<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from __________ to __________
Commission File Number____________
GARDEN STATE NEWSPAPERS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-2675173
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1560 Broadway
Denver, Colorado 80202
---------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 837-0886
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether a registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
<PAGE>
INDEX TO GARDEN STATE NEWSPAPERS, INC.
REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1998
------------------------------------------------------------
Item No. Page
-------- ----
PART I - FINANCIAL INFORMATION
------------------------------
1 Financial Statements 3
2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 3
PART II - OTHER INFORMATION
---------------------------
1 Legal Proceedings 3
2 Changes in Securities 3
3 Defaults Upon Senior Securities 3
4 Submission of Matters to a Vote of Security Holders 3
5 Other Information 4
6 Exhibits and Reports on Form 8-K 4
2
<PAGE>
PART I
- -------------------------------------------------------------------------------
ITEM 1. FINANCIAL STATEMENTS
- -----------------------------
The information required by this item is filed as part of this Form 10-Q. See
Index to Financial Information at page 5 of this Form 10-Q.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------------------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
The information required by this item is filed as part of this Form 10-Q. See
Index to Financial Information at page 5 of this Form 10-Q.
PART II
- -------------------------------------------------------------------------------
ITEM 1. LEGAL PROCEEDINGS
- --------------------------
The Company is involved in litigation arising in the ordinary course of
business, none of which is expected to result in material loss.
ITEM 2. CHANGES IN SECURITIES
- ------------------------------
There were no changes in the rights of security holders during the quarter for
which this report is filed.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
- ----------------------------------------
There were no defaults upon senior securities during the quarter for which this
report is filed.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
There were no matters submitted to a vote of security holders during the quarter
for which this report is filed.
3
<PAGE>
ITEM 5. OTHER INFORMATION
- --------------------------
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
Exhibits
- --------
27 - Financial Data Schedule.
Reports on Form 8-K
- -------------------
No reports on Form 8-K were filed during the quarter ended September 30, 1998.
SIGNATURES
- -------------------------------------------------------------------------------
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GARDEN STATE NEWSPAPERS, INC.
Dated: NOVEMBER 10, 1998 BY: /S/ JOSEPH J. LODOVIC, IV
------------------- -------------------------
Joseph J. Lodovic, IV
Executive Vice President,
Chief Financial Officer and
Duly Authorized Officer
of Registrant
4
<PAGE>
GARDEN STATE NEWSPAPERS, INC.
INDEX TO FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS: PAGE
----
Condensed Consolidated Balance Sheets.............................. 6
Unaudited Condensed Consolidated Statements of Operations.......... 8
Unaudited Condensed Consolidated Statements of Cash Flows.......... 9
Notes to Unaudited Condensed Consolidated Financial Statements..... 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................................ 13
5
<PAGE>
GARDEN STATE NEWSPAPERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
September 30, June 30,
1998 1998
------------- --------
ASSETS (In thousands)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents...................................... $ 5,272 $ 999
Accounts receivable, less allowance for doubtful
accounts of $6,944 and $6,239 at September 30, 1998
and June 30, 1998, respectively.............................. 54,934 51,731
Inventories of newsprint and supplies.......................... 7,461 7,286
Prepaid expenses and other assets.............................. 3,176 3,475
Income tax receivable.......................................... 3,360 1,687
------------- -----------
Total Current Assets 74,203 65,178
PROPERTY, PLANT AND EQUIPMENT
Land........................................................... 16,351 16,658
Buildings and improvements..................................... 61,230 61,060
Machinery and equipment........................................ 181,425 179,670
------------- -----------
Total Property, Plant and Equipment........................ 259,006 257,388
Less accumulated depreciation and amortization................. 67,432 63,588
------------- -----------
Net Property, Plant and Equipment 191,574 193,800
OTHER ASSETS
Investment in partnerships .................................... 16,249 7,479
Subscriber accounts, less accumulated amortization of
$56,843 and $53,446 at September 30, 1998 and June 30,
1998, respectively........................................... 99,707 98,712
Excess of cost over fair value of net assets acquired, less
accumulated amortization of $20,269 and $18,492
at September 30, 1998 and June 30, 1998, respectively........ 284,178 251,196
Covenants not to compete and other identifiable intangible
assets, less accumulated amortization of $20,939 and
$19,846 at September 30, 1998 and June 30, 1998,
respectively................................................. 14,716 15,810
Other.......................................................... 7,595 7,468
------------- -----------
Total Other Assets 422,445 380,665
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TOTAL ASSETS $ 688,222 $ 639,643
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------------- -----------
</TABLE>
SEE NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
6
<PAGE>
GARDEN STATE NEWSPAPERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
September 30, June 30,
LIABILITIES AND SHAREHOLDER'S EQUITY 1998 1998
------------- -----------
(In thousands, except share data)
<S> <C> <C>
CURRENT LIABILITIES
Trade accounts payable......................................... $ 6,271 $ 5,684
Accrued liabilities............................................ 52,119 49,279
Unearned income............................................... 14,914 14,829
Current portion of long-term debt and capital lease obligation. 8,609 5,644
------------- -----------
Total Current Liabilities 81,913 75,436
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATION...................... 552,798 511,686
OTHER LIABILITIES................................................ 6,379 6,479
DEFERRED INCOME TAXES............................................ 14,193 12,495
SHAREHOLDER'S EQUITY
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........................................................ (45,632) (45,024)
------------- -----------
Total Shareholder's Equity 32,939 33,547
------------- -----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 688,222 $ 639,643
------------- -----------
------------- -----------
</TABLE>
SEE NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
7
<PAGE>
GARDEN STATE NEWSPAPERS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended September 30,
------------------------------------
1998 1997
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(In thousands)
<S> <C> <C>
REVENUES
Advertising.......................................................... $ 98,064 $ 71,635
Circulation.......................................................... 26,301 19,604
Other................................................................ 3,790 3,435
------------- -----------
TOTAL OPERATING REVENUES 128,155 94,674
COST AND EXPENSES
Cost of sales........................................................ 43,033 31,607
Selling, general and administrative.................................. 58,256 42,894
Depreciation and amortization........................................ 10,290 8,037
Interest expense..................................................... 13,032 9,164
Other, net........................................................... 795 836
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TOTAL COST AND EXPENSES 125,406 92,538
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INCOME BEFORE INCOME TAXES AND EXTRAORDINARY LOSS 2,749 2,136
INCOME TAX EXPENSE..................................................... (858) (437)
------------- -----------
INCOME BEFORE EXTRAORDINARY LOSS $ 1,891 $ 1,699
EXTRAORDINARY LOSS (NET OF TAXES OF $1,134)............................ (2,499) --
------------- -----------
NET INCOME (LOSS) $ (608) $ 1,699
------------- -----------
------------- -----------
</TABLE>
SEE NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
8
<PAGE>
GARDEN STATE NEWSPAPERS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended September 30,
------------------------------------
1998 1997
------------- -----------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss)................................................................... $ (608) $ 1,699
Adjustments to reconcile loss to net cash provided by operating activities:
Depreciation and amortization.................................................... 10,135 7,853
Provision for losses on accounts receivable...................................... 1,591 923
Amortization of debt discount.................................................... 773 668
Loss on sale of assets........................................................... -- 47
Distributions in excess of (less than) earnings from investment in partnership... 235 (427)
Deferred income tax benefit...................................................... (42) (33)
Debt repurchase premium.......................................................... 3,633 --
Change in operating assets and liabilities....................................... (1,318) (4,390)
------------- -----------
NET CASH FLOWS FROM OPERATING ACTIVITIES 14,399 6,340
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of newspaper properties.................................................... (48,201) (51,931)
Purchase of machinery and equipment (net)........................................... (1,597) (2,226)
------------- -----------
NET CASH FLOWS FROM INVESTING ACTIVITIES (49,798) (54,157)
CASH FLOWS FROM FINANCING ACTIVITIES:
Reduction of long-term debt......................................................... (39,727) (9,341)
Reduction of non-operating liabilities.............................................. (168) (131)
Debt repurchase premium............................................................. (3,633) --
Issuance of long-term debt.......................................................... 83,200 55,000
------------- -----------
NET CASH FLOWS FROM FINANCING ACTIVITIES 39,672 45,528
------------- -----------
CHANGE IN CASH AND CASH EQUIVALENTS 4,273 (2,289)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 999 8,944
------------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,272 $ 6,655
------------- -----------
------------- -----------
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid $ 8,289 $ 12,753
------------- -----------
------------- -----------
Income taxes paid $ 3 $ 966
------------- -----------
------------- -----------
</TABLE>
SEE NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
9
<PAGE>
GARDEN STATE NEWSPAPERS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulations S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted
accounting principles for complete consolidated financial statements and
should be read in conjunction with the consolidated financial statements and
footnotes thereto included in Garden State Newspapers, Inc.'s Annual Report
on Form 10-K for the year ended June 30, 1998. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the three month period ended September 30, 1998, are not necessarily
indicative of the results that may be expected for the year ended June 30,
1999.
The unaudited condensed consolidated financial statements include the
accounts of Garden State Newspapers, Inc. (the "Company" or "Garden State")
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated upon consolidation. Garden State is a wholly owned
subsidiary of Affiliated Newspapers Investments, Inc.
RELATED PARTY TRANSACTIONS
MediaNews Group, Inc., an affiliate of Company, provides management
services to the Company and its subsidiaries. Related management fees are
included in selling, general and administrative expenses in the accompanying
Consolidated Statements of Operations.
RECLASSIFICATION
Certain balance for the quarter ended September 30, 1997, have been
reclassified to conform with the current quarterly presentation.
INCOME TAXES
The effective income tax rate varies from the federal statutory rate
primarily because of the nondeductibility of certain expenses and the
utilization of net operating losses that were previously subject to valuation
allowances.
SEASONALITY
Newspaper companies tend to follow a distinct and recurring seasonal
pattern, with higher advertising revenues in months containing significant
events or holidays. Accordingly, the fourth calendar quarter, or the
Company's second fiscal quarter, is the Company's strongest revenue quarter
of the year. Due to generally poor weather and lack of holidays, the first
calendar quarter, or the Company's third fiscal quarter, is the Company's
weakest revenue quarter of the year.
BUSINESS ACQUISITIONS
On August 21, 1998 the Company acquired a 50% interest in Charleston
Newspapers, a joint venture, which publishes the CHARLESTON GAZETTE (morning)
and Charleston DAILY MAIL (evening), six days a week and the SUNDAY
GAZETTE-MAIL, under the terms of a Joint Operating Agreement ("JOA").
Charleston Newspapers has daily and Sunday circulation of approximately
93,000 and 102,000, respectively, as of March 23, 1998. The acquisition
included rights to the masthead of the Charleston DAILY MAIL; thus the
Company is responsible for the editorial content of the Charleston DAILY
MAIL. The acquisition price of approximately $47.0 million was funded with
borrowings under the Company's Bank Credit Agreement.
10
<PAGE>
GARDEN STATE NEWSPAPERS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1: SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS (CONTINUED)
The acquisition discussed above was accounted for as a purchase. The
Company accounts for its JOA operations by including its pro rata share of
revenue and expenses generated by the operation of the JOA on a line by line
basis in the Consolidated Statement of Operations. The pro rata results of
operations have been included since the date of acquisition since Charleston
Newspapers is a JOA. The Company's 50% interest in the joint venture and the
intangible assets acquired, have been recorded at their estimated fair market
value as of the date of acquisition. These fair market values are based on
management's preliminary estimates and are subject to change upon the final
allocation of the purchase price. The excess of cost over fair market value
of net assets acquired and intangible assets related to subscriber lists are
being amortized on a straight line basis over 40 and 8 years, respectively.
NOTE 2: LONG TERM DEBT
In the first quarter of fiscal year 1999, the Company repurchased $36.0
million of its 12% Senior Subordinated Secured Notes at a premium of
approximately $3.6 million. The premium was recognized as an extraordinary
loss in the first quarter of fiscal year 1999. Proceeds from borrowings under
RCC and RCB of the Company's Bank Credit Agreement were used to repurchase
the 12.0% Senior Subordinated Secured Notes.
The following table sets forth, after giving effect to borrowings
associated with the August 21, 1998 acquisition previously discussed, the
October 9, 1998, acquisition of the DAILY TIMES (discussed below in Note 4),
and borrowings associated with the repurchase of 12.0% Senior Subordinated
Secured Notes, the approximate expected scheduled maturities of long-term
debt of the Company for the fiscal years indicated, are as follows (in
thousands):
<TABLE>
<CAPTION>
<S> <C>
1999. . . . . . . . . . . . . . . . . . . $ 11,614
2000. . . . . . . . . . . . . . . . . . . 12,734
2001. . . . . . . . . . . . . . . . . . . 17,203
2002. . . . . . . . . . . . . . . . . . . 20,562
2003. . . . . . . . . . . . . . . . . . . 47,400
Thereafter. . . . . . . . . . . . . . . . 470,356
----------
$ 579,869
----------
----------
</TABLE>
INTEREST RATE SWAPS
Effective April 1, 1997, the Company entered into a two-year interest
rate swap agreement with a notional principal amount of $50.0 million and a
fixed annual interest rate of 6.455%, plus the applicable spread. The Company
uses interest rate swaps to manage its floating rate debt to minimize, in
part, the Company's exposure to the uncertainty of floating interest rates.
The Company accounts for the differences paid or received under this
agreement as an adjustment to interest expense. As of September 30, 1998 and
1997, the interest rate swap had a market loss of $0.4 million, respectively.
The Company is exposed to a credit loss related to the interest rate swap to
the extent such interest rate swap has a market gain and the counterparty to
the agreement fails to perform under the agreement. The Company does not
anticipate that the counterparty will fail to meet its obligation due to its
high credit rating.
NOTE 3: COMMITMENTS
The Company, through MediaNews Group, Inc., has entered into a newsprint
swap covering 12,500 metric tons of newsprint, which expires on May 30, 2005.
Garden State uses the swap to minimize in part, the Company's exposure to the
uncertainty of future newsprint price increases. Settlements are made
quarterly, and vary based on the difference between the fixed contract price
and the average contract transaction price for all East Coast buyers. Garden
State accounts for amounts received or paid under this agreement as an
adjustment to newsprint expense.
11
<PAGE>
GARDEN STATE NEWSPAPERS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4: SUBSEQUENT EVENTS
BUSINESS ACQUISITION
Effective October 1, 1998, the Company acquired substantially all of the
assets used in the publication of the DAILY TIMES, a morning newspaper
published in Farmington, New Mexico, for cash and discounted notes, with the
prior owners. The newspaper has daily and Sunday circulation of approximately
17,000 and 18,000, respectively, at March 31, 1998.
The acquisition will be accounted for as a purchase; accordingly, the
Consolidated Financial Statements will include the operations of the acquired
newspaper from the date of acquisition.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OPERATING RESULTS
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
- ----------------------------------------------
REVENUES
Revenues increased $33.5 million or 35.4% in the first quarter of fiscal
year 1999 as compared to the same quarter of fiscal year 1998. The increase
in revenue was primarily attributable to the July 31, 1997, acquisition of
THE SUN; the December 16, 1997, acquisition of the PRESS-TELEGRAM; the
January 29, 1997, acquisition of the DAILY NEWS; and the August 21, 1998
acquisition of the 50% interest in the Charleston Newspaper joint venture.
Excluding newspaper acquisitions and dispositions, the Company's remaining
newspaper operations ("existing newspapers") had a 1.8% increase in operating
revenues for the first quarter 1999. Advertising revenues at these newspapers
increased by approximately 3.7%, driven by continued growth in classified
revenue, and retail and preprint revenue growth.
COST OF SALES
Cost of sales increased $11.4 million or 36.1% in the first quarter of
fiscal year 1999 compared to the same quarter of fiscal year 1998. The
aforementioned acquisitions caused the majority of the cost of sales increase
for the quarter ended September 30, 1998. Excluding newspaper acquisitions
and dispositions, cost of sales increased approximately 1.3%, primarily
driven by increased newsprint prices and consumption associated with
advertising lineage and circulation volume increases.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative ("SG&A") expenses increased $15.4
million or 35.8% in the first quarter of fiscal year 1999 as compared to the
same quarter of fiscal year 1998. The aforementioned acquisitions caused
almost all of the SG&A expense increase in the first quarter of fiscal year
1999. Excluding newspaper acquisitions and dispositions, SG&A expense
increased approximately 1.0%. The increase in SG&A is associated with
increases in advertising expenditures, which were primarily related to
ongoing efforts to increase advertising lineage.
EBITDA
EBITDA increased $6.7 million or 33.2%. The majority of the increase was
due to acquisitions; however, the Company's existing newspapers realized a
4.0% increase in EBITDA, converting over 50% of the increase in revenue to
EBITDA. EBITDA represents total revenues less cost of sales and selling,
general and administrative expense. 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.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased $2.3 million in the first quarter
of fiscal year 1999 as compared to the same period of fiscal year 1998. The
aforementioned acquisitions caused the majority of the increase in
depreciation and amortization expense.
INTEREST EXPENSE
Interest expense increased $3.9 million in the first quarter of fiscal
year 1999 as compared to the same period in fiscal year 1998. Interest
expense increased as a result of a $145.3 million increase in average debt
outstanding, primarily associated with acquisitions. This increase was
partially offset by a 21 basis point decrease in the average interest rate,
mainly associated a reduction in the borrowing spread on bank debt, which was
offset in part by an increase associated with the replacement of $300.0
million of bank debt with the 8.75% Senior Subordinated Notes issued on
October 1, 1997 and February 12, 1998.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
EXTRAORDINARY LOSS
In the first quarter of fiscal year 1999 the Company repurchased $36.0
million of its 12% Senior Subordinated Secured Notes at a premium of
approximately $3.6 million. The premium net of income taxes was recorded as
an extraordinary loss. Based on the Company's current bank interest rates,
the repurchase will significantly reduce the Company's total interest expense
in the future.
NET INCOME
Garden State recorded adjusted net income of approximately $1.9 million
in the first quarter of fiscal year 1999 after excluding the extraordinary
loss of $2.5 million, as compared to a net income of $1.7 million in the
first quarter of fiscal year 1998. The increase in adjusted net income is
primarily attributable to a $4.4 million increase in operating profit offset
by a $3.9 million increase in interest expense, primarily as a result of
acquisitions, and a $0.4 million increase in tax expense resulting from the
Company's improved operating results.
FINANCIAL CONDITION AND LIQUIDITY
Net cash flows from operating activities were approximately $14.4 million
and $6.3 million for the three months ended September 30, 1998 and 1997,
respectively. The $8.1 million increase in cash flow from operating
activities was primarily the result of a $6.7 million increase in operating
profit, excluding depreciation and amortization, for the three months ended
September 30, 1998, compared to the same period of the prior year, a $3.7
million reduction in the change in operating assets and liabilities, a $0.7
million decrease in cash tax expense (including the tax benefit from the
extraordinary loss), and a $0.7 million improvement in partnership
distributions, all of which were offset by a $3.8 million increase in cash
interest expense.
Net cash flows from investing activities were ($49.8) million and ($54.2)
million for the three months ended September 30, 1998 and 1997, respectively.
The ($4.4) million change was primarily the result of the Company spending a
net $48.2 million on acquisitions in fiscal year 1999 compared to $51.9
million in the first quarter of fiscal year 1998.
Net cash flows from financing activities were $39.7 million and $45.5
million for the three months ended September 30, 1998 and 1997, respectively.
The change of approximately $5.9 million was primarily attributable to the
Company borrowing a net $43.5 million in the first three months of fiscal
1999, compared to a net borrowing of $45.7 million in fiscal 1998, the
majority of which was issued in conjunction with previously discussed
acquisitions in each fiscal year. The $3.6 million of debt repurchase
premiums also contributed to the increase.
LIQUIDITY
After giving effect to the repurchase of $36.0 million of Senior
Subordinated Secured Notes and the recent acquisitions, Garden State has
$138.7 million available for future borrowings under the Bank Credit
Agreement, net of approximately $4.5 million in outstanding letters of
credit. Approximately $119.1 million of the availability under the Bank
Credit Agreement is available solely for future business acquisitions.
Based upon current and expected future operating results management
believes that the Company will have sufficient cash flows from operations 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. In addition to cash flows from operations, the Company has
approximately $19.6 million available under a working capital facility as of
the date of this report, which should be more than sufficient to fund
unanticipated needs.
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.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION AND LIQUIDITY (CONTINUED)
LIQUIDITY (CONTINUED)
As previously discussed, the Company has repurchased $36.0 million out of
$100.0 million of its 12.0% Senior Subordinated Secured Notes. Beginning July
1, 1999, the Company can call the remaining $64.0 million outstanding 12.0%
Senior Subordinated Secured Notes at 107.5%. The Company currently expects to
call the Senior Subordinated Secured Notes at the first call date as a result
of an anticipated annual interest savings in excess of $5.0 million, based on
the full $100.0 million. Future repurchases of the Senior Subordinated
Secured Notes will be financed by a combination of borrowings under the
existing Garden State Bank Credit Agreement or a new bank credit facility,
and cash flows from operations.
NEAR TERM OUTLOOK
The majority of the large newsprint suppliers increased the price of
standard 30 pound newsprint, by $40 per metric ton, beginning on September 1,
1998. However, the transaction price for large buyers of newsprint has stayed
the same for the month of September. However, it appears that the increase,
or a portion thereof, will stick for most buyers in October. Upward pressure
in newsprint pricing continues to be fueled by the Abitibi Consolidated (the
largest newsprint vendor in North America) strike at seven newsprint mills,
which began on June 15, 1998 and remains unsettled with the union's recent
rejection of a new contract. If the September price increase is fully
implemented, the increase is not expected to have a significant impact on the
Company's cash flows from operations as the Company expects to purchase
approximately 41% of its fiscal 1999 newsprint requirements under fixed price
contracts, entered into by MediaNews Group, expiring over the next 18 months
to 26 months. The weighted average rate for contracted newsprint, which the
Company anticipates receiving in fiscal year 1999, will be approximately $526
per metric ton. In addition, the Company has a contract that allows it to
purchase 36,000 metric tons per year at a price equal to the lowest price
which newsprint is sold to large North America newsprint purchasers, subject
to quarterly adjustment. While there is no assurance that the Company will
receive newsprint allocation as described above, based on current operations,
management does not anticipate material changes in the allocation during
fiscal year 1999.
The Company and its subsidiaries may, from time to time, consider
strategic or targeted newspaper acquisitions and dispositions. In the event
an acquisition opportunity is identified, management expects that it would be
able to arrange financing on terms and conditions satisfactory to the Company
to the extent current resources are insufficient.
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE SEPTEMBER 30, 1998
FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
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0
0
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