . . . . . 7,728 4,596 3,534 13,622 13,920
Total Shareholder's Deficit . . . . (20,792) (22,052) (23,100) (114,847) (97,583)
</TABLE>
- --------------------------------
(footnotes on the following page)
10
<PAGE> 12
(a) Revenues and operating expenses are affected by the following acquisition
and disposition transactions:
(i) In December, 1991, the Company sold The Herald-Republic, a daily
newspaper published in Yakima, Washington, resulting in a pre-tax
gain of approximately $33.8 million in fiscal 1992. This
newspaper contributed revenues of $7.3 million in fiscal 1992
prior to its disposition.
(ii) In January, 1992, the Company closed The Daily Journal, a daily
newspaper published in Elizabeth, New Jersey, resulting in a
pre-tax charge of $3.9 million in fiscal 1992 related to various
closing costs and asset write-downs. This newspaper contributed
revenues of $2.6 million in fiscal 1992 prior to its closure.
(iii) In November, 1992, the Company acquired the circulation list and
the rights to the name of The Oakland Tribune. Concurrently, the
former owner ceased its publication of The Oakland Tribune, and
the Company began publishing its own version of The Oakland
Tribune, using the existing facilities and resources of the
Alameda Newspaper Group. The Oakland Tribune, in its current
form, has substantial editorial and advertising overlap with
other publications of the Alameda Newspaper Group and, thus, is
not run as a stand-alone newspaper. Accordingly, The Oakland
Tribune currently has no separate financial statements and, as it
was not acquired as a going concern, no meaningful financial
results exist for periods prior to the date the Company began its
publication.
(iv) On May 31, 1994, the Company purchased the assets of The
Express-Times, which contributed $1.5 million to fiscal 1994
revenues of the Company.
(v) In June, 1994, 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 $4.1 million of revenues in fiscal 1994
prior to its disposition.
(vi) On August 1, 1994, 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
approximately $6.2 million of revenue in fiscal 1994 and $0.5
million of revenue prior to its sale in fiscal 1995.
(vii) On November 18, 1994, 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 approximately $8.4 million of revenues to the Company
in fiscal 1995.
(viii) 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.
(ix) In March, 1996, the Company agreed to acquire substantially all
the assets used in the publication of the San Mateo Times, a
daily newspaper, and five weekly newspapers published in San
Mateo County, California, for approximately $15.0 million. This
newspaper contributed approximately $4.0 million of revenue to
the Company in fiscal 1996.
(x) 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. This
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
Transcript and The Evening 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.
(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.
11
<PAGE> 13
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. Garden State is a holding
company and has no operations or sources of income of its own, and its
newspapers are operated through its direct subsidiaries.
OVERVIEW
The Company is in the business of owning and operating market dominant
daily and weekly suburban 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 several 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 and
preferred stock dividends, the Company has accumulated a significant deficit
since its inception. Historical losses have been compounded by a special
charge in fiscal 1991 to write-down the value of certain intangible assets.
Management anticipated losses in its initial years of operation and believes
past losses are not reflective of the Company's current financial condition.
In addition, while the Company has operated at a loss in prior years, the
Company has a proven ability to increase the value of its newspaper assets as
demonstrated through the disposition of 13 newspaper properties for an
aggregate realized pre-tax gain of $114.5 million.
Since July 1, 1993, the Company has completed several strategic
transactions that have affected its financial condition and results of
operations, as follows:
Fiscal 1996 Transactions
In May 1, 1996, 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. The Tribune-Democrat and
two weekly newspapers contributed combined revenues of approximately $14.9
million and approximately $17.4 million in fiscal years ended June 30, 1996 and
1995, respectively. In conjunction with the sale, the Company also acquired the
assets used in the publication of The Transcript and The Evening News, daily
newspapers published in North Adams, Massachusetts, and Bridgeton, New Jersey,
respectively. The Transcript and The Evening News contributed $0.5 million and
$0.7 million of revenue in fiscal year 1996, respectively.
In March, 1996, a subsidiary of the Company acquired substantially all the
assets used in the publication of the San Mateo Times, a daily newspaper, and
five weekly newspapers published in San Mateo County, California. These
publications contributed combined revenues of approximately $4.0 million in
fiscal year 1996.
In August, 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. These publications
contributed combined revenues of approximately $21.6 million in fiscal year
1996.
12
<PAGE> 14
Fiscal 1995 Transactions
In November, 1994, a subsidiary of the Company purchased substantially all
the assets used in the publication of The Gloucester County Times and Today's
Sunbeam, daily newspapers published in Woodbury and Salem, New Jersey,
respectively. These publications contributed combined revenues of
approximately $8.4 million to fiscal 1995.
In August, 1994, the Company sold substantially all the assets used in the
publication of the Bristol Press, and three weekly newspapers located in
Bristol, Connecticut. The sale resulted in a pre-tax gain of approximately
$4.2 million in fiscal 1995. The Bristol Press and the three weekly newspapers
contributed combined revenues of approximately $0.5 million and $6.2 million in
fiscal years ended June 30, 1995 and 1994.
Fiscal 1994 Transactions
In June, 1994, the Company sold the circulation list of the Ypsilanti Press
and ceased publication of this daily newspaper previously located in Ypsilanti,
Michigan, resulting in a pre-tax gain of approximately $6.5 million in fiscal
1994. This newspaper contributed revenues of approximately $4.1 million in
fiscal years ended June 30, 1994.
In May, 1994, the Company purchased the assets used in the publication of
The Express-Times, a daily newspaper published in Easton, Pennsylvania, and
five weekly publications distributed in the same geographic area: The Bethlehem
Star, The Free Press, The Community Forum, The Star Gazette and The
Entertainer. These publications contributed approximately $1.5 million to
fiscal 1994 revenues of the Company.
RESULTS OF OPERATIONS
Set forth below is certain summary historical financial data for fiscal
1996, 1995 and 1994, 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,
------------------------------------------- --------------------------------
1996 1995 1994 1996 VS. 1995 1995 VS. 1994
----------- ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Total Revenues . . . . . . . . . $245,430 $213,045 $ 186,643 15.2% 14.1%
Cost of Sales . . . . . . . . . . 98,469 79,098 68,531 24.5 15.4
Selling, General and
Administrative . . . . . . . . 100,230 88,847 79,217 12.8 12.1
Management Fees . . . . . . . . . 2,008 1,666 1,552 20.5 7.3
Depreciation and
Amortization . . . . . . . . . 21,841 18,710 19,900 16.7 (6.0)
Interest Expense . . . . . . . . 27,414 25,806 24,623 6.2 4.8
Other . . . . . . . . . . . . . . 4,511 2,387 14,609 (a) (a)
-------- -------- --------- ---- ----
Total Costs and Expenses . . . 254,473 216,514 208,432 17.5% 3.9%
Net Income . . . . . . . . . . . 1,260 1,048 18,716 20.2 (a)
</TABLE>
- ---------------
(a) Not meaningful
13
<PAGE> 15
COMPARISON OF FISCAL YEARS ENDED JUNE 30, 1996 AND 1995
REVENUES
Revenues increased $32.4 million or 15.2% in fiscal year 1996 as compared
to 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; the August 31, 1995, acquisition of The Berkshire Eagle, Brattleboro
Reformer and Bennington Banner ("New England Newspapers"); the March, 1996,
acquisition of the San Mateo Times; and the April 30, 1996, acquisition of The
Transcript and The Evening News. Combined, the acquisitions discussed above
accounted for a $31.7 million increase in revenues in fiscal 1996. These
revenue increases were partially offset by a $3.1 million decline in revenue
resulting from the sale of the Bristol Press on August 1, 1994, and the sale of
the Johnstown Tribune Publishing Company on April 30, 1996. Excluding the
newspaper operations described above, the Company's remaining newspaper
operations posted a combined increase in revenues of approximately $3.8 million
or 2.0%. All of the Company's newspapers were impacted by a soft retail market
in the last half of the Company's fiscal year; however, retail advertising at
Alameda Newspaper Group and North Jersey Newspapers Company was particularly
hard hit because of major retailers filing for bankruptcy and/or store closings
in their markets. The Company's newspapers located in the northeastern United
States were also affected by the heavy snow in the winter of 1996. While
retail advertising declined slightly on a same newspaper basis, the Company
experienced 3.9% and 7.5% growth in classified and circulation revenue,
respectively. Overall revenue growth, on a same newspaper basis, ranged from
0.4% to 10.2% for fiscal year 1996 compared to fiscal year 1995.
COST OF SALES
Cost of sales increased $19.4 million or 24.5% in fiscal 1996 compared to
fiscal 1995. Approximately $12.3 million of the increase was attributable to
the aforementioned acquisitions. However, this increase was offset in part by
a $0.8 million decrease in cost of sales resulting from the sale of the Bristol
Press and the Johnstown Tribune Publishing Company. Excluding acquisition and
disposition transactions, cost of sales increased approximately $7.9 million or
11.1%. The increase in cost of sales at existing newspapers was entirely the
result of increased newsprint cost associated with a 43% increase in the
average cost per ton of newsprint for fiscal 1996 as compared to fiscal 1995.
However, the newsprint price increase was partially offset by an approximate
3,500 ton or 6.0% decrease in usage at the Company's existing newspapers,
primarily associated with efforts to conserve newsprint and the conversion to
the 50-inch web width at the majority of newspapers during fiscal 1996.
Excluding newsprint, cost of sales on a same newspaper basis decreased $0.9
million in fiscal 1996.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative ("SG&A") expenses increased $11.4
million or 12.8% in fiscal 1996 compared to fiscal 1995. The aforementioned
acquisitions resulted in SG&A expense increases of $11.7 million; however, this
was in part offset by a $1.3 million reduction in SG&A expense associated with
the sale of the Bristol Press and the Johnstown Tribune Publishing Company.
Excluding the acquisition and disposition transactions, SG&A expense increased
$1.0 million or 1%. 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 $2.1 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 in the aforementioned August 31, 1995, and March,
1996, 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> 16
NET INCOME
Garden State recorded net income of approximately $1.3 million in fiscal
1996; however, after excluding the gain on the sale of the Johnstown Tribune
Publishing Company, the write-off of fees and other costs associated with the
newly issued term loan and revolving credit facility and the San Mateo Times
start-up costs, Garden State would have recorded an adjusted loss of $5.6
million compared to a fiscal 1995 adjusted loss of $3.1 million after adjusting
the loss to exclude the fiscal 1995 gain on sale of the Bristol Press of $4.2
million. The increase in the adjusted net loss is primarily attributable to a
$1.9 million decrease in operating profit associated with an increase in
newsprint prices and depreciation and amortization expenses and a $1.6 million
increase in interest expense primarily associated with current year
acquisitions. The change in operating profit and interest expense was offset by
a $1.6 million increase in tax benefits, the majority of which is associated
with the sale of the Johnstown Tribune Publishing Company.
COMPARISON OF FISCAL YEARS ENDED JUNE 30, 1995 AND 1994
REVENUES
Revenues increased $26.4 million or 14.1% in fiscal year 1995 as compared
to fiscal year 1994. The increase in revenues is primarily attributable to the
May 31, 1994, acquisition of The Express-Times and five weekly newspapers, and
the November 18, 1994, acquisition of The Gloucester County Times and Today's
Sunbeam which, combined, accounted for a $25.7 million increase in revenues.
These revenue increases were partially offset by a $9.7 million decrease in
revenues resulting from the sale of the Ypsilanti Press in June of 1994 and the
sale of the Bristol Press on August 1, 1994. In addition, revenues at the
Company's existing newspapers grew $10.4 million or 5.9%, the majority of which
relates to revenue growth at the Company's Alameda Newspaper Group and North
Jersey Newspapers Company subsidiaries. Revenue at these subsidiaries, as well
as a majority of the Company's subsidiaries, was particularly influenced by
strong classified revenue growth.
COST OF SALES
Cost of sales increased $10.6 million or 15.4% in fiscal 1995 compared to
fiscal 1994. Approximately $8.9 million of the increase was attributable to
aforementioned acquisitions. However, this increase was offset in part by a
$3.7 million decrease in cost of sales as a result of the Ypsilanti Press and
the Bristol Press dispositions. Excluding the acquisition and disposition
transactions, cost of sales increased approximately $5.4 million or 8.5%. The
increase in cost of sales at existing newspapers is primarily the result of
increased newsprint costs associated with increased use and newsprint price
increases. Combined editorial and production costs also increased in
association with higher lineage and circulation.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative ("SG&A") expenses increased $9.6
million or 12.1% in fiscal 1995 compared to fiscal 1994. The previously
discussed acquisitions caused SG&A expenses to increase $11.8 million; however,
this was in part offset by a reduction in SG&A expenses of $5.0 million
associated with the Ypsilanti Press and Bristol Press dispositions. Excluding
acquisitions and dispositions, SG&A expenses increased $2.8 million or 3.8%.
The increase is a result of increased promotion and other operating expenses at
the majority of the Company's subsidiaries, generally associated with the
Company's efforts to increase circulation and thus advertising revenues.
15
<PAGE> 17
NET INCOME
Excluding the gain on the sale of the Bristol Press of $4.2 million, Garden
State would have recorded a loss of $3.1 million in fiscal year 1995 compared
to a fiscal year 1994 adjusted loss of $7.1 million, which excludes the $6.5
million gain on the sale of the Ypsilanti Press, a $32.2 million extraordinary
gain from the exchange of preferred stock and settlement of other obligations
and the $12.9 million of debt issuance and restructuring costs. The $4.0
million decrease in the adjusted loss is primarily attributable to an
improvement in operating profit of $7.3 million as a result of revenue growth
and improved operating margins. Approximately $3.5 million of the improvement
in operating profit was attributable to existing newspaper properties and $3.4
million was related to acquired newspapers. The disposal of the Bristol Press
and the Ypsilanti Press also contributed to improved operating profits as these
newspapers had a combined $(0.4) million operating profit in fiscal year 1994.
The improved operating profit was offset by increased interest and other
expenses of $1.9 million and a $1.4 million reduction in tax benefits. Tax
benefits declined as a result of the Company generating current state and
federal taxable income in fiscal year 1995; however, the majority of the state
and federal taxable income has been offset by operating loss carryforwards.
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 its 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. However, inventories at June 30, 1995, were
higher than historical averages because of large purchases at the end of fiscal
1995, used to combat rising newsprint costs. At June 30, 1996, inventory levels
had returned to normal. In general, the Company's receivables have been
collected on a timely basis.
JUNE 30, 1996 COMPARED TO JUNE 30, 1995
Net cash flows from operating activities were approximately $8.7 million
and $22.9 million for fiscal years 1996 and 1995, respectively. The decrease
in cash flow from operating activities was primarily the result of negative
year-over-year change in the operating assets and liabilities of $11.7 million
and increased interest and debt expenses of $2.7 million. The majority of the
change was associated with an increase in accounts payable and accrued expenses
in 1995 largely caused by a one time $6.1 million increase in accrued interest,
combined with an increase in accounts receivable, net of the impact of the
acquisition and disposition transactions. A $1.3 million increase in operating
profit (excluding depreciation and amortization) partially offset the decline
in operating cash flow.
Net cash flows from investing activities were $6.9 million and $1.3 million
for the fiscal years 1996 and 1995, respectively. The $5.6 million increase
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 a net of
$13.9 million related to the acquisition of the New England Newspapers and San
Mateo and the sale of the Johnstown Tribune Publishing Company in fiscal 1996.
The Company also increased capital spending in fiscal 1996 by $3.8 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 $(28.2) million and $(15.7)
million for fiscal years 1996 and 1995, respectively. The decrease of $12.5
million was primarily attributable to the Company prepaying $47.0 million of
debt out of proceeds from the sale of the Johnstown Tribune Publishing Company
and paying $17.4 million of debt in accordance with the terms of such
obligations. Paydowns were offset partially by borrowings of $37.3 million, the
majority of which was borrowed in conjunction with the previously discussed New
England Newspapers and San Mateo acquisitions.
16
<PAGE> 18
JUNE 30, 1995 COMPARED TO JUNE 30, 1994
Cash provided by operating activities was $22.9 million in fiscal year 1995
compared to $7.0 million for 1994, an increase of $15.9 million. The
improvement was primarily attributable to the $11.8 million improvement in the
year-over-year change in operating assets and liabilities combined with a $7.3
million improvement in operating profit.
Cash flows from investing activities in fiscal 1995 was $1.3 million
compared to $(9.8) million in 1994. Investing activities for fiscal 1995
include $14.9 in proceeds from the sale of the Bristol Press and $9.3 million
paid to acquire the assets used in the publication of The Gloucester County
Times, Today's Sunbeam and five weekly newspapers located in northern New
Jersey. Investing activities for fiscal 1994 include net proceeds of $8.7
million received from the sale of the Ypsilanti Press and $15.6 million paid
for The Express-Times. Capital expenditures for fiscal 1995, net of asset
sales, were approximately $4.3 million, of which approximately $1.2 million
related to the North Jersey Newspapers Company pagination project. Capital
expenditures in 1994 of $3.4 million were primarily related to the completion
of the Alameda Newspapers Group pagination project.
Cash flows from financing activities in fiscal 1995 were $(15.7) million
compared to $3.1 million in 1994. In fiscal year 1995 the Company used
proceeds from the sale of the Bristol Press and other cash to repay $8.0
million under the Company's revolving lines of credit, repaid sellers' notes of
approximately $6.0 million and bought out a capital lease obligation for
approximately $1.0 million. In fiscal 1994 the Company received net proceeds
of $132.7 million from the issuance of long-term debt and $15.5 million in
equity contributions from its parent, Affiliated Newspapers Investments, Inc.
Proceeds from the issuance of long-term debt, equity contributions and existing
cash were used to repay $138.8 million of long-term debt and related prepayment
premiums of $6.1 million and to purchase the assets of The Express-Times for
$15.0 million.
CAPITAL EXPENDITURES
The Company has a capital expenditure plan (not including business
acquisitions) which includes normal maintenance capital expenditures of
approximately $1.2 million for fiscal 1997. In addition, the plan also
anticipates expenditures during fiscal 1997 of $4.2 million associated with
computer system upgrades, web width reductions at three of the Company's
newspapers, and press and mailroom upgrades at several of the Company's
newspapers, all of which are expected to improve efficiencies and/or the
quality of the newspaper. 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, proceeds from the sale of certain operating
assets and/or borrowings under the Company's line of credit.
Management anticipates significantly lower capital expenditures on a same
newspaper basis in future years as web width reduction, pagination, and press
projects will be completed by the end of fiscal 1997, with the possible
exception of a press upgrade in Easton, Pennsylvania, and mailroom expansion at
the Alameda Newspaper Group, which may not be completed in fiscal 1997.
LIQUIDITY
As of June, 1996, Garden State and its subsidiary, NJN Investments, Inc.
("NJNI"), had a combined $47.7 million available for borrowings under revolving
credit facilities, excluding approximately $5.1 million in letters of credit
outstanding. Commitments under the revolving credit facilities will also
continue to reduce in accordance with the terms disclosed in the June 30, 1996,
notes to the consolidated financial statements.
17
<PAGE> 19
The Garden State and NJNI debt instruments contain covenants which, among
other things, limit capital expenditures, require the maintenance of certain
financial ratios and place limitations on the payment of dividends and other
distributions. The Garden State revolving credit facility and the Senior
Secured Notes are secured by the stock of Garden State and each of its
subsidiaries, as well as substantially all of the assets of the subsidiaries.
The NJNI revolving credit facility is secured by the capital stock of NJNI and
its subsidiaries.
Based upon current operations and after consideration of future newsprint
price reductions, 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 adequate to fund
scheduled payment of principal and interest and to meet anticipated capital
expenditure and working capital requirements for at least the next twelve
months.
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.
NEAR TERM OUTLOOK
The Company and its subsidiaries will from time to time consider the
acquisition of daily and weekly newspapers, as favorable investment
opportunities are identified. In the event an investment 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 steady increase in newsprint prices over the last two years has finally
abated, and the Company is beginning to experience significant declines in
newsprint prices. Management believes that newsprint prices will continue to
soften and then stabilize during fiscal year 1997; however, the length and
extent of future price declines is currently unknown. High newsprint prices
continued to negatively affect the Company's earnings into the Company's fourth
quarter of fiscal 1996, as it began depleting 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 pricing trends.
In conjunction with the Company's efforts to cut costs and improve its
operating margins, 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.
All but three of Garden State's newspapers have been converted through June 30,
1996. All of Garden State's current newspapers are expected to be converted by
the end of calendar year 1996. Once all of the Company's newspapers are
converted to the 50-inch web width, newsprint consumption will be permanently
reduced at each newspaper by 7.5% to 9%, depending on the web width prior to
the conversion.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The response to this item is filed as a separate part of this report (see page
23).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
18
<PAGE> 20
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Executive officers and directors of Garden State at June 30, 1996 are as
follows:
<TABLE>
<CAPTION>
NAME AGE TITLE
---- --- -----
<S> <C> <C>
Richard B. Scudder . . . . . . . . 83 Chairman of the Board and Director
William Dean Singleton . . . . . . 45 Vice Chairman, President, Chief Executive Officer
and Director
Joseph J. Lodovic, IV . . . . . . . 35 Executive Vice President and Chief Financial Officer
Anthony F. Tierno . . . . . . . . . 52 Executive Vice President and Chief Operating Officer
E. Michael Fluker . . . . . . . . . 59 Senior Vice President, Administration
Nicholas L. Lebra . . . . . . . . . 48 Vice President and Director of Human Resources
Ronald A. Mayo . . . . . . . . . . 35 Vice President Finance and Controller
James L. McDougald . . . . . . . . 44 Treasurer
Peter M. Miller . . . . . . . . . . 46 Director
</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 Garden State 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 Garden
State are appointed by and serve at the pleasure of the Board of Directors.
BUSINESS EXPERIENCE
RICHARD B. SCUDDER has served as Chairman of the Board and a Director of
Garden State since 1985.
WILLIAM DEAN SINGLETON has served as Vice Chairman, President, Chief
Executive Officer and a Director of Garden State since 1985.
JOSEPH J. LODOVIC, IV, 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 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 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 November,
1993.
NICHOLAS L. LEBRA, JR. has served as Vice President and Director of Human
Resources of Garden State since 1985.
RONALD A. MAYO has served as Vice President 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.
19
<PAGE> 21
PETER M. MILLER has served as a Director of Garden State since 1985. From
1991 through 1994, Mr. Miller served as Senior Vice President of Marketing of
Environmental Technologies Corporation, a subsidiary of Envirotech Systems,
Inc. Mr. Miller continues to serve as a director of Environmental Technologies
Corporation. Mr. Miller is a son-in-law of Mr. Scudder.
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 direct or
allocated cash compensation exceeded $100,000 for services rendered to the
Company in fiscal 1996.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
NAME AND FISCAL ------------------------------
PRINCIPAL POSITION YEAR SALARY BONUS
------------------ ---- ---------- -------
<S> <C> <C> <C>
William Dean Singleton(a) . . . . . . . . . . . . . . . . . . . . . 1996 $ 100,000 $ 80,000
Vice Chairman, President and 1995 100,000 100,000
Chief Executive Officer 1994 100,000 80,000
Joseph J. Lodovic, IV(b) . . . . . . . . . . . . . . . . . . . . . 1996 $ 125,550 --
Executive Vice President,
Chief Financial Officer
Anthony F. Tierno(b) . . . . . . . . . . . . . . . . . . . . . . . 1996 $ 192,503 $ 2,500
Executive Vice President 1995 152,816 12,500
and Chief Operating Officer
</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.
(b) In fiscal 1995 and 1994 allocated compensation did not exceed
$100,000.
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 $550,000 (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. 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).
20
<PAGE> 22
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Decisions regarding annual compensation of executives in excess of $175,000
are made by the Board of Directors of Garden State. In addition, the Board of
Directors of Garden State 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 Garden State consists of 1,000 shares of
common stock, all of which are held by Affiliated Newspapers Investments, Inc.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MEDIANEWS GROUP, INC.
Garden State has 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. All 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.
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
1996 the Company paid approximately $2.0 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
21
<PAGE> 23
loss or credit carryback under applicable federal income tax law, it will
receive credit for the amount of such reduction from ANI. 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 Auditors is filed as a part of this Report (see page
23).
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 Auditors is filed as part of the
Report (see page 23).
3. Exhibits
The Exhibits listed in the accompanying index to exhibits are filed as
a part of this annual report. (See page 44).
(b) Reports on Form 8-K
The Company filed a Form 8-K on May 15, 1996, regarding the sale of
The Johnstown Tribune Publishing Company on May 1, 1996.
22
<PAGE> 24
GARDEN STATE NEWSPAPERS, INC.
ITEMS 8, 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:
GARDEN STATE NEWSPAPERS, INC.
PAGE
----
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . 24
Consolidated Balance Sheets as of June 30, 1996
and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Consolidated Statements of Operations for the
Years Ended June 30, 1996, 1995 and 1994 . . . . . . . . . . . . . . . . 27
Consolidated Statements of Changes in Shareholder's Deficit for the
Years Ended June 30, 1996, 1995 and 1994 . . . . . . . . . . . . . . . . 28
Consolidated Statements of Cash Flows for the Years Ended
June 30, 1996, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . 29
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . 30
The following financial statement schedule of the registrant and its
subsidiaries required to be included in Item 14(a)(2) is listed below:
Schedule II Valuation and Qualifying Accounts . . . . . . . . . . . 42
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.
Garden State Investments, Inc. ("GSI"), a wholly owned subsidiary of Garden
State, is a holding company and has no assets of its own other than the stock
of its subsidiaries, and all its subsidiaries are not restricted from paying
dividends. Because GSI is the sole asset of Garden State, the consolidated
financial statements of GSI are identical to the consolidated financial
statements of Garden State included elsewhere herein. In addition, the capital
structure of GSI is identical to that of Garden State. Accordingly, the
Company does not believe that separate consolidated financial statements of GSI
would be meaningful. Consequently, separate consolidated financial statements
of GSI are not included herein.
23
<PAGE> 25
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Garden State Newspapers, Inc.
We have audited the accompanying consolidated balance sheets of Garden
State Newspapers, Inc. and subsidiaries (the "Company") as of June 30, 1996 and
1995, and the related consolidated statements of operations, changes in
shareholder's deficit, and cash flows for each of the three years in the period
ended June 30, 1996. 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Garden State Newspapers, Inc. and subsidiaries at June 30, 1996 and 1995, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended June 30, 1996, 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.
/s/ ERNST & YOUNG LLP
-------------------------------------
ERNST & YOUNG LLP
Denver, Colorado
September 4, 1996
24
<PAGE> 26
GARDEN STATE NEWSPAPERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
-----------------------------
1996 1995
--------- --------
(In thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . $ 4,415 $ 17,083
Trade accounts receivable, less allowance for doubtful accounts of
$2,426 and $1,931 at June 30, 1996 and 1995, respectively . . . . . . . 24,888 21,626
Receivable from affiliates . . . . . . . . . . . . . . . . . . . . . . . 1,523 1,509
Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,201 706
Inventories of newsprint and supplies . . . . . . . . . . . . . . . . . . 3,966 5,238
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . 2,780 3,926
--------- --------
TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . 38,773 50,088
PROPERTY, PLANT AND EQUIPMENT
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,168 4,519
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . 32,687 25,212
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . 87,522 74,086
--------- --------
Total Property, Plant and Equipment . . . . . . . . . . . . . . . . 125,377 103,817
Less accumulated depreciation and amortization . . . . . . . . . . . . . 50,027 46,096
--------- --------
Net Property, Plant and Equipment . . . . . . . . . . . . . . . . . 75,350 57,721
OTHER ASSETS
Investment in partnership . . . . . . . . . . . . . . . . . . . . . . . . 6,369 5,759
Subscriber accounts, less accumulated amortization of
$48,594 and $48,990 at June 30, 1996 and 1995, respectively . . . . . . 44,220 43,943
Excess of cost over fair value of net assets acquired, less
accumulated amortization of $13,267 and $19,255 at
June 30, 1996 and 1995, respectively . . . . . . . . . . . . . . . . . 65,715 87,978
Covenants not to compete and other identifiable intangible
assets, less accumulated amortization of $19,673 and
$18,553 at June 30, 1996 and 1995, respectively . . . . . . . . . . . . 8,461 2,488
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,871 2,523
--------- --------
TOTAL OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . 126,636 142,691
--------- --------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 240,759 $250,500
========= ========
</TABLE>
See notes to consolidated financial statements.
25
<PAGE> 27
<TABLE>
<CAPTION>
June 30,
----------------------------
1996 1995
--------- ---------
(In thousands, except
share data)
<S> <C> <C>
LIABILITIES AND SHAREHOLDER'S DEFICIT
CURRENT LIABILITIES
Trade accounts payable . . . . . . . . . . . . . . . . . . . . . . . $ 5,884 $ 6,882
Accrued employee compensation . . . . . . . . . . . . . . . . . . . 4,498 4,808
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . 8,114 8,698
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . 5,562 3,166
Unearned income . . . . . . . . . . . . . . . . . . . . . . . . . . 7,048 5,863
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 373 408
Current portion of long-term debt and
obligations under capital leases . . . . . . . . . . . . . . . . 11,190 5,672
--------- ---------
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . . . . . . 42,669 35,497
OBLIGATIONS UNDER CAPITAL LEASES . . . . . . . . . . . . . . . . . . . 7,520 7,391
LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191,879 210,784
OTHER LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,728 4,596
DEFERRED INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . 11,755 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (99,363) (100,623)
--------- ---------
TOTAL SHAREHOLDER'S DEFICIT . . . . . . . . . . . . . . . . . . . (20,792) (22,052)
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDER'S DEFICIT . . . . . . . . . . . . . . $ 240,759 $ 250,500
========= =========
</TABLE>
See notes to consolidated financial statements
26
<PAGE> 28
GARDEN STATE NEWSPAPERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Fiscal Years Ended June 30,
----------------------------------------
1996 1995 1994
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
REVENUES
Advertising . . . . . . . . . . . . . . . . . . . . . . . $197,954 $179,268 $159,653
Circulation . . . . . . . . . . . . . . . . . . . . . . . 39,930 30,517 25,198
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 7,546 3,260 1,792
-------- -------- --------
TOTAL REVENUES . . . . . . . . . . . . . . . . . . . 245,430 213,045 186,643
COSTS AND EXPENSES
Cost of sales . . . . . . . . . . . . . . . . . . . . . . 98,469 79,098 68,531
Selling, general and administrative . . . . . . . . . . . 100,230 88,847 79,217
Management fees . . . . . . . . . . . . . . . . . . . . . 2,008 1,666 1,552
Depreciation and amortization . . . . . . . . . . . . . . 21,841 18,710 19,900
Interest expense . . . . . . . . . . . . . . . . . . . . 27,414 25,806 24,623
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 4,511 2,387 14,609
-------- -------- --------
TOTAL COSTS AND EXPENSES . . . . . . . . . . . . . . 254,473 216,514 208,432
GAIN ON SALE OF NEWSPAPER PROPERTY . . . . . . . . . . . . 8,291 4,153 6,536
-------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES
AND EXTRAORDINARY GAINS . . . . . . . . . . . . . . . . . (752) 684 (15,253)
INCOME TAX BENEFIT . . . . . . . . . . . . . . . . . . . . 2,012 364 1,781
-------- -------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY
GAINS . . . . . . . . . . . . . . . . . . . . . . . . . . 1,260 1,048 (13,472)
EXTRAORDINARY GAINS . . . . . . . . . . . . . . . . . . . . -- -- 32,188
-------- -------- --------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . 1,260 1,048 18,716
ACCRETION OF DIVIDENDS ON
PREFERRED STOCK . . . . . . . . . . . . . . . . . . . . . -- -- (5,539)
-------- -------- --------
NET INCOME APPLICABLE TO
COMMON STOCK . . . . . . . . . . . . . . . . . . . . . . $ 1,260 $ 1,048 $ 13,177
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
27
<PAGE> 29
GARDEN STATE NEWSPAPERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S DEFICIT
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN- SHAREHOLDER'S
STOCK CAPITAL DEFICIT DEFICIT
----- ----------- ----------- ---------------
(In thousands)
<S> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1993 . . . . . . . . $1 $ -- $ (114,848) $(114,847)
Net income . . . . . . . . . . . . . . -- -- 18,716 18,716
Equity contribution . . . . . . . . . . -- 78,570 -- 78,570
Dividends on preferred stock . . . . . -- -- (5,539) (5,539)
-- ------- ---------- ---------
BALANCE AT JUNE 30, 1994 1 78,570 (101,671) (23,100)
Net income . . . . . . . . . . . . . . -- -- 1,048 1,048
-- ------- ---------- ---------
BALANCE AT JUNE 30, 1995 . . . . . . . . 1 78,570 (100,623) (22,052)
Net income . . . . . . . . . . . . . . -- -- 1,260 1,260
-- ------- ---------- ---------
BALANCE AT JUNE 30, 1996 . . . . . . . . $1 $78,570 $ (99,363) $ (20,792)
== ======= ========== =========
</TABLE>
See notes to consolidated financial statements.
28
<PAGE> 30
GARDEN STATE NEWSPAPERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------------------
1996 1995 1994
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,260 $ 1,048 $ 18,716
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . 21,261 18,020 19,159
Gain on sale of newspaper assets . . . . . . . . . . . . . (8,621) (4,137) (6,536)
Provision for losses on accounts receivable . . . . . . . . 2,510 2,876 2,006
Amortization of debt discount . . . . . . . . . . . . . . 1,696 1,577 1,549
Debt issue cost and repurchase premiums . . . . . . . . . . 1,092 -- 12,982
Undistributed partnership earnings . . . . . . . . . . . . (610) (28) 29
Deferred income tax benefit . . . . . . . . . . . . . . . . (2,529) (793) (2,037)
Extraordinary gains . . . . . . . . . . . . . . . . . . . . -- -- (32,188)
Change in operating assets and liabilities:
Increase in accounts receivable . . . . . . . . . . . . . (3,403) (2,150) (2,110)
(Increase) decrease in inventories . . . . . . . . . . . 1,799 (2,469) 825
(Increase) decrease in prepaid expenses and
other assets . . . . . . . . . . . . . . . . . . . . . . (558) 717 (775)
Increase (decrease) in accounts payable and
accrued liabilities . . . . . . . . . . . . . . . . . . (5,047) 4,880 (4,581)
Increase (decrease) in unearned income . . . . . . . . . 22 1,504 (63)
Decrease in affiliate account balances . . . . . . . . . 303 701 292
Change in other assets and liabilities . . . . . . . . . (517) 1,130 (229)
-------- -------- --------
NET CASH FLOWS FROM OPERATING ACTIVITIES . . . . . . . . . . 8,658 22,876 7,039
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of newspaper property and other assets . . . . . . . . . 50,647 14,864 9,122
Business acquisitions . . . . . . . . . . . . . . . . . . . . (35,668) (9,325) (15,582)
Purchase of machinery and equipment . . . . . . . . . . . . . (8,079) (4,284) (3,380)
-------- -------- --------
NET CASH FLOWS FROM INVESTING ACTIVITIES . . . . . . . . . . 6,900 1,255 (9,840)
CASH FLOW FROM FINANCING ACTIVITIES:
Issuance of long-term debt, net . . . . . . . . . . . . . . . 37,300 -- 132,691
Equity contribution . . . . . . . . . . . . . . . . . . . . . -- -- 15,535
Reduction of long-term debt . . . . . . . . . . . . . . . . . (60,240) (14,007) (138,780)
Reduction of non-operating liabilities . . . . . . . . . . . (4,194) (1,735) (225)
Debt issuance cost and repurchase premiums . . . . . . . . . (1,092) -- (6,116)
-------- -------- --------
NET CASH FLOWS FROM FINANCING ACTIVITIES . . . . . . . . . . (28,226) (15,742) 3,105
-------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . . .
(12,668) 8,389 304
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR . . . . . . . . . . . . . . . . . . . . . .
17,083 8,694 8,390
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR . . . . . . . . . . . .
$ 4,415 $ 17,083 $ 8,694
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
29
<PAGE> 31
GARDEN STATE NEWSPAPERS, 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 Garden State
Newspapers, Inc. (the "Company" or "Garden State"), Garden State Investments,
Inc. ("GSI") and its subsidiaries. All intercompany accounts have been
eliminated. The Company is a wholly owned subsidiary of Affiliated Newspapers
Investments, Inc. ("ANI").
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 consolidated 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 7 to 18 years, with a weighted average remaining life
based on the dates of acquisitions of 12 years. Other intangibles recognized
are being amortized using the straight-line method, generally over periods not
exceeding 10 years.
30
<PAGE> 32
GARDEN STATE NEWSPAPERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS (CONTINUED)
LONG-LIVED ASSETS
The carrying value of long-lived assets is reviewed annually; if at any time
the facts or circumstances at any of the Company's individual newspaper
operations indicate impairment of long-lived asset values, as a result of a
continual decline 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).
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 files a consolidated tax return with its parent, ANI; however,
the Company accounts for income taxes on a separate return basis 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 or (the
"Agency"), with York Daily Record, Inc. ("YDR"). YNI, YDR and the Agency
entered into a joint operating agreement 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 $6.4 million and $5.8 million at June 30, 1996
and 1995, respectively. The Agency made cash distributions to YNI in the amount
of $4.9 million, $4.8 million and $4.4 million in fiscal years 1996, 1995 and
1994.
31
<PAGE> 33
GARDEN STATE NEWSPAPERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2: INVESTMENT IN PARTNERSHIP (CONTINUED)
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.
In September, 1996, 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 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.
NOTE 3: ACQUISITIONS AND DISPOSITIONS
ACQUISITIONS
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 Transcript and The Evening News, daily newspapers published
in North Adams, Massachusetts, and Bridgeton, New Jersey, respectively. In
conjunction with acquiring the assets of The Evening News, the Company also
assumed $0.8 million of payments due on non-competition agreements.
In March, 1996, the Company acquired substantially all the assets used in the
publication of the San Mateo Times, a daily newspaper, and five weekly
newspapers published in San Mateo County, California, for approximately $15.0
million, including 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 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 $2.0 million and an underfunded pension plan liability and other
obligations, valued at approximately $8.3 million. Assuming the New England
Newspapers acquisition had occurred on July 1, 1994, unaudited pro forma
revenues and net income for fiscal year 1995 would have been $239.1 million and
$2.0 million, respectively. The pro forma financial information is not
necessarily indicative of the operating results that would have occurred had
the New England Newspapers acquisition been consummated as of July 1, 1994, nor
are they necessarily indicative of future operating results.
On November 18, 1994, a subsidiary of the Company purchased substantially all
the assets used in the publication of The Gloucester County Times and Today's
Sunbeam, daily newspapers distributed in Woodbury and Salem, New Jersey,
respectively, from an affiliate of the Company. The assets were purchased for
$9.0 million in cash plus the assumption of a $1.9 million discounted note
payable to certain of ANI's shareholders. The purchase price was based on the
fair market value of the assets acquired, determined by an independent
appraisal of the assets.
32
<PAGE> 34
GARDEN STATE NEWSPAPERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3: ACQUISITIONS AND DISPOSITIONS (CONTINUED)
In February, 1995, North Jersey Newspapers Company purchased substantially
all the assets used in the publication of five weekly newspapers located in
northern New Jersey for approximately $0.5 million.
On May 31, 1994, NJN Investments, Inc. ("NJNI"), a subsidiary of the Company,
purchased the assets used in the publication of The Express-Times, a daily
newspaper published in Easton, Pennsylvania, and several weekly publications
distributed in the same area, for approximately $16.7 million. The purchase
price includes an obligation to pay, over a three year period, a discounted
value of $1.7 million for a covenant not to compete for a period of five years
following the close of the transaction.
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 1996 are based on 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 years, respectively.
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),(c)
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
(c) Discontinued after purchase
33
<PAGE> 35
GARDEN STATE NEWSPAPERS, 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.
On August 1, 1994, the Company sold substantially all the assets used in the
publication of the Bristol Press and three weekly newspapers located in
Bristol, Connecticut, and a covenant not to compete in Bristol, Connecticut,
for a total of $14.5 million in cash. The sale resulted in a pre-tax gain of
approximately $4.2 million.
On June 27, 1994, a subsidiary of the Company ceased publication of the
Ypsilanti Press, a daily newspaper located in Ypsilanti, Michigan, and sold the
newspaper's circulation list to a third party for $9.0 million in cash. The
sale resulted in a pre-tax gain of approximately $6.5 million, which is net of
write-downs of property, plant and equipment and other assets to their net
realizable value and closure and other expenses associated with shutting down
and selling the assets of the Ypsilanti Press.
NOTE 4: CORPORATE RESTRUCTURING
On May 20, 1994, ANI purchased, for $54.1 million, all the Company's then
issued and outstanding Series A and C preferred stock, including accreted and
unpaid dividends. Immediately after the purchase, the Series A and C preferred
stock were cancelled, which was reflected as an equity contribution from ANI
and as an increase to Additional Paid-in Capital of the Company.
Concurrently with ANI's purchase of the Series A and C preferred stock, the
Company exchanged its Series B preferred stock with an accreted value of $47.5
million, for Denver Newspapers' 9% Preferred Stock held by the Company with a
book value of $16.0 million. As a result of the exchange, the Company
recognized an extraordinary gain of approximately $31.5 million in the
accompanying Consolidated Statements of Operations.
Prior to ANI's acquisition of the Class A common stock of the Company, the
Class A common stockholder had the right to "put" all, but not less than all,
of the Class A common stock to the Company any time after August 1, 1994. On
May 20, 1994, ANI purchased the Class A common stock of the Company for
approximately $9.0 million, which terminated the Company's shareholder
agreement.
34
<PAGE> 36
GARDEN STATE NEWSPAPERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4: CORPORATE RESTRUCTURING (CONTINUED)
The purchase of the Class A common stock and the resulting settlement of the
other obligation for $9.0 million was recorded as an equity contribution to the
Company from ANI and, accordingly, recorded as an increase to Additional Paid-
in-Capital. The other obligation was settled at less than its recorded balance
of approximately $9.7 million; accordingly, the Company recognized an
extraordinary gain of approximately $0.7 million.
NOTE 5: LONG-TERM DEBT
DEBT RESTRUCTURING
As a result of certain refinancings and debt prepayments in fiscal 1994,
associated with the corporate restructuring described above, the Company
incurred debt issuance costs of approximately $12.9 million, which includes
approximately $6.1 million of debt prepayment premiums paid to the holders of
the senior secured and senior subordinated notes, who were prepaid in full.
The Company elected to charge all of the debt issuance cost to fiscal year 1994
expense and as such has been included in other expense in the accompanying
Consolidated Statements of Operations.
LONG-TERM DEBT
Long-term debt consisted of the following at each year end:
<TABLE>
<CAPTION>
June 30,
----------------------------
1996 1995
-------- --------
(In thousands)
<S> <C> <C> <C>
Borrowings under bank credit facility . . . . . . . . . . . (I) $ -- $ --
Bank term loan . . . . . . . . . . . . . . . . . . . . . . (II) 7,500 --
10.89% Senior Secured Notes, due through
March 31, 2004 . . . . . . . . . . . . . . . . . . . . . (III) 76,880 81,480
NJNI bank credit facility . . . . . . . . . . . . . . . . . (IV) -- 23,000
Various Notes, payable through December 2002 . . . . . . . (V) 16,361 9,742
12.00% Senior Subordinated Secured Notes, due
July 1, 2004 . . . . . . . . . . . . . . . . . . . . . . (VI) 100,000 100,000
Notes payable to certain shareholders of ANI . . . . . . . (VII) 2,328 2,056
-------- --------
203,069 216,278
Less current portion of long-term debt . . . . . . . . . . 11,190 5,494
-------- --------
$191,879 $210,784
======== ========
</TABLE>
I. The Company's bank credit facility, which matures June 30, 1999,
provides for a revolving credit facility of $27.0 million, with $7.0
million sublimit for issuance of letters of credit. Borrowings under
the Company's bank credit facility bear interest at rates based upon,
at the Company's option, LIBOR or prime plus a spread based on the
Company's leverage. In addition, the Company pays an annual fee of
1/2 of 1% on the unused commitment, payable quarterly. The commitment
under the revolver is reduced to $17.0 million on June 30, 1998, with
a final maturity of June 30, 1999.
35
<PAGE> 37
GARDEN STATE NEWSPAPERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5: LONG-TERM DEBT (CONTINUED)
II. On August 31, 1995, the Company entered into a $15 million bank term
loan (the "Term Loan") issued to refinance certain debt assumed in
the August 31, 1995, acquisition. The Term Loan bears interest based
upon, at the Company's option, LIBOR or prime plus a spread based on
the Company's leverage. The remaining loan is payable in quarterly
installments of $2.5 million, beginning on December 31, 1996, with a
final maturity of June 30, 1997.
III. In May, 1994, the Company issued 10.89% Senior Secured Notes, due
through March 31, 2004. Interest accruing on the Senior Secured
Notes is payable semi-annually, in arrears, on March 31 and September
30. Principal payments of $11.6 million are due annually beginning
on March 31, 1998 through 2004. Approximately $4.6 million of the
proceeds from the sale of the Johnstown Tribune Publishing Company
were used to prepay a portion of the installment due March 31, 1998.
IV. NJNI entered into a bank credit facility in May, 1994. The bank
credit facility is secured by the stock of NJNI and its subsidiaries
and is non-recourse to the Company. The bank credit agreement, as
subsequently amended, provides for maximum borrowings of
approximately $25.9 million as of June 30, 1996. Borrowings bear
interest at rates based upon, at the Company's option, LIBOR or prime
plus a spread based on NJNI's leverage.
Commitments under the NJNI bank credit facility are permanently
reduced each quarter, based on the following annual amounts. Annual
reductions are cumulative. Mandatory principal payments are required
to the extent the principal balance is in excess of the remaining
commitment.
Fiscal Year Commitment Reduction
----------- --------------------
1997 . . . . . . . . . . . . . . . . . . . . . $ 2,375,000
1998 . . . . . . . . . . . . . . . . . . . . . 6,000,000
1999 . . . . . . . . . . . . . . . . . . . . . 17,500,000
The NJNI bank credit facility contains certain restrictive covenants
which restrict the incurrence of additional debt and capital
expenditures. In addition, the agreement requires NJNI to meet
certain financial ratios based on leverage, debt service coverage,
and cash flow, each as defined in the NJNI bank credit facility.
V. In connection with various acquisitions, the Company 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 9.0%.
Obligations bearing interest at below market rates were discounted at
rates ranging from 7.8% to 12.0%.
VI. In May, 1994, the Company issued $100.0 million of 12.0% Senior
Subordinated Secured Notes due July 1, 2004. Interest accruing on
the Senior Subordinated Secured Notes is payable semi-annually, in
arrears, on January 1 and July 1. The indebtedness evidenced by the
Senior Subordinated Secured Notes is subordinated and junior in right
of payment to the bank credit facility, holders of the Senior Secured
Notes 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 Senior Subordinated Secured Notes are
secured by a second lien on the stock of GSI, a subsidiary of the
Company and holding company for each of the operating subsidiaries.
36
<PAGE> 38
GARDEN STATE NEWSPAPERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5: LONG-TERM DEBT (CONTINUED)
VII. In connection with the acquisition of The Gloucester County Times and
Today's Sunbeam, the Company 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 the Company's senior
indebtedness, and the Company is prohibited from paying principal or
interest on the notes until all senior debt has been repaid in full.
Collectively, the Garden State bank credit facility and Senior Secured Notes
contain 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. Borrowings
under the Garden State bank credit agreement and the Senior Secured Notes are
secured by substantially all of the Company's tangible and intangible assets
and stock of the Company and its subsidiaries.
Maturities of the Company's long-term debt for the five fiscal years ending
June 30, 2001, are as follows (in thousands):
1997 . . . . . . . . . . . . . . . . . . . . . . $ 11,190
1998 . . . . . . . . . . . . . . . . . . . . . . 8,949
1999 . . . . . . . . . . . . . . . . . . . . . . 14,105
2000 . . . . . . . . . . . . . . . . . . . . . . 14,195
2001 . . . . . . . . . . . . . . . . . . . . . . 14,023
Thereafter . . . . . . . . . . . . . . . . . . . 140,607
--------
$203,069
========
Interest paid during the fiscal years ended June 30, 1996, 1995 and 1994 was
approximately $27.2 million, $19.4 million and $26.1 million, respectively.
Letters of credit have been issued in favor of an insurance company providing
workers compensation insurance coverage to the Company totalling approximately
$2.0 million as of June 30, 1996. In addition, the Company issued
approximately $3.1 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.
The fair market value of the Senior Subordinated Secured Notes at June 30,
1996, was approximately $103.0 million. 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 its original issue price net of
remaining original issue discounts, if applicable.
37
<PAGE> 39
GARDEN STATE NEWSPAPERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6: LEASES
A subsidiary of the Company 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,
1996 1995
------ ------
(In thousands)
<S> <C> <C>
Building . . . . . . . . . . . . . . . . . . . . $ 6,934 $ 6,934
Accumulated amortization . . . . . . . . . . . . 1,579 1,348
------- -------
Assets under capital leases, net . . . . . . . $ 5,355 $ 5,586
======= =======
</TABLE>
The Company's subsidiaries also lease certain facilities and equipment under
operating leases, some of which contain renewal or escalation clauses. Rent
expense was approximately $2.1 million, $1.9 million and $2.1 million for the
fiscal years ended June 30, 1996, 1995 and 1994, respectively. Contingent
rentals are not significant. Future minimum payments on capital and operating
leases are as follows:
<TABLE>
<CAPTION>
June 30,
Fiscal Years Ending 1996 1995
------------------- ------ ------
(In thousands)
<S> <C> <C>
1997 . . . . . . . . . . . . . . . . . . . . . $ 815 $ 2,377
1998 . . . . . . . . . . . . . . . . . . . . . 821 2,057
1999 . . . . . . . . . . . . . . . . . . . . . 821 1,731
2000 . . . . . . . . . . . . . . . . . . . . . 867 1,656
2001 . . . . . . . . . . . . . . . . . . . . . 931 1,445
Thereafter . . . . . . . . . . . . . . . . . . 16,834 5,556
------- -------
Total minimum lease payments . . . . . . . . 21,089 $14,822
=======
Less amount representing interest . . . . . . 13,569
-------
Present value of net future lease payments . $ 7,520
=======
</TABLE>
NOTE 7: RETIREMENT PLANS
The Company 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 the Company's full-time employees are covered by these plans. Total
expense for these plans for the fiscal years ended June 30, 1996, 1995 and
1994, was approximately $1.4 million, $1.6 million, and $1.3 million,
respectively.
38
<PAGE> 40
GARDEN STATE NEWSPAPERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7: RETIREMENT PLANS (CONTINUED)
The Company contributes 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. The Company contributes 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. The Company's contribution may
be suspended annually at management's discretion.
A non-contributory defined benefit pension plan was assumed in connection
with the August 31, 1995, acquisition. On September 23, 1995, the Company
elected to freeze the plan. Accordingly, all current service cost under the
plan was terminated as of September 23, 1995. As of June 30, 1996, the net
present value of accumulated benefit obligations exceeded the fair market value
of plan assets by $3.9 million.
NOTE 8: INCOME TAXES
The income tax provision (benefit) for each of the three years ended June 30,
1996, 1995 and 1994, consists of the following:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Current:
State . . . . . . . . . . . . . . . . . $ 441 $ 285 $ 256
Federal . . . . . . . . . . . . . . . . 76 144 --
Deferred:
State . . . . . . . . . . . . . . . . . (695) (18) 254
Federal . . . . . . . . . . . . . . . (1,834) (775) (2,291)
-------- ------ --------
Net benefit . . . . . . . . . . . . . . . $ (2,012) $ (364) $ (1,781)
======== ====== ========
</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, 1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- --- ---
<S> <C> <C> <C>
Statutory Federal income tax rate . . . . . . . . . . . . . . . (35%) 35% (35%)
Effect of:
Operating losses . . . . . . . . . . . . . . . . . . . . . -- -- 21
State income tax net of federal benefit . . . . . . . . . 22 50 3
Utilization of NOL . . . . . . . . . . . . . . . . . . . . (55) 66 --
Book/tax basis difference associated with
acquisitions and non-deductible acquisition costs . . . (200) (238) (2)
Alternative minimum tax . . . . . . . . . . . . . . . . . -- 21 --
Other, net . . . . . . . . . . . . . . . . . . . . . . . . -- 13 1
---- --- ---
Financial statement effective tax rate . . . . . . . . . . . . (268%) (53%) (12%)
==== === ===
</TABLE>
39
<PAGE> 41
GARDEN STATE NEWSPAPERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8: INCOME TAXES (CONTINUED)
Components of the long-term deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
June 30,
----------------------
1996 1995
-------- --------
(In thousands)
<S> <C> <C>
Deferred tax assets:
Net operating losses and other credits . . . . . . . $ 23,593 $ 26,845
Other . . . . . . . . . . . . . . . . . . . . . . . 7,421 7,702
-------- --------
31,014 34,547
Valuation allowance . . . . . . . . . . . . . . . . (20,363) (20,297)
-------- --------
Deferred tax assets . . . . . . . . . . . . . . . . 10,651 14,250
Deferred tax liabilities:
Fixed assets . . . . . . . . . . . . . . . . . . . . 8,129 10,234
Intangibles . . . . . . . . . . . . . . . . . . . . 12,990 15,637
Other . . . . . . . . . . . . . . . . . . . . . . . 1,287 2,663
-------- --------
Deferred tax liabilities . . . . . . . . . . . . . . 22,406 28,534
-------- --------
Net deferred tax liabilities . . . . . . . . . . . . . $ 11,755 $ 14,284
======== ========
</TABLE>
In fiscal year 1995, the Company generated federal taxable income which was
completely offset by operating loss carryforwards. However, the Company did
incur alternative minimum tax which can be carried forward as a credit to
future taxable income.
At June 30, 1996, the Company has approximately $66.0 million of net
operating loss carryforwards for tax reporting purposes available to offset its
future taxable income which expire in 2001 through 2009.
The Company made state and federal income tax payments of approximately $0.6
million, $0.8 million and $0.1 million during fiscal years 1996, 1995 and 1994,
respectively.
NOTE 9: RELATED PARTY TRANSACTIONS
MediaNEWS Group, Inc., an affiliate of the Company's shareholder, provides
management services to the Company and its subsidiaries. Related management
fees are shown on the accompanying consolidated statements of operations.
NOTE 10: 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.
40
<PAGE> 42
GARDEN STATE NEWSPAPERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11: SUBSEQUENT EVENT
Subsequent to June 30, 1996, MediaNEWS Group, Inc. signed a letter of intent
agreeing to acquire the business and assets of five newspapers and associated
publications, acting directly through Affiliated Newspapers Investments, Inc.
or one of its affiliated companies. The acquisition is subject to normal due
diligence and the negotiation of a definitive purchase agreement. Upon
completion of due diligence and a definitive purchase agreement, certain of the
acquired businesses and assets may become assets of the Company.
41
<PAGE> 43
GARDEN STATE NEWSPAPERS, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FISCAL YEARS ENDED JUNE 30, 1996, 1995 AND 1994
(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, 1996
Reserves and allowances deducted
from asset accounts:
Allowance for uncollectible
accounts . . . . . . . . . . . . $1,931 $2,510 $2,474 $459 $2,426
YEAR ENDED JUNE 30, 1995
Reserves and allowances deducted
from asset accounts:
Allowance for uncollectible
accounts . . . . . . . . . . . . $2,321 $2,876 $3,343 $ 77 $1,931
YEAR ENDED JUNE 30, 1994
Reserves and allowances deducted
from asset accounts:
Allowance for uncollectible
accounts . . . . . . . . . . . . $1,656 $2,640 $2,530 $555 $2,321
</TABLE>
42
<PAGE> 44
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.
GARDEN STATE NEWSPAPERS, INC.
Date: September 18, 1996 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, 1996
- -------------------------------- Chief Executive Officer and Director
(William Dean Singleton) (Chief Executive Officer)
/S/ Joseph J. Lodovic, IV Executive Vice President and Chief September 18, 1996
- -------------------------------- Financial Officer (Chief Financial
(Joseph J. Lodovic, IV) Officer)
/S/ Richard B. Scudder Director September 18, 1996
- --------------------------------
(Richard B. Scudder)
/S/ Peter M. Miller Director September 18, 1996
- ---------------------------------
(Peter M. Miller)
/S/Ronald A. Mayo Vice President Finance and Controller September 18, 1996
- --------------------------------- (Principal Accounting Officer)
(Ronald A. Mayo)
</TABLE>
43
<PAGE> 45
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.
3.5* -Form of Certificate of Incorporation of Garden State Investments,
Inc.
4.1* -Form of Indenture.
4.2* -Form of Second Pledge Agreement between Garden State Investments,
Inc., Bank of New York, Wilmington Trust Company and William J.
Wade.
10.1* -Form of 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 Garden State Credit Facility Agreement.
10.3* -Form of 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.
</TABLE>
44
<PAGE> 46
INDEX TO EXHIBITS (CONTINUED)
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
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.
10.19** -Asset purchase agreement and assumed debt agreements related to
The Gloucester County Times and Today's Sunbeam asset
acquisition.
10.20** -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 Nw England Newspapers,
Inc., Brattleboro Publishing Company, Connecticut Newspapers,
Inc. and Pittsfield Publications, Inc., as Purchasers.
10.21** -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.
10.22** -Asset Purchase Agreement dated August 24, 1995, by and among
Connecticut Newspapers, Inc., as Seller, and Middletown
Acquisition Corp., as Purchaser.
10.23** -$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.
10.24** -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.
10.25** -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 of Earnings to Fixed Charges.
27 -Financial Data Schedule.
</TABLE>
- ---------------------
* Previously Filed as exhibits to registration statement on Form S-1 (No.
33-75156) and amendments thereto.
**Previously Filed.
45
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 4,415
<SECURITIES> 0
<RECEIVABLES> 27,612
<ALLOWANCES> (2,426)
<INVENTORY> 3,966
<CURRENT-ASSETS> 38,773
<PP&E> 125,377
<DEPRECIATION> (50,027)
<TOTAL-ASSETS> 240,759
<CURRENT-LIABILITIES> 42,669
<BONDS> 191,879
0
0
<COMMON> 1
<OTHER-SE> (20,793)
<TOTAL-LIABILITY-AND-EQUITY> 240,759
<SALES> 245,430
<TOTAL-REVENUES> 245,430
<CGS> 98,469
<TOTAL-COSTS> 222,548
<OTHER-EXPENSES> 4,511
<LOSS-PROVISION> 2,510
<INTEREST-EXPENSE> 27,414
<INCOME-PRETAX> (752)
<INCOME-TAX> (2,012)
<INCOME-CONTINUING> 1,260
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,260
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
